When is the Right Time to Sell or Buy in Real Estate?

Josh (00:00:02) - All right, guys, we got seven minutes on the clock. Welcome to the deal, Scout. On today's show, we're going to talk about the maybe changing of the real estate industry and when to become a seller, when to become a buyer. And on this, we're going to have a chat with Mr. Dan, who's going to share his vantage point on it. So Dan welcome the show, man.

Dan (00:00:19) - Josh, thanks for having me, man. I know I'm on the shot clock, so maybe I'll just get right into it.

Josh (00:00:23) - Go for it, brother.

Dan (00:00:24) - Cool. Yeah. So, Dan French I'm with at acquisitions. I've been in real estate investing in operating for 20 years, and, our prior company had a really stellar track record. So we bought, coming out of the great financial crisis, between 2011, 2019, we bought $2 billion in asset value. So that's 17,000 apartments. We really focus on Florida and Texas. and again, all multifamily, apartments. And that that team had a, you know, an amazing run.

Dan (00:00:53) - And but we decided in 2019 because we felt that it was so frothy, the market had really shifted. so many people were chasing the same opportunities. And that was far different from 2011 when capital markets were completely dried out, you know? So by 2019, we decided in a complete change of strategy to become net sellers, and we sold about a billion, five of the of the portfolio. So we maintain a, you know, a small amount of deals there. But, you know, what I think separates us from the pack here, in a very important way, is that we like to take more of a buffet style approach to, to real estate investments. And so, you know, when people were super greedy, we got fearful. And now and then we sat on our hands for a while, and we just decided, like, one is a good opportunity to come back in on the investment side. And now when other people are fearful, we think it's a good time to get greedy.

Josh (00:01:44) - Yeah, interesting. And I love that, the buffet style approach. And he's done well for himself for sure. when, when do you know when to be a net seller? Net buyer? Because, you know, there's there's that. Yeah. When people are getting greedy or fearful, that's a good gauge. But how do you know and how like, have you made any errors in that judgment call.

Dan (00:02:07) - We made a lot of errors in our past, right? I mean, especially when I first started out in, in back in 2004, 2005. That was a the massive error. but that's good to do when you're in your 20s, you know, get get that out of your system early and really figure out how to how to get better as an investor and more disciplined. You know, it doesn't always go up. And that's that's what everyone got wrong in the run up to the GFC, the great financial crisis was it's always going to get better. Housing prices are always going to increase.

Dan (00:02:34) - And that was a blatant lie and everyone went along with it. So, the discipline comes from looking at like intrinsic value I think is one really important aspect. you know, in 2019, for instance, you can buy deals then that were above replacement costs. So in industry it replacement cost is how much does it cost for you to build that, you know, new product in that same area. and when you buy above replacement cost, that's super concerning. So that's when you should really think, think about like why am I paying so much for these cash flows? Because in real estate that's what you're buying. You're trying to buy durable cash flows that are going to be there for the future. And, and then it's all about what you pay for it and how you operate it thereafter. Yeah.

Josh (00:03:17) - So when you have cash flow like our, our business right now, you know, we've had some big wins. We became net sellers last year which was was great. But I look at but my you know cash flow statement I'm like oh man we gotta we gotta focus on cash flow again.

Josh (00:03:32) - Right. Because you could sit on some cash, but every day the cash value is going down. So we're looking to, you know, to buy, invest and grow our cash flow again. What is your advice on managing the cash flow versus what you're sitting on asset wise?

Dan (00:03:48) - That's a that's a big long topic there. But but let me just speak to opportunity and why I think it's so, so compelling right now. And so if you look at the fed, right. What, what the fed has done, is 22 x the, the fed, you know, the fed rate. And that is that was done over about, you know, a year over a year, a little over a year. So that's a massive increase that some people try to liken it to the late 70s when the run up, happened then. But but during that time it went from like 3 to 4% to 20%. So that's like A4X increase actually. So what we're seeing now again is a 22 x 22 times.

Dan (00:04:26) - So it went from 0.2 5% to like 55.2 5 to 5.5 massively different. So the, the the problems that people who are owners of assets when they earn floating rate debt massive and their cash flow is completely wiped out because any cash flow that they had is going to pay down the debt or a rate cap that they had to purchase if they had a floater. So that's where we see opportunity. These folks that are that are stuck in bad deals have to get out. And that's when we want to come in.

Josh (00:04:55) - Yeah. So yeah. Absolutely. So you know, kind of wrap around that question is sometimes you need to be a seller, especially when times change in your deal no longer make sense. Right. So it no longer makes sense for them. They sell. They might still be in a good position. Who knows. But for you guys it could be a great opportunity, especially if you're sitting on some dry powder. Right. So let me ask you a question. As you guys are focusing, you focus on Florida and Texas.

Josh (00:05:23) - What does the perfect deal look like for you guys?

Dan (00:05:28) - Well, it's got to be downside protected. So we're very conservative in our in our underwriting. It's got to be in an area where we understand supply extremely well because, as you know, in the Sun Belt, you know, people put a lot of shovels in the ground during during when interest rates were super low. So that's very scary. and so, you know, we look for downside protection in areas where the fundamentals are great, you know, household income, strong good schools. you know, we'll do value add. But what we're particular about what kind of value we'll do and then we'll buy, you know anything from 1980s and newer. And so some of the newer deals are very compelling. I think you can buy a great basis right now.

Josh (00:06:06) - Very cool. What's one value add tip that you have for us? And then maybe you could share with people if they're looking to do a deal, or they have maybe an asset for you that they want you to take a look at where, you know, you could tell them where to go to find that.

Josh (00:06:17) - So example of value add. Where can people find you?

Dan (00:06:21) - Well, that idea we have is in Jacksonville right now. It's fully capitalized, but it's a wonderful deal. Reach out and learn more. Just from a learning standpoint if you want to to understand it. But I would say look at your household income and what the wallet share of rent will be after you value that program. So that's where people can get, you know, ahead of themselves if they're taking up too much of that wallet share. So be careful there I would say is is my tip. Yeah.

Josh (00:06:44) - Where can people find you?

Dan (00:06:46) - So go to art acquisitions.com or find me on LinkedIn Daniel French. My cell phone number I always give it out is (845) 629-1808. And we have five seconds left.

Josh (00:06:59) - Cool with three seconds to spare. I hope you guys are enjoying these shorts on the deal Scout. If you have a deal that you'd like to talk about, head on over to the deal Scout com. Fill out a quick form, maybe get you on the show next.

Josh (00:07:11) - Till then, talk to you all on the next episode.