Latest / The Investor Shed Podcast / Real Estate Mortgage Secrets with Brett Shoemaker
Transcript
- Nick & Brett: great way to start. as soon as it goes live. Cheers. Cheers. Well, welcome back to the Investor Shed podcast, everybody. My name is Nick Beverage. I'm the ⁓ real estate investor guy and I am here with our guest host today, my favorite guest host that I've ever had. ⁓ Mr. Brett Shoemaker. Good morning. Good morning. How are you? ⁓ Pretty good. Pretty good. Good start to the year. You guys might be wondering, where's Jeremy? Well, Jeremy has been fired. ⁓ No, I'm kidding. He's not fired. He got cancer ⁓ He got cancer in his bitch tits and he And he needs some time off. No, no, no, I'm joking about that And he does not have bitch tits ⁓ Jeremy ⁓ had a lot of appointments today and he couldn't make it bless his heart. It's all good. We're gonna we're gonna get through ⁓ With Brett Shoemaker the best we can it's okay for the seven listeners out there. You will be entertained. I promise It should be a time. We miss you though, Jeremy. We do miss you, Jeremy. I like to joke with Jeremy when he's not around. He loves it. Brett, it's a little chaotic right now in the world of like it always is, but ⁓ I guess there's like new wars going on and stuff and interest rates are like down and up and down and up. But for the most part, they're pretty low. Business is good. Tell us what's going on in the lending world from your perspective. Yeah, so, pre pre ⁓ bombing iran and killing the ayatollah interest rates had just hit their kind of Three year low kind of three year low. Okay. So basically since you know, we pulled out of the pandemic in terms of rates Yeah, we'd gotten back ⁓ the lowest that they've been essentially since then. ⁓ conventional rates had the average conventional rate Had dropped just below six percent for a couple of days. then, yeah, then we bombed Iran and usually bombing the Middle East is good for interest rates. ⁓ Come on, let's bring that back, huh? Yeah, but not this time, I guess. The mortgage rates are tied to the 10-year treasury yield and those go up and down based on supply and demand. And so usually when... things are uncertain in the world, investors and people with money buy the US 10 year treasury. And so the more people want to buy it, the lower it becomes, which is kind of an inverse from a stock that you would think that the more demand there is, it would increase. But the more people want to buy treasuries, the lower it becomes. In this case, that didn't happen. People started selling them for some reason. So people started selling their treasuries or their bonds. And so then you have to increase the yield of the treasury to get people to buy it. Okay. Any, any logic behind that, that you, that you know, none that I, uh, am qualified to talk about. I know. can guess, but I don't, I don't know why. Okay. Just kind of happened. being a mortgage lender, um, you know, in early 2026, what are the, what's the average pay payment that you're seeing most people agree to for just a regular, you know, entry level type of house? If, if, if there are any entry level homes. Well, yeah, mean you're in our area so northern Idaho your your entry-level house is probably what for four to five hundred thousand I mean anything under four hundred thousand. Yeah in the mid fours I would say for in a kind of an entry-level house Yeah, and so if you're if you're coming in mid fours with with a minimum down payment, which most First-time homebuyers do you're what's a minimum down payment? Depends on the loan program could be anywhere from 0 % if you're looking at a f or a VA or a USDA could be three and half percent if it's an FHA could be 3 % if it's conventional loan, but generally speaking somewhere between 0 and 5 % is what First time home buyers are putting down. Okay, so if you're putting that down on what's called a 450 purchase taxes and insurance You're gonna be pretty close to a $3,000 a month mortgage payment. Okay And how does that compare to when interest rates were at their highest? If you had to guess. So, I mean, the highest average was probably 7.25%. And that was probably 18 months ago. It's, I don't know, I don't have my calculator in front of me, but $1,250 a year per 100,000 more if it's We're just doing some quick math. Yeah, yeah about fifty two hundred dollars more a year in interest so that if you divide that by twelve that's gonna that's about a four hundred four hundred and fifty dollar difference Okay, so closer to the mid three like almost thirty five hundred ish thirty four hundred. Yeah, probably thirty three thirty four hundred is what you're for an entry-level home Just a year and a half ago. So prices have gone down Essentially almost you know four or five hundred dollars a month In recent times for an entry-level home, which is I mean, it's still a lot of three grand a month, but I Mean what are the odds that it's just gonna keep dropping? Interest rates so if you look like the 12 months we dropped about a full percent in the last 12 months I don't think you're gonna see that again in 2026 bar in some sort of Significant event I think Towards the end of the year, it'll it'll go down a little bit more I think the consensus average for the the people who you use they're kind of or balls and predict like they know what that's gonna happen You know They thought it would drop maybe another quarter percent from where we're at right now, and that's probably pretty realistic, but You know The people who are waiting on the sidelines saying I'm waiting for four percent rates You've got a way you got a ways to go And unfortunately, if you do just keep waiting, I'm noticing the entry level homes just they continue to go up in price every year. ⁓ Even after the ⁓ even after the interest rate hikes, the entry level market, ⁓ unfortunately, it just keeps going up. ⁓ And unfortunately, I've got a little insider information because I'm selling a development right now to some pretty large builders in the area. And the amount of money that they're paying per lot tells me that the entry level homes that they're going to build are not going to be priced where they are today. They're going to be a little bit more ⁓ once those products come on the market next year or early next year. Yeah. So insider info, ⁓ entry level homes, the prices may go up still. Good chance. ⁓ Interest rates may come down a little bit, you can always, again, if you really want to buy a house and if you can afford it right now, ⁓ there's always a chance that you could refinance your loan into a lower interest rates if rates do go down. So there's a good chance that will happen in the future. And there's also a very good chance that prices will just continue to go up in the future. Does that make sense? Yeah, well, and so that's why you know, we probably sell sound like salesman I'm a I'm a realtor investor You're the mortgage guy But I think we can honestly say This is likely to happen is that your the houses will continue to go up ⁓ the entry-level homes ⁓ Not just based on history but also based on what I can see in the future based off lots that I'm selling to builders and ⁓ Rates you always date. Apparently that's what they say. So like just lock them in, but you can always switch your rate. You can't switch the price of your house later. Right. Yeah. If you look at the, mean what it's supply and demand, what, what drives demand? Obviously affordability, which is tied to interest rates. as interest rates come down, affordability becomes a little bit more affordable ideally. And so the demand goes up, but then also things like You know 70 percent of the country has interest rates under four percent Well, nobody wants to sell their house at four percent or three percent or two and half percent and get a loan at seven percent But they might do it at five and a half. Yeah, I just spoke to somebody last night that refinanced a She had a two point nine percent interest rate into like a six point eight or something. Yeah, just to pull cash out. Yeah ⁓ And I'm seeing that more and more where people are, they're just going ahead. They're refinancing out of their long-term low interest rate debt into higher rates just to pull out cash because I mean, who would have thought? Who would have thought? But Americans have an issue with cash flow and they have spending problems and they always go to their house to rescue them with their equity. and they make some unfortunate choices long term based off what they the choices that they made on a daily basis, spending habits, they get themselves into debt. So I also I used to think I really did. I honestly believed three years ago that nobody's refinancing out of these or going to sell their homes at three percent interest rates like their payments are just too low. And now I see it all the time where people just don't care. They know they're in a good position. But they need cash or they want to sell and they just don't think about how much money they're saving long term or like how can I most people I thought most people would keep what they have, but it sounds like most people are just whatever works for them in the moment. Whatever is most convenient. You know what I mean? Am I am I going off on the rails there? Or do you think I don't know? Have you noticed anything similar? I don't know. Yeah, I mean, I don't know the percentage of people who are I can tell you one of the things I see pretty regularly is somebody's got a great 30-year mortgage, know, 2, 3, 3.5%. But they've got $75,000 in credit card debt at 26 % interest. And because their credit score is 665, their auto loan is 13.5%. And that's 50,000. And so one of the things I do a lot is calculate the blended rate, which is all your debts. ⁓ When you average the interest rate, how much is your debt costing you? Yeah, and when you've got some of these higher interest debt, which you know credit cards are just crazy Yeah, you've got 320,000 locked up at 3 % which is fantastic But now you've also got 110 locked up at 21 % and when you average those together, this is costing you I'm just making numbers up, but it's costing you 10 % a year on the debt you'd be better off pulling cash out of your house at 6 % and paying that off than you would. But you can only do that magic trick once. Well, you can do it again in 10 years. As you accumulate debt and the price of your asset goes up. And that tends to be the American dream. That's how your parents have survived in case you guys don't know that. Not everybody obviously behaves this way, but it's a shocking amount. know, I'm I'm super impressed ever since I've become an adult. I've always looked up to adults and I thought they were so responsible and everything. ⁓ And then you you get into the mix. You're just like, wow, there's a lot of people, including myself, that are just ⁓ they're just living in the moment and they will make horrible financial choices. ⁓ And not save for retirement, not, you know, not invest because it's riskier, painful at the moment. And I mean, I guess I guess I sound like a broken record all the time, but ⁓ I did not think, like I said, three years ago that when 70, I think over 75 % had interest rates under 3 % or under 4%. ⁓ I didn't think that that would just people would just give that up. but I forgot that adults, most of them in America are not good with money. And it is, I think it's, you'll probably see that number go to 25 % in just a few years. You know? It's unfortunate because it's like the opportunity of, you know, a once in a generation or a couple of generation lifetime to, to walk something like that up, but then it's. Squandered away based on the where I was going to use these micro decisions because of poor financial literacy. It's unfortunate, but it is something I see all the time. Yeah. I have poor spending habits too, but fortunately I just make a lot of money. Yeah. I used to be really, really good with my, I guess I'm pretty good with my money because I have passive income. buy rentals and most of the money I spend, I spend on investments and stuff. I'm just very poor with having a lot of cash in the bank. I just like to spend it all. Use it use it. Yeah But I'm glad to finally get to taste the the smurf the smurf juice Yeah, a lot of people comment on the blue drink. So it's like what is that blue stuff you guys drink? Yeah, I'm surprised. It's it's illegal Are you feeling it? No, not yet. Okay, why don't you feel this you want it? You want to take a little sniffy? of the the smelling salts ⁓ it's double, it's double wrap. That's, ⁓ take a little, take a little sniff of that. You're supposed to like loft it in, right? You don't just want to barrel into the, just go, just go. You don't think about it too much. It's like, just dive in like a swimming pool. Brett took his for those listening to audio. He's questioning his life choices right now. That was fantastic. That's fantastic. ⁓ yeah. That was in my mouth. Yeah, one way straight. That's in my head. Wow. Isn't that great? I'm ready to go. Let's go. Let's talk about let's talk about the scam of ⁓ now that you are you already under contract with ⁓ development? We need to sign it. We got a contract yesterday that we that we have to review as partners, but it looked pretty it looked pretty doable. ⁓ Yeah, we can talk a little bit about it just no names or numbers. ⁓ I wasn't gonna talk about it was just gonna torch ⁓ Builder financing. ⁓ okay. Go ahead. I don't want to ruin your deal here. No, no, you're not no one's listening ⁓ Okay, it's kicking it ⁓ no man, I feel good we're locked in now ⁓ We're on pre workouts and smelling salts and we're just sitting in a shed in the backyard talking on mics Very appropriate builder financing Uh-huh. This is something that I run into a lot. Tell me about it. So you like when you go and you look at new construction And they're like, hey 4.99 financing. Yeah, it sounds attractive. You're like, wow, this is cool. Uh-huh. How do they do that? They well they they charge you a little bit more for the house And then they buy the rate down Right. That's exactly right. And there's nothing so you're still paying for it in the long run, but it is actually I mean, I don't think it's a bad thing to have a lower payment. It's super. ⁓ It's super clever. It's very clever. Well, these builders know what they're doing, believe it or not. They don't build product to just sit there and scratch their head. Yeah. They know how to build the right type of house for the right neighbor and for the right type of person at the right price. And they can manipulate the interest rate. Yeah. To. ⁓ Compete really well with the resale market and I think I think the local builders here anyway, most of them do a really good job they ⁓ They do a good job and they're most of them ⁓ If I call them and say hey, can I get the same? Lender credit that you're offering your in-house lender to buy down the rate then they're like, yeah sure. ⁓ really? Yeah, which I appreciate because then it doesn't shaft me but you go to like one of the bigger, more national names who have their own kind of in-house. Yeah, lenders. their like, pound sand. So just give us a ballpark ⁓ where those builders, they can like give you a teaser rate, which they can make happen, Yeah, that's legit. Where they can drop the rate almost a full percentage, right? Or sometimes even more. How much does it cost? on average, you know, a few, like a $500,000 mortgage or house. How much builder credit do you need or how much of a seller credit do you need to buy down the rate by almost a full point? Quite a bit. It's going to vary based on a bunch of factors. I can give you kind of a real life scenario right now of somebody who's using seller credit to buy down a full percent. on the interest rate, it's essentially three points. So 3 % of the loan amount. This particular person's got a $570,000 loan amount. So it's like 19 grand. It's cost to buy down one full percent interest. So I would say roughly, it's gonna be between two and a half to three and a half points to get 1 % in savings off the interest rate. And so if you're looking like if the builder is selling a $500,000 house to keep the math simple, They're probably baking in somewhere between 12 and 18,000 to use towards financing for a teaser rate. Okay. Gotcha. Now, can you in your head, I know you're not a calculator, but can you kind of give us a rough idea? What is the difference between financing, you know, an extra $18,000 in that scenario? for like the payment amount versus how much does it save you? You know what I mean by that? No. Okay. So, so obviously if you're getting a loan and you're financing an extra 20 grand on top of your mortgage loan over 30 years, approximately how much does that move your payment up in relation to, you know, a 6 % interest rate down to a 5 % interest rate? ⁓ That's what I'm trying to be like is it worth the squeeze? ⁓ Well in the long term So there's two parts of that the first part in a builder scenario The builder doesn't want to drop the price because if they drop the price on this house They have to drop the price on the next house. Yeah, it's gonna affect their you know appraisals or whatnot. So They're so you so the treaty a builder is a little bit different than a seller seller at the end of the day my net is my net a builder is going they they want the Top-line price to be the top-line price because they have other factors to consider right they have other houses to sell and they don't want them They don't want to ruin the comps because that's how their values are Brought into like it's based off what other homes are selling for right that and that's how they get their values. So that yeah, so it does Unlike a regular seller, just like you're saying, they don't care what they're doing to the comps. The builder cares about that extra factor. Now to your question, like what's the trade off of buying down your rate? I mean, it's math. There's a break even. Buying down 1 % from the par rate, which is the rate that you don't have to pay for. So if average interest rate today is 6%. that you don't have to pay for. that's the market rate. It's the par rate, $0. Buying down 5%, excuse me, to 5%, that's a long ways. The farther you go from the par rate, the more expensive it is. So going from 6 to 5.875, it's gonna cost some money, but it's not the same amount of money as going from 5.125 to 5 % because you're farther from the par rate. So it gets... Exponentially more expensive the farther you go from the market rate. Yeah, can you buy it down to zero? the lowest rate sheet I have right now is like four and a quarter Okay, you're by down to almost two points. Yeah, you're looking at like Six and a half percent In points like it's a crazy amount of money. Okay When determining like whether or not you should do it it all comes down to the break even Yeah. How many years do you have to have the mortgage for it to make sense? Right. I'm like everybody's got a different philosophy. I like to break even in less than 18 months. If you're not breaking even in less than 18 months, I don't, I wouldn't do it. Yeah. Some people say three years. Well, most, so most people ⁓ are in and out of a mortgage. Every what? You probably know this. Is it like four to five years? It's hard to get reliable data now because COVID kind of screwed everything up. ⁓ how so? Well, everybody who basically everybody in the country refinanced in 2020 and 2021. ⁓ that's true. So yeah, even if they just had their mortgage for a year or two. Yeah. So that's right. The data is the data skewed now. It's anywhere I see anything anywhere from three years to eight years. And so it's too unreliable. But generally speaking, people refinance their mortgage. People move. I mean, you might know how often do people move. We think this is our forever home until it's not. The historical data before COVID was every five to seven years. People are typically moving. And so we go into these 30 year loans thinking it's a 30 year loan. Yeah. And it's not for most people. is it actually 30 years. If you stay in the house forever, you're going to refinance, you might refinance to a 15 year mortgage. You might decide to pay it off early. There's just so many things that come up that, you know, Amortizing it over 30 years and comparing the savings against this this rate versus this rate over 30 years It's just not practical. I don't think it's realistic. Yeah And so making decisions based off how much interest I'm gonna save 30 years from now on this loan versus this one It's true like it's but in reality. I just just not what most people do ⁓ And so yeah, I mean what I look for is breaking even in less than 18 months Sometimes there's other reasons to buy down points though. I have certain people who I'm not gonna sleep well if my payments a penny over $2,500 a month for example Yeah, and so I'm willing to pay as much money as I can to just get it under 2500 they're gonna be upset in a year or two when their escrow adjusts Yeah, and insurance can go up and that can and they always go up. Yeah, they rarely go down. Sometimes they go down Taxes in Idaho go down sometimes. in a while that happens. I was surprised to see that. I remember my mortgage went down once. I was like, how did this happen? This is awesome. Yeah. I feel like insurance is not going down though. It hasn't lately. Yeah. It's been a little brutal. Insurance companies are like, we want money now. Lots of it from everyone. Yeah. And they deserve it. Do they? No. Don't know like what's that guy who shot the? Insurance executive I feel like he didn't think that was a health insurance executive. That's true. Yeah, so property casualty were Luigi man, Joanie or something. We're okay with property and casualty It's just those life and health guys That's so sad Maybe not. I just don't think you should shoot people. Not in America. Not in America. But you should overseas. No, I'm not saying that either. So interest rates. Yeah. Yeah. What are we talking about? We're talking about 18 months. Yeah. If you're not breaking it. Yeah. If you're not breaking it, it's a math decision, but What I tell people is like 18 months. We don't know where you're be in three years. I don't know where the market's gonna be in three years. You might have a new job, you might have moved somewhere, you might have had a couple more kids and you need a bigger house. Like there's so many things that come into play. like your life changes every five to seven years. So it's not just your people decide they wanna move every five to seven years, just like people's lives tend to change every five to seven years. People get bored, they do new things or things happen to them. ⁓ So it's it yeah, like what you're saying just actually having the mortgage and not changing it and living somewhere for 30 years is so extremely rare Are there any data on how many people what is the percentage of people that get a loan and they take it to the end of 30 years? I'm sure there is data. I don't have it. I'm gonna look it up Yeah, while you're talking if you don't mind rock guy, aren't you? I am a rock guy. I just switched to Claude Claude's pretty cool Yeah, I switched from chat GPT because they're the the devil now that they're willing to deploy autonomous weapons around the country. Are they really? Did you? I saw that on through. Anthropic didn't want to do that. I didn't know that like open AI just stepped right. ⁓ yeah. They're like, hey, we'll we'll sacrifice our morals. Did you know open AI was actually like originally funded by Elon Musk and it was supposed to be an open source? Yeah. Open source. Non-profit. Yeah, and then ⁓ as soon as As soon as sam altman noticed that elon had his back turned he just like i'm just thanks for the 50 million dollars Now it's for profit. You're not included and ⁓ it's and it's closed source Yeah Amazing. Yeah, I I was okay. I was okay with that until I wasn't you yeah Anyway, now I have to log in for to grok for some reason. I will ⁓ i'll get there here in a second So ⁓ what's been the most interesting loan, if you don't mind, little side story that you put together this year? Any good stories? Because I remember last year we worked on a deal together where you just almost quit. ⁓ yeah. Yeah. Yeah. Our mutual client. ⁓ huh. Yeah, that was a tough one. Pretty much. ⁓ Geez, don't know. Interesting loan. I saved a loan in December for a real estate agent. I don't know that it's super interesting, but some people might not know that you can do it. Agent texted me like the day before closing, hey, just got the heads up we're not closing tomorrow. Oh, oh great. Why? What's the problem? I don't even remember what the problem. Oh, they were trying to do like a manual underwrite. They didn't have enough income. Look at the deal, look at the property. The loan officer who was doing that loan didn't include the ADU income from the ADU in the backyard. And so they got denied due to insufficient income. But when I looked at the appraisal, I'm like, dude, there's an ADU in the backyard. Why aren't we using that income? And ⁓ you can use ADU income. If roommates are buying, if one roommate's buying a house and your roommate's coming with you and you have a history of them. Paying you rent. Uh-huh. You can use that it's called border income to qualify for a house You can use if you're buying multifamily you can use the rent from the other units to boost your income to buy a house There's a lot of ways to use outside income to help you qualify Either to buy a house or to buy a more expensive house than just what do you make? Right. It's always interesting Hmm. So I got the data people that actually take their 30 year loan all the way between 10 and 20%. It's more than I thought. It's more than I thought, but it's still very low. Yeah. So odds are never, well, not never, like 80 % of people or more, more than 80 % will eventually refinance or sell their house. It's interesting. So I just did a loan for an 82 year old 30 year loan. Really? Yeah. I don't think. I don't think they're gonna be they might take it well somebody could just take it over sub 2 right Like a child or something. Yeah. Yeah, do you ever hear of that happening much where if an elderly person ⁓ If they're you know, they die in their houses, they still have a mortgage going Can somebody else just step in and start taking that payment over? Like sub 2 or like heirs like sub 2 or air like is there is there ⁓ a process to that? Yeah, I mean the ⁓ I mean, I don't see a ton of like the sub two side because they're not trying to get a lender involved in that. Sometimes I help people understand the rules and the guidelines because one of the things with sub two is the people who are moving out of the house or maybe they're staying in the house or whatever, a lot of times they're concerned about not being able to buy another house in the future because this is. still counting against them and so I talk people through that on occasion how the other rules for that work when your debts paid by another person and you can document that you know it's not counted against you okay but yeah I don't see a ton of like sub 2 stuff hey I probably wouldn't I'm struggling with something I want you to let's let's run through it what's going on okay so I've taken a turn on creative finance. Okay. Now anytime I hear the word creative finance, I mentally associate it with don't have any money. And I need you to kind of talk me off the ledge here. No, you're right. You're right. People that don't have money ⁓ or credit or or know what they're doing. Okay. I'm joking. That's most of them. But there are some people that it's just a savvy tool. in their pocket if it makes sense at that time for that situation. Right. So I've done the sub two route or, ⁓ I've done that probably eight times or something. ⁓ Purchase that way. And then I've even sold a couple of times on sub two because it made sense for the situation. ⁓ But most the time, it's like if you're dealing with somebody where they don't have a lot of equity, ⁓ it's a distress situation. Maybe they're about to lose their home, ⁓ but they have a pretty low payment and they're comfortable with somebody ⁓ taking over payments for them and taking control of the house and buying the house ⁓ without paying off that loan and leaving their name on there and they know what's actually happening that's explained to them. And the title company is willing to work with you too on this. I think it could be a great tactic for just not originating a new loan for somebody, even if somebody has money, it should be people that do have the money and the means and resources to buy these so that if a loan is called due or if something happens or if they start complaining that, I'm trying to get a new mortgage and this is still on my credit and it's been less than a year, can you do something about it? You know, maybe this person has the means to just sell the property or refinance or figure something else out. ⁓ But I do for the people that really seriously just don't have any money, very little experience, low resources, just taking somebody's mortgage over subject to ⁓ is pretty risky for all parties, I think. Yeah. Just because I think it's definitely a more advanced strategy, even though it seems so simple. Yeah, but it comes with a lot of baggage that people don't talk about Dealing with the insurance. ⁓ yeah dealing with insurance long term with people dealing with other people's names being on your mortgage dealing with like, okay, who's getting the ⁓ tax ⁓ you know Who's getting the the tax benefits for paying the ⁓ Interest on the loans and figuring all that long term with somebody that That you can be in communication with the seller for another 20 years. Yeah. Easily if you actually are trying to do this method. ⁓ And to make it even worse, if you're just wholesaling stuff like this where you're not the person that's buying the property is taking over something sub two and you're just in the middle trying to string these people together. And the seller has no idea who's buying their house. They never met him. And they're just taking over their mortgage and being respond and not necessarily responsible for the mortgage. So no. So now they don't. And the reality is when you sell to somebody on sub two, ⁓ you use you do sell them the house and you are still responsible for the mortgage. Yeah. So there's like a level of trust. That's it. So you have to have a high level of trust. with whoever's buying your house. And there's these Facebook groups everywhere where people are just wholesaling sub two deals to strangers. And I just don't see it going well long term because it's a very long term strategic lot of moving pieces. It's simple. It's the problem is it's simple to jump into. But it's very complicated to sustain long term. I think that's the yeah. The thing that I see it's marketed for as like a very low burden of entry in terms of cost, but it's very high burden of risk and responsibility. Long-term. Yeah. Tyler and I bought a property on sub two in 2019. That was seven years ago. We still want to have to communicate with the seller. Yeah. It's a really low interest rate and it was a 40 year loan when we got it. So we might, we might have to be in this. This person might die before we do. We're going to have issues with it. But it's a great long-term rental. It's a low payment. You know, we just have to re-rent it. I just put it out on Facebook. We had like four people look at it for 2500 bucks a month. Our mortgage payment is 1300 dollars and we bought it with 15 grand down. Yeah. And we put a little bit of work into it and it wasn't really old house. It was nice. ⁓ But pretty complicated to stay in touch. was somebody who was in distress seven years ago. the loan is still in their name. The lender has never approved us. And the lender has sold the loan multiple times. So we're dealing with new lenders all the time. And the insurance has always been a mess. ⁓ I mean, it's somewhat clean right now, but it's always a sticky situation with underwriters. So ⁓ easy to jump into. but hard ⁓ to steer the ship long term. Would you say, I ⁓ see a lot of people who try and get their start in investing in, I shouldn't say I see a lot of people, I see some people try and get their start in investing through creative finance. I feel like wholesaling would be a much better use of, like find the deal and any legitimate investor will buy it. Don't be. It's waste in time trying to find something super creative thing that you don't have the experience or reputation to to manage. Yeah. I guess I have mixed feelings about that because ⁓ one of the first deals I bought was creative financing, a seller financing deal. ⁓ we didn't have much money at the time, but we were able to structure a deal. This, you know, this was like 2014. ⁓ But we bought a house in rathrum for $40,000 and we needed $3,000 down to pay off the real estate agent and And then we were making her payments of $300 a month But we didn't have the money to fix up the house. We had to flip another house our first house To make the money to come back to this other house. How'd you buy it? We bought it on seller financing Okay seller financing. Is that considered creative financing? Yeah, so seller financing is considered creative financing. So it's, you know, the subject to seller financing, land contracts, those are all kind of in the same LGBT bag of, you know, ways to raise to creatively get a product through the door. I retract because if you can mock seller financing, especially in some of these 2020-2021 loans. Yeah, so I bought I bought some land in St. Mary's ⁓ over the summer ⁓ on a 30 year loan ⁓ with a with a lady ⁓ and I had a five percent interest rate and and two thousand dollars down and it was kind of discounted to that price. So for 20 acres ⁓ I'm making a thousand dollar a month payment. I have a hundred and eighty $187,000 loan. It's on a land contract. it's a it's what that means is like it's the title never changed completely to me. It's still in her name. But we're in a contract for deed, which once that loans paid off, then it will be transferred in my name. And it's still legally set up. There's still an escrow company taking payments. I'm not making payments directly to her. ⁓ And I have you know, essentially like a recorded lien against the property showing that I'm purchasing it ⁓ And the IRS sees that as I'm buying that property and the interest that I'm paying is deductible ⁓ So that's a creative, you know, that's in the LGBT bag of Creative ways to put a deal together. It's probably a very inappropriate way to me ask you this, your experience when you're walking through a house that you're considering purchasing to flip, how long does it take you to make a decision? ⁓ Four minutes. That's my thought. Yeah. My personality is that I like to do an exorbitant amount of analysis to point that I talk myself in or out of a deal. It seems like in talking with you and other people, like, takes me five minutes. I, this is probably going to be 50 grand because every rehab's 50 grand and it's probably worth, you know, 475 to 500 when I'm done. ⁓ it might be worth 508. It might be worth 460, but I don't need to get into all the nitty gritty right now. Yes or no. Yeah, but I can only, I can only say five minutes just because I have 10 years of experience flipping houses in this area. And I've been a real estate agent for 15 years. I have a lot of presets already. I've already got lot of programmed into me and an algorithm in my head of how to make a decision pretty quickly based off the presets I've set that I'm comfortable doing certain deals and not others. So that's why it only takes me a few minutes to be like, oh yeah, let's do this. And also with the, you know, not being a hundred percent on board because we're still, there's might still be an inspection involved, but I can at least say, yeah, let's make an offer. Yeah. Within a few minutes and know how much that offer should be. And we'll probably be accurate on our ARV by, you know, 5 % or so depending on where it is and all that stuff. But you're a 70 % ARV guy. Depends on where it is. a lot of the flips I do are just outside the county. So that is manufactured home. Yeah. And northern. Um, so, so that 70 % goes down. I will still consider it. I just, you know, I've, I've taken so many punches, uh, by manufactured homes, but I've also, you know, I, I remember once I made like 160 grand on a manufactured home in post falls. Um, yeah. Uh, and it was a simple, you know, it was a manufactured home, um, not classified as real property, um, but on real land. And it just needed, um, the title. Destroyed and it needed an engineer Report. Oh, so you turned on the property and it just needed It needed a vapor barrier in the crawlspace and that was it to qualify so we bought we bought a house for like a hundred grand and We put less than two thousand dollars worth of work into it cleaned it up, too and then resold it and made like 160 ish net That was a pretty good manufactured home. Yeah. But I flipped another manufactured home too once and lost $210,000. Was this the one that was manufactured in 1976? Yes. Yeah. So my algorithm, when I hear, there's a manufactured home available, immediately red flags go off in my head. And I'm like, it's just a no, but I'll take a look. It's just a no by default. but I'll still take a look just because I know they're dependent on the price. If it's like insanely cheap, that fixes a lot of problems. Have you talked about the 1976 manufactured home on the pod before? Oh yeah, we brought it up a few times. I mean, we've done hundreds of episodes now, so we talk about things over and over again. But yes, I brought it 1976 was the year that HUD started certifying manufactured homes. So you could get traditional financing on them. Yep You bought a 1976 manufactured home that was built to the HUD standards that was built to the HUD standards But it just happened to have been placed It happened to have been manufactured three months prior to the rule kicking in Okay, so even though it was built to the HUD standards in anticipations of the rules kicking in Because it wasn't ⁓ on or after that date in the summer of 1976, it was built in March. All of a sudden the value was like 150 grand less. Yeah. And lost a lot. Much more. Yeah. And it was harder to sell. manufactured homes are just tougher to sell. A lot of people don't want them. And a lot of people have a hard time qualifying for Average rates on them because the rates tend to be higher and they just come with baggage, you know extra inspection reports to be done by engineers and You know, they they are also seen as vehicles here and there Because that's how they start off. Yeah But yeah, tell us more well now, I mean you pretty much covered it Yeah, once once once you something becomes non-financeable dude for traditional financing, whether it's a pre-summer 1976 home that I never even thought of until that happened to you. Yeah. Because in my head, I have the similar algorithm, like, is this 1976? OK. And then I have a couple other things that I go through for the winning side. When I was doing my due diligence on that property, it was a concern. And I talked to David Barton about it. And he's like, no, it should be fine. Because I had an old appraisal report that showed that it was built to the HUD standards. And I had that and I brought it to another it wasn't just David brought to another lender a second just for extra Like is this gonna be is this gonna refinance fine and that lender to said yeah, it's gonna be fine ⁓ and then When we actually did finally fix it up and we went to go resell it We did have a buyer at a decent. Okay price. We weren't making much but we actually finally got it It was hard to sell because the market turned ⁓ and then that lender to was like, yeah, it should be fine. And then it wasn't. When they went through, you know, final underwriting, they're like, wait, where's the data plate? Yeah, where's the HUD plate? Where's the HUD plate? We don't know. Maybe it got remodeled. Maybe it's gone. Well, let's order a new one. There wasn't one. Wait, it was built in March, but it was built to the HUD standards. We don't care. It wasn't built to that date. So go F yourself. This doesn't qualify. This is a pre-HUD home. And it was a ⁓ real gut punch. So I'm like, okay, I guess we'll discount the property a little bit. And then I had to discount it again and again and again for many months until I had, you I bought it for 400. I bought it on a high leverage hard money loan that accumulated, you know, four grand of interest a month. And we put like almost $80,000 into the remodel. ⁓ And then it took a year and a half or like took like a year to sell it. And then I sold it for 350 cash. And I had to give all the staging furniture away to make the deal work and took on the front. And I took like a two hundred and ten thousand dollar loss. But I didn't have enough cash to come to closing. I needed to get a loan for one hundred and seventeen thousand dollars. And I had that loan for a year or two, making like $1,100 payments for a year, interest only, until I came up with enough cash to pay that off. So I lost, you know, over $225 or something like that overall. Investing is easy though. Everyone should do it. Buy and make money. Yeah. But fortunately, I'm in real estate and I was able to fix the problem. over time it was just very painful. Like it's like, it's not fun losing that kind of money and doing all the work. ⁓ yeah. Yeah. The, having partners that just got to walk away. But it sounds like there, there are opportunities out there, at least one that you found where a manufactured home ⁓ right now is, the way that it's registered with the County is it's a vehicle parked on land. Yeah. It's got everything that it needs to be affixed to the property and become real property. by doing that, it's well, it already was just nobody finished the process and, the owner at the time didn't really know it didn't care. And, ⁓ and that, and then she just got ripped off by the wholesaler that brought the deal. ⁓ I mean, but she was fine with it. I think she bought it for less, obviously. long time ago, but that's how you get these deals. You rip off sellers. ⁓ That's all of real estate, isn't it? And that's the hard part about when you say, they should just go be wholesalers, these new people. Are you prepared to just go rip people off? I'm just joking. No, no, no, I'm joking. I'm exaggerating. No, Wholesaling is wholesome and we're only helping people in distress with no other option. And that is true sometimes. ⁓ But most of the time people are just getting ripped off and that's just the way it is. Right? I'm not making any friends right now. I know, but that's just the way it is. And they understand they're getting ripped off. It's just like when you go to a car dealer and you're trading in your car. They have to rip you off to make money. Otherwise, they're just going to break even and they're going to shut their car dealership down. ⁓ you have to buy at a discount and the seller has to understand. Sometimes they don't know though. They don't know how badly they're getting squeezed or how much more that they could make if they just like try it a little bit harder. But it is true. A lot of these people, it's just like a, if you're wholesaling your house, you just don't care about it as much as like when people like have an old car. and they go to a dealership and they know they're selling at a huge discount and they know they can probably make a lot more if they just cleaned it up and put it on Craigslist. They just don't want deal with it. There are all those people out there and they sell to wholesalers. So I don't know if it's unethical. Sometimes it can be. I think most of the time it's not. because I think most of the time they do understand they're selling at a discount and they're in a distress situation and they know there's dog shit everywhere in their house and it's just not, they're not going to do anything about it. But ⁓ sometimes sellers are just getting ripped off. And that's where I step in to buy it later. I just can't do that initial ripping somebody off. I just wouldn't be able to sleep with myself. So that's why I'm not a wholesaler. Fair enough. Yeah. Hot take. Yeah. ⁓ that's good. sounds like, do you feel about that? Whole ceiling. Just what I said in general, is that, is that a little too brutal? No, I think, I mean, like anything, there's going to be good and mad people who are looking to help people and looking to exploit people. And in that case, there's, there's the line is somewhere and, ⁓ you know, do I have the right if If my parents die in another state and I don't want to deal, it's too ⁓ emotionally traumatic or I don't want to deal with it. Can I sell it to a, can I knowingly sell it to a wholesaler at 70 % or 60 % of the ARV because I don't want to deal with it anymore. Like, yeah, I should have the right to do that. Yeah, of course. But, you know, that would, that would be, ⁓ I wouldn't take moral issue with that. But then obviously there's circumstances where people come in or they're a smooth talker and they talk somebody, um, somebody who's in a distress situations looking for help and they talk them into wholesaling their property when there are other avenues that they could have taken to not lose their house or lose the equity in their house, et cetera. But again, I will say I don't, because I don't want to, um, distort reality here. Most of the, The properties I buy is fix and flips from wholesalers. It was probably that seller's best, best opportunity at that time to just deal with that because they weren't going to do anything on their own. Sure. There are just those kind of people that just are not going to do what it takes to sell a house and they're just going to click the easy button. So you do kind of need, I don't know if you need wholesalers, but because flippers can do this too, they can go buy a discounts too. But it does, it does make the whole process a little bit easier, but there are instances where it's just like, gosh, that sucks. Like there's this guy that a bunch of people here in the investor group follow that's like shows that he's like out of Boise and Phoenix, like Char. I think his name is like Char Taring or something like that. I forgot his last name, but his his business model is to rip people off. Not even like in this just happened. If you talk to Corey Trent. He just he just bought a property and the seller had to pay off a wholesaler because his business model is to target people motive potential motivated sellers or people that might get foreclosed on soon and Just sweet talk him into just get him under contract at whatever price and then record that contract with the local county ⁓ And then abandon and then just completely ⁓ Wait until it's too late and just you know, they wait until somebody else is trying to buy it and then they have to get paid off to release that lien or what they recorded against the property. So this guy had to, he had, got a $30,000 fee and he's just conning people legally. ⁓ he's like an influencer. He's a real estate influencer that people like a lot of people in our community follow him. And he's done, and no, get this, hold on one more thing. One more layer to this. The title person, Somebody in that sphere that knows about this person said yeah, he's got like 50 of these around the country right now ⁓ This is what he does I Mean he talks about like flipping he buys houses and flips houses, too But his main his main strategy is just ripping people off conning people into paying them cancellation fees So he he intentionally locks up a deal at some price that he has no intent of actually Purchasing it. Yes, and then waits for another wholesaler to come Wholesaler or investor to come and want to buy it and then takes an assignment fee in the middle No, he will force the seller to give him money at closing To be willing to release the lien Otherwise the seller has to sue him to release that ⁓ Contract that they recorded against the property, which sellers just don't, especially if they're in that situation, they don't have the time to deal with it legally. They have to pay them off something because otherwise it will just go to foreclosure. That's why he's waiting. Yeah Yeah The American dream yeah, this guy's an influencer that people in our sphere follow and He he's he's like a terrorist Like somebody that should be doing this, know from overseas like in Russia or like, you know, Nicaragua or whatever that place is called Nigeria is where all the scams come. But this guy's like local and he's doing this around the country, just scamming sellers at a high level, just agreeing to whatever purchase price that they want, you know, just to get it under contract and then paying somebody on TaskRabbit to go record that contract with the county. And then they have to deal with that in order to close on their house. And that's his tactic. And he's such an asshole about it, too. But on Facebook, he's a lovely person. Yeah. Well, yeah, that's typically how it goes. It's just, it's just interesting. Also, I think wholesaling is going to become illegal from people like that. Well, yeah, that's, people's best interests in mind. Yeah. Yeah. No aligned interests there. It's just people just trying to take. Yeah. Yeah. Well, what else, dude? I don't know, man. I, let's see. How are we doing on time here? ⁓ it's been an hour. You got it. Well, that's all I got. I just wanted to talk to you. It's been a while. Is your third time on, I think. Yeah, you're welcome. Thank you. Appreciate it. You've been a great cohost. Yeah. We miss you, Jeremy. I doubt Jeremy got this far. He's nobody listens as far now. You should see the statistics. It's bad. Yeah, a few. All right. Well, thanks for listening, everybody. Thank you, Brett, for being here. Sorry, we went down a dark turn here and there and talked about the war and ⁓ scammy wholesalers when we just wanted to talk about your business. Shout out. What's your business name again? You your own King mortgage kingdom, kingdom mortgage. And this is your own brokerage, right? Yes. Tell us. What was it like starting that? ⁓ It was easier than I thought and I was also harder than I thought ⁓ Being a broker like the the beauty of the brokers I work with a bunch of lenders Yeah, so I'd already figured out who I want to work with the lenders I want to work with I'd gotten all that in place and so the the transition was super smooth But then there's just like the practical stuff of running your own brokerage. For example, I didn't know Don't judge me. I didn't know that your brokerage has to be separately licensed to originate VA loans. Okay. No idea until I ran in three weeks in trying to do a VA loan for like, you're not licensed. I'm like, what are you talking about? I am licensed. ⁓ thankfully that was right in the middle of that 30 day government shutdown. ⁓ okay. It took me, took me about six weeks to get a license with the VA. Thankfully as in you're sarcastic about things. Yeah, that was super for me. had to ⁓ pass my client off to another trusted ⁓ lender. ⁓ they took great care of him. that lender ⁓ appreciated it. Yeah. When you have to do something like that, do you usually get a little taste still? No, that would be illegal. Really? Yeah. You can't refer loans and make... How come real estate agents can do it? Because they don't mind committing crimes. It's true. Let's end with that. RESPA violation, which you probably haven't heard since you got licensed 15 years ago. I've heard of RESPA. ⁓ OK. Well, we're not supposed to pay anything of value for referrals. OK. And so ⁓ agents who are getting paid typically are in the gray area of becoming some sort of employee. of the lender and so ⁓ they're not acting, they're acting in like a dual capacity in that sense and so they're getting some sort of cut as an employee of the lender, not as a referral fee for sending a client. ⁓ So it's a gray area. I'm completely okay with some gray areas, that's not what I'm gonna dabble in. ⁓ Real quick before you go, what kind of loans can you do? Everything long term. So I don't do hard money. I don't fix and flip. You know, none of that, but anything ⁓ people want to have a loan for basically a year longer. Okay. And qualification wise, we do everything from the normal stuff that everyday people use to ⁓ bank statements, P and L loans, DSCR loans, where we look at just the performance of the property, not your income. So what you mean by that, like if you are self-employed and you make dog shit on your taxes, but you actually do bring in money into your bank account, you can use it. If that person has okay credit, you can still probably get them a house. Yeah. Credit credits always going to be important for long-term investing, institutional investing. But income, we can document a lot of different ways. Bank statements, the most common last 12 months of business or personal bank statements. Look at the deposits. That's your income. Okay. ⁓ but some circumstances you might do something different, like a P and L. ⁓ I've done like a couple of home builders who they're custom home builders. I only have two deposits in the last year. They were for 600 grand a piece. Well, that creates like a real consistency and reliability issue. But if we just look at your P and L that's signed by your CPA, that tells us everything we need to know for your income. And so there's a bunch of different ways to calculate income that don't look at W two's pay stubs. tax returns, et cetera. Yeah. Right on. Anything else you want to say before we go? I don't think so. Okay. Well, thank you everybody. We'll see you next week. Have a great day. Bye. think so.