Latest / Own More Doors / #16 Multifamily, Interest Rates, & Investment Opportunities (Cody Charnell)

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#16 Multifamily, Interest Rates, & Investment Opportunities (Cody Charnell) · Own More Doors

• 0:00
  SPEAKER_00: Hey everyone, welcome to another Own More Doors podcast.
• 0:03
  SPEAKER_00: Juan Weezar here, and I have Cody Charnell, one of our brokers here in Sage Real Estate, with us in the podcast studio.
• 0:10
  SPEAKER_00: And we're going to be covering insights of real estate, what's happening at multifamily.
• 0:14
  SPEAKER_00: We're going to be talking about laws that are being uh proposed, ones that are being uh canceled out.
• 0:21
  SPEAKER_00: We're going to talk about interest rates, inventory, sales, what is happening.
• 0:26
  SPEAKER_00: Cody, man, thanks for being here today.
• 0:28
  SPEAKER_01: Yeah, thanks for having me back.
• 0:30
  SPEAKER_00: Cool.
• 0:31
  SPEAKER_00: Cody, so I'm just going to get straight into it, man.
• 0:33
  SPEAKER_00: We you and I last week were on the phone with uh one of the analysts over at CoStar.
• 0:38
  SPEAKER_00: For people who don't know, CoStar is kind of the leading uh data information when it comes to commercial real estate.
• 0:44
  SPEAKER_00: And so luckily we have a good relationship with them.
• 0:46
  SPEAKER_00: We've had them on the YouTube channel.
• 0:48
  SPEAKER_00: We've interviewed them.
• 0:49
  SPEAKER_00: And sometimes, listen, they reach out to us and they want to know, hey, what's happening at the broker level, at the level that Cody and I operate at, so that they could get a good idea.
• 0:58
  SPEAKER_00: You know, when you when you're with CoStar, these analysts are looking at information all the time, just data.
• 1:05
  SPEAKER_00: Um, but the reason why they will reach out to us from time to time is to see, well, what's really happening?
• 1:10
  SPEAKER_00: What are sellers thinking?
• 1:12
  SPEAKER_00: What are their motivations?
• 1:13
  SPEAKER_00: What are uh buyers thinking?
• 1:15
  SPEAKER_00: And so Cody came up with something really interesting that he had seen, and I I'm gonna let him talk about it.
• 1:21
  SPEAKER_00: And um uh Cody spends a lot of time analyzing property for his investors, putting them in positions to win.
• 1:28
  SPEAKER_00: And so um what he's gonna talk about next is pretty telling, and we'll discuss why this might be the case.
• 1:36
  SPEAKER_01: Yeah, so I'm always trying to look for trends and always following pricing in different neighborhoods in Long Beach.
• 1:43
  SPEAKER_01: And uh one of the things that we discussed with uh analysts from CoStar was how the difference in pricing between like your A neighborhoods in Long Beach and your more like workforce housing, um the gap in pricing has shrunk a lot in the last two years.
• 2:00
  SPEAKER_01: And this is something that I just kind of noticed from analyzing deals, but actually today I went through and pulled all of the data um just to have it done on paper and you know explain it well.
• 2:13
  SPEAKER_01: Um but basically what I did is I compared two zip codes in Long Beach.
• 2:18
  SPEAKER_01: Um I compared 90802, which is Alamitos Beach.
• 2:21
  SPEAKER_01: So these are you know dynamic properties, basically south of 7th, or between between the sand and 7th Street.
• 2:28
  SPEAKER_01: So, you know, beach properties.
• 2:30
  SPEAKER_01: Um you typically see, you know, more professional type tenants living there, um, a lot of luxury units in this neighborhood.
• 2:40
  SPEAKER_01: Uh, and I compared that to 90813, which is a little bit more inland, um, more workforce housing, a little bit less nice.
• 2:48
  SPEAKER_01: And I looked at all of the close sales from 2022 and compared them to all of the close sales in 2024.
• 2:54
  SPEAKER_01: And what I found was pretty interesting, it kind of went in line with what I was noticing when I was analyzing properties.
• 3:01
  SPEAKER_01: So, to give you the data, so we're gonna start with 90802.
• 3:05
  SPEAKER_01: So, this is a nice neighborhood.
• 3:06
  SPEAKER_01: In 2022, those properties sold at an average of 16.6 times gross.
• 3:12
  SPEAKER_01: And if you're not familiar with gross rent multiplier, uh, it's a metric that we use to compare buildings to one another.
• 3:17
  SPEAKER_01: It's kind of like cap rate, but simplified a little bit.
• 3:20
  SPEAKER_01: Um, 16.6 times gross basically means that you take the gross income that the building makes, multiply it by 16.6, and that gives you the sale price, right?
• 3:28
  SPEAKER_01: So that the lower the better when you're buying.
• 3:32
  SPEAKER_01: So um, yeah, 908.02, it was 16.6.
• 3:36
  SPEAKER_01: In 2024, for that same zip code, it's fallen to 11.7 times gross.
• 3:41
  SPEAKER_01: Okay, so a big decrease there.
• 3:44
  SPEAKER_01: Um, the 90803 zip code, so this is the little bit less nice workforce housing, in 2022, those buildings were selling in an average of 14 times gross, and now 2024, we're seeing an average of about 10.8 times gross.
• 3:58
  SPEAKER_01: But what's interesting, if you compare these two neighborhoods, so looking at 90802 versus 908.1.3 uh back in 2022, there was a difference of about 2.6 times gross comparing those zip codes.
• 4:14
  SPEAKER_01: And now, fast forward to 2024, there's only a difference of about 0.9 times gross when you're comparing, you know, GRMs in the two neighborhoods.
• 4:22
  SPEAKER_01: So basically the difference between pricing um from the nice area to the less desirable area has shrunk quite a bit.
• 4:30
  SPEAKER_00: So a lot, a lot.
• 4:32
  SPEAKER_00: And I I I think when people when people are thinking, well, 2.6 that can't possibly be that much.
• 4:38
  SPEAKER_00: Um, or the difference, sorry, it it's hundreds of thousands of dollars because it's based off the annual gross income.
• 4:46
  SPEAKER_01: Right.
• 4:46
  SPEAKER_01: And some of these buildings, actually, most of them are going to be making over a hundred grand a year.
• 4:51
  SPEAKER_01: So 2.6 times gross, that's 260 grand potentially.
• 4:56
  SPEAKER_00: So okay, so let's just take it from the top.
• 4:59
  SPEAKER_00: Okay.
• 5:00
  SPEAKER_00: We're comparing 2022 and 2024, and both of those zip codes, I think anyone listening who's been following our channel would say, okay, well, Juan and Cody have been talking about sales are down, prices are down, cap rate is up, you know.
• 5:14
  SPEAKER_00: And so the fact that they both went down is expected.
• 5:18
  SPEAKER_00: So we're good there in terms of like both zip codes, um, gross rent multiplier went down.
• 5:25
  SPEAKER_00: The problem is that what you would call more of a let's just call it C class neighborhood, just for now, okay, instead of workforce, just C class, didn't go down as far as the A-class neighborhood when comparing it to a gross rent multiplier.
• 5:43
  SPEAKER_00: And by the way, for anyone listening who's gonna send me a message, um we're only focusing in on gross rent multiplier, but I would tell you that if we took it to the cap rate, you would still see the same because both of those are derived from income.
• 5:59
  SPEAKER_00: And so just just for now, uh, we're just looking at what we call GRM.
• 6:04
  SPEAKER_00: Cody, why do you think this is happening?
• 6:09
  SPEAKER_01: Oh man, it's a good question.
• 6:11
  SPEAKER_01: I'm not exactly sure.
• 6:13
  SPEAKER_01: And actually, something else I wanted to add.
• 6:15
  SPEAKER_01: Um, this is just for five unit and up buildings.
• 6:18
  SPEAKER_01: Okay.
• 6:18
  SPEAKER_01: So we've talked about this in the past, you know, the the pricing on five unit and up buildings has come down a lot since 2022 because interest rates have gone up so much, right?
• 6:28
  SPEAKER_01: So um the type of financing you use on a five unit and up building um is typically only fixed for three or five years.
• 6:36
  SPEAKER_01: So um, as interest rates have gone up, people have had to refinance um or try and sell a building.
• 6:42
  SPEAKER_01: You know, when a new buyer is coming in with this higher interest rate, they have to put a lot more money down to make the numbers work.
• 6:47
  SPEAKER_01: So uh I think that's one reason that pricing has come down across the board.
• 6:51
  SPEAKER_01: Um, the reason that pricing came down more in a nicer area, I'm not exactly sure why that happened.
• 6:59
  SPEAKER_01: Um, it's it's sort of an anomaly, but it presents an opportunity where if somebody is interested in investing in a five-unit and a building now, um, we're seeing really good opportunities in nicer locations.
• 7:12
  SPEAKER_00: So let's talk about, you know, when we created this show, is that I wanted to educate and I wanted to inform and I want to give people the tools so that they could go do something.
• 7:22
  SPEAKER_00: They could go do something.
• 7:23
  SPEAKER_00: So right now, the way that I'm looking at this, Cody, is if I'm a buyer and if I'm looking at five plus, so typically buyers that are looking at five units or more might be a little more experienced.
• 7:36
  SPEAKER_00: Like someone's not gonna typically start off with the first eight unit building as an investment.
• 7:41
  SPEAKER_00: Most times they start off with the four, and then you and I help them trade into something bigger.
• 7:45
  SPEAKER_00: So if I'm looking at this, uh I'm looking at the uh the fact that in the A neighborhoods, where quite frankly, that's where I want to own.
• 7:55
  SPEAKER_00: Listen, I own stuff everywhere, right?
• 7:57
  SPEAKER_00: Cody.
• 7:58
  SPEAKER_00: So A, B, C, D, everything.
• 8:00
  SPEAKER_00: Okay, all the above.
• 8:01
  SPEAKER_00: I I so I know what it's like.
• 8:03
  SPEAKER_00: If I'm looking at this, I'm calling someone like you, I'm calling Sage Real Estate and saying, hey, let's let's look at that A neighborhood.
• 8:12
  SPEAKER_00: Because what we're seeing there is essentially a bigger price reduction.
• 8:16
  SPEAKER_01: Right.
• 8:16
  SPEAKER_01: And I guess one important thing to point out, um, in the nicer neighborhood, the average sale price was much higher.
• 8:24
  SPEAKER_01: So it was like 2.8 million.
• 8:26
  SPEAKER_01: And when you're comparing that to the the C neighborhood in 2024, the average sale price was about 175.
• 8:32
  SPEAKER_01: So um, you know, you're gonna have higher sales prices still.
• 8:36
  SPEAKER_00: I mean, it's it's almost like a million dollar difference, is always is what you're saying.
• 8:39
  SPEAKER_01: Yeah, just based based on the close sales, right?
• 8:41
  SPEAKER_00: Yeah, and that's based off the average, right?
• 8:44
  SPEAKER_00: So, okay, so what we're telling people, it's like, hey, yes, pricing has come down more in the nicer neighborhoods, so you could potentially get a better deal.
• 8:56
  SPEAKER_00: But what you just want to remind folks is that, yeah, but we're talking about another million dollars on a purchase price difference, right?
• 9:03
  SPEAKER_00: Essentially, yeah, right, right.
• 9:05
  SPEAKER_01: But but yeah, as far as you know, the metrics go, um, you're getting really good metrics in the A neighborhoods right now.
• 9:11
  SPEAKER_01: So if you can afford to be there, it's a great time to buy.
• 9:14
  SPEAKER_00: I I'm thinking, Cody, when we talk about the difference in in actual price, could it be that someone might say, well, could it be that that was overinflated?
• 9:25
  SPEAKER_00: And could it be that it was so overinflated that it there there was room for it to come down?
• 9:31
  SPEAKER_01: I mean, that that definitely could be.
• 9:33
  SPEAKER_01: There was a big frenzy when interest rates were down.
• 9:36
  SPEAKER_01: I remember, you know, trying to get buyers into stuff back in 2020, 20 through 2022, and you know, every deal had multiple offers on commercial deals.
• 9:45
  SPEAKER_01: You usually couldn't have a loan contingency or an appraisal contingency and inspection.
• 9:50
  SPEAKER_01: You could have five days.
• 9:51
  SPEAKER_01: So basically, you're five days into the escrow, your earnest money is going hard, and you're basically just hoping you can qualify for a loan.
• 10:00
  SPEAKER_01: I've never had anyone not, but um but anyway, yeah, there was so much competition at that point, and I think prices got bit up a lot for those, you know, A location properties.
• 10:12
  SPEAKER_00: And I'm also thinking that in the C location properties, that's that's typically your call it your um your starting barrier.
• 10:26
  SPEAKER_00: And it's it's already lowered to begin with, and it was lower, it was lower in in 2022, and it it just maybe it could only just drop so much because maybe back to my first point is that maybe the nicer areas were slightly inflated, and so that you know, versus like they had more room to drop versus say a C neighborhood.
• 10:48
  SPEAKER_01: Right.
• 10:49
  SPEAKER_01: One other thing I was thinking about, so as you know, the fixed periods on these commercial loans adjust or expire and the loan adjusts, um, you know, back in 2022, if you were buying in an A neighborhood, you might have been able to buy with 30, 35% down.
• 11:07
  SPEAKER_01: And you know, when that rate adjusts, maybe that's not quite enough to get you into a new loan.
• 11:13
  SPEAKER_01: So maybe it's harder for people to refinance those properties, and that's why prices have come down a bit more.
• 11:19
  SPEAKER_01: Um, just one guess, but okay.
• 11:22
  SPEAKER_00: Or, or maybe since most investors that we represent would love to buy a building at 30% down when it comes to five plus units, and when you start increasing that because interest rates went up, and so now the investor has to come in with maybe 40, 50, sometimes even more.
• 11:40
  SPEAKER_00: Um, maybe it makes it more difficult in the A neighborhood because now you have to put more down.
• 11:45
  SPEAKER_00: And maybe when they look saying, well, the C neighborhood is not as bad, and and it's in the path of growth and it's getting better, and there's still good rental demand there, and maybe there I could buy with 35% down.
• 11:56
  SPEAKER_00: That could be the other driver as well, meaning that there's you only have so much money as an investor, you want to put as little as possible in most cases, and the C neighborhood gives you that option.
• 12:08
  SPEAKER_01: True.
• 12:09
  SPEAKER_01: Yeah, that could be.
• 12:10
  SPEAKER_00: Yeah, and so the the only reason we're bringing this up is that in most scenarios, if you would have said that that the gross rent multiplier has dropped across the board, in most cases we would have expected it to be the same.
• 12:25
  SPEAKER_01: Right.
• 12:26
  SPEAKER_00: That would have been normal.
• 12:27
  SPEAKER_00: And what we're pointing out here is we're seeing an opportunity um to let you guys know of this great opportunity.
• 12:35
  SPEAKER_01: Yeah, definitely.
• 12:37
  SPEAKER_01: I I would not have expected this.
• 12:39
  SPEAKER_01: Usually you expect the nicer locations to retain value better.
• 12:43
  SPEAKER_01: And in this case, for you know, whatever reason, it's just um there's an opportunity here where you can buy for cheap.
• 12:50
  SPEAKER_00: Cody, we have listeners nationwide, worldwide, and someone's gonna say, I mean, I guess my question, do you think this is the same?
• 12:59
  SPEAKER_00: Do you think this happened in Orange County?
• 13:01
  SPEAKER_01: Ooh, good question.
• 13:03
  SPEAKER_01: Um, I haven't looked at the numbers as closely, but I'd be interested to find out.
• 13:07
  SPEAKER_00: Okay.
• 13:08
  SPEAKER_00: Yeah, I'm thinking some of their some of the folks listening are probably gonna raise their hand and say, hey, can you look at my area?
• 13:14
  SPEAKER_00: Did that happen there as well?
• 13:15
  SPEAKER_00: And maybe, and maybe it didn't, and maybe it all went down.
• 13:18
  SPEAKER_00: It lowered.
• 13:19
  SPEAKER_00: We're gonna tell you this.
• 13:20
  SPEAKER_00: It definitely lowered, it lowered across the board.
• 13:22
  SPEAKER_00: This is nationwide, five plus units, uh, took a bigger hit on value.
• 13:27
  SPEAKER_00: Yeah, and in some areas, probably more than others, but um, but definitely here in Southern California, cap rates rose and gross rate multipliers go uh went down.
• 13:36
  SPEAKER_00: And in both of those instances, when those things happen, values have come down.
• 13:40
  SPEAKER_00: Right.
• 13:41
  SPEAKER_00: Yeah.
• 13:41
  SPEAKER_00: Let's talk about how far they've come down, Cody.
• 13:45
  SPEAKER_00: The values overall, just in general, not even uh A or C, just in general.
• 13:50
  SPEAKER_00: Like what are you seeing?
• 13:52
  SPEAKER_01: Um, for the five unit and five unit and up buildings, it's about 20% from the high, is what they've come down, at least just you know, based on what I've noticed.
• 14:02
  SPEAKER_01: The four unit properties and under, um, there's still been a decline, but not as much.
• 14:08
  SPEAKER_01: I know you know a lot about the four unit market, so maybe you could um add to that.
• 14:12
  SPEAKER_00: Yeah, so I so here's what I've seen.
• 14:14
  SPEAKER_00: I I tell people, hey, when people ask me, well, how's the market?
• 14:17
  SPEAKER_00: I'm like, are we talking about five plus or four and under?
• 14:20
  SPEAKER_00: So if we're thinking, hey, well, let's talk about four plexus.
• 14:23
  SPEAKER_00: And so I agree with Cody that we've seen anywhere between 20 to 25 percent decrease in the five plus market.
• 14:30
  SPEAKER_00: And so we know now when you're pricing a property, and you know, we we're fortunate enough that we get hired a lot to sell multiple buildings throughout Long Beach and and the surrounding areas.
• 14:41
  SPEAKER_00: And so when we're looking at a five plus market, it's it's competitive.
• 14:45
  SPEAKER_00: There's there's more inventory out there, cap rates have risen, and so we need to price ourselves where we're competitive with it with everyone else.
• 14:52
  SPEAKER_00: It's different at the fourplex level.
• 14:55
  SPEAKER_00: You know, sometimes there's certain metrics, and a lot of the metrics that that we've created to kind of simplify the process in-house here, we call it the six two one method.
• 15:06
  SPEAKER_00: And and our six two one method allows us to analyze a property with every possible metric that any investor is going to look at.
• 15:15
  SPEAKER_00: You know, Cody, you love the gross rep multiplier and and and so do your clients, and it it's a real great way to simplify comparing properties apples to apples.
• 15:25
  SPEAKER_00: And other people, sometimes they look at price per door, price per square foot.
• 15:29
  SPEAKER_00: And what I've noticed with the four-plex market, we've probably seen more of like a 15% drop in value.
• 15:34
  SPEAKER_00: So not as high as the say the five plus.
• 15:39
  SPEAKER_00: Um sales are down significantly right now, but they're still trading.
• 15:43
  SPEAKER_00: And the one thing that's really interesting, so okay, sales are down, values are slightly down, 15%.
• 15:49
  SPEAKER_00: That's on average.
• 15:50
  SPEAKER_00: Now, some areas haven't really taken that big of a hit.
• 15:54
  SPEAKER_00: The most interesting thing is that properties are are even under this environment, on average, fourplexes are selling faster than they did like a year ago.
• 16:06
  SPEAKER_00: So it's it's kind of an interesting thing where if I told you sales are down and and then also prices are down, you would say, oh, it's gonna take longer to sell a price.
• 16:15
  SPEAKER_00: That's not always the the case.
• 16:17
  SPEAKER_00: But right now, when it comes to the fourplex market, Cody, we're experiencing like the least amount of sales than we've ever seen since I've been tracking this like going back seven, eight years.
• 16:26
  SPEAKER_00: And so in and a lot is a lot of that is driven with with two things.
• 16:31
  SPEAKER_00: Interest rates went really, really high.
• 16:34
  SPEAKER_00: And when a buyer buys a fourplex, typically they may not know what cap rate stands for, what it means, um, how to come up with it.
• 16:45
  SPEAKER_00: Because in in most cases, people buy a four-plex because that's gonna be their first safe multifamily investment.
• 16:52
  SPEAKER_00: It's you know, I call it like the gateway investment.
• 16:55
  SPEAKER_00: It's people sometimes will make a decision just based on location, and they may not factor like income as much.
• 17:04
  SPEAKER_00: I'm not saying that we don't uh uh analyze, we're definitely gonna analyze it that way, but I kind of know who the market's gonna be for it.
• 17:12
  SPEAKER_00: And sometimes they're like, hey, I I like that area, it's down the street from my dad's house.
• 17:17
  SPEAKER_00: I'm gonna buy it.
• 17:17
  SPEAKER_00: And that's the rationale.
• 17:19
  SPEAKER_00: Not, hey, the cap rate is so good on it when compared to everything else.
• 17:24
  SPEAKER_00: So it's it's slightly different when it comes to the four units, three units, two units.
• 17:28
  SPEAKER_00: There's the motivation behind people buying it is slightly, it's more based on sometimes, sometimes on on literally curve appeal and location and their gut feeling of what's it gonna be like to manage and own this building and me drive here to pick up the rents because most people buying those types of units are gonna self-manage, and I'm gonna recommend that they self-manage as well at first, and then as you grow, and again, because it's your first stepping stone, you're gonna branch into bigger stuff at that point.
• 17:57
  SPEAKER_00: We're gonna recommend that you bring in a property manager to help oversee that.
• 18:00
  SPEAKER_00: So um, smaller, smaller decrease in prices with the four units.
• 18:04
  SPEAKER_00: Um, again, there's still there's still demand, but sales are definitely down there for sure.
• 18:09
  SPEAKER_01: Got it.
• 18:10
  SPEAKER_01: And you know, the the Fed just had their meeting um in August, and they said it's time for a rate cut.
• 18:17
  SPEAKER_01: So, what do you think is gonna happen with the four unit pricing as rates start to come down?
• 18:22
  SPEAKER_00: Uh, they're gonna go up.
• 18:24
  SPEAKER_00: The prices are gonna go up.
• 18:25
  SPEAKER_00: And I know um there's been all this talk for for for years that that we're in a bubble, prices are gonna collapse, get ready again, uh owners are gonna lose their shirts.
• 18:36
  SPEAKER_00: I mean, all these things that I hear, I see it on on X, um and you know, which is Twitter, and you know, there's all these like naysayers when it comes to where where values are going, we're not seeing any of that.
• 18:51
  SPEAKER_00: I mean, yes, values did drop a little bit, but no one's really losing their shirt.
• 18:55
  SPEAKER_00: When we're talking about the five plus folks who have a decrease in value by 25%, while they've also had this massive increase in appreciation.
• 19:04
  SPEAKER_00: So all we're saying in that situation, they're not making as much much money.
• 19:09
  SPEAKER_00: They're still making money.
• 19:10
  SPEAKER_00: All of them are making money, right?
• 19:12
  SPEAKER_00: Now, granted, if someone recently bought, they bought it, you know, they they bought five years ago.
• 19:20
  SPEAKER_00: And well, even if you bought five year years ago, you probably're probably still making money if you made the right business decisions in your apartment building.
• 19:29
  SPEAKER_00: And so even then, like there's, from my opinion, there's no there's no wave of foreclosures coming.
• 19:37
  SPEAKER_00: You can't find them, no one's gonna lose their property right now, for the most part.
• 19:41
  SPEAKER_00: And I'm talking Southern California.
• 19:42
  SPEAKER_00: I don't want anyone to say, hey, well, we're experiencing something different in Florida where I see inventory is massively up just on the single family home level.
• 19:51
  SPEAKER_00: We're not really seeing any of that here in Southern California.
• 19:54
  SPEAKER_00: So if interest rates drop, that's gonna be great for owners.
• 19:59
  SPEAKER_00: And in fact, Cody, listen, I have owners that are saying, hey, Juan, I'm gonna wait to list my property for when they drop.
• 20:06
  SPEAKER_00: Um what do you think is gonna happen with um interest rates uh five plus four, whichever you want to handle?
• 20:14
  SPEAKER_01: So it's interesting, they've already come down.
• 20:17
  SPEAKER_01: So really just on the news that the Fed was planning to cut in September, uh, we've seen the 10-year treasury bill come down, and we've also seen interest rates come down.
• 20:27
  SPEAKER_01: Actually, I got a quote this morning from uh Phoebe with Sage Trust Mortgage, and she, you know, like a week ago was quoting 6.375 on a 5% down loan program for an owner-occupied buyer who wants to buy a small multifamily.
• 20:42
  SPEAKER_01: And today, rates for that same loan are at 5.99.
• 20:46
  SPEAKER_01: So just under six.
• 20:48
  SPEAKER_01: And this is before the Fed has actually cut any rates.
• 20:51
  SPEAKER_01: So it's really the interest rates are dependent on the bond market, and the 10-year treasury has been slowly coming down.
• 20:58
  SPEAKER_01: So um it's it's positive news.
• 21:01
  SPEAKER_01: If the Fed doesn't cut rates, I think they'll go back up.
• 21:03
  SPEAKER_00: But you know what's interesting?
• 21:05
  SPEAKER_00: So so let's talk seller.
• 21:06
  SPEAKER_00: It's definitely positive news for a seller.
• 21:08
  SPEAKER_01: Definitely, yeah.
• 21:09
  SPEAKER_00: Is it positive news for the buyer?
• 21:12
  SPEAKER_01: Ooh, um, yes and no.
• 21:15
  SPEAKER_01: You know, it's still competitive to buy property, so rates are also going down for their competition.
• 21:21
  SPEAKER_01: So someone else might be willing to compete a little harder on purchase price now that they have a better interest rate.
• 21:27
  SPEAKER_01: So it really just depends.
• 21:29
  SPEAKER_01: I think I think the time to buy is before rates go down too much, because you know that's you're still buying into the market when other people may be hesitant, and you can take advantage of the rates coming down later with a refinance.
• 21:46
  SPEAKER_00: And so that time you're describing is seems like right now.
• 21:50
  SPEAKER_01: Yeah, I think I think right now it's like we're towards the tail end of the high rates that we've seen over the last couple years or last year.
• 21:58
  SPEAKER_00: Yeah, and so for anyone.
• 22:00
  SPEAKER_00: looking whether you're looking at a four-unit building or or something much much bigger please please give us a call we this is this is probably the time i mean you probably got you should have got in sooner but if you've been following our our channel either on the podcast platforms or or on youtube we've been saying this that hey things are gonna improve and let me just go back to uh where we started off you know for cody so for for someone who buys in the a neighborhood at a 14 times gross it's believable that it's gonna go back to a 16 times and so when you're when you're an owner and you buy you know a six unit building in the a neighborhood you bought it at a 14 times gross rent multiplier it's gonna go hopefully at some point back to 16 that's where the real money's being made right yeah um I don't know if it would go all the way back to 16 that was based on you know sub four percent interest rates for five unit and up properties it's possible that it does but I think there'll definitely be an increase as interest rates come down right yeah no and it and I like kind of that conservative approach but we also know that that the next time around you know we'll definitely catch back up to where that height was and most times they even pass it so but I get it that hey hey one that 16.6 grm was also driven by a three percent interest rate and we're not quite there yet and we may not ever go that that low but the fact that we're that we're getting back into maybe high fives it's definitely promising for for sellers.
• 23:44
  SPEAKER_00: I mean I I think a buyer is going to say well it's also promising for me because I'm gonna have a lower payment but our our our warning there is like yeah but if there's more than one buyer you're gonna have to overpay for the property to secure it which is not favorable for you.
• 24:00
  SPEAKER_00: Right.
• 24:00
  SPEAKER_00: Yeah exactly cool um let's go on to our next topic I know you've been call uh following a few different policies that are that are gonna be on the ballot let's discuss them and kind of give our overall thoughts on what we think about that.
• 24:12
  SPEAKER_01: Yeah so lots of political news right now uh so last time I was on the podcast we talked about the balcony inspection law and there's a new bill it's AB 2579 where they're they're trying to extend the due date basically for owners to complete those inspections.
• 24:27
  SPEAKER_01: So uh based on the current law you have to have it done by January 1st 2025 and now they're trying to push it out until January 1st 2026.
• 24:36
  SPEAKER_01: So you'd have a year more time to get this done.
• 24:38
  SPEAKER_00: You know the we we had some um some of our clients call the city and the city said um because okay so like the way this is supposed to work for anyone who's first hearing this is that if you have a three unit apartment building or more and if you have balconies that face the elements like out like if they're not enclosed balconies stairwells um you're gonna have to have an inspection and so the inspection started getting really pricey.
• 25:07
  SPEAKER_00: I mean on the low end we were seeing like$800 but then I was getting quotes for like$2800.
• 25:12
  SPEAKER_00: And so this is for apartment buildings HOAs have already gone through some of this stuff.
• 25:16
  SPEAKER_00: These are obviously larger larger buildings and so this this had this report had to be done and either that report was going to say hey everything's fine with your stairs you don't have to do anything or it's not fine you're given so much time to do the work and so we one of my clients called called the city and the city of Long Beach said because we're like okay so let's just say let's fast forward and say we have this report in our hand great says we don't that we comply that we don't need to do anything.
• 25:46
  SPEAKER_00: Who do we turn that into that was a question I had last time well we check with the city the city says we're not gonna look for it in fact we're not even gonna ask for it.
• 25:55
  SPEAKER_00: In fact we don't have the staff to monitor this and so I I'm I'm glad that there's discussion and there's a potential that it's going to get pushed off because I would tell you for my opinion 80% of the apartment owners who are supposed to do it haven't done anything about it.
• 26:12
  SPEAKER_01: Yeah I would agree.
• 26:13
  SPEAKER_00: Yeah and so if it gets pushed out that's great.
• 26:17
  SPEAKER_00: I think that laws get passed and you know yeah we we at our level try to get the word out but you know we could only do so much and and you know obviously the apartment association here in Long Beach does a great job notifying people but not everyone's gonna jump on board and they're like wait I'm gonna have an inspection and it's gonna cost how much and it doesn't even mean that they're gonna do the work it's just a report yeah it's hard to get people on board for that.
• 26:43
  SPEAKER_01: Right.
• 26:44
  SPEAKER_01: Yeah I mean it's a good thing to have done you don't want your stairs or your balconies collapsing and hurting somebody potentially but um yeah it is kind of a tough pill to swallow right now to pay 2800 bucks to have someone just go look at something.
• 26:57
  SPEAKER_01: So yeah okay moving on what do we got next so next uh on my list here is Prop 33.
• 27:05
  SPEAKER_01: So this is named the Justice for Renters Act.
• 27:09
  SPEAKER_01: So this is the third time that there's been a ballot initiative in California where they're trying to repeal Costa Hawkins.
• 27:17
  SPEAKER_01: So there was one attempt in 2018 that failed uh with a 59% no vote.
• 27:22
  SPEAKER_01: There was another attempt in 2020 uh that also failed with a 60% no vote.
• 27:28
  SPEAKER_01: And yeah this is going to be the third attempt that they try and repeal Costa Hawkins which is a really crucial law for property owners especially people in our business because it limits how strict cities can be with rent control.
• 27:42
  SPEAKER_00: What are they proposing just so folks know what we're up against again.
• 27:46
  SPEAKER_01: So the Costahawkins Act basically it does a few main things.
• 27:50
  SPEAKER_01: So number one, it makes it illegal to um put rent control on single family homes, condos, townhomes.
• 27:58
  SPEAKER_01: The second thing it does is it makes it illegal to put rent control on new construction because they don't want to disincentivize you know builders we really need more housing right now.
• 28:08
  SPEAKER_01: And the third thing it does is vacancy control.
• 28:10
  SPEAKER_01: So that means if a unit goes vacant a new an owner can raise the rent up to market price right so even if it's a rent controlled unit they can still adjust rent up so if Costa Hawkins is repealed those protections go away.
• 28:23
  SPEAKER_01: So you could have some cities and actually in California um I think Santa Monica had vacancy control um maybe West Hollywood and I think San Francisco did as well where basically if if you had a unit go vacant and you were in one of those cities, the city said hey you have to keep the rent the same you can't raise it up to market price.
• 28:43
  SPEAKER_00: Okay so we're definitely against this.
• 28:45
  SPEAKER_00: Definitely and so we have to get the word out so give us the uh what's the prop the the proposition again just so that our listeners know that this is a flat out no it's prop 33.
• 28:55
  SPEAKER_01: So yeah make sure to vote no this is going to be on the ballot in California this year.
• 29:00
  SPEAKER_00: So this is a really important one to make sure that you get out there and you know don't support this one make sure you vote no and so for some of the people that are wondering well why are you voting no?
• 29:11
  SPEAKER_00: Well we already have statewide rent control all over California although a lot of people even in my industry don't seem to know that um there is statewide rent control everywhere and all investors call me and say Juan that building you're selling on 2nd street is that rent control and I'm like you gotta be kidding me you don't know this you're an investor agents don't know brokers don't know this it's the weird appraisers don't know this and I and I talk about this how could they not know that they're statewide rent control so that's the first part and so what's happened statewide rent control to me has actually kept values down because investors used to look at a property and say oh I see the potential right now the rents are really low but the the road or the business plan to get from the low rents to the high rents there was there was a road to take and now that road has gotten uh much more expensive and it's not even a guarantee and so then investors like are wondering well do I really want to buy that building uh with those low rents it's gonna take me who knows how much money I can't force anyone to do anything and maybe I don't want to buy it or maybe it's worth less and so it's it's hurt the owner who's owned this for 30 years.
• 30:37
  SPEAKER_00: It's been a problem.
• 30:38
  SPEAKER_00: And so sometimes we're lucky enough to sell a building there's a couple vacancies and so someone could come in do renovation.
• 30:46
  SPEAKER_00: And let's not forget the reason why they're doing renovations, Cody, is so that they could get the new higher rent.
• 30:53
  SPEAKER_00: I just did a renovation on one of my own apartments$30,000 to remodel uh the kitchen the bathroom the floors and new paint$30,000.
• 31:03
  SPEAKER_00: Cody back in the day that would have cost me like under$10,000 but it's so expensive.
• 31:08
  SPEAKER_00: So okay so now I've spent$30,000 it's a lot of money I want to charge what a market rent is going for.
• 31:17
  SPEAKER_00: Right.
• 31:18
  SPEAKER_00: I do not want to oh well the last tenant was paying$1500 that's that would decentise me from ever making that building better.
• 31:27
  SPEAKER_01: Yeah and that's one of the big drawbacks of rent control you know you disincentivize people to invest in their properties um it creates like an artificial shortage of units because people don't want to leave a rent controlled unit that their rent you know they know how much it can go up and they want to stay in that cheap unit.
• 31:46
  SPEAKER_01: And there's a whole host of other things that just aren't great for the community as a whole.
• 31:51
  SPEAKER_01: What we really need is more housing.
• 31:53
  SPEAKER_01: So if we can focus less on the symptoms of controlling the rent prices and more on the actual problem which is uh an imbalance between supply you know the number of homes that we have for rent and the demand the number of people that want to rent them um if we can address that instead that would be a much better route to go.
• 32:13
  SPEAKER_00: Got it okay so vote no prop 33.
• 32:16
  SPEAKER_01: Right perfect what's our next item um so uh this was in the news quite a bit um it's AB1840.
• 32:25
  SPEAKER_01: So this was a a California down payment assistance program called Dream for All, I believe.
• 32:32
  SPEAKER_01: And um basically if you're a first time home buyer in California um and you meet some other criteria, the state is willing to help you with the down payment.
• 32:43
  SPEAKER_01: So they'll basically lend you the down payment up to 150 grand or 25 or 20% of the purchase price whichever is less.
• 32:52
  SPEAKER_01: And why this was in the news recently is they wanted to expand this to include undocumented immigrants so they would be able to qualify for this program.
• 33:02
  SPEAKER_01: And actually today so it's September 6th governor knew some so it made it through the through both houses and and got to the governor's desk and actually he um what's the word I'm looking for he vetoed it today.
• 33:15
  SPEAKER_01: Yeah he vetoed it today.
• 33:17
  SPEAKER_00: Wow so I I can't even believe it got through both houses.
• 33:20
  SPEAKER_01: I know that's pretty crazy.
• 33:21
  SPEAKER_01: It's okay tax dollars from people who are citizens going to help um undocumented people.
• 33:26
  SPEAKER_00: Yeah I'm all in favor of home ownership and and I understand there's going to be some I mean I'm I'm all in favor of home ownership so long as everyone has the option to to receive the benefit of that you know I I I was fortunate enough in that my parents who were undocumented and and were were coached through with with some people that kind of helped our family and and got them to buy their first house.
• 33:54
  SPEAKER_00: And I'm glad they did because you know when we talk about rents for the most part are always going to keep going up and if you're fortunate enough to be able to buy a house you're capping your biggest expense and that's something that I've been saying for years.
• 34:09
  SPEAKER_00: And so I I understand I got vetoed but for the most part I you know our our show is own more doors.
• 34:19
  SPEAKER_00: I we want to incentivize people to find a way to first buy a house and then once you're ready you saved up enough or you have equity in your house to go buy units and continue investing in real estate which we believe is the best investment vehicle out there.
• 34:33
  SPEAKER_00: Yeah or start off with units another great way I yes yeah it's kind of a hard sell but uh I think you're to your point it's probably the best way to do it.
• 34:43
  SPEAKER_00: The best way to do it is for someone to buy a four unit building and live in one of the units.
• 34:47
  SPEAKER_00: That is time and time again some of the most successful clients that we have that's how they did it.
• 34:53
  SPEAKER_00: They bought a four unit and they lived in it for a year or two or more and then they moved on to now we have our own house and we have our units and then there's there's been growth from from both um what's what what's the next thing we have um so it's an election year and you know Kamala Harris Donald Trump competing Kamala Harris came out recently and said that she wanted to pass a$25,000 housing assistance if she's elected.
• 35:25
  SPEAKER_01: So um it's not something that's you know guaranteed but I just wanted to get your thoughts on what that might look like if if she does get elected she does get an office she's successful in passing this what what is this what or what are the repercussions of something like this?
• 35:42
  SPEAKER_00: Well let's talk about the benefits.
• 35:44
  SPEAKER_00: So so the benefits so you're saying that that under this bill a people who qualify would get$25,000 and they could use that towards buying a property or their down payment?
• 35:57
  SPEAKER_01: So it's for first time home buyers is what you're saying.
• 36:00
  SPEAKER_01: And it would basically be a government grant to help them with their down payment.
• 36:05
  SPEAKER_00: Yeah.
• 36:06
  SPEAKER_00: I I think that tying that in with we're expecting interest rates to drop I think that it would be terrific for the real estate market.
• 36:17
  SPEAKER_01: Yeah it it could be it could be yeah what are you seeing that would that would be so we know that there's a shortage of homes available for first time home buyers right and if the government is giving all of those people$25,000 to go out and buy a home what I would expect is for prices of those homes to go up by$25 grand, right?
• 36:44
  SPEAKER_01: Because everyone's now going to have this extra money.
• 36:46
  SPEAKER_01: So I think it it it'll be good at the beginning for the people who are first comers but I think over time as you know more people use this program it's just gonna drive prices of first time homes up.
• 36:59
  SPEAKER_00: Yeah I think this is another issue of what you said earlier that it's not really solving the problem and it it really goes back like yeah you're right it sounds great at first and um might get you some votes probably a lot of votes yeah and but then at the end of the day did it really solve the problem and really and I don't really know why this is the case Cody where we know we need housing and builders want to build it's expensive to build land's expensive in Southern California it is I guess in other places it's not and there's all these um pushback sometimes from the neighbors in the areas but also from the city where it's just hard to build and to your point that's the real solution and that's not really I don't I don't know any politician who's really trying to push that.
• 37:49
  SPEAKER_01: Yeah they've done they've made some progress in California with the ADU law which is great you know that is somewhat streamlined but I'm actually working on um a deal right now so we have this lot in escrow in downtown Long Beach and right now it's rented out to a commercial tenant they use it as parking and the lease is two years and I was like oh shoot like is that going to be an issue for you if you want to come in and build and my developer client actually um you know him well he was saying no it's actually a good thing because it's gonna take probably two plus years to get through the entitlement and permitting process with the city.
• 38:29
  SPEAKER_01: So two years just for him to buy the slot and build on it.
• 38:32
  SPEAKER_00: And this is someone who knows what to do.
• 38:35
  SPEAKER_00: This is someone is a very experienced person that has all the right connections and even him it's gonna take two over two years uh to get the entitlements which would give you the right to build so it it's a very and that means that someone needs to buy something in most cases they're gonna have a loan and they have to be able to carry that loan for two and a half years before they could ever start building.
• 38:54
  SPEAKER_00: And then there's another loan which is a construction loan.
• 38:57
  SPEAKER_00: And then I would tell you I think if if we ask 10 people will construction costs be higher or lower uh two years from now I think it's they're gonna be higher they're gonna be higher yeah they're gonna be higher.
• 39:10
  SPEAKER_00: So this is a very it's very difficult.
• 39:13
  SPEAKER_00: Cody I I I talked to a client yesterday we we sold her a four unit building and right you know you brought up ADUs let's talk about that we knew that when we sold her this property it had parking in the back that she could build two more ADUs in the back.
• 39:29
  SPEAKER_00: She's being told that there's a bill I don't know the bill so but that that she could if she waits and if this bill passes she could build four units behind yes so I just heard that yesterday and um she said is this true and I said let me look into it and so it might be true.
• 39:48
  SPEAKER_00: And so all I'm saying like I'm not saying that it's true yet but it's it's possible that that if you have a property and there's a parking lot and if you're in California um that the that the ADU laws could change in your favor.
• 40:03
  SPEAKER_00: And so yes uh for anyone listening we are in favor of building adus we believe that that it's listen it's a small way to try to contribute in making a difference but from an investment perspective what you pay to build to build the ADU you'll get that money back in terms of uh appreciation of your asset and in terms of increase in in cash flow on that property definitely yeah so it's something that we're that we're we're definitely pro so we'll keep you folks posted um Cody thanks for coming in today uh what's the best way Cody if someone wants to work with you someone's like man Cody knows what he's talking about I like him I like his demeanor how should they get a hold of you um so you can reach out to me through the Sage website that's one way or you can check me out on YouTube or Instagram it's just my name so at CodyCharnell um yeah but I'm happy to help anybody out there who's looking to expand their real estate portfolio.
• 40:58
  SPEAKER_00: Perfect here at Sage Real Estate we are monitoring everything we are involved at the apartment association level uh a lot of the organizations uh throughout Long Beach were part of the Long Beach Rotary and we're giving back to the community but we follow everything have to having to do with uh with real estate and I appreciate uh Cody having you on and and going through everything the all the bills and all the propositions we should be looking out for and we'll be back again here shortly thank you so much.
• 41:25
  SPEAKER_01: Awesome thanks one