Real estate is a complex world where trends shift quickly, and smart strategies make all the difference. Chris Seveney connects with Matt Fore to discuss how debt financing, rental growth, and market fluctuations shape opportunities for investors. They dive into the challenges of today’s real estate market, including rising interest rates, supply-demand imbalances, and the risks of short-term debt. Matt also shares practical insights and lessons learned from his experience navigating real estate booms and downturns, offering valuable advice for anyone seeking success in property investing.
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Mastering Real Estate Investing: Key Lessons From Matt Fore
Welcome, everybody, to the show. We finished recording with Matt Fore with Next Level Income. Matt also hosts the Ice Cream With Investors Podcast, which I highly recommend you check out. Matt comes from a background of fifteen years in sales leadership roles for a large tech company. He’s out of Nashville where he lives with his partner and two kids.
Matt is very passionate about everything in life and what he does. Matt has been heavily involved in active and passive commercial real estate over the last couple of years. We had a great episode where we talked about the commercial landscape structure, what it is like to be a passive investor, what it is like to be a general partner and an active investor in the space, and some of the things to look for as part of the investments.
Toward the end, we started talking about real estate in general and the risks involved in real estate. When you’re investing in real estate, you have to recognize there’s going to be a percentage of deals that don’t turn out the way you want. Since there has been an uptick in the number of those deals, a lot of people have started talking about fraud or Ponzi schemes. We want to shed light where that’s rarely the case. A lot of times, it’s a bad deal or inexperienced sponsors who may not have handled things the best way.
It doesn’t always mean that if somebody pauses distributions, it’s an awful thing. There are certain assets where that’s done by smart general partners in order to make sure that they’re protecting their investors’ equity. We talk about that. We talk about the markets. We talk about what to expect in 2025. I highly recommend you guys check it out. As I introduce Matt in this episode, I hope you enjoy.
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Catching Up With Matt Fore And Reflecting On Real Estate Changes
Welcome back, Matt, to the show. I believe you were a podcast guest back in the day when Jamie Bateman and I were doing the Good Deeds Note Investing podcast. How have you been?
It’s been a long time. I’m fantastic. It’s a little chilly. We were talking about that. We’re recording this right before Christmas time here. It’s a little chilly here in Nashville but all is well.
I’m dressed more casually. It’s the Friday before the holiday week. I’m trying to answer some last-minute emails. Thankfully, my email isn’t going too berserk, which is a good thing to catch up. It’s interesting because since the last time we talked, which has been several years, the world has changed a little bit. We are going to talk about that. We’re going to talk a little bit about debt financing, what has gone on, and some of the things people should look for. We also talk about some of the misconceptions about debt financing and some deals that may not go the way people want them to go from that standpoint.
As we were talking offline, somebody pauses the distributions and the next thing you know, everyone jumps to Ponzi schemes. To me, in most instances, that is furthest from the truth. Some bad stuff does go on but for a lot of these deals, it’s a bad deal, which has happened. I’d love to roll back a little bit more and talk about debt financing in general because I know that’s something you’re very passionate about. I’d love to know your thoughts on that.
I don’t know where you want me to start, but it’s been a crazy four years here. To recap, I got into real estate back in 2015. I lived in the Nashville market. I was in a sales role. I had high commissions and lumpy commissions. I was looking for a place to park my money and real estate made sense. Cashflow, tax benefits, and appreciation.
How Nashville’s Real Estate Boom Shaped Early Investment Success
What I didn’t realize is that from 2015 to 2019, Nashville was experiencing a tremendous boom. Everything that I bought, flipped, and BRRRR’d at that time worked out. I never had any sort of issues beyond you peeling off a wall and you see something behind it that you’re maybe not prepared for when you were doing your rehab budget. Who cares? You can throw another couple of thousand dollars at it, get that problem solved, and you’ll still be fine in the end. That strategy worked until about 2022. I’m happy to go into some of the things that I’ve seen, but ultimately, real estate is about supply and demand. I understand more about buying right now than I did back then. There are a lot of different learning lessons I’ve had over the past couple of years.
I’ve been in real estate since before the turn of the century. I was around for and heavily involved in the 2001 crash and 2008. 2001 wasn’t a crash. There were some adjustments going on through there. 2015 to ‘19 were really good times. I call myself a grumpy investor sometimes. As 2021 and ‘22 started coming around and I started seeing pricing skyrocket but people’s incomes weren’t, it had me thinking back that this was not sustainable. I was also thinking back to all the gurus out there teaching people, “You can do this because it’s so easy.” Previously, it was easy to make money in many years but the tables have turned.
It’s not that I’m sitting here telling people, “I told you so,” but a lot of us were more cautious. You also were very cautious. You’ve had that experience. You understood what was going on during that time. Let’s talk a little bit about that, what you saw coming, what you planned for, and whether at that point in time or even now some of the lessons learned that people should be looking at as understanding real estate, especially when you start borrowing money against that real estate.
I’ll start with this idea of income growth and rent growth. We’re at an interesting time. I don’t know if this is something you track, but I still get sent deals to me all the time where it’s like, “This is a Class B investment. It’s in the Southeast market that’s growing hand over fist. You can go in and raise rents to market level.”
I had one hit my desk. The investor was asking me to take a second pair of eyes on it. When you look at it, the rent to median income was at 37%. They were saying, “The market rent is this.” He was right for a 2024 bill that was 2 miles down the street. That’s what they were charging there so I understand that, but he was in a 1978 build. It was a much smaller property with no pool, mail service, pet park, and no amenities at all.
Analyzing Income Growth And Red Flags In Rent-To-Income Ratios
What I’m trying to say with that though is there is, in my opinion, an actual limit on how much people can spend on rent. Usually, for me, anything over 30%, I’m starting to have a yellow flag. Anything over 35% of their median income is a pretty big red flag to me. The idea that this guy was looking at something that was already 37% of median income, which the rent was per month, that automatically right there screams, “What are you doing? There’s not a ton of room that you can grow. In fact, you’re probably going to go backward with new supply coming online and things like that.” That’s the first piece of it right there.

Real Estate: If rents exceed over 35% of the median income, consider it a pretty big red flag.
I mentioned my real estate background. I did a lot of underwriting for multifamily when I was on the development side of things. When we were looking at new projects, and typically, we were doing more new development, one of the first things we would do is have John Burns Real Estate provide a market study for us. It would cost you $10,000 or $20,000 but they would go through and would look at all the absorption in that area. New builds were at this much and others at this much.
The other thing that people ignore as part of that, especially on the new build side, is they may see somebody’s getting $2 a square foot but they forgot to tell you that there are 3-month concessions or what are the concessions within there. You’re getting it but you’re giving the person 15 months of rent and they’re only paying it for 12 months. They’re living in the building free for the first 90 days.
I’m interested to know your perspective on this idea of supply and new supply coming into the market. To your point, here in Nashville, we bought an apartment complex. It’s a great part of the market in terms of the sub-area of the market. There is a lot of growth and a lot of gentrification going on in that area, like an MLS soccer stadium next door. They are going to build another strip mall full of restaurants and all that kind of stuff to support it.
The Impact Of Supply And Concessions On Rental Properties
It’s a great neighborhood for younger employees and young professionals. What we didn’t take into account was exactly that, looking at the supply that was coming into that market. We were first in that market in terms of supply, but we didn’t go pull the builder’s permits for what had already been approved and what had already been permitted to put sticks in the ground.
For the first six months, the property is going great and there are not a ton of concessions. In the next twelve months, rent has stabilized. We’re starting to see a little bit more competition. 12 months to 18 months, it’s like, “We’re having to offer 2 months free rent to get people in the door to try to compete at a lower level of rent.”
Supply and demand matters. There are certain markets like Austin, Texas, which for the next decade if you own anything in Austin, I feel like you’re going to slug it out pretty hard. There are other markets like Bentonville, Little Rock, or places like that where maybe the supply still isn’t there where there’s that demand balance more in your favor.
It’s going to be market by market in regard to each area. What’s going to make it even more complex is the market itself is a rollercoaster. What I mean by that is because of inflation, the cost of goods, and everything, permits spiked. There’s a lot of construction going on where it’s going to be finishing up in the next 6 to 12 months. The new builds may track new permits. For example, I worked for a developer who would go get everything permitted but they own the ground so they didn’t have any debt. They would sit so that when the market turned, they could start.
You don’t see a lot of new products going under construction because the numbers don’t work based on interest rates. We don’t have that nice, steady uphill supply of stuff coming on. We have an inflection point of high product, and then we’re going to go a few years with no product probably or very little. Who’s going to weather that storm of getting all this new product on the market? Over time, it will probably start to be better and then it’s probably going to go back to what it was. You’re going to see more demand because there was less supply. It’s not a constant process. It’s up and down or it’s hot and cold, which is going to provide some imbalances to certain markets.
I do agree with you. With the markets, I would not want to be in Austin or, honestly, certain places in Florida. New build is different in Floridabut some of these older properties that have gone through the code permit for the 40-year studies that they’re going to have to go through, that’s going to be challenging for a lot of these developers who own these apartments or condo projects. When a contractor sees how many buildings are more than 40 years old, and a lot of that work is concrete restoration-type work, there are only so many contractors that do that specialty. They’re going to pick their price in regards to the cost of that work, which is going to be painful.
Let me say one thing and then ask you a question. You mentioned that about Florida. Insurance is a huge issue, I feel like, in any coastal town. I know we were talking about the outer banks, like the Wilmington area of North Carolina. For anything that you own near a coast that could get hit by a hurricane, insurance is going to become way too unaffordable unless they figure that problem out. I don’t think we’re going to figure that out because of the reinsurance market.
The second piece is I’ve never been on the development side so I don’t fully understand that side. What are you thinking about tariffs, lumber cost spiking, and all that kind of stuff? Are you seeing people pull forward those orders and hold them to be able to sell at a higher price? Where do you think that conversation lands in the next two years?
The incoming administration was in office previously where they did have some types of tariffs and certain other products. Understanding that this administration is real estate-friendly. It’s interesting to see how the tariffs will play out because more of it is more of a shell game of getting China to the table to not tax the products that we ship as high and use that as a back-and-forth.
I know there was talk about doing certain things with Canada. That’s where I scratch my head because a lot of the lumber, a lot of steel, and a lot of that stuff comes from Canada. Lumber is going to be challenging because when you look at Canada, it’s all trees. That’s the main supply. We have lumber but not to that extent.
I also am curious though to see that it’s probably not going to have as much of an impact because a lot of the subcontractors and suppliers are going to see down inventory. I don’t think you’re going to see as much home building as we’ve seen or as much multifamily building. Those suppliers that were so busy, their supply is going down, so they may have to make some adjustments as well to how that focuses.
I don’t think they’re going to be having the button on full-speed production-wise because there’s so much demand by the US economy for new construction. Due to the permits and everything that’s been slowing down, you’re going to start to see some of those companies probably start to soften. It might not have as significant an impact as people think.
That’s a good point. To summarize that piece of the conversation, in the last report I saw, the United States is still short 4 million housing units, but those 4 million housing units are not dispersed equally. Austin might be oversupplied. San Francisco might be undersupplied. Supply and demand matter in this market. I would encourage anybody who’s involved, at least at the commercial level, to truly understand what’s going on in the ground in the next couple of years from an absorption rate and then factor those into your underwriting.
Recent reports show that the United States is still short four million housing which are not dispersed equally. Share on XThe other thing I’ll mention about supply and demand is I remember in 2005, 2006, and 2007, the same conversation came up about how undersupplied we were in housing. In 2008, 2009, 2010, 2011, and 2012, there was not 1 comment about being undersupplied in housing because you could pick any property you wanted.
We have a supply problem in regards to the amount of properties on the market for sale but an overall housing shortage of, “We need four million more homes,” that’s the type of data that I always question. There are families that have kids who are of age to go have a place to live but unfortunately, they also don’t have the income where they can afford that. They may be counted with, “My two kids need a place to live, but if they don’t have the income anyways, they’re not going to go there. They’re still going to stay at home until they have that suitable income.”
With markets and some of these properties at 35% to 40%, you may look at the population and say, “We have all these people between the ages of 25 and 30 who really need a place to live.” If the rents are at 40%, they’re going to stay home. It doesn’t matter whether the housing is there or not. They’re not going to be able to fill that supply.
It’s going to be interesting. I don’t know how it pans out. One of the things that I’ve learned a lot from hosting the show, having a podcast, and listening to different people on the show is we want to bucketize the real estate market into a big bucket and say, “It’s a real estate market,” when the real estate market is a bunch of submarkets all built together. There’s office, multifamily, and industrial. There are Classes A, B, and C. There are big cities and small cities. It is market-dependent.
On the mortgage side, there are $13 trillion in mortgages out there. There are so many cross segments. It is between that and people understanding how illiquid real estate is and the fact that it moves so slowly compared to everything else. In this world, you can see Bitcoin go from $100,000 to $90,000 to $110,000. The markets can fluctuate very quickly. Real estate doesn’t do that anymore.
The data that comes out for real estate is from closings that, at best, are from 90 to 120 to 150 days ago. It’s so slow-moving. In this world with everyone having a phone thinking everything’s so instantaneous, that coupled with trying to macro real estate puts people into sometimes pigeonholing certain aspects of it like, “I’m going to do this because of X, Y, and Z,” where it’s not probably a wise decision.
Isn’t it crazy? I’ve heard that, to your point, the real estate market that the Fed tracks is 90 to 120 days old. It’s crazy that as big a market as it is and as technologically advanced as the United States is, we don’t have real-time dashboards around that kind of stuff. Maybe not even real-time but at least weekly updates on that kind of data.

Real Estate: As big a market real estate is and as technologically advanced the United States is, we do not have real-time dashboards around it, only weekly updates.
One thing to consider though is we have a loan that we’re the lender on that’s closing. It’s Monday mid-December. When do you think that loan went under the agreement as part of the sale when they negotiated the price? It was October.
A few months ago.
People think they’re going to shrink it with technology, blockchain, and all this stuff. They’re not. You’re not going to get a county to start using blockchain, let’s be honest. Part of the problem is a lot of the deals are negotiated pre-election. What has happened since the election? Things could have gone up or down. There may have been a war or whatever it is. While data should be able to flow a little bit better, a lot of the pricing numbers are from deals that were still negotiated several months ago.
Lessons From Rising Interest Rates And Debt Markets
How are you looking at debt markets?
Being in the debt space is what we do and not own a lot of real estate. We’re being very cautious as lenders. What I mean by that is we focus on non-performing loans, but we do have a small portion of our portfolio where we do some lending on the shorter-term side of things. We have dialed up our underwriting on challenging every appraisal and understanding what the borrower’s exit strategy is, where they are for loan-to-value, and how much they bring to the table.
I can’t tell you how many deals we see that people are trying to squeeze in where they are predicting the best-case scenario. They have the rosiest of rosy glasses on. We’re more on the residential single-family side where if it takes longer to build, that costs another 10% more. If a rehab or their rents aren’t there, they’re not going to get that DSCR loan or wherever they need to be. We are being extremely cautious in regards to who we’re working with and the experience of that individual because of that.
How do you look at the LTVs then, as a curiosity for underwriting? What I’m seeing here in Nashville is the LTV of what was bought in 2023. A 10% haircut on that is what I’m seeing the LTV be. Is that what you guys do in your underwriting?
Yeah, 100%. It’s market-based. You’re right. We do a 10% cut right off the top from what it is. We really focus a lot on the underwriting component of the value. A lot of people would take an appraisal and be like, “This is good. We got one on Tuesday. The appraisal is $350,000. The property was recently renovated.” We open the appraisal and start looking at the pictures and we’re like, “This property’s not renovated. This property hasn’t been updated.”
The comps were from two miles away. We started looking further and a house on the street sold for $290,000, not $350,000. It was a little bit smaller. We’re looking at this thing and we’re like, “It’s pushing $300,000 is what they are.” The guy bought it in 2017 for $140,000 grand and he wants to buy an adjacent property. He wants to use this as leverage because he wants to buy some land. Even looking at that value, it’s like, “What are you going to do with the land? You don’t have the funds to build anything on it right now.” To us, even if we cross-collateralize, it doesn’t make a lot of sense.
We focus a lot on the underwriting of taking what’s given to us with a grain of salt, looking at it, and projecting out where we think. I’d rather be conservative than aggressive. Meaning, if things stayed flat, that’s great because I estimated a 10% drop. If it goes 10%, we’re still good. Even if we went 15%, we’re still good. LTVs typically on stuff are above 70% or maybe 75% depending on the deal and the spread on the price. The lower price stuff at $100,000 to $300,000, we’re 70% LTV max.
What I heard from that too is in the commercial space, a lot of sponsors are out there pitching cap rate suppression. What that means is, “I’m buying this for a 6% and we’re going to resell this thing at a 5% cap.” Why do you think that? I’ve started questioning a lot of assumptions like, “The dot plot says that interest rates will go down.” I hear all sorts of reasons around that kind of stuff.
Ultimately, what I’m hearing you say is people are giving you the LTV of what it used to be. It’s not wrong. It probably was $350,000 but it’s not $350,000 now. You’re pulling up two-week-old data that says $290,000 is down the street. That’s what I’m trying to do in our commercial space. When I see somebody that’s trying to pitch a deal that’s cap rate suppression, I’m like, “Give me the opposite. What if it goes up 100 BPs? What does that look like on exit?”
That’s a great point. We can dive into some of that commercial stuff. That’s a world I played in. One of the things where we always focused on was controlling what you can control. You can’t control cap rate suppression. You can’t control the Fed. They dropped it by a quarter point or whatever it was. The 10-Year Treasury shot up again. A lot of people are saying only 2 cuts maybe in 2025 and inflation is rearing its ugly head, which is probably going to keep the 10-Year higher, which is going to keep rates higher. That’s where the commercial side is really in a bind because a lot of the deals don’t pencil.
If you’re buying something at a 6% cap but you’re borrowing at 7%, you’re at negative arbitrage. How are you going to make that work? The only person who might look at acquiring that or your exit might be somebody on a 10-31 who wants to hold that property for a very long time and thinks it has some significant upside to it in an area. You mentioned Nashville where there might be putting a stadium or some of these other deals.
I am always a big fan of if you can hold real estate for perpetuity, you’re always going to win, but you also have to understand the debt side of things. The debt is what controls how long you can hold it for a lot of times. When that note gets called due and you have to refinance it, and you don’t have the coverage that you need, where is that cash coming from? I’m curious to know what your thoughts are. That is what has been happening over the last couple of months with people.
This is a learning lesson I’ve seen over the past few years. I’ve always known this but I never understood it. This is one of those where you hear something and understand it from an intellectual level, but until you see it in practice, maybe it doesn’t make a ton of sense. That is you shouldn’t finance long-term projects with short-term debt.
You should never finance long-term projects with short-term debt. Share on XFloating interest rates are pretty common in commercial deals. In fact, it’s pretty common across all lending from what I’ve seen. Heat locks and credit card notes are even floating and different things like that. If your goal is to go in, buy this property, and hold it for 10, 15, 20 years, or whatever that is, you probably shouldn’t buy that on an interest rate-only note that’s a 311 on a floating rate debt. However, if you are going to go in and it’s 60% occupied, it needs a ton of rehab work, and you’re going to go in and do all that work for 18 months, 2 years, or however long it takes you, that might make sense to go ahead and put it on a shorter-term note.
Matching Debt Strategy To Business Goals For Success
Marrying your debt with what the long-term business plan or the short-term business plan is is a key thing that investors need to think about when they’re starting to underwrite their deals. Not only does this make sense from a market, supply and demand, rent growth, expenses, and that I can improve the NOI standpoint but also does the debt match how long it’s going to take me and what my ultimate end goals are with this property.
That ties into also equity. I’m going to jump back to the residential side of things. If I was going to buy a property and I knew I was going to live in that city for 3 years, I’d probably put it on a 5-year arm and get myself an extra 2 years, but this is not my forever home. I’m probably going to be here so I’m going to take advantage of half a point or a 1-point discount on a 5-year arm knowing that.
I’ll take the property I live in. We built this property, you know when our kids were young. We’ve been here 10-plus years and we’re probably going to be here for at least another 10 years. When we did that, we secured long-term financing because you can set it and forget it. You don’t have to worry about it. When you do that and interest rates go down, then you can still take advantage of it and refinance that debt out like you can on a commercial deal.
That was a problem that a lot of people played into. They put that short-term debt on properties that even if they were looking to bring it back up to its 60% occupancy or do a lot of work on it, they also overestimated how quickly they could get those units turned and get people in the door. It’s like going out to dinner and ordering everything on the meal. Your eyes are much bigger than your stomach. That happens with a lot of real estate developers who fall in love with certain projects or see an opportunity and think, “I’m going to be able to get a crew that has five different crews. We’re going to be able to turn these units in two weeks,” and then you realize, “It’s built in ‘72. It’s got lead paint and asbestos.” All of a sudden, it’s like, “Here we go.”
It goes back to once you figure out the supply and demand, whether the business plan is feasible, and matching up the debt, it’s what type of investor you are as well. I had this conversation with an investor. The longer I am in this business, the more I’m like, “There’s nothing wrong with amortizing debt. There’s nothing wrong with paying that down over time.”
A lot of people love these interest-only loans because you can cash cashflow more and you can distribute more. Both of us agreed that property values tend to go up over the long-term, maybe 20 or 50 years. I can’t tell you how long but it will go up over the long term. However, any dollar that you spend amortizing a debt will come back to you at some point either on the sale price or owning the property full out. That’s where my mind has shifted a little bit as well. What I do in my personal portfolio and what we do on the commercial side is amortizing debt is not necessarily a bad thing because that dollar will come back to you. It’s locked in a different vehicle.
Amortizing debt is not a bad thing. Over time, that dollar will return to you whether through the sale price or outright ownership. Share on XAlso, it really depends on where you’re at in life. I’m at a point in my life where I prefer to amortize because I’m paying something down. It means I have less risk even if the markets do adjust in some way. For example, we bought a piece of property a couple of years ago that we put on a fifteen-year note. People were like, “You’re crazy. You’re going to ruin your cashflow and everything.” It’s not about the cashflow for me. We bought it because my son was three at the time.
When you’re eighteen years old, where do you go? Most kids may go to college. We’re like, “We’re going to have this thing paid off and it’s going to appreciate,” which it has over time and it’s doubled in value. We spent technically nothing on it because we did the BRRRR strategy where we bought it for $100,000 cash, put $25,000 into it, refinanced it out, and got all of our money back. Our loan has $50,000 left on it and the property’s worth pretty much double what we’ve had into it. It’s another strategy of looking at different aspects of things.
One thing you mentioned I want to touch upon too is when you mentioned the investor. Also, understand the type of investor you are because do you want to be in a multifamily deal for 5 to 7 years or a type of deal for that period of time? Do you want something that has an equity or a growth play that might have a little bit more risk, which we’ve seen in certain asset classes or do you want something that’s like an income play?
We run a fund that is straight income play. We want to be a boring investment. That is what we try and target. There are different people who want different types of investments. When you’re younger, you might take a little more risk. As you get older, you might take a little less. People need to figure that out. That’s something that I’ve learned a lot about over the last few years since we started doing our funds.
This may be controversial since we’re both in real estate. If you’re the type of investor that wants that big appreciation and is like, “I don’t care about the cashflow. I want to accelerate my wealth journey quickly,” real estate is not the best place to do that unless you’re on the development side. If you’re on the development side, that’s where you can triple or 5x your money. I’ve never been on that side but if that’s the risk that I want to take or that’s the kind of returns that I’m targeting, I still believe I’m going to go do that in a different vehicle, not through real estate. I don’t know what your thoughts are on that.

Real Estate: If you are an investor who wants big appreciation and does not really care about cash flow, real estate may not be the best place to do that unless you are on the development side.
I agree. I also would say you want to diversify. I’d either go development, which is where you can get that upside but also risk. Most people though, I’d go VC. Go venture. I’ll give you an example. I invested in a company called Miso Robotics. They make the machines that flip burgers for you. They had an early startup round that I threw a few thousand bucks in, not a ton of money. I invested in them because I was like, “Here’s a startup that maybe could get some upside or maybe it gets sold,” or whatever the case is.
I’ll share a story. I have somebody I went to college with. He is a year or two older than me. He was a civil engineer like me. When he graduated, he went to work for a construction company. I went to work for another company. After about fifteen years, he got out and went to work for a software company, one that’s been in the news a lot because of their chips for AI. They have been blowing up. This company is one of the largest companies.
He’d been there for ten years and had all these options. He had everything else and so forth and then he retired. That was an investment in a software company that he was a part of, but he also was buying into the company during that time. He has made money that, to me, if I had that much money, I would never have to worry about anything again in my life. The way this person’s lifestyle is is very similar. That’s software. I look back on all the computer science majors who got all these stock options and stuff. They’ve done very well on the tech side over the last couple of years. Real estate looks cool and sexy but it’s more of an ego trip than anything than it is for returns personally.
I’ve spent a long time in technology. The equity you get in technology will outpace any of your earnings that you get if you can pick and choose the right ones. A lot of VCs go under. If you’re into VC investing, it’s about, “I really need 2 of the two out of 10 investments to do well and I’m throwing away the other eight.” If you think about your career that way as well, it could be an interesting play to say, “I’m going to make my wealth generation by picking the right startup and the right ecosystem to buy into early.” Early can be 2,000 employees or 5,000 employees. Let’s not forget that in 2015, Facebook only had 10,000 employees. Now, they have over 100,000.
Picking that as your career and then finding something that’s more stable income like what you guys do or more, “I want to park capital inside of real estate that’s tax-efficient and will naturally appreciate and generate some cashflow over time,” as we do, that’s another way you could look at your career and your investments.
Know what you want to do. I’ll briefly share two quick stories. When I worked for GC and I was managing construction in the 2004, 2005, or 2006 timeframe, there was one deal where a gentleman sold a tech company. These are rough numbers. He sold it for $20 million and was like, “I’m going to go develop a real estate project.” He did a co-GP and put all his $20 million into this high-end condo project. It didn’t get finished until 2007. You can imagine what happened with it. He got wiped.
Another one I’ll share is where the development side can turn you into a tech company in the sense. There was this large parcel of land in Boston that nobody for twenty years could figure out what to do with it. A developer who did small movie theaters bought this property and another property for $5 million. Both are next to Fenway Park. If you’re familiar with Boston, that’s where the Red Sox play. There’s a lot of foot traffic.
It was a million-plus square foot Sears warehouse building that nobody could figure out what to do with it. This was in the late ‘90s. They turned it into a mixed-use property. Blue Cross Blue Shield moved into the building. It was their headquarters. If you get a tenant like that, that’s very good. They ended up selling the building and then buying a portion of the Boston Celtics. You can imagine how well that must have done for them in that scheme of things. You went from being a lonely developer to buying a property to then being a minority owner in the Boston Celtics.
That’s a pretty good turnout.
That worked out pretty well for them from that standpoint. There are cases where real estate can look like a VC. I share that story but that’s a 1 in 1 billion or a 1 in 1 million thing that happens. That’s luck. If I probably interviewed them, they’d be like, “We got lucky. Everything aligned perfectly.”
That’s so few and far between. Even if we look at President Trump, we’re looking at two generations of wealth-building to get to that stage. It was his father and then him. It’s two generations to get to that level whereas Zuck did it in ten years by building the right application or software.
Look how many times that the president has failed. In Atlantic City, there are numerous bankruptcies that have existed. One of the things that we can roll into as we finish off the last leg of this episode is that in real estate, deals go bad. It’s part of what we see. Any deal, any fund, anything could go wrong for a myriad of issues, but because it goes wrong doesn’t mean you need to start waving the flag of scam, Ponzi, fraud, or whatever. I’m curious to get your opinion on this. I see a lot of people that the initial reaction they go to is, “Pause distributions. Fraud.” What are your thoughts on that?
We were talking about this a little bit before. I’ve had a lot of conversations with different folks. There is fraud out there, for sure. There are bad operators and bad operations, for sure. There is, “This did not work out for one reason or another.” When the Fed increases rates by 500 BPs over 18 months, that does a lot to your floating rate debt and gets very wonky on your cap rate, exit assumptions, and things like that. Is that really something that the operators should have foreseen?
My statement on that is no. We don’t all have crystal balls out here that we’re looking into that retail investors and other investors don’t get a chance to look into. We’re making educated assumptions based on what we’ve seen happen in the past and projecting a little bit of what we think is going to happen in the future. We’re picking one, two, to three areas of risk that we think are most probable to happen and modeling those out, and then we’re moving forward with a yes or no from there.
When something happens that’s never been done in history, we can’t model that out. You’re right. With the pausing of the distributions, sometimes, that’s a good thing if you’re an investor to hear because that means somebody is thinking about what’s going to happen twelve, eighteen, or twenty-four months from now. I have seen people in this space though say, “We aren’t going to pause distributions. We’re going to keep sending them out.” That doesn’t necessarily mean your deal’s in a good spot.
One story that I was close to and heard about, which we were not a part of, the operator kept sending distributions out. During their monthly report, they said, “We’re going to have to come up with something like $7 million to $8 million in the next 15 days or this property’s going to get foreclosed on.” Imagine getting that as an investor. To me, that says the operator didn’t want to have the difficult conversation and thought it would be easier to keep everybody happy by sending out distributions. They’re in a worse spot because of it.
Why Capital Calls Can Be A Good Sign For Investors
That’s mind-blowing issuing distributions and all of a sudden need a $7 million check. One of the questions that people will get posed is that distributions are paused and then there’s a capital call. In that instance, capital calls can still be a good thing. They can be a good thing and they could be a bad thing. It really is dependent on the sponsor.
This goes back to good sponsors versus inexperienced sponsors. How are they underwriting it for the time being? Are they doing a capital call that’s going to get them over the hurdle or are they doing a capital call that is going to get them to, “I bought ourselves another eighteen months. Let’s pray that interest rates come down at that point in time.” What is that plan?
The most important thing you need to understand as an investor is what goes on at that time. If you do the capital call and the deal goes bad because they were hoping for something, it still doesn’t mean it was any type of fraudulent or bad actor. It means this is what they’re betting on and/or what their plan is. If the plan doesn’t come to fruition, then that’s unfortunate.
I was on the receiving end of the capital call. The communication went like this. “We need $4 million. $1 million and a half is going to pay for the interest rate for the next 2 years. It’s going to keep our interest rate in check for the next two years. We’re betting on the interest rate environment improving in the next two years. Also, $2 million of it is going to pay down the loan to get us in a better equity position overall that will produce cashflow enough to prepare us that if 2 years from now we have to do another interest rate extension, we will have the cash in the bank to do that.” To me, that made sense.
That’s a good plan. That would be something like they’ve outlined what this is for and how they’re getting there. Hopefully, they can fulfill that obligation. That’s where you’re counting on them and their experience to do what they say they’re going to do.
The last part of that communication was, “We could also sell the property and we could return 70% of your money back.” They gave it to us as investors to vote on it. I participated in the capital call. I voted on the capital call to go down that route. I do believe that if you are in a period where you can last the next 2 to 3 years, you’re probably going to end up in a more favorable position than you are now, at least at some point during those three years. Whereas if you sell now, you’re automatically receiving a 30% loss. A 30% loss goes back to all investing has a risk. There’s no sure thing. When you’re an LP, assume that if you do 10 deals, 1 of them will lose money. Do not put all of your eggs in one basket and hope that that’s not the deal that has the issue.
In real estate, putting all of your eggs in one basket is never a good idea. Share on X100%. Out of curiosity, the deal that had the capital call, what class property was that? What type of property?
A Class.
I asked that question because that is a major component that people should also understand. If it’s a Class C property and they’re doing a capital call, I would most likely, right off the bat, probably say no unless there is some really strong reason. It goes back to the three caveats of real estate, which is location, location, and location. Class A will make its way back. Time is your friend.
A lot of these Class C projects that we’re seeing were getting there because of value add and rent growth. The reality is they’re never going to get the value add for the cost that they wanted to for the construction numbers. The rent growth isn’t probably going to be there, which is what you’ve seen in some of these deals by that company in Houston that went under. They had Apple something in their name. There are some other co-GPs out there who were specifically targeting Class C properties and focused on churning and burning those quickly. Those are where you’re probably going to see a lot more struggle. Understanding class property is very important as well.
That brings me to the last little lesson I’ve learned over the past few years. I do believe in the reversion to the mean in real estate. In the stock market, I could make a suggestion that we’ve printed so much money that that’s why you’re seeing PE ratios get out of whack. Specifically, if you take out the MAG 7, then the PE ratios are above average but they’re not as egregious as it looks on paper. Whereas in real estate, everything trade, in my opinion, is based on a spread of the 10-Year. Class A properties and multifamily are usually about 150 to 200 BPs. If you are buying properties that are right at the 10 Year, know that you’re going to experience some cap rate expansion.
Avoiding Mistakes In Real Estate Underwriting And Appraisals
What I saw going into 2019 and 2020 is that Class C properties were starting to suppress below their median. In 2021, you were seeing Class C trade at five caps when in reality, Class As, in my opinion, should be 4 to 5 cap depending on the market and the location. In my opinion, Class C should trade at an 8 to 10 cap. When you buy at a 5 and the reversion back to the mean is 10, you’ve cut the value of that property in half. You already have to assume that’s going to happen. I don’t know what your view is on that, but I look at commercial real estate and say, “What is the 10-Year trading at? What is the typical spread? Where are we in that typical spread?” and then make an assumption based on that.
What’s your level of tolerance of risk? I love real estate. For Class A, I would pay 1 to 2 points spread there. If Class C is only 1 to 2 above or it has come down or compressed considerably, it’s going to revert back to the mean. What causes that with real estate is it’s a cashflow-based business, especially commercial. Granted, a lot of the bigger companies have tons of cash. All that money that gets printed, where does it end up? Let’s be honest.
The company’s balance sheet
It ends up on the company’s balance sheet. It may start with you as an individual where you’re like, “I got a check for $2,000 from the government or $3,000,” but most people don’t save it. That’s evident by savings during COVID were skyrocketing and it is completely gone and credit card debts at all-time highs. That money eventually flows back to the top.
Let’s go back to where we started with this initial conversation. When you start seeing rents at 35% or 40% of the income, it’s not there. You then have to drop the rents, which drops the revenue, which drops your NOI, which drops your cap rate. All of a sudden, the cap rates go up. It’s that perfect storm of value that you know is going to cause a lot of heartache.
People also had that short-term debt. You tie that onto it. I saw a picture that was a meme. It was a little boy who was probably 3 years old and he was 3 feet tall. He was in a men’s bathroom and had his pants down, standing up to a urinal that’s tall. To me, you could call that commercial real estate where the hurdle to overcome the debt piece of it and where they’re at for NOI. It’s such a huge hurdle that it’s impossible to overcome.
I forgot the firm’s name down in Houston but a couple of these firms are going under because we already project that we’ll never be able to realistically meet that. It’s better for the bank to retake these properties and foreclose on them. That’s where you’re starting to see some of that. I don’t know if we’ll ever get there where it’ll be like 2008 where you’ll see that across the board or anything like that. We had this conversation on my show, but the banks realize that they don’t want to be operators of properties. They would rather pretend and extend and then keep that going. When they foreclose on a property, they have to market their entire book. That’s not a process that they don’t want to go through either.
Key Takeaways And Advice For Real Estate Investors
The big thing with 2008 is you have to remember on the residential side that it was written with fraud. There’s so much fraud going on. People were getting 100%-plus loans. That doesn’t happen to the extent that it happened then. Commercial will still take a beating for the next few years. There’s still an opportunity as well that is going to be out there for people to either come in as an equity piece or buy assets that are in distress. As we wrap up the show, one thing I want to remind people is because real estate has gotten a lot harder to find assets, there’s still ample opportunity out there within the marketplace that you can find
$13 trillion in the residential space signifies that no matter what market you’re in or where you live, somebody is making money in that space when the market is that big.
As we wrap up, I’m not going to ask you what your favorite ice cream is, which I love about your show, but over the last few years, is there a book, a video, a movie, a friend, something that somebody’s said, or something you’ve seen that has had a huge impact on your life, whether it’s from a personal or professional standpoint?
There are a couple of things I would say. One, my favorite book is The Last Lecture by Randy Pausch. I keep it on my desk. Go check out the video on YouTube of him giving the speech if you’re not much of a reader. Check out The Last Lecture on YouTube.
I don’t know that one. That’s a good one.
I’ll tell you the genesis of it after this. There’s a guy on Twitter called Alexi. He and I have become decent friends over the past couple of years. He’s out there educating LP investors. He has really helped me understand some of the sensitivity analysis, the spreads on the treasury, and different things like that. Go give him a good Twitter follow because he is worth the follow there.
His last name is Olcheski.
His stuff is pretty good though.
I follow him all the time on X and wherever. I’ve subscribed to his newsletter and everything. On LinkedIn, he’s big as well.
The last thing I’ll say is I got married this 2024. As part of that, I became a bonus dad to two little ones. I joined this community called Front Row Dads where it’s family men with businesses, not businessmen with families. It has been really impactful for me. You have kids. We have kids. You all go through the same stuff no matter how successful you are with your kids. It’s always good to have a sounding board there and to have some other men who care about being good fathers as well. The number one thing we can do as a man is give back to the future men of our country because they’re going to be the future leaders. It’s been an impactful community for me.
That’s awesome. As we wrap up this episode, how can people reach out to you?
You can follow me on the podcast Ice Cream with Investors on all your favorite apps or you can go check us out NextLevelIncome.com. There’s a button in the top right corner that says Schedule a Call or Invest. That’ll link to my calendar. You can find time with me there. I can help anybody no matter if you’re getting started or truly advancing in your journey. Somebody helped me along my way. It’s my duty to give back to others. If I can help you, I’m happy to do so.
Thanks for joining us on this episode of the show. When they read this, it will be past the New Year and the 2024 holiday season. I hope all those times were great. For those with families, I hope you had precious time to spend with them as well during this time of year. Thank you all for tuning in. We’ll catch you on the next one.
Important Links
- Matt Fore on LinkedIn
- Next Level Income
- Invest – Next Level Income
- Ice Cream With Investors Podcast
- The Last Lecture
- Randy Pausch Last Lecture: Achieving Your Childhood Dreams on Youtube
- Alexi Olcheski on X
- Front Row Dads
About Matt Fore

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