Why We’re Buying Real Estate Before Serious Economic Risks Kick In

Economic risk is growingFrom stock market swings to mortgage rate moves, the economy is making headlines once again. And today I’m joined by Scott Trench, CEO of BiggerPockets and seasoned investor to unpack the biggest macroeconomic trends we’re seeing right now and figure out what they all mean for you. We’ll talk about where the market might be heading, what opportunities are emerging, and how investors should be thinking in times of uncertainty. I’m Dave Meyer. This is on the market. Let’s get to it. Scott Trench, welcome to On the Market. Thanks for joining us. Thanks, Dave. Great to be back here. I just want to pick your brain, so this is going to be a fun conversation, but recently I just find myself at least wanting to talk to other people who are as nerdy about the economy as I am and hear what they’re thinking and what they’re doing about it with their own investing decisions and portfolios. So that’s a conversation I’m hoping to have here today, Scott, and honestly, I don’t even know where to start. Where would you start? What are the things you’re thinking about when you’re trying to make sense of the economy and what to do with your money right now? What’s the primary variable or factor you’re thinking about?Yeah. Well, I mean for most of my life while working here as CEO of BiggerPockets and vetting out about real estate every day, the biggest part of my portfolio has been the stock market index funds, old fashioned, passively managed index funds like VOO or V-T-S-A-X or the ETF equivalent of VTI. So I had most of my money in that until earlier this year, and the headline for me had nothing to do with Trump or tariffs or economy or whatever, any type of those things. In fact, I thought the economy was in reasonably good shape at the beginning of the year heading for what was going to be a pretty solid year overall. The issue I had with that situation was the price of stocks relative to earnings. So I think at that time we were trading at like 33 or 37 times price to earnings, something absurdly high from a Shiller price to earnings ratio, also known as the Cape ratio. It’s my favorite gauge of whether the stock market is expensive or not because it adjusts for inflation and normalizes prices relative to earnings over the last 10 years. Again, normalized for inflation, and that was so expensive. My thought was only one thing has to go wrong and there’s so many things that could go wrong
To really tank valuations, and I can’t handle having most of my wealth in that anymore. And so that was the biggest insight for me. And again, the opposite would be true if it was trading at eight times price to earnings, right? Then only one or two things have to go right for the market to go up, for example. And everywhere in between, you just kind of set it and forget it. But because it was so high, that was the first thing that I was worried about in there. And then of course that was the insight we talked about in January, February,AndThen all hell is broken loose for the last several months and a wild ride here, wild ride from a media perspective, kind of quiet ride from a actual economic output perspective, but that’s probably what we dive into. That’s true.That’s a good way to put it. So yeah. Well you said a couple things I want to follow up on. First. You work at a real estate investing company, so why were you putting the majority of your wealth in the stock market in the first place? Is it just a time thing?So there’s two kind of components to that. I own more real estate assets, buy a lot than I ever had in stocks, but my equity position in real estate was less than the amount of stock wealth that I had because I used leverage. So that was the big balancing act. I actually put more of my cash into stock market index funds, but I had two-ish times the amount of wealth that I have in stocks, in assets in real estate and about 60% or whatever. But that’s kind the general picture of that, but that’s mostly it is the leverage component. I want to be very careful and cautious as I use mortgages. I am not Dave Ramsey here with no mortgages, but I’m no debt at all, but I have fear and respect debt in a pretty big way and not afraid to go slower on my real estate journey because of that.Because of that. Yeah. Okay, great. That makes a lot of sense to me. And I think you and I are similar in that where a lot of people take extreme opinions about debt where it’s like, oh, you should max leverage all the time to grow as fast as possible, or you can go the Dave Ramsey approach, but there’s a lot in the middle where you can sort of do a lower LTV type of investing, which we’ll get to. But before that, you said something about if any little thing went wrong with the stock market, you thought values could go down. What do you mean by that?Let’s use this example. If something’s trading at a 33 times price to earnings ratio, that means you’re getting a 3.33% yield. Why would you accept a 3.33% yield when you can get 4% risk-free, four point a quarter risk-free overnight from the US Treasury? It doesn’t make any sense. So the only reason that you do that is because you expect growth. And the historical average for the stock market is something like 1617. If you want to cut out before the 1970s, you can bump it up to 18 times earnings. So stock market’s trading almost at double, its historical price to earnings ratio, again, normalized for inflation. Why is that? It’s because expectations are super high. The fundamental belief has to be that the market expects earnings to explode and really grow at a pretty substantial pace over the next couple of years. That’s the rational theory.
There’s a whole bunch of other ones. People just have been trained for the last 20, 30 years to just dump their money into passively managed index funds. And so it doesn’t really matter what the price to earnings ratio is because people will just buy ’em on an automatic basis no matter what. But I can’t invest with that philosophy. That does not jive with the way that I manage my money. If the theory for why the stock market is going to continue to grow is because everybody else is going to keep buying it, I’m out. That’s just not what I’m going to do. So the theory has got to be earnings are going to grow, and the core base case I have for earnings growing is they’ll grow the way they’ve always grown, right about one in 0.75% on top of inflation, right? 1.75% in real terms over a very long period of time. And so I’m just like, I don’t believe that at the VIN current price to earnings ratios. That made sense to me and for a little bit it looked like I had just lucked out and timed it perfectly. I never told you what the timing of the situation was going to be because the market dropped like 20% from its peak in February,
And now we’re almost back to where we started on it. We’re only down like three 4% from the beginning of the year, so after this crazy run. So it’s just been a wild ride in a general sense, but my base case stands, I don’t understand what is going to trigger dramatic corporate earnings growth in the next couple of years. The yield is too low relative to earnings. For me to be comfortable in that space with the majority of my wealth, I’m very happy with my plan to transition those assets to real estate and to hold cash for a little bit here.I think a lot of people maybe who are more casual observers of the housing market might say the same thing you just said about the stock market, about residential real estate, that it’s still gone up, that affordability is really low and that it’s just going to come down. And so how do you evaluate the risk of real estate and real estate pricing relative to the stock market right now?Well, one of the simplest ways is forget the mortgage, right? I just bought a property, I talked about this on the podcast here, and it traded at a seven and a half cap or so. The seller says, I say it’s a six and a half cap on there because I don’t think they were counting all the expenses the right way. But you say, okay, if it’s a six and a half cap, if I put down a hundred grand, it’s going to yield $6,500 a year, unlevered no mortgage on there. Well, that’s twice the earnings of the s and p 500. On a ratio perspective, it’s four times the dividend yield of the s and p 500, and if you took a dividend yield of A VOO or a ET TF that tracks that. So I have to believe a lot is going to go better for corporate earnings growth over the near term, in particular for that cashflow to start outpacing that. Now the appreciation rate of a rental property that is unlevered should only grow at inflation, right? 3.5%,
Whereas the stock market generally outpaced that. But for me, I’m much more comfortable with that ratio right now even though I agree that there’s a lot of affordability problems in a lot of parts of the country. I think that that last parts of parts of the country is a pretty important variable in this because I think that where you are makes a big difference. I think if you’re in Florida right now, it is not a seller’s market. It’s a lot cheaper to buy a property right now in a lot of ways than it was a couple of years ago in Florida in a lot of those areas. And that impact is not being seen, for example, the same way in Chicago or Kansas City, and it’s just very different regionally. We actually have a great map here on BiggerPockets. I actually went over it with Michael Zuber on the BiggerPockets Real Estate podcast, Dave. Oh yeah, right. But we talked about that and you can see how different the dynamic is, whether it’s a buyer or seller’s market across different parts of the country right now, it’s wow, real estate’s localAnd that’s normal. It’s frightening for people who are seeing prices go down, but this is sort of what real estate used to be before the Zer era where everything just started going up altogether back historically, different markets did different things, and so that as an investor means you need to do a little bit more research, dig in a little bit more to figure out what’s going on in your area in which markets align with your particular strategies. But to me, that idea that some markets are doing well and some markets is not unusual. I think it’s almost like a sign that the market’s getting back to normal a little bit.It should not be easy to find great value in a general sense. It’s always going to be difficult to do that. But I think that in terms of, I don’t know what normal means because I’ve been investing since 2014, so all I’ve known is that huge runup and then the relative pain of the last couple of years in real estate and how things have kind of been fairly static.
I think that for me, one of the observations is Denver is one of those markets that’s not a buyer’s market. It’s still a little bit of a seller’s market here, but in multifamily, the income property, it is definitely a buyer’s market, and that’s not something that is tracked by data sources, right? You’re not going to see that show up in days on market stats or anything like that like you will in other markets because it’s such a small percentage of inventory. But I’m finding sellers super willing to negotiate. I’m seeing price drops all over the place. I’m seeing days on market increase. I’m seeing expired listings, I’m seeing withdrawn listings all over the place, and that to me signals a big buying opportunity. And so I keep coming back to if the stock market’s super expensive, my alternatives are not great. I don’t like bond yields right now.
They’re too low. It’s ordinary income and the 4% yield to maturity is just not enough for me. When I can get a paid off property that produces substantially more than that in a tax advantage way, so it comes back to repositioning those assets from the stock market to real estate. My plan a for this year was sell those stocks, buy a property in Q1, buy another one in Q2 Q3, and buy another one in Q4, Q1, 2026. I love buying properties in Q4, but best deals I ever get, I go under contract between Thanksgiving and Christmas. I think January has the lowest seasonal pricing for sales because nobody is going under contract in the Thanksgiving to Christmas time period and then closing in January, right?Right.That’s my sweet spot. I bought probably half my properties within 30 days of that window.I want to ask you a little bit about what advice you would give maybe people who are a little bit earlier in their investing career, but we do have to take a quick break. We’ll be right back. Welcome back to On the Market. I’m here with Scott Trench talking about his views of the economy and what he’s doing about it. Scott, I’d love to turn the conversation just to general, because you said before the break you wanted to buy properties a couple times this year, which is obviously a great place to be. You’re a little bit more mature further along in your career where you can do that. You can put a little more down. But for those folks who are maybe just getting started moving from their first to their second property, something like that, what’s your advice for that subset of the real estate investing world?The problem is financing. Even though the deal I bought in January and the deals I’m seeing today are better from a cashflow perspective, if you ignore mortgages than anything I’ve ever bought in my career, the fact that mortgage rates are so high makes it hard to cash flow at max leverage, that’s the problem. And given the lack of alternative opportunities out there, that’s why I’m turning to real estate. If the stock market was at eight times or 10 times or even 15 times price to earnings ratio, maybe I’m having a different discussion. Maybe I’m putting my money in stocks with the alternatives lacking. That’s why I’m turning to real estate in a major way for the first time in my career, even though I’ve been here at BiggerPockets for 10 yearsAnd you’ve still been buying real estate for the last 11 years. I have17 units here and a couple of syndication for units in there, but I’m am now going basically all in on real estate, essentially is the big change for it. One second here. Had to take a quick break. Taylor Trench, one month old is joining us for the back half of this episode. She got a little SY over there, so there she is. Nice. This might be her second podcast actually. Okay, nice. She’s very experienced already. Yeah, so if you’re a new investor, the key problem is the financing piece. How do you solve the fact that interest rates are high? And in many cases, if not most, it’s hard to buy a property that has a cap rate higher than the interest rate. So there are two kind of ways around that. One is to do something creative, short-term rentals, medium term rentals, rent by the room, add a bunch of value, build an A DU,
Add a bedroom or whatever. But I think the better alternative is to focus first on the financing piece. And I think that because it is a buyer’ss market in many cases, even if it’s not a buyer’s market in your region, in a general sense, a certain type of asset like income property could be. So I think the answer is use that Assumable mortgage. This has been lying under the radar for a long period of time and it never took off because buyers and mortgage brokers don’t love the assumable mortgage. It takes 75 days to in practice actually transact it. But in a buyer’s market, you have the power to do that. So if I was starting over in Denver, Colorado, I’d be looking for a four or five bedroom house. Every place in Denver essentially now has been legislated to allow optionality to build adu, but that has the physical space like in the backyard or above a garage to build an A DU. That could be powerful. I’d make sure that that house would rent nicely as a long-term rental with a traditional using the Assumable mortgage and cashflow, I would take that option to have rent by the room. I would have the option to build that a DU maybe live in that unit, rent out the main house as a short-term rental. I would cheat in a sense that those strategies don’t scale. You can’t do once you move out, but they can jack up your cashflow for a few years while you live in the property.
And that would be kind of my base case for how I’d be approaching this. I actually know of a couple of folks who have done that and seem to be doing pretty well from a starting perspective on it, but I think it’s hard and it’s going to take time. But that’s the core problem. The core problem is the financing and or jacking up the cash flow of the investment. And I don’t love, depending on jacking up the cash flow through those creative strategies because they don’t work when you move out. They don’t work as well, and they’re not as sustainable as a long-term tenant in those places. So the financing piece is the best way to solve the problem, I believe. What do you think, Dave?Yeah, I think that’s a great point. I honestly was looking at assignable mortgages the other day. I didn’t wind up finding it, but I think it’s a great strategy for those who can be patient. And honestly, you can be patient right now, the market has just changed, and so waiting 75 days for a property is just normal that’ss not really a big deal. Also, I’ve been surprised just over the weekend, you and I were talking about this on Instagram, I wound up buying a new primary residence kind of surprisingly. I found a good deal and I talked to my mortgage broker and I’m going to do an arm, an adjustable rate mortgage. I got a 5 2 5 mortgage rate. Awesome. It’s much lower than people might expect just by calling around and talking to a bunch of different people, and that’s not going to solve every single problem. But I think when you look at these headlined mortgage rates, it’s not necessarily what you might get if you go with a local bank, you go with a community bank, that kind of thing.But Dave, another thing we’ll call out is you’re doing a live and flip, right?That’s right.Yeah. I love that strategy. That’s a great one for anybody in really any market condition on there because if you do that 10 times over 30 years, one or two of ’em, you might get unlucky with market timing on there. But the tax advantages and lower risk associated with that is so huge that it obviates all of those problems. The biggest one being if you weren’t doing a live and flip, you’d have gotten a hard money loan and the interest rate on that would be 13%. So that’s such a cheat code. How can a professional flipper, how can James in your area and even has all those contexts, how can he possibly compete with you when you can finish up certain jobs on there? You can inspect the workHe, he sold me the deal. Yeah, that’s right. I forgot that he did that. The numbers don’t, but that’s true. The numbers don’t make sense to him. It only makes sense to an owner occupant and it’s a soft market right now too, which I think is the other cool thing about this. Who knows what’s going to happen, but I’m buying well below what it would’ve cost three months ago. And if the market turns around, it’s soft in Seattle right now, but if it turns around, there’s huge upside there. And like you said, the risk is just really low because it’s my primary residence and at worst, I have a cheap place to live at best. Then I have a cheap place to live and I build a ton of equity,And I love the arm in your situation too, just more gushing over your smart decision, which no one was doubting. You would make a smart decision on this day, but if your strategy is to live and flip the arm makes total sense, why would you fix your rate for a long period of time if your base plan is to flip it in a couple years? I mean, you’re have to saving 125 basis points.Yeah, exactly. Or even if I choose to live in it, I’ll probably refinance it at a certain point to pull some of the money I put in to renovate the property out. So I just feel like either way, I’m going to do an arm and it’s a seven year arm, so I’ve a good amount of time to wait for it. So I feel pretty good about that. So just for everyone listening, those are a couple of good strategies. We’re talking about looking at consumable mortgage live and flip. We talk about house hacking a lot, but that can still be a good solution too in a lot of markets.Oh, I think all of it comes down to the house hack. If you want to buy a traditional rental in most markets, you got to bring way more than 25% down, and that’s the key catalyst. I think that’s the answer. I have the ability to do that. So I’m doing that right, and when I do the math, it’s like, why bring 25%? Why not just put the whole thing down?
And again, if interest rates come down, you can always refinance. Interest rates go up. I feel like I’ll be super glad I didn’t. I have the paid off property here to a large degree and I don’t have high leverage because if interest rates go up a lot, I think a lot of people will be underwater. I think it’s just a great hedge on that front, but you can defray all of that if you have to take leverage by moving in and taking advantage of the cheaper, better debt that’s offered to owner occupants. And the arm is a great one. Owner occupant. I didn’t realize you could even get that at five and a quarter. That’s awesome. Yeah, I was really surprised. The best is if you can assume a mortgage though at three, at those old 3% rates.So you said something about Denver and how you were finding a lot of properties. You’re said sellers who are willing to negotiate or pulled listings, drop prices. What are you targeting and how are you sort of on a tactical level spending your time to find those deals most efficiently?So I have a specific area of Denver that I pay close attention to. There are other places that I’ll buy and I can spot a good deal in there, but the best deals happen to be in this area, and I think that sitting there for 10, 15 years will be particularly well rewarded. The most recent deal I bought was, I use the word vanilla if not my favorite flavor of ice cream, my favorite flavor of multifamily properties, two bed, one bath, nothing fancy about ’em, reasonably updated, but nobody’s going to complain about everything being super dated. You’re not going to attract the wrong type of tenant, but also you’re not overdoing it with anything that’s particularly fancy or expensive or customer or weird out there that’s going to cause problems. So that was my last one. The other thing I really like is big ones like big duplexes, like a five bed, two bath, three bath, and I like that for two reasons.
One, I initially thought, oh, I’m going to attract a really high income tenant with this property and they’re going to have, it’s got a yard for the pets and all those kinds of things. I have found that that is not actually the case. Instead what I get is a bunch of roommates who pull together to buy it as a long-term rental. But either way, I’m finding I can get almost 1% rule long-term rental rates for these big duplexes. Yeah, I have, there’s one on the market right now that I think is being listed in the six to 700 range, and each side would rent for 3,300 as a long-term rental. And I don’t have a lot of competition for a property like that because there’s many other duplexes that trade for less than that valuation.Man, I got to find what you’re doing. I’m getting that rent for single families in Denver.Well, that’s a five bedroom. This is not like a joke. This is a five bedroom, two or three bath. I lived in one of those for a while. I have one that I bought many years ago, like 2019 maybe, and I lived in it for a year with my family, the four bedroom side of that duplex.Oh, nice.They’re nice places and at that time I think would’ve been like 28, 2900, but I think that that’s a pretty good little niche for me. The issue is those can be really hard to rent at the wrong time of year. So there’s a couple of gotchas with them, but I really like those because you get a reasonably high quality tenant or you get a group that as a group is really well qualified to rent it in there. So that’s the other one I have my eye on right now. I’ll see if I actually make an offer. It’s been sitting for a while, but if it continues to sit, maybe I’ll come in a little bit under their asking price and make another offer in the next couple months.All I’m really liking this strategy, but I want to ask you sort of just in theory how a new investor might employ some of these ideas. But we do have to take one more quick break. We’ll be right back. Welcome back to On the Market. We’re here with Scott Trench. He’s sharing with us his pretty, I’m pretty impressed by what you’re doing in Denver. I invest there too. Haven’t seen the same kind of deals, but I haven’t been focusing on Denver as much in the last couple years.Dave, I’ll show you the deal that I’m buyingAfter weRecording. I don’t want to Everyone competing with this particular deal.Yeah, yeah. I’ll ask you after. But yeah, so just in theory, if you had, let’s just say $200,000, it’s a lot of money saved up. Would you recommend rather than buying two or potentially three properties at 20% down, you’re basically saying you would buy one property with least amount of leverage.That’s it. Yeah.Okay.Obviously it depends, right? If you are a true deal junkie that can find these eight, 10% cashflow properties and your market is different than the Denver, whatever, then do that go max leverage. But I’m a scaredy cat. I think it’s really hard to figure out what the market’s going to do over the next two or three years. We haven’t talked about tariffs and all these other things. Oh, we will, but I’m just a scaredy cat here. I think there’s a real risk of a recession or a really bad pullback, a deflationary event, and there’s a real risk of a significant surge in inflation coming in the next couple of years. And I’m in preservation mode. I’m not in, how do I get Uber rich in the current climate mode? If I was getting started, I would house hack, right? That’s the answer. That’s the answer I have here.
That’s the best and safest way to use mass max leverage for that first, by definition, all in bed. And you still think that works even with the risks to the market, right? Well, I think the house hack is always an all-in risk, and that’s why people fear it so much and why it’s such a big leap and such a hurdle. Barrier to entry. I bought my first property in 2014. I was making 50 grand a year, and the property was bought for two 40, right? So that’s like somebody starting out today making like 70, 75 grand a year buying a property that’s worth what, 3 50, 400. So it’s an all in leap of faith to buy these things. And it’s scary on there, and you absolutely can buy it at the wrong period of time. You have to make that plunge at some point if you want to get going and who knows how things are going to go over the next couple years. But you can defray those risks with the Assumable mortgage by operating the property yourself, by being willing to live in it for an indefinite basis and being willing to swing the hammer yourself to improve it
On there and having multiple exit options. So I still think it’s the best risk adjusted bet that most Americans can make outside of starting a business, for example, out there. So I do agree with that.Okay. Let’s turn the tension because we’ve talked a lot about opportunities, risks you see in the stock market, but you’re going all in real estate despite what you see as some risks. So tell us about the risks, why you think there might be recession deflation. You said a couple of different things here. Tell us what you’re thinking about. IfI were to guess, if you were to say, Scott put together a parlay for how the economy’s going to behave over the next 18 months. I’d say that right now we’re in a really noisy set of circumstances here. On the one hand, we have all these tariffs that have to impact economic data and we have no impact on the economic data in a way that’s hitting folks. I think there are a couple of reasons for this. First, I think a bunch of companies stocked up on a bunch of goods prior to the tariff news. So those prices are not by and large being reflected in the grocery store or at Target or Costco in a lot of areas. So that’s one. The second piece I think is that people in anticipation of tariffs stockpiled a bunch of things, right? My wife’s phone is from 2016, gas was getting a new iPhone before whatever happens here,Dude, I do the same thing.Yeah, I think that that’s causing some noise in the situation. The next piece is employment data. I think that I’m alone in this argument, very few people agree with me on this, but I don’t think that there’s a path to mass unemployment in America in a 2025 context that is realistic. And I don’t believe that because I, I’m an optimist. I believe that because I think that the economy is fundamentally changed. 25 years ago, there was not a bajillion Uber drivers. There were not a ton of door dashers. There were not a ton of people working on Fiverr or doing these gig jobs. And people don’t drive Uber or do these gig jobs because they don’t like ’em. It’s not, there’s this myth that people are getting taken advantage of by Uber. These people want to do that. They want these gig jobs because they pay better and offer better flexibility than the alternatives of full-time employment in a lot of cases.
And when those people lose their jobs and they lose their ability to generate that gig income the same way, they will go looking for a full-time job which may net them less or come with less freedom and more restrictions, but be a job. And this can be reflected in a number of ways, right? At BiggerPockets, we cut costs in a division and we moved people to full-time jobs instead of paying contract hours. So we’re spending less. We have the same or more employees. And I think that dynamic is absolutely possible at mass scale in the economy over the next couple of years. And what that means is that will not, while people may be worse off, they’ll be getting jobs. That means unemployment will remain low. The Federal Reserve has a dual mandate. Keep employment high or unemployment low, whichever you prefer of those, and keep inflation low. So if employment stays high because millions, 30 million, 35 million gig workers, some significant portion of them are worse off and seek lower paying full-time work or less flexible full-time work, they’re bringing in less total household income, but they’re getting a job as traditionally defined. And if companies are moving on from employees or there are job cuts or whatever, or less payroll, the other portion of the population is likely to be impacted by that are illegal immigrants.
Illegal immigrants also don’t show up on your official employment stats. And if you don’t like gig workers or illegal immigrants, you also have a large self-employed population in the United States. These numbers are massive. A huge percentage of the United States economy is based on these numbers here. So in order for unemployment to surge, you’re going to have to have an incredible event that would be absolutely devastating for the economy, which I think is too bold to predict even from the consequences from a tariff perspective.
But I do think there’s a possibility where CPI or good prices rise in the next 60 to 90 days following this recording on May 6th. And those start to really show up. Pain clearly hits the economy, but the unemployment number doesn’t budge and it baffles people keeping interest rates high. That’s my fear. That’s why I have this pit of fear in my stomach right now about what to do with the economy and why I am like, what do you do in that situation? Well, if you hold cash and the CPI increases, you’re purchasing power erodes. There’s no way that in the context what I just described with consumer spending going down and tariffs putting pummeling corporate profits that profits grow for corporations. And if there’s no unemployment, then the interest rates will stay high. So what happens there? Well, assets will enter a deflationary state. So that’s why I’m fearful and happy with my cash position and my paid off real estate.
On the other hand, next year there’s going to be a new fed chair. Can you imagine Donald Trump reappoint j Powell in 2026? That ain’t happening. I’m not taking that bet. Right? Who’s going to appoint, appoint somebody who’s going to lower interest rates? They’re going to say they’re going to lower interest rates, or that’s what the market’s going to believe. So when that happens, then you really have an inflationary fear. How do you play that? How do you play that situation if that’s what you believe? That’s hard, which I do. And I’m like cash right now. Buy a bunch of paid off real estate right now, and if that inflation comes, it will charge the asset values. And if interest rates get lowered, you can refinance, pull the cash out. That’s my answer to the situation there. We’ll see how wrong I am and you can make fun of me next year.No, I mean, it’s so hard to game this stuff out. That’s why I wanted to bring you on. I was curious. I like how you called it a parlay. I like coming up with the parlay. You said something though that you thought that asset prices could come down if interest rates stay high, which is totally true. But why then are you buying real estate? Wouldn’t you just hold cash and wait a little bit?Because there’s no certainties, right? There’s no certainties in this situation. And you’re like, well, you’re going to lose if you hold cash for a long period of time. It’s just a known quantity. It’s super tax inefficient. It’s simple income in the interest rate, and it’s just you’re losing slowly if you own cash. And the other thing is my rental property produces a six and a half percent cap rate, if you believe my projection, or seven point half percent if you believe the sellers. So the real estate value would have to drop by more than that over the course of a year to erode that value.
And the last piece is I have been feeling that Q3 and Q4 2025 would be a great time to buy multifamily real estate for three years, have I not been telling you this for a very long period of time. So it’s kind of go time on there. I think maximum pain is either here or rapidly approaching in that sector. And that’s what I’m seeing on the ground with my rental deals I’m looking at in the MLS in small multifamily. And I’m a little less connected into the apartment investing space, but I think this is a time when a lot of people who talked to big game about real estate and use max leverage are going to have the chickens come home to roost and it’s time to buy what they’re selling.So Scott, I want to come back to this idea that you said sort of about gig workers and how they might disproportionately get impacted by some economic pain. Can you explain that more? Because you said you were alone. I am not sure I’m following it. Dave, you order takeout a lot,Unfortunately.Yes.Has that changed at all for you in the recent economic climate?Not yet, but I feel more guilty about it. I feel like I’m doing something wrong, but I’m still doing it.Okay. I’m ordering way less takeout.Okay.Yeah, I’ve got myself a grill. I’m full on suburban dad. I’m not doing a lot of those things. I bet you if we pulled the audience, a good portion of folks are changing some of those spendingPatterns. You are actually right. I have changed spending pattern. It might not be in takeout, but I’m in a similar sort of mindset. Yes.So that directly impacts the Uber delivery drivers’ ability to generate income. They’re going to sit idle for a little bit longer, right? They’re going to have a little bit longer between jobs or whatever. They’re going to find that instead of making $200 or $300 in their shift to drive in, it’s going to be close to 180, right? These Uber drivers, they’re pretty good at gaming these systems. They find the ways to get the surcharges and the big delivery bills around the events.
They’re doing the Amazon delivery thing where they get the bonus if they deliver a certain amount of packages in a certain area, and they’re pretty good at knowing how to shift between these systems of gig jobs to maximize income, and they’re not doing bad. But when that gets just that much harder because competition is increased or because demand has fallen, which I believe is likely to be the biggest contributor, they’re going to start saying, you know what? That job at that restaurant or that job at McDonald’s or whatever is looking a little bit more stable. It’s just a better gig for me. I’m not going to have these big swings in my income. I’m going to be able to do that, and that job will be there, right? It’s going to be very hard for me to imagine a world where that McDonald’s job is not available on that. So while companies could do layoffs and that could result in millions of lost jobs or hundreds of thousands, we’re not seeing any of that yet in here. We may notCorrect,But that may be offset by a lot of these folks who were doing the gig economy pretty successfully for years saying, you know what? It’s time to get a real job and go out there and accept that. And I think that that will be really offsetting data that has not been tracked and has not been a part of the challenge set. And again, the implication of that for you and I and for the real estate investors listening to this podcast is I believe that there’s very low probability of unemployment forcing the Federal Reserve to lower interest rates in a hurry. So I don’t think he will. I don’t think the Federal Reserve j Powell will lower interest rates in a hurry. I’ve thought this for years. I think that the only time we’re going to see lower interest rates is in a catastrophically bad economic environment, which I’m not forecasting or a new fed share.And just frankly, I think mortgage rates are going to stay high even if they do lower rates with the federal funds rate. I think yields will stay high, even if for some reason Powell fuel some political pressure, whatever they decide to lower interest rates. I think the bond market is afraid of inflation. And so they’re going to keep yields high, and that’s going to prop up mortgage rates somewhat independent of what the Fed actually chooses to do. Lemme give youAnother scary one if you want to go down this route.Oh, are you selling America? Yeah. You gotCanadian friends. I do. Yeah. Ask them if they’re more or less willing to buy long duration United States treasuries after recent events. AHundred percent just today. You see it regularly now where we’re seeing declines in the stock market and yields going up in the same day. That’s very unusual, and we’re seeing it more and more.So again, the fed trumps all of that. Forget if Canada doesn’t want to buy bonds and the Fed lowers rates coming down too bad. Doesn’t matter with that. But in the absence of fed action, there’s got to be somebody who’s got to buy those bonds by US debt. And again, I’m not saying there’s going to be a doomsday here. I’m preparing for a little bit of deflation, not like a recession or depression or a black Tuesday thing here, but I’m just worried there’s a little bit going to be a little bit of deflation over the next year or so. And I think that that could particularly hit the stock market really hard because the stock market is, I think, fundamentally based on expectations of future cash flows. And I think that it’s going to be really hard to meet high expectations of future cash flows in a tariff environment for the back half of the year
In particular, it was going to be hard without tariffs in place, it’s still going to be hard at the current rate, even if they’re reversed. So I think that’s the big problem. And then I think bond yields the interest rates or anybody’s guess, but my base case is they’re staying high or maybe even going up, and I want to be insulated from that as much as I can. Real estate is not a perfect insulation from it, but paid off real estate, I don’t have to worry about it. If interest rates go down, I can refinance. If interest rates go up and my property value loses a little bit of value, guess what? It’s paid off and I bought it for the income stream in long-term anyways.Yeah, I think honestly, I agree with you, and I’m sure other people are going to disagree here, but for me, the thing that you said that really resonates is this idea of being a little bit more defensive. I just think that we were in this era of abundance and where growth felt almost assured, and there was risk, but it felt low. Right? Now, I could be totally wrong. There might be years of upside in front of us, but the balance between risk and reward seems different to me than it did even two years ago, four years ago, six years ago. And you and I are 10, 15 years into our investing career, so we’re in a different spot, but right now, I’d rather just be a little bit defensive and be in preservation mode than be trying to max out my return just because the risk reward just doesn’t feel right to me to be trying to grow as quickly as possible. And so to me, that’s the main takeaway from this conversation, and I totally resonate with it.That’s it. I completely agree. I spent 40 minutes rambling to get to that point.No, I think you said that literally before. You’re trying to be more defensive. So I think we agree on that. And yeah, I agree that the idea that real estate is a good hedge here, like you said, even if there’s some deflation in assets, if you buy right and you have cashflow, that helps you hedge, if there’s inflation, real estate tends to keep up. That helps you hedge. There’s this idea. Some people say that, oh, real estate investors love inflation. Inflation’s not good for anyone. That is just not a good situation. But it can help you mitigate these issues and at least hopefully preserve your spending power in these types of things. And maybe in certain markets it will grow well beyond that. But I really appreciate the conversation insight here. Scott, anything, any last thoughts here?Just on that inflation point? Inflation is absolutely the levered real estate investor’s friend, right? If the property’s paid off, inflation just preserves, its real purchasing power. It’s not really any better a store of value than gold from an asset perspective. It also produces income stream on it. But inflation is so awesome from a real estate investor’s perspective, it’s terrible for everybody else. It’s bad policy. I would not root for inflation, but it’s so helpful to you. If you knew inflation was coming in a really meaningful way, you’d absolutely buy real estate and you’d do it with a lot of debt.Alright, well, thank you so much, Scott. We always appreciate having you on, and thank you for bringing Taylor on as well. We got two trenches for the price of one today. That’s it for today’s episode. Big thanks to Scott Trench for joining us and helping cut through the noise around the economy and what it means for real estate investors. Make sure to follow on the market wherever you get your podcasts, and check us out on YouTube where we share exclusive content and analysis. Also, be sure to subscribe to our new weekly newsletter where we keep you updated and informed on everything happening in the market today. I’m Dave Meyer. We’ll see you next time.