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

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

professionals, or insecurities
itself, who wanted to make the

leap into real estate
syndication. So these were your

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

estate syndication and real
estate funds. So I put together

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

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

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

the market cycles, not
individual markets themselves,

but about some of the thought
processes that went on and

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

some my predictions were
completely true. And

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

had thought they would. But
certainly, the information is

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

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

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

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

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

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

investment vehicle is we're
trying to make a prediction

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

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

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

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

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

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

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

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

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

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

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

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

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

way.

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

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

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

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

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

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

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

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

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

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

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

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

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

reasonable measure of inflation,
not the ones currently being

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

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

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

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

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

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

up

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

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

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

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

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

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

seeing it. Now new construction
takes place everywhere from here

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

building takes so long, so the
smart developers started

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

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

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

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

me just back up a little bit

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

what happens during the hyper
supply period is we start seeing

positive rent growth

but declining

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

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

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

applies equally to residential
real estate and kind of all

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

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

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

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

market

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

landlord market

and a seller's market

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

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

we are vacancy reaches its
maximum here.

And let's call this max
occupancy.

And somewhere in here is
probably the point at which its

maximum rent, probably somewhere
around here.

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

trends.

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

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

construction, right? No new
construction is taking place.

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

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

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

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

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

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

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

true. Because I really really
was looking forward to going

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

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

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

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

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

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

definitely this weird kind of
expansion. Because where do

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

it's actually this weird
interaction point.

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

weird middle space, and that
middles weird middle space is

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

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

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

recession. Recession if

if GDP is less than quantity of
GDP.

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

botched that if GDP minus
recession minus inflation

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

why do I think that the
inflation is greater than zero

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

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

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

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

extremely high. And new home
prices are extremely high.

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

right now is really, really
high. goods.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

irrational, that we have long
since left this expansionary

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

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

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

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

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

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

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

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

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

can make a political comment
about both parties, both major

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

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

my political affiliation is, I
typically say whatever my

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

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

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

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

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

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

country, and their mandate isn't
neutral unemployment.

The United States neutral
unemployment is not relevant to

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Because the Fed keeps pumping
money into the system and

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

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

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

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

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

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

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

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

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

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

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

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

this has turned into a
discussion on residential real

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

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

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

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

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

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

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

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

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

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

ago? Well, let's think about
what's going to happen when the

bottom falls out. This is a lot
more stable, because our house

really isn't that much more.
It's not two times what we

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

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

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

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

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

that the fair market value of
California real estate right

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

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

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

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

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

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

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

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

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

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

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

necessarily underwater by in
terms of the loan cost depending

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

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

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

the only logical thing is
hunkered down hold tight on this

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

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

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

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

replacement costs that are able
to get, there are properties

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

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

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

people who are flipping are
already getting in trouble,

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

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

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

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

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

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

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

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

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

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

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

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

that high, because the other
thing that drives the flipper

market is their renovation
costs. So their expenses have

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

property very high. But
fortunately, growth is making it

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

materials is just killing any
sort of long term prospect in

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

that business.

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

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

for something where its price
per square foot is relatively is

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

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

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

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

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

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

procrastinations about the
market kind of dissuade that. So

again, there are great
opportunities out there, it

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

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

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

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

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

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

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

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

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

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

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

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

money into buying out companies
which creates liquid liquidity

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

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

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

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

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

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

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

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

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

upside on syndication. There's a
lot of opportunity still to find

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

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

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

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

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

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

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

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

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

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

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

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

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

your syndication, whether it's
for real estate for your

business, private equity,
anything like that, we'd be

happy to help. My name is Tilden
Moschetti. I focus exclusively

on Regulation D, Rule 506b and
506c syndications. My again

Tilden Moschetti of the
Moschetti Syndication Law Group