Transcription

• Speaker #0

  For the real estate investors on the call or listening today, plan for what you're going to do if rates stay at 7.5%. If rates go down, you already have a plan for that. So the risk is not that the loan is going to go bad, but the risk is rates are going to go down and that loan is going to pay off. We've actually been experiencing higher than average risk premiums or margins since early 2020. So using the seller concessions can be a really, really wise move to, number one, do a temporary buy-down, like a 2-1. Or my preferred method, get a big seller concession, use it to permanently buy down your interest rate. And a lot of people say, hey, I'll do a 2-1 buy down because I can always refinance in the future. Well, rewind this recording about 30 minutes. We'll talk about why I don't think interest rates are going to go down. Use the seller's money to get that lower rate today.

• Speaker #1

  We were in negotiations. We're investing in real estate. They're winning. They're making money.

• Speaker #2

  What's up everyone welcome to the real estate educators podcast where we provide the education you can build on I am your host Kevin Amos and you know what we are back another market pulse in the Denver area with our Famous Joe Massey the infamous maybe thank you. What's up, man?

• Speaker #0

  I am doing great Kevin It's good to see you excited to get to chat with all of our listeners and viewers Really appreciate you guys giving us your time attention energy You know, every quarter when we do these quarterly updates, one of my favorite things that I get to do, and I can talk about real estate all day, every day. So really grateful for everybody making time to spend time with us.

• Speaker #2

  Me too. I'm excited to have you here. There's a lot of noise. I mean, it has been like that for quite some time, right? I think the rate hike started in, was it June of 22? So now we're four and a half years into whatever this is. Um, it doesn't seem like there's an end in sight. So when I go to different networking meetings and masterminds or whatever, this is a very common topic. So just tell me how you feel it, man.

• Speaker #0

  You know, I feel really good. Rates are up. Absolutely. But here's kind of what I share with people. You know, I work in the mortgage business. So a lot of people talk to me, Joe, I hope rates come down. If rates come down, we're going to do this. If rates come down, we're going to do that. If the 10 year comes down, this is what's going to happen. I plan my business. I know what to do if rates go to 5%. Everybody knows what to do if rates go to 5%. What if rates stay at 7.5%? What if rates go to 8%? I plan my business around that. If rates go up, what are the changes? What are the adjustments? What are the activities that I'm going to do? So if rates stay the same or they go up, I've got a plan. If they go down, everybody knows what to do. I don't need to make a plan for that situation.

• Speaker #2

  We're all winning.

• Speaker #0

  We're all winning. So I think... For the real estate investors on the call or listening today, plan for what you're going to do if rates stay at 7.5%. If rates go down, you already have a plan for that. But what are you going to do if rates stay at 7.5%? And we're going to talk about this because they probably are. There's probably not a lot of opportunity that rates are going to go down, but probably going to stay the same, maybe even go up. So that's what you should be starting your plan on.

• Speaker #2

  Oh, that's interesting. I definitely want to dig into that. Where do we start, man? Talk about your opinion and why you think they might go up. You want to talk about what a plan might be for our listener if they do?

• Speaker #0

  Let's talk about why I think rates are going to stay the same or go up. This is going to be a little technical, but we've got a lot of advanced people that listen to us, so I hope you guys will bear with me for a minute. Mortgage rates and long-term borrowing costs are generally based on the 10-year treasury. Now, if we could pull up a slide and we can go back and see, the 10-year treasury has been on a pretty increased run over the last 1, 2, 3, 4 years. We're currently seeing the 10-year treasury sitting right around 500 basis points. So the 10-year treasury yield is right at 5.0%. Now, on top of that, you get a margin. Right now, it's roughly 2%, sometimes as much as 2.5%. That's the difference between the 10-year treasury to a 30-year fixed rate, which right now, between 7.25% and 7.5%. So 5% plus 2.25% to 2.5%, depending on the day. As? Bonds are issued and people want to invest into the 10-year treasury or invest into mortgage-backed securities. They expect to receive a return. Well, something that's happened in the last four years that's never happened in the past is the 10-year treasury has competition of other AAA-rated bonds and 10-year bonds and 5-year and 20-year bonds that look like they're going to perform just as well as a 10-year treasury. And Kevin, you... You already know the answer to this question. What is that bond competition? What are the other bonds that are competing now against the 10-year treasury?

• Speaker #2

  Well, I mean, the big one is Japan because it's the Japanese that are pulling their money out of the U.S. And it's been like that for many years. It's just elevated or magnified right now. But there's other countries out there with strong debt, too.

• Speaker #0

  Let me challenge you for a second. Don't think of countries. Think of other places that you might invest that is a AAA rated bond that appears to be performing really, really well that was not around five years ago, six years ago, seven years ago.

• Speaker #2

  I assume you're going corporate, but...

• Speaker #0

  AI. AI bonds are currently AAA weighted or AAA rated, and they're competing with the 10-year treasury. So what that means is if there's a billion dollars out there... that people are going to put into bonds, and a billion is way too low. But I could say, hey, I want a five-year or 10-year treasury, or I want to put my bond into AI. That looks like it's going to perform better right now than the 10-year treasury. So now you've got a direct competitor to the 10-year treasury. And what does that do to treasury prices? Pushes the yield up and the price up because people want a better return. And so I think that's something unique that we're experiencing in the last four years. that we have not experienced in prior economic cycles is now you have a direct competitor for the 10-year treasury bond.

• Speaker #2

  Yeah, that's interesting you say that because I was going to say NVIDIA when you were trying to challenge me there. There's no guarantees with that stuff, the corporate debt, right? There is with well, I mean countries go bankrupt too. So it's not necessarily a guarantee. But I would feel a lot better with the Japanese treasury than I would. Nvidia or Meta or one of these, but I'll just push back just a tad here, Joe, because on the 22nd, it's been like this for a little while, but on the 22nd specifically, there was a decline in the 10-year of 19 basis points. And the reason for that is because of the flight to the 10-year to get out of AI.

• Speaker #0

  Yeah, I think you're right. And in my opinion, I would rather put my money into a 10-year treasury, my own personal cash. I would rather put that into a 10-year treasury than an AI-backed bond. However, what we're seeing that's happening is not everybody shares the same opinion that you share and I share. There's a lot of bond investors that are saying, hey, a 10-year treasury and an AI bond are equal, and it's a direct competitor. Now, personally, I don't feel that way, and I don't think you feel that way, but a lot of bond investors do feel that way. And it's driving up the price, which drives up mortgage interest rates.

• Speaker #2

  I'm glad we're getting into this because we have seen some pullback in the 10-year, right? It was over 5.25. Now it's around 5.3. Yeah,

• Speaker #0

  it was at 5.3 about a month ago.

• Speaker #2

  Yeah. And so it's a quarter point in reduction. And the explanation I'm reading, Joe, is the flight to quality from AI because of the earnings reports that are coming out. Now, to your point, if you're investing in corporate debt versus the stock, it's much safer. It doesn't fluctuate, right? And you're saying that it's AAA rated, so it's almost a guarantee they're going to pay it back. So I guess I can get on board with that. It's just different than what I was expecting because of what happened pulling out of AI stocks into debt.

• Speaker #0

  And so I think that is another sort of nuance of, hey, I'm going to take my money out of AI stock. Well, I could put it into AI bond, but I feel like I might have the same risk. So let me put it into a 10-year treasury. And that's a quick lever that, hey, maybe these are not equal assets. The 10-year bond and a 10-year AI bond, maybe those are not equal assets. So I thought that was a very good litmus test, I guess, back on October 22nd. So the indication to me is there are certain people in the bond market that feel the same way you and I do, that those are not equal assets, even though they are competing with one another now.

• Speaker #2

  All right, Joe. So another question for you about rates. I have a lot of people tell me that they think that there might be some softening in rates, in which we've talked about and we've seen. But you brought up a really good point I didn't think about until, well, you brought it up. The margin, 2% to 2.5%. Historically, isn't that closer to like 1.7% to 1.8%?

• Speaker #0

  Yeah. Historically, it's right at 175 basis points. So again, if you have the 10-year yield is at 5, add 175 basis points, you could expect interest rates to be at. 6.75. The margin is also called a risk premium. So the risk goes up if you think there's going to be foreclosures, which nobody in the bond market thinks that right now. I think we've talked about that in prior updates. But the biggest risk right now is what's called prepay speed. So if I'm collecting a slimmer margin, I'm expecting to keep this loan for seven years, eight years, 10 years, the average time that a you mortgage-backed security performs, and people make their payments right now, traditionally is seven years. But when rates go up... there's a risk that those loans, that rates are going to come down and that loan is going to prepay. So to make the same amount of money in a shorter period of time, you have to charge a higher margin or risk premium. So the risk is not that the loan is going to go bad, but the risk is rates are going to go down and that loan is going to pay off. We've actually been experiencing higher than average risk premiums or margins since early 2022. When rates crossed over 4%, margins began expanding faster than the growth of the 10-year treasury, that's what led to increased rates as high as 8% in late 23. Now, that margin has come down. In late 23, that margin was more than 300 basis points. Now, it's between 220 and 250 basis points, depending on the given day, week, or month. But it's still higher than what we've seen on average for the last 30 years.

• Speaker #2

  So I guess that's discouraging to hear, because what I was hoping you told me, Joe, was If it's at 2.5 and the long-term average is 1.8, that gives me a little bit of room, a little leeway where it could actually bring rates down without the 10-year coming down. That's where I was thinking you might go. But what you're telling me is with the rates high, you're going to expect a high margin or risk premium. So the 2.2 to 2.5 is actually sort of normal even though it's higher than the long-term average.

• Speaker #0

  That's right. It's sort of normal right now because whenever the 10-year goes down, people are going to refinance, and you have to keep that margin high in a high-rate environment because prepays are going to happen faster.

• Speaker #2

  Okay, so what do you think is going to happen, man? Is this AI thing going to keep going and drive rates down? You said already early in the episode you think rates are going to stay high, so unpack this for me.

• Speaker #0

  I do, man, and this is an unpopular view. A lot of people say, oh, I hope rates are going to come down. They have to. They don't have to. As a country, we've borrowed $40 trillion in debt. If you, as an individual, Kevin, have been increasing your credit card debt year after and there's no hope in sight that you're going to increase your income to start paying down some of that debt, what does Capital One, your credit card provider, what do they do? They charge you a higher rate. All right. Now take an individual comparison and take that now to the U.S. economy. We're borrowing more and more money. Rates go up and mortgage backed securities and interest rates are tied to that. As a country, we borrow a lot of money. We don't really make enough money via tax revenue or other sources to pay for all of that. Just like having a big credit card, you're going to pay a higher interest rate.

• Speaker #2

  So I want to go I'm glad you went here because I want to go into this. This is very important I think for the listener to hear and it's, like you said, unpopular. This is actually quite scary, the $40 trillion, and it's been pretty regular $2 trillion or more per year in a deficit. So they're just adding to that debt, $2 trillion a year. But if you look at that, the total income and the total expense of the United States government where they spend around $7 trillion, a little over $7 trillion a year. And they bring in about five. So that's how that math works. Yeah. Of that $7 trillion, Joe, so the $2 million gap, of that, $1.6 trillion is Social Security. And that's the number one expense. Below that is the other entitlements, Medicaid and Medicare. And then you hit your interest expense, which is now over a trillion dollars a year. It's surpassed the defense.

• Speaker #0

  It's surpassed defense. Yep.

• Speaker #2

  Yep. So it's ranked number three. And if you're looking at what what the most is. So I'm breaking that down a little bit for the listener here. And here's why. If you totally eliminated social security and how drastic would that be and how unpopular would that be? Everybody that's taking that entitlement, if it just went away, you still would be in a deficit. That's right. If you had no debt at all, say that 40 trillion was zero, you would still be in a deficit. So I don't know how you get out of this at this point in the way it's structured, but here, this, I do know how you get out of it. You have to inflate your way out of it. And so I want to try to break this down. I'll do it as quickly as I can. And if I confuse somebody, leave us some comments below, shoot me an email. But think about it. If you have a house and you have a really small down payment, you have no equity, right? And you're in a little bit of trouble and maybe that house goes down in value and now you're upside down. Well, how do you get out of that? You need the house value to go up, right? And that's how you get out of that negative equity situation. That's inflation. So in an inflationary environment, if you hold on and you wait and there's inflation, eventually you get out of it, right? That's right. Long enough.

• Speaker #0

  They'll outrun the debt.

• Speaker #2

  And the reason I think that's important is because the government, I'm convinced of this. That's the strategy. That's the plan to get us out of this. So if that's true, if what I'm saying is true, Joe, we need to hold assets. We need things that are going to go up in value because the government is going to strategically do that to us. And it's the people that don't have assets that are going to get hurt because they're going to fill it up the gas pump and at the grocery store, but they're not going to have any offset in assets.

• Speaker #0

  That's right. I completely agree. If you're at the higher end of the economic curve, you're going to be okay. If you own one, two, three, 10 rental properties, those are going to go up in value. If all you're holding is cash or maybe a very little bit of cash, it's not going to keep up with inflation.

• Speaker #2

  Right. So it's just, I only bring that up because I think holding assets, I say it all the time. I know I'm not saying anything new, but you need to hold assets, collect assets, collect houses, collect. stock, if that's what you want to do, but something that will go up in value. I think that's important because we are going to get pushed into more inflation. There's just no way around it.

• Speaker #0

  Yeah. The only other way, which I don't think this is going to happen, so please don't stop listening, listeners. The only other way to solve the deficit is to increase taxes and increase them significantly. That's not going to be popular to get reelected. That's not going to be popular in Congress, House of Representatives, the executive branch. So. I don't see that that's going to happen. So those are the only two ways. Inflate your way out of it or increase revenue via increased taxes. The second one's not going to happen. You're going to have to inflate your way out of it. And I completely agree with you. It's the only route that I see.

• Speaker #2

  Yeah, it's the only way out. And you can't do that to taxes because what happens is you start taxing high net worth in corporations and that's who provide jobs. So you have higher tax rates and potentially less tax revenue because less people are paying in, right? So. I don't think raising taxes actually correlates necessarily to increased revenue. I know that sounds crazy, but.

• Speaker #0

  Yeah, I hear you. I think you're right. And I don't think that's a viable solution for anybody. Yeah,

• Speaker #2

  yeah. Okay, well, what else we got? Anything else on the macro side? We got some news from the Fed today. We're recording this on the 28th of October. Any surprises there?

• Speaker #0

  No, the Fed held interest rates steady about an hour ago prior to us doing this recording. I completely agree with that decision. I think it was a smart move. Just wait and see. One of my friends, she calls it economic shelter in place. And I think that's kind of a good thing that, or a good description for what we're experiencing is the Fed just says, hey, we're going to wait and see. But then on a micro level, I see that a lot with individual investors and individual homeowners who just say, I'm not going to buy right now. I'm just going to wait and see. I'm going to wait and see what happens in the future. And in my personal opinion. I go back to exactly what you said, Kevin. I think it's good to collect assets. And so I would rather wait and see if I have a lot of assets in my pocket than wait and see with no assets in my pocket.

• Speaker #2

  Yeah. And then everyone's waiting for the midterms too. So it's kind of a it's a little bit chaotic right now with everything going on. And it's like a chaotic calm because I agree with you. No one is doing anything which is creating calmness, but that's chaotic.

• Speaker #0

  Right. But it's important to remember what happened two years ago. in October and two years before that in October and two years before that. And we go back for the 24, 26, 30 years that you and I have been doing this every year in October. Do you know what happens? Nothing. Because everybody says, I want to wait and see what happens with the election. We can go back and track it. It's like every two years, you have a crappy October in the number of transaction count, number of loans, number of homes turning over. Everybody, whether I'm buying or selling, they all say the same thing. I'm going to wait and see to what happens with the election. then The week after the election, you have 50% of people that are mad, 50% of people that are happy. A week later, life goes on and people transact for all the reasons that they need to transact.

• Speaker #2

  Yep. Okay, I'll just touch on one quick thing and then I'm going to get into your slides. But unemployment did go up with the last report, 4.3, which is still low. And if you really unpack that number, that increase wasn't 0.1% because it was a rounding error. It was more like 0.6% increase. So unemployment is not an issue. Inflation continues to be, especially with wage growth coming in a little bit lower. So you're right. They didn't do anything this month today, but that was a split decision. So some want an increase. So based on what I just said, do you think we're going to see something at the end of the year, in December?

• Speaker #0

  I don't. No. I think they will leave everything.

• Speaker #2

  Stick with it, huh?

• Speaker #0

  Yeah, I think they will leave the Fed funds rate the same at the December meeting. I think they'll leave it alone. But I have been wrong before. Yeah, I know. It's a little early. It's like six weeks away. And then send me hate mail. Send me hate mail from the internet.

• Speaker #2

  Well, we are recording this, Joe. I think they're going to bump it a quarter. Okay. I just think that the inflation is too sticky and they're getting too much pressure. So I think they'll bump it a quarter. But I could be wrong too. I have no idea. If the 10-year keeps going down because of this AI thing, then that would change my opinion. This episode is brought to you by Pine Financial Group. Pine Financial is a private lender specializing in short-term rehab lending to real estate investors. Got a property that needs some love? We can help. We are able to offer funding solutions because we raise private money from individual investors. With more than 15 years of experience, Pine offers passive investors an alternative that provides stability, consistency, and security to your portfolio. If you like real estate but want to avoid the ups and downs and effort, A Pine Mortgage Fund could be a perfect fit for you. Accredited investors will experience an 8% preferred return and profit sharing. Diversify your portfolio out of Wall Street and into Main Street with a Pine Financial Group Fund. To get more information at pinefinancialgroup.com, that's pinefinancialgroup.com.

• Speaker #0

  Well, you want to get into some slides? Yeah, I want to hear what you got.

• Speaker #2

  Let's get into the local market.

• Speaker #0

  Can you turn on sharing for me, please? For those of you that are listening and not seeing the screen, what we have on the screen is consumer sentiment. The Michigan Consumer Sentiment Index on the left-hand side is not quite at an all-time low, but it is the second lowest all-time, and the previous all-time low was in April of this year. So consumer sentiment, the University of Michigan surveys consumers, and they say, hey, how do you feel about the economy? And this is a second lowest reading ever that people say, I don't feel great. I don't feel great about where things are going. And I guess I should change that. On the right-hand side is, how do you feel about where things are going? Also, second lowest reading, that they don't feel great about their personal economy and where it's going. So if you feel very poorly about your current economic state and you feel very poorly about where your personal economic state is going, Kevin, are you gonna go out and buy a big purchase like a washing machine? Are you gonna go out and buy a big purchase like a car? Or are you going to go out and buy a big purchase like a house if you feel very poorly about where your personal economic situation is at?

• Speaker #2

  No, I'm not. This is a great leading indicator, I think. We'll see. Do you see this when you go out? You go out with your girlfriend or your friends and you go out to dinner or a bar or whatever. Do you feel like there's economic pain out there?

• Speaker #0

  That is really tough, and I'm going to say no. But you know what?

• Speaker #2

  I don't either. People are spending money.

• Speaker #0

  We're not the average. I hate to say it. If you look at a K-shaped recovery, we're on the top side of the K, which we're actually going to look at in a couple of slides. I think you and I are on the hopefully positive side of the K-shaped recovery, but we're on the wrong side to be experiencing what many, many folks out in the general public are experiencing.

• Speaker #2

  Yeah, and maybe I'm just totally missing it. But when my wife and I go out and we go out to eat or whatever, it's just the restaurants are full. People are happy. I mean, I just, and I'll just say to her, I was like, it doesn't seem like it. I know people are hurting. Please don't hear this wrong. I know that that is happening. I just find it curious that how many people aren't.

• Speaker #0

  Yeah. There's still a lot of people that are on the top side of the curve. And I completely agree with you. I go out and I'm like, man, it looks like things are great, but I think there's a lot of people and a lot of the segment of the national economy that you and I don't personally experience.

• Speaker #2

  Yeah. Yeah. Fair.

• Speaker #0

  Let's talk about that, though. The housing market is really splitting into two different segments, starter homes and luxury homes. Starter homes over the past year fell 5.4%. Now, we're not talking about values. We're talking about the number of transactions. So homes below $200,000 would be considered a starter home, and this is nationwide. We saw that those number of transactions fell 5.4% year over year. Luxury homes. On the flip side, the number of transactions grew year over year by more than 6%. So I think this really highlights we're seeing some people going up. We're seeing some segments coming down. And to look at that in a graphical format, homes at different prices are having very different experiences in the market. For those of you able to see the slides, the line in green are homes priced between $1 million and $2 million. And you are seeing the number of those transactions is increasing over the last two years. The line in blue, homes priced less than $200,000. The number of those transactions is... really steadily declining. I mean, down to a level almost 20% lower than December of 2024, so just under two years ago. And what I see from this personally is an opportunity. I see an opportunity for first-time buyers that were really frozen out of the market in 2021 in the first part of 22. I see an opportunity to number one, purchase a starter home. And number two, I see an opportunity for investors. to purchase investment property at lower price ranges. I think we all know from our experience, it's very difficult to get a property to cashflow at a million dollars, right? So a luxury home is generally not an investment property, but I'm seeing opportunities that you can get back to getting some cashflow if you buy something for 200, 250,000. You may have to put a little more money down to get it to cashflow, but I think there's opportunities in that lower price segment. So let me pause there, Kevin. Are you seeing the same with your investors? That million dollar and up transactions are still happening at a pretty rigorous basis and below 200,000 or maybe even below 400,000 are not happening as much.

• Speaker #2

  I didn't really think about it, but I was talking to Scott in my office about this because he's got some properties in that range. And if you're pricing it right, those million plus are selling quickly. But then I also have some clients, mutual friends of ours, Joe, that are struggling in this price point. So I think the pricing strategy has everything to do with it. But if I want to, if I'm going to try to unpack this, this is quite remarkable, by the way. If I'm going to try to unpack this, those sub 200,000, those are almost all townhomes and condos, right? Right. And we've talked about this before where you have an attached versus detached product and the different two markets there. And I got to tell you that people do not want condos and townhomes right now. And I think you're going to talk about this. That's a success summit, aren't you?

• Speaker #0

  I am, yeah. I've got a class that I'm gonna be teaching and the title is, at what price does it make sense to buy? Because as prices are flattening slash coming down in certain segments and as transaction volume is coming down, there becomes a price where it makes sense to buy, right? Even with high interest rates.

• Speaker #2

  It's all about your cash on cash or your ROI. I'm assuming that's what the presentation will be about.

• Speaker #0

  You got it. Just looking at the numbers, yeah. You're leading the witness. I like it.

• Speaker #2

  Well, I'm excited to listen to your presentation. So like, because we are seeing that. So like, there's got to be a point where, yeah, it makes sense to go back in. And then I don't know if we're going to get into DSCR loans or anything, but, you know, those aren't very popular in Colorado.

• Speaker #0

  No.

• Speaker #2

  We're going to start seeing it more popular when the ratios actually start making sense.

• Speaker #0

  That's exactly right. That's exactly right. I've got another slide here talking about inventory growing in dark blue. this is the inventory for starter homes, you're really seeing that increase fairly dramatically going back to 2024. You look back as far as 2021, we had about 250,000 homes nationwide at that starter home price range. We're now up to 425,000 listings in that starter home price range. At the bottom of the graph, you see luxury homes. Those are remaining very flat on the number of those transactions or, excuse me, number of inventory available. still roughly 120, maybe 130,000 homes in that million dollar and up price range. So you're not seeing those big fluctuations at the high end prices, but you are seeing that inventory really grow at low end prices. And I think this does something that we've talked about before. If we look at the overall market and we say, oh, prices are up 1%, 2%. That's true statistically, but we have bigger homes. that are still going up in price. We have smaller homes that are going down in price, but the bigger homes carry a higher weight on that average, which shows that overall prices are improving. But that's why statistics can be such a nuanced thing. If you're below $200,000, you might be experiencing price reductions, particularly in an attached product. So let me pause there. Do you agree with that, Kevin?

• Speaker #2

  I do. Are you still seeing the price pressure on the lower end? I've felt to me, and I don't have anything to... to back this up. You're the stat guy.

• Speaker #0

  Yeah.

• Speaker #2

  It feels to me like it's starting to level out.

• Speaker #0

  I agree with that. I agree. And I think we're reaching that price where it makes sense to buy again. You know, interest rates go up by half a percent. That knocks about $25,000 to $50,000 off what the average person can buy. So interest rates go up. You qualify for less. As those two things come back into balance, okay, I can qualify at this price range. Prices have come down. Okay, now it all makes sense. And so I think you're right that we are seeing. The lower end began to really flatten out. I predict, and you guys can, again, come back and send me hate mail in six months. I think we're right at bottom dead center of transaction count and bottom dead center of price flattening right now in third quarter. Or I guess now we're in the fourth quarter.

• Speaker #1

  I said that exact same thing because it feels like that to me also. And I said that to Ken, Ken Blevins in our office. I think you know him.

• Speaker #0

  I love Ken.

• Speaker #1

  He's really, really smart guy. And he's like, where do you come up with that? He's like, that doesn't even make any sense. And so what he's telling me, Joe, is he still does a lot of like REO asset management and clean outs and lists and that kind of thing. His volume is going up. And from the special servicers, he's hearing that they are taking on some water. They are getting more defaults that they have to manage. So those are the conversations that are happening out there. And if that's true, that could drive prices down.

• Speaker #0

  Yeah.

• Speaker #1

  But to me, it feels like we've flattened out. I mean, when you look at months of supply, which I love that statistic, it's right at a neutral. So I just, I don't know. I'm just, I'm just telling you that because he told me that and I respect him.

• Speaker #0

  Yeah. He's a smart guy. And so again, maybe he'll be the one that sends us hate mail in six months.

• Speaker #1

  One of us is right.

• Speaker #0

  Right. I want to draw your attention to the next slide here is price reduction. So we have a map of the entire United States. And over the last, I think this is like a 60-day scale. Over the last 60 days, how many listings have had price cuts? And Colorado leads the nation. 50% of listings have experienced at least one price cut in the MLS. I point that out because if you're listing a property or maybe you're a fix and flipper and you're planning to list something in the coming months, be prepared to price it appropriately. And the follow-up slide that I have is the longer a property sits on the market, the more you have to cut the price in order to get it sold. So if you've got something you're going to list at $400,000 and you think, hey, I'm going to test the market and then you're going to let it sit there for 30, 60, 90 days. You're going to have to start slashing that price in order to sell it. And I feel like we might have spoken about this on a prior webinar. I think pricing is absolutely critical right now, especially for our flip investors. You've got carrying costs. You've got hard money costs. We all want to make another 2%, 3%, 5%. Price your homes appropriately, guys, and include 3% for seller concessions. That 3% for concessions moves the needle for a lot of buyers right now.

• Speaker #1

  Yeah, that's a lot of buy downs, right?

• Speaker #0

  Yeah.

• Speaker #1

  Yeah, tell us. I know we've talked about it before, but just in case the listener is new to that, that is working to sell houses right now. So tell me about that.

• Speaker #0

  100%. I'll give you a good example. I have a client, bought a luxury home. But this math works for smaller homes as well. Bought a luxury home for $1.1 million. He negotiated for the seller to pay 4% of the contract price. So $44,000. Rather than reduce... The price by $44,000, he said, I want a 4% seller concession. Seller agreed to it. Well, the buyer was putting 50% down. So he's putting down $550,000. We gave him a $550,000 loan. Well, guess what? That $44,000, we were able to use that to number one, pay all of his closing costs, which was about on a home that size, about eight grand. Then we used the remaining $36,000 to buy down his interest rate. We got him down to an interest rate of 4.375 on a 15-year. This transaction closed a month ago. When's the last time you heard somebody get an interest rate of 4.375 in the current market? That seller concession is what made that work and saved the client more than $900 a month as compared to a market 15-year interest rate, which was at 6.5 at the time. So using the seller concessions. can be a really, really wise move to number one, do a temporary buy-down like a 2-1 or my preferred method, get a big seller concession, use it to permanently buy down your interest rate. And a lot of people say, hey, I'll do a 2-1 buy-down because I can always refinance in the future. Well, rewind this recording about 30 minutes. We'll talk about why I don't think interest rates are gonna go down. Use the seller's money. to get that lower rate today.

• Speaker #1

  Yeah. I like that. And you took it from the angle of the buyer and the benefit the buyer got. What I was thinking about is the benefit to the seller, because it's a way that you could sell a property. You could offer a lower rate. So it makes people want to buy that property because they get a lower rate. So it really does benefit both the seller and the buyer.

• Speaker #0

  Because what did the seller get? A lot of people say, oh, the seller got screwed because you had to give him $44,000. You know what the seller got? A willing buyer. And a good price, yeah. And a good price. There's three willing buyers for every one willing seller right now. So I want you to keep that in mind. We don't have the stat today, but number of sellers in the market right now is roughly 1.5 million. Number of buyers in the market is between 500 and 600,000, depending on which stat you look at. That means for every three listings, there's one active buyer. So what did the seller get by offering that $44,000? He got. one of those active buyers. And I think that's an important point to remember.

• Speaker #1

  And your numbers that you were just sharing with us was based on a month ago. Rates are lower now. You might be closer to four on that right now.

• Speaker #0

  That's right. Now, granted, it was a 15-year, and we often talk about 30-year, but it was really, really a great use. And I'll tell you who I was really impressed with was the real estate agent negotiating that. The buyer's agent did a fantastic job negotiating that. And then we all worked together to help the buyer understand. And he was like, yeah, this is way better. then reducing the price by 40 or 50 grand.

• Speaker #1

  Yeah, that's it. Yeah, because he's going to be there forever, it sounds like.

• Speaker #0

  That's right. It's his forever home.

• Speaker #1

  Cool.

• Speaker #0

  So those are the slides and the stats I wanted to cover. Big message, guys, price your homes appropriately. And your first price reduction might be when you list the home. You really want it to sell for 400, you might think about listing it at 389, 390. Do your first price reduction right out of the gate.

• Speaker #1

  Can you advertise in the MLS like a rate of the 4.whatever 375 and put that in the MLS?

• Speaker #0

  Yeah. So you have to be tied with a lender. So thank you very much for this question. We have a new program called a seller pre-lock. So I'm going to give you just a short snippet. You guys want to learn more, give me a call. It costs $1,500 for the seller to lock an interest rate for that particular property, not for a buyer. So the buyer has not shown up yet. but you could lock an interest rate giving 3% towards discount points. So as of today, that would get you a rate of approximately 6.25%. There is a fee to the seller of $1,500 to lock that, and then you have the agreement that you're going to pay 3 points towards discount points when the buyer shows up. You can now advertise, buy this home with a rate of 6.25%, just like new build sellers advertise all the time. when the buyer shows up they qualify for fha conventional whatever it might be you refer them over to us because you say hey this is already locked at six and a quarter the caveat is you gotta work with joe and they say well i really want to work with wells fargo well fantastic we already have a pre-lock with joe at synergy one if you want to work with wells fargo take their seven and a half percent rate but you want this six and a quarter here it is work with joe close on the transaction now here's the really cool part if you the seller buys a new property within six months and you use us for the loan, we will give you $1,500 as a credit towards your closing costs. So if you're thinking about selling and then buying, your net out of pocket for that is $0 and you can advertise a much lower interest rate on the MLS. Now the catch there, you got to have a lender because there's specific rules around advertising interest rates. You have to be a licensed loan officer, et cetera. I'll walk you through all those details.

• Speaker #1

  Okay. Yeah. That's what I was wondering. It seems like it's... There's got to be some regulation around that. Absolutely.

• Speaker #0

  Mortgage advertising is very, very regulated, but we know how to do it. We know how to do the seller pre-lock. But the big benefit that you're getting, if you're the fix and flip investor or you're selling a property, you can offer preferred financing. And so now, guess what? You're competing with all those other new builds with very similar terms.

• Speaker #1

  Oh, that's really cool. I think that's important for the listener to hear that, especially if you're fixing and flipping to sell your house. I think that's a really good strategy because we are seeing it work.

• Speaker #0

  Yeah, we are.

• Speaker #1

  So it does cost you a little bit, but you're right. You get a buyer. Okay, I got another question for you, Joe. I was on the phone yesterday with another friend of mine. He's also a conventional lender. He's not nearly as good of a friend as you are, by the way, but another friend that does the same business you're in. And he was talking about the DSCR loans and how it is difficult in Colorado. We all know that. It's not a secret. But he's talking about some of the other non-QM loans. Now, I know your menu is pretty deep. You have a lot of options to help your clients, probably more is more than anybody I know. And I'm putting you on the spot right now. We did not talk about this. But can you tell us a little bit more about other QM? pay like maybe bank statement loans, that sort of thing that can help our listener?

• Speaker #0

  Yeah. So gosh, let me think through the menu. Number one thing I'll tell you that I've seen lately, we have some cool HELOCs. We can actually do HELOCs on investment properties. We can do HELOCs on your primary residence. We can do first position HELOCs. And one of our HELOCs that we just rolled out can go up to 90% on your primary, not on an investment. You borrow up to 90% at prime minus. So prime rate is currently 7%. One of these I looked at the other day was prime minus one and a half. Now, somebody had great credit, really good income. Not everybody's gonna qualify for that. Call me for details, disclosure, disclaimer, et cetera. But we have some really cool HELOCs that you can use to consolidate debt, take cash out, use it to buy another property. So that's number one that I really like. Number two, bank statements. If you're self-employed and you don't claim a lot of your income on your tax returns, we can look at the most recent 24. or most recent 12 months of your business bank statements, use that to generate a cashflow statement to get you qualified for the loan. Asset depletion is one of my favorites. If you've got a large amount of money in the bank, a million dollars in your IRA, $2 million in your brokerage account, we can ask for those statements. Use that to prepare your cashflow based on if you were taking withdrawals, not that you are, but if you decided to, we can use that to verify your income. We actually have a no income verification loan. Requires really good credit, requires significant reserves. But as long as you're putting 20% down, you could actually purchase a primary or second home with no income verification. Now, here's the tradeoff. It's got a high rate. It's about a 9%. But we use that a lot. Let's say you're newly self-employed. You've been self-employed for six months. You're absolutely killing it. You've got, you know, 12 months. Two years, three years reserve saved up because you're starting a new business. You want to buy a new house? Fantastic. You can put that 20% down, qualify without us verifying your income. A year, two years, three years down the road, your business has taken off. You've got a ton of taxable income. We refinance you into a regular conventional loan. So DSCR, bank statement loans, asset depletion, HELOCs, no income verification, just bridge loans. I'll give you, oh, this is a great one that I'm doing right now. I have a client, he is selling his property for $800,000. He's got a loan on it for roughly 300,000. So he has $500,000 of equity. Regular W-2 guy doesn't have enough income or enough down payment to buy the new house in cash, doesn't have enough income that we can give him a loan on the new house and he can qualify for two payments at the same time. So we're doing a cross-collateralized loan. His new property is $920,000. We're giving him a full $920,000 on that loan, on that property. We're taking a second on his property that is currently on the market. So he's going to buy the new property with no money down. The seller is covering all the closing costs. This new loan, bridge loan, has no payments for 11 months. When he sells the old house, we take the first section of those proceeds to apply towards the bridge loan. The remaining amount. He's going to apply towards the bridge loan. We're going to refinance him into a new conventional loan at about $600,000. No payments on that allows him to move into the new house, fix up the old house, list it, have the family and everybody and the dog over here have really great showings on the old home and sell that for a premium. We're doing one of those right now. So those are just the things I can think of off the top of my head. I didn't even look at my notes for this. So thank you for that. That's pretty good.

• Speaker #1

  Yeah, and the reason I was, I guess, leading the witness is what we're finding in our business, Joe, is that people are having a little bit of a hard time getting out of loans. Properties are sitting on the market a little bit longer and they're and our interest rates are high, 12 percent or 13 percent. So it just kind of eats them alive. And what we're seeing is people refinancing to DSCR or other products just to get get the bleeding to stop to get some relief. And I'm peeling back the curtain here because that's how we roll on this show. Right.

• Speaker #0

  Yeah.

• Speaker #1

  But what I was wondering in Colorado, because the price to rent ratio is so out of whack, the DSCR is hard. But for a lot of our listeners that are self-employed, these bank statement loans can get you a much higher loan amount than the DSCR. So what I'm what I'm suggesting to the listeners, don't get hung up on this DSCR because there's hype around it. There's other products out there that could be even a better fit to get you out of a hard money loan or get you a refinance. That's why I was asking.

• Speaker #0

  Yeah. And you know what? We also have a no ratio DSCR. So most DSCR loans, if you're renting the property for $2,000 a month, your payment can be $1,999. You need at least $1 of cash flow, right? We have a product that if you're renting the property for $1 per month, it has to be rented $1 per month, and the payment is $2,000 a month, we will give you that loan. That's lower LTV, like 65%, maybe 70% LTV, higher interest rate. But you know what? It's a cheaper interest rate than you're paying to Pine. So a big part of our business. is to help folks that can't get the property sold or it's taken longer than they thought to get it listed. Give us a call. We can help you get out of those hard money loans. Not trying to take away from your business, Kevin. We want to do this together, but I can absolutely help stop the bleeding or slow the bleeding on some of those situations.

• Speaker #1

  Well, we don't want to be in those loans.

• Speaker #0

  Right.

• Speaker #1

  We want to originate and get the money back, right? It's better for our client and it's better for us. So we want that. And that's really interesting. No ratio. Okay. I didn't know that.

• Speaker #0

  We got a whole menu of DSCR, right? And basically the higher your DSCR, the lower your rate, but all the way down to no ratio, we'll do it.

• Speaker #1

  You get out of that. Okay. That's good to know. Cool. Is there any last pieces of wisdom here, Joe?

• Speaker #0

  You know, I want to ask you a question. Okay. If you were a beginning investor, would you invest in real estate now? And if so, why?

• Speaker #1

  I struggle with this one. And you would think I would just say, yes, go out and buy real estate. I do think everyone should own real estate. I do.

• Speaker #0

  I agree.

• Speaker #1

  Would I be buying real estate in Denver right now if I was just getting started? Probably not. If I was going to hold it for the long haul, you and I have talked about this, the return on equity and the different things we look at when we're analyzing our portfolio. I would buy fix and flip in Denver if I could find a deal. I would do that in any market. The market doesn't matter to me because you're buying and selling in the same market if you're doing it right.

• Speaker #0

  That's right.

• Speaker #1

  Buy rental properties, hold. I just don't know. Maybe I'll change my opinion when I listen to your presentation in November. What is that? November

• Speaker #0

  14th? November 14th.

• Speaker #1

  November 14th. Maybe my opinion will change. Would I look outside the area? Maybe. Maybe. I do think real estate is a great investment. But something like what we do with the real estate debt is a great investment also. And then Much safer, maybe not the high returns, not the tax benefits, but it's much safer, way steadier. Maybe I would be looking at something like that until the waves settle down a little bit.

• Speaker #0

  So I think this was such a great answer, and we did not prep for this, all of you listeners out there. Kevin gave you a super open answer that he would adjust his strategy to the market. He probably wouldn't buy a lot of long-term holds, but he probably would do some fix and flips. He might buy a long-term hold if it was at the right price. but he was even a little apprehensive about that, but he might look at alternative investments. Here's what I really like about your answer, Kevin. Number one is authentic. Number two, you didn't just say, yeah, absolutely buy real estate. But number three, you said you have to adapt to the market and what might be best. And number four, you didn't say, I would just put my cash under my mattress or in my savings account. I would collect assets of some sort. I think that's a great answer. And I appreciate you letting me put you on the spot.

• Speaker #1

  Well, thank you for putting me on the spot. And I'm glad I answered it correctly.

• Speaker #0

  I thought it was great.

• Speaker #1

  Cool, man. Well, as always, Joe, you're super busy. I know that. And you still want to come hang out with me every quarter and try to help our listeners. So gosh, man, I really appreciate you.

• Speaker #0

  Thank you. And a quick plug for the Pine Financial and Synergy One Lending coming up, Investor Success Summit. It's going to be on November 14th. It's going to be at the DTC Doubletree. You can get your tickets at DenverISS.com. It's $49. Gets you all-day access to our advanced track courses, our beginner track courses. Lunch will be on site. We're going to have a happy hour afterwards. We're getting a ton of RSCPs. Kevin, how long have we been doing this? Has it been 18 years?

• Speaker #1

  Pretty close. Pine is 18 years old, and I think we started it maybe year two. So we're 15, 16 years into this thing. And this is going to be different than we've ever done it before. We are. Yeah. Definitely doing a distinct track. So I'm glad you brought this up. And you've never met my buddy Rafiq coming in from Minnesota. I'm really excited for you to meet him, man, because he truly is one of my mentors. You are going to be blown away, Joe. You're going to really like this guy. And I'm excited to have him meet our listeners.

• Speaker #0

  Yeah. So if you guys are in the Denver area, please check out DenverISS.com. Would love to have you join us. It's our favorite event that we do every single year. I learn a ton. Kevin, I can speak for you. I'm sure you learn a ton. The connections are awesome. Whether you're a beginner investor or an advanced, we've got classes and topics that are going to be of interest. Great panel of vendors that are going to be there, folks from property management, tax professionals, insurance professionals, title companies. Just if you're investing in real estate or you're unsure or you're an advanced investor and you need to reconnect. It's a great event. It's my favorite thing we do every year.

• Speaker #1

  Yep. And the advanced track is going to be great. And you will learn something. I promise.

• Speaker #0

  Yeah.

• Speaker #1

  I don't care if you've been doing this for 20 years, like you and I, Joe, you're going to learn something. Cool, man. Well, thank you for mentioning that. I-S-S dot com. All right. For the listener, you have so many other podcasts you could be listening to, and you chose the Real Estate Educators podcast. And for that, I am so incredibly grateful. Thank you so much. If you got value out of this, like I know you did. Help us out. Five-star review, share it with a friend, and I hope you make this day a great one. I really hope you enjoyed this episode as much as I did. If you did, please be sure to follow and leave a five-star review. Oh yeah, and tell a friend.