Interest Rates Are Going MUCH HIGHER: Are You Ready?

SPEAKER_1 (0:00)

When you need to build up your team to handle the growing chaos at work, use Indeed Sponsored Jobs. It gives your job post the boost it needs to be seen and helps reach people with the right skills, certifications, and more. Spend less time searching and more time actually interviewing candidates who check all your boxes. Listeners of this show will get a $75 sponsored job credit at indeed.com/podcast. That's indeed.com/podcast. Terms and conditions apply. Need a hiring hero? This is a job for Indeed Sponsored Jobs.

SPEAKER_2 (0:31)

This episode is brought to you by Born In Roma Fragrances by Valentino Beauty, the iconic fragrance duo.

Donna Born In Roma Eau De Parfum is a feminine fragrance featuring juicy blackcurrant, central jasmine, woody cashmere, and warm vanilla. Its masculine counterpart, Cuomo Born In Roma Eau De Dauhlet, has notes of fresh violet leaf, aromatic sage, green vetiver, spicy ginger, and mineral salt. Shop at macys.com.

Michael Zuber (1:00)

Alrighty, folks, it has been confirmed that BlackRock and many other financial institutions are starting to run scenarios with the 10-year note at a butt-puckering 9%. Now to put that in context, a 10-year note at 9% probably means mortgage rates for residential owner-occupied are 12%.

We are actually going to tackle this question with two things. One, A, what are Dion, Matt, and Mike doing with their real estate portfolio today if mortgage rates are 12%? What do we do with our existing portfolio? What do we do with new acquisitions? And then we will take a guess, a gander at what would be happening in the economy if the 10-year note was 9% and mortgage rates were 12%. Dion, you are up first. You actually just put an offer in today, I believe, so on something. But if we were to snap our fingers and mortgage rates will 12%, first, what would happen with your existing portfolio, if anything?

Dion (2:09)

The thing that I would hate if rates went that high, is I would actually take action.

And being financially free and retired early, it's kind of nice to just sit back and go, because the higher the rates go, sometimes the people who win are the ones who don't have to do anything. But to Matt's often made point with my portfolio, one of the least optimized things I have is my dead equity. Dead, not dead equity, dead equity. Money trapped in a property that's not doing anything. If rates become high, transactions crash further, but the power of the 1031 and moving equity to be able to buy something without having to lever as much of that as the purchase is to me as strong as making an all cash purchase, because I want to make a cash purchase to the seller. But I don't want to do that, but the most large-

Michael Zuber (3:00)

Sounds like work.

Dion (3:01)

That I would actually probably do if rates got that high is actually look into doing a couple of 1031s, improving my assets, improving my cash flow, and improving that return on equity, which is something I have not done yet in my entire portfolio.

Michael Zuber (3:15)

Yeah, I think that would be, again, I think that would be wise. Again, Dion's the kind of lazy landlord, so if Dion's making moves, I cannot imagine what Matthew is doing. What are you doing if we blink in rates of 12 percent with your existing portfolio, if anything?

Matt (3:32)

Well, I've never stopped moving, so I've always done a lot of deals. You're a shark.

Michael Zuber (3:36)

Great way.

Matt (3:36)

Yeah, I mean, it just is what it is. If I stop moving, I die. So I think the challenge is, and this is where a lot of people, Nick Gurley will be correct for the first time in his life.

The market will crash. The market will crash with 12 percent rates. You're going to see 20 percent correction in price.

Michael Zuber (3:58)

All right. So not only a transaction crash, but a price crash as well.

Matt (4:01)

Price crash, transaction crash, everything. So the 1031 idea is probably out the window because you're going to be a lot less equity or a lot less perceived equity, based on what you're able to sell for and then transition into. So if you believe that that's actually happening, you do what I do, which is I am levering unpaid assets now with debt, creating stockpiles of cash, making sure that we've taken out and put aside as much as we possibly can, because I'm a counter-cyclical investor.

Michael Zuber (4:38)

Right.

Matt (4:39)

Everybody was running out of the fire in COVID, and I was running in, I did 23 deals, 19 months. I spent tens of millions of dollars, that's right, tens of millions, and massively overgrew my portfolio.