Transcription

• Speaker #0

  We were in negotiations,

• Speaker #1

  investing in real estate.

• Speaker #0

  They're winning, they're making money. 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. This podcast has been a ton of fun, especially these episodes when we go into the market pulse. We do this for both Denver and Minneapolis. Today, we're here with Mr. Joe Massey and Mr. Justin Cooper going over the economy. We're going to go to a little bit of a macro level, but also we're going to get into the statistics and what's going on in Denver. So if this is your first time listening, or even if it's not, do us a favor, five-star review, share it with a friend. So we'll start out with my co-host, Mr. Cooper. What's up, man?

• Speaker #1

  How are you, Kevin?

• Speaker #0

  All right, quickly tell us who you are, and then let's introduce our guest.

• Speaker #1

  Yeah, I'm Justin Cooper, Senior Loan Officer with Pine Financial Group. We are hard money lenders, lending potentially 100% of your deals. I also do a little coaching and consulting. Been an investor since 2007, own a handful of rental properties. Know just enough to be dangerous with a whole lot of things real estate investing wise.

• Speaker #0

  Cool. Well, thanks for joining me as we host this amazing podcast episode. What's up, Mr. Massey?

• Speaker #2

  Nice to see you, gentlemen. I really like what Justin said, that he knows enough to be dangerous. Maybe Danger should be his new middle name. Justin Danger Cooper.

• Speaker #0

  Oh, you're on to something. All right. Let me write this down. Let me write this down. So while you're doing that-We're doing nicknames in the office now, so gotcha. Oh,

• Speaker #2

  all right. So I got Kevin and Danger, and my name is Joe Massey. I'm with Castle and Cook Mortgage, and I have worked with the two of you gentlemen for, gosh, I think 15 years now. And just always an honor to be here on the podcast with you guys. I love talking about real estate, love talking about economics, trends, data. You know, my secret that hopefully nobody finds out is I'm a little bit of a nerd on this stuff, but really enjoy speaking about it and really enjoy doing mortgages. So, you know, a lot of what I do is helping you if you work with Pine and you buy a property and then you decide you want to keep it as a rental. You don't want to stay in Pine's loan for a long period of time because it has a one year limit. You call me. I will help you refinance that property, put it on a regular 30-year fixed rate loan so you can keep it in your long-term investment portfolio. So gents, thanks so much for having me.

• Speaker #0

  Yeah. Welcome to the show, man. So you both were there. So you know, this past Saturday, we just had our, I don't even know how many it has been now, but it's been going on for about 14 years, our Real Estate Investor Success Summit in Denver. So we just passed that. And we had a little theme this year. Gentlemen, we wanted to focus more on like what's going on in the environment. So what's going on in the economy? We had a session on the regulations in Denver and how you navigate that. Very different than some of the other success summits we've had in the past. And I got to tell you, we had a ton of great feedback. People want to know how to navigate this experience or this experience, navigate this environment. And Joe, you went into some detail more local. I took a macro view of the. economics. So at the event, what did we learn? What was your takeaways out of this year's event?

• Speaker #2

  You know, my takeaways, I think were people are still craving ways to make money in real estate. It's not as easy as it once was, but you know what? In 2012, everybody was saying, oh my gosh, you're never going to be able to buy investment properties and make money ever again. And what do you know? We've bought properties in 12, 13, 14, 15, all the way through and made a ton of money so people are still craving that same information people are still craving the same ways to make money there's some challenges certainly with regulation certainly taxes are up insurance is up hoas are up interest rates are up prices are up but you know what there's still a lot of great ways to make money in real estate whether it's fixing and flipping whether it's doing midterm rentals short-term rentals so my takeaways is there's a lot of people still doing deals there's a lot of people finding ways to make money And if you're listening to this and saying real estate, it's no longer a good investment. I'm going to show you some information that I completely disagree with you. And from the summit, we saw more than a hundred people who are doing really, really well in real estate and looking to do more deals.

• Speaker #0

  Yeah. And we're going to get into more of this, Joe, but the interest rates are interesting because I think people are waiting on the sidelines thinking that these are going to go down because we keep hearing about the Fed cuts and it's not what's happening.

• Speaker #2

  Yeah. Fed doesn't impact mortgage rates, but we can talk way more about that.

• Speaker #0

  Yeah, let's get I definitely want to get into that. But Coop, man, what was your takeaway is this Saturday?

• Speaker #1

  I think I had two big takeaways. First off, it was the first weekend after the presidential election. And. I talked to, I tried to talk to every single person there, and almost nobody brought up the election. Nobody was concerned about who won, about who lost, about what's going to happen and change. So that was actually, I think, really refreshing that we were not talking about the election. But also, I think what it says is people weren't overly concerned about the results, about who won, about who lost, about how things are going to change. They just know that we're going to keep plugging away and moving forward. which is fantastic. The other thing is we had had a week of snowstorms. When I left my house, there was over a foot of snow on the ground and they had been predicting and expecting a massive storm Friday night into Saturday morning. So I expected 20 people at the success. I thought it was going to be completely empty. And I was overwhelmed at the turnout, well over a hundred folks, way more than I think maybe even all of us expected. And the caliber of the people that came out was through the roof. So the fact that people were registering and ready, wanting to come out, regardless of the weather reports, the fact they did come out and braid the storm. I know, you know, Howie, who works with us, was there at 630 in the morning setting up with me. And he had over a foot of snow on the ground. He did get hit hard with that storm. So I know parts of town did get hit. And we still had a massive turnout. And that just made me feel really excited about what's coming in the next year. And the fact that people are still willing to get out there, learn, and continue to invest in real estate.

• Speaker #0

  Yeah. People are still making money, guys.

• Speaker #2

  Yeah.

• Speaker #0

  All right. Well, let's get into it.

• Speaker #2

  People are making money and there's money to be made.

• Speaker #0

  Yes. And we're going to learn a little bit more about that. I know you said you had some slides you wanted to share with the show. But before we get into that, let's talk about the CPI that just came out as we record this. This is the 13th of November. This should be releasing on the 14th, so just one day after the CPI report came out. And although it was expected, I find it interesting that the headline number went up. So we have this fight against inflation. There's massive rate hikes. Now we're lowering them, which you would think cause the inflation to go up. But is that really what the Fed is wanting? And then, you know, the core, the core stayed right where it's at. Core is taking food and energy out. The big piece here, guys, that why you're seeing that number go up is housing. So what are your thoughts, Joe?

• Speaker #2

  Exactly what you just said, housing. Housing prices are continuing to go up. And I've got some slides we can talk about on inventory. And the big challenge there, we do not build enough homes in the United States over the last 15 years. So we have not kept up with population growth and demand. We don't. don't build enough homes or have not been building enough homes. And that leads to continuing increasing prices. So if you go back and watch this from a year ago, 18 months ago, there was a lot of questions around our price is going to crash. Are we going to have a foreclosure boom? And back then we said, no. Now we also said, we're not going to see 20% appreciation anymore. We're going to see three, four, maybe five in certain pockets. And that's exactly what we're experiencing. We're kind of at a normal appreciating market, not crazy up, not crazy down. And that is a big part of that CPI number. House prices go up. Inflation goes right along with it. It's kind of they're tied together.

• Speaker #0

  You know, and Coop just said he's so refreshed not to talk about the election. But I kind of feel like we have to at least a little bit here because the president-elect has a extremely inflationary policy. Now, they both did. But when I looked at some of the studies from the different universities. uh trump's plans were gonna likely cause more inflation than um than his opponent and i don't know if we're starting to see that immediately because that's the expectation or what are your thoughts and how are we protecting ourselves here yeah

• Speaker #2

  so you're exactly right regardless of which side was going to win there was going to be a certain amount of inflation that's going to continue and we're seeing that in the 10-year treasury so the 10-year treasury was up, I want to say 35 basis points immediately following the election. And a lot of people say, oh, it's because it's inflationary policies. That was going to happen either way. Both administrations or both folks that were running have inflationary policies. And right now we don't bring in enough money as a country to pay for all of the spending. What do you do? You have to borrow it. When one person or another gets into office or is elected to office and you expect what they're going to be doing, we're going to have to borrow more money. That pushes up yields, pushes up interest rates. It all ties together because it's just going to be more expensive for the country to borrow for some of these programs and policies. And that would have been true on either side.

• Speaker #0

  No, that's exactly right. What are your thoughts, Coop? or buy more real estate.

• Speaker #1

  I mean, just buy more real estate. Real estate is a hedge against inflation. Joe just said it. As inflation goes up, housing goes up, we just said housing went up, causing the CPI to go up. So buy more real estate. Hedge your bets about that, put your money into real assets, and continue to watch your net worth grow. I don't know. protect your family, be prepared for these things, right? I mean, that's why we're here, right? To talk about investing in real estate. And as much as inflation scares people, if we keep investing in real estate, we're going to be just fine.

• Speaker #2

  Well,

• Speaker #0

  look, here's the thing about inflation. I'll say this and I want you to chime in there, Joe. Inflation separates the wealthy from the middle class and lower class. I mean, it's sad, but that's reality because the upper class has assets, as Coop just said. So if you're investing in assets, especially real assets and inflation sinks in, you benefit from inflation. So it's not necessarily a terrible thing. I actually think it is terrible for everybody as a whole, but if you're on the right side of that, it's not so bad.

• Speaker #2

  Yeah. Especially if you buy an appreciating asset with an inflation protected financing product. And this is one of my favorite little quips. All right. I offer an inflation protected financing product. You know what it's called? A 30-year fixed rate mortgage. If you take that mortgage out today and it's got a payment of $2,000 and the value of the home goes up and up and up, what happens to that mortgage payment? It stays exactly the same. It never changes. So you can buy an appreciating inflationary asset with a non-inflationary product and make a ton of money based on leverage and not paying cash for the property. So it's a great way that you can actually... take advantage and profit from what's coming.

• Speaker #0

  Yeah. Let's talk about interest rates, man, because you just mentioned that you're going to be stuck there and for 30 years now you could refinance. So you benefit from lowering rates, but you have a hedge against inflating rates. That's what makes this 30 year fixed product so attractive. You mentioned Joe interest rates went up after the election. We know, and I could show you charts. You probably can too, of interest rates spiking the 30 year spiking. after the Fed cut rates in September. So there's clearly not a direct correlation between the Fed funds rate and mortgage rates. So help me understand this.

• Speaker #2

  Yeah. So the federal funds rate, this is a little complex, but that's the amount that banks charge one another to borrow money back and forth overnight. All right. And then on top of that is a margin and that's called the prime rate, which is what's used to calculate car loans, credit cards, home equity lines of credit, things like that. And so those are all short-term financing type products, right? Generally five years or less, maybe six or seven years for a car loan. Well, a 30-year mortgage is not tied to those short-term rates. A 30-year mortgage is based on mortgage-backed securities, which track very closely with the 10-year treasury. So yes, the Federal Reserve is saying, hey, we want to bring down borrowing costs on some of these short-term instruments, credit cards, home equity lines of credit, car loans, banks borrowing from one another. But that does not directly impact mortgage rates. So it's they're loosely correlated, but not directly. And we saw when the Federal Reserve lowered rates, lowered the Fed funds rate in September, we saw a dip in interest rates. We had about two weeks that rates were in the low sixes. Then they started going back up right around 6.875, some days 7%. We had a little bit of a spike after the election. Two days after the election, the Federal Reserve lowered the Fed funds rate. That made zero impact on mortgage rates. And it was such a case study in how these two things are not directly tied together.

• Speaker #0

  Yeah, that's great. So the mortgage rates are definitely tied to the bond market, but it's definitely tied to the market. What are people willing to pay for that return? So I don't want to go into too much detail, but it's supply and demand. Exactly. Are there buyers for these 10-year treasuries or not? And then what's the risk-adjusted return, which would be that margin that Joe's talking about?

• Speaker #2

  Yep.

• Speaker #0

  What are you thinking, Coop?

• Speaker #1

  I'm still just trying to figure it all out, man. You know, I mean, it's so interesting watching everybody get so excited. And I think this is maybe what happened before they cut rates a couple of weeks ago. Everybody was so excited to hear that they were going to cut rates. There was all this anticipation. So rates actually began dropping. Mortgage rates began dropping before the Fed cut rates. And then it was interesting as soon as they actually did cut the Fed rate. uh mortgage rates skyrocketed um it was really actually interesting in our office we had two people one was uh buying a house and the other one was refinancing uh a house and we were going back and forth on what were the rates at and when could they lock it in and all these other things um and one locked in early and one waited and interest rates you know shot up and it was really interesting you know in our real estate uh office where we're talking about this all the time to see like real people right are coworkers dealing with the effects of this and how it changed and the surprise that everybody had. I think it just goes back, you know, people were, the market was anticipating the Fed rate drop. But then as soon as it did, it's not really correlated. It doesn't really have that effect on mortgage rates. And so then the market came back to where it probably should have. So just really interesting. And then obviously we're playing this out just this week as the Fed continues to drop it. So, yeah, I think we're getting more used to the 6%, 7% interest rates. And so that's the market. We're getting used to it. And so we probably won't see massive changes, at least for the near term, for sure.

• Speaker #2

  I agree.

• Speaker #0

  Well, let's get into some statistics in Denver, if you want to work on pulling up your slides, Joe. I will share with you one of our favorite things that we look at. I think Joe agrees with me here. When it comes to housing and the economics around housing is the months of supply. And the reason I say that is because you've heard me say this before, but it takes into account both the absorption, which would be demand, as well as the current inventory. So I could tell you that the national month of supply I'm looking at right now, 4.3% or 4.3%, 4.3 months. So what that tells us, Joe and Coop, is that if there's no more inventory added, then it would take us 4.3 months to absorb everything that's on the market. Now, I want to get Joe's opinion here. If that's considered a buyer's market, a seller's market, what information is that 4.3 telling us? And then let's get into Denver.

• Speaker #2

  Yeah, that 4.3 months is very close to a balanced market, right? So four months of inventory and below would be considered a seller's market. Four to six months of inventory is a balanced market. Six months and above would be considered a buyer's market. So 4.3 nationwide, the national. real estate market is a balanced market. Now, here's the catch with national statistics. It's kind of like saying the average temperature tomorrow in the United States is going to be 74 degrees. Do I need to wear a jacket? Well, you need to look a little more closely. Where are you, right? Maybe you're in Minnesota and it might be 20 degrees. Maybe you're in Florida and it's going to be 85. And that's why I really love national statistics. So I think it's very telling that we are reaching a balanced market nationwide. But we're not necessarily a balanced market in Denver and maybe not even in Minneapolis where you guys do your other show.

• Speaker #0

  That's right. So where are we at?

• Speaker #2

  So down here at the bottom, we've got months of supply. Now this is as of August, but it's still very relevant. So over on the left hand side, you have cities that have zero months of inventory on the right hand side, all the way up to eight months of inventory. And then on the left hand axis over here, we've got year over year home price appreciation. So we're going to start with Cape Coral, Florida, all the way over here on the right-hand side. So they're right at eight months of inventory. And the prediction for the next 12 months is that that market is going to depreciate, lose value roughly 4% over the next 12 months. Now let's look up here at the top left at Providence, Rhode Island. They've got just about two months of inventory. And their prediction is that home prices there are going to increase roughly 8% over the next 12 months. And you get a really strong correlation. If you look at this trend line, that's going from the top left to the bottom, right? This is an indication of what is the correlation between months of inventory and home price appreciation that Denver and Minneapolis are both right here in the middle with, you know, Denver has just under four months of supply. Minneapolis has like two and a half months of inventory. And expectation for home price appreciation is about 1%. And that lines up with exactly what you just said, Kevin, for nationwide statistics, we're in a balanced market, roughly four months and up is that balanced market up to six months. Doesn't mean prices are going to go down. Doesn't mean you're going to get a ton of crazy deals. Neither side of the equation, buyers or sellers have a ton of power in the negotiation. So I think this, I really like this chart as a very busy chart. but it shows that the higher months of appreciation you get in a given market, the lower your appreciation is going to be. Also looking at if you get above six months, you may have depreciation or declining prices in the market. So tell me your questions on this chart. I know it's a busy one.

• Speaker #0

  Yeah. How recent is this data? Because I've read and I'm looking at it right now from, who is this from?

• Speaker #2

  This is from August.

• Speaker #0

  Colorado Association of Realtors. The Denver area is around three months of supply. single family 5.1 and attached. But you know, I saw something the other day, I just read that it was around three months for both attached and detached. So this to see the four surprises me a little.

• Speaker #2

  Yeah. And that's always tricky, right? Because sometimes some metrics use Denver metro area, some metrics use the city and county of Denver. And so it's always a little tricky to figure out why might you get a little bit varying statistics from one report or the other. And the big thing I want you to grasp, not just you, Kevin, but also the listener, is you want to understand the trends, right? The difference between three months and four months is not a significant difference in appreciation. Now, if there's a wide swing that one metric says there's one month of inventory, another says six, I might question some of that data. But when you're within a small margin of error, just really understand the trends.

• Speaker #0

  Okay. So let's go with that. So do you think now that you're basically telling me Denver's really neutral? Uh-huh. What are you, you're comfortable, you're comfortable with those numbers? What are you, what are you looking for? Like forecast this for me.

• Speaker #2

  Yeah. I think we're going to see supply drift up a little bit. I think through the winter we'll probably be four, maybe four and a half months of inventory in the spring. I suspect that's going to go back down kind of like it always does in the spring down to maybe two and a half, three, three and a half months. And we're going to continue to see gradual price appreciation. What I mean by gradual price appreciation, 2%, 3%, 4%, 5% over the next 12 months, because we don't have a ton of inventory that's going to lead to prices declining. We don't have a very big inventory shortage that is going to lead to prices spiking. We're kind of right in the middle, which is a pretty safe place to be, frankly.

• Speaker #0

  Okay, good. And we know in Denver, we gave back some of the value increase from the COVID stimulus after that dried up. So we saw... Home price values dip. I mean, it's a rather significant dip, but it was in a short period of time. And then it started re-appreciating again. And year over year number, I don't know if you have those numbers, but it's around 2% in Denver.

• Speaker #2

  Yeah. Last year was around 2%. I don't believe I have that here in this slide deck. But yeah, appreciation last year was around 2%. Yeah. And let's talk about the consensus for nationwide for 2025. So let me forward to that slide. So this is a slide from an average of 10 different experts at Moody's, Freddie Mac, National Association of Realtors, Zellman, MBA, Fannie Mae, others. And some predict appreciation of as little as 0.3%. Others predict appreciation as high as 4.4% on average. right around 2.6. Now this is nationwide. And this forecast has not changed a whole lot in the last couple of months. So I think this is kind of in line with what we were seeing on that months of inventory chart. Prices are going to be pretty stable. You may have some pockets that are highly desirable. Wash Park, right? You might still get 5, 7, 8% appreciation. You may have some other areas that are not as desirable. North Aurora, you might get zero appreciation. Maybe... negative one or two or negative 3%. But on average, based on inventory nationwide and in Denver, we should see 2%, 3%, 4%, 5% in some pockets appreciation.

• Speaker #0

  So if you're seeing 2% appreciation in Denver, and that's what you're projecting in the next 12 months, why do you get excited about investing?

• Speaker #2

  Because I think there's still a lot of upside that if I can put, let's say, 25% down on a property, and that property appreciates at only 2%. 2%. but I borrowed the other 75, I'm actually getting an 8% appreciation return. That's not talking about tax benefits. That's not talking about potential cashflow. It's also not talking about debt reduction. So the power of leverage multiplies that return because I'm getting a return on the entire asset, but I only had to put down a fraction of the entire asset to buy it. So that's one reason why I get excited. The second reason is apartment deliveries. There's going to be a lot of apartments coming online in the Denver Metro area in the next 12 months. Well, in 2025, that is going to fall off a cliff that there's only going to be like 3,000 new apartments delivered in the Denver Metro area in 2025 and 2026. That is going to lead to a constraint of the number of apartments available, which is going to lead to increased rents. So you can buy a property today. Yes, I understand it's not going to cash flow, get a fixed rate on your mortgage. Whenever interest rates go down, you can refinance. Whenever rents go up, likely to happen within the next two years, that fixed rate mortgage is going to be covered very easily by increased rents. And all of that comes back to now's a good time to buy. back to the months of inventory because some sellers are freaking out. They don't have as much power as they did six months ago, 12 months ago. So overall, I think it's kind of a perfect storm to buy, even though 2.6% appreciation doesn't sound great. You have to look at the entire picture.

• Speaker #0

  Yeah. What are you thinking?

• Speaker #1

  I love all that. It looks good when you're driving around Denver and you see all these tower cranes and you see all this construction, but as Joe said, all of those, those tower cranes are coming down very. quickly, very soon, because they're all going to be delivered. And then we're looking at a lag in construction. So, you know, you asked Joe why he likes investing in real estate, or still likes it. I mean, it's, it comes down to the control, right? We can control this asset type as opposed to others, right? We can't control the price of gold, we can't control, you know, stocks necessarily. And this is why people buy and invest in businesses, because you can control. what's going on in that business and whether it's growing or not. Same thing with real estate. We can't necessarily control the bigger market, but we can control how good our property looks, what kind of amenities we're providing. We can pick and choose our tenants and we have a lot more control over those things. So even with what Joe was saying was maybe we buy with less cashflow or no cashflow now, knowing that in the next 12, 24 months that'll increase, there's other strategies that we can implement to create cashflow today. And then that will grow even more in the next couple of years. So that's one of the biggest reasons I love investing in real estate, specifically the residential side, because you can invest in syndications and multifamilies, but if I'm not the one controlling the deal, I lose that aspect of it. That's why I love residential real estate, because I can control it to a greater extent.

• Speaker #0

  Yeah, that's great. I guess it comes down to what your goal is. If your goal is cash flow and you want to to own property because you also want to capture some of the appreciation and those leveraged returns, as Joe was saying. I mean, that is tricky right now, right? If you want to do that, maybe it's get creative and rent by the room. I'm assuming that's where you're going with this, do a short-term rental or rent by the room or some other type of strategy. And then obviously, it's not so passive, right? Now you're giving up some of your time because you're putting effort in to chase those returns. I'm... I got to say what, and I'll ask both of you what you think about this, but when I talk to people who are searching for cash flow and they're less concerned with the long-term growth or long-term appreciation, the wealth building, they just want the income. A lot of them are going to the debt side and we've seen our funds grow significantly with the new regulations, the lack of appreciation. People just want the cashflow. They want to, they want that income. And so they invest with someone like Pine Financial into a fund that. makes loans instead of owns the real estate.

• Speaker #2

  I was going to say, you know, I have some really good friends that run a hard money company that they have great options to invest into their funds. And that can be a very nice passive way that if you don't want the headache of real estate, you want the benefit of real estate investment for the cashflow, but you don't want the headache of tenants, toilets, management, all the other stuff. I'll give you their phone number. It's Pine Financial Group, 303-835-4445. Definitely reach out to them. They have some great options that you can invest in their funds and really take advantage of the real estate market without having to do a whole lot of work.

• Speaker #0

  Yeah, thank you, Joe. I mean, obviously that's self-serving, but in reality-No,

• Speaker #2

  it wasn't I said it.

• Speaker #0

  I still believe in owning some properties. I agree. Potentially do both because look, the cashflow is fantastic, but it doesn't grow unless you reinvest it, but it doesn't grow like real estate values will over time. So I still think you should be looking at real estate and maybe do both. What are your thoughts on what Coop said, Joe, on getting more creative and different ways to increase cashflow? So here's one that I'm seeing, because if you're buying a property just for long-term investment right now, if you want that property to break even, you have to put 30% down. If you want that property to cashflow a hundred bucks, 150 bucks a month, you have to put 35% down. And that's the thing is a lot of people say no properties cashflow. That's not true. Every property cash flows if you put enough money down, but right now, maybe you don't want to put down 30 or 35%. So I have a lot of my clients that are putting down 15, 20, or even 25%. So Then they're doing either short-term rentals or medium-term furnished rentals. That increases the cash flow in the near term, but it is more work. And what they're counting on is three years from now, long-term rents will be higher. Three years from now, they will have had an opportunity to refinance and lower their principal and interest payment. Three years from now, they can get those long-term rents. That property will now cash flow, whatever their goal is, $200, $300 a month. And they no longer have to spend time. doing short or medium-term rentals. So buy it now, do a little bit more work to get the cashflow today, be the beneficiary of increased rents when apartment deliveries slow down in 25 and 26, get higher long-term rents, stop working with the medium-term rentals and collect your cashflow.

• Speaker #1

  Agreed. Anything to add, Coop?

• Speaker #2

  No, I'm actually getting more and more intrigued myself about midterm rentals. Short-term rentals sounds like a whole other job. right? You're constantly trying to clean and turn over and book and all these other things. But midterms, I mean, you may have three month or six month tenants in there. And I mean, if I'm filling my long-term rentals every year, hopefully not, hopefully they stay longer, but a midterm every six months, there's going to be a little bit extra startup costs because I'm furnishing the whole apartment. But after that, it feels to me, and again, I haven't really explored it. I certainly don't have one in my portfolio, but it doesn't feel like... a massive amount of work, certainly not compared to the short-term rentals. And it's a huge workaround from the short-term rental regulations that are constantly changing. So I'm really interested and intrigued by the midterm rentals. I think that could be a great strategy. And Joe, you laid it out perfectly. I don't know what I'm going to do with all that furniture in six months or in three years when I pivot, but that's tomorrow's problem. If I can make a deal work today. with that added cost up front, I think midterms is a great way forward.

• Speaker #0

  Let me tell you what you're going to do with it. You're going to buy it today. You're going to depreciate it over a three-year schedule. Then you're going to donate it.

• Speaker #1

  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 in 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 Mortgage Fund. Get more information at pinefinancialgroup.com. dot com. That's pine financial group dot com. The statistics here. So, Joe, you brought up something that that made me want to have a quick conversation with you. And it's about the expectations of sellers. So we've been spoiled, especially after the covid that, you know, we put a house on the market and it sells immediately. We'll have multiple offers that will sell in a weekend. And that was that was, you know, the norm. And I think sellers sort of got. used to that and the expectation was that agents too a lot of agents have entered the industry post-covid and that's all they really know but the reality is days on market that's a different statistic than months of inventory but it sort of tells you the same thing it kind of paints a similar picture yeah and i'm going to pull this up maybe and show you what denver is looking like now but what are your thoughts on days on market when should we be looking at that and um i guess Tell us what you could learn, what we could learn from it.

• Speaker #0

  Yeah. So days on market, I feel like right now, and I'm interested to see your stats, but I feel like it's about 33 days in Denver. And hopefully that lines up with what you're going to pull up here. But I see really kind of a tale of two markets. The first side is people that list their property and they have it priced well. They have it clean. It's fresh. It's ready to go. It's in a good area. Those are still selling in three, five, seven, 10 days. Properties that are overpriced. not marketed well, they're selling in 45, 60, maybe even 90 days after a couple of price cuts. We'll average those out. You're going to get right at that 33, where we have 32 days right there. Is it,

• Speaker #1

  where are we at? Looking at, so for the people that are viewing, this is Denver. So this is Denver core. And so the people that are not listening, we'll walk through some of these numbers, but this is 24, this is 23. So it's comparing the two years. And this is a month, like a year over year. So October of 23, October of 24, and then the percent change. And this did stand out to me. What I'm looking at now is the almost a 45% increase on days on market with the single family detached product.

• Speaker #0

  Now, one of the other things I love here, percent of list price received. 98.1. That means sellers are giving up 1.9% off of their list price on average, and it's taking them on average 42 days to sell. So that comes back to this being more of a balanced market that sellers don't have all the power right now. And they're going to have to make some concessions if they want that property sold, or they're going to hold onto that property for a lot longer. And the concession there is they're just paying higher carrying costs to their mortgage lender. So either way, sellers are going to make some concessions in this market. And I would encourage sellers listening or agents representing sellers, talk to them about the benefits of paying closing costs to help the buyer buy down their interest rate and remove some of that pain to get the buyer into the home. That's how you move a property faster. Yes, you're still going to take a reduction on the price, but you're going to get it off of your books a lot sooner by offering preferred financing to the buyer.

• Speaker #1

  So we just mentioned the seller's expectation, and this is where I'm going to agree with you. If the seller's expecting it to sell in a weekend and now it's taking 45 days or less, I think that could be some good buying opportunities, right? Because they lose patience because of their expectation. But what is reality? Like if you look over 20 or 30 years, Joe, what's like an I know you don't have this here, but give me an idea. What's the average days on market?

• Speaker #0

  I think the average days on market over the last 30 years is like 65 or 70. You know, we're still well below average.

• Speaker #1

  Yeah, but isn't that amazing? But the expectation is it should sell quickly. So we're right in average where we should be. It should take you more than one month to sell a house.

• Speaker #0

  Yeah, it should. And part of that is just, I think, a shift to the mentality of today. We want one click on Amazon and it's here tomorrow, right? Selling a home is not the same way. In 1980, there was no such thing as one click on Amazon and hits here tomorrow. It was normal for something to take 60, 75, 90 days. That's actually a pretty normal thing when you're making a really, really big purchase or a really, really big sale. So it's just a mentality shift that we want this immediate gratification. You're not always going to get immediate gratification when you're selling real estate.

• Speaker #1

  Right. So I think this does help solidify your argument. And while I got to, while I got to pull it up, I'll just look at this real quick for the viewers. And you can see the dip that I was talking about, right? With the, the losing the value after COVID and then, oh, this isn't COVID, but we did see a decrease in value early January as well. And then right back where we were, you know, I do have one that shows here's from Zillow. This is the value in Colorado. No, this is in Denver. So this is the entire metro area.

• Speaker #2

  but that's the you could see the big dip there that i was yep gosh look at this this isn't covered either what happened here joe what happened in just in 2022 interest rate recovery from uh from that huge build up in coven oh yeah yeah that price has skyrocketed because of covid and so then yeah when interest rates started going up that was us kind of adjusting

• Speaker #1

  That's right.

• Speaker #0

  April 22, interest rates crossed over 4% for the first time in three years. And that's the peak of that graph you're looking at right there.

• Speaker #1

  Yeah. And then it started just leveling out. Yep. And that's sort of what you were saying earlier in the episode here, Joe, is your expectation is that to continue to be fairly flat.

• Speaker #0

  I agree. Yep.

• Speaker #2

  Cool. So go back to that previous slide that you had on there, Kevin, with the days on market and sellers getting used to that new reality of… property sitting longer. I think people start to freak out when they're not selling in the first weekend, the first week, maybe even the first month. And so the way I think most folks will react to that is dropping their price. But Joe brought up that line just above it, the percent of list price received is still at 98.4% or 98% of list price. So the property is going to sit a little longer. And I think as Joe mentioned, sellers need to account for that in their holding costs, but don't necessarily freak out and drop your price, right? Hold on a little bit longer and you'll probably still receive at, or very, very, very close to your list price. So I think it's just, again, going back to seller expectations and knowing it's going to sit on the market a little longer, but if you can hold on, you will get. basically your list price.

• Speaker #1

  Yeah, that's a great point. And I know Joe loves to talk about this, but when you look at a statistic like this, this is what you would see in the media. So everyone freak out because days on market went up 45, almost 50% year over year, but you started under a month. It's really not that impactful.

• Speaker #0

  No, it started at 29 days. Now it's at 42 days. It's gone up. 45 well it's kind of like saying you know last year i drank two beers this year i drank three beers my alcohol consumption is up 50 does that mean i'm an alcoholic no not necessarily right if you're starting at a really low basis and you add just a little like one or two units that percentage change is really really high but that is not the end of the world right

• Speaker #1

  All right, guys, we're going to get wrapping up here, but tell me this. It seems like every time we get on this podcast and we do a little economic update, we're always roses and rainbows. Everything's great. Bye, bye, bye. It does feel self-serving because we're both in the industry, although we really do believe that. I want to ask you both, at what point would you push pause? What statistic would you be looking for to make you decide, I don't want this? to buy right now, I'd rather be on the sideline.

• Speaker #0

  Ooh, I got a good answer, but Justin, you go first.

• Speaker #2

  Damn. I was hoping you would go so I could think more. I think it depends on which aspect. I've kind of been paused for the last 12 months, but that was more personally. How much cash did I have on hand? Where were we allocating funds? What did we have going on that would allow me to go buy my next property? Because You know, my wife and I, our strategy is to buy cash flowing assets. And it's not necessarily that I'm scared of the market prices are too high interest rates are crushing me none of that it's, you know, what is our income been doing? What are our kids doing? How many sports? What kind of travel do we want to do? And then honestly, I was primed and ready, I had quite a bit of cash ready to go. And then I had a very expensive turnover on a property. And so all that money I was going to put into a new property. uh went into an existing property um not quite what i had planned for it i had the ability to handle it uh and of course rents you know because i now have a much better property rents have gone up in that property um but so we're back to stacking up some more cash you know recovering from that and getting ready to buy another cash flowing property so it you know when we're ready for that we'll be looking at all the metrics you know what are our goals, cashflow wise and neighborhood wise and property type and, you know, and just take into effect the, what are prices at right now? What are interest rates? You know, what does all this do? And then from there, we'll make an informed buying decision.

• Speaker #1

  So no statistics help you with this?

• Speaker #2

  No, it's just my personal bank account, right? It's our personal, where are we at in life and what do we have going on? There's nothing that would change.

• Speaker #1

  for me necessarily from just buying another good property cool yeah i i tend to agree i'm giving you for it but i i tend to agree like you could find great deals in every market but what i'm really digging for here is what what would scare you guys like what would what would jump off the page and say ah let's let's just wait and see how this like impacts housing in denver

• Speaker #0

  Joe's turn. I'm going to give you a direct answer because it'll make you happy, but then I'm going to give you my real answer.

• Speaker #1

  Okay, go ahead.

• Speaker #0

  And then I'll probably never be invited on the show again. So my direct answer, if I saw interest rates higher than 10%, I would not buy an investment property. That's my direct answer. My indirect answer is what is the statistic that scares me? Nothing that's going to be reported on any of these charts. So Justin and I did not prepare this in advance. But what I look at is my personal situation. I have a class that I teach on how many properties do you need to retire. And for some people, that's two. For some people, it's six. Once I've gone through that metric and I know how many properties I need in order to reach retirement and I need to have those properties paid off, once I've acquired that number of properties, I would stop worrying about buying more properties and I would focus on paying off those debts. So for me, the statistic is, what is the Joe Massey number that I have to have? in investment properties. And then I'm going to stop looking at the statistics from the market and focus on how can I pay these properties off. But to directly answer your question, if rates go above 10%, I would not purchase an investment property in that market.

• Speaker #1

  Yeah, and I don't think anybody that's listening or anybody on this podcast will be alive at a point where 10% interest rate, we see 10% interest rates. I just can't, there's too many tools and levers that the Fed has now that they weren't implementing in the 80s when you were seeing that. It's just such a different environment. And there's, we learned a lot through that savings and loan crisis and the hyperinflation and those 18% rates. So my personal opinion, we'll never see that. I agree. So for me, I do look at a couple of different things. I like unemployment, but that's a lagging indicator. So lagging indicator means it's showing you something that's already happened. So it doesn't really forecast, but it does tend to lead to higher defaults, which would be my second number that I like to look at because defaults is the first indication of foreclosures. And if we start seeing foreclosures increase, you could see a softening and some buying opportunities. So that's at the point where I'd want to sit on the sideline a bit and just hoard cash to take advantage of those opportunities. Now, I want to talk about that 10% rate, your answer, Joe. I think if you really are seeing high interest rates like that, that's going to have a significant impact on valuations, especially on income properties. So think about... Thank you. two, three, four units, or even bigger than that, those trade on income, not on my, you know, I want to live in this nice neighborhood, right? It really is an income place. So interest rate, it's more sensitive to interest rates. So I think that would create some tremendous opportunities. And then you, uh, Joe, you coop, and I would probably pull some cash together and not borrow at 10%, but we would go pay cash for a house. And then once the, once the recovery happens, then we would layer in some, some low interest rates. debt. So that would be my response to you, Joe. Coop, I actually really like your answer, even though it wasn't an answer at all, because you can buy in any market and still be profitable. So I don't know why I'm going off on this tangent here, guys, but we do seem to paint a rosy picture every single time. And that's because we love this business and we know we can make money in every market.

• Speaker #0

  Yeah. And it is a rosy picture. I mean, you're never going to meet somebody who says. boy, I bought that house 20 years ago, rented it out, paid it off, and I still have it. I really wish I wouldn't have done that. You never hear people say that, right? Now there's ups and downs. Coop just had a big turnover, or excuse me, Danger just had a big turnover. But you know, if you buy it, hold it for a long period of time, you're going to make money. So it kind of is always rosy with some speed bumps along the way.

• Speaker #1

  Yeah. But we do need to understand what's going on in the environment, which is why we do this quarterly podcast. Yeah. Okay. So forecast, what's going to happen with... 30-year rate mortgages?

• Speaker #0

  I think we need to be prepared that interest rates of 2%, 3%, 4%, maybe even 5% are gone for a long period of time. If you can find a way to lock in a rate of 6%, 6.5%, 6.25%, do it. But don't be surprised if you can get a rate of 7%, 7.8%, 7.25%. Buy the property. If it makes sense, call me because we, number one, will give you a reduction on your interest rate in the first year for any primary resident. your interest rate will be 1% lower in the first year. Number two, we'll give you a voucher that you can refinance that loan at any point over the next 30 years, whenever interest rates go down with no closing costs. So you buy a property today at 7.5%. A year from now, rates are six, six and a quarter. You call me, you can refinance with no closing costs. That's going to improve your cashflow, make life a heck of a lot easier for you. And like we mentioned earlier, that property is still appreciating.

• Speaker #1

  What do you got to add to this before we wrap up here?

• Speaker #2

  You know, for a long time, we've been talking about marry the house and date the rates. I think that's no longer a viable strategy. Yes, I think we should absolutely be prepared for it and, you know, keep our fingers crossed and knock on wood for the time where the rates drop enough to refinance and make it worthwhile. But I think the new reality is just getting comfortable with the interest rates where they are. I think they're going to be holding steady for a while. I think we need to be prepared for that. Not by saying, oh, in six months, in 12 months, I'll refinance or whatever it is. We know we're going to get six, seven, seven and a half percent interest. And we have to vet our deals based on that interest rate, based on those monthly payments. And if it doesn't hit at that, we can't be waiting for that 5% rate to come back. We just need to be prepared to have good deals at today's interest rates.

• Speaker #1

  Great. And I agree with you. And I agree with Mr. Massey. interest rates are going to be somewhat flat. All the experts are saying that even with the short-term rate coming down, which they are expecting to cut, even after the inflation going up, they're still expected to cut in December. It's like an 85% chance. I just looked. So I would suspect that does happen. And I don't think it's going to impact interest rates on mortgages.

• Speaker #0

  I agree.

• Speaker #1

  The economy overall believes that we'll be north of 6% at the end of 2025. Yep. All right, fellas, any last remarks before you share your contact information?

• Speaker #0

  No. Thank you guys for having me on. I sure appreciate it as always.

• Speaker #2

  Yeah. want to thank everybody that came out to the investor success summit, brave the weather, even though parts of town didn't have terrible weather the morning of Saturday, uh, of the event. Um, but thank everybody. Thank you to everyone that came out. Um, make sure if you're not on our email lists, you know, reach out to Joe, reach out to Kevin, reach out to myself, get on our email lists. We do this event once a year. So you want to make sure you're prepared for next year. But even without that, we host so many events, whether they're online or in person throughout the year. Uh, Pine Financial has an amazing YouTube channel. Make sure you're signing up for all this amazing content and education, not just here on the podcast or on YouTube, but all the other things that we're doing because we'd love to stay in touch and get to know you and obviously help you in your business.

• Speaker #1

  Yes, and that brings up a good point that I wanted to close here with. We are doing a mortgage fund webinar. So if you are chasing cashflow over the long-term, the growth of real estate and what that will bring to you. And you just want the income. That is a really, it is a fantastic investment, but you need to learn a little bit about it. Like what are the risks? What can you expect? So we're going to do a webinar on that, which I don't know if it's actually scheduled yet, but if you go to the pinefinancialgroup.com and on the right there, tools and resources, there's an event page. So exactly Coop, everything that you just said, all the events will be listed there. So again, pinefinancialgroup.com. and go to resources. All right, Mr. Massey, how do we get hold of you?

• Speaker #0

  You know what? Give me a call anytime. My phone number is 303-809-7769. You can check out my website, loansbyjoemassey.com. And I would love to chat with you guys anytime and apologize. I'm going to have to skip your guys exit because I've got an appointment in 35 seconds, but really grateful for you guys having me on. I'm sure appreciate it. And anybody out there listening, give me a call. Would love to chat.

• Speaker #1

  He's out. All right, Joe, thank you so much for your time. I know you gave us an hour and you had other things you could have been doing. So I appreciate you. Coop, same thing. Listeners, thank you so much for tuning in. I hope you make this day a great one. Hey guys, I hope you enjoyed this episode as much as I did. If you did, please be sure to follow and leave us a review. Oh yeah, and tell a friend.