BiggerPockets Real Estate Podcast - 2025’s Massive Opportunity for Real Estate Investing (Before It’s Too Late)

Starting point is 00:00:04 Hey, everyone, welcome back to the Bigger Pockets podcast. Today, we are making the case for real estate as an investing class. Now, I like to think that this show makes the case for real estate pretty much every week, three times a week. But my guest today is Ben Miller, and he has a compelling case to share as well. Ben has more than two decades of experience in real estate and finance, so I always enjoy speaking to him and hearing about his insights on where the markets are going. And today, he's going to share. his theory for why real estate investing remains a great asset class for people to invest in heading into 2025. Ben has four bullet points, which we're going to discuss and debate, but I think you'll probably be like me and agree with a lot of his reasoning. And what I like so much about this is that it's a really

Starting point is 00:00:53 zoomed out sort of long-term case for why it's worthwhile to build a career around real estate or build a portfolio, even if you're working full-time. So let's welcome Ben to the show. So let's welcome Ben to the show. Ben Miller, welcome back to the Bigger Pockets podcast. Thanks for being here. Thanks for having me. So, Ben, I know you have a four-part case for real estate. What's point number one? Well, to put it in context, real estate, that's institutional real estate, commercial real estate, private real estate, has been hit hard. The last 24 months have been a recession for a business of real estate. So that doesn't mean single-family homes, but it means like apartment buildings and industrial and if you're a broker mortgage business, it's a recession in real estate. And I think

Starting point is 00:01:41 that's been confusing to our investors because it's not been recession for most other markets. Stock market at all time high. And you have the business of real estate, institutional real estate, inter recession, bottoming. I've seen investors actually, they really do chase the most recent return. So crypto's been hot. That's where they go. If real estate's been hot, they go there. So they have a lot of recency bias. And so stock market is looking really hot. People are really optimistic. And real estate's looking not as attractive.

Starting point is 00:02:13 And so I wanted to make the case for real estate because a lot of times what's recently been hot doesn't mean that's going to continue. Yeah. Sometimes you've already missed it. If it's already hot, then you probably weren't in position to take advantage of it. And now getting in now is probably not as good an opportunity. Yeah. But nevertheless, people find.

Starting point is 00:02:33 it really hard. If they weren't in the stock market, in the last two years, it went up like 40, 50 percent. They're really feeling they're kicking themselves. And they just, like, they can't help. Maybe I have to get in now. So, okay, so I have this sort of make the case of real estate. I have like four major points I want to make. You're doing my job for me. I love this. You're just, you organize the whole interview. It took four points. I want to hear them. Okay. So here, the first one, which is pretty simple, which I'm calling, buy, low, sell, high. This is a new concept for me. I've never heard of this one before. Yeah, yeah. Well, because if you look at the stock market, right, there's lots of measures.

Starting point is 00:03:14 I was looking at this Bank of America put out this chart last week that the market value to book ratio. So like the saying like, okay, how much is company worth in the stock market? How much is it worth according to their accounting, you know, their balance sheet? Is it the highest it's been ever? So just recently went higher than 2000 stock bubble. Yikes. It's higher than it was in 2021. So by some measures, the stock market is more expensive than it has been in history.

Starting point is 00:03:41 Yeah. And just for our listeners, if you're not familiar with the stock market, a lot of times the way we'll measure this in a sort of macro aggregate sense is something called like a price to earnings ratio is one way to look at this. Basically, how much is the stock worth compared to how much revenue or profit in a business creates? And to Ben's point, that ratio is extremely high. So stocks are very expensive right now.

Starting point is 00:04:07 And I guess somewhat alarmingly might be more expensive than they were prior to previous corrections or crashes. So yeah, so the price to book, according to B of A, it's almost five and a half. And historically, it's maybe like three priced earnings. Depends on which ones you want to use. I like to use a Schiller, which is like a 10-year average rather than using like kind of a snapshot in time. that's a 38, which is higher than 2021, but not as high as 2000. So there's different measures. The funny thing about bubbles is that bubbles typically go a lot bigger and longer than you

Starting point is 00:04:43 expect. So it doesn't mean that the stock market is going to correct anytime soon. It may never correct. I'm just saying that if you are value investor, it's expensive. The price is high. Warren Buffett, most famous value investor, right? He's gone all cash. He has more cash in history, $300 billion in cash.

Starting point is 00:04:58 So there are some people, but not many, who are still concerned to the stock market. At this point, most people are in the pool. And so the stock market is high at the moment. And on the other hand, real estate is low. I mean, real estate prices have fallen since 2021, probably 20, 30, in some cases, more than 30%, 40%. Well, that's commercial, right? Well, yeah, yeah, anything that's priced by an investor. So, yeah, that's not like one single family homes or two to four unit.

Starting point is 00:05:28 residential properties. So the single family housing market is different than the investor market. Investor market is priced based on like discounted cash flows or expectations of returns, interest rates. It's more mathematical. In that world, seeing pricing prices fall, depending on your different assets, you know, I'll say 20 to 30 percent. So the rate real estate is down to say 20 percent and stock market is up 50 percent. Yeah. And so purely on like a value point of view, like real estate doesn't look so bad comparatively if you're thinking about it in terms of price not in terms of momentum momentum investors buy whatever's going up value investors buy with cheap and so this is like more of a value investment case which is number one all right i buy buy low sell high i think you know this decline in values

Starting point is 00:06:18 in commercial real estate has been around for a year or two now and it's felt a little risky at least to me to get back in, but are you saying that right now the market is stable enough to start buying back into it? This is the hard part because it's easy to imagine the stock market continues to tear for another year. And so you could see you could be in it for a year and if you're really smart. And then all of a sudden it could blow up. You could use to imagine that it stops just tear. I mean, so it's really, you mean, it's impossible to sort of have a sense of where that is going. all you can sort of say is where it is today and where it is the state's price is expensive. Real estate, it's a little easier to actually get your arms around because it's less complicated

Starting point is 00:07:05 and there's less drivers. And the big drivers of real estate are supply, supply of new housing, supply of new rental housing, and interest rates. And interest rates, they hit the peak in 5.5% you know, over the summer. They've come down 75 bibs. And so it feels like interest rates are the biggest driver of real estate. And we've already at the bottom. I've already seen some recovery.

Starting point is 00:07:28 So it doesn't seem like real estate gets much worse. Yeah. But it may take longer to recover than most people would want. And so it may be that it's just people aren't patient enough. I wouldn't be surprised if the next year looks like the last year. And so you say, oh, it was smart to buy the momentum. Yeah. But I also wouldn't be surprised for everything to Trump, in particular as a catalyst.

Starting point is 00:07:51 just where everything changes and how it changes, God knows. Yeah, we don't know yet. Yeah. So it sounds like what you're saying is you don't think commercial real estate will get worse, but is it the best investment next year unknown because other things like the stock market could be doing well? And even though we may be somewhere close to a bottom on multifamily assets, we don't know when the upswing actually starts. Like it could be a long bottom.

Starting point is 00:08:21 Yeah, I'll try to flesh out that in some of my other points. But I think just sort of the fundamental first point is that you can just look at the price and usually over the long term price matters. I think so, yeah. Well, though, but in the short term, really doesn't. I mean, it doesn't. So I think that for some people who are not long term investors, it's not very persuasive point yet.

Starting point is 00:08:42 So that's Ben's first reason. He believes real estate is still a great investing class. But he's got three more points to share with us right after this first. What if I told you you could forget everything you know about investment property loans? Because host financial is rewriting the rulebook, tossing out those pesky DTI restrictions. They focus on your property's income potential. No tax returns or personal income statements needed. Simple, efficient, and tailored for investors like you.

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Starting point is 00:12:02 All right. So that's point number one is basically there's good value in real estate, potential to buy, low, sell high. What's the second point? The next point I call inverse correlation. Okay. And so in my career, actually usually real estate and stocks moved together. When I started to funderized in 2012, 2012, 2022, so it says 10 years. Sometimes stock market was a little higher, sometimes real estate was a little higher,

Starting point is 00:12:30 but they moved more or less together for 10 years. And then in 2022, September, Fed started raising interest rates. They both fell, but starting in 2023, they diverged. Real estate kept going down and stock market went on a tear up. And so the correlation broke in 23. What's interesting about that is sort of like, if you think about it as like, well, what are the possibilities like sort of the they continue to move in different directions or they start to move in the same direction again. So the interesting things, what's driving them in different directions is that high interest rates drove real estate down. But high interest rates didn't seem to affect the stock market. And that's because what matters more to the stock market is how hot the economy is. So a hot economy drive stocks more than interest rates does.

Starting point is 00:13:18 but actually real estate, especially rental real estate, not very affected by the economy. I mean, people have to have a place to live, have to rent. So the real estate is a little bit more resilient in a downturn. So if there is a recession and the economy slows, that would likely hurt the stock market, and stock market would fall. And with it, interest rates, because the Fed would want to intervene to lower interest rates to stop a recession. and that would cause real estate prices to go up. And so what's happened now with the break in correlation between real estate and stocks is real estate has become a hedge.

Starting point is 00:13:56 Interesting. It started to act like a hedge on stocks where there's a version where real estate does well and stocks do well with normal economy. But if in a world where stocks are falling, real estate should actually do really well, like really see a big pop and balance out some of the losses from the stock. So it's not normally, real estate isn't normally a hedge on stocks. But in this case, I think it's become pretty clearly. I never thought about it that way. It's true, though. Yeah.

Starting point is 00:14:23 So it moves inversely for the moment. I think it's going to move inversely with the stock market. Interesting. Yeah, so they are inversely correlated. That was your second point. I'm curious, you know, we're talking mostly about, like you said, commercial-grade assets that are valued by investors. But in 2023 or 2022, it does seem like the correlation. between the residential housing market and the multifamily housing market sort of broke.

Starting point is 00:14:52 You know, we still see single family home prices going up counter to what's happening in the multifamily space. What do you make of that divergence there? Yeah, I mean, I think at this point, it's pretty clear to people in the industry because most people, I'm talking about almost 80% of people have a fixed rate mortgage below, I think it was below 5%, but I think 65% people have a mortgage below 3% even. Yeah, it's some crazy number. Nobody has to sell their house and nobody wants to sell their house and get an 8% mortgage or 7% mortgage.

Starting point is 00:15:27 No way. And so the supply of new housing, supply of existing housing coming to market has twindled to the lowest has been. And so that lack of supply has meant that the demand has not had choice. Like we take a market where maybe there's a thousand buyers in a market. there may only be 800 homes. And so it's kept prices up. And so what's driving pricing is not interest rates, but actually supply and demand.

Starting point is 00:15:51 And that phenomenon, I think, is pretty stable. Yeah. Like those fixed rate interests are not going to go away. And so I think the single family housing market is being priced more by consumer demand than by, like, the investment profile. Like, it doesn't seem like a great investment to buy a new home and pay a 7% mortgage. I don't think that's like as attractive as renting where you can rent in a much lower total cost per month. Yeah, not from a mathematical standpoint for sure.

Starting point is 00:16:20 Funny enough, the history of single family housing going back like a hundred years is more like what we're seeing today. It used to be that single family housing was considered the safest asset in America. Yeah. It had never gone down. The reason why 2008 financial crisis happened is that all the fancy analysts assume that you could never have a housing clothing. lapse. Right. Yeah. And so we're going back to normal. And so housing has you become really safe again? I'm so glad you said that because I wrote my own, yours is sounds more organized than mine at this point. I just wrote a rant that like the the residential real estate market is just returning to normal. And it was still a good time to be a real estate investor in the 90s. That was a pretty normal time for real estate in the 70s. You know, like there were still strong ways to make profits as a real estate investor. But I think a lot of people, you know, in this podcast, in our community included, sort of got

Starting point is 00:17:18 anchored to this idea that you could have these massive profits that were driven in the 2010s. But that's the anomaly, not what's going on right now. Yeah. I'll agree with you with like a caveat that like every decade had something weird happening. Sure. You know, the 70s had like the oil shocks and inflation. The 80s had the S&L debacle. Like, then it all blew up in the 90s.

Starting point is 00:17:41 like every decade seems to have its own flavor of special opportunities and challenges. Then the housing bubble in 2010s were the housing bubble collapse and interest rates 20-0. So we're in this new one. We don't really know what it is yet. I think it's going to be everything in the 2020s will look back as an aftershock politically, socially, economically to the pandemic. All right. So we've talked about your two principles so far.

Starting point is 00:18:06 First one was that buy low, sell high. The second one is an inverse correlation. between commercial real estate assets and the stock market and how real estate is emerging as a hedge against the stock market. What's the third principle? So the third point in my case for real estate is that housing is moving from an oversupply to an under supply. Yes. Like the pendulum is swinging back. Right. So just to sort of summarize that in 2021 and most of 2022, interest rates were zero, there was like a lot of hot money. Rents were growing almost 20% a year.

Starting point is 00:18:44 And so a lot of developers started new construction, everything. I mean, if they started new construction, multi-family, you probably don't see it. They started it with industrial. There's just a lot of new supply that started in that boom. And it started delivering 18 to 24 months later when construction was complete. So it takes 24 months to build a big building. So they started delivering all these new buildings.

Starting point is 00:19:08 in 2024, mostly, and some of 2025. And it just oversupply the market with new construction, mostly apartments. And in some markets like Austin, it just flooded the market. And that oversupply crushed rent growth, rent growth right nationally, I think went to close to zero. In some markets went negative 10%, maybe even worse. And so at the same time in 2023, when interest rates had skyrocketed, supply had also skyrocketed, and it was kind of a perfect storm for real estate. That's why

Starting point is 00:19:42 real estate value fell so much. There was like a poor rent growth and really expensive interests. And so that's where we were. But if you look forward, because to start a new building, interest rate probably is 8, 9%, maybe 10%, you're having put up way more equity. So most people can't start a new building. They can't afford to. It doesn't pencil. And so this new multifamily starts have plummeted, have fallen, I think 65%. I think they're going to fall 80%. And so what's going to happen is by 2026, so about a year from now, there'll be no new construction, there'll be no supply to the market. And we're going to go into a undersupplied market. And that's going to be great for real estate rents, great for real estate owners. And it's essentially the opposite of where we've

Starting point is 00:20:32 been. Yeah. It makes so much sense to me. Multifamily. construction patterns is one of the easiest things to forecast. It's actually really nice because, like you said, we know when people file for permits and we know that it takes 24, 36 months in certain cases. So you could actually look like in Kostar if you have a Kostar subscription or one of these other data providers. You can just see that the pattern is remarkable. Here it is. Showing if you're not watching this on YouTube, he's holding up to the camera the chart that I'm trying to describe. But it's basically just you see all these deliveries and then they just fall

Starting point is 00:21:11 off a cliff. And it's going to totally change the dynamics. And it's sort of somewhat inevitable because you've probably heard this said before that, you know, the total supply of housing units in the United States is undersupplied. Some people say it's one million. Some people say it's three. Some people say it's seven. But there's a general consensus that we need more housing units. but it can be confusing when we hear that there's an over supply of multifamily right now amidst that backdrop of a larger housing shortage. And Ben actually said there was a flood of supply, and I think it helps people understand. I actually hit someone else on the show, explain it literally as a flood.

Starting point is 00:21:52 Like you can be in a drought. Just imagine like a lack of water. You can be in a drought. And you can have all of this water come down and completely inundate a landscape. with water. And that will be really intense and you can't even absorb all the water for a while. And then a couple weeks later, you're still back in a drought. And that's sort of how I've been thinking about it. It's like we have this huge glut of supply. But project out a year, project out two, three, four years from now. We're still going to be in the drought. There's still going to be

Starting point is 00:22:21 an excess demand for housing units in the U.S. And that's going to push up ransom valuations. We've got to take one more break. But on the other side, we'll hear Ben's remaining points on why he still believes in real estate. There are two kinds of real estate investors, those who have reviewed their insurance, and those who think that they have. Most don't realize their coverage wasn't built for how they actually invest. Vacancy periods, rehabs, short-term rentals, or LLC-held properties. These gaps surface only when filing claims. That's why investors work with NREG. They specialize exclusively in real estate investors, understanding portfolios, risk at scale,

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Starting point is 00:26:25 head to costsegregation.com before April 15th. And we're back. Here's more of me and Ben Miller. When we moved to the fourth point, the last one's the hardest one, so we'll see. But if interest rates stay high, that means construction stays low. That's one of the reasons why I think housing or real estate's bottomed is that two things that were hurting it were interest rates and oversupply. Over supply is going away. And if interest rates stay high, it's definitely not coming back.

Starting point is 00:26:56 and then that leaves you this question of, well, our interest rate is going to keep coming down. I think that's the hardest one to call. I'm going to make an argument around it, but I think it's the most unpredictable. Yeah, I agree. And I think it is the most unpredictable. And you hear people making predictions all across the spectrum. Some people are saying we'll get to 5% next year for 30 or fixed. I don't personally see that coming. I do think that they're going to stay a bit. higher for longer. And to your point, I think that that will impact construction. We also are hearing from President-elect Trump that he's going to implement tariffs, which could make materials or construction more expensive. If we have a reduction in our migrant workforce, that can make labor more expensive for construction. We did a show recently. We were sort of reviewing some of the

Starting point is 00:27:53 predictions for the housing market, and Redfin said that they are expecting a boost in construction due to deregulation. And I'm not sold on that. Have they ever built anything? Yeah, right. It's like, I get that there might be less regulation, but it's just going to be too expensive to build. So, like, I don't know if I buy that. I know what talking about. I've developed a lot of real estate. I'm going to say millions of square feet, but a lot, a lot. And all regulations at the state and local level permits or counties and cities, federal, there's no federal regulation building anything. So I don't understand what they're talking about. But I mean, going back to your main point, and actually, it was on my caveat, my PS. So I'll just do that before interest rates for

Starting point is 00:28:41 tariffs. So I have an argument, I believe tariff is going to be great for real estate. People are worried about tariffs being inflationary. And I think that people have forgot that. that inflation actually can be good for real estate because let's just say that Trump passed, let's say 20% tariffs for round numbers. That means that every single imports 20% more expensive. And let's say that it costs 20% more to build a building because steel and maybe labor is more expensive because we've deported people. Well, that's great. Because it makes the existing supply more valuable. Yeah, we own 20,000 real estate apartment units. Like if it costs let's say $200,000 a building unit, now it costs $240,000 a building unit because it's 20%

Starting point is 00:29:25 more expensive. That just means our apartment buildings are probably worth about 20% more. Yeah. So, okay, fabulous. And actually, like, I think to some extent, tariffs are recessionary. Like, they are tax on consumers. And that's great, too, because that means that it slows the economy down, then they can lower interest rates.

Starting point is 00:29:43 Right. And so, like, real estate hedge, right? Because it's not good for stocks. Tariff's not good for stocks. but I think they are good for real estate. Yeah, that's an interesting point. Yeah, that is the logic that I was going with when I was sort of reviewing these predictions. I was like, it's just going to make everything more expensive.

Starting point is 00:30:00 People are not going to start building into that environment, but people who hold existing homes or existing assets are going to benefit from that. So I agree with you. I like your letter. Is this going to be made public? We'll see. We'll see. I write stuff and then I circulated in.

Starting point is 00:30:19 internally and then I guess torn apart. Yeah. Okay. Well, I think the broad picture, I generally agree with. So it seems like you're optimistic. If I can summarize, tell me if I'm wrong. You're optimistic about real estate because it is relatively valuable, especially compared to the stock market.

Starting point is 00:30:37 It is a hedge against a very hot stock market. And if there are these situations where there are tariffs or increase in construction costs and interest rates stay a bit higher, then that could only bolster values for real estate in general. Well, the last one is whether interest rates come down or not. Okay. We didn't get to that, but it's... Well, let's go.

Starting point is 00:31:01 Let me ask you. Say more about what you're thinking there. Okay. Well, I mean, as I said, this is caveat by being the one that has the most amount of drivers in the world. So my argument is that one, that the main reason we had huge amount of inflation in 2021 was the pandemic and all the money they printed to stimulate the economy during the pandemic and the shutdowns. All of that basically messed up supply and demand and that caused prices to go

Starting point is 00:31:29 through the roof. That's in the past that's gone. And so 99% of the source of inflation is over. That's a fact. The question is, I think two, is will deficits drive inflation? And historically, there's actually very little relationship between deficits and inflation because you saw it in 2010s. There were huge deficits all through the 2010s, and we didn't see any inflation. Inflation was about 2% in the first Trump administration, and interest rates were at 2%.

Starting point is 00:32:01 We're going into 2025, and inflation is 2.5, 2.8%, and interest rates are 4.6%. So they're a lot higher. So I think there's a lot of room there from to come down. And the last thing, which is going back to like our, bread and butter, real estate, the main reason that inflation is high today, the main driver inflation, according to the Bureau of Labor Statistics, is real estate.

Starting point is 00:32:27 It's real estate rents. It's rent, yeah. Yeah, they're called owner equivalent rents. And according to the BLS and essentially how they calculate consumer price index, CPI, is that rent growth is at 5% a year. And you and I know is at zero. Yeah, exactly. So I think it's lagging by a lot. that government statistics are lagging in the private sources of data and that when it comes in line eventually you would actually be able to see that inflation is pretty much dead, it's gone, and that'll allow the Fed to lower interest rates. And so I think that, like, yes, there could be something surprising that could cause interest rates to go back up because of war or we have another

Starting point is 00:33:11 pandemic. God knows. Avian flu. But putting those aside, like I think the general direction real estate is down. Trump wants it down. The Fed thinks worried about unemployment. And so it seems like it's a good bet. It's just like, will it get down to three and a half percent for Fed funds rate or we'll get to lower? But it's not going to, I think it seems realistic. The betting money in the capital markets is that it's going to come down a decent amount and that's going to be good for real estate. Yeah. Okay. Well, I'm glad to hear you're optimistic. I do think the path is down. Personally, I think it's just going to take a while. I don't know if it's going to be as quick as a lot of people in the industry think. I just wonder if bond yields will stay high because the fear of inflation,

Starting point is 00:33:59 right? Like if we start to implement tariffs or, you know, lower interest rates, like there is, I guess, some concern that inflation will reignite. Yeah, the financial markets always fight the last war. Yeah. So they were obsessed with the great financial credit. as I was, now everybody's obsessed with inflation. It usually protects you from it happening. Yeah. And so it's probably something else. I mean, if you go back and just sort of say, like, it's always the stuff that people

Starting point is 00:34:27 forget because it's been too long ago. And so, like, the thing has been too long has been bank deregulation. Interesting. You know, the 1980s Reagan deregulated the banks and they just, you know, they blew up the entire, you know, economy. So every time somebody said deregulation, I always ask, like, do you mean the banks because I hope you don't mean the banks. Yeah. Interesting. Yeah, that's a good point because it feels like that happened with inflation, right? It was too long since we had inflation. And so people took

Starting point is 00:34:56 their eye off. In 1970s was inflation. And 1980s was bank deregulation. So I'm like, okay, like, that's what I expect. All right. Well, Ben, this has been awesome. Thank you so much. I love that. You organized your thoughts about real estate so neatly. It's a really, in my opinion, compelling case for the long term of real estate. agree with you. I don't know exactly when these things start. Is it six months from now as a year? But I do think when you look and zoom out, a lot of what you're saying makes a lot of sense. So thanks so much for sharing it with us today. Yeah, appreciate it. Thanks for having me. Thank you all so much for listening. We'll be back with another episode of Bigger Pockets Real Estate in just a couple of days. See you that.

Starting point is 00:35:36 Thank you all for listening to the Bigger Pockets Real Estate podcast. Make sure you get all our new episodes by subscribing on YouTube, Apple, Spotify, or any other podcast, platform. Our new episodes come out Monday, Wednesday, and Friday. I'm the host and executive producer of the show, Dave Meyer. The show is produced by Ian K, copywriting is by Calicoke, and editing is by Exodus Media. If you'd like to learn more about real estate investing or to sign up for our free newsletter, please visit www.w.w.com. The content of this podcast is for informational purposes only. All host and participant opinions are their own.

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