TGCI 218: 2023 Outlook with Jeremy Roll. Full-time passive investor for 15 years!

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Episode 218: 2023 Outlook with Jeremy Roll. Full-time passive investor for 15 years!

Copy of EP #18 - 2 Guests

Summary

In today’s show, Pancham interviews Jeremy Roll – founder and President of Roll Investment Group and co-founder of a non-profit organization launched in 2007.

Jeremy, a full-time passive investor for 15 years, helped more than 1,500 investors manage cash flow and investments in real estate and other businesses. He is currently an investor in more than 60 opportunities across more than $1 billion of real estate and business assets.

Being a repeat guest who has been in the podcast during the peak of the pandemic, let us know what has changed since then up to now in the investing market. In addition, let us also hear Jeremy’s outlook for 2023 and more of his investing journey!

PanchamHeadshotTGCI
Pancham Gupta
Screen Shot 2023-01-30 at 11.27.46 AM
Jeremy Roll

Tune in to this show and enjoy!

Copy of Quote #00 - 1 Guest

Timestamped Shownotes:

  • 0:49 – Pancham introduces Jeremy Roll to the show
  • 3:40 – How Jeremy started his investing journey from his last corporate job
  • 7:53 – What has changed since the pandemic, and what is Jeremy’s outlook for the future in the market?
  • 11:58 – Other investment options in an inflationary time
  • 14:02 – Two comfortable investments Jeremy have amidst the price depreciation
  • 22:18 – Revenues for properties will be flat or lower
  • 26:43 – Jeremy’s insight on the political spectrum in inflation
  • 30:54 – Latest number on his projects and investment deals
  • 33:05 – Advice for people who want to start on a real estate investing journey
  • 35:48 – Resources where people can learn about investing

3 Key Points:

  1. The interest rate was the first to drop, harming investors as asset prices are causing challenges.
  2. Property revenues are more likely to be flat or lower, and expenses will continue to go up.
  3. As prices adjust, one can spend time learning, and when one learns enough, one can already deploy their capital.

Get in Touch:

Read Full Transcript

(intro)

 

Welcome to The Gold Collar Investor Podcast, with your host Pancham Gupta. This podcast is dedicated to helping the high-paid professionals to break out of the Wall Street investments and create multiple income streams. Here’s your host Pancham Gupta.

 

Russell Gray

Hi. This is Russell Gray, co-host of the Real Estate Guys Radio Show, and you are listening to The Gold Collar Investor Podcast.

 

Pancham Gupta

Welcome to The Gold Collar Investor Podcast. This is your host Pancham. I really appreciate you for tuning in today. My guest is Jeremy Roll. He’s a repeat guest. He was on the podcast almost about two and a half years ago — one of the most listened episodes. I’m really excited to have him back.

 

A little bit about Jeremy. He started investing in real estate and businesses in 2002 and left the corporate world in 2007 to become a full-time passive cash flow investor. He is currently an investor in more than 60 opportunities across more than $1 billion worth of real estate and business assets. As Founder and President of Roll Investment Group, Jeremy manages a group of over 1,500 investors who seek passive/managed cash flowing investments in real estate and businesses.

 

Jeremy is also the co-founder of the For Investors by Investors (FIBI), a non-profit organization that was launched in 2007 with the goal of facilitating networking and learning among real estate investors in a strict no sales pitch environment. FIBI is now the largest group of public real estate investor meetings in California with over 30,000 members. Jeremy has an MBA from The Wharton School and is an Advisor for Realty Mogul, the largest real estate crowdfunding website in the US. Jeremy welcomes emails to network with or help other investors and to discuss real estate or business investments of any size.

 

(interview)

 

Pancham Gupta

Jeremy, welcome to the show.

 

Jeremy Roll

Thank you. Thanks for having me back. I really appreciate it. It’s good to be back.

 

Pancham Gupta

Yeah, it’s been ages since we have had you on the show. It was released in July of 2020. Right in the middle of COVID, I think we recorded it in March of 2020. It was released in July of 2020. Things have changed a lot. It’s been almost two and a half years. So, I’m really excited to have you back on. For the listeners who are listening, if you’re really curious about what Jeremy had to say back then — it was one of the most listened episodes at the time so I would really highly, highly encourage you to listen to that. There’s a lot of golden nuggets there — the show number is show 43. You can go to the goldcollarinvestor.com/show43 to get to that. We are in 200s now. Jeremy, that was 43. Two digits versus three. So, I’m really excited to have you back on.

 

Jeremy Roll

Yeah, thanks again for having me. Actually, it will be fascinating. That was very interesting timing that we did that. So amazing how much has changed since then, for sure.

 

Pancham Gupta

Are you ready to fire up my listeners breakout of Wall Street investments?

 

Jeremy Roll

I’m very ready for that, for sure.

 

Pancham Gupta

Great. Jeremy, let’s talk about — for people who have not listened to that episode or do not know about you, can you talk about your background, how you got started into what you’re doing today, and your background before that?

 

Jeremy Roll

Sure, yeah. I’ll try to keep it short but it’s still important stuff. So, I’m originally from Montreal. I grew up there. I spent half my life there and I’ve spent half my life in the US. Basically, I was on the corporate track. I did over 10 years of corporate experience. My last two jobs were in the US. They were actually at the Toyota headquarters. It was my last one here in Los Angeles. Prior to that, I worked at Disney headquarters as well, mostly, marketing, a little bit of finance. I have an MBA from University of Pennsylvania or The Wharton School.

 

I was just on a regular corporate track in terms of investing. Frankly, I remember, in 2002, I was investing my fidelity 401k Disney plan. Everybody was doing that at work at headquarters. I was really sick and tired of the stock market after the dot-com crash. I know that’s a long time ago, and a lot of people maybe can’t relate to it. But at that point, there were just tremendous amount of volatility. The stock market, I believe, frankly, in tech stocks, I think a lot of them just crashed 90%. That’s not even like that’s the real number.

 

For me, I’m just a low risk, low and steady guy. I was looking for more predictability. All that volatility and the lack of predictability of stock markets would really bother me for my long-term retirement strategy. So, I started to look at different ways to invest back then. I started early 2002 to invest in some real estate opportunities through syndications, which is when they pulled a lot of investors together. I basically wrote to them my money from stocks and bonds into more low risk, more predictable cash flow opportunities — a lot of which real estate, but not all — between 2002 and 2007.

 

Then in 2007, I had a last straw moment in the corporate world. I decided to leave the corporate world at that point because I had enough cash flow built up to live off of ongoing. I call myself a passive cash flow investor for over 20 years since 2002. I’ve been a full-time passive cash flow investor for over 15 years since 2007. My primary focus has been and continues to be the exact same: where I look for more predictable, lower risk cash flow. I tell people I want to go sleep tonight, wake up tomorrow, and not much has changed because I live off the cash flow. So, that’s the kind of stuff that I tend to target. Most of which is real estate, but I invest in some other stuff as well. We can get into other details too, but that’s the basics of myself as an investor.

 

Pancham Gupta

That’s an amazing background there. Listeners, I had so many questions for Jeremy last time when he was on. He quit his job in 2007 right before the crash, and he didn’t go back into the workforce after that. Here he is, after 15 years, still doing the same principles, basically. I would highly encourage you to listen to that episode. You will really be fascinated by the background and the journey that Jeremy had from Montreal, to Toyota, to quitting in 2007, and investing in I remember data centers to a couple of other things that you had mentioned back then.

 

So, let’s switch gears. I want to ask you. Last time you were on, we were in the middle of pandemic, right? March 2020 can’t get any closer than the onset of pandemic, right? Then the sky was falling. The things that Dow had, the biggest crash ever in the history of Dow at the time, there was a lot of — no one knew what was going to happen. It was like no one ever heard of economy getting shut down, people working from home. Everyone was home.

 

I asked you a lot of questions. One question that I asked you, what is your viewpoint on the market and on investing in real estate and all of this. You had said that you feel the market cycle that you were looking for because you’ve been through multiple cycles — 2001 dot-com bubble, you just mentioned, and then 2008. So, you saw the end of a cycle in March of 2020. You were very hesitant at the time, at least, if I remember correctly, like to stay away from, let’s say, real estate deals, certain kinds. What has changed since then, Jeremy? What’s your outlook for the future now?

 

Jeremy Roll

God, so much has changed just in the two, three years. You definitely recollect correctly in that I was concerned about end of cycle timing — put the pandemic completely aside, like it never happened. Let’s pretend it never happened — that we had an inverted yield curve with high probability, that we’re going to have a recession. We were end of cycle. That’s what my big concern was at the time.

 

Ironically, March was actually the midpoint of the timing that the inverted yield curve would normally single when the recession would start. That was just ironic coincidence of pandemic time. So, I was very concerned about prices being too inflated. I was very concerned about us being at end of cycle. I like using the analogy of like, imagine — I think we’re at the beginning of 2008 at that point, or even in the middle of 2008.

 

And so, if you want to just compare not necessarily in the way the market is at the time — there’s a lot of differences — but just cycle timing-wise, what happened is that the government came in, printed trillions, literally, of dollars, handed out money to everybody, literally, and helped a lot of people. But in my opinion, overdid it. Now, we’re dealing with the after effects of inflation due to too much money printing. That was combined, of course, with supply chain shortages. But I think that there’s an argument ahead as to which side it was, supply or demand. But both of them caused problems. It’s exacerbated everything.

 

The net effect is there was so much money printed that the government extended the cycle. They have the ability to do so if they want to. That’s what happened.

 

Now what you’re seeing is the exact opposite. So, we had a tremendous amount of money printing, very low interest rates, and about as much stimulus as they can possibly imagine to keep things going. Now we’re in the reverse. We have quantitative tightening. We have interest rates that have shut up to tighten everything. Because the Fed has acknowledged that inflation is far too high. Now they’re trying to rein in the fact that everything was overdone.

 

If you have a pendulum, you’re going from one way, swinging all the way to the exact other extreme. On this side of the pendulum, in 2020, 21, 22, we had real estate prices going way up. We had all kinds of stuff going up — crypto, etcetera — just a tremendous amount of money sloshing around. Now we’re going to this side of the pendulum, and we have the exact effect where things are going down. That’s what the risk is, going forward. That’s the risk we’re currently facing today. Some of the asset prices have already reduced. Crypto is down severely. Stock market is down pretty considerably. Real estate is adjusting down. Some parts of it are already down pretty considerably, because it always takes longer.

 

We’re in the middle of this adjustment. That’s truly the definition of an end-of-cycle timing adjustment. If you believe that the Fed will continue to play out inflation — try to get it down, and try to rein everything in — then we’re going to go through a proper cycle reset. Some people may believe that the fed is about to turn around in three or four months and start printing money again and do all this stuff. Anything is possible. That’s the problem because it’s impossible to predict that. But you have to have your own opinion about where things are going. My opinion is that the fed has no choice, because of inflation, to continue trying to rein it in and to have the side effects of most likely higher unemployment, which is most likely going to be recession, which is going to have other domino effects we haven’t even seen yet.

 

The interest rate, to me, was the first shoe to drop. That is harming investors as far as asset prices, and causing challenges even for the economy. But there’s yet to be a second shoe to drop, I think. That, to me, is going to be increased unemployment or recession, causing other dominoes to fall for real estate investors and all types of investors. I know that’s a little long, but I think that’s where we are and that’s what’s happened. It’s just a tremendous amount to go through in two and a half years since we spoke last. I think that, if you have to ask me, I’m much more concerned about risk versus reward at the moment.

 

Pancham Gupta

Got it. I have so much to, what you just said, add and ask you. In short, are you sitting on the sidelines? Are you sitting on cash? Is there a certain kind of investment that you’re investing in right now or excited about?

 

Jeremy Roll

Yeah, great question. As far as cash goes, I’m sitting on a lot of cash. I don’t like that at all, especially in inflationary time. The best I found to do with it thus far, to keep it somewhat liquid and very safe, is to buy treasuries. I’ve been staggering the purchase of treasuries every couple of weeks, usually three months treasuries. I haven’t checked today. But recently, I’ve been able to buy something like upwards of 4.8%. I remember, there was actually tax incentive for that, too, because it’s tax free. I’m always confused whether it’s state or federal, but one of the two. State? Federal?

 

Pancham Gupta

Yes, you don’t have to pay state. Only federal.

 

Jeremy Roll

Okay, which is actually great for me to know. Because California, it’s where I am. But there you go. So, you say one of the two taxes. Inherently, that’s equivalent to a fully taxable higher yield, right? So, you’re over 5% fully taxable. That’s not great for inflation. It’s certainly better than having the money sit in the bank, especially if you have a lot of it. That’s what I’m doing. I’m letting it roll and then reinvesting, roll, reinvesting. In the meantime, I’m always investing in stuff. But right now, it’s much harder. Technically, I would tell you, I’m on the sidelines. But that’s never fully true because I’m always investing in things. It’s just much lower volume.

 

There’s two different buckets that I’m investing in right now. One is asset types that I don’t have to worry about depreciating because they’re already going to depreciate, to close to zero. I’m worried about the continuity of cash flow during a recession and in general. So, that’s bucket number one. Bucket number two, my biggest concern right now as an investor is the reduction in asset prices throughout the next year. I don’t want to buy something at $100 if it’s going to go to $50. That’s an exaggeration. But everybody gets the point, right? So, I’d rather wait.

 

I am still investing unique opportunities where I think that the pricing, there’s a certain padding in the deal so that I’m not as concerned about an adjustment in pricing. I can actually give you examples for both of these buckets that I’m investing in right now. But those are the general two buckets I’m comfortable with, still. Everything else, I’m on the sidelines for it.

 

Pancham Gupta

Got it. Would you mind giving examples? Let’s do that.

 

Jeremy Roll

Sure, yeah. So, let’s talk about the first bucket. I’m not really worried about asset price depreciating because it’s already going to depreciate. So, I’ve been investing in ATM machines since 2008. Those are just the stereotypical. It’s literally a computer, a screen, a built theater, a case, a keyboard. Those things are all depreciating to almost 0, 3% to 5% residual, whatever number you want to put on it. It’s very much mostly going to depreciate.

 

I’m not worried about whether that machine is worth even a little bit less than it should have been in a year from now or six months from now in recession. What I’m worried about is, is the cash flow going to continue during a recession? Am I going to continue to earn my return if people are going to continue to use ATMs? I’ve had the fortune of actually going through the previous recession with my ATMs when I started. Because I started in January of ’08. I know there was about a 15% impact in revenue at the time, generalizing. But there’s so much margin in it that, as an investor, I was continuing to getting my normal cash flow because I was ahead of the sponsor. That’s what I’m hoping it for and anticipating. I continue to be comfortable in that particular asset class.

 

Now, there’s other challenges with that asset class — Central Bank, digital currency, are people going to continue to use cash in the next year? There’s all different things to discuss and different opinions about it. But generally speaking, that’s a good example right off to worry about the value of the asset going down. I’m more concerned about the actual cash flow continuing on for years, specifically during a recession, possibly in the next year or two.

 

The other bucket where I’m talking about really unique priced items are a lot of padding. So, I’m investing right now actually in a two-property portfolio of apartments of all things in Dallas. It’s tax-abated apartments. I’m going to give you some real numbers just because I might as well. It’s a deal I’m investing in right now. I’m not going to disclose the deal. It’s confidential.

 

Right now, the sponsor’s estimate is that cap rates for those types of apartments — that very nice A minus, B plus apartments — are in the 4.5% to 5% range. A year ago, probably it would have been more like 4%. It’s already a pretty big price adjustment between four and five. That’s over 20% price adjustment. They’re buying it at about a 4.87 cap. But they’re putting this tax abatement in where they’re actually eliminating 85% of the taxes, which is equivalent to 34% of the expenses, which is a huge difference in the drop to the profitability when you eliminate 34% of the expenses.

 

The effective going-in cap rate, by the time we get under contract and close with this whole new structure that they’ve negotiated with the housing authority, is about a 6.47 cap. A difference between a 4.87 cap and a 6.47 cap is almost 25% price difference with this similar NOI. So, we’re getting a 25% price reduction for the same amount of profit, essentially. In other words, there’s 25% padding between how we’re closing on the deal and how we’re buying it, literally, in price. That, to me, is a significant amount of enough padding for me to be comfortable with going into that deal, that even if the price has continued to go down, there’s enough padding there.

 

The other thing I’ll say also that I’m being very careful with in any of my real estate investments is I want a positive spread between the interest rate and the cap rate, which most of deals I’m seeing right now are still negative which means that the cap rate is actually lower than the interest rate. So, with negative leverage. Well, it’s not fully negative, I’ve heard. But I see it as that. Then the best deals I’ve seen are maybe 30-40 basis points positive spread. In the normal time, an investor should be getting between 125 and 200 basis points spread. 150 basis point spread, say, in the average. This deal I’m telling you about, because they’re doing this special structure and closing with a whole new structure between putting in a contract and closing, that has about 120-125 basis points spread. Almost impossible. I would say, impossible to find, pretty much, unless there’s something really odd. But it’s just a regular market rate deal. But they’re making it happen through a switch in the structure, that they’ve negotiated with the local housing authority.

 

The cool thing is, there’s no value at execution. It’s all done before closing. That’s an example of a deal with, there’s so much — I’m going to give you one more statistic. They appraised the properties in the new structure for the loan appraisals. They literally are 118% equity, built in equity at closing. Meaning, there were so much more because of the difference in the NOI, that theoretically, we actually have already made 118% coverage on the equity we invested. That’s padding that can be reduced by prices in the future going down. But there’s a lot of padding there.

 

There’s a lot of different ways to slice and dice. It’s very unique. But the point of me telling you this is that, to me, is okay. I got to do that deal. But most deals right now, to me, that are market rate averages don’t make any sense. But there’s always unique deals out there. And so, I’m just wanting to give you this whole example for the audience. Because there are unique deals. They’re very hard to find. It doesn’t make sense to be 100% on the sidelines, in my opinion, like 100% at any time. I like giving the, “Would you sell me or miss those capital businesses for $1?” Probably not. But if I was offered that, I would probably take it. My point is that, you always have to be on the lookout. Because sometimes they’re just very unique situations at any timing.

 

Pancham Gupta

Yeah, I know. I 100% agree with that. I love your two examples there that you shared. Going back to where we started from, you basically summarized really where we are in. The pendulum has swung. Instead of the tail winds, we have the headwinds. We have interest rates spiking up. We have quantitative tightening happening. You think that the Fed is going to continue with the taming of inflation. You’re in that boat. Believe it or not, I’m also in that boat. All the data suggests that’s coming out, including today’s GDP number.

 

By the way, for the listeners, we are recording this on January 26, 2023. The GDP number came out 2.9% something. That’s high. We saw the inflation numbers. Not the inflation, the employment numbers that came out. Good employment was actually bad news, really. So, that’s what happened. If you really look at it in terms of overall economy, I think it’s still pretty strong. You just can imagine what 4 trillion can do to the resiliency of the economy. So, I think the Fed will continue. You can also see Microsoft’s earnings yesterday. A lot of all the earnings are getting out. You can see it’s pretty strong.

 

Yes, my opinion is that Fed is going to continue. They cannot let this thing out of the bag, inflation go out of control. But at the same time, there are so much opinion out there — the three buckets. One is, people who think that we are in deep recession already, and we just don’t know it. The second bucket says, we were in recession. Now we are on the uptake. Recession has already passed. I didn’t see it, but it gets somehow it came and passed. The third bucket is your bucket. I fall in the same bucket, where nothing has happened yet. The worse is yet to come.

 

I don’t know who would be right, who would be wrong. I just feel that the Fed’s job has not been done yet. It’s a lot. Actually, yesterday, I was reading Redfin’s article. They said housing market is, again, on the uptake. The buyer’s demand is back because of the lower interest rates and all that.

 

Jeremy Roll

Yeah, well, I think that if you look at the pure numbers of it and take the emotion out of the housing piece, buyers have a big problem because they can’t qualify for loans. There’s an affordability problem. Until the affordability problem adjusts properly, as supply continues to increase, prices are going to have to come down. Because people can want to buy all the homes they want. But if they can’t get a loan, they can’t buy a home. So, you have to look at the numbers and understand where we are from it, what can an actual person be qualified to buy. Because the majority of the cash is coming from the bank, not from the person. So, that’s a very important thing I would tell people to look at.

 

I also want to say, just going back to what we’re talking about before, I have a very big concern this year that I think most investors are not thinking about when they’re looking at investments right now, which is I’m expecting stagflation. What I mean by that is that I am expecting that revenues for properties of all different types, assuming we have a recession, will likely be flat or lower. Expenses are going to continue to go up because we’re still facing a lot of inflation. By the way, if we’re down to 4% or 5%, that’s still a pretty big number. It’s completely abnormal. People shouldn’t say, “Oh, we’re at 9, we’re at 4.5. Now we’re fine. It’s not true. The Fed knows that.

 

Interestingly enough, not only do you have to worry about the cap rates and the interest rates which are what the main focus has been on so far. But if you buy a building at the beginning of this year, and you close on it now and has a certain net operating income, and then you go one year from now and the cap rate is identical, the multiple’s identical that someone’s going to pay you for it, but then the expenses are up, revenue is flat, even or down, you’re going to have lower net operating income. The building is going to be worthless. This is a big problem right now because of inflation.

 

Because of the fact that we may be hitting a recession, we’re at revenues tend to go down, rents tend to come down. Then you compound that with the possibility of the Fed is continuing to fight inflation, rates have to stay higher or longer or higher than the people anticipate. Now you have a lower multiple being paid on a lower NOI. It’s a compounded effect of what the value decrease is going to be on building. I think that’s the other shoe that’s going to drop in real estate. It’s the lower NOI piece that people are not thinking about. I’ve seen, for example — you know Ken McElroy, the very well-known YouTuber?

 

Pancham Gupta

Yes, I’ll have to have him in the podcast, too.

 

Jeremy Roll

Oh, great. He’s a great guy. I watched his channel. He had a video in December talking about his 2023 plans. In there, interestingly enough, he said that he is budgeting across his apartment buildings. He owns a couple billion of apartments. That flat revenue is at a 7% increase in expenses. He was budgeting in his 2023 budget stagflation. He was budgeting for his buildings to be worth less at the end of the year than the beginning of the year. That’s what his budget is. Yet investors, I think, are not taking all this into consideration, as to how careful you have to be investing today and why it makes a lot of sense to potentially wait unless they are very unique situations like the one I gave an example for.

 

Pancham Gupta

So very true. Again, it all boils down to — I was also reading. There’s so much that people have based their opinion on, what is the Fed going to do rather than actually focusing on the business. So, they were talking about the entire — the economy has become so much managed that people are not focusing on the business, but rather thinking about what Fed is going to do and making their decisions based on that rather than focusing on the business.

 

Jeremy Roll

Yeah, and the big question to be fair is, if the Fed will let this play out the way should, or is the Fed going to come to the rescue with quantitative easing? Some people are now saying they may go sideways on interest rates but continue quantitative tightening, which is really fascinating. Because quantitative tightening directly in some of the purchases impacts mortgage securities.

 

In other words, you could keep rates flat and have increase in mortgage rates, still. There’s a lot to watch. But I agree, I think that it’s been very difficult for someone like me who’s very quantitative and likes to just apply the past to go forward to reduce risk. They come in and everything’s artificial. Everything gets thrown. All your questions get thrown out the window, like what I told you about with the recession in 2020. All gets thrown out the window because they printed a lot of money. So, they do have a lot of power. I understand why people pay attention to them. The question is, are they going to let the market do its thing a little bit more now? Are they going to continue to be just an influence on the market? We don’t know.

 

Pancham Gupta

Let me ask you this question. If you don’t want to answer this, that’s totally fine. Do you think that they would be okay inflicting pain in the economy? I think that’s the question. Do you know? Would they be okay with millions of people losing their jobs, potentially getting evicted from their homes because now that they don’t have jobs, then they can’t meet the rent payments and all that? Generally speaking, having that kind of negative emotions or whatever you want to call it, feeling in the economy like we had in 2008, do you think the public and the political spectrum — whether left or right, it doesn’t matter — that they’re ready for that?

 

Jeremy Roll

It’s a great question. The politics part is really tough to forecast, right? Because it’s one thing for the politicians to blame the Fed, but it’s another thing for the Fed to actually change their action as a result. It’s not clear whether that would actually cause that to happen. Here’s the thing. If I’m the Fed —I’m sorry, because this is just my opinion. It’s frankly just quantitative-based. It has nothing to do with how it affects people’s lives, because it’s just like a math problem they’re trying to solve at the moment. If I’m the Fed, I would choose to get inflation down. This is for the good of long term of society. You have to get inflation under control. Because if you let it go even at 4% and you let that go for three years, and you compound that, and all of a sudden, everything’s 15% more expensive in three years from now than it was today but the employment —

 

By the way, the wages are, 21 months in a row, basically not keeping up with inflation. Lower wages, inflation adjusted. You combine that with higher inflation, man, people are getting killed. We currently have the highest level of subprime auto delinquencies ever higher than the peak of 2009. That’s because people are trying to figure out how to pay their natural gas bill at home — which is crazy right now — their rent, their food, and everything else with inflation. They’re choosing not to pay their car. I don’t blame them. If they want to live at home, they have to pay for the electricity, the gas, et cetera. Everything’s crazy.

 

The Fed knows that if it lets inflation go for a few more years, it’s just going to have a horrible long-term effect on society. So, if you’re the Fed, and you say, “Look, I have to put x millions of people out of job in order to accomplish this,” there’s a trade off, but they have to do it. Because what’s interesting about unemployment is that if the rate is — I’m just going to take 10%, which is probably not going to go to that. But let’s say, 10% from 3.5% we are right now, whatever number is. That is huge and devastating to millions of Americans. But there’s tens of millions of Americans still employed, right? It’s 10%. It’s not 50%. It’s not even 25%.

 

You’re sacrificing that few percentage point, so that the entire society won’t have a huge problem going forward. To me, it’s a risk. It’s a cost benefit, and it’s a no-brainer. I’m not saying that these people’s lives don’t matter. But if you’re the Fed, this is what you have to think about. That’s my opinion about the whole thing. I don’t know about the politics and how that would be handled, but that’s what I would be thinking if I was the Fed.

 

Pancham Gupta

Yeah, I think I’m totally with you, first of all, on that. I listened to Jerome Powell’s The Testimony or whatever, the FOMC meeting notes. Actually, myself, I don’t read the media. But when I listened to him, I feel he’s very serious. But when I look at the media after his reports, I feel that oh, he’s going to prevent. I feel that — my feeling, again, personal opinion — Jerome Powell is really serious. I don’t know how much political pressure can be put on him if there are certain things that break and he has to stop. So, I don’t know about that.

 

Jeremy Roll

I just want to say, I think it’s very interesting, what you’re saying. Because if you just read the Fed speech and nothing else and then you’d pay no attention to the media, you would definitely be more bearish and pessimistic about what’s going to happen with rates. All of the positivity comes from the media. But then, if you just read it black and white, it’s very obvious. It’s very seriously going to keep it steady for a very long time. It can continue to go up more than people are assuming so far. We don’t know. To be honest, you just have to go back and read it, and you’ll get where it’s going, assuming he doesn’t change his mind.

 

Pancham Gupta

Exactly. For the last three quarters, I’ve made this my fun project. I will read the news first after the meeting, and then I would go back and read that. Then I’d try to make sense out of that. Every single time, I feel there is a disconnect, at least for me. Anyway, I think that’s great. I want to switch gears here. I want to ask you. Last time when you were on, you had invested in 70, roughly — you didn’t have an exact number — approximately about 70 projects, so to speak. Do you have your latest number?

 

Jeremy Roll

I hate to say it, but I don’t track it perfectly through the year. When I end up reconciling, everything is tax season. Because of tax season, it’s my duty to tell my — we have this huge spreadsheet with my accountant. My calendar, first thing he wants to know is what’s sold off for the year. That’s the last K-1 we’re going to get for tax forms. What’s new? So, we have to make sure we know what additional stuff we need tax form for. That’s when I have the full number, to be honest.

 

Last year, it was about 60 something. I don’t have the updated number right now. My guess is that it’s going to be higher, because I don’t think there was any sales last year. Maybe one or two. I’m not 100% sure. But I think I invested in much more than I sold, so it should be a higher number come April or May. We’ll figure it out.

 

Pancham Gupta

Wow. That’s awesome. To anyone listening, if you’re getting inspired by that, by not knowing how many deals you’ve done, that’s where you want to be.

 

Jeremy Roll

I want to say too that, in all fairness, I’ve been investing in this stuff for almost 21 years now. Actually, it’s just 21 years now in the next month, February. What ends up happening is that you end up reinvesting, reinvesting, compounding. You’re hopefully doing well. So, you’re earning more money still and you’re trying to spread it and be as diversified as possible. This just happens over a very long period of time. I would say I’m not an investment advisor or anything, but I wouldn’t recommend being in this many deals to people, especially if you’re not doing it full time. Because it’s almost like over diversified to an extent. But I love the concept of being diversified. Because I’ve built such a big network, I get access to a lot of stuff. So, it’s okay for me. But I don’t expect most — it’s probably not the best fit for most people, honestly.

 

Pancham Gupta

Yeah, I know. Thank you. I want to ask you. I want to switch gears. Usually, I have two rounds on the show. I ask in the second round the four questions. But I’m not going to go there because we already asked you in the last episode. I want to ask you. To anyone who’s listening to you right now, and they’re in the beginning stages of their passive investing career, so to speak — they either have a full-time job which they love, or they have a full-time job and they don’t love it, and they eventually want to jump the ship — what advice would you have for them with all of what they heard in the last 20, 30 minutes?

 

Jeremy Roll

Got it. Okay. Let’s say, you haven’t started yet, but you’re looking into this type of investing and you’re focused on cash flow — it’s funny, because it’s a good question. It’s what I tell people all the time, because I feel like people don’t pay attention to this angle. Say, you’re ready to invest. You save some money, or you think this is the first year you’re going to have money, whatever the situation is. I find a lot of the people who come to me who are new and say, “Okay. I got to find four investments this year because I want to do for a year for 10 years. Then with the formula, I’m going to be, hopefully, out of the corporate world. It’s actually great to have that plan. I love watching that being executed, and people get out. It’s fantastic.

 

But I would tell you, the first step, once you’re ready to go, is to do a lot of research, to formulate where you think we are in the real estate cycle and an economic cycle, and determine whether it’s the right time to start. Because just because you have the money from that perspective of timing, it doesn’t mean that deploying the money today is the best idea.

 

Because let’s take the example I gave much earlier. If you came to me in 2007 instead, I’ve got a million dollars I just inherited. Now I got to start. I got to deploy it. I got to do it over the next two years. The first question you have to ask yourself is, is that the right time to actually deploy the money or I’m about to do something I don’t even realize is not necessarily the best thing to do? And so, I think that once you’re ready to go, you definitely need to spend a lot of time analyzing these things and coming up with your own opinion — there’s no right or wrong — about whether it’s the right time to start and what you should do, or whether you should wait.

 

I will say this. If people choose to wait right now but they’re brand new, it’s the best time. Because as prices are adjusting, you could spend your time learning. Then when you learn it enough, you can then deploy your capital. The other good thing is that, typically, in a cycle, real estate prices adjust slowly. So, it takes a while. Then they don’t come right back like a V immediately, not without crazy stimulus. So, you’re better off waiting until it bottoms as a general beginner investor, and then going in a little too late than too early. You’re better in going in 2010 or 11 than 2007.

 

There’s not too much harm in waiting, educating yourself if you think that that’s where the timing is, even though it might be frustrating. But I think all of us to say that you want to get a sense of where we are in the economic cycle and what the market timing is. If you don’t know the answer to that question, I think you should stop and not deploy any money until you actually have an opinion about that.

 

Pancham Gupta

Yeah, it’s such a great advice. There are so many resources out there where you can learn about this stuff. Jeremy, do you have any resource that you would point people to or you do usually, or it’s just Google is your friend?

 

Jeremy Roll

Yeah, Google is your friend. I got a lot of different things. Let me give a couple of things to consider. First is, if you’re brand new, one eye-opening thing is to go to Shadow Stats, shadowstats.com. It’s stats, plural with an s. It shows how inflation and other statistics used to be measured by the government. People don’t know inflation is adjusted on average about once a year and how they measure it. A lot of it has to do, unfortunately, with manipulation to make the numbers look better. There was actually an adjustment in January of this year. There was an adjustment in January of last year, I think, if I remember correctly. They don’t talk about it. It’s just under the radar.

 

If you look at how things were measured, for example, before 1982, when they made their first very large adjustment and just take the old way of calculating it when it may have been more accurate, you’ll find that inflation is about double what actually is published, which is a little shocking but good to know as an investor, what you really have to keep up with — not what the media is telling you. That’s a good website, just to get a little bit of good data.

 

CNBC is really great. Probably the best portal to look at the mainstream media. Just like we’re talking about before, what are people saying about the Fed? You could definitely go there. I’m guessing it’s the most trafficked website of its type for the US. That’s a good one to watch. Calculatedriskblog.com — really good website. We talked about the GDP coming out today, right? The 2.9%. If you want to just see that and not have to read the media but just get what’s going on, like what the numbers are, with a little bit of interpretation, slightly positive bias but not too much, and charting of what’s happened in the past, you can look at all historical, a great place. They keep track of a lot of the previous data. You can see it all in one chart. They give an opinion, but it’s not overdone. You’re not reading crazy media or anything. Really, a great place if you just want to see what the data is that came out today, or yesterday, or whatever you can look at the previous days.

 

There’s other sources, too. I like looking at Drudge Report only because it’s one of the most popular websites — Drudge Report. It’s only because it’s so easy. It’s just links. It loads up very quickly, just like what is the mainstream person reading. I like taking a look at something called zerohedge.com — I recommend. These are ex-Wall Street guys that started that website in 2008 or 09. They did a fantastic job.

 

For example, I haven’t read the GDP article today. But what it will do is break down where’s that GDP come from? Because the last GDP print from the previous quarter was almost all as a result of military spending and the export of military weapons that we were selling. So, if you want to know what’s really going on, like if there’s an unemployment report — did you know that if you took a look at part time versus full time, there’s actually a loss of full-time jobs last week in the weekly report. That’s actually real, by the way. But you wouldn’t know that unless you actually saw how it was sliced and diced. These guys tend to slice and dice things. But I would also ignore a lot of the articles. Some of them are conspiracies, theories, et cetera. We have to look at the data and the Wall Street type articles. That’s another good one. Those are a few you can look at. There’s a lot more you can read as well.

 

Pancham Gupta

Well, great. This is awesome. Some of these, I read quite voraciously like CNBC, Zero Hedge, Shadow Stats. All these are great resources. Thank you, Jeremy, for your time here today. I know you do a lot of stuff. How can people connect with you, find out more about you if they enjoyed this and want to reach out?

 

Jeremy Roll

Sure, yeah. Anyone is welcome to reach out to me. I have no website. I have no social media. I just don’t have time for any that stuff. But you can email me directly. I’m happy to help if you’re new and you just want to brainstorm, if you’re experienced and you want to network, if you’re a sponsor and you have deals, if you’re an investor group and you want to network — because I have my own group — just feel free to reach out to me. My email is jroll@rollinvestments.com. So, jroll@rollinvestments.com.

 

Pancham Gupta

That’s awesome. Anything else you’d like to add before we say goodbye?

 

Jeremy Roll

No, just thank you for having me on. Fascinating times right now. I will say this, as a closing point. I have a very strong opinion that we don’t have very much longer to see how this is really going to play out this year. Are we going to have a recession? How’s the Fed going to deal with the interest rates? I feel like a very short period of time to see what’s really happening. High risk, right? So, there’s a lot of reward to waiting, because it’s a short period to wait with a lot to discover. So, to me, that’s a good reason to be on the sidelines for the most part.

 

Pancham Gupta

That’s such a great point. You know what, Jeremy? What we will do, I want to have you back here, I’m thinking, 6 months or 12 months, where we discuss again your outlook and what we have with the real benefit of the hindsight at the time and see where we are. What do you think?

Jeremy Roll

Yeah, it sounds great. I’m happy to do it.

 

Pancham Gupta

Well, great. Thank you, Jeremy, for your time.

 

Jeremy Roll

Yes, thanks again for having me. I hope this was helpful for everyone who listened. Thank you for listening.

 

Pancham Gupta

Thank you. Thanks for tuning in today. If you have questions, do not hesitate to email them to me at p@thegoldcollarinvestor.com. That’s p@thegoldcollarinvestor.com. This is Pancham, signing off. Until next time. Take care.

 

(outro)

Thank you for listening to The Gold Collar Investor Podcast. If you love what you’ve heard and you want more of Pancham Gupta, visit us at www.thegoldcollarinvestor.com and follow us on Facebook @thegoldcollarinvestor. The information on this podcast are opinions. As always, please consult your own financial team before investing.

Copy of EP #18 - 2 Guests

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