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#27 Top 5 Mistakes Amateur Investors Make When Buying a Multi-Family Property (Caleb Baldwin) · Own More Doors

0:00
SPEAKER_01: What's up everyone?
0:00
SPEAKER_01: Juan Weezar here with the Own More Doors Podcast.
0:03
SPEAKER_01: This specific episode was first shared on our YouTube channel, Sage Real Estate.
0:08
SPEAKER_01: Check it out.
0:08
SPEAKER_01: And we're excited to bring it to you here.
0:11
SPEAKER_01: We hope you enjoy the interview.
0:13
SPEAKER_01: So you're thinking about buying your first investment rental property.
0:16
SPEAKER_01: We've worked with hundreds of investors, and here are five mistakes that we frequently see that investors make when they get started.
0:22
SPEAKER_01: My name is Juan Weezar.
0:23
SPEAKER_01: And I'm Caleb Baldwin.
0:24
SPEAKER_01: Here at Sage Real Estate, we help people buy and sell investment properties.
0:28
SPEAKER_01: But before that, we are real estate investors first and apartment brokers second.
0:33
SPEAKER_01: So congratulations for having the mindset and the motivation for wanting to get started with your real estate investment career.
0:40
SPEAKER_01: A lot of the people that we speak with, there's a few things that they're looking for.
0:44
SPEAKER_01: They're looking for passive income, they're looking for appreciation, they're looking to retire someday.
0:48
SPEAKER_01: These are all positive attributes, but they again, there's something that typically holds you back.
0:55
SPEAKER_01: And now we're going to get into that.
0:56
SPEAKER_01: With the first one being a lot of clients are waiting for prices to drop.
1:02
SPEAKER_01: Caleb, what do you say to that when a client says, I'm waiting for prices to drop?
1:06
SPEAKER_00: Typically, when someone says they're waiting for the prices to drop, they end up waiting and waiting and waiting, and they never take that first step to really get the ball rolling and get their foot in the game.
1:15
SPEAKER_01: One of the things that we like to say that it's not timing the market, meaning like I'm gonna time it right when it's about to go up and that's when I'm gonna buy.
1:25
SPEAKER_01: We like to say it's not timing the market, it's time in the market.
1:28
SPEAKER_01: And what that means, uh, you know, kind of going back to what Caleb said, is when it comes to real estate, a lot of it is not timing.
1:34
SPEAKER_01: It's simply jumping in the game, buying that first property and getting started.
1:39
SPEAKER_01: And it's amazing, Caleb.
1:40
SPEAKER_01: You know, we tell people when you buy your first piece of property, three things happen that day that you close the escrow.
1:46
SPEAKER_01: You become a landlord, you can become a business owner, and you become an entrepreneur that day.
1:52
SPEAKER_01: And it's amazing the growth that we've seen with some of these investors when they close the escrow.
1:57
SPEAKER_00: Absolutely.
1:58
SPEAKER_00: And and like Juan said, you become a business owner of those three things.
2:01
SPEAKER_00: And the business that you're buying has customers lined up waiting for that product from day one.
2:07
SPEAKER_01: When we say it's a business, it's it's a business that you don't have to go to every single day.
2:13
SPEAKER_01: Some of the properties that we own, you know, you check on them once a month or every other month because it's not a demanding business.
2:19
SPEAKER_01: It's not something that you have to go clock in and clock out.
2:22
SPEAKER_01: So it's if if anything, it's a very passive business, right?
2:26
SPEAKER_01: Absolutely.
2:27
SPEAKER_01: Our second point when it comes to waiting for prices to drop, here's something that we've seen.
2:32
SPEAKER_01: Two years ago, we had a client that they wanted both.
2:34
SPEAKER_01: They wanted cash flow and they wanted appreciation.
2:37
SPEAKER_01: Well, we know here in Southern California, you're guaranteed appreciation no matter what, because we have a housing shortage.
2:43
SPEAKER_01: But when it comes to cash flow, sometimes we tell people, not in year one, right?
2:47
SPEAKER_00: It's really hard to get a cash flow to a property to cash flow in year one.
2:50
SPEAKER_00: That is correct.
2:51
SPEAKER_01: And so what we tell people is the income of today is not the income of tomorrow.
2:56
SPEAKER_01: And some of the properties that even myself, four years ago, there was a property that we bought here on 2nd Street.
3:02
SPEAKER_01: And if I was to not buy it because it did not cash flow, then I would be making a big mistake because the income that was that property was producing back then was a fraction of what it's producing now.
3:15
SPEAKER_01: And so, you know, like we like to say, when income goes up, the value of the real estate goes up, right?
3:21
SPEAKER_00: Absolutely.
3:22
SPEAKER_00: And and you can't be in the driver's seat to make the necessary changes as an owner, those strategic decisions to increase the income until you purchase the property.
3:30
SPEAKER_00: And that's what most people never get to that point because some of the points that we're gonna make today, some of the mistakes that early investors make, never allow them to really be in the driver's seat to make the necessary changes, increase that income, and over long term improve that asset and the value of that property.
3:46
SPEAKER_01: You know, it reminds me, like when Warren Buffett buys a business, he's not buying it because it's this perfect company that's producing well and well managed, right?
3:57
SPEAKER_00: No, he's buying that company because he believes in himself and his team that they can improve it, they can add value, and over the long run, they know that that investment, that purchase is going to be a success.
4:09
SPEAKER_01: And so I take that exact same approach to when we're looking at a property and we're waiting for prices to drop, that's all you end up doing is waiting.
4:18
SPEAKER_01: And that's just kind of the biggest mistake.
4:20
SPEAKER_01: And as I look back with a lot of our clients who have waited, they they wanted the numbers to be a little better.
4:26
SPEAKER_01: In one instance, someone wanted it to cash flow at least$500 more a month.
4:31
SPEAKER_01: Okay.
4:31
SPEAKER_01: So it's not a tremendous amount of cash flow, but it's cash flow.
4:34
SPEAKER_01: Okay, so that equates to$6,000 for the year.
4:37
SPEAKER_01: But subsequently, the property has gone up by 6.3%.
4:41
SPEAKER_01: So for the for every year, you're you're you're$60,000 and another$60,000, but it's compounding.
4:47
SPEAKER_01: So they've essentially cost themselves close to$150,000 of equity growth simply because they were chasing the$6,000 mark.
4:56
SPEAKER_00: Yeah, and that's a great point because if we were to ask most of the clients, most of the investors that we work with, hey, would another$6,000 a year really be monumental to where you're at in life?
5:06
SPEAKER_00: And usually the answer is no.
5:07
SPEAKER_00: But if you take that$60,000 worth of appreciation over a 12-month period, usually the answer is yes.
5:13
SPEAKER_00: That would change my life quite a bit.
5:14
SPEAKER_00: So that's definitely something to consider.
5:16
SPEAKER_01: Just my final point when waiting for prices to drop.
5:19
SPEAKER_01: When you work with Sage Real Estate or when we refer you to one of our nationwide affiliates, one important thing is we don't stop at just the cash flow analysis.
5:29
SPEAKER_01: We're gonna look at the principal pay down on the mortgage, we're gonna look at the appreciation, and we will look at the cash flow, whether it's making cash flow or not.
5:38
SPEAKER_01: And we're gonna show you how ultimately, from a return on equity uh standpoint, the purchase is still a safe buy.
5:44
SPEAKER_01: And that's what I want to leave you guys with is that the failure to act is sometimes the biggest failure of all.
5:50
SPEAKER_01: Caleb, now what's the second biggest mistake that we see investors make?
5:54
SPEAKER_00: So when someone's just getting started, they always have a ton of questions.
5:57
SPEAKER_00: Probably the first question is, Am I gonna qualify?
6:00
SPEAKER_00: If so, what can I qualify for?
6:02
SPEAKER_00: And the simple answer is we don't know until we find out.
6:06
SPEAKER_00: It costs nothing, just a little bit of time, a little bit of energy, but it's completely free, there's no risk.
6:11
SPEAKER_00: So it makes sense to just have an answer.
6:13
SPEAKER_01: It's so common for someone to say, I make this much money, I've been saving up money.
6:17
SPEAKER_01: So two of the questions we get is how much down payment do I need?
6:20
SPEAKER_01: And what's my credit score gonna be?
6:22
SPEAKER_01: And so we always tell people, get with a lender that you know like and trust, or if you need us to refer one, we certainly will.
6:29
SPEAKER_01: It doesn't cost you anything to know whether you could pull this off.
6:33
SPEAKER_01: Now, again, this is gonna be the biggest purchase for some folks, their biggest purchase ever.
6:38
SPEAKER_01: And so, knowing that it doesn't cost you anything, why not take those necessary steps?
6:42
SPEAKER_00: I think it's it's the initial reservation and and not having the trust in the process, but again, knowing that there's no risk, there's really no downside.
6:50
SPEAKER_00: You'll have so much more peace of mind when you actually take that first step, get in touch with the lender, begin the quick and easy process, and just get that answer of are you qualified?
7:00
SPEAKER_00: If so, what do you qualify for?
7:01
SPEAKER_01: And and let me just add to this what's the worst that can happen?
7:05
SPEAKER_01: One, you actually qualify.
7:07
SPEAKER_01: Two, you may not qualify just yet, but maybe this is time to fix the credit.
7:11
SPEAKER_01: Maybe it's the time to pay off some debt.
7:13
SPEAKER_01: Now, during this time, it's probably not a good idea to go buy a new car and put some new debt on yourself because there's a whole debt to income uh ratio that needs to go on.
7:21
SPEAKER_01: But it's very important that even if you qualify, no one's gonna push you to go buy something.
7:27
SPEAKER_01: Ultimately, you still have the control.
7:29
SPEAKER_01: And a lot of what we're teaching and kind of our method of investing is having control.
7:34
SPEAKER_01: Okay, so at this point, you're watching this video because you are interested in getting started.
7:38
SPEAKER_01: Now let's take that next step.
7:39
SPEAKER_01: Let's have that control.
7:40
SPEAKER_01: Let's know for a fact do we qualify or do we not.
7:43
SPEAKER_00: So we've talked about some of the reasons why people wait to get into the market.
7:46
SPEAKER_00: We've talked about some of the reservations regarding the qualification process.
7:49
SPEAKER_00: Juan, what's uh another common mistake you see investing?
7:52
SPEAKER_01: The third common mistake is intention for that property.
7:55
SPEAKER_01: I guess going back to this desire to want to get started, I love that.
8:00
SPEAKER_01: We actually need that.
8:01
SPEAKER_01: That's that's step one to starting this career and investing into that success.
8:06
SPEAKER_01: You need to really ask yourself, is this an investment that I'm gonna live in?
8:09
SPEAKER_01: And why does that make a difference?
8:11
SPEAKER_00: Yeah, that's definitely an important question because if you're gonna live at the property, there's a certain utility function.
8:16
SPEAKER_00: You're gonna have a roof over your head, much like a single family home or a condo.
8:21
SPEAKER_00: And we all know that when we're buying a property like that, we don't really factor in the numbers, right?
8:24
SPEAKER_00: We're factoring in the safety of the area, if we're gonna be comfortable at the property, if we're gonna feel secure.
8:30
SPEAKER_00: And so while the numbers are obviously always important, they're not as important if you're gonna be living there because it's your home.
8:36
SPEAKER_00: And that's important intention to figure out because we know that that can play a big factor in the way that the numbers look.
8:42
SPEAKER_01: And it's so important, it's so important just because we see so many people when they come to us and they're saying, I might live there or I might not.
8:49
SPEAKER_01: That makes it difficult for a real estate broker because it casts too large of a net.
8:54
SPEAKER_01: In this type of situation, what we're asking is to really do kind of a pro and a con.
8:59
SPEAKER_01: Do I want to live there?
9:00
SPEAKER_01: Do I not?
9:01
SPEAKER_01: Because in order to be successful now in this type of market, it's super competitive, there's not a whole lot of inventory.
9:06
SPEAKER_01: And so for you to really know and decide, am I gonna live there or not, whether you're working with us or not, it's gonna help out your agent, just knowing I'm gonna live there or I'm not.
9:16
SPEAKER_01: And Caleb's right.
9:17
SPEAKER_01: If I'm gonna be living in a property and let's just say it's a four-unit building, I may not be worried about the six metrics that that we apply here at Sage Real Estate, this the six investment metrics.
9:28
SPEAKER_01: Meaning, I'm not gonna be worried about my cap rate or the gross rent multiplier.
9:32
SPEAKER_01: Why?
9:33
SPEAKER_00: Because I'm living in it, right?
9:34
SPEAKER_00: Exactly.
9:34
SPEAKER_00: I think you have another set of criteria that comes into play again when you're living at the property.
9:38
SPEAKER_00: I mean, location might become a little bit more important.
9:41
SPEAKER_00: Again, the the safety, the crime rates, things like that, they're gonna be important for you and your family.
9:45
SPEAKER_00: It's a whole different set of metrics outside of the typical financial uh analysis that we usually run for clients.
9:52
SPEAKER_01: And it's not to say, like, you know, I don't want to put like a, you know, pop someone's uh balloon, but if we're looking at a four-unit building and you're gonna be living in it, and if we're talking about Southern California, we're gonna tell you right now that you're not gonna cash flow.
10:03
SPEAKER_01: And that's okay.
10:05
SPEAKER_01: Like the word cash flow um doesn't mean it's a bad deal.
10:09
SPEAKER_01: Like it so doesn't mean that there's utility behind it, there's return on equity happening, there's appreciation happening.
10:15
SPEAKER_01: You know, we like to say cash is not king because so many people just keep hanging on to that one metric.
10:21
SPEAKER_01: And then later today we're gonna talk about a few others where I think once we show you that, you'll be able to see the full picture.
10:27
SPEAKER_01: So, really, really nailing down, am I gonna live there or am I not gonna live there?
10:32
SPEAKER_01: That will help the agent assisting you so much more.
10:36
SPEAKER_01: In fact, it will help you a lot more because what Caleb's talking about is if you're gonna live there, curb appeal might matter, parking might matter, laundry might matter, having a private uh enclosed yard for a pet or for children might matter.
10:49
SPEAKER_01: But if it's just gonna be an investment, none of that matters.
10:52
SPEAKER_00: And one last thing to add to that as well is you don't have to live at the property forever.
10:56
SPEAKER_00: So even if your intention is to live there for one or two years and then you're on to the next property, or maybe you need to upgrade to a house for a little bit more room, you have that flexibility.
11:06
SPEAKER_00: Until you purchase that property, you don't have that choice, you don't have that option.
11:10
SPEAKER_00: So you don't have to stay at the property forever.
11:12
SPEAKER_00: But knowing that for the first initial phase of ownership is definitely important to understand.
11:16
SPEAKER_01: And thank you for bringing that up, Caleb.
11:18
SPEAKER_01: So the way that we would do it here at Sage Real Estate, we would first look at it in terms of what's gonna be your total cost to live there.
11:25
SPEAKER_01: You're gonna be living somewhere, so you're either gonna be paying rent or paying a mortgage somewhere else.
11:29
SPEAKER_01: So, what we're gonna do is let's look at plan A.
11:31
SPEAKER_01: And plan A says this is how much income is gonna help offset the mortgage.
11:35
SPEAKER_01: But if you've indicated to us that you don't plan to be there long term, then we're gonna look at plan B.
11:41
SPEAKER_01: And plan B is saying, well, now how do the numbers look?
11:44
SPEAKER_01: I've since moved out.
11:46
SPEAKER_01: What are the rents gonna be?
11:47
SPEAKER_01: And we would help you with the kind of rent survey that we do, and we would then look at it from a strictly investment standpoint.
11:53
SPEAKER_01: So part A, part B.
11:55
SPEAKER_01: But it's hard to look at it from part B when you're living there.
11:59
SPEAKER_01: So kind of a two-part approach.
12:01
SPEAKER_01: We do cover it all.
12:02
SPEAKER_01: Now, everyone is unique.
12:03
SPEAKER_01: Some people have different goals, different intentions for a property, and that's where uh whether you're working with us or not, uh, hopefully that that real estate professional is able to guide you through kind of all facets of ownership.
12:14
SPEAKER_01: So let's get into the fourth biggest mistake, which is focus.
12:18
SPEAKER_01: Talk to us about focus.
12:19
SPEAKER_00: So when we have our initial investor consultation, a lot of times people will come to us and they say, Well, we'll look anywhere and we'll look at anything from two to four units or even something bigger.
12:28
SPEAKER_00: And that makes it really difficult not only for you as the investor, but for whatever broker you're working with as well, because focus is everything, especially when the market is as tight as it is.
12:37
SPEAKER_00: You want to make sure that you have a clear understanding of the areas, the locations that you want to be, as well as the property type.
12:43
SPEAKER_01: What should someone do to kind of narrow that down?
12:46
SPEAKER_01: Like, what would be your recommendation?
12:48
SPEAKER_01: Some of our clients are like, I'll look in Whittier, and I'll look in Bellflower, and I'll even consider Cypress, and all of a sudden, like what should they be doing to kind of narrow down that focus?
12:58
SPEAKER_00: So, my number one recommendation, and I can't stress this enough, is for your very first property, go with what you know because you're gonna be more comfortable with that location.
13:06
SPEAKER_00: You're gonna know the businesses, the places the shop, you're gonna know one area from the other.
13:10
SPEAKER_00: And when you're comfortable with something, we understand it's a big purchase.
13:14
SPEAKER_00: So having that comfort, that peace of mind, that familiarity with that location is gonna give you that much more confidence to really keep pushing and close that escrow, become a landlord.
13:23
SPEAKER_01: And I want everyone to repeat that go with what you know.
13:25
SPEAKER_01: And the reason being is sometimes people will call us and they're looking at multiple counties.
13:29
SPEAKER_01: Sometimes they're looking at multiple states.
13:31
SPEAKER_01: If it's your first investment, there's gonna be a lot of stress behind it already because you know buying real estate is like one of the biggest stresses that you'll go through in your life.
13:39
SPEAKER_01: It's okay that there's gonna be an amount of stress, but it makes it so much better when you know the type of tenants that are gonna be there, you know the lifestyle that surrounds that building.
13:49
SPEAKER_01: It's scary enough to buy something.
13:51
SPEAKER_01: We still recommend you do it if you want to build wealth, but go with what you know is gonna be our biggest recommendation.
13:57
SPEAKER_01: And now, when it comes to knowing whether you want two units, three units, or four units, how can they narrow that down?
14:03
SPEAKER_00: So when it comes to looking at two units or three units or four units, I believe the best way to answer that question is it goes back to the intention, right?
14:09
SPEAKER_00: Are you gonna live at the property?
14:10
SPEAKER_00: And if so, are you comfortable with having two or three tenants surrounding you?
14:15
SPEAKER_00: Are you more comfortable with one tenant around you, maybe a neighbor in the back house or someone to your left or your right?
14:20
SPEAKER_00: And understanding that and what you're comfortable with is is really important.
14:24
SPEAKER_00: So again, factoring that intention when we're finding out what our focus is and what property we're comfortable with will just help so much more when it comes to finding the right investment.
14:32
SPEAKER_01: And additionally, a lot has to do with the down payment, right?
14:36
SPEAKER_01: Because if we're looking at a FHA loan and speaking here in Southern California, you're probably gonna be focused in on two units.
14:44
SPEAKER_01: Now I know some of you are gonna say, hey, but you can do an FHA on a fourplex, and I agree with you, but we also know that it's few and far between.
14:51
SPEAKER_01: It's less than 1% that have been successful on a four-unit building.
14:55
SPEAKER_01: So typically, when people contact us and they're pretty adamant of I want to go with an FHA loan, we typically have to like steer them to a duplex because there it's much, much simpler.
15:06
SPEAKER_01: They don't have to cross a certain barrier, and that I know we've covered in some of our other videos, but it's a self-sufficiency test.
15:12
SPEAKER_01: If you're someone who is adamant that you want to go with an FHA type loan, then we know that two units is probably gonna be best for you.
15:21
SPEAKER_01: And then that will allow us to focus, put you in a position to win.
15:24
SPEAKER_00: So the fifth and final mistake that we see early investors make is what I like to call the analysis paralysis.
15:30
SPEAKER_00: We know that there's a lot of metrics, there's a lot of numbers to look at, and sometimes it can be overwhelming.
15:35
SPEAKER_00: So uh speak to us a little bit about analysis paralysis or overanalyzing a property.
15:39
SPEAKER_01: This drives me crazy, Caleb.
15:41
SPEAKER_01: And the reason this drives me crazy, guys, is because ultimately I see my clients lose when they don't act on a property.
15:48
SPEAKER_01: Using that example of like, hey, on a million dollar fourplex, it's gonna go up by$63,000 in appreciation.
15:56
SPEAKER_01: And if you don't buy it because you wanted just a little bit of cash flow, then you've lost out on$63,000.
16:02
SPEAKER_01: I think that's what hurts me the most is the fact that there's so much loss happening and there's nothing that I could I I try to educate you folks.
16:10
SPEAKER_01: I try to tell you cash is not king.
16:13
SPEAKER_01: Let's look at all the metrics.
16:14
SPEAKER_01: Now, without diving into the metrics, there's six metrics that we look at here at this very simple comparison level.
16:20
SPEAKER_01: Very simple, price per square foot.
16:23
SPEAKER_01: What's that mean?
16:24
SPEAKER_01: That means that if I'm looking in a certain area, what do properties sell for when I break it down per square foot?
16:30
SPEAKER_01: Okay, that's something simple that pretty much anyone should be able to do.
16:33
SPEAKER_01: The other one is price per unit or what we call price per door, another comparison method.
16:38
SPEAKER_01: The others are cap rate.
16:40
SPEAKER_01: Okay, that's that takes in a little more analysis, the gross rent multiplier, and then of course there's the um return on equity.
16:46
SPEAKER_01: The last three, you'll probably need our team to kind of show you what those numbers are.
16:51
SPEAKER_01: A lot of them are market driven, but I see people fail because they failed to act.
16:57
SPEAKER_01: And that's where I hope this video kind of hits home with some of the people that have just been waiting.
17:02
SPEAKER_01: Now, some people are waiting because they're afraid of all the things they can't control, one of which is the fear of a recession.
17:09
SPEAKER_01: What do you say to that, Caleb?
17:10
SPEAKER_00: Fear of a recession is definitely a valid fear.
17:12
SPEAKER_00: Anytime there's some level of economic uncertainty, you want to make sure that you factor that in.
17:16
SPEAKER_00: But what most people fail to realize is that with the exception of 2008 and that market crash, which was an outlier, we'll likely never see that again.
17:24
SPEAKER_00: Three of the last four recessions prior to that, property values actually increased during that recession.
17:29
SPEAKER_00: So when someone asks me, hey, what about a recession?
17:31
SPEAKER_00: odds are the property is still gonna go up in value.
17:34
SPEAKER_00: So as an investor, you want to make sure you're on the positive side of that of that property value growth.
17:38
SPEAKER_01: I understand that if I if I hear recession, I think everything goes down.
17:43
SPEAKER_01: And you're telling me that that's not what historic trends have shown us, right?
17:46
SPEAKER_00: That's correct.
17:47
SPEAKER_00: In fact, historical trends have shown us that, again, in the majority of recessions, purchasing real estate is actually a hedge against that recession and the uh the downward economic trends.
17:56
SPEAKER_01: Let's talk about interest rate.
17:58
SPEAKER_01: Talk to us about what your thoughts are on oh my gosh, interest rates are super high.
18:03
SPEAKER_01: I'm never gonna buy anything.
18:05
SPEAKER_00: Yeah, interest rates are obviously ticking up a little bit, but I think for the last four or five years, we've been so spoiled with these super advantageous, extremely low interest rates.
18:14
SPEAKER_00: I mean, if you look at the last 12 months, for instance, you were seeing rates, the high twos, low threes, and historically that is like unheard of, right?
18:21
SPEAKER_00: We have longtime investors who talked to us about 20, 30 years ago when prices were a lot lower, but the interest rate was 10, 12%.
18:30
SPEAKER_00: So when you look at the last five, six years as a snapshot, we've had very, very favorable interest rates.
18:36
SPEAKER_00: So when I look at a five, a low five interest rate, I know that historically it's still considered to be low.
18:42
SPEAKER_00: It's still considered to be advantageous.
18:44
SPEAKER_00: Definitely something to monitor, but again, I think we've been so spoiled with the rates in you know the recent years that we see this small uptick and it can be a little bit shocking, but it's still considered to be favorable.
18:56
SPEAKER_01: I want to stress this point that what you're not gonna see is prices drop and interest rates drop.
19:01
SPEAKER_01: Those two things haven't happened.
19:02
SPEAKER_01: Those two things of prices dropping and interest rates dropping are inverse.
19:06
SPEAKER_01: So typically one drives the other.
19:08
SPEAKER_01: Okay.
19:08
SPEAKER_01: So when Caleb's talking about low, low uh prices in real estate, but super high interest rates like 18, 19%, that's what you're gonna get.
19:17
SPEAKER_01: And so it takes me to my next point.
19:19
SPEAKER_01: It's really important.
19:20
SPEAKER_01: It's not about the price, it's not about the interest rate, it's about the payment, right?
19:24
SPEAKER_01: Absolutely.
19:25
SPEAKER_01: Why is that so important, Caleb?
19:26
SPEAKER_00: It's important because if you're under if you understand that payment and you're comfortable with that payment, you have peace of mind knowing that no matter what happens with the economy, whether recession comes, property values fluctuate, you're comfortable with that payment and it's the same for 360 months or for 30 years.
19:42
SPEAKER_00: And so knowing that that's a fixed payment will give you the peace of mind to make that purchase.
19:47
SPEAKER_01: It takes me to my next point of control.
19:50
SPEAKER_01: I want to have control.
19:51
SPEAKER_01: Now, if I decide that, oh my gosh, interest rates are too high, oh my gosh, values are too high, I'm just gonna continue renting.
20:00
SPEAKER_01: Here's what's gonna happen we know for a fact that rents, and well, they're gonna go in one direction and that's up.
20:05
SPEAKER_01: So you don't control your biggest expense because that's determined by the landlord that you rent from.
20:10
SPEAKER_01: Okay, so you will never control your biggest expense.
20:13
SPEAKER_01: If you have a mortgage where you're comfortable with the payment, where you're comfortable with the payment, when you have a mortgage, you're capping your biggest expense.
20:20
SPEAKER_01: That gives you control.
20:22
SPEAKER_01: When you own a property and no one could raise your rent, when you own a property and no landlord could give you a 30 or a 60-day notice to move out, that gives you control.
20:32
SPEAKER_01: That is what I'm talking about.
20:33
SPEAKER_01: And I and I would think, you know, a lot of us out there view ourselves as the provider of the household, okay?
20:40
SPEAKER_01: And I believe you would want that control.
20:42
SPEAKER_01: And I know it's so easy to say my rent is lower than the mortgage, but they're not looking at the full benefits of ownerships, are they?
20:49
SPEAKER_01: They're not.
20:49
SPEAKER_00: No, they're looking at just the face value, but they're again, there's a whole nother set of benefits.
20:54
SPEAKER_00: There's tax benefits to being a landlord that people fail to factor in.
20:59
SPEAKER_00: And again, having that peace of mind, like Juan said, having the control of knowing that your biggest expense every month is in your hands.
21:05
SPEAKER_00: You sleep so much better at night knowing that no one's gonna come knocking and say, hey, your biggest expense just went up 10%.
21:10
SPEAKER_01: So just to wrap this message, it's not about the interest rate, it's not about the value, it's about the payment.
21:16
SPEAKER_01: And that's what I want to talk about is the payment.
21:18
SPEAKER_01: Now, here we sell investment real estate.
21:20
SPEAKER_01: So we also know that it's outside of the payment, there's cap rate, there's gross rent multiplier.
21:26
SPEAKER_01: One of the other issues that we're seeing within um overanalyzing a deal is that some of our clients want to buy a property and then they want to ask what the cap rate is when they live in it.
21:38
SPEAKER_01: Talk to me about why that's so difficult.
21:41
SPEAKER_00: That's so difficult because when you occupy a unit, whether it be two, three, or four units, you can't factor in that rent to the analysis, right?
21:49
SPEAKER_00: You're removing that income stream from the total gross rents, and that makes it really hard to factor in a true cap rate.
21:56
SPEAKER_00: Now, again, as Swan mentioned earlier, if you look at plan B, hey, what does it look like in two Years now we can analyze it that way, but when you're occupying one unit, the cap rate is a really hard metric to capture because again, you're taking out one of those rents from the total property.
22:09
SPEAKER_01: And the reason why we're bringing this up is that we have clients where we will find a really nice investment property for them where they can live in one.
22:17
SPEAKER_01: If you plug in these numbers on a property that you're living in, those numbers are not gonna look favorable, right?
22:23
SPEAKER_00: That's correct.
22:23
SPEAKER_00: Yeah.
22:24
SPEAKER_00: Especially if it's, you know, for instance, let's take a duplex, for example.
22:27
SPEAKER_00: If you're gonna live in one of those, you're gonna try to calculate these six metrics based off of one rent.
22:32
SPEAKER_00: And that becomes really, really hard to do.
22:33
SPEAKER_00: In fact, calculating a cap rate on a duplex at all is difficult to do.
22:37
SPEAKER_00: Now, when you remove that rent for the unit that you're gonna occupy, it just becomes that much more challenging.
22:42
SPEAKER_01: What we don't want is for people to decide not to buy it because the cap rate's too low.
22:46
SPEAKER_01: And what we're gonna say is that we're not comparing apples to apples, and that's kind of the point that we're trying to get to.
22:52
SPEAKER_01: A very big topic is foreclosures and we're gonna have a housing bubble crash.
22:57
SPEAKER_01: What are your thoughts?
22:58
SPEAKER_01: What do you say to that?
22:59
SPEAKER_00: So, my response to that is typically look at the level of equity that people have in their properties.
23:04
SPEAKER_00: There is a historical record of massive equity that these landlords have built up over time due to the appreciation that we've been able to reap over the last several years.
23:13
SPEAKER_00: Actually, in Southern California, really forever, properties have historically just gone up and up and up in value and it compounds, as Juan mentioned earlier.
23:21
SPEAKER_00: But uh when you look at the equity levels that people have in their property, if something were to happen, if they can't make their payment, they could just sell.
23:28
SPEAKER_01: You know, when Caleb's talking about equity, for for some of us who may not use that term, equity just means money, that I guess profit.
23:36
SPEAKER_01: Call it profit.
23:36
SPEAKER_01: Homeowners have at least on average$250,000.
23:41
SPEAKER_01: Okay, so if I'm a homeowner and uh God forbid I can't make my mortgage payment, I'm not gonna lose my property, am I?
23:48
SPEAKER_00: You're not gonna lose your property because call it a safety net, a reserve bank account that's built into that property as a result of it increasing in value.
23:56
SPEAKER_00: You know, when you have a quarter million dollars on average to fall back on, you have some options, you have certain ways to ensure that the bank's not gonna come take that property.
24:04
SPEAKER_01: So instead of me losing it, then I would just sell.
24:07
SPEAKER_01: You could sell it.
24:08
SPEAKER_01: You could sell it and then you make your 250,000.
24:10
SPEAKER_01: So for some of those out there, I know, I know that there's a lot of other videos that are talking about this waiver foreclosures.
24:17
SPEAKER_01: I see none of it.
24:18
SPEAKER_01: I'm looking around for it.
24:19
SPEAKER_01: And I and I I promise you, I'm an investor.
24:22
SPEAKER_01: If there was a waiver foreclosures, Caleb and I wouldn't be wasting our time doing these videos.
24:26
SPEAKER_01: We would be out there trying to make sure that we're securing those because we are investors ourselves.
24:31
SPEAKER_01: But that is not happening.
24:32
SPEAKER_01: So a lot of these points that we talked about today, they're really all interconnected.
24:36
SPEAKER_01: Interconnected, okay?
24:38
SPEAKER_01: And so we don't believe that there's gonna be a market crash.
24:41
SPEAKER_01: Could there be a market correction?
24:42
SPEAKER_00: There could be a market correction, and the word that we typically respond with is a deceleration.
24:47
SPEAKER_00: So what that means is again, we've seen property values climbing and climbing and climbing.
24:51
SPEAKER_00: Now it might slow down a little bit, but the chances of property values actually dropping is very, very low.
24:57
SPEAKER_00: And so it might stabilize, it might slow down and kind of return to its normal speed and its normal activity that we're used to historically.
25:04
SPEAKER_00: But I don't believe that we'll see a collapse or a bubble burst or anything like that.
25:09
SPEAKER_01: What happens if I buy something at a million dollars and it drops?
25:11
SPEAKER_01: So let's just use that scenario.
25:13
SPEAKER_01: You buy something for a million dollars, let's just say there's a 10% reduction in price.
25:17
SPEAKER_01: So you go from$100,000 to$900,000.
25:20
SPEAKER_01: Did I technically lose$100,000, Caleb?
25:23
SPEAKER_00: No, you did not.
25:24
SPEAKER_01: That's what we would call why didn't I lose that?
25:26
SPEAKER_01: Even though I think I lost that.
25:28
SPEAKER_00: Yeah, and and the reason why you didn't actually lose that because you only lose if you sell it at that price.
25:33
SPEAKER_00: And and again, if you're planning to hold it for several years, you can almost rest assured that it's gonna return to that value initially, if not exceed it in the coming years.
25:43
SPEAKER_00: So until you sell when the prices drop, you haven't lost anything.
25:48
SPEAKER_00: And and going back to what Juan said about being comfortable with the payment, regardless of what the property value does, that payment is tied, it's fixed for 30 years.
25:56
SPEAKER_00: So unless something changes in your life financially or income-wise, if the payment's the same, you can still make it just like you have been.
26:02
SPEAKER_01: In that same scenario, we go from a million to 900,000.
26:06
SPEAKER_01: You own a four-unit building.
26:08
SPEAKER_01: Do the tenants keep paying rent?
26:09
SPEAKER_01: The tenants will keep paying rent.
26:11
SPEAKER_01: So that mortgage that I signed up for is still going to be paid for.
26:13
SPEAKER_00: That's correct.
26:14
SPEAKER_00: So then I don't get foreclosed on my property?
26:16
SPEAKER_00: You don't get foreclosed on your property.
26:18
SPEAKER_00: Tenants will continue to pay.
26:19
SPEAKER_00: So while the 10% price reduction might seem scary, when you actually dive into it and break it down, there's a lot of benefits that come with owning properties and putting fixed financing for 30 years on that building.
26:31
SPEAKER_00: Again, and as Juan said, in a recession, people don't stop paying rent.
26:34
SPEAKER_01: And let me finish it off with this and with a couple things.
26:37
SPEAKER_01: Again, when you decide to own investment real estate, you're becoming a business owner, an entrepreneur, and a landlord on that same day.
26:45
SPEAKER_01: Now, the best part about being that business owner, that landlord, and that entrepreneur is that you're investing in a product that we don't have enough of.
26:53
SPEAKER_01: You're investing in a product that people are waiting in line for someone to move out because we have lack of housing.
26:59
SPEAKER_01: So, not just in Southern California, where we know we have a housing shortage, nationally, you'll see this in the news, there's simply not enough houses.
27:08
SPEAKER_01: So, what you're doing, going back to control, is that you're controlling an asset that people need to have a roof over their head.
27:16
SPEAKER_01: And you could you could almost rest assured that there's going to be tenants that are looking forward to renting that unit.
27:21
SPEAKER_01: And so, again, control, security, financial security, and prosperity when you invest in real estate.
27:28
SPEAKER_01: So, there you have it.
27:28
SPEAKER_01: Make sure to like, comment, and subscribe.
27:30
SPEAKER_01: And if there's any topic that you would love for us to cover, please send us a message below.
27:34
SPEAKER_01: And ultimately, the decision of being an investor is all in your hands.