Brief Summary
This video is an interview with Keith Wasserman, founder of Gelt, a real estate investment firm. Keith discusses his journey from starting with small four-plexes during the 2008 financial crisis to building a large-scale real estate syndication business. He emphasizes the importance of conservative underwriting, capital preservation, and tax benefits like depreciation and 1031 exchanges. Keith also shares his thoughts on the current real estate market, the importance of compounding, and his personal life.
- Key takeaways:
- Conservative underwriting and capital preservation are crucial in real estate investing.
- Tax benefits like depreciation and 1031 exchanges can significantly enhance returns.
- Compounding is essential for long-term wealth creation.
- The current real estate market is experiencing a shift due to rising interest rates and inflation.
Gelt's Journey: From Four-Plexes to Syndication
Keith Wasserman started Gelt in 2008, taking advantage of the depressed real estate market after the financial crisis. He began by purchasing small four-plexes in Bakersfield, California, learning valuable lessons about the importance of location and tenant quality. As Gelt grew, Keith realized the potential for a scalable business through real estate syndication. He brought on experienced partners and secured larger loans, enabling him to acquire a 78-unit building. This marked a significant shift towards a more professional and structured approach to real estate investing.
The Importance of Conservative Underwriting and Capital Preservation
Keith emphasizes the importance of conservative underwriting and capital preservation in real estate investing. He explains that Gelt raises extra equity upfront to create a buffer against potential downturns. This strategy may slightly lower returns but prioritizes capital preservation, which is crucial for long-term compounding. He contrasts this approach with venture capital, where investors are willing to accept higher risk and potential losses in pursuit of significant returns.
Tax Benefits of Real Estate: Depreciation and 1031 Exchanges
Keith delves into the tax benefits of real estate investing, highlighting depreciation and 1031 exchanges. Depreciation allows investors to deduct a portion of the property's value each year, reducing taxable income. Cost segregation studies can accelerate depreciation, creating larger losses in the early years. 1031 exchanges allow investors to defer capital gains taxes by rolling over proceeds from the sale of one property into another. This strategy is particularly beneficial for long-term real estate investors who want to avoid paying taxes on their gains.
The Current Real Estate Market: Rising Interest Rates and Inflation
Keith discusses the current real estate market, which is experiencing a shift due to rising interest rates and inflation. He notes that prices for multi-family properties have declined by 5-10%, but rent growth remains strong. The higher interest rates have impacted returns, leading Gelt to become more cautious in its acquisitions. Keith believes that inflation will eventually lead to higher cap rates, which could impact property values. He also expresses concern about borrowers who have taken on high leverage with short-term variable loans.
Compounding: The Key to Long-Term Wealth Creation
Keith emphasizes the importance of compounding in both personal and professional life. He believes that consistent effort and progress, even on a small scale, can lead to significant results over time. He cites examples of successful entrepreneurs like Jeff Bezos and Elon Musk, who have achieved remarkable success through long-term focus and persistence.
Sleep: A Crucial Factor for Success
Keith acknowledges the importance of sleep, especially with three young children. He emphasizes that consistent sleep is crucial for maintaining mental clarity and productivity. He recognizes the challenges of balancing work and family life but believes that effective delegation and a remote work environment can contribute to a healthy work-life balance.
Gelt's Approach to Team Building and Growth
Keith discusses Gelt's approach to team building and growth. He explains that Gelt hires strategically, focusing on filling specific roles and avoiding micromanagement. He believes in empowering his team with flexibility and autonomy, allowing them to work remotely and manage their own schedules. This approach has enabled Gelt to scale efficiently while maintaining a smaller team size.
The Future of Real Estate: Technology and Innovation
Keith discusses the potential impact of technology on the real estate industry. He acknowledges the emergence of prop tech companies and the growing interest in fractionalized real estate investments through NFT technology. While he remains cautious about the metaverse and its potential impact on real estate, he believes that technology will continue to play a role in shaping the industry.
