Market update 2022 RECAP- Lehman Moment and More

This is our Q4 market update on what we're seeing out there in the world because it's important to understand where we're getting our data, what we're doing with our stregwhat what has happened

So I do want to share with you that DFW through 2020 had a greater, population growth THAN 47 states!

So put that in your back pocket.

That's why we're looking to invest in/near DFW.

We also know that Texas (which is where we're investing now) that of the 53 fortune 500 companies Texas has the most. We have a few more that have announced moving here so that's obviously really great growth metrics!

Not all of them are moving to DFW, some are moving to Austin, some are moving to Houston And other smaller places outside of Austin. You want to for sure see that population/job growth, growth in home value, crime decrease happening, wherever it is.

What we're looking to see is about 16% population growth by 2029 in Texas. Not saying that that is how we're underwriting/ doing financial analysis. We're doing analysis simply keeping up with inflation (2% or so) speaking of inflation check this out-

What we're actually seeing, and it's so crazy, is that inflation rate is already at a very high level. Labor has increased to 5% far surpassing normal inflation. And it's going to continue to increase till 2025. This is coming from some economists we follow.

NET- what I'm trying to say is the labor cost is outpacing inflation. Labor has been more expensive than we ever could have predicted. I'm sure if you're in any business or hiring companies/ hiring laborers, or you partner with those that are in construction, for example, You're seeing this as a challenge ( even for hiring C suite executives). That's going to really continue based on a few reasons.

We're looking at properties which are 1978 and closer to 1990 vintage/ build because we know that we're then not going to have or need all of that labor to be able to do the renovations that we normally have been okay with doing. Now with labor shortages and really more labor costs, our old strategy doesn't make sense to be able to get our investors their return without lengthening the business plan, so we've got to be a little smarter in what we're investing and what we're doing.

We want to make sure that we are able to keep our loans flexible, which typically means a bank loan, where there is no prepay penalty, or even if you dare, a floating rate loan/ ARM (that should have an upper limit of interest pre-established in your loan documents without a rate cap purchase needed Since these are completely unaffordable currently). We negotiate an Interest Rate Cap -on initial adjustment caps. This is the most your interest rate can increase the first time it adjusts.The interest rate ceiling is the highest interest rate possible under an adjustable-rate mortgage (ARM). This variable rate cannot exceed the ceiling rate. If the adjustable-rate mortgage loan has a capped increase then the borrowers rate is increased when rates are high. This increased rate is at 2%. Another name for the ceiling rate is lifetime maximum rate.??This cap is most commonly five percent, meaning that the rate can never be five percentage points higher than the initial rate. However, some lenders may have a higher cap.

For investment if you're looking at how large Texas is, the population of Texas makes up nine to 10% of the United States population . That's a pretty good chunk and Texas has always had the strongest GDP in the country and globally. As of 2019 The GDP of Texas ($1.78 trillion) is equivalent to the economy of Canada ($1.73 trillion), while New York's GDP ($1.70 trillion) matches up to South Korea ($1.66 trillion). Even the smaller U.S. states can hold their own!!! It has only stayed consistent as the lockdown and the re-distribution of wealth has happened.

WE HIGHLY SUGGEST TO KEEP YOUR MONEY IN TEXAS IN REAL ASSETS.

WE ONLY INVEST IN TEXAS

Here's another fact that I want you to think about that you're probably dealing with, whether it's a family member for you is that right now, there is $4 trillion sitting in Americans checking accounts, making no money, literally no interest/return and it doesn't make sense. In USA we're highly liquid, but people are taking a pause, but money sitting there not making any return that doesn't even make sense. Not even in a money market account, but just checking.

Minimum get it into a market account and better be able to keep yourself on track with longterm retirement goals by taking control of your funds. Inflation stops affecting your cash when put it into a solid asset. It doesn't even have to be real estate- you can invest in a cannabis farm, invest in land/ dirt, you can go invest in gold, you can invest any physical asset to keep your money safe.

Take enough to live off of for 18 months (because what I'm seeing based on a few things, 18 months we're going to see a big shift in everything in the real estate and economy) due to inflation being the way that it is-all that is predictable is the devaluation of the money you can have not taken out of your checking account.

Next we're going see a lot of automation changes happening to be able to impact/improve labor problems that we're having, they're going to get worse because of the federal business/commerce policy that we've had. We also don't know who's going be in office next to control our borders, for all we know we could completely shut them down, and we are not able to control affordable labor. Are we going to be able to have access to overseas labor? No. Due to this the problem is exacerbated having labor more inaccessible and more expensive, but automation is our shot to correct this.

"our first LEHMAN MOMENT"

A "Lehman moment" happened in October 2022 where the largest pension fund in England was over-levered and received a margin call. What do I mean by margin call? A pension fund uses margin to buy bonds. Yields on bonds soared to decrease yield caused by inflation. This is seemingly happening because of inflation now. When pension funds in the United States take loans, they engage in with insurance funds, and typically follow SOFR (which used to be LIBOR)?or London inter-bank offered rate) which is a benchmark for setting interest rates or a floor based on local market conditions. All financial institutions follow this benchmark.

This is showing what is going to transpire and is now happening. People are able to recognize it and act on that right now in America. This is exactly what happened to AIG before our biggest real estate CRASH in 2008 and then came the downfall of Lehman Brothers. This was our "Lehman moment " in 2008 for USA. It is a large public company wit trillions of american investment assets under management. Therefore AIG showing the same margin call, as mentioned above, would be your best indicator of the failure of their assets and what's happening with our insurance/funds/investments market-wide.

We have other tech now which will influence effects of deficiencies , like I mentioned, such as automation efficiency, and artificial intelligence which does predictive analysis to try to catch this ahead. For those of us who are open to that, and are making strides to increase efficiency and add that to our business, we're the ones that are going to be able to survive what's happening with the economy.

We would really suggest to check out an economist, Dr. Mark Dotzour a Professor at Texas A&M Real Estate Center, he is very good at explaining what we're seeing now with a realistic lense on 30-40 year trends and assessing positive AND negative FACTS. https://markdotzour.com

To learn more about macro and micro-economic trends for example, with defunding oil and gas, with our trades, and how that's going to affect everything that we're doing, visit his website mentioned above. For more quarterly up-to-date data (much better than the census data) go to Texas A&M https://www.recenter.tamu.edu Real Estate center and going look. I would go check it out beforehand, he goes dark and retires.

TRENDS

TREND 1

AFFORDABLE HOUSING

Something that the United States needs more than anything else is affordable housing. However, almost all of the ideas and models that have been introduced in the market are not what is actually going to solve the problem in the near-term. What needs to happen, that we don't have control over, is that each community that is undervalued.

For example, satellite cities outside of large MSA (metro statistical areas), who typiclly have the ability, in unincorporated areas, where there aren't as many requirements to be able to build, they'd be able to have a mass approval of new subdivisions. Those are needed and those obviously would need to be approved by the new president coming into office. That is what is needed to be able to build affordable housing, for example, in a city that is near Brownsville, Texas, it's a smaller city, they have homes that in Dallas TX cost over a million dollars to for $200,000. So this is what I mean by affordable housing. This Welcomes everyone to own a home.

TREND 2

that we are seeing is that United States currency (USD) tends to be 15% better performing than foreign capital. Therefore, foreign capital is increasing its influx or infusion of capital into United States based bankS.

TREND 3

when it comes to lending institutions as of the first of the year in 2023, we're going to see three more rate hikes in varying magnitudes all based on the Federal Reserve (increasing loan interest rates increasing the cost of money .50-.75 increase points per "rate hike") this means investments will lose profitability if they are dependent on leverage for returns. Now of course, I do not have a crystal ball.

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