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Show Summary
In this conversation, Branden DuCharme discusses the current debasement cycle characterized by inflation affecting purchasing power. He emphasizes the common pitfalls in real estate investment metrics, particularly the focus on yield rather than capital appreciation, and highlights the significant impact of interest rates on investment returns.
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Investor Fuel Show Transcript:
Branden DuCharme (00:00)
The last two is Bitcoin. I think Bitcoin for the same reason as gold. But again, these are all going to take different paths to the same destination. And so what it allows you to do is still take advantage of diversification. Bitcoin is flawed with its own things in the end. But I think as taking it on a path towards the debasement final destination, it’s got some interesting diversifying effects.And the last is just generally what I call liquid alternatives, right? And so this is stuff that you are able to know what you own, right? So this isn’t private credit or private equity.
Quentin (02:09)
Hello everyone. Welcome to the Real Estate Pros Podcast. I am your host, Q Edmonds. And you guys already know what I’m going say. I’m excited to be here. I’m excited about our guests. I’m excited for you to learn things through their lens, from their perspective. There’s always a unique perspective from our guests, for our listeners and viewers. so I’m excited today to introduce you guys to Mr. Branden DuCharmeHow do I do this? Du charme? Did I nail it, Branden? DuCharme. There we go. DuCharme. Man, listen, I’m so excited to have you here today. How you feeling today, man
Branden DuCharme, CMT (02:37)
DuCharme, DuCharme.Great, it’s an excellent day in southern Utah. Beautiful weather as always.
Quentin (02:47)
I love it, man.I love it. Well, listen, listen, we don’t have to waste any time. I want you to take out viewers into your world. Let us know what your main focus is these days. Maybe if you want to take us on a journey of how you got started and then tell us what markets you’re operating in as well.
Branden DuCharme, CMT (02:59)
Mm-hmm.Yeah. If anyone wants to really get my background or how I got started and everything, the quickest way is actually just this week, I rebranded my own podcast. I was doing it under my firm’s name of DeSharp Wealth Management and we rebranded that to the Tall Oaks podcast. It’s a semblance of a multi-generational impact and story.
have a bit of real estate experience going a little ways back before I was managing money professionally for clients and managing private wealth. And I think the biggest takeaway is I see a really big disconnect in the real estate community between what they’re doing, what has worked and what they think is going to work and the headwinds they’re facing, the risks that they’re not calculating for and the opportunities they’re not taking advantage of, right?
And so I think as we have some of these economic shifts, markets have changed, market structure has changed. And certainly I don’t have to tell everyone that the interest rate environment has changed. But the plays of yesterday, I don’t think are going to work for the same reasons. Some of them will and some of might work, but won’t be optimal, I think.
I definitely don’t want to be chicken little calling, you know, the sky is falling or anything like that. But it’s been interesting taking an exit from the real estate industry as a full-time real estate professional that way. And the last several years I’ve operated as the CFO of a real estate partnership, I was involved in. And so we’re still operating still very close to real estate.
and still operate pretty close to real estate because it matters. And I think hard assets matter, but now typically approach it from evaluation of larger real estate opportunity sets and ⁓ macroeconomic conditions, right? ⁓
Quentin (04:50)
Absolutely. Absolutely.Branden DuCharme, CMT (04:51)
Yeah.Quentin (04:53)
I loveit, man. I love it. I know you and I was, we was talking a little bit backstage of how you serve your clients. I I love the way that you serve your clients. And I guess one of my questions is where does that passion come from? Where does the passion to really serve your clients when it comes to wealth management and managing their portfolios, where does that passion come from,
Branden DuCharme, CMT (06:02)
Yeah, I think the easiest way to really dig into that and keep it short, obviously we only have like 30 minutes a day, is at heart, you know, my grandpa is the living proof or was the living proof of the American dream. And, you know, please like check out my episode recently of the Tollix podcast where I explained the family story. But in the shortest way possible, grew up in the Great Depression.in foster care, his parents couldn’t even afford to feed him or take care of him. You know, made a name for himself, came back from World War II, taught himself how to invest money, became a real estate developer. It was really heavily involved in real estate, built homes, actually was the architect of the homes as well. And
in the 70s, as he saw the recession coming, actually, he was able to pivot and look at his own life circumstances. He pivoted from building spec homes and aggressively developing to taking a job actually for the government and ended up retiring as the director of housing and urban development for Wisconsin. Right. And really, really just smart guy that was totally self-taught, totally self-made, you know, and
looking at the lessons he taught my dad and myself growing up on the same farm is like you don’t have to be exact, but you have to use some prudence and care. And you have to be interested in the things that aren’t going to get you wealthy the fastest, but the things that are going to keep you wealthy the longest. And one of the things that you should be able to do is make prudent decisions, particularly around your currency, right? And so you couple like, we have this big belief and faith in
the US, greatest country on earth, no doubt. I’m a veteran myself. And so I believe in the American dream. I believe in so much of what the government stands for. But I’m also passionate about what they’re currently doing. As someone that’s kind of more libertarian minded myself, I think what they’re doing with the currency in particular and the effects it’s having on things is really changing the environment.
Quentin (07:53)
⁓ wow.All right.
Branden DuCharme, CMT (08:00)
And so what I’m passionate about is I understand that. And as somebody that loves this country and loves my fellow countrymen and women, I want to have the opportunity to bring as many people along with me to success on navigating this unfortunate period in American history, I think is how it will be viewed in hindsight.Quentin (08:17)
Absolutely. I’m not sure. Can you still hear me, Branden? I’m having low technical issues over here. Am I still coming through loud and clear?Branden DuCharme, CMT (08:24)
Yeah, yep.Quentin (08:25)
Okay, beautiful. Now they may, I’m reading the error message and saying that it’s trying to reconnect me to my internet. So we may lose it for a little bit. If we do, I’ll come right back, but I’m gonna keep on rolling just in case nothing happens or whatever. But man, thank you for that story. Thank you for bringing in why you’re passionate, bringing in the story about your grandfather. It really shows why you’re passionate about what you do. Thank you for your service to this country. I really see it, man. It’s really shining through.with that story. And so I love again, the way that you are dedicated to serving your clients. And I love the fact that you told the story, right? One thing I always say is that we like to talk about the success, but sometimes we don’t want to talk about the journey to get into success. And so within your world, there have been times when you had to overcome, you know, in a real estate world, say, you know, deals, like deals go sideways, things get real.
There’s times when you have to pivot fast. Du you have any of those type of stories within what you do, sir?
Branden DuCharme, CMT (09:57)
Yeah. Well, you know, in my world, when you look at forecasting and making capital market assumptions and having to make decisions today for how you think things are going to be in 18 months or two years or three years away from now, you have this trade off you have to make, right? Is do I want to look right now or do I want to look right then? And you kind of only get to pick one typically, right? Because what you find is you can make a forecast andit’s going to look maybe not right until it comes to fruition and you will look sort of stupid along the way to the outside observers. So in particular, back in 2021, I was talking about inflationary pressures, the havoc that it could cause in the markets in 2022. was cautioning people to be careful on acquisitions of real estate in 21. I thought there was too much euphoria.
And as interest rates rose in 2022, there was a number of times that I got invited out to real estate functions and mortgage lenders would be saying, you know, rates will be back down by the end of the year. They’re going to be back down in the threes. Don’t worry. And, you know, and it was funny, I could always look at them and say, like, you read Barry Habib, don’t you? You know, and they’re like, yeah, I’m like, well, he’s wrong. And so I got a lot of hate actually from
the real estate community that, know, cause I was kind of the wet blanket. was saying like, look, if you got to buy a deal or you got to refinance something, lock it in now, you’re going to have probably the best favorable terms you might get for a very, very long time. And, and I think people don’t quite really appreciate what’s going on under the macro forces with, ⁓ with interest rates and the headwinds facing particularly certain segments of, of, of real estate. One of the things to expand upon that,
I’ve seen as I was involved in real estate and around real estate in that community is there’s a natural progression of the real estate investor, right?
Branden DuCharme (11:26)
well, we’re in a different market environment. We’re in a different economy. There was a shift fundamentally in the economy as a result of COVIDand there’s a lot of forces at play there that we just don’t really have time to dig into today. But the biggest thing people have to understand as a real estate investor that I’ve observed is there is a natural tendency as real estate investors. There’s sort of a progression. Right. So you start at
maybe house hacking, right? Or you get, you know, you’re going to move and buy a new primary residence and keep your old residence as a rental, right? That’s kind of the first play most people take where they get a small single family townhouse or a condo or something as a rental property. That’s kind of their first thing. Maybe they do a flip and, you know, for a kind of joke, like the flippers are the day traders of real estate.
You know, you’re really a trader, not a real estate investor, which is fine. I mean, I’m a trader myself, right? So like, I don’t say that as as a dig, it’s just, you understand the world you’re playing in and the risks that come with it, right? But you end up building up a portfolio of residential real estate properties. And the next progression is what, know, duplexes, multifamily.
As you get as you grow that portfolio and you’re getting a ton of doors, you start looking to 1031 maybe into something like DST opportunities and get into larger projects, invest in opportunity zones, do different stuff, right? Get into commercial properties, right? Like that’s a that’s a big milestone for a lot of real estate investors is, hey, I’m doing some commercial property stuff.
And the concern that I have is that as people look to become more aggressive because the progress has sort of slowed on, I’m building my wealth and real estate was going so it was just breakneck speed for years because of the low interest rate environment. And all of a sudden that’s slowing down and there’s challenges. And so one of the things you hear in the real estate space all the time is I have to get laser focused. I’m going to get laser focused. I hear that a lot. And I respect that and I respect the hustle, but
If you’re getting laser focused on the wrong thing, it’s going to lead to bad results. And I only say that as somebody that has been involved in, and it comes from a family lineage of three generations that have dealt with real estate, liquid assets, market cycles, intergenerational wealth, and all the complexities that come with that. And so the big thing to understand is that we’re now in what I would call a debasement cycle.
And that’s not a large lift to explain that to people that, hey, what that basically means is inflation is wrecking your purchasing power. Inflation is killing your dollar. And real estate investors have the tendency to look at not on capital appreciation the right way. They tend to look at yield. They tend to look at metrics like cash on cash return, cap rate on a deal, these sorts of metrics.
The problem is that’s probably not where most of your return opportunity set comes from. And in particular, those metrics, the largest input or the most sensitive thing it is, the thing it’s most sensitive to is the interest rate environment, right? So the higher interest rates go, the higher your cap rate goes. Well, the higher your cap rate goes, the lower the valuation of your property is. That’s just simple math.
And, and, and, and, hey, by the way, the higher interest rate expenses, the lower your cash on, you know, your cash on cash is going to be looking because you’re not, your, your NOI on deals is just diminishing. And so capital appreciation. Well, what drives capital appreciation? Well, if you’re in commercial real estate, it’s the lowering of an interest rate environment, right? And it’s because it allows for cap rate compression, which cap rate compression would increase the equity value of your property.
The other thing is rent raising. Okay, if rents rise, you have more operating income. It can push the valuation, especially in commercial real estate. And I just don’t think that those things really are going to come to fruition. If you look at the macroeconomic data, the ability to push rents on commercial real estate, again, this is all… I’m going to put an asher on this whole conversation, right? It’s always a great time to buy a phenomenal deal in real estate.
And if you find something that’s idiosyncratic and just a great one-off opportunity, gotta take that in a vacuum. I’m talking in the macroeconomic sense here, but if you look at where rents are at on residential real estate, it’s already stretched. The affordability is already tight across the country. Commercial real estate, tough. A lot of vacancy actually on commercial real estate, a lot of open office space, and the driver of interest rates going down to improve that.
is not significant. And what I try to help people understand is things like, hey, if you’re betting that the interest rates are going to come down and solve your problems, right, you’re also betting that interest rates are coming down and the value of like residential real estate isn’t going up. Right. So it’s kind of like counterproductive for people to think through. But you’re facing this huge headwind where rent rolls are going to have a very tough headwind, I think, over the next cycle. Well, wages are not rising with the inflationary pressures.
And this creates a headwind for valuation driven by cash flows. I think you also have an interest rate cycle that kicked off that rates should have risen according to the interest rate cycles in 2009. They should have bottomed in 2009 and started rising, but the Fed manipulated them all the way until, I mean, they’re still trying to largely in a sense, but
a lot less so. And so that’s where, you now that we’ve seen that sort of run, I think you potentially have a decade or two of a ⁓ bias towards the upside on interest rates, if you will, right? Well, that causes a big headwind in valuation from the interest rate environment, right? And if you scrap the leverage out of real estate, right, like let’s all get real for a second here.
Real estate is a viable investment in asset class. And it’s interesting, not because we can go look and touch and feel it, not because there’s the utility aspect, it’s because of the prudent use of leverage. Without the prudent use of leverage, real estate is like a bad investment washed in dog water. Okay. And I know I’m again, I’m the wet blanket guy here, but if you think about it, if you’re buying a four cap deal,
you’re making like money market returns and you’re taking all the risk, right? You’re not getting compensated for your risk. The attractive part is when you can take a four cap deal, use leverage and you’re one to five on it because you did 20 % down. So now a 4 % returns a 20 % return, right? But if you don’t use the leverage, it’s very underwhelming results. And quite frankly, quite a bit of risk, right?
So you want to use a leverage, in order to use the leverage effectively, the interest rates sort of have to make sense. I don’t think they’re going to make sense as people are hoping the same way. Now, before everyone calls me a real estate bearer or thinks I’m totally crazy, here’s the deal. What I’ve been working on coaching clients through and trying to understand is I think there’s five opportunities out there for ⁓ investors to weather the secular debasement cycle.
but still take advantage of the opportunity set given to us by diversification, which is often referred to as the one free lunch you’ll get in finance. I don’t think it’s quite that, but that’s what it’s oftentimes referred to as. And so the five asset classes that I think people should be focusing their longer term capital on is largely the first one, high quality, and that’s key, residential real estate. And that is simply a function of
people want to live there, they will need shelter. And so as money is printed, your rents might not look great and you might have a headwind in that, but should I be wrong in my other four predictions, you have some kind of hedge, right? So this is me hedging myself in recommending residential real estate. But if inflation goes crazy, right? Your property would adjust in value that way.
The other unique thing about residential real estate is it’s really the only part of real estate or sector real estate that you can get a 30-year fixed rate mortgage. Well, if I think there’s secular inflation, I want to borrow 30-year fixed rate mortgage because I’m going to be paying it back with pennies, not dollars essentially, right? Which is why the interest rates, by the way, are pushing to the upside because this is getting priced in by investors in the bond market. But I think we’re still at a point where we’re being subsidized by pension funds.
large institutional investors and people that are just really missing this trade opportunity. And they’re thinking that owning the bonds is still a great deal. I don’t want to own the bonds. I want to be short the bonds. Well, the easiest way to be short of bond is by issuing debt yourself, i.e. taking on a 30-year fixed rate mortgage, right? This is like the easiest way to issue long-term paper as an individual investor. And so you’ve got a great inflation hedge there. Probably not going to be great cashflow, at least in the first several years.
but I think it’s worth having. I wouldn’t recommend people at this point, unless they find a really interesting, unique deal, go out there, respect them and look for something like commercial, industrial, multifamily. I think those are all areas that have a lot of lurking risk. so the other four asset classes after residential real estate is large cap US stock, think terms S &P 500.
right? Candidly, at the end of the day, you’re not owning dollars, you’re owning stock and companies, right? You own Walmart, you own Apple, they own assets, they own the ability to produce cash flows. Whether that cash flow is in US dollars or a different currency, whatever it may be, they’re producing, there is something real and tangible there. Even though you just view it as maybe a position on a computer screen, it’s real and tangible. And it’s supported also by the
asset flows of people’s 401k funds, at this point, in effect, the passive investment move, right? That’s gotten so much attention the last five, six, seven, even 10 years now. And candidly, the government’s kind of come out a number of times. And if you read between the lines, they kind of say, we’re not going to let it go down that far. We really can’t handle that pain because there’s so much riding. It’s become largely a public pension program, right?
And so owning the asset, right, is the important part, right? So I would recommend people don’t get too creative unless you’re a skilled professional and trying to get too nitpicky. Be willing to just sort of own the US economy in essence, right? And you should do okay against debasement in that. The next is precious metals, gold, you think gold, silver and the platinum group metals.
Quentin (22:15)
youBranden DuCharme, CMT (22:35)
And that’s because the AI revolution isn’t going to happen without, and the green energy transition isn’t going to happen without those metals. But also they are throughout history, a relatively safe or not safe, but reliable store of value in your purchasing power. One of the interesting things about that is that technology, which we’re in rapidly technologically advancing economy, technology actually really is a tailwind for gold in myopinion or other precious metals. If you think about it, we look at inflation and we can’t figure it out. It’s hard to wrap our head around. We think in terms of the price of everything going up. But if we look at what technology is allowed for, the price of a lot of things has just gone down significantly. If you think about the price of a TV is one of my favorite examples, right?
10 years ago, we would have bought a 55 inch flat screen TV. It would have been a thousand or $1,200. We would have been happy to have it. It would have been a luxury centerpiece of most American living rooms, right? Now you go down to Costco, you pick one up for 200 bucks. It’s no big deal. Everyone’s got them, right? Well, we live in this inflationary world, but the price of TVs has gone down 80%. Well, if you measure it in terms of gold, it’s actually even cheaper, like a lot cheaper.
Quentin (23:44)
Yeah.Yeah. Yeah.
Branden DuCharme, CMT (23:50)
⁓ in terms of goal the tv is don’t nearly free it price of ten yearsQuentin (23:53)
Yeah.Quentin (00:00)
Now I you got two more. Give me the two more. Kind of streamline the explanation for the two more. Cause I really want to get this in before we wrap. give me the other two.Branden DuCharme (00:11)
The last two is Bitcoin. I think Bitcoin for the same reason as gold. But again, these are all going to take different paths to the same destination. And so what it allows you to do is still take advantage of diversification. Bitcoin is flawed with its own things in the end. But I think as taking it on a path towards the debasement final destination, it’s got some interesting diversifying effects.And the last is just generally what I call liquid alternatives, right? And so this is stuff that you are able to know what you own, right? So this isn’t private credit or private equity. This isn’t going super far on the risk curve, but this is looking at stuff like managed futures trend following, ⁓ macro hedge funds, just ⁓ underappreciated segments of the market. I know I’ve been pretty heavy personally in a lot of mines and hard assets.
Um, stuff that isn’t large cap US stock and isn’t, you know, USA or bond, right? Um, uh, but whether that’s, it’s typically some components of trading under the, under the hood. Um, but it’s not, know, whether it’s currency trades, uh, macro trades, commodities, um, exposure, whatever it might be. I think there’s an opportunity set out there to grab that as just an additional diversifier. That’s not correlated or driven necessarily by a US economy. Good stocks up, right? US economy, good real estate up.
⁓ And so I think those five things are opportunity sets for people to be focusing on. And ⁓ it’s easy, it’s not overly complicated.
Quentin (01:46)
Yeah, yeah. Man, I love it, man. I love the way you just took us down. You explained everything. The wealth of your knowledge really came shining through. And so I can see why your clients are so happy with you, happy to have you represent them because you are absolutely on top of your game, on top of your things. And so I thank you so much, man. Listen, before we wrap, if someone wanted to reach out to you, connect with you, collaborate with you, what’s the best way for them to reach out to you, sir?Branden DuCharme
Yeah, ⁓ [email protected] is my email. ⁓ also you can find me on my website, ducharmewealth.com, is contact us button there. There’s actually a link. If you want to just go put some time on my calendar. If you, you’re savvy enough to navigate to our, you know, my, my bio page on there, ⁓ you’ll find it. ⁓ and you can also follow me on, on, ⁓ on, ⁓ X, my, my, my. ⁓handle on X is ⁓ stored ⁓ underscore alpha. And you can follow on Instagram, Facebook. put up reels every day ⁓ and on YouTube, my YouTube channel and a podcast that we syndicate out across all the RSS feed. ⁓ So Spotify, Apple podcasts, wherever you get your podcasts, there’s the, tall Oaks podcast.
⁓ and that’s my podcast where I talk about sort of all things, money and wealth, ⁓ from portfolio construction risks, exposures, insurances, estate. talked to a state attorney’s, ⁓ taxes, all of the, the little nuanced things that typically probably bore people, but for the people that enjoy it, they really find a lot of value.
Quentin (03:30)
Absolutely. There he is, Mr. DuCharme. Thank you so much. Thank you for your time, for your story and your perspective. I know our viewers got a ton of value out of this conversation. So thank you so much. And to the viewers, listen, you got the value, go ahead and subscribe. You do not want to miss out on these amazing conversations that we’re having. So Mr. Branden, thank you again. And to everyone else, we will see you on the next
