“Boomtowns” Are Declining…It’s Time to Take Advantage

Dave:
When I say the word boom town, you probably think of some old wild west situation. Maybe someone goes, strikes gold or strikes oil and then sort of magically and overnight this entire town springs up around them. And that of course creates all sorts of opportunities because the whole economy is growing, but it also presents risks because when things grow that rapidly and there’s all this speculation going on, there’s no assurances or guarantees that it’s going to keep growing in the same way or at the same rate. In some ways. The same thing still happens today. Cheap costs of living, remote work, flexibility and corporate investments have rapidly increased populations in a lot of markets, probably in the Sunbelt while taking those benefits away from other places. And it’s tempting to want to invest in those markets. I think everyone looks at them and has some interest in them. But the thing is that these trends aren’t a secret and multifamily supply and a lot of investment and competition are sort of rushing towards these places, and that has created a boom, but it leaves all of us investors wondering, is it still a good time to invest in these markets or have we sort of missed the boat? Or if you’re already investing in these markets and they’re experiencing a little bit of a pullback or a correction, what do you do? Today we’re going to get into everything about Boomtowns.

Dave:
What’s up everyone? I’m Dave Byer back for another bigger news episode this Friday. Since we’re talking mostly about multifamily supply here, I wanted to bring on a guest who one understands multifamily but has also done single family investing and also has just been around for a long time and invested in a lot of different markets. So I’m bringing back one of the first people I befriended when I became a BiggerPockets employee. That’s Matt Faircloth from the DeRosa Group. Matt has been a full-time investor for almost 20 years, and you maybe have read his book, maybe you’ve seen him speak at BiggerPockets, but he is just a wealth of knowledge about all things real estate. But today I’m excited to hear from Matt about which fundamental metrics investors need to research to determine if a BoomTown market is still heating up, maybe it’s overheated or you’ve already missed the boat. We’ll also talk about what to do if you’ve already invested in an expanding market and you’re now seeing rent drops or maybe even price drops. And make sure to stick around to the end of the show because Matt and I are going to name a few markets that aren’t yet Boomtowns, but could be soon. Here’s me and Matt

Dave:
Faircloth. Welcome back to the BiggerPockets podcast. Good to see you, man.

Matt:
Great to see you too, Dave. Thank you so much for having me.

Dave:
This is fun. We’ve interacted at BiggerPockets in so many different ways, but I don’t know if we’ve ever had this one-on-one podcast vibe before.

Matt:
I’ve never been one-on-one with you if she brought gloves or not. But at the end of the day, you and I have been on many, many shows together with others, but we’ve never done just a Dave and Matt Fireside chat, so I’m really grateful and looking forward to this today.

Dave:
Yeah, I think this is going to be great. And we’re talking about a fun topic today with Boom Towns and some of the areas of the country that are just going absolutely crazy, and I wanted to just get your opinion on what’s going on here given your extensive experience in most real estate things, but also just in your commercial real estate multifamily portfolio. You’re operating in a lot of the, I don’t know if you’re operating in all of them, but you’re certainly aware of all the towns that we’re going to be.

Matt:
All of the booms we’re booming, all the booms. Wow.

Dave:
I hope not all of them. Some of them are no longer booming.

Matt:
Well, it’s an interesting conversation that I’m looking forward to get into you with today because there is a certain vibe you hear out there about these towns that are booming and it’s almost like, I feel like we’re back in high school sometimes, Dave, where it’s like, Hey, did you hear all the cool kids are investing in Austin? And so it’s like you and I are in high school and we’re hearing about the party that’s happening at Austin’s house, or did you hear what’s going on at Charlotte’s house this weekend? And we all should go to Charlotte, right?

Dave:
It’s so true.

Matt:
Or that new kid Phoenix that just showed up

Dave:
And you get

Matt:
Fomo, total fomo, man. I’m like, damn, I didn’t get invited to Charlotte’s house. That sucks. No, you didn’t get invited to Charlotte’s house, but did you hear that Chase Scott got invited to Charlotte’s house and I didn’t get invited to Charlotte’s house or whatever. So there’s a lot of fomo that happens around these boom towns in real estate and some of it’s warranted. Some of these kids are pretty cool actually, and some of it’s overhyped,

Dave:
But has it always been that way or is it new with social media and the prevalence of our industry now as it’s grown that these more individual or very specific markets get talked up more than other ones?

Matt:
I think so. Social media, just like anything in life is a big old bucket full of gasoline. And I think that you still need that spark of reality for social media to accentuate. And so I remember back in the condo boom to date myself, Dave, in the early two thousands, pre-run up and crash with 2008 and oh nine, that Miami was where the cool kids were and other places like Vegas was a cool kid, condo boom town, and there were people that were building out houses for sale was so much of a rental frenzy, but it was a development for sale frenzy because of how cheap money was and because pretty much if you could fog a mirror and had a heartbeat, you could go and borrow for a residential property to buy for a lovely four bedroom, two bath, you could get in seriously no money down. This is like pre Dodd Frank and all that kind of jazz. So there were people that were developing condo projects and development deals as fast as they could in those hot markets in Miami and Vegas and perhaps Phoenix too and whatnot, but it wasn’t as frenzied as it is now. I think thanks to social media.

Dave:
So you mentioned a few of the cool kids. What are the other cool kids when you think BoomTown or just a market that’s exploding right now, what do you think of?

Matt:
Well, okay, obviously what really is a foundational growth metric of a boom town is jobs. And we mentioned Austin, right? Austin, yes it is. Or maybe was boomed a little bit and the party’s starting to get the hangovers now and all that, but the Austin popped a lot the last couple of years. And it wasn’t just because all the cool kids were posting about projects they were on in Austin and social media, it was certainly backed up by what? By jobs. If Tesla goes and builds a gigafactory just outside of Austin, there is so many spillover factories that are needed to support that big gigafactory. So it’s not just them, it’s many, many other companies moved to that region for all the reasons, right? Because land’s cheap and because Texas had good rules around starting up businesses was incentivized all the stuff. So the local economy in Austin popped and that spills down and creates workforce housing jobs and it creates all kinds of things and it spurred an economic economy first, and then that created a housing boom behind it because people are moving into these markets and they need great places to live.

Matt:
And it’s not like the tech guy that wants to go work at the Gigafactory and Austin moves to town and ends up having to be homeless, no place to live, but there becomes competition for his dollar or her dollar for places for them to live when they go work at that factory or go work at whatever the tech boom is. And that pushes up rents, supply demand. If you look at a chart of Austin rents, it’s blown out the last couple of years now obviously hit a ceiling and that increase in rents is where that’s what drives people like you and me, right? Yet we see that things are increasing. We see that Austin used to rent for, I’m going to make a number up Dave, so don’t back me up. BiggerPockets listeners, put your pens down a thousand dollars a month for a one bedroom, right? I don’t invest in Austin, so I don’t know.

Dave:
That’s our baseline though. We’re using this as a straw man.

Matt:
You’re the data deli man. You should be telling me what the rents are in Austin, right? Well,

Dave:
As you know, I’ve memorized rent for every metro area back to 1915. So I could just recall that

Matt:
Encyclopedia brown of data across the United States, but let’s just say for example, that rents on a one bedroom worth a thousand dollars, they very quickly will become 1100, 1200, 1300 for a renovated or new built bedroom simply because there’s more people coming in. So there’s more demand in that. So not to one-on-one this thing, but for those that are newer to the market supply demand is what’s going to push rents up. Then the rocket fuel comes in, then the big bucket of gasoline comes in and people start doing deals and you start having fomo and you see that a cool kid is doing a deal in Austin, and so you want to get into Austin too because you think that cool kid’s smarter than you are. And so you want to go in, that’s what creates that real estate investment frenzy. And all of a sudden that kid in high school named Austin is having a party and we want to go to

Dave:
Thank you. That’s a very helpful description just for sort of the cycle of events that happens when one of these markets starts to get hot. And I want to talk about the other part of that life cycle, which is when they start to cool down in just a couple minutes. But when you think of these types of markets, or at least regions of the country that have experienced this change, Austin’s obviously one of ’em. You mentioned Raleigh. What are some other ones that come to mind?

Matt:
I have fomo too, Dave.

Dave:
Oh, totally. I think about this all the time

Matt:
And I see my cool kid friends investing in Atlanta. I do hear a little bit about Orlando, but I think that was a bit, you made a Covid reference. I think Orlando personally, Dave was a bit of a covid market as is a lot of these warm places like let’s say Jacksonville, Florida, not as much Miami, even the Tampa area.

Dave:
Yeah, Tampa for sure.

Matt:
Yeah, those are covid poppers I think. But Atlanta is a market that really, really increased for real fundamental job increases and things like that.

Dave:
Raleigh.

Matt:
Raleigh, yeah. Research triangle growth in Charlotte, Nashville, let’s say. That is a market that I’ve seen become a cool kid market. I read some data that this was a couple of years ago. There was a five year Dave waiting list for a crane in the city of Nashville because Nashville at the time, again, don’t be yelling at me, BiggerPockets listeners, if this is no longer the case. This is a couple of years ago. I feel like this’s a disclaimer, the views and opinions of Matt Faircloth, they’re not necessarily, anyway, at the time, there was a limit on how many permits you could pull for a crane in the city of Nashville. And so the waiting list for that permit to build anything to build a large multifamily housing project and office building anything was five years, Dave.

Dave:
Wow.

Matt:
So that’s a good sign and that’s actually a government imposed constraint that will cause the supply demand curve to artificially push in a direction. So let’s see, Nashville, Phoenix.

Dave:
Yeah, Phoenix was on the top of my list. I have one more that I’m thinking of that you haven’t mentioned. I’m

Matt:
See if I can guess it.

Dave:
Okay,

Matt:
I’m going to speed around. I’m going to throw three more out, see if I can get it. Okay. Either Salt Lake City or Boise.

Dave:
Oh, you got it. Boise. Boise was one. Yes. If people to the show, I always pick up Boise, this

Matt:
Is a game show. This is so great.

Dave:
I’ll send you a trophy or a prize.

Matt:
So yeah, those are some of the ones that you see a lot of energy and a lot of vibe going into. I’d say at least 50% of it is founded and the other 50% of it is a bucket of gasoline from social media and from cool kid fomo.

Dave:
Okay, so that’s really what I wanted to talk about. So in this episode is how do you split that out? What is a market that is for real and what is something that is perhaps either social media or the product of very unique and perhaps short term circumstances? Because Covid obviously created boom towns in places like Cheyenne, Wyoming, like places that you would’ve never

Matt:
Honolulu,

Dave:
Right? Yeah. Places. I don’t know nothing against these markets, but they’re not on any top of the list for job growth or population growth. So they sort of defy a little bit of the conventional logic about where makes a good place to invest. So how do you decide what party you want to go to? Matt, all these kids are having a party on a weekend and you, you’re popular guy, you get invited to all of them. Which parties do you choose?

Matt:
I love this party analogy dates. You can’t go to a party based on who’s going to the party. So I can’t look on social media and see, and I’m not going to name real names, but those syndicators that we all know of and we see on social that they’re either buying or building or investing in an apartment building in a cool kid town that like, oh, I should do that too. They must know something. I don’t know. The idea of you doing something that someone else is doing because you think that they’re smarter than you is absolutely the most flawed tactic for anything maybe day in life, right?

Speaker 3:
Yeah.

Matt:
You should never do something that other, I mean, I should tell this to my 10-year-old. You should never do something that someone else is doing just because you think it’s a good idea that they’re doing it. So they must know better than I do. The fact of the matter is that’s almost like a reason why you should not go to that party is because maybe when you get to the party, all the Doritos are eaten and all the soda’s gone, right?

Dave:
Yeah, exactly.

Matt:
Yeah.

Dave:
They already called the cops,

Matt:
Shut this party down. The reason why you should go, I mean obviously you could use it as an indicator. So maybe I see on social that somebody that I think is a cool kid is investing in Phoenix or whatever. Stop picking on Austin, right? They’re investing in Phoenix. Okay, why are they doing that? Maybe you should allow what you see on social to spark curiosity, perhaps not action, and that curiosity could lead you total shameless plug to somebody like Dave Meyer to the data deli to go and see some data that he might put out there or to go collect your own data. How about that? How about don’t let Dave do it for you. How about go get your own data and learn how Dave does it and go get your own data yourself on markets? And so find out why those cool kids went to the party to begin with. What are they serving at that party?

Matt:
Find out the economic factors that are driving the market. And as I said before, the primary factor that drives a market is jobs. We’re no longer in a covid economy. The majority of Americans are no longer working from home, or some companies at least require some sort of hybrid presence in an office. So economic drivers in a market are what’s going to keep a market sustained. So if you see good things happening in that market, continued, sustained, good things happening in that market and the propensity for those things to continue, then that makes it a good market to consider. But certainly not because of all the cool kids are going, Dave,

Dave:
That’s well said. And it calls your attention to places, but obviously don’t do it. Most of the people who talk up as individual market repeatedly have a vested interest in that market. I am not calling out anyone in specific, but

Dave:
If you follow a realtor in Atlanta, they’re going to talk about how great Atlanta is. These people are either just talking about the one market that they know about or they have a financial interest in it, but it doesn’t necessarily mean they’re wrong either. So there are probably tons of great things going on in Atlanta, and it’s very important to look at many of the variables that Matt just highlighted. It’s time for a break, but we’ll be back with more from Matt Faircloth on the other side. Welcome back to bigger news. Let’s jump back in with Matt. I actually think, Matt, the hardest thing to know in these types of scenarios is when is it too late? I went to Austin and then down to San Antonio in 2022. I’ve just been bombarded with information about those two markets.

Matt:
That is a peak of cool kid tomboy. That was midnight. That was midnight. And they turned the radio up a little bit louder, and the party was jamming about 2 20, 22 in those markets.

Dave:
Yeah, exactly. It was wild. And I chose not to because it just seemed like people went crazy. You talk to a realtor and they’re like, well, the average appreciation in this area is 8%. I was like, yeah, for the last two, three years, why? That’s not going to

Dave:
Happen.

Dave:
But people were talking about it, it was matter of fact. And I was like, this place has gone insane and I walked away. But not everyone has the ability to go to these places. And I’m in a fortunate position where I know a lot of people in most of these markets, I could talk to a lot of them. So how would someone who’s just maybe getting started or considering a new market know even if there’s great job growth, Austin has great job growth, but it had just gotten to this point where it was so overheated that it didn’t make sense. How do you measure that?

Matt:
New construction tends be the driver of rent growth in a market, right? New construction and major renovations. What’s going to push rents up 10, 15, 20%, and then if you own the building right next door to that new construction, they might be able to push rents up 20% and you’ll get the spillover side effect of 7% rent growth. And if there’s enough new construction happening, is that realtor you talk to, you’re going to see rent growth across the board in that. So new construction and new development tends to be what drives up growth. And so if you’re seeing in the market lots of permits pulled for new builds and things like that, then that’s going to be, oh wow, there’s a lot of economic frenzy, there’s a lot of development, there’s a lot being invested in this market. Maybe that’s a good thing. Maybe that’s an overheat,

Dave:
Right? Yeah.

Matt:
If you looked at Austin in 2022, you probably would’ve looked at that, and that’s maybe why you didn’t get in because you saw it. Man, this isn’t sustainable. This crane’s all over this town, man. And at some point when they’re done building all this stuff that they’re building, they’re going to have to lease all this stuff up and that’s going to cause pressure, economic pressure on the market, right?

Dave:
Yeah. I mean, there’s a reason rents are down 6% year for year in Austin. It’s leading the country and rent decline.

Matt:
It’s not because the jobs are going away. It’s not because employment’s faltering. It’s because there was a major, major spike in development. And listen guys, it’s going to be okay if you’re an Austin, let property owner right now, you’ll be just fine. Those jobs are not going to go anywhere. And eventually, eventually all that housing that got developed will be absorbed and rents will start to creep back up. Maybe not at 10, 15% per year, and maybe they shouldn’t. Maybe rents shouldn’t grow that much.

Dave:
I totally agree. Well, that’s a whole other question I’m going to ask you in a few minutes, but I want to continue on this theme looking at inventory numbers, because what Matt was talking about with construction permits, a hundred percent true. That’s total housing supply. How many physical housing units are in that area? Super important, but also when you start to see inventory tick up or when you start to see days on market tick up both for rents and for properties, when you see things sitting on the market that shows a shift that maybe the frenzy is starting to cool off a little

Dave:
Bit. Absolutely.

Dave:
And it’s starting to shift more to a buyer’s market. And frankly, that’s what we’ve seen over the last, let’s say two years, two and a half years in some of these boom markets like Austin has been one of the biggest markets in decline over the last couple of years. So has Florida. Most of the markets that are declining are in Florida.

Dave:
And so if you’re sort of a keen analyst of this data, those things were becoming obvious a year and a half or two ago. Because if you look at these inventory numbers, you can start to tell that something is shifting that creates a really interesting dynamic. Matt, I’m very curious your opinion on right now we’re seeing Phoenix. We see Boise, some of these markets that have really good fundamentals, seeing the biggest declines. So what do you do? How do you navigate a market where some of the long-term best looking places have some of the worst short-term potential?

Matt:
There is a bit of a gangster move that you can make. There is someone who thought that they were walking into the casino of real estate investing and that they were going to go put all their money on red or whatever it was, and they took a bet that the market was that Boise was going to keep rising at 10% per year, or that rates were going to stay down, or that cap rates were going to stay down or whatever it is. And the gangster move is to go and find that person that took bets that the market was going to zig and it zagged. Okay. That developer or investor will be very clear as someone who’s in distress, right? Like, okay, I’m halfway done this thing and I have some friends that are buying a halfway done, a halfway done 50 unit apartment building.

Dave:
Oh my God.

Matt:
In Seattle, our company just bought a 20 unit just outside of Raleigh. Okay, cool. Kid town,

Dave:
Right? Half done,

Matt:
Yeah, was they were planning on building it out and keeping it, and they couldn’t get their refi.

Dave:
Wow.

Matt:
And so they decided to just take their chips off the table because the refi wasn’t going to get ’em whole. And so they, it’s like, okay, what? Forget it, we’ll just sell. And so we got it for less than what they likely would’ve gotten appraised for when they had started the construction. So there are moves that we as real estate investors can make to find someone, and this sounds counterintuitive day, but it actually is working, and I’ve got some friends that are doing this and finding things that were just built and either approaching the owner direct or getting a realtor to find you something that was built recently because something that was built recently was built under economic assumptions from two years ago, and they might’ve thought the party was going to keep going. They didn’t realize that rates were going to spike and that rents were going to have an 8% decline, as you said, right?

Matt:
So if they didn’t bake all those things into their pie and they were not conservative enough, they are in distress and they might need to liquidate at a way more reasonable off the market number than we might be thinking. And that’s a gangster move is to go and find somebody like that and work out a deal to say, Hey, looks to me like you either can’t finish this thing or on the numbers that I can tell, it looks like maybe you projected rents to be X, and now they’re Y. Another thing that you could look for, Dave, that is an indicator of distress is major concessions on rents. So if you see an apartment complex that was recently built and call them guys, and it could be a four unit, it doesn’t have to be a 300 unit call up the listing. If you see a vacancy and say, are you offering any concessions right now, that means that I’m asking $2,000 a month in rent, but if you sign a lease right now, I’ll give you two months for free. That’s called a rent concession, and it’s a backdoor way of dropping your rents without really dropping your rents. Meaning I can still tell the market I’m asking $2,000 a month, but really I’m going to go and give away two, maybe even three months worth of rent for someone that signs a lease at my apartment complex,

Dave:
Which is basically a 25%

Matt:
Cut,

Dave:
Right?

Matt:
Backdoor, backdoor way to drop rent without having to tell the market, well, no, I’m still charging $2,000 a month, but we’re having a sale.

Dave:
Yeah, exactly. Does this work for a single family or a small multifamily as well as a large multifamily?

Matt:
I’m not a single family guy, but I would try it. Yeah. Another example, Dave, is builders realized that, geez, we didn’t expect that the interest rates to go to 7%, six and a half, and I know the fed just dropped rates. I get that, but they didn’t drop them to the degree that they rose, that they increased them. So rates are still pretty high. So you’re seeing developers selling houses to end buyers, and they’re buying rates down three and a half, 4%. You can get the fruit, the developer baking in rate buy down, Dave, I guarantee you, when they broke ground in the development in 2021 or whatever it is, they had not planned on doing that,

Dave:
Right? Of course,

Matt:
That was not in the equation. So I would start making offers and maybe that’s just being the shrewd buyer and the last, say five, six years, Dave, we’ve all been used to, well, the seller is asking $300,000 for this single family home or for this duplex, whatever it is. So that’s the starting conversation. People don’t realize the buyers are in way more control than the market’s letting on that they are. And so just because the seller is asking a number, that should be of no consequence to you make a offer that makes sense

Dave:
Because values have fundamentally changed. It’s just that sellers are always going to ask for the maximum price. But when you look at the fundamentals of the market, and I’m not talking about the other fundamentals of demographics of the market, the value of assets has declined in a lot, especially multifamily. But in some small multifamily residential markets, especially in some of these boom towns that we were talking about, they just have declined. And so going to a seller and saying, Hey, your number that you asked for is based off two years ago value, and they’ve changed, and here’s what I think the real value is. They’re probably going to say no. But if you do it 20 times, they might say yes. There’s no harm, no foul in trying it.

Matt:
Yeah. And the asset classes that I would be going after if I were perhaps listening to this podcast and want to go find a deal, right? The asset class that the cool kids were going after for the last five years, Dave, have been value add properties, and this is small assets too. Something built in the seventies, eighties, nineties, early two thousands or whatever, and I’m going to get in here and put a coat of paint. I’m going to drop in a new kitchen, I’m going to spruce it up and spit, shine it up real nice and increase the rents and push things up to market that works that equation. The value add equation works in a rising economy. It works when rents are going up 10% because the market rising will carry you a bit forward. We’re no longer in that space. I don’t recommend, nor in my company the DeRosa group, are we going after the older vintage stuff, the 1970s, eighties, we buy apartment buildings. But it’s still that this conversation still applies to people buying smaller assets too, because the value add play doesn’t work anymore. But what works is to find, I think something newer built that somebody might be looking to offer a real concession on. So you can probably get better assets at a way better price right now if you’re willing to sniff around, do some detective work and make some offers.

Dave:
I love this idea. It makes so much sense to me. Actually. I want to do the gangster move. So you should in a market, I invested in the Midwest, there’s this brand new fourplex, it’s super nice, it’s at a great condition and it’s just been sitting and this is not a market where things are sitting right now. It’s like, make an offer. I’ll do it today. Maybe I’ll go do it right after this thing. Let’s do it. That’s great. I’ve honestly just been waiting because as people might know, I live in Europe, but I’m in the United States right now for BP Con and I’m going to this market in a few weeks to go look at my properties. And so I was kind of like, if it’s still around, then I’ll make maybe make an offer, but you’re inspiring. Maybe I’ll just do it today because why not? It doesn’t cost me anything.

Matt:
Distress is hiding right now, guys.

Dave:
That’s a good way to put it.

Matt:
I don’t think it’s going to be in the open market. I don’t think that you’re going to see blood in the streets and maybe just because open and praying that we don’t, because I don’t think that real estate is going to see a drastic crash, but I do think that there is distress out there. It’s just not going to be as in your face as you think that it might. And there are people out there that had expectations of saying it again, the market zigging and it went and zagged on ’em, and maybe they want to take their chips off the table, take a modest profit, or maybe just get their money back, whatever it may be. And that’s something you guys, BiggerPockets listeners should maybe consider doing in a market.

Dave:
Alright, we have to take a break for some ads back with more in a minute. We’re back with that faircloth on the BiggerPockets Real Estate podcast. What about for people who already bought in these markets and who are maybe seeing what I would call a paper loss. They’re seeing the value of their asset go down, but as long as you sell, it hasn’t actually gone down, it’s just in theory. But how would you recommend people sort of manage that piece of their portfolio in this sort of strange time for these types of markets?

Matt:
It sure is strange, right? And if I were, unless you’re in major financial distress, I recommend holding what you got. I think that those that are able to hold out for the next year-ish or so, if we have a recession where sessions don’t last years and years and years, they tend to last. It probably should be asking you, but what, nine months to nine months to a year? That kind of thing. So I think that if you’re holding an asset that’s either not penciling out very well, not going well, if you can find a way to hold it and to weather the storm and to just air quote get by, I think that that’s the right play. Things are going to be better a year-ish for now. There was a mantra that a lot of folks in my world were using survive till 2025 kind of thing, which I’m sure you’ve heard that one,

Dave:
Right? I have, yes. But it’s true though, because I’ve talked about this a lot, and it’s not just true of multifamily real estate is very, very forgiving asset over the long run. And so what you really need to do is, hold on. I think the worst thing that you can do in real estate, and the only way you really lose money in real estate is what’s known as forced selling. So if you find yourself in a situation where you just can’t hold onto the asset anymore because it’s not cash flowing, you don’t have the money to front your rate cap expires. So whatever, it’s things happen. And that is sort of the defensive positioning. I think some people need to be in these markets that are experiencing corrections. It’s just like, how do I make sure to hold on? Not because for pride, but because normally these things come back around. Even if you bought, I did this analysis, even if you bought in the height of 2007, the worst possible time in nominal terms, not inflation adjusted terms, you would’ve been fine after seven years. Now you’re probably not earning the best return you ever did in your life, but if you had cashflow during that time, you’d still be getting cashflow, you’d still be getting tax benefits, you’d still be getting amortization. And then seven years from now, your property values recovered.

Matt:
I did that, Dave. I bought assets in 2007, right?

Dave:
Did you hold on.

Matt:
Yeah, I held them right. And they were like breakeven rentals. These were single family homes, man. These were not super enormous apartment complexes. These were very accessible to most investors. Three bedroom, two bath, single family homes. And we bought them as fix and flips. The market went Cali Wonka and squirrely and all that. So we said, okay, this is probably not the best time to go flipping, so let’s make ’em good ironclad rental. So we shifted our business plan and we leased them out and they made meager cashflow or breakeven cashflow for a period of time, amortized the debt over years, and we just kind of held them until it made sense to sell. And when we sold Dave, we did very well on them. So you end up averaging out over long-term, as you said, through patience. And I think that’s the mantra that those that already own real estate, if you can be as patient as you can if you’re looking to get in and expand your portfolio, the word’s probably not patience. The word is courage to get in there and just say, Hey, let’s just give it a shot and make that offer on an asset that’s a little bit of a stretch quality wise than what we’re used to going after. And you might be surprised,

Matt:
But I highly recommend just be a little patient right now as things continue to shake. The Fed actually indicated they indicate a lot of things and then don’t do them. They change their mind a lot. But they’ve said that they’re going to drop rates two more times potentially by the end of the year. They said a lot of things at the beginning of 2024 that they were going to do and didn’t do.

Dave:
Certainly not.

Matt:
But they’re certainly going to do something over the next 12 months, and I think that they will long-term benefit real estate. So if you can hold on.

Dave:
I agree, and I want to just make sure that everyone knows that what Matt and I are talking about are specifically for markets that have these good long-term fundamentals. If you’re in these good markets where things are going to turn around, I went to Austin, it was too crazy for me, but of course unless something crazy happens, but by all accounts, Austin’s going to keep growing over the long run. I’m not concerned about Austin as a city. The same thing with Raleigh, same thing with Charlotte, same thing with Tampa. I think the strategies that we’re talking about, just to be clear, where you’re holding on or for places that you have a strong indication they’re going to cover. If you’re in a market that’s just kind of the town is unfortunately dying economically, I wouldn’t, hold on. I’d probably cut bait and try and just move on and go somewhere else. So that’s a good point. It’s really mostly about what you think the long-term prospects are.

Matt:
Yeah, no, and it does depend on your analysis and predictions for the market if things are going to continue to grow, although long-term, things like interest rates and just long-term national increases of cost of living do eventually push markets up. But certainly not. That’s true with plenty of headwinds. Whereas if you’re a market that’s already showing economic growth, you’re going to recover much faster than other markets may. So you might have to wait a lot longer.

Dave:
Yes, that’s right. Alright, Matt, last question before we get out of here. What are some secret boom towns that you think might be coming in the future? The ones that aren’t booming yet, and we won’t hold them to you, but do you have any hunches or hypotheses about future boom markets?

Matt:
I sure do. Yeah. Columbus, Ohio is one. We’re not there. I’ll give you a few that were not in.

Dave:
Columbus is booming, man. I went there too and didn’t invest. It was too crazy for me.

Matt:
But it’s not a cool kid market yet, right? So there are real economic fundamentals there. They’re building a chip factory there.

Dave:
Real fundamentals there. Yeah.

Matt:
So yes, it is booming. Yes, there are real estate investment ventures happening there, but I still think there’s deals to be had. I like just down the road, Cincinnati, believe it or not. Yeah, I said it. That’s right. Cincinnati old steel town. That’s right. But I think Cincy is going to show some longer term growth in certain neighborhoods if you want to stick to Ohio. Now, I will say this is not a DeRosa commercial for my company. This is a market we are invested in, but this is a market that is growing that has real fundamentals. And that is Winston-Salem, North Carolina.

Dave:
Oh, I’ve heard a lot about Winston-Salem being a good market.

Matt:
Correct. But that triangle where it is, the Winston-Salem, Greensboro, and to give you a bit of OSA inside baseball and what our company invest, we tend to not go where the cool kids are. And if you look at the map, and that’s my advice to the BiggerPockets listeners here, is that if you look at a map, look at where Rally is, and we already talked rally’s having a big old house party at their house, and so is their little sister Charlotte down the road, but there’s Greensboro and Winston that are in between those two towns. And there is spillover that happens in these secondary and tertiary markets, maybe cities that don’t have major league teams that have minor league teams, right, Dave and so maybe not Austin, maybe San Antonio,

Dave:
Right? Yeah.

Matt:
Maybe markets that are going to get the economic spillover and job growth or whatever for where people either can’t afford or choose not to afford to live there. Or even companies open up in those secondary cities that want to get some of the job growth and economic support. They want to support companies like Tesla that are building out in Austin, but don’t want to pay the rent in Austin. They want to be in San Antonio. So I would look at even Tempe. Okay, another example. Tempe, Arizona, not Phoenix, Tempe, that’s what Boise was. Boise, Idaho and Salt Lake City or whatnot. They were kind of secondaries and they were spillovers from California, but they kind of became their own thing eventually. But find secondaries that are growing. You’re the data dude, man. What predictions do you have for markets that are beneath the sheath that haven’t popped yet?

Dave:
I like the first one. So people who listen to on the market probably know that I am generally long on the Midwest. I don’t think they’re going to be the hottest market in the next year or two years or three years, but I think 10, 15 years from now, people who invested the Midwest right now are going to be very happy about it. My whole hypothesis is about affordability. Housing is unaffordable and unfortunately for a lot of people, I don’t think it’s better anytime soon. We’re going to try and build more, but I don’t think prices are going down. There’s just too many demographic tailwinds. I think the Fed learns its lesson. We’re not getting 0% interest rates. Again, I generally think it will get a little bit better, but I think people are going to be attracted to markets where their dollar goes

Speaker 3:
Further.

Dave:
And I think the Midwest offers great value. I know people, let’s just say Chicago, people hate on Chicago a lot of crime there. First and foremost, look at murder stats. Chicago is not number one in the city. It’s actually, there’s a lot worse places in terms of crime than Chicago. Chicago’s a wonderful city. I spent a lot of time there. There’s great food, there’s great culture. It’s a huge city. There’s huge companies that work there. I think cities like that, maybe not in five years, but 10 or 20 years are going to growing again. And because they’re extremely affordable for the quality of life that they offer. And so I personally look for stuff like that. And I totally agree with your idea of the economic spillover idea.

Dave:
Living in Denver for 10 years while it was booming. You see this towns like Longmont or Fort Collins, the cities were never anything. They were nice places, but I mean, housing market wise, they were not booming. And then you just see it gradually when there’s an economic powerhouse like Denver is, you just see it spill over. And right now, I think the perfect example is that is the fastest appreciating market right now. You’re a northeast guy, Matt, I grew up in the Northeast is New Haven, Connecticut would have never guessed, but when you think about it, it’s right in the middle of New York and Boston. It’s between two of the biggest economies in the entire

Matt:
World. It’s affordable. You can commute to Manhattan from New Haven. Exactly. North Jersey, believe it or not, as much as Jersey gets hated on Dave, right? As much as Jersey gets hated on North Jersey is a way affordable alternative. And there’s plenty of trains that’ll take you right into downtown Manhattan fairly quickly. So I would not be afraid of those secondary areas that actually get hated on in the Northeast or whatever. Our company’s investing in Minneapolis, Minnesota to talk about a market that nobody’s talking about.

Dave:
Right? Yeah, exactly.

Matt:
I agree with you. The Midwest, I think is maybe in five years going to become the new Sunbelt and that because people are not going to have the luxury of only moving to a place because the weather’s nice, because we’re beyond that lifestyle. I think that people are going to, for all the other things, for jobs and for culture and for food and for everything else.

Dave:
Well, those are our guesses. We’ll have to have you back on in five years and we’ll see if we’re right. Well, you’ll be back before, but we’ll revisit this topic in five years.

Matt:
Yeah, hopefully sooner than

Dave:
That. Absolutely. Well, Matt, thank you so much for joining us. I really appreciate it. This was a fun conversation.

Matt:
I loved our one-on-one banter, man. We’ll have to do this again soon.

Dave:
Yeah, this is great. We will have to do it again soon. And of course, for anyone who wants to connect with Matt, hear more about what he’s doing, hear about what parties he’s going to this weekend, we’ll put his contact information in the show notes. Thank you all so much for listening. We’ll see you soon for another episode of the BiggerPockets podcast.