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We had the distinct pleasure of having Hunter Thompson join us on this week’s show.
Hunter is a full-time real estate investor, and founder of Asym Capital. Since founding Asym, Hunter has helped more than 400 retail investors acquire over $150,000,000 of mobile home parks, self-storage, retail, office, ATM machines, and cryptocurrency assets.
Hunter talks about how his investment thesis was formed in 2008 and his last straw moment that shifted his thinking from paper assets to real assets. We discuss living a life of abundance and the multi-dimensional nature of real assets.
Hunter also shares his personal success story and how commercial real estate has exceeded other asset classes. He also goes into detail on what it takes for you to take back control of your own personal economy so that you can live with growth, abundance & inspiration!
Hunter’s eyes light up when he talks about the vision and purpose of his life that eventually led him towards starting an enterprise which teaches other entrepreneurs how they can achieve their goals and successfully raise capital!
In This Episode
- Hunter’s journey and how real estate started for him
- What’s the motive behind Hunter’s asset portfolio
- What does asymmetric risk mean in the world of investing
- The state of the current economy
- Hunter’s piece of advice on how to accelerate your wealth strategy
Another amazing episode for you to add to your library and take control of your personal economy!
Jump to Links and ResourcesHey everyone, and welcome to today’s show on Wealth Strategy Secrets. Today we are joined by Hunter Thompson. Hunter is a full-time real estate investor and founder of ASIM Capital. Since founding ASIM, Hunter has helped more than 400 retail investors acquire over $150 million of mobile home parks, self-storage, retail, office, ATM machines, and cryptocurrency assets. Hunter is also the host of the Cash Flow Connections Real Estate Podcast, which has received over a million downloads. Congrats on that! He also wrote “Raising Capital for Real Estate,” which hit number one on Amazon in Real Estate Sales and Selling. Congrats on that as well. I’ve read the book, Hunter, my friend. So good to have you on the show. I’ve really been looking forward to this, and I know listeners are really going to get a lot of value from this episode.
Happy to do it. Excited for this conversation.
Awesome. So why don’t we kick things off and talk a little bit about your journey and what really got you into the space of real estate? How did everything start for you?
So, I started this journey around 2008. I think a lot of people started their story with 2008 in it. For me, I was very insulated from that risk because I was still in college at the time. When 2008 happened, it got my attention. The financial sector was obviously very depressed and deflated. I heard a lot of billionaire quotes about buying when blood is in the streets. It was like, okay, this is clearly one of those moments. I went all in on education, started reading Warren Buffett, Charlie Munger, and learned about stocks and mutual funds. I started investing in blue-chip stocks. I had a background as an entrepreneur and formerly a poker player, so just investing my money accordingly. I learned a lot and even started day trading and stuff like that as an amateur. But something happened in 2010 that no one talks about, which basically changed my whole worldview: the European debt crisis.
The reason this is so impactful is that I spent all this time studying. Obviously, I’m a young kid at the time. I figured I’ve got this thing locked up. Starting in 2008, I didn’t recognize or know enough about bubbles at the time. Then, all of a sudden, intraday, 700-point Dow Jones swings started taking place. I’m thinking, how in the world could I have mitigated myself against the German bond yields? Everyone on CNBC, my idols at the time, like Jim Cramer, were saying, “If the German bond yields hit 7%, then everyone knows the economy is going to collapse.” It’s like, what? Even if I had a hundred Wharton grads working for me 50 hours a week, no one would have said something about that. Even if they had, they would have lost their job because that’s ridiculous, right?
I realized that the financial sector, despite all this chat about diversification, it didn’t matter if you had Apple stock and Johnson & Johnson stock and some good-yielding bonds. Everything was under the control of the German bond yields. I realized that’s far more complicated than something I can control and mitigate. I had to find something that was simple enough that I could predict and control without some massive infrastructure. I was not sympathetic to real estate initially. I just eventually found my way to what I think is probably the most predictable wealth creation tool in the world. So here we are today, which is recession-resistant real estate, particularly multi-family, mobile home parks, and self-storage.
Okay. So let’s go into that. Why did you pick those asset classes? What are some of the attributes of those asset classes that resonate for you compared to paper assets?
You cannot help but be impacted by the tattoos you get as you grow up, right? For me, that 2008-2009 moment was like the forming years of my views on a lot of this stuff. I moved to California, which was one of the most decimated states in the country, and I wanted to be a real estate entrepreneur. I started going to these networking events and joking around with someone, saying that those meetings had a devastating temperament. Everyone had lost their shirt; people made $10 million, lost it all, lost friends. Divorces were taking place. This is no exaggeration; it was as real as it got. I saw what it looks like when things get devastated. I looked at the economic data objectively because I was not emotional about it. I just saw what was going on and realized there are certain investment strategies, risk profiles, and tactics that lend themselves to being highly cyclical in nature, and some that aren’t.
Development, hospitality, land entitlement—you’re gonna get rocked every five to eight years. I figured I’m willing to give up the potential upside associated with that in exchange for a predictable outcome. I went all in on, especially at the time, the mobile home park business, which was trading at 10 caps, the self-storage business, which was trading at like eight caps, and later, multi-family apartments. I’ve made some mistakes in my career, and we can talk about those, but probably one of the things I’m most proud of in my whole career is if you Google Green Street Advisors NOI growth over same-store assets across multiple asset classes, you’ll find a chart showing mobile home parks and self-storage as the leading NOI growth asset classes coming out of the recession. It’s not even close. I got that one right. The way I got it right was different than getting it right if you invest in Dogecoin. I got it right because NOI growth is based on fundamentals, and I love that you can just invest in things based on supply and demand. If that NOI grows, you’re going to be printing money, and that’s exactly what happened.
Yeah, absolutely. So, did you lose a lot? Did you have a large loss at that time, or was it more of a light bulb moment for you?
It was not a loss; it was the emotional component of watching this happen and being completely out of control. I’m in California, we’re getting stop-sell alerts where it’s like, “Oh, 700 points in the Dow Jones, sell.” “Oh, up 800 points, buy.” It’s like, “Okay, now I’ve got to wake up at four in the morning to be at market timing.” I just wasn’t cut out for that emotionally, and that’s where the change came from. But no, I didn’t really, other than those auto-sell features. Significant losses weren’t the reason. It was just like this is a straight-up casino.
Right. It’s great that you bring out that point because we’re always talking about that with investors. Part of this entire strategy is taking back control of your personal economy and being the CFO of your own finances for your family. Most of us are taught through conventional wisdom that we’re going to give our money to a financial planner, put it in 401(k)s because that’s the best thing you could do. If you have kids, you’re going to put it into 529 plans because that’s what we’re told. I mean, that’s conventional wisdom. Everyone is really teaching that. But really, these government-sponsored plans mean you’ve given up complete control.
You can’t access it until you’re 59 and a half, there are rules on how you take it out, and different tax implications upon taking it out. One of the things that resonates with your story as well is in this strategy, by investing in real estate and some of these other asset classes, you have control at multiple levels. Yes, as an LP, to some extent, but you’re directing your capital. You’re starting to de-risk yourself as cash flow comes in. What are some of the other things you’ve noticed in terms of taking control back?
I think, first of all, this conversation has evolved tremendously in the right direction over the last 10 years. The JOBS Act happened in 2012. I started investing in this business prior to that even happening. When I started my career in real estate, you couldn’t even talk about these deals on the internet. The JOBS Act created this massive tailwind where now everyone can google and find great opportunities. The problem, though, is that not all deals on the internet are great opportunities. Something that you and I are trying to do our best at is getting quality information out there—not just saying “rah-rah-rah, go crazy” but taking a sophisticated look at this stuff as we mature as investors.
To your point, everybody owes it to themselves to play a significant role in their portfolio. You cannot deflect that 100% off to someone else. Being an LP investor, for example, is not relinquishing that control. As an LP investor, you’re deciding whose investment thesis makes more sense. Are you more inclined to something like development? Are you willing to forego three years of cash flow for potentially massive IRR? I personally wasn’t, but at the same time, the nicest house I’ve ever been in is in Beverly Hills. The floors were marble, and it was some massive, top 10 most active developer in Southern California. If that’s the route you want to go and you want to have the marble floors, that’s a path. I just thought if I could produce 15-16% IRRs consistently across multiple stages of the cycle, we’ll see how this plays out over the next 30 years, especially with the emotional components. I don’t know if I answered your question, but that’s kind of easy.
Yeah, no, absolutely. Maybe tell the audience a little bit more. I know part of your investment thesis is also talking about asymmetric risk, right? We talk about this a lot, so maybe just take a moment to tell everyone what asymmetric risk really means in the world of investing and these types of asset classes to you.
These conversations are awesome to have. The reason we use that terminology is that we’re trying to talk to people who think about their investments through a risk-adjusted lens. I’ll give you an example. In the stock market, if I’m willing to invest in something and I think the returns are going to be very high, it’s necessarily the case in a publicly traded market, in particular, that there’s going to be more risk with higher returns because it’s publicly available. There’s no nuance, and it’s very difficult to have insider information. It’s usually illegal to do so.
In the world of real estate, you can find situations where increased returns are achievable without incurring risk proportionately. I’ll give you an example. In self-storage, if we buy a self-storage property and have a property that’s eight miles away, and we have an affiliate relationship with U-Haul where we allow U-Haul to park their trucks on our property, and U-Haul rents those trucks out to our clients, we get, let’s say, $1,500 a month as an affiliate fee from U-Haul. Now, to buy another property eight miles away that doesn’t have that, one strategy is to buy it based on its current in-place NOI and then simply call our affiliate partner at U-Haul and say, “Hey, go park half those trucks over at our new property,” and turn on the additional $1,500 a month basically overnight without owning the trucks, maintaining the trucks, or doing any additional marketing. That, to me—what’s $1,500 times 12 divided by a six cap? You’re talking about hundreds of thousands of dollars without incurring capital expenditure risk.
On the other side of that, let’s say I were to buy a C-class apartment and turn it into an A-class apartment. I’m going to go through capital expenditure, business plan implementation risk, and you’re starting to see that’s more of a symmetric type of return. Yes, it’s a great strategy, but you’re going to have to pay in capital and risk to implement that. We want to do a combination of both. I want to find some multi-family, self-storage, mobile home park, and other assets where there’s potential for adding additional revenue streams without incurring proportional risk, and then supplement that with some more typical strategies.
Yeah, absolutely. I mean, it is interesting because, you know, the other lens that I would put on it is, I like to call these types of asset classes multi-dimensional in nature. We’re trained from Wall Street to just think, “What’s the ROI on something?” This stock is at 9%, this one’s doing 12%, and that’s all we think about. We say, “Okay, well, the 12% must be better than the 9%, so I’ll take that.” But all we’re doing is thinking that the stock can actually go up unless you’re trading.
Stocks can go sideways and they can also go down. But in these types of assets, we’re talking about tax efficiency, which is a huge component and mostly underestimated by many investors. So, you have the tax efficiency side of it, and you also have this cash flow side, which is really the theory around passive income and trying to drive cash flow as much as you can. This also de-risks you from the deal. Every month you get payments, and then you potentially have a lucrative upside if you can achieve a 2x return. When you start to add these multiple dimensions together, it becomes quite compelling.
It’s so interesting because I don’t remember where this was, but it was someone of a very high level person I was able to interview who said, “All these little real estate deals are businesses. They all have their own balance sheet, their own cash flow situation, their own thesis, risk profile, manager, etc.” That is what’s so cool about this. To your point, I was in Denver once on a property visit, looking at this asset they had purchased in 1998. A really nice asset. Everybody listening probably knows what’s happened in Denver over the last decade. They put $600,000 into the asset, bought it in cash, and they had refinanced $2 million.
That doesn’t include the cash flow or the actual value of the asset. They refinanced $2 million, which, by the way, is not a taxable event—you’re just borrowing money. That story shows how real, multi-generational wealth is created in this country: by holding solid, fundamental assets and potentially refinancing forever or implementing some sort of 1031 exchange strategy. Defer, defer, defer, grow, grow, grow, and hold for cash flow.
Just one real quick thing about stocks and dividends versus what we’re talking about. In the blue chip stock world, which is what most people invest in, the average cash flow is about 1.4%. If you ask the average person what their financial goals are, they’re going to tell you that they want to have their expenses paid by their passive cash flow. You have to have a $30 million net worth to be able to do that with blue chip stocks. You can do it far more quickly and effectively, especially when it comes to tax strategy and risk strategy, by implementing the stuff we’re talking about.
Yeah, absolutely. I think this is a good segue as well, Hunter. Our show is really focused on wealth strategy. My book was around wealth strategy because, as you layer on all these different dimensions, it’s just this compounding effect that really snowballs with your strategy. Can you tell us a little bit about your personal wealth strategy and how you’re seeing the world as a professional investor?
Yeah, so, first of all, I’m gonna do a quick little thank you for you—not now, but I’ll tie it in because you definitely helped me in terms of one of these main pillars. Generally speaking, about 90% of my net worth is in the types of investments that we outline today. I’m a real serious believer in private investments, in private real estate deals. Regardless of what I say from here on out, that is what speaks. I’m a big fan of your shift in terms of content, but it’s not like 90% of his net worth is in gold, you know what I mean? I really believe this stuff. If anybody wants to ask me about the specifics or the percentages, I think I did a podcast about it not too long ago. I’ll shoot from the hip to give you some context. I think about 60% or so is in a combination of mobile home parks and self-storage, about 20% or so is in multi-family, and the rest is in a combination of other asset classes like retail, industrial, etc.
Over the next two years, I think multi-family will probably account for about 50% of my net worth or more. The reason for this is that my investment thesis never changes, but the percentages do change. There was a time when I thought the mobile home park business was by far the most attractive risk-adjusted investment possible in 2012-2014. The cap rates were just so high, they didn’t make any sense to me. I thought either this is like a farce and I’m investing in a Ponzi scheme, or this is gonna be over soon. It ended up being real; people figured it out. When that happened, there was a time when mobile home parks would trade at a 400 basis point delta to multi-family apartments. You could buy a 6% cap rate multi-family apartment and a 10% cap rate mobile home park. But now, everything’s been smushed so that things are like 3.5 cap in multi-family and a 4 cap in mobile home parks. That lack of a delta makes multi-family comparatively far more compelling. Because of that, we’ll ramp up the allocation for my personal investments and for investors to focus on multi-family and still pursue the others as well. It’s a very slow and steady strategy that if you talk to me in 30 years, I’ll probably be talking about the exact same stuff, but the percentages will just change.
Right, do you have any personal goals in terms of passive income amounts within a given year or equity amounts?
Good question, dude. So, I’ll think about what I think about that, but I’ll start with this: Everyone that I’ve talked to, when they get into the space, the goal is to have their passive income paid off by their expenses, right? That’s not the first goal of finance, but that’s one of them. Whenever someone asked me a long time ago, that’s what I would answer until I was at a conference and someone raised their hand at the beginning of the conference. They had an exciting thing they wanted to announce. This person came up on the stage—I didn’t know why they were allowed to go up there—but they said, “Hey, I achieved my long-term financial goal, which was to have my passive cash flow 10x my expenses.” I was like, “Excuse me, my passive cash flow 10x my expenses?” He’s a very frugal person, but that means he was definitely making $100,000 a month passively, tax-deferred through the strategies we’re talking about. That changed my perspective on what’s possible. I was like, “Wait a minute, what would that be like?”
Internally, at ASIM Capital, the way we answer that question when it comes to anything is that we have some specifics. We want to raise $40 million this year, purchase around $120 million worth of real estate. We’re on track to do that, which is cool. But the real answer to your question, man—sometimes when I go to real estate conferences, I’ll meet people who say, “This book changed my life, and you put me on this path, and you helped me tremendously.” We have a coaching program called Raise Masters, which helps people raise money for their deals. We’ve had some crazy success stories, from people raising their first half a million dollars to people raising $75 million. So, what you’re intuitively asking me is, how much more do you want of that? What we say internally is it’s not about the thousands, the tens of thousands, the hundreds of thousands, the millions, and tens of millions. The answer is more. A lot more. I feel like I’ve been put on this planet to help people do two things: raise capital for their deals to achieve their goals as an entrepreneur and get money out of the stock market casino. So, how much more?
Yeah, absolutely. It is very interesting because you’re right. People always talk about wanting to get out of the rat race and pay off their expenses. But look, that can be pretty easy if you live cheaply. I don’t want to live; I want to live a life of abundance. I have a little phrase for it called “abundant complacency.” Once you actually achieve that, where your passive income exceeds your expenses, the mind starts to wander. You become kind of complacent and taken out of a growth-oriented mindset.
When you then start to talk about what you just mentioned and think about a large growth impact and having a greater impact, it’s really about fulfillment. I can’t stand the whole word “retirement” because you’re putting something out to pasture. If you love what you’re doing, regardless of your age, you should keep doing it. It’s not only about taking control and being smarter about the asset classes you’re in but being more fulfilled with what you’re doing. If you can create more impact by helping others, such as you’re doing, what an awesome life, right? What a way to live an extraordinary life.
Totally. Can I talk quickly about the whole frugal stuff? I feel like you and I kind of have some thoughts here. A couple of times in my life, I’ve been sent down a weird path, and I tried to force it. Once I realized I didn’t have to go down that path, everything changed. My early mentors were very frugal people who made choices to save money, which is fine, but I tried to force that into my life. A book that everyone suggested I read at the beginning of my career was “The Millionaire Next Door.” I just thought, “Wow, that’s it.” I kept trying and trying. Someone eventually said, “Hey, that’s trash thinking. Stop that trash thinking and explode the top line. Take everyone with you.” It completely changed my life.
I’m not a car guy, but now I realize there’s this thing people talk about, like in growth. Tony Robbins and others talk about this transition from growth to contribution. At first, you’ve got to grow and make your millions to be secure in your financial situation. Then, if you really want to go to the next level, you need to focus on contribution, bringing others with you through that growth phase. But I think there’s a third stage. Not that I know more than Tony, but I’ve always thought the next stage is inspiration. I think that’s why we see a lot of those cars and nice houses. You want someone to see that Lambo and think, “Damn, that guy’s an idiot. I could probably do that.” And it’s true. You totally can.
I’m not the car guy, but I am a house guy, and trust me, I’m gonna have one of those houses. It’s going to be awesome, and it’s going to be proof that you can have one too. It’s not a zero-sum game; it’s the opposite. Capitalism requires interface, and the coolest technologies in the world are first invented to cater to people who have achieved those things because they’re $900 cell phones. But then what happens? All of a sudden, everyone has a cell phone at every income level because of that. I want to make that happen. I want to invent some products, and I know you do too.
Oh yeah, I have plenty of ideas here. If you think deeply about it, a lot of this is like the psychology of money, right? What does it really mean to you or anyone else? It parallels Maslow’s hierarchy. Financial security at the base level of the pyramid is having your passive income meet your expenses. Once you’ve achieved that, the next level up is helping other people, driving towards more fulfillment and enlightenment. You want to inspire people and have leadership with your family and those around you.
This is also freedom. Hunter, I know you have some experience with Strategic Coach, but this really chimes in with the four freedoms. It’s all about having the freedom of purpose to do what you want to do, the freedom of relationship to work with whom you want to work, the freedom of time, and the freedom of money.
Totally. I mean, in terms of expanding your horizons or whatever, let me circle back on this because it’s really important. Probably the most baller thing that I have—like I said, I’m not a car guy; I have a nice watch, but it’s not really my life. But I do have a very nice home gym. Right when COVID happened, I got a note from Equinox that said, “We’re closing down; these are the new rules.” I was like, “I’m out of here.” I moved to the suburbs and spent about $10,000 on a home gym, like a straight-up CrossFit gym in my house. That is baller. It’s like, oh my gosh, if I had $100 million, I’d have the same gym. That was right there at my fingertips, and now I live with the mindset that I want to constantly be going to the next level.
The problem I find sometimes is that people who try to play small are, number one, taking away potential jobs that could be created if they didn’t, and number two, perhaps costing themselves on the net bottom line. If you’re in the Lambo game, for example, the higher the level you play, if you’ve got a Lambo and some guy goes, “Hey, nice Lambo,” and you do one deal together, it could pay for the Lambo that year, maybe over and over again. Depending on what circles you network in, you can see examples happen all the time.
Yeah, and you talked about it earlier, right? It’s thinking in terms of multiples and planning to have a bigger game. This all begins with mindset—all of this has to do with what type of investor you are going to be. Some people just can’t get out of that linear growth, the linear path type of thinking, but when you can move into exponential numbers, it becomes amazing what’s truly possible. What you’re advocating, by the way, is also just like the $10,000 gym idea. I think a lot of people hear the term “family office” and think it’s out of their reach. What you do for your clients is you say, “You’ve got a family office; you’re living it right now. Just take control over it, right?”
Yeah, 100%. This is an awesome conversation, Hunter. I know folks are going to really enjoy this, but I do want to spend some time talking about some things that I know you’re really passionate about and have strong thoughts on, and the timing is really quite perfect as well. So why don’t we switch gears and talk about the state of the economy and what you’re seeing? There’s just so much going on; I’m not even sure where to begin. Why don’t you take us there?
Okay, so the reason you’re asking this question is the reason everyone’s asking this question. There are a lot of really interesting and potentially concerning economic data points coming out right now, and investors need to be privy to that. The most notable thing that everyone’s talking about is the inversion of the two yield curves: the ten-year and the two-year. Typically speaking, bond yields slope up and to the right—the longer the term of the bond, the higher the returns. This is typical because you’re incurring time risk. The further you extend things into the future, you’d expect to be compensated for that risk. But every now and then, an economic phenomenon takes place where these shorter-term bonds are actually higher than the longer-term bonds. It reflects fear in the marketplace and suggests that bond yields are about to go down because people are concerned about the marketplace. People flood into bonds when things get scary, so bonds are a flight to safety.
This recently happened, and it’s also kind of a self-fulfilling prophecy to a large degree because once it happens, people know they’ve seen the data. Eighty to ninety percent of the time, over the last 50 years, it signals that there will be a recession in the next 18 to 22 months. That’s just the math and the reality; anyone can Google that. But there’s a big difference between that fact and what it means to us as investors. While that did happen, I’m personally extremely bullish on real estate for some data points that I can get into. That’s kind of setting the stage for the conversation.
Yeah, absolutely. So let’s jump into that, Hunter. Let’s go into some of those data points and get more specific.
First of all, something we’re definitely keeping an eye on, and it’s maybe blowing up a couple of deals right now, is rising interest rates. Virtually every piece of real estate is purchased with debt, so the interest rates on which that debt is borrowed matter. But the reason interest rates are rising is because we have an economy that’s quite heated up. Generally speaking, inflation is at significant multi-decade highs. I’ll talk about rising interest rates in a second, but a lot of people think about inflation as being a net wash to real estate investors. Real estate is thought of as a hedge against inflation. If inflation goes up by five percent, real estate goes up by five percent. No one’s really in a position to complain as long as you have real estate. At least, that’s the way that I feel. Is that kind of your perspective on how most people think about it as well?
Yeah, okay, which just to help listeners, that hedge is basically because we’re able to increase rents over time, right? And that’s offsetting the inflation because you have inflation in the rental rates.
That’s true. The other piece, though, is that generally speaking, prices tend to go up, equities tend to go up, and asset prices going up. There is a distinction between asset price inflation and consumer price inflation. But to your point, real estate is traded on a multiple of net income. So, it is not the case that it’s a wash; it is a massive tailwind to real estate. Here’s why:
If most of the deals that we invest in are trying to buy some undervalued property where you can raise rents pretty aggressively, especially in the first two years—let’s say 10 or 15%—to bring rental rates up to market rates, and then from that point forward in years three, four, five, and so forth, you would anticipate, if you’re being conservative, for rents to increase at the same rate of inflation, assuming the value-add strategy has already been completed. If that’s the case, you would also expect and anticipate that expenses would increase at the rate of inflation as well.
Once you implement this value-add strategy, and now you’re just relying on market dynamics, if inflation is going at 4%, rental rates would increase by 4% and your expenses would increase by 4%. If your product type had a 50% operating expense ratio, in the sense of net income to expenses was a ratio of one to one, this would, in fact, be a wash. Everything increased by 5%, 4%, or whatever, and it doesn’t really change anything to the net. But that’s not the case. The types of real estate that you and I invest in, mobile home parks and self-storage in particular, have sub-40% operating expense ratios. Multi-family is around 42% or so, depending on the product type. If the top line is increasing by 4% and the bottom line is only 35% of this whole mathematical equation, then if both increase equally, the net is actually going to increase significantly. The net is going to increase, let alone the multiple on which that income is going to be priced. You’re kind of getting the best of both worlds.
But there’s another piece of this that I don’t think anyway. Does that make sense before I move on?
Yeah, it makes perfect sense.
Did I say that in a way that’s clear enough? It’s kind of hard to explain without a calculator, but I know you’re familiar with the terminology.
Yeah, no, I understood. I think everyone will track that; it’s logical. I’m not going to steal your thunder, but I want to add something else to that. But I’ll let you, I want to see what your additional point is here.
This is why I like talking to you. The X factor that no one talks about as a tie-in to interest rates is that usually 60, 70, 80% of these purchases are purchased with debt financing, and inflation eats the purchasing power of that debt. So if I buy a $15 million piece of property and I put $5 million down and the bank lends me $10 million, if inflation keeps up at 8%, forget the discussion around rental income and all that stuff—if inflation just keeps up at 8%, that $10 million of today’s purchase price will be cut in half by year 10, just by inflation. The bank is paying you to borrow money. If inflation is at 8% and interest rates are at 5%, they’re paying you 3% in real terms to borrow money to buy an asset which will increase not just because of inflation in terms of the equity value but also in terms of NOI. It’s the trifecta of printing money, metaphorically. Intentionally done, that is what’s going on right now.
There is $10 trillion making this happen right now that was just brought into existence over the last two years. This is one of those “back the truck up” moments, and everyone is sitting on the sidelines waiting for that “back the truck up” moment thinking it has something to do with prices, but it’s actually here. It is happening.
Can I make one more point that’s on this? I just put this together.
Yeah, it’s perfect.
Part of my view on this is because I’m a big proponent of the Austrian School of Economics. In pretty much everyone other than the Austrian school, the definition of inflation is prices increasing. But in the Austrian school, the definition of inflation is basically the increase of the money supply. So, here’s what that means. If apples are $8 an apple and we enter a massive recession and they smash a $10 trillion button, and apples are still $8, other people would think there’s no inflation because apples are the same price. But I know that there’s massive inflation; there’s $10 trillion of inflation. It doesn’t look like it in terms of pricing, but perhaps the apple should be $4. That’s what’s taking place in real estate right now, and it’s going to keep happening.
Yeah, boy, that is so spot on, Hunter. I believe that no one is talking about that. It’s definitely not in the underwriting. I know you and I share the same philosophy. As we’re looking at deals and things, we’re always looking for places where the numbers are being padded, there’s some additional cushion, and additional savings. But no one quantifies this within underwriting. As a savvy investor, you should be thinking about the future value of money because you’re spot on. That’s a really big impact in addition to all these other benefits that we’ve been talking about.
Yeah, man, it’s just—you know, I want to be conservative in my underwriting as well. I just want to intelligently participate. A caveat to this is that I’ve been talking about it for years because it was a really special moment in my career. I interviewed Ethan Penner, who was credited with inventing the commercial mortgage-backed securities. He basically had the same kind of view. If you thought interest rates were going to rise in 2010, you invested incorrectly. Maybe you were being conservative, and you were only investing in deals that made sense, but you cost you and your investors millions of dollars if you didn’t take any floating rate debt. There are massive hedge funds and private equity companies that cost their investors hundreds of millions of dollars because they had no floating rate debt and were constantly waiting for interest rates to go up to six percent. Did they look conservative and get to go on their blog and talk about how conservative they are? Yes. But, you know, there’s the trifecta of investing: be smart, get results, look cool. You can pick two. So, I’m going to kind of pick the “look cool and get results” and maybe not care as much about the “sound smart.”
Right, and not necessarily that this would be in the underwriting of a deal that goes out, but I want people to be thinking about this. I mean, you’re an investor first, right? You have to have your investor hat on. As an investor, these are implications and calculations that you should be thinking about as you’re making some of these decisions. It becomes even more compelling to add those in total. So, I guess to summarize that, in terms of being in an environment where interest rates are rising and we’ve got inflation pushing probably over seven percent right now, what you’re saying, if I were to summarize all of that, is that by investing in real estate, you’re going to completely surpass and mitigate any of that by the things that we just talked about.
Several areas, yes. By the way, I didn’t come up with any of these ideas. I’m not taking credit for any of this. I’m just sharing insights from some very high-level people, one of which is Dr. Peter Linneman, who was recently on my podcast. If you google ASIM Capital or Hunter Thompson, you can find the interview. He’s very sympathetic to a lot of this. Basically, what he said is that he’s not saying this is a massive, once-in-a-generation type of opportunity in real estate. It’s just that the predictability of the outcome is really high and very favorable on a risk-adjusted basis. What he said is it’s just your best shot. It’s not like this is the moon, this is Dogecoin 2.0, it’s not going to do some crazy thing. It’s just your best shot to produce outsized returns.
Yeah, so any other points? We talked about other data points that you want to discuss around the economy. We’ve already covered the inversion of the yield curve and interest rates. I think in the next 18 months, there’s definitely a correction coming. People should probably be leery and be thinking about positioning right now. Portfolio allocations are really wise at this time. I’ve just gotten some interesting data points. I heard, now this is on the single-family real estate side, but in some markets in Florida, some of the builders, as well as the market days on the market, have just started to increase. Builders were literally taking lots and doing lotteries for the lots, but now they’re inviting people in on the first day, trying to sell them. I’m wondering if we’ve actually started to hit some peaks in certain markets on the single-family side, which could drive into commercial as well, right?
Man, it’s interesting, but we got to put stuff in context. We just did a deal in Phoenix, which is probably my number one market for multi-family in the country. The first deal we did, we looked at the data at the time from May to May, and from a year-over-year growth standpoint, it was 15% year-over-year growth in the fifth largest city in the country. I was like, that is a number I’ve never seen before. As we were going through due diligence, we kept tracking it year to year from month to month. It was June, and it was 20%. From July, it was 25%. In August, it hit 33% year-over-year growth in the fifth largest city in the United States—like hundreds of thousands of units.
When things started to slow down, the slowdown is like it goes from 33% to 28% to 27%. So, that’s happening, but 27% is an eye-watering number of rental growth. Rental growth is non-volatile. Rental growth is created by sound fundamentals: income, net worth, jobs. These things are not like when Apple releases something, and everyone thinks it’s cool, but before it comes out, the stock market shoots up, and then it comes out, and no one likes it, so the stock market shoots down. When half a million people move to Phoenix, they don’t just bounce. That’s what’s taking place.
To go into that point, net worth increased by about 20% in 2020 and stayed up in that range, so all-time highs in terms of net worth. You can make the argument that it’s heavily weighted towards people who own assets like real estate, stocks, etc. When the money printer turned on, those things shot up, but that’s exactly my point. This is what’s happening. The divide between the haves and the have-nots is going to get bigger and bigger. I just don’t want the listeners to be on the losing side of that.
Something else: personal income per capita has significantly increased as well, and income is not traditionally very volatile. You could hear both of those data points and say, okay, if everyone’s leveraged to the moon, I could see how that can happen, but the reality is debt service—household debt service to income ratio—is actually at a 40-year low. Those data points combined with the fact that we have a legitimate five-million-unit deficit of housing in the United States. National Association of Realtors—look it up—or any other source, somewhere between three and five million. Maybe some builders are having problems, but we are in a crazy multi-million-unit deficit that has not recovered since 2008. So, those headwinds are small compared to the tsunami of demand and liquidity.
Yeah, 100%. So, Hunter, in some closing thoughts here, if you could just give one piece of advice to investors and our listeners about how they could accelerate their wealth strategy and trajectory, what would it be?
Dang, okay, can I take like five minutes for this? I’m a super productivity junkie, so when you ask me what’s the strategy to do this quickly, I have a system for this. Kind of in this order, I would increase the stakes significantly, find a coach, shorten the timeline, get some witnesses, and take massive action every single day.
As an example, about two years ago, I had a really bad wrist injury that made me not be able to lift weights. The moment it happened, I started looking for some way to get my headspace out of this. I went through physical therapy, and it didn’t go very well, but I realized the LA Marathon was 12 weeks away. I was like, holy crap, I’ve never run a marathon before. Twelve weeks is shorter than a typical marathon build-up, which is typically 16 weeks. I just started running. I just got out of the house and ran five miles on day one. I knew that every day was going to be really meaningful if I only had 12 weeks—10 weeks to build and 2 weeks to taper. Every day was going to really matter.
On the tail end, I got a coach on Instagram for $150 a month. She’s a former Olympic trials competitor who ran a marathon at 6:15 per mile. This is readily available for $150 a month. Then I told everybody that I was doing this, and I took action every single day. When you do that, you have no other option but to make moves. I didn’t rely on my willpower. Willpower doesn’t want you to get up and run a 10-mile interval workout in the morning, but when you realize it goes from “Oh my gosh, I don’t want to do this” to thinking, “Man, can I cram in one more workout this week without suffering from injury?” that’s when your mindset starts to change.
So, what I would do is, if Dave’s your guy, go all-in on Dave’s view. Listen to every single one of these podcasts, become obsessed with the content. Once you get to a point where you’re just starting to hit a ceiling with the stuff that he’s put out, reach out to him and say, “Hey buddy, I’ve listened to three episodes, and these three ones are my favorite. Can I get 15 minutes of your time?” During that call, ask him what three books you need to read to go to the next level. Just constantly leapfrog faster and faster. Tell everyone that you’re doing this stuff and create some momentum. By the way, this is such a hack—whatever the opposite of kryptonite is—Dave’s kryptonite or the opposite of it is that momentum you’ll create for yourself. He cannot help but help you if you are making it seem like you’re on a motorcycle going 150 miles an hour and you’re just asking him, “Can I go an extra 10 miles an hour with your help?” He’s going to want you to do it. I got a little excited, but that’s my vision of how to accelerate wealth strategy.
Love it. Personal productivity is something we’re both very passionate about. A huge shout out to Hunter. I’d be remiss if I didn’t mention anything, but going on my second year in his mastermind for Raise Masters. Folks in this space who are raising capital and growing businesses, it’s such a high-caliber group of people. The content, motivation, and inspiration have been just awesome. Appreciate everything you guys are doing, Hunter. It’s also been such a pleasure getting to know you a lot better as well. You’re definitely the real deal. A lot of people you meet in different capacities have a stage personality and then a different one off stage, but Hunter is the real deal. Appreciate it, man.
Thanks, I appreciate it too. I think sometimes my wife wishes that this was an act, but yeah.
Awesome. Well, really appreciate your time coming on the show today. I know everyone’s really going to enjoy the episode. Where can folks find you, reach out, and learn more if they want to connect with you?
Totally. First of all, I appreciate it, man. I appreciate the two years as well. We’re having so much fun, and that mastermind is way different than I anticipated. It’s just awesome. If you want to connect with me on LinkedIn, you can do so by searching my name, Hunter Thompson. Holy crap, I suggest you like this content, especially the economic stuff. Search cashflowconnections.com—tons of great podcasts on there.
Awesome. Hunter, thanks again for coming on the show today. Really appreciate it.
Happy to do it.