 What's up everybody Ricky Caruth here and today I want to talk to you about multi family most of time I'm talking about residential real estate because I've sold residential real estate as a real estate agent for over 21 years now But today I want to get into the multi family sector and talk to you a little bit about that because if you've been following me for a Minute, you know that my goal this year is to go out and buy a hundred million dollars worth of multi family properties around the southeast So if you have deals if you're in that sector, please send those deals to me Right on Instagram at Ricky Caruth or email me Ricky at zero diamond calm I would love to look at anything you got But I've looked at about 50 deals in the last six weeks and really Analyze them and I want to share with you kind of my thoughts Of that research and I've also been researching the entire market for like 12 to 18 months Really trying to wrap my head around how this works. I've been watching all the the big names that syndicate and have funds I've been watching all that I've had meetings with lawyers to really dig into the inner workings of how these syndications and fund deals actually work and Learning the rules of the game. So that's where I've been for like the last year is really doing research and development around this subject and what I found is just absolutely fascinating it I'm more of a math guy. I really love math. I love numbers I love how everything works out and I love how I can put one on one together and get to or in the case of business One on one together and get six But in the multifamily sector, I find it very interesting because back in November. Okay interest rates for commercial loans actually exceeded Cap rates, right? That means that the interest rate on the loans Exceeded the amount of net income right the amount of net income then the NOI net operating income Exceeded and it's actually that is actually the percentage of the price of the property Okay cap rate is the net operating income right divided by the price of the property So that gives you what your rate of return is per year right outside of any debt that you incur Buying the property and so back in November cap rates actually went below Interest rates which means that prices for these huge apartment complexes have went up dramatically which makes the percentage of return cheaper because rents have went up but not as fast as As prices have went up and then you throw interest rates into the mix And now we have a situation where people are actually buying these apartment complexes and the interest rate is higher than they cap rate So then what do they have to do they have to go raise more money and maybe put 50 percent down instead of say 30 percent And to try to compensate for the higher interest rate to make the monthly cash flow Work and the numbers at that point quite possibly do work on a month-to-month basis But when you exit that property five to seven to ten years down the road putting more money up only delutes the back-end Rate of return right when you sell the property and everybody takes their cut of the equity That delutes that return when you put more money up in the beginning and so it creates a problem long-term Okay, and what's really crazy right now is that I've seen people buy Two caps I've seen people buy two caps right and I've definitely seen people buy three caps And definitely fours and so on and so forth, but it's crazy for someone to buy a say three cap When we're out here when interest rates are five plus on commercial deals And so you know when you look at that deal and they're probably putting 50 percent down So the cash flow works out now But when I talk to these these syndicators and investors on these type of properties I'm like, what's your game plan and the game plan is that they're gonna raise rents And their rents are gonna continue to go up And so the the rents continue to go up increases that cap rate from say a three to a four to a five on the price They bought it at but what they're hoping is is that they raise the rents and then they turn around and sell it again At a three cap the same cap that they bought it at so the higher rent at a three cap creates a higher price point So that's what they're hoping for is that they increase rent They can sell they can sell it for a three just like they bought it and the price ends up higher But I don't think that's what's gonna happen There's no way that that's what's gonna happen. We're already seeing this, you know Balancing out in this sector right now What's gonna happen right well and number one that's their entire game plan now what happens if rents don't go up Okay, what then that's one scenario rents don't go up then what okay? But then the other scenario is if they do raise the rents, which by the way I just I'm not very optimistic my game plan wouldn't be at this point as much as rents have went up That that's my game plan to raise rents, right? I just don't like over the next ten years. I see rents increasing I see rents being higher ten years from now as the from where they are today But over the next year or two or three. I don't quite know I like sure it could be higher You know What's it gonna raise one two three percent something like that? It's it went up like 18 percent last year We're not gonna see that kind of jump, but the jump that it made It's making it very difficult to me There's people out there making a hundred thousand a year that are struggling to make ends meet with this two and three thousand a month rent But if the game plan is to raise the rents and let's say it does go up Again, not a good not a good game plan for me I'm not gonna put my investors in that scenario where that's the game plan But say that it works and they do raise rents Well now they had they've raised it up to let's say a four or five cap at the price. They bought it I think that we're moving into on the low side People are gonna be buying these things at a four and five cap instead of a two and a three You know two to four let's say I think we're gonna see more of a more of a three to five Cap range and so when they do raise that rent I think they're just gonna be raising the rent and then the new cap rates actually just gonna Support the price that they bought it for okay. It's not gonna be a higher price This is what I find very interesting You know of these some of these deals that are going for two and three cap rates I mean, correct me if I'm wrong. I'm new in this industry. I just don't see that ending well for for anybody and You know Grant Cardone. I don't talk about him a lot on this channel, but you know, he's been talking a lot about You know the prices of these multifamilies and some of these institutions and People that have bought these things here in the past, you know 12 to 18 months are gonna be in trouble and we're gonna see some of these things go for a much cheaper price I actually believe that I think we're gonna see in my opinion a bigger You know correction in the multifamily sector than what we're seeing in the residential sector I think that that is that is very Realistic to see that another variable with multifamily is that most of these are on adjustable rates Which means that at the maturity of date of the of the loan you're they're gonna have to sell it or refinance So if you go out there if you try to refinance it, but it's a cheaper price It's gonna be hard to refinance it You're gonna have to go out there and get an appraisal and it's gonna be hard to refinance that And a lot of their you know a lot of the game plans out there for that The exit strategies are to exit and to sell the property Well, if properties are going for a higher cap rate than what you bought it for even if you increase rent It's still gonna go for the same or less than what you bought it for So it's gonna be very interesting, right? I'm not trying to throw any predictions in this video whatsoever Right now. I'm just I'm just making observations Observations and I'm very interested and I'm gonna I'm sitting here patiently Looking at deals. I'm not just jumping on anything that came along. I think a lot of syndicators You know, I think a lot of people are putting syndicator in their Instagram bios who've never really done a deal before and Because it's it's the new thing to do and I think the investors that jump into the deals with these guys are just happy to be in On a real estate deal, right? They're just they've heard all about it They're just happy to put money into a real estate deal However, I'm I'm not optimistic about how some of these Deals are gonna work out for everyone, you know, maybe I'm wrong But nevertheless unless I see a deal and I say, oh, that's a home run No matter what like this is easy easy. Yes, those are the kind of deals that I I'm gonna be picking up And I will be raising money for I think that, you know, as we move forward, we're gonna see more and more of those kind of deals And so I'm sitting here like a warm Buffett type mindset, you know He sits on 20 billion dollars in cash people make fun of him and but he he knows what he's doing, right? He's waiting. He is notorious for waiting like I think I think even read that he even waited like decade or two For for a company to drop in valuation enough to to buy that company same thing here I would love to jump into a deal right this second. I have plenty of people that want to invest But the problem is the deal. I'm not seeing the deal I'm lucky to find a six cap right now. And if I do it's old and in a bad location. So Anyway, that's my two cents on this. I'm gonna keep you in completely Informed as I move forward and learn more and more about this side of the industry I'm excited about this and I'm looking forward to possibly doing business with you Let me know if you have any questions in the comments or anything else I could do for today You have a great rest of your day. We'll talk to you soon