The Real Estate Espresso Podcast

Michelle Jeong is based in San Francisco where she runs FIRE Capital (Financial Independence Through Real Estate). On today's show we are talking about acquisition strategy in the current market conditions. To connect with Michelle visit investingwithfire.com -------------- **Real Estate Espresso Podcast:** Spotify: [The Real Estate Espresso Podcast](https://open.spotify.com/show/3GvtwRmTq4r3es8cbw8jW0?si=c75ea506a6694ef1)   iTunes: [The Real Estate Espresso Podcast](https://podcasts.apple.com/ca/podcast/the-real-estate-espresso-podcast/id1340482613)   Website: [www.victorjm.com](http://www.victorjm.com)   LinkedIn: [Victor Menasce](http://www.linkedin.com/in/vmenasce)   YouTube: [The Real Estate Espresso Podcast](http://www.youtube.com/@victorjmenasce6734)   Facebook: [www.facebook.com/realestateespresso](http://www.facebook.com/realestateespresso)   Email: [podcast@victorjm.com](mailto:podcast@victorjm.com)  **Y Street Capital:** Website: [www.ystreetcapital.com](http://www.ystreetcapital.com)   Facebook: [www.facebook.com/YStreetCapital](https://www.facebook.com/YStreetCapital)   Instagram: [@ystreetcapital](http://www.instagram.com/ystreetcapital)  

Ou book this month is “Profit First” by Michael Michalowicz. You’ve no doubt heard the advice from financial advisors called “Pay yourself first”.  This book sounds like the same advice, only it’s quite different. It breaks down the human behaviours that result in a money management cycles that ultimately can become a trap.  Most businesses focus on growing revenue to generate cash and stay ahead of expenses. The problem with this approach is that the additional revenue attracts hidden expenses which erode the benefit of the added revenue. Some businesses can grow themselves into the ground. As a minimum, the relentless focus on adding revenue removes the focus on the primary motive which is profit for the owners.  Profitability is a decision that happens first. But most businesses treat profitability as a consequence of all the other decisions. Profit is the left-over. Many business owners end up “reinvesting” their income to grow the business and in so doing, end up working for free, or at least for far less than they’re worth.  What Michael Michalowicz teaches is how to establish new money management governance within your business that becomes a new set of habits. These habits eventually become muscle memory and they become normal.  -------------- **Real Estate Espresso Podcast:** Spotify: [The Real Estate Espresso Podcast](https://open.spotify.com/show/3GvtwRmTq4r3es8cbw8jW0?si=c75ea506a6694ef1)   iTunes: [The Real Estate Espresso Podcast](https://podcasts.apple.com/ca/podcast/the-real-estate-espresso-podcast/id1340482613)   Website: [www.victorjm.com](http://www.victorjm.com)   LinkedIn: [Victor Menasce](http://www.linkedin.com/in/vmenasce)   YouTube: [The Real Estate Espresso Podcast](http://www.youtube.com/@victorjmenasce6734)   Facebook: [www.facebook.com/realestateespresso](http://www.facebook.com/realestateespresso)   Email: [podcast@victorjm.com](mailto:podcast@victorjm.com)  **Y Street Capital:** Website: [www.ystreetcapital.com](http://www.ystreetcapital.com)   Facebook: [www.facebook.com/YStreetCapital](https://www.facebook.com/YStreetCapital)   Instagram: [@ystreetcapital](http://www.instagram.com/ystreetcapital)  

On today’s show we are talking about solving the needs of aging population.  As parents age, some families resort to independent living, maybe assisted living, professionally managed institutions. These are quite expensive and not everyone can afford this. In fact, there is a huge percentage of the population who can’t afford senior housing.  For many, that means family takes on the burden of caregiving. As older adults become more reduced in their mobility, the family home might no longer be suitable. Navigating stairs to enter the home, or navigating stairs to get to the bedroom level in a two story or three story home becomes a problem. Moving out of the family home into a single level ranch style house is not an option for many families.  We have talked about the so-called lock-in effect that is well established in the current market. Those owners who locked in a 30 year mortgage at 2.5% interest rate don’t ever want to sell their home and face a more expensive proposition with a new home at a higher interest rate.  The cheapest option, by far, is to modify the existing home to install the mobility features required to accommodate an aging adult. --------------- **Real Estate Espresso Podcast:** Spotify: [The Real Estate Espresso Podcast](https://open.spotify.com/show/3GvtwRmTq4r3es8cbw8jW0?si=c75ea506a6694ef1)   iTunes: [The Real Estate Espresso Podcast](https://podcasts.apple.com/ca/podcast/the-real-estate-espresso-podcast/id1340482613)   Website: [www.victorjm.com](http://www.victorjm.com)   LinkedIn: [Victor Menasce](http://www.linkedin.com/in/vmenasce)   YouTube: [The Real Estate Espresso Podcast](http://www.youtube.com/@victorjmenasce6734)   Facebook: [www.facebook.com/realestateespresso](http://www.facebook.com/realestateespresso)   Email: [podcast@victorjm.com](mailto:podcast@victorjm.com)  **Y Street Capital:** Website: [www.ystreetcapital.com](http://www.ystreetcapital.com)   Facebook: [www.facebook.com/YStreetCapital](https://www.facebook.com/YStreetCapital)   Instagram: [@ystreetcapital](http://www.instagram.com/ystreetcapital)  

Yes, you read that correctly. Today’s show is a deep dive into a due diligence item that we often don’t think about.  I’m going to read a few extracts from an engineering letter we received as part of an information package on a property.  The project in question is a residential subdivision with a large rock outcropping in the middle of the property. The top of the hill consists of large boulders and the residential area below is surrounding the rock outcropping. The residential homes would be situated on more level ground.  The possibility of a rock fall can only be mitigated in a few ways. Move the dwellings far enough away that the risk is minimized  Actively stabilize the structure  Introduce barriers to create a layer of protection in case something does fall All of these solutions come at a cost. Retaining walls can cost more than $1,000 per linear foot depending on the height. You can end up spending hundreds of thousands, or perhaps even millions if you have a large scale site with vast unstable structures.  This type of situation can be further amplified by destabilizing events. In this particular instance, there is a known seismic surface fault within 150 feet of the subject property. There is a second engineering report governing the potential for seismic activity with the fault. An earthquake in the immediate area may not be enough to damage the buildings in the planned subdivision. But they could easily be enough to destabilize the large boulders that sit on top of granular and silty material that could easily liquify when subject to seismic activity. This could increase the probability of rolling boulders.  ------------ **Real Estate Espresso Podcast:** Spotify: [The Real Estate Espresso Podcast](https://open.spotify.com/show/3GvtwRmTq4r3es8cbw8jW0?si=c75ea506a6694ef1)   iTunes: [The Real Estate Espresso Podcast](https://podcasts.apple.com/ca/podcast/the-real-estate-espresso-podcast/id1340482613)   Website: [www.victorjm.com](http://www.victorjm.com)   LinkedIn: [Victor Menasce](http://www.linkedin.com/in/vmenasce)   YouTube: [The Real Estate Espresso Podcast](http://www.youtube.com/@victorjmenasce6734)   Facebook: [www.facebook.com/realestateespresso](http://www.facebook.com/realestateespresso)   Email: [podcast@victorjm.com](mailto:podcast@victorjm.com)  **Y Street Capital:** Website: [www.ystreetcapital.com](http://www.ystreetcapital.com)   Facebook: [www.facebook.com/YStreetCapital](https://www.facebook.com/YStreetCapital)   Instagram: [@ystreetcapital](http://www.instagram.com/ystreetcapital)  

On today’s show we are breaking down the different types of construction contracts that you can sign. Now let me be clear, I’m not here to offer any type of legal advice. I’m merely sharing our experience when it comes to undertaking different types of construction projects.  The first thing you need to get clear on is whether you are hiring a general contractor or a construction manager. This is a distinct choice. In either case, there will be subcontractors involved for the specific work items. You might have different subs for framing, mechanical electrical, plumbing, concrete, finishing and so on. There could be up to 20 distinct subcontractors on a typical build project. The main distinction between the general contractor and the construction manager is who hires the subcontractors? You might hire the subcontractors directly and pay them directly. The subs work under the direction of the construction manager. The bids, the schedule, and all of the practical elements of the project are handled by the construction manager. But the contractural relationship is different. There is no markup being charged on the subcontractor’s work. You pay the construction manager a fixed fee.  Let’s assume that you decide you want to hire a general contractor and you are going to pay only the general contractor. The GC is responsible for all aspects of the project.  In construction projects, the contract type is crucial for defining cost control, risk allocation, and payment structures. Here’s a comparison of the three main types: 1) Cost Plus 2) Lump Sum (Fixed Price) 3) Guaranteed Maximum Price The biggest item to figure out with each of these models is who is going to carry the contingency fund. There is always going to be some variability in construction. The question is who is going to carry that risk and where is the money going to come from to pay for those costs if and when they do arise.  Whichever model you choose, there are pros and cons. Whatever you do, make sure you hire a lawyer who specializes in construction contracts. This is an area of specialty in the law just like real estate . ------------- **Real Estate Espresso Podcast:** Spotify: [The Real Estate Espresso Podcast](https://open.spotify.com/show/3GvtwRmTq4r3es8cbw8jW0?si=c75ea506a6694ef1)   iTunes: [The Real Estate Espresso Podcast](https://podcasts.apple.com/ca/podcast/the-real-estate-espresso-podcast/id1340482613)   Website: [www.victorjm.com](http://www.victorjm.com)   LinkedIn: [Victor Menasce](http://www.linkedin.com/in/vmenasce)   YouTube: [The Real Estate Espresso Podcast](http://www.youtube.com/@victorjmenasce6734)   Facebook: [www.facebook.com/realestateespresso](http://www.facebook.com/realestateespresso)   Email: [podcast@victorjm.com](mailto:podcast@victorjm.com)  **Y Street Capital:** Website: [www.ystreetcapital.com](http://www.ystreetcapital.com)   Facebook: [www.facebook.com/YStreetCapital](https://www.facebook.com/YStreetCapital)   Instagram: [@ystreetcapital](http://www.instagram.com/ystreetcapital)  

On today’s show we are looking at the demand for construction materials and labor. The number of housing starts is way down nationally. This is true for single family homes and for multi-family apartments. So it stands to reason that there should be plenty of labor available for your projects if you decide you want to undertake a project in this current environment. -------------- **Real Estate Espresso Podcast:** Spotify: [The Real Estate Espresso Podcast](https://open.spotify.com/show/3GvtwRmTq4r3es8cbw8jW0?si=c75ea506a6694ef1)   iTunes: [The Real Estate Espresso Podcast](https://podcasts.apple.com/ca/podcast/the-real-estate-espresso-podcast/id1340482613)   Website: [www.victorjm.com](http://www.victorjm.com)   LinkedIn: [Victor Menasce](http://www.linkedin.com/in/vmenasce)   YouTube: [The Real Estate Espresso Podcast](http://www.youtube.com/@victorjmenasce6734)   Facebook: [www.facebook.com/realestateespresso](http://www.facebook.com/realestateespresso)   Email: [podcast@victorjm.com](mailto:podcast@victorjm.com)  **Y Street Capital:** Website: [www.ystreetcapital.com](http://www.ystreetcapital.com)   Facebook: [www.facebook.com/YStreetCapital](https://www.facebook.com/YStreetCapital)   Instagram: [@ystreetcapital](http://www.instagram.com/ystreetcapital)  

On today's show I'm asking George about how he used to attract business before the days of digital marketing. Love his answer. ------------------ **Real Estate Espresso Podcast:** Spotify: [The Real Estate Espresso Podcast](https://open.spotify.com/show/3GvtwRmTq4r3es8cbw8jW0?si=c75ea506a6694ef1)   iTunes: [The Real Estate Espresso Podcast](https://podcasts.apple.com/ca/podcast/the-real-estate-espresso-podcast/id1340482613)   Website: [www.victorjm.com](http://www.victorjm.com)   LinkedIn: [Victor Menasce](http://www.linkedin.com/in/vmenasce)   YouTube: [The Real Estate Espresso Podcast](http://www.youtube.com/@victorjmenasce6734)   Facebook: [www.facebook.com/realestateespresso](http://www.facebook.com/realestateespresso)   Email: [podcast@victorjm.com](mailto:podcast@victorjm.com)  **Y Street Capital:** Website: [www.ystreetcapital.com](http://www.ystreetcapital.com)   Facebook: [www.facebook.com/YStreetCapital](https://www.facebook.com/YStreetCapital)   Instagram: [@ystreetcapital](http://www.instagram.com/ystreetcapital)  

On today’s show we are looking at the national average numbers for residential real estate.  The statistics seem to be conflicting and it seems like the numbers are not adding up. On today’s show we are going to unwind the apparent contradiction to make sense of what is truly going on. The national association of realtors reported that sales volume in September fell to the lowest level since October of 2010 with an annualized rate of 3.84M homes being sold. This is a 3.5% decline from the same period last year.  Inventory of homes for sale increased to a 4.3 month supply of homes. Finally, the median price of a home increased 3% in September compared with the same period last year to a price of $404,500.  Normally you would think that falling sales volume combined with rising inventory of homes for sale would translate into falling prices. If demand is falling and supply is rising, then you would expect prices to fall. So what is up with the 3% rise in the median sale price? ---------------- **Real Estate Espresso Podcast:** Spotify: [The Real Estate Espresso Podcast](https://open.spotify.com/show/3GvtwRmTq4r3es8cbw8jW0?si=c75ea506a6694ef1)   iTunes: [The Real Estate Espresso Podcast](https://podcasts.apple.com/ca/podcast/the-real-estate-espresso-podcast/id1340482613)   Website: [www.victorjm.com](http://www.victorjm.com)   LinkedIn: [Victor Menasce](http://www.linkedin.com/in/vmenasce)   YouTube: [The Real Estate Espresso Podcast](http://www.youtube.com/@victorjmenasce6734)   Facebook: [www.facebook.com/realestateespresso](http://www.facebook.com/realestateespresso)   Email: [podcast@victorjm.com](mailto:podcast@victorjm.com)  **Y Street Capital:** Website: [www.ystreetcapital.com](http://www.ystreetcapital.com)   Facebook: [www.facebook.com/YStreetCapital](https://www.facebook.com/YStreetCapital)   Instagram: [@ystreetcapital](http://www.instagram.com/ystreetcapital)  

The Bank of Canada took a victory lap yesterday as they cut interest rates by 0.5%. This is the fourth consecutive rate cut since June. The rationale given was that inflation in September hit 1.6% down from 2.2% in August.  The fact is, Canada’s economy is extremely weak right now. The drop in rates is needed to maybe stimulate growth.  For real estate investors, the rise in interest rates over the past few years has created a glut of condo’s for sale in the market. About 25% of new condo’s appear in the rental market. These are typically the smaller units in a high rise building that are purchased by amateur investors. These units are rarely purchased by owner occupants. Owners tend to want a larger floor area. Those who are willing to rent will often accept a smaller apartment.  When the bank of Canada dropped its rate on Wednesday this week, all of the major banks also dropped their prime lending rate in tandem.  The picture in the Toronto condo market is not pretty.  The sold to new listing ratio is around 30%. The percentage of condos in the rental market that are experiencing negative cash flow is 81%. That’s up from about 40% only a couple of years ago.  The pre construction market is currently absorbing about 300 units a month against a backdrop of over 17,000 units of pre-construction units for sale. In the current market conditions I predict that none of these buildings will achieve the 70% sales threshold needed to qualify for construction financing. The only path for some of these condo projects will be to convert their offering to apartments. But if they’ve already taken deposits, they will need to recapitalize the projects in order to convert them to apartments. The appetite among lenders may be  In the last 7 days in the Toronto market we saw over 1350 new listings and more than 600 conditional transactions terminated.  On today’s show I’ve focused on the Toronto market. The picture is similar for condos in other markets across Canada. I would characterize the Vancouver market as being most similar to Toronto. But there is very little activity in new condos in Calgary, Ottawa and Montreal. The name of the game in Canada right now for apartment living is purpose built apartments.  For that asset class the drop in interest rates translates into long term improvement in the outlook for that sector.  ---------------- **Real Estate Espresso Podcast:** Spotify: [The Real Estate Espresso Podcast](https://open.spotify.com/show/3GvtwRmTq4r3es8cbw8jW0?si=c75ea506a6694ef1)   iTunes: [The Real Estate Espresso Podcast](https://podcasts.apple.com/ca/podcast/the-real-estate-espresso-podcast/id1340482613)   Website: [www.victorjm.com](http://www.victorjm.com)   LinkedIn: [Victor Menasce](http://www.linkedin.com/in/vmenasce)   YouTube: [The Real Estate Espresso Podcast](http://www.youtube.com/@victorjmenasce6734)   Facebook: [www.facebook.com/realestateespresso](http://www.facebook.com/realestateespresso)   Email: [podcast@victorjm.com](mailto:podcast@victorjm.com)  **Y Street Capital:** Website: [www.ystreetcapital.com](http://www.ystreetcapital.com)   Facebook: [www.facebook.com/YStreetCapital](https://www.facebook.com/YStreetCapital)   Instagram: [@ystreetcapital](http://www.instagram.com/ystreetcapital)  

On today’s show we are talking about a service business that used to be on top of its segment in the market.  The company we’re talking about is Starbucks. So it’s no surprise to me that today Starbucks CEO Brian Niccol announced a major drop in both earnings and revenue. They also suspended financial guidance for the upcoming quarters.  Once a brand loses loyalty to the brand, it’s hard to get it back. Same store sales are down 6%. Attempts to win back customers with various promotions have failed.  Starbucks, like many other premium retail locations is often connected to prime real estate. I predict that the averages obscure the extremities. Some locations will continue to perform very strongly. Still others will dramatically underperform. Unless the turnaround happens quickly, some of these poorly performing locations will close.  If Starbucks saw enough good data in the metrics to open a location, then chances are good that the location is still good, even though Starbucks revenue has fallen at that location and that location is now losing money and will close. The problem is not the location, but rather that Starbucks lost its way and alienated its customers. -------------- **Real Estate Espresso Podcast:** Spotify: [The Real Estate Espresso Podcast](https://open.spotify.com/show/3GvtwRmTq4r3es8cbw8jW0?si=c75ea506a6694ef1)   iTunes: [The Real Estate Espresso Podcast](https://podcasts.apple.com/ca/podcast/the-real-estate-espresso-podcast/id1340482613)   Website: [www.victorjm.com](http://www.victorjm.com)   LinkedIn: [Victor Menasce](http://www.linkedin.com/in/vmenasce)   YouTube: [The Real Estate Espresso Podcast](http://www.youtube.com/@victorjmenasce6734)   Facebook: [www.facebook.com/realestateespresso](http://www.facebook.com/realestateespresso)   Email: [podcast@victorjm.com](mailto:podcast@victorjm.com)  **Y Street Capital:** Website: [www.ystreetcapital.com](http://www.ystreetcapital.com)   Facebook: [www.facebook.com/YStreetCapital](https://www.facebook.com/YStreetCapital)   Instagram: [@ystreetcapital](http://www.instagram.com/ystreetcapital)