The statistic that 90% of millionaires obtain their wealth through real estate is fairly well known. That said, many investors lack the critical details which will help them to successfully build wealth through passive multifamily investments.
Darin Batchelder, host of Darin Batchelder’s Real Estate Investing Show, joins the show to offer strategies and perspective on wealth building.
Watch On YouTube
- Why real estate, and multifamily specifically, are such powerful vehicles for wealth building.
- How passive multifamily investors should approach finding quality deals and sponsors to invest in.
- What makes real estate investment a strong hedge against inflation.
- The keys to evaluating and managing risk when investing in multifamily.
- Why debt is arguably the most important metric to consider when looking at multifamily deals amid economic uncertainty.
- Which multifamily property types are seeing the most interest from sponsors and investors.
Featured On This Episode
- Inflation barreled ahead at 8.3% in April from a year ago, remaining near 40-year highs (CNBC)
- U.S. housing market alarm bells begin to ring (Reuters)
- Once-In-A-Generation Response Needed to Address Housing Supply Crisis (NAR)
Today’s Guest: Darin Batchelder
- Darin Batchelder on LinkedIn
- Darin Batchelder’s Multifamily Real Estate Investing Show (Apple Podcasts)
- Darin Batchelder on Twitter
About The Multifamily Investor Podcast
The Multifamily Investor Podcast covers trends and opportunities in the multifamily real estate universe. Host Scott Hawksworth discusses passive investment offerings in the space, including direct investments, DSTs, opportunity zones, REITs, and more.
Scott: Hi, and welcome to another episode of The Multifamily Investor Podcast. Scott with you. And today we’re going to be talking about building wealth through real estate investment, and specifically passive real estate investment. And joining me on the show to offer so many insights is Darin Batchelder who is a successful investor in real estate himself, starting in 2017, and he also hosts his own podcast which is the “Darin Batchelder’s Real Estate Investing Show.”
So if we’re talking real estate investing, I really can’t think of a better guest to have. Darin, welcome to the show.
Darin:Thanks, Scott. I appreciate you having me. Looking forward to it.
Scott: Absolutely. Thank you for being here again. And, I guess to kick things off, we want to talk about building wealth through real estate investing. You know, on your website, I want to get this quote, you mentioned 90% of millionaires obtain their wealth through real estate, and that’s so powerful. Why do you think that’s the case?
Darin: Leverage. I think it’s leverage. And, secondly, I don’t know any other asset class that you get to depreciate when it’s an appreciating asset, you know? And it took me years and years to finally pull the trigger and do it. I saw a lot of other people doing it, and I just held off.
And I think there’s a lot of people out there like that, that want to do real estate investing but they’re scared.
Scott: Was there, you know…on your website again, you mentioned it was like 2017, I believe, when you said, “Okay, I’m taking the plunge,” what was the impetus there that made you realize I want to build, wealth, real estate is the way to do this, and I just got to start doing it?
Darin: Yeah. You know, for years, I had seen other people building wealth through real estate and I knew that it was, you know, from a mind perspective, that it made sense to get involved, but I was scared and I hadn’t done it, you know? So I was, kind of, raised in get good grades, go to college, get a good job, climb the corporate ladder, put 10% to 20% away.
And, you know, over the years, it’s just going to grow into this big nest egg. And, you know, I did have growth, but it was nowhere near the wealth-building opportunity that real estate provides.
Scott: Absolutely, absolutely. You know, our show is focused on passive multifamily investing. What are some of the keys, from your experience and the folks you’ve talked to, that you’ve seen for successful passive multifamily investing and maybe choosing some of the right deals to really build that wealth?
Darin: Sure. So I’m in a lot of deals as a passive investor and also as a general partner. On the passive side, you know, my advice to people is, one, first, pick your market, you know, where you want to be. You know, do you want to be investing in Texas, or Arizona, or Florida? Where do you want to be?
When you’re picking your market, I would focus on having a landlord-friendly state, meaning that, you know, the laws are situated to the owner rather than to the tenant. And California is not a landlord-friendly state, and you could have a tenant that doesn’t pay for six months or nine months, and they still are living in the apartment complex.
So, I would focus on landlord-friendly than high-growth markets. And what do I mean by high-growth markets? Population growth, income growth, job growth. And then once you narrow down, “Okay, hey, I want to be in, say, Texas,” that’s where I’m at, then focus on trying to find syndicators in that market.
And I would recommend that, you know, you try to develop relationships with multiple syndicators and get on their investor database list, look at deals that they come out with, and then you could even register to be on their webinars to learn from that. So I would focus on the markets first, and then identify who you want to do business with, and then, third, focus on the deal.
That would be my perspective.
Scott: So in another way, if I was rephrasing it, it sounds like do your homework a little bit.
Darin: Yeah, you got to do your homework. You know, it’s good and bad. I mean, the good is that, you know, as a passive, you’re going to get a monthly email from, you know, the sponsors. If you buy, you know, a stock, you buy Amazon stock, you’re not going to get a chance to call Jeff Bezos, right?
But you will get an opportunity to talk to the sponsors that are putting these multifamily deals together. And so, look, there’s no necessarily right or wrong. Some people click with some people, and, you know, others click with other people. And that’s just life.
And so that’s the beauty of this is that you get to choose who you want to do business with.
Scott: Absolutely. One thing I think that maybe some passive investors and especially those who are newer to multifamily real estate investing maybe they don’t consider the fact that, you know, your capital is going to be tied up a bit longer. It’s not buying an Apple stock.
So, yeah. No, you can’t call up Tim Cook but, you know, you can take your capital out there no problem. It’s a little different when we’re talking about that aspect in multifamily. I’m curious from a wealth-building perspective what’s maybe your take on that and maybe something that passive investors should consider if they’re like, “Yeah, but I don’t want to tie my capital up that much. I want to have access to it.”
Darin: Yeah. So, I mean, that’s a very valid point. If you invest in the stock market, you know, it’s got a lot of volatility, but it also has, you know, extreme liquidities. You can get in and out at any point in time. These multifamily deals, you know, you may be in it for two, three, four, five, six, seven years.
You don’t know when the exit is going to be. So that was a fear of mine when I got involved, and I think the piece that has gotten me comfortable are the returns. So, you know, I invested in a deal, a hundred grand. And three years later, I got my $100 grand back plus another $110 or $120 grand.
So, like, I just wasn’t seeing those returns in the stock market, doubling your money in two, three, four, five years. You know, so that gets me more comfortable. The other piece is that, you know, look, when COVID hit, right? We all remember there was like a two-week time period where the stock market was just tanking every day.
Boom, boom, boom, boom, boom. But these multifamily deals, they don’t have ticker symbols, right? So, I wasn’t panicked about all the deals I’m in. You know, it’s just another month as long as we pay our mortgage payment and we truck on. So, I didn’t see the valuation drop by 30%, 40%, 50%, and get all scared.
So, I think that there’s a little bit…liquidity is scary that you’re going to be locked up for that time period, but it also can help passive investors not sell at the bottom, which, you know, a lot of times that’s what happens in the stock market, right?
Scott: Those emotions grab a hold of you. And you’re like, “Ah!”
Darin: Absolutely. I mean, look, you just start looking at, you know, your portfolio, and you’re like, “Holy cow, I’m down 30% You know, is this going to go down another 20% or 30%? I’m out.” And then all of a sudden, it starts to climb and you don’t know when to get back in. And so with these multifamily deals, the sponsors really are responsible for the exit. And so you as the passive, you really can’t get out at that time.
So it can help you because it can help your emotions from getting in the way.
Scott: Right, right. I think this is a great segue to something else I want to discuss because so many investors and folks wanting to build wealth, they’re up with the macroeconomic landscape. They’re looking at, you know, uncertainty, conflict across the ocean, challenges there. Specifically, we talk about inflation.
And I have it right here that last week. We had the CPI. We’re at 8.3%, which was still higher than expected. And so it really is weighing heavily on the minds of many investors, and a lot of people talk about real estate as being a great inflationary hedge. And I’m curious, is that your perspective?
Do you feel that way and why is it if you do?
Darin: So, I do believe that real estate can be a great inflation hedge. You know, if you think about wage inflation, if their incomes go up with inflation, then they’re able to afford higher rents.
You know, they’re able to pay higher prices. And so that benefits owners of assets. And so the way I look at it is it’s not… I wish I had a crystal ball, right? Because there’s a lot of different variables that go into it. If I look at say $100,000, right?
If I just leave it in the bank, based on your 8% number that you… you said 8.3%…
Scott: Yeah, that’s the CPI.
Darin: I’ll just use 8%. Next year, if I just left that $100,000 in the bank, I’ve only got $92,000 worth of buying power. So, I feel like I have to put that money to work somewhere, and I think that real estate is a great place to park for capital preservation and for long-term wealth building. Now, having said that, there are some risks.
So, let’s talk about the top-line revenue. So, you know, on a multifamily complex, if there’s wage inflation and people can afford to pay higher rents and rents go up, then the top-line revenue is going to go up on that property, right? If you fixed your mortgage, then your funding costs are fixed so that your profitability will increase overtime on that property.
Thus, you would think the valuation would also increase. Now, here’s the difficult part and the million-dollar question is the Fed is pushing interest rates higher, right? And if the Fed pushes interest rates higher, will cap rates follow? And cap rates are what multifamily properties are valued off of.
So, let’s just assume that cap rates do go up at some point. Well, the million-dollar question is will that extra profitability of having higher rents, you know, and locking in your expenses, that profitability be a more positive impact than the negative impact of rising cap rates?
I don’t know the answer to that, but I still believe it’s a better place to park my money. What I would caution people on, and this may just come from…I have another business that trades loan portfolios between banks. A lot of passive investors don’t really focus in on this is look at the debt that the sponsors are putting on the property.
In the last couple of years, you know, to make deals work, most debt has been bridge loan financing with a structure of 3-1-1, fixed for three years, two one-year extensions. Well, that’s completely fine if you can rehab the property and turn it around in a year or two or three. But what my fear…you know, we’re at, kind of, the tail end of a real estate cycle.
What happens if you get in the year between year two and three and the real estate market tanks, right, and all of a sudden, say, we’re in a recession and people are having difficulty paying their rent, and cash flow is down, and cap rates are up, and valuations are down, well, as an owner, I don’t want to be forced to refinance or sell in that terrible economy.
You know, I want to be able to ride out that wave and come out the other side. So for me, I’m more comfortable on deals that have a term of five years or greater. That’s not to say that I’m not invested in any deals with shorter duration loans—I am—for different reasons, but I feel a lot more comfortable getting into deals that have a longer-term duration.
Scott: Because you can ride that wave and have, sort of, a longer-term view.
Darin: Because, you know, in my other business, that’s where I saw deals get hurt where all of a sudden the loan is coming due in six months and, you know, at that point, no one’s lending anymore, right? When things turn, they turn and they, like, almost shut off.
And so it’s very difficult to get financing. And if you go to sell, you know, the sharks are out there, they know that you’re in trouble and they’re going to lowball you. So, I look at five years as being, you know, enough time to, all right, we go into a recession, maybe the recession lasts a year, you know, 6 months to 18 months, and then we can come out the other side, and then the economy starts to pick up again and we’re in a better place, you know?
So, that’s the way I view it. Not everybody views it that way, but that’s one perspective.
Scott: Yeah, I mean, I think that’s a valuable perspective and, sort of, to piggyback on that, when we talk about multifamily deals, there are just so many different types of properties. You have your class A, your class B, your class C. You have ground-up developments. You have value-add. And all of them present really different risk profiles to a potential investor. I’m curious what sort of strategies maybe you employ when you’re looking across that and maybe some just insights you could have for folks as they’re looking at, well, you know, properties that can be very, very different and still offer great returns but then they work that into their portfolio and their own risk tolerance.
Darin: Yeah. That’s an interesting question, and I’m still trying to figure it out. You know, I’ve decided to focus in on multifamily predominantly. And with my other business, I’ve seen bank, you know, chief lending officers and bank presidents love multifamily asset class because even in a downturn, that asset class performs very well.
I saw in COVID, you know, properties that I’m an owner in, you know, you couldn’t evict somebody for six months, nine months, a year legally. And yet, you know, most of the tenants were still paying the rent, you know?
People are going to pay for food and shelter. So, I love the asset class from that perspective. But you brought up a lot of different points in terms of… You know, even within multifamily, There’s A deals, B, C.
So, I’ve only been at this since 2017 and I’m trying to invest in a number of different areas so I learn. So usually I’m looking at investments maybe with a different lens than a lot of investors. I look for a return.
Most returns on most multifamily deals project a doubling of money in three, four, five years. Not all actually, you know, achieve that, but that’s typically the projections. So, I look at deals as, one, who do I want to do business with, and then, two, I want to learn on different deals.
So, you know, in the last year and a half, I started to invest in more troubled deals, you know, deals that have a much bigger rehab component to them that maybe have really low occupancy. I’ve also invested in deals like I’m invested in one deal that’s an office building that they’re going to renovate and turn into multifamily.
And so, yeah, the return profile looked like it was going to be good, but I also want to see, are they able to execute on this. Do, you know, consumers really want to live in this type of office building that’s changed into multifamily? Because I do think that COVID may present a lot of those opportunities, you know, that office buildings just start…you know, maybe people don’t go back to the office as much as we thought they were going to.
And so maybe there’s an opportunity to do that. I want to see if I’m doing it on a passive level. And then if it works and the returns are great, then it gives me more comfort to maybe partner with some folks on a GP level to take down some of those type of properties.
Scott: That’s fascinating.
Darin: I don’t know if I answered your question completely, but I’m, kind of, experimenting.
Scott: Yeah, I think that’s a great answer because I think it says, “Yeah, these are things you need to consider, but then, you know, sometimes there’s a level of experimentation that can happen. And, again, I think if you’re evaluating your own risk tolerance, you know, if you’re like, “Oh, I don’t like experimenting,” then maybe some of those deals like you were talking about, you know, with the office building, maybe that’s one that’s not for you, that you should shy away from if you’re like, “Ah, I’m not even sure about investing in real estate at all.
And this is my first time here,” right?
Darin: If it’s your first time, like, for me, I was scared my first time, you know? So I got involved in deals that were, you know, 95%, 98% occupied. The cash flow is already there. You know, the business plan is just to, you know, upgrade units as people turn and, you know, that was very easy to understand. And so now I’m trying to, you know, branch off and do other things, but that doesn’t mean that everybody should do that.
Scott: Right, right. Of course. So, yeah, so this was the next thing I wanted to discuss. And I think we were already kind of touching on this. We talked about inflation. We talked about, you know, economic uncertainty and how you, sort of, have that longer-term view. And of course, you don’t have a crystal ball.
I don’t either, but I’m seeing more and more buzz about just concerns about the housing market in general. Oh, is the bottom going to fall out? Is it 2008 again? What’s going to happen? We saw rents rise like crazy. I think I looked at… NAR had a report back in February. It was, like, 11%, you know, across nationwide.
There’s a lot of concern from investors as well as real estate. Is this something that ultimately we could have an issue here? What’s your perspective on that? Is that something that you’re concerned about? And, again, you know, not having a crystal ball, how do you, sort of, manage that with your own investments?
Darin: Yeah, that’s a difficult one, right? There’s some really high-level people that are out there saying, you know, “There’s going to be a massive crash,” right? Like, 80%, 90%. It’s going to be massive… – The doom and gloom sayers are out there.
Scott: Right, right. They’re out there. And I don’t know. They might be right, you know? So, you know, if you’re a believer in that, then it’s like sell everything, hold cash, and wait until all asset prices drop and then get in. I’m, kind of, of the mindset of prepare. I’m preparing for both, right?
So, I’m still investing. And because I don’t want all my money to be in cash and inflation just to eat away at it, you know, multifamily is different than this scenario, but my kids and my wife talk about gas prices, right? And, oh, man, gas prices are up.
And, like, my wife and I just bought an RV, and we’re traveling country, and diesel is over $5 a gallon. It’s expensive. But as I’m filling up, I’m like, I’m glad I own Exxon Mobil stock, right?
Scott: I’m paying more at the pump, but I have, you know, an asset that is appreciating more than what I’m, you know, paying at the pump. So I look at that kind of same thing in real estate is that, you know, look, rental prices are going crazy. Housing prices are going crazy. But if I own assets, then I’m appreciating there.
Now, it could come falling down. It could. And then I have cash put aside for those opportunities as well, but I don’t want to be 100%. So I’m still investing, but I’m preparing that if something was to happen, I could take advantage of that as well.
Darin: I mean, I think that’s a really a great overall perspective to have and, in general, strategy. You know, hope for the best, have some preparation for the worst. And then I always, kind of, circle back when we’re talking about multifamily and why I’m so bullish on it, in general, is the fact that, at the end of the day, people need homes, they need housing, and we do have a housing shortage that is ongoing.
It’s not going to all of a sudden be fixed next week. We literally can’t create the amount of housing that we need. And, again, this is across the country. So, to me, I think when you have that sort of view and then you have, like, a strategy like yours, that kind of maybe can give a bit of comfort to, well, maybe the doom and gloom sayers may be kind of right.
But in the end, you know, things will return and the homes are still needed, right?
Scott: Yeah. You know, I remember when I got involved in 2017, there were people that I met, syndicators that said, “Darin, I was investing at $30, $40 a door, and I’m out. I’m waiting.” And I’m like, “I’m in,” and we bought at $80 a door. Well, now we’re like $150 a door.
I’m talking DFW. Will it continue to run? I don’t know. But I’m so glad that I took action, you know? I’m so glad that I took action. You know, I started with a duplex and then I did a passive investment and then I did another passive investment.
You know, and I just kept doing… And now I’m getting involved in ground-up construction deals, these office building deals, these distressed debt deals. I never would have done it if I didn’t take action on that first deal. You know, so for everybody, it’s different. Some people may just look at it as a return, you know? For me, I like the return, but I also love the industry.
I love the people in the industry. I love the fact that we’re improving properties. I love the wealth-building opportunity. So wealth building. Why is there so much wealth-building opportunity in real estate? You asked me that in the beginning. Because of leverage.
I mean, look, you get a loan for 70%, 80% of the deal, and then all of the upsides goes to the equity owners. None of it goes to the lender. You pay back the loan. So, a property… Say you buy a property at $10 million and you get a loan for $7 million, well, $3 million equity plus whatever rehab cost, you know?
So if it goes up to $13 or $14 million, you’ve doubled your money as equity owners. It doesn’t have to go to $20 million, you know? But if, you know, you buy a stock at $100, it has to go to $200 in order to double your money. That’s the difference.
In addition, there’s massive tax benefits, massive tax benefits to being involved in real estate.
Darin: The depreciation, right?
Scott: Yeah, absolutely. I mean, the depreciation is huge. It’s a paper loss. You know, it’s not actual cash. And typically, you know, your asset’s going to be appreciating. So, during the whole period, you’re getting access to that depreciation to offset other income, you know?
So it’s a massive wealth-building opportunity.
Darin: Absolutely. All right, shifting gears just a little bit. I’m curious, in general, you were talking about choosing markets that you like earlier, and that general good piece of advice for passive investors. What markets do you like?
Scott: I like all the markets that I mentioned that are growth markets, so Texas, Arizona, Carolinas, Tennessee, Florida, Georgia. I’m actually invested in… Colorado is another one. I’m invested in Texas mainly but Texas, Arizona, Colorado, Carolinas, but I like those other markets as well, Florida.
I invest in Georgia also. Oh, in Tennessee, yep. I’m thinking about all these different investments. So Florida, I got to get Florida on the notch at some point.
Scott: Absolutely. And there’s a lot going on in Florida, that’s for sure, and a lot of population moving there and a lot of business-friendly things happening there. So I think when you talk multifamily, it makes sense, right?
Darin: Yeah, absolutely.
Scott: Do you worry at all with some of these markets? Because there’s just all this… So you are not the first person I’ve talked to that’s really big on Sunbelt markets and things like that. Is there any concern of maybe markets being overbuilt or, you know, “Oh, all of this is rushing to these markets.
There could be a pullback”? I’m just curious to your perspective on that of, “Yeah, okay. Everything’s popular and hot right now.” And how do you balance that?
Darin: Yeah, I think that everything is cyclical. So, I do think that real estate will have a downturn at some point. You know, and when real estate has a downturn, you know, it can last one, two, three years. But if you look at it in a 20-year period, you know, real estate prices go up. So the thing about these markets that we talked about, you know, people are moving out of high-cost areas like California, and New York, and Chicago, and moving into these other areas.
I live in North Dallas and prices here for residential, and for multifamily, and rents, and all that have gone up dramatically. And I talked to people all across the country, and people are saying the same thing. But if you move from California to Arizona or Texas, even with these prices that have gone up, the California people are like, “This is cheap,” you know?
Scott: Just go to the local bar and buy a beer and see the difference.
Darin: So, you know, there are people that are still flocking to these areas because the cost of living is so much better than some other areas. So then we get to, “Okay, well, what happens if there’s a slowdown, if there’s a recession?” I don’t know the answer, but, you know, when I think about it, I’m like, “Well, if I’m living in California and I lose my job, you know, where do I want to go?”
You know, I want to go someplace that I can live more affordably. So, even in a downturn, these growth states may still continue to see, you know, population migration growth, you know, because people are like, “All right, man, I got laid off and now I got to go find work. It’s so expensive here. Let me move to Texas, or let me move to Arizona, or let me move to the Carolinas and find a job there.”
That could potentially happen. I don’t know.
Scott: I think that’s a really great point, and it’s one I hadn’t fully considered before, that sort of aspect of, “Okay, well, if there is a downturn, are people going to want to stay in the higher cost of living areas?” They may be motivated to move anyway. And then one thing I’d add to that as well is, you know, we’ve seen with COVID and this sort of continued rise of remote work, more and more folks are thinking, “Well, I can work for that big company that’s based in New York City, then I could live in Texas or somewhere else and have a lower cost of living, maybe still collect that big city expensive salary,” and then they’re feeling pretty good, right?
Darin: You’re absolutely right. Absolutely right.
Scott: In general, what kind of trends are you seeing in multifamily that are pretty compelling to you that maybe have your eye, whether it’s from a value-add property development standpoint, renovations, or just general what you’re seeing from deals and movement?
Darin: I’m not sure where you want me to go with that.
Scott: Anywhere you want.
Darin: Okay, I’ll take, you know, a few different angles. One is, you know, from interviewing a lot of people and being friends with a lot of different syndicators, I’ve seen a lot of syndicators transition from, you know, class C to B-plus or A assets. So people are, kind of, upgrading the types of properties that people are going to for a number of different reasons.
One, there’s less maintenance. You know, two, there’s a lot of money out there that’s looking to get into deals so people can fund these deals with the per-unit cost being higher. They’re still able to raise the funds. And, three, like what happened in COVID, right, was a little different than what our discussions were pre-COVID.
So pre-COVID, a lot of syndicators I talked to were like, well, look, if we have a recession, the bottom 20% of A renters will most likely look to save some money and go down to the B properties. The bottom 20% of the B properties will look to save some money and go down to the C properties. So, B and C are the more attractive place to be.
That was the talk before COVID. Now, when COVID hit, it really impacted the C properties more. People that were working in retail, people that were working in restaurants were impacted, and people that…
You know, C tenants typically are paycheck to paycheck, right? So, they had a more difficult time paying. Now the ones that were in the A properties, they were typically working for a company that said, “You know what? You could work from home.”
Scott: Yeah, just stay home. Stay in your bedroom, whatever.
Darin: Stay home, right? So now all of a sudden they’re in their apartment, and they still have a job, and they’re still making their rent payment, and they have savings, right? So then that made a lot of syndicators, I think, say, “You know what? These A properties are pretty darn good.” Now, the challenge with As is when the music stops because, you know, you can’t build a B or C property, right?
You can’t buy land and build a B or C property. It’s just not cost-effective. So, all of the new construction is, you know, geared towards that A tenant. Well, you know, when the economy turns, there could be some of those A properties that have a difficult time leasing up, you know, their property or there could be…
You know, it all depends. Every recession is kind of different. If it hits the white-collar tenants more, then, you know, those A properties may have a more difficult time, but that’s kind of been the trend as people have been upgrading the asset class.
Scott: I think that’s a really interesting trend to, sort of, consider and to keep an eye on, because I think that that’s something, especially as we emerge from COVID, you know, how that will all shake out will be really interesting to see.
Darin: Yeah. I shared this little one with you. I invested in an A property as a passive, and I went down and looked at the properties surrounding it. And it was in South Houston. And what was interesting was every place was, like, 98% occupied. It was great.
I mean, they had applications galore, and all of that was fantastic, but I kept seeing, like, these, when I would talk to these leasing managers, 3-month, 6-month, 9-month, 12-month leases. I’m like, “Look,” I was like, “Focus more on 12-month leases. Are people actually taking out these shorter-term leases?”
And, like, you’d be surprised because the shorter-term leases have higher rental rates, right? I mean, if you’re only going to commit for 6 months or 9 months, you can pay more than if you commit for 12 months. So what they said was interesting to me. They said, “One, probably, like, 20% of the leases are falling into those shorter-term categories,” which I thought was a pretty high number.
And then secondly, I’m like, “Why aren’t people doing that?” And they said, “Well, a lot of people are selling their home, you know, at these crazy high levels, and they think that they’re going to rent for six months, and then they’re going to jump back into the market when it turns, right?” And that could work, but it may not work either, right?
I’ve seen when trends happen, when, you know, asset prices run, they could run for another two years. You know, who knows? I remember telling my wife in 2006, I was like, “Hey, honey, we should sell our house.” She’s like, “Where are we going to live?”
I’m like, “We’ll move into an apartment.” She’s like, “For how long?” I’m like, “I don’t know if it’s a year or if it’s five years.” She’s like, “We got two little kids. Like, we don’t want to live in an apartment for five years, right?” And I was like, “Yeah, you’re right.” Well, we didn’t move, right, and the market… I was living in Florida at the time the market tanked, and we would have made substantially more money had we…
But, you know, there’s different considerations when you have a family and, you know, your home isn’t just an investment. So, you were about to move on to something else.
Scott: Well, no, honestly, I love that you mentioned that story because I think there’s another thing that that brings to mind as we’ve seen these interest rates rising, and that also, kind of, has left some people… I think recently mortgage applications have gone down significantly. So we, kind of, have these high prices. Now interest rates are getting higher.
So, a lot of folks, too. They might be stuck in, sort of, a limbo. It’s like, “Okay, I sold and now I’m renting or whatever I’m doing.” And, oh, boy, now interest rates went up and getting over that hill to get that next new house is going to be a little tougher, right?
Darin: Yeah, I mean, we just don’t know what’s going to happen. Those people might be geniuses, you know? They got out and they hold cash or it could last…you know, maybe the market just levels off here. And they’re like, “Oh, man, I’m going to have to pay $200,000 more for the house that I sold, and interest rates went up from 3% to 5 plus percent. So it’s going to cost me a whole heck of a lot more to get back in.”
I don’t know.
Scott: Yeah, yeah. It’ll be interesting to see where it all goes, and that’s to say nothing for first-time home buyers, which, wow, I mean, that’s just tough.
Darin: Yeah, I do. I feel bad for, you know, the young generation just coming out, but at the same time, we all were there at some point as well, right? So they’ll figure it out and they’ll make their way.
Scott: Absolutely, absolutely. Yeah, I mean, I think we’ve really covered it all. I think I like to, sort of, end with a, sort of, look to the future. So what do you see when you look at the multifamily real estate landscape and certainly the passive investing side?
What do you see in the future in general of how things might go, you know, whether it’s a falling of the market, whether it’s continued growth? What might happen?
Darin: So, I said before, I mean, everything’s cyclical. At some point, we’ll have a downturn. I don’t know when that’ll be, but this is what I would tell your listeners is that, look, a lot of first-timers… And I was there. You know, I thought to myself, “All right, I want to do this for me, for my family.” But then as I’ve been in it longer, you’ll realize it’s not just for you, right?
Your first passive deal, yeah, it’s for you and your learning and this and that. But then all of a sudden, you start telling your friends and your family, you know, like, “Holy cow, I invested $100 grand, and in three years, you know, I doubled my money.” Well, now, they’re interested, right, and you start teaching them.
And then you might get interested in being, you know, active. And then, you know, being in the syndication space, one of the things that, kind of, I don’t know, I love about it is that you’re not only growing the wealth for you, but you’re growing the wealth of all the other investors that invested in the deal.
And there’s all kinds of families that have different needs for that capital. You know, it could be college education. It could be retirement. It could be a new car. It could be a vacation, you know? And you’re helping others. You didn’t realize that in the beginning.
So this is what I’ll tell your listeners is that, look, yeah, you’re just focused on maybe getting this first passive deal, but one year, two year, three years down the road, you might be helping 5, 10, 20, 30 people, you know, in your network how to do it, and that’s the ripple effect, and I love it.
Scott: It’s fantastic. Darin, thank you so much for joining me on the show today, offering your perspectives on real estate investing and building wealth through that. And if folks want to find out more, they want to check out your show, listen to your interviews with some fantastic guests.
It’s really incredible, the show you’ve put together. Where can they do that? Where can they go?
Darin: Yeah, I think the best place is my website, darinbatchelder.com. It’s darinbatchelder.com. It’s probably the best place to get info and I’m also on social media and a bunch of different places.
Scott: Awesome, and we’ll of course have links to all of that in our show notes so you can check that out. And thanks again, Darin.
Darin: Scott, really appreciate it. Really appreciate it and I enjoyed it.