No Broke Months For Salespeople - Data-Driven Real Estate Investing

Episode Date: August 31, 2023

Stefan Tsvetkov is the Founder of RealtyQuant, a company that brings data-driven and quantitative techniques to the real estate industry.  He is also the host of Finance Meets Real Estate, a webinar series.Stefan is a financial engineer turned multifamily investor, analytics speaker, and live webinar host.During his finance career managed a ~$90 billion derivatives portfolio jointly with colleagues.In this SuperStar Interview, Stefan will share his expertise in Data-Driven Real Estate.--To find out more about Dan Rochon and the CPI Community, you can check this link:www.NoBrokeMonths.com --Stop 🛑 wasting your time ⏳ or spending too much money 💸not getting the results you want in sales; I would love you to join me for the upcoming 5-Day Listing Challenge.You will learn how to find YOUR Way to having closings every month.www.5daylistingchallenge.com--Get your free copy of the Real Estate Evolution here:bit.ly/RealEstateEvolution_GetYourBookThis book shows you the step by step on how to:Step 1: Believe in your unknown potentialStep 2: Deconstruct persuasion techniquesStep 3: Find a business and get hired consistentlyStep 4: Be proactive in the relationship with your clients.Step 5: Learn and implement the exact steps to hire, train, lead, and train virtual assistants so that they can build, support, and guide a winning team to scale.And if you’d like to have a consistent and predictable income, like this page, and don’t forget to join the Facebook group to network with the top agents:https://www.facebook.com/groups/newbieagents/ To find out more about Dan Rochon and the CPI Community, you can check these links:Website: No Broke MonthsPodcast: No Broke Months for Salespeople PodcastInstagram: @donrochonxFacebook: Dan RochonLinkedIn: Dan Rochon

Undervalued markets outperform on appreciation also for 10 years ahead. The more undervalued you invest, the stronger appreciation aren't making the money you deserve. So if you're ready to end the stressful cycle of working hard for no results, then get started with a proven step-by-step system so that every month is no broke months. Stefan Svetkov is the founder of RealtyQuant, a company that brings data-driven and quantitative techniques to the real estate industry. He is also the host of Finance Meets Real Estate, a webinar series. Stefan is a financial engineer turned multifamily investor, analytics speaker, and live webinar host. During his finance career managed a $90 billion derivatives portfolio jointly with colleagues. In this superstar interview,

Stefan will share his expertise in data-driven real estate. My name is Dan Groschein. I'm the host of the No Broke Months podcast, which is a show for real estate agents to help you have no broke months. Thanks for joining me. Enjoy the show. Today, I'm really happy that I'm joined with Stefan Svetkov. And so Stefan and I today are going to talk to you about the data that matters in real estate. And so that's something if you're a real estate agent, you should be aware of. If you're a real estate investor, you should be aware of.

If you're a consumer, a home buyer or a home seller, you should be aware of it. Stefan, welcome. Thanks for having me, Dan. Pleasure to be here. Oh, it's my pleasure. So Stefan, so we want to talk about real estate data. What is it that the consumer should know today about data? Yeah, great question. So, I mean, so my company is RealtyQuant, like you mentioned. So it's an investment company. So we purchase commercial apartment buildings, commercial multifamily, working on three deals as we speak, closed on the first two and have done like various other, like few other residential real estate estate projects before that but in terms of the data side uh so um what they do is that's during real estate investing so it means like kind of pulling tons of properties or markets analytic writing a lot of scripts you know like python scripts and other stuff and just kind of modeling all the real estate space out there.

And trying to find deals, trying to find markets to invest in and so forth. Now, one thing I want to mention that's very relevant, I think, at the current time for investors, as well as agents and lenders as well and so forth. So at RealtyQuant, we publish what they call market valuations. The market valuations is not property valuations. It's not like, is your property discounted, not discounted. It's more like, is the market discounted or overpriced? And so it's really kind of like fundamental studies based on income population and housing supply. We have the data for 3,000 U.S.s counties so pretty much everywhere in the u.s it's how i

invest as well and i basically at my firm we i search for like undervalued markets and invest only there it's kind of pretty much my approach so it's a very like recession resistant approach um i can get into like which cities which counties like i I see as overvalued based on this study. And it's a study based on really every recession in the past 40 years. Okay. So tell me, what areas are overvalued right now? Yeah. So it's really Western states and Western and Southern markets should come as no surprise.

That's been increasingly the case since COVID, obviously. So since, I would say, the beginning of 2021, I would say, is where the US state kind of deviated from its more fairly developed state. That's actually something consistent with Moody's Analytics. There are other studies also for the Twenties University and there are sort of like country level studies by OECD and other sources and Bloomberg economics and so forth and so kind of

like a consensus as far as like 2020 and like even beginning of 2021 was actually US real estate was fairly valued so So it was a very, very different picture back then. But as you know, with inflation and with kind of sort of like the narrative of buy hard assets, real estate is good for you with inflation and so forth. It is good, but it also kind of may drive it overvalued, overpriced. Okay. So Western states and Southern states overvalued. And then where are the opportunities today? Are there opportunities in the marketplace? There are opportunities. Absolutely.

I mean, yeah. So every market one could invest in ahead of even a severe recession that is undervalued would carry extremely low recession rates. So that's been the case during global financial crisis. That's been the case during global financial crisis. That's been the case during 1990 recession. So any investing in, you know, the Midwest, certain markets in the Midwest, Northeast, and in certain markets to the South, by the way, is, you know, like, would not carry very high recession risk. So those are places like Baton Rouge to the south, you know, like markets in Louisiana, Obama and so forth that are, they would not be for it in Texas and they would not be any Western states. So the, the, the really, if we, if we look at where

prices have been declining recently, for instance, like zero price declines since may and june of this year that seem to point we're kind of already in a down cycle perhaps um so it's really like where the where the biggest declines they're in austin phoenix and boise um and so austin phoenix and boise you know they are top five overvalued cities for for nearly two years you know that. That's something that is known. So it's not like, it doesn't come as a surprise. And 95% of those cities are in Western states. What are the economic factors making one market less valuable than another? Yeah. Meaning overvalued. I mean, it's a great question. It's just deviation from fundamentals. It's a very simple, very simple thing.

It's really fundamentals in real estate are income population housing supply, broadly speaking. They're available in governmental agencies, like publicly available data. And it just, if you run, if one runs a statistical study on, okay, let's say sort of 20 years moving average window or something like that on those, you would kind of arrive at, okay, where price is ought to be. Now you need to test it. You need to test, does it have any predictive power at all or is it just like something useless? And so that's what I've been doing myself

with our data service, essentially testing it, you know, for global financial crisis, how well it predicted those declines. And at metro areas, that was like a very high correlation, like close to 90%, like certain metro areas are almost scientific in their evaluation. Then as you go to neighborhoods, for instance, it's not scientific. It's a very different story.

And if you go to, but if you look at states. So you're saying like from the micro level, it's more of an emotional, like, you know, like if a consumer likes this neighborhood rather than that neighborhood, so emotion is going to drive the prices sometimes? I mean, it might. I wouldn't say it's... Not from an investor's point of view, right?

From the consumer's, yeah. I wouldn't say it's so much that. It's just like the super micro level, like a neighborhood, it's just very high to tied to income levels. You could have a foreign buyer. You got like in Manhattan, maybe like a Chinese buyer. Whichever foreign buyer, buy out the neighborhood or something like that. It's sort of like it could deviate from what you would expect to be like the

fundamentals it's just going to be less fundamental and less subject less amenable to to a study of this sort maybe situations that are unique that are not easy to predict or right yeah you could have a more unique situation there but you have something as far as oh it's the charlotte charlotte north carolina msa or anything like that that that's big enough and it appears because because if you look at like the clients that were like after global financial crisis they were very you know they were very in line with fundamentals at the time and um and and similarly for for previous recessions where do you see the market going in the next 18 months? Well, so it's a good question because we need to see like the NBR

to actually declare a recession at some point. So it hasn't happened yet. So generally like to me, like studies like this are meaningful if you actually get a recession. And so there isn't an officially declared recession. So it's kind of hard for me to like gauge because the whole basis of this really working

like all these previous recessions and kind of like the predictive power of that. And if we don't have one, then it's, you know, it's maybe a whole, we don't even have something, anything to look at yet. And so, but assuming we do get a declared recession, which is generally the most people's expectation at some point, even if it takes a year or, you know,

18 months or whatever, then I see, I would expect overvalued markets to keep declining over the course of perhaps four years. So it may decline very little though, over four years. And there are studies. So I actually did a kind of appreciation studies for that for 1990 being a very mild recession and the global financial crisis. And it was like, where are we going to get the highest appreciation 10 years ahead?

Even if we get the mildest recession. Hey there, it's Dan. Excuse me for interrupting my own show. I just wanted to do so because I wanted to share with you. I was having a conversation with one of my buyer's agents, Lucia, the other day. And she was sharing with me, she had a client that wrote an offer in today's market on 12 different homes.

And she did actually end up getting the last offer accepted. So they didn't go and rent. But maybe right now you may be in that same situation and maybe you in that same situation, they did end up renting. And I know that that can be like that can just suck well let me tell you since 2008 there hasn't been a single month that I've missed a closing in real estate sales on an average of 10 and I want to share

with you in the last one year I've taken 79 listings by attending 93 listing appointments I don't say that to brag. I say that to share with you that I know how to take listings in today's market. And I want to invite you, if you want to learn how to take listings in today's market, to join me at the 5-Day Listing Challenge coming up. You can visit www.5daylistingchallenge.com and learn how to take listings in today's market

without having to cold call, door knock or beg. That's www.5daylistingchallenge.com. Now, back to the most awesome real estate show ever, CPI Real Estate Podcast. What's important about four years, by the way? Well, the four years is just, again, if you look at every recession in the past, again, like 45 years is the data that I have. Whenever, if we had an overvalued market, let's say it's 10%, 20% overvalued, the decline duration was typically four to six years. Even if that decline was, let's say, of the order of 10%, 15% only, it's a very slow, stagnant kind of thing. So generally, even if we have like 1990 recession, it's a very mild one.

If one ends up investing, say, one invests in Austin, Texas now, that is, you know, in zero is already down like 7.5%. So Austin, Texas is in, I believe in the realty contest of late, this was like perhaps 64% overvalued. So, you know, so that's like, that's an exception. I'm not saying, I'm not saying like generally US is very overvalued. It's not. But, but again, like, so that's the case. And you have something that's so much overvalued and you get a very mild recession. So a lot of the pattern that other investors have, like from, let's say, my speaking to syndicators

and other investors and so forth is, oh, it's a very strong market. It's got strong fundamentals. It will decline, let's say 10%, but then it's going to go up 40 or something like that. So that's the place to be because it's got all these strong fundamentals. So the part that is missed there, in my view, is, well,

those strong fundamentals, they're already exceeded by 64%. Sure. That's already reflected. So now that that's the case, what seems happened, what's happened in one precedent, at least at least in 1990 a very mild recession with basically a non-event for real estate where the broad u.s real estate declined not zero percent no decline at all and but markets that were very overvalued such as 50 for instance at the time that was hawaii uh like the different markets in Hawaii. And so Hawaii,

eight years later, prices were 14% lower. And so it becomes like a very slow decline, very slow decline. Does it ever recoup the entire 50% or is it sort of like a slow decline while there's an appreciation underneath of it? It does not recoup. That's a very important point.

It does not. The reason is economic recovery the only way if something is over let's say 50 it will only decline as much if there isn't a strong economic recovery that was the case during global financial crisis in fact that is a big reason why those overvaluations at the time they were actually you know they ended up with similar declines and and it's because it was uh one of the most, they were actually, you know, they ended up with similar declines. And it's because it was one of the most severe recessions, actually. Like, I think there's something called, like, pure economic research.

And they classify the global financial crisis as one of the most severe recessions in the past two centuries. And so it had, like, a very weak recovery. Since the recovery was weak, that overvaluation purely gets resolved on the price side. It's just prices, they have to come down. Now, if you have a strong recovery, it's totally not the case. So you have something that's 50% overvalued, it may decline and it's may decline only 15. And all the rest, but because that decline is very slow, it takes time. It takes, like, as I mentioned, generally took four to six years in the past in overvalued markets. And so over those four to six years, the economic growth would compensate and the two kind of meet together. And now we're back to fairly valued.

Yeah. So there's like there's like an appreciation in the marketplace. Well, there's a reflection of a correction. What about markets like you're in New York City? I'm in Northern Virginia. And, you know, like markets like Northern Virginia, New York, San Diego, you know, markets that are high priced have always been high priced and seem as though if they'll always be high. I mean, what about those unique markets? What are your thoughts on that? Yes, so that's a great question.

So the markets that are not affordable, right, that are super expensive, they have a very high price-income ratios, but they're not necessarily overvalued. New York is now an example. New York at the moment is fairly valued. And so the reason is it's not this kind of absolute affordability that determines it because one way if you want to do like if one wants to do like this kind of

fundamental study and wants to estimate okay relative to income population housing supply where the price is now what is the fastest easiest way to do it is if you take price income ratios kind of affordability and you take like a deviation from the historic price income ratios, can affordability, and you take like a deviation from the historic price income ratios. It's a simple, simple thing. And so, but still, that's a deviation from those historic price income ratios. And only that tells you

if a market is overvalued. And if New York is expensive, yeah, sure, it's expensive, but its fundamentals are up to speed at the moment. And so it's not bound to decline. Now, there is a little bit of... So it's a very opposite situation now in terms of affordability.

It's, in fact, Nevada and Arizona and Idaho and Utah and Colorado, those are the overvalued markets. It's where everybody said those markets are cheap. We're going to invest there. This market cycle, everybody invested, you know, there and in Texas and Florida. These are basically the same markets that in the 2009 or 2007, 2009, basically the same markets. Pretty much.

That is, well, okay. Arizona, Nevada, Michigan at the time, because the car industry, California and Florida were the five. Correct. Michigan is not there now. Michigan is not there now. Michigan is not there now. But you're right, the four biggest ones then, Arizona, Nevada, California. Well, Arizona, Nevada, and Florida

are among the very top right now too. Now, California is not top overvalued. California is very not affordable. It's expensive. It's not very overvalued. But California prices have been dropping now. So that is interesting. But they seem to be dropping on a very extreme population was in its cities, such as San Francisco and others with sort of on suburban trend. So suburban trend now seems to be conflating a bit, this kind of valuation studies in California. But California is slightly overvalued, but it's not, it's way less than all the other

states. And so it's actually seems to be something else going on in California right now. But other than California, everything else is really like all those states where investors said we're going to buy. And so, I mean, they were good for investment of this you know in terms of policies and um you know in terms of landlord friend friendliness and friendliness and so on so but you're absolutely right you're absolutely right the three three top states yeah nevada arizona and florida they're they're they're there now as well yeah what about uh what interest rates? So it seems as though the interest rates, I'm thinking they may have stabilized.

I mean, I don't know, but they definitely went up pretty rapidly. I mean, that's an understatement. But what's your sense on that? Right. I mean, that's not a... I mean, so I'm a financial engineer in my previous career. I used to trade interest rates actually at work. So that was my job before.

Now that said- I don't think I've ever met anybody that traded interest rates. Well, interest rate derivatives and equity derivatives. Yeah, yeah, yeah. That's true. Easy stuff, right? Right. Yeah.

But again, I mean, yeah. So interest rates, you know, like they're very hard to predict. I mean, obviously now they've kind of come down with inflation expectations, this kind of inflation expectations come down and, you know, they came down a bit. It's very hard to predict. I'm not an expert on that. One thing I have looked into from the perspective of real estate is interest rates alone would not make the price of real estate come down. I don't believe that's the case. Interest rates would make price of real estate come down in overvalued markets.

But if you're in the Northeast and in the Northeast and you are in an undervalued type of situation, I don't think there will, unless interest rates jump to 20% or something, but I don't think there are too many ranges of interest rates that will affect that. Because the reality is like there's going to be a situation where actually people apparently can afford it, or they will just adjust their leverage. And investors will adjust their leverage perhaps and so forth. And generally, it's not my expectation because it just wouldn't make sense because it didn't happen in the past. And for instance, between 1975 and 1980, or the 70s inflation, interest rates increased that much

and real estate actually continued to increase. But real estate was not overvalued at the time. And so with regards to interest rates, interest rate increases do not necessarily make cap rates to expand in commercial. That's not true. They do in certain situations if there is a trend growth to compensate. And the second thing, they don't make real estate price to decline necessarily. That's also not true.

But if it's real estate that's overvalued, yeah, that could very much be the trigger. And that has been the trigger, it seems now. But yeah, in undervalued markets, it's a very different story. Undervalued markets typically in recessions decline of the order of 4%, something of this kind. So it's a very different story. And if you're in something like Arizona and it was a growth crisis, we know it could be like capital crisis could go 40% or something. So it's a very different dynamic for sure.

You say 40% of a decrease? Well, I mean, in a severe recession, if there's no economic recovery, if there's no economic recovery. But again, I don't have forecasting to whether there's a bigger decline or a smaller decline per se. Like in our model, we do have a severe forecasting and a mild forecasting sort of based on those precedent recessions. And kind of, okay, perhaps it's going to end up somewhere in between or something like that. But I don't have an opinion or a view as to that.

Because that's up to economists to forecast economic growth. That's all that it is about. It really comes down to knowing valuation at the current time. Where is the market right now? That's known. Investors can know this thing. It's available to them. They can look at our data for that at realtyquant.com is our website, for instance.

But generally, it is available. And from there, it's just a function of like economic forecasting. You already know, 87% of all real estate agents fail in this business. And you also know

it doesn't have to be that way. If you're a real estate agent and you're looking for consistent and predictable income, I invite for you to get your free copy of Real Estate Evolution, The 10-Step Guide to CPI, Consistent and Predictable Income for Real Estate Agents. And you can do so when you visit www.therealestateevolution.com. I'll share with you your book that I authored to show you the way. And it's free. You just have to pay for the shipping. Thanks. How does government policy play into this? Well, in terms of if the market becomes overvalued and things like that? Well, government policy in regards to stimulus plans, in regards to the overnight rate for the banks, that type of stuff where they've got a hand on things that they can control and they do. And then but from my observations, it doesn't seem as though if anything that I've ever seen the government do.

When you look at the trends, it seems as though it's only a temporary it's only a temporary impact. Right. That's the observations that I've had to say, you know, they've first-time homebuyer programs to stimulate the economy, and then it works for 10 months. And then 10 months later, the trends are back to wherever they were previously. That's been my observation. That's true. I would agree generally with that. But I would say the government in this case did play a significant role

since it's kind of like printing money, obviously. Sure. Obviously, you know, played a big role in that because, again, I can tell you, like, I was tracking these metrics, like, before, like, I kind of started the first quarter of 2020 producing this data and tracking it. And I can, I already mentioned, actually, like, mentioned actually like us real estate was fairly valued at the time now there was idaho and it was at i remember the time it was at best ever you know like the the podcast and there was okay and that was the discussions okay boise is overvalued and i can't kind of see if like slamming on boise in a way ends up a little bit but but the thing is it was only boise that was over and bo. And Boise rallied even more afterwards, which is, by the way, consistent than expected.

If you have something that's overvalued and the cycle persists, you even expect the more overvalued things to go higher. Until the market shifts. Yeah, until the market shifts. Exactly. And so Boise was an exception. Idaho was an exception. But generally, if you take the whole US, it was fairly valued.

And that continued. Even like I mentioned, many people would be surprised but if we take all US, right around the first quarter of 2021, was at 0%. One can look at also Bloomberg Economics or other sources and that's

where they have US around that level. On the contrary, Canada.ada and uh was it sweden they're like the scans economies they're kind of oil exporting like commodity exporting economies where their central banks cut interest rates in those economies you know they cut interest rates and that actually drove those real estate markets very overvalued and this cycle kind of has been um you know maybe known or how to say that the scans economies they got to have like very overvalued real estate like it's sort of this 2018 and that's uh sweden canada australia norway new zealand basically and so canada was very overvalued so bloomberg economics would publish their article and they have canada at like% or something, but the US was at 100%.

So there was no issue. There was no bubble, I don't like the word, but there was nothing like that. And now with inflation, you know, it's over the course of just one year and one quarter, if you will, suddenly that changed. And through what was at 0% through the middle of 2022, our data spiked to like 19% overall. 19% overall may not sound very high, but this is FHFA governmental data. It's very smooth. And the highest it ever was, was 20% in 06. So this is about the highest it's ever been. Yeah.

So definitely came to the second highest in the past 40 years or so, which is this data. But you don't expect what happened 2007 to nine. You don't expect that to happen. No, because most people don't expect, again, that's not my expertise. I can mention that side is not my expertise. I can mention the economic world. That side is not my expertise.

I'm just only looking at, okay, is it overvalued? It is not. Now, from there, what's going to happen is most people seem to expect a milder recession because of kind of banking system health. Like banking system is relatively healthy or something. So that's the general expectation. But I wouldn't know. But again, I think the answer, the important thing to understand is that how big of a decline is it? It's simply a function of, first thing to understand is declines are slow.

They take a long time. They generally took four years. And second thing is because they do take four years over this period of time uh it's simply a function of how strong the recovery is if you have a strong recovery you're gonna end up with a small decline over this period and is that four years four years to the bottom or four years to the bottom and back to the top no to the bottom right because the bottom is like a decade yeah well the last one was two years to the bottom and then four years so 2009 to 2013 uh no no the no no the okay the recovery the 06 was four to six years was actually the majority of markets bottomed in oh yeah on 2011 not 2009 2011 was the majority and some even like new jersey for example was through 2013 was the bottom

it's like just actually very very long and it's and and yeah the the most of the and and i know perhaps i don't know perhaps you've invested at that time or or not right but it's but it is uh how to say like the majority of the decline will happen earlier. But it just keeps trickling down. You know, it's like kind of keeps trickling down for a very long time. And just the reason for that is, again, like that overvaluation has to go away. As the market switches to a recession, it just has to go away at some point, kind of keeps. I think, Stefan, I want to, as we wrap up here, I think that's what I want to leave our viewers and our listeners to this as a thought. Through time, it all works itself out.

Would you agree with that statement? Yeah. I mean, yeah, it works itself out. Yeah, sure. Now, you don't want to be investing in overvalued markets, right? Yet, depending on where you are in your marketplace, and even when you're looking at the past recessions, the past recoveries, et cetera, there's always been recessions,

there's always been recoveries. Right, yes. But that said, still, my thesis, just to make my point, at least from that perspective, my thesis is investing in undervalued markets now. That is my perspective. Undervalued markets outperform on appreciation also

for 10 years ahead. And again, like I said, I've done these studies for a mild recession. Even if we get the mildest recession now, the more undervalued you invest, the stronger appreciation it has within the next 10 years. Makes perfect sense to me. So say your website one

last time so that people can come visit you. Yeah, so realtquant.com. So that's the best way to reach me. So say your website one last time so that people can come visit you. Yeah. So realtyquant.com. So that's the best way to reach me. All right. So that's www.realtyquant.com. So visit his website. And Stefan, I really appreciate you for being here today. And for the viewers and listeners, I want to invite you to an upcoming listing seminar that I'm doing. It's a live seminar that I'm going to teach you over a five-day period, one hour a day. It's free for you to take listings into today's market so that you can understand how to be a top agent in your marketplace. So, again, that's www.5daylistingchallenge.com. That's the number five, daylistingchallenge.com.

And save your seat there. And I look forward to helping you. Stefan, thank you so much. God bless you. And to more investing in undervalued markets. I'm there with you. Thank you, Stefan. Thanks so much for listening to the No Broke Months podcast today.

Until the next show, I invite for you to be grateful, make good choices, help someone, have the best day of your life, and go find a listing. I'm very excited about the conversation we're about to have. I want to introduce you to Dan Rochon, who is the owner and co-founder of Greetings Virginia. I am so excited to introduce you to Dan Rochon, who is the owner and co-founder of Greetings Virginia. I am so excited to introduce my next guest. Dan Rochon reads, he writes, he does improv. A frequent speaker and often quoted about the real estate market. I'm going to bring on a guy that is a winner. We had some really cool conversations before going live with this show. We have Dan Rochon.

So I'm going to encourage for you to think. So I'm gonna encourage for you to think big. I'm gonna encourage you to think big and then multiply it by two and then take huge action because whatever you want, you're only five years away from that.