Ranch Investor Podcast

Mastering Investments: Unraveling the Connection Between Cap Rates and Debt

• Ranch Investors • Season 7 • Episode 1

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Every property holds a unique story, capable of significantly enhancing its intrinsic value. However, historied properties, or properties that have been on the market for some time, can also present challenges, influencing a property's market performance. From properties burdened with stigmatization to rich histories that become legends, some listings linger on the market for an extended period, while others sell quickly.

In this episode, Colter and Andy share their expertise and offer practical insights on harnessing property histories to your advantage and ride the narrative. They also delve into strategies for accurately assessing a property's true value, one that aligns seamlessly with your ranching ambitions. 

Colter DeVries:

Welcome to the Ranch Investor Podcast. I am your three-year host, Colter DeVries, accredited land consultant with the Realtor Land Institute and accredited farm manager with ASFMRA. I'm excited to bring you the experts on a weekly basis to hear what's trending, what's happening, what's going on in Montana, Wyoming, the West and ranches across the United States.

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Colter DeVries:

Well, Marco Santorelli, thanks for coming on the Ranch Investor Podcast, Colter. Hey, great to be on. For all of the listeners. Thanks for tuning in to the fourth season of Ranch Investor Podcast. By the way, marco is an investor, an author and founder of Norata. Is that correct?

Marco Santarelli:

Marco Norata.

Colter DeVries:

Yeah, you could pronounce it however you like Norata, Norata, it all works Norata real estate investments, which is a national real estate investing firm offering turnkey investment properties in growth markets nationwide. Is that right, marco? Correct, yep? So you are also the host of passive real estate investing show and that's kind of how I found you and wanted to hear more about growth markets and passive real estate investing, especially as we enter some concern with commercial right, some higher vacancy rates as we change over from the standard traditional old office space to hybrid and work from home, and all of this is opportunity costs. This is with ranch and farm real estate. Quite often, people, you can do farm and ranch or CDs or commercial residential, and so I like to hear what's going on in your world with cap rates, debt leverage, to see how I compare and how I need to sharpen my own sale pitch.

Marco Santarelli:

Right.

Colter DeVries:

People move their money to my industry, Marco.

Marco Santarelli:

Yeah, for sure. Are you focused primarily on the commercial side or do you sprinkle in residential no, I focus on farm and ranch only.

Colter DeVries:

Okay, so commercial just I need to have an understanding of commercial and I do own my office building and so I think for my own diversified portfolio. Yeah, commercial is important because when I look at the concentration of my own portfolio, I would say that I am way too overexposed to farm and ranch. I have too much ranch in my portfolio, marco.

Marco Santarelli:

Well, if your question is you know what's on the horizon? You know I'm bullish on residential and the main reason for that we can dive into it a little bit is because demand is still pretty strong. Supply is short. Supply has been short for many, many years, going on, you know, multiple decades. The only time we actually peaked and exceeded the demand with supply was just before the housing crash in 2006, 2007 and into the Great Recession of 2008. So at that point in time, we actually were producing more household inventory than we had demand for. Ever since that point, hitting into 2012, demand continued to stay strong, but supply had dried up. So we have this huge imbalance that will probably continue into 2030. That puts real estate investors, especially residential real estate investors, in a good position, because we have tailwind not headwind, you know in our sales and that means that long term, medium term, long term, anybody who's invested in residential real estate, particularly in good markets and especially in good neighborhoods, will do well. You know real estate is pretty forgiving long term. So this is why I continue to be bullish on residential real estate is, you know, we have cards stacked in our favor Now, granted, real estate mortgage rates have gone up, you know, quite a bit over the last year or so.

Marco Santarelli:

Now they're starting to come down and they will continue to come down. But, you know, for real estate investors in the residential space it's been great and will continue to be good for us. Now things have started to slow down. But now, having said all that, you know I don't follow too intently the commercial side, but I do know that there are challenges in the commercial space. Retail has slowed down, you know we have we still have a vibrant economy, but we are seeing some headwind in the economy in general and there's been a lot of closures in the commercial space, some of it's being industrial, some of it being warehouse, some of it being retail. Could that provide opportunity for people, you know, in the months and years to come? Sure, you know, if you're in that space and you're keeping an eye on it, opportunities will come along.

Marco Santarelli:

But you know again, long term we always have a need for commercial space. It's just the commercial space is, to me, sometimes a little fickle. It changes. Sometimes. There's a need for, you know, industrial space and warehousing because we are fulfilling product through, let's say, amazon or whatever else you know. So we need that, we need that commercial space. But anyway, you know, commercial is very segmented. It depends on what area and commercial that you're talking about. Anyway, that's a long answer to your question.

Colter DeVries:

Well, so you focus on residential primarily, and then growth markets. Now are we talking growth markets like Boise, idaho, or Bend, oregon. What would be constituted as a growth market today?

Marco Santarelli:

So what I refer to as a growth market and what most people look at growth markets as, are markets that are either appreciating well or have strong appreciation potential. That's what some people look at growth markets as. Growth markets can be defined slightly differently as well, and that is markets that are experiencing strong appreciation excuse me, strong population growth. When people are moving into a market, that is a growing market, hence a growth market. The side effect of that is that as the population grows in a particular market, it increases the pressure on housing demand, whether it be rentals or sales, and so that increased pressure is buying pressure, which, over a short period of time, will push prices up, because, as the inventory starts to dry, when that dries up, sellers realize that, hey, there's not as much for sale, we can ask for more, and because there are buyers out there, there's demand, they can get it. And this is just straight economics 101, it's supply and demand. When you have more demand and supply, it's a matter of time before prices go up. And the same thing is true the other way around, if demand dries up or you get excess supply, like we're seeing in some markets right now, like the Greater Phoenix Market in Austin, where there's a lot of new construction that's online now. The builders have caught up. They've exceeded the demand for those markets and what we're seeing is a flattening in price. Some builders throw in a bunch of concessions, extra rate, buy downs or upgrades or appliances or whatever it may be. They're doing whatever they do to sell their product. But when you have that imbalance between demand and supply, it'll push the price up or down.

Marco Santarelli:

So a growth market is typically a market that is experiencing growth in population.

Marco Santarelli:

It could also be in terms of jobs, because that's another key factor that we look for are jobs in a market, and those are the two main things that drive a market is job growth and population growth.

Marco Santarelli:

When you have job growth, it brings more people in, which therefore increases population, and with that population growth, if supply is constant, you'll see prices go up, and so with real estate, it's always a lagging industry. If demand goes up because population has increased, builders and rehabbers take note of that and then they step into the market and they start producing product to help increase the amount of supply to meet that demand. So to them it's a business opportunity. So growth market is basically a market that's experiencing growth, which usually works synonymously with price appreciation and you saw that in Idaho. Like Boise especially, you guys have been red hot or white hot for a number of years Now. It's cooled off now but there were so many people moving into your area, hence the population growth that places throughout Idaho, especially southern Idaho, were just appreciating rapidly and builders were just building like crazy as fast as they could.

Colter DeVries:

So isn't that cause for concern? Because, historically, like Fresno, california, las Vegas, nevada, phoenix, arizona, that's boom and bust, isn't it? I mean it's easy to supply those markets, whereas Oakland, los Angeles, those valleys are restricted. I mean they can't build onto the mountains anymore, they can't expand supply as easily as the deserts of Phoenix and Las Vegas.

Marco Santarelli:

Yeah, if you're landlocked, like we are to some degree here in Orange County, california, we have limited land, therefore limited supply, and the regulations in California are terrible. It takes forever to get permitting and entitlements and all kinds of stuff. So stuff like that sure it drives the price up. So when you have geographic constraints it adds to the supply problem. But you know like if you look at the Bay Area in San Francisco, I mean you get a small one bedroom place for a million dollars. You know prices are still very high because there's such a strong demand to live there and a lack of inventory that you know it maintains those high prices. Sure, prices can come down, and they have, but it's still very, very high. I'm trying to get the gist of your question, you know. I think you asked me. Is it a?

Colter DeVries:

concern. Yeah, so the growth markets. Higher prices means higher volatility.

Marco Santarelli:

It can. It can again, you know it's. You got to look at what the drivers are in the market. So if demand or supply changes rapidly, that's when you see whipsaw in price, whether it be rent or product sales. So if that changes quickly, that's when you see prices adjust quickly. If that's changing, if it's changing slowly, then you don't really see rapid price changes.

Marco Santarelli:

Small markets tend to see faster, more rapid price changes than larger markets like a tier one market like the LA markets, the Bay Area, san Francisco, san Jose, places like that Price movement is relatively slow because there is so much supply and so much such a large population that things can adjust slowly. But you take small towns like what I call tertiary markets, like what we saw in North Dakota during the oil boom, you know that was such a small market when you had a lot of people moving in in such a short period of time, prices went through the roof. There was no product. And then you know you had all these builders coming in and then building a bunch of product like crazy and they fulfilled the demand for a short period of time, you know, and prices were continually going up month after month and people paid it because the jobs paid well and the price was not an issue. You know, affordability was high, it was an affordable market. But then things changed, and then the oil market changed.

Colter DeVries:

Yeah, I was there my first job out of college finance degree as a commercial mag lender with Wells Fargo during the horrible times of Wells Fargo the pressure cooker environment, all the fraud, manipulation of the stock by the CEO, john Stumpf and the CFO, kerry Tolstead. But there was no national bank in Western North Dakota. The closest was Sydney, montana. Wells Fargo had bought a little local bank so I would have to go up there during the peak of the Bakkenboom. I go up there once or twice a month Williston, wattford, wattford City, sydney. And yeah, that's when rents in Wattford and Williston were higher than Brooklyn higher than San.

Colter DeVries:

Francisco.

Marco Santarelli:

Isn't that unbelievable? And so that's a great example of how quickly price can change in a small market, because you just don't have relatively speaking, comparatively speaking, a big population or a big supply of inventory, so small changes are magnified, they're highly leveraged, and so you see these big whipsaw changes up and down.

Colter DeVries:

What are some of the leading indicators that you would track for a change in these markets?

Marco Santarelli:

Leading indicator is. Well, it's really what I was just talking about job growth, like job growth and job trend changes are a leading indicator. And then also population growth. If you can start to find that I mean it's not hard to find online you can just do some Google searches and you'll find the data often is buried in articles and the articles that pull will pull the data from other sources that are sometimes paid for sources. But those two things are leading indicators.

Marco Santarelli:

It's hard to look at large employers moving into an area like Amazon, for example, or a plant like Toyota. Those can be a leading indicator but those are going to be far more regional and local in nature. They may not impact an entire city but it may impact a region of that city just because they might bring in 1000 or 2000 jobs or even 5 or 10,000 jobs over time, and that definitely will have an impact on a region of a market like a metro area. So that can be a leading indicator as well. If Amazon announces a major plant opening or something, that's a sign that you can get ahead of the curve but you know where they're moving to, or building.

Colter DeVries:

Do you trend line at all Housing starts and building permits? Does that give any correlation to a direction that a market is about to either tip or take off?

Marco Santarelli:

Permits can be a leading indicator because a builder is not going to start pulling permits in an area unless they have done some of their own research to know whether they're going to be able to sell their product or not, because they're not going to take the risk. They don't want to build a bunch of products if they're not going to sell it. So that is the leading indicator. But at the same time, if they've already been pulling permits for a long period of time, especially if it's been years, that can also become a lagging indicator, because builders will continue to pull permits as if the market will never return or go down, and so at some point they're going to get to a point where there's oversupply, the market will normalize and they're going to have excess inventory, and that's when they start to discount it and start to blow it out just to get it off their books, because they have too much. They don't need to sell as much, or maybe not at all. They might be just moving out of the market.

Marco Santarelli:

So permits can be a leading indicator of if the trend is that more permits are being pulled over the course of quarter over quarter and year over year. That certainly a sign. But be careful if that trend has been going on for years, because it can turn, especially if you're in a market, generally speaking, like a market where interest rates are rising, like mortgage rates, because that will cool down demand, which will pull back on the amount of product being sold in the resale market and by builders. So you kind of have to keep an eye on mortgage rates. Small changes are not that big of a deal, but big changes, like we saw last year, will certainly impact everybody because it's more of a macroeconomic factor than it is a local factor.

Colter DeVries:

Well, and on that note, keeping supply in mind, that we probably what do you think half of historic inventory levels, you mean nationwide?

Marco Santarelli:

Yeah, we are pretty low. I actually forgot the number we have. We need to produce somewhere between 1.5 and 1.7 million household units per year to keep up with natural growth, organic growth around the country. And I'm just talking about, you know, the country as a whole, not specific markets. Obviously, some markets don't need any inventory and other markets require a ton of inventory, but as a whole in this country we need about 1.7 million housing units per year.

Marco Santarelli:

For years we were only producing about 1.1 million, so we were short by 500,000 or more housing units for a long period of time. That slowly started changing after COVID. Now we're catching up and it's there are some expectations that will reach a level of equilibrium sometime around 2030. So six years from now or so, we'll you know we'll have caught up to natural growth. It takes time to get there, but billers are building as fast as they can and you know we're slowly catching up. But still, again, you know I said I'm bullish. You know we still have a deficit of inventory, especially in states where there's a lot of population growth or migration, like Florida, as an example. You know Florida is one of the top states that's drawing a lot of people in because of the weather and the business climate and you know the tax free state. You know no state tax benefits, if you will, that Florida offers, so they'll continue to seek ongoing growth.

Colter DeVries:

Yeah, and so keep in mind that inventory is fairly low and it's it's inelastic to us.

Colter DeVries:

You know, to a certain extent takes quite a bit of time and capital to build a house. One of the theories I've heard you mentioned that interest rate sensitivity is is highly correlated. One of the theories I've heard that is, if we, if Fed Chairman Jerome takes his foot off the break and he does these interest rate reductions, three reductions this, this year, this summer, that inflation will take off again as it had done during the Volcker years. And he's gonna, he has no choice but to then jack up interest rates again, further extending this year talking 2030, further extending this cycle of normalization, because you just have a bounce of low supply, rising interest rates, trying to bring them back down. It sounds like, yeah, it sounds like it's going to be a mess for a while and that there is some still some risk of higher interest rates which softens demand. I would agree with you. I think it's going to take a very long time to play out and we're we're not seeing immediate reaction. It's it's going to be slow.

Marco Santarelli:

Yeah yeah things move slowly in the big picture, in the macroeconomic picture. You know rates, rates are definitely going to be coming down this year. It's an election year. Inflation is more or less back under control, so the Fed has achieved what they wanted to. But now they can't keep pumping the brakes. They have to start easing again, which means that they need to start providing liquidity in the market so they don't stall the economy, especially within an election year. So the expectation is that the next Fed meeting will see a push on the rate. There may not be a lowering of the rate, but whether it starts at the next meeting or over the following three, the expectation is that there's probably going to be three consecutive rate cuts and you know that that ultimately will trickle down into the more freeze rates being cut soon thereafter, because that's just the expectation.

Marco Santarelli:

In the market you know the bonds will adjust and if that happens, you know we're going to see a good affordability increase again and demand for real estate increase again, which will again put pressure on real estate and the real estate markets. And you know the need for inventory. So supply will start to shrink again as that demand comes back in because they can now afford it. So this is just the normal cycle of real estate. It ebbs and it flows, you know, goes up and it goes down. It's never perfect, it's never in equilibrium, it's just. It's just. You know there are supplying demand dynamics in play all the time, everywhere, right down to the local or hyper local level. You know that's just how real estate works. It's really such a remarket, you know market in real estate, you know.

Marco Santarelli:

Now, speaking of affordability, you know we kind of peaked back in the early 1980s when we had very high interest rates where affordability was at a, you know, I'll say an all time low, depending on how far back in time you go. But affordability, you know was, was, was what's the word? Unaffordable we were. You know our affordability rate was around 52, 53% back then, meaning that you know it required a lot of cash for income to be able to afford a median, a median priced home. Now you know we're not back up at those levels right now. Affordability is still poor, but it's not the worst it's ever been. Right now we're at about 44%, 45% in terms of affordability, the new norm being 32%. You know that that if you average out the last whatever 50 years, you know affordability is around 32% For us to get back to historic norms.

Marco Santarelli:

Wages need to spike, like we need to see people's incomes increase almost 50% in order for us to get back to historical norm level of about 32%. Or what we need to see is home prices on average drop about 30%, which is, you know, pretty significant drop in price, and that's just not going to happen. You know that would take us back to December 2019 levels. That's how much we've seen prices depreciate since late 2019. Or we need to see mortgage rates drop back down to 3.2%, which I don't see happening anytime soon.

Marco Santarelli:

I mean, it's possible, it can happen. But if mortgage rates drop down to the low you know, low 3, 3, 3.5% range, affordability will improve, portability will go back up and we'll see, you know, us going back down to those normal ranges, normal ranges of 32%, 33%, where we have been on again on average for many, many years. That's a good thing for people looking for homes, but it's a bad thing in terms of supply because we just don't have it. We won't get it fast enough to meet that demand, which will go full circle back to the same problem we had with rising prices. So it's just this funny dance.

Colter DeVries:

Beautiful dance of the free market.

Marco Santarelli:

Yeah, yeah, yeah, but it's also impacted by it not being a free market. You know the fact that you know, when you have, like people like the Federal Reserve which is not people, you know, like an institution like Federal Reserve coming in and trying to adjust and manipulate the market to control inflation or consumer demand, what you end up doing is you end up creating a false market. It's not a free market. It's not being adjusted by true consumers and suppliers. You know they're basically trying to control inflation, which they control, which they do by controlling consumer demand, and in doing that, you know they cause these overreactions and underreactions, the whips off the market. A true free market would let consumers, buyers and sellers adjust pricing and demand naturally, because that's what free markets do, is they naturally adjust. They don't need outside forces.

Colter DeVries:

And you've got Fannie Mae and Freddie Mac, which is essentially a subsidy that's subsidized. On top of you can depreciate a home on a faster schedule than commercial real estate. Yeah, so that brings in that's a subsidized investment. Essentially, that depreciation schedule is when you look at these markets, what are you looking for for a cap rate? And normally you're annualized, compounded at growth rate, annual growth rate, your appreciation.

Marco Santarelli:

Well, I can only answer that from a residential perspective. What I'm seeing are cap rates in the 4 to 6% range right now, which is not abnormal, it's fairly normal. And a big driver of that is not so much the market but the neighborhood within the market. A market can give you an average of four or five or 6%, just because the median price in that market is what it is, median rents are what they are, and so that's what you're going to find as a whole. But within that market you can go to a class neighborhoods and see those cap rates sub 5%. They can be 3, 4, 5%. B class neighborhoods can be 4 to 6. C class neighborhoods can see 6 to 10% cap rates. So it's also driven by the region within the market and, of course, the neighborhoods. And you look at the ratio of the rent price. As that rent increases relative to price, the cap rate goes up. It's just the way it works in every single market all around the country. But in markets in general we're seeing 4 to 6%, sometimes a little higher.

Marco Santarelli:

Just depends where you go, like the Northeast, some of the less expensive markets, the Rust Belt markets, parts of the Midwest see very attractive cap rates. Coastal markets suck. You're going to see poor cap rates because prices are so high. They just don't rent for enough to give you a good cap rate. And then expensive markets within the country like Washington DC, seattle still coastal market, but Seattle Washington so yeah, it's all over the board.

Marco Santarelli:

But if you stick to markets that give you 5, 6, 7% cap rates, you tend to do well, especially if there's growth or growth trends going on in that market. Long term You're going to do very well in that market because the property will cash well. You'll get a good cap rate. You'll see that appreciation over time because the growth dynamics. So I mean that's what I'd look for. I want to make sure that my property generates a decent cap rate, but it's more about generating positive cash flow. So the property carries itself but at the same time being in a market that has growth or growth potential. So I have those appreciation gains over time, which is what I really want. That's where the real wealth is created. It's not through cash flow.

Colter DeVries:

I was going to say. So what is the main pitch here? If it's kind of a push, if your cap rate is six and your borrowing rate is six, it's a push. Is the sales pitch here? Appreciation and depreciation, tax benefits passed through write downs.

Marco Santarelli:

It depends what you want as a real estate investor. Some investors are only investing because of the tax benefits. They need the depreciation to defer taxes from other investments. Some investors invest for cash flow. Some investors want the appreciation that comes with it over time because they're younger, they've got time and the number one most important thing to them are the equity gains to help build their net worth. It really depends on what you want as a real estate investor. I like to make sure that I'm a minimum break-even, but ideally positive cash flow, because for me, where I sit, cash flow is the glue that's holding my deal together. I want to make sure that the property carries itself. Then over time I'm going to see the benefits of that appreciation and the equity gains On that journey. I'm going to take advantage of the depreciation to defer other passive income or active income. If you're a professional, it really depends on what you need and want as a real estate investor. You can't just pigeonhole everybody into one classification or one goal with real estate.

Colter DeVries:

What do you see for leverage? How much debt are these residential investors putting on these assets?

Marco Santarelli:

Well, it's still really hard to get over 80%. A lot of investors will shoot for that 80% or maybe 75%, just to get a slightly better interest rate, like mortgage rate. Then maximize the amount of capital that they have to invest in multiple properties. The beautiful thing about real estate is leverage the fact that you can leverage your investment capital up to five to one. If you've got $100,000 to invest or $1 million to invest and you can acquire four to six properties with it, great, it's better than putting it all in one property, like all cash in one property, because it's still a good investment.

Marco Santarelli:

But you're not taking advantage of the ability for you to leverage your investment capital and acquire multiple properties and then gain the benefits of multiple properties multiple properties, appreciating, multiple cash flows, more depreciation that you can use towards other gains, etc. There is no other asset class that you can do that with. Where else can you leverage your capital as much as five to one? Financing exists to get up to 80%. Loan to value 75% and 70% is not that difficult to get right now if you've got good credit, if you're qualifying, 80% still exists out there. There are some lenders that will even do 85%, but 80% was conventional as the max.

Colter DeVries:

That's incredible. You can't leverage a ranch over 15% to cash flow it because it's a business.

Marco Santarelli:

It's still real estate, but it's a harder thing to liquidate for a lender trying to get a security position. The market is just not as big as it is for a single family home in the US. That is far more saleable and holds its value more consistently than some commercial properties and land and ranches.

Colter DeVries:

You bring up an issue the liquidity of why brokers are still needed not obsolete yet, haven't been replaced by AI yet, but the liquidity factor. It's not about a ranch can sell at any time, but it's about bringing that top dollar. They are highly illiquid. These are large assets that are hard, difficult to operate. People do not like working with brokers that much with ranches, as you can relate, you're a broker. We provide a value. It is that liquidity premium.

Marco Santarelli:

Yeah for sure, You're definitely in a niche.

Colter DeVries:

Tell me more about yourself. You're an author. Tell us about your background, your podcast, your book. What else do you have going on? Marco Question is what don't I have going on? That's the way to be.

Marco Santarelli:

Yeah, I'm definitely a serial entrepreneur. I run multiple businesses, but the two largest businesses I run are Norata Real Estate Investments, which is something you mentioned earlier on. That's just simply a nationwide brokerage of investment property in the residential space. We work with investors who want to invest in residential real estate as rentals and build their portfolios. It could be one house at a time, two houses or two properties at a time. We're in 25 different markets, mostly in the southern half of the US and the eastern half of the US, just because that's where the numbers tend to make the most sense, not in the coastal markets and whatnot.

Marco Santarelli:

Everything we do is completely turnkey. We have the properties in our pipeline, we have the management, the financing, anything and everything an investor could possibly want. We simply hold their hand, figuratively speaking, educate them, help them choose the markets and the properties and go through the transaction. There's no cost. I mean our services are free to real estate investors, so they have everything to gain and nothing to lose. That's where I spend a good part of my time.

Marco Santarelli:

Then I also have a private equity firm, norata Capital. I spend the rest of my time there building out business ventures and whatnot around the country. We're invested in a bunch of different types of business ventures. I have fun with it. I love it. It's a fund for investors as well. We pay as much as 15% interest per year, paid monthly, just direct deposit into their bank account From a passive income perspective. It's not real estate, it's a paper asset, but it's a very attractive set and forget type of investment where you pick a term up to seven years and just get paid monthly distributions from it. That's where I spend my time. Other than that, I travel quite a bit. What do you?

Colter DeVries:

have to say to the populist listeners that are thinking this guy is a Wall Street suit. He talked about housing affordability. These institutional investors are part of the problem. They are competing with residential homeowners for housing affordability, driving up prices. The suits Wall Street. Blackrock is the problem. You're asking me what I would say to them. Yes, how do you respond to that accusation?

Marco Santarelli:

the accusation being to me or to Black Rods.

Colter DeVries:

Well to your industry of including residential in a portfolio, strictly passive investment. It's not owner occupied.

Marco Santarelli:

Well, we're not in that space at all. Not at all. I mean, we're helping the individual real estate investor, you know, acquire completely turnkey real estate investments for their own. You know, 100% owner, they own it 100%, they have 100% of the benefits. We're just the brokerage and education arm for them to help them do that. But yeah, the institutional buyers like Black Rock and the others, they're buying like tens of thousands of properties.

Marco Santarelli:

You know they're accumulating a lot of residential property but you know you got to keep that in perspective too. If you actually look at the number of household units that Black Rock and Homes for Rent what are the other ones? There's a number of them. If you look at the number of units they've accumulated, it's a drop in the bucket. You know it represents maybe 1% of the housing stock. That's turned over each and every year. It's a very, very, very small percent.

Marco Santarelli:

So you know some people think that you know they're moving markets, they're affecting the markets. They're really not. You know they do have an impact in the markets where they focus very heavily on, but they'll do that for a period of one or two years and then they'll back off Once they've reached the you know the number of units that they want to acquire in that market. They back off. Do they move the needle like price-wise? I don't know. I haven't really seen a lot of evidence to see that they actually move the market like price-wise. I mean they're trying to get as their product as cheap as possible too. You know that they don't want to be impacting the market. So I don't know, I don't know if I really have much to say to them, if I had to say something to them. Do they suck up inventory that we, you know, want and that we can sell? Sure, so from that perspective, yeah, you know I don't like it because we have clients our own investor clients that want that inventory that we could acquire and sell to them.

Marco Santarelli:

But you know they backed off. You know they're really not as active now as they were. You know years ago they really scaled back. In fact I even heard that they're offloading quite a bit of property in different markets right now. You know they've made such huge gains over COVID Everybody did not just them. You know they've seen like 20% appreciation gains in a year, in some cases for two years in a row during COVID, that you know they're sitting on a bunch of equity. You know they're just liquidating it. So, anyway, that's a long answer to your question. It's really not an answer, you know, because we're not in the same space as they are, you're helping more of the retail investors find exposure.

Marco Santarelli:

diversify into residential yeah, yeah, it could be you, it could be your neighbor, it could be the guy down the street here. You know they're saying hey, I need some help. I wanted to build. You know, I want to invest in real estate. I need someone to help me, to help me choose the markets, choose the neighborhoods, show me the properties, help me with the financing, help me with the property management, help me with everything. And we're here to provide all of that completely turnkey, in a very, you know, fun and painless way. That's what we do, so, and at no cost, like I said, you know, an investor, or someone who wants to be an investor, has everything to gain and nothing to lose, because we provide them everything they could possibly need in their real estate investing journey.

Colter DeVries:

Well, marco, as we wrap it up, I would like a few more predictions from you. You're long. You're long to 2030.

Marco Santarelli:

Yes.

Colter DeVries:

What else is part of the consideration here? What's the crystal ball telling you? Any changes you've brought up? The rust belt, the sun belt, any dynamics, any shifts going on with the country to be aware of?

Marco Santarelli:

Well, in general terms, I do see mortgage rates continuing to drop slowly but over time. We just can't keep affordability low and, you know, keep the economy functioning well because housing makes up such a large portion of the US economy. You know this is an election year. It'll be a fun year to watch. You know what goes on. You know as it always does I. You know, I think you know the stock market will continue to, you know, be juiced and continue to go up over time.

Marco Santarelli:

But you know people got to got to keep things in perspective. It's really the seven largest companies you know in the stock market that really float the entire stock market. So you know it's the magnificent seven that keep. You know the stock market where it is. Housing will continue to be a bullish and strong asset class. It's the best asset class. It's a true inflation hedge. It's the best place to store your wealth and grow your wealth. It's tried and true, it's the most historically proven.

Marco Santarelli:

So, you know, stick to real estate, but be prudent, smart about it, you know. Stick to markets that you know that have strong fundamentals. You know price, excuse me population growth and job growth. That will do you well and just as important, if not more important, stick to the regions or areas and neighborhoods within that market that have desirability and strong demand, that are consistent, because that's how you mitigate your risk. So good markets, great neighborhoods, cashflow properties you know the numbers have to make sense. It's an investment. That's kind of the formula, and if you do that anywhere in the country, you're going to be successful.

Marco Santarelli:

So you know, mortgage rates are probably going to end up going in your favor. I think the backdrop is still positive. We're going to have blips along the way. You know, short of a black swan event, we're going to see, you know, a favorable landscape for real estate investors. I don't see any major disruptions in terms of jobs or, you know, the economy as a whole. I don't think, you know, politicians or the Fed want to see anything unravel like that. Yeah, I don't know what else to tell you about all that. You know I am fairly bullish overall.

Colter DeVries:

Sounds like you're saying don't wait to buy real estate, buy real estate and wait.

Marco Santarelli:

Yeah, yeah, If you buy again, like I said, you know, on a good market, in great neighborhoods, you're going to do well because real estate is slow moving and it's very forgiving as long as you don't do something stupid, you know, like buying a war zone or a dilapidated property that can never be fixed. You know, if you, as long as you don't do anything stupid, real estate will work out well for you.

Colter DeVries:

Well, Marco Santarelli with Norata Real Estate Investments, thanks for coming on the podcast. How can people look you up, follow you, track what you're doing, download your ebook, yeah culture.

Marco Santarelli:

Thank you for having me on the show. I've been fine and I appreciate it. The way to follow me is one way is just on Instagram. It's just Marco G Santarelli. It's my full name with my middle initial Marco G Santarelli. My website is where you can find all that stuff Marco Santarellicom, no middle initial. Our website is NorataRealEstatecom, so N-O-R-A-D-A, noratarealestatecom is where you'll find everything I've been talking about on the real estate side of things. So between my website and the real estate website, you can find me and everybody on my team and everything you could possibly want in terms of resources and education. So that's it.

Colter DeVries:

Well, if there's anything I can do in the future for you to reciprocate. Thanks for coming on. I appreciate your time, marco.

Marco Santarelli:

Likewise, Colton. Thank you for your time. I appreciate it.

Colter DeVries:

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