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About two years ago, I had a
training program for people with

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the top of their career in real
estate, primarily real estate

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professionals, or insecurities
itself, who wanted to make the

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leap into real estate
syndication. So these were your

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a level players who wanted to be
the a level players in real

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estate syndication and real
estate funds. So I put together

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this video, this is one of our
rapid implementation calls,

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again, it's about two years ago.
But it what it walks you through

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is the market analysis that goes
through and I'm talking about

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the market cycles, not
individual markets themselves,

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but about some of the thought
processes that went on and

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what's going on at the macro
time. At that point, you'll see

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some my predictions were
completely true. And

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occasionally, they were not
didn't come quite as true as I

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had thought they would. But
certainly, the information is

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valid. What's important here is
not what that specific

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information was at that time.
But it's the thought process

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that went into how we look at
the market cycle and where we're

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at at the market cycle. To begin
with, when we're making

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predictions about the future,
which is what we're doing in

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securities, when we're doing
when we put together an

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investment vehicle is we're
trying to make a prediction

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about what's going to happen in
the future. So that there's some

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sort of gain for our investors,
and ultimately, for us as well.

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So this is part of that thought
process. So I hope you find this

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video useful, because this is
how I think about things in

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terms of what's important when
it comes to money where we're at

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in any sort of market cycle. And
I know you'll find it useful.

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So there are four stages in any
market cycle. And they can be

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drawn as a circle, or they can
be drawn as they can be drawn

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linearly like this. For our
purposes, though, I'm going to

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draw it as a circle, because
that's the way I am used to it.

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So we have a market cycle. And
there are four distinct phases

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within that cycle. So we have
this period here, which is our

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recovery. And so everything
here, by the way, is going this

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way.

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So we're going that way. So
recovery. So after the Great

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Recession, things were stable
for a while, they were pretty

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low, and then they slowly slowly
rebuilding up. And then we went

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into this expansion stage. And
then after a point, it expands

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and expands and expands. And
what happens if you like blow up

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a balloon too much. It just
can't expand any more. Enter

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hyper supply. In the after that
that phase of the market, we

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finally if I press play, it
starts going down, right,

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because there's too much and we
enter a recession. I'm not going

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with the technical definition of
a recession. Because if you look

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at a technical definition of a
recession, we've been in a

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recession for a while. So
recession is where GDP does not

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match inflation, it's negative.
And I would argue that by any

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reasonable measure of inflation,
not the ones currently being

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used, we probably have been in
recession for a while. And so we

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just keep pumping money in so
we're in this weird sort of

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recessionary, expansionary phase
right now, of the market. So

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what happens in these in this
part of the market? Well, let's

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talk about what happens kind of
here. And the expansion stage so

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we have rents rising. rents go
up, and construction levels go

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up

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just click on this because I
can't see. There we go. Alright,

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rents go up, construction levels
go up. At some point in that

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cycle. We start getting this
high rent in a tight market.

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Sound familiar? Because I said
we're in a recession But we're

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also in this expansion stage.
And I don't think we're quite

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into hyper supply yet, but I
think many markets are, are are

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seeing it. Now new construction
takes place everywhere from here

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on all the way over to here in
general because the cycle of

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building takes so long, so the
smart developers started

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developing early on down here.
But then their projects may not

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have gotten approved until over
here. And so suddenly, now

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they're in hyper supply, they
still need to deliver that

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building. But it's been
difficult in this phase, so let

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me just back up a little bit

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alright, so that's what happens
during an expansion period. Now

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what happens during the hyper
supply period is we start seeing

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positive rent growth

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but declining

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right, so that steeps that's
going down now this is all as it

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relates to commercial real
estate and I'm gonna make an

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argument a little bit in just a
little bit that this also

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applies equally to residential
real estate and kind of all

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markets as well. What happens in
a recession? Oh, we have way

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increasing vacancy. Competition
goes way up. And by this we mean

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it's either a renters market.
Actually, let's just renters is

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kind of vague. So let's put
tenants market or it's a buyers

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market

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and what happens in a expansion
stage is it is definitely a

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landlord market

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and a seller's market

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All right, so after vacancy goes
up, competition go is going up.

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Finally, we enter this new phase
of the recovery. And so finally

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we are vacancy reaches its
maximum here.

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And let's call this max
occupancy.

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And somewhere in here is
probably the point at which its

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maximum rent, probably somewhere
around here.

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And then, in the maximum, you
can see this is the lowest

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trends.

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Alright, during that recovery
phase, we have a, we have

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increasing big I'm sorry, we
have a declining vacancy. No new

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construction, right? No new
construction is taking place.

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They're declining vacancy, but
rents stay fairly stable.

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I really don't start increasing
until that vacancy factor here

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drives down to such a level that
there's enough demand in the

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market in order to create in
order to charge higher rents. So

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why this is hot on my mind right
now is last week on you and I

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decided that we it just doesn't
make sense at this point to move

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to North Carolina. which bothers
me greatly. I wish it weren't

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true. Because I really really
was looking forward to going

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number one sec. Okay. So why did
we make that decision? Well,

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it's because of this it It's
because of this market cycle. So

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if you look at the market cycle,
we are in this really strange

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period. And I'm sure you've
noticed this, that we're in this

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period where there's definitely
some recession going on. And

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I'll prove that in just a
minute. And then there is

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definitely this weird kind of
expansion. Because where do

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those, those two interact? Like,
if you looked at a Venn diagram,

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it's actually this weird
interaction point.

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Between the two that that makes
us puts us right here in this

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weird middle space, and that
middles weird middle space is

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inflation. Right, because if we
look at the pure definition of

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recession, not the not the one
that I'm using here, but if we

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look at the pure definition,
where we've got we are in a

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recession. Recession if

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if GDP is less than quantity of
GDP.

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I'm sorry, I did read that
backwards. If GDP is I totally

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botched that if GDP minus
recession minus inflation

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is greater than a backwards sign
is greater than zero. Right. So

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why do I think that the
inflation is greater than zero

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right now? So the Raleigh market
kinda capitalizes on it. But

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you've noticed it too. One of
the main expenditures in most

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families between 30% and 50% of
their annual income is their

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house is their housing right
now. Well, rents right now are

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extremely high. And new home
prices are extremely high.

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Right? They're big, big
expenses. The cost of goods

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right now is really, really
high. goods.

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Goods costs are really, really
high. They're way higher than

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they were before. Just a you
know, just a silly example. A

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candle. A very boring candle was
on that was available last year,

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that on your bought and liked
was was $19. The same candle is

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now $29. Does that make sense?
On the on the on the cost of a

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new home. So a home that that is
comparable to what we are

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looking at. Wood was going for
$174 a square foot in March.

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This was when we were last in
Raleigh. Right. And it it's sold

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in March for $174.
Unfortunately, we weren't the

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ones that bought it. Because it
was a great house and we should

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have bought it. But that $174 in
March is now completely shot.

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And now the market is over $350
a square foot that's a symbol

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for square foot $350 a square
foot. I mean it's doubled the

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cost. Now, when you've got
something that looks like a

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spike. I mean, you've got this
arrow right here makes sense. So

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you've got this graph here and
here you've got price per square

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foot and you're taking into
account 2% rent growth annually.

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So we're taking In the Account
2%, nothing crazy. Right? If you

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look at at the trendline, it
looks like boom, it looks like

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that. Now, does that make any
sense at all? Or does that look

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like an unstable market? I would
posit that that is such so

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irrational, that we have long
since left this expansionary

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period. Even though we've got
high rents still, we're in that

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tight market. I think that this
kind of right here, that cannot

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last. That means that we've got
this period where we've got this

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declining coming really, really
soon. Because there's also this

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inflation that's pulling
everything down. In there's

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nothing that we mortals can do
about it. Inflation is pulling

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everything down, and the bottom
is got to fall out. And now why

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is it possible that this can
happen? So I don't, as you have

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probably noticed, I don't make
political comments here. But I

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can make a political comment
about both parties, both major

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parties. And I don't have any
problem doing that. Because, as

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a side note, my typical, what
people when they asked me what

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my political affiliation is, I
typically say whatever my

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clients affiliation, that's,
that's, that's typically my

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answer. So I keep that private
and to myself, but we've got

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when you've got this, you've got
the Fed, who clearly cannot be

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scoffing at the at the value of
what inflation currently is.

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Right? So they are seeing
they've got excellent data

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sources, they see this inflation
that's happening in this

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country, and their mandate isn't
neutral unemployment.

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The United States neutral
unemployment is not relevant to

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what the Fed is trying to do.
The Fed only job its mandate by

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its what how it was called out
was to have a stable growth and

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decrease with minimal inflation.
So instead, what is the Fed

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doing the Fed points out the
fact well, but we've got this

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COVID situation that's going on
for some time. And so we really

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need to just keep pumping money
and money and money into the

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system. I mean, the loan on our
house right now is 3.5% on a 30

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year fixed. A building that that
I know of that's owned, is now

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at as seven years commercial
building, seven years on it, and

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its rent is 3.75% which is way
below the cost of inflation.

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Right, it's below the value of
inflation, and it's below the

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cost of it's below the predicted
growth of our economy. So what's

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below that mark? So yet, the
bank is the Fed is encouraging

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banks to keep pumping money into
the economy to keep this rent

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low to keep these mortgages low,
but it isn't working because

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rents are sky high, because the
money is low, so landlords drive

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them as high as they can. And
then home prices are sky high.

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Because the Fed keeps pumping
money into the system and

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keeping prices low, which is
driving up inflation. All right.

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So it doesn't make any sense
where things are at. So when we

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had originally thought, okay,
perfect, we can go from you

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know, a place that I, I'm would
rather like to leave called

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California, where we've got
what's going to be fairly soon a

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16% state income tax. And we've
got a standard of living that is

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less than good. We can talk
about that offline if anyone

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wants to. So we got a less than
great standard of living, we

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have. And all for what, and we
have earthquakes, all for all

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for what? And, but then I look
over at. And we have really high

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prices, right. So our price per
square foot is somewhere around

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$750 a square foot right now.
And residential. And I'm sorry,

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this has turned into a
discussion on residential real

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estate. But it's what's on my
mind right now. And it all

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relates to exactly what you're
doing. Because you got to find

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opportunities. And but if you
don't know why the market is,

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and aren't paying attention to
where the market is, it's going

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to be difficult to find
opportunities. So and we've got

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North Carolina here, which has
about a 5% income tax, in some

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ways, a better standard of
living. Well, but we've got real

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estate here. That's two times
where it was just six months

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ago. Is that right? Six, yeah,
six months ago. Versus here

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where it's a ridiculous steal
10%, where it was six months

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00:22:13,650 --> 00:22:20,700
ago? Well, let's think about
what's going to happen when the

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00:22:20,700 --> 00:22:24,690
bottom falls out. This is a lot
more stable, because our house

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00:22:24,690 --> 00:22:29,880
really isn't that much more.
It's not two times what we

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bought it for, at this point.
It's just not. And that's over a

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period, we've lived in that
house for about six years, maybe

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almost seven years. I guess it's
about seven years today. So so

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this is in seven years, it's
gone up a fair amount. But in

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six months, this has gone up 2%.
So the market kind of adjust

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that the fair market value of
California real estate right

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now. It's not too far off,
right? So if you look at it like

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a like whether it's stable or
not, it kind of looks like this.

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Not too top heavy. Right? But if
we look at at rally right now,

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it's like this, it's incredibly
top heavy. And it just needs

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something to try and push that
off. So I just am so concerned

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if we were to move right now,
that that market, what happens

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when it goes underwater? So say
we bought this house? Where to

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go? What if we bought this house
at 100 and at $350 a square foot

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we bought that house for $350 a
square foot and then the market

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corrects and let's say it goes
down to $250 a square foot well,

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then we suddenly got this gap
here that we're underwater, not

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necessarily underwater by in
terms of the loan cost depending

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on how much we put down, right.
But the you know, we just lost

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$100,000 in value of not 100,000
I think we just lost $100 a

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square foot, much bigger number
in value. So what to do, I think

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the only logical thing is
hunkered down hold tight on this

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kind of real estate. So now
where are the opportunities then

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given this? So the opportunities
are here they're in there in

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real estate that is is going to
hold its value Still is good

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value good properties out there,
there's properties below the

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replacement costs that are able
to get, there are properties

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that are have a fairly long, if
they have long enough trajectory

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that you're planning out,
they're going to be fine. But if

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you're planning on a quick flip,
it's just not going to hold. The

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people who are flipping are
already getting in trouble,

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right? Because the the flippers
are right here at the point

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where they're paying the maximum
number of dollars that they can

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pay for a unit. And their
margins are so narrow right now,

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it's just a little tiny switch.
And suddenly, every one of them

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is losing money. I mean, a lot
of them have been losing money

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anyway, we saw this dip that
took place, actually, this year

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for flippers, where they were
where if you looked at, like

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time and margin. I mean, they
were doing really, really good.

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Right, and then it's sunk. It
just became terrible, terrible

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margins. And a lot of them went
out of business and lost a lot

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of money. And now it's back up
where the margins are back high,

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where they can where they can do
it. I mean, actually, it's not

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that high, because the other
thing that drives the flipper

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market is their renovation
costs. So their expenses have

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gone sky high, because not only
are they having to buy into the

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property very high. But
fortunately, growth is making it

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so it'll still kind of work. But
the value of the labor and the

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materials is just killing any
sort of long term prospect in

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So while I'm still hot on the
markets that we talked about

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that business.

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before, Atlanta fee, Phoenix,
Seattle, I'm so hot on those

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markets, I wouldn't be going in
for a short term, I'd be looking

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for something where its price
per square foot is relatively is

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low compared to the market, that
it is something that's going to

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be desirable for a very long
time. And, and that's what I

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would be mostly focused on. So
let's go ahead and turn a little

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bit to, to financial analysis of
the soapbox about the state of

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the market right now and how
frustrating it. But I think you

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all know what that market is,
but don't let my my

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procrastinations about the
market kind of dissuade that. So

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again, there are great
opportunities out there, it

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takes some work I've got, I
subscribe to a bunch of other

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syndicators and I'm watching
every deal they do. I'm seeing

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deal after deal after deal come
out of these guys. So there are

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deals out there. And they're not
bad deals. And I've looked at

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the numbers, and they all look
pretty good. And they look

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believable, and they're not
making outrageous claims. So

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there is great opportunity out
there plus, you've got a huge

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amount of cash, that still
hasn't been put back into the

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market yet. So you've got cash
sitting on both in the form of

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just general like people who set
tend to save a lot, have saved a

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ton. But there's also regular
people have just saved a lot of

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money. We've also see Wall
Street putting in more and more

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money into buying out companies
which creates liquid liquidity

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events for your investors, which
means they've got money to put

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invest into your real estate. So
there's plenty of opportunity

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right now, that said, Would I
want to put all of my eggs in

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one particular basket? No. But
that's why it's indication so

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great, because I can not only
buy something in California and

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Raleigh, I can buy something in
Ohio and Atlanta, and Charlotte

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and Texas and Florida and
around. Right I can, Colorado is

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a great market, I can put those
that money in to use is that

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would be much, much smarter and
better. And so there's tons of

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00:29:35,080 --> 00:29:41,500
upside on syndication. There's a
lot of opportunity still to find

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great deals, and there's going
to always be opportunity.

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Because no matter what's going
on, there's always I'm just

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talking right now about the big
picture that Mike the macrocosm,

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of what's going on in the
economy. But really, real estate

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is a micro game, right? So every
property is a little bit

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different. Some properties do
really really well all the time.

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Some do great in recession, some
do great in and big markets. You

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know, it's just finding the
right thing, and something that

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matches your fit, getting it
done and syndicated. So that's

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how I look at a general market
cycle and where we're at at any

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given point. Again, this video
is two years old, but the

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information is still valid and
it's definitely you can see a

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very methodical thought process.
If I can help you put together

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00:30:30,280 --> 00:30:33,220
your syndication, whether it's
for real estate for your

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00:30:33,220 --> 00:30:36,730
business, private equity,
anything like that, we'd be

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00:30:36,730 --> 00:30:41,350
happy to help. My name is Tilden
Moschetti. I focus exclusively

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00:30:41,350 --> 00:30:48,220
on Regulation D, Rule 506b and
506c syndications. My again

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00:30:48,220 --> 00:30:51,370
Tilden Moschetti of the
Moschetti Syndication Law Group