Today, we’re joined by real estate expert Brian Burke to analyze the current housing market and uncover leveraging points for savvy investors. From record-breaking family construction to localized housing booms, the realm of investment opportunities abounds. Factor in the fluctuations of interest rates and inflation, and we're looking at an engrossing discussion on strategic investing. Tune in and let's start the journey to informed real estate investments.

Episode Timestamps

• 00:02:31 Real estate market facing bumps, eventual recovery.
• 00:05:45 Office properties experiencing crash, multi properties less. Short-term loans risky, extensions uncertain. Lenders' responses vary due to constraints.
• 00:09:11 Localized housing construction varies in different markets. Some areas experience high building due to inward migration, while others have limited construction. In certain cities like San Francisco, the lengthy permit process hampers building progress. Phoenix has seen increased construction and migration, causing rent hikes. However, financing struggles may halt some projects. Overall, housing shortages outweigh surpluses due to material costs, labor scarcity, financing challenges, and permit difficulties. This situation can also be specific to certain regions.
• 00:13:45 Interest rates cause collateral damage, uncertain future.
• 00:17:46 Uncertain market conditions amid fear and caution.
• 00:21:53 Real estate market fluctuates; buying opportunities arise.
• 00:26:01 Real estate markets vary with different cycles.
• 00:28:25 Office market may have hit bottom
• 00:30:59 Long-term investment depends on various factors.
• 00:34:23 Passive investors' fear may impact deal availability.
• 00:38:59 Challenges of converting non-residential buildings to residential.
• 00:42:20 Real estate inflation was a leading factor.
• 00:47:45 Growth in golf, buying real estate debt. Defensive.

Episode Table of Contents

• State of the Housing Market
• Strategic Investing in Real Estate and Inflation
• Investment Opportunities in Real Estate
• Dynamics of Real Estate Sectors

State of the Housing Market

Record Construction Levels

Darin and Brian point out that the current housing market is seeing record levels of family construction and completion across the country. This indicates that homebuilders are ramping up production to try to meet the high demand for housing. However, the market conditions can vary greatly by region, with certain metro areas like Phoenix seeing a surge of new construction, while other cities like San Francisco have faced constraints limiting new housing starts. Overall, the high demand for housing is driving construction activity, but localized factors impact how much supply can expand.

Strategic Investing, Shortages, and Challenges

Although construction activity has picked up, the speakers explain there are still housing shortages in many parts of the country. Darin and Brian note several key challenges that make it difficult for supply to keep up with demand. High costs for materials and labor shortages are limiting how much and how quickly builders can construct new housing units. Financing and permitting delays also slow down projects in some markets. Even though the pipeline may show a high number of approved housing starts, the speakers emphasize that many face risks that could prevent them from being completed as planned. Overall, they conclude that strong demand continues to outpace supply in many regions.

Housing Market Dynamics: "Conditions favor housing shortages over housing surpluses. Because it's so difficult to build housing. Whether it's the cost of materials, the difficulty of finding labor, financing being a challenge to get permits being either expensive or difficult to obtain."— Brian Burke

Impacts Vary by Location and Strategic Investing

Darin and Brian stress that the state of the housing market can look very different depending on the specific location. Areas like Phoenix that have experienced large influxes of new residents have seen more robust construction growth and, as a result, increases in rents. Meanwhile, cities like San Francisco with more regulatory hurdles have had minimal new housing come online. The speakers make it clear that housing conditions remain extremely localized, so broader national trends may not reflect what is happening in a particular metro region. The imbalances between supply and demand lead to divergent trajectories in rents and housing availability in different markets across the country.

Strategic Investing in Real Estate and Inflation

Impact of Real Estate on Inflation

Brian and Ernie discuss how real estate is often viewed as a good hedge against inflation since housing prices and rents tend to rise with inflation. However, they note that the 2008 financial crisis was triggered in part by the real estate bubble bursting, leading to job losses and bank failures. This highlights the risks of relying too heavily on real estate as an inflation hedge. While real estate investing can provide some protection, it is not immune to crashes.

Recent Housing Inflation, Strategic Investing, and Potential Slowdown

The speakers observed that in the post-COVID economy, housing prices and rents initially increased dramatically, contributing to high inflation. However, they point out that in some areas, this housing inflation has started to slow down. Brian notes there have even been declines in rents in a few markets. This indicates the real estate spike may be temporary and could potentially ease soon.

Timing of Real Estate Investments

Brian and Ernie agree it is more advantageous to already own investment properties before inflation hits, rather than trying to enter the market after inflation has already caused prices to rise. This allows investors to benefit from rising rents and home values during inflationary periods. They caution against waiting to invest until after inflation occurs.

Real Estate Market Fluctuations: "You know, the real estate market is like a whole bunch of different waves that are going up and down at different times and different amounts. And every class of real estate is on its own market cycle… There's a single family market. And there's a multifamily market. There's an office market, industrial, warehouse, hotel, all these different markets."— Brian Burke

Strategic Investing, Interest Rates, and Inflation

The speakers express uncertainty about whether the Federal Reserve can successfully reduce inflation by raising interest rates. They question if higher interest rates will actually solve the current inflation problem. Brian predicts the high inflation, combined with uncertainty about interest rates, will persist for at least 12 more months, possibly longer.

Monitoring Interest Rates

Given the potential impact of interest rates on real estate investing, Brian emphasizes the importance of closely tracking any interest rate changes. Rising interest rates could reduce demand for mortgages and housing, so investors need to pay attention to this trend and factor it into real estate investment decisions.

Strategic Investing Opportunities in Real Estate

Strategic Investing and Timing in the Real Estate Market

Darin and Brian discussed the importance of market sentiment and timing when considering investments in declining real estate assets. Brian looks for signals that an asset's fall is nearing its bottom before making a purchase. He notes that fear among buyers over financing, equity, interest rates, and catching a falling knife indicates the bottom has not yet been reached. True capitulation occurs when sellers become equally fearful and willing to settle for an asset's true value. Currently, disagreement on pricing between buyers and sellers suggests the bottom has not yet come. Timing purchases to align with the actual bottom of a falling market is key to investing successfully.

The Impact of Real Estate on Inflation: "Owning real estate in an inflationary time is great. But when the inflation is caused by housing, you'd better have owned it before the inflation occurred. If you did, you did well. If you're coming in late to the game going like, 'oh, now is the time because of inflation, you missed the boat. It already happened.'"— Brian Burke

Strategic Investing Opportunities in Specific Real Estate Sectors

The speakers touched on investment prospects in various real estate sectors. Brian stated that the office market is struggling with high vacancy rates and falling rents, while retail remains relatively stagnant. However, demand for single-family homes continues to be strong despite rising rates, presenting a potential opportunity. Industrial properties also have robust demand fueled by logistics and supply chain needs. But the fluid nature of real estate markets makes pinpointing the duration of these opportunities difficult. Proper timing and sentiment analysis is critical when investing in out-of-favor sectors poised for recovery.

Dynamics of Real Estate Sectors

Single Family Homes

The demand for single-family homes remains robust in California, as evidenced by Brian's experience of receiving multiple offers above the asking price on the single-family houses he flips in the state. This indicates that the single-family housing market in California continues to see high levels of interest from buyers even with elevated prices. The speakers cite this as an example of how certain real estate sectors like single-family homes are still seeing strong demand.

Strategic Investing: Converting Properties to Multi-Use

Converting existing properties into multi-use buildings presents opportunities along with challenges. Some buildings like those with adequate dimensions and features such as windows can be converted fairly readily to multi-use. However, large office buildings often lack windows which makes conversion more difficult. Still, finding solutions to enable office conversions represents a major opportunity for the real estate industry. The speakers emphasize that those who can find creative ways to convert office and other properties into multi-use buildings stand to benefit.

The Challenge of Converting Commercial Buildings into Residential: "There are some properties where they're just functionally not all that suitable for residential construction. And they may have to be torn down. But there's others where it can work. I think there's people that are working hard on this problem trying to figure out how to make that work and whoever figures it out is probably gonna do quite well."— Brian Burke

State of Different Sectors

The speakers note that different real estate sectors are experiencing diverging fortunes. The office market has crashed significantly, with discounts of up to 80% on trades in places like San Francisco relative to past valuations. However the multi-family market faces its own difficulties, including foreclosures and problems with loan maturities. Short-term maturity loans in particular pose risks, with lenders needing to decide on extensions. The speakers point out that the situation is complex given different motivations across various lenders.

Where To Find Brian Burke

• Website
• Linkedin