The Conscious Investor
Chasing after Financial Freedom often bankrupts other parts of life.
That’s why the Conscious Investor Podcast goes beyond Financial Freedom and helps investors cultivate Personal Freedom by featuring experts in the core areas of health, mindset, and investing.
If you’re looking to grow financially, if you long to unleash your full potential, and build a life of meaning without bankrupting the most important parts of life then this show is for you!
The Conscious Investor
Ep517 From Corporate to Real Estate: Strategies for Success with Jay
Unlock the secrets to transitioning from a corporate career to successful real estate investing with our guest, Jay, on this episode of the Conscious Investor. Jay's journey from Microsoft to real estate is nothing short of inspirational, and he’s here to reveal how treating real estate as a business can set you up for success. Drawing on his engineering and business background, Jay simplifies complex concepts and stresses the importance of continuous learning, making this a must-listen for new investors eager to thrive in the market.
Ever wondered how to balance marital bliss with business acumen? Our second segment delves into the dynamics of working alongside a spouse in a real estate flipping business. Drawing from personal experience, we discuss the initial hurdles and how we mastered dividing tasks based on individual strengths. This practical guide offers insights into improving both business operations and personal relationships through mutual respect and clear communication.
Finally, we tackle the pressing issue of economic cycles and the looming threat of a recession. Understand the crucial indicators that signal economic shifts, such as GDP growth and the inverted yield curve, and learn how to navigate real estate investments during turbulent times. We also debunk myths about real estate value declines in recessions and shed light on the Federal Reserve’s role during election years. Tune in for a balanced discussion enriched by diverse perspectives, providing you with the knowledge to make informed investment decisions.
Hello Conscious Investor and welcome back. I'm your host, julie Hawley. For over four years, I've paired my background in real estate, investing, education and coaching to create powerful content for you each week. This podcast is where we take a holistic approach to investing by focusing on three ingredients to a life of personal freedom health, mindset and wealth. We'll talk about everything from passive investing through syndication and how to use your retirement accounts to boost your investing, to mineral balancing and gut brain health, and into topics that cultivate your inner strength and resilience so you can thrive regardless of any of life's current events. And yes, those are all episodes currently available and linked in the show notes below. Join me each Monday for a mindset episode and later in the week for an interview with expert investors and health professionals, so that you can experience your greatest health, strongest mindset and build the wisest wealth.
Speaker 3:Jay, so excited to finally have you here on the Conscious Investor Welcome. Thank you. I've been wondering why you haven't invited Conscious Investor Welcome.
Speaker 2:Thank you. I've been wondering why you haven't invited me sooner, but thank you for having me.
Speaker 3:You know you have this like you're on this whole other tier, this whole other echelon of coolness and smarts and just awesomeness that I was like, okay, I got to get at least 500 episodes in before I invite Jay on the show.
Speaker 2:Well, I have been. You and I sat in a mastermind together for several days Last year was it About a year ago, and ever since then I've been very excited about coming on the show, so thank you for finally having me.
Speaker 3:I'm so glad that we finally pulled this off and pulled it together. You and I are both talkers and I cannot even wait to get into conversation with you, because one of the things that I was so endearing when we were in that mastermind setting was just like you're so freaking smart, but you're not the smart that is disassociated from everyone in the room type smart right and like you're able to take such high level concepts and to, like, make them tangible to the world around you and I absolutely appreciate that so much. And you understand a lot of elements and a lot of nuances that I don't understand, and or I'm. You know that I'm always like, okay, I have to front load, I've got to constantly be learning, learning, learning, learning, and I feel like it, just like you're the wellspring.
Speaker 3:I feel, like you're just the life giver of that, so I'm so grateful.
Speaker 2:Well, I appreciate that, but the reality is that I'm just older than you are. I'm old, and so all the things that you're doing learning, learning, learning, learning, learning is the stuff that I've been doing for probably a decade or two longer than you have, and so I like to say I seem smart because I remember how dumb I used to be, and so it's really easy. Seriously, I can put myself back in that place where I knew very little, if anything about anything, and so when I talk to people and can explain things that I have learned and that I do know, I can do a good job of remembering how I wanted to be or needed to be talked to back when I knew nothing. And so for me it really is. It's just that memory of when I used to be just as ignorant as all the new investors out there. That will be exactly where I am in 10 or 20 or 30 years of study.
Speaker 3:Gosh, see, conscious Investor, you can see exactly what I'm talking about. Even that ability to have that level of awareness to be able to say no, I know how I can talk to myself, my past self, which lends itself perfectly to the question in Conscious Investor, you know what that question is. All right, jay. I mean we're making perfectly to the question in Conscious Investor. You know what that question is. All right, jay. I mean we're making some assumptions, right, conscious Investor, that we know that he does. But let's go ahead and ask the question of all questions what do you do and how did you get started?
Speaker 2:Yeah, so I like to say that I am a business person. I know I mostly focus on real estate these days, but I've made a very conscious effort of learning the business side of real estate as well as the real estate side of real estate. So I come from an engineering background and a business background. So I have an electrical engineering degree and an MBA. I spent about 15 years in corporate America, spent most of my career at Microsoft, did some engineering and business stuff there, and in 2008, my wife and I quit our jobs.
Speaker 2:We got married and we kind of fell into real estate. It wasn't supposed to be a career for us, it was just something to do when we took a summer off after our corporate jobs, before we kind of figured out what it was we wanted to do when we grew up. And so our corporate jobs before we kind of figured out what it was we wanted to do when we grew up. And so we decided to flip a house and I knew absolutely nothing about real estate. She knew absolutely nothing about real estate, and I was terrified. And so I asked myself okay, how am I going to do this if I know nothing about real estate? And what I realized was pretty early on was that if I just treat real estate like a business and I knew business if I treat real estate like a business, then I have a headstart over a lot of people, even without knowing the real estate side of things.
Speaker 2:And what I've come to realize over the 15, 16, 17 years that we've been doing this is that real estate really is just another business, no different than if I ran a car dealership or a restaurant or a tech business. It really is the same thing. You need to understand things like reading financial statements and hiring and leadership and cashflow management and dealing with inventory and marketing and sales and dealing with customers and all of these things that are consistent across any business you might be in. Real estate has that as well.
Speaker 2:Unfortunately, what I see is a lot of people who get into real estate who have this attitude that real estate is not a traditional business and we can take shortcuts. I can learn how to flip houses or buy rentals or whatever I want to do in real estate without learning all that other business stuff that I would have to do if I were going to start a real business. Quote unquote. Real estate is a real business If you learn the business side of things, you're necessarily going to be a better investor than if you just treat real estate as if it's something different from business or easier than business or just a hobby. And so, if anything, when I think about what I do, I'm a business person. That just happens to be in real estate.
Speaker 3:I value this response so deeply, in a large part because my background, my family, is residential real estate sales, which is very different than real estate investing, particularly commercial real estate investing Black sheep over here. But what's interesting about that is that I never saw that actually run as a business and it was transactional and yeah, they're the clients and the repeats and things like that, but it wasn't super intentional. It wasn't run like a well-oiled business operation. And when I look at real estate agents who are friends, just going on that real estate side of things, on the sales side, I can see the difference day and night between those who run a business and those who are just like oh, I am a glorified self-employed person. It's a day and night difference.
Speaker 2:We see this all the time in this industry. It doesn't matter if you're an investor, if you're a real estate agent. I think the best example is a contractor. How many of us have worked with contractors who are amazing contractors but they do a really poor job of running the business side of things. They can't manage their cash flow, so they're constantly out of money. They're not really good at staying on schedule, they show up late or they don't show up at all. They take weeks to give you quotes and it's not because they're bad at their job, it's they're bad at running the business. They're not business people.
Speaker 2:And I see the same thing in real estate with investing. Those who come from a background of real estate, those who have been contractors or agents or appraisers or whatever else it is, they get into this business and I think they feel like I'm going to leverage those skills that I have. I'm going to leverage my ability to swing a hammer. Or I'm going to leverage those skills that I have. I'm going to leverage my ability to swing a hammer. Or I'm going to leverage my ability to stage a house. I'm going to leverage my ability to do whatever it is in the business and they're so focused on leveraging that skill that they avoid the more important things, the higher level stuff, the hiring and the delegating and actually managing the business. And I think that's part of the reason why my wife and I were successful early on because we didn't have those skills, we couldn't leverage our real estate knowledge or our real estate experience. All we had was the business knowledge, and so we were forced to focus on that.
Speaker 3:That's amazing. Okay, this really is interesting because I was I'm like, okay, engineer, electrical engineer with an MBA, working for corporate America, like you're in the engineering wing. How did you develop and grow all of your business of humans, like, how did that happen?
Speaker 2:Hanging around smarter people than I was, and it really that's that's. That's the key to everything I do is I try and surround myself with people who are super smart, super experienced. And I'll use the word wise I don't use that word a lot, but in thinking about it it really is important and wisdom is the ability to take the experience and translate that into making good decisions, moving forward. And so what I've tried to do is I've tried to surround myself with people who have that experience, that knowledge, that wisdom, so that I can kind of take shortcuts.
Speaker 2:When you have to learn everything from scratch and there have certainly been things I've had to learn from scratch it takes a lot longer than when you can surround yourself with people who can help you course correct or help direct you in the right direction, so that you don't make as many mistakes. Obviously, we're all going to make mistakes. Mistakes are great, but if you can cut your number of mistakes in half, you're probably going to cut the time that it takes to get from point A to point B by 10 or 20 fold fault. And so really, I'd say the biggest thing that I've done is just surrounding myself with really smart people and leveraging them and trying to offer them value so that I can get value in return.
Speaker 3:I love surrounding myself with smart people. I generally feel like, especially when we're at that mastermind, I was like I am not qualified to be in this room. I felt so and I remember calling my husband saying I'm so in the right room because I don't feel qualified to be in this room. I felt so and I remember calling my husband saying I'm so in the right room because I don't feel qualified to be in here and I am learning so much and this is the best time of my life. It's that nerd tactic where you just go, although I want to be able to contribute and add value, and like, well, I can share jelly bellies, I don't know. You remember I like I literally had some jelly bellies. I'm like I don't know how I can add value because this is such a powerhouse of brain power here.
Speaker 2:But the cool thing about that room was and I think this is another key takeaway is that nobody in that room, I'm guessing, felt like they were the smartest. Nobody in that room felt like they didn't have anything to learn because there were so many different sets of skills in that room and you're good at certain things, I'm good at certain things, the other people in the room they're good at certain things, and it's not a ton of overlap, and so you can learn stuff at the same time that you're teaching. I can learn stuff at the same time that I'm teaching. If that you're teaching, I can learn stuff at the same time that I'm teaching.
Speaker 2:If everybody in the room is doing the exact same thing, then it becomes a competition. Okay, who's split more houses or who's bought more rentals, or who owns more apartments or who owns more self-storage, but when everybody has a different set of skills and a different background, everybody can be the teacher as well as the student, and so that's another part of surrounding yourself with smart people not just smart people, but people who do things that you typically don't, people that you don't typically surround yourself with so that you can learn new things without having to compete for who's the best or who's the most successful.
Speaker 3:That's so important. I just finished reading. Well, I listened to the book and it's called the Magic of Thinking Big. I think it's by Charles Schwartz. I can't remember and I'm not going to. I was going to pull my phone out and pull up the book. I'm like I know I'm not going to do that, but but it's interesting. It was written in, I believe, the late fifties and it reads like something from the fifties but it is timeless. Truths about caring and conducting yourself in the business world and just generally like in life, and how to create and establish this beautiful life right. And one of the elements he said is hey, don't be around all the same people all the time, just to you know, like double down on that is like let's make sure that you were around a variety of different people, because it brings out differences in us. I love that. It's so important.
Speaker 2:And it makes it easier for us to add value to their lives, because if they're in a different space than we are, have a different area of expertise than we do, then they can learn from the things that we're really good at as well, and so it gives us the ability not just to take, but to add value as well. When you surround yourself with people who are different than you are, add value as well when you surround yourself with people who are different than you are.
Speaker 3:That's so insightful. I have so many questions that are probably not the typical questions. But, conscious Investor, I know that you are thinking this particular question. You've mentioned your wife a couple of times. You and I, off air, we're talking about our families. We've been married for many years. We're just within a couple of years of each other on that. So it's like it's a beautiful, beautiful thing to build life together. You guys, you know, have worked together. That's amazing. So how did how did that work for you when you first started out in real estate, flipping houses and such Um? It's an interesting dynamic that many couples cannot execute well. So how did that go?
Speaker 2:Yeah, it's tough and it took us a decade before we kind of figured out the rhythm and figured out how to get it to work. And even after a decade and we don't work together I mean she's kind of decided that she's done with me, she'd rather not work with me anymore. You're tired yourself. Well, she's focused on the kids these days, but for a decade we worked together and yeah, it's challenging and at the beginning we're both very type A personalities. We're both very smart people, we both come from the corporate world and we're both used to being in charge. We're both used to running teams, we're both used to making decisions and having the final say, and so the first couple of years were really really tough because every decision it felt like it needed to be a democracy. But a democracy with two people can be very difficult because we well, we're both smart people. I like to think, and we have similar corporate backgrounds. We think very differently. She's a marketing type person, she's a creative type, I'm an engineer, I'm very analytical, and so oftentimes she'd have one reaction or one opinion. I'd have a different reaction, different opinion. If you're going to vote on it, well, you're never going to come to consensus with two people, and so for the first couple of years, every decision was an argument, every decision was a debate, every decision took way too long to make, and so things progressed a lot more slowly than they should have.
Speaker 2:Eventually, we both realized that in the business that we were doing, in the flipping business, there were certain things that she was amazing at that I could recognize that I wasn't. She was great at finding properties and negotiating deals and staging and marketing and selling. Then there were the things that I was really good at that she would be the first to admit that she wasn't Underwriting and raising capital and dealing with contractors and dealing with the financial statements and the money. And so once we realized that we had all the skills to be a great business person she had half of them and I had half of them what we realized was we needed to run this business more like a bigger business. So if you go into any corporate environment, what you see is that there are departments so I worked at Microsoft forever and you go to Microsoft and they're engineers and they're salespeople and they're marketing people, they're QA people and they're product managers and I mean there's finance people and all different types of people and the engineers don't try to do the salespeople's job. The marketing people don't try to do the products people's jobs. Everybody knows what their role is and that's what they focus on. And the sales people have the final decision making authority when it comes to something sales related. Engineers have final authority when it comes to something engineering.
Speaker 2:And so we did the same thing in our business. We realized, okay, she's really good at the acquisitions and the dispositions, so staging and selling, I'm really good at the raising capital and renovations. She took her half of the business and she had full autonomy, full authority to make decisions. I took my half of the business. I had full autonomy, full authority to make decisions. Things started to go much more smoothly because she was making great decisions on her half of the business, because that was her area of expertise. I was making good decisions on my side of the business because that was my area of expertise. I was making good decisions on my side of the business because that was my area of expertise. And suddenly our business started working. Not only that, but our relationship started working a whole lot better because we had a whole lot more respect for each other. We weren't fighting over every decision and we were able to let things go. We were able to say, hey, hey, this is your area of expertise, I trust you, whatever you decide, and vice versa.
Speaker 3:I love that and I love that. I love how you you and your wife processed through it and didn't quit, didn't give up. You persevered through the process in Atlanta, you know, put you in a whole different position in life. It'd be a very different scenario if you were unwilling. I was just mentioning this to a coaching client the other day. You don't know what's on the other side of working on a big project right now and I'm like you don't know what's on the other side. You have to go through this trough of despair, the most emotional cycle of change.
Speaker 3:You've got to journey through the trough of despair and if you want to quit now, you're going to go back to the beginning and you're going to have to figure this out. You're going to learn the lesson one way or another, so just stick through it. It's going to be worth it and you'll have a different perspective on the other side.
Speaker 2:Yeah, that's a great way of saying it.
Speaker 3:That's absolutely remarkable. I have some good friends and they actually have a brand doing business as a couple and they support other couples in doing business as a couple. That wasn't what they wanted. They didn't set out to do that and then the pandemic happened and they're like let's do business together. I'm definitely dumbing it down, but it's nuanced. My husband and I are talking now, only now, about collaborating and he's going to come into my investment company and that's a whole. But it's been years of no, let's not do this. I like being married to you. Let's not go down that road.
Speaker 2:Yeah, I mean, I often say that marriage is difficult, but partnerships are even more difficult Because, at the end of the day, with a marriage you know well, hopefully your marriage is strong enough that you know you're going to get through it. You know you're willing to put in that effort at the end of the day, because the family is the most important. But with a partnership, it's really easy to say this isn't working and and just want to give up and move on and so, um, partnerships in my mind are a lot more difficult than a marriage, and then when you do the two together, well then it gets really, really tough.
Speaker 3:Get into some sticky territory. I can park on this topic for quite some time because I think that this serves people well. I think even when we're not necessarily in business together, we're going through things. I mean, if we're committed to our marriages, we're going through different evolutions and stages of it, and just hearing other people finding their successes is always encouraging. And I love it when couples stick through the uncomfortable times because there's such a reward on the other end and you and I know that because we've been married for 16 and 18 years. It's like man, it's totally worth it.
Speaker 2:Yep, and here's the other thing. I think the other difficult part of working with your spouse is we know, as entrepreneurs, that what we do is a 24-7, 365-day thing. It's not working a job where you go in nine to five, you come home and you shut it off and you focus on family. It really will absorb your entire life. It's it, really. It will absorb your entire life. And when it's just one of you that's doing it, the other person can say, hey, you need to shut it off, you need to to leave the the work mind space right now and you need to be in the family mind space. And so it's nice to have somebody that can say that.
Speaker 2:When you're partners with your spouse, it's a lot more difficult because at any given time, one of you is probably thinking about work and the other one doesn't want to pull them out.
Speaker 2:When you're partners with your spouse, it's a lot more difficult because at any given time, one of you is probably thinking about work and the other one doesn't want to pull them out because it's like, yeah, now I have to think about that too, and you end up spending 24, 7, 365 thinking about work and not focusing enough on the family, and so one of the really important things to do if you're going to work with your spouse is you really have to set boundaries and you really have to say hey, six o'clock at night, phone goes off, we talk about family, we don't talk about work stuff, weekends we're taking Saturday off, and maybe Saturday and Sunday, if you're lucky, and we're not talking about work, we're just going to focus on the family.
Speaker 2:And you really have to force that, because if you don't and we fell into this pattern in the first couple of years as well that it will be work 24-7. And that's not good for anybody in the family. If you have kids, for the spouses, for the parents, I mean you're going to literally be absorbed and you're not going to have a life outside of your business.
Speaker 3:This is so true and it's even in your own business, even for me, in my own business. I love, I love everything I do so much that it's it's a hobby, it's an obsession, it's a it checks so many boxes of contribution obsession hobby you know income, all of that that it's like it's happy spot to be. And it's so easy to find myself driving in the car and not being present. It's like wait, wait, wait, jules, step out of your mind, be present with your kids. And I have to say that aloud to them. I'm like I'm so sorry I'm lost in thought over here, but you're here and I want to talk Like wow, yeah, it happens, I'm going to shift gears, total 180.
Speaker 3:Here we go, from doing the, the heartfelt things, the way you talk about economics and the way you understand and interpret you know the marketplace is absolutely phenomenal in my opinion. Um, and so I love hearing and I love listening. Conscious investor, you're gonna go when you're done watching this list, watching or or listening, head on over. Make sure you subscribe and follow the Drunk Real Estate Podcast, because it's so much fun listening to you guys talk and it's also deeply informative and so and hearing so brilliant, like you guys are all such strong thinkers. It's fun, it's lighthearted, but you guys know how to get deep and I love how you talk about what's happening in the economy. I just love to like you know, I hear a lot of people saying well, you know, interest rates are going to go down and I don't really like to get so lost in the interest rate conversation because it's just one toggle. But I would just love to invite you to say what are some of the most exciting things you're noticing in the economy right now.
Speaker 2:So interest rates will go down and then they'll go back up again and they'll go down again and they'll go up again. And I think that's the takeaway that people need to realize that everybody's so focused on the short term, what's going to happen in three months, six months, 12 months, when I think, well, it's definitely important. We have to be focused on the short term, especially if we have investors, we have investments. We need to manage those investments short term. But before we think long term, we have to start by looking at the bigger picture, and the bigger picture is the economy runs in cycles and the economy has always run in cycles. I mean, we've had 35 recessions over the last 150 years 160 years and so if you divide 160 years by 35 recessions, that's a recession every four or five years. And so if we're going to have a recession every four or five years and I know it's been a really long time since 2008, we had the longest market expansion in history. But the reality is, for anybody that's old, like I am you remember that before 2008, we had recessions every few years, and so there are going to be times where interest rates are high, and interest rates tend to be high before recessions and then we're going to head into a down period and everything's going to suck and it's going to feel horrible and it's going to feel like everything we've worked so hard for is going away. And then, 18 months later, 24 months later, we're going to get into that next economic expansion and everything's going to be great again and life's going to be wonderful. And we have to get used to these cycles. And so for anybody out there, that's like thinking well, where's the market headed? What's going to happen in the next three months, or six months or 12 months? Yes, that's important, but keep in mind that, regardless what happens in the next three or six months, in three years or four years or five years, things are going to be completely different. And then in 10 years, they're going to be different again and we're going to keep going through those cycles. So whenever things seem bad, don't get hung up on it, because they'll get better. Whenever things seem good, don't get overconfident, because they will get worse. And so where we are right now is it's weird, we're in a very weird part of the economic cycle, and I would even say that in my lifetime and I'm in my early 50s. I don't remember a time that it was anything like this and I know, talking to some people maybe the 80s were like this, where we saw periods of high inflation but not necessarily a strong economy. So maybe we're going back to the 80s here, before we've seen what we're seeing.
Speaker 2:But I think that we're likely in for a softening in the economy. We've definitely seen that over the last month or two We've seen inflation come down. We've seen retail sales numbers start to come down. We've seen prices for wholesale goods come down, so businesses are buying things cheaper. Business confidence is coming down. Everything's kind of pointing towards a softening in inflation, but it's likely going to lead also to a softening of the economy. So I wouldn't be surprised if in the next six to 12 months, we see a recession.
Speaker 2:But I think this will be good because I think we do need a reset in the economy. Right now. I think people are in a lot of debt. Obviously, real estate prices are super high. There's a lot of things that a reset. It might be bad for some people, but I think for the overall economy would be a good thing, and so I don't expect there to be a lot of great news over the next year or two, but I don't think it's going to be that bad either. I don't think we're heading towards a 2008 type event. But long story short, what we've seen over the last two or three years, with asset prices going through the roof, what we've seen the last 10 or 12 years, with multifamily doing great and single family doing great and all of their assets doing great, I think that could slow down as well. So I think we're getting back to the normal cycles and we may see a recession here for the first time since 2008.
Speaker 3:I think it'd be refreshing as well. I think the recession it's just a natural like cleansing that needs to take place to kind of recalibrate everything, to reground what is taking place in the marketplace. You know, we see the prices, we see everything. Just kind of recalibrate everything to reground what is taking place in the marketplace. You know, we see the prices, you see everything. Just kind of sigh. It's like a sigh of relief, thank you, because when I think about growing and like if you and I, we went out we're running and someone said, no, just keep running. Like, and they keep moving the goalposts, no, you're gonna run further, you're going to run further, wait, whoa, whoa, whoa, we'd be exhausted. And I know that the economy isn't a physical being, but I feel like it just gets across and it's like can we just stop and just catch our breath here?
Speaker 2:Yeah, and what that tiredness is? What the analogy is in the economic world is debt. So what we're seeing when we have good economic times, generally we have low interest rates. Businesses are doing well. So they want to buy, they want to expand, they want to hire more people, they want to buy more equipment, they want to buy more factories, they want to buy more inventory. That all takes money. So they borrow lots of money and they do it at low interest rates, and so everybody's taking on debt. People are taking on debt personally, businesses are taking on debt. Debt's just being created out of thin air. And then things start to slow down. And when things start to slow down and things are actually they overheat. Before they slow down, they overheat.
Speaker 2:The Fed says, okay, things are overheating, there's too much demand, people are spending too much money, things are too good, it's causing inflation. We have to raise interest rates to stop the inflation. And so once they raise interest rates, well, everything starts to slow down. And now suddenly interest rates are higher, so it's harder to get debt. Floating rate debt that we had is now cost more because interest rates have gone up on the debt that we had. Suddenly, people can't pay their debt anymore. Debt becomes so burdensome that that's what causes the recession. The nice thing about a recession is exactly what you said is it's a cleansing. By cleansing, what I mean is it's a cleansing of debt. Businesses go bankrupt, people go into foreclosure, people have to declare bankruptcy and credit card companies take big hits, and it's not a good thing, but it's a necessary thing for the economy. We need that cleansing. We need that debt to go away so we can start over and head into the next cycle.
Speaker 3:It's absolutely imperative. Are there any markers that you like I mean you're, I just feel like you're in the weeds, like of all of this and you have such an understanding of it. What are some of those like markers that you look for as like, almost like KPIs of sorts? With the economy, everyone has, almost, like you know, conscious investor. You might prefer to look at cash on cash, but another conscious investor might like to look at the IRR, and so everybody has their nuances that they're looking for. So what are you know, what are Jay Scott's nuances of looking at the economy? Your lovers?
Speaker 2:Yeah, there are a few things that and I'm not going to take credit for any of these these are things that have been tried and tested by economists throughout the decades, and what we found are there are a few very reliable leading indicators of recession. So number one and no surprise to anybody is just GDP numbers. So basically, gdp gross domestic product is the total output of the economy. How much money is moving through the economy, and as that tends to trend downwards, as the economy starts to slow down and maybe even shrink, if we get negative GDP, that's the first sign of recession. In fact, for a lot of people, that's the definition of recession, and what we've seen over the last several quarters is that GDP has started to slow down. We've been over 2% for much of the last few years 2% growth per year. In the last quarter, we saw growth at 1.3%. This is not a horrible number, but given that we were expecting over 2% again, 1.3% was a very big surprise, and so it's leading some people to believe that this could be the reversal of that growth in the economy. That's number one. Number two is jobs. There's one particular indicator when we look at jobs. There was a woman, an economist, a decade or two, named Claudia Somm. She theorized and the data supports this that the unemployment number is unimportant. It's not how many people are unemployed, whether it's 3.5 unemployment or 4% unemployed or 5% or 6%. The important number is, or the important point is the trend of the unemployment number. And so what she said and again the data bears this out is that if unemployment goes up a half a percentage point above the low point in any given year, that's literally the single best leading indicator of recession there is. So basically, right now, we got down to about 3.6%. In the last year we got down to about 3.6% 3.7% unemployment. Today the unemployment number just hit 4%. So we're about 0.3% 0.4% above the low point in the past year. If we get to 0.5% above the low point a half point above the low point, which would be 4.1% or 4.2% that's literally the best leading indicator for recession. So I know the Fed, I know a lot of economists, a lot of armchair economists like me are keeping our eye on that unemployment number, because if it gets to 4.1 or 4.2% even though 4.1 or 4.2% is actually a really good number historically but the fact that it's a half point higher than the low point in the past year that's going to be majorly concerning. So that's the second thing.
Speaker 2:Third thing that we tend to look at is this thing called the inverted yield curve. So government borrows lots of money. That's how we fund all the ridiculous stuff that the government spends money on. They issue these bonds and big investors, big companies, countries basically will buy these bonds. So they're loaning the government money. And so if we buy a bond that lasts a year or two years, a short-term bond, the government's willing to pay a certain amount, typically a small amount. If somebody buys a bond that lasts 10 or 20 or 30 years, the government's willing to pay a little bit more because obviously they're taking a bigger risk by holding that bond for 10 or 20 or 30 years. And so sometimes what we see is a weird situation where the market kind of pressures the price of these bonds to kind of move in opposite directions. So short-term bonds end up generating more return than long-term bonds, and we call that an inverted yield curve, and when that happens that's a good indicator of recession, simply because banks they keep the economy going by lending money.
Speaker 2:So much of our economy is debt driven and banks like to borrow money short term and then lend it out long term. They want to borrow money at that 30 day rates or 60 day rates or 90 day rates, and then lend it out to people like you and me as investors for 10 years or homeowners for 30 years, and so they rely on being able to get debt short term debt at very cheap, and then they loan it out at higher rates, but with an inverted yield curve they're actually borrowing the money. The banks are borrowing the money at higher rates and loaning it out long-term at lower rates, and so the banks are losing money. They're not losing money, but they're not making nearly as much money, and so an inverted yield curve puts the banks in a situation where they don't want to loan money nearly as much because they're not making as much money by loaning, and so when the banks start to slow down lending money, that impacts the economy, and we saw that in 2008. One of the big drivers of the 2008 recession was simply that credit tightened up so badly, banks stopped lending, and so this inverted yield curve is another big indicator.
Speaker 2:We've had an inverted yield curve now for about 23 months, so since July of 2022, which is the longest period we've ever had an inverted yield curve, and so typically we think that within 18 or 24 months of the yield curve inverting is when we're going to see a recession. It's now been 23 months, so there are a lot of people who think, from an historical perspective, we're probably within a couple months of a recession there. So just looking at the data, and again, anything can happen. The data has been wrong before and the government actually has a lot of control over the economy the Fed. By printing more money, by lowering interest rates, they can stave off a recession for quite a long time, as we've seen. And so just because the data says we might be heading for a recession doesn't necessarily mean we are. But as of right now, the data is making it look like it's probably on the horizon.
Speaker 3:And I think it's interesting, and you and I have enough life experience and we've experienced recessions enough times. To we, it's not a bad thing, it's a great thing. On the other end of it, like it's, it's just like. I look at it in a very healthy way. I always think it's interesting. I'd love to get your opinion and I just conscious investor. Can you see why I'm like gosh? Can we just get inside the brain of Jay Scott please? So you have such a great way of explaining things, jay. Just to double click on that real fast.
Speaker 2:Can I say something real quick, Because you brought up the point about recessions aren't that bad of a thing. I think part of the problem that we're seeing right now is the typical let's call it real estate investor is probably in their late 20s, early 30s, maybe even mid 30s, and so the last time, the last recession, was 2008. And that was at this point 16 years ago. So if they're in their mid 30s, even 40 years old, when they Can you hear me?
Speaker 3:There we go. Yes, okay, during their mid-30s, early 40s.
Speaker 2:Sorry about that. So typical real estate investor now is probably in their late 20s, early 30s, maybe mid-30s. 2008 was 16 years ago. So during 2008, they were in their teens. They might've been 10 years old, five years old, 15 years old. They were young and the recession before that was 2001. Most of the real estate investors today don 15 years old. They were young. The recession before that was 2001. Most of the real estate investors today don't remember 2001. They certainly don't remember early 90s or late 80s or the four recessions between the late 60s and the early 80s. They don't remember those. All they remember is 2008.
Speaker 2:2008 was such a horrific event for many of us that if that's the only thing you remember, that, if that's the only thing you remember, if that's the only recession you remember, you're going to be terrified when you hear the word recession, because in your mind, a recession is what happened in 2008. And what they don't realize is what people who are younger than we are don't realize is that most recessions aren't like 2008. 2008 was a once-in-a-lifetime event. We haven't seen anything like that since the Great Depression. A typical recession is a whole lot more mild. It's not fun and it affects a lot of people negatively, but it's not like 2008. I think it's really important for people to recognize that, while 2008 is this thing that we think about as a recession, the typical recession is nothing like that and it's unlikely that the next recession is going to be anything like 2008.
Speaker 3:I appreciate that you mentioned that what's interesting is, by nature, of growing up in a residential real estate and I always say that because it's a very different environment, in a different thinking, than real estate investor thinking. But what was interesting is that, growing up in that environment, I just was aware of the recessions and I remember the dot-com crash and I remember even though I was little I was one of those my daughter is the same way just highly aware, just observing what is taking place, and so it was just very much like, oh yeah, okay, this does suck. You know this isn't necessarily fun, maybe we can't go do all the same things we used to do, you know, with ease and such, but I just remember, oh, and we got through it and it wasn't so bad. But 08 was you're right, I didn't even that was short-sighted on my part, taking for granted my own experience to say. A lot of people, 08 was their first wide-eyed awareness and that was definitely a smackdown for a lot of people.
Speaker 2:It was, and it's created a lot of misnomers in people, in people, if we talk about it. If I go to the typical real estate investor these days and I say, okay, you remember 2008 and how real estate prices crashed, if I ask those investors of the previous 34 recessions before 2008, how many times do you think real estate values crashed? They'd probably say a few times. The reality is they never did. If I asked them, how many times do real estate values go down more than 1% in those 34 recessions, I'm positive most of them would say several of them did. The reality is none. Real estate literally has only gone down more than 1% once in the last 125 years, and that was during 2008.
Speaker 2:Even during the Great Depression, we didn't see real estate values go down the way they did in 2008. And so typically we don't even see real estate values go down. Same with rents. People are terrified that rents are going to drop 20%, 30%, 40%. Yeah, we've seen rents go down a few percent before 2%, 3%, 4%, 5% but even that is very, very rare. It's unlikely we're going to see any major hit to rents because that's just not what happens during most recessions, and if all you remember is 2008,. You probably think a lot of things are likely to happen that actually aren't very likely to happen during the next recession and the one after that.
Speaker 3:I feel like that's so much optimism. You're welcome, conscious Investor. There's some optimism for you know, a recession now here's. Here's one of the interesting questions that I have for you. Um, all my questions are interesting, but as we wrap up here, um, I am curious. I have my own opinion and my opinion is, as we go into any type of presidential election year, I feel like they try to just keep everything. My experience is like keep everything stabilized. We'll keep all the levers, all nice. Everything's going to stay neat and tidy until we have this election experience.
Speaker 3:I'd love to hear your perspective on that and if, in your opinion, they would save off a recession if the Fed would just to keep everything cool leading into the election.
Speaker 2:Yeah, we've talked about this a lot on the Drunk Real Estate Podcast. We did a segment a few months ago where one of us I don't remember who it was walked through the data on what the Fed tends to do during election years just to get an idea of does the Fed tend to favor the incumbent or the person running. Does the Fed try to make sure we have a great economy or do they not care? And what the data says is that the Fed has actually done a very good job historically of being impartial, of being independent and really trying to do the right thing for the economy. We've actually seen more times where the Fed has raised interest rates because we were heading towards inflation than they've lowered interest rates to kind of keep the economy moving along, keep the economy overheated, and so I want to say, cautiously optimistic, that the Fed is going to do the right thing, which is they're going to do as little as they need to to ensure that things keep going.
Speaker 2:But if we see a situation where either we see inflation spike again, I think they would be willing to raise interest rates again, or if we start to head into a recession, I think they will be willing to cut rates. But for the most part I think they will be willing to cut rates. But for the most part, I think the Fed's going to try and be as impartial as possible. They're going to try and not look like they're taking sides and I think if they had their way they would do as little as possible between now and the election. So, barring any major economic situation either inflation spiking again or hitting a recession I think it's unlikely we see either rate cut or rate hike over the next several months. I think we will see a rate cut, but probably after the election.
Speaker 3:So interesting, jay, I can literally just I feel a little selfish because I just enjoy picking your brain and, you know, accessing it. It's like you know what's inside Jay's brain and you know you explain things as such a simplistic way and I really appreciate that. And, conscious Investor, I know you have appreciated that as well, because it's not often where people can take these complex concepts and really like parse them down into a way where we can access them and really engage in a practical way for lives, investing in well being. So I can't thank you enough and I want to double down and say conscious investor, make sure you go check out the Drunk Real Estate Podcast because it's so fun.
Speaker 3:You, mauricio, aj and Kyle there's such a camaraderie between and I know you guys are friends, but it's just there's so much camaraderie and it comes out and every single one of you brings going full circle back to the beginning of our conversation about masterminds. You all come with very unique perspectives and sometimes you challenge each other and it's such a friendly way. So it's nice to see some discourse taking place that's respectful and authentic and it's like well cheers at the end of the day.
Speaker 2:Yeah, that's why that show is so much fun, and for anybody that's listening that hasn't listened to it, it's basically the four of us every week getting together and just talking economics, talking real estate Sometimes we talk politics if it's related to real estate and we all come from very different backgrounds, not just the businesses we're in, but we come from different socioeconomic backgrounds, we have different political views, and so it can be fun to debate. If for no other reason, then it's great to hear people that disagree with you, smart people who disagree with you, because I can't tell you the number of times that we've had conversations where I was debating with one of the other guys on the show and I walked away thinking he's right, I was wrong, and so, if for no other reason than to hear all sides of a point, is a great reason to listen.
Speaker 3:It's so great, jay. Thank you so much for your time today. Is there any other way that the conscious investor they can go listen to Drunk Real Estate? But what other ways can they reach out if they want to get to know more of you? Follow you. I will say LinkedIn, y'all for sure. What's your favorite place for people to connect up with you?
Speaker 2:Easiest way is if you go to jscottcom, just the letter J, J-S-C-O-T-Tcom. That will link you out to all of my social media, to all my websites, to my email, anything else you might need or want to get in touch with me.
Speaker 3:Love it, jay. Thank you so much for your time. And Conscious Investor thank you for your time for listening. Remember this show. If this meant something, if this supported you in some capacity, then please. There's a free way of supporting the Conscious Investor podcast and that is sharing the show. So go ahead and share this out on your social platforms or with a friend. But this is how the show grows. It is a show that grows organically. It's not paid ads and things like that. It's from listeners like you taking initiatives to be ambassadors. So thank you so much for helping grow the show. Expand the reach that we can help elevate other lives around the globe. Until next time, cheers to your health, mindset and health. Thank you.
