Transcript (video below) "I'm Brian Briscoe, host of The Diary of an Apartment Investor podcast. This podcast is different than everything else out there. I bring together a new and an experienced investor on each episode. And I let the aspiring investor ask the questions that they need answered. So if you're an aspiring investor yourself, you probably will have the exact same questions.
Now, before we get to this episode, make sure you hit the subscribe button below and that little bell to make sure you get notified every time we post a new episode. And now enjoy the show Stefan, we got Seth on the line. What do you want to ask him? What do you like? Some of the things you're doing differently now in terms of underwriting as. Far as underwriting is concerned? You know, so we always talk about what's the most important thing, the sponsors, the market or the deal. Definitely, we're going to say it's the sponsor, right? But that's a little bit different than what's the biggest risk to the deal. The biggest risk to the deal is the debt. And that's the part that's a little bit uncertain nowadays and you need to be careful with. So when you go to your underwriting and you're planning on refinance and in year two or three or even five or you're going to sell. You know, you've got to make sure that you factor in the possibility that those interest rates might be much, much higher than they are today. Welcome to The Diary of an Apartment Investor podcast. I'm your host, Brian Briscoe. Very excited for today's show. It's another one of our Ask the Expert episodes.
We've got two great people on the line with us today. We've got Seth Bradley and Stefan Spitz cough. So Stefan, did I say that right? Yeah, that was perfect, actually. Wow. Nailed it. Those try like Lego Batman says, but excuse me. What what you didn't hear is me practicing it like 18 times before we hit the record button. But we'll say first try. So that said, guys, welcome to the show. Thanks, man. Appreciate you having us on. Absolutely. And so, yeah, Seth, first of all, we'll talk with you. Tradition on the show is to talk with our experienced investor first, and that's you. So let's let's get rolling. Tell us a little bit about yourself, your background and, you know, kind of walk us into how you got into multifamily. Yeah, sure, man.
Well, I'll take it back pretty far, but I'll try to get through it pretty quick, man. I grew up with a blue collar background. My mom's a retired grade school teacher. My dad's a retired coal miner. So I kind of grew up with that. I call it a blue collar mindset where it's just trading trading time for money. Right. And to me, growing up, I just try to figure out what's the best job I could get. And I didn't stick with blue collar, with white collar and going to med school because I figured being a doctor was the best job that I could possibly get. Went to med school for a year, hated it, started my second year, went for a few weeks, ended up dropping out because I just I knew it wasn't for me and you know, getting my MBA and then started thinking about, well, what's the next best still in that same mindset? What's the next best job that I can get? And to me, that was to become an attorney, though I went to law school, went through all those, jumped through all those hoops, did really well there, got a big law firm job, you know, kind of got down that pathway a little, little bit further where it's like, OK, let's build 1000000000 hours and try to bring in clients and, you know, have a billion bosses and maybe one day I'll make partner .But along the way, I started kind of figuring out that that wasn't for me either. I was just trying to there was just something kind of burning inside that I had no idea what it was. It was really that entrepreneurial mindset and an entrepreneurial spirit. So I started investing in real estate actually, as soon as I got my first big law firm job invested in a duplex house packed into that, started buying, fixing flips and single family rentals and kind of worked my way up to smaller multifamily into larger stuff, into I started investing passively into syndications and then onto the active side. So that's kind of how I went from, you know, rural West Virginia with the blue collar mindset all the way up to big time apartment syndications.
Yeah. You know, I had a blue collar mindset as well when I when I first learned the difference between blue collar and white collar jobs, I knew my dad was a blue collar worker because he always wore a blue collared shirt to work, you know, but he was a mailman and mailman had that's part of their uniform but you know, at least at least from that aspect, you know, we both come from that blue collar home. But so walk us through that that first investment property. The first you know, you said house had a duplex. You know, what was going through your mind when you made that decision? You know, you had to presumably a pretty decent job at the time, but why why house hack into a duplex?
Yeah, I just always had it in the back of my mind that real estate was a great investment. I mean, I remember even being in undergrad trying to convince my dad like, hey, we should buy like these townhouses here and rent them out. And I had no idea what I was doing at the time. And obviously he didn't give me the money to do it. But it was always in my mind. And so as soon as I had any money at all, that was the first thing I thought about doing. And at the time, I was kind of doing the thing that a lot of people do listen to BiggerPockets, you know, all of that, listen to BiggerPockets podcast, learn about real estate investing and talked my wife into instead of buying, you know, a nice single family house with an on the white picket fence for like, hey, let's get a duplex. We can live in one, have rent out the other. And she was, she was good with it. So that started the investing journey.
You know, obviously having a partner that's it's on board with you to, to live through those sorts of things and make wise investment at the beginning is, is, is a good. Thing. Yeah. I actually proposed the idea of buying a duplex to my wife and she completely shot it down. Now, the flip side is we had four kids at the time and finding a duplex that has one side big enough for four kids, you know, yeah, maybe, maybe I wasn't the smartest to suggest that, but that. Makes a difference for sure. It does. It absolutely did. And, you know, when she when she protested, it was just like, OK, yeah, you're right. There's probably not a duplex anywhere big enough for our family. But, you know, good, good that you guys got in on that one. Now you're in San Diego. Now, was that duplex in San Diego we had somewhere else? No, I was somewhere else. That was back in West Virginia. OK, yeah. Still on the duplex. Still a great rental sort of buying, you know, single family duplex, one, two, four units kind of all over the place. Cleveland, West Virginia, North Carolina, even in California. Now, before I started you know, in my legal practice, I worked in real estate, closing these hundred million dollar plus deals for other people. But I was still stuck in that mindset.
You know, to me, even though I was helping them close and I was giving them advice, I still wasn't comfortable with the fact or even, you know, I didn't even realize the fact that I could do those deals myself. Yeah. Even though I've right up against them every single day. So eventually I kind of had that aha moment and realized, hey, I can do this, too. And started kind of, you know, doing the one on the networking, asking people how to get involved and start over investing passively first, invest passively in a number of deals because I was that's what I was advised to do. And it's good advice. It's a great way to get your feet wet and to figure out, you know, how to invest and to see those types of investments from a passive investor perspective before jumping into the active side. Love it. Love it. So going going back to kind of the trigger and I like I really like talking about the like the inflection points, little triggers. You say that for for a while.
You know, you were you were just transactional. You were doing the transactions and eventually you realized, you know, that light bulb moment it was there something specific you think that triggered that light bulb moment or what? What made you make that transition? I don't know if it was just one event. It was more of a series of events where, you know, the clients would come in, we'd talk about the deal. And the more that I interacted with these clients, the more I just realized that they were just regular people. They're just guys like you and me.
They're not, you know, Donald Trump or somebody out there sitting in an ivory tower. They're just regular guys that are taking down these massive deals. Right. And I needed to at that point, I figured out all right along the way, I figured out, hey, I can do this. I just need to get the right network and figure out how to how to how to do it. All right.
So basically what you're saying is the more you were around these people, the more you realized that there doesn't take anybody special. I mean, you have to work hard like any other business. But, you know, you don't have to show up with, you know, the silver. You don't have to be born that silver spoon in your mouth. So. Exactly. All right. Got it. Got it. All right. So let's let's talk a little bit right now about motivation, what I call the big burning. Why? You know, why? Why do you do what you do? Yeah, my big why is is freedom. And I know it sounds a little bit generic, but, you know, I can dove a little bit deeper. You know, I think the first step is really freedom of money, right?
You need to figure out a way to not stop during your time for money so that that creates freedom and that's my big why is to create freedom. Freedom of your time, freedom of relationships,f reedom of location. Just so you can you can do what you want when you want where you want and who you want to do it with. Yeah. So, you know, just the word freedom really encompasses, you know, a number of things. I mean, family friends experiences and mainly just living a fulfilled, happy life that you can be happy with. Yeah. You know, and I've, we've done 260 or so episodes and that theme is keeps on recurring. I think that's, that's a motivation for most people is to be able to control your life.
Essentially. You not have to, you know, trade time for money, not having to keep on going back and punching that time card. Does anybody punch time cards anymore? I don't I don't think that's even a thing anymore. But I mean. Attorneys are pretty damn close, man. I mean, you got a bill every 6 minutes. So. Yeah, I mean, we I often I have wondered, I'm looking at a word document on my my screen. They have like the old floppy disk line.My kids have never seen a flight of floppy. I think some of the things we say, like punch your time card, you know,there used to be a little, you know, lever you pulled a punch in. So anyway, thekind of kind of funny how how language evolves, but that's I digress.
We need to get back to the topic. But yeah, why why Microsoft still uses that little floppy disk for their saved button. I don't know. But anyway, let's talk a little bit about some of the multifamily projects you've been involved with. If you could, you know, pick your first, your favorite, whichever one you want to talk about. Give us an idea of the scope and your involvement in it. Yeah, I mean, I'll talk about one we have going on right now. It's five or six C, so we can talk about it. All day long. Anovia where there's farms, it's actually a 55 plus senior housing apartment complex, 190 units. It's in a suburb outside of Kansas City. And this is, this is a little bit new for me because it's ground up development now, not new to me as far as an attorney. I've done tons of deals like that.
But being on the side of things the development thing is pretty new. But it is, you know, with the way that cap rates are being compressed and the competition out there for, you know, your typical value add multifamily is getting harder and harder and harder to find. You know, I see more opportunities in development and even other types of spaces. So this was an excellent opportunity. It is actually a JV with the developer themselves and we're coming in with a big chunk of capital and resources. Nice. So a couple of questions there. You know, why? 55 plus what what's what's led you towards that? Really, it was sourced from the developer. That's what they focus on.
They've done this type of thing many times before, and that's what they focus on in this suburb. And Kansas City actually doesn't even have any of that type of of housing. So it's in demand. So it's more of a supply and demand type of type of thing that that's bringing that about. OK, now I just did some quick mental math it helps that I'm 45 and I can just add ten. So that's like, you know, sixties people who were born in, you know,65 or earlier or 66 or earlier are in that 55 plus group. And I was just thinking, you know, that's like the tail end of the baby boomers right there. So we got a lot of baby boomers who are in that, in that age group right there. And I know a lot of people are downsizing. So that's right. And you know these seniors, but it's 55, you're not that old. It's, you know, there's, there's a club house, there's a fitness center, there's an outdoor pool, there's, you know, patios and dog parks and everything, just like you'd see in, you know, a brand new class, a multifamily.
Yeah. And I mean, bringing it closerto home, literally, the house that I'm sitting in right now, we we purchased two months ago froma couple that was, you know, 60, you know, I think they were they were right around late fifties, early sixties, empty nesters.And, you know, they had six kids or they still have six kids, but they didn't needa five bedroom house anymore. Me with five kids, I still need a five bedroom house.
But so that's exactly what they're doing.I think the 55 plus move is is a smart one in a lot of waysjust because of the demographics. You have the baby boomers, the largest generation at its time, and they're all looking,not all of them, but a lot of those people are looking to downsize, looking for something that suits them perfectly.Yeah, I mean, I can just think of my, my parents, they're a little bit older. They're in their in their seventies. But, you know,we have a 200 acre farm in the middle of nowhere. They can't keep up with that. They would love to livein a facility like this where, you know, you've got everything there. You've got folks your same age you can socialize withand you don't have to worry about all the upkeep anymore. Yeah. Yeah. A lot lot of a lot of pluses in there.And then the other part of this that's you said it was new to you was was the developmenttake us take us through, you know, a little more detail why development and you know, what theactual benefits are there.
Yeah. I mean, at least from the investor standpoint,a grant of development should have better returns. I mean, because you know, theoretically there's more risk, right?And theoretically, there's more risk. You don't have the existing building there. You're building from scratch.You can come in in different parts of the development process to de-risk it. For instance, this one is already in title.They've already laid the foundations before we joint venture with them. So a lot of that stuff is out of the way.It's in a Midwest market. So it's not in California and New York where it's really hard to get entitlementknow you can be delayed for three to five to ten years. Who knows? So there's ways to de-risk it.So, you know, that's one difference.
You should get better returns.You end up with a better a better building a better community by the end of the day.You shouldn't have, you know, these massive maintenance bills by the end of the day.So there's a lot of advantages to go along with maybe a little bit more risk. Yeah. Yeah. And something that I realizednot too long ago, I think development is the ultimate value add. A lot of people talk about value add propertiesbut taking a bare piece of land and putting something on it. I mean, that's betterthan any C-class value that I've ever seen. You know, as far as how much value you're actually adding soit's something that I've noticed in a lot of areas with the pricing right now, the cost basis is lowerwhen you come in and develop, you know, which sounds crazy, you know, I know like three years agowhen I started investing in all other properties that I'm in or southeast, butwhen we started investing the re, the new newbuild cost was almost twiceas much as buying existing C-class. And I think the tables have turned now to wherein some areas it's cheaper to build than buy. So yeah, soyou know, I said I was newer development is actually the second one.
We closed another one earlier in the year, but it was a little bit differentas a build to rent community. And I was in Lafayette, Louisiana. And just to your point,including the land, the entitlement costs in the build, you're ended up about 130 k,you know for a three bedroom bath house 1300 square foot house. And whatwhat's the what's a comparable house go for in that area right now. Probably double that.Wow. Yeah. Yeah. Holy cow. Yeah. Soyeah, I think I think you you've you laid things out fairly fairly well. You know overallthere is a little higher risk because there's more time. There's a lot of things that can go on during a buildduring the entitlement process or during the lease up or whatever.
But the returns are there.So it's a little higher risk higher reward scenario. And I think in a lot of areas,there's a lot of a lot more potential, especially when you look at your cost basis versus buying newand something else that I'm glad you mentioned that I hadn't realized is wasted derisk it. You came in after foundation was pouredafter it was entitled. So you know, your investors are probably pretty happy with that scenario.There's a lot less risk. They're still getting upside. Yeah, that's what's interesting about development. You kind of got to dove in a little bit deepernow to see where you can de-risk it, see where you're coming in the deal. If you're coming in before, you know,the developers even purchased the land or maybe he just got the land under contract, you know, that's probably the most risky positionbecause he's still got to get those government approvals. There's going to be some time involved.
He's still got anew hire contractor and all that kind of stuff, depending on if he's partnering with someone or not. There's a lot of factorsthat go into that, but the further you come into the process, the less risk there is and the more it starts looking atlooking like kind of that ultimate value add type of play. Absolutely. Absolutely. And one more one more thingyou mentioned that I think de-risk it is you say you're partnering with somebody who's done it before you absolutely.
Need to comes in, play with anything, even a value add. You want to see people with a track record. They've done it beforein the same markets, in the same type of asset. And that that de-risk any deal.All right. Love it. Love it. All right. So so last question for you and then we'll startwe'll shift gears a little more. But what's next for you? Yeah. So, you know, latelyI've been using my legal expertize in real estate and securities to partnerwell, just not as a service, but to actually partner with a select number of operating groups.
Not very many, because I want to work with folks that I like to work with. And, you know,I can only be spread so thin, but basically what I can do is serve as an in-house counsel role,use my business sense, use my real estate and securities attorney work. And, you know,it's a great alignment of interests. I've gotten a lot of traction with that and had a lot of success with thatthis year. All right. So so who who would be like the ideal person totake advantage of that? Somebody like you run all right. Perfect, sold.So so you come in as a as a member and then you you're also doing all the syndication documentsand everything else that's right.
You come in as a member, you know, I'll handle all the legal workor we can outsource it. It really depends on what the needs are. But typically, you know, if needed, I'll come inand I'll do the real estate work, I'll do the securities work, I'll act in a role as in-house counsel. Meaning I'm part of the ownership group.Yeah, right. I'm not this third party vendor that's got 15 million deals that are dealing withand you say, Hey, we got to turn this PSA. And, you know, he gets back to you a week later, you know, I'm in the deal.I'm part of the ownership group. Yeah, I'm in the same boat as you.
Our interests are aligned and we're going to get the deal done.Yeah. And it's a little bit different as well because I'm not only on the legal side, but the business side. So I'm looking at itfrom that perspective. And again, we're swimming in the same boat or rowing the same way in the same boat and trying to get this deal done. Yeah. You know, I have said before that the perfect people to have on your team as partners would be an attorney and a CPA.You know, as far as, you know, if you're if you're looking for other syndication partners, you know, and partially because that's and maybe I say that because that's been a my weak point in my partner's weak points, you know, as was legal and and CPA.But I love the idea and you know, hopefully hopefully you guy you get a lot of a lot of good deals come from that.
So yeah that said let's shift gears and bring Stephan on. Stephan welcome. Yeah. Thanks Bryant yes. To introduce myself I guess so I am a financial engineer actually inprior career soybean so I came to the States like a 22.So I came for my masters in New York City and I've been working in finance for about ten years and in the recent few years I've been in the racing industry as a full time investor and yeah, I actually consider myself an experienced residential investor because I've done kind ofmillions of dollars of deals. It's just not where the aspiration is. You know, I'm getting into commercial multifamilyand that's kind of what I've been doing at the moment. So kind of beating on like bigger likeI guess 50 to 100 units, commercial properties in the Midwest.
But yeah, my prior career, a financial engineer, I also ran a company called Realty Quants,which is an analytics like data analytics company in the real estate industry. And they speak on data drivenestate investing, which is basically the practice of writing lots of code and essentially liketo discover like better properties on the residential and the commercial sideand kind of modeling, modeling properties and so forth. And also it's really cool and we are publishingas you know, some market data, some market analytics for predicting predominance downside risk. Mm hmm. So that's that is that. But as far as my experience in the investing space,so like you mentioned, they've done a few different strategies.
A condominium convergence in the New York City areain places like downtown Jersey City we whole can and thatI've done like a few other like kind of like arbitrage like liquidity strategies for like, you know next more size deals as well.Yeah. So overall like really good experience in the residential space, but they've been always on the vergeof like jumping into commercial. And I'm very happy to be here with a set today to hear about the mindset of that.And, you know, since that's pretty much where I am right now. Yeah. Transitioning into, into a commercial.
Yeah. And so, so I'll just, just mention, you know, the realty quant that that's something that I'm, I'mone of his customers. I get, you know, his data sent to me so I can know what's going on.But let me let me ask you a question. You know, what what markets are youreally hot on right now since you're doing this data driven approach? Yeah.I mean, this is a really interesting question, though, especially with the I guess, like the yield curveyou guys heard about last week. Yep. But we're Asian and Deutsche Bank came in todaywith like some of their like precision timing predictions and and so forth. And we'veseen like mortgage rates rise about 5% yesterday. So it's been like quite interestingin that sense. But I mean, it's Brian, you have seen like some of my dataon the downside risk.
So there I was seeing like car market operations in Western marketspredominantly and then like to a lesser extent in southern markets or to some extent in southern markets.So it just becomes a question of like risk tolerance. My only risk tolerance being very risk averse at the moment is in the Midwest.Mm hmm. Yeah. Yeah. And incidentally, like like you said, the data set is somewhat aimedat trying to predict which markets are overvalued. And by that way, you're you're limitingyour downside risk, you know, so if there is another crash or another recession,you're you're going to be in an area that doesn't have any sort of bubble is the idea behind it. So anyway,I'll put a link to your your website in the show notes for anybody who's interested in that. Butmoving on, one question I do like to ask everybody is what is your big burning?
Why yes. So my big burning, why I like investmentsand I like doing like new strategies that nobody thought of. And I like doing like analytics.I like doing so my B burning ways to do do have two sets points. I sort of have freedomand also do work that is kind of at the edge of my abilities. Mm hmm.Kind of like that is stretching my abilities that I'm able to, you know, like mental exercise and kind of likeit's kind of like physical exercise.
Like stay still stay healthy and so forth. So so this is really but,but combined with the freedom. So to also to satisfy, you know, very much it's very driving for me as well.I couldn't do it for an employer. So so it always has to be like your own thing.Yeah. Yeah. It's amazing how much more energy I have to work for myself and, you know, for, for somebodyelse, but. All right. Well, hey, thanks for sharing all of that. And that said, step one, we got Seth on the line.What do you want to ask him? Yeah, that's actually that's a I think it's a great time.So demand like I said, I know you mentioned Kansas City, and that's actually like one of my if you like, my risk tolerance markets.
Right. Which is great. But what are your I guess like what you likesome of the things you're doing differently now in terms of underwriting? Is there different underwriting that you do at the current timecompared to, you know, let's say two years ago or or, you know, or three years ago or let's saythat you that you have at the moment or is it or are you perhaps bullish?Because, you know, there's a pretty different sentiment on this. A few at the current time. Yeah. Yeah.I mean, I'm still very bullish on multifamily and commercial real estate in generalas far as underwriting is concerned. You know, so we always talk about what's the most important thingthe sponsors the market or the deal.
Definitely we're going to say it's the sponsor, right? But that's a little bit differentthan what's the biggest risk to the deal? The biggest risk to the deal is the debt. And that's the partthat's a little bit uncertain nowadays and you need to be careful with. So when you go to your underwritingand you're planning on refinancing in year two or three or even five or you're going to sell,you know, you've got to make sure that you factor in the possibility that those interest rates might bemuch, much higher than they are today. Yeah, and that makes a huge difference in your projected returnsin your underwriting. So that's something definitely to pay attention to.
Yeah. Speaking of, I saw I saw a deal come across my deskearlier actually. It was last year, I forget where it was only April this year, but you know, about a year agoand you know, digging through the numbers, the they were projecting a refinanceand after the first year and they were going to return all of the investors capital,100% of the investors capital and maybe a little bit more so. So their debt service was going to go upby a million and a half or that their debt was going to go up by a million and a half. But with with how they bakedin the interest rates their debt service was going to go down. So it's just one of those things where they were assuming like a 3.2.5% interest rate. And I think I think you hit the nail on the head, Seth, because that that particular dealright there hinged on a very successful year refinance. And we're about a year into that deal.And rates are in the fours, you know, and you know, for for Fannie, Freddie, you're looking at mid force right nowinstead of low three. So huge deal. A lot of uncertainty there. Yeah. I mean, when the cap ratesare coming down, the interest rates are going up, that that difference is getting much thinner. So the meat on the bone is a lot less.
So you've got to be a lot more careful with with your projections and make sure that they are conservative.Yeah. All right, Stephanie, you got a follow on question, more questions.Yeah. I mean, do you think that's a what do you think are some of the risks in the commercial spaceas far as, like you mentioned, if people have been talking about cap rate compression for a long time, but it's reallyI always felt it's know it's kind of not the correct narrative having actually the spread versus interest rates being pretty high at some times.And so but it's a very different scenario now because it's like, you know, you mentioned we have interestrates up and cap rates down. So that's kind of the scenario.
Where do you feel that operationally it may get harderto execute some deals like where your cash from cash return is no longer there and just purely like kindof pushing a project together and, you know, pushing a project forward and like pulling likeall pieces together. Yeah, it is. I mean, the operations are going to come into play a lot more than they have in the past.I mean, if you if you bought multifamily between you know, let's say 2011 and now,you know, everything, the market would have saved you, right? Everybody's done well because even if you didn'tdo a very good job at operating the prices went up, the cap rates went down and you're doing just fine.Even if you didn't do a great job, all these folks are getting into it with their first deal and they've doneit looks like they've done a great job on paper, but really they've probably made a bunch of mistakes.
Those mistakes are going to behighlighted here before too long because these deals are getting thinner and thinner. I mean, even the deals I see from other people putting out,you know, those projected returns are much lower and lower and operations good, goodoperators are going to be highlighted and bad operators are going to be highlighted. Yeah, I think there's there's a Warren Buffett quote that I love.You know, when when the tide goes out, you find out who's swimming without you know, who's swimming naked, essentially. Right. So, you know, along the same lines the market has is really fueled most of the returns. And as a tide is going out, you have to be able to operate well and I think personally it may be a smarter way to invest if you're bringing more capital to the table, you know, instead of going for that 80%,you know, LTV loan or LTC loan, you know, maybe you come in, I think like the core and core plus assets now are going to be a better alternative.
Than your value add or opportunistic. So coming in with 40% down payment on an A or B class asset. Yeah, that's my own personal opinion. What I'm looking for. Yeah, agreed. I mean, the, the, the better, you know, the class A, the class B, the core. The core plus even in development, you know, they're looking a lot shinier than, than, you know, your typical Class B minus see value add because the difference in pricing is it's the collapse so much that it starts making sense to buy something higher quality. Yeah. What about the future and growth? If I'm like for more time for no questions. So rent growth assumptions that you guys do? I think it's an interesting question.
So on one side, the trend has been like humongous rent growth but then and when and so on the other side, it might totally reverse at some point. And you're assuming we have a recession yeah. I mean, for me, we're, we're still underwriting at it and we, we never really aggressively underwrote rent growth. I mean, even if we're looking at a property in Austin or Charlotte, or somewhere where the rent growth has been ridiculous over the last five years, we're still underwriting it. Just the market rent growth, not the forced rent growth at, you know, 2%somewhere that and then we've actually increased the expenses due to inflation and all that and 3%, three and a half percent. So typically we would just do 2%, 2% for the expenses and rent growth. But now we're kind of doing it a little bit different, a little bit even more conservative, 2% rent growth and maybe three, three and a half percent expense growth. Yeah, I think I think that's smart. I think a lot of people are very bullish on the rent growth, but they forget the other opposite end of that equation, which is, you know, inflation is going to raise your expenses just as quickly or even more, more quickly than it raises your your income.
A couple of things that I that I look at and you know, every property, every market's different. But typically the rent growth lags behind the single family home. Price growth or the median home price growth. Usually there's a six to 12 month lag and it's about 50%.So if single family homes go up by, you know, 10% within the next year, you should get at least 5% rent growth. Right. So there there's a couple of things on there and I'm very hesitant to put anything above a 3% on my rent escalator column on my my spreadsheet.
But I think if there's areas where you can where you have a little more certainty that the rents are going to go up, you can be a little more aggressive year one. But once I get past, you know, once more, once I get year two and beyond, my my rent growth is flat back down to you know, two, two and a half percent. So yeah. And the other the other part of the equation is inflation. You know, if, if and not if we have experienced about seven, 8% inflation over the last year. And if people are on 12 year lease or 12 month leases when their lease comes due their rents are probably going to grow by about the inflation rate.
So as far as my underwriting, I'm happy being a little more aggressive. Year one and that's it. Yeah, I like that, Brian. I mean the farther out you get on the timeline, the less certain it becomes. So you can kind of look at where the rent growth has been in that market. Last year. This year you kind of project that out for the first year or two. After that, you're really just guessing. Yeah. You have some favorite markets right now that's that you're you really like besides Kansas City. I mean, I would love to be in Charlotte and Austin in those markets, but those deals are pretty hard to come by.
So you got to go to where the deals are. So right now, we're pretty pretty heavy on the Midwest, but the better markets in the Midwest, we just closed the deal in Des Moines, the one ones the fastest growing population growth wise in the Midwest. We've been looking there. Kansas City is actually getting a little bit out price, too. It's hard to find anything, any value add there. Hence why we're doing development places like that. But always looking, you know, in that Sunbelt. I mean, that's the bread and butter.
If you can find anything in in the Carolinas, Texas, Florida, Arizona, those are the those are the best markets. It's just trying to find a deal nowadays. Yeah. And I when I first started, I lean towards, you know, the Southeast. My wife's from South Carolina. And we were living, you know, in the D.C. area, a short drive, you know, so that's where we focused. But I was born and raised in Salt Lake City area. And part of me wishes that I would have gone heavy there because the growth in Salt Lake City has outpaced almost every other market. I mean, Austin's still ahead of it. And, you know, here I am with my universe Utah shirt drinking for my University of Utah mug. And that's that's one of the markets that I'm looking at jumping into right now, maybe four years. Five years, too. Late.
But I think there's still a lot of potential in that market. One thing I'm looking at right nowand I want to jump into the numbers a little more deeply I've been saying this for a month now, but,you know, spillover, you know, a lot of people are paying attention to like the Californias in New York, you know, wherepeople are leaving California and Chicago and New York at the rapid rate. And they're going to the Southeast,they're going to Texas, they're going to Phenix. But, you know, the question that I have is, you know, when Phenix gets overheatedand when Salt Lake gets overheated, when Boise gets overheated, you know, where's that spillover going to going to happen?You know, so that's what I'm starting to look at right now. I haven't quite answered the question but I'm thinking that there'sthere's going to be some, you know, secondary and tertiary markets that are going to explodein the next several next couple of years. Yeah.All right.
More questions. I think I think I asked most most of the questions today all right. Sounds good. So all right. We're about out of time on this one. So I want to thank both of you guys for coming on the show today. Very much appreciate your time. Great conversation. And one last question for each of you and Seth. You get to go first. How can listeners learn more about you yeah. Check out the podcast, go to passive income attorney dot com.
We've got some free content there. I'm up to three episodes a week at this point and there's tons of stuff on there. We've got some articles, we've got some free downloads, all kinds of good stuff. Get on the mailing list and been my circle. All right. W w w a passive income attorney, become an inside rat three a week right now. And, you know, I think I look at these guys who are doing daily shows and just makes me scratch my head three weeks three weeks enough. So. All right. So that information will be in the show notes, passive income, which Rakim. Check out his podcast, check out his website.
Definitely. Stefan same question for you. How can listeners learn more about you?
Yeah, you mentioned Brand earlier. My website is related content dot com. So this is the best way. I also ran a weekly live webinar called Finance Me Through a Stage so they can check finance mysteriously on YouTube as well. All right. And we'll put links to that finance links, real estate YouTube site in the show notes and and realty quant dot com they're so definitely checkout what he has to offer and once again, thank you to both of you for coming on the show today. I very much appreciate your time.
Thanks, Brian. Appreciate it. Hey, if you like that episode make sure you hit that subscribe button. But more importantly, if you haven't joined our multifamily educational community, the Tribe of Titans yet, you are missing out. So get yourself three days free by clicking the link below in the description or go to the Tribe of Titans dot info and we'll see you there." Join our multifamily investing community for FREE for in-depth courses and live networking with like-minded apartment investors at https://bit.ly/3rAD6D5 Link to subscribe to YouTube channel: https://tinyurl.com/SubYouTubeDiaryPo... Apple Podcasts: https://tinyurl.com/AppleDiaryPodcast Spotify: https://tinyurl.com/SpotDiaryPodcast Google Podcasts: https://tinyurl.com/GoogleDiaryPodcast Follow us on: Facebook: https://www.facebook.com/DiaryAptInv/ Twitter: https://twitter.com/Diary_Apt_Inv
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