The Best Place to Invest Right Now Based on Data

0:03All right Stefan welcome to living off rentals thanks Kirby thank you for having me here yeah it's great to have you man I I've watched some of the stuff that you've done in the past and it's really interesting and and for the the listeners sake who are are listening to this just by way of background Stefan is a a financial engineer by profession so and he's kind of used what he's learned as a financial engineer in the multif family space he got into he got his Master's in financial engineering from Columbia University and previously managed A90 billion doll derivatives portfolio before taking what he learned in the derivatives market and applying it to the real estate market to make better datadriven decisions he's also the founder of reality

0:52Quant.com so if you want to look him up and look up what he does there I go to realy quant.com so it is great to have you here here I'm excited to get into data and analytics but first your accent sounds different than a regular New York accent I know that's where you're you're calling from so if you could share a little bit of back a little bit of background about where you're from originally and kind of how you got into this yeah absolutely and thank you for the wonderful introduction so I'm Eastern European regionally Bulgarian I came to the states at 22 for my masters BAS basically I did that so I did Masters in financial engineering I worked in the industry like in the finance industry for for about a decade and in the recent couple of years I transition to multif family

1:41Investing and so I'm primarily an investor myself in the New York City area and I also run real Quant which is a company to which aims to that aims to bring like datadriven quantitative techniques to the real estate industry got it yeah cool and so I think just to start off with I think when people start thinking about professional finance and investing World especially when it comes to derivatives you know their eyes can kind of glaze over and they feel like this is just like where do I even begin because there's like it it just seems so complex you know and so you've taken these complex ideas that are more in the professional you know maybe Investment Banking space and applied them into a little bit more simplified investment

2:30Space of of real estate and so can you kind of break down how you do that maybe for somebody who's a little bit more slow like me you know how you use the data and and analytics that you've learned in your previous life in the the real estate to make better Real Estate decisions yes absolutely that's a great question and yeah so so just first to give like an introduction of like how I even started kind of applying some of those things I so I wanted to find like I I started in the real estate Space by purchasing for a fourplex in New Jersey like by New York City I moved in you know like kind of the typical house hacking story I moved into one of the unit you know living rentree sort of you know like the usual you know house hacking strategy and

3:19And I thought okay actually I thought it's a great you know you use leverage there's like some of the cash on cash impl it cash on cash return there there's the capacity the capacity for inefficiency you know to have discount in the price or you know some value out component on certain properties Etc so so I thought it's a great you know great asset I was really happy with it and so so as I started investing you know more professionally I got interested in the I got interested in like using more data for that so I would pull let's say thousands of onm Market listings and then off Market information as well and and I would kind of price them you know entirely so let's say and then if I have like more more specific strategies I would price out those strategies as well let's say for example

4:08One strategy I've been doing in the New York City and this is just like some of my personal background this is kind of to start with so one of the strategies that I strategies that I've been doing in the New York City area is condominium conversions so I would you know I would kind of like pull all the data like multiple you know like multif family units properties and you know have like all the Condominiums you know sales comparisons data Etc and kind of you know like try to find some inefficiency you know some Arbitrage is the Co in finance in the market so that's one thing I have done successfully and then they're having like various other strategies such as okay can you find like with data like some more custom situations where you have a legal four unit that has actually a 50 unit and you can kind of switch appraisal methods

4:56From residential to commercial you know like this kind of effici that's that's one one thing I I have done non-warrantable condos like condos if you have like a small cond building those used to be previously harder to get financing on so you might get a discount on those and sort of trying to find like different opportunities like zoning opportunities Etc so so that was kind of like the essence it's a private you know residential and like very small commercial let's say call it investor so so that's you know that is how I started the motivation was I just wanted to to be efficient I just wanted to be able to do it at scale I wanted to not kind have not have to go through all the pain of you know manual underwriting so that was

5:45That was the motivation I see got it okay and how I mean tactically how are you pulling this data like where are you pulling the data from and what's like what what what are you using to pull the data yeah I mean this is yeah so it's really like multiple it depends on if you we go the off Market trout or on Market Etc now the on Market it's a it's really one one needs to use like various like MOS how is it called like MOS API services like R Services I believe they call them you know to actually do it professionally in my case I would for myself I would just at the time I would just scrape various online sources and you know use that for my own investment decision and obviously not distributed to anyone Etc for off

6:33Market data that could be that's actually very interesting one can sign up for different API vendors like rioto and there's also a vendor called Melissa and even Prospect now Etc and use those vendor apis to collect connect to kind of connect to their endpoints and Source you know like commercial you know owners data and Source in the addition to that various rent estimates and rent data and try to model commercial value ad so what I've been doing like what I've been focusing for example now as a private investor in the in working to shift more towards the commercial spaces actually pulling various off Market data on Commercial properties and trying to price

7:22Out which are the buildings that that are going to have the biggest value out so it's sort of like have them ranked out so if it's this Market let's say it's a to Georgia or you know let's say secondary tertiary markets whatever so what's going to be the biggest out of those you know 100 unit buildings five 50 unit buildings Etc which are the ones that they going to have the biggest value out based on you know what the data is suggesting and and obviously you know get their owner and reach out to all the owners and send out you know the usual way send out all the direct mail Etc but really do it more intelligently where I mean also have all the demographics for pres zip code and and all that so can kind of like I don't even hit on like I don't even mail to zip codes where okay I don't like the you know the economic fundamentals there so so having it

8:10Like super super granular and the property analytics as well and and that but it's really a model it's really a model very comparable to financial models that we used to build at my job before where I would kind of model out what is the what is going to be the commerci what is going to be the the Improvement in value of that building that one can realize is it going to be 25% you know how much you can raise the rent it actually goes pretty Advanced be beyond the rent Improvement potential it also works into you know some of like other income components so it kind of sources rental listings data where some of those rental listings may discuss you know if various commercial multi family buildings charge pet fees administrative fees Etc and then it can compare that

8:58To the the immediate neighborhood or yeah or for example whether you know those buildings that's that particular property charges you know those various utilities let's say or not and compare that to the immediate neighborhood and then actually derive of that what's going to be the NY Improvement like the net operating Improvement and you know to your audience you know to to those of to those of them who may maybe don't know in commercial commercial real estate it's valuation is derived of the net operating inome of the property it's in predominant predominantly the income approach so this is really critical to have this kind of analysis and information to be able to to predict which are the buildings that are going to do the best and and so that's one thing I've been doing and kind of trying to do it at scale and do it for off Market Commercial

9:47Multi Family Properties now and I'm working at Six States at the moment and like pulling various data and trying to set it up I see got it that's interesting so so what of I guess you mentioned several different strategies that you're you're testing out in New York to try to find you know inefficiencies and then now you're working in six different yeah y that's that's what they've been doing in the past few years yeah yeah yeah and now pretty much switching to the commercial space yeah got it okay and what through all that what's been like the the most interesting finds or the the biggest opportunities or maybe is a specific Market or a strategy that you think has the most opportunity good

10:37Question I mean one okay what is one interesting find in my opinion is so if you take if you take markets that are kind of depressed that do not perform very well in price terms so one would expect let's say that's you know normal regular to expect like those those markets would have higher cap rates for example but one interesting find is well in those markets if you actually they do have higher cap rates but they often due to their like extremely depressed status qu it and that's an example of that is like various areas in upstate New York and just to your audience so there can be properties that ought to appraise by the income approach that we discuss that are commercial that have let's say 10 units or six units or something like that but they really have

11:25A bunch of comparables and since markets are really depressed and praisers Sur very conservative and they would kind of end up basically pricing them by comps by comparables and so but one thing I have found is if you do find once you hit kind of the minimum threshold for for unit count there which is not five as would be an ordinary Market but it's maybe 25 or something like that and then that would be actually so then that that would take advantage of the income approach and nevertheless have like really high in efficiency in so so it's kind of having executing a shortterm Equity gain strategy where the property is really turn key and it's or approximately turn key but you just go in like very depressed markets and you just literally just raise the rents and and so that is one thing that I have

12:14That I have found and condominium condominium conversions are another so that's a fairly turn key strategy and I want want to share actually that nearly every strategy that I have done myself has not involved extensive renovation so that's pretty unique so like I have been able to realize and they all have been Equity gain so I have been able everywhere to realize let's say you know an upside of very varying percentages but you know minimum 25% let's say aiming for obviously right it wouldn't make sense otherwise in real estate and and so to realize an equity upside on a Time Horizon of you know six months to a year or maximum of two years roughly is my Target and that has been all on actually sort of stabilized Arbitrage stabilized strategies so that's unique and so like I mentioned the income Improvement commercial

13:02Side is one condominium conversion is second one various restructurings regulatory restructurings like like the well we sort of financing the non warrantable condos so non-warrantable condos that's if you have a small buildings let's say it's a three unit four unit condominium building it was hard to finance that conventionally before one could get a discount for it and then finding out a quality lender who is actually able to offer good terms on the financing to potential buyer it's kind of like an Arbitrage that can result in a in an upside yeah so so really these strategies and the the four unit to five unit thing is another one like I said like working at fourplexes there quite few but there are some fourplexes that might have an attached unit and

13:51It's not a legal unit and I did that once upstage so I bought a four unit it had a a fifth unit I literally put in a smoke detector there whatever whatever like and and that was the only value add and became a five unit and it actually doubl in appraisal but they've been able based on the noi approach based B the no approach got it and even though it's yeah that's correct yeah and it's not a very that's that see it's more doable in cheaper areas it's kind of like a cheaper property so it's not a you know humongous gain but it's still you know kind of doubling the appraise of it and so it's and that they've been able to discover with data and so it's it's really you know the the mindset where you P thousands of listings and even if they're on market then you're you have capacity

14:39Even if those are on Market listings and you don't even do the off-market part it's going to be you know you can pull the the top 0.1% and and in markets that are especially depressed as far as if you're looking for this kind of flipping like Equity gain opportunity then that's that's definitely feasible you know cash flows like they're very high cap rates in some of those markets it's another another strategy I've done Airbnb in New York City as well I mean in the New York City area not New York City like immediately in New Jersey City so that's and that's just as far as my personal strategies got it yeah that's super interesting yeah it's you know as somebody who's like used brute force a lot more than I'd like

15:27To admit rather than using my mind like you know it just it's like such a jux to position you know a lot of people approach real estate investing they're like I I need to go in and get my hands dirty and be the the be the Catalyst for the change in this property in order to realize these gains and they don't feel like it's you know worthwhile gains unless they're the ones like physically going in there and doing rehab or some other you know work to to realize the gains but you're approaching it from the standpoint of where's inconsistencies that I can just exploit that already exist there and just create value where it wasn't and I think that's awesome I I read this book called effortless earlier this year and I reference it all the time it's an awesome book

16:16Greg mckune wrote it and he he talks about that a lot where it's like you know there's all these different ways to get to the outcome that you're after and so why not do things in a more effortless way and so you know I I think this is just such a perfect example that using data to find these little inconsistencies to exploit those things so so how do people work with you said you're working in six markets what like what's your process for working with because it's I would love to like tap into this data as opposed to like trying to figure out how I can pull it all myself is that something that you offer or how how do you work with people yeah well yes so I'm actually currently just right now launching a lead generation tool for commercial multif family

17:04It's going to be up in the next two weeks or so on ron.com I also offer Market data for market valuations so that's something I've been using super super much for like aot of State investing because at the beginning of Co I kind of I was super concerned as to where whe whether I you know like certain markets maybe overvalued you know can you you know kind of to become can you be calm and just invest like continuously you know in the in a potentially downward cycle as well and and and I know many Real Estate Investors they kind of tend to think okay we buy a discounted property we execute our value ad so we're protected you know it's it's partially true of course to the extent if you have a 20% you know baked in you know it's purchase Sur that helps you

17:53And that's a great great approach but I mean you don't want also allow the labor for finding a deal to be wiped out wiped out by a potential downturn so so it did work at the beginning of coid which I felt was which I'm I felt was was good and I was proud of that is like on Market work on Market valuations so my company also publishes that it's on real.com analytics it's it's a market valuations product so they they can see like you know they can purchase a state like and can see all the markets like all the counties in that state and city Etc if they're over borrowed and some appreciation some appreciation perspective so that's basically what that is and I can share actually some of I can share actually Kirby if you like some of that that'

18:41Be great because yeah as you're talking through that I kind of am curious to to know how you determine like is something overvalued and then you know where where you're looking where you think the best opportunities are right now absolutely absolutely so I'm going to share my I'm going to share my screen I know it's a it's a podcast but if people want to go to see the video as well I'm just going to share one SL yeah you could just go to living off rentals YouTube page and watch it on YouTube as well right so that's actually gone very interesting with inflation recently so just to to explain to people like what I what they do here so I just compute a market valuation so I compute like the percentage by which each each state or county is overvalued they do this for 2,700 us counties

19:31And like I mentioned it's published on real.com so what I found was actually very interesting at the beginning of so so I was tracking this since March of last year so that's when I started I just was concerned since April of last year I was concerned about you know coid Etc I did the analysis for myself and I just wanted to find okay I don't want to invest in an overwat place you know and and so what I found was the following so the at the time one moment actually I'm going to show you another another slide first well so so what I found was the for I looked at like what were the biggest drops during the global financial crisis in let's say across States and

20:20Counties and so the the four states that dropped the most at the time were California neev Nevada Nevada Ariz Arizona and for so they dropped you know like 40 50% and so I was curious and then there were other states like Texas that dropped only 4% and you know North Dakota actually stayed flat didn't even drop at all and that was quite interesting so I was wanted to understand like what drove those why why some of some of the markets and you know states are not markets but broad broad you know geographical regions dropped so much and others did not and and so at the time I so I found like this so it's a so it's a real estate valuation based on deviation from historical pricing now

21:08That's like sounds really simple but it really what it does is if you take affordability in different markets and you take deviation versus a moving average window you would you inherently capture other components such as if affordability is getting shifted move moves upward in let's say wi cities like San Francisco and others you know where affordability to find is like what are the home prices versus the the incomes of people there and let's say let's say this ratio is getting you know bigger and bigger over time and we have San Francisco moving from let's say a ratio of six in the past to maybe 20 right now and so so that Dynamic happens due to changes in like population and housing Supply so due to housing shortage and so as you as one is takes

21:56A deviation in affordability versus a moving average window so let's say 20 years back or 10 years back Etc one is able to capture like a component that is not of U of pricing that is not there due to due to incomes population or housing Supply and then for at my company I do it in a the more advanced kind of regression based way but what I what I showed at the time was this kind of simple metric based approach and and so what it showed is that the states of California Nevada Arizona and Florida they were you know like 50 40 50 60% overv and so that was like quite in line with the drops that they experienced and there was like 80 depending on data set 83 to 87% correlation at the state level versus the subsequent

22:45Declines that happened in different states so that that was very high and and the reason for that is you know that it's actually so predictive and I was quite impressed at the time was is you know real estate is a fundamental asset so it's a it's a fundamental asset it's driven by basic fundamentals if something deviates from those it is actually one is actually able to capture it to an extent and it is a bit harder for smaller geographies of course now this correlation drops to about 75% at the county level again this is 2,700 counties predicting the future of them in so the what was the valuation in the peak of 2007 then what it what it was afterwards and so how does that work right now so yeah just to recap too

23:33For people who can't see it so basically showed a chart of how much overvalued each area was each state was between 2007 and 2009 and it it's almost the exact same numbers as how much they dropped in every state or or stayed the same or or went up you know so those areas that are most overvalued were the ones that were hardest hit so yeah so that's interesting to look at today then yes so today I want to give actually kind of a prmo that well that it was when we say today it's really different starting the second quarter of this year okay second and third quarter of this year and different what it was before so

24:22So when I was doing like this talk at in 2020 so in 2020 the US real estate Mark us real estate was fairly valued broadly speaking so there were a couple of states that were overv notably at the time Ido and so that's not on the slide here but just for your audience in 20120 idah who was the only sharply overall State at 25% overvalued from there there were like a bunch of a few of the well performing states were mildly overv like Colorado 13 Arizona 13% Etc and and the states of Florida and Texas where you know as many of your listeners know those are the two big markets for multif family in in the US right and especially this Market cycle and so the states of

25:10Forid and Texas they were staying for four years and I I started doing this in April of 2020 but I have full history quarterly history of valuations like where they were so for four years Florida and Texas stayed in the range of 8 to 10% slightly overw you know so it's well performing markets but it was not a bubble it was not a bubble and so this actually with inflation it shifted in the second quarter of 2021 so in the second quarter of 2021 Idaho which was at 25% sharply kind of abruptly jumped up to 47% and so several other states like Nevada Utah 27% Colorado 20% % Arizona 31%

26:0031 or 32% depending on data set so and the states of for and Texas which I mentioned where those valuations are actually quite consistent like I said like you would one would watch them every quarter the same more very similar numbers they change you know if something obvious you know if a dislocation happens and so forland Texas 8 to 10% they actually doubled in the second quarter of last year to not super high territory but well like 18 19% you know or like 17 in one of the data sets you know something like that and so so that's the situation so with that I I came out I did a video for my webinar kind of saying okay the my personal View and take is the US real estate market

26:48In the the second quarter of last year is actually showing the first indications of a bubble now doesn't mean it's going to it can last for four years ahead so before 2007 US state was super fairly valued in 2002 then between 2003 and 2005 it became over just the course of two year two two years it became very overvalued and then only two years later kind of you know it burst or the correction happened so so that is that and also it's not necessary that the correction does happen it's possible that if something is overvalued let say we have Cado 20% overvalued it's possible that it actually resol in a in a different way such as income super growth that is feasible now because some of those overvaluations are stemming from very high asset inflation that is

27:36Not matched by wages inflation so it's some of the I would say that's some of the caution for investors now to say okay you know if you hear The Narrative of investing hard assets because there is inflation yes I agree that's correct but only if it doesn't result in differential inflation versus wage in which case you might get trapped in a heavily overw an increasingly overwhel place that might correct in the future and so some of that happened in Arizona the second quarter of last year where at least in in this framework where it was you know about just like 15% you know slightly overvalued and kind of double to like 31 32% and and that's because really prices in the first half of last year

28:25In Arizona grew by Statewide like 177% and incomes grew by only 1% and so so it's kind of like this this kind of this location so so some of that might slow down some of that might come down a little bit hopefully actually I'm hoping for that in the scenario of you know wages experiencing like very strong growth so yeah so but it's quite interesting it's quite interesting because like I said there are other there's an economist at boomberg economics were reporting since 2019 like in different countries how overvalued or undervalued they are and us real estate was fairly valued even even until basically until early in 2021 and then Canada Scandinavia like Sweden and

29:14Countries in like o Oceania region like Australia and New Zealand were actually very overvalued and then the United Kingdom to some extent a bit less than them and then us us was actually at Fair valuations in was was quite interesting and that's what we were experiencing as investors that was our intuition it's not like I know people complain about certain properties being like super overv but it wasn't like there wasn't a sense of like a bubble or something like that while last year we started hearing about you know in Arizona like some of the excessive rent growth of like in Phoenix like 20 over 20% and so forth and so my my take is like some of the initial beginnings of of B there you know there's no timing to it there's no sense as to you know how long it's going to last I it's

30:03Hard to that's that's not something I can predict in some of the Cities so boyy in either who some of your audience if they know NE the data scientist multi family investor so so he talks about like you know like good markets to invest and he has often reported boy is the strongest Market this Market cycle this is correct Boise has the strongest price appreciation since it's last Fair valuation so to say but it also went very overvalued and so boyy like my estimates so it's going to change now with the end of year data but my estimates about 58% very very overall City so that's yeah that's that was already even the beginning of coid was already over balled was the most over balled City and that's like out of 800 cities

30:51With more than 50,000 population it's the most overed one there were other well performing cities at the time that were outstanding that were like in the top five or top 10 like Denver which were actually fairly valid so Denver had performed extremely outstanding and yet its incomes and all other fundamentals had had caught up apparently or were fine and then at the beginning of Co was like at 0% now that changed a bit and I can look up like some of the numbers here perhaps Denver is now at 12% or something like that but but again you know like some of the very well performing places that are very trendy with investors only some of them have gone a little bit overwhelmed boisey well Boise very much 58 but then Phoenix I believe this is and this is really an estimate Phoenix went to about 30%

31:42And that's just like that's really just the second and third quarter of last year it was all very much milder before and then a few cities in Texas Essa Texas seems to be the most overvalued one in Texas actually interesting I mean Austin to an extent of course as well so Austin like 23% Salt Lake c22 Etc and how do you I mean I know you're you're looking at primarily it sounds like valuation compared to like income and and so we look at this chart that you've got up now which is each state and so Illinois I notice right away because that's where I'm from it's also the absolute lowest on here so it's showing that it's 16% undervalued

32:32Right now so immediately I think well that must be an opportunity but then I think about just having sold all my assets there because it was miserable to to deal with the type of decision- making and taxes and all the stuff that that goes on in Illinois so H how do you I guess how do you decipher through the other factors because this you know if you just looked at this you'd probably think well that's an opportunity I should go buy in Illinois yeah and just to clarify well to clarify actually no because it's it's a little bit counterintuitive but valuation is a measure of downside risk so it's really if a market is overv that's or undervalued so if a market is undervalued it's telling me that it's not going to drop past

33:21The future Peak so all the under valued States in 2007 their average drop was 4% right so 4% was or median drop however so 4% was also the average income drop in the US at the time and so so in essence one can say that in valuation terms they didn't drop high level speaking so it's like their incomes shifted and they shifted with that so that was interesting so it's really so that's this The Narrative for that's the story here for places like Illinois you know and sort of those are those are really the Press States you know they so they're not going to that's not an appreciation predictor just that's the key here like what is the variable we're trying to predict it's only downside so this is the best and actually tested like various things I was looking at forclosure rates I was looking at Price volatility in different markets

34:10So it just it happens to be that real estate is very fundamental driven and it's driven by you know it's driven by incomes population housing Supply and that's kind of what inherently is here because it's it's a it's really those three variables that that come into play and so and so that's you know it's a downside predictor does it predict appreciation if a place is undervalued no it's actually a negative predictor of H so it doesn't it doesn't help to predict appreciation one needs to look at well the usual fundamentals is people look at like job growth population growth Etc or real estate has momentum in most places so for them I did a study for autocorrelation so Auto correlation is how much the price price growth this year correlates

34:58To the price growth last year in let's say Florida and so Florida had like 79% all to correlation so so to if one wants to predict prices whether let's say in currently overall in this framework Arizona are the prices going to perform strong yes in all likelihood they will they will continue performing strong however overvalued it may be they will continue by AO correlation by momentum they will continue going on and on so if I wanted to predict the best best appreciation it's going to be the same places that performed very well which in this point of the cycle do tend to be some places that are actually overbed so it's going to be know Arizona it's going to be Idaho Etc so why because that's what autocorrelation

35:47Is telling us in the date at least that's my perspective so that's what there is momentum there are a few markets like Alaska for example that don't have have actually negative Auto correlation and that's unusual but the majority of them have Trend and that in finance they call this weak form efficiency or weak form inefficiency rather if historical prices if they end up predicting future prices it kind of means the market is not even weak form efficient so in in us real estate by doing this kind of autocorrelation test it's actually in the majority of States and markets it's not weak form efficient and so that's a very quick like easy way like we just the history of prices just pull like what's the auto correlation just like what has been the price performance now to know price per performance one needs to know like where to start like at which time point

36:37So that's kind of what they do like to kind of teaching people how to pick markets so you need to know when Real Estate was fairly because if you take Florida the PRI Florida is according to like investor intuition you know one of the best states so in the whole eastern half of the US is the very best performing state is what every you know most profession professional investors who say and we're big investors invest as well now for the prices at the beginning of Co were roughly at there 2007 Peak so so it's like then it's like one could wonder is this really strong over the long run like a strong performing State and the answer is yes because well in 2007 it was sharply over balled and that those were that was distorted pricing like 50% distorted if you take it at the correct time

37:25Point in 2010 or Etc when it was fairly valued then you get you know the accurate appreciation and then you see the picture okay for is actually the the really strong performing you know state in over there so so so yeah so to pick the best markets is you know running I know regression analysis on population income growth and housing Supply that's so it's it's not hard yeah it's not hard and that that's how you pick like the best markets but because there may be there may be a part where prices perform beyond their fundamentals as it is now it it could actually be more predictive to pick to just purely do a not correlation test on the prices themselves in Arizona let's say and that's going to be our predictor for next year

38:14Appreciation and and you pair this with the downside risk side with Market valuations which is what you know like one of the products that my company offers you pair pair this with Market valuations and now you know okay that's your downside risk after that so so that's what I was wondering is auto coration only works if the market continues to go up right I mean if there's yes crash then it would make more sense to be in a a lower valued market right like a an undervalued Market because you know you're not going to get that out of correlation from the year before because there's obviously totally different Market at that point is going to break abs absolutely that's completely completely correct and at that point it's going and that's why what

39:02I I guess what I say to like some of my colleagues also like investor my my my view is you know like how people like to look at like all those fundamentals population job growth Etc my view is okay those are reflected in the price already now if you want to look at them in the future then it means okay you're trying to inherently you're trying to predict let's say population growth of the past population growth and things like that and I tried doing it and even like even many if people go in Excel and they try to forecast population forward with the like the function that the formula that Excel has I forget the name like forecast something and so that formula even uses machine learning machine learning that for forecasting time series and and so but but try to look at it like I did it like for different regions and you look at like what the population growth projections are going to be and they're totally arbitrary you know it's like really hard

39:51To predict population in the future and and things like that and so if one if let's say syndicators or investors they go and they pick markets okay and they look at oh they've had this population growth this income growth Etc I mean that's already baked into the price you can just look at the price as well you know so so so that's so that's that and and what's not if it's not baked into the price or if it's over baking to the price then that's valuation so to me the purely Market side I have like if on people people look at like some of those like some of those reports here I have like the various you know like income housing Supply fundamentals housing Supply performance Etc and whether housing shortage is developing and things like that but to be frank I don't look at

40:39Them so much myself because it's already all I need to know is the prices where the price are performing what the AO correlation is of them let's say and to know valuation for downside risk and that's it because all fundamentals like I said are baked into the two variables of the current PRI price performance and if that price performance was excessive or underere excessive or you know less or Etc which is valuation so so that is like kind of my you know somewhat a little bit it's both simple and it's also like a little bit unique approach to like to Market selection so here like again like to your question let's say so where can one go at the moment I mean that's a question of risk preference of course and taste so I was doing the choice like I mentioned like you know clicking States for like commercial multi family and

41:28So my choice at the moment is is where it's not trendy it's in the midwest you know and it's potentially just because I happen to be in the Northeast even a little bit for personal investment in the Northeast and now but it's really places like well actually where you are Indiana in Ohio and Kentucky and why because you look at like here on the map okay that's with the heavy asset inflation that happened they went like 3 4% fairly B no like you cannot even call it over bot right fairly bot and so and so that's and and yet if one looks at the mid Midwest and looks at price performance since the last Fair valuation so Indiana has the strongest one so the Indiana has

42:18One see like I don't know well that depends on the data source it's like in fhfa was 58% above 58% up this Market cycle is the state of Indiana which is pretty healthy you know pretty healthy and it has stayed fairly valued so it's really it depends on what one wants now if I want to do like a very shortterm play for like one two years then I would go in forid though with its great price performance and its very high Auto correlation where if one enters for one two years even though it's overvalued it's going to or maybe for five years I don't know the timing obviously but dependent on like Risk tolerance one could try to play this this kind of appreciation but it's already starting to get thinner and thinner now if people now enter this point in Arizona now in this framework you know let's say I wouldn't do it person now it's again it's

43:06A taste now I wouldn't do it already at 31% I just feel like okay it's even though again that's that area is going to perform again outstanding it's going to continue like we discussed so it's not so it's not a it's not I'm saying well because 31% it's not going to continue doing great it's going to the opposite it's going to continue doing great it's just that you know for how long and you know let's say if you have a fiveyear horizon you you experience a lot of appreciation then you experience a downside and it's just like it becomes a bit of a Gamble and so and so that is really you know that is really some of the concern so for me like since I I am perhaps relatively risk averse I used use this data to say okay if I I if I'm in an undervalue County and an undervalued State I know that I'm not going to experience a

43:54Downside even if the market takes a Down downturn I have seen that in the data in 2007 even if there's big correction if I'm in an underall County in an underw State I be fine I would have like just a 4% drop or something by income like it was then in fact I had you know at my webinar I had like the if some of your audience knows Vinnie Chopra so Vinnie choa famous investor and he like M family investor right and so he so he shared the deal that he did in Texas in that he purchased in 2008 and one would think wow he bought it at the peak of the markets like one of the worst times to purchase that was his first multi indication and so and so he and he said he made like a 60% IR or something or like was a huge

44:42IR on that deal like like very high return and and I was thinking okay wow actually I get it okay so apparently separated was a good deal but I get it how it worked because Texas was was undervalued so he had no effect no price effect whatsoever it's like he bought it at you know at another time and so whoever now Buys in invests in the mid Midwest or you know and Northeast and you know it's it's not it's obviously the Northeast is depressed as well so there is there are good reasons so so one should not expect much appreci so so much appreciation but it will be definitely bigger downside protection and and so it's really picking like a good combination of price performance and valuation that's all so it's really if Indiana like say if Indiana has 58% performance this Mar Market cycle positive

45:31And it's you know fairly valued that that seems decent so that's like one approach do I want to go in Arizona that has a price performance of 22% this Market cycle it's huge but okay but now it's 31% overall maybe it's playing it risky so so it's that is my approach to to Market selection got it wow wow that is awesome it's super super interesting to hear you break it down like that yeah I I mean I think I think the the bottom line is I mean fundamentals are going to dictate like you can't just if you're if you're just trying to pick a market because it's B down or B up or you think that a crash is coming I think you're always gonna run into problems but this I think pulls actual

46:19Historic data and you know you can kind of start to see the combination of upside potential plus the downside protection and I think that's that's the key to this so if somebody wants to get this data you did you say can they go to realy Quant is that how yeah or they can go to ron.com so I actually recently launched it as a product it's a lifetime subscription or sounds like a lifetime well they get like lifetime free updates so however so they can just purchase a state you know and they get lifetime free updates quarterly so they would always know like from there they would always know if it changes you know if their market then goes over valid or something like that and and you

47:08Know that's that's pretty much what I do and what I use for for my own investment on the market side and is this all real estate or just multif family no this is really more this is really more in the residential it's not the commercial real estate space you know governmental data you know the sources for this are really just like all governmental agencies like fhfa and Bureau of economic analysis and sensus Etc it's you know it's free free governmental data to to to assess markets so so so yeah it's really leaning towards I mean I did a study versus commercial like I mean did like just like what's the correlation of coost stars index n REI it or something like

47:56That and then fhfa index and it was like 91% price correlation but but they're not the same thing it's a it's a valid point and you know like commercial multif family investors they know they they tend to think they're protected in know they tend to think that they have control over the valuation I mean they do have at the entry point of course control now they do not have control of the market cap I mean I guess that's how like the same way like in finance you know Finance because they come out of like like option pricing background and and so in option pricing you know like option Traders would quote the prices of options by their they call like imp volatility and let's say you have so and it's really just an input variable to the price but because it's such a prevailing input variable they were just

48:44Quoted by that and so I I feel like in commercial real estate it's a little bit like that where you know investors where but it's the market cap rate and so okay so okay you know you you can change the N but the market CPR is going to shift and that's your price that's your real price and so it's a so you really want is subject to similar fundamentally it's driven by the same fundamentals it's just a different valuation approach but again it's just people people living there who are earning you know their income and having housing so that doesn't change you know yeah yeah that's my been my challenge with multif family as well that I've I've brought up to several multif family investors asking them like how do they they look at that because cap rates have been in our favor for the last 10 years so they just keep going

49:33Down and and values keep going up and so what happens if like you said that's that's just an input that you you know so all of a sudden the market cap rate is different and it it goes up even if you're improving rents you might not be able to keep up with that cap rate so yeah it's it's a interesting yeah I I that's why I I haven't been able to wrap my head around multif family deals recently but I know every every investor is different absolutely and that's a great that's a great comment or or inflation anything like inflation is the Hot Topic right now right so I feel there's so many investors who think that okay because there's so much liquidity pumped into the system so and you know you know asset prices are going to go

50:21Up and and that's true but just guess what if fundamentals don't move according to you still have fundamentals and that if they don't move according to the same inflation you might get bubbles and that's you know everybody now seems to think like I have this you know like with all my friends who are investing Etc they seem to think that you know they're protected it's not the case it's again going to form a b it's it's it's you know it's not protected the fact that you know like it's like I said the fact that if we have an Arizona you know due to the liquidity due to the inflation prices now increase last year significantly it it doesn't mean that they increase to the rational extent it doesn't mean now we need to see wages increases well and other fundamentals move accordingly and and if the liquidity pumped into the system results

51:10In that sure but I mean I listened to a presentation by my like undergrad economics professor who was saying that you know how kind of like giving a history of like several hundred years of inflationary cycles and they tend to end with you know let say Goods Goods inflation and you know becoming like way higher than you know then let's say wages inflation and then at some point it it can take a while it can take like eight years ahead and and so forth but at the end of the cycle historically and I'm not sure what's going to be now maybe it's going to be different but it ended up with kind of you know like poor to Middle Class People kind of coming out in the street and overthrowing the government quite you know so it's you know just because like things became like so expensive relative to

51:58Wages so so it's again it's just this is I think the question always you know it's of course I'm happy myself about now inflation and you know let's say my assets increasing in value but you know one needs to know if they increase too much and know when to sell and so that's was my effort with this kind of Market Market analytics side I see yeah yeah it's it's really really interesting stuff to look at and I I really appreciate the breakdown I I know we could talk a lot I mean it could go on this conversation could go on for a very long time because there's no limit to the data you can analyze so but this is a really good overview and I think if people want more information they can go to realy Quant and and get you know they can actually look at some of these charts

52:46Themselves so I appreciate you sharing that with us I guess last last question it well you said realy Quant is the best way to get a hold of you right there's yeah yeah okay got it yeah so so yeah so go to realy quant.com and I really appreciate your time today thank you I really appreciate you this yeah talk soon w