Latest / Own More Doors / #58 Why 2025 Might Be the BEST TIME to Buy Multifamily (David Guevara of Momenta Capital)

Transcript

#58 Why 2025 Might Be the BEST TIME to Buy Multifamily (David Guevara of Momenta Capital) · Own More Doors

• 0:00
  SPEAKER_01: What's up, everyone?
• 0:01
  SPEAKER_01: Juan Weezar with another Own More Doors podcast.
• 0:04
  SPEAKER_01: I'm here with David Guevara with Momenta Capital.
• 0:07
  SPEAKER_01: David, thank you so much for being here.
• 0:08
  SPEAKER_01: Yeah, of course.
• 0:09
  SPEAKER_01: Thanks for having me.
• 0:10
  SPEAKER_01: David, um, I I had you on our YouTube channel maybe two years ago, and we were preparing people.
• 0:17
  SPEAKER_01: We were preparing investors, like, guys, the deals are coming.
• 0:20
  SPEAKER_01: The deals are coming because five years ago, uh, people that were buying apartment buildings that were five units and above were buying them at, and let's just say for for numbers that their interest rate was going to be three percent.
• 0:35
  SPEAKER_01: And for those who don't know, those those those types of loans are are variable, meaning every five, seven, or ten years, depending, those loans are gonna come due.
• 0:47
  SPEAKER_01: And so now those people who bought prices have changed.
• 0:50
  SPEAKER_01: We'll talk about that.
• 0:52
  SPEAKER_01: But now their payment in some cases is gonna go up significantly.
• 0:55
  SPEAKER_01: It could maybe double.
• 0:56
  SPEAKER_01: Um, they might have to put money in.
• 0:59
  SPEAKER_01: And so for that, we kind of saw a slew of motivated sellers trying to get out of the properties that they may have over uh paid for.
• 1:08
  SPEAKER_01: Right.
• 1:09
  SPEAKER_01: Um is is that what is happening today, David?
• 1:13
  SPEAKER_00: Yeah, yeah, that's what's happening.
• 1:15
  SPEAKER_00: I mean, the the market in general, I would say, has dropped for five or more unit apartment buildings by about 25% in most cases.
• 1:22
  SPEAKER_00: And so, um, you know, before we sat down here, we were kind of going over the market.
• 1:27
  SPEAKER_00: Uh you and I, and we were talking about how somebody who purchased a property in uh 2021 may have increased the rents, added an ADU, improved the property significantly, and is now selling it for a price that's equal to or less than what they bought it for back then.
• 1:44
  SPEAKER_00: And so you're seeing really good opportunities from a buying standpoint uh in this market.
• 1:50
  SPEAKER_01: David, so um that that's been something that we've been covering is I'm telling people, hey, um 17% of active properties on the market, five units and above, in the city of Long Beach.
• 2:03
  SPEAKER_01: This is very Long Beach specific.
• 2:05
  SPEAKER_01: If someone uh is in another city and wants us to do this analysis, we could do it for you guys too.
• 2:09
  SPEAKER_01: So feel free to reach out.
• 2:10
  SPEAKER_01: But this is very long beach specific.
• 2:12
  SPEAKER_01: 17% of properties on the market right now, there's there's currently like 94, uh, 17% of those are selling for less, listed for less than five years ago.
• 2:22
  SPEAKER_01: And that's at the listing level, David.
• 2:24
  SPEAKER_01: I mean, if I go back and and we and we look, well, how many, how many have closed, that percentage is gonna go up.
• 2:32
  SPEAKER_01: Yeah.
• 2:33
  SPEAKER_01: And so let me let me highlight where the market's at right now for for for those that are listening and and be clear.
• 2:39
  SPEAKER_01: This does not apply to to four units and under.
• 2:42
  SPEAKER_01: That is a different type of asset type.
• 2:45
  SPEAKER_01: It's performing differently because the financing's differently.
• 2:48
  SPEAKER_01: Correct.
• 2:48
  SPEAKER_01: Okay, the best way to describe the market right now is um it is sluggish, it has softened, the cap rates have gone up.
• 3:00
  SPEAKER_01: So, for those who don't know, the better the cap rate from a buyer perspective, the better for you.
• 3:05
  SPEAKER_01: Because essentially you uh as the cap rate goes up, the value is being driven down.
• 3:09
  SPEAKER_01: So you're buying, you're able to buy something for for less now than it sold before.
• 3:14
  SPEAKER_01: Um and what we're seeing is I mean, people will ask me this, David.
• 3:21
  SPEAKER_01: They'll say, Juan, is this a good time to buy multi-family?
• 3:25
  SPEAKER_01: And I'm like, absolutely.
• 3:26
  SPEAKER_01: Let me tell you what I'm doing.
• 3:28
  SPEAKER_01: So I owned a triplex, and and David, and you're involved in this because you're helping me do the loan.
• 3:33
  SPEAKER_01: And so um uh David is is is the commercial lender that I use.
• 3:37
  SPEAKER_01: And so this is someone that I know, like, and trust.
• 3:40
  SPEAKER_01: Um, and and he's doing a great job and he's been hand holding me through the process.
• 3:44
  SPEAKER_01: And so I had a triplex that was um cash flowing.
• 3:49
  SPEAKER_01: I I have it I had an interest rate of 2.75, and I realized that it I it was probably my best interest to sell the property at the top of the market because triplexes are still selling at the top, and then buy, say, an eight-unit building at what I consider somewhat the bottom of the market.
• 4:09
  SPEAKER_01: Okay.
• 4:10
  SPEAKER_00: Yeah.
• 4:10
  SPEAKER_01: And so very rarely, David, do you get to sell something at the top and buy at the bottom?
• 4:15
  SPEAKER_00: Right.
• 4:15
  SPEAKER_01: Typically, as you sell at the top, you're buying at the top.
• 4:18
  SPEAKER_01: And what we saw was the cap rates kept getting better, the gross rent multipliers kept getting better, the price per door kept getting better.
• 4:26
  SPEAKER_01: And to me, was there are two types of investors that I've seen.
• 4:34
  SPEAKER_01: You're you're either the investor that's in growth mode, so I call that you're on the offensive, you're trying to score points.
• 4:40
  SPEAKER_01: Or you you've already grown, you've already taken the risk, and now you're in defensive mode, and now you're like, uh, I don't want to buy in those areas anymore.
• 4:49
  SPEAKER_01: I don't have the energy.
• 4:52
  SPEAKER_01: Right now, this this podcast is for those that are in the offensive mode.
• 4:58
  SPEAKER_01: I want to grow, I want to, I want to get in at the right time.
• 5:02
  SPEAKER_01: This is the right time.
• 5:04
  SPEAKER_01: David, um, talk to us what you're hearing from the the people that got loans five years ago who are now feeling the pinch.
• 5:16
  SPEAKER_01: Tell us why they're feeling the pinch and what is their mindset or their attitude about what's happening right now, like the ones that are being affected.
• 5:25
  SPEAKER_00: Yeah.
• 5:26
  SPEAKER_00: Um, I would say that the majority of the loans that we did in that were five-year fixed started at the very end of 2020 and through the through the beginning of 2021.
• 5:37
  SPEAKER_00: And so we're right now kind of getting to that point where everyone's saying, I'm six months away from my loan adjusting, my payments gonna skyrocket, go through the roof.
• 5:46
  SPEAKER_00: What is it that I want to do?
• 5:47
  SPEAKER_00: Or what what is it that I can do to um, you know, what does a refinance look like?
• 5:52
  SPEAKER_00: And we're starting to look at those refinances, and you know, we have been running scenarios over the last few years as interest rates increase and said, hey, if they're at six percent and your rents are this much, this is how much you'll have to come in with to refinance.
• 6:05
  SPEAKER_00: Um, and so finally we're kind of getting to that point where there's certain people that to refinance are gonna have to put in three, four, five hundred thousand, sometimes even a million dollars or more, and they're saying, okay, well, then maybe I'll just sell the property instead.
• 6:18
  SPEAKER_00: And the property is not worth what they paid for it, and so that's why you're seeing certain situations where uh people are selling properties that are improved, but are selling for less than what they bought them four or five years ago.
• 6:32
  SPEAKER_01: That's a tough situation.
• 6:34
  SPEAKER_01: So let me let me describe what David just said.
• 6:36
  SPEAKER_01: When he it's you bought a property, you made it better, the loan is about to adjust, so it's gonna be higher.
• 6:42
  SPEAKER_01: And so they're gonna most likely have to refinance.
• 6:45
  SPEAKER_01: And in some cases, to refinance, they're telling you that that the debt coverage ratios have changed.
• 6:52
  SPEAKER_01: Right.
• 6:53
  SPEAKER_01: And we are now asking you to bring in more money on a property that you're probably not very happy with right now.
• 7:01
  SPEAKER_00: Yeah, and for and for the listeners that don't know that haven't gotten a commercial loan before and they don't know why, why are they having to bring in additional cash?
• 7:08
  SPEAKER_00: Um, the reason is because in order on commercial loans, the bank is looking at the property, at the subject property as a primary source of repayment for the debt.
• 7:17
  SPEAKER_00: And so they look at the cash flow, the net operating income of the property, and they say, how what what loan payment can that property's cash flow support?
• 7:26
  SPEAKER_00: And as the interest rate goes up, the loan payment or the loan amount that the property can support with the same amount of cash flow drastically drops.
• 7:36
  SPEAKER_00: So if you have a hundred thousand dollars of net operating income on a property and the rate is two and a half percent, you can borrow significantly more than if you have the same amount of net operating income and the and the rate is six percent.
• 7:49
  SPEAKER_00: And so that's essentially what we've what we've got.
• 7:51
  SPEAKER_00: We've got people that borrowed at three or three and a half percent, and now to refinance, the interest rate is six, six and a quarter percent.
• 7:59
  SPEAKER_00: And so, in order to, if if their rents are relatively flat or even increase a little bit, the new loan amount they can qualify for is significantly lower than the old loan amount they had.
• 8:09
  SPEAKER_00: And so they have to bridge that gap with additional uh cash and uh capital injection.
• 8:14
  SPEAKER_01: And and anyone who bought these buildings with other investors, like either through a syndication or they partnered up with friends, they're they're not happy.
• 8:24
  SPEAKER_00: Yeah, yeah.
• 8:25
  SPEAKER_00: There's I mean, there's a lot of there's a lot of syndicators that are in some trouble right now as far as you know having to call their investors and saying, hey, can we we're gonna need some additional capital?
• 8:36
  SPEAKER_00: Or you know, our plan was to sell this after five years, and we're not in a position where we can sell it right now, we have to hold on to it a little bit longer, that kind of thing.
• 8:44
  SPEAKER_01: Yeah.
• 8:45
  SPEAKER_01: Um are you seeing?
• 8:48
  SPEAKER_01: I mean, we see this as a great opportunity, and and and I'm curious because you said that now you're starting to get the calls.
• 8:55
  SPEAKER_01: So I I kind of get the feeling that what I'm seeing right now is actually gonna get worse, meaning more properties hitting the market, so then we're gonna have an increase in inventory.
• 9:08
  SPEAKER_01: They're gonna be fighting for the cap rate, and so the cap rates keep going up.
• 9:12
  SPEAKER_01: So let me give you a quick stat, David.
• 9:14
  SPEAKER_01: And and and you might know this, maybe, maybe not specifically to Long Beach.
• 9:18
  SPEAKER_01: And so I went back 12 months and I grabbed a lot of data, uh, five to 20 units.
• 9:24
  SPEAKER_01: And I said, Well, what's the average cap rate right now in Long Beach?
• 9:30
  SPEAKER_01: Um, five to twenty units.
• 9:31
  SPEAKER_01: And so that cap rate's five point eight two.
• 9:36
  SPEAKER_01: I think if if you and I go on the market right now, we're gonna see cap rates in the six, six and a quarter, six and a half.
• 9:43
  SPEAKER_01: We're seeing some sevens, some.
• 9:45
  SPEAKER_01: So I, you know, anyone listening to us is not all of them, but as that cap rate it it could be that we we're not at the bottom yet.
• 9:53
  SPEAKER_01: What are your thoughts about that?
• 9:55
  SPEAKER_00: It's really hard to say because the main drive, the the two main drivers of what dropped values were first and foremost, an increase in interest rates.
• 10:04
  SPEAKER_00: And then second was that rents stopped growing for a while.
• 10:07
  SPEAKER_00: Rents have pretty much stayed flat for the last few years.
• 10:10
  SPEAKER_00: And so there are gonna be more people that need to sell their properties in the next 12 to 18 months because they're right now their loans are still fixed.
• 10:22
  SPEAKER_00: However, if in the next 12 to 18 months, the reason they haven't sold already is because they have the low interest rate and because they expect interest rates to hopefully fall a little bit so that the amount that they have to kick in is gonna decrease.
• 10:34
  SPEAKER_00: And so if interest rates do start to decrease and it lightens a little bit of that burden, a lot of these investors are not gonna end up selling, they're gonna end up refinancing, or values will adjust because interest rates came down and so values will start to climb back up.
• 10:50
  SPEAKER_00: So if interest rates stay the same or go up, then this isn't quite the bottom.
• 10:54
  SPEAKER_00: If interest rates start to decrease, which is kind of what's being what's being put out there from most analysts, then it stands to reason that it that values will start to recover a little bit, or that people will be able to refinance and there won't be so much inventory on the market.
• 11:09
  SPEAKER_00: And so in that case, this would be the bottom.
• 11:11
  SPEAKER_01: Right, right.
• 11:13
  SPEAKER_01: And you know, it's it's impossible to know.
• 11:15
  SPEAKER_01: And so that's why we're we're telling our investors now we're telling them if you have a rental house, a rental condo, uh duplex, triplex, fourplex, talk to us because chances are we could get you a better return and you could enter into the five plus market at a way better cap rate.
• 11:38
  SPEAKER_01: And and and to to your point, if you buy at a six percent cap or a six point two five and interest rates lower, well, then the cap rate drops down.
• 11:48
  SPEAKER_01: So in the world of real estate, the cap rate drops down.
• 11:51
  SPEAKER_01: You who took the risk by doing nothing but owning the property, managing it, are now going to benefit from the increase in the price because it's it's uh uh inverse relationship with those two figures.
• 12:03
  SPEAKER_01: And so um I'm excited about the eight-unit building that I'm getting.
• 12:08
  SPEAKER_01: Yeah, and then and then for for some people, you know, it's it's interesting.
• 12:12
  SPEAKER_01: Um, a lot of people are everyone who calls me, hey, I'm a value add buyer.
• 12:16
  SPEAKER_01: And I'm like, you and everybody else is a value add buyer.
• 12:19
  SPEAKER_01: Like, I've never met anyone who's not a value add buyer, you know, and so everyone pretends to be like they're the only one, they're the one percent.
• 12:25
  SPEAKER_01: No, no, no, you're 99%.
• 12:27
  SPEAKER_01: Everyone is a value add buyer, but a value add buyer is simply someone who wants to buy what we would consider a distressed property, so maybe low rents.
• 12:35
  SPEAKER_01: Um, the property needs a lot of work, and someone's gonna come in and put a lot of work into it.
• 12:40
  SPEAKER_01: They're gonna improve the property, they're gonna improve the rents, and and they're gonna reposition the property to to kind of force the equity up.
• 12:49
  SPEAKER_01: And that's a great strategy, right?
• 12:52
  SPEAKER_01: But what I'm saying is there's several properties on the market that someone already did that to it.
• 12:58
  SPEAKER_01: Someone already raised the rent, someone already um replaced the electrical, the plumbing, the roof, the windows.
• 13:04
  SPEAKER_01: And now and now someone could look at it and say, well, it's no longer a value add.
• 13:09
  SPEAKER_01: Yeah, I don't care.
• 13:10
  SPEAKER_01: It's still it's still a great safe play.
• 13:12
  SPEAKER_00: It's for the same price from when they bought it when it was in bad shape.
• 13:16
  SPEAKER_00: Correct.
• 13:16
  SPEAKER_00: They did all the work, didn't get to reap the benefit.
• 13:18
  SPEAKER_00: But potentially you could now go in there and do none of the work and reap all the benefit once the market recovers.
• 13:24
  SPEAKER_00: Yeah.
• 13:24
  SPEAKER_00: Because it's a matter of time.
• 13:25
  SPEAKER_00: I mean, we're still in Southern California, it's still California real estate.
• 13:29
  SPEAKER_00: There's still a shortage of housing, there's still no lack of population and um people moving into California and especially moving into this market.
• 13:37
  SPEAKER_00: The workforce housing is is strong.
• 13:39
  SPEAKER_00: Um, we've just been in an economic state for the last few years that have caused values to sl to decrease.
• 13:46
  SPEAKER_00: Um, and that's just part of a normal economic cycle.
• 13:50
  SPEAKER_00: We're we're seeing a cycle firsthand.
• 13:52
  SPEAKER_00: And it's it's easy to you know be nervous when you're in the middle of it, but in hindsight, everyone's gonna look back and say, you know, that was a no-brainer.
• 14:00
  SPEAKER_00: Even at that point, the the returns made sense.
• 14:02
  SPEAKER_00: It was the same apartment buildings that we were comfortable buying at a 4.75% cap rate, are now selling at a six and a half percent cap rate with 10, 20, 30 upside.
• 14:13
  SPEAKER_00: I think hindsight's gonna look favorably on this time right now.
• 14:16
  SPEAKER_01: David, um, for you get to see both sides, but on the new purchase loans that you're doing, what's the mindset with those folks?
• 14:26
  SPEAKER_01: Meaning, what are they thinking?
• 14:28
  SPEAKER_01: What are they seeing when they're when they're calling you and saying, hey, I I think I'm I'm gonna buy this property?
• 14:36
  SPEAKER_00: Um I mean, there's there's a general excitement about the prices that they're able to get them at because a lot of these investors have been looking, you know, they've they've been part of the market for a long time.
• 14:45
  SPEAKER_00: Um, the buyer's market is in full swing for so long it felt like there was only ever going to be a seller's market.
• 14:51
  SPEAKER_00: Right now it's definitely in a buyer's, we're definitely in a buyer's market where you're not really seeing multiple offers on anything.
• 14:59
  SPEAKER_00: Um, if you know, it used to be that it was you could you were scared to lowball offer somebody because you thought they would never even respond.
• 15:08
  SPEAKER_00: Now you can get a callback or a counteroffer on basically any offer you send in.
• 15:13
  SPEAKER_00: You can get contingency periods that are a little bit longer, that type of thing.
• 15:18
  SPEAKER_00: Um and the other thing that's benefiting that is that a lot of the investors that own a lot of property right now, um, they know they have refines coming up in the next couple of years.
• 15:28
  SPEAKER_00: And so they're holding on to their cash because they know, hey, I've got I might have to kick in money to refinance, and that's holding a lot of additional buyers out of the market, myself included.
• 15:38
  SPEAKER_00: Um and so for somebody that has a 10 that's able to do a 1031 exchange, like you mentioned, from a triplex or a fourplex into a five or six unit or even larger, you're kind of you're in a position where everybody knows that the prices are good for the cash flow you're getting and for the return, but there's something holding people back, whether it's fear of the market or whether it's they need to hold on to their cash because they have other refinances coming up.
• 16:02
  SPEAKER_00: And so it's kind of this unique opportunity.
• 16:04
  SPEAKER_00: Um, and so the people that are buying, they're excited about the returns they're getting and they're surprised that more people aren't jumping in.
• 16:11
  SPEAKER_00: Yeah, but um, but it's just the nature of the market.
• 16:14
  SPEAKER_01: Yeah, and I would say that not everyone knows that this is a good time because because I'll tell you what I normally hear is um um they're gonna say, hey, does it still make sense because of uh rent control?
• 16:31
  SPEAKER_01: Hey, I heard there's eviction moratoriums.
• 16:34
  SPEAKER_01: Hey, I I keep reading that uh interest rates are still high.
• 16:37
  SPEAKER_01: This is a bad time, right?
• 16:39
  SPEAKER_01: Hey, I keep reading that people are leaving California.
• 16:42
  SPEAKER_01: Um, I keep reading that that there's anti-landlord laws that keep getting passed.
• 16:48
  SPEAKER_01: And so there's all these narratives.
• 16:49
  SPEAKER_01: Hey, I keep hearing that uh insurance premiums are up by 35, 40 percent, 50% in some cases.
• 16:56
  SPEAKER_01: I hear that insurance companies are making you replace your electrical panels because they're 30 years old and the roof, and the premium's gonna go up.
• 17:03
  SPEAKER_01: And now I have to refinance it.
• 17:05
  SPEAKER_01: I mean, it it like I could see how if you if you hear for for those that are following, and I I get it, not everyone's following.
• 17:13
  SPEAKER_01: If if you hear the narrative, some of the things are very, very bad.
• 17:16
  SPEAKER_00: Yeah.
• 17:17
  SPEAKER_01: And I and I have to remind people, I'm like, okay, it's bad, it's bad for some people.
• 17:23
  SPEAKER_01: And there is a very unique opportunity for for someone else.
• 17:27
  SPEAKER_01: You know what I tell people, David, and I listen, I mean, the the reason why we invest in multifamily is to create wealth and and and hopefully we do it to be uh good stewards uh uh of of real estate and and be good housing providers.
• 17:42
  SPEAKER_01: But I'm telling people, hey, if you're able to to partner up with some friends and put together some money, because the one the one catch with the five plus units is you're probably gonna, well, you're definitely gonna need a bigger down payment than you would say a four-plex.
• 17:56
  SPEAKER_01: So we're thinking 30 at the very best case scenario, but in some cases it's 40 and even higher.
• 18:02
  SPEAKER_01: It all depends on the income.
• 18:03
  SPEAKER_01: It's very specific to the to the property.
• 18:06
  SPEAKER_01: But what I tell people, I'm like when they say, How's the market?
• 18:09
  SPEAKER_01: And they they want me to say, Oh, it's brutal.
• 18:12
  SPEAKER_01: Oh my gosh, it's the worst thing ever.
• 18:14
  SPEAKER_01: You know, we're eating cat food, but that's not what I'm saying.
• 18:17
  SPEAKER_01: I'm saying there's tremendous opportunity in the five plus market.
• 18:20
  SPEAKER_01: Totally, totally.
• 18:21
  SPEAKER_00: And one other area of opportunity, and we've we've touched on uh trading from a triplex or fourplex into a five or six unit because the pricing is so different.
• 18:29
  SPEAKER_00: But another area is for somebody that already owns an eight-unit property in a slightly rougher area, there used to be a very big difference from like let's just say in Long Beach, since we're in Long Beach right now, in from like a rougher part of Wrigley to Bixby Knowles, there used to be a really, really big price difference.
• 18:53
  SPEAKER_00: That difference has gone significantly, has has uh been limited significantly.
• 18:58
  SPEAKER_00: Or same thing if you're buying in MacArthur Park neighborhood versus buying in Alamitos Beach.
• 19:03
  SPEAKER_00: There used to be a really big price difference.
• 19:05
  SPEAKER_00: Now it's a great time for flight to quality.
• 19:08
  SPEAKER_00: If you have that 10-unit building in an area that you're like, I don't really love this street as much, I can buy in a much on a much nicer street for relatively similar returns.
• 19:18
  SPEAKER_00: And so this is a great time to trade from a building that you're not super excited about into a building that you are super excited about in the same type of market because the difference between a rougher quality asset and a nicer quality asset is relatively the same.
• 19:32
  SPEAKER_00: And that kind of speaks to the same thing you were mentioning before about the value add thing.
• 19:36
  SPEAKER_00: It used to be that you could buy a property that was pretty beat up and you can add a ton of value.
• 19:43
  SPEAKER_00: And the reality is right now, a property that's really beat up versus a property that's not beat up, there isn't that big a difference in value.
• 19:48
  SPEAKER_00: And so you might as well get the one that's not beat up.
• 19:50
  SPEAKER_00: Correct.
• 19:51
  SPEAKER_01: Correct.
• 19:51
  SPEAKER_01: No, I and I'm glad you you bring that up because so I think my perception was anyone who has say an eight, 10, or 20 or even larger uh unit building that oh, they're selling because they got to get out doesn't mean that they lost because you know there still could have been a lot of equity made.
• 20:11
  SPEAKER_01: It's just that they may not want to bring more money into it.
• 20:13
  SPEAKER_01: Um, but what you're saying is, hey, those people, maybe they're gonna make some equity, depending on when they bought, but this is their opportunity to go into a better neighborhood.
• 20:24
  SPEAKER_00: Right.
• 20:24
  SPEAKER_01: Because we've all owned buildings where we we don't want to go buy them.
• 20:29
  SPEAKER_01: You know, maybe the tenants are driving us crazy.
• 20:32
  SPEAKER_01: Maybe there's always something wrong with it.
• 20:34
  SPEAKER_01: Maybe we just hate the curve appeal of it, and there's just not much you could do to change it.
• 20:38
  SPEAKER_01: And so uh to your point, this this would be a time to kind of reposition where your properties are at.
• 20:45
  SPEAKER_01: Because anyone who's a housing provider, they still believe in it.
• 20:49
  SPEAKER_01: They still believe that this is a great way to um provide value, create wealth.
• 20:54
  SPEAKER_01: You know, a lot of people talk about retirement, passive income, all those things, they still believe in it.
• 21:00
  SPEAKER_01: And to your point, was well, it's just the market cycle.
• 21:03
  SPEAKER_01: And right now we're in a cycle where some people are gonna feel the pinch while others get to benefit from the opportunities.
• 21:11
  SPEAKER_01: But but I guess the purpose of the podcast is to let you guys know that there is opportunity.
• 21:15
  SPEAKER_01: Because there's this narrative of uh, yeah, this is not a good time to buy.
• 21:21
  SPEAKER_01: I think you and I are gonna say this is probably the best time to buy.
• 21:24
  SPEAKER_01: Right.
• 21:24
  SPEAKER_01: Even though, but they're gonna say, but even though with the high interest rates, David, it's still a good time to buy.
• 21:29
  SPEAKER_00: Yeah, because so uh two years ago, I would have said interest rates are high and prices haven't adjusted.
• 21:34
  SPEAKER_00: It's not a good time to buy.
• 21:36
  SPEAKER_00: And and the market was generally frozen for a little while back then because that was the case, but now prices have adjusted, and so you're getting that same cash on cash return that you could get before.
• 21:46
  SPEAKER_00: You're buying a high quality asset for a much lower price than you were before.
• 21:50
  SPEAKER_00: And yeah, the interest rate's higher, but the price is significantly lower, so it's evened out.
• 21:55
  SPEAKER_01: Yeah, David, I I know you talked about interest rates and and I know by now, so I know by now we were expecting them to be lower and they're not.
• 22:05
  SPEAKER_01: And I know a lot of people who who purchased properties, they were this was like their Hail Mary.
• 22:10
  SPEAKER_01: Like they, they, they desperately needed this because to your point, interest rates dropping maybe saves their property.
• 22:18
  SPEAKER_01: Maybe they don't have to sell it.
• 22:19
  SPEAKER_01: Maybe they could keep it.
• 22:20
  SPEAKER_01: Maybe that maybe it's still profitable for them, but it hasn't happened.
• 22:24
  SPEAKER_01: What are you hearing?
• 22:26
  SPEAKER_01: Not that that it's right, but just what what are you hearing?
• 22:29
  SPEAKER_01: What what's your sense right now?
• 22:31
  SPEAKER_01: Hearing regarding interest rates.
• 22:33
  SPEAKER_01: Interest rates dropping, yeah.
• 22:34
  SPEAKER_00: Yeah.
• 22:36
  SPEAKER_00: The analysts are all saying, like all the major banks and the bank CEOs, and if you read Yahoo Finance, MSNBC, all that information, it's everybody's still gearing towards interest rates will be lower in 18 months than they are now.
• 22:50
  SPEAKER_00: It's taken longer than expected by a long time, right?
• 22:54
  SPEAKER_00: Originally they were saying, oh, it'll be you know, rates will be higher for eight months and then they'll start to climb or they'll start to drop back down.
• 23:01
  SPEAKER_00: That was obviously incorrect.
• 23:03
  SPEAKER_00: But um, but yeah, I think I mean the Fed has said that they want to cut interest rates, they're monitoring inflation as as closely as they can, and we're pretty close to that 2% goal that that they've been shooting for.
• 23:17
  SPEAKER_00: Um I recently saw an article that said there were going to be five to seven cuts next year of um Fed rate cuts.
• 23:24
  SPEAKER_00: Who knows if that's true?
• 23:25
  SPEAKER_00: It's all changing based on new information that they get.
• 23:28
  SPEAKER_00: But um, but I think the general consensus is not, you know, inflation's on the way up, we may need to increase rates.
• 23:35
  SPEAKER_00: What we're more so hearing is inflation's on its way down, it's a matter of time until we can start decreasing rates.
• 23:41
  SPEAKER_00: Now, when I say that, it's not don't expect the 3% rate anymore.
• 23:44
  SPEAKER_00: That's unless we hit a really bad recession, that's just not coming back.
• 23:48
  SPEAKER_00: But if the market right now is priced for a six percent or six and a quarter interest rate and rates drop to five and a quarter or five and a half percent, then all of a sudden, you know, you've got a lot of room for values to increase.
• 24:02
  SPEAKER_00: And the other, the other tidbit is if we're in a healthy economy and wages can start increasing and rents start to grow again, then you're gonna get a big bump in in equity as well, um, just through normal annual rent increases.
• 24:15
  SPEAKER_00: Um yeah, so I I I think rates will fall to the degree that they fall, I'm not sure.
• 24:20
  SPEAKER_00: And as and how quickly they fall, I'm not sure.
• 24:23
  SPEAKER_00: But if I had to put my best guess on it, I would say in the next 12 months, we probably lose we probably drop 50 basis points.
• 24:28
  SPEAKER_00: In the next 18 months, we probably drop 75 or 100 basis points.
• 24:33
  SPEAKER_00: Um, the other thing to keep in mind too is that a lot of the bank interest rates, um, the the bank's spreads are significantly higher now than they were back in 2021, 2022.
• 24:44
  SPEAKER_00: And that's because banks, a lot of banks had a lot of money and they could sell their loans easily.
• 24:50
  SPEAKER_00: And so they were there was a lot more competition in the market to have the best interest rate.
• 24:54
  SPEAKER_00: Right now, banks' money is still tied up and all these loans that are set to adjust in the next year or two.
• 24:59
  SPEAKER_00: Once the market gets once the banks get a lot of their money back because those properties are refinanced or sold, all of a sudden their balance sheets are full, or sorry, their balance sheets are empty and they can start lending again, which makes them more competitive and will hopefully drive spreads down a little bit.
• 25:15
  SPEAKER_01: So we have this window right now, it sounds like we have this window for for for folks who are listening to to say enter the market at this point because we believe that that the recovery is is not far out.
• 25:29
  SPEAKER_01: Because you know, 12-18 months is not far out.
• 25:32
  SPEAKER_01: Yeah, it's not.
• 25:34
  SPEAKER_01: Um David, have you seen uh an increase in maybe um loan business now?
• 25:45
  SPEAKER_01: Because because you did say, hey, well, the interest rates are still high, but values have come down in some cases up to 25% or you know, maybe averaged out.
• 25:54
  SPEAKER_01: Are you seeing an increase?
• 25:56
  SPEAKER_01: Like are investors jumping in or are they still a little skittish?
• 26:00
  SPEAKER_01: And maybe only some people that kind of see the writing on the wall are getting in.
• 26:04
  SPEAKER_00: Yeah, it's definitely not a flood of new investors.
• 26:07
  SPEAKER_00: Um, and that's why I think it wouldn't be a buyer's market if there, if there was a flood of new investors, but we are seeing a lot of investors jump in and start looking at deals again because it's taken a really long time for sellers to to come to terms with the fact that they're gonna take a loss on properties.
• 26:22
  SPEAKER_00: And so for a long time it was like, well, if if I can't get at least what I bought it for, then I'm not gonna sell it.
• 26:27
  SPEAKER_00: And then now it's you know, they're like, well, you know, at least at least I can get out of it and I don't have this capital call coming in, coming up.
• 26:33
  SPEAKER_00: So we're seeing new buyers come into the market um because the pricing has become attractive again.
• 26:39
  SPEAKER_00: Um, but I wouldn't say that it's a flood by any means.
• 26:42
  SPEAKER_00: I think that it's growing for sure.
• 26:44
  SPEAKER_00: People are kind of waking up to it, but it's the flood hasn't the flood of buyers hasn't started quite yet.
• 26:51
  SPEAKER_01: I think that's really good news because it means that the competition is not there yet.
• 26:55
  SPEAKER_01: Because once the competition is there, then then you're not able to ask for all the terms and the price reductions that you might be thinking of.
• 27:03
  SPEAKER_00: Yeah, that's why what what we're seeing these days is crazy, it it baffles me.
• 27:06
  SPEAKER_00: Back in 2021, and I keep referring to 2021 because 2021 and beginning of 2022 were just it was so crazy in the market that you know a property would get listed for a price that you thought was ridiculous, and they'd get five offers, and then it'd turn into a bidding war, and it would just keep going and going.
• 27:24
  SPEAKER_00: But people were buying, were getting under contract with zero contingencies or a five-day inspection contingency and then running with you know, having no contingencies after that now and they were offering at list price or over.
• 27:36
  SPEAKER_00: Now you can offer, you know,$200,000 under list price and get a counterback for okay, well, we'll give you$150,000 off list price, and you'll get a contingency, and you know, it's it's crazy.
• 27:49
  SPEAKER_00: I mean, not a lot of this, so I don't want to give unrealistic expectations, but I've even heard of situations where uh sellers are accepting offers that are contingent on the sale of a down leg, yeah, which you would have never heard of back then.
• 28:02
  SPEAKER_01: No, they would have told you to get lost.
• 28:03
  SPEAKER_01: Yeah, but yeah, no, that's so it it it's um if you're if you're someone who is in a position to buy now or trade up, or or just like what David said is is simply um um upgrade or elevate where your where your asset is located, this would be the time.
• 28:25
  SPEAKER_01: David, um a little bit about about you, um, your background, how long you've been doing this, uh where'd you grow up, went to college, that kind of stuff.
• 28:34
  SPEAKER_00: Yeah, I grew up in Orange, California, in Orange County.
• 28:38
  SPEAKER_00: Um, I went to college at Cal State Fullerton right out of college or during college, I got my real estate license and I was selling residential real estate on the weekends, sitting open houses, doing doing all the fun stuff.
• 28:49
  SPEAKER_00: And then as soon as I got out of school, I knew I wanted to get into commercial real estate.
• 28:54
  SPEAKER_00: So I took an analyst job at a at a company that brokered loans.
• 28:57
  SPEAKER_00: Um, and quickly after that, I became a loan originator and I was a loan broker with them for several years.
• 29:04
  SPEAKER_00: And it got to a point in early 2020 where me and another uh loan officer there, we were doing a good chunk of the business and we were like, you know, let's let's start our own shop and have a little more control over our process, have our own processing team, all that.
• 29:18
  SPEAKER_00: And so we set up shop in early 2020, which was scary because we set up in March or sorry, in February, and then the COVID shutdown happened in March.
• 29:26
  SPEAKER_00: So we were a little freaked out for a minute, but it ended up being great timing because at the end of 2020, things started to pick up like crazy, and then the last few years or 2021, 2022 were crazy years, and then you know, um, the last couple years have definitely been slower, but they but they've still been solid, there's still a lot of um investment out there um and deals to be had.
• 29:49
  SPEAKER_00: Um, but yeah, so I've I've been doing this for I think nine years now or 10 years, something like that.
• 29:56
  SPEAKER_00: Yeah.
• 29:56
  SPEAKER_01: And there's not a lot, you know, like where in the residential world, there's like lots, hundreds and thousands and thousands of lenders.
• 30:02
  SPEAKER_01: I feel like with commercial lenders, it's it's a very uh small group of of uh people out there that are that are that have that background.
• 30:10
  SPEAKER_00: Yeah, it's a it's a trickier business.
• 30:12
  SPEAKER_00: It's not it's not more difficult, but it's more specialized, it seems like, because with residential, most and and this isn't totally true anymore because there's a lot of non-QM loans and DSCR loans and stuff like that that you're seeing, but most of the loans were just like standard.
• 30:31
  SPEAKER_00: You do the loan, check all the boxes, and then it gets sold to Fannie Mate and Freddie Mac.
• 30:35
  SPEAKER_00: Whereas on the commercial side, all of these banks, credit unions, agencies, they all have their own individual programs and they're lending their own money, and banks are selling them to other banks.
• 30:45
  SPEAKER_00: And so there isn't like this one cookie cutter, like all of the loans have to fit into this box.
• 30:52
  SPEAKER_00: Each bank kind of has different variations.
• 30:54
  SPEAKER_00: So I think with commercial, you kind of have to specialize in commercial to really know how to do it because you have to know what all of the major banks are offering and what types of prepayment penalties they might have, whether or not they offer interest only, what types of loans they're looking for, if there's property conditions that they don't want.
• 31:11
  SPEAKER_00: Um, and so it's one of those things where you know you you kind of have to be in that world to to really know what's going on because it's constantly changing.
• 31:20
  SPEAKER_01: David, if um if someone's in a situation where their their loan is going to be adjusting, what should they do right now?
• 31:32
  SPEAKER_00: They should reach out to a loan broker.
• 31:34
  SPEAKER_00: I'd be happy to help them out.
• 31:35
  SPEAKER_00: Um, but they should reach out to a loan broker and start getting an idea of, you know, based on today's interest rate and today's cash flow, if I had to refinance today, what's my maximum loan amount?
• 31:47
  SPEAKER_00: And then figure out if that's any, if that's anything less than what you currently have, then you start budgeting for that or you start putting a plan together to sell your property and exchange it for something else.
• 31:56
  SPEAKER_00: And so um, you know, a lot of people have the additional capital to put into their property, but they're saying, you know, if I have if I have to refinance my property and put$400,000, you know, pay down my loan,$300,000,$400,000,$200,000, whatever it is, I'd rather take that money and put that in towards a new property.
• 32:16
  SPEAKER_00: So I'll sell my property, take that$300 that I was gonna have to use to refinance it, and I'll just put that in to buy a nicer new property that's maybe a little bit larger or in a better area or whatever.
• 32:27
  SPEAKER_00: And so even if you have the money to pay it down, there's still a decision to be had.
• 32:31
  SPEAKER_00: You know, are you are you happy putting more money into this property or do you want to exchange and put money into you know another property that you might might see more opportunity with?
• 32:41
  SPEAKER_01: Yeah.
• 32:42
  SPEAKER_01: Um, if someone wants to get a hold of you, David, what's what's I mean, we're gonna have all of your information in the description, but what would be the best way to get a hold of you?
• 32:50
  SPEAKER_00: My phone or email, phone or email is perfect.
• 32:52
  SPEAKER_00: Yeah.
• 32:53
  SPEAKER_00: My cell phone number is 714-474-1284.
• 32:57
  SPEAKER_00: And my email is DGara G-U-E-V, like Victor, A-R-A at momentac.com.
• 33:07
  SPEAKER_01: Perfect.
• 33:08
  SPEAKER_01: Um, David, I um it's it's been a pleasure to to kind of get to know you, to now work with you.
• 33:16
  SPEAKER_01: Um uh thank you for your sponsorship for one of our events.
• 33:20
  SPEAKER_01: And so, and so it's been it's been great to kind of like learn from you, pick your brain, and and you know, have these types of discussions where yeah, we're both in this world.
• 33:28
  SPEAKER_01: Um, you obviously see a different side than I see.
• 33:31
  SPEAKER_01: Some of the things are the same, but just um uh you know, thank you for coming and sharing.
• 33:36
  SPEAKER_01: We're gonna keep having you come back as as things kind of change, but we're uh again, we're excited of the opportunity.
• 33:44
  SPEAKER_01: If if someone is is listening to this and says, Man, I want to work with you both, perfect.
• 33:49
  SPEAKER_01: Call David, call me, and we'll get started.
• 33:52
  SPEAKER_01: And and no matter what situation you're in, if you're if you're like, hey, I already have a 10-unit building, but you're right.
• 34:01
  SPEAKER_01: I don't like that building, and I would like to continue owning because I do believe that uh being a housing provider is something that I want to do, and and in the future, it's gonna continue to do well as an investment.
• 34:11
  SPEAKER_01: Reach out to us and let us know where you're at.
• 34:14
  SPEAKER_01: And we could simply uh David and I are neither pushy, but we'll give you the information and then from there ultimately you'll decide what's best for you.
• 34:22
  SPEAKER_01: You know, David, um, before I wrap up, there's been this uh kind of this idea that I've been thinking of.
• 34:27
  SPEAKER_01: Um I used to worry if a business was recession proof.
• 34:32
  SPEAKER_01: Okay.
• 34:33
  SPEAKER_01: Now I worry if the business is AI proof.
• 34:37
  SPEAKER_01: Okay.
• 34:38
  SPEAKER_01: I'm afraid, David, that we're gonna be um anyone who's a consultant, advisor, brokers, I think a lot of our jobs are gonna be taken away, you know, and and maybe not at the at the commercial loan level, but you know, possibly at the real estate brokerage level.
• 34:52
  SPEAKER_01: I think that AI is gonna be able to write up your offers, it's gonna be able to negotiate on your your your behalf, and it's gonna submit the offer for you.
• 34:58
  SPEAKER_01: I I don't know, like I'm not afraid to say, like, I think that in certain certain uh parts of real estate are gonna go away.
• 35:06
  SPEAKER_01: Sure.
• 35:06
  SPEAKER_01: And even when someone says, Oh, yeah, but not everybody, okay, great.
• 35:09
  SPEAKER_01: 80% goes away.
• 35:10
  SPEAKER_01: Like it's still big.
• 35:12
  SPEAKER_01: You might be part of the 80%.
• 35:13
  SPEAKER_01: Yeah, yeah, yeah.
• 35:14
  SPEAKER_01: And so I think of a couple of things.
• 35:16
  SPEAKER_01: I think, okay, AI cannot be a housing provider, it's not gonna buy apartment buildings.
• 35:25
  SPEAKER_01: Like, so you guys I only tell you this because I've, you know, we've been we've been on this uh uh teaching people how to build wealth through apartment ownership.
• 35:32
  SPEAKER_01: You know, we've been on this, I've been on this mission for over 20 years now.
• 35:36
  SPEAKER_01: Um, more people know about us now because of the podcast, Own More Doors, and because of our YouTube channel.
• 35:42
  SPEAKER_01: But more so now than ever before, AI cannot, cannot be a housing provider.
• 35:48
  SPEAKER_01: I mean, if if it has money and who knows, maybe in the future it can be.
• 35:52
  SPEAKER_01: But I'm just saying, like if you're someone who's maybe agreeing or or maybe hearing this for the first time, saying, you know what, it is gonna take a lot of jobs.
• 36:00
  SPEAKER_01: Okay, maybe 20% of the staff stays.
• 36:02
  SPEAKER_01: All right, well, the majority is gonna be gone.
• 36:04
  SPEAKER_01: What what are they gonna do next?
• 36:06
  SPEAKER_00: Yeah.
• 36:06
  SPEAKER_01: Um, so a couple things.
• 36:09
  SPEAKER_01: AI can't be a housing provider, right?
• 36:11
  SPEAKER_01: So that's something that if you own units, then then at least that investment is protected.
• 36:17
  SPEAKER_01: I um recently purchased a laundromat.
• 36:20
  SPEAKER_01: Okay, the the real estate and the equipment.
• 36:22
  SPEAKER_01: And I'm and the reason I got it was AI cannot do your laundry.
• 36:27
  SPEAKER_01: Yeah, I guess raw robots in the future will probably do your laundry, but like if you had to go to a laundromat, like it can't do that.
• 36:32
  SPEAKER_00: Right.
• 36:33
  SPEAKER_01: So that's just been something, just kind of an additional thing to think about in the future.
• 36:36
  SPEAKER_01: Like, uh, is your job safe?
• 36:38
  SPEAKER_01: Maybe, maybe not.
• 36:39
  SPEAKER_01: Maybe you're using AI, maybe you're not.
• 36:41
  SPEAKER_01: We use it so much, I see what it does, and we love it because it helps our business, but it's also scary at the same time.
• 36:49
  SPEAKER_00: Yeah, having additional streams of income is always just safer.
• 36:53
  SPEAKER_00: You know, you've got if one if one gets hurt, then you've got others to rely on.
• 36:57
  SPEAKER_00: And yeah, relying on just employment income is a risky thing these days.
• 37:02
  SPEAKER_01: Yeah.
• 37:02
  SPEAKER_01: David, thank you so much for being here.
• 37:04
  SPEAKER_01: Um, I appreciate your knowledge, your friendship, and and and working with you.
• 37:08
  SPEAKER_00: Likewise.
• 37:08
  SPEAKER_01: And we will definitely have you back, folks.
• 37:10
  SPEAKER_01: Make sure to like, comment, and subscribe if you're watching this on YouTube.
• 37:14
  SPEAKER_01: If not, if you're hearing this on the podcast, download um this this podcast and our others.
• 37:20
  SPEAKER_01: Make sure you guys are are following.
• 37:23
  SPEAKER_01: Um, thank you so much.
• 37:25
  SPEAKER_01: Until next time.
• 37:26
  SPEAKER_00: Thank you.