The Pomp Podcast - #792 The Insane Real Estate Market Today w/ Ben Miller

Starting point is 00:00:00 What's up, everyone? This is Anthony Pompliano. Most of you know me as Pomp. You're listening to the Pomp Podcast, simply the best podcast out there. Now let's kick this thing off. Ben Miller is the CEO and co-founder of Fundrise, America's largest real estate investment platform. In this conversation, we talk about the real estate market, we talk about interest rates, and we talk about all of the different trends for investors in the real estate asset class since the start of the global pandemic. I really enjoyed this conversation with Ben, and I hope you do as well.

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Starting point is 00:02:44 it out. Anthony Pompliano runs Pomp Investments. All views of him and the guests on his podcast are solely their opinions and do not reflect the opinions of Pomp Investments. You should not treat any opinion expressed by Pomp or his guests as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his personal opinion. This podcast is for informational purposes only. Ben, how are you? Excellent. Dude, I'm super excited to talk with you. So you got myself, you got my brothers, and you've got Bill Pulte here. And maybe let's start with over the last two years, there's been immense chaos, uncertainty, change in many financial markets. But obviously, in real estate specifically,

Starting point is 00:03:27 what are some of the differences in the investor behavior or consumer behavior that you see on your platform over the last two years? Right. So real estate, people woke up to it as after the pandemic when they saw housing prices go up 20% in 12 months. There's been this huge influx in demand for real estate. As inflation has picked up, people started looking at real estate as a hedge. And we've seen more investors this month than any time in the history of the company. Yeah. And so when you see that, I know that Fundrise reported that the client account, so Fundrise is a investment platform where everyday people can go ahead and actually get access to real estate. But you guys recently announced that there was a 22% return, the average

Starting point is 00:04:12 annual return. And I think that one of the things that people have a hard time kind of wrapping their head around is the CPI number, the kind of inflation measurement officially is around 7% right now. But obviously being able to drive a 22 or more percent return in real estate, some people say like, well, that's a better measurement of what we're seeing. It's kind of the devaluation of a currency against a hard asset like real estate. How do you think about that 22% number on the Fundrise platform and how that goes ahead and actually intersects or relates to inflation itself? Yeah, that's a great question. That's all we do around here. It's the best business show. We've got the greatest questions as well. Exactly. Exactly. Yeah. Well, just to

Starting point is 00:04:54 split that apart. So we have like a fixed income part of our portfolio, and we have equity or growth. And so our fixed income, so the 22 is an average of us, like a 7% fixed income product and a high growth equity. But if you just look at the equity, if your own residential, the returns were like 30%, 40% last year. And what drove that was we saw rent increases of about 20%. Starting in May, rents increased throughout the Sunbelt by about 20%. And that is driven by inflation. I think rents and real estate are a much better gauge of inflation because you don't have technologies often driving down the cost of things. And so that will mix into the overall gauge and sometimes mask what's happening in people's day-to-day lives. So the government

Starting point is 00:05:50 printed something like $9 trillion over the last 10 years. And that's finally now making its way into the real economy, driving up prices in a way we haven't seen in 40 years. So when we think about this, we've got Bill Pulte here. And Bill obviously is very focused on democratization of access and kind of financial empowerment as we are as well. One of the things that's interesting about the Fundrise platform is you guys are using technology to do the same thing for real estate. So help us understand kind of how that works and what the impact on the average investor ends up being in terms of giving them access to asset classes or assets they might not have previously had access to. Yeah. So when we started Fundrise back in 2012, I remember I went to Wall Street. I went to the number one or arguably the number one law firm on Wall Street and said, here's what we want to do,

Starting point is 00:06:38 democratize access to real estate investing. And they literally said to me, why would you bother with a little guy? And that's basically the mindset of the real estate financial industry. Like why bother with individuals? Why bother with like normal investors? And so it just wasn't, If you want to invest in real estate the way a large institution would, it wasn't possible. And we spent a decade working the SEC using technology to break down that barrier. And now people can invest in it. We have for $10, that's the minimum if you want to come into a starter product. So the democratization of finance has been like a hundred year trend.

Starting point is 00:07:20 People used to not be able to invest in stock markets. The stock market used to be only limited to basically insider, sophisticated investors, that changed. So over history, that's been the arc of history, arc of change. And always the status quo institutions resist it, can't believe it, don't think it's a good idea, think that you need the sophisticated professional to make the decisions. What's the liquidity like in your funds? It's a quarterly liquidity. You just, it's like hitting a button. So you, we have liquidity for investors every, every, every three months.

Starting point is 00:08:01 And when you have to sell to get liquidity, do you have to, you know, take a discount in order to get the liquidity or how does that work? No, now we have zero penalties. You can get out of basically with no cost. It's, we have lines of credit and we basically manage, we have X, you know, manage liquidity for, so that people can get out. most people aren't trying to get out it's actually a fairly small percentage of people who who um redeem every quarter a couple percent if you're investing in real estate you're not

Starting point is 00:08:29 trading it you're just a long-term investment so it's kind of like the baron funds have you ever seen ron baron talk about his investors he's like yeah if people want to get out i don't want those investors it was but it's also true right in terms of the fund rise obviously compounding at a very high percentage right as you know in investing in real estate is i'll have to check it out there's a pretty long term you know time horizon and it's one of these things where uh was it warren buffett says don't interrupt uh compounding unnecessarily right like basically just let it continue ben when you think about uh portfolio diversification how much of the investors on the platform are buying just like uh one type of real estate versus they have exposure

Starting point is 00:09:07 to multiple types of real estate and then how do they look at their portfolio of real estate versus other assets? Let me just, I'll take it in reverse. So most people are invested in stocks and crypto. That's very common. And then what they're looking for is something with a little more stability. Often people are saying, oh, I have like 99% of my money in crypto. I'm going to take some of it and bank some of it, just put it into a real asset. So everybody, almost everyone on the platform, I have some super high net worth investors who are just like all in, they're multiple seven-figure investors on a platform, but mostly people see it as a part of their portfolio. And then inside that, we have 20 different funds and the funds are focused on,

Starting point is 00:09:51 you know, we build single-family rental housing for rent, which is, I think you guys were just talking about, Pulte knows all about. We, you know, we have industrial, we build for, you know, which is e-commerce industrial. We have multifamily in, you know, Tampa and Austin. So we have a lot of different kinds of real estate. And, and most investors end up with a fairly diversified pool because it's, you know, you really, it's, it's generally picking like a building is just too, too narrow and anything can happen to one building, but not to an asset class. Got it. And then when you think about, um, kind of the best way for people to learn about real estate, like what, what do you suggest to folks in terms of the actual education process before

Starting point is 00:10:32 they actually become an investor or start to allocate capital? Typically, I mean, investor can put in ten dollars on a platform and so a lot of one way to learn is you put in a small amount of money with ten dollars right and you can we start sending you investment updates on every single property so you'll get an investment update it'll tell you we bought this property we have here's investment strategy here's like the economics of it and and you'll get probably an investor update on a deal either you own or that we acquired every day or or two. So you'll get what a real estate professional would think about, about like a specific real estate investment. So that's like one thing we've done a lot on a platform for

Starting point is 00:11:11 education. Other sources is not, there's not a lot of great information out there. BiggerPockets has some good, good content. If you are looking for online content, it's, but I think the best way to learn is by doing right. The best, like if you want to learn about Bitcoin, go buy some bitcoin right that's like the a good start and and do you see people on the platform they also own bitcoin as well as like almost like a virtual real estate which some people hate hearing some people love that description uh where they basically are saying like i want some analog real estate i want some virtual real estate or how does that look yeah huge huge huge part of our investor base is in is in crypto definitely yeah it's pretty interesting joe john what

Starting point is 00:11:49 questions uh you guys got ben i just want to know like what growth you guys have seen during the pandemic i think you alluded to it a little bit earlier with kind of just how much real estate has been up over the last year or two years, but from an investor side, like what are retail investors saying? What are they doing, et cetera? Yeah, well, so the platform Fundrise is growing about 100% a year.

Starting point is 00:12:07 So we're growing, we had to create the category. So people, everybody owns stocks, they're in Robinhood and basically crypto is not a category, but most people don't own things outside of the stock market. Actually, it's not an idea that individual investors had known about before we started the company you have that institutional investors obviously invest in

Starting point is 00:12:30 venture capital invest private equity invest in real estate but individuals didn't have that and so we've had to kind of create the category as we've as we've actually built a business so that's been probably the biggest challenge is getting people understand that you want to be in hard assets real assets not just in financial assets like stocks and and so and then the real estate itself it's the reason why you like to be in it is it's just a lot more stable. I mean, our returns, you know, are just way, the yield and the stability of it are not like the stock market, where the stock market could be down, you know, this year, the stock

Starting point is 00:13:06 market could go down 40%, right? That's possible. And real estate's likely to clip away at 7% and 8% in, like, you know, stable markets. Like, I mean, 2020, March 2020, when the stock market went down 40%, we were flat. We didn't have any losses. We didn't grow that month, that quarter, but we didn't lose. So there's just a stability that people who are trying to preserve their wealth will often look to real estate for. Ben, when you talk about how real estate is up 20% to 30% in some instances around the country, is a correction coming?

Starting point is 00:13:41 Are we going to see kind of a 10%, 20% correction? Do we see something like 2007 or 2008? Or are these sustainable levels and do we keep growing? This is my opinion. I think we're in inflationary. We're inflationary. Ten years of inflation or seven years of inflation. The government can't stop printing money. They're stuck. We have too much debt. And so and there's not enough labor like to build a building, like to build a house. Like we build thousands of houses. You can't get labor. You can't get hinges.

Starting point is 00:14:10 You can't get refrigerators. You can't get stoves. There's just such a shortage. And it's not just because of the pandemic. It's because the system is, there's not enough people. We lost too many people left the workforce during the pandemic. So I think we have like a long period of inflation. Inflation is going to drive up real estate. If you look at the 1970s, when there was inflation, stock market from 1970, 1980, down 36%.

Starting point is 00:14:37 In 10 years, it went down 36%. And real estate tripled, unlevered. So if we're in an inflationary period, real estate is one of the better places to be. What do you think about interest rates before we let you go in terms of what do you think is going to happen here? Do you think rates end up going up? Do you think they're going sideways, down? Do you think we get multiple rate hikes? What's the thought process?

Starting point is 00:14:58 Yeah. The interest rate, we're borrowing at negative interest rates today, negative real interest rates. Inflation is 7% plus, and we're borrowing at 2% or 3%. And so we're obviously getting negative. We're negative. We're literally paying negative real interest rates today. I think that the Fed stuck. They can only raise rates, maybe like 75 bps. And then they just can't raise it any further because the economy can't push it into a recession if they go much higher than that. And so they'll blink like they did the end of 2018, and they won't be able to end quantitative easing. They've just trapped themselves in a period of low interest rate, high inflation, monetary expansion, and we're just in this like – we're going to be in this inflationary, reflationary period until essentially some sort of – probably late this decade, some sort of collapse. I mean, just some point the bond market can't continue to basically provide negative interest rates to to to the economy. It's just it does right now. We literally have negative real interest rates by huge, huge measures.

Starting point is 00:16:06 Right. That hasn't happened before. And I think that's like a sign of unhealth. Yeah, it's really interesting. I think Bill's thought process, my thought process is all very similar in that the ability for them to actually raise rates and keep them high. uh is almost non-existent and i do question uh how much of the current rhetoric is them trying to talk markets down and basically signal this really strong stance and then they're gonna basically you know wave the white flag and say hey i just say one thing that paul volcker right he did this in the in the in 81 and like he the people he had death threats people trying to kill him and like the idea that there's an individual in politics today with integrity willing to risk their life to raise interest rates no way there's no way yeah it's uh it's kind of crazy when uh

Starting point is 00:16:57 when you really think about uh the game that goes on it's a confidence game right at the end of the day and uh there's a lot of people who say hey the more you talk about inflation the more inflation happens uh also the thought process is can you do the opposite can you basically talk it down i don't know but what do you think i think interest rates don't lie it's like a it's like a poison to inflation so i think they're trying to scare the market and they'll get maybe one hike and then i think they have to cut we'll see well raising those interest rates really cause prices to go down and yes yeah yeah people will in turn not take on they'll want to be more liquid they won't take on uh borrowed money leverage exactly yeah i think it's very clear if they raise interest

Starting point is 00:17:39 rates i mean you already see it too like there's some cooling off uh in some markets already just on the fact that they may raise the rates well look at the commodities they're all down look at bitcoin yeah i mean do you believe bitcoin's a currency or a commodity yeah i think it depends on who you're looking at and i actually don't put a commodity currency as the breakdown the way i look at it is um i think that there's a lot of bitcoiners that treat it as their reserve asset which would be more akin to like a currency and so they think of their wealth denominated in bitcoin etc the wall street firms that have been buying bitcoin over the last two three years they look at this as their most you know high risk asset and so they're going to treat it like that risk asset

Starting point is 00:18:13 But whenever rates end up getting rose, risen, whatever, then basically they'll go ahead, they'll sell that thing off just like they will their, you know, growth stocks and tech stocks, etc. But the Bitcoiners, they look at it as their reserve asset. They buy more when it goes down. The question is just who's got more money. And obviously, you know, Wall Street's got quite a bit of money in this game now. And so they've got a different way to kind of treat the asset. And so they're overpowering the retail investor whose dollar cost averaging or whatever at the moment. Ben, where can we send people to learn more about Fundrise

Starting point is 00:18:46 and if they want to either learn more or participate? Yeah, fundrise.com, F-U-N-D-R-I-S-E. And I'm Ben at Fundrise if you want to email me and just share your thoughts. You're going to get thousands of emails now. What was the email? Yeah, Ben at Fundrise. Ben at Fundrise.com?

Starting point is 00:19:09 Yep. Oh, Bill, just send him an email and say, pump says hello. Bill and I just tweeted that. Whoops. Awesome, man. Listen, thank you so much for taking the time to do this. Anyone who wants to learn more about real estate, learn about real estate investing, go check out Fundrise. I really like, like what they're doing. And frankly, I think that the key piece to me is just this idea of the ethos of bringing democratized, democratization uh, and access to an asset class that, you know, uh, I think a lot of people understand, Hey, look, there's wealth that's built here over long periods of time, but, uh, it's hard

Starting point is 00:19:45 for people to, uh, uh, to get into is, uh, uh, pretty good. I see people in the chat saying, I need this for my wife. Right. So, all right, my friend, thank you so much for joining us. Good stuff. I'll see you guys. See you later.

The Pomp Podcast - #792 The Insane Real Estate Market Today w/ Ben Miller

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