HIP E89 Neal Bawa - Why Now is a Good Time to Buy

[Music] The Hotel Investor Playbook. Your guide to building wealth and freedom through hotel and hospitality ownership. [Music] Welcome back to the Hotel Investor Playbook. I am Michael Russell, founder of Millema Capital and your host. On this podcast, we talk story about everything you need to know to make money, investing in hotels, and in hospitality assets. Now, my guest today is not a hotel guy. He spent his career in multi-family and he built a rent development. The way that he underites deals and raises capital and runs his company, I do believe it translates across every asset class. Hotels included. And that is exactly why I wanted to invite him here. So, Neil Bawa, welcome to the show. Thanks for having me on the show. It's funny, I, you mentioned I'm not a hotel guy. I grew up in a hotel family. My first job was at front desk, followed by food and beverage. And then I was rotated through kitchen and through restaurants. So, I'm part of a family that sort of got away from, you know, everyone else that was in the restaurant business. My family owns hundreds of restaurants and a few hotels in the US. And that was a tech guy that got away from them. Computer science basically ran my own tech company. Eventually, obviously, ended up in real estate, as you mentioned, multi-family, mostly for tax benefits reasons. But I've always loved hotels. I mean, it's a wonderful asset class. Yeah, possible. Let's start this episode with maybe introducing who you are and what people know you for. I know you've got a large portfolio. Can I ask, what's the size of your portfolio today? And what types of assets do you own? Sure, I'd peak worth about a billion dollars. We've mostly been selling assets in the last three or four years. I'd say for four years, mostly just been selling. And it's relying. And of course, the values have gone down in multi-family by about 20%. So, the current values about 430 million, said, mentioned peak debt, about a billion, over 4,000 units. Mostly apartments, but I've got all kinds of assets. I mean, student housing is in their flex industrial, office, self-storage. All kinds of different assets, because I like learning about different assets. But the primary asset is either large townhome projects or large apartment projects. Interesting. I didn't realize you had the diversity of assets there. But let me ask you this. Which of those asset types do you feel has been the most profitable for you and maybe which one surprised you the most? Self-storage has been the most profitable. But I think that the challenges that the self-storage market in the last three years became saturated. So, we were doing it well before it was a catchphrase. And so, my self-storage projects are from six years ago. But if it wasn't flooded with so many people, then I'd still be doing self-storage. It's a great little niche, and there's a lot of mom and pops. There folks like me sort of came in and started to organize it, and we were able to make a substantial number of improvements. Yeah. Well, I believe I've heard you reference that you were a data scientist before. And that's one of the things that I think I really appreciate about. What you share, you know, I've been a long time listener and follower. In fact, I'm also an investor in one of your syndication deals. And for me, look, I really value someone that goes by the numbers and not just by the hype. And so, I think this dovetails with your whole reputation, right? Your reputation is that it's kind of based on this idea that data beats gut feeling. And I want to know what does that actually look like in practice? Sure. I'll give you a lot of examples. So firstly, I'm not a data scientist. I'm an amateur data scientist. I'm somebody that grew up loving math, having math scholarships. And so, my whole mindset is around mathematics. I like to measure everything in my life, both personal and work. So I refer to myself as an amateur data scientist. And the quote that you just said, you give me half the quote. So I'm going to give you the whole quote. Data beats gut feel by a million miles. People trust their gut. And it's not a bad thing to do that. But in most cases, 9 out of 10 be over trust or gut. You basically say something is going to be the way it is because we've seen it happen before. Well, just because you saw something happen in the past doesn't mean it'll happen in the future. If that was the case, we'd all be Wall Street billionaires, right? So we've seen the past in the Wall Street. But does that mean we can predict the future we can? So bottom line is that gut feel is not as beneficial as most people think it is. People are proud of their gut feeling. Maybe they should be. But what I find is in many cases actually leads you in the wrong direction. So one of my rules is that I don't want to let my experience get in the way initially. I want to bring it in a little bit later. First, I want the data to guide me. So one of the things I'm known for, there's about 50,000 people that have used one of my applications, which now has a new version coming out, which is entirely built in AI. And it's called Location Magic, which is a ranking of all 936 markets in the US. There are a total of 936 markets in the country, summer cities, summer metros, mostly metros. And one of my obsessions has been to rank them. Like if the question is a really simple one, but the answer is a very complex one, what city in America is today the best for real estate investing? And why? The first part is hard enough to rank 936 metros to get data for them. And obviously, AI has made that easy. But previously, we would spend hundreds of hours every year just getting that data. The second part, and why is really compelling question? Because you could apply that to hotels as well. The key is that you have to first understand what makes people money in real estate, right? What is the biggest factor? What is the biggest delta that makes people money? And the answers are often very surprising. And people are like, well, a really good property makes you money. Actually, to be honest, I've made just about the same amount of money from shitty properties as I have from good ones. So that's not my experience. That's not what really has happened. It's the point in the cycle that makes the biggest amount of difference. So today, every one of my properties is down 20% from four years ago. And there's nothing that I can do with all of my data to change that. Why? Because of that point in the cycle. The only thing I can do is hold on and not sell anything, right, at this point of time. And wait for the cycle to come back up. So what I found was the right point in the cycle was probably the biggest factor in success and failure. Also supply. How much stuff is coming into the marketplace? The supplies for hotels as well. The average daily rate of a hotel will fall by between $10 and $20 a day if just one other hotel opened within a one mile radius, right? We're assuming both of them have 200 rooms, right? That's a huge swing. That's $10 and $80 is a massive, massive swing for a hotel just from one other hotel opening up. Luckily, it's not permanent because once that other hotel sort of gets in and thinks sort of adjust in the marketplace, things sort of go back to normal, but not exactly. In multifamily, the effect is even greater. If a 200 unit apartment complex opens down the street from me, I have to reduce my rents often by $25 to $50. And my people might say, that's not a big deal. Oh no, that $25 to $50 was half of my profit. It was half of my cash flow, right? So it's a huge difference. It's an absolute massive difference when one of these properties comes in. And what if there were two of them? What if there were three of them? Well, in that case, my rents are going negative, right? So these things are not always intuitive. If I was to basically without saying anything that I said in the last five minutes, line up five people and ask them this question, I would rarely get an answer of the kind that you just heard from me. Because I didn't know these answers. I'm investigating. I'm learning. I'm basically saying, what makes the most amount of sense when people try to make profit? Is it population growth? Is it job growth? Is it home price growth? Is it crime reduction? The answer is it's all of them, but some of these things are much more important than the others. For example, jobs in the last 12 months are way more important than population growth. So for example, you could have two markets. One that's like the population is going crazy. But for whatever reason, there's no new jobs. The other one, it plays that's actually losing population. Where the population is going down by, let's say, half a percent every year, like Detroit, right? But all of a sudden, a flood of jobs comes in. Guess which one has going to have more rent growth? Detroit, right? Even though, I mean, this is the market that I like to make fun of. But bottom line is if a flood of jobs came into Detroit, the fact that it's losing population slowly doesn't matter all of a sudden, because jobs was a bigger thing. So not only do you have to figure out what is the thing that makes me money in real estate? You have to figure out how much, how big is it? Is it a 200 pound gorilla or an 800 pound gorilla? Or is it an 8,000 pound gorilla, right? So all of these things matter. And you have to constantly be focused and learning from them. It's much easier to do in the age of AI, I have to tell you that. But I started doing this in 2014. I think that you worked with me in 2018 or somewhere around that time frame. And so you saw somewhat of a finished product before the age of AI. If you saw it today, you'd be astonished by the way. And so I guess that's a long answer to your question. - Yeah, no, I mean, you referenced 2018. That's the year that I took a course. Back then you had something called multifamily university. And honestly, that's where I got my start. My real start in commercial real estate. I had been investing in residential real estate, single family homes. I wasn't a complete amateur, but I wanted to scale up into commercial real estate. And some of these things that you were talking about, you brought to my attention in this course. You had series of webinars and course work online, course work, and things like population growth, job growth, income growth, crime reduction. And back then you had this spreadsheet and you could kind of go through it. And you looked at things like citydata.com and kind of sort of work through and filter. It was really tedious and manual. You referenced now how AI is making it a heck of a lot easier. Maybe you can shed some light on how you're using AI for identifying and sorting through these metrics to be able to identify like, well, where is the best market? So the first thing is that in the age of AI, it's much easier to gather data. So if you had, let's say, a cloud subscription, I'd recommend cloud for this, but a chat GPT could do as well. What you would do is you would say something like, I'm interested in learning more about real estate for all of the metros in the US. Or you might start. I think I would recommend you start with a state, but start with a big state, right? So it could be California or Texas or something like that. And basically say, I want to learn about real estate. What are the. the top 20 things that I would need to know to be data driven when investing in real estate in Texas. You have to give it the kind of real estate. I don't think it's going to give you a good answer. If you just say real estate, you've got to give it apartment real estate or older apartments or new apartments, new construction. You've got to filter it down a little bit for it. Then say, what are the top 20 things? It's going to give you an answer to that question. Some of them you're going to like it, some of them you're not. Then you're going to basically say, "Okay, for these top 20 things, where do I gather the data?" It's going to say, "Well, the data is not always easy to find. Sometimes it's paid. Sometimes it's free." You're going to say something like, "Well, yeah, but I'm not looking to compete with these companies that have data out there." Like for example, if there's data available in a newsletter from Marcus and Milachap or CBRE or Bercadia, I would like to have access to it. Can you help me with that? It'll say, "Yeah, yeah, yeah. Okay. I can help you with that. I can get this data together. You're not going to sell it. No, no, no, no, I'm not going to sell it. This is for me. Basically, it's going to give you a list of 20 or 30 different sources. Again, the same thing applies to hotels. Like HVS is an incredible source of information for hotels, especially if you're looking at valuation for hotels. Everyone just loves HVS, right? What is HVS? Hotel valuation services. They have a terrific website. They publish content. They're really well known in the industry. They can help you evaluate a hotel. Let's say you're looking to buy an 80-room hotel. I always go to HVS. I talk with them and I learn more about that market. Looking back to my example, multi-family, right? Now you're basically saying, "Okay, these 20 pieces, where do I get data? I really need high-quality data." I want something great. It'll basically say, "Oh, all these brokers, they publish data because these brokers, they basically all have access to co-star, which has paid data. It's very expensive, $30,000. You don't want to pay for that." These brokers are using their account and they're pulling data out of it and they're massaging it and they're improving it. Then they're creating these beautiful webinars and they're creating these emails. Now, AI already knows which brokers have this. You're basically saying to AI, "Hey, I want you to basically go out and subscribe me to 20 of these newsletters." By the way, I don't like spam. Could you make it so that it doesn't come into my inbox, but I'm going to create a new label in my Gmail and that label is going to be a research for AI. I want all of these newsletters when they come in. Can you just create a filter for me so that they go in directly over there? It'll ask you for access to your Gmail the first time so it might take you a half an hour to do this, but eventually it'll get access to your Gmail and will basically create these newsletters. Now, this data is going to start flowing in. You're going to say, "What other kind of data can you give me?" It's going to say, "Well, I have hard data." Hard is housing development authority. I have data from Fred of St. Louis. That's the Federal Reserve of St. Louis, very well known for gathering data. All these services, I can basically create an application and I can connect all the data together. Yes, yes, I want to do this. That is going to basically ask you to go sign up for some websites. You go sign up for those websites. It'll take you to a particular page. You have to copy a key and API key. For those of us that are in computer science, we know what API keys are, application programming interface key. You don't have to loy any of that stuff. You just, it needs a key. Go to where it's saying, "Grab the key, give it to it." Now it starts to build a spreadsheet. It's going to build a spreadsheet and you're going to say, "I want it to look better. I want a dashboard." It's going to then build a dashboard. Now Cloud has these things called artifacts. In artifact, they are look gorgeous. It's like a dashboard that you pay $10,000 for. You are the architect of this dashboard. You can say, "I want a speedometer or I want these bars going from 0 to 100." I want this look just like McKinsey made this or Anderson advisors made this and it'll make it like that. Now you've got this dashboard with data and then you're like, "Well, in Texas, I'm really more interested in Austin. Could you make it so that 50% of this is really Austin focused so I can learn more about all of the real estate stuff that's going on in Austin. Now you'll see a new bar appear, a section appear with Austin and you're going to say to it, "I never want you to use demo data because it unfortunately creates fake data if you do that." You keep telling it, "All of the data has to be dynamic. If you're showing me a piece of data, you better be out there getting that data." By the way, I want you to refresh the data every month. I want you to go out, write yourself a routine. This is called a routine is a real thing inside Cloud. I want you to write a routine. Every month you go and refresh this data from the web. What I described is a process that I followed myself to build a beautiful application that I'm about to release called Market Magic AI. My app, it has hundreds of pieces of data, right? What I just described is real. You can actually do this today. Now you couldn't do this six months ago because six months ago, before Cloud Co. Work came out, AI was not agentic. Agentic AI is the one that goes out and fetch your stuff and basically works with you and builds this stuff. Before that, we would talk to ChatGPT and it would give us wonderful information, but it wouldn't build applications from scratch for us. It wouldn't build dashboards from scratch for us or it would try and it would fail. Today, everything that I've just described can be done. You know what is the most amazingly simple way of doing it? This session that we're watching this podcast is probably going to go on YouTube. Go to YouTube, grab the URL, go into Cloud Co. Work, put the URL in and say, "I don't know how you're going to do it, but install whatever agents and skills you need to watch this podcast." This guy Neel Bawa, whatever he's saying, "I want you to build this firm and it will." Hey guys, if you're getting value out of this conversation, do me a favor and take 30 seconds right now and leave me a review on Apple Podcasts or Spotify. It literally takes half a minute, but it makes a huge difference in helping other hotel investors find the show. Okay, now back to the episode. That's one metric that you think that maybe most investors ignore that you would never skip. I think it's jobs. I think what I've found is, and again, I'm going to give you two metrics because I think both of them are equally important. And I've learned this through personal pain because sometimes I was too biased for population growth and job population growth and income growth. And those are important, but what I found was the 800 pound gorillas in the room. They were just two jobs and supply. And this is in the multi-family world, but I think it applies to hotels just so you know, I think it applies almost equally well to hotels. I would back that supply is going to come in a little bit further ahead on a hotel side. Then jobs for multi-family, they're neck to neck. These are the two big ones. One is, what we have noticed, Michael, is this. It does population, let's say the population growth is not there, but all of a sudden when people's incomes go up, they start to buy bigger stuff like they buy cars and they buy homes. Or even if they're not buying them, Michael, they start looking for them. They will start visiting auto places, automals. They will start doing these Saturday walkthroughs of homes that are for sale. And so the buzz gets created. All of a sudden, the market starts to move upwards. This is 90% of this is here in people's heads. They don't really have enough money to buy these homes, but they feel that they have enough money because there's more jobs. It's easier for them to get a job. So they're confidence level increases. They're talking to other people and they're saying, oh yeah, I just got a $5,000 increase. And other guys says, oh yeah, I just got a $7,000 increase. Now all of a sudden, these people are getting cocky. And again, 99% of this is in their heads. And in this marketplace where these jobs are opening up, all of a sudden, everyone feels better about their future. And so people start behaving a different way. And that filters down to brokers. That filters down to tenants. Tentents are willing to pay more money because they're all of a sudden feeling like they can afford it. And now when you're raising rents, all of a sudden, you can raise rents by 3, 4, 5%, which is a big deal in our world. Normally, you raise rents by one or 2%. Right now, you're going 3, 4, 5. In some cases, I've done 10% and in 2021, I was doing 15% raises, right? In a single year. So, a lot of it is tied back to jobs. And you know what? The coolest thing is, in the age of AI, even before AI, the one place that the US government is highly competent in is gathering job data. Why? Because of social security checks. No one is going to wait six months for a social security check after they get laid off. So unlike all other kinds of data that the government has, which is often one year and even two years out of date, job data is always accurate to the month. And that's why when we go to CNN.com or Fox News.com, they're saying last month's jobs had 158,000 jobs created and this many non-spawn payroll jobs blah, blah, blah. That data is always accurate, Mike, because people walk into a social security location and say, "I lost my job, give me a check." So the government has to have real time, software, and tracking. That's why job data is absolutely accurate. It's also published in many different places. So it's very easy for your AI to find job data for your metro. Okay. Well, speaking of AI and jobs, are you factoring AI-driven job losses into your underwriting today? If so, how are you doing so or if not, why are you not doing so? I'm not doing it at all because AI is the greatest single revolution in the history of mankind. Under the invention of fire, we invented fire 20 or 30,000 years ago, then we invented agriculture, I guess those two were big ones. But I can tell you AI is 100 times bigger than the internet, the smartphone, and the personal computer. It is so massive in size that whatever I guess on its impact, it's going to be wrong. So far, its impact has been overwhelmingly positive. The stock market is up $6 trillion entirely because of AI. That's not $6,000 million. That's not $6 billion. Yeah. That's $6,000. I don't pay the bills, right? I want to challenge you here a little bit, Neil, because the perception is that people are associating technology with what we saw with office jobs, right? When COVID hit and most people took meetings remotely, especially in the hotel world, we haven't fully recovered. When I am underwriting deals now, people are always including 2019 numbers to show, like, well, this is what it used to be. And really, we've gone to the point now that's irrelevant. And so people are associating technology with loss of office jobs and now people are worried and fearful, and I should say people are more specifically investors, are fearful that as a class is like multifamily now are going to be affected by people losing their jobs and not be able to afford to pay the rents. And so I guess that's why I'm curious, like if you're not factoring this into underwriting, where are people, if they're losing jobs, how are they going to be able to afford rents? First thing is being data driven means that you can't come up with numbers off of the top of your head. There has to be some kind of a source for that data. There is no past precedent for AI anywhere in the world in any market for any length of time. Therefore, if I am factoring AI in, I must pull a number out of my ass. I'm not going to do that. I'm simply never going to do that. If there is no data, then I'm not going to use it. Currently, the data that we do have indicates that AI has been a wonderful boon for the United States in particular. It actually hasn't had any impact in Europe or most countries. The two countries that are benefited from AI are China, well, three. China, Taiwan in the United States. Taiwan, because that's where they make the chips. China, because they are second, just behind us in AI, but very, very close, maybe three to six months behind us. And of course, the United States, because almost 99% of all AI related stuff that's happened has basically just happened in China or the US. We were massive beneficiaries on our stock market as a massive beneficiary. I absolutely 100% will challenge you, Michael. If the stock market goes up a trillion dollars, it creates a massive wealth effect. That wealth effect leads to purchase of hundreds of thousands of cars, hundreds of thousands of homes. Those two things support millions, possibly tens of millions of jobs. So you notice that our job market is not doing particularly well in the last 12 months. We produce less than a million jobs. Why is it that we're doing well overall as a country? Our people are getting raises in the last 12 months, inflation is 3.5%. And our payroll is increased by about 3.5% as well. So we're keeping track. Now, I do know your argument is that Neil, the job losses haven't come yet fair. But if they haven't come yet, how can I factor them in? I don't know. I don't know how many job losses. I don't know over what timeframe, so far what I've seen is job gains because of AI. I mean, San Francisco area is a perfect example. Friends are up, what, 8%, 9% in some markets, San Francisco is up 15%. Home prices are up radically in 12 months, maybe 10, 12, 13%, especially in the markets that are closer to where AI jobs are. It's dramatic. I mean, anthropical loan, I think, created 1,000 millionaires. So all of these people are throwing money down. Cash sales have come back in. So far, the impact is positive because the AI is an incredible boon and an incredible curse for mankind of the kind that we've never seen before. I mean, nothing that we've done in modern history comes close to what AI is capable of. So I don't think it's possible to factor in it. Impossible. Well, fair, right. I mean, I'm playing devil's advocate here because I want to get an intelligent person's perspective. And the reality is no one knows the answer. So I don't know that there is an accurate answer. Just at this point, it's opinions. But what we do know and what you are a specialist in, you rattle off some statistics about where the stock market is and where the economy is in general. Let's talk specifically about where we are in the real estate cycle right now. Is this right now? Is this actually a good time to invest? Yes, not a great time to invest, but I think it is a good time to invest. And I'll just talk about the areas that I tend to follow because I have some knowledge of those. I think Warren Buffett is really the best example of a prudent investor. Do you know Warren Buffett right now has $400 billion in cash sitting on the sidelines? $400 billion. That's just a crazy amount of money to have sitting on the sidelines. And whenever you ask Warren about this, his answer is really simple. And he's no longer running his company, but he's still on the board. And so when people ask him questions, he says, "I see nothing that I want to buy. Everything is really expensive. I'm waiting for deals and I'm patient." And I think that while this makes sense to people, the behavior of investors is always the exact opposite. Right now, investors are bearish on multi-family. You know why? The prices have gone down 20%. So nobody wants to buy multi-family. But if you ask Warren Buffett, if he was a multi-family investor and he's not, if prices went down 20% for an asset of this quality, would you buy it? You say, "Absolutely. I'll buy everything that I could." So what makes today a good time is that very few people are interested in buying. What do you think the biggest risks are right now? Apart from AI, which is obviously the X factor risk. I call it the risk, which cannot be measured, just like COVID could not be measured. Apart from AI, I think the biggest one is, I feel like we're due for. A significant stock market correction. While I have enormous belief in AI, and I spend four to eight hours a day with AI, I still have absolutely no doubt my market that the stock market is a bubble. Because it's normal for us to take whatever the value of some new discovery is and then multiplied by two or three and that's what the stock market does. It creates these bubbles. So I'm worried about a significant correction in the stock market. And then of course, I'm worried about this Iran conflict not getting resolved. Obviously, it's hurt everyone in real estate really badly. We were expecting rate cuts this year. There's not going to be any rate cuts in 2026. There may not be any in 2027. They write the Iran War changed things for inflation. And as we're recording this, they're back at it. So I'm worried about that because it really, really hurts the real estate market. Are there any markets that maybe you're bullish on right now? I am bullish on two smaller markets. This is about understanding the story of a market. So because of AI, the largest companies in the world, all of the tech companies, Google, Meta, Microsoft, and OpenAI, have all turned into companies that are in the business of power generation. So power generation is one of the least sexy things in America. And if you look at the valuation of power generation companies, you know what I mean? The United States has not increased its power generation a lot in the last 15 years because of equal savings, LED bulbs, stuff like that. But all of a sudden now, we are going to run out of power in the next five years because of the ridiculous number of data centers that we need. So all of these companies, they've all basically turned into power buyers that buying nuclear plants, there's Microsoft, one, one, Google's, they're all buying nuclear plants and they're all in the business of building new nuclear plants. Now there's a huge backlash against these AI data centers. You've heard, right? They use a lot of water and they use a lot of power. And wherever you put a data center in, the water and power consumption goes up. The water they can fix by just basically using air cooling instead of water cooling so that they can fix, but they need power. The only way these big companies can get more power is nuclear. That is the only way. And it's not the big kind of fact nuclear plants take 20 years to build. Obviously not a solution, but there's a new kind of nuclear, which is basically small modular reactors or SMRs. Just so you know, I'm not in this business. I don't even know how to invest in it because most of these companies are private. So I'm not pushing this, right? But any city that is very, very highly invested in the business of small modular reactors, certifying them, building them is going to do well. And one of the cities that you're an investor in Idaho Falls as lucky you ended up there. When I started my student in Idaho Falls five years ago, none of this stuff was there. I mean, sure, Idaho Falls was still a nuclear center because it has Idaho national labs. And that was growing. There was some interest. There were people that wanted to bring nuclear back. It was small. You probably listened to that three years ago when you invested today. It's explosive. Everybody wants a location in Idaho Falls. Why? Because that's the only place where you can certify nuclear reactors. We never built a second location, right? There's one place in America that certifies a nuclear reactors. Every reactor for the Navy has to go there to certify. So all of these small modular reactor companies that Bill Gates is invested in, that what's the other guy Jeff Bezos has invested in that Google is buying. Google is basically saying to people, if you can get, give me an SMR in three years, just name your price. That's crazy, right? Name your price. And so I love Idaho Falls for that reason. And when I started in it, that was not my reason. So I got ridiculously lucky. Yeah. But dumb it down for me a little bit here because obviously look, there's these big companies making huge investments. And for the average person, retail investor looking to invest in real estate, how does that all trickle down? Because building data centers, perhaps one could make the case that those are not long-term sustainable jobs. Once they're built, those construction jobs go away. And real estate is a long game. So help me understand what your thesis here. So all of these companies have to open locations there. They have to hire people. And all of the people that they're hiring are PhDs because nuclear PhDs, you starting them at $200,000. So the number of these people with $200,000 moving or $150,000 jobs moving to Idaho Falls is phenomenal. Each. So when we look at jobs, one of the key things is people think that a Walmart job at let's say $21 an hour is the same as a Google job. Just so you know, one job at Google is equivalent to eight Walmart jobs, right? Because that person makes eight times as much money and spends each times as much money. So they add so much more to the economy. In the same way, Idaho Falls small market, 150,000 people. If you add 2,000 people there with $150,000 jobs, that's the equivalent of roughly adding 15,000 jobs, all of a sudden. When you add 15,000 jobs to a market that only has 150,000 people, that makes a dramatic difference. I'll not say that method I just gave you was made up, it was fake. I don't exactly know the numbers, but I'm seeing that significant benefit that's happening. In the end, it's jobs lead to people spending more money. And every time somebody spends money, that supports another three to four jobs downstream. And when you look for that, that's great. And again, I mentioned Idaho Falls and I'm being very honest. I had no idea about any of this AI stuff when I went into Idle Falls in 2020. So it's just been dumb luck, right? Now, in 2020, Idle Falls was already rated number one fastest growing city in America. Not by me, I don't matter, but by people who rank these things that are famous, that have been doing it for 50 years. So it was already ranked number one, and it wasn't because of nuclear. So again, dumb luck. The other city that I love is Northwest Arkansas, which is gaining from Walmart, and more importantly, getting from the Walton's, Walton's are the richest family in America, Elons are richest man in America, but the Walton's are the richest family in America. They have four generations of wealth. They're all approaching older ages, so they're in their 70s, 80s, 90s, and they're in a race with each other, almost an aggressive race to give money away. And most of them are not giving the money away nationally. They're giving the money away to the area that they live in, which is Northwest Arkansas, you know, Bentonville Rogers. And so they have already spent billions, right? Billions, like they donated money for their airport. They donated money for a world-class museum. They donated money for roads and 200 miles of bicycle tracks. Imagine a small area like that with 500,000 people receiving billions every year from the richest family in America. That moves the needle a lot. Yeah, absolutely. We've had several people on the podcast investing in hotels in that area for that exact purpose that we're seeing a huge influx of high-paying jobs. High-paying jobs, stigma of Arkansas being sort of a backwater place. But for the people that are there, booting the ground, they're seeing the effects of high-paying jobs include fancy cars and nicer restaurants. And so I get that. There's a trickle-down effect. And then if there's 2,000 jobs that pay over $100,000 a year, my first instinct to what you were saying is, okay, but that's only 2,000 heads that could be in beds. But to your point, if that means there's three or four additional jobs created as a result, I get that. I want to circle back to what you referenced earlier in the show is that multifamily is down 20%. And on the one hand, that creates opportunity. But there's a lot of turbulence in the market right now. And sponsors are having to navigate this. In fact, one of the biggest personal brands in this industry is Brand Internor. And I'm sure you're aware his investment company opened door capital. It lost tens of millions of dollars. I think it was Heitz-On-Keydie was one of the properties that investors basically lost everything. And so I'd like to know is that situation reflective of where the market is in general, or is that more of a specific operator failure? I think it's definitely reflective of the marketplace. So anytime the market goes down 20%, buildings will be lost. I have one at risk myself. Point is, why does that matter for an investor? Let me ask you this question. If you're already in one of those properties like this Heitz-On-Whatever-Property, I feel sad for you. If you're not, well then it's really good for you. I'll explain this in the context of 2009. 2009, we had five million properties in America headed back to banks. Okay? At that point of time, should you have been worried about the fact that these properties were going back to the banks and these banks and all these companies that were building them were going out of business hundreds of developers, thousands of developers, went out of business in 2008, 2009, 2010. Even a dozen banks failed. But does that mean that you should not have bought every single property you could get your hands on in 2009, 2010, or 2011? You should have. Again, the truth is this. I'm going to say this as bluntly and mercilessly as possible. Others, people's pain is required for your profit. There is no profit without pain. Hopefully, the pain is being felt by other people like me. Why would you care? Blunt. That's honesty. That's logic. Without pain, there is no profit. The greater the pain, the greater the profit. And so the fact that there's turbulence in the market is a bad thing, but also a good thing. Wasn't there 10 times as much turbulence in 2009? Yeah. Well, since you brought it up, I mean, let's talk about what you're experiencing, right? Since I'm an investor in one of your syndications and I subscribed to your newsletter, of course. I get some solicitation emails that are advertising, "Hey, there's this deal in Arizona and Phoenix." And you had to take on new capital this year, new money that came in senior to your existing investor's equity. That's interesting. I'm like, you may be explained. What happened on that deal? Can you walk us through maybe in plain terms? What occurred? I think straight forward. So this particular project is in Arizona. And by the time we finished it, interest rates had doubled, essentially. And it had a construction loan. So we started the construction loan with an interest rate close to 5% and finished it with 9%. I imagine if you have a project that's $75 million. And by the time you finish construction, you're paying 4% more than you thought you would be paying. Well, that's what, $3 million a year? $3.5 million a year? Also rents in Phoenix have gone down. They've gone down about 9% and concessions have doubled. Put all of that together. And you have either a cash call happening or you have a situation where you need to bring in more equity. So we went back to our investors and we asked them to vote. What do you want? And they said, no, we understand what's happening. You're good operators. You're doing your best. Go out and get more equity. So we went out and raised preferential equity. And this property is called Abundale. And then we went back to our lender and we said, we will raise more money. But we're only going to put more money if it's not good money after bad sort of scenario. So you have to give us something. So the interest rate for this property was so far SOFR+750. Right? So very high. So it was about 10%. So we basically convinced the lender to give us a 2.5 year extension, completely free, no extension fees. And they cut our interest rate by 4.5%. So in a single year, that 4.5% cut is saving us about $3 million in interest. $3.5 million in interest. And that allowed us to reposition the property in the right way. And that allowed us to raise money from people who know now that, okay, these people have a good chance of moving forward. I think that has to be done. I wish Brandon had done that for the property that he lost. I think that that is the reality of the situation. Good operators doesn't mean that we are magical in any way. In fact, I feel there's nothing magical about me at all. If the market turns so sharply that interest rates double, everyone is going to get hit. Again, if you're in it, support your general partners because they're trying to get out of it and they need your support. If you're not in it, well, good for you. Because at the current point, if people like me and Brandon were not busy focusing on their existing properties, they'd be buying about a bunch more properties. And you'd have no chance of buying them because we are brand names, right? So the fact that you can buy these properties right now or your general partner can buy them is a good thing. There were 20 or 30 people making an offer on property now that's four. There's still four. There's no distress in multifamily, right? So I think it's very important to understand this. There is distress in the multifamily syndication market for the 5% of the multifamily market that is considered the syndication market that gathers investor money to buy properties. That portion of the market is distressed. The larger multifamily market, only 5% of its syndication, the larger percentage of the market, people have been holding onto multifamily for five years, 10 years, 20, 30 years. They have massive amounts of equity in there. There's absolutely no distress there. Today, the average property receives a minimum of five offers. I recently listed one of my properties didn't sell it. And I received about 15 offers of which four were genuine, right? That's not distress because in 2009, you could literally walk into a bank and say, "I'll give you 30 cents on the dollar and what this cost to construct." And there's nobody else in there right there making that offer. I bought $90,000 cash properties. They were about $400,000 or $500,000 today. One after the other, every month for a year with no one competing against me, that's distress. No multifamily property that I know of anywhere in the United States has been sold on courthouse steps. Not one. And we're talking about 20 million apartment units. Not one anywhere in any market. So multifamily industry is not distressed. The syndication portion of it, where people gather money together, which is sort of the most aggressive portion of it until 2024, that portion is distressed. Big difference. Well, look, I appreciate your transparency and honesty in this. And, you know, I want it to be known. I think when you're one of the most accurate and skilled operators in this business, and that's why I wanted to ask you directly instead of ignoring this is, hey, what's going on here? Because if someone like Neil Bawa, who understands how to and has all these skills, feel some pain in this situation for the regular person, how does that affect them? And I think you've answered that and explaining that. It's limited to syndications. You also mentioned interest rates. So when I hear this, I go, okay, no one would have expected that interest rates would have doubled so quickly. Fair. There are folks out there that are skeptical of real estate in general. And in fact, one of them is a former Goldman Sachs VP. His name is David P. Koch and he runs this company called Filter Buy. He does like $23 million a month in revenue. It's a large company. And I say that to add some credibility. So that's just in some like YouTuber that's out there. Like this is a legitimate business person. Try, he's an advocate against investing in real estate. Now, my whole life is real estate. So I'm naturally caught my attention. But he makes this case that this entire 40 year real estate boom was really just an accident of interest rates falling from roughly 18% all the way down to about 3% and that with rates stuck where they are, though, the old playbook is dead for individual investors. He's telling people real estate isn't a safe bet. For isn't the safe bet that everyone assumes it is. What's your take on that? I would like to ask this man just one question. Just one, okay? So in 2022, anyone could refinance their home for 3% and 3.5%. Okay? Anyone? Today, the minimum you have to pay is 6.5% in interest rates. If what you're saying is right, then why is it that home prices are 15% higher four years later? when interest rates have doubled. That means that the interest portion of your mortgage has doubled. Also, we've had huge increases in insurance, which you're well aware of. Why are home prices 20% higher? Well, in some markets they're 15% higher, so I'll say 15%. Why are they higher? Multi-families 20% lower. - Probably goes back to your point about some of these factors like population growth, out of sum? - A number of different factors. But I don't want. I don't know the. This is you might don't know the answer. This person is saying that the entire real estate industry's profit was based on a one-time interest rate reduction that we can't get back. Great. Why are home prices higher than they were when interest rates were half? And why is it that this is a widespread phenomenon? I haven't picked one market, two markets, or 10 markets. Over 90% of all markets in the US, home prices are at least 10% higher than when interest rates were half of what they are now. I'd like to him to explain why. - Yeah. - Yeah, I don't know. It stopped provoking. But it's something that I guess the theory of if interest rates don't eventually drop again, so a lot of people are feeling a little bit shell shocked. What is your take on interest rates? Do you feel that in the next two, three years that they're gonna remain high? Or do you see that they might eventually go down again? - I think they're gonna go down. So for. But not this year. I mean, obviously at this point, I believe that there's even the possibility of a single rate increase happening. The Fed might have to signal that just to maintain its credibility. Because a lot of the stuff that happened in the first half of the year, because the Iran War, the inflation basically hits in the second half of the year, 'cause there's a lag. So we might see a rate increase or we might not. I don't think that there's a rate cut this year. I think that this possibility rate cuts next year. So one of the key things that you're gonna notice is that AI has both inflationary effects and non-inflationary. The inflationary effects is in cost of computer goods, right? Cost of all computers have gone up because of memory being very expensive. I don't know, two and a half times more expensive than it was before. But the deflationary effect is that it creates productivity increases. When productivity jumps up, that's like deflation. Because one person can produce more work. We haven't seen that in any industry except for coding. That industry has seen massive increases in productivity. But I think it'll happen over the next year or two. So I believe, fundamentally, that AI has massive deflationary capabilities. And when there's deflation or low inflation, you can keep interest rates low. It's, there's downsides for the economy as well. But for real estate guys like us, I'd love deflation. - I wanna take a hard turn here. I wanna ask you, you look, you had close to a billion dollars in real estate. You've got, it just less than half a billion at this point. But you're obviously a very successful person. I'm curious to know just from a personal perspective, how many hours a week do you actually work? How do you keep all this running? - Even before AI, I was very focused on systems and processes. So I am a person that likes to think of myself as a robot. And I'm proud of that. A lot of people are like, "Is that a good thing to say?" For me, in my world, it's a good thing. I wanna be as robotic as I can be. I wanna be as systems and process driven. So you're aware of this, Mike, because you took one of my classes in 2018 and you saw what I was doing with virtual assistance and with automation back then, right? We was a chapter, a module in my class. I had dozens of full-time people in the Philippines. People think of them as virtual assistants. I don't, they're just my employees. They don't work for anybody else. They're spending eight hours a day working for me. And so we were able to create incredible, intense productivity gains while paying somebody $7 an hour, right? Of course, we had to build an entire parallel organization. It's not easy. We had to have directors and recruiters in the Philippines. And we only ever did one country. We decided it was just hard enough. So we just did the Philippines. And so we had recruiters and managers and supervisors and directors all in the Philippines. They did their own summits and annually gathering events and things like that, without us. And that made an incredible difference. Today, I feel that what I can do with their eyes is means that it's very likely that in two to three years, I'll have zero employees in the Philippines, zero. Because here's what I do. I'm gonna give you my recipe, right? There's this thing called a mini PC. Mini PC's out of these brick PCs. They're about six inches by six inches. And I buy a mini PC every month. I only buy the ones that have 16 gigs of RAM. Because 16 gigabytes of RAM gives me 30 flawed agents. Because each flawed agent takes about 400 megabytes of RAM. So what I can do is once I take one of these mini PCs, I buy them for $100 used, the processor doesn't matter. All that matters is 16 gigs of RAM. I install one of these and connect it to the internet. And then I installed something known as Cloud CLI on it. Now I can basically have 30 to 40 employees on this one box. So this $100 box now gives me 30 to 40 new AI employees. And I'm using them in the worst possible way. I basically only give one of these employees of one single job. That's terrible. These things are very bright and should have dozens of jobs. But for me, just to make things easier for myself, I basically go into cloud, I create a new worker. And I say, you, your only freaking job in the world is you're gonna manage my inbox. That's it. That's your job 24 hours a day. You're gonna manage my inbox. And I should not be doing that because it can do 10 times as many things. But why shouldn't I? When it cost me $100 to buy a used mini PC with 16 gigs of RAM, that gives me 30 of these workers. Now on top of that, I use one $250 cloud account. So it's $250 a month plus $100 one time. And maybe $30 a power every year. And that's my cost for 30 employees. And so now I can basically give them one job and say, you're just gonna do this one job 24 freaking hours a day. So I have one that manages my credit cards because I get a dozen credit cards a year. And I like to fly business class all over the world. And I like to do it for free. So all it does is applies for credit cards and shut them down after the bonus has been hit because the code is already written. There's a dashboard called this credit card command center. And this dude just applies for cards. I'm not doing any of this stuff. I've provided the logic and I do hit a button called approve and it applies for cards. That's his job. Why would I give it more jobs? It's just fantastic at this one job. So now I have as many employees in the world as I want for 30 for every $100 plus a $250 a month cloud account. - Well, what's one thing then that maybe you've tried to hand off to AI and just didn't work. - Yes. Big picture stuff. Like there's a thousand videos on YouTube saying, do a slash goal command and give it a big goal and just let it be, it hasn't worked for me. I think you still have to nitpick. I think you still have to tell it what to do. It still makes a huge number of mistakes. Well, once it's done and it's fixed just mistakes, those are forever fixed with humans. Every time, two years, you let a person go and you start a new person, you're starting over again. Everyone's got personality. AI agents don't have personality. Once they fix everything, they're staying fixed. But I haven't been able to give them a big task like, I tried this by the way. It was a dismal failure. I said slash goal, use all of my systems and resources to make me $10,000 a month. You pick whatever you're going to do. I was a miserable failure. - Yeah, let me ask you this. As we were kind of wind down here, I just want to ask, like, you've got this very successful business. You're presumably a wealthy person. I guess I just want to understand what's keeping you working this hard. Is there some financial goals, some specific goals, something that you're chasing? What is driving you to want to continue working? - No, for me, it's not finances. I mean, I had a number in my mind. Once I hit that number, the finances just went out the window. It's achievement. So what keeps Elon Musk working? He's worth a trillion dollars. He should be spending all of his time trying to spend that money. But he's not interested in that. I think that you have to understand that high performance people have very strong egos tied to their own performance and their ability to keep performing. When we stop, it's like death or at least a little death. I don't think that it's possible for us to stop. I don't think it's good for us to stop. I think that we would be doing some really crazy shit if we stopped. So it's not a good idea. - Yeah. Tony Robbins says, if you're not growing, you're dying. And I believe that. Knowing everything you know now, Neil, last question here. What's one piece of advice you'd give to your earlier self? Maybe the Neil who was starting out way back when before you went full on in the real estate. Knowing what you know now, what advice would you give your earlier self? - That's easy. Buy a shit ton of Bitcoin. Really? Why not? I mean, hey, I'd be a multi-billionaire. If I bought 100,000 bitcoins that are dollar each, what's that worth today? 10 billion? So, I mean, that was a joke. But I think the bottom line is that the one thing that I think I've consistently been problematic at is I'm great at starting companies, not great at growing them. And I think I would tell that self, your specialty is building companies. Go build them, but find a way to find other people that are good at growing companies and put them in charge. That's the advice that I would give them. Now, this advice may not apply to your audience, but I would like to say to your audiences, the truth is we are all specialists. We're good at certain things. And it's not important to know what you're good at. It's really important to know what you're bad at. - Yeah, this has been great, man. I really appreciate you being on. How can the listener stay in touch or continue to follow your journey? - So, multifamily university is our free website. Completely free. We do eight webinars a year, four a year, or something to do with AI and the other four or something to do with real estate 'cause those are the two areas that I have incredible passion. Come join, there's tens of thousands of people that watch our webinars. One percent of them become investors with us, like Mike. Thank you, Mike, for being an investor. The others, they just enjoy the knowledge. And our webinars are about 50 minutes long, very, very content-driven. The next one actually is about AI. And I'm gonna do five demos, five of my AI agents in real time, showing them my agents working. So come join multifamily.u.com. There's no subscription, there's no upsell. I don't have an educational product. I'm not going to build one. So you're not gonna be sold. Well, well, Once in three months, you'll get an email about some project I'm doing just like Michael gets them and hopefully you'll be interested in that. But if not, at least you got the free knowledge. Absolutely. Well, if there's anyone to consider investing with, Neil, genuinely sincerely, I think you're one that all of the listeners should definitely look up and consider. Again, appreciate you being on. That's it for this episode of the Hotel Investor Playbook. If you got value out of this episode, share it with someone, leave us a review, and we will catch you again next time. Aloha. [Music]