Hey everybody, welcome to the REtipster podcast. This is Seth Williams. Today I'm back with Neil Clements for our 2026 Q3 market update. So in case you've never listened to one of these, every few months Neil and I like to get together, look at what's actually happening in the real estate market in the broader economy and try to separate the signal from the noise. And this time around there's a lot to talk about. We're seeing some pretty dramatic changes in the balance between buyers and sellers. Some of the hottest markets from a few years ago are looking very different today. Interest rates are still creating headaches, and there are some big questions about what the Fed may do next and how much that will even impact us. We're also going to look at migration trends, where home prices sit compared to historical norms, what previous real estate cycles might or might not tell us about where we're at today, and most importantly, what all this means if you're a land investor trying to buy and sell properties in this environment. Neil always brings a ton of data to these conversations, so I'm going to let him walk us through what he's seeing and help make sense of it. Neil, welcome back. How are you doing? Hey, Seth. Happy to be here as always, man. I just think that you put out some of the best content for real estate investors on the whole internet. So I'm always honored to be here and always happy to know you. And I texted you yesterday. I can't believe we've been doing these for almost two years now. Yeah, man. We're fast. By golly, man. How much has this market changed in two years?

I think two years ago, So we were sitting down and we were just kind of getting out of the 2022 slump. We were in late 2024.

And I think I was even predicting crashes at that time. And honestly, if I was 100% right on everything, I'd probably go to Vegas and put money on odds. So no economist or no investor is going to be right on everything. But a lot of the stuff that we've talked about over the last few years is now starting to come true. And so Michael Burry, he's the one who famously called the 2008 stock market crash and hedged against it and made billions because of it. One of the most successful investors of all time, besides Warren Buffett, of course, from making money during crashes, the big short, the movie was about him. But in a book that I read, I think it was autobiography or something that he had written. He called the crash two years before it happened. He actually, his investors, right before he made the billions that he made.

I think lost 25% to 35% of his investor capital because he ran a fund because people stopped believing the crash was actually coming. And then like a thief in the night, like the Bible says about the devil, it came to him and he never expected what was going to happen, how quickly it happened once it was there. And truly, I think that's what this call is about today. It is we're going to talk about where we sit with data and statistics and analysis. And we're going to talk about a pending crash may or may not be coming, but we are definitely starting to see signs of huge market weakness. And we are starting to see signs that every Everybody listening to this needs to pay big attention to, especially if you own a flipping or a wholesaling business. Those are the people like me and like you, Seth, that have the most to lose.

Potentially or to gain from something like this. Yeah, for sure. Yeah. So we are recording this in August of 2026. This will most likely get published in September, 2026. So hopefully nothing massive changes between that little timeline there, but there's been kind of mixed signals about the market. Some people are still really bullish. Some people are getting nervous. Where are you at right now? Like, are there people out there that you know who are doing really well or doing really poorly and why? Like what's going on? Man, I think that's a really good question right now. I can tell you. So I feel like I have a unique perspective because I wear a lot of different hats. We have a few different businesses. So we run a residential real estate, like a realtor based company where we sell land, we sell houses, we also sell some small commercial. And so I get to see kind of the different things when I represent other people that informs my investing side business. That's a small part of my business, but it is a part of it. Then I've got, we still do house flipping. We still do land flipping. Now we also do land development. We also place mobile homes. I'm kind of all over the place, but.

That's how I've been able to survive. And even I would say thrive during some of these market down cycles is because when one area dries up, we can pivot. And the reason that I say that is my broad perspective is it's all hurting. Like it's all hard. And even in my real estate office, like the realtors, I mean, gosh, like what I'm seeing right now is that the best of the best. So like, you know, that you've heard of the Pareto principle, the 20, 80 rule, 20% of people do 80% of the production. Well, I'm actually reading a book right now that states that even further than that, you can 2080 to 2080, meaning that of those 20%, the 20% of those, I think it's like four to 6% do 94% of the business. And that will always be true in any market, but it's now more true than ever during kind of a down market. And we're going to get into why we're in a down market here in a second.

But the people who are the like the 4%, the 6%, whatever you want to call it doing 94% of the business, they're always going to thrive. The market's not going to affect them much. They're going to pivot strategies. They're always going to be per se the best of the best, whether they're in the real estate industry or not. And it's not that God gave them that gift. It's that they're going to have hustle that nobody has. What's really hurt though, is the messy middle, is the people who are not the best of the best, like not even the top 20%. And they're also not the bottom 20 because the bottom 20, they're already gone, but it's the messy metal who maybe went from doing a deal a month or a deal every other month to getting really hurt. The part-timers who were doing this and not becoming experts on their trade got really, really hurt.

But the people who are the best of the best will continue to be so. But anyway, so that's my perspective. Who's having fun? The people at the top are going to continue to have fun. The people in the messy middle until they become the people in the top are not going to necessarily have as much fun until they pivot and they get ahead of the strategies and ahead of this market. And the people at the bottom are either going to get out and do something else, or they're going to pivot their way to be the middle. But in my opinion, the hardest place to be right now is not the beginner. It's to be the person who hasn't made the commitment to go full time or hasn't, does, isn't putting enough time into their business or isn't doing the right things to become the best. I think it's even harder to be in the middle than it is to be at the bottom right now, personally. It's really interesting to hear you say that because in my mind, you're clearly in that top 20%, maybe even that top 4%. And we talk about people having fun. What do we mean by having fun exactly? Because when I observe you sometimes, you strike me as somebody who there's always this sense of urgency. Like there is never a time when you can just like rest on your laurels and get lazy and be like, okay, we're fine. We don't have to work anymore. Like you are always pushing forward. I mean, maybe you find that fun. Maybe it's stressful. I don't know. I'm not sure what goes on in your head when you think that. But do you think that's one of the attributes of people who stay in that top 4%? Like they don't slough off. Everything's always going forward. How does your brain work? How do you stay in that top 4%? it. Well, I'm flattered that you think that of me.

I think that of myself. Thank you. Let's just say that. You're making me blush. So I heard Gary Keller gave an address this week to all Keller Williams agents, which I happen to be part of this week. And he's a billionaire. He's been in real estate since the 1970s. And I think he gives a good perspective on how to build a business, how to achieve, and how to have wealth. And he said something that I thought was really great. He said that in this market, in this shifting and buyer's market, it's no longer about hard work. Hard work is the bare minimum requirement. And hard work maybe used to be a differentiator for being in, say, the top 20% or the top 5% or the 20% of the 20%. That used to be a differentiator. Right now in today's market, hard work is the minimum standard. Like you think it's hard to work weekends. It's not hard. It may suck for your family, but it's not hard. Putting in extra hours is not difficult. And his perspective was what is hard is doing what is unnatural.

What you don't have skills for, but yet will move the needle for your business. And I knew that. And in some of the books that I'm reading right now, I knew that I'm reading another book that's called The Goal. It's an old manufacturing book from the 1980s. Yeah. And it's about basically theory of constraints and basically about how if you're working on something in your business that is not a constraint and is not the reason that you're not growing, then to some extent, you're wasting time. And Gary Keller basically said the exact same thing, which is the people who are going to make it through this, who are going to thrive through this shifting market and this downturn are the people who choose to do what is unnatural, uncomfortable, and what is going to move the needle for their business and stop being the constraint for their business. If they can work on that and they can spend multiple hours a day, They focus solely on that constraint. That is the people who are going to be the top 5% of their business. Now, I won't say that I am always the best at that. It is very, very difficult to always do things that are unnatural. It is extremely uncomfortable. It is hard to do. I am not a personal living example of always being the best at that.

But like, as far as hustle, I've got it. As far as mental aptitude or smartness, I've got it. But during this market, I've got to be even better. And I know that. And that's kind of why we're having this call today. Like nothing on here am I paid to say, right? I mean, I'm not like a news outlet, Seth. You're not a news outlet either to some extent. Like we're not paid to say any of this. We're not trying to spread doom and gloom. We are not trying to freak people out with these calls. We're literally just trying to help people. The people who are going to be the top achievers through this down market are the people who work on the right things the hard things that are going to move the needle in their business. It's no longer about hard work. It is solely about removing the constraint from your business. And that's why it's so important. Like Seth, we have this mastermind coming up and we're running this. That's why it's so important to get in the room with other people who have these ideas so that they can look at you and say, this is your constraint. Here is how you fix it. And that's what you need to do next and who holds you accountable to that over time. I know there's been some headlines recently in Redfin. What is the actual data showing right now about how many buyers versus sellers there are in the market right now? So get this. This is a Redfin report that literally just came out like maybe less than a week ago.

Sellers outnumbered buyers 51% in July. So when you think like that is crazy. I mean, additionally, since Redfin has been tracking data, which goes back, I think their data goes, goes back to since they started like 2010, 2012, something like that. This is the lowest buyer demand that they have seen during that timeframe, almost 15 years. There is under a million buyers and this is residential real estate. This is under a million buyers in the market in July, which is the lowest ever since they've been started tracking. And it's down almost 3% from the last month. Meanwhile, there's almost 1.5 million active sellers in the market, meaning nationally that there's 1.5 million sellers for only 1 million buyers. So there's 1.5 sellers for every buyer in the country. So what does that mean? What does that mean for us? Well, it means that almost everywhere are buyers markets. And so Redfin also studied, this is the second part of the report, is that they studied what areas are buyers markets. And they said that out of the 50 top metros in the United States, 40 metros are currently buyers markets. And only like five of them were even sellers markets. The rest were balanced. Those percentages, the 51% more sellers than buyers. So that is a national average? That is correct. And that's based purely on MLS data, I assume, right?

It's based on Redfin's data, which Redfin, yes, would have access to MLS data. How do they even know who is a buyer? Like, how is that measured? Do people register like, hey, I'm a buyer, count me in the pool, like, how does that work? I wanted the same thing. They have a proprietary method for achieving data for coming up with who actually is a buyer. I don't know all the ins and outs, right? I'm not a data scientist, but at the end of the day, they've been tracking this for, you know, what is it, 10, 15 years? And so even if their data is skewed a little bit, there is no doubt that we are pretty much in a buyer's market. Our whole nation is like, there's no doubt in my mind.

And the craziest part is, is that, like I said, there's only actually four metros that are balanced. And so basically there's six metros that are seller's markets. That's it. And that's that is such like if you would have told me we go back to several years ago, like 21, 22 or even 2020. And you would have told me that we would be in a market that is declining for four years to get to 2026. And that in 2026, we are just now coming into a lot of these buyers markets, I would have said you're full of it. I mean, I would have said there is no way. Like it's going to go faster than that because even Gary Keller said this week, he said typical downturns only last for four years.

But like I can tell you here in Texas, we've been in a downturn for four years already. And to think that it's going to happen for more years and that we're not even at the low yet, man, this is tough to hear. It is an interesting thing to think through. I was just interviewing a guy. This episode has not been published yet. It'll be episode 289. So it'll come out in another month or so. But his name is Philip J. Anderson. He's a very experienced, fairly well-known economist. And we were talking about this idea of it's like an 18.6 years on average is this cycle that it goes through, which interesting, 18 years ago, right now was 2008, like right when the bottom fell out of everything. But there was this economist named Homer Hoyt. He kind of pointed out something very interesting, how these different life cycles of the economy can actually look quite different depending on different cities. Like in Chicago versus L.A. versus New York, it might happen every 20 years or 35 years or three years or 14 years. So like it's not all hitting at the exact same time. And things are impacted in different ways based on what's going on in those big metro areas. To your point, this thing about like, I think you said there's six markets right now that are currently seller's markets.

So like, what are those markets? And like, why is that happening? Any idea? And could that just shift overnight? So let me start with the areas that are the top buyers markets in the nation. And then I'll tell you the sellers markets, because it's some interesting correlations. So top 10 strongest buyers market in the whole nation. This is as of what is this late August 2026, Miami, Florida, 154% sellers of buyers, Nashville, Tennessee, 150%, Houston, Texas, 130%. San Antonio, Texas, 116%. Austin, 112. Las Vegas, 103. Fort Lauderdale, Florida, 102. Dallas, 100%. Phoenix, 100%. Orlando, Florida, 100%. And 100% basically just means there's equilibrium, right? That is correct. And so that would be probably more considered... No, no, no, no. I'm sorry. That is double. There's 100% more because I'm looking at the stats. It's not, It's not balanced. So let me take that out of my mind and what I said. I'll retract that. Thanks for putting that for me too. Yeah, no, no, no. Thank you for asking. So in Dallas, Texas Metro, there are 30,000 sellers and 15,000 buyers. Again, so that means that there are two sellers for every one buyer. And I can tell you 100% in our business, we are feeling it.

We are feeling it. And how are we feeling it? Prices are going down. 100% prices are going down. You look at Miami, Florida, there's 18,000 sellers and 7,000 buyers. That is crazy. That means two and a half sellers for every buyer. And so when we look at, you asked earlier, why is this happening statistically? What are we talking about? So, You think about in like COVID era, the boom markets, Florida, Texas, Tennessee, Sunbelt, that's where these buyers markets are. So what happened specifically during these times, we had a ton of internal migration. People were leaving historically blue politically states that were more locked down and they were coming to historically red states that had a lot more freedoms. That's the end of it, right? And also cheaper cost of living, getting away from high cost of living to cheaper cost of living. And I'm not trying to make this political. I don't really care who you voted for. The facts are the facts, and it's just reality. And so when we talk about those boom markets, why did it get crushed? Well, Texas specifically, we're just overbuilt.

And so the craziest thing is, is that there was somebody who ran some statistics for this and that in order to keep up with basically how much demand there was during that timeframe, I believe that we would have had to build like it was 300% more houses than we actually built in these areas. And so that's like Texas, Florida, like the Sunbelt area. And so basically what What happened is builders saw that stat and during the time they felt the demand, right? They felt the market, you know, tailwinds pushing them. And they said, okay, cool. Let's get some developments in the pipeline. Let's capture this while it lasts. But what happens with builders and developers is that those developments, they take 12, 18 months to get entitled. They take another maybe six months to a year, if not longer to get the horizontals, you know, the streets, the utilities, the lot prep. And then they might take six months to a year to build. So they're like two or three years, two or three years out from inventory. So if you start to put the facts together, we're overbuilt in these areas because our market did this and then it did this. And so the builders tried to react while we were here. And so now we're overbuilt. And so what does that do is specifically in Texas and some of these other areas, our biggest trouble in residential real estate is.

Is that the new builds are now selling for lower than the existing houses. Yeah. And that's trouble. And so like for real estate investors wanting to hold a rental property portfolio, like I got a guy on my team, his name is Jonathan, he runs acquisitions for us. Like he's just buying a portfolio of new builds because that's the smartest thing to do right now. If you're like a single family rental property investor, why would you buy used when you can get a great buy down with new, you can get a cheaper house and it's brand new with warranties. Why would you buy a used house? So used houses are taking a beating. What happens when used houses take a beating? Well, the land prices, especially infill lots, like inside city lots, like if new home prices come down, if resale home prices come down, infill lot prices come down too, because builders are specifically just running a business. So do your smaller lots. So do maybe some of your 10 acre lots in some of these areas.

If residential real estate goes down, which it is in these areas and most of the US, land pretty much follows it unless you're just in like prime, prime market commercial or something like that. So let me also tell you about the seller's markets. So all of the top seller's markets in the nation are focused in the Northeast. We have basically New York, New York. We have Newark, New Jersey, which is almost same Metro, Providence, Rhode Island, Milwaukee, Wisconsin, New Brunswick, New Jersey, and Montgomery County, Pennsylvania. So the Northeast is where the hot part. And it's like, why? Because they're still in hot sellers market. Like New York, New York, 36% more buyers than sellers. Newark, New Jersey, 21% more buyers than sellers. So they're in a hot sellers market above asking, minimal days on market, multiple offers. The reason is, is because in the Sunbelt States, states, it's very easy to develop and build hence why almost every major land investor i know who does any kind of subdivides does it normally somewhere in the sunbelt or southern united states right that's why when we did these most popular states a year and a half ago, they were all in that area right because it's easy to develop easy to subdivide when you say it's easy to develop easy to subdivide is that because of the politics in those states or because of the weather or like what is it about those areas that makes them so easy, yes to all right i mean it's.

It's easier because there's significantly less red tape from the government. And it's not even necessarily political per se. It's how long does the subdivide process take? Because I was at like, I was out in a mastermind. This was a few weeks ago. And I was talking to somebody who was trying to develop in, I think it was Los Angeles, California, which, oh my gosh, talk about a beating. I mean, they were the stuff that I can do in Texas, like a minor subdivide or something like that, where I still have to do entitlements and get approvals. I can knock that out in four to six months, you know, basically just get a surveyor to give us a plat, do some basic hydraulic test, maybe some engineering on some swales, like basically some, some lot improvements. And I can get it done with minimal headache. You go take that to California. You're talking two to three years easy. And so it's like when, you know, they're like, oh man, you have it so easy in Texas. And so I look at my business and I'm like, man, I didn't think I have it easy, but apparently I do. So the reason that all of this is happening is because new build has been constrained for years in those areas. They have jobs, people are still employed, and new builds have not been coming online. So.

It's not necessarily that it's like, oh, my gosh, everybody wants to live there now because that's it's really it's not true. You know, more people in a lot of those areas are leaving than they are coming in. The reality is, is those areas are some of the oldest developed areas in the country to some extent. Right. They have inventory from hundreds of years ago and they don't necessarily have like a ton of land anymore. And so whenever you start trying to build new houses, it becomes very difficult with all the environmental concerns and all the pieces that have already been taken and all the red tape to build.

It's just all comes back to the old argument of economics of supply and demand. And that is simply why those areas are still in a hot streak right now. So this is just my neck of the woods, but there's a number of houses near me, that are all listed for sale and they've been listed for sale for a while. And the prices are very, very high. And it seems like they're not getting it, that they need to lower the price. And that's why it's not selling. But I'm just wondering, like, is that a thing that's happening? I think I've heard other people commenting on this too. Like prices are historically very high and yet the buyer pool is historically low and houses are sitting for sale for a long time. Like, why is that happening? Like, why aren't they getting it? That, hey, like prices need to come down, folks. Or is it just me? Am I just seeing this in my neighborhood? Yeah, no, that's a good perspective. So let me illustrate it this way. Let me ask you this. So Seth, let's just say that you own a stock that you bought for $100 and that stock is now worth 80.

And you go and you start talking to people and you say, hey, listen, if you'll buy it for $100, I'll sell it. But if you're not going to buy it for $100, I might as well just keep it. Yeah. People are just in denial maybe, or just not motivated enough to sell, that kind of thing. Well, in your perspective, if you bought it at $100 and it's worth $80 right now, and you don't have to sell, and you're a long-term investor, and you're just like, I don't care. I don't have to sell. I mean, if somebody would pay me $100, I would sell. But like, I don't have to sell. And then you equivalent to this, the houses, maybe you've got a two and a half percent interest rate, which is basically at this point, an asset because it's below the rate of inflation. So it's almost like giving you free money every month. That makes sense. If you get my logic there, it's like, why would you sell? And so that's what I think the market right now is happening. It's called the lock in effect now. And it's been happening for years, ever since we had these ungodly low rates that should have never happened that inflated our market like crazy.

Like, essentially, if somebody has a two and a half percent rate on their house, they bought it for a certain amount and they have an immense amount of equity. Or if they have no equity, it doesn't really matter, but they got a low rate. They have no incentive to sell because the reality is even like I heard this phenomenon the other day. Let's say somebody has a three thousand square foot. They're 70 years old and it's worth a million dollars. Well, normally in a normal environment, somebody would sell that and downsize when they retire or when the kids move out.

But what happens when all of a sudden now you go out and buy a $700,000 house or a $600,000 house, you sell your million and your payments higher on your six or $700,000 house than your million dollar house, you don't move. And so it's like, this lock in effect is affecting all the generations. And so we see more than ever, like millennials, Gen Z are starting to move in with other people, they're starting to move in with their parents, they're starting to move in with their grandparents, we're starting to see multi generational housing. It's really interesting. Do you think people hoard things as the economy is really strong and they're making a lot of money? For example, if I own three different Airbnbs or short-term rentals, I have it just because I got the money and I can do it. Meanwhile, if things get really bad, it's like, hey, I got to get cash. I'm going to sell these things off. All of a sudden, it floods the market with new inventory that nobody really thought was there because I owned these houses I didn't really need. Is there some of that going on? Like, is that kind of what happens when things crash and all of a sudden there's a huge glut of housing inventory and people are like, Hey, where was this all these years?

Kind of what's going on? No, it's not actually. It's not what's going on today. But in order to have a crash, that is what would happen. Yes. And so that's kind of what we're going into. Because the interesting thing is.

Even though we're oversupplied in a lot of these areas, a lot of people like to ask the question, why is our market going down? And they like to think, well, it's because of the sellers. But no, it's really because of the buyers. And a lot of times you have an oversupply of sellers. But the craziest thing is up back to those redfin stats. We actually have less home sellers going on market now than we have in a very long time, like month over month, it's declining year over year, it's declining. And so that goes back to lock and effect. Sellers are basically just saying, I'm not going to sell unless buyer, you will pay this much. And so that's the only thing holding us back from even really having a big crash is there's no, I don't want to say no, there's just not a lot of motivated sellers. And so in order to have a crash, you have to have motivated sellers and we're not seeing it yet, but we are kind of going that direction. Interesting. Yeah. Let me answer your question though. So you asked about like, are they really overpriced? Are they not? So the craziest thing right now, and this is another stat that I heard from Gary Keller giving his presentation on like state of the market, is that home prices are only five and a half percent above the long-term average trend line so if you look all the way back to like the 1920s even you see that the long-term annual appreciation rate for united states housing is four percent a year and right now after all of our prices kind of went you know a little bit they skyrocketed during curva now they're flatlining now they're going sideways.

Maybe even down potentially right now, we are only like five and a half percent above our trend line. And historically, the reason I tell you the trend line is because historically real estate corrects back to the trend line and recessions are a little bit lower. And then it bounces up in good times and it gets a little bit higher, but it really, it stays on the long-term trend really, really well. And so what that means is that over the next year, if real estate just like doesn't go up at all, like if we have zero or 1% appreciation nationally, then we will basically be at the trend line. And so for everybody who says, oh my gosh, real estate is overvalued. There's no way that we can pay these prices. Or like the young people who, you know, Gen Z or millennials, I'm a millennial. Like you try to say, oh my gosh, houses are so overpriced. There's no way we could pay these prices. The reality is, is that they're not. Like I can't think of another way to say that more clearly. It doesn't mean that a crash might not be coming where prices go down a little bit, but they're not overpriced. I mean, somebody asked me the question the other day, like how many of you 20 years ago, if you know what you know today, how many of you would not go buy up your whole neighborhood and try to own that asset for 20 years? Right. And so it's, it's the same thought of like, shoot, like, if you think about it that way, like 20 years from now, we're going to be looking back at this and be like, shoot, I should buy everything I can. And it's just one of those things. It's like.

Real estate may be going down, but the reality is, is that especially if you're a hold investor, a long-term hold investor, time in the market, it beats everything. And to think that you're going to be smart enough to know when a crash is actually coming and where you're at the low, when you're at the high, you can look at some of this evidence that we present today. But the reality is, is that if you own an asset historically for at least 10 or 20 years in real estate or in the stock market, historically, you never lost money. And maybe even down to like five or seven years. And so it's like US real estate is an extremely stable asset. Even during crashes, it's extremely stable. Fascinating. One thing that really changed during COVID was where people wanted to live. Everybody was flocking to Austin and Nashville and Miami. Are we still seeing that same migration pattern or has something changed? Yeah. So it's really interesting that you bring that up. So the exurbs are what kind of became popular. And that's basically just saying it's outside of the suburbs, right? It's, it's further away than the suburbs. It's definitely not like urban inside the main cities, but it's the exurbs that really thrived. And so to put it in perspective, before COVID happened, we had like 200 to 400,000 people moving from large metros to the excerpts. But during COVID, we had peak exodus of people going that direction of almost a million people per year in 2021 and 2022.

And now what we have is the recovery that went back to normal to where now we only have about 200,000 people a year by 2025. And so why is this important? Why should we know this as land investors? Well, As land investors, or especially my business, if we're not doing infill lots and we're doing like one acre lots, five acre lots, 10 acre lots, all the way up to big hunting tracks, like we're dealing with the exurbs or even more rural properties than that. And so for us to know that the exurbs, they had a huge spike in demand, but now people aren't moving there as much anymore. If you were to watch a video from two years ago, and we were to talk about the biggest hot areas to invest in, Texas, Florida, Arizona, etc.

That has changed now. In the same way, we talk about the migration patterns and where people are moving. People are still moving to the South. Don't get me wrong. They're still coming to Texas. They're still coming to Florida. They're still coming to Tennessee. The jobs are there. The people are moving. We still have net positive migration. Don't get me wrong. People are coming. But people are moving less and less from big cities to country and rural areas. And depending on how that trend goes long-term, that could hurt land business, long story short. So let's talk about rates really quick. Six months ago, people were talking about rate cuts coming. Where are we now? What's the Fed actually signaling? Can you tell me what the Fed is going to do next?

I wish, brother. I wish I had a crystal ball. As far as the Fed ban, and we go over this on almost every call for the last two years. I mean, I think we've done like eight calls by this point. Why do we talk about the Fed so much? If you haven't watched any of these, we talk about the Fed because the Fed rate, the amount that they lend money at directly controls the prime rate. Prime rate is basically what your land borrowers, if they're buying your properties, or if you're doing a commercial loan from a bank, that's what your rates are based upon. So that's why it's so important. The Fed rate doesn't determine the mortgage rate like the 30 year fix for houses influences, but doesn't determine that's more treasuries. But why do we care as land investors about the Fed rate? Because it directly impacts our acquisition and our disposition, which is basically 90% of all of our businesses. OK, so like you said, six months ago, the Fed like it was the not unanimous, but before the new share came in six months ago, the market was predicting because the market with its money predicts where rates are going to go. And a lot of times the Fed does actually follow the market and probabilities. They were saying, yeah, we're going to have two rate decreases this year. Well, ever since the new chair came in, and also because of the Iran war, which in a lot of people's opinion was necessary to happen, but at the same time is causing immense inflation and could hurt us in the long term and short term. They are now projecting that there is a 92% chance of at least one rate hike.

Not drop, rate hike by the end of the year, and a 60% chance of multiple rate hikes this year.

So how do you go from we're gonna drop it twice over the next six months six months ago.

To, there's more than 50% chance and 90% of two rate hikes and 90% chance of one rate hike, like what the heck happened? Inflation happened and Iran happened. And all of this is complete, like continuing to rise inflation. And really it's like, it's a nightmare for the Fed because it's geopolitical inflation. It's nothing that we can control and they can't control it with domestic policy. And so the other thing that's changed is that the new Warsh, the new chair, he's no longer giving insights like Powell did. He's no longer telling the market what we project. And so all that we have is we don't know what they're thinking until we get the meeting minutes after it happens. And so the other crummy thing is treasury rates are going up. So when we talk about the treasury rates, that's basically the United States sells its bonds so that it can recoup money. And the 10-year treasury impacts the single family housing market. It's basically a 10-year treasury rate process spread. That's going up too. And so it's like, we've been talking for a long time about when is all of this going to go down?

The reality that I'm basically here to tell you is that it's not going down anytime soon. And so if your business can't handle the rates that we are at right now, or you're really struggling, time to start buying lower because it ain't going to change. In fact, most areas of the United States are projecting a lower sales price today for land and home houses for next year than they are today. Not to mention, we're also heading to $40 trillion. We just crossed it in the national debt.

And this is a very turmoil filled time for flippers, especially because you've got to be careful not to catch the falling knife on the way down because it could cut you and cut you big. Wow. So like this isn't good. This is bad news. It's not good, man. It's not good.

So the solution to these problems or these projected best estimate problems, rates are going up, prices are going down. The way to protect yourself is basically just insist on lower acquisition prices. I mean, I feel like we've been saying this the past several times really, but basically just like tighten your standards, like buy better stuff for lower prices. Is that the bottom line? I think that you can't control the market. We both know that. You cannot control where interest rates are going to go. You cannot even hardly predict them, right? I mean, I feel like we're being swayed by the wind every time we have a call like this. I'm doing my best to give everybody like the most up-to-date economic knowledge. And then it's like, oh, it's way over here. Now it's way over here. Now it's way over here. It's like, can you not just make up your mind, right? But it's because a crash is imminent and a crash is coming that we've been waiting for for basically four years. It's just nobody knows when it's coming, how it's coming, or what's going to happen. And so what do you do about it? You've got to tighten your underwriting standards up.

Majorly, major, major, major, majorly. So what do I mean by that? You got to stop buying crappy properties for crappy prices. Like if you're going to overpay for a property, that thing better be like the best property you ever saw. And you better be able to sell it in like a week or two kind of thing, or even a month. But what can you expect? You can expect longer hold times to get market value. You can expect price reductions. For instance, on our housing side, I can tell you this.

If we get our asking price, oh my gosh, that's a rarity over the last year. We pretty much expect our ARVs, our after repair values, they're probably going to be 3% to 5% lower by the time we finish a project, finish a house flip, like three months or two months.

That's craziness. And so we're basically stuff that used to be normal, like in a normal market, it's not normal anymore.

And so like one of the things that Chris Duff told me, I talked to him in our Smoky Mountains, our mastermind group that we have coming up. And he told me about ReVenture. So I went ahead and signed up for a paid service called ReVenture that basically forecasts due to proprietary measures, like how much your market's going to go out in the future. And so what he's done is he has actually taken that. He has an article on REtipster about it that you can link to. He basically uses ReVenture to project where prices are going. And then he subtracts that from his ARV so that he has what he thinks is a true ARV by the time he owns it. And so we're starting to do the same thing, being a lot more conservative on our numbers, on our ARVs. And ultimately, we're just having to become better business owners. We're having to tighten our underwriting standards. And we're not open to doing historically risky deals that we would have done during a hotter market. So I know a lot of people who are, the whole strategy now is just buying for full market value off the MLS. Major shift we've seen. I mean, that kind of thing was unthinkable five years ago. Now it feels like it's almost commonplace that people do it. So are those people going to be in trouble, you think? Unless they're just like getting the creme de la creme, everything is perfect. There's one of these growing markets where demand is going up, that kind of thing. In your example there, you're talking about land subdividing, correct? That's how they're buying. Yeah, it could be that or maybe like placing a mobile home, but buying the land on market, that kind of thing. It's a good thought.

My perspective on that, because we do that too. I mean, that's literally like most of our business models. So like I can give really good perspective of that. The perspective is, is that that's a value add strategy. And so when we say buying a quote unquote market value, market value is not really market value. Does that make sense? Because it's a value add strategy. And so like, if I'm buying a property at, call it 500,000 and I could sell it today for 500,000, but I can make it worth a million by the time I do my entitlements. And it's going to take me four to six months. Yeah. I'm not going to buy it at 500,000 until those entitlements are done.

And so how do you decrease your risk? You put the risk on the seller. I mean, that's the real answer is that you don't buy something that's stupid. Yeah. Stupid purchase. Unless you are like 99% sure. Now, granted, there are some areas that we've done so many entitlements in that as long as I can verify it has water and I do a preliminary meeting with the county, I'll go ahead and buy it for market value because it's like, it's a shoe in and I know it. And so I'll take that risk. With manufactured homes, yeah, a lot of times we can buy 90 to 100% of market value on the land, then we could put a manufactured home. But like, as long as our due diligence, which goes back to underwriting, as long as our underwriting standards of due diligence are there and we minimize our downside by basically having everything improved and ready to go by the time we own it, to me, that's not a risky proposition because I'll be able to sell it, at least in my business. I'm confident in my skills on that. But to a brand newbie coming in, I would definitely not recommend buying something worth $500 for $500. At least hedge your risk and partner with somebody on that first one or two or three, just because I'm not a fan of newer people taking risks that could put them out of the game forever.

Does that make sense? Yeah. You've studied real estate cycles pretty deeply. When you look at history, not to predict the future, but just to understand patterns. But what do past cycles tell us about where we might be right now? Yeah. Well, so it's interesting. You kind of stole my thunder earlier when you were telling me about The Economist talking about the 18-year real estate cycle, right? That's what I wanted to talk about is the 18-year real estate cycle. There's actually somebody who wrote a book about it a very long time ago. I think it was in the 1890s or something when he wrote the book. And it's crazy how accurate the book has been all the way to today. Like seriously, it's within like a handful of years, it's predicted every real estate cycle for like the last 150 years. And it probably goes even further, but starting in like 1812 or something, like a long time ago, this 18 year light clockwork, boom, boom, boom. It's just like, what? Like, why does this happen? Do you know why this happens? Well, it's crazy. It's basically the phenomenon that we talked about earlier in Texas.

Which is demand, you know, like based upon your economic cycles, you get, what is it? You get way too much demand. So you get at the way too much demand causes, what is it? Buyers to get screwed. And then you have way too much supply because the builders put way too much supply online, seeing that huge demand, but by then demand has gone down. So now you're oversupplied, which is where we're at in Texas. And then what happens is, you know, you have a buyer's market. And then once that supply gets worked through, because what happens now when supply is here, builders stop building. Does that make sense? So like once they've overbuilt, then they stop building because they're like, we can't keep on building here. We have way too much supply. Why do something stupid like keeping on building? So then slowly by slowly, the supply gets eaten down, the demand comes back up. And it's just this constant cycle of people getting over leveraged, under leveraged, demand high, supply high. And on average, it just takes 18 years for that to be worked through to go through a full cycle.

But the crazy thing is that 18-year cycle from, yeah, the peak, the last peak was like 2006, 2008. So that would put the current peak somewhere around 2024 to 2026. So to say that we're at the peak right now, very, very possible. That's crazy, though, because I could have sworn we were at the peak two years ago, especially in Texas. And how do you define a peak? Like, what does that even mean? Is that just regarding housing prices or is that like economic output and GDP? Or is it like this or that?

How do you know when you're there officially? So it's the real estate cycle specifically that we're talking about. So we've talked in past podcasts, the market updates, that the economic cycle, the business cycle is separate than the real estate cycle, right? And so you can have different cycles and there's actually a third cycle. I forget what it is. I think it's the long-term debt cycle. There's three different cycles that run concurrently. And it's like the business cycle or the economic cycle, I think has the littlest timeframes. It's all in research. Jay Scott put it together in a really fantastic book called Recession-Proof Real Estate Investing. It's like one of the economic go-tos for me, as far as all of this, where he details out these market specifics. But it's like, you've got the business cycle, you've got the real estate cycle, and then you've got the long-term debt cycle. And basically when any two or three of these pop at the same time is when you get a very large crash. And so the thing for us to walk out for, we talk about the national debt. But if we have a national debt crash, then it typically happens every 75 to 125 years. I know that's a super big range. But the last time we had it was the 1920s. So we're 100 years away from that long-term debt crash. Why does the debt crash? We get over leverage on our debt and we can't basically fulfill our liabilities as a nation. What's happening right now? Debt just crossed GDP. Crazy how it happens. It's just like, if you look back and you study market cycles, you can clearly see.

Something big is coming maybe in the next 10 years. Can't tell you when it is. Can't tell you how it's going to happen. Can't tell you the black swan that's going to make it happen. Our nation has one of two things that it can do to solve the national debt. I know I'm kind of going on a tangent here, but I think there's important knowledge. In order to solve the national debt, there's really, well, I guess three different ways. You could say we're going to have an AI industrial revolution and we can entrepreneur our way out. We can just create so much GDP and value that we can get out. And that has happened in the past. Unlikely, but it has happened in the past. Second way is we can basically default on our debt and stop paying our obligations, which would put us in one of the biggest economic catastrophes we have seen, probably bigger than any of us have ever seen in our lifetime. That'd be depression level kind of stuff. Third, we can inflate our way out. We can turn on our printing presses and we can print as much money as possible. and we can run the COVID plan over and over and over and over again. Most people that I listen to say number three is most likely.

So if you look at the future of real estate, pretty bullish on inflation, then you can pretty much say that real estate is going to have perpetual value over the coming years because real estate is basically an inflation hedge. And so I know that's a big tangent from the market cycles, but I tell you that to say, if you were to make a bet on whether the United States is going to default on its debt or, if you're going to make a bet on whether or not the United States will print its way out of its problems like it's done basically since we got off the gold standard with Nixon in the 70s.

I'm more of the second option there. And if you believe that, then real estate, while we will have ebbs and flows, will ultimately track inflation, which is ultimately going to keep on going up. So therefore, long-term real estate should be a very good investment. Interesting thing. So I was looking back at these cycles and apparently while it usually is an 18 year cycle, there are exceptions. And one of them is after World War II, there was a 48 year cycle And it didn't hit again until the 70s. And the 48-year gap, you know, some people explained it by, you know, it was right after the Great Depression, World War II happened. There were government restrictions, rent controls, construction controls, post-war transition. So like, there's a lot of things that can mess with this 18-year rhythm. And when I look at like what's going on today, AI, maybe? I mean, it's definitely a revolutionary thing. I don't know if it's that big of a deal that it would like change it to that degree. But one thing I do know is it's going to be very, very clear after it happens. And we can look back and be like, of course, that's why it happened.

So what I want to go over next is I want to go through how bad could a crash actually be? So again, I'm not trying to fear monger. I'm not trying to like, not trying to get you scared. I just want to go through. So your buddy, Chad Carson, you know, wrote a book called The Small and Mighty Real Estate Investor and really love his content too. But he wrote in there about basically some three different crashes and the effect of them. So the interesting thing is that in 2008, 2009, national housing prices fell 27%. And I was telling my acquisitions guy this the other day, and he came up with a question and basically asked, if real estate prices fell 27%, doesn't that mean that all of our profit on every flip we've ever done would basically be zero or negative? And I said, on house flips, yes. On land flips, we might be able to still make it. And that was a real big aha to me and a really smart question because it's like 27%. What's most people's profit margin? If they buy at 60%, their net profit margin is probably 30% to 35%.

If you think about it that way, if we do have a big crash, just a level of 08, 09, that could wipe out every land investor's equity in every property they own and every house developer's equity in every property that they own. I might even think that the drop would be larger for land deals than it would for houses. I could be wrong on that, but just looking at what happened in the last one, land was hugely impacted by that. So that 27% may not necessarily be true for land specifically, but yes. And so, and when you look at that, so one perspective I will give you, cause I asked a really, there's a hedge fund guy. I was talking to it, a mastermind. I was at recently and I asked him the same thing. Cause he had done land in the past. He'd been doing it for 30 or 40 years. And I asked him like in a crash that's coming up, that's, you know, basically coming. What, like, what does land look like when it crashes? What happens? He, and he told me something really smart. I thought that this was something that would be a good takeaway for our audience, is that when you look at A properties, so like when you think about multifamily, you rank it A, B, C, D, or even single family. Well, land, we don't necessarily rank it A, B, C, D. But if you think about it, your A properties are always your A properties, and they're not going to lose a ton of value. So like you think about like your commercial spot that's on the main strip, that is like the one piece of land that somebody needs to complete their portfolio or build a building.

That one probably might appreciate during recession depression. You think about buildable lots outside of, for us, buildable lots outside of city limits with all utilities ready to place a mobile home. I'm not sure those are losing a ton of value unless the residential market goes down. Infill lots, unless new build and new construction goes down a ton, infill lots won't be affected much. Again, it's going to follow the house prices, but it's like the more prime or the more A-level a land property is, the less value it'll lose. Now you go to B-level, C-level, D-level, or you get extremely rural farmland, hunting land, dude, crashing, absolutely 100% crashing. You go to land without utilities, it's not build ready, 10-acre lots, 20-acre lots, crashing. But if you stay on primo properties that stay in demand, no matter what, you probably won't get hurt as bad. This is a probably, this is not a guarantee. This is just a probably. But the other perspective is that in different areas of the US during 2008, different home values fell at different rates. And so like when you look at Las Vegas, Las Vegas fell 60% during that timeframe and it didn't recover for 13 years until 2021 to previous pricing. That's nuts. That's a real boom bust. But you look at Dallas, Texas, Dallas really only fell maybe 5% or 10% during 08-09.

And that's because it wasn't overvalued. And so to take a national standard of 27% fall and apply it to the market that you're in, I don't think is intelligent. It's good maybe to baseline that to think what would happen or plan for the worst, hope for the best kind of thing. But like Chris Duff, I think really hit it in. And again, in that Smoky Mountains mastermind, it's like to say broad statistics and apply it to the areas you're working in is not useful. You have to be able to get statistics at the level of the market that you are working in. And you have to be able to apply that to future predictions of your market based upon supply demand. And every property you take, you need to know the markets that you rent. And I think that that was very, very intelligent. One other thing I'll tell you, Great Depression, U.S. house prices dropped 67%.

And they stayed depressed for a full decade. And also for long-term investors, rent dropped 33% during that time. Are we going into another Great Depression? I'm not going to say heck yes. I think that's probably still a long time away. But if something like that were to happen, again, every single flipper, every single home builder, everybody would be wiped out. So we need to be conscious of that. We need to be careful. And then Japan. Now, Japan has some other interesting stats, But Japan, residential real estate dropped 70% and it still hasn't recovered 30 years later. The reason I tell you that is because with flippers, if we don't know our ARVs, if we don't know our markets, if we don't know the trend line that we are headed towards...

We are in for a world of hurt and a falling housing market like we are in right now. And so I believe it is more important than ever, especially if you're doing short-term flips that are leveraged with capital that is not yours. You need to be on top of this stuff more than you ever have before because this is a very risky time to be flipping real estate. Not necessarily that you shouldn't do it because I'm going to continue doing it, but you need to be ahead of the market, not behind it. Long story short. So Neil, we've talked about a lot here. Demand collapsing, prices above trend, migration reversing, rates potentially going up and not down, historical patterns, all that stuff. So what is the takeaway here? What's the through line? And what exactly are we as investors supposed to do concretely? I know you've kind of hit on several different things, but if you could like summarize it and distill it down to like a few key sentences, like what are the takeaways here? Yeah. The takeaway is that if you watch nothing else and you want to skip to the end, what is it? Too long, didn't read or whatever they say on Twitter.

Demand is collapsing and buyers are not entering the market like they used to. Prices are at least 5% above nationally where they should be, but you should know your local market and not just the national market because there are markets that are 10, 20% above where should be. There's also markets that are 5% or 10% below where they should be. So to listen to national stats and apply that to your business is not an intelligent use, in my opinion. Migration that fueled this rural land boom that we all thrived from is fading. It's literally leaving. And so be very, very conscious that just because an area had demand a year or two ago, or even six months ago, does not mean to have demand today and in the future. Be very conscious of that. Rates are going up and not going down. So you need to pressure test your business to make sure that your business can handle that and your buyers can handle it.

And additionally, history, based upon, you know, the 18 years cycle, history says that we're at basically the peak of this cycle. And so we just got to be really, really careful. And so what am I personally doing to for downside? I am deleveraging as much as I can. Similar, Seth, you told me before the call, the economist said his philosophy was like sell everything you don't want to keep for a few years. Absolutely. I am doing that. Even with our inventory, our markets and DFW Texas is projected to be 5% lower next year than this year. And I know that through ReVenture and also other stats of the market. And so I'm taking haircuts now so that I don't have to take them later. And so, you know, I can't I can't go like I already own the house. What am I? I can't control the inventory that I already have buying lower. But I can inform our acquisitions, which I'm doing acquisitions or dispositions needs to form acquisitions. The prices are lower. We're not hitting our ARVs.

We need to offer less on everything. And so it needs to be this constant feedback loop of acquisitions and forming dispositions, dispositions and forming acquisitions of what's going on in the business. And everybody needs to talk. And I mean, if you're the only guy, maybe you like talking to your head, right? But if you have multiple team members, you got to inform back and forth to be able to know what is going on. But in my mind, to sell a property in today's market, you have to either be.

Or one or the other or both. You have to be the best asset in the market, like a grade A asset, like really, really desirable, or you have to be the best price.

Or in my markets, you have to be both. And so you need to be extremely picky on the assets you buy, especially the ones that you're going to hold that are leveraged with like bank loans. And you need to make sure to get properties off the books faster than ever before, because literally every day you own a property right now, it is losing value. And so that's the way that I look at our inventory is like, what are we doing on cutting prices. We're cutting them every two weeks, if not every month. And if we don't get what we want, we inform acquisitions and we buy lower next time. Right now is not the time to hold on to stale inventory. How are things going with your manufactured homes that you put on land when you compare that to like the typical house? I mean, the reason a person would buy that is because it's less expensive the way you do it. You're putting a brand new unit on land. So it's nice as far as manufactured homes go. Is that kind of thing doing better than normal houses are? Or are you seeing those sit on the market for a while too? The irony of it is that it is doing better. Same square footage, same house, brick build. Maybe in my market, Southern Dallas and exurbs below it.

Say we can sell a 1500 square foot house for 325 and on a city infill lot, 0.15 acres. A manufactured home of the same size, same finish out quality that's brand new on an acre is probably going to go for like 275 to 300. The days on market, the negotiating power that the seller has, like me, when I'm selling those properties, the mobile homes are significantly higher. And we also make more money too, by the way. So that's not bad. We turned our first one and we made somewhere between 70 to 75 net profit. We have one more work in process right now. And then we've got, I want to say five to 10 lots that we already have ready for development. We just got to get them entitled. I planned on doing 10 to 15 this year, and we're probably not going to get there, but we'll do it next year for sure. Our biggest hurdle with that model, and I think this is probably everybody's biggest hurdle, is finding land that has utilities, that has no deed restrictions against it or is outside of city limits, and that I can buy at a price where it makes sense to put a manufactured home. Because I still have to buy those lots, those one acre lots at probably 25% low market value in order to make money in a manufactured home. Our main strategy, the reason we're doing mobile homes is such that if land demand dies, which we saw it starting to in my markets, especially in rural areas a year or two ago, we needed a strategy to be able to move our inventory of lots.

That we could still be profitable on the value add, and also that we could do less projects and make more money per project. Because the reality is, is there's only so many subdividable and entitleable properties for, you know, manufactured homes without deed restrictions on these areas. And so we're running out of properties that meet our underwriting standards. And so we needed to find a way not to do more properties, but to make more money on every property we're doing. Well, should people be watching anything over the next few months? Like are there indicators or events that might tell us where things are heading? Or are we kind of just playing it day by day to see what happens? The advantage that everybody listening to this call has who is flipping real estate is that you are going to feel the market before the data comes out. And so the economists and the news anchors and all like that, like they're not going to be talking about a lot of this stuff for maybe another six months to a year on like the paid platforms of news.

And so your advantage in being a real estate professional is, is that you can keep your ear to the ground and you can feel when a market is softening and you can go back and adjust your acquisitions basis before the statistics even come out. And I feel like that's been one of my competitive advantages with doing so many different real estate related businesses is that I have my ear to the ground and our markets, the markets we work in, I know them like the back of my hand. And once I started to feel demand waning, I didn't have to see some kind of market statistic to know it was time to cut prices and it was time to buy lower. And just to give people a little preview, I know it's not out yet at the time this is getting released, but episode 289 with Philip J. Anderson. He's the author of The Secret Life of Real Estate and Banking.

And a lot of what he was saying really backs up what Neil is talking about here. Like his whole goal right now is, first of all, don't go all out. Don't take huge risks. Don't go out on a limb. It's not a time to do that. If you're starting a new three-year-long development, like might want to rethink that it's just not a great time in the cycle to do that, and his whole objective is how can he you know liquidate things how can he sell stuff off how can he make himself look, really good to banks a year or two from now because that's really what like kind of makes a lot of things seize up in a big recession is banks you know tighten their standards rightfully so because people are doing worse so the answer is like how do you make a bank say yes to you? What does a bank want to see? They really want to see that you don't need them, essentially, because they're happy to give you an umbrella when the sun is shining. So they want to see that like your cash position is super solid. You're not a huge risk to them. So what would have to be true for you to look like that to a bank a year or two from now? And that's what he's trying to do. So another great interview. Again, check it out when it comes out, episode 289. And Neil, again, as always, great to talk to you. Great to get your insights. Appreciate you digging into the data, the details for us to help us see what we might not otherwise see. If you want to see the show notes for this episode, there's going to be a link in the description. Feel free to click on that and find more links to things we talked about here. Thanks for listening. I'll talk to you next time.