The 2026 Crash Has Begun And This Is How Millionaires Are Made

The multifamily market right now is going through the biggest reset that I've seen since 2008. Most investors usually during this time they sit on the sidelines just waiting for things to get worse. They're waiting for things to hit the bottom. But as you know we've been actively buying hundreds of millions of dollars of real estate in the last year. In this video I'm going to break down exactly what is happening and why properties have lost value and are losing more value and more importantly how we are finding opportunities that most people don't even see. Because the reality is is this is exactly when real wealth is created and this is exactly what I did in 2008 and 2009. So if I was to boil down the exact problem of what is happening right now. First of all it's very very different from what happened in 2008. In 2008 a lot of people did not have a lot of equity in their home when the market corrected. And so the single family markets what happened was the prices of the homes went down below the loan. So 2008-9-10 that was more of a single family correction. And what happened was a lot of normal people main street that had just gotten into real estate ended up losing their homes and moving into the rental side of the equation. What that did is it pushed more people from home ownership to the rental side of the equation. Putting pressure of course on the supply of multifamily housing and rents and all of that. So more people moving over to one asset class simply just put rents higher values higher etc. And also during that time interest rates started to go low. So that's what pushed up the bubble. Today what happened are in today's market it's very very different. And it started with people not investing in the basics and the fundamentals of why you invest in the first place. So one of the things that I always teach is always make sure whatever you're buying cash flows period. So there's only a couple of things that you have to do for that. One you have to verify the income. Two you have to make sure that the expenses are accurate as represented from the broker or from the seller. And three you need to fix your debt. If you could do those three things you will cash flow. If one or more of those things aren't accurate then you risk losing that property. So what happened with everyone was kind of the single point of failure where the interest rates started to go up as a result of the inflation that peaked in June of 2022. It peaked at 9.1% and the Fed reacted by increasing rates. So essentially the easy way to say it is that mortgage payments doubled in many situations. So when you go income, expenses, mortgage payment, cash flow. When the mortgage payment doubles no cash flow. So what happened was people started running out of cash flow and they were doing cash calls and they were doing all this stuff. When you start running out of money then you stop spending on things like TAPX and things like all your bills and your employees and all the things you know it takes to maintain a property. Because you're basically trying not to lose a property. Well they were hoping the rates would go down but they haven't gone down. So that's where we are. And so these properties were already on the lender watch list. And how do you get on a lender watch list? You get on a lender watch list when your debt service coverage is a 1.0 or less. And so essentially what that means is your net operating income, which is your income minus your expenses, is equal or less than the mortgage payment. That's what that means. So that is a red flag for lenders. No lender on the planet wants 100% of the property's net income to pay the mortgage. But in many many cases it doesn't even cover that. So we have is a situation where there's a lot of distress. So distress comes in this particular case from not understanding how properties are being managed. Not understanding how to hire or fire a management company. Not even really understanding on what to do when you step onto a property. Because most of these people that bought these assets were just capital raisers. And so now they're in the situation that they have no clue what they're seeing, what to look at. Even though they would tell you they would, they don't. And so these properties have slipped in occupancy and in many many cases are almost completely vacant. Most of the real estate playbooks from 2023 and 2024 are breaking apart right now. The debt structures that made sense back then are aging in a different rate environment. Bridge loans are coming due. Refinances do not pencil. And there's no equity. I had a deal that was sent to me just a few weeks ago. It was lender owned and went back to the bank. It was a 300 unit property in Texas and that property only had 5% occupancy. And so we haven't seen deals like this since 2008, 2009 during the GFC. Tarle Yarber and I are doing a free breakdown on many investments on May 20th of exactly what we're seeing right now. If you'd like to sign up, just register on the link below. So we just looked at a 278 unit property in Texas that was 5% occupied. If you can think about that. 5% occupied. That's not good. That doesn't pay anybody any time. Obviously it's just severely mismanaged and they don't have any money to turn units and who knows exactly what happened there. But I've seen this before in 2008. In 2008 we had the exact same thing. So what you have is you have really really bad operators and lenders that aren't doing their job and checking assets and taking the asset back. And these things a lot and many times are sliding basically to 100% vacancy. So the property that we looked at and already bid on we may or may not get. The lender told us that there were two more. So there's three in that market that are basically all in the same condition. So now that doesn't necessarily mean that you want to buy that asset. It's just the state of the industry. Whenever you see an asset like that that is 100% vacant that was worth this in this particular case it was worth 45 million dollars in 2022 because there was an appraisal and because it was renovated. So these are not bad assets in bad locations. It just happens to be poorly managed and a really really bad ownership group that let the whole property get away from itself. So that's what we're seeing right now in our investment committee each week. So no surprise that there's a fair amount of people bidding on these and want to buy these right. So if you've been in the game for a while this is the time. So it is competitive right because who doesn't want to buy a 278 unit property for 8 to 10 million dollars when it was worth let's say 45 million dollars just several years ago. So there's a lot of people bidding on this. The real issue is how long will it be like that and how long does will it take to fix it right. So if you buy it you step into the current situation. You have to repair it. There's no cash flow. You have to figure out how to get it financed if you even can or you pay all cash. There's all these things that happen that you have to be prepared for as you continue as you try to buy these assets. In times like this a lot I've heard investors say buy when other people are fearful. This is one of those times. Why would somebody be fearful? Many reasons. Who wants to step onto a project that's 100% vacant that can't be financed right. It's completely outside of a box right. A lot of people especially beginners or even people have been in the business for a little while they're have they're not going to have any clue on how to fix a property like this. So but this is specifically what you want to be looking for. You want to be looking for assets that are broken that you can fix and that's where you create the value for the next person and for yourself. So what most people get wrong in markets like this is they wait and they try to time the bottom and I don't know how much further you can get from the bottom than 100% vacant. If that if that isn't a red flag I think most of the time they're just excuses. You know things make more sense when they're perfect right. Things make more sense when there's a tenant in them. When there's income. When there's expenses. I get it. That completely the bank makes sense of that. It gets financed. Equity makes sense of that. Investors can make sense of that. But that's not when you really really make wealth. When you make wealth when investors can see massive opportunity but only if you don't have the team that can fix that it'll never work. So what we're personally focused on is just like we would be if the market was good. Which markets are growing from a population and employment growth standpoint number one. Because the last thing you want to do is go into a market and buy a broken asset. There's no people that want to be there. So the first thing is you want to make sure that there are people moving to that area that want to actually be there. So employment growth. Population growth. Great neighborhoods. Submarket. All that kind of stuff. The second thing that you do is you need to verify all the current expenses and the rents and all those things and get a feel for how supplied that market is. So if the market has a lot of apartments to choose from then you might want to back away from that. But if it doesn't if it's a really good location and it's just everything around it is pretty well occupied and you've got this one outlier or two properties that are not in great shape due to typically debt or poor management. Then you go buy those and you fix them and you just bring them up to whatever the market's doing today. So that's traditionally what you do. So first you start with the market. Then you go to the asset. Then you start to unwind and you do all the underwriting to see whether or not it's even worth it. Then you make an offer. Then if you're lucky enough to get the best and final you have to prove exactly how you're going to buy that. What you're going to do. What time frame on it. Then you do the due diligence. Then you put that into a business plan and only then do you go out to the investors after all that work's done. So if you're an accredited investor and you want access to the exact deals that we're looking at. What we're buying today. How we are underwriting those deals and what we see coming next. You can apply through the link below. You think about what the big risks or the big variables would be if you're trying to buy something today and trying to fix it. The first one would be how big is the capital work that's needed. In other words how much money is it going to take to fix the property. That's the first thing and that's a really really difficult thing to figure out. The second one is how long will it take to actually make a cash flow. And here's how cash flow works. It's expenses plus debt. So if your expenses are $30,000 a month and your debt is $30,000 a month. Then your breakeven on income is $60,000 a month. So you start with your expenses and then you add on your mortgage payment. That's your breakeven. And so then you back into how long will it take for you to generate $60,000 a month to breakeven. So what you do is you work backwards and you figure out how much money that you need to escrow in what's called a capital reserve account or an interest reserve account. You want to have that money on high ground. So you're actually funding the property each and every month and for a certain period of time. And in most cases that's going to be at least two years on a project like this. So you're going to spend at least seven or eight million dollars to renovate this property in a two-year period. And you're going to have at least a couple more million dollars of negative cash flow that you have to fund during that two-year period. But the entire goal is if this property was fully renovated and fully leased today what would it be worth. So if if and only if it was worth 45 million dollars let's say which is what it was worth in 2022. And we buy it for eight and we spend another eight or ten we're into it so maybe no more than 20 million dollars. We should have around a 20 million dollar profit just to fix the property and bring it back to what it was originally. Now the risks of course could be that it won't get back to the 45 million dollars. Maybe it's 35 maybe it's 30. So those are all the things that you need to evaluate. Is it actually worth the risk and all that work to just make let's say five or ten million dollars. And it might be but you get the point. So you it's all math based it's all logic based. And if the numbers make sense then you pull the trigger and you make an offer. So it's it's impossible to know exactly how long this will unwind. I personally think it's going to be at least two years could be more. And the individual opportunities are going to be entirely based on loan maturity and how a property is being run. That's it. So when somebody runs out of money or when the lender says I'm going to force a sale or when the general partner doesn't have any more cash from their limited partners and they can't raise any more money. There's a series of things that all will happen in all different markets. So it's not going to be based on the market. It's going to be based on the loan and the operator. So if you go back and look at what we did in 2008, 9, 10, 11, and 12 this is exactly it. We were buying when everybody else was afraid. They were fearful of what was going on. So think about who was afraid. The people who just lost a lot of money including us. Ross and I actually lost some money in the last cycle and so did some of our investors. However, the math is the math. Like today if you can buy a hundred percent vacant property it makes sense. Like and you could fix it and you have the team to do it. It makes sense. So when you look back at the stuff that we originally bought in 2008, 9, and 10 let's say. Everybody said you look like a genius and of course we were looking at risk right. Like these properties were not in great shape. We had to put a lot of money into them. We had to hold them during a period of time and we had no idea as you don't whether or not they would continue to go up. But one thing that we did know is that we were buying them well below replacement costs and of course the money that we were putting in once we fixed them we knew we had built-in equity. So before we bought anything we had what we call forced value or forced equity. We knew we could buy something that was vacant, put tenants in it, fix it, make it look better, have the neighborhood and everyone be happy with us and then of course when the market was ready then we go back in and refinance and do cash out refinances. That's the plan now is to find these assets that are broken, fix them, put new money into them, put new tenants into them, make them shine in the neighborhoods and the markets that they are in. But running the numbers to only to the point to where the market is today. That's a really important thing. You don't project on what you think it could be. All you're trying to do is just bring these all you're trying to do is fix these properties and bring them to what the market is today. That's it and if the market improves great and if it doesn't improve it if it gets worse then you have to be prepared for and you have to budget for that accordingly. So if you want to see one of the deals that we just bought well below replacement costs you can click on the video here.