Bill Neville: Neil boa presentation for those of you who have
Bill Neville: joined us for one of our last 7 or 8 years that we've done this. Neil is a Bay area, resident and real estate expert, and does a deep dive and and analytic view of the real estate markets and trends and and insights, so
Bill Neville: we will take questions at the end, feel free to type them into the Q. And A. Box at any time during the presentation, and then Neil and I will cover them at the end. If it's about. You know his presentation for Neil, or if you have anything about self-directed Iras, go ahead and and ask me.
Bill Neville: So go ahead, Neil. Let's get started so as we always do. We put up this disclosure
Bill Neville: to note that we are not
Bill Neville: recommending or endorsing or promoting any particular investment.
Bill Neville: We are a neutral 3rd party custodian record keeper. This presentation is for informational purposes only. If you're considering investing in anything, we encourage you to seek the advice of advisors, cpas, lawyers, etc, etc.
Bill Neville: So as far as Neil's agenda.
Bill Neville: a surprisingly resilient. 2024. Can the fed land, the plane economic momentum entering 2025, then diving into real estate, review and forecast for single family, and multifamily. Then he does his best cities ranked for 2025, and then Neil does his picks for 2025. So that's specifically Neil's agenda. But full agenda is we're going to do a quick little bit about interest. That's me.
Bill Neville: I've been with entrust for coming on 15 years now, and my role is business development manager for our North Northwest region, and I help people understand how they can use self-directed Iras to invest in nontraditional investments
Bill Neville: and trust. We are a self-directed retirement account custodian and record keeper. The majority of our staff are certified Ira service professionals, and we do these monthly educational webinars sometimes oftentimes we bring on subject matter experts such as Neil. Other times we just do it ourselves.
Bill Neville: But every month we do an educational webinar. We currently have about 5 billion dollars under administration. We have somewhere between 2425,000 active investors. We have been in business since 1981. So 44 years, and we provide you a single point of contact. If you need any help.
Bill Neville: or when you have an account with us, if you have any questions, need any assistance. You don't just call an 800 number. You have one of 4 business development managers, and once again I'm the Northwest Regional Business Development managers. I have 3 colleagues, and you get a team of 2 people who are assigned to you. Once you open an account with us, which is a little bit different than a lot of our competitors. So if you have an account, you just call an 800 number and get who happens to pick up the phone.
Neal Bawa: So, Bill, Bill, there were a few other slides. Do you want to do those or do them during the wrap up? So the the getting started slides, etc, like this one.
Neal Bawa: Do you want to do them now? Or at the end.
Bill Neville: Let's do them now, since they're there, I mean, we usually do this in the end. But if you want to open an account with entrust. Or if you want to do a self-directed Ira, you can open an account with us which we have an online portal, or you can fill out Pdfs of our application forms, then you fund your account. Most people transfer or roll over from an existing Ira or custodian, or 401 k. With a different custodian.
Bill Neville: and then you instruct us to make whatever investment you want to make. So you submit the paperwork to us. If you want to invest in real estate, the contract and all the closing documents get submitted to us for review and signature on behalf of the Ira. They're invested in the name of the Ira, and we are the signatory on behalf of the Ira. So
Bill Neville: if you decide, you want to move forward, that's how you go about doing it.
Neal Bawa: Okay? And I think the next slide is mine.
Bill Neville: Okay. So I'm going to go off. Video, I'm surprisingly didn't cough during that whole time. Let's hope that lasts. I'll see you at the end to take your Q. And as enjoy the video or enjoy the presentation.
Neal Bawa: Thank you, Bill. Thank you. Entrust. So my name is Neil Bauer. This is my 8th year. Doing my annual real estate trends presentation for entrust
Neal Bawa: Bill, and I met in early 2016 when he showed up at one of my meetup groups. I am a quirky, opinionated data scientist and technologist. I buy and build large projects. Our portfolio of 25 properties is worth about 660 million and over 1,200 data driven slightly geeky investors have trusted us with their money
Neal Bawa: as an example. Here's half of our portfolio, and we use data science to invest in 8 different asset classes so multifamily value, add multifamily new construction. Single family built to rent, fourplex built to rent, student housing.
Neal Bawa: build to sell townhomes, self storage, properties and flex industrial properties. So each of these different asset classes taught us something different and made us better at our job, which is protecting the investment of our investors. As I mentioned, 1,200 investors, and they love what we're doing. Here's Jennifer. She's a super experienced investor. She compares us to much larger companies, with more projects, and she thinks that we come out ahead.
Neal Bawa: and she enjoys our high efficiency process and loves the fact that our team has not changed since the beginning she's been investing for a while. Here's Dr. Pada. He's a general partner, with lots of deals of his own, both as a general partner and as a passive investor, so check out his comments in orange, it comes down to true use of data to optimize results. And we're good at that. And that's why Dr. Parda keeps coming back to us.
Neal Bawa: All right, let's get the boring legal stuff out of the way before we dive in. This is just a friendly reminder. The Webinars for educational purposes, just because we're sharing our personal opinion doesn't mean that you're guaranteed to make a fortune in real estate. So do your own research consult professionals. Remember that investing in real estate and stocks is risky stuff and don't be shy to type in questions. Right? We will definitely answer them at the end. We'll have time to do that, and if you miss anything entrust will be sending out a recording of this shindig probably tomorrow or day, after
Neal Bawa: all right.
Neal Bawa: So a lot of politicians love to talk about us exceptionalism, and I like to mostly ignore what they say. But it's very hard not to acknowledge that the United States was exceptional in so many different ways. In 2024. Our economy wasn't just extremely resilient when compared with other major economies, we weren't just ahead. We were in a complete class by ourselves, right?
Neal Bawa: And I hope that I get to say this again in the future. But the Us. Economy in 2024, looking back, absolutely crushed it right in 2024, the Us. Stock market. Let the developed world. As you can see in this graph, the S. And P. 500 returned 25% for 2024.
Neal Bawa: That's an astonishing number. Given that the previous year was also a good one. Right? So our top stock returned 171%. And the fact that we did this despite extremely high interest rates just shows how well the economy did in 2024. But maybe many of you might think the stock market is not a great indicator to show strength because it's volatile, goes up and down.
Neal Bawa: But a better indicator is the strength of the Us. Dollar. So you can see on the right side. The dollar was the only major currency in the world to appreciate against all of its peers. Right? And you can see all of these competitors that are trying to put up a currency against us, especially this group you may have heard of called the brics right? So take a look at the Chinese, Yuan, the Indian rupee, the South African Rand, the Brazilian real, and the Russian ruble. Those are the 5 currencies we are up against in the Brics consortium.
Neal Bawa: all of them lost significant value against the dollar
Neal Bawa: and the other metrics that we look at exceptionally strong. 4 of the ones that we look at the closest job creation for the year was close to perfect. We like 200,000 jobs a month. We created 180,000. Inflation started the year at around 3.6% ended up the year at 2.6, nudging up a bit now in January and February. But that's only a couple months.
Neal Bawa: and consumer spending was very strong. So it grew 3.1%, which was faster than Gdp whenever consumer spending grows faster than Gdp. That's a sign that the country is doing well. And then energy prices. They were down 7% year over year, and the Us. Produced more oil and gas than Saudi Arabia, and grew its lead as the largest oil and gas producer in the world.
Neal Bawa: Basically in 2024, the Us. Economy basically said gravity who it was supposed to come down to earth. It just refused to do that. And you can see our growth compared to just about everybody else. The G. 7, the Oecd, the Eurozone, Uk, Japan, France, Canada, Australia. We pretty much beat the crap out of everyone
Neal Bawa: again.
Neal Bawa: Now we mentioned inflation already, but the chart on the left is very instructive. Right? We've come very, very far from here, right? 9% in June 2022. And it's taken us 2 and a half years to get down to a more reasonable level. Yes, we saw an uptick in January, and we have to guard against that.
Neal Bawa: but we're but we still most analysts even now think that inflation is going to be under 3% for 2025. I don't think we're going to get to the fed target of 2% that sucks. But even high twos is generally acceptable.
Neal Bawa: That's look at the job market. So in a job market in December 2024, basically was the equivalent of a surprise party. Nobody expected it, but there it was, booming with 256,000 jobs. So 200,000 is normal. 180 is slightly weak. Right? When you get to 250 plus, you're doing really well. So unemployment ticked down to 4.1% in December last year, and then in January this year actually ticked down again to 4%. So the labor market is resilient.
Neal Bawa: But keep in mind this is a double edged sword, right? So it's great for workers. But it does complicate the Fed's decision on rate cuts. So it's, you know, basically like trying to drive with one foot on the gas and another foot on the brake at the same time.
Neal Bawa: So the Fed cut rates last year, and naturally we all expected mortgage rates to follow suit right to go down well, not so fast. Despite the fed pulling all those levers, mortgage rates are acting like that one buddy that just refuses to take a hint. I mean, they're stubbornly high. They're hovering around 6.9% for a 30 year fixed.
Neal Bawa: And why? Well, that's because mortgage rates aren't just tied to what the fed does. They're influenced by long term. Bond yields long term inflation, expectations, and also short term investor sentiment. So there's a lot going on there that shows up in interest rates all right, moving on. Now, this is our 1st and most important disruptive trend for this presentation.
Neal Bawa: because while interest rates did keep us all on edge, something AI was quietly transforming the entire business landscape in 2024 AI shifted. It wasn't just a buzzword. It became a driver of revenue growth, right? So, companies that were actually leveraging AI. They saw productivity gains. They saw cost reductions, and in a couple many cases crazy skyrocketing valuations.
Neal Bawa: And I have to tell you this, the economic impact of AI is undeniable. Right? We're talking about a potential 21 trillion dollars boost to the global economy by 2030.
Neal Bawa: Right? We're talking 8 years, 21 trillion dollars. That is not a ripple that is a tidal wave. And for real estate yes, you should expect shifts in demand for office spaces. There'll be a change in industrial layouts. There'll even be impacts on residential preferences because remote work is shrinking. But it's still continuing to evolve right? So the future isn't just coming, folks. It's already here.
Neal Bawa: Let's dig deeper into that 21 trillion dollars gain in world. Gdp in 8 years. That's not just a headline. It's a reboot for the entire world economy. So AI is expected to add this staggering amount to the world economy. Every sector benefits right? So healthcare finance, transportation.
Neal Bawa: and, yes, real estate. Right? So AI is going to for real estate. It's going to streamline property management. It's going to predict market trends with unbelievable accuracy. Put me out of business, maybe, and optimize energy efficiency in buildings.
Neal Bawa: And this insane growth is because of Moore's law. That's the idea that computing power doubles roughly every 2 years. But AI is not doubling, it's accelerating faster than that since January 20th of this year. Today is the 19.th So in 29 days.
Neal Bawa: January 20th is when deep sea came out right. A Chinese model in 29 days. We've already seen speeds double. That's double in 29 days, not double in 2 years. So imagine AI algorithms that can pinpoint millions of data points. I look at thousands of data points in real time to forecast everything from housing demands to rental price fluctuations, and even pinpoint the next hot investment market before Neil Bauer sees it coming right. So all here
Neal Bawa: in the next 24 months. So for investors, this is huge because the world economy is going to morph dramatically in the coming years, because AI is the mother of all disruptions.
Neal Bawa: 25% of Us. Jobs are exposed to automation from AI over the next 5 to 10 years, not necessarily in the next 2 years, but in the next 5 to 10 years, and you know we'll see much faster. Gdp growth. So you see this line here much faster. Gdp growth in the next 10 years than in the last 10 years. But unfortunately, more of the benefits are going to go to the rich. So income disparity is definitely a huge issue because of AI,
Neal Bawa: all right. Time for Section 2. So we just looked at the past we looked at last year we looked at the biggest Mega trend of last year. AI. Now it's time for us to look ahead. Share some economic forecasts for 2025. Now I'm not to real estate. Yet these are not real estate forecasts, but most of the real estate forecast that's in the next section of the presentation. It's based on this section.
Neal Bawa: So what's on the horizon for 2025? So we picture an economy that is gently easing into stability right? Soft landing Gdp growth around 2 and a half percent solid, not flashy. Steady unemployment is projected to stay low in the next 12 months around 4 to 4 and a half percent. So that's great news for job seekers. It's good for consumer confidence. It's good for landlords.
Neal Bawa: Inflation should continue to cool. Cbre thinks it's going to be 2 to 2.4%. I think it's going to be closer to 3%. I think. So. Major takeaways is for the moment no major shocks on the radar. We'll talk about tariffs, of course, and what they could potentially mean, you know, probably a boost to inflation, but for the moment the year looks fairly steady.
Neal Bawa: Unfortunately, it also means only 2 rate cuts this year.
Neal Bawa: All right. Gdp growth in 2025 expected to be steady, though not as fast as last year. So it was 2.7%. Our prediction was 2.6%. So we were a little bit off here. So we're looking at around 2%. Gdp growth. Steady, Eddie, but, as you can see here from this slope, the brakes are going to be lightly tapped as the year goes on.
Neal Bawa: What about the jobs forecast? Yes, there is this very concerning potential of AI to reduce jobs in the midterm, the long term. But in the short term there is 0 doubt that it's boosting demand for jobs. So if you're looking at all of the fastest growing jobs in the country, all of them are in AI machine learning big data cyber security, all of them.
Neal Bawa: Here's our prediction for the unemployment rate. So last year was at 4.1% this year we're likely to stay somewhere around that number for 2025, not quite sure, about 2026. So again, it's my belief, and also a commonly held belief that by 2027, 2 years from now we should see significant job losses because of AI. But in the next 2 years those are the years where we should see significant gains in jobs because of AI investments.
Neal Bawa: Okay, our 3rd prediction for 2025 is wage growth. How much do people earn right now? It may not feel like it to the people that are listening to this webinar, but average wage growth has actually been growing faster than inflation for almost all of 2023, and all of 2024 right orange line wage growth. Inflation is down here. So wages are actually have been growing faster than inflation for a while.
Neal Bawa: And so we expect that wages are going to grow at about 3%. So right now, if you look at this, this is a 4% line. We think that wages are actually going to be growing here at 3% for 2025. And we're going to need that 23% to raise rents. Because, as you're going to see, we're going to raise rents this year, we didn't do that last year.
Neal Bawa: All right. Our next prediction is rate cuts. So 6 months ago the fed the Federal Reserve predicted that they will raise or cut rates by 4 times by a quarter point each in 2025. But that was 6 months ago. The economy held up much better than the fed thought it would. And so now the fed dot plot. It's something that they do at every meeting shows 2 interest rates, drops of a quarter point each in 2025.
Neal Bawa: Personally, I have to say I agree with that, even though I find it crushing that they're going to drop rates so slowly. So I'm hoping for a 3rd rate cuts, because if we get 3 rate cuts this year, apartment values would be substantially higher next year. So we'll keep our fingers crossed.
Neal Bawa: Okay, well, our last prediction in 2025, and also the biggest other trend than AI is simply trumponomics. Right?
Neal Bawa: Any new president is an X factor. But it is very fair to say that we've never had an X factor like the Second Trump Administration. Everything he's going to do is going to have an outsized impact, and this time he controls the House. He controls the Senate so he can do more. So let's go down the list tariffs. Yes, they can boost inflation, and they can increase construction costs. So immigration can increase labor cost.
Neal Bawa: especially for new construction. Tax cuts have both positive and negative benefits. Right, higher income, higher spending is good. You know you do that when when you have tax cuts, but then it comes with higher inflation and also with higher interest rates, because when you have tax cuts the deficit, the Federal deficit goes up.
Neal Bawa: Let's look at deregulation. Well, it's generally great. I mean, it may have long term downsides like it did in 2,008 cause that crash. But in the short run and the medium run, the more he deregulates the better for the economy in 2025, 2026,
Neal Bawa: and the stuff that Elon Musk is doing. I hope he keeps doing it. Despite all these aggressive attacks. It could only help because it lowers the Federal deficit. Yes, it does increase unemployment a little bit, not a huge amount a little bit.
Neal Bawa: but it's more than worth it, because it sends the right signal to the buyers of us treasuries, and the Us. Makes a sincere effort to tweak its spending any negatives from slightly higher unemployment will be more than made up by significantly cheaper Us. Treasuries, and that leads to lower interest rates which is good for everybody
Neal Bawa: trump in general, massive X factor. We can talk about this more in the questions. We don't know what's going to happen. We've seen predictions of inflation going as high as 3.3% from the 2.2% that we would get if Kamala Harris was president, right? So it could go from 2.2 to 3. I think it's probably not going to go up that much. I've seen construction costs for new construction going up by 8%.
Neal Bawa: If all the tariffs are implemented, and somehow we manage to send back a million illegal immigrants, they're not on that run rate right now. They're on run rate to send back maybe 400,000, which is pretty common, so not a number to be afraid of so, but if they manage to accelerate and send back a million. You could see construction costs going up by 8%, maybe even 10%. So factor all of these into your thinking, if you're an existing landlord.
Neal Bawa: you know. Construction costs going up is not bad for you. It's good for you, right? Because if we can't build more then existing properties are going to be worth more right.
Neal Bawa: One positive high inflation, not like uber, high inflation, but slightly higher inflation. Call it 3% and slightly higher labor costs are actually good for existing buildings, because.
Neal Bawa: you know, these buildings are built. High inflation leads to people earning a lot higher salaries, and they can afford to pay more in rent, like inflation's been high for the last few years, and you notice in that chart that I showed you that wages are actually growing at well over 4%. So that allows people to pay more in rents for existing buildings. So keep in mind that there's this is a double edged thing.
Neal Bawa: All right, done with all the dense economic analysis stuff. Now it's time for real estate. We'll do a 2024 flashback. And then we're going to forecast single family and multifamily performance in 2025.
Neal Bawa: All right.
Neal Bawa: So let's start with this section also with speculation about trumponomics. So Trump wants to extend the opportunity zones program. And this program is great for real estate. It results in higher values for real estate, huge tax benefits that will bring massive amounts of money into real estate.
Neal Bawa: As I just mentioned, tariffs are favorable for existing real estate, especially multifamily so, not so good for development of new real estate. He also wants to privatize Fannie Mae and Freddie Mac. So these are 2 quasi lending agencies that could have an impact on multifamily financing. But it's a long shot that it happens this year.
Neal Bawa: climate deregulation unquestionably happening, and that will reduce construction costs probably not in 2025, but by 2026. Because a very shockingly significant portion of our construction costs are tied to climate mandates.
Neal Bawa: Okay? Done with trump and tariffs, single family. Let's look at what happened in 2024 from a single family landlord. Perspective right? There were some pretty big swings, but if I summarize these winners on the left.
Neal Bawa: and these losers on the right right. Here's the bottom line. Most of the price gains were in the northeast of the United States, and in the Midwest, right? So New York State, not New York City, New York State, New Jersey, Pennsylvania, were big winners because they had affordability. They hadn't seen the massive increases in rent that we saw in all these boom towns in the southeast. Now, on the other hand, the big losers were basically those hot
Neal Bawa: boom towns in Florida, in Texas. Louisiana also had a really bad year, because some portions of the State lost access to insurance. But otherwise, if you look at the loser list. It's really all Florida and Texas right overall. It wasn't a bad year for single family on an annualized basis. Home prices in the Us. Are continuing to go up. I'm shocked, but they are right. The National Association of Realtors mentioned a
Neal Bawa: 4.8% increase in home prices. Last year Reuters came in at 4.7 the ffa. That's the financing agency. They said 4.3. So basically, prices went up by 4 ish percent last year. And that's not bad, because interest rates were between 6 and a half and 7% the whole year. Right? So single family was astonishingly resilient in 2024.
Neal Bawa: What about predictions for mortgage rates in 2025 all over the damn place? Right? Nobody can make up their mind. I'm not fond of these guys the National Association of Realtors. But I had to put them in because they've actually been right the last 3 years. Right? And they think mortgage rates are going to be low. They're going to be low, right? So
Neal Bawa: that's going to be awesome if this happens, you've got. But the consensus is this group in the middle. Right? So they're thinking 6.3 to 6.4. I'll take that redfin is bearish. They think that rates are going to be much higher. And that's because Redfin's worried about us fiscal deficits driving up Treasury prices. So I have a feeling that the National Association of Realtors might win again. But I'm okay with these numbers in the middle.
Neal Bawa: All right. So that was interest rates. What about our prediction? For home price increases. One thing is consistent. Everyone thinks that home prices are going to go up right of the dozens or so sources that we use to build this annual presentation. Absolutely no one felt home prices would be flat or would be negative. No one was overly bullish with Goldman Sachs being the most bullish at 4 and a half percent.
Neal Bawa: What was really interesting is these guys right? The National Association of Realtors, remember, in the last slide, these are the guys who thought interest rates are going to be really low. Right? So I expected these guys to be much more bullish. But they're only predicting a 2% increase in home prices. So interesting
Neal Bawa: if you've seen my presentations before at entrust. You've seen this slide before the lock, in effect, so it's worth mentioning it. Homeowners with ultra low mortgage rates like me, 1.7 5%. We're not moving right? We can't move. We're locked in. So that's keeping inventory tight. And the result is there's fewer homes for sales, there's less price competition. And there's this continued upward pressure on home values.
Neal Bawa: And for investors like you. This means rental demand will stay strong because buyers are still continuing to struggle with affordability, and home prices are not going down
Neal Bawa: all right. So if you want to become a landlord, this slide is probably the most important one for you. In 4 years. Salaries in the United States are up by this number 25%
Neal Bawa: in 4 years. The average mortgage in the United States is up by this number 110%. Right? It's shocking that neither Presidential candidate was screaming about this right? This we had other things to worry about, much more important, I'm sure, like climate and transgender people. What do I know?
Neal Bawa: Right? So the gap this. You see, this gap between mortgage payments and salaries is stunning right? And it's putting pressure on home affordability, because wage growth is not keeping up with both rising home prices and higher interest rates together. And that's making homeownership impossible for tens of millions of American families. And that's fueling the demand for rentals, because more and more and more people are priced out of the market.
Neal Bawa: Okay, that's a very colorful slide. So what this big circle is showing is how unaffordable homes are in the Us. So the top of the circle, these darker colors, these are the least affordable, so no surprise. Hawaii is the least affordable, followed by California, and as you go down, this list
Neal Bawa: affordability increases. So you've got, you know,
Neal Bawa: best, Virginia, Iowa, Kansas, being the most affordable, but even an affordable market like Kansas is now 3.2 x price. To income. Anything over 3 is not really affordable right? So pretty high ratio compared to 5 years ago. So we're left with basically 2 reasonably priced markets in the Us. Iowa and best Virginia, not my favorites. By the way, in either case, everything else is just becoming extraordinarily expensive, and that's great for landlords terrible for the rest of the country.
Neal Bawa: I do like to show off the top 10 most affordable, unaffordable big cities in the Us. So just, I can bash the State governments. So in San Francisco, where I live, 76% of your income is needed to buy a median price home. Los Angeles is worse at 77%, right? And now there's a market in Florida, Miami, that's at 63%. So this affordability infection, right? It started to spread to places like Denver. So it's not just a coastal problem anymore. It's just everywhere.
Neal Bawa: Here's a slide from last year, updated last year. The median income required to afford the Median home in the Us. Was 113 k. This year. It's closer to 117 k. Right? And the shortfall between actual incomes and this number is 33,000, pretty much the same as last year. This number is crazy because most people who want to buy this home can't qualify. Their income's not high enough. They need to make $33,000 more to qualify for a loan.
Neal Bawa: and while this slide it's not the sexiest, it actually ties together the last 5 slides. Remember, all of this is single family, the black line. Right here is the Median monthly mortgage payments in the Us. The green line is the Median, multifamily rent, right? So median, multifamily mortgage payment, Median multifamily rent. Take a look from the left, and you'll notice that all these years they're pretty much tracking each other right. They go up a little. They go down a little right small deviations.
Neal Bawa: But then, what the F happens right here after Covid. Right at this point the gap between mortgage payments and rents just goes crazy. It's incredibly large, right? If anyone tells me that after looking at this graph and this gap, you can't figure out why they should be a landlord. I'm going to send you like a free pack of ritalin because you need it. I mean, this affordability gap is astonishing. We've never seen anything like this.
Neal Bawa: And that massive gap that you just saw means that the renter behavior is changing. About 20 years ago only about 27% of renters stayed as renters for more than 5 years. That number is now up to 30, 34, almost 34%. So they're staying longer. And that's raising profits for landlords. Part of the problem is that relocation expenses have almost doubled in the last 5 years, you know, U-haul costs more broker fees cost more. And so people are just staying where they are. They're not moving as much
Neal Bawa: as a result of all of these things. Right? The renewal rates in the United States, for rentals are rising. So in the blue you can see that there's going up for class A properties in orange. They're going up for class B properties and in gray they've already risen for class C properties. Right? These are the best numbers that we've seen for rent renewals in a long time. Now, if you're in the landlord business, you know that our biggest cost is turnover, right churn.
Neal Bawa: And now we're starting to see historically low numbers for turnovers, because people simply can't afford to leave.
Neal Bawa: And now everything
Neal Bawa: you know that I've showed you, that's just all of this was just a little teaser of what the big guys the institutional guys are seeing in the data they've got, you know, a thousand bean counters looking at this stuff, and they're extraordinarily bullish about the rental business, right? So the institutions went crazy. In 2021 and 2022 bought everything in sight. Now they've been a little more balanced, but if you look at it, these bars, which are during very high interest rates, are still comparable to, let's say, 2015, or 2016.
Neal Bawa: And so there's massive transaction activity, even though interest rates are extremely high. And they're putting massive amounts of money into rentals.
Neal Bawa: And those guys, these big guys, they pay a huge amount of attention to construction pipelines, because by now everybody that follows rentals should know that supply is a very big deal. Right? More supply means lower rent growth. And when we look at this graph, basically, a huge portion of supply is just going into these 3 green areas, these 3 here, right. So everyone's building an industrial because of AI, everyone's building data centers because of AI
Neal Bawa: and everyone's building healthcare buildings because Americans are getting older. Right? Multifamily. On the other hand, is balanced, especially in the next 2 years. Not building too much, not building too little office is balanced because the demand for offices is going down. So the real threat of incoming supply is if you're buying industrial properties right now.
Neal Bawa: Okay, this has got to be my favorite slide of all time. This is the Yay slide, right? There's a lot of slide a lot on this slide. But but focus, don't look at this green line. Just ignore that right? Just focus on these blue bars right in Q. 4, 2024 in the last quarter.
Neal Bawa: right? We absorbed a 667,000 new apartment units on an annualized basis. The Us. Absorbed that many. That's an absolutely mind boggling batshit crazy number. And yes, it has happened before once here, right? But the government was helicoptering trillions of dollars into people's pockets, and that money is gone now. And for it to happen again is just mind boggling right? It's stunning. It's nuts.
Neal Bawa: We weren't so beaten down by all the interest rate issues in the last 2 years. We'd all be openly celebrating. We'd be so throwing massive parties because this number is phenomenal, because America is producing record number of rental households, massive absorption. That's phenomenal for the rental industry.
Neal Bawa: So absorption is the best ever right. What about supply? Whether you're a single family landlord or you're a multifamily landlord, we know that incoming supply in multifamily will hurt, you know, rents, whether you're a single family landlord or multifamily. Guy, right? Here's the best news. Look at 2024 supply.
Neal Bawa: Wow! 690,000 units record, right? And we pretty much absorbed all of them. Right? That's why we didn't get much rent growth in 2024 vacancies actually picked up occupancy dropped. But now take a look at completions for 2025, the red Bar. We're going to deliver less than half of the units that we delivered in 2024, less than half, and that's why every single, every single rent prediction for 2025, single family, or multifamily, is massively bullish.
Neal Bawa: We probably won't absorb as many units as we did last year, but I'll be damned if we don't need it more than the 342,000 that we're going to build.
Neal Bawa: And what happens when demand is higher than supply rents. Spike, they don't spike evenly boomtowns, southeast markets. They still have a lot of delivering 2025 inventory. They're likely to see smaller rent gains than markets like Indianapolis or Kansas City, because those don't have much supply in 2025. And that's why Kansas City is projecting 6% rent growth where Boomtown metros are projecting 2%. 3%.
Neal Bawa: So where are the markets that have a lot of delivery still coming in? Well, that sun right here should clue you in almost all of the supply of rentals is in the Sun Belt. So Charlotte and Miami and Nashville, Raleigh, Orlando, Phoenix, Fort Lauderdale, Austin. They all have a lot of supply coming in right now as a percentage of their total inventory, all of these numbers are better than they were last year.
Neal Bawa: For every market in this list right the markets at the bottom of the list, like San Antonio and San Jose Vegas don't actually have a lot of new inventory coming this year. So they peaked in supply last year. So you want to be careful buying in the markets that are in the top half of the graph on the left or the graph on the right.
Neal Bawa: and, you know, be more bullish about buying in the markets that are in the bottom half.
Neal Bawa: But, Neil, what about vacancy? Right? You mentioned that vacancy went up in 2024. Yes, and, as you can see in this graph, vacancy did go up last year right. But Costar now believes this is the the most important analytical vendor in our industry that we've hit the peak of vacancy. And now we should show a downward trend. Why? Because supply is reducing.
Neal Bawa: And since I'm a real estate guy, I'll always say good things about multifamily, right?
Neal Bawa: Well, that's why we have data right here. You can see rent growth in the United States. Pretty awful for this entire, almost 2 year period. Pretty awful. Call it 1% nationally right, probably negative for the sun belt metros because they had a lot of supply. But here you can see a very conservative 3rd party vendor like Costar, is showing a very aggressive acceleration in rent growth in every quarter of this year. Right?
Neal Bawa: And we grabbed this graph before those Q. 4 numbers came in. Those numbers are so incredible that I'm sure this graph actually needs to be tweaked upwards for every one of these bars. So the industry is very bullish for rent growth, except maybe Texas and Florida. They're going to take a year to get to this point.
Neal Bawa: Kansas City is likely to have the highest rent growth for the year, so, coming in over 6% among sunbelt markets. Vegas is coming back strongly. Charlotte is doing surprisingly well given how much incoming supply it had on the bottom side, you see, unfortunately, San Antonio and Austin, they're struggling to rebound. I have properties there, and we're struggling
Neal Bawa: too much supply. Every other market in the United States is positive rent growth so good to see sun Belt markets like Atlanta and Raleigh and Phoenix and Houston, Jacksonville, all above 2% rent growth after being 0 or negative for the last year and a half so pretty much across the board, rebound or recovery.
Neal Bawa: So all of this stuff, everything that I just gave you applies for single family and multifamily. So this supply, the demand, the occupancy, the rent growth that leads us finally to deal flow and sales, volume sales prices, and, as you can see, the industry is actually very bullish on sales volume for multifamily in 2025, which also affects single family landlords.
Neal Bawa: So for those of you that are multifamily cap rates in the United States are finally going down after going up right? So cbre projects that cap rates will fall by 17 to 25 basis points. And so for those of you who don't know cap rates go down, prices go up.
Neal Bawa: There are a few people that might be worried about what they're hearing in the news about rising. Delinquency rates in multifamily. Right? Delinquency means properties that are not paying their mortgage. Yes, they're going up right here. Take a look
Neal Bawa: right? They're going up pretty fast in the last 2 quarters, right? So about 3 and a half percent of multifamily properties are now delinquent. So they're behind on rents office. By the way, right here, 11.5%. So yes, we're seeing an increase, which means that we'll get some properties that will be sold at discount prices in 2025
Neal Bawa: before this stabilizes over the next year. Right? So yes, you're correct that their delinquencies are going up. So there's probably still going to be some deals in 2025, especially in the 1st half of the year before the rent growth reduces the delinquency. Remember, if we raise rents by 4%, a lot of the properties that are delinquent will be able to pay their mortgage, so we expect that to flatten out in the second half
Neal Bawa: of the year.
Neal Bawa: What about financing? Well, I'll just say this, you know that Fannie, Mae and Freddie Mac, the 2 organizations that finance a lot of the United States, whether for single family or multifamily, are very bullish. They have a lot of money to play with because they didn't spend as much last year. So you notice, you know, these 2 years they didn't spend much these 2 years they spent a lot. So they've got a bunch of cash, and they're ready to fund. Financing is is quite available.
Neal Bawa: So in my mind.
Neal Bawa: I don't think it's a good time to buy single family, because single family did not, course, correct. In the 2 bad years of 2023, or 2024 single family prices are about 10% higher than they were in 2022 before the interest rates started going up. They should have corrected. They did not correct. On the other hand, multifamily, apartments are a little over 20% cheaper than the 2022 peak. Some markets are 25% cheaper. So our summary is that rates will fall probably twice a year.
Neal Bawa: Prices will still be available about 20% below peak. For multifamily the economy should be stable, and the rent versus buy ratio will still be massively in the favor of renting for the foreseeable future. The rest is up to you.
Neal Bawa: It's now time for me to finish with the city by city shootout. I know lots of you like to see that. So let's get started.
Neal Bawa: but before that I want to point out that the way to connect with us. We do 10 of these presentations. Every year 14,000 people attend them. We have a club called the Investor Club. You don't actually need to invest to be in that club. And so we we have 10 presentations a year at this website, multifamily University.
Neal Bawa: and you can come join us. Everyone gets access to all the presentations for free the people at the silver level. You essentially have to have a meeting with us. Once get access to them for the whole year. They also get access to the slide decks and cliff notes and a bunch of other live online events that others don't get access to again. There's no subscription. There's no, we don't. We don't want to need you to buy anything, simply come, join our ecosystem, and to do that
Neal Bawa: you can go to Multifamilyu Slash Club. I'll put that link in the URL for those of you that would want to go there. Now.
Neal Bawa: you know. Just zap this barcode, we promise you won't be paying anything for this. We like having more people in our ecosystem that think like us. So we're growing a community.
Neal Bawa: Okay?
Neal Bawa: Time for the shootout best cities. We always start with U-haul. So this year's winner was surprising. South Carolina beat Texas for the 1st time. I guess it makes sense because Texas is becoming more expensive. People want to migrate to inexpensive States.
Neal Bawa: Florida, North Carolina are pretty much where they were last year. Texas moved down one level. The most important statistic, though on this slide is Indiana. Indiana is up 27 spots to number 8 1st time it's made this list, and it's moving at an astonishing speed. So keep an eye on Indiana.
Neal Bawa: Our favorite city ranking group is the Milken Institute. Right over the last 10 years. Our projections for best cities have very much matched with theirs, but we usually come in a year before them. We don't have a big brand, you know. We tell people what we think. So, for example, their pick for city of the year, Raleigh, North Carolina. That was our pick in this presentation at entrust last year.
Neal Bawa: We've also picked Austin in the past before they did. The most interesting city in this list is Ogden, Utah. If you don't know about Ogden definitely take a look at Ogden. We also love love the Northwest Arkansas area. So one of the cities in that list is Fayetteville, number 7 on the list. So fantastic area, incredible growth.
Neal Bawa: Here's a list of best performing small little cities from Milken same source. These are the cities that typically have 150,000 people or lower. Once again in the past we've already picked St. George. We've already picked. Idaho Falls in the last few years in our entrust presentation so wonderful to see them come in at Number 2 and Number 3. I recommend these if you're interested in small cities.
Neal Bawa: Zillow! Zillow's list has buffalo repeating for the second year at Number one, what's really exciting for me is to see this one Indianapolis. Right? We've been talking about Indy for a while. It was a runner up last year, also great to see Kansas City at Number 8 doesn't quite have the momentum of Indy, but both cities are doing extremely well compared to the past 10 years. Philadelphia is a perennial underperformer, so it's nice to see
Neal Bawa: in the list. So if you're a single family guy, you might want to see. Look at Philly, but it's really hard to beat Indianapolis, because it has much greater population growth than either Buffalo or Philly.
Neal Bawa: and that last list was single family. This list is for those of you that are on the apartment side. Right? So what do I like here? I really like Vegas? Right? So this market is changing just like Phoenix changed after the great recession into a very broad market. We're seeing that happen with Vegas because it's gaining all kinds of jobs not just related to gambling and tourism. A lot of people leaving California to go to Vegas. So strong thumbs up.
Neal Bawa: This list is for this is the final list. So this is for single family, and it's only for long term, buy and hold people. So it's not a Flip year list. It's not a 3 year list. It's not a 5 year list. 10 years. We like this list. It made a lot of sense to us. Yes, Philadelphia. Good market for a 10 year. Timeframe definitely. Look at it, number 5. Here is Centerton, Arkansas, another city in the northwest Arkansas, Metro.
Neal Bawa: You saw Fayetteville a couple of slides ago. Gainesville is interesting, but our favorite in this list is Carmel, Indiana. This is in the Indianapolis Metro. It's in the best part of the city. So if you're looking at a 10 year investment, you probably can't go wrong with Carmel, Indiana, or the city that's physically located next to Carmel, which is fishers, Indiana. So those are our recommendations, or those are the other people's recommendations for best cities to invest
Neal Bawa: in. Hopefully, you took some notes.
Neal Bawa: and our last couple of slides is me sticking out my neck and making 2 predictions. So I pick the best up and coming market in the Us. Those usually tend to be smaller markets that I think have potential. And then I pick what I consider to be the best market for real estate investment in 2025. So my pick for best up and coming market this year is
Neal Bawa: Las Vegas. This is the 1st time we've featured Vegas in the last 11 years, but the numbers are just too good, right? So many good numbers. So we highlighted just one population growth over the last 3 years, for Vegas has been 4 and a half times faster than the national average. Even Texas doesn't see that kind of growth. So there's just a lot going on in Vegas beyond the casinos and the tourism so enthusiastic 2 thumbs up as the best up and coming market in the Us.
Neal Bawa: And Drumroll, our pick for the best market in the Us. For 2025 is
Neal Bawa: Indianapolis, so we could have picked Vegas. But they're both big markets. But we picked Indy because we're seeing a higher quality of job growth in Indy a significant institutional interest. Maybe because Vegas doesn't have a good name, strong rent growth, very little supply, you know. Terrific market for single family, terrific for multifamily investors.
Neal Bawa: If you're looking at multifamily. Look at fishers, Indiana, if you're looking at single family, look at Carmel, Indiana. These are both inside of the Metro. So we're actually very pleased to have a city in the Midwest, finally, be in our best market in the Us.
Neal Bawa: 1st time that's ever happened. So go Midwest.
Neal Bawa: and that is our presentation. Thank you all for your time, and I'll hand it over to Bill in case you have questions. I'm happy to answer questions about any cities, including cities that I didn't mention in this presentation.
Bill Neville: So what do we got next? Slide? What? What are our next slides.
Neal Bawa: Let's see, we've got this one. We covered that one, and then we've got that one here.
Bill Neville: Okay, yeah. So we're gonna we'll send out these. This link to this video. We also post on our website. And we have a Youtube page that'll be on there
Bill Neville: and feel free to register for our upcoming Webinar March, which is going to explain. Ira Llcs. The pros cons and essential roles of having an Llc inside your Ira.
Bill Neville: And let's get our yeah. Go to our website. Follow us on social media. Blah, blah, blah!
Bill Neville: Let's get our let's get our contact information up. I think that's probably on the next. Yeah, there we go. Let's leave that up. All right. Let's get to the questions. Again. Feel free to
Bill Neville: type in the Q&A. And we'll answer them all we've got a handful on already. Teed up here. 1st question is, is it permissible to share these slides on social media? I mean from an interest standpoint, Andrew, I don't. I mean, we're going to send you the link. I mean, if you want to. If you want to put the link on social media, I don't think we have a problem with it.
Neal Bawa: Well, I think it's important that if you share a slide, so you notice that every slide has a source link, it says something like co-star. So and so report. Don't take those links off because those people are very sensitive. They want to make sure that if you're using their slides you're using their data, you still have that little tagline at the bottom that says, taken from so and so report other than that. Sure, why not?
Bill Neville: Yep
Bill Neville: again. I mean, we say, sharing slides, we're not going to send you the slides, but you'll get. You'll get a link to the presentation. Right? So, yeah, I mean more. That's more.
Bill Neville: Get the word out for both of us.
Bill Neville: Next question, Neil. Isn't this going to be very different. And this was asked at the very beginning. Part of your
Bill Neville: presentation says, Isn't this going to be very different with all the government out cut backs and the cuts employers will make as a result. That's when you know you were going over the very, very part of the presentation.
Neal Bawa: I think this is a very common question. So, Nancy, for a moment I need your permission for me to get a little bit geeky. All right. So if you look at the Us. We're a country of 337 million people. About 200 million people work. The rest are, you know, retired or or kids
Neal Bawa: out of those 200 million, the total size of the Federal Government, which is the only area that that trump has control over is 3 million. Okay? If he fires every single person in the Us. Government.
Neal Bawa: the total unemployment rate would go from 4% to 4.4%. Now, he's looking to fire between 10 and 20% of the people in the Federal government. So 3.3 million people, that means he fires 300,000 or 600,000. Let's look at the worst case example. He fires 20%. I don't think the Republicans will ever let him do that. But let's just assume the worst case. 600,000
Neal Bawa: people lost job losses over a year is going to move the unemployment rate barely to 4.3 4.4, maybe 4.5 at the most.
Neal Bawa: Is it going to hurt a little bit? Sure. But keep in mind that there's a plus to that. When 600,000 people lose their jobs. Nancy, those people are not spending as much money anymore. They're not going on vacations. They're not buying homes. They're not buying cars. So inflation comes down. There's a yin and a yang for everything. So are we going to lose jobs? Yes. And is that going to actually reduce inflation? Yes, we can't be arguing at the same time. Well, people are losing jobs, but inflation is going to go up.
Bill Neville: Okay. Another one that was asked pretty early in your presentation on a percentage basis, how much additional energy will be required to maintain the growth in AI over the next 5 years.
Neal Bawa: Well, my answer was completely different. On January 19th it was too much. My answer was, we would require an insane amount of water, because data centers are cooled by waters, and we would require an insane amount of energy as much as 50% more than the United States produces. That is no longer the answer. Deep will come to be known over time as one of the greatest breakthroughs of all time in technology
Neal Bawa: deep 3 deepseq made 2 incredible breakthroughs, one at the hardware level, one at the software level. And as a result, the cost of AI Per Token. When when you ask a question of AI,
Neal Bawa: that's a token right? And if it's a longer question, it's multiple tokens. The cost of tokens is expected to fall by 90%. So now, I'm thinking we need maybe 10% to 15% growth in electricity cost in the Us. That's still a lot. We're talking about 30, 40 new nuclear plants. But have you noticed that all tech companies are looking to buy nuclear plants and build nuclear plants because they want their energy to be cheap because they're the ones paying for this
Neal Bawa: more than anybody else, because because of what Deepseq did. I don't think anybody will ever pay for chat gpt a year from now, all of this stuff is going to be free, just like Google is free. You've never paid for Google. You've never logged into Google. It's been free. Well, AI became free because of deepseq. So yes, and additional energy. But I'm much more bullish now than I was on the 19th of January, when I was like, where are we going to find all this energy for AI.
Neal Bawa: But thanks to Deepseq, we need a lot less energy.
Bill Neville: This question was asked when you had posted the projected mortgage rates by the different agencies? Are the mortgage rates traditional, or Dscr Rates.
Neal Bawa: Traditional. So the mortgage rates that I had up on that slide the 6.3%, or whatever it is. Those were traditional.
Bill Neville: Excuse me the next one's just a comment from heather engaging and insightful presentation.
Bill Neville: Please explain cap rate.
Neal Bawa: Cap rate is the multiple that you get. Let's say you have $1 of income
Neal Bawa: cap rate allows you to calculate the multiple that you get, you know, when you buy a taco bell, you might pay 15 times its income
Neal Bawa: to buy it. When you buy multifamily, it might be 20 times its income. Right? Cap rate is a mechanism that allows the industry to understand how many multiples you get in a market in Los Angeles or San Francisco Bay Area. We get 25 times the income multiple in in Louisiana we might get only 10 times the multiple because Louisiana is the weakest market in the Us. And that's what Cap rates do. It's it's an internal market at
Neal Bawa: terminology that we use to figure out. You know how many multiples of each dollar of income you're going to pay to buy a property.
Bill Neville: Okay. What about upcoming elderly living and sober living and detox.
Neal Bawa: So I'll address sober living and detox first.st I understand that people think that there's millions of people that need to go into detox. I don't think so. I think that we are seeing some tick up on the alcoholism side. We're seeing some increase there, but still those are very tiny numbers now, elderly living or senior living, as you mentioned, is a very significant thing, George. Right? There's a lot of demand there, but there's also a lot of supply.
Neal Bawa: It's useful for you to spend 5 min with Chat Gpt, and ask this question, what is the occupancy of senior living in the United States? And what is the occupancy of multifamily, you'll notice that for apartments occupancy is much higher for senior living it's much lower, and you might scratch your head going. Yeah. But I've heard about all these people getting older.
Neal Bawa: Yeah. But can they really afford the senior living facilities at $4,000 or $5,000 a month in rent. So from an investment perspective, one can simply assume that all of these people are going to go live in senior living because George. Some of them are going to go live in somebody's basement. Some of them are going to go live in cars, so there's an unfortunate problem there. But a lot of the senior living facilities are very expensive. They start at 3,000 in some markets. They go up to 6,000, and it's unclear whether
Neal Bawa: the there's there's profit there, right? And that's why occupancy there is low, even though the demand is high.
Bill Neville: I think we did a Andrew, correct me if I'm wrong, but I think we did an a presentation. We did a webinar with
Bill Neville: an elderly, elderly senior, living
Bill Neville: like investment opportunity. I think if not, we ought to consider doing that as one of our.
Neal Bawa: I think it's a good market, but you may. I think the market is really on the lower end, where people are doing smaller homes and and turning them into it into senior living. That seems to be more profitable than basically building a 200 unit and expecting it to fill up.
Bill Neville: It is. Yeah, I agree. We we
Bill Neville: A few years ago we had a table at like some senior living, you know. Event. And that was a big talk. Was people taking these like sort of maybe
Bill Neville: 5 to 10 bedroom homes or or turning it into a 5 or 10 bedroom home, using it for for senior living.
Neal Bawa: That works.
Bill Neville: Next one. Just thank you. Both cheers the future. Let's have a great year. You, too, Gordana.
Bill Neville: What is your prediction for the Los Angeles market for multifamily.
Neal Bawa: It's a strong market and will continue to do well. It's just not a cash flow market. The people that invest in Los Angeles believe in the 10 year 15 year future. So they invest. There's extremely low cash flow. In fact, only New York and San Francisco have lower cash flow than Los Angeles. So it is a 10 year market for extremely patient people.
Bill Neville: Opinion of growth in Charleston, South Carolina.
Neal Bawa: 12 months ago Charleston was the fastest growing market in the United States. Now it is simply a fast growing market, so I just continue watching to see if it keeps slowing down. If it doesn't slow down, it's still in the top tier overall. I like South Carolina. The only thing that scares the crap out of me is, if Charleston takes a direct hit, what'll happen to insurance? It's already one of the highest in the Us. If it takes a direct hit from a hurricane.
Neal Bawa: its insurance will go up to like 3, 4, 5,000 a unit per year. How do you make money? If your insurance is 5,000, a unit.
Bill Neville: I don't know if this is
Bill Neville: enough of a question for you to answer. Neil just says, What about adu in different market.
Neal Bawa: Yeah, I think you know, a accessory dwelling unit or adu is a way for basically, you to have, you know, use your backyard and have one or 2 more units in your backyard. California has been experimenting with adus for the last, you know, 10 years, and their experience has been dismal. So individual people have done well with adus. But the cost of basically taking plumbing and every.
Bill Neville: You know.
Neal Bawa: To the adus means that we've built very few of these. I mean, politicians thought that we would end up building hundreds of thousands of adus. We built thousands. So when you look at the Us market, this isn't a solution. It's something interesting.
Bill Neville: Okay. Next question says, any further thoughts about Btr, where's Btr built to rent.
Neal Bawa: Oh, okay.
Neal Bawa: in my mind, the most powerful segment of apartments. So we build about 600,000 apartments in a year, and I think the top 15% of that is built to rent, mostly townhomes. Now, 5 years 6 years ago, when we were doing build to rent, we were building single families for rental.
Neal Bawa: but the cost went up like crazy because of inflation and supply chain. And so now most of the people that are building built to rent like I'm building. 1,000 units are building townhomes. So I have a company called Mission 10 K. That's building 10,000 townhomes for rent. All of those are Btr. All of those are for the mid market. So it's a growing sector, but only works in certain markets where construction costs are low, because otherwise it just doesn't work as well as apartments does, and it's never going to be as big as apartments. If you build 600,000 apartments. We might build
Neal Bawa: 100,000 Btr. Or 90,000 btr, but it's a really good concept, because everybody gets a garage and everybody gets a backyard, and so they have that feeling of a home which you don't get in an apartment. So it's a it's a growing market.
Bill Neville: The next person says, I live in Los Angeles, and have driven through Las Vegas recently it appears that apartment building construction has exploded as a small multifamily investor. What investment opportunities should be looking, for, for example, existing 5 plus buildings.
Neal Bawa: I think 5 plus buildings is where it's at. I just don't know if it's in Vegas or in Los Angeles. I think Los Angeles is very expensive, so is Vegas. You may want to look at other markets like Reno, for example, is a much better market than Vegas in terms of cash flow. Plenty of 5 plus units in Reno, and you're not going to be paying as much as you would in Los Angeles.
Bill Neville: Next one asks, Have you fed? Have you fed your presentation into whisper, and asked it to summarize and then ask it to present the key points. I mean.
Bill Neville: we don't do that.
Neal Bawa: We haven't done that, but we do create summaries of all of my presentations. We don't use the whisper tool we use, chat gpt plus, and it does a really good job of summarizing it. Those summaries are stored on multifamily university, and you're welcome to them. They're always free.
Bill Neville: Next one says, what will be the catalyst that brings single family real estate back into line, slash affordability.
Neal Bawa: As far as I know, no one in the world knows the answer to that. Despite the shocking unaffordability of the Us. Market, we are the most affordable developed country in the world. If you look at the affordability in Canada or in the Uk, or in Switzerland, or in Singapore or in Japan we look fantastically affordable. So, as far as I know, absolutely no one has figured out the answer to that question.
Bill Neville: Sorry I muted myself so that I could cough.
Bill Neville: What's your take on other midwest markets? It seems that there's a lot of positive momentum moving up the center of the country. Also, can you flesh out your comment that a big component of costs were environmental mandates?
Bill Neville: How much control does Federal Government have over these mandates.
Neal Bawa: So midwest markets very bullish on Midwest. I'm typically not a person that's bullish on Midwest. I like the southeast, the boom markets more. But the Midwest markets right now are in a very good place because they're starting to see more job growth. What's happening is the southeast markets, which are very inexpensive, are actually beginning to get pretty expensive right? So Nashville is expensive and Dallas is expensive. Houston's expensive. So some of the cheaper southeast markets, which is why people are going. There are no longer
Neal Bawa: as cheap. So the Midwest is not starting to compete with the southeast markets in terms of jobs. So, for example, Kansas City and Indianapolis are not considered great population growth markets, but both right now have strong population growth. Indianapolis has incredible population growth, so it seems like the Midwest is having its moment right now. Also, if trump does, instead of using tariffs as a negotiation strategy, if you actually
Neal Bawa: goes all out and tariffs. The whole world. Markets in the Midwest will benefit more because they have the industrial base. Right? We didn't build the industrial base in these new southeast markets. We built it in places like Kansas City and Oklahoma City, so they would start to benefit from that, though probably not this year. But it would take a while, and then they would start to benefit. They've got the freeways. They've got the train systems. So the Midwest has a lot going for it in the future, which it didn't before.
Bill Neville: I'm going to add a comment. Here, Neil, I just looked through the rest of the questions. I think this is the 1st webinar that I've done, not just with you, but in total, where there wasn't a single question about self-directed Iras.
Neal Bawa: Oh, just well.
Bill Neville: Pointing that.
Neal Bawa: All of the questions are about several self, directed Ira, because if they like real estate, I mean, that's the best way to invest right.
Bill Neville: Yeah. But you know what I mean. All right. So next question says, will nuclear
Bill Neville: be the main source of energy to support the growth of AI.
Neal Bawa: I think it's a combination of nuclear and solar plus batteries. Swv, which is solar wind batteries, is a powerful methodology. I think we were applying it in a very woke and stupid fashion. I don't think that we should be installing solar in New York and New Jersey. I think we should be installing it in Texas, which is seeing incredible growth in solar and wind, because Texas is a windy state, and it's also a sunny state. So I think there needs to be some rationalizing of the way that we install solar wind batteries.
Neal Bawa: I think nuclear is phenomenal. I think that the greatest mistake that this country ever made was dissing nuclear. I think new nuclear makes sense. Yes, it's expensive.
Neal Bawa: but it it still makes sense to have nuclear in the mix.
Bill Neville: I like this next question. Now that employers are requiring employees to go back into the office versus working from home, what impact will that have on renters or possible homeownership, ie. Workers, need to be closer to work site.
Neal Bawa: So here's the problem. Jesse, right? You. You see a headline. Jp. Morgan boss says people must work 5 days a week. You see another headline saying, Facebook is calling its workers in.
Neal Bawa: Here's the big question.
Neal Bawa: what percentage of American employers are calling workers back in that percentage is very low. It's just so. So you can't look at the headlines and say, Well, Jp. Morgan is is everything, or Facebook is everything.
Neal Bawa: We are still seeing massively elevated work from home numbers, and they don't seem to be changing. So Pre pre covid around 9% of America worked.
Neal Bawa: you know, from home. And now those numbers are somewhere around 1920%. At 1%. Of course, they were at 27. But this 1920, it seems to be steady, regardless of what you're seeing in the newspaper. So we are in a new world when it comes to people working from home, and because that number is not dropping. Now it's been flat for the last 6 months.
Neal Bawa: I think we're just at 18%. And so I think that this concept of I can stay further away from my office, is here to stay.
Bill Neville: It peaked at 27%.
Neal Bawa: Yes. So 27%. Well, obviously not the 2 months that the Us. Was shut down. But once people went back into the office. It was at 27.
Bill Neville: So the 27 to where it's now down to 1920. Was that gradual, or is that all happened within the last like.
Neal Bawa: It was gradual. But it's definitely flat. Now. We are not seeing any reduction for basically for every Jp. Morgan, there's somebody out there letting people, you know, work from home, so that number is flat.
Bill Neville: Yeah.
Bill Neville: here. The follow up from this person, I think, just says, need for homeless and sober living after detox, large facilities take years to open small 4 bedroom home open in 90 days. Roi, 35 to 50% annually. It's not a question more of a comment. I don't know if you have anything you want to.
Neal Bawa: I'll say I don't know about 35% annual rois. I would say that. Yes, that small home market, turning into senior living is much more viable than these big boxes. Big boxes on the senior living side have been really suffering in terms of occupancy.
Bill Neville: You can do that investment inside your retirement account.
Neal Bawa: Yeah, Missoula, Montana was an interesting city on your top. 2,025 list. Can you comment on other small cities in the mountain west.
Neal Bawa: I like Missoula. I like a bunch of other Montana cities, but what I can tell you is that the jobs, the high quality jobs are not there, and the prices have gone crazy. I mean, Montana's had some of the highest home price growth in the last 3 years, I mean even markets like Florida don't match what has happened in Montana. So I think the market needs to take a breather right? I'd love to see more high quality jobs in Montana. Not just tourism, I mean, how much tourism can you afford
Neal Bawa: right before before? It's just too much. So I think, what are the jobs.
Bill Neville: What is the best way to invest into Las Vegas or Indie real estate, without actually buying a house or apartment building.
Neal Bawa: Well, firstly, I'll pitch what I do. I buy and build buildings, and I am currently looking to build or buy in Las Vegas and Indy. It's been hard to find existing buildings. So mostly building. Now, if you're looking to invest into senior living, you'd have to find other people that do what I do. So Google, Senior living syndications and you might find people that do what I do. But they're doing it in the senior family realm.
Bill Neville: Yeah, I mean, you can invest it with a you know, into a Syndicator Fund type thing, real estate fund. But
Bill Neville: you'd have to, you'd have to research it right.
Bill Neville: Yep, yep, somewhere.
Bill Neville: Research with.
Neal Bawa: Required there. Yeah. And you could do.
Bill Neville: That inside your self, directed Ira.
Neal Bawa: We have lots of lots of people. By the way, about 25% of our investors are using self-directed Ira. And I think entrust is probably the largest Ira group that's invested through us.
Bill Neville: Next person. Okay, so it's an anonymous attendee and just says, Contact me, please, if you're still listening, there's our contact information. I'm assuming you're directing that at Neil. But
Bill Neville: you're gonna have to contact us. Next question just says simply, workforce housing with a question mark.
Neal Bawa: Workforce housing is one of those, you know, things that we love to talk about, especially for politicians.
Neal Bawa: Nobody does workforce housing in the United States. The last time we did it seriously was during Clinton's time, which was, you know, 117,000 units. Last year we built 17,000. Workforce housing is not a real thing in this country, because nobody's paying for it. So the only thing that works is paid housing is is, you know, housing for profit. We haven't seen workforce housing be a factor in us. Housing for 2 decades.
Bill Neville: Okay, Neil, are you saying boarding care in a home as opposed to senior living.
Neal Bawa: Yes, but it is.
Bill Neville: 5 min.
Neal Bawa: Is senior living right? People are actually living in that home, and there is a nurse that's being provided. So in sort of a call it Senior Living Light.
Bill Neville: Okay. Great Webinar. Thanks, George. How about Oklahoma City?
Neal Bawa: I really like Oklahoma City, I mean, I have to say this. I've never been fond of Oklahoma City. It's a rugged market. It tends to have low incomes. It tends to have high crime, but it's having its moment. I mean, it's unavoidable that both Oklahoma City and Tulsa are doing quite well. Am I investing there? No, because I like to build and.
Bill Neville: The answers.
Neal Bawa: Still not high enough. But
Neal Bawa: I have gone from being an Oklahoma city basher to somebody who's grudgingly positive.
Bill Neville: Okay. So I finally got a couple here. That's towards me on self-directed Iras. I'm going to read them both because they're both basically asking the same thing. 1st question says, Why is the self-directed Ira the best way to invest in real estate? Don't you lose the benefit of depreciation? Second question says, does it really make sense to invest in multifamily real estate in your Ira when you give up all the tax advantages of owning real estate? All right. So
Bill Neville: you don't get to depreciate on your personal income taxes or take any
Bill Neville: expenses off your personal income taxes. When your Ira owns real estate because it's not you that owns the real estate. It's your Ira that owns the real estate. You're not reporting the income on your taxes when the income comes in because it gets paid to your Ira. So you don't get to write off expenses against income that you're not receiving. So no, you don't get depreciation, and you don't get the tax advantages.
Bill Neville: But what it's saying with a self-directed Ira is simply, if you think real estate is a good investment.
Bill Neville: a self-directed Ira offers you the opportunity to invest in real estate inside your Ira. It's really as simple as that. It doesn't come down to the question. Isn't should I invest in real estate inside my self-directed Ira, or outside my self-directed Ira? If the question is, should I invest in real estate inside my Ira, or should I invest in stocks, bonds, or mutual funds inside? My Ira? Right? You're going to invest in something inside your retirement account. I'm assuming, if you have one.
Bill Neville: So the question is, what do you want to invest in inside your retirement account?
Bill Neville: The fact that you invest in real estate outside your Ira doesn't preclude you from also investing in real estate inside your Ira, or vice versa. So I encourage you to not look at it as inside the Ira real estate versus outside the Ira. It's should I invest in real estate inside my Ira, or should I invest in something else inside my Ira
Bill Neville: a self-directed Ira affords you the opportunity to make that choice, whereas, if you have an Ira with a conventional bank or brokerage firm, you don't have the choice. You can only invest in stocks, bonds, and mutual funds.
Neal Bawa: Bill. I want to add one thing to that. And and this is what we've seen as a pattern for our Ira investors. Normally, what happens is when you're using post-tax income. The money that's in your bank account, you want cash flow.
Neal Bawa: and cash flow is very difficult to get these days with real estate because prices are up and rents are not
Neal Bawa: so. A lot of Ira investors actually end up investing in new construction projects. New construction projects are much more profitable in general, but they don't have any cash flow for 3 years, but because the money is going to the cash flow was going to go into your Ira account, anyway, you wouldn't have been able to touch it. So now you have the ability to invest in something that's a brand new building
Neal Bawa: that may have significantly higher returns. And you're okay with that, because you don't care about the cash flow. So we've seen a lot of investors actually benefit from doing that inside of the Ira as opposed to using their post-tax money for new construction.
Bill Neville: Okay, Neil, back to you. Given lower borrowing costs and predictable rent increases going forward. Which return are you forecasting to pay out?
Bill Neville: Excuse me to your investors for 2,020. Actually he can't answer that question.
Neal Bawa: Can't answer that question at all.
Bill Neville: Out returns
Bill Neville: But Fred.
Neal Bawa: Happy to take it offline. Fred.
Neal Bawa: Yeah, we do not answer those questions in Irw.
Bill Neville: Sorry we can't.
Bill Neville: we can't promote specific offerings and talk about returns. That's an interest thing. That's not a Neil thing. Sorry for me if you transfer from a 401 k. To a self-directed Ira, technically a Rollover. Our interest management admin cost fees based on or size of the account.
Bill Neville: Yes, our annual record keeping fee is based on the value of the investment.
Bill Neville: so not based on the size of the account, because your account might hold cash, and we don't charge our fee based on cash. But we do have an annual record keeping fee based on the value of the investment inside the account. It's a flat fee of 1 $99 a year for any invested amount up to 50,000, and then 0 point 1 5% or 15 basis points for anything over 50,000. So, for example, if you invested $100,000, our annual fee would be $274 a year.
Bill Neville: and I'm calculating that as 199 on the 1st 50 and then 0 point 1 5% times, the second 50 is $75, $274 a year. On this case the investment of 100 k.
Bill Neville: or the equivalent of 2.7 4%. So in other words, if you got a 10% return on your investment back out our point 2 7 4, you still get a 9.6
Bill Neville: something percent.
Bill Neville: Okay, flattening property asset appreciation. And around 5% net for rent profit means real estate is lagging behind Nasdaq investments correct.
Neal Bawa: Over a given year. Yes, in the last 2 years real estate, if you only look at those 2 years, has lagged behind Nasdaq, or even the S. And P. 500. Nasdaq's done better than the S. And p. 500 in general, because of AI. But you're not using an apples to apples comparison
Neal Bawa: that 5% that's cash flow. You have to look at what is the global return from real estate. And that does include appreciation because appreciation doesn't just come from.
Neal Bawa: You know the market going up. Appreciation comes when your income goes up, because your rents are going up. Then you tend to get a significant increase in the value of the asset. So you get the cash flow as when you own the asset, and you get that increase at the end. Now, has that happened in the last 2 years? No, because rents have been flat, so they haven't been going up, and values have actually been going downwards. But if you look at
Neal Bawa: where we project the next 3 years, right, we're at the point in the cycle. You saw this in 10 of my graphs where we're peaking in the cycle for challenges and low rent growth and moving into a faster rent growth cycle, we should return to norms by historical norms real estate in the United States, over a million investments
Neal Bawa: outperforms the stock market, 90 plus percent of the time individual years. Sure, there's going to be years where the stock market will outperform us. But over a decade average real estate tends to be higher than stocks, because it's an Illiquid investment, and it's harder to manage.
Bill Neville: Last question for me. Do I have to have a property manager on a rental in an Ira Llc. Andy? No, there is no rule that states that you have to have a property manager for an asset owned inside your Ira. I will add some caveats to that. If you're going to manage the property yourself. You can't pay yourself
Bill Neville: right. You can't treat it as you know. You're the property manager, and you're going to take 10% or whatever. You also, as the account holder, are disqualified person from doing certain physical labor on the property right? So no sweat equity can be devoted to the property.
Bill Neville: Also, I would caution you, if you have so many properties inside your Ira that you're essentially acting as a full-time property manager. Now you might be crossing over into where you should be hiring something else. Now, there's nothing specific in the rules that say when you cross over anything like that. But if you have one property, and you just, you know, once a year, or every couple of years, have to show the property to some tenants.
Bill Neville: Put an ad on Craigslist, or something like that. You hire contractors to do work, etc, etc. You're allowed to be responsible for the asset, but you can't pay yourself to do it
Bill Neville: all right, Neil. Another year. Another great presentation.
Bill Neville: Thanks for having me guys alright. See you next year.
Bill Neville: All right. Sounds good. Take care.