Latest / The Elite Real Estate Podcast / Capital Changes Everything: Danté Shackelford on Building EMx Lending & Scaling Real Estate Deals

Transcript

Capital Changes Everything: Danté Shackelford on Building EMx Lending & Scaling Real Estate Deals · The Elite Real Estate Podcast

• 0:10
  SPEAKER_01: Good morning, good morning, good morning, everybody.
• 0:12
  SPEAKER_01: Welcome into the Elite Real Estate Podcast, where we have great discussions every Friday morning.
• 0:17
  SPEAKER_01: Uh, super excited to be here.
• 0:19
  SPEAKER_01: Brought to you in part by Royal Oath Insurance in Clinton Township, Michigan, and obviously Connection, uh, which is well, too.
• 0:24
  SPEAKER_01: So get your CRM right of connection and go from there.
• 0:27
  SPEAKER_01: So I am very excited to have my guest in today.
• 0:31
  SPEAKER_01: Uh, we've been doing some talking and trying to figure out how to get him on here for a while now, but now I'm very excited to bring him out.
• 0:37
  SPEAKER_01: I'm glad you guys are here.
• 0:39
  SPEAKER_01: And uh, Mr.
• 0:39
  SPEAKER_01: Dante Sheckford, how are you, my friend?
• 0:42
  SPEAKER_00: Man, I am better than yesterday, building for tomorrow, man.
• 0:45
  SPEAKER_00: I'm I'm locked in, happy to be here.
• 0:47
  SPEAKER_01: Oh man, I love that better than yesterday, building for tomorrow.
• 0:50
  SPEAKER_00: That's right.
• 0:51
  SPEAKER_00: That's right.
• 0:52
  SPEAKER_00: That's the motto.
• 0:53
  SPEAKER_01: I love that.
• 0:53
  SPEAKER_01: I love that, and you know, it's one of those things I have always tried to figure out, like, and and one of these days I'm gonna pull it off, but I've always talked about like having some sort of swag for the show, right?
• 1:03
  SPEAKER_01: Like a t-shirts and whatever else.
• 1:04
  SPEAKER_01: So I try to remember these the when people say stuff like that.
• 1:07
  SPEAKER_01: So better than yesterday, building for tomorrow would be great on a t-shirt, right?
• 1:11
  SPEAKER_00: I think so.
• 1:12
  SPEAKER_00: You can steal it, man.
• 1:14
  SPEAKER_01: Yeah, I'll loan it up, yeah.
• 1:17
  SPEAKER_01: Some way I could do some t-shirts or some swag or something like that, that'll be perfect.
• 1:21
  SPEAKER_00: Hey, shoot me a t-shirt, and then you know, that'll that'll be the compensation.
• 1:26
  SPEAKER_01: Perfect.
• 1:28
  SPEAKER_01: All the millions that I'll make off the t-shirts.
• 1:31
  SPEAKER_01: Right, right.
• 1:33
  SPEAKER_01: Oh man, so I you know what I want I want people to understand.
• 1:37
  SPEAKER_01: So so you and I have done business before, um, and and went pr and went swimmingly.
• 1:42
  SPEAKER_01: I gotta do it again, right?
• 1:43
  SPEAKER_00: I gotta yeah, you you did pretty good on that one, yeah, yeah.
• 1:49
  SPEAKER_01: We did pretty good on that one.
• 1:50
  SPEAKER_01: So I uh but I I I had you we we did business, but I explain to people what it is that you do, um, because it's not it's not always um one of the it's not always easy to explain, but I but it but then when you think about it, it is easy.
• 2:06
  SPEAKER_00: Yeah, I mean it's it's easy.
• 2:08
  SPEAKER_00: I think I, you know, maybe I possibly uh uh uh complicated just because the business model was a touch different, but in in a nutshell, I help uh uh property uh purchasers become you know true professional investors, and so we have an advisory uh firm and and that's based on a lending platform, right?
• 2:30
  SPEAKER_00: So so we we specialize in financing investment property, more specifically, residential one to four unit properties, primarily.
• 2:41
  SPEAKER_01: Okay, yeah, and it again, you make it sound very easy.
• 2:46
  SPEAKER_00: You know, I I I I try.
• 2:48
  SPEAKER_00: It's it's uh, you know, it's it's not always easy to explain, but it's easier to demonstrate.
• 2:55
  SPEAKER_01: Right, right.
• 2:56
  SPEAKER_01: Yeah, so I uh I will I will say this.
• 3:00
  SPEAKER_01: I'm I we're having some technical difficulties on the back end because you know, that's how we that's how we roll.
• 3:05
  SPEAKER_01: Um but uh I I will see this.
• 3:11
  SPEAKER_01: Um I'll see if I get that through.
• 3:14
  SPEAKER_01: So as we're going through this, um so you you're you're hard money lenders, right?
• 3:18
  SPEAKER_01: Like everybody here hears that term, they're like, oh, it's a hard money lender, which technically it is, right?
• 3:23
  SPEAKER_01: Like it's not to overcomplicate it, but it is.
• 3:27
  SPEAKER_01: But you know, you've been doing this for a minute, a hot minute.
• 3:29
  SPEAKER_01: How long have you been in the business?
• 3:32
  SPEAKER_00: Uh that's hey, that's a loaded question.
• 3:34
  SPEAKER_00: Um, the way that it stands currently, I uh five years, right?
• 3:40
  SPEAKER_00: Um, the first year and a half or so, uh, the the company was actually founded to be more of a boutique investment bank um for lower middle market companies, and then I transitioned into what we currently are.
• 3:54
  SPEAKER_00: Um, but just kind of some of my background.
• 3:58
  SPEAKER_00: So my first real job back in 03 was as a mortgage broker, and so back then I was a you know more of a traditional uh mortgage loan officer, subprime, FHA, that sort of thing.
• 4:13
  SPEAKER_01: Right, right.
• 4:15
  SPEAKER_01: And and so just then it was like, all right, we found this whole other aspect of of the business.
• 4:22
  SPEAKER_00: Yeah, yeah.
• 4:23
  SPEAKER_00: Well, the the way the way it worked out for me, um, this was this is very unintentional, right?
• 4:30
  SPEAKER_00: So I I I mentioned that I started in 03.
• 4:33
  SPEAKER_00: This was the um the golden era, if you will, between 03 and 06, the market is hot.
• 4:39
  SPEAKER_00: Um, anyone with the pulse can get a loan, anyone with the pulse can write a loan as a loan officer because the the market was so hot.
• 4:47
  SPEAKER_00: By 07, this is when things start to crack in the financial system and in what is now known as the credit crisis.
• 4:55
  SPEAKER_00: Um, so I'd say around 07-08, we were already, you know, dealing with lender fallout, the markets are beginning to, you know, tighten up, underwriting guidelines were uh it was just it was impossible almost to get a deal done.
• 5:14
  SPEAKER_00: You know, we'd have loans in in our pipeline that that couldn't get funded for six months at this point.
• 5:20
  SPEAKER_00: Um, we began, my brother and I, we we began to uh uh kind of pivot to investing in properties because asset prices were were on discount, right?
• 5:32
  SPEAKER_00: And and we couldn't really we couldn't really originate loans anymore.
• 5:36
  SPEAKER_00: Um so between oh seven and I'd say about uh 20, 2010, 2011, uh that's more or less what I focused on was you know buying properties and and and we would we would hold them.
• 5:52
  SPEAKER_00: Um that wasn't a good market to do any fix and flips or anything like that.
• 5:56
  SPEAKER_00: Um and then I transitioned uh to wealth management.
• 6:00
  SPEAKER_00: I I joined Merrill Lynch um as a financial advisor and and specialized in in working with entrepreneurs for the most part and helping them with their secession planning and retirement planning and and really getting an education on the broader capital markets.
• 6:17
  SPEAKER_00: Um I had no intention of of going back to the mortgage side, the like the residential mortgage side of the business, just because of you know the the nightmare that that came from you know being involved knee deep in the credit crisis.
• 6:34
  SPEAKER_02: Right.
• 6:35
  SPEAKER_00: Um and then so you know I transitioned from that to uh doing some strategy consulting for early stage companies as well as uh working at a small MA shop, um, you know, helping helping investors identify acquisition targets and underwriting those acquisition targets, maybe helping them position themselves to sell.
• 6:59
  SPEAKER_00: And and I'm referring to private companies of all types.
• 7:03
  SPEAKER_00: And um I had in 2019, I started the company kind of with that as the you know, as as the basis of the company had financing background, I never really stopped funding deals, um, always had relationships with capital sources, so I did that the entire time.
• 7:23
  SPEAKER_00: Some of it was business related, um, some of it was real estate uh related.
• 7:28
  SPEAKER_00: You know, I um worked on larger deals and CMBS deals and stuff like that, you know, during that period.
• 7:35
  SPEAKER_00: And so when I started my company in 2019, it was called Financing Growth, and uh the I'd say about a year in, I had a client who uh we were working on a uh franchise, uh I think he was acquiring a uh Cold Stone Creamery.
• 7:53
  SPEAKER_00: And while we were working on that, he he asked if if I wouldn't mind helping him out with the duplex.
• 8:00
  SPEAKER_00: And the only reason I said yes was because uh he was my client, and you know, why not?
• 8:06
  SPEAKER_00: I wasn't you know super busy at the time, right?
• 8:09
  SPEAKER_00: And so so I did it, and uh I I just kind of you know I I was meeting with a friend of mine, and I just threw that out there as you know as we were catching up, and he was a commercial banker, and and and he kind of leaned forward and he said, You can do that, you can you can finance residential properties.
• 8:30
  SPEAKER_00: I was like, Yeah, I can, you know, I can.
• 8:32
  SPEAKER_00: You got somebody you need me to talk to?
• 8:34
  SPEAKER_00: He's like, Well, yeah, because we don't really want to touch those deals because they're you know, they're they're small, they're hard to get done, right?
• 8:43
  SPEAKER_00: And right for a commercial bank, they're not really gonna make they're gonna make just as you know, they're gonna they're gonna do better with those efforts, right?
• 8:52
  SPEAKER_00: On larger transactions, it's just that's just how it is.
• 8:56
  SPEAKER_00: And so uh I said sure, I thought nothing of it.
• 9:00
  SPEAKER_00: He he shared my number with a couple people, and my phone wouldn't stop ringing.
• 9:06
  SPEAKER_00: And after a month or so of my phone not ringing, I had to sit back and go back to the drawing board and say, you know what, I might my blessing, my path might be where I said I would I would never return to.
• 9:21
  SPEAKER_00: And I had to convince myself though, and and so I said, look, I've spent all this time learning all this stuff, really getting deep into, you know, really understanding investment analysis and capital markets and all this stuff.
• 9:35
  SPEAKER_00: I'm I'm no longer a quote-unquote loan officer.
• 9:40
  SPEAKER_00: Does this make sense?
• 9:41
  SPEAKER_00: And I just looked at every stop along the way from you know being a mortgage broker in 03 to the business consulting, working with you know, entrepreneurs, and I said, you know what?
• 9:52
  SPEAKER_00: I think I found a space.
• 9:54
  SPEAKER_00: Yeah, residential real estate investors do not get that sort of attention, larger investors do.
• 10:01
  SPEAKER_00: There's there's a ton of large advisory firms and and and brokerages that you know really lay it out for developers and larger scale uh investors, but for residential, um, usually you're just dealing with hard money loan officers who couldn't tell you, you know, what net operating income is and and can't help you calculate ROI, can't build out performa for you, and they can't really give you that advisory side of things.
• 10:30
  SPEAKER_00: And so that was the that was the you know, that was the the the moment I said I think I got something.
• 10:36
  SPEAKER_01: Yeah, no, and you do, man.
• 10:38
  SPEAKER_01: It's it's a it's a business that's needed, and and I and more people need to understand it.
• 10:42
  SPEAKER_01: But it's like in your perspective and working with investors uh you know on a daily basis, where do most people get it wrong when it comes to capital?
• 10:50
  SPEAKER_01: Right?
• 10:51
  SPEAKER_01: Is it the access to it, structure mindset?
• 10:53
  SPEAKER_01: Like, what are they missing when it comes to to capital?
• 10:56
  SPEAKER_00: In my opinion, the the the thing that they miss most is where they place their attention.
• 11:02
  SPEAKER_00: The attention is on you know, sourcing the capital, figuring out hey, who who's going to give me the highest leverage and best terms.
• 11:13
  SPEAKER_00: And in my experience, in my experience is expansive, right?
• 11:17
  SPEAKER_00: It goes way back to you know the credit crisis of O3.
• 11:22
  SPEAKER_00: Yeah, what the the biggest weakness is the focus, in my opinion, needs to be on the deal.
• 11:30
  SPEAKER_00: And so if you could see in my office everywhere, it says build around the deal, build around the deal.
• 11:36
  SPEAKER_00: So my business, I build around the deal, you know, any any services, any any books I put together or or any you know tools or whatever I'm doing has to has to relate to the deal itself.
• 11:48
  SPEAKER_00: And so I would say underwriting, not loan underwriting, I mean investment underwriting, being able to determine what the strategy is and and and and and basically predict um how that how that transaction is going to perform over the long term.
• 12:09
  SPEAKER_00: Um, I think that's the biggest weakness, and and it's got a bunch of implications.
• 12:13
  SPEAKER_00: For me to give you an example, let's say you find a property and um you want to do a Burr method, you want to buy it, rehab it, uh rent it out and refinance it.
• 12:25
  SPEAKER_00: And you call up a hard money lender, get your terms, that's your acquisition, that's your bridge loan.
• 12:32
  SPEAKER_00: But you don't really take the next step of you know modeling out how the cash how how how the property is going to cash flow into the future, and and once you do your your your refinance, there's a lot of situations where you may not even qualify for a refinance, you know, it because does it is it going to meet debt service for one?
• 12:57
  SPEAKER_01: Right.
• 12:57
  SPEAKER_00: Um, if it does meet debt service, because just because a a lender gives you an approval doesn't mean it's a deal that you ought to move on.
• 13:05
  SPEAKER_00: For me, I can give you an approval at 1.1 1.05 debt service, but if I show you the annual free cash flow, it'll be negative, should you do the deal.
• 13:18
  SPEAKER_00: And so I think people chase you know loan approvals, and they don't they don't chase in my opinion.
• 13:27
  SPEAKER_00: This is their job, their job is to identify properties, underwrite those properties, have their investment thesis, and then go to you know a capital partner, a debt partner, a lender, and say, Hey, I got this great deal.
• 13:43
  SPEAKER_00: This is gonna be a good deal for both of us.
• 13:45
  SPEAKER_00: So the lender and the investor, they're really on the same side of the table.
• 13:50
  SPEAKER_00: They see a deal, they underwrite the deal, they measure the risk of the deal, and the debt investor, he's you know, he's gonna he's gonna make his via interest and in points and fees, and and the in the investor that he's gonna make his, you know, via equity participation, and um he's taking the majority of the risk, and that's how it should be.
• 14:14
  SPEAKER_00: Um, I think a lot of people miss that.
• 14:17
  SPEAKER_01: Yeah, I and I think that's one of the I think that's one of the bonuses of people that work with someone like you, right?
• 14:22
  SPEAKER_01: And you specifically, is is does it does it make sense, right?
• 14:26
  SPEAKER_01: Does the deal make if it doesn't make sense for anybody, what's the point in doing it?
• 14:30
  SPEAKER_01: Um it's not you can you don't you don't do this just to say oh I did it, right?
• 14:34
  SPEAKER_01: It's got you gotta you do it to make to make it make sense, and I think that's one of the things, and and I you know you talked about a performer and all the things that so what what I want people to understand is when they work with you, uh and they work with EMX and your company, how easily it's spelled out, right?
• 14:51
  SPEAKER_01: How easily it is done because and the the there's there's rules to it, so like the rules are here's the here's the system, here's how it works, just follow the steps, and so well and so easy.
• 15:05
  SPEAKER_01: I think that's what makes it so easy to work with you.
• 15:07
  SPEAKER_00: I I appreciate that, man.
• 15:09
  SPEAKER_00: And you know, I I don't in working with me, I I'll give you know people different paths, right?
• 15:16
  SPEAKER_00: If they really want to tap into my mind and understand the this stuff the way that I do, then I've put together a university form, I'll provide them with materials.
• 15:25
  SPEAKER_00: But if that's not their thing, I'm perfectly fine acting as the, you know, I say that I'm in the finance department, right?
• 15:33
  SPEAKER_00: So, you know, I help underwrite the investment merits of the deal every time you send over a deal.
• 15:40
  SPEAKER_00: And if it looks good, hey, I'm just giving you the loan terms, I'm telling you, hey, it looks good, the inventory levels are fine.
• 15:46
  SPEAKER_00: Here's the projected IR, you know, ROI and all that stuff.
• 15:49
  SPEAKER_00: And they don't have to get too deep into the weeds unless they want to.
• 15:53
  SPEAKER_00: Um, but I always measure everything out on every single deal and just you know, kind of act as that that uh line of defense for them.
• 16:03
  SPEAKER_01: Yeah, yeah, and it's it's an amazing product and it's an amazing thing in what you're doing because you do have the financial background, right?
• 16:10
  SPEAKER_01: To go along with the with the loan background, right?
• 16:13
  SPEAKER_01: The mortgage background with the financial background makes complete sense, makes complete and total sense.
• 16:18
  SPEAKER_01: And you guys are doing a fantastic job with it.
• 16:22
  SPEAKER_00: I appreciate that, man.
• 16:23
  SPEAKER_01: Yeah, yeah.
• 16:24
  SPEAKER_01: And so on that on that same point, when a deal comes across your desk, like when somebody hits you with a deal, what makes you say like this is a yes, like this is the deal?
• 17:19
  SPEAKER_00: Oh man, um nowadays it usually doesn't take me long to underwrite a deal, uh, especially if it's a market that I'm familiar with.
• 17:29
  SPEAKER_00: You know, the the the underwriting guidelines for you know the private lending industry right now, they're they're pretty standard, right?
• 17:40
  SPEAKER_00: So, you know, uh if if let's say it's um let's say it's uh two-unit long-term hold, right?
• 17:50
  SPEAKER_00: Um, no, no rehab needed.
• 17:53
  SPEAKER_00: That's gonna be based primarily on um uh credit score for you know for approval.
• 18:00
  SPEAKER_00: So we're looking at credit score, we're looking at DSER.
• 18:03
  SPEAKER_00: This is just from the loan perspective, right?
• 18:06
  SPEAKER_00: So I'm gonna ask you, hey, you know, what's you know, uh, do you have a credit score over 680?
• 18:12
  SPEAKER_00: Usually over 680 will be strong enough.
• 18:16
  SPEAKER_00: Um, and then I'm looking at the market rents or or or in-place rents, and just doing the math to make sure there's enough, there's enough there to cover the mortgage, right?
• 18:28
  SPEAKER_00: That's basically what the debt service coverage ratio is.
• 18:32
  SPEAKER_00: But above and beyond that, um, you know, I usually try to find out a little bit more about what's what's the goal?
• 18:41
  SPEAKER_00: Like, are are you investing for capital appreciation?
• 18:44
  SPEAKER_00: You know, are you just what attracts you to real estate?
• 18:48
  SPEAKER_00: Is it that it's gonna that the value of the property is gonna be much higher in five to ten years?
• 18:54
  SPEAKER_00: Do you plan on selling it in the next five to ten years?
• 18:58
  SPEAKER_00: Um, are you investing for income?
• 19:01
  SPEAKER_00: You know, so if if so, then I know to critique the annual cash flow a little bit more.
• 19:07
  SPEAKER_00: Whereas if it's annual, if it's capital appreciation, I know to critique the uh projected year-over-year um appreciation uh uh uh a little bit more.
• 19:19
  SPEAKER_00: And so that you know, those things are kind of what I focus on on in the background, but I can underwrite a file and give you terms in like 10 minutes.
• 19:32
  SPEAKER_01: Yeah, yeah, yeah.
• 19:34
  SPEAKER_01: I mean it's it's crazy like technology again.
• 19:36
  SPEAKER_01: We talked about that briefly before we jumped on here, but um, but but now the uh opposite of that question, what makes you look at a deal and go, like, no, this ain't happening.
• 19:48
  SPEAKER_01: Or is there a red flag that right?
• 19:50
  SPEAKER_00: If if it if it doesn't match the strategy, that would be you know the simplest way, right?
• 19:57
  SPEAKER_00: Um, I would say if it's if it's a five five-year hold, right, and it's a it's a rental, if if the IRR is under like 25-20, in my personal opinion, you could you could invest in a bunch of other um real estate, you know, uh uh products as a passive investor, as you know, in a REIT or invest with you know in a securitized uh fund um and and get a return of 19.
• 20:33
  SPEAKER_00: So why would you why would you get the same return and you're doing all this work?
• 20:38
  SPEAKER_00: Right?
• 20:38
  SPEAKER_00: So it I I look there, I look at returns.
• 20:41
  SPEAKER_00: Um if it's a fix and flip, which is pretty popular in in in in this arena, I'd say if the roi is under 50, it it needs to be really vanilla.
• 20:55
  SPEAKER_00: Now, again, your lender is not that's not a lending requirement, you know, across the board.
• 21:01
  SPEAKER_00: I I don't care if it's Kiavi or who whomever, we just as a lender, we just want to see that you know there's about 30 roi.
• 21:11
  SPEAKER_00: In most cases, if you really look at a deal, you look at the net, you know, the net income after you pull all the expenses out, all the transaction fees, the property taxes, insurance, selling costs, and everything like that.
• 21:24
  SPEAKER_00: If you're only doing 40 on a flip, and and it it's it's it's usually too much execution risk to take that little of a of a return.
• 21:38
  SPEAKER_01: Yeah, but again, that's where you come in as a pro and and guide people through that, you know what I mean?
• 21:44
  SPEAKER_01: Exactly.
• 21:45
  SPEAKER_01: Yeah, yeah.
• 21:46
  SPEAKER_00: And I know you know it's it may sound long-winded and and and really uh uh you know layered as I'm explaining it, but I take you know, when I bring in when I'm looking at a deal and I'm underwriting a deal, that's like all tied into the process.
• 22:03
  SPEAKER_00: So I'm usually telling, I'm walking you through this stuff while we're over the phone, right?
• 22:08
  SPEAKER_00: And it's real quick.
• 22:09
  SPEAKER_00: I can see everything.
• 22:11
  SPEAKER_01: Yeah, yeah, that's the key, right?
• 22:13
  SPEAKER_01: Again, is is knowing again, but then that knowledge you've built over the years of being able to do that, right?
• 22:18
  SPEAKER_01: Now you can look at it, it probably takes you a quarter of the time it used to take it, right?
• 22:23
  SPEAKER_01: To figure that out pretty quick.
• 22:25
  SPEAKER_00: For sure.
• 22:25
  SPEAKER_00: Yeah, for sure, for sure.
• 22:27
  SPEAKER_00: So there's a there's a bunch of stuff, man.
• 22:30
  SPEAKER_00: Um, you know, uh, I usually look at public records first, you know, I get an idea of who the seller is.
• 22:37
  SPEAKER_00: Um I'm looking at inventory levels.
• 22:40
  SPEAKER_00: Inventory levels are uh one of my first, you know.
• 22:44
  SPEAKER_00: Uh first points of attention as well.
• 22:46
  SPEAKER_01: Yeah, and it's interesting, right?
• 22:48
  SPEAKER_01: I think that's that's a very key point of knowing again, you know the market.
• 22:53
  SPEAKER_01: Now you're looking at inventory levels.
• 22:55
  SPEAKER_01: Like if inventory levels are high, it's probably not a good investment, right?
• 23:00
  SPEAKER_00: Depending on the strategy, right?
• 23:02
  SPEAKER_00: And that's why I started there.
• 23:03
  SPEAKER_00: I said, Well, I it does it match with the strategy.
• 23:06
  SPEAKER_00: It let me give you an example.
• 23:08
  SPEAKER_00: So if the strategy is a fix and flip, and you tell me, um you think you can get it done in three months, I'm gonna check that immediately.
• 23:20
  SPEAKER_00: I'm gonna check your assumption immediately.
• 23:23
  SPEAKER_00: And and the first step is I'm gonna see if if there's two things that have to happen, right?
• 23:29
  SPEAKER_00: If what you said was true and you can get this sold in three months, that means that you're getting the construction period done in about four weeks or something like that.
• 23:39
  SPEAKER_00: And when I look at the inventory levels, the inventory levels need to be practically nothing.
• 23:46
  SPEAKER_00: And so, and there's a lot of market activity.
• 23:48
  SPEAKER_00: In other words, as soon as you put it on the market, it's going to be gobbled up.
• 23:52
  SPEAKER_00: Yep.
• 23:53
  SPEAKER_00: And I should be able to see it in the data.
• 23:55
  SPEAKER_00: So when I look and I see, well, eh, you're not at, you know, you know, six months or equilibrium, but you're you're you're at like three and a half, four.
• 24:05
  SPEAKER_00: You you might want to stretch out our you know, performer, our projections here to six months, because that's gonna have an impact on your returns.
• 24:14
  SPEAKER_00: And so I'll you know, I'll have that conversation, but that's like one of the first areas I'm gonna go if it's a fix and flip.
• 24:22
  SPEAKER_00: Now, what if it's a long-term hole?
• 24:24
  SPEAKER_00: You find a two-unit, and I say, Jimmy, you know, how long are you gonna hold this?
• 24:29
  SPEAKER_00: You say, I don't know, I'll probably give it to my kids.
• 24:31
  SPEAKER_00: Then inventory levels right now won't be as impactful because your exit isn't coming up in the near future, right?
• 24:40
  SPEAKER_00: Right.
• 24:40
  SPEAKER_00: And so then I'm I'm redirecting my focus to to hey Jimmy, do you want this deal?
• 24:46
  SPEAKER_00: Is it is it income, is it annual income, or do you have a hunch that it's going to appreciate really strong over the next 10 years?
• 24:54
  SPEAKER_00: Right, and you'll tell me, and you might say, uh, probably a blend of both.
• 24:58
  SPEAKER_00: I'll you know, I want the best of both worlds, and we'll have that conversation.
• 25:01
  SPEAKER_01: Yeah, no, it's it's so it's so true.
• 25:05
  SPEAKER_01: Like, you know, when when we did our flip, it was from the day we from the day we closed buying it to the day we accepted the offer was 89 days.
• 25:15
  SPEAKER_01: Yeah, yeah, yeah.
• 25:17
  SPEAKER_01: It worked out for you.
• 25:19
  SPEAKER_00: Yeah, and and and the i I went back and I looked, we uh we we were right on with the with the uh the my my pro forma as well.
• 25:29
  SPEAKER_00: So I think we we estimated like five months, four to five months, and I think you beat it by a little bit, yeah, yeah.
• 25:37
  SPEAKER_01: No, that's and that we did estimate that because there was a we had to do a lot of construction on it because we had to do a foundation repair and some other stuff, so it was a lot, yeah.
• 25:45
  SPEAKER_00: That was that was the uh I remember it.
• 25:48
  SPEAKER_00: That that was the the the the the the part that we weren't as sure of, but you know Ben Graham said that you know investing is is really the function of measuring risk, right?
• 26:05
  SPEAKER_00: And that's that's that's that's what your return is based on, and so we don't have a crystal ball, um, just like your foundation.
• 26:14
  SPEAKER_00: We both understood this could go one way or this could go another way, and the reason that you were able to solve for it is why you were able to make the money that you did and it worked out, yeah, yeah, for sure, for sure.
• 26:26
  SPEAKER_01: And you know, right now, like there's there are a lot of agents, and I talk to agents all the time that want to get into investing, right?
• 26:32
  SPEAKER_01: They they're they hear about it, we hear about it all the time.
• 26:35
  SPEAKER_01: You know, you watch HGTV and you see, you know, the the fix and flip guys, and everybody's a and a lot of real estate agents want to get into it, um, but they don't know really where to start, they don't know where to get to, and all that stuff.
• 26:46
  SPEAKER_01: So, what's the first like shift that an agent would need um to figure out how to make a uh mentally or strategically, or either or both, to get into this investing piece?
• 26:58
  SPEAKER_00: So agents have a huge opportunity for them, and and I've been I've been preaching this for five years.
• 27:04
  SPEAKER_00: Um there are very few agents who on the on the residential side who understand um just I would say the basics of real estate investment in net income, right?
• 27:22
  SPEAKER_00: Net net operating income NOI.
• 27:25
  SPEAKER_00: You should be able to define that.
• 27:28
  SPEAKER_00: Um, you should understand ROI, you should understand some of these basic you know measurements so that your clients in this space, they're not buying because you know the property looks a certain way.
• 27:43
  SPEAKER_00: They're they're they're buying from an economic standpoint, and so my advice to agents would be freshen up on that stuff a little bit.
• 27:53
  SPEAKER_00: It it will set you apart.
• 27:56
  SPEAKER_00: It will set you apart.
• 27:58
  SPEAKER_00: There's very few residential agents who could, you know, kind of have that conversation, and so I would even say kind of you know, act in the same capacity that I do, where oftentimes, you know, that's my job with with clients who may have a lot of experience, but they haven't really mastered that stuff either.
• 28:23
  SPEAKER_00: And so they need us as advisors to be able to quickly run the numbers and always just view these transactions from the economic standpoint.
• 28:33
  SPEAKER_00: Um, I'll give you an example.
• 28:35
  SPEAKER_00: So with valuation, there's a value to the market, and this is this is specific to residential because there's two universes of value for residential.
• 28:48
  SPEAKER_00: Yeah, you have a value, the the the value that we usually are referring to with these appraisals, um, and and in the sales prices, that universe is is predominantly for homeowners.
• 29:03
  SPEAKER_00: Well, homeowners value those properties for certain reasons, right?
• 29:08
  SPEAKER_00: Um, some of it is intrinsic, you know, um qualitative, if you will.
• 29:14
  SPEAKER_00: Um, you know, uh schools and this, that, and the other, right?
• 29:18
  SPEAKER_00: Well, with you, we can look at the same property, and let's say, let's say a property is listed for$250,000.
• 29:30
  SPEAKER_00: $250,000 and for a homeowner, that's that's perfect, right?
• 29:37
  SPEAKER_00: It looks good, everything's fine.
• 29:39
  SPEAKER_01: Good schools, by my family, like all those things, yeah, yeah.
• 29:43
  SPEAKER_00: Right, everything.
• 29:45
  SPEAKER_00: And is that same property worth$250,000 to an investor?
• 29:52
  SPEAKER_00: Well, the way we find out, right, is we look at the rents, we look at the market rent, or you know, I would say the market rent, um, and then we start extracting all the all the all the expenses.
• 30:07
  SPEAKER_00: Now, let's say the property taxes are a bit high, and your insurance is going to be a bit high, and at the end of the day, the the free cash flow, right, is incredibly low.
• 30:19
  SPEAKER_00: It's probably we're probably gonna have to bring that price down in order for it to make sense for an investor.
• 30:26
  SPEAKER_00: So the the valuation from the investor, he may conclude it's only worth about 185 to him because it doesn't match his return targets.
• 30:38
  SPEAKER_00: Maybe his return target was, you know, uh, you know, he he wanted to do um have a cap rate purchase at a cap rate of 10.
• 30:46
  SPEAKER_00: Yeah, then he's gonna have to do that math, and he's gonna come out the other end with a number, and I help my clients do that as well.
• 30:53
  SPEAKER_01: Yeah, and I I think that's one of the things that it is important for realtors to understand.
• 30:59
  SPEAKER_01: And the the the the nice part about working with investors is there's not a lot of emotion involved with it.
• 31:05
  SPEAKER_01: It's does the number make sense, yes or no?
• 31:08
  SPEAKER_01: Like that's pretty much it, you know what I mean.
• 31:10
  SPEAKER_01: I've talked to a few investors.
• 31:12
  SPEAKER_01: Um, you know, I've got one of the Kevin he's gonna be on in a couple weeks.
• 31:15
  SPEAKER_01: Um, but you know, his thing is it it just makes sense or doesn't just tell me yes or no and move on.
• 31:22
  SPEAKER_01: If it makes sense, great, I'll buy it.
• 31:24
  SPEAKER_01: If it doesn't, I'm moving on.
• 31:25
  SPEAKER_01: There is no, you know, and it is Johnny grew up in this house, and you know, that was his best.
• 31:30
  SPEAKER_01: You know, there is none of that.
• 31:31
  SPEAKER_01: It's like, does it make sense?
• 31:32
  SPEAKER_01: Does it give me my cap rate?
• 31:34
  SPEAKER_01: Is that is it gonna give me an ROI?
• 31:36
  SPEAKER_01: Like, what does it make?
• 31:37
  SPEAKER_01: Does it make sense or no?
• 31:38
  SPEAKER_01: And that's that's what's what's good about it is that nobody there is not a lot of emotion involved with it, right?
• 31:44
  SPEAKER_00: Right.
• 31:44
  SPEAKER_00: And and and I I kind of started off with the underwriting side of it as an area that I feel agents can capitalize on.
• 31:54
  SPEAKER_00: Um, and and I haven't explained why.
• 31:56
  SPEAKER_00: Uh, the reason that you want to be able to size a deal like that is because ultimately that does tie to deal sourcing, right?
• 32:05
  SPEAKER_00: And oftentimes they're coming to you for that component of it is finding deals.
• 32:10
  SPEAKER_00: Hey, um, you know, they they they have to have properties in front of them to look at, and I think if an agent is, you know, can quickly underwrite a deal, they they'll know which properties to say, hey, take a look at this.
• 32:26
  SPEAKER_00: That's my point.
• 32:27
  SPEAKER_01: Yeah, yeah.
• 32:29
  SPEAKER_01: And I think agents, you know, I mean that the we have an inside track for the most part, too.
• 32:34
  SPEAKER_01: Um, you do, you know, the flip that the flip that we did was I was gonna list it.
• 32:38
  SPEAKER_01: The guy called me out.
• 32:39
  SPEAKER_01: I was a listing appointment, and I'm leaving the listing appointment and calling my wife and going, we're gonna buy this one.
• 32:44
  SPEAKER_01: You know what I mean?
• 32:45
  SPEAKER_01: Like it was it was like we're gonna buy that one, uh, instead of listing it.
• 32:49
  SPEAKER_01: So I think you know, you do have an inside track, and it is what I do, I always tell agents too, though, um, is you know, uh, our man Andrew Fox, I spent a lot of time with him because he doesn't, he did it, he doesn't a lot, you know what I mean.
• 33:02
  SPEAKER_01: So I spent some time with him, went and shattered with him a few times, went to some of his properties with him, um, you know, walked it, listened to what he was doing, listened to what how he was doing things, and then had some deep conversations with you before we even pulled the trigger on it to figure out if it was even gonna make sense.
• 33:19
  SPEAKER_00: Yeah, yeah, yeah.
• 33:20
  SPEAKER_00: No, I think um Andrew, he he's a perfect example of uh an investor who understood his market really well and he kept a consistent flow of properties to look at.
• 33:32
  SPEAKER_00: And so our conversations would be it would be really quick.
• 33:37
  SPEAKER_00: You know, I'd ask him, Hey, what do you think?
• 33:39
  SPEAKER_00: You know, what's the purchase price?
• 33:41
  SPEAKER_00: What's the the rehab?
• 33:42
  SPEAKER_00: What's the ARV?
• 33:44
  SPEAKER_00: He always nailed the ARV.
• 33:46
  SPEAKER_00: I've done a million appraisals with him.
• 33:49
  SPEAKER_00: His as is values, his uh uh ARVs are always like within five thousand dollars.
• 33:57
  SPEAKER_00: Yeah, and that's a skill.
• 33:59
  SPEAKER_00: That's that's that's a skill because you know I'm I'm the lender, I'm you know, I'm I'm the guy who's at the desk all the time.
• 34:08
  SPEAKER_00: You have to know your market enough if you're doing value add deals, right?
• 34:12
  SPEAKER_00: So you're doing fixing flips or fixing holds, you you really need to know what that ARV is.
• 34:19
  SPEAKER_00: Yeah, the ARV is important, yeah.
• 34:22
  SPEAKER_00: Right, and yeah, yeah, if could because if you give me a bad ARV, all my numbers are gonna be bad.
• 34:28
  SPEAKER_00: Same thing with your rehab, and he was really good at that.
• 34:32
  SPEAKER_00: He's he's he's he's one of my clients, probably one of the best at that.
• 34:36
  SPEAKER_00: Is he can look at a property, he can walk a property one time, um, come back, give me a rehab number, and and once that deal is done, the rehab is right where he thought it would be.
• 34:49
  SPEAKER_01: Yeah, yeah, and I think that's a it's a skill, right?
• 34:52
  SPEAKER_01: To to learn that, but it's also just knowing your areas.
• 34:55
  SPEAKER_01: I think that's another key for that's another, I think that's another advantage that realtors have um in this is that you we should know our area, right?
• 35:04
  SPEAKER_01: Like, like don't get too crazy on it, right?
• 35:06
  SPEAKER_01: So like recently I just had a uh a thing that was uh uh an idea for a rehab, but it was it's 40, it was it's an hour away from me.
• 35:15
  SPEAKER_01: Um, you know, did I and I didn't know if I wanted to tackle it an hour away from me because you know you spend a lot of time there, you're driving back and forth, you're you know, you're going to see it.
• 35:23
  SPEAKER_01: Um, and I was like, I just I didn't want to tackle it.
• 35:26
  SPEAKER_01: It was, you know, I just didn't want to take it on because it was it's an hour away, so it's like you know, and I said, and I think that was another important thing.
• 35:33
  SPEAKER_01: I think again, knowing that area, I I I sort of knew the area, but it is an hour away, right?
• 35:38
  SPEAKER_01: I had to do some, and I I I was like, it's gonna be a lot, and I again I didn't know what the ARV was gonna be exactly.
• 35:44
  SPEAKER_01: I it was there was a lot of there was a lot to it, and I just didn't want to take it on.
• 35:48
  SPEAKER_01: But I think that's the important thing.
• 35:49
  SPEAKER_01: Like agents have to know, they should know their area, they should know where they're at.
• 35:53
  SPEAKER_01: But then again, to your point, is is like well coming up with the ARV, and I think what it's the after-repaired value for agents that don't know that what that is, yeah, right, right, right.
• 36:05
  SPEAKER_01: There are there is some of that we use a lot of acronyms in our business, yeah.
• 36:10
  SPEAKER_01: Uh, but it's the after-repaired value, and that's a it's a very important number to know.
• 36:14
  SPEAKER_01: And so you have to look at your your comparables, what's it gonna look like, and then I think the important piece on that is how much can I invest in this to still make it out, right?
• 36:25
  SPEAKER_00: Exactly.
• 36:26
  SPEAKER_00: And and you really have to know all three in order to make all three numbers balanced.
• 36:32
  SPEAKER_00: You know, you got an acquisition price, you got a rehab, and then you have the after-repair value.
• 36:37
  SPEAKER_00: Well, you you can't really know what your purchase price ought to be without knowing rehab and and ARV.
• 36:44
  SPEAKER_00: You you can't know your rehab unless you know the ARV and the purchase price.
• 36:49
  SPEAKER_00: Yep.
• 36:50
  SPEAKER_00: You don't want to overimprove something if you're not gonna be able to sell it for a certain you know, you know what I'm saying?
• 36:56
  SPEAKER_00: So you you have to have all three, and I think that's an opportunity for agents as well.
• 37:00
  SPEAKER_00: And so I I would say, um, and and I'm I'm gonna put this out there, and hopefully it's a value to the agents that are listening.
• 37:09
  SPEAKER_00: I've kind of simplified um what's important, what should be important for investors to focus on, right?
• 37:19
  SPEAKER_00: And and my advice is for agents to get into the mind.
• 37:24
  SPEAKER_00: If you want to work with investors, and I think it's a it's an awesome segment to specialize in.
• 37:29
  SPEAKER_00: If you're gonna work with investors, you you have to be able to um get in their shoes, get into their mind, right?
• 37:35
  SPEAKER_00: And so I tell my clients um, or I share with them the the seven pillars of profit framework is something I developed.
• 37:43
  SPEAKER_00: And and basically it's it's seven pillars.
• 37:45
  SPEAKER_00: You got investment strategy, right?
• 37:47
  SPEAKER_00: That's where we start.
• 37:49
  SPEAKER_00: That's that's figuring out what kind of what we mentioned before.
• 37:52
  SPEAKER_00: Why am I investing?
• 37:53
  SPEAKER_00: Am I looking for you know, uh uh tax advantages, income, appreciation over time, etc.
• 38:00
  SPEAKER_00: And then and then that helps you figure out also what types of properties you're looking at and everything.
• 38:05
  SPEAKER_00: Then you have market analysis, that's understanding the market locally, but then also you know, being able to um uh track some macroeconomic uh leading indicators and stuff like that, um, in which we can talk about that, you know, further.
• 38:21
  SPEAKER_00: Um but then number three would be deal sourcing.
• 38:24
  SPEAKER_00: And this is where a lot of uh a lot of investors are kind of weak in this area.
• 38:31
  SPEAKER_00: So let's say everything is right, um, but your deal sourcing, you know, in other words, you don't have a constant flow of properties, then you can't invest.
• 38:42
  SPEAKER_00: So that's three deal sourcing.
• 38:44
  SPEAKER_00: Uh four would be underwriting, right?
• 38:47
  SPEAKER_00: And and and that's being able to basically size a deal from a profitability standpoint and measure risk.
• 38:54
  SPEAKER_00: Then you got financing.
• 38:56
  SPEAKER_00: Okay, you have to have your your your your capital structure, so to speak, how much is going to be divided between equity, i.e.
• 39:04
  SPEAKER_00: your cash, and debt, i.e.
• 39:06
  SPEAKER_00: someone else's cash, right?
• 39:09
  SPEAKER_00: Figuring that out and being able to be able to, you know, get a deal funded at the table in a quick manner, um, and and and do it in a way that it doesn't take too much attention away from everything else you're doing, right?
• 39:23
  SPEAKER_00: If it's a value add, then uh uh pillar six would be construction, which is that's property management focus, and you experience this in your deal, you had to put on your your property management, I'm sorry, your project management hat.
• 39:39
  SPEAKER_00: You know, maybe you were using Gantt charts, whatever it was, that's a skill set that you have to develop if you're in that value add space.
• 39:48
  SPEAKER_00: You know, you're you're doing rehabs, project management is going to be important.
• 39:53
  SPEAKER_00: And then the last one would be asset management.
• 39:55
  SPEAKER_00: If if you intend to hold the property, you know, uh you're you're monitoring that property uh from either a property management standpoint or just you know uh keeping up with improvements and that sort of thing.
• 40:09
  SPEAKER_00: And those seven things, uh if if if an investor uh kind of narrows his focus to those seven things, then he's gonna be he's gonna be in a good place.
• 40:19
  SPEAKER_00: Now, how does that impact the agent?
• 40:22
  SPEAKER_00: Well, number three, going back to deal sourcing, I I have clients who are perfect with all that stuff, but they don't have a consistent process for uh finding uh prospective purchases.
• 40:38
  SPEAKER_00: Yep, that's what they need.
• 40:39
  SPEAKER_00: They need that, they need to be looking at a new property every day or every week.
• 40:44
  SPEAKER_00: All right.
• 40:45
  SPEAKER_00: So if an agent understands that and they know a little bit how to quickly size a deal and they know how to put a good deal in front of front of an investor, they're gonna keep coming back.
• 40:55
  SPEAKER_01: Yep.
• 40:56
  SPEAKER_01: I just had a conversation with an investor yesterday, um, uh, that I've never worked with.
• 41:02
  SPEAKER_01: I just we had a conversation about a house, and and he he literally told me, he said, it's really hard.
• 41:09
  SPEAKER_01: He goes, I he goes, I do I find all my own deals, I find all my own stuff.
• 41:13
  SPEAKER_01: I'd find I'm like, Well, let's fix that for you.
• 41:16
  SPEAKER_01: Like, what he said, it's a lot of work.
• 41:18
  SPEAKER_01: I'm like, I know it's what I do every day, right?
• 41:21
  SPEAKER_01: But it's what I do for a living, is try to find people houses.
• 41:24
  SPEAKER_01: And he's like, Well, yeah, he's like, That would be great.
• 41:26
  SPEAKER_01: He's like, I normally I find them, and then I just do it, whoever's got the house is who I do the deal with.
• 41:31
  SPEAKER_01: And he's like, But it's a lot of work, and I'm like, Well, we'll fix that for you.
• 41:35
  SPEAKER_01: You know, we'll we'll we'll straighten that out.
• 41:37
  SPEAKER_01: But but I think you're right.
• 41:39
  SPEAKER_01: I think agents can understand, they have to know the the language, right?
• 41:43
  SPEAKER_01: The ARB, the ROI, the you know, the cap rate, all those things you have to understand a little bit to have at least those conversations.
• 41:50
  SPEAKER_01: I say the same thing about mortgages, right?
• 41:51
  SPEAKER_01: You have to know enough about a mortgage, how it works, the difference between a VA and FHA or conventional cat, all those things as a realtor.
• 42:00
  SPEAKER_01: Like, we have to know we don't have to know the deep, we don't have to be deeply rooted in it, but we need to know enough of all of it, right?
• 42:08
  SPEAKER_01: And then finding your niche.
• 42:09
  SPEAKER_01: If investors are your niche, then stay in that investor space.
• 42:14
  SPEAKER_00: I agree, I agree, and really that's what the seven pillars is.
• 42:17
  SPEAKER_00: You know, is it's it's not uh I don't suggest that my clients go a mile deep into every pillar, you know, but that's same that same framework could be used for an agent.
• 42:29
  SPEAKER_00: The point is, these are the areas that you need to be familiar with, not that you need to, you know, be an expert in.
• 42:37
  SPEAKER_00: The area that the agent might want to be an expert in is deal sourcing, and then pre you know, probably lightly on underwriting, not so much with project management, but definitely asset management or exit strategies.
• 42:50
  SPEAKER_00: You know, uh an advantage an agent could have uh to an investor, for example, would be being able to number one present a uh um acquisition target that does pencil out.
• 43:04
  SPEAKER_00: So the you know, you don't want to have a reputation for hey, Jimmy sends me a bunch of deals, but every time I I try to screen them and look at them, they never pencil out.
• 43:15
  SPEAKER_00: All right.
• 43:16
  SPEAKER_00: So yeah, send me fewer, but send me good ones, right?
• 43:20
  SPEAKER_00: So so that's an area that you can you can help an uh investor out.
• 43:24
  SPEAKER_00: Um, you kind of pencil out, you send it over, they know when they get your email, it's you're probably gonna end up putting an offer in.
• 43:32
  SPEAKER_00: Okay, so that's the area.
• 43:34
  SPEAKER_00: Um the exit, assuming this is a value add situation where you're you know you're planning to sell it in the in the near future, that agent can tell you up front if they understand design, understand that market, these are some things that you ought to include in your rehab budget in order to achieve the ARV.
• 43:56
  SPEAKER_00: So bringing life to the ARV, not just giving it a number and say, hey, this is gonna be our ARV, but it's I'm looking at all the cops, this is what they're using for countertops, this is what they're using for paint, this is what's gonna sell quickest, and giving that opinion in the in the early stages while he's meeting with with his construction team.
• 44:18
  SPEAKER_00: Yep, and that kind of assures that you get the deal to listed.
• 44:23
  SPEAKER_00: So now you got value on both ends.
• 44:26
  SPEAKER_01: Yeah, yeah.
• 44:27
  SPEAKER_01: We had this come in.
• 44:28
  SPEAKER_01: The seven pillars of profit is an awesome analysis.
• 44:32
  SPEAKER_01: And I think it is, yeah, yeah.
• 44:36
  SPEAKER_01: Um, so I I think you know, with all of there's a lot of changes that have come recently, right?
• 44:42
  SPEAKER_01: With with uh the Whatever you think of our government, right?
• 44:46
  SPEAKER_01: But right taking out, if we can take out some of the big uh investors, right?
• 44:51
  SPEAKER_01: Like the Black Rocks and some of those, right?
• 44:53
  SPEAKER_01: Like those are if we can limit some of that and open it up for some small guys.
• 44:58
  SPEAKER_01: In your in your idea, in your mind, what do you see happening in the next you know 12 to 24 months as far as like investors go and uh and just being a normal small guy, I guess, right?
• 45:10
  SPEAKER_00: Yeah, yeah.
• 45:11
  SPEAKER_00: All right.
• 45:12
  SPEAKER_00: So um let's let's address that because I I think the big guys they get more attention than they deserve.
• 45:21
  SPEAKER_00: So when you really look at it, the Black Rocks and the private equity funds, their market share is minute.
• 45:29
  SPEAKER_00: About 27 of all residential sales are you know uh to investors.
• 45:38
  SPEAKER_00: Of that 27, only 8%.
• 45:41
  SPEAKER_00: So so less than 1% overall are going to large investors.
• 45:46
  SPEAKER_00: They're not as impactful as they seem.
• 45:49
  SPEAKER_00: The majority of investor purchases are small mom and pop, you know, investors with fewer than five purchases under their belt.
• 46:00
  SPEAKER_00: That's number one.
• 46:02
  SPEAKER_00: Moving forward, we we I'm a big you know fan of market cycle investing, right?
• 46:09
  SPEAKER_00: So figuring out what stage of the cycle determines the strategy in that cycle.
• 46:16
  SPEAKER_00: So right now, I would say that we're late expansion, early peak, right?
• 46:22
  SPEAKER_00: And I've I've even you know built out a dashboard.
• 46:25
  SPEAKER_00: I'm looking at it right now.
• 46:26
  SPEAKER_00: We've got um yield curve is is flat to inverted.
• 46:32
  SPEAKER_00: Um we've got unemployment at 4.4.
• 46:36
  SPEAKER_00: Uh, we've got slowing GDP growth, and all my indicators are showing me that we're in the late expansion stage, early peak stage.
• 46:46
  SPEAKER_00: And so basically, what that means for investors to look for in in the near future would be your fix and flips.
• 46:57
  SPEAKER_00: If they're I'd say keep them light, right?
• 47:01
  SPEAKER_00: Um, kind of that that's going to lower your your execution risk a little bit.
• 47:05
  SPEAKER_00: If it's a heavy rehab that's gonna take nine months, that that's gonna be riskier than it was a couple years ago.
• 47:13
  SPEAKER_00: The reason is is because the market changes.
• 47:16
  SPEAKER_00: We we do have a softening economy in in terms of um at least unemployment and in some of the the labor statistics, right?
• 47:24
  SPEAKER_00: I'm I'm not expecting the floor to drop out in real estate because inventory is still low.
• 47:30
  SPEAKER_00: So the inventory levels are are gonna save real estate, and you don't have to go into panic mode because again, and I told you earlier, that's one of the first things I check is inventory levels.
• 47:41
  SPEAKER_00: If you're purchasing for value add fix and flip deals and the inventory is still tight, but the demand is still high, you're probably good.
• 47:51
  SPEAKER_00: So I would say um shorter term, lighter rehabs are going to be good.
• 47:57
  SPEAKER_00: Um, you're buying holds that don't need you know any work, those are good.
• 48:04
  SPEAKER_00: My caution would be uh Burr method, right?
• 48:10
  SPEAKER_00: You're you're looking to purchase uh at a deep discount, do a rehab, rent it out, and refinance.
• 48:18
  SPEAKER_00: Know your numbers.
• 48:20
  SPEAKER_00: I would underwrite those acquisitions at a 1.2 debt service coverage ratio or higher.
• 48:28
  SPEAKER_00: Okay, okay, look for a little bit more margin.
• 48:31
  SPEAKER_00: Margins are going to compress.
• 48:33
  SPEAKER_00: Um, I would say, I would say have, you know, if you're working with uh a hard money lender and and they're gonna handle your bridge financing, make sure that they look at the exit refinance, compare that to your current scenario.
• 48:50
  SPEAKER_00: For example, your your credit score requirements are different on those loans, right?
• 48:56
  SPEAKER_00: So you could come to me and get approved for a bridge loan, turn back around six months later, same credit score, and you're not approved for a debt service coverage ratio loan.
• 49:06
  SPEAKER_00: So know that from the jump.
• 49:09
  SPEAKER_00: And I would say just keep in mind that uh things could change in the lending space with regard to underwriting guidelines and that sort of thing, as well.
• 49:22
  SPEAKER_00: If you're doing a long rehab and intend to refinance later on, so an easy fix is make sure that you have multiple exits.
• 49:33
  SPEAKER_00: If I'm gonna underwrite your deal in in and you say you intend to do a refinance, you know, in six months, Jimmy, I'm gonna make sure that we also have a discussion about what your returns look like if you just sell it as a flip.
• 49:48
  SPEAKER_00: So I'm always gonna look at exit A, B, and maybe even C.
• 49:53
  SPEAKER_00: Right.
• 49:53
  SPEAKER_00: And the last thing I'll say is this isn't new.
• 49:58
  SPEAKER_00: Um there's during the expansion period of any market cycle, anybody can look like you know, a genius.
• 50:08
  SPEAKER_00: Everybody makes money.
• 50:10
  SPEAKER_00: I don't believe that that's where real investors, you know, they they just kind of they're they're just in the crowd.
• 50:18
  SPEAKER_00: Real investors show up when we're at the peak of expansion and now we're kind of going into you know recessionary territory.
• 50:29
  SPEAKER_00: That's when it starts to pay off that you know what you're doing.
• 50:34
  SPEAKER_01: Yeah, because the margins are slim, you got slimmer margins, right?
• 50:37
  SPEAKER_01: You got you you really have to know your numbers.
• 50:42
  SPEAKER_00: I think I lost your audio.
• 50:44
  SPEAKER_01: Oh, am I still here?
• 50:49
  SPEAKER_01: I still got you.
• 50:52
  SPEAKER_01: Yeah, I think um, but I think that's the the thing is that uh I got you, you got me.
• 51:07
  SPEAKER_00: I got you, I got you back.
• 51:08
  SPEAKER_00: Yeah, I lost you for a second.
• 51:10
  SPEAKER_01: Yeah, and I uh to what you what to what you were saying is I think that's where the margins get slimmer, then, right?
• 51:15
  SPEAKER_01: And that's where the the savvy investors or or you know the consultants like you, right?
• 51:21
  SPEAKER_01: Have to know you know, you gotta help guide agents who especially people are newer to this, um, yeah, to guide you through it.
• 51:31
  SPEAKER_00: Yeah, yeah.
• 51:32
  SPEAKER_00: It's it's um you gotta be able to, you know, see the future a little bit, yeah.
• 51:36
  SPEAKER_00: So you don't get caught in it.
• 51:38
  SPEAKER_01: Yeah, yeah.
• 51:40
  SPEAKER_01: And so the next year, do you think you think we're in this?
• 51:44
  SPEAKER_01: You think we're in a leveling off period, or do you think it's we're sort of at the peak and it's gonna go dip a little bit?
• 51:50
  SPEAKER_01: Where do you think that and then the investor side?
• 51:53
  SPEAKER_00: We're we're going into the peak stage.
• 51:56
  SPEAKER_00: We're we're not even at the peak stage yet.
• 51:58
  SPEAKER_00: So we're we're headed in the peak stage.
• 52:01
  SPEAKER_00: We're we're late expansion, early peak stage.
• 52:05
  SPEAKER_00: Um, so you know, right now, what the the Fed cut rates, 75 basis points in 2025.
• 52:13
  SPEAKER_00: They're kind of they're they're they're planning for a soft a soft landing, right?
• 52:19
  SPEAKER_00: And and that's the target.
• 52:20
  SPEAKER_00: And and Jerome Powell's been doing a good job, I think.
• 52:23
  SPEAKER_00: Um, and and it looks like we will have a soft landing.
• 52:27
  SPEAKER_00: This is normal, right?
• 52:28
  SPEAKER_00: This is the cycle that that has to happen.
• 52:31
  SPEAKER_00: Um I just think, you know, right now where rates are, rates.
• 52:39
  SPEAKER_00: I haven't seen I haven't seen rates become an impact to where deals don't pencil out anymore.
• 52:46
  SPEAKER_00: And and I think that's you know, partly due to rent growth has been pretty strong in the markets that that we lend in, um, and inventory levels.
• 52:57
  SPEAKER_00: So there's still demand and there's a combination of demand in addition to uh uh lower inventory levels, right?
• 53:06
  SPEAKER_00: Um, meaning, hey, there's fewer properties than there are buyers, so that's going to keep things you know pretty strong.
• 53:14
  SPEAKER_00: Um, I don't see interest rates going much higher.
• 53:18
  SPEAKER_00: Usually rates rates rise when the economy is you know really booming to kind of slow things down, and so there's no reason for rates to you know go up in a crazy manner in in the next year or so.
• 53:33
  SPEAKER_00: Um there's one uh component that that we don't know, and that and that would be what happens with AI and how does that impact uh the you know the purchasing market all the way around?
• 53:50
  SPEAKER_00: Yeah, um, so that's gonna be something that I'm keeping my eye on.
• 53:54
  SPEAKER_00: Um but you know, for the most part, I don't see I don't see any huge changes that should uh scare investors, but I hope that I'm given warning enough to start paying attention and and really deciding okay, is it time for me to take my chips off the table because I was able to win as a purchase as a property purchaser, as just a buyer out here, or do I stay in and really put my real estate investor hat on?
• 54:24
  SPEAKER_00: Right, right.
• 54:26
  SPEAKER_01: No, and there's again, it's it kind of goes back to you know what you said too.
• 54:30
  SPEAKER_01: I I'm I'm in agreement with you.
• 54:32
  SPEAKER_01: I don't see this as a bust, like I don't see a bust coming anytime soon.
• 54:36
  SPEAKER_01: Like, I don't I don't see it.
• 54:38
  SPEAKER_01: I mean, there's been really like in my lifetime, I'm I I'm 53 today, I'm 53 today.
• 54:43
  SPEAKER_01: Yeah, but but I don't I haven't seen this big we we've seen this one big bust, right?
• 54:50
  SPEAKER_01: I don't think we're gonna get to two now.
• 54:53
  SPEAKER_01: The two and three percent interest rate that everybody's searching for are gone, and I think one of the most important things, and I think where you were going with this too was people get so caught on the rate, and instead of looking at the rate, you just need to look at what the ROI is.
• 55:09
  SPEAKER_01: Stop worrying about the rate.
• 55:11
  SPEAKER_00: That yeah, if if if you're measuring whether a uh uh you know a deal is good based on like interest rates and stuff like that, it you're missing it.
• 55:21
  SPEAKER_00: You you you really are missing it.
• 55:23
  SPEAKER_00: In fact, I I would even compare it to you know, you go to some of these investor meetups and and you meet some investors and and they kind of measure their success by doors, yeah.
• 55:35
  SPEAKER_00: As a fine guy, I don't measure success by doors.
• 55:38
  SPEAKER_00: I want to know how they're performing.
• 55:42
  SPEAKER_00: Yeah, you can have a hundred properties that perform miserably, right?
• 55:49
  SPEAKER_01: Yeah, and if again, if they're if they're it's that that's one of the questions that I I ask if I'm talking to investors too, is are you getting a good return on it?
• 55:58
  SPEAKER_01: Yeah, right.
• 55:58
  SPEAKER_01: Is it is this making sense for you, right?
• 56:01
  SPEAKER_01: Or is it not?
• 56:02
  SPEAKER_01: Because that's where you have to start really looking at it.
• 56:04
  SPEAKER_01: It's kind of like it's the same conversation I have with clients when they're talking about buying a house, right?
• 56:08
  SPEAKER_01: And they're worried, well, the rate's too high, the rate's too high.
• 56:11
  SPEAKER_01: Well, it's not it's not the rate, can you afford it?
• 56:14
  SPEAKER_01: Like, where is the affordability at?
• 56:16
  SPEAKER_01: Is it do you have to go down a little bit because the rate's higher?
• 56:20
  SPEAKER_01: Maybe, right?
• 56:21
  SPEAKER_01: But like, does it where is your budget?
• 56:23
  SPEAKER_01: And does that make sense?
• 56:24
  SPEAKER_01: Because again, like a right, a regular residential deal, when you go get a pre-approval, they'll pre-approve you for 400,000 or 500,000.
• 56:32
  SPEAKER_01: But do you want can you budget that right?
• 56:35
  SPEAKER_01: Because it does it make sense for you.
• 56:37
  SPEAKER_01: Do you want to buy you?
• 56:38
  SPEAKER_01: Because a lot of times that when you look at the payment, you could probably make it, but that means you you don't get Starbucks every day, you know what I mean?
• 56:45
  SPEAKER_01: Like that now, there's other stuff that goes out the window.
• 56:47
  SPEAKER_01: So, again, it goes back to what you were saying.
• 56:49
  SPEAKER_01: Instead of looking at the rate, whatever else, like what does that come back to?
• 56:53
  SPEAKER_01: Very similar to an investor.
• 56:54
  SPEAKER_01: Well, I have 37 doors.
• 56:56
  SPEAKER_01: Well, great, are are they performing or are they not performing?
• 56:59
  SPEAKER_01: Because it doesn't really make sense.
• 57:00
  SPEAKER_01: If you I could buy a bunch of houses, that if it's making me poor, it's not mat doesn't matter anyway.
• 57:06
  SPEAKER_00: I mean, you know, if I I've I've been in this business, I feel like my entire life.
• 57:11
  SPEAKER_00: My mother's a real estate broker.
• 57:13
  SPEAKER_00: Uh, my my my brother, uh, he was the mortgage broker who got me into the business.
• 57:18
  SPEAKER_00: Now he's a you know, he's a uh uh a GC, my brother's an agent.
• 57:23
  SPEAKER_00: And so I, you know, I have memories of uh putting up for sale signs when I was five, six years old, right?
• 57:29
  SPEAKER_00: There's been times, and and and I would say people should just you know look into uh you know, do study up on the history, right?
• 57:38
  SPEAKER_00: There's been times when 11% interest rates for mortgages was considered low.
• 57:43
  SPEAKER_00: And so I would ask this just a simple way to measure uh buying decision, right?
• 57:50
  SPEAKER_00: If if I could get you a 2% mortgage, you know, uh 30-year rate, but your annual cash flow is two thousand dollars a year, versus I can get you a 15% 30-year interest rate, but your annual cash flow is ten thousand dollars a year.
• 58:08
  SPEAKER_00: Which one, which one do you do?
• 58:12
  SPEAKER_00: Right, and so start measuring, it's like if if I if if I gave you the world's greatest rate, but you didn't do a good job of measuring your cash flow, you may have a great rate and a bad deal.
• 58:26
  SPEAKER_00: Make sure you have both, you know, get get the best available as far as the rate, sure, that's good, but also match it up with a good deal that's going to give you the cash flow or the capital appreciation that you're looking for.
• 58:40
  SPEAKER_01: Yeah, this again, it goes back to what you were saying before.
• 58:43
  SPEAKER_01: Does the number make sense?
• 58:45
  SPEAKER_01: Does it make sense?
• 58:46
  SPEAKER_01: Yeah, yeah, it's kind of like a full circle moment.
• 58:50
  SPEAKER_01: Um, it's kind of like a full circle moment with what we talked about at the beginning, to where we're wrapping up here at the end of the show.
• 58:56
  SPEAKER_01: Um we talked about red that financing at the very beginning of does this make sense, right?
• 59:02
  SPEAKER_01: Does the number make sense?
• 59:03
  SPEAKER_01: To now at the end of this, does the number make sense?
• 59:07
  SPEAKER_00: Hey, same thing.
• 59:08
  SPEAKER_00: Yep.
• 59:09
  SPEAKER_00: The story of my life.
• 59:11
  SPEAKER_01: Yeah, it doesn't matter, it doesn't matter whether it it's a million dollars.
• 59:16
  SPEAKER_01: If you can, you know, if you can afford it, you can afford it.
• 59:19
  SPEAKER_01: If you can't, you can't, right?
• 59:20
  SPEAKER_01: Like that's this that's the simplest, simplest way to put it.
• 59:23
  SPEAKER_00: I like it.
• 59:24
  SPEAKER_01: I like it.
• 59:26
  SPEAKER_01: That's the simplest way to put it.
• 59:28
  SPEAKER_01: Well, Matt, let me ask you this question.
• 59:30
  SPEAKER_01: So, this is one of the kind of I would if you were to start over again today, knowing what you know now, right?
• 59:37
  SPEAKER_01: Would you be would you invest heavily right now, knowing what you know now?
• 59:43
  SPEAKER_00: Hmm, um, yeah.
• 59:47
  SPEAKER_00: In our current market, right?
• 59:48
  SPEAKER_00: In our current market, yeah, I would.
• 59:51
  SPEAKER_00: I would.
• 59:52
  SPEAKER_00: I don't I don't see anything that would deter long-term capital appreciation in real estate.
• 59:59
  SPEAKER_00: And in fact, I I still favor it over equity markets.
• 1:00:03
  SPEAKER_00: There's a lot of volatility, and just by the nature of it, uh, real estate does not experience the same level of uh market volatility as equity market, and it doesn't move as fast, it moves slower, and your leading indicators take a long time to develop.
• 1:00:22
  SPEAKER_00: We're just now seeing uh permits and housing start start to slow down.
• 1:00:27
  SPEAKER_00: It's gonna be a while before you know we feel the effects of that.
• 1:00:31
  SPEAKER_00: And so I would still focus primarily on real estate if that's you know my level of comfort, and um, and I'd I'd be actually really excited because I know that I'm better prepared than the buyers, the the property purchasers.
• 1:00:50
  SPEAKER_00: They're gonna be on the sidelines in a minute and I'm gonna make a lot of money.
• 1:00:54
  SPEAKER_01: I love it, I love it.
• 1:00:55
  SPEAKER_01: Well, man, as we're wrapping up, where can everybody find you?
• 1:00:59
  SPEAKER_00: Man, best place is emxlending.com.
• 1:01:03
  SPEAKER_00: Um, also have a YouTube channel which is emx360.
• 1:01:08
  SPEAKER_01: Yeah, my man, Dante Shackovan.
• 1:01:10
  SPEAKER_01: I appreciate you, my friend, for joining us today, giving it dropping some knowledge bombs on us.
• 1:01:14
  SPEAKER_01: We really appreciate it, and I think it will have to get you back on because there's more there's more information, there's always more information to talk about.
• 1:01:20
  SPEAKER_00: Yeah, hey man, I would love to do it.
• 1:01:22
  SPEAKER_00: I got a ton of other things to talk about, so anytime.
• 1:01:25
  SPEAKER_01: I love it, man.
• 1:01:26
  SPEAKER_01: I love it.
• 1:01:26
  SPEAKER_01: Well, I appreciate the time, my man.
• 1:01:28
  SPEAKER_01: And uh, we will talk to you soon.
• 1:01:30
  SPEAKER_01: We will see you guys on the Elite Rail Sand podcast next week.
• 1:01:36
  SPEAKER_00: All right.