Mortgage rates are on a declining trend, but don’t be fooled – the industry’s efforts to rightsize from a pandemic boom will continue through 2023. Up to 30% of the 1,000 largest independent mortgage banks will disappear by the end of this year, either through sales, mergers, or failures amid still-high inflation and rising interest rates, according to projections by the M&A advisory firm Sterling Point Advisors. 

But American Pacific Mortgage (APM), a California-based retail lender of about 3,600 employees and 1,500 mortgage loan originators, is undeterred by the depressing outlook. Rather, APM sees it as an opportunity to expand geographically beyond its major California market to the Midwest and the Southeast. 

In 2022 alone, APM acquired 11 branches from Arizona-based Sunstreet Lending and Sunstreet, 25 branches from the Minnesota retail lender Lend Smart Mortgage and 51 branches from Amerifirst Financial Inc. 

The lender also brought over 45 former retail branches from Finance of America Companies Inc. (FoA) months after it shut down its forward mortgage segment. However, Bill Lowman, CEO of APM, said the number of branches may have gone up from when it was first reported, as it includes secondary branches or additional license locations.

All in all, 900 employees joined the company, from the four deals APM completed last year, including 540 LOs, Lowman said in an interview with HousingWire.

That doesn’t mean APM survived 2022 unscathed, however.

“We did have a few layoffs throughout the year,” Lowman said, declining to mention specific numbers. 

The lender saw production drop about 42% in 2022 to $13.8 billion due to the interest rate environment and the refi business going away, much like every other lender, the executive said.

“The industry volume, I think, is going to end up being down about 50%. So from that regard, we feel like we outperformed the market,” Lowman said. 

When asked how the firm gets leads on potential deals, Lowman said it helps that other lenders know that APM is aggregating volume and interested in acquisition. 

Getting leads for potential deals

“They all come from different methods – whether it’s presented to us by a consulting firm like Stratmor [Group], whether someone reaches out to us because they know us, or whether it is through industry contacts,” Lowan noted.

Not every deal proposal goes through, however. 

APM passed on about six to eight M&A proposals in 2022 that didn’t pass the initial consideration phase — which compares the origination volume the deal would bring to APM against the cost of onboarding a large number of employees.

The lender is currently deeply rooted in California, which accounted for about 45% of its total origination volume in 2022. The goal for 2023 is to have that figure go below 40% in California while spreading out to other regions of the country instead. 

When branches are acquired, APM brings over the LOs and processors to the extent that they could remain profitable.

“We do a pro forma, we work with their branch manager and say, ‘Okay, you’re fine, come on over’ or ‘You may need to reduce your staff a little bit because you’re not profitable.’ We want all of our branches to be profitable,” Lowman said. 

After APM acquires the branches, it either takes over the leases of the physical office space or finds a smaller office space – which was the case for Finance of America and some of Amerifirst Financial branches. 

Branch managers and LOs from Sunstreet Mortgage were able to keep their existing 11 branches. APM also plans on taking over many of the retail leases that span over 24 branches, though it is still under negotiation. 

Branding as American Pacific Mortgage 

Acquired branches can still brand themselves as their existing names but become a division of APM. While Lend Smart, Sunstreet and AmeriFirst Financial continue to brand themselves under existing names, former Finance of America branches now present themselves as APM.

“They are a part of our company policies, procedures and culture. We are an ESOP. Our company is 49% owned by its employees as an employee stock ownership program, so they are a part of that. They are a part of everything that American Pacific Mortgage is,” Lowman said. 

Boosted by the M&A activity that took place in the second half of 2022, Lowman projects a 25% volume increase for APM’s production in 2023 — at a time when origination for the industry is expected to decline about 10 to 15% from 2022. 

The California lender is in conversations with “a lot of lenders,” Lowman said. He declined to mention further details. 

“The more the disruption, the more the opportunity. When it’s too tough for them, it’s just right for us. We went into this declining market prepared to take advantage of it,” Lowman said. 



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Home Partners of America, a Chicago-based Blackstone portfolio company, has appointed Jennifer Deason as its chief executive officer, the company announced on Wednesday. Deason will step into the new role later this month.

“Home Partners’ mission is particularly close to my own personal story, as I was raised by a single mom who did not have any paths to homeownership,” Deason said. “I’m looking forward to working with the team to build on the Company’s strong foundation and make home access and homeownership a reality for many more people.”

Deason will step into the new role later this month and will succeed the company’s co-founder and current CEO, William Young, who will transition to the role of non-executive chairperson of the board of directors.

“I am honored to follow in Bill’s footsteps and lead this exceptional team at Home Partners,” Deason said.

Young has helped build and lead Home Partners for more than a decade.

“Together, we have helped individuals and families across the country access homes in great communities and have expanded housing access for low-to-moderate-income families through our Choice Lease program,” Young said in a prepared statement. “There is still a tremendous amount of work left to do, and Jen is uniquely able to lead our company through its next phase of development and growth…”

Deason’s professional career spans more than two decades in leadership positions. She recently helped launch Belong Capital and served as chairwoman of Belong Acquisition Corporation prior to joining Home Partners. In addition, she co-founded Flowcode in 2019 and served as the company’s chief business officer and chief financial officer.

She has also held roles including executive vice president, head of strategy and corporate development at Sotheby’s in New York; EVP at Bain Capital; CFO at The Weather Company; engagement manager at McKinsey & Company and investment officer at World Bank International Finance Corporation, among others. 

In addition, Deason has served a board member at Margaux and is a current board member at DHI Group, Inc., Concentrix, MasterCraft Boat Company. She also serves on the board of trustees at the Massachusetts Museum of Contemporary Art.

Per its website, Home Partners asks renters to apply for approval on a home they wish to rent or own later and work with a real estate agent. The company then leases it to the person, who can rent the home with a one-year lease with the option to buy it or renew the lease. It claims one can rent a home for up to five years (or three years in Texas).



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With a turbulent housing market and a volatile rate environment playing out over much of the past year, concern about housing affordability has hit a fever pitch. Three housing policy experts recently joined HW Media COO Diego Sanchez to discuss the potential shifts in housing affordability over the next year.

The panel took place during HousingWire’s Affordable Housing Mini-Con and featured Laurie Goodman of the Urban Institute, Faith Schwartz of Housing Finance Strategies and Jim Gray of the Lincoln Institute of Land Policy. When asked about “good news” on the front of housing affordability, all three panelists described how active work by the federal government on affordability issues is an encouraging development.

“We have [seen] a big effort by the government, more than we’ve ever seen before, making this squarely a top priority for the administration, which puts a lot of force and power into HUD, Ginnie Mae, FHA, VA, and the government to help the industry move forward,” Schwartz said.

Goodman felt that the trend in home prices was a generally positive sign, saying that the “worst” of housing affordability has likely passed due to the moderation of prices and the generally rising trend of wages, which appears to be outpacing home price appreciation.

“I’d expect wage growth to considerably outpace HPA over the next year, which is going to bring affordability more into line,” she said.

While interest rates are likely to continue to rise over the course of the year, mortgage spreads are unusually wide. Rates are linked to the 10-year Treasury rate plus mortgage spreads, which could lead to a more favorable rate environment, she explained.

“It’s very possible that you actually have 10-year rates rise a little bit and spreads [contracting] to more normal levels, and mortgage rates [could] actually fall over the course of the next year,” she said.

Gray concurred with Schwartz regarding the stewardship of the housing system by Biden administration officials, highlighting FHA Commissioner Julia Gordon and Ginnie Mae President Alanna McCargo‘s efforts to boost affordability.

“I think people are starting to see that there really is a lot more that can be done when you can just even minimally make changes in the credit box that Fannie Mae and Freddie Mac have so much power over,” he said.

There is still room for further government action, Schwartz said, particularly due to its influence on housing policy. But adding more private dollars to the mix can also help improve the affordability situation for many Americans who feel shut out of the homebuying process.

“Private capital should be brought in at reasonable returns with guardrails to protect the consumer and help us execute on some innovative programs,” she said. “Underwriting, trend-to-data, utilities [and more]. While we’re scratching the surface, it’s not materially changing things. But all these little additions can really make a substantial difference for people of color who don’t have homeownership.”

Goodman agreed, saying that a broadening of the credit box and holding default probability to a constant could be beneficial to improve affordability, while also recognizing that the loss mitigation options available to borrowers has grown significantly in the last two years.

She also added that for seniors who wish to age in place in their own homes, it could be beneficial for Medicare to be able to fund home modifications to better accommodate the naturally-diminishing mobility that occurs as people get older.

“Accidents are a huge issue,” she said. Very few seniors have their houses fit for this stage of their life. I actually think it could be […] very cost-effective to have Medicare in particular pay for grab bars, so you don’t trip in the shower and or toilet seat extenders. There are certain things that you can do very cheaply and easily assuming people want to age in place.”

Accessory dwelling units (ADUs) are also a potential solution for senior housing issues, she said. Gray added that broadly speaking, manufactured housing could become a more prominent solution to impact housing affordability in the U.S. as long as four key issues are addressed: financing, land issues, exclusionary zoning and energy efficiency.



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New York-based Rithm Capital executives have played it cautious with capital deployment amid a higher rate environment, and it’s a strategy that paid off in 2022. The company announced Wednesday that its approach resulted in an $864.8 million profit in 2022 — higher than the $705.5 million the prior year.

However, in Q4 2022, profits declined to $81.8 million, down from $124.5 million in the third quarter. 

“2022 was a transformational year for us in many ways. We navigated some of the more difficult fixed-income markets. We’ve seen the Federal Reserve raising rates seven times for a total of 425 basis points,” Michael Nierenberg, chairman and CEO, said during a call with analysts. “Capital Markets essentially shut down during different periods, but we managed to grow or book value by 5% during 2022 to generate a good return on equity of 15%.” 

In the mortgage business, Rithm Capital, formerly known as New Residential Investment, spent part of 2022 integrating its mortgage companies New Rez and Caliber. The company reduced its expenses, dramatically cutting its workforce by 56%, to deal with a shrinking mortgage market. Its performance last year relied on the servicing portfolio instead. 

Rithm’s mortgage business delivered a combined pre-tax income of $23.9 million in the fourth quarter. Originations experienced a $65.5 million loss, despite a 66% decline in general and administrative expenses. Meanwhile, servicing contributed $89.3 million in profits during that period. 

The origination volume declined to $7.9 billion from September to December, down from $13.8 billion in the previous quarter and $38.1 billion in the same period in 2021. Gain-on-sale margins, however, increased from 1.71% in Q3 2022 to 1.81% in Q4 2022. 

The production is expected to be even lower in the first quarter of 2023, with a volume between $5 billion and $7 billion. 

Servicing to the rescue

The company’s mortgage servicing rights portfolio (MSRs) totaled $609 billion in unpaid principal balance (UPB) as of December 31, 2022, up from $615 billion as of September 30, 2022. 

“If you think about the housing and mortgage market, the weighted average mortgage rate for Fannie Mae and Freddie Mac loans in the United States is 3.62%, and for Ginnie Mae borrowers is 3.57%,” Nierenberg said. “I bring this up as the refi opportunities are way out of the money with mortgage rates currently north of 6% – they should continue to lead to great performance in the MSR sector.” 

Nierenberg commented on Wells Fargo exiting the correspondent channel and reducing its servicing portfolio. He said if the risk-adjusted returns are attractive, Rithm will pounce on the opportunities. 

“To the extent that things come out a little bit cheaper than where we’re able to create them, we’re going to be all over,” Nierenberg said. 

Looking forward, Nierenberg said 2023 will be “hard” due to volatility, but the Fed is closer to “being done” with rate hikes. 

“I think you’ll see a fair amount more volatility in the market this year. We’ll continue to monitor rate moves and, at some point, likely put on some mortgages and hedge out some of our MSR portfolios,” he said

An update on other businesses

Regarding Rithm’s other businesses, Genesis Capital LLC, a business purpose lender, originated $481 million through the fourth quarter of 2022. The strategy with Genesis is to grow its servicing capabilities and expand its product set, including rental hold loans. 

In the single-family rental space, the company had 3,750 units at the end of December, unchanged quarter over quarter. The stabilized occupancy was 93%.

Rithm halted its acquisitions very early in the year, expecting home prices would decline and rates would increase. Transactions, however, have been very slow as we move forward in 2023, according to Nierenberg. 

“We’ll be back acquiring units at some point later in the year,” he said.

To diversify its business, Rithm acquired a share of 50% at Senlac Ridge Partners in December, later renamed GreenBarn Investment Group. The partnership will accelerate GreeBarn’s strategy of building a vertically integrated and diversified commercial real estate debt and equity business. 

In addition, Rithm expects to expand to Europe in the second quarter of this year. 

The company’s stock was trading at $9.49 on Wednesday afternoon, up by 2.65% after the earnings report. 



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You need to know how to scale your real estate portfolio. You’ve been stuck at the same number of units, dealing with the same problems for far too long. But what can you do? At what point do you reach a limit to the number of rentals you can take on? Is there even a limit at all? For most investors, hitting a wall in your real estate portfolio can feel like the beginning of the end. For David Greene, this just shows that you need to scale a little smarter. And today, he’ll show you exactly how to do it.

David, at one point, had a portfolio of over fifty single-family homes. As a result, he was constantly getting calls about evictions, maintenance issues, late payments, and the everyday landlord headaches. He realized that he was spending all his extra cash flow fixing the regularly sprouting problems, so he decided to pivot. Now, he has a cash-flowing, profitable, passive real estate portfolio with multiple types of rentals nationwide and far fewer headaches. Not only that, he’s leading a top real estate agent team, teaching his top agents the same skills in his newest book, SCALE: A Successful Agent’s Guide to Leveling Up Their Real Estate Business.

In it, David teaches top agents how to leave the mundane headaches behind and start building a business. But this book isn’t just for agents. If you’re an investor, the same rules apply to you, and learning these skills can help you leverage time, money, and other workers to help you grow an even bigger business.

David:
This is the BiggerPockets Podcast show 724.
If you don’t learn lead, you never get to scale. You will always be managing the people that you have leveraged. You will have a high paying enterprise that is probably doing very well financially, but you are still very much involved in. When you get to leadership, you actually are able to influence large amounts of people over shorter amounts of time. You can scale to something like what Chick-fil-A has or you can scale to something like what Ken McElroy has with his real estate portfolio. You can get really good at whatever it is you’re doing and do it and mass if you can learn the skill of leadership.
What’s going on everyone? This is David Greene, your host of the BiggerPockets Real Estate Podcast here with a special episode for you today where I get to talk more. In today’s episode, Rob is actually interviewing me about scaling a business. Rob, I’m going to hand it over to you.

Rob:
That’s right. We interview you, thy David Greene, the titular host of the BiggerPockets podcast. Man, I’m excited. Like I said, the roles are reverse. I got this pseudo power, I had all this pressure to succeed. But I’m excited, dude. This was a really good episode where I feel this is a masterclass on scaling. We talk about so many good things for people that are really at that level where I guess they can’t get to that next level, they can’t expand their portfolio and we really dig through a lot of the concepts that might help people do that, right? We talk about your three dimensions of success, which break down to learning how to do your job, leveraging other people and leading. This is really, to me, the golden nugget of the day. So I’m excited for people’s mind to be unlocked on air today. What was some of your favorite parts?

David:
Well, everyone listening to a podcast like this, you and I, because we listen to our own shows, the goal is to make more money, have more success, have a better life than what we have right now. It’s very simple. A lot of us have that drive to get there, but we don’t have a direction of understanding how to do it. Or what’s even worse, we don’t understand the factors that are working against us in trying to accomplish it, which just leads to frustration and shame and guilt and this feeling like you could be doing more. So in today’s show, we’re really trying to get deeper into what stops people from having more success as well as layout a clearer path of step one, step two, step three, what it takes to start learning something and then what the next step is and then the next step is. Some of my favorite parts was your commentary. I thought you were very funny today and you did a very good job getting stuff out of me that other people don’t.

Rob:
That’s right, man. Well, it’s always really fun to get into your mind because I’m always exposing how unorganized and not where I want to be. So this is a very inspirational episode. So we’ll get into it here, but before we do, today’s quick, quick, quick tip is brought to you by David Greene.

David:
Today’s quick tip is, if you’re having a hard time figuring out why you’re not making more progress in real estate investing, in business, in anything, it might be because you’re taking the wrong path. Start asking yourself the question of what feels heavy and what feels light. Typically the things in life that we are good at, that we have skills, that fate has blessed us with doing feel light, we don’t mind doing them. And the stuff that we are not good at that we should be leveraging out to other people feels heavy and we can’t stand it. I noticed this is often the case with very seemingly insignificant tasks that I just put off forever because I hate them. Those are the first things that should be leveraged out. Rob, what do you think?

Rob:
I got a bonus quick, quick, quick tip, and that is to pre-order your newest book, David, SCALE. If you pre-order it before February 16th, you’ll actually be entered to win one of 10 seats on a coaching call with you, David Greene, right?

David:
That is right. And a little bonus there, if you order all three of your books and the Top-Producing Agent’s series SOLD, SKILL, and SCALE on the BiggerPockets bookstore, you’ll also get a free month of your exclusive Wealth building Mastermind, which is just like the craziest deal of all times. So if you guys want to be entered in to get all those good bonuses, head over to biggerpockets.com/scale right now and use code SCALE724 for 10% off of checkout. Remember, that’s SCALE724. And if you stick it around until the very end of the episode, you’ll understand why we chose that promo code.
Very good. Rob, you’re getting much better at these intros.

Rob:
It’s called a callback. I read it on Wikipedia. I think it’s supposed to be important.

David:
All right, well let’s get into it.

Rob:
David Greene, you have written five books with nearly 500,000 copies sold. That’s a lot of investors and agents here helping. You’re also the titular host of the BiggerPockets podcast, the biggest real estate podcast in the world. We know you, but David, who are you and why are you here today?

David:
Well, that’s the first time I’ve ever been called titular, I can say that. Well done.

Rob:
I’m pretty sure I used that correctly. I honestly don’t know.

David:
I mean it sounded intriguing at least. People are Googling right now, like how do you spell that and what does that mean. We should let you host more often. You’re going to come out big words like this.

Rob:
That’s my SAT word of the day right there.

David:
Who am I? I am much more like our average listener than I am like your average influencer. So I was a blue collar guy. I started working in restaurants when I was young. I went to college, didn’t know what I wanted to do, got a psychology degree. My very last year in college, I switched to a criminal justice minor, ended up getting into law enforcement. Did that for a while. Kind of saw how negative the relationship between law enforcement and the public was going. Realized I didn’t want to do that until I was 50. Started investing in real estate.
I had just been really good at saving money for a long time and then I started learning how to invest that money. Caught a wave of inflation that really helped with rising rents and increasing property values. Learned strategies like the BRRRR method and long distance real estate investing. Built myself some wealth, became a millionaire through real estate and didn’t even know it until I was around like 30 years old when I actually started to track my net worth and then said, “Okay, this was really hard to figure all this out. Let me start writing books for other people to teach them how to do it.” So I got out of law enforcement, became a real estate agent, learned the hard way how to just make money being an agent at all. Then I became a top producing agent. So I was the top in the office and I was one of the top in the country. And then I built a team to take over the agent business I had called the David Greene team and I wrote three books for BiggerPockets on those.
So I’ve written SOLD, SKILL, and now this newest book, SCALE, which is teaching real estate agents how to be good at their job. And then we mentioned the BRRRR book and Long-Distance Real Estate Investing.

Rob:
I’m glad you clarified that because initially we were talking about I thought this book SCALE was about how to scale a fish and turns out not that I was like, “Wow, that’s a big pivot, David.”

David:
You know what’s funny, a big part of the SCALE format is comparing fish, catching the fish, cleaning actually within business. That is an analogy I rely on heavily in the book. So it’s funny that you came up with that.

Rob:
So I’m not completely off. We’ll, we’ll get to that analogy a little bit later because I’ve heard you talk about it. That’s always a really good one. But tell us, how does it fit in with your other two books? Because you have written a couple of books here. Is this sort of the final one? Is there more in the series? Is this the culmination of your grand catalog of books?

David:
Not of books, but for the top producer series with BiggerPockets that was written for real estate agents it is. So the dirty secret in my opinion, subjectively speaking in real estate sales, is that most agents are terrible. I don’t think it’s that big of a secret because you hardly ever find a person who says, “My agent crushed it.” Even the best agents, you’re frustrated the whole time. Just it’s hard to be good at it. People don’t understand what the industry is like as a real estate agent. It’s not really architected or engineered to be beneficial for both parties. So it turns into a much more adversarial relationship with the investors or the clients and the real estate agents that it should be.
So the book SOLD was written just to teach agents what I wish that when I had had a broker that would’ve told me. No one tells you how to start a business, how to work a database, what scripts to use, what your job is. They don’t tell you how to use the MLS, they don’t explain anything. Let me tell you how to open a lockbox, you got to figure it all out. So SOLD is written just for the new agents who aren’t making money and don’t know why. That’s just to get you profitable.
SKILL was written for the agent who knows how to be an agent but wants to become elite. They want to be a top producer, they want to make good money. No one becomes an agent to just make average money. You just keep your W2 job if that was the case. So SKILL is all about excelling at your job, delivering a really good listing presentation, having a buyer’s presentation, how to talk to clients, understanding what I call the sales funnel, which is the five steps of taking a person and leading them down a process of becoming a lead and then a client, and then an escrow and then a closing, and the actual work you’re doing in between every step to just give some direction and doing really well.
And then SCALE was written for the person who wants to take a job they’ve become very good at and turn it into a business. And at that point, you can either turn it into semi passive income, much like owning investment property. You own a business and other people are doing the work and you are managing that business. Or, scale it huge. Now that I’m not having to actually write the contracts and talk on the phone to the buyers, I can open up expansion teams in different parts of the country. That was probably the most fun book to write because the principles in this apply to not just real estate agents, but to business owners everywhere including real estate investors.

Rob:
Yeah, I’m excited. We’re going to dive into your writing process a little bit and actually ask you a little bit of the nuts and bolts of what it’s like to be such a prolific writer. But before we get into all that, I do want to ask, I know that you are a man of many businesses. You’re a renaissance man of real estate, you got a brokerage, you’ve got an agent team. The book may seem like it’s framed for agents, but knowing you and how you are so prolific with your metaphors, I just wanted to ask, how are we going to tie this to investors who don’t care about scaling their agent business? There are other people that this applies to, I’d imagine, right?

David:
Yes, it’s absolutely true. The reality here is I only learned how to create a real estate agent team out of a job using the principles that I had done with my portfolio. So long before I had ever created a real estate agent business, I had created an investment portfolio that is a form of owning a business. Being a real estate investor is being a business person. You are gaining assets that produce income. You’re trying to control expenses. Instead of looking for clients, you’re looking for properties. You’re constantly leveraging the workout and trying to find a better team. You’re looking for better property managers. You’re looking for better lenders, you’re looking for better loan opportunities. You’re looking for better locations to invest in, for better agents to help you, for better handymen.
So much of our lives, like for you, focusing in short term rentals is controlling expenses and controlling the customer experience and trying to systemize the things that come up a lot without handing complete control over to another human being that can run it into the ground without you seeing it. You could call it a game, you could call it a challenge. There’s different words to use there, but it’s a pattern that pops up in any form of business. If you’re Alex Hormozi and you’re starting gyms, if you’re Rob Abasolo and you’re buying short-term rental properties or running courses to teach people how to do it, or you’re David Greene starting a mortgage company or buying my own rental properties, these patterns reappear over and over and over, and the books are written to help the people who are just starting to get into this to recognize the pattern when it first comes and get a head start on creating a process to systemize these challenges that come up so that you can run a profitable business.

Rob:
Business. Yeah, I think one of the things I’ve learned over the past couple years is that without systems, scaling is effectively impossible. Or I guess, scaling efficiently cannot be done without systems, right?

David:
That’s absolutely true. If you don’t understand how to implement systems, and then the next step is actually make the step forward to fail at it. No one starts a system and immediately has the perfect system on the first try. Nothing in life works that way, but yet that stops a lot of people from doing it because they know they can do it better themselves and if they do it with someone else. If you don’t do that, you never get to the point where you can own more than a handful of rental properties.
So take you as a short-term rental investor, I’m a short-term rental investor. Actually, this is a really good analogy. If you’re someone who starts off like you did Rob and you’re managing them yourself, full-time, you quit your job, you don’t have a family, the ideal situation, how many of those suckers can you effectively manage at one time in a portfolio?

Rob:
Five to 15.

David:
Right? There you go. Depending on the area.

Rob:
How good you are.

David:
Depending the guest is and how good you are, right?

Rob:
Yeah.

David:
But even then, if it’s just you, even 15, if you have no help, no admin help, you just have software and you, it’d be very difficult to manage 15 short-term rentals, coordinating all the cleaners yourself, not having any form of administrative support. To do a good job, you’ll probably capped somewhere at that, like five. A stud could maybe do 15, right? So you cannot scale if you do things yourself.
When I bought mine, I had watched the process that you were going through and that other people had went through, and I just said, “I’m never going to manage these. I’m going to hire a property manager right off the bat to deal with this type of stuff.” And I put a strategy together to accumulate them in a way that I could rely on property management to run it effectively. You can’t just leverage any property to a property manager and trust they’re going to do a good job. The location, the asset type, the type of tenant that’s going to be visiting the property manager themselves, they all go into this.
So I was able to buy about… I have 12 functioning short-term rentals right now that I forget exists most of the time unless I’m talking to the bookkeeper and looking at the numbers right out the gate versus the process that someone else who doesn’t understand business scaling would have to go through. It would maybe take years of managing it themselves, trying to get someone else involved, failing, trying again, buying too many, selling a couple off. It’s this very slow process to get to the point where what they want is financial freedom in a big portfolio.

Rob:
Yeah. Yeah. Well, let’s just dive into a system really fast because I think we say this word a lot. We say systems, processes, and automations quite a bit on the podcast. I think a lot of people probably just who… There’s like two types of people, right? The really organized type A person and then there’s like the creative, everything floats in the ether kind of thing. So for me, when I hear system I freeze up because I’m like, “Ugh.” But it’s really not that complicated of a concept, right? So what exactly is a system as you define it?

David:
A system is made up of two pieces, and I talk about this in SCALE. Everyone gets the first one and then they mess up on the second piece. This is why people have a hard time with systems. The first thing that makes up a system is an order of tasks or a checklist of things that need to be done. It’s that simple. So if I’m selling a house, a system would be a list of all the tasks involved in getting a listing. First I guess it would start with getting the listing presentation ready for the client. And then once the listing agreement is signed, there’s a process of getting the house ready for the market. And then once it’s on the market, there’s a series of tasks for keeping the seller updated and marketing the property to buyers. And then when it goes into escrow, there is a series of tasks involved with completing all the paperwork, negotiating and bringing it to close.
Okay. So there’s like four steps to the system of selling a house. Every single thing in business has a series of repeatable steps. If you owned a restaurant, I could outline for you the system involved with what the cooks are doing to cook the food, who’s ordering the food, the waiters have a process of how they’re supposed to put the order in and make sure it goes to the table and bring the customer their check. It’s a series of tasks that are repeated all the time.
The second piece to a system is what everyone gets wrong. Most of us understand we need to write out all the tasks that are involved in the job. The second part is having a person that can execute it with skill. What I see is people make the task and they hand it to an admin who doesn’t have skill in that area and it all falls apart and they say, “Yeah, systems don’t work.” When you’re the person doing it, you’re usually doing it well, which is why if you have a series of tasks and you then follow them, you’re your own system. In order to scale, you have to take those two pieces and you have to bring other people in to do the job. And that’s what I found the challenge in business has been.
I’m very good at outlying a series of operations that need to be done. I’m very good at anticipating where things will go wrong and even putting training in place to prepare, but it doesn’t matter if I don’t find a person who’s good at accomplishing those tasks. You actually still have to be good at things in life if you want to be successful. And that’s the second part of a system.

Rob:
Yeah, man, you really nailed that on the head. I mean, it’s two things, right? It’s delegation of this kind of written out system you talked about, but it’s also some level of management is still needed to that person because a lot of the times people tend to empower employees too much at the very beginning and they sort of leave. They come back and then they get mad that the employee failed, but there was no oversight to make sure that the system was perfected.

David:
Yeah, and that the person who was working through the system understood the importance of it. So let’s say for you, you own an Airbnb, you’re managing it yourself and you get a customer who’s unhappy because the hot water isn’t coming out of the shower, okay? You are not just thinking your job is to get the hot water turned on. That’s how a person who’s not taking responsibility thinks.
A person who is taking responsibility thinks, “My job is to make the client happy so they leave a good review when they come back. And a part of that is getting the hot water turned on, but that my responsibility is to not just solve a problem or check a box, it is to achieve a result.” And that’s the best way I can describe what responsibility within business looks like. If you take the approach of, “My job is to accomplish a result, to find a cash flowing property, to add equity to a property, to keep a guest happy, to increase rents,” you take a much different approach than when you’re just working off a series of checklists where the client calls and says the hot water’s not working.
Well, you call the handyman, they go out there, they fix a thing, you check the box, you pat yourself on the back and you say, “Hey, I did my job.” But you don’t ever talk to the client, you don’t apologize, you don’t see how they’re feeling, you don’t dig in. And then they leave a one-star review and the employee says, “Well, not my fault. Not my problem. It’s not my house. I did my job.” That is what’s hard about scaling, is you have to have, it’s funny, a system in place to check the people that are working your system, and you have to make sure that their heart is in the right place so that they are perceiving their responsibilities with the same level of responsibility that you as the owner would have.

Rob:
Yeah, so effectively you’re basically saying you want your employees to not look at things so binary, so black and white. There has to be a little bit of, I guess compassion or empathy for the employer or for the owner of that business to make sure, I don’t know, that your vision is being executed correctly, right?

David:
Yeah, they have to care. They have to give a crap would be another way to put it, because the person visiting your Airbnb isn’t going to think, “Well, this was an amazing experience except for the hot water. That’s only chalked up due to one employee that works at the company. I’m not going to punish the owner by leaving a one-star review because of one bad apple.” All they know is they’re not happy and they want to let everybody else know, “Don’t stay in this place because you might have a similar experience.”
A lot of the advice I’m writing about in books like SCALE is for the person working in a company that wants to get ahead, that wants to own their own business someday, or wants to make more money within that business and they don’t understand the power of responsibility. Every business owner out there has given us a hallelujah amen as they’re listening to this, right? Every person who’s an employee might be baffled or confused. So many human beings have come under this delusion that avoiding responsibility is winning. I don’t know that our industry as real estate investors has done much to help. There might have even been… It might hurt it because a lot of the time real estate investing gets sold as the alternative to hard work, the alternative to working for the man and being a slave for someone else. It paints this picture that if you get out of that world and you come into this one, you just buy a couple houses and you’re done, you can do whatever you want. It’s actually the opposite.
Responsibility increases when you take over the asset that you’ve invested your money into. It is more pressure that is on you to perform better at this job. And the best way that people can prepare for making more wealth themselves is to take on additional responsibility where they’re at. It’s kind of like adding more weight to the bar when you’re working out. Building up your strength, learning how the systems work, not just what your job is to do, but why your boss put that system in place, what problem they’re trying to solve. Understanding that will equip you way better when you start building your own portfolio, you start buying your own houses, you got to take the call from the unhappy guest and you realize, “Oh, there’s more to this than just getting that water turned back on.”

Rob:
Sure. Yeah. Well, I think that begs a really important question, right? Obviously knowing your strengths are important, but knowing your weaknesses is probably even more important. So how do you evaluate that as someone that’s looking to scale in the real estate business?

David:
Understanding your weaknesses is the biggest thing. So your weaknesses not only will… We tend to look at that and think, “Well, that’s where I’m going to make mistakes.” That is true, but that’s not the most dangerous thing in a weakness. Your subconscious is very aware of your weaknesses even if your conscious isn’t. And so what happens is we will avoid putting ourselves in situations that we know will expose a weakness even if putting ourself in that situation might be very profitable.
So if you’re a human being who knows I haven’t really done enough research on this topic like I should have and you’re invited to speak at a meetup, that might be very beneficial to your business, you’re going to get all the eyeballs on you. You’re going to opportunity to teach the people what you do. Let’s say that you’re a loan officer, that’s a chance you could pick up some clients that you could close loans for and make money. But you’re not paying attention to what’s going on in the market. You’re just checking boxes for someone else working a system they made and you’re not actually making an effort to learn how the whole process works. You will have an insecurity that comes from your weakness of not having enough knowledge. And what will happen is you’ll decline the invitations to speak at the meetup and you won’t ever realize how much money you lost by not taking action.
We always notice the money that we lose that was already ours. Something goes wrong, you got to fork over a guest another five grand. It sucks. You hate that. But you never realize the money that you could have made had you taken more action or been more decisive or had more confidence. That’s where your weaknesses are really hurting you. So understanding what they are, being honest with yourself, and then finding other people or other software or other systems to accommodate those will sort of allow you to take the steps that you need to take to scale and make more money.

Rob:
Yeah, that makes sense. So one of the big, I guess, pillars or one of the big topics and fundamental philosophies of SCALE is the purpose of leverage. I know that that’s obviously important, right? If you want to scale, if you want to get to millions of dollars in real estate in your portfolio, leverage is going to be a very necessary thing. So talk about a little bit. What does that mean? What is leverage? And how does leverage fit into the grand scheme of real estate?

David:
Well, if you think about just using a lever to pry something open, it’s really a… What’s the word I’m looking for? Like a physics type of a concept. You take a really long bar and that can be used to generate more energy than if you just try to use your hand to pry it open. If you think about the Pirates of the Caribbean quote with Johnny Depp, that, “Leverage! Leverage!” And they use it to do things that normally one person couldn’t do. There’s different ways that you can utilize that same concept in your business. The one we talk about all the time kind of become synonymous with the word leverage is money. I’m going to buy a $500,000 property, but I’m only going to use $100,000 of my money or my strength. I’m going to use $400,000 of the bank’s money or the bank’s strength. And there the leverage of the bank allows me to buy a property five times bigger than what I could have bought on my own.
The same thing is true of human capital. You get administrative assistance, you get property managers, you get real estate agents that are working with you and growing your business. You get handyman, you do contractors. If you had to do every single thing involved in buying real estate just on its own, no one would ever buy a house. We’d have to learn how to read title reports. We’d have to learn how to secure financing on our own. We’d have to know all the rules and regulations and paperwork involved in a transaction. We would have to be able to inspect a house on our own. You see where I’m going? No one could ever buy a property if you had to do everything yourself. So you’re already using leverage when you buy. When you become a business owner and when you’re scaling, you are getting intentional about learning how to be better at using other people, other software, or other money to do things you could not have done on your own.

Rob:
Okay, so it sounds like the way you’re breaking it down is leverage is two things effectively, right? There’s leveraging money, which is like you said, taking $100,000 and using that to get a $500,000 loan with the bank. You’re using other people’s money to help you scale your portfolio that way. And on the second part, what it sounds like is you’re really leveraging time, right? That’s what it comes down to. You as a single operator cannot physically do everything that it takes to run a 5, 10 unit portfolio, but you can leverage other people’s time to help you leverage sort of an infinite amount, right?

David:
You can use other people’s competence to help you do things. So if I use a home inspector, I’m not just getting the time back of inspecting a home. I’m saving years and years and years of experience that I would need to be able to do what that person does. You can leverage other people’s skillset, right? I might have you have a phone call for me instead of me because you can get to the end result faster. You can leverage other people’s knowledge. That’s what we’re doing on this podcast. People are listening to us and learning things that they would normally have had to lose money to learn. But by listening to us, they’re saving themselves the money, the pay and the time, the heartache of having to do it themselves. So we are all leveraging all the time. It’s nonstop, right? I’m leveraging the convenience that Google creates and allowing me to search for things quicker or store things in the Google Drive. Scaling is just about recognizing we’re already doing it and becoming better and more purposeful about ways you can do it more efficiently.

Rob:
So it kind of goes back to the strengths and weakness thing, right? Because you understand what you’re good at, so what you’re good at is going to give you the most leverage whenever you’re using your strengths to, I guess, run towards your goal. And if you’re really weak at something, if your weaknesses are, let’s say like you said, your skillset may not be needed on the phone call but you bring someone else’s skillset on there to get you to that end goal, then you know that it’s important to leverage someone’s competence. So really it seems like strengths and weakness identification is a pretty pivotal moment for you, right?

David:
Yes, that’s a great point. Some of the tools I use for that that I talk about in the book and in other places are the DiSC profile. So that’s a personality assessment trait that will help you identify what people tend to value in communication. Because what I found is what you communicate is what you value, and it’s almost always your strength. We don’t communicate in areas of our weakness, we communicate in areas of strength. So when I can identify somebody else’s mental makeup via the use of a tool like DiSC, I give myself a huge advantage in knowing what area of my business they would be better in. There’s certain profiles that work better for sales or for management or for analysis or for driving a project forward. That’s just a tool that can be used as you’re trying to understand what strengths and weaknesses are with different people. And the wise investors out there that are trying to grow a big portfolio, they’re already doing this even if they don’t recognize it.

Rob:
Yeah, definitely. So it sounds effectively like systems, identifying weaknesses and strengths, leverage, they all sort of tie into the end result that we’re all trying to get to, which is success. I know that one of the big things you talk about in the book is that there’s three dimensions of success, right? So walk us through that concept and what does that mean for the everyday investor?

David:
So this was something I had to learn the hard way. I became a real estate agent and my immediate frustration was there’s no one to teach me how to do this job. I actually had my license, went to the office, met with people, came in and had a question on how do you run a, we call it a comparative market analysis, just like how do you look at what the act of pending and sold properties are, nobody would help me. And I was so disenfranchised I spent six to eight months after that never going in the office again. I was just pissed. Like, “This is no point. My broker sucks. Nobody’s supporting me here.”
I finally had a cop friend who came to me and said, “Hey, do you want to sell my house?” And I had told him I would. I almost felt obligated to go take this listing, which as an agent is the best thing ever. We fight mad to get listings. That’s, “Anyone listening, please come to me if you want to sell your house.” So I had to call a friend and have him show me how to use the MLS to even run a CMA to figure out what I should sell his house for. It was not a good experience for me. And then once I learned that, now I had to learn how to negotiate.
I remember on that first deal I made this really big mistake where I got the buyers to waive their appraisal contingency, but they still had an inspection contingency. And then the appraisal came in low. I was really new, and so I just thought like, “Well, they have to pay what they said they were going to pay for. They don’t have an appraisal contingency.” But the agent made something up about poop in the backyard from the dog as the reason they were backing out of the deal, but then told me, “Hey buddy, you don’t know what you’re doing. We have an inspection contingency, we’re going to use that to back out.” And I was like, “Oh, that’s evil. You’re lying,” right? But I just was naive. I didn’t understand how the game got played. So I went through this process of having to learn a lot of things the hard way.
I first started reaching out to my database of people in my life that I hadn’t talked to for six or seven years and my first conversation was, “Hey, I’m a real estate agent now.” Bad mistake That’s like when your friend that you haven’t seen since high school wants to talk with you about a multi-level marketing opportunity, you’re immediately just like, “Ugh, I don’t want to talk to you. I don’t like you anymore.”
So I went through this process of learning. This is the first dimension of success. If you just consider a spectrum with zero on one end and 100 on the other with 100 symbolizing perfection, all of us are in some capacity learning how to be good at our job. It’s knowledge and the execution of that knowledge. So learning how to be a good basketball player, learning how to be a good snowboarder, learning jiu-jitsu, learning how to be a good barista, whatever it is you’re doing, there’s people that go to work every day and give a half-hearted effort and don’t really move along that spectrum very far so they don’t make more money. And there’s people that go to work every single day and push it as far as they can trying to get to 100.
So for you, Rob, I don’t know because we’ve never talked about it, but I would be willing to bet when you were a copywriter or you were in advertising, you showed up every day trying to learn from the people that were good at it, trying to gain as much knowledge as you could from the mentors that crushed it there, really giving your best effort. If you’re in the gym, you’re working out to failure every single day because you want to get stronger and you got better and better and better and better at the job and gain more skills. The first dimension of success is just committing to the process of being good at what you do.

Rob:
Yeah, it seems like there’s also a little bit of… It’s sort of like this funny juxtaposition of success is learning how to do your job. But a really big part of learning how to do your job is failure, right? It is the failures that make us successful. So that was a big part of my advertising career where I would always see the rock stars at the agency and I would go and sit next to them and, “Hey, what’s up? What are you guys talking about? You guys got any ideas? Can I share my ideas?” And they always say in advertising to fail big, right? So it is a very awkward and very uncomfortable thing to walk into a room and present a really crazy idea that you know will never get accepted, but you still do it anyways just to gain a little respect with the peers in the room that you put it out there. And it’s through that that you kind of get better.

David:
Yeah, through failing you get feedback, which is something in the next book I’m writing about, I talk about the feedback learning cycle, where the quicker that you put something into process or you start something, there’s a process, then you get feedback on how it went. The quicker you can get to feedback, the quicker you can adjust the first two steps. And you actually improve how quickly you can learn by proactively putting yourself in a position like you just mentioned, right? So these are all stuff I read about in books that are about, “Hey, you want to be better and get more money? It starts by getting better at your job.”
Money doesn’t just come to you, you’re not owed it. No one’s going to go find a great deal and hand it to you because they feel bad for you. That’s not the way the world works. You want to get better at learning. Well, what I realized as an agent was I got to a point where I was selling probably 40 houses a year and I could not do anymore. It was barely hanging on to be able to sell 40 houses a year. And I realized I had to get other people to help me, but I didn’t realize that that was a completely new process where I would be starting over at zero.
So I talk about the second dimension of success is leverage. Leverage is all about developing the skill of creating systems and managing other people to get them accomplished. I knew I needed to use people. What I didn’t understand is I had hit the hypothetical 100 on the learned dimension, so now I have to go in a new dimension. I’m going up. If you imagine Mario running across the screen left to right, that’s the first dimension. Now he can jump, that’s the second one. But no one told me I’d be starting at zero, that I would hire people and fail, and hire people and fail, and hire people and pour and pour and pour into them and continue to fail.
It’d be similar to if you were running a rental property and you were managing it yourself and you got to the five short-term rentals and you couldn’t do anymore. And so you just hired someone and said, “Hey, here’s what you do,” and they ran it into the ground and you just thought, “Oh, leverage doesn’t work.” It’s because you don’t understand that there is a skill to leverage also. You start at zero and you have to build up to 100 on this new dimension. Nobody tells you that. So a lot of people get to that point and they quit. They’re like, “Well, I tried it. It didn’t work. Not for me. I’m just going to quit.” But you didn’t quit when you were learning. You made tons of mistakes when you were learning. You just expected that that was part of the process of moving along that dimension. You have to go and humble yourself from being at 100 to starting over at zero and making a lot of mistakes as you learn the skills of leverage, the second dimension.

Rob:
Now you mentioned that you capped out at 40 properties as an agent, right? Understandable, right? We only have a finite amount of time. But as an investor, is there a cap there as well on how many properties you could buy? Is there any kind of bottleneck on that end as well?

David:
There is, and that’s why the government created the 1031 kind exchange because I had a similar thing happen to me in my investing portfolio. I was using the BRRRR method in northern Florida and I was acquiring properties sometimes at the point of four to five a month. I was able to get that done with the construction crew I had and the agent that was finding me the deals. I had a bank in place that I had a line of credit where I could fund these and I knew how to analyze the deal to make and buy them so that I was pulling 100% of my equity pretty much out of these deals. I had a property management company to manage them, but when I hit about 50 single family rentals, there came a point of diminishing returns. Every day it was some email of something that went wrong with one of these 50 properties or several of them.
The cash flow on single family houses is not what you hear people talk about. It’s maybe 300 a month, 350 a month on most of these, but then it just takes one bad tenant having to be evicted, that two years of cash flow can immediately be gone. So you’re not making nearly as every time you think you’re getting ahead, something goes wrong and breaks and it comes back and I realize, “I’m not getting the cash flow that I want out of this.” The properties are not appreciating as much as they would be in other parts of the country. It’s not fun because every day I’m coming in, I got to solve some new problem. Property managers can take some of the sting out of maybe 10 or 15, but when you get to 50, you’re still making decisions and following up and all of a sudden now I didn’t want to own the portfolio.
So I sold those homes and I reinvested. I probably sold half of my portfolio, reinvested it into half as much real estate that costs four times as much. That’s a great example of using leverage and capital as well as leverage in business to get out of a situation that was not able to scale any further and into a new one, these short-term rentals that I mentioned earlier, that are much easier to manage.

Rob:
Yeah, well it is kind of funny you’re talking about leverage or I guess your bottleneck here on the real estate side. Capital is a part of it, but there’s also just the actual organization and operations that can really cap you out too.

David:
Yeah. And so at a certain point, I’ll probably keep scaling up on short term rentals. Maybe when I get 50 of those, then I’m going to sell on 1031 into some mega properties or an apartment complex. But yes, you hit this ceiling. Whether you’re investing, whether you’re a real estate agent, whether you have a pool cleaning business or an auto repair shop, there is a limit to every single person where you hit a ceiling and you can’t go any further. The principle that repeats over and over and over is you now need to learn a new skill. You cannot keep doing the same thing you’ve been doing and keep getting good at fixing cars or repairing them or cleaning pools. You have to learn a new skill in leverage to get into the second dimension. The people that do that get ridiculously, exponentially better returns. You make a lot more money when you can have six or seven people out there doing the work that you were only able to do yourself as you manage them, but there is a ceiling that you hit and leverage as well.

Rob:
Yeah, leverage is hard. This is a tough one. I finally unlocked it for myself. But I think where the trap that people tend to get into is with leverage, you’re talking about leveraging other people a lot of the time, right? And so what it means to have other people on your team is one really big thing. You got to pay for them. You got to pay for their time. You got to employ them. And that means when you’re first getting ready to scale and you’re turning that corner like I am right now, you are going to make less money by hiring those people. But as soon as those systems are in place and everything starts churning, you’ll actually make a lot more money in the long run because they will be able to effectively do everything that you could never do by yourself, right?

David:
Yeah. But the point I just want to highlight, that’s how we tell people, that is how it works when it works. The process of getting there is not as simple as we made it sound describing it. And it never is. We tell people, “Here’s how you analyze a property” and they’re like, “Cool, I got the calculator. I got the information. Let me just go out there and analyze properties.” And they do it for three months and they can’t find a cash flow property. Well, that’s the reality, is it’s hard to execute on the information that’s being given unless you figure out a skill. You learn an area where properties are more likely to work. You figure out how to add value to a property, add rental units to it that will make a duplex into maybe three or four units instead of two.
Now, that’s a skill that you figure out that now opens up doors and allows you to scale faster. So leverage is the key, but you’re going to start over at zero. It’s okay. You just have to have humility and know just like I sucked when I was learning how to do it, I’m going to suck at leveraging how to do it as well, but if I stick with it, I will learn this just like I learned how to do it myself.

Rob:
Yeah, yeah. Okay. That’s a very beautiful way to put it. I think it is important to say easier said than done. You got to sort of fail at this, right? You got to learn the job of leveraging to do that well as well, right? So it all kind of ties together. So we’ve got learn how to do your job, leverage, which is maxing out and sort of using other people to help you scale your operations, and then we’ve got the last one here, which is lead. Tell us about that.

David:
Lead is the third dimension that you have to learn if you want to scale a business. So if you look at learn is running left to right on a spectrum on a plane, and then leverage is going up and down, lead would be going further out. It’s literally the third dimension of a cube. Leading is probably even harder than leverage. It’s the hardest of all of them because leaders have to anticipate things where other people can just respond or react to something going wrong. Leaders have to literally influence the emotions and the psychological state of the people that are working for them. That becomes their job.
So you know what this is like Rob. You’ll have a person who’s very good, they’re trained in what you need them to do. You’ve learned leverage, you’ve executed it. You have a person on your team that’s handling let’s say all the customer complaints or they’re analyzing the deals that you might want to buy. You’ve gone through all the growing pains of teaching them how to do it. You finally hit a rhythm and now they say, “Hey, I think I want to go start my own business. Hey, I think that I want to start a family. Hey, I just don’t feel like my heart’s not in this. I was listening to Simon Sinek and he was telling me that there’s more to life than just a job, and now I want to know what are you offering me to give me purpose in life.”
That’s the type of thing leaders have to now deal with. Or when I’ve got several different people that are all doing the same thing, but this one’s doing it better and making more money and this one isn’t making as much money but they don’t think that they’re not as good, how do I keep everyone happy and working on what they’re doing? It’s very difficult. You need to learn psychological skills. You’re going to be taking on problems that no one in the company wants. So the only problems that make it to the leader are the ones that every single other person has looked at and said, “Nope, I don’t want any part of that. I’m passing that one along, okay?”
If you’re a UFC fighter, you are only fighting the toughest people in the world. You don’t get easy ones anymore. And leadership is a dimension a lot of people never get into because they’ve already started over after learn, they’ve gotten leverage down and now they got to do it again. That third dimension is huge, and so they just don’t want to. The problem is if you don’t learn lead, you never get to scale. You will always be managing the people that you have leveraged. You will have a high paying enterprise that is probably doing very well financially, but you are still very much involved in. When you get to leadership, you actually are able to influence large amounts of people over shorter amounts of time. You can scale to something like what Chick-fil-A has, or you can scale to something like what Ken McElroy has with his real estate portfolio. You can get really good at whatever it is you’re doing and do it and mass if you can learn the skill of leadership.

Rob:
David, you make me a better man, my friend. I love this. I really, really, really do because it’s three things, the three dimensions of success. Learn how to do your job, leverage, lead. It’s so simple, but as you explain it, it’s so funny how I can see all the fundamental cracks of my business. I’m like, “Oh, that.” It’s because I’m trying to do it all at once, but it really is starting over from the top. And I think the reason it’s hard to ascend to that next dimension or getting to lead is exactly what you said, which is humility, which is like, “Why do I need to start over? I’ve already cut my teeth on this. I’ve already perfected my skills. Why do I have to go back to the very beginning and sort of suck again?” right? So I really appreciate that. This makes a lot of sense. So help us contextualize this because I can see how this makes sense from a practical business standpoint, but what would it look like for a wholesaler to implement the three dimensions of success?

David:
So the first thing they have to do is learn, “How do I find motivated sellers?” Because you’re not going to get a wholesale deal in a contract if you don’t have a seller that needs a quick sale or they’re willing to sell for less than market value because there’s so many people involved in needing a profit that the margin has to be really big for there to be enough to go around. Once you finally find out how to get the sellers, now you got to learn a new skill. You got to learn how to talk to them. You got to have a really good mouthpiece. Pace Morby well-known for this. We just interviewed Brent Daniels, Jamil Damji. You’ll notice all three of those guys got a silver tongue. They know how to make you feel good. They are very, very, very skilled communicators, okay? The typical wholesaler that’s like, “I have no money, so this is the strategy I’m going to use,” doesn’t have communication skills, they’re not going to do well in the business. So that’s a thing that has to be learned.
Once you’ve got those two things, now you have to learn how to create a funnel where deals keep coming in and you keep putting them in contract and you find an end buyer to give them to. So you have to have the skill of building up a buyer’s list. You’re probably going to need to be able to explain to your buyers what the ARV is and you’re probably going to have to solve some of their problems. You’re going to need construction, handyman crews, different referrals, lenders that will work on properties that don’t qualify for conventional financing. You probably have to accumulate all these pieces to hand to your end buyers so that they’re going to be willing to work with you to close the deal.
Then you got to learn how much money to spend on whatever your marketing efforts are and how to read a P&L to make sure that you are selling for more than you’re spending, okay? That’s a lot of crap that a person has to get good at to just be a good wholesaler. The leverage side would come in where now you are teaching other people how to have the conversation with the sellers at close to 80% of as good as you did, which is hard. It was hard to learn how to talk to sellers. Now you got to convince an employee who doesn’t have an ownership in the business and maybe just wants a job, they don’t want a business like you, how to be good at doing that to effective.
Now you got to teach other people the marketing techniques that you’ve used and hold them accountable to making sure they’re getting the phone ringing as much, okay? You have to leverage off the pieces of that business that you got good at. You got to train a bunch of other people to be as close to as good of it as you were. But if you can do that, you can probably be wholesaling a couple hundred deals a year instead of 10 to 12.
And then the last piece would be leadership. For a wholesaler that wants to get into leadership, they now can franchise their model and say, “I’m going to teach…” Like this is a… What was that? We Buy Ugly Homes. I think that’s one of those, right? They turned their model of marketing and getting properties under contract that were ugly into something that you could now pay them to be a part of this group and they get a chunk of your profits, but they can do this across the country. Or you can take your whole selling technique that works in Houston, Texas where you’ve crushed it, and you can go to Miami, Florida or New York or Southern California and you can use the same systems but adapt them to another market so you can have five wholesaling enterprises all with a bunch of leverage in each one. That’s like a practical application of how these three dimensions would work in a normal business.

Rob:
Love it, dude. I want to ask you how it applies to a flipper because it’s really cool to just hear you break it down so quickly like that. But I know we’re getting to the end of time. Not the end of all time, the end of the time on the podcast. Anyways, before we end here, I actually did want to ask you about your fish cleaning versus fish catching analogy, because I remember when you told me this, you kind of melted my mind a little bit about it because it’s just kind of a really cool way to sum up what business is and basically how one scales, right? So walk us through that and how it applies to scaling your business.

David:
So this is a mystery to people that just have had jobs, they’ve never owned a business, because to them all tasks are the same, okay? Like getting a sale, completing the sale, administrative work, sweeping the floor. It’s all just stuff that has to get done and they go through it with varying degrees of enthusiasm. But when you own a business, you start to see very clearly, “Oh, there’s actually two completely different parts here.” There is a component of catching a fish, getting it out of the water and into the boat that involves a set of skills, knowing what lures to use. This is sales and this is marketing, okay? The skill of setting the hook, that’s sales, like being able to close. Then once it’s closed, the ability to reel it in and get it in the boat without the hook coming out or the line breaking. That’s like your follow up once you’ve got a verbal commitment. And then getting it out of the boat and into the live well. Okay, now like the money’s in the bank.
Once you’ve done that… Or maybe not the money’s in the bank, but the contract has been signed, right? Now, you have to go clean this fish and turn it into a filet that can be sold on the open market because nobody wants to just go buy raw fish, okay? They want a dinner, they don’t want to buy a fish. So when you own the business and it’s just you doing the job, you’re doing all of that. You’re gassing up the boat, you’re spending your capital to buy the boat, you’re launching it, you’re trying to figure out where the fish are. You’re figuring out your own bait. You’re trying to get the fish to bite. You’re setting the hook, you’re getting it in the boat. You catch a couple of them. Now you stop fishing. You got to go all the way back to the dock, launch your boat, get out, clean these four fish, figure out some way to get them to market, get your money for the fish, and then go all the way back and start catching fish again.
The key to business is understanding there are certain tasks that you do that are inherently more valuable than others. So if you look at this fishing example, catching a fish is by far the most lucrative thing you can do. Cleaning the fish, gassing up the boat, sending the fish off to the market, that is something that is easier to leverage because it’s less valuable. So if you had a fish cleaning business, the goal would be to learn how to be as good of a fisherman as you could to where you’re catching so many fish that you couldn’t keep up with it.
The first position you hire for is fish cleaning, which is what I call operations. You split it into sales and operations. Sales is getting a fish in the boat. Operations is getting that fish cleaned and turned into revenue. Your first hires are on the administrative side, they’re on operations for any business. It doesn’t matter what it is, you hire people to do the easier task and they get paid less money because those tasks are less challenging and don’t require as much skill. As your fish cleaner has so many fish to clean, they can’t keep up, maybe you hire a second one and you give them two different tasks. “Okay. Your job is to cut off the head and the tail, your job is to filet.” And you sort of create this assembly line, which is what Henry Ford figured out on the operation side to be efficient.
And then you also simultaneously want to scale out your sales side. So there’s you fishing, but what if you brought another fisherman with you and they fished on the back of the boat and you fished on the front of the boat and you could theoretically catch twice as much fish and you gave them maybe 25% of the total catch or something, right? So they have some incentive here to try to be good at catching fish also, but that person’s going to make more than the fish cleaner.
There’s a couple lessons there. If you’re trying to get really good at operations and fish cleaning, don’t expect to be really wealthy. It doesn’t mean that it’s bad. Not everybody in the world cares about wealth. We need fish cleaners in the world. But if you’re listening to this podcast, you’re trying to figure out, “How do I get out of the place I’m at? How do I get more money?” It’s learning how to catch the fish. It’s learning how to find the deal. It’s learning how to put it in contract and own it. It’s not learning how to be a good manager or a good bookkeeper or a really good… I don’t know. I can’t think of another example of what happens in real estate, but not all jobs are the same. But you do create an org chart as you get better and better at catching fish. And then the more people that come in, the more specific those jobs actually become.

Rob:
Yeah, there’s a reason that sales and the people that bring in the money to the organization tend to make really the most, right? They tend to be the most compensated, right? Because they’re the ones catching the big fish. So thanks for breaking that down. And that ultimately brings us back to the very reason that you titled the book SCALE for fish scales.

David:
That’s it.

Rob:
I knew. I knew. I knew there was a reason, man. Well, before we go, I want to do a very fast author deep dive. I’m going to ask you three questions, fire round style, and I just want you to answer them very quickly for everybody at home. Is that cool?

David:
Yes.

Rob:
Okay. Starting with question number one, who are your book heroes?

David:
Jay Papasan, Gary Keller, Cal Newport, and John Eldredge. They all write so succinct and so solid that every time I read my old books I’m like, “You suck because you’re not nearly as good as them.” With each book I write, I become a little better at being succinct and clear. I think my writing style now is remarkably better than when I wrote long distance investing in BRRRR. But I compare myself to the best of the best of the best that I can find to always be trying to grow in my… On the learn scale, I’m still learning how to be a better author.

Rob:
Well, if it helps, when I read your books, I actually do feel like it’s you narrating the words. So you’ve got that down. I think that’s the most important trait right there.

David:
So you’re saying I’m just as long-winded when I talk as I am when I write?

Rob:
That’s what you said. You’re extrapolating that from what I said.

David:
I appreciate that.

Rob:
Go clean a fish. What is your favorite writing food or beverage?

David:
All right, so writing is actually incredibly difficult. It’s easy to write a book, it’s very hard to write a good book. And so it is very important to be caffeinated for me when I’m writing if I want to maintain the levels of focus that you have to continue to try to articulate points in a clean way that is persuasive and actually conveys nutrients or knowledge. So I started drinking, these are much better than just a normal energy drink, they’re these Sparkling Ice+Caffeine. Of course, the people that are health nuts out there are going to be screaming, “That’s still not healthy!” I know. It’s not, but I can’t stop and go to Starbucks in the middle of writing. That’s like an hour of time wasted. I have to have something in the fridge here in my office.
So I’ll drink those to stay. I’ll just kind of sip on them all throughout the day. I don’t hammer it all at one time. I will often eat corn nuts. I’ve got these right here because there’s not too much sugar and not too many calories in those things. But if I have to stop writing to go get food, it is very hard to get back into it. It’s kind of like when you stop running to tie your shoe and the last thing you want to do is start running again.

Rob:
All right. Or whenever there’s like a stop light and you have to stop, and so you just jog in place just waiting for it to turn green.

David:
Yes, it’s the work, right?

Rob:
And everyone’s just like, “We get it, bro. You run. Just chill.” All right. Lastly, what is your process? Run? Write? Cry? Repeat?

David:
Yeah, something similar to that, man. My writing process, I’ve done this enough times now that I’ve created a system for it, right? And now I am much faster at writing most books. This one I’m working on after SCALE has just been a humdinger. It’s a very difficult book to write, but I think it’s going to be the best book I’ve ever. It’s going to help more people than anything. I’m really excited about it.
But the process is basically I brain dump every single thing that I think should be in the book onto a Google document. So for SCALE, I’m thinking about everything that a person would need to turn a job into a business, and then everything that a realtor estate agent would need to know to do that well. And a lot of it is not just the information what they should do. It’s actually highlighting the enemies that are going to make it hard to do it. Because telling people what to do is not hard. You could tell someone how to go get a short-term rental. It’s very simple. The execution of getting it is completely different because there’s things that pop up over and over and over that prevent us from succeeding. It’s not hard to know how to have a six pack, it’s hard to eat the right food. That stuff is what you’re really trying to master when you’re trying to get good. So I will dump all of it out.
I will then go through this big old list of stuff and I will group it into categories like, “Okay, all these concepts are kind of the same. Let’s create that.” And I create these buckets or categories that are all somewhat related. I then take those and I turn them into chapters. I then look at all the chapters I have and say, “Is anything missing?” Once I decide there’s nothing missing, I put them in the order that I think will have the strongest emotional impact. So you don’t want to start the book off right away telling people how to set the hook on a fish. You got to have them understand the idea is that there’s fish catching and that there’s fish cleaning is the difference.
Once I’ve got the chapters in place, I then break it into all the subpoints that I want to make in that chapter. I’m actually pretty, pretty thorough with my outline. And by the time I have an outline, I basically have a book. It’s then very easy to just go through my outline. I don’t hit writer’s block if I’ve done it well and I just turn every little subpoint into a paragraph or two.

Rob:
Wow. Well, a peek behind the green curtain. As a reminder everybody, if you go to biggerpockets.com/scale, you can pre-order the book right now and use promo code SCALE724 for 10% off at checkout. Remember, that’s SCALE724. And that is the amount of scales that are on a fish. That’s how we got to that promo, SCALE724.

David:
That’s pretty funny. And if you have a real estate agent in your life that you want to help, these books can be a lifesaver for them because they’re struggling and they just don’t know it. It’s very frustrating turning the job. There’s a lack of mentors. There’s a lack of direction. These books are written to be the mentor I didn’t have, as well as all the information I’ve used teaching David Greene team agents how to do their jobs accumulated for other agents. If you buy all three of the books in this series, we’re also offering a one month free membership into my Wealth Building Mastermind. So that is worth way more than the cost of the three books.

Rob:
That’s a crazy deal. That’s a crazy good deal. So go over to biggerpockets.com/scale and use promo code SCALE724. David, before we get you out of here, where can people find out about you on the internet? Where can people connect and do all that good stuff?

David:
They can find me @davidgreene24. Also, if you’re kind of on the fence about the book, I would recommend that you just go to Amazon and read some of the reviews of my other book, see what people think about other things. Or they can follow me on YouTube, also at youtube.com/davidgreene24. You’ve got me much deeper into the YouTube world, Rob, and I appreciate you for that.

Rob:
Hey. Hey, happy to be here.

David:
Where can people find out about you?

Rob:
Oh, you can find me @robuilt on YouTube or on Instagram. But honestly, I think if you heard this podcast today and you were like me where you were sort of your mind was melting and you’re like, have a more clear understanding of how to scale, do me a big favor. Go leave us a five-star review on Apple Podcasts or wherever you download your podcasts so that our podcast can be served up to millions more people to help them scale their real estate businesses. Do that for me and it would mean the world to me and Dave.

David:
Amen.

Rob:
Well, awesome. Well, I’m not even going to try the call sign. So do you have a call sign? Can you close this out? I know I’ll fail miserably.

David:
All right. This is David Greene for Rob, my favorite fish, Abasolo, I’m glad I caught you brother, signing off.

 

 

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The year ahead for the mortgage-servicing rights market is shaping up to be a lucrative play for investors, lenders and others looking to purchase MSR assets. 

Independent mortgage banks (IMBs) leaning on MSR sales, however, now face a supply-demand imbalance, market observers say. That imbalance favors buyers and is expected to be a drag on MSR pricing that threatens to squeeze margins for already struggling IMBs — particularly the smaller players, regardless of whether they sell or retain servicing.

Driving home the concern over MSR pricing declines is a recent advisory bulletin issued by the Federal Housing Finance Agency (FHFA), which overseas Fannie Mae and Freddie Mac. The bulletin, issued quietly in mid-January, states that “although seller/servicers assign values to their MSRs, the enterprises [Fannie and Freddie] should have their own processes to evaluate the reasonableness of seller/servicer MSR values.”

“Seller/servicers and other market participants [including independent mortgage banks, or IMBs] may value MSRs based on differing model assumptions, levels of sophistication and strategic objectives,” the FHFA bulletin continues. “These differences can cause volatile MSR values. 

“For these reasons, the enterprise should not accept MSR valuations provided by seller/servicers without an independent evaluation.”

Nick Smith, the founder, managing partner and CEO of Minneapolis-based Rice Park Capital Management, sees the FHFA advisory bulletin as a positive development.

“People generally don’t like regulation and don’t like being held to certain standards, but they also don’t like the consequences of crashes, [which] hurt everybody,” said Smith, whose private investment firm is an active MSR portfolio buyer on behalf of institutional investors and others. “Insofar as the regulatory bodies are trying to create more stability and ensure that big players in the MSR market are responsible, stable, and have appropriate capital and liquidity, I think it’s great.”

FHFA in an email response to a HousingWire query about the advisory bulletin offered the following insight:

“This is the first such advisory bulletin FHFA has issued on this particular topic [MSR values],” FHFA’s email response states. “In terms of timing, FHFA has a statutory responsibility to ensure the safe and sound operations of its regulated entities. 

“Advisory bulletins describe FHFA’s supervisory expectations for safe and sound operations in particular areas and are used in the agency’s examinations of its regulated entities.”

MSR prices and the come to Jesus moment

Smith said the MSR market currently, based on unpaid principal balance (UPB), is about $14 trillion in total size, “which translate into about $200 billion of market value.” He added that the MSR market, according to his firm’s projections, is expected to grow by an additional $1 trillion UPB by 2025.

Rice Park Capital acquired some $30 billion in MSRs [UPB] in 2022, Smith said. The firm is in the process of raising $500 million from investors to acquire additional MSR assets in 2023, he added. 

Smith stressed that IMBs account for the vast majority of all MSR sales, and the numbers show their role as buyers in the market is diminishing, though they remain active sellers.

“We see the market opportunities as pretty compelling and are raising money into that opportunity,” Smith said. “Independent mortgage companies on a net basis bought $1.6 trillion in MSRs in 2021, and in 2022 they bought net $440 million [based on UPB].”

Most of the IMBs that we’ve spoken to I don’t believe fully appreciate the potential implications of the impact of MSR pricing as it may relate to their own margins.

Brett Ludden, Managing Director at Sterling Point Advisors

In addition, Smith stressed that, “Wells Fargo announced it intends to downsize [its mortgage footprint], and that’s likely going to create even more [MSR] supply.” 

“So, that creates a gap,” he said, “where there’s more MSR being offered than it appears there’s investment capital to match up against it.”

Smith said he doesn’t “envision a price crash” in the MSR market this year, adding that overall prices are still relatively stable — although well off the high points reached this past summer. He does believe, however, that a supply-demand imbalance exists in the market now, which “means that investors are going to be able to be very selective about what they buy, and they can buy a lot.”

A good market for investors, the buyers, however, usually means sellers, like IMBs, particularly smaller IMBS, are likely to suffer some margin compression as MSR prices moderate. If these IMBs retain servicing, the values of their MSR portfolios will decline in that environment as well, according to Brett Ludden, managing director and co-lead of the financial services team at Virginia-based mergers and acquisitions advisory firm Sterling Point Advisors. If they sell loans without retaining servicing, the value of the loans sold to aggregators also will decline if MSR values decline.

“Most of the IMBs that we’ve spoken to I don’t believe fully appreciate the potential implications of the impact of MSR pricing as it may relate to their own margins,” Ludden said. “If [MSR] prices keep dropping, at some point, there are a number of [mortgage] aggregators who probably have pretty high pricing on their MSR portfolios [currently] that allows them to offer very competitive pricing in the industry. 

“And the smaller companies [IMBs] sell to those aggregators, so as MSR prices start to come down, that’s going to put pressure on the margins of smaller originators.”

Smith said the top 15 or so IMBs — the public companies or those large enough to finance MSR purchases — already get independent reviews of their MSR portfolios and should not be impacted greatly by the new FHFA requirements. However, Jeff Juliane, also managing director and co-lead of the financial services team Sterling Point Advisors, added that moderating MSR prices are likely to lead many smaller IMBs to a “come to Jesus moment.” 

More than 80% of the top 1,000 IMBs nationwide — the bulk of the nonbank market — are expected to record $1 billion or less in mortgage production over the 12-month period through June 2023, according to a forecast prepared by Sterling Point Advisors. 

Only 10% of IMBs are expected to exceed $2 billion in originations over the period — which includes leading loan-aggregators like PennymacNewRez and AmeriHome Mortgage, among others.

“At some point in time, some of those very aggressive aggregators [in terms of MSR pricing] are going to have to come down on the MSR multiples [values] … which is going to create additional margin compression for the [smaller] IMBs that are selling loans to them,” Juliane said.

Ludden stressed that a dip in MSR pricing can impact any lender with an MSR portfolio, “depending on where they’re pricing their MSRs.” 

“What we know is that there are a handful of large aggregators where there’s likely some pricing challenges to come,” he added. “But then there’s a second group, which is all of the lenders that rely on these large aggregators for pricing, and while they don’t do any servicing-retained business, they are still at risk if [MSR] pricing starts to deteriorate.”

The window to burn cash is closing

Luddon said he believes FHFA’s recent advisory bulletin focused on the valuation of MSRs wasn’t issued at this time “randomly.”

“It came out right before yearend 2022 financials have to be shared with the GSEs [the government-sponsored enterprises Fannie Mae and Freddie Mac],” he said.

As previously reported by HousingWire, Ludden projects that up to 30% of the 1,000 largest IMBs will disappear by the end of 2023 via sales, mergers, shutdowns or failures.

[Some lenders] are burning cash, and I can see why they keep selling MSRs because they have to. They have to raise cash because you can only burn cash for so long.

Keith Lind, CEO of Acra Lending

Keith Lind, CEO of California-based non-QM lender Acra Lending, the mortgage origination arm of Citadel Servicing Corp., said he wouldn’t “be surprised if the number [of IMB mergers or exits in 2023] is even higher” than 30%. He added that it was a smart move for FHFA to require lenders holding MSRs to get third-party valuations.

“What you have to understand is when you go through a volatile year like 2022 [with rates jumping 3 percentage points in a matter of months], there are likely [lenders] miss-marking their MSRs to make themselves look profitable,” Lind said.  “I’m sure, unfortunately, that is going to happen.

“I think having a third-party evaluation is a good thing. It’s just as more transparency in the market.”

Acra only sells its non-QM loans servicing-retained and recently, according to Lind, “crossed the $5 billion mark on our [MSR] servicing book [of nonconforming/nonagency loans].” That servicing-portfolio figure has not been released previously to the media, he said.

“As a private company, we get outside valuations [of our MSR portfolio] because of our board and just for full transparency,” he said. 

“It’s hard for these little guys to stay in business,” Lind added, referring to the current dour mortgage market for originators. “The free money [from the refinancing boom] is gone, right?

“[Some lenders] are burning cash, and I can see why they keep selling MSRs because they have to. They have to raise cash because you can only burn cash for so long.”

Unfortunately, Lind added, the bid-ask spread for MSR transactions right now “is probably pretty wide.”

“If you’re a forced seller, you’re probably not going to love the price that you’re getting on your MSR,” he said. “But if you’re not a forced seller, it’s a great carry-trade [a financed asset purchase].”

Azad Rafat, senior director of MSR services at San Diego-based Mortgage Capital Trading, said the average yield on an MSR servicing book is in the range of 10% to 11%.

There are big originators and other investors in the market now with plenty of cash on hand and, Lind added, “They are going to buy more MSRs because they want to steal market share.”

“I think they’re going to take that opportunity,” Lind said. “You can get financing to buy MSRs, so if you’re buying a billion dollars in market value, you’re not laying out a billion in cash. You can get 70% to 80% financing for those MSR [bulk purchases].”

Smith of Rice Park Capital stressed that he believes the market can absorb the additional supply it is seeing now without a risk of “substantial declines” in pricing.

“But I do think that there is a gap [with supply exceeding demand],” he added. “I think the selling will be orderly, but there is a gap.

“That’s why people like us [Rice Park Capital], and others like us, are lining up additional capital, so that we can be a good partner to those who need to sell and provide them with the liquidity that they need, and then at the same time provide our investors with a return that we think is pretty attractive.” 



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Rocket Pro TPO, the wholesale arm of Rocket Mortgage, wants to court brokers from its competitor United Wholesale Mortgage even if it means covering legal costs to bring them over

“Starting today, we stand behind brokers who want to use Rocket or Fairway [Independent Mortgage Corporation], but fear Mat Ishbia’s lawyers,” Mike Fawaz, EVP of Rocket Pro TPO said at the lender’s Ignite Live sales event with brokers on Monday.

Fawaz’s comments on Monday come less than two years after UWM gave brokers an ultimatum to choose between the Michigan lender or Rocket Pro TPO and Fairway. In May 2021, UWM’s CEO Mat Ishbia asked brokers to sign an “All In” agreement by pledging to stop working with Rocket or Fairway. He said the lenders were inhibiting mortgage brokers from growing their business. Those who decided to work with either Rocket or Fairway could no longer send loans or applications to UWM. 

“Rocket is willing to indemnify brokers who choose to work with us — or even Fairway. This includes covering the anticompetitive Ultimatum penalties and resulting court costs that UWM attempts to hold you hostage with,” Fawaz said.

The decision was not just targeted towards UWM but to the broker community, Fawaz said in an interview with HousingWire.

“Maybe at the time when the ultimatum went out, the market was busy and people made decisions without thinking through what happens when the market changes. The market has changed. (…) Optionality and freedom becomes more and more important,” he said.

Since the financial penalty is removed, the ultimatum is – in effect – null and void, Rocket Mortgage said.

UWM declined to comment on Rocket’s decision.

In an interview, Fawaz said Rocket hasn’t thought about how much cost would incur to support the decision. He said the ‘bully shield’ initiative, as it has been dubbed internally, was “really a drive towards doing the right thing.”

Rocket won’t need to look under the couch cushions for the money.

The company’s SEC filing indicated it ended the third quarter of 2022 with a “strong liquidity position,” which includes $800 million of cash on hand, $3.2 billion of corporate cash used to self-fund loan originations, a portion of which could be transferred to funding facilities – warehouse lines, which used to fund loan originations.

On the heels of mortgage rates climbing to more than double than what it was in the beginning of January 2022, Rocket lost its origination crown to UMW in the third quarter. 

UWM originated $33.5 billion in the third quarter, beating Rocket’s $25.6 million in production, led by its Game On pricing initiative that cut 50 basis points across all mortgage products in July. The trend continued into the fourth quarter, during which UWM originated $25.75 billion in mortgages, according to Inside Mortgage Finance. Rocket posted about $19.7 billion in volume during the fourth quarter.

More than 17,000 loan officers joined the mortgage broker channel this year, with about half of them coming from the retail channel, Ishbia told analysts in its latest third quarter earnings.

“We’ve had thousands of brokers do business with us,” Fawaz said, adding that “hundreds” joined in January since the lender introduced $0 credit report fees to brokers.



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Despite mortgage rates briefly falling below the 6% threshold, both housing inventory and mortgage demand fell last week. Let’s dive into the trend lines of the housing market.

First, here is a quick housing market rundown from last week:

  • Purchase application data was negative 10% week to week — but still positive for the year
  • Housing inventory decreased by 8,664 units, a more extensive inventory decline than we saw in the prior week
  • The 10-year yield had a wild week, and mortgage rates did break under 6% for a day and then rose after the more substantial than-expected jobs number

Purchase Application Data

We took a step backward last week with a 10% decline in purchase apps from the prior week. That’s after positive growth of 25% and 3% over the prior two weeks, respectively. It’s disappointing but I ask you to remember a key date – Nov. 9, 2022. Once you make seasonal adjustments with purchase application data, that’s where the data line begins to show improvement.

We are well into the seasonal demand increase for purchase applications if demand grows; this means the heavy volume period on this data line is between the second week of January and the first week of May. After May, total volumes traditionally fall. We are working from a shallow bar in this index – seven years of growth were taken away in one year in 2022. The bar is so low we can trip over it! However, with that said, purchase apps have started to improve from the waterfall dive on Nov. 9, 2022. I put more weight on the year-over-year data, and not only has the bleeding stopped in this data trend line, but even with the 10% weekly decline last week, we have also been able to bounce from the lows created recently.

The show-me part of the housing market starts with this bounce from an extreme bottom. Purchase application data is forward looking for 30-90 days; the bleeding stopping from a low base is a good start. However, we are going to see if 6% mortgage rates are good enough to create some growth in the future or if the housing market needs rates near 5%. Last year, when rates dropped to 5%, we saw some demand pick back up. But that 5% level didn’t last long, and then rates spiked back up to 7.37%. We might see volatility in this data line until it stabilizes, so I cautioned people to read big positive or negative moves with some grain of salt on the weekly data until things settle down. However, one thing is for sure, the housing market found a working bottom, and the weekly tracker is more critical than ever.

Weekly Housing Inventory

A few weeks ago, I was encouraged that we had a slight increase in inventory and a small decline the following week. We have had back-to-back weeks of noticeable decline in the Altos weekly inventory data. This week inventory fell 8,664 units from the previous week.

Screen-Shot-2023-02-06-at-1.22.12-PM

Altos Research Weekly Chart

Hopefully, we will get the seasonal inventory push sooner in 2023 than we did in the last two years. It’s a small grace that inventory is still higher this year than last year. Last year we saw a decline in inventory during this period; mortgage rates were still much lower last year.

Since purchase application data started to improve from Nov. 9, 2022, it fits into the 30-90 day forward-looking sales data line. We could be getting some lower inventory now because of the slightly better demand. We recently saw the pending home sales data turn positive for the first time in many months. 

  • Weekly inventory change (Jan. 27 – Feb 3, 2023): Fell From 465,654 to 456,990
  • Same week last year (Jan. 28 – Feb 4 ): Fell from 271,954 to 255, 662

One of the concerns I have had with the housing market is the post-2020 inventory channel, which took us to all-time lows. When rates were below 4%, this created massive housing inflation. Now that rates are above 6%, we don’t see the same type of housing inflation data we had from 2020 up until rates broke over 5.875% in 2022. However, as you can see below, we don’t have much breathing room to get back below all-time lows if demand picks up and inventory levels don’t grow. We don’t have a high price growth problem now and shouldn’t be with rates over 6%, as we saw in 2020, 2021, and the early part of 2022 when mortgage rates were lower. As you can see below, we don’t have a lot of housing products available for a country of 330,000,000 people.

NAR Inventory Levels: 970,000

We should be getting the seasonal inventory push higher in inventory soon; I hope we do. The question is, right now, how much is demand hitting the inventory levels? And should we be concerned if new listing data doesn’t grow much this year? I would be concerned if I were you. A great chart from Freddie Mac shows the trouble with having rates too high as new listing data declines. When I am rooting for more inventory, I am rooting for more sellers who are buyers of homes once they sell; this brings us back to a regular housing market.

One thing we have seen post COVID-19 that when new listing data does decline, we can have a waterfall dive in demand. The first time was a global pandemic, and once people got back to standard, new listing data grew, as did sales. In 2022, rates were simply too high for people to want to sell and buy another home after the sale.

10-year yield and mortgage rates

Last week we had a lot of action but didn’t end up anywhere again. The Fed meeting sent bond yields lower only to regain some of that move by the end of the day, and then on Friday bond yields shot up higher after the better-than-expected jobs report.  https://www.housingwire.com/articles/positive-jobs-report-sends-mortgage-rates-higher/ 

I have long stressed that breaking below 3.42% on the 10-year was going to be tough, so much so that I joke that I brought out Gandalf from “Lord of the Rings,” who says you shall not pass. Well we haven’t been able to do so for some time now. Mortgage rates did break below 6% last week for the first time in a while but rose from 5.99% to 6.19% after the stronger-than-anticipated jobs data.

Part of my 2023 forecast for the 10-year yield is that if the economy stays firm, the 10-year yield range should be between 3.21%-4.25%, meaning mortgage rates between 5.75%-7.25%. With economic weakness, bond yields could quickly drop to 2.72%, taking mortgage rates near 5%. So far, the economic data has stayed firm, with some recent positive data from the housing market as the builder’s confidence and pending home sales data have shown some growth from epic dives lower.

The week ahead

Last week we had a bunch of labor data that was very positive, with over 11 million job openings, jobless claims under 200,000, and an unemployment rate of 3.4%. We had all this with the growth rate of inflation still falling and falling wage growth data—so much for us needing a job loss recession for the growth rate of inflation to fall.

This week will be a very light economic data week; we have Tuesday’s trade balance data, the critical jobless claims data on Thursday, and the Michigan consumer index on Friday. We always want to keep a close eye on jobless claims because my entire Fed pivot is only based on the labor market breaking, and that would require jobless claims getting to 323,000 on the four-week moving average, which we are far from as we are at 191,750. The Fed is more focused on inflation and wage growth, so we can have positive economic data without worrying about the Fed’s need to be more aggressive. 

I find it hilarious that the people who said we were in a recession last year are now screaming for the Fed to hike more aggressively because the economy is too strong and inflation can grow. I have been on Recession Watch since Aug. 5, 2022, but the two things I need to see to create a softer landing or a lighter recession are the same things I wrote back on Aug. 5.

With that in mind, how might this reverse? Well, the two easy answers are this:

1. Rates fall to get the housing sector back in line

2. Growth rate of inflation falls, and the Fed stops hiking rates and reverses course, as they did in 2018

The inflation growth rate has cooled, and mortgage rates have fallen from recent highs, but the Fed is still hiking. They’re almost done but are not close to cutting rates. We don’t have everything I want, but it’s a start. For housing and going forward, it’s all about mortgage rates, and the growth of inflation and economic data will be critical to monitor each week. 



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You stumble across the perfect rental property, but you don’t know who owns it. So what do you do? Walk up the door and present an offer? Ask the neighbors? Or, is there a better way to do some sneaky searching that could land you the perfect off-market real estate deal? The rookies want to know, and on this Rookie Reply, we’ll get into EXACTLY how to do this, even if you’re starting without much money!

We’re back for one of our last live Rookie Reply episodes! This time, we’re touching on questions about finding off-market property information, what to include in your direct mail letters, and why a home wouldn’t qualify for a mortgage. We’ll also hit on commonly asked title questions and whether or not you can buy real estate while underwater on another mortgage. So, if you’re trying to get your next deal off-market, this is the perfect episode to listen to a few times through!

If you want Ashley and Tony to answer a real estate question, you can post in the Real Estate Rookie Facebook Group! Or, call us at the Rookie Request Line (1-888-5-ROOKIE).

Ashley:
This is Real Estate Rookie episode 258. So one of the first ways that you can look at a property for free and get some information on it is going to your county’s GIS mapping system. So if you know what county this property is that you just drove by, you’re going to Google Erie County GIS mapping system. It’ll take you to the county website where there’s a link to their mapping system where you can put in the address of the property. You can kind of zoom in on a map on the property and it’s going to give you some generic details about the property. My name is Ashley Kehr and I’m here with my co-host, Tony Robinson.

Tony:
And welcome to the Real Estate Rookie Podcast, where every week, twice a week, we bring you the inspiration, motivation, and stories you need to hear to kickstart your investing journey. And today I want to shout out Chad and Emily who left us a five-star review on Apple Podcast. They say, “Longtime VP listener, but I love the way the host keep it simple and actionable. If you’re just beginning and don’t need deeper understanding of the nuances in real estate, this is where to start. Using this podcast and other VP content, we have purchased an investment tri-plus last year, even during these hots market conditions and now have the lot next door in our contract with seller financing. This show really works.”
Chad and Emily, congrats to you guys on all that success, and thank you for that five-star review. And if you’re listening and haven’t yet love to say five-star review, please take just a few minutes out of your day, do that small favorite for us. The more reviews we get, the more folks we can reach, more folks we can reach, more folks we can help. Ashley Kehr, how you doing?

Ashley:
So once again, we are live in Phoenix. This is what, probably the-

Tony:
Episode 333 that we’ve done here.

Ashley:
But they’re all in different orders that we did, but for a while we’re going to be doing some live recordings. So let us know how you guys ended up liking these episodes in person. I feel like it’s a lot more fun to get to talk-

Tony:
Actually sitting here with me.

Ashley:
And actually for this episode, this is the last one we’re recording before we head to the airport. My actually flight just got delayed, so we’ll see if I actually make it home.

Tony:
I don’t know if you guys know this about Ashley, but she probably has the worst travel luck out of anyone I’ve ever, literally ever met. She went to Florida and it hurricaned in Florida when she was there last time. It’s like everywhere you go.

Ashley:
Yeah. And then I went back to New York, so Florida was a state of emergency. I went to New York, they had a big snowstorm state of emergency.

Tony:
And right now she gets a flight saying blizzard warning for her layover in Denver.

Ashley:
And that’s not even the flight that’s delayed. I’m delayed to Denver, so I’m sure if I do make it to Denver then [inaudible 00:02:35]-

Tony:
It’ll be even longer. So anyway, the lesson to take away from this is if you find yourself on a flight with Ashley, get off.

Ashley:
So we decided for our last episode here together for this one, we are actually going to have a drink. I think that probably during the episode we were talking so much we each only took one sip maybe, or two.

Tony:
[inaudible 00:02:59].

Ashley:
So if you’re listening to the show, feel free to have a drink with us.

Tony:
Well, you know it’s bad luck to cheers and not drink.

Ashley:
I’m focused on the cheers.

Tony:
[inaudible 00:03:08].

Ashley:
So Tony, what was your favorite part about being in Phoenix and the meetup?

Tony:
First, if you guys came out to the meet up, we appreciate you guys. If you missed it, please do go to the Real Estate Rookie Facebook group, we’re the BiggerPockets forums. Let us know where you guys want to see us next. We really do want to take the show on the road and meet more people from the rookie audience.
I think my favorite part of being here was hearing the stories. I met so many amazing people. I met a kid who was 19 years old already thinking about investing in real estate. Met another guy that was 20 years old already door knocking, trying to find deals. I met someone who flew all the way from Ohio. I met people who, just so many different stories and so many different achievements and so many different successes. And that’s what makes this role that we have as podcast hosts so incredibly …

Ashley:
Yeah. I mean, I’m on East coast time right now, so I was up pretty early, but I have to see the energy in that room yesterday motivated me to get to work right away this morning.

Tony:
People always tell us, they come up to us and say, “Tony, Ashley, thank you guys so much for everything you do on the podcast.” And I heard a little bit of that last night as well. And what always tell people is that, really, all we do is we answer the …

Ashley:
We facilitate it.

Tony:
Right, we facilitate the conversation, but the people that really bring the value are the guests for sharing their stories. And then really, it’s all the listeners who take those stories and turn them into action. Because we could put out this podcast, people could listen and do nothing with it and no one would really care. But it’s the fact that people are hearing these stories and doing something with it that makes all the difference. So kudos to you guys for taking action.

Ashley:
So if you guys want to find out more about meetups and events that BiggerPockets is doing, you can go to biggerpockets.com/events.

Tony:
All right, so we’ll get into the first question. Today’s question number one comes from Sam Ecmillian, and Sam, I hope I got your last name right there. But Sam’s question is, what is the best way to find the name and the number of a property owner? On the way home, I see this one home that’s been what appears to be abandoned for over a year, and I would like to get in touch with the owners to buy it. Any help is greatly appreciated. So Ashley, as you’re driving through Western New York and you see those houses that you want to buy, what steps are you taking to find those property owners?

Ashley:
This is why I don’t like to drive so that I can take action right away and actually look up the property.

Tony:
You have other people drive you.

Ashley:
Yeah, so-

Tony:
Wait, let me ask a question. Can that be a business write-off then? Say that you hire someone to drive you around-

Ashley:
Oh, definitely.

Tony:
… just so that you can look at deals.

Ashley:
Or even just so that I can do work-

Tony:
Work.

Ashley:
… in the backseat.

Tony:
Man.

Ashley:
Actually, we were talking today about how I put in a reservation for the Ford Lightning, the electric Ford. And part of the features of it was it actually had a desk tabletop that would flip out from the [inaudible 00:05:52] console. That was one of the selling points, like I can actually use it.

Tony:
So a new tax strategies unlocked here on the Rookie podcast.

Ashley:
So one of the first ways that you can look at a property for free and get some information on it is going to your county’s GIS mapping system. So if you know what county this property is that you just drove by, we’re going to Google Erie County GIS mapping system and it’ll take you to the county website where there’s a link to their mapping system where you can put in the address of the property. You can kind of zoom in on a map on the property and it’s going to give you some generic details about the property.
So you’ll have the address, you’ll have the current owner, sometimes it will include the sales history of the property, what the county property taxes are, and then also a mailing address for the owner. So that’s the address that is actually on the tax record where the property taxes are mailed.
So you can get an idea of, if the mailing address shows out-of-state, it’s probably an out-of-state owner. If the property taxes aren’t mailed to that property and appears to be vacant, well then that’s kind of a dead end because if you mail the property, mail to that property, you’re not really going to get anyone if you do know that it’s vacant or maybe it’s just really distressed and it’s really not vacant. So that would be the starting point is going on there.
You could also go to the town website and pull up the property taxes. Almost all municipalities have the property taxes online that you can go and you just put in the address and it’ll pull up the property tax record showing the mailing address and the current property owner. And then there’s paid services like PropStream where you can pay $99 per month to get access to information like that. And then also Invelo is a new partner with BiggerPockets where you can pull information like that too. So if you’re a pro member that is free.

Tony:
Yeah, I’ve used the paid software a lot to source all of our off-market deals and it’s super cool. 30 seconds or less, you find the property, plug the address in, skip trace the owner and you got some contact information.

Ashley:
Do you want to talk more about skip tracing because I touched on the mailing address if you’re mailing them letters.

Tony:
Yeah, so it’s a lot of times, these property softwares, they will give you as part of your initial subscription, the property owner’s name and address. But if you want a phone number, typically you have to skip trace. And skip trace comes from, I don’t know where it comes from, but anyway, the process of skip tracing is, I don’t know what it does in the backend, but it takes this person’s information, their name, their addresses, and it looks for some kind of records online that have phone numbers associated with that person’s information. And then it spits out a phone number for that person.
Typically, you’re going to get several phone numbers and you don’t know which one is the right one. You could get up to 10 phone numbers back for one person and you got to work through each one of those 10 to find the right phone number. And sometimes you’ll call, say you’re calling for Ashley and maybe you find Ashley’s brother and, “This is not Ashley Kehr, this is …” Ashley, what’s your brother’s name?

Ashley:
Chad.

Tony:
“This is Chad Kehr. What are you calling for?”

Ashley:
Malloy.

Tony:
Oh yeah, Malloy. But anyway, sometimes you have to work through some of those dead leads. Some of the other issues that I run into sometimes with some of these paid software is that when you look up the owner, sometimes it’s an LLC, and with an LLC it doesn’t really show what an owner’s name is. Sometimes it’s a PO Box, so it’s hard to figure out where to mail that stuff.
So what I typically do when it’s an LLC or some kind of entity is I look that up on the state, the Secretary of State website. So every state has an SOS website, Secretary of State, and if you plug in that entity’s name, so 123 Main Street LLC, and then it shows who the registered agent is, sometimes a mailing address. And then there’s one step further you can take to try and find that person’s contact information.

Ashley:
And if you remember when you were a toddler and you went to somebody’s house and they didn’t have a booster seat, they give you that big old phone book to sit on as a booster seat. So you can go online these days and go to the whitepages.com and you can even search the person’s name on there too by state. So if you do get their mailing address, you might even be able to get a phone number off of the white pages too.

Tony:
Have you used that with success before, the Whitepages?

Ashley:
Yeah.

Tony:
I know that it’s around, but I’ve never actually used it, but that you’ve actually had success with it.

Ashley:
Yeah. And also another way too is if you have the person’s name, so if it’s a personal name and maybe you have their mailing address so you know that they’re from the Buffalo, New York and you go on to Facebook and search their name on Facebook too and see if anybody comes up, that it shows that Tony Robinson from Buffalo, New York, he has it in his profile, comes up, you can take that risk and message the person, “Hey, are you the owner of this property?”

Tony:
That’s like some next level type sleuthing there. Have you seen You on Netflix?

Ashley:
Yeah.

Tony:
That’s like some Joe type activity. So for all my You fans out there, you know what I’m talking about. Cool. All right, let’s jump into the next question here. So question number two today comes from Will Harrington and Will says, “For those of you who do direct mail, do you list your offer price and terms in the letter or is the goal to get them on the phone first?”
That’s a great question, Will, and I’ll kind of share what steps I take in this. So when you send direct mail, think about it almost like dating. And you like the dating analogy with partnerships, but it works well for this as well. When you date someone, when you first meet them, you don’t say, “I love you and I want to marry you.” You say, “Hi, my name is Tony, what’s your name?”
And when you’re going off market, it’s very much the same process. Two reasons that I would recommend you don’t give the offer up front. First, it could turn that person off if the offer is way too low, they might not even take the time to respond to you and maybe they would’ve taken that offer had you really built some rapport with them first and communicated the value you can provide to them and all those other things. But they just see the number first. If it’s lower than what they want, they may not even take the time to communicate with you.
And on the flip side, if your number’s super high and they respond right away and say, “Yes, take my home,” it’s probably a sign that you could have gotten it for a lower price. So I think the purpose of that direct mail is just to express your interest in purchasing that property and then it’s the phone to phone or the face-to-face or on the phone conversations where you build that relationship and provide the value to get it at the right price.

Ashley:
The person that I want to refer you guys to is Nate Robbins. So on Instagram he’s N8, the number eight, Robins, and I have him onto every bootcamp session I do to talk about direct mail and cold calling.
So what he does is I agree, not putting the terms because you haven’t even seen the inside of the property yet most likely. So you don’t actually know what you can really offer the person, but when he actually sends out the letter and then maybe they call him or he’s just doing a cold call or door knocking, he likes to let the person know. And within the first 30 seconds, the reason for the call is, because there’s that kind of you’re getting a call from somebody unknown or you’re calling someone and letting them know, “I’m interested in purchasing your property.” And then that’s where you kind of lead into, “Let’s discuss more about it.”
And he tries to get as much information as he can and if they ask for an offer, “Well, what do you want me to sell it for? What are you going to pay for it? What’s your purchase price, what’s your offer?” And he goes on to say, “To give you a fair, reasonable price, I would really need to come and see the property. I don’t want to waste your time by giving you some number that I’m throwing out without actually seeing the property itself. I’m available to tomorrow, I can come out to the property, I can take a look at it and I can give you an exact number instead of a ballpark number as to what I would offer for.”
And really explains that it’s to the seller’s benefit that they’re going to take him through the property and show him instead of him just throwing out some random number because he is letting them know it wouldn’t be a number he could commit to without seeing the property anyways. So what would be the point?

Tony:
Yeah, that’s a great point. And there really is a framework you can apply to direct to seller conversations. And Nate Robbins is a great resource. Brit Daniels, he’s got a bunch of free stuff on YouTube where he breaks down his scripts with folks. Another guy by the name of Max Maxwell who’s also been on, I think on one of the BP podcasts before. He’s got a great kind of framework around how he speaks to people. So do a little YouTube university, you guys can find some great resources on how to communicate with those people when you got them on the phone.

Ashley:
Our next question is from Iva Forton. “Newbie here, what are the reasons a house wouldn’t qualify for a mortgage?”

Tony:
That’s a great question. Have you ever applied for a loan and it not gotten approved because of the condition of the home?

Ashley:
No.

Tony:
I haven’t either. But I think it’s because I have purchased homes that I think have been in pretty terrible shape.

Ashley:
You didn’t try to get the loan.

Tony:
I didn’t try to get a traditional loan. We went with private money are hard money. So I don’t know. What would your advice be to Iva?

Ashley:
So part of the reasons is that it’s inhabitable. So especially if you’re going for an FHA loan or maybe even a BA loan where it’s meant to be your primary residence and they want you living in the property pretty quickly after closing. So they will actually go through and FHA does their own inspection. This is separate than you hiring an inspector, they’re mostly going through to making sure that the property is habitable, all the mechanics are functioning, that it’s also up to code.
So I remember when my cousin bought a house with an FHA loan, they had to have handrails installed on the stairway because it wasn’t up to code without those handrails, and they couldn’t close on their FHA loan until that was done on the property. So there’s things like that.
But then if you’re going the conventional route where there is no FHA inspection, it’s more flexible, but also the bank may not go onto the property if it doesn’t have running water, things like that. Bank sometimes will require that you have a well and a septic inspection. So if those are not operating, that needs to be corrected. But that can get pretty expensive too to do.

Tony:
Yeah, and what we talked about so far is the physical nature of the home, but it’s also the nature of the contract you have. So another reason that a home wouldn’t qualify for a mortgage is if the amount that you have it under contract for is higher than what the property’s actually appraised for.
So say you’re trying to buy a house for half a million bucks, but the bank only thinks it’s worth 400,000, they’re not going to give you a loan for that $500,000. They’re going to give you a loan for the $400,000 and now you as a borrower are responsible for that $100,000 difference. So that’s the only other scenario I can really think of outside of the condition.

Ashley:
Actually, that made me think of one more, and it would be if you cannot get title insurance on the property. So a bank will not give you a loan on a property if they can’t get title insurance. And that’s basically saying when the title company went and did the title work to show that yes, the person’s selling it is the owner and you are now the buyer going on title and there’s no liens, there’s no judgments, nobody else owns it, you’re getting title insurance in case they made a mistake so that you’re able to, the insurance will pay out, you can pay off your loan and pay damages from having this corrected or you lose the house to the person was actually the owner, but the bank will not lend on it if you can’t get that title insurance. So I’ve come up with this in two circumstances.
One was a campground where it was actually sold at the county auction for back taxes. The bank actually that had the mortgage on it is the one who bought it from the county at the sales auction. During that time period, there was no title insurance put on the property to show those two transactions. So it going from the owner that defaulted to the county and then the sale from the county to the bank.
So a title insurance would not put title insurance onto that property for so many years, like a time period had to pass. And if nobody claimed ownership or called out an issue in the title, then they would go ahead and reinstate that. But that means that there was no bank that was going to lend on it, and that’s coming up with cash to hold that property in cash until it was bank financing.
The second time I ran into it as a lake property where they had a separate parcel that was included into the sale, but the separate parcel was actually where the driveway was, so it needed to be included with that house. The Lake Association had actually sold that piece of property to the current owners.
Well, it had actually been an abandoned piece of property and we couldn’t get title insurance on it because there was no record of any previous owner. And later on we actually did some digging and the sellers actually found a letter of abandonment. So with that letter then we were able to get title insurance, but if there wasn’t that letter then we wouldn’t be able to get title insurance and the bank wasn’t going to finance at that point.

Tony:
We should probably bring a title insurance expert onto the show.

Ashley:
Yeah, that’d be really cool.

Tony:
Just to talk about the purpose of title insurance, different claims that people have filed because title insurance for a lot of us is just something, like a box we check when we’re closing that your lenders typically make you get, but it’s not something that I think a lot of people understand in detail around what is it actually for? When can I use it? And what are the risks of not having title insurance?

Ashley:
Yeah, I actually did, last spring it was, I did a hard money loan and the closing was actually at the attorney’s office of the hard money lender and there was some issues with the title work there and they actually had a title attorney at the closing who was trying to figure out the situation. But it was a three-hour-long closing and we ended up not even figuring it out.
It was a Friday and we ended up having to wait until Monday to close. But we sat there and we literally just picked this title attorney’s brain going after all these scenarios and things and it was really interesting. I did ask him if he would like to come on the podcast and stuff. He’s like, “I do so many speaking events and things like that.” Here I am thinking here’s an opportunity, come, get some more clients, come to the podcast. He’s like, “Oh, I do so many speaking engagements, I’m really kind of burnt out.” I’m like, “Oh, okay.”

Tony:
You win some, you lose some. All right, so our next question here comes from Nathaniel Munier and Nathaniel’s question is, I have the opportunity to purchase four single family rentals from my wife’s relatives. They’re very upfront and honest about the houses. Would you do a title search on each of these properties or save the $1,000? This will save me some out-of-pocket costs, but it would be the property I’ve purchased without a title search. We kind of just touched on this, right?

Ashley:
Yeah, I would say no because they could not even know of the issue.

Tony:
Just because they think it’s clean doesn’t mean there wasn’t something happened before they owned. So I don’t think we need to spend too much time on this one because …

Ashley:
And usually it’s typically the seller that is paying for the title work because usually they should have the title search already or the abstract of title and give it to the title company and then it gets sent to your attorney and then you’re updating it from there.

Tony:
I think we pay for our title work.

Ashley:
Well, I think it’s split because it goes on both sides of it, but you can usually have the seller cover all of it, but there’s work that needs to be done on both ends. So there was actually a property I was selling that somehow we misplaced the title of abstract, the title search, so we had to pay for a new title search. So I’m thinking at the cost of that, that they probably don’t have the title search anymore, that being that it would cost $1,000 because usually it’s not that much to just update a title.

Tony:
And I was going to say, I’m not even sure what we pay for our title reports because it’s just something that’s rolled into our closing costs. So if you ask me what we pay, I can’t even tell you.

Ashley:
Yeah, my attorney, we usually pay around $1,200 per closing and she fronts the closing costs of doing the title work. So I know that she’s not making only $200 on it. So another thing that goes along with the title insurance is a survey. Sometimes a seller will ask you to accept the survey that they have.
So I actually just closed on a property last year where I accepted a survey from 1986. It was my attorney talked to the surveyors who had done it. The property was still went and staked out where the survey lines were and we accepted it as is. But that is something to also be cautious of if lot lines have changed and the survey has been different.
So there’s also been properties where we went to … the seller went to go have it surveyed and issues came up from the last time they had it surveyed until now, and they had to resolve those issues with the neighboring property owner before we could actually close onto the property. So that’s another thing to not skimp on if you’re not sure of the whole picture of the parcel.

Tony:
Yeah, I mean, I think for me, just the spirit of the question I think is what are some ways I can save money, but I think if you are making this several hundred thousand dollars investment into a property, spending that extra $1,000 to protect yourself is so worth that small investment because imagine if there was an issue with the title or the survey or whatever it was, that’s going to come back and potentially cost you way more headache, more cost and more time than the [inaudible 00:23:48] cost a thousand bucks or so.

Ashley:
And do people actually go and not do the title search? They must be just doing a quick claim deed and then updating the title, not actually going back and doing the title search.

Tony:
I’ve never not had a title report run, so I’m not even sure what the process is if you don’t. I literally couldn’t even tell you.

Ashley:
Yeah, because you’ll still have to pay a fee to have the title updated to show that you are now the deed, hold the deed on the property. Another thing to add on to that too is so within the last couple years, the market’s really hot. People are waiving inspections, everything like that, and you couldn’t have any kind of contingency on a property. But now that is kind of changing and also with this example where it’s your family, so I doubt that you’re competing against a ton of other buyers too.
So I think it would be perfectly acceptable to ask for these things. And even for anyone listening, if you’re putting in offers, now is not the time to skip an inspection. You’re at an advantage now that you can put an inspection into your property and it’s not going to be completely out of the bidding process, I guess.

Tony:
Yeah, I think in the last few years to be competitive, a lot of people were doing that, but for our rookies, I think it is a slippery slope because if you get into a property, there are some things this family, they might not even know that something’s wrong with the property. When’s the last time they scoped the sewer line or they check the HVAC or if there’s a septic tank, did they have the septic tank inspected? There’s so many things that are kind of behind closed doors that you can’t see unless you open up and do an inspection.

Ashley:
Or one thing may be okay to you or be okay to your father-in-law but not be okay to you like, “Oh yeah, every year I got to go in there and jiggle this thing.”

Tony:
It’s fine. It’s no big deal.

Ashley:
Yeah, no worries. The hot water tank, it maybe starts making noise, just give it a couple kicks.

Tony:
Everything’s good.

Ashley:
Because I think it’s way better to just go ahead with the inspection now and just be honest with them too and say, “You know what? I completely understand your honesty, but I would still like to do an inspection on all these things in case there’s things you guys don’t know about the property.” So if they’re rental properties and maybe it’s a septic or a sewer and you want to do a sewer scope is to, one of the tenants could’ve shoved something down there and it’s about to crack the pipe or something like that.

Tony:
Or even sometimes little things change in the code and what’s safe 30 years ago might not be safe today. We have a property where it was something about the wall in between the garage, the wall in between your home and the garage, there wasn’t enough fire protection in that wall. So it’s like there’s certain little things that pop up that you never know unless you actually do that inspection.
All right, so our next question comes from Emily P and Emily’s question is, does anyone know that if the housing market crashes, if you can buy a house for investment purposes if your primary residence is underwater? If I’m still making payments, but suddenly it’s value dropped by $200,000 and I owe more than it’s worth. So this is a great question, Emily, and just to paint a picture for the rookies in case that wasn’t clear.
What Emily’s question is, is say you have a primary residence that you bought for $500,000, that’s the amount of the mortgage that you have on that property. Your loan balance is $500,000, because the market shifts, say your appraised value to what your property would sell for today goes from 500,000 down to 200,000. Some big difference. So now you’re underwater on that property.
Emily’s question is, does the fact that I have negative equity, the loan balance on my house is higher than what the appraised value is, will that stop me from buying an investment property? The short answer is no, it shouldn’t. Typically when you’re going to apply for a new loan, what they are looking at to approve you for that mortgage is your debt to income ratio and your credit score. They want to know what is your profile as a borrower. As long as you are current on your mortgage, and as long as your credit score is still strong, you have the ability to get approved for that new mortgage with your debt to income ratio, typically they’re going to approve you for that loan.
What they won’t look at, and I don’t think you’ve ever had this happen before either, when you apply for a home, typically they are not going to go back and appraise all of the other properties that you own to make sure that they’re underwater or not underwater.

Ashley:
Yeah. The only reason they would do an appraisal on your primary residence is if you’re going to use that house as collateral for the loan. So if you’re getting a line of credit or refinancing your mortgage, or maybe you’re doing a portfolio loan where you’re including a rental property in your primary residence, but if you are not using that property as collateral, they’ll never go and ask.
And if they do ask what the value of that house is, you can tell them, I purchased the property for $500,000 in 2021 or whatever it is, and give them the purchase price of that property. Plus maybe if you did any improvements on it to show the value of the property.

Tony:
Yeah, I’m trying to think if there’s any risks associated with that happening where your primary residence goes underwater and as long as you’re like on long-term fixed debt and you have the ability to keep making those payments, I mean, hopefully eventually your house value’s going to rebound. Maybe the only time you get in trouble is if you’re on some kind of like adjustable rate mortgage or some kind of short term debt where the payment is one number today, but a year from now it’s going to adjust up to some higher number. Now you’ve got a mortgage that was 2,000, now it’s 5,000 or some other crazy high number, and now you don’t have the ability to carry both of those mortgages.

Ashley:
And that could happen even if your property has appreciated value, where that happens, where your payment changes, if you are on a variable, you switch to a variable interest rate. But the problem here is if you are underwater and you can’t afford what that new mortgage payment is, you can’t go and sell that property very easily without probably putting some money into the deal to pay it off or taking a big loss on it too.
Thank you guys so much for listening. I’m Ashley, @wealthfromrentals. And he’s Tony, @TonyJRobinson, and we will see you guys for the next episode.

 

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Mortgage lender and digital financial services company Guaranteed Rate hopes to court builders and borrowers with its newly launched programs — Lock ‘N’ Sell rate lock program and forward commitments – by helping the borrowers secure lower mortgage rates.

The rate lock program allows builders to lock in a current rate for up to 120 days on individual homes. This is done in advance of having a buyer in order to protect payments from going up in the current rate environment, Guaranteed Rate said in an announcement about the launch. 

The Lock ‘n’ Roll program is eligible for conventional and government fixed-rate loans, with the lock period being a minimum of 60 days, according to its website. The loan program can’t be extended, relocked or renegotiated until after the lender receives a fully executed sales contract and is only eligible for up to 30 days of extension. 

The program was launched “to take the guesswork out” for customers and curb concern about changes in the market affecting their ability to afford a home before construction is complete, Jim Colella, the national builder program manager of Guaranteed Rate, said.

Alternatively, builders with a larger number of houses can take advantage of forward commitments — which enable builders to reserve between $3 million and $20 million in blocks of mortgage loans at lower-than-market interest rates for up to 150 days, the Chicago-based lender said. 

Instead of reducing the price of the house, borrowers can take on a lower monthly mortgage payment by lowering the rate, Guaranteed Rate said. 

“By maintaining initial asking prices, builders can help keep current values in the neighborhood and ensure appraised values for buyers,” the company said in a statement. 

With 466 branches across the country, the lender has more than 1,910 active loan officers, according to mortgage data platform Modex. Guaranteed Rate originated $34.38 billion in volume in 2022, down 56% from the previous year’s production of $78.13 billion. About 71.2% of its transactions came from purchases and refis accounted for 27.1% in 2022. 

While rates have been on a declining trend after peaking in October, they are still higher than the 3% levels from 2021. Despite the decline in home price growth and projections of rates dropping, affordability challenges are expected to continue to weigh on buyers. 

In return, mortgage companies have been betting on programs that lower mortgage rates to unlock buyers on the sidelines. 

Products such as builder- or lender-funded temporary rate buydowns and ‘buy now and refinance later’ programs that waive closing costs or appraisal fees have been picking up steam against the backdrop of a higher rate environment. 



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