Between the shift towards self-employment and the number of Millennials entering the housing market, the market for non-QM is poised for substantial growth in the year to come. HousingWire recently spoke with John Keratsis, president and CEO of Deephaven Mortgage, about what lenders should be doing to capitalize on the boom in non-QM lending and why our preconceived notions about non-QM could be all wrong. 

HousingWire: Why is now such an important time to prioritize non-QM?

John-Keratsis_DHM

John Keratsis: The timing to get into non-QM couldn’t be better for a couple of reasons. First, the non-QM market is poised for long-term, sustainable growth. This is a direct result of a monumental shift in the US to the self-employed workstyle. Contract or ‘gig’ workers, entrepreneurs and business owners need non-QM mortgages because they may be unable to produce the W-2 tax form used to verify qualifying income for a traditional loan. 

Driving this workstyle change is the largest population cohort in US history: Millennials. As millions of self-employed Millennials settle down and start to raise families, they are looking for their first home. Millennials were born between 1982 and 2000. So, the Millennial homebuying demand is set to continue for a span of eighteen years! 

Right behind the Millennials are the Gen Zers – the third largest population in US history. Gen Zers are also big on the self-employed workstyle. All of which means there will be a sustained demand for non-QM loans for many years to come.  

Another reason to get into non-QM lending at this very moment is diversification. Just about every lender is looking for alternative revenue sources to offset the decline in refinances and the very tight purchase market. Offering non-QM loans provides access to those millions of borrowers who want mortgages but are unable to qualify for a traditional loan. 

The timing is right from the capital markets perspective, too. Residential mortgage credit provides diversification benefits to institutional investors. Historically, RMBS have performed comparatively well during downturns in the stock market. 

HW: How has the growing trend of self-employment led to the need for more robust non-QM products?

JK: Per above, it’s a perfect storm. Millennials, at 72.19 million are the largest population cohort in US history, are now settling down, starting families and looking for their first homes. 

Millennials also make up a vast segment of the largest non-QM borrower cohort: the self-employed. Ironically, the pandemic put homeownership in closer reach for self-employed workers. By making it acceptable to work from anywhere, they are free to move around the country and purchase homes in more affordable geographies where it takes less time to save for the all-important down payment.

HW: Non-QM loans are surrounded by misconceptions. How can lenders debunk myths about non-QM lending?

JK: The biggest misconception is that non-QM is only for borrowers who can’t qualify for a traditional loan due to poor credit. We’ve found that the best way to debunk this is to simply use the facts. In today’s non-QM loan pools, FICO scores can range between 730-740, DTIs generally meet Agency standards and LTVs are in the low 70s. 

Beyond that, it’s important to point out that non-QM, like the traditional market, shifts and evolves with the industry. The rise of self-employed borrowers is one trend. Another is the demand for single-family rental properties. Even industry professionals are surprised to learn that business purpose DSCR (Debt Service Coverage Ratio) loans make up about 30% of our business. America’s aging housing stock is fueling this trend as property investors purchase single-family homes from downsizing baby boomers, fix them up and then use them to generate rental income. This is also another indication of how the non-QM sector continues to evolve to serve shifting industry trends. We have the flexibility to quickly align products and services with market demands, whereas the traditional mortgage market does not. Today, Deephaven can close a DSCR loan in as few as 15 days.

HW: What is Deephaven Mortgage doing to expand non-QM lending?

JK: We know the demand for non-QM loans will only keep growing. We know that investors, attracted by higher yields, want them on the capital markets side. 

To a certain degree, we have to just keep doing what we’re already doing: 1) keep educating lenders, brokers, real estate agents and borrowers about non-QM mortgages; 2) continue to build out both wholesale and correspondent distribution channels; and 3) implement ongoing enhancements to our non-QM customer experience.

At Deephaven, we are continuously running webinars to bring new loan officers into the non-QM fold. We’re investing heavily in technology to create truly seamless service delivery. As demands grows, competition for non-QM loans will, too. The tiebreaker will become the borrower and client experience.

To learn about the opportunities in non-QM lending, visit deephavenmortgage.com



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Some lenders have experienced a spike in borrowers’ demand for mortgage loans following last week’s rate collapse due to softer inflation data. However, according to executives and loan officers, it’s too early to say that this marks a turning point in the shrinking mortgage market.  

To illustrate how fast mortgage rates have declined, the 30-year fixed rate decreased this week to an average of 6.61%, down from last week’s 7.08%, according to the latest purchase mortgage survey from Freddie Mac. The same rates averaged 3.10% one year ago. 

“Mortgage rates tumbled this week due to incoming data that suggests inflation may have peaked,” Sam Khater, Freddie Mac’s chief economist, said in a statement. 

However, according to Khater, “while the decline in mortgage rates is welcome news, there is still a long road ahead for the housing market: inflation remains elevated, the Federal Reserve is likely to keep interest rates high and consumers will continue to feel the impact.”

Other executives echoed Khater’s sentiments. 

“We’re seeing some relief,” Frank Capobianco, senior vice president at Cardinal Financial Company, said. “But many people are hesitant to say that this is the turning point until they see the December’s CPI numbers and the decision from the December’s Fed meeting.”  

“J.R.” Samsing, vice president at Offerpad Home Loans, agreed, stating that “unfortunately,” the market has not reached a turning point – at least not yet. 

“The recent rate decreases have definitely helped, but affordability remains a concern. I do believe if we can maintain some stability in mortgage rates at this level, we will begin to see a greater number of prospective buyers re-enter the market,” Samsing said.   

Susan DeMello, a Virginia-based loan officer for PNC Mortgage, said she is still expecting to see an increase in loan production due to lower mortgage rates. 

“The markets go up quickly and down slowly,” the LO told HousingWire. 

Uptick in demand 

Mortgage rates had been trending up with the Fed’s consecutive interest rate hikes, which are a bid to combat persistent inflation. However, the U.S. Bureau of Labor Statistics reported last week that the consumer price index (CPI) rose by 7.7% year over year in October, marking the smallest 12-month increase since the year ending in January 2022. That’s slightly below the 7.9% estimated by the markets. 

Consequently, mortgage rates have started on a downward trend. According to HousingWire’s Mortgage Rates Center, Black Knight’s Optimal Blue OBMMI pricing engine, which includes some refinancing products, measured the 30-year conforming rate at 6.59% on Wednesday, down from 7.09% the previous week. Meanwhile, the 30-year fixed-rate jumbo (greater than $647,200) decreased from 6.97% to 6.72%.

Mortgage rates were 6.64% for conforming loans on Wednesday, according to Mortgage News Daily

Amid lower mortgage rates, demand rose for purchase applications across all loan types, according to a survey by the Mortgage Bankers Association (MBA). The survey, conducted weekly since 1990, covers 75% of all U.S. retail residential mortgage applications.

The market composite index, a measure of mortgage loan application volume, increased 2.7% for the week ending November 11, according to the MBA. The increase was driven by the purchase index, which rose 4%, but was offset by the refinance index, which dropped 2% from a week prior. 

“Mortgage applications increased for the first time in seven weeks,” said Bob Broeksmit, president and CEO of the MBA. “Signs of slowing inflation pushed mortgage rates below 7% for the first time since mid-October, but with rates still relatively high and affordability correspondingly reduced, the average loan amount is now at its lowest level in nearly two years.” 

Capobianco said Cardinal Financial Company saw “an uptick in applications because, since last Thursday, rates are probably almost a point better than last Wednesday.” 

At Offerpad Home Loans, experts noticed a slight increase in applications, mostly related to conforming purchase loans, when rates went down. The company also saw some uptick in the Veteran Affairs (V.A.) purchase applications. 

“But this was primarily driven by our client outreach efforts. Most consumers were not aware of the interest rate drop until we reached out to them,” Samsing said.  



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The number of new housing units started in October continued to decline, a reflection of the continued downward spiral in homebuilder sentiment, dropping 4.2% from September to a seasonally adjusted annual rate of 1.425 million, according to a report released Thursday by U.S. Census Bureau and the U.S. Department of Housing and Urban Development.

October’s annual housing start rate was down 8.8% on a year over year basis, according to the report. These declines come after a sharp monthly drop of 8.1% in September.

“October was a challenging month with disappointing inflation data — though more recent readings have been more positive — and soaring interest rates. It is no surprise that home building activity reverted back to a downward trend, though the drop was not as severe as it was expected to be,” Nicole Bachaud, Zillow’s economist, said in a statement.

Decreases in both single family and multifamily homebuilding contributed to the slower pace of building, with the single-family sector posting a 6.1% monthly decline and the multifamily sector falling 0.5% from the month prior.

However, the number of multifamily housing starts is up 17.3% year over year, at an annual pace of 556,000, while the number of single family housing starts is at a pace of 855,000, down 20.8% from a year ago.

Regionally, housing starts were down month over month in the Northeast (-34.7%), Midwest (-11.1%) and West (-10.6%), but they were up 6.7% in the South. On a yearly basis, housing starts were down in the Midwest (-13.6%), South (-1.1%), West (-19.6%), and the Northeast (-15.8%).

“Prices for construction materials and labor remain significantly elevated, though material costs have shown some signs of easing. Prices for steel, plywood, copper, gypsum and concrete all remain significantly higher than pre-pandemic, but recorded month-over-month declines in October,” Odeta Kushi, First American’s deputy chief economist, said in a statement.

“On the labor side, according to the October jobs report, average hourly earnings in construction were up 6.6% on a year-over-year basis, significantly above the pre-pandemic average pace of approximately 2.8 percent,” Kushi said.

In addition to elevated prices, builders are seeing fewer buyers thanks to the rising interest rates and continued affordability issues.

“Affordability is also a concern, as rates remain significantly elevated compared with one year ago,” Kushi said. “The average 30-year, fixed mortgage rate in October was 3.8 percentage points higher than one year ago. Holding income constant, the increase in rates reduced house-buying power by approximately $178,000.”

Reflecting these challenges is the decrease in the number of building permits issued. Overall, building permits were issued as a seasonally adjusted annual rate of 1.526 million, down 2.4% month over month and 10.1% year over year. Both the single family and multifamily sectors recorded monthly drops, decreasing 3.6% and 1.9%, respectively.

Despite these challenges, experts believe there are reasons to be optimistic.

“As builders pull back on starting new projects, they will have greater opportunity to bring to market the large backlog of homes in their pipelines that are already under construction,” Kushi said.

Although the number of housing completions was down 6.4% from September to a seasonally adjusted annual rate of 1.339 million, they were up 6.6% year over year, with both the single family sector (up 2.7%) and multifamily sector (up 18.3%) posting yearly gains.



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independent mortgage banks

By the time 2022 is wrapped up, mortgage lenders will have originated about $2.2 trillion in loans, about half of 2021’s $4.4 trillion in volume, according to industry forecasters. But Brian Hale, who is assisting several buyers in their hunt for independent mortgage bank acquisition targets, sees an even more brutal landscape ahead. He projects that over the next 12 months, mortgage originations nationwide could come in as low as $1.3 trillion to $1.7 trillion.

That’s an ugly scenario. With such a drastic downturn, the pressure for industry consolidation increases dramatically. As part of the restructuring, there will be winners (the buyers) and there will be losers — those whose names disappear from the corporate registries due to sales, mergers or failure, observers told HousingWire.

Based on numerous interviews with mergers and acquisitions experts, we dove into the 2023 IMB buyer profile.

Who wants to be in the mortgage business?

Brett Ludden, managing director of Sterling Point Advisors, a merger and acquisitions advisory firm based in Virginia, projects that nearly one-third of the 1,000 largest IMBs will disappear by the end of 2023 via mergers, acquisitions or failures. 

Most homebuilders … leave that excess [potential business] on the floor, but the smarter homebuilders look at that and go, ‘There’s an opportunity there.’

Brian Hale, CEO of mortgage advisory partners

Hale, founder and CEO of California-based Mortgage Advisory Partners, said that level of consolidation in the IMB industry “would not shock me.” He added, however, that it could turn out to be a lower number because some mortgage bankers may “figure out how to shrink costs” and hang on through the downturn.

Still, consolidation is clearly underway in the mortgage banking industry already. Within the past week, one of the nation’s largest retail mortgage lenders, Charlotte-based Movement Mortgage, announced the acquisition of Mortgage Network, a deal that would add $2 billion in annual loan volume, 250 mortgage professionals and 31 branch offices to its network.

Hale added that another large IMB, California-based Guild Mortgage, also “appears to be in a substantive acquisition mode.” In addition, Hale said he is currently working with three clients who are looking to buy IMBs — two of which are homebuilders and one he described as a “proptech/fintech” company. 

Hale, of course, could not reveal the names of those clients, although he did define the type of acquisition targets they are seeking to find as buyers.

“The profile that we created [for our clients] is we want companies with multiple state licenses and all three tickets — Fannie MaeFreddie Mac and Ginnie Mae — so the buyer ends up with a fully functioning mortgage-banking company that has warehouse and agency relationships,” Hale said.

For the homebuilders he is representing, Hale said acquiring a mortgage-lending operation is a smart way to take advantage of “low-hanging fruit,” among other drivers for such an acquisition.

“For every 100 buyers who walk into a community showroom, [a homebuilder] sells 8% to 15% of those buyers a home in their community,” Hale said. “The rest of those people are still looking for a house. 

“If you deliver 5,000 homes a year, that means you had 50,000 people looking for a house walk across your platform who are likely prequalified by your loan officers, and you … have a relationship with them. Most homebuilders … leave that excess [potential business] on the floor, but the smarter homebuilders look at that and go, ‘There’s an opportunity there.’”

Hale added that is “why homebuilders want to be in the mortgage business.”

The plug-and-play and brokerage routes

David Hrobon, a principal with the Colorado-based mortgage advisory firm the Stratmor Group, in a recent report projected that some 50 merger or acquisition deals will be announced or closed by year’s end, which is 50% more transactions than in 2018 — the prior high-water mark for lender consolidations over the past three decades.

The key driver of that is the [loan-production] volume from the seller is worth more to the buyer than it is to the seller, due to the synergies that the buyer brings. 

Garth Graham, senior partner at stratmor group

“Lenders that turn all their attention to refinancing when that business skyrockets enjoy huge profits,” said Garth Graham, senior partner and manager of M&A activities for the Stratmor Group. “But the tide always eventually turns, and when it does, many of those lenders struggle to stay afloat. 

“We’re seeing a lot of that this year, and it will certainly continue in 2023.”

Graham said most of the acquisition deals will likely involve larger IMBs buying smaller IMBs because those larger players, unlike the smaller players, have the scale to make money off added loan production — without adding significant additional expenses. 

“The key driver of that is the [loan-production] volume from the seller is worth more to the buyer than it is to the seller, due to the synergies that the buyer brings,” Graham said.

Thomas Yoon, president and CEO of California-based non-QM lender Excelerate Capital, which is owned by the company’s chairman, Mike Thompson, said for the top 200 IMBs, M&A deals may be a workable option. For the middle-tier lenders not in that group, however, Yoon expects so-called “plug and play” deals to be attractive because they are far more cost-effective.

“So, it’s kind of like, we don’t want your debt. We don’t want all your problems, but we’ll take your core people,” Yoon said. “They’re like, ‘Screw the company. We’ll just buy the talent [i.e., loan officers] in pods.’”

Another path to survival for some IMBs, according to Ludden, might be to convert to a brokerage operation.

These people have a lot of wealth, and if they are choosing to invest in a different direction, they might choose to take the gains and free up the equity to invest in their newest ventures.

Brett Ludden, managing director of Sterling Point Advisors

“We’re seeing correspondent lenders that are considering making the choice to transition back to being purely brokers because that allows them to jettison a substantial amount of costs,” he said. “So, while that company may not fail, it’s changing its business model significantly.”

“We’ve recently had several lenders tell us that they have just no avenue to continue,” Ludden added. “Some inform us that they will be closing the doors, while others are desperately trying to cut costs, even beyond what I think is probably feasible cost cutting.” 

Some lenders, he added, are even changing their origination focus to survive. 

“A small East Coast lender, for example, has in the last couple of months picked up their California license and is now almost exclusively focused on doing high-dollar reverse mortgage transactions in California,” Ludden said.

The 2023 buyer profile

Ludden also expects that IMBs owned by wealthy individuals or families “are going to be some of the biggest buyers.” Among the IMBs that fit that description are Freedom MortgageAcademy MortgageGateway MortgageNew American FundingMovement MortgageCMB FinancialVistal Point MortgageExcelerate Capital and more.

Ludden stressed, however, that just because they are privately held by wealthy individuals does not mean they are necessarily in a buying (or selling) mode. Each lender is unique, with different challenges, opportunities and balance sheets, he stressed. 

IMBs that are independently owned by a single wealthy investor or a family, however, tend to have more flexibility when it comes to return on investment, or “ROI demands,” and they often have “a pool of cash” to draw on to support dealmaking,” Ludden said.

“I don’t think the idea that [some of] these companies might also be looking for exits is inconsistent with the thesis,” Ludden added. “These people have a lot of wealth, and if they are choosing to invest in a different direction, they might choose to take the gains and free up the equity to invest in their newest ventures.”

This business is really complicated in many ways. It’s also simple in one way: It’s very helpful if you actually make more money than you spend.

Brian Hale, ceo of mortgage advisory partners

Hale added that we might even see foreign interests — such as European or Asian banks — that are looking for an entry point into the U.S. real estate market consider acquiring an IMB franchise. Regardless of which combination of IMBs find themselves at the M&A alter over the next year, however, it’s clear the face of the industry is about to change to comport with the new realities facing it. 

Overall, we think there is likely a need for more meaningful capacity reduction, given that volumes in 2023 are expected to be down nearly 60% from the peak in 2020,” a recent report by New York-based investment bank and broker-dealer Keefe, Bruyette & Woods states. “… We also think there is a limit to how much companies can reduce headcount without sacrificing technology or damaging morale. 

“We think this creates a challenge that could be supportive of consolidation.”

Hale added that, in the end, there are two predominate ways to acquire a mortgage operation — an asset purchase or a stock purchase. 

“With an asset purchase,” he said, “you leave the old entity behind and all the risks associated with it, and it’s really the equivalent of a big hiring transaction, with some cash paid to the original stockholders.” With a stock purchase (the route Hale said his current clients are pursuing), “the buyer acquires every sin that the seller has committed since the beginning of time,” so Hale said conducting thorough (and often expensive) due-diligence research is essential. 

“…This business is really complicated in many ways,” Hale added. “It’s also simple in one way: It’s very helpful if you actually make more money than you spend.”



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You’ve heard about the blue pill and the red pill. But have you heard about the blue line and the green line?  

You should. Because they recently crossed. Which could be disastrous for some real estate investors. And no, I’m not talking about an inverted yield curve.

I recently wrote an article about the strange time we are in. There is a predictable disconnect between sellers and buyers, and I warned that it could worsen before it improves. 

When that article was published, BiggerPockets CEO, Scott Trench, made the following insightful comment: 

scotttrenchcomment

This was a great insight, and my hat’s off to you, Scott (and I’m certainly not buttering you up as the BiggerPockets boss. Certainly not). 

We Are In The Negative Equity Zone

Green Street is a premier data provider and analyst for the commercial real estate space in the U.S. and Europe. Green Street did a webinar in September called “Navigating the ‘Upside Down’ in Commercial Real Estate.” If you’ve seen Stranger Things, you know this is a strange time indeed. 

In this webinar, they made a lot of comments about the current strange environment. Similar to what I said in my article in August. The following graph jumped out at me: 

lower leveraged returns
“Lower Levered Returns” – Green Street

First, the graph on the left shows a significant decline in the projected levered returns. Commercial real estate investors should expect lower returns if currently investing in conventional commercial real estate. Popular investments like multifamily are especially at risk. 

I’ve been sounding an alarm bell on this topic for years (even though I wrote a book called The Perfect Investment about multifamily investing in 2016). Multifamily investing is not perfect if you must overpay to get there! It’s just a fact of life. 

When interest rates go up, investors should expect lower ROIs unless purchase cap rates expand accordingly. That’s the situation we are in for syndicators and investors who are paying “full price” for multifamily and many other commercial assets. Be sure you don’t do this, especially right now. Why? 

I recently heard a multifamily syndicator lament that he had been outbid on a $20 million+ apartment deal in the Midwest. He said the winner outbid him by approximately $2 million and acquired this asset at a 3% cap rate! He said there was not that much value-add available. I can’t imagine how that will end up for their investors. It’s hard to imagine how that will end well. 

Look at the second graph. As I warned and Scott Trench clarified a few months ago, we are in a strange time where interest rates have gone up dramatically, but cap rates have yet to follow, at least not much. 

The blue line (interest rate) should never meet or exceed the green line (cap rate). For the most part, the cap rate should always exceed the interest rate by what I will refer to as a “risk premium.” In other words, the risk of investing in commercial real estate, or any real estate, is higher than investing at the risk-free rate (buying U.S. Treasuries). Therefore, it should significantly exceed the blue line (interest rate) here.  

It’s actually a little worse than that in this situation, however, because current commercial loans are priced with an additional premium reflecting the additional risk institutional investors see in the commercial space right now. 

The following graph shows what I mean. Note the spread from 0.93% to 1.67%, an increase of almost 80%. It’s just a fact that credit markets are tightening, and lenders want to get paid more than they did when “everyone was happy, and nothing could go wrong” over the past decade. 

higher debt costs
“Higher Debt Costs” – Green Street

So, interest rates have shot up from 3% to 5%. Cap rates have not followed yet. Why? 

I think part of the reason is that there’s been substantial training, coaching, and excitement in the syndication world over the last decade, especially in multifamily. All kinds of new players have thrown their hats in the ring. And many of them didn’t experience the pain of the last several recessions, while many of the more experienced cohorts remember those quite well.

Many syndicators and their investors are so excited to finally get a chance at a deal! They proceed to pay full asking price or thereabouts for suddenly overpriced commercial real estate assets. Instead of bidding against 60 other well-funded players, as before, perhaps they’re only duking it out with three or four others. After studying and courting investors and longing for a deal for years, they finally have their chance. 

But the question is, who is getting the short end of the stick? It may not even be the syndicator because they often charge hefty acquisition fees, asset management fees, property management fees, and more. 

Their investors could be victims. I’m writing today so that you don’t become one of them. 

These “newrus,” as I call them (new gurus), sometimes tell investors, “it’s different this time.” Unfortunately, they may believe that themselves. 

But trees don’t grow to the sky. And as economist Howard Stein wryly remarked, “If things can’t go on forever, they will eventually stop.” 

As I often say, the tide has risen for everyone over the past decade. But as Warren Buffett often says, “Someday the tide will go out, and we will see who is swimming naked.” 

We might be coming into a time like this.

Negative Leverage

Many commercial real estate deals and their investors have entered an era of “negative leverage.” Negative leverage is when an asset is acquired at a cap rate below the interest rate on the debt used to finance it. Our Wellings Capital Director of Investments, Troy Zsofka, explained this situation to me. 

In this case, leverage is no longer accretive to the return profile and becomes a burden that puts downward pressure on equity returns (hence the term “negative leverage”). Furthermore, increased debt service reduces the LTV at which lender-required Debt Debt Service Coverage Ratios (DSCRs) can be met, thereby requiring additional equity in the capital stack, further diluting investor returns.

One may ask how, then, it could ever make sense to purchase properties using negative leverage.

In my experience, one way these sponsors get the investment to pencil is to assume continued rent growth. This growth will eventually result in a “forward-looking cap rate,” if you will, that is higher than the interest rate on the debt. In other words, they grow their NOI out of the problem.

But this is clearly a risky endeavor when downside potential is governed by market forces outside an operator’s control. 

Another way to justify negative leverage, as Scott Trench said, is with a heavy value-add deal that relies on expeditious execution so that the upside potential mitigates the negative leverage position. 

Relying on execution to go exactly to plan to protect the downside is also a risky endeavor, especially for many less experienced syndicators, and it often doesn’t make sense from a risk-adjusted return perspective.

To the first point, I often see offerings that tout the market’s historical rent growth, highlighting that Phoenix or Austin, for example, have experienced 18%+ rent growth over the past two years. The inference is that this is somehow indicative of the future as if this growth rate will continue. This justifies using 8-10% rent growth in the pro forma underwriting assumptions and calling it conservative!

In my opinion, the fact that a market has experienced outsized rent growth in recent years is, if anything, indicative of the exact opposite—it can be unsustainable. Rent growth typically stagnates to some extent for equilibrium to be reached.

Decreasing housing affordability is a headwind to continuing in-migration to a market, and continued demand growth should, therefore, not be relied upon to sustain outsized rent growth.

How can you fail in this environment? Let me count the ways…

  • Acquire a “market rate” (often brokered) deal with “typical” leverage at the current interest rate.  
  • Make a bad situation worse by adding an extra layer of preferred equity to compensate for increased rates, lower allowable leverage, and falling return projections. 
  • Drag a bunch of unsuspecting passive investors into the mix, promising them a great opportunity to create income and grow their wealth. These are known as victims. 
  • Worst of all: be that unsuspecting victim. 

How can you succeed in this environment? 

  • Acquire an off-market under-managed, underpriced deal with lots of predictable upside.
  • Create that upside through your experienced team and well-honed process. 
  • Acquire the above through preferable loan terms (like owner-financed or assumable debt). Or acquire for cash and refinance someday. Or hold in cash. 
  • Invest with an experienced syndicator or fund manager who specializes in the above. 

A Final Word About Banks

Banks aren’t stupid. As the largest investors in most commercial real estate deals, banks are obviously wary of making bad deals and losing money. Many of their junior staff weren’t around for past downturns. Some are still eager to make loans, hit their quotas, etc. 

But most banks have some seasoned professionals who have been around the block. Many of them are tightening the commercial lending noose as we speak. So watch for a significant decrease in lenders willing to make commercial loans in the coming days. It has already started.  

Conservative bankers often overreact to cover their risk. So it is possible that many of these bad deals won’t even get to closing, which could protect some of you from a bad investment. 

But please don’t trust bankers to protect you from harm. Instead, do your own due diligence. Learn to be an intelligent investor and partner with others who have successfully weathered these storms in past decades. Pain + Years = Wisdom. At least in some cases. 

Storing Up Profits 3d 1 1

Are you tired of overpaying for single and multifamily properties in an overheated market? Investing in self-storage is an overlooked alternative that can accelerate your income and compound your wealth.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.



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While originations are down due to a volatile mortgage market, the population of underserved borrowers who require non-QM products is on the rise.

There will always be a population of borrowers who cannot qualify for a home loan under traditional guidelines. This significant pool of clients includes self-employed, real estate investors and those with credit events.

Prospecting for these borrower types can help protect your business during market shifts. Originators who actively work within the non-QM space are closing additional loans every month.

A look at non-QM borrower profiles

Self-Employed: According to Upwork, there is an estimated 59 million self-employed workers in the U.S. and growing.

This includes 1099 and gig economy workers. That is a lot of potential borrowers. The challenge these borrowers face is typically not being able to use their tax returns due to large tax write-offs. They can afford the home and often have good to excellent credit. But their tax returns are not reflective of their true financial situation. They need an alternative solution to verify their accurate income and ultimately their ability-to-repay. The solution: Bank Statement loans. 

Angel Oak’s Bank Statement loan is ideal for the self-employed.

  • Loans up to $3 million
  • 12 or 24 months personal or business bank statements allowed
  • 1099 earning statements accepted
  • Two years seasoning required for bankruptcy, foreclosure, short sale or deed-in-lieu

Real Estate Investors:  The volume of investment properties has outpaced the purchase of primary homes throughout 2022.

Any originator who has offered a DSCR Investor Cash Flow loan to their investor clients is very happy they did! We have closed multiple deals at one time for the same real estate investor. Many originators have called us to close a cash-out refinance and a purchase for one borrower. They call us because we allow what Fannie and Freddie do not. We help investors buying their 22nd property and those needing to title in an LLC.

Marketing to real estate investors is lucrative regardless of the market. Seasoned investors will find ways to continue to build their portfolios. They know where to find deals and how to make the market work in their favor. They also know originators to trust to get them to the closing table quickly. 

Angel Oak’s DSCR Investor Cash Flow loan is ideal to close real estate investors.

  • Loans up to $1.5 million
  • No personal income or tax returns required
  • Qualifies on the cash flow of the property
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Before you invest in real estate, everything can seem new and confusing. Bidding on houses, renovation budgets, finding tenants—these are all skill sets you must acquire to become a financially independent real estate investor. But that doesn’t mean you need to be a pro before buying your first property. Just ask Brittany Arnason, AKA InvestorGirlBritt, the Canadian real estate superstar who started BRRRR-ing her way to wealth at just eighteen.

We brought Britt onto the show to help us dive deeper into a question we received on the Real Estate Rookie Facebook Group. This question came from JP, asking: How do you network and partner with more experienced investors when you feel you have nothing to add value? 

Most investors never feel like they know enough, and this is especially true if you’ve never done a deal before. But, Britt may serve as the perfect person to share her experience with JP, as she went from knowing nothing about real estate to becoming a multi-million dollar commercial investor all before the age of thirty!

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 234.

Britt:
In order to raise money, in order to do those type of things, people have to like, know, and trust you. So a great way to build that trust and likability and get to know the people is through posting very consistently on Instagram. What that translated to for me was over $10 million in capital raised through my social media platforms for my projects.

Ashley:
My name is Ashley Kehr and I am here with my cohost 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 we’d like to start these episodes by shouting out folks in our Ricky audience. And today’s review comes from Azari E. And Azari says, “This is a must listen podcast. It’s my go-to for keeping my mind focused on real estate investing. The episodes are filled with digestible bits of information, fantastic guides on how to invest in relatable stories from other real estate investors at all levels. The hosts are authentic and super pleasant to listen to, and I listen to them on my runs making both of them super enjoyable.” Azari, I appreciate that, especially the part about the hosts are super enjoyable to listen to because there’ve been quite a few other reviews that have said quite the opposite. So I appreciate you, brother. But hey, if you guys haven’t yet, leave a five star review on whatever platform it is you’re listening to.

Ashley:
Yeah, thank you guys so much for those of you that have left reviews. We really appreciate it.

Tony:
We should maybe do that during BP CON where we just read all the mean reviews that have come in.

Ashley:
Like Jimmy Fallon Mean Tweets.

Tony:
Yeah, like the Mean Tweets because we got a lot of them. There’s enough for us to get through a few.

Ashley:
We do talk about crying at the end of this episode. It might not make me cry.

Tony:
But we’re here live at BP CON. This is I think our second episode we’ve recorded since we’ve been here. This one was super impromptu. We’re just sitting down here in a little media room and then a very special guest walks in and we’re like, “You haven’t been on the Rookie show yet. We got to change that right now.” So within five minutes we start recording this episode.

Ashley:
This is a real estate superstar that is coming on. She started out doing DIYs at the age of 18, buying properties, fixing them up and then renting them out. And since then, has transitioned to raising money for self storage.

Tony:
So today’s super special guest is the one and only Investor Girl Britt. She’s insta famous. She’s crushed it into real estate. And we brought her on some, to hear her story, but more so to talk about how she focused on building her platform early on, the impact it’s had on her business and what she would do today if she had to start all over in building that platform.

Ashley:
And more specifically, how it actually connects with you guys as rookies, why you should be doing it now, not having any experience, maybe just starting to learn about real estate and how you can actually add value to other people because of that.

Tony:
We also talk about how a case of food poisoning changed her life forever for the better. So make sure to listen for that part.

Ashley:
Before we bring on our special guest today, we do want to address a rookie reply question. So this question comes from JP Bailey and was posted in the Real Estate Rookie Facebook group. Today’s question is, “How do you network and partner with more experienced investors when you feel you have nothing to add value? I’m aware that this might just be me being too hard on myself.” Tony, I think this is actually a great question and very relatable to a lot of people.

Tony:
Totally. Even for me, Ashley, when I think about the investors that are more experienced than me, a lot of times I have to question myself and say, what value can I add? I do remember being a rookie with zero deals and that is a very real feeling. But I think there’s a few things, JP, that you can look at. So even if you have no deals, do you have time? Time is one of the most constrained resources that a lot of other successful investors lack. So if you can just bring an abundance of time to help them do the things that maybe they don’t have the time to do, that’s a tremendous way to provide value. So for example, say that you want to work with someone that’s an experienced flipper and maybe they don’t have the time to run to Home Depot to get supplies, or maybe they don’t have time to cold call people to try and get more leads, or maybe they don’t have time to… There’s so many different things going on in that business that are important, but not necessarily the best use of that investor’s time.
So if you just have time, that’s a great way I think for you to add value. And then another thing is ability. So even if you don’t necessarily have experience flipping homes, do you have experience maybe creating systems and processes? Maybe you can be the person that at the beginning of every job you walk the property with the crew and you create the scope of work in the budget. Or maybe it’s your duties to look at all the comparable properties that have sold recently. And you use that to create the scope of work. There’s so many things that go into creating a successful real estate project where even if you don’t necessarily have experience in real estate, but you have experience with other skills, you can still provide value to someone that’s more experienced than you are.

Ashley:
I think that our guest that we’re bringing on today will relate to this even more. So we’re bringing on, as we mentioned in the intro, Investor Girl Britt, and she actually talks about how she has partnered with AJ Osborne, the king himself of self storage. I mean if you think self storage, you think AJ Osborne. She also had that kind of limited mindset about herself as to wow, he’s this huge investor and I’m just burring these $30,000 houses in nowhere Canada. But she talks about how she did add value and she found a way that something he didn’t have. But as far as the networking piece, and not even trying to partner with someone but to network with them and make that connection. People really like to talk about themselves. So find something that that person is interested in and start talking about it with them, asking them questions about it.
Investors are probably tired of answering the same questions over and over, and they won’t get that light inside, that won’t spark a fire inside of them talking about those same things. But if you can find something that maybe they don’t get to talk about a lot that they really love and really enjoy and make a connection that way and build almost like a friendship before you even get into the real estate side. Tyler Madden, I feel like that is his superpower. An investor out of Denver. He’s really good at that, is finding out what people are interested in becoming friends with them or making that connection before it’s even talking business. How can we each add value to each other? Or things like that. So it’s just really think about just social skills in general.
Like dating. Okay, if you’re going to date someone, you’re going to try and find out what they’re interested in. You’re not going to be right away. “Okay, let’s get married. How many kids do you want? You want 2, 3 kids or whatever?” You’re going to find what interests them and you’re going to do things that interest them so they like you and vice versa. You don’t have to right away know how to add value to someone. It’s more about making that connection. Because think about how many times you hear people saying, “It’s not what you know. It’s who you know.” And if people genuinely like you and they feel that connection, they’re going to feel pulled to want to work with you, to want to do something with you.

Tony:
I’m so glad you brought up the networking side of it because I think a lot of people overlook the role that social media can play in building that network. I think for me, there’s a lot of people that reach out to us on social media and ask questions, but there’s always that one person that comments on almost every single post that I put up as soon as I post it and I’ve met some of those people in person and as soon as I see them I’m like, “Hey, I know you.” It’s like, “I’m the one that always comments on your stuff.” So if there’s someone, JP, that you look up to or that you do want to partner with, maybe just start being super engaged in their Instagram comments and every time they post something and don’t just put a little fire emoji, maybe do something like this more insightful, that’s like a value add comment to the rest of the community. And if you’re the first person to comment on every single thing that they post, eventually that relationship will naturally start to build.

Ashley:
Go stalk someone is what you’re saying.

Tony:
Yeah. I think that works up to a certain extent where if you’re trying to network with Dwayne Johnson the Rock, I don’t know if that approach will work, but if it’s someone that’s kind of a smaller influence, I think there’s a path forward there.

Ashley:
So let’s get into it with Britt. And I think that you guys are going to be able to relate to a lot of what she says. And even though this is the rookie channel, we love to bring on those rookie investors. Once in a while, we love to grab that expert at something and break it down for you guys how the thing that they’re doing can really propel you if you start doing it now as a rookie. So let’s bring on the famous Instagram Investor Girl Britt. Britt, welcome to the Rookie podcast. We are so happy to have you. Why don’t you start off telling everyone a little bit about yourself and how you got started in real estate?

Britt:
Oh cool. Thanks for having me, you guys. I can’t believe I haven’t been on the show before.

Ashley:
Because you’re too experienced. You’re not a rookie anymore.

Britt:
True. Well, we all have been there. So first house I bought when I was 18 years old and I got that one. It’s a weird story. I never know how to get into this because it’s kind of weird. But I got food poisoning when I was six years old and the restaurant paid insurance money out to all the people who got super sick. So I had this chunk of cash and when I was 18, I bought my first rental property. So I was a $25,000 house and part of that food poisoning money went to pay for that. And then I worked for the rest of it. The rent was 850 bucks a month. So I’m like, I don’t know anything. But I do know that 850 over the year, this house is going to be paid off in a few years. So it’s almost one of those things where nowadays we have so much information, it’s information overload. But me at that time, I’m like, “That makes sense. Very simple math. Let’s do it.” So learned a lot just after that first deal.

Tony:
I mean that’s got to be the best food poisoning experience that I’ve ever heard before.

Britt:
It’s the best. It was amazing.

Tony:
I mean first, kudos to you for being 18 years old and thinking I just got this $25,000 check and I’m not going to go blow it on, I don’t know things that 18 year olds buy, but I’m going to buy real estate. How did you get to that point? Was someone coaching you? Was someone teaching you? What was the trigger that made you say, “Let me buy real estate instead”?

Britt:
Well, my mom had tenants in our house because she needed help paying the mortgage. So there’s a point where she would have tenants. We had basement tenants and all of this stuff. And I saw her not being able to afford the property to being able to afford her mortgage with renters. And I’m like, “Okay, that makes sense if you have rental income coming in every month.” And then the other part of that was she got me and my brother to help her fix up these properties. So she’s like, “All right, here’s a paintbrush. You’re eight years old. Let’s get to work.” So it was great because I learned a lot of hands on stuff early on too.

Tony:
Got it. So it was your mom that kind of planted that seed for you to become Investor Girl Britt that you are today. For our audience that doesn’t know how much of a beast you are in the real estate space today, just give us an overview of what your business looks like today.

Britt:
Yeah. I grew my Instagram following. It was a huge piece to this as well. So now I own 28 doors I guess in residential. So that’s a mix between apartment buildings, some single family, but I’m kind of away from that now. And then self storage as well. So syndicating self storage in the US. So I’m kind of also in US and Canada and this gets really complicated. But that’s kind of been more my direction now, the commercial real estate space and working with amazing operators in the self storage industry. But through Instagram, there’s just capital that can be raised, there’s deals that can be found. It’s been a huge catapult really to get me to where I am today.

Ashley:
We talk a lot on this podcast about staying on the same path. Pick a strategy, pick your criteria and stick with it. So at what point did you decide, you know what? I’m going to pivot from single family, small multi-family to self storage. And what would be your advice to somebody as to when that time is right?

Britt:
Yeah, that’s a great point because I think it is extremely important to pick your path, get really good at it, but know that you can pivot in the future. Because there’s so many ways to make money in real estate. If I went full out into multifamily, I know I would be successful. Full out into self storage. It doesn’t almost matter the path you choose as long as you just choose it and go all in. But the point of pivoting for me, especially from single family, was getting in rooms with people and masterminds where they were doing big commercial deals. And I just thought, okay, if I want to scale and get to where… And I had this feeling, I really want to grow. I was really in my comfort zone with a single family. I’ll be doing DIY single family until I’m dead. I’m never going to stray away.
And then all my friends at this mastermind are like, “Okay, do whatever you want, but if you want to grow faster, it’s probably better if you stop doing everything yourself.” But I was so comfortable in that I didn’t think I wanted to change, even though I kind of knew deep down. Because it was hard. It was hard being in that world of doing completely everything, renovations, property management, Instagram. I handled all of it on my own. But then getting in that space with all these people who are doing the self storage and the large multifamily and all that, I thought okay, I can actually do this. And I just got a lot of confidence through that.

Ashley:
So you basically became a rookie again.

Britt:
Yes.

Ashley:
You became a rookie at a different strategy, a new business model. So kind of touch on that a little bit, what it was like. Here you were very experienced, an expert in long term buy and holds in your markets and now completely pivoting and you’re a rookie again in a whole different strategy. What was that like?

Britt:
I think the mistake people make is they think they have to do it all alone. You can hire people who are amazing at what they do and then you can use your strengths and then kind of start building a team. So that was difficult though because I’ve never hired anyone. And then I was reading the book Who Not How by Dan Sullivan. He’s like, “I just hire people to hire all my people.” So I said, “I’m just going to do that.” So I hired a company who helped me build out my whole team and just get that together because I had no idea. And that’s part of it too because I didn’t understand the business side of it so much. I just knew how to buy single family homes and renovate them. But the business end of it, I just could never really grasp that. But there’s so many amazing people out there and it’s better to all be working together and really just focus on your own strengths.

Tony:
So Britt, obviously the majority of our audience, they’re rookies who are super early, haven’t even really begun their journey yet. Would you have been able to build that team on day one or did you have to grind it out yourself first before you got to that point of being able to add those people around you?

Britt:
That’s a good question because I do think it takes some time to figure out who you are and what your strengths are. But really try pay attention to that and focus on it. Because if I was doing bookkeeping, there’s a lot of things that I should not be doing. I’m not very organized. But it’s very consistent through even in high school or through my serving jobs, all these skills and what I’m really good at, I’m still really good at. And what I’m really bad at, I’m still really bad at that. I think just paying attention to it and maybe people can start paying attention in their own job or life in general and write down all your strengths, all your weaknesses. There’s tests you can do online, like the DISC test and there’s one called Working Genius and then you can really just figure out, “Okay, I’m really good with this.” And then eventually, maybe it’s not right now, but eventually when you start to partner or build a team, you’ll have a good understanding on what that should look like.

Tony:
I think the other thing, and this is what I struggled with early on, was just being able to afford to pay people. It’s like when you’re first building your business out, there’s very little money coming from your business. So you do have to kind of do everything. But the decision you have to make as you start to scale is do I take the additional profits that are coming off and use that to inflate my lifestyle or do nicer things for myself, or do I take that additional money and reinvest it back into the business by hiring the right people around you? And we’ve made the decision to hire more people to build that team out and I feel like that’s unlocked so much more growth because now, like you said, we’re able to really operate in our areas of strength and not our areas of weakness.

Britt:
Absolutely. I very much struggled with it because I couldn’t understand. I’m like, how am I supposed to pay someone 50,000 a year? I’m not making anything. I’m trying so hard. All the money’s going to renovations. But the sooner I hired, it was the best thing ever. Because it just takes stuff off your plate and what gives you energy and what will actually move the business forward instead of doing all these little tasks that just take all your time and then you’ll never be able to… You just get there so much faster. But I think also thinking about it in a way where it’s not I’m paying someone 50,000 or whatever it is for the year. No, it’s a three month contract. Think about it more short term. Can I afford each month? And then go at it that way.

Tony:
So Britt, something that you’ve done phenomenally well is build your presence online. We talk to a lot of rookies in our audience and we tell them that your platform if you want to scale, is one of the most important assets you can build. First, can you share with our listeners how big that platform is for you today? And then second, if you were starting new today as someone who had zero followers on any platform, what steps did you start taking to build that platform out?

Britt:
So I’m at 250,000 on Instagram. That’s my main platform, but I’m trying to get on all of the different ones now too. But it is the best thing I ever did. I went to a real estate conference, my first one back in 2016 I would say. And I met a mentor there who told me, “Britt, you have to start doing something right now to build your credibility as an investor. Start a newsletter, start something.” So I started a blog and I’m like, “This sucks.”

Ashley:
We have to find that blog. We’ll post it in the show notes.

Britt:
You know what it was called? I forgot about this. It was called Little Investments on the Prairie. Because I had all these little $25,000 houses but I’m not a writer and it was just really difficult to keep up with. But then I found Instagram. I didn’t have Instagram previous to that and I didn’t even want it. I didn’t want to be on social media at all. But then just from this mentor, I thought that is a good idea. It took me a year to get to a thousand followers and I thought this is impossible. I don’t know how to grow social media. This is so hard and so much work. But I just kept very consistent at it. I’d post Wednesdays and Sunday. So I’d post consistently all the time. And then I discovered lots of people are interested in the video side of things and the transformation of the space. Because I was doing all fully renovating the house on my own. So people started to be interested in that and I started getting reposts and it really worked for me.
So I think when people are building their page, what stops a lot of people is they think they have to be experts but you don’t. People want someone to relate to. So that’s more important than anything. It’s building your story and showing transformation of yourself as a person too. Things you’re learning, different things you’re doing. So I think posting just about, even if you’re reading a book and then you could say, “Hey I read this book Who Not How and I learned this thing and now I’m growing and expanding my mind.” But you can always find someone in an audience that can connect to different things. You just have to keep trying different ways, and it’s actually been hard for me because I was doing the DIY renovations for so long, but then I pivoted to commercial real estate. I’m like, “I don’t know what to post anymore.”

Ashley:
Your Excel spreadsheets.

Britt:
I know, this is so boring. But it’s part of that pivoting again. And then I tried a whole bunch of different posts. Some of them went completely dead, just didn’t work at all. But then you try something else and then just kind of find what works. So you have to just keep trying.

Ashley:
Who was the first person that you hired to actually help you with the content creation side? Because you did it all yourself for a very long time.

Britt:
True. Yeah, I did all the content creation and the good thing is I have 50,000 photos and videos of all my renovations. So even though I’m not doing my DIY renovations, I have all the videos that I could still use and I just had a viral reel, I got 2 million views, and I did that project five years ago. So it’s pretty crazy. I think just capturing as much content as you can, no matter what it is, even if you think it’s kind of pointless. Just take a video or photo anyway because your future self will thank you.

Ashley:
What are some of the benefits of actually building a brand or getting your name out there? So for Tony and I, if we wouldn’t have had any social media or he wouldn’t have had his podcast, we probably wouldn’t be sitting here today because nobody would know who we were and how to reach out to us or what we were doing. So I mean that definitely is a huge benefit is that you’re provided opportunities because people see what you’re doing. They get to know you through your social media. So what have the benefits been for you as an investor?

Britt:
Well, real estate is a people business and it’s a relationship business. So the best way to build the relationships and a lot of them all at once is through social media, through Instagram. And you could do Instagram stories and people really feel like they’re connecting with you because you can’t tell if you’re looking… Your brain can’t comprehend the difference of if you’re looking at a phone, it’s like I’m talking to Ashley even though she’s on my phone, we’re not in person. She doesn’t know who I am, but I feel like I know her. My brain’s actually building that relationship with her. In order to raise money, in order to do those types of things, people have to like, know and trust you. So a great way to build that trust and likability and get to know the people is through posting very consistently on Instagram.
What that translated to for me was over $10 million in capital raised through my social media platforms for my projects. So it’s been pretty cool to see that and just friendships as well because real estate’s hard and it feels extremely lonely. It’s not easy. We all know that. We’ve all been there, but if you have people in your corner, you could build those relationships online as well. So you get friendships out of it, you get deals, you get capital investors, partnerships, everything.

Tony:
First, congratulations to you. You said that real casually, but that’s a big deal. I’m glad you shared that because it lets our audience know what is possible when you can build that platform. So I want to kind of connect it back to the audience about what they can do to get started. So you talked about posting consistently. You talked about not necessarily needing to be an expert, but just kind sharing your journey. What other things can you share with the rookie audience to say, Hey, if you’re starting from zero, here’s some good things to do to build that platform.”

Britt:
Yeah, I think there’s so many different formats to do it on too. And it doesn’t even have to be Instagram. If you’re an amazing writer, maybe it’s Twitter and LinkedIn and different ways. But kind of understand yourself. I’m very visual, so I liked Instagram for the photos and the videos, but if you hate photos and videos and you love writing, there’s opportunity for that as well. It’s like the picking your lane thing. So you pick your lane and then you could expand later on. Because I kind of expanded now, but for six years I was only doing Instagram and now I’m all over. But it was just, you have to really pick and focus. And then I think a good tip is people think, oh it’s all about me. And they feel weird. It’s kind of like this self-promotion kind of uncomfortable thing, but put it to the audience. You’re trying to help someone. You can change somebody’s life. You guys have changed so many people’s lives through the podcast, through your social medias.
I think that’s a good way to do it is to think about it that way, kind of flip the script on that. And then also I heard a thing from Patrick Bet-David, you know who he is?

Tony:
Yeah.

Britt:
So he was talking about his great-grandchildren and imagine all the things, the knowledge, the wisdom that he’s sharing and he thinks about them watching it later on in their lives. And I really like that. And I thought if my grandparents had videos and they were sharing their wisdom, I would love to go back and watch that. So that’s another way to put it too.

Tony:
Yeah, that’s deep.

Britt:
I know. I was like that’s a cool way to think about it.

Tony:
Yeah, that’s amazing. We talk all the time and Ashley touched on it earlier too, that neither one of us would be sitting in this seat if it wasn’t for the platforms that we built. So Ashley had a pretty decent following on Instagram before joining the podcast. I had my own podcast. And like you said, it’s like you never know where those little things will take you and the opportunities that might come your way. So what’s next for you, Britt? What are you planning to do next with your social platforms and continue to build those things out?

Britt:
Well, it’s a good question because I never even know what’s next. It’s just who would’ve thought? I’d never in a million years would’ve thought I’d be on a podcast, be speaking on stage. And that’s the thing. You’re just creating these opportunities for yourself when you really work hard and put yourself out there. So what’s next for me? I’m still on the lane for self storage, raising capital for that. And then just bought a multifamily in Canada as well that just kind of came across my plate through Instagram. So it was just these deals that you don’t even expect but then later on down the line, they just pop up.

Ashley:
Yeah, I think the biggest benefit is that things are brought to you that you don’t even know you need in your life. It’s like you could post about something and someone say, “Oh actually, here, use this or buy this thing or whatever.” And it’s like, oh my gosh, this one little post I did, I didn’t even know I needed that thing. I never thought that I would be a podcast host. But I love it so much. So I think that’s a huge opportunity and a huge advantage of sharing your story, providing quality content. I’m going to post a picture of me in a cute outfit probably in front of the sign later on and post it with some stupid caption. But you know what? The other stuff, I try to actually put some kind of content behind it as to something that you can learn from it too. And I think that makes a big difference too. I mean you go through and you show how to do concrete countertops or something like that. You actually tell people how to do it. And I think the quality-

Tony:
That was cool, by the way.

Ashley:
I actually used your videos to do the concrete countertops in my liquor store. We would go through and look back, “Okay, what products did she say we needed?”

Britt:
That’s so cool. I forgot about that. That’s so good.

Ashley:
It turned out great. So thank you. Along the lines of content creation and your social media posting, everything like that, the mindset side of it, do you ever get cringy or, “I don’t know what people think about this.” I doubt you probably get a lot of bad comments, but if you do, how do you deal with that side of things? When I first started my Instagram, I didn’t tell anyone I was doing it because I just didn’t want to be judged I guess. So it was a full year before anyone I knew even found it. But how do you kind of handle that?

Britt:
It is difficult because naturally we focus on the negative. So you can get a hundred amazing comments and one negative one and that’s the one that bothers you the most. But I think just understanding that’s part of it. You have to take the good with the bad. If you want these opportunities, if you want all this stuff, you have to kind of understand not everyone’s going to like you. It’s just part of how it is. You wouldn’t expect that. So I think going into it, understanding it’s going to happen. There’s no way that you can be online posting consistently and not get some negativities and the cringe worthy ones where you’re like, “Oh I don’t know.” Because it can be weird.
And I just started speaking on camera because I was doing my DIY renovations just working and posting the videos of me working. I never actually did face to camera on my feed. I do it in stories but not actually telling a 30 second story on a reel and it is really difficult and I watch the video and it’s just so embarrassing and it’ll take me 15 minutes to get a 30 second clip because I can’t even remember one sentence. This is really hard. So I think just that practice and consistency and then even if you feel really weird about it, it could help someone else. So I think just posting it and then trying to get better all the time.

Tony:
I appreciate you sharing that because I think someone looks at you who has almost 300,000 followers. I think that you’ve got it figured out. So the fact that you even still struggle to get that content in a way that you like it, that you feel comfortable sharing, I think hopefully it makes it easier for the folks that are listening to the podcast as well.

Britt:
Oh absolutely.

Tony:
So one other question for you, Britt. So do you ever feel that you have to take a break from social? And here’s why I ask that question. For someone that’s just starting out, obviously there’s a certain sense of motivation that comes from seeing other investors kind of crushing in their space. But I think oftentimes you also feel that there’s like this, not imposter syndrome, but you feel like, “Man, they’re doing so much better than me. Can I ever get there?” And obviously your business has grown a lot, but even for me, I still see people like, “Man, that guy’s crushing it, that girl’s crushing it.” It kind of makes you second guess yourself as an investor, right? Do you ever feel like you have to take a break from social media just for your own mental sanity or how do you navigate that?

Britt:
Well, that’s a great point because comparison is a terrible thing and the only thing we can do is try to recognize that and then say you have to compare yourself only to your past self and see that progress there. Because there’s no point if you… Because I felt that all the time, this feeling I’m so behind. I’m like, why can’t I get this? This is so frustrating. And I’ve been there so many times. But I think just understanding that and then as soon as you think that, just catch it and then say no. If I think back to 10 years, how much have I grown? I haven’t had to really take much of a break in that way, but I’ve definitely had those feelings and all you can do is know that you are here right now and you’re working really hard and you will get there.
There’s no way you can fail if you keep going. Even if you have bumps along the way, you lose money on a deal, that’s okay too, because you’re going to learn so many lessons from that. And the only way you’re going to fail is if you quit.

Ashley:
I think you and I kind of went through a time period around the same time of not knowing where we wanted to go next. Where was our pivot going to be? I remember being at AJ Osborne’s office together and you very much felt overwhelmed with things and you were trying to figure out what was the next thing for you. And I think that’s kind of where it blossomed with self storage, everything like that. And I went through the same thing and that’s where, okay, I want to do cabins and land and campgrounds, things like that. So you have I think those two things. It’s not knowing what to do next, what to do better, what to do greater, to keep up with everyone it seems like. And then also that imposter syndrome. Am I really doing everything that I could be? Do I even know what I’m doing?
Even on the plane ride here, usually I travel with my life auxiliary, my security blanket and I was alone on the plane and I’m texting him with tears strung down my eyes. I feel like I’m such an imposter. Do I even know anything about real estate? I have to talk on stage. The poor lady having to sit next to me probably looking over at me, but also having that accountability, that business partner, that friend or whatever who just helps you build back that confidence and reinforces it for you. So yeah, Daryl’s actually behind the camera rolling his eyes at me. But I think it’s important to be honest about those things. Those things happen. And just making your mindset stronger and stronger as you go along with the journey and not worrying about outside factors because social media definitely has changed the world on that for sure.

Britt:
It has. And we put people on these pedestals and then we think, “Oh, they have everything figured out, they just have no problems.” And it’s not that way at all. Everybody, no matter what level you’re at, they all have imposter syndrome in different rooms and it just depends what it is. But I think just knowing that we all feel the same is comfort in itself.

Tony:
You mentioned Who Not How by Dan Sullivan. Have you read The Gap in the Game?

Britt:
Yeah.

Tony:
That was a really eye opening book for me because I think most people that are entrepreneurial, they’re so driven to focus on what’s next and what am I working towards and here’s the goal, how do I get there? But we struggled so much at looking back and saying, what have I already done? When I read that book, it kind of gave me this epiphany moment where it’s like I’m really, really good at looking forward and being aggressive in that way, but I am terrible at looking backwards and being appreciative of what I’ve done. So I’m not even saying that you need to do this, but just for me, I’m talking to you guys and this is something that I’ve struggled with a lot and if you have that imposter syndrome, I think reading that book, it gave me a whole fresh perspective. So I highly, highly recommend it.

Britt:
Absolutely.

Ashley:
Well Britt, thank you so much for joining us for this and thank you for going deep with us there. I know our listeners probably appreciate all the honesty. Can you let everyone know where they can reach out to you and find out some more information about you?

Britt:
Yeah, Investor Girl Britt on all of it. Thank you guys. This was really fun.

Ashley:
Yeah, thank you for coming on. Literally Britt came into the room and we said, “Hey, you want to do a podcast?” Within five minutes, we were sitting down. So great job being put on the spot here.

Britt:
I love it. Well, thank you guys so much.

Ashley:
I’m Ashley at Wealth From Rentals and he’s Tony at Tony J. Robinson. Thank you guys so much for listening and we will be back on Wednesday with another guest.

 

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.



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David Meyer is thankful that his business is still plugging along during the wildest housing market in decades. With mortgage rates hovering around 7% and home prices still at record highs, buyers across America are calling off the house hunt and finding multifamily apartments. 

“Buyers got a bit spoiled with the interest rates over the last five years and especially the last two, so the interest rate hikes have really spooked everyone,” said Meyer, a RE/MAX agent based in the Twin Cities metro area of Minnesota.

These high interest rates have cost Meyer several transactions in the past few weeks. Some of his would-be buyers are renting apartments until mortgage rates markedly improve. It could be a while.

The number of renters who can even afford to buy a home at the national median list price of $425,000 compared to a year ago is down 15%, according to the National Association of Realtors

“The monthly mortgage payment is about $1,000 higher than a year ago,” said Nadia Evangelou, an economist at NAR. “Current buyers need to earn about $40,000 more in order to buy the median priced home compared to buyers who purchased their home a year ago.”

With more and more potential buyers remaining renters due to high borrowing costs, and younger Millennials and Gen Zers starting to venture out of their childhood homes, a logjam of renters has emerged. 

I would anticipate multifamily housing starts are probably going to be down 40% year over year in 2023 and I think that is going to be the same for single family home building, if not higher.

Peter DiCorpo, the co-founder and COO of Black Farm Group

“Household formation significantly increased over the last decade as millennials have aged and entered the next phases of their lives,” Mark Fleming, the chief economist at First American Financial, said. “We are experiencing the last leg of that, which is the demand switch into home owning. But at the same time, over the last decade, we have historically underbuilt and particularly underbuilt single-family homes. If we don’t build enough units of shelter, then it becomes very expensive to buy a home, then you add in higher interest rates, and everybody gets sort of stacked up in the multifamily world.”

In response, multifamily construction has skyrocketed over the last year, hitting a historic high of 841,000 units under construction nationwide in June of this year, according to research from the National Multifamily Housing Council and the National Apartment Association. In September, the number of multifamily housing starts rose 16.5% year over year to a seasonally adjusted annual rate of 530,000, according to data from the U.S. Census Bureau and the U.S. Department of Housing and Urban Development. In addition, the number of multifamily permits pulled rose 25.5% year over year, to a rate of 644,000.

Despite this uptick in construction, multifamily builders likely won’t be making much of a dent in the overall housing shortage over the next year or two. Those same interest rates pushing would-be homebuyers to the sidelines are also hurting developers. So although the number of multifamily permits pulled has continued to rise and rents are elevated, the number of multifamily units authorized but not yet started has also increased, jumping 33.3% year over year to a seasonally adjusted annual rate of 144,000. Industry professionals expect that this trend will only worsen, which is not good news for the estimated 4.3 million more multifamily units needed by 2035, according to data from the NMHC and NAA.

“Construction lending has sort of slowed to a crawl,” Peter DiCorpo, the co-founder and COO of Black Farm Group, said. “The whole market has seized up, plus institutional investors are really taking a pause right now on new opportunities. I would anticipate multifamily housing starts are probably going to be down 40% year over year in 2023 and I think that is going to be the same for single family home building, if not higher.”

To make matters worse, according to Sean Kelly, the chairman of the National Association of Home Builders’ multifamily council, existing multifamily buildings are already very full.

“I think that we need folks at many different levels of the government to help us work on addressing supply chain issues and remove some of the regulatory roadblocks to building,” Kelly said when asked about improving the pace of new construction.

We expect the multifamily housing demand to remain relatively strong. The main reason for that of course is the increased borrowing costs. Mortgage rates are more than double what they were at the start of the year.

Nadia Evangelou, economist at NAR

While this slowdown in construction is certainly not something developers or builders’ whose sentiment has been dropping since the start of the year want to see, conditions are improving for prospective renters. The NMHC’s Market Tightness Index came in at a reading of 20 for the third quarter of 2022, well below the breakeven level of 50, indicating looser market conditions for the first time in six quarters.

“The physical apartment market is also starting to normalize after six consecutive quarters of tightening conditions, with a majority of survey respondents reporting higher vacancy and lower rent growth compared to the three months prior,” the report stated.

According to Fleming, this decrease in rental demand is due to a slower rate of household formation.

“You look across a landscape of economic uncertainty as we are today with interest rates rising and people talking about a recession, and maybe you think that now might not be the best time to go out on your own and get your own apartment,” Fleming said. “In times of uncertainty that always happens. Maybe people go back and live with their parents after college or stay with their roommates longer than they wanted.”

But experts like Paula Munger, the assistant vice president of Industry Research and Analysis at the NAA, expects this slowdown in rental demand to only be temporary.

“We recently put out a forecast looking at how demand will play out from now until 2035,” Munger said. “I want to say a recession doesn’t matter – it does – but when you are looking at such a long timeframe there are going to be ebbs and flows in the business cycle. Between now and 2035 we anticipate we’ll need around 256,000 units a year.”

Evangelou added: “We expect the multifamily housing demand to remain relatively strong. The main reason for that of course is the increased borrowing costs. Mortgage rates are more than double what they were at the start of the year.”



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The path to financial freedom is a marathon, not a sprint. It requires patience, discipline, sacrifice, and a long-term mindset. Today’s guest, Logan Kohn, is on his way to financial freedom with over one million dollars of real estate with three properties at only twenty-one years old!

Logan planned to invest in real estate later in life, but COVID forced him to rethink his timeline. Since interest rates were at an all-time low during the pandemic and his income took a hit, Logan decided to expedite his investing journey. For his first investment property, he looked at his county, but it wasn’t affordable, so he looked at the next county over. It wasn’t the best area, but he saw the opportunity for growth, and now his first property has already appreciated over thirty percent!

Logan bought his first property and his other two properties in the span of one year, which required extreme financial discipline and frugality. Logan has been interested in growing his money since he was a child. From the age of ten to the end of his teenage years, he started various side hustles to make money. He’s done magic on the street, dropshipping, affiliate marketing, and email marketing. At seventeen, he discovered stocks and started stacking his money and letting it grow. Now he invests his money while having few expenses to be as frugal as possible so he can multiply his wealth through real estate!

Ashley:
This is the Real Estate Rookie, episode 233.

Logan:
Yeah, I think it was just, I think I saw the opportunity. I kind of looked at the sales price history of that property and the surrounding properties in that area, and I saw that they were on an upward trend, and of course, we probably couldn’t have foreseen the appreciation that would’ve come in the year following, but I think I just kind of saw the trend and I saw it was on the up and up, and I just thought… Believe it or not, it’s actually only about 30, 40 minutes from The Hamptons. So, it’s a very black and white scenario where you have such a bad area and a very good area very close to it. So, I took the chance. It was definitely a risk.

Ashley:
My name is Ashley Kehr and I’m here with my cohost, Tony Robinson.

Tony:
And welcome to the Real Estate Rookie Podcast where every week, twice a week, we give you the inspiration, motivation, and stories you need to hear to kickstart your investing journey, and I want to start today’s episode by shouting out a very special listener who left us a five-star review on Apple Podcast. This week’s review comes from Jess Haas, and Jess says, “Start here,” with like five exclamation marks. “This is hands down the best place to start your real estate journey. From the minisodes on Saturdays to the guests, everything is pure gold.” Jess, we appreciate you. And for all of you listening, if you haven’t yet left us an honest rating review on Apple Podcast, please do. The more reviews we get, the more folks we can help, and that is our first and always biggest goal here at the Real Estate Rookie. So, Ashley Kehr, what’s up? How you doing today?

Ashley:
Not much. Super excited, today I submitted my final edits on my manuscript, so haven’t really told a lot of people because I didn’t know if I’d ever finish it. But yeah, so coming out January 2023 is going to be a new book that I wrote.

Tony:
There you go. Congratulations. Ashley, podcast host, published author, and professional hula hooper, all coming together.

Ashley:
And bull rider, don’t forget that too.

Tony:
And bull rider. But now, seriously, I’m super happy for you, Ashley.

Ashley:
Thank you very much.

Tony:
I’m excited to get my hands on the book, and the world’s going to love it, I’m sure.

Ashley:
Yeah, thank you very much. What about you, Tony? What’s new? You got your vacation coming up, very well deserved. And what else?

Tony:
We got vacation, but it’s always weird before vacation because you’re scrambling to get everything done. So, Ash and I were talking before we started recording how we both pulled all-nighters last night. It’s like we’re in college or something, again, trying to study for a final. But yeah, we’re just moving along. We onboarded a new assistant, so she kind of started last month, but this week was her first full week working with us. When you first hire a new team member, it almost, there’s more work initially just getting them trained up and eventually they’ll kind of be off and running. So, we’ve just been a little all over the place this week.

Ashley:
Well, we have a great episode for you guys today. The first thing is Tony once again finds a reason to talk about his Streetfort, Treefort, whatever, I still don’t even know what the actual name of the city is in Louisiana, and we actually kind of go into a rabbit hole about insurance in this episode. But I think it’s definitely worth listening, especially after we are hearing the impact of what has happened from Hurricane Ian down in Florida and just how your insurance can change and things you guys should be aware of and know as an investor for your properties, things to be aware of. But we have Logan on the show today. So, he is only 21 years old, and he is so cool. I mean, just listening to all the things he’s done already at the age of 21, I think it’s really remarkable.

Tony:
Yeah, Logan’s going to teach you how to not just do this anywhere, but how to do this in an expensive market. He’s going to show you how you can buy properties with no W2 job, no tax returns, and no car. And so, this kid’s incredible, man, and I think regardless of what age you are, you will really get inspired and motivated by hearing his story.

Ashley:
Yeah. So, before we bring Logan onto the show, we would love for you guys to join the Real Estate Rookie Facebook group. We have over 50,000 members in the group right now, and it’s a great place to get your questions asked, to share your wins, but also to help other people and answer some questions too. So, make sure you join the Facebook group if you guys haven’t already, and of course, subscribe to our YouTube channel so that you guys can watch the Real Estate Rookie Podcast and also see-

Tony:
See these beautiful faces.

Ashley:
Yeah, I think the tiredness of the all-nighters. I mean, that’s the second joke that you pulled today, Tony. But you guys could also get to watch our awesome contributors on the real estate rookie YouTube channel too.

Tony:
Logan, welcome to the Real Estate Rookie Podcast, brother. We’re excited to have you, man. Before we get into the nitty-gritty, why don’t you tell us a little bit about who you are and how you got started in real estate investment?

Logan:
Yeah. So, I think I was bit by the money entrepreneur bug pretty early on, I would say, probably before I even reached the age of 10, 11, 12. As far as the real estate, that was something that I didn’t think was going to happen this soon and early in my life. I really thought that was going to come much later down the road, maybe five, 10 years from now. It was really the pandemic that was kind of the impetus, the motivation to jump right into real estate. I had been studying it for a few years, reading books, watching BiggerPockets, courses, videos, but I took a big hit with my income mainly due to the pandemic, and that definitely put a dent in me, and I saw that interest rates were at an all-time low. I thought now was an opportune time, and I just decided to jump right in, and now I’m here with $1.1 million worth of real estate and growing and growing even more.

Ashley:
And how old are you?

Logan:
I’ll be turning 22 next month.

Ashley:
Oh my gosh. Congratulations, Logan.

Logan:
That’s amazing, man.

Ashley:
That is so cool. So, when you decided, you’re looking at, okay, interest rates are low, everything like that, was it like, “I’m just going to buy a house to live in,” or did you already know like, “I want to do an investment property”?

Logan:
It was definitely going to be an investment property, but I had no idea where to start. There were so many looming fears and the unknown. Maybe I thought I would start with commercial, like a storefront. Maybe I would buy something a couple blocks away from me and just put all the money I had into it. I really didn’t know where I was going to start. But mainly for me, I live on long island in Nassau county and obviously Long Island is one of the most expensive markets in the nation, and so, I saw there was an opportunity in the county next to mine about an hour, hour and a half away, and I saw that prices were much lower there, mainly because it’s not the best area, it has a bad reputation, and so, that’s where I started. I started in that specific city, and that was my first single family residence as my first property.

Ashley:
Logan, before we go any further, what does your portfolio kind of look like right now?

Logan:
So, it consists of a duplex that’s local near me, just 10 minutes away, and then the two single families are in that area about an hour and a half away from me. So, four units total, three properties.

Ashley:
Okay. Let’s just, let’s go back to the beginning a little bit. So, you were an entrepreneur. Tell us a little bit about your first business before you even got into real estate. Then we can go into as to what skills actually transferred over for you?

Logan:
Yeah. So, for me-

Ashley:
And when did you start a business? If you’re 21, when did you start your first business?

Tony:
Yeah, can we talk a little bit? Ash, what were you doing at 21?

Ashley:
I had just transferred colleges. Yeah, I mean, I definitely wasn’t running a business. I was interning as an accountant, I guess, while I was going to college.

Tony:
Yeah. Yeah, I think my 21st year, I think that’s when I almost flunked out of college. I changed my majors halfway through that year, and I still had aspiring dreams of being a hip hop artist. So, definitely not doing all the cool stuff you’re doing, Logan.

Logan:
It’s [inaudible 00:07:45].

Tony:
Yeah, maybe one day. Yeah.

Logan:
Well, for me, I actually didn’t go to college, but as far as the first money I ever made, I’m actually a magician. So, that’s really where I would say my money journey started was doing magic actually. As early as 9, 10 years old, I would do magic on the street and make a few dollars. I remember a $20 tip being the world at the time, and I would do gigs. I started approaching restaurants, and that was sort of my first introduction to money, but obviously not having the literacy or knowing to do with that money or budgeting it or managing it, that came a little bit later. But then I started getting into online business. I saw it was possible just naturally through the internet. So, I started doing drop shipping, affiliate marketing, email marketing, and other various forms, just selling items I had around the household. As far as trying to invest my money and actually grow it, I would say it really started with gambling. I tried gambling with horse racing, yeah.

Ashley:
You don’t hear that very often.

Logan:
No, I know. That’s where it started really for me. I tried to get rich quick too many times, but long-term investing came probably when I was like 17, 18 years old. I decided to start investing in stocks and have that long-term mindset.

Tony:
Logan, do you have family or a mentor or someone that kind of guided you towards real estate? Where do you think this initial interest came from?

Logan:
As far as real estate itself, no one in my family has ever done real estate, not even anyone distant. It’s never been in the family. The closest that I’ve ever gotten to money and managing and actually trying to do something with money was probably my father. Unfortunately, he passed away last year, but he tried many things online just like myself, and I don’t think he quite got anything to necessarily work in his lifetime, but I think that bug definitely bit me and probably was passed on to me through him.

Tony:
Yeah. Well, I’m sorry to hear about your father, but I guess we can tick solace to knowing that some of those lessons that he passed onto you are bearing fruit, man, so there’s always a silver lining there. So, you talked about the magician work earlier in your life and you’re still doing that today, the kind of digital marketing experience that you had. To Ashley’s question earlier, have any of those skills from those earlier businesses translated into the world of real estate investing?

Logan:
I would say that I’ve definitely made mistakes in both areas, real estate and online business in itself. I would probably say that having that long-term mindset, when I first started to build my business, I probably tried too many ways to build it too quickly or tried to throw money in areas that probably weren’t necessarily worthwhile. I think that sort of does translate into real estate, having that long-term mindset and looking many years down the road, and also potentially moving and managing your money in certain areas that are definitely more necessary and more of a positive return on investment than other ways to put your money into a property.

Tony:
Can we touch a little bit, Logan, on how you’ve been able to afford over a million dollars worth of real estate? At any age, it’s an achievement, but I think especially at 21, almost 22 years old. What did that process look like? Was this your life savings? Were you working with other investors? Just kind of walk us through how someone is able to purchase four units in such a short period of time.

Logan:
So, yeah, the units, that was purchased in under one year. So, the actual purchasing was definitely pretty expedited. But as far as the actual building of the money itself, that came mostly from just stacking away my money and hoarding that money. Every single year, I really tried to be as frugal as possible. A little expenditures here and there, little splurges, but I really was quite disciplined with investing my money and putting it all into stocks. I just put every nickel I had, try to throw it away, and really keep as little cash as possible. That was really going to be the plan before real estate was just going to be putting my money in stocks or in next funds, and maybe by the time I reach 40, 50 years old, I will have seven, eight figures worth saved up, and real estate probably wouldn’t have come for a very long time down the road.
But yeah, it was all through just being disciplined with investing and paying yourself first and keeping low credit card debt, open that first credit card soon after I turned 18. So, that definitely helped. But it was all just mainly through online business and life savings.

Ashley:
Logan, as a teenager earning this money, how were you disciplined to not go and spend it? So, when I was a teenager, I worked as a waitress and a hostess, and I remember I’d go home with my wad of cash from my tips and I’d count out my money and I’d put it in my save. Then when I went to college, I literally blew through all that money probably in the first semester. How were you able to stay disciplined to not just go out and spend that money?

Logan:
Yeah. No, I definitely have a few friends that same story as you, but I would probably say that I think I screwed up so many times early on, and I realized that I wanted to make that change and actually reach financial freedom, and I knew what it was going to take. And so, I think I had that mindset pretty early on and I think I sort of had that epiphany that in order to make this work and in order to create the lifestyle that I truly wanted, it wasn’t going to happen through spending and wasting your money and having little leftover after every month. So, I think the dream and having that goal definitely helped in that, and I learned that very early on. I don’t think it was luck. I think it was just probably maybe just my influence and who was around me and probably just what I learned, just learning so much at such a young age. I’ve been reading books and watching so many courses and et cetera for a very long time.

Ashley:
At the BiggerPockets conference this year, I felt like I heard so many people say the same thing, that if you want to really excel at life, if you want to take it to the next level, if you want to be successful, you need to change the people who are in the same room as you. You don’t want to be hanging out with people who are going out partying instead of wanting to plan a business or things like that. You want to keep your friends around you that are doing the same thing as you or even higher and higher than you, and I think that’s kind of what you’re touching on there is that you surrounded yourself with the right people to get your mindset right and to push you and to achieve you because being around people is contagious. You’re going to get caught into what they’re doing, You’re going to lose focus on what you really want just because you’re interacting with other people that don’t have that same determination, that same focus to reach and get to the next level.
We had Pace Morby on an episode and that should be coming out soon, and he talks about this too as to how he actually had to clean house on his circle of friends, and he’s like, “Yeah, that’s a hard thing to do, but I was really being held back.” So, I think that’s really awesome that at an early age you surrounded yourself with people who were a good influence on you and who actually helped push you to kind of get to where you are today.

Tony:
Can I add to that, Ash, before we move on? I’m so glad you brought that up because I think at any point in your life, your social circle is so important, especially if you’re a newer investor because even outside of just the support, the motivation, one of the things you get from your social circle is a new belief system, and I think that’s a part that a lot of people overlook.
If you’ve never made a hundred thousand dollars in a single year before, when you start hanging around people who have made six figures, you somehow believe that it’s possible. If you’ve never become a millionaire before, you start hanging around with other millionaires, now you suddenly believe that’s possible. If you have friends that have yachts, right, or private jets, you start hanging around with them, now you think that that’s possible. So, it’s like even outside of the support and the social aspect of it, I think when you surround yourself with people who are on the same path as you or have achieved the things you want to achieve, one of the biggest benefits you get from that is just the belief system that you can actually follow in those footsteps.

Ashley:
Logan, so with this pile of cash that you have shoved under your mattress at a young age, did you use this for a down payment? How did you purchase that first property? Was it all cash? How did you work that deal?

Logan:
Yeah, so that was all just accumulated in brokerage accounts, just sitting there growing on a monthly annual basis. As far as the real estate, that first deal, I wasn’t necessarily exposed to different types of financing specifically like a hard money or DSCR type of loan, or even if I was exposed to it, I probably wouldn’t have done it. I probably would’ve been too fearful to do it. So, I just started with a basic conventional loan, Fannie Mae, Freddie Mac, but the thing was is that I was still being claimed as a dependent on my parents’ tax returns so I didn’t necessarily have any tax returns. So, I actually had to go out and file two years worth of tax returns, which as you know, New York State, some of the highest income tax in the country, in order to qualify and show sufficient income on paper to qualify for that conventional loan. So, it was also the accumulation of tons of fees and penalties for paying late and everything like that.

Ashley:
So, you went back actually and took your… So, your parents, did they amend their tax return to no longer have you as a dependent and then you went and filed for two years prior?

Logan:
They didn’t necessarily amend theirs. It was just my own Schedule C self-employed income, and that was a hefty hit, probably like 40, $50,000 worth of taxes. But in hindsight, maybe I would’ve shown a little bit less income and just did a DSCR loan, maybe I wouldn’t have shown that much income on paper. So, yeah, that was first deal, a conventional loan, 20% down for that single family house.

Ashley:
Cool. That’s interesting. I never thought about being at an young age, not having that income. So, what income did you show on there? Your income as being a magician? Did you pull money out of the stock market that hadn’t been reported that you’re reporting now?

Logan:
So, I would probably say it was magic income, it was also online business income, affiliate marketing, all that, and I don’t think necessarily capital gain showed on that tax return just yet because the money was pulled out after. But yeah, so that was all the income that was shown on there. It was a big hit, but I think in hindsight it definitely was a good decision because I got two conventional mortgages and I might get another conventional mortgage out of it.

Ashley:
Awesome. So, you did the 20% down. What did your terms look like in that? You had said you noticed interest rates were low, so did you get in at a good time?

Logan:
Yep, that was a good way. I’d do anything to get that rate back. It’s only three and a quarter, believe it or not, on that first loan. That was last year and I closed on that property June of 2021. I locked in that rate probably a few months before, and so, do anything to get that rate back. And also, as far as the property itself, the price of that property was only 213,000 which at the time I thought it was overpaying for it.And especially in that area which doesn’t necessarily have the best reputation. It’s considered the armpit of Long Island. At the time I thought I was overpaying for it, and if you asked other investors in the area, they probably wouldn’t have even touched that area.

Ashley:
Go ahead. Name names. What’s the name of it? What’s the [inaudible 00:18:58]?

Logan:
So, it’s Mastic-Shirley area, Mastic Beach. It’s considered the dump of Long Island, but it definitely is growing and appreciating at a high rate right now.

Ashley:
How did you kind of work up the courage to invest in an area that has a bad reputation? I feel like most investors want to go to a good area where there’s appreciation and tenants.

Logan:
Yeah, I think it was just, I think saw the opportunity. I kind of looked at the sales price history of that property and the surrounding properties in that area, and I saw that they were on an upward trend, and of course, we probably couldn’t have foreseen the appreciation that would’ve come in the year following, but I think I just kind of saw the trend and I saw it was on the up and up, and I just thought… Believe it or not, it’s actually only about 30, 40 minutes from The Hamptons. So, it’s a very black and white scenario where you have such a bad area and a very good area very close to it. So, I took the chance. It was definitely a risk.
As far as, by the way, on the income, I’ve dispelled a couple notions so far, number one that if you’re my age, you can’t invest in real estate. And then also if you didn’t go to college, you can’t invest in real estate. If you’re living on Long Island, you can’t invest in real estate. If you don’t have any W2 income, you can’t invest in real estate. So, I’ve kind of broken all those barriers.

Tony:
Logan, I want to ask a question because you have these four units right now, are you living in any of your investments or are you still living at home with the folks? What’s the living situation look like right now?

Logan:
Yeah, still living in the same apartment with my mother. We rent, we don’t own. I own everything else though.

Tony:
That’s such a unique thing. I’m glad I asked this question because you obviously have the financial ability to go out and purchase property, but instead of doing it for your primary residence, you’re doing it to build a portfolio. And I’m seeing this theme throughout the conversation, Logan, where you’re able to exercise patience and discipline to move towards your goals, and I think that’s something that a lot of people struggle with, and people have the maybe financial ability, they have the mental capacity, they have the technical know-how to become real estate investors, but what they lack is the patience and the discipline to stick with it and execute and do the things they need to do.
You’re staying at home with your mom while you’re still building this real estate portfolio. You are super frugal with all this money you’re making at a very young age which most people can’t do. There are just all these things that you’re doing that show how disciplined and committed you are to your goals. So, if there’s something for our rookie audience to take away, it’s that if you want to be successful, there has to be a certain level of sacrifice. You have to give up something if you want that bigger reward down the road, and I think you’ve just done a great job, Logan, of exemplifying that.

Logan:
I appreciate that. Especially kids my age and my generation, I think I’m kind of going against the grain as far as what I’m investing in because I would imagine that most of my generation is obviously playing around with cryptocurrency and the next hot thing, and so, I could have easily done that. Obviously I disclose that I do own a little bit of cryptocurrency, but is definitely not the majority of my portfolio.

Ashley:
Logan, when you say your generation, you mean our generation.

Logan:
Gen Z, Gen Z. Yeah, yeah, of course.

Ashley:
So, Logan, what do your expenses and your bills look like for yourself? So, you’re living at home. Do you help your mom? Do you pay a portion of the rent? Do you have a car payment? Are you paying insurance? What kind of monthly expenses do you have, and what have you decided to cut out of your life to live so frugally to be able to invest more?

Logan:
Not too much besides the rent. So, I actually don’t even drive either. So, that’s another notion dispelled there that if you don’t have a car, you can’t access real estate. So, I usually just get a ride from my agent or via an Uber or whatever. But yeah, so I actually pay 100% of the rent here and obviously very expensive market on Long Island which is tough, but I make it work. Unfortunately, my mom, completely different situation, different scenario. She did not necessarily follow the same path or the footsteps as I’m doing right now, and so, I’m actually paying 100% of the rent. She helps out a little bit with utilities, but other than that, no car payment, no student loans, no debt like that.

Ashley:
Logan, how awesome is that that you get to do that for your mom?

Logan:
Appreciate that.

Ashley:
I think that is, and really proud of you that you want to do that too for her. I mean, not many people at your age or even at any age can help their parents out in that sense. So, I think that’s really amazing that you’re doing that and that’s how you’re choosing to spend the money. Really, that’s your only expense that you have. So, yeah, that’s really awesome and that’s a huge thing. So, congratulations on being able to do that. That’s definitely a huge accomplishment.

Tony:
If I can ask one follow up question, Logan, you mentioned that when you go visit some of these properties you either catch an Uber or you have your agent pick you up. It made me think like okay, yeah, you’re working with an agent and as a younger investor, how did you kind of build that relationship with your agents so that they took you seriously? I think a lot of new investors, regardless of age, struggle with this imposter syndrome around like, “Oh man, will this agent really take me seriously or will this contractor take me seriously, or this property management company?” So, what was your approach to building a good relationship and getting that person, as a 21, 20 years old maybe at the time, actually them take the time to show you around and pick you up and do all these things?

Logan:
So, luckily, I haven’t run into anyone that’s necessarily disowned me or anything like that. So, luckily pretty good relationships all around. I haven’t had anyone doubt me, and the agent lives local, so that’s not necessarily something that took too much convincing, they were happy to do it. But I’ve definitely gotten some eyeballs and some surprised looks and faces when I show up to that closing table and they see who’s closing on that property, or the insurance agent, maybe they see my birthdate or something and they definitely make a comment on my age. So, I’ve definitely gotten those.

Tony:
What about your tenants, Logan? Are you self-managing? Do you have a relationship with them and what does that dynamic look like?

Logan:
Yeah, so all self-managed right now. I don’t know, maybe when I hit 10 units I’ll probably move to a property manager. I can’t quite make the decision yet. I will see how much I can handle. But a few different stories as far as the tenants because on the first property I technically inherited that tenant, so that has a story there, and then the second property I did inherit a tenant for that duplex, so we definitely get into that as well.

Tony:
Let’s hear the stories, man.

Ashley:
Yeah.

Logan:
The first property actually I would say I got pretty lucky. Interesting story, believe it or not, the owner that sold it to me actually wanted to stay and live at that property. I think they had some sort of living arrangement set up that they were going to be moving out in six months or a year, and they just wanted to rent the property from me actually until they move out. Still, they have not moved out and it’s been a year and a half, and we’re actually going to renew that lease next month, but I will have to raise the rent, and so, we’ll see what happens there if they choose to renew or not. But yeah, so I did get pretty lucky there. That was pretty turnkey with the tenant set up, and I didn’t get to screen them, but luckily they’re just closing that property, and so, they did have a boatload of funds from selling it to me. So, I guess that was kind of a pre-screen. So, that’s the first one.
The second one, the duplex, one of the units was occupied, the other one vacant. So, I did inherit a tenant there, and that was definitely a risky tenant because I don’t even think they’re technically documented, so I don’t even think they were able to provide a social security number so I didn’t get to screen them. So, I’ve taken a lot of risk all around between the tenants not being screened, and then also all these properties are in flood zones, so that’s definitely a risk as well. So, I’ve definitely taken on some risky situations.

Ashley:
Logan, how did you show the vacant unit? Did you set up one showing so you only had to get a ride there once? I figure without a car it would be somewhat difficult to go there all the time to do showing. So, how if you set up your leasing process so that you don’t have to actually be at the property all the time?

Logan:
I just went through my broker so that they show the property, but on that duplex actually, specifically, that one is just 10 minutes away from me so it probably wouldn’t have been a big deal anyways to show it. The train goes right there. But on the third one, that I bought vacant, that third house, so that was an hour and a half away from me because it’s in that same Mastic area. And again, my broker just showed that one and now it’s occupied. We got it occupied within a couple weeks.

Ashley:
What was the fee that you paid your broker to do that? Because I had that before and I think it was one month’s rent that we actually paid the agent once they got a tenant in there.

Logan:
Yeah, it was just the one month’s rent that the tenant pays. I will say for New York they have some pretty strict laws in regards to how much you could charge as far as one month’s rent upfront security. So, in New York, it’s definitely a tough market with the laws and regulations.

Ashley:
No I meant to the broker, the real estate agent. Did you pay them once they got a tenant in place? Did you pay them?

Logan:
Didn’t come out of my pocket. It was from the tenant. Yeah, they paid the broker one month upfront the one month brokerage fee.

Ashley:
Oh, the tenant paid. Okay.

Logan:
Yeah, nothing out of my pocket.

Ashley:
Oh, interesting, oh.

Tony:
Oh, that’s cool.

Ashley:
Yeah, I’ve only seen on the other side where the actual landlord pays the broker but to have the tenant pay.

Tony:
Breaking more rules, Logan, I love it, man.

Logan:
Okay. I didn’t know that actually.

Ashley:
But yes, what you said too is very true in New York State where you can only charge one month’s rent for security deposit or less. You can’t charge more than that and you also can charge last month’s rent. And I actually had somebody text me the other day asking me this because their daughter was trying to get a unit and the landlord told them like, “You’re going to have to put a higher security deposit down,” and they were thinking, “I don’t think you’re true.” So, of course, I get on, I get all the government documents, I send it to them, like, “They can’t do that to you.”

Logan:
And also in regards to Section 8, there’s also regulations with that. I don’t know if it’s the same in all states, but in New York, it’s technically illegal to take over the voucher amount. So, that’s also legal, and I had some Section 8 people try to apply for that third property.

Ashley:
So, how are you finding out all of this information? What are some great resources that somebody who’s getting into property management can go and find everything that you’ve learned?

Logan:
Facebook groups are great. I learn a lot of information from the Real Estate Rookie group and the bigger, the BRRRR Invest group, lots of groups in regards to real estate on Facebook, and then naturally there’s also local meetups which I’m sure are great for people as well. There’s a few on Long Island and then also just naturally YouTube University, right, this Google University, endless research. But the big thing is that you can gain all this knowledge, do all of your analysis, and have all this information, but it’s until you actually do it and execute that some of these unknowns and fears won’t go away.

Tony:
BiggerPockets, BiggerPockets, BiggerPockets.

Ashley:
Tony, did you just crack a joke?

Tony:
I’m joking but I’m also serious, right? I think for so many new investors, the forums on BiggerPockets, it’s like an encyclopedia of… It’s a PhD of real estate investing. Almost any question that you can think about asking has probably already been asked and someone has answered it in very high details somewhere on the forums, and honestly I think that’s how I initially found BiggerPockets. It’s like I googled some super obscure real estate something and then I landed on one of the pages in the forums and then that kind of sent me down the rabbit hole. So, I love all the resources you talked about. Look, but obviously just wanted to plug the forums cause I think it’s a great resource for new investors.

Logan:
Absolutely.

Ashley:
So, Logan, do you have a deal that you kind of want to go through the numbers with us?

Logan:
Sure thing. I think we could start with that first one because it’s definitely the largest as far as cash flow and the return on investment, so I think we could definitely dig in with that. My first deal, that was 20% down, single family unit, quite a small two bedroom house. I think it’s less than a thousand square feet, but again, 213,000, at the time I thought I was overpaying for it. That was after-

Ashley:
What was that? Is that the asking price?

Logan:
It was 224 or 5, we got it down to 215, then a $2,000 credit, 213 was the final price, and that 20% down, so all in, I think it was like 65, 70 grand all in with closing costs. It was pretty turnkey. I replaced a water heater and some minor TLC but nothing too big. I can’t necessarily speak for everyone, but I would say especially for someone like myself who’s not necessarily majorly astute with handy work and contracting, I would probably start with turnkey properties. I probably wouldn’t begin with a major rehab project. That’s just my opinion, but everyone’s different. So, turnkey property, and like I said with that situation, the tenant, that was pretty much built into it, the owner, and I got it rented right away. It was occupied day one at closing and now it has appreciated like 30, 40% just in the last year, year and a half because of what’s going on in the market there.

Ashley:
Wow. And what does the tenant pay for rent in that property?

Logan:
Right now, 2,200, but that’s way below market value actually.

Ashley:
And that’s the one where it’s the owners living in there?

Logan:
Correct.

Tony:
Sorry, $2,200 per month on a $213,000 house?

Logan:
That’s right. But that’s way below market value, yeah.

Tony:
Wow, that’s amazing.

Ashley:
So, you put about $75,000.

Logan:
Yeah, about 70 grand all in with closing costs and the down payment.

Ashley:
Tony, what’s the cash on cash return on that?

Tony:
Yeah, what are you netting on that 22?

Logan:
Yeah, insurance went up because the flood insurance is so high, especially in that area because it’s such a risky flood zone. That’s the only caveat, but it’s about 600 bucks in cash flow a month. So, that’s a great deal. I would do anything to get that deal again and again. I would do it every day of the week but the market has gone up so much and obviously interest rates on top of that, just not feasible anymore. But the percentage return is about 12, 13% actually, the percentage.

Tony:
Yeah, that’s awesome, man. That’s a great first deal. I’m super impressed that you’re able to get such a high monthly rent amount on comparatively speaking low purchase price. That’s great, man.

Ashley:
But you have to think about too that the properties in New York State where the property taxes are a lot higher. So, it’s very easy to hit the 1% rule where the rent is 1% of the purchase price or even higher than the 1% rule, but it’s very hard to meet the 50% rule where your expenses are 50% of the monthly rental income. So, that’s a big thing to think too is those property taxes kill you.

Tony:
The flood insurance is a big risk too. So, I don’t know if you’ve heard my story, Logan, but I also bought my second investment property was in a flood zone, and the first year we owned the property, the flood insurance premium was super reasonable. The second year we owned the property, the flood insurance premium quadrupled, so it was like a thousand bucks a year and it went up to 4,000 bucks a year, and we shopped it around to multiple different insurance brokers, they all came back with very similar quotes. I don’t know what happened. I don’t know if there… Mercury must have been in retrograde or something because there was some weird stuff happening across the insurance industry, but that killed us on that deal. We ended up selling it at a loss actually. So, there is some risk with that. I’m not trying to scare you.

Logan:
No, on my second property that actually just happened where a few months ago I got the renewal notice, and it was double what I was paying just months before, and so, I had to shop it around and got a little bit better of a rate. But yeah, it’s definitely gone up.

Tony:
I learned a lot about flood insurance as we were going through that. There’s a way to challenge the flood insurance or I guess the flood zone designation. It’s a really lengthy process, and we just didn’t feel like going through it, but if you talk to your insurance agent, there is a way to challenge that flood zone designation if you can prove there hasn’t been any major floods or something like that, or there’s like a map you have to pull from the FEMA website. But there is a process. It’s just, it is pretty lengthy and the chances of success are really slim. So something to look into if you’ve got the time.

Ashley:
Yeah, I just got one of my bills yesterday actually that there’s one property that’s in a flood zone. I actually have it under contract to sell it right now, but it went up $400 for the year. It went from 1,400 to 1,800.

Logan:
Especially Long Island got hit very badly by Hurricane Sandy in 2012. Everything was absolutely devastated. So, we’re definitely in a bad risky flood area.

Ashley:
Yeah, I did two of my bootcamp calls this week, and in both of them the conversation came up as to how Hurricane Ian is changing Florida for insurance and how the premiums are just going to increase even more and just there is a cap on how much it can actually increase. But it was really interesting listening to a couple investors who invest in Florida talk about how that is going to impact them and then also people who are homeowners too, and it’s not just investment property. So, insurance is definitely a…

Tony:
Tricky.

Ashley:
Yeah.

Tony:
Yeah.

Ashley:
I have my insurance license and I hate it so much. I don’t understand half of it anymore because I’m just like don’t stay on top of it. It’s kind of like a CPA, if they don’t stay up to date on the tax laws and regulations [inaudible 00:36:23].

Logan:
But I would say definitely shop around, shop around different agents and brokers and play around with the coverage and I think you’ll get a better rate. That would just be my advice, especially to people in flood areas to shop around and I think you’ll get a better rate than you originally got.

Ashley:
I think that’s great advice too, especially play around with the coverage as to look at what you actually have on your policy. Is there something in there that you don’t think you would ever, ever use or ever come up even costing you a hundred bucks extra a year for the premium? So, I think that’s interesting, and then especially with it being an investment property, look at what your coverage is to replace the property, and I usually try to get it as low because I actually might, if a duplex or something was to burn down, I don’t even actually know if I would rebuild it or if I would just sell the lot or something like that too. So, where if was my primary residence, yes I’d have to rebuild.

Tony:
That’s so funny you mentioned that, Ashley, because Omi, my partner and I and Sara were literally just having this conversation about insurance yesterday and we said the opposite. It’s like our properties have appreciated so much since we purchased them that if one of them did burn down we’re undercover right now. So Omi’s going to do the work to increase that replacement cover so if they do burn down, we’re not caught holding the bag. A buddy of ours, he was building a cabin in the Smokey Mountains. He was like two weeks away from it being completed. Once the property was going to be done, he was going to have like $300,000 in equity just because of his build cost versus where the properties were appraising at. One of the workers flicked a cigarette butt that ended up catching some debris on fire, burned down the entire cabin, and his cover, he was undercovered, so now instead of having $300,000 in equity, he had to write a $50,000 check to cover that construction debt. So, when we heard that story we’re like, “Oh my god.” We got way too many properties to not be accurately covered.

Ashley:
And Tony, I think you have to compare properties too where my $50,000 duplexes are not appreciating $300,000 in four years.

Tony:
That’s true, that’s true, that’s true.

Ashley:
My $3,000 appreciation can handle that.

Tony:
You could probably write that check. You could probably Write that check.

Ashley:
But also for me to have to write a check, it’s like I always make sure I at least have coverage for more than what the mortgage is, and that’s like the priority to me is if it did burn down that I could pay off the mortgage on the property easily.

Tony:
A good conversation about insurance. Let’s go to the rookie request line, Logan. So, for all our rookies, if you’re listening, you guys can leave us a voicemail at any time, just give us a call at 8885-ROOKIE to leave a voicemail. We love getting the voicemails, guys. We love the Facebook questions and we love the Instagram DMs but the rookie voicemails are cool because we actually get to hear you guys. So, if you want your voice featured on the Real Estate Rookie Podcast, give us a call, 8885-ROOKIE. So. Logan, are you ready for today’s question?

Logan:
I think so.

Reid:
Hey guys, this is Reid from Brandon, Mississippi. When my wife and I moved out of our previous home, we kept it as a rental and are currently looking to purchase our next rental unit. The first house was already in our names and we left it that way. Moving forward, at what point do we want to start putting homes under a LLC, or should we at all? Does the protection offered offset whatever pain there may be to purchasing a home under a LLC? So, just curious if and when we should move to a LLC. Loving the content. Keep up the good work.

Logan:
So, as far as my knowledge, an LLC doesn’t necessarily prevent you from getting sued, right? There’s still liability to be had there, but certainly, I think a general rule of thumb, just from my analysis and what I’ve learned, I think once you reach that number of 10, I think you should start considering an LLC, may be 20 units, but I think for me especially, and I don’t know what the property value is on his property are and what kind of issues he’s dealing with, if it’s maybe it’s a high crime area, every circumstance would be different. Not an attorney, but I think probably magic number of 10, 10 units.

Ashley:
Yeah. I think what you said there about the equity in the property too because an LLC is to protect your assets so that if you are sued, they can’t go after your personal assets. So, really looking at the net worth that you’re putting and the equity that you’re putting in each LLC. So, if I have two properties in an LLC but they’re both mortgaged to the hill and there’s only $10,000 in equity, somebody sues me, yeah, my insurance can pay out, but there’s only 10% of the equity in there and say that’s only $10,000, whatever.
But if I have half a million dollars of equity of properties in there, and maybe that’s only one property where I have half a million dollars in equity, I’m probably only going to put that one property in an LLC. But if I have a bunch of little properties, those 10 and they don’t have a ton of equity in each of them, then yeah, I’ll throw those into one LLC. So, I think looking that, just like what you said, but adding in that component of how much do you want to risk putting into one LLC together. Okay, so, Logan, we are going to move on to our rookie exam.

Logan:
Alrighty.

Ashley:
First question is, what is one actionable thing rookies should do after listening to this episode?

Logan:
So, the easiest thing I would definitely say is to start analyzing deals online and start really getting a concrete understanding of your market. You don’t necessarily have to look out of state. At first, I probably consider doing something in New Jersey or Connecticut or Pennsylvania because maybe I can get a much better deal there. But just start analyzing your local market and seeing how close you can get, and certainly start playing around those numbers, see what the cash on cash return looks like, see what you can get for rents, and just kind of do a market analysis, a market sweep of the area. I think that’s something anyone could do right now.

Tony:
Great answer, Logan. Next question, what’s one tool, app, software system that you use in your business today?

Logan:
I’m actually not much of a spreadsheet techy guy. It’s mostly just everything’s just on paper or in the mind. I actually don’t use too many apps or softwares. But as far as knowledge and learning, like you mentioned, BiggerPockets forum is definitely something everywhere everyone can use.

Tony:
I love that, man. See, I’m so the opposite. My brain, I need, I need lots of structure and things documented and regimented, whereas my wife, she’s the opposite where everything just kind of swirling around in her brain, but that gives me anxiety. So, we’re yin and yang like that.

Ashley:
Logan, where do you plan on being in five years?

Logan:
So, I think I definitely want to experiment with larger complexes and 1031 exchanging into longer, larger apartment buildings, hopefully getting into commercial real estate, so five-plus units. That’s certainly going to be tough in this area, but I think I can make it happen, and just basically doing everything I’m doing right now at scale. Whether it’s in business, whether it’s my YouTube channel and doing content branding and real estate, just everything hopefully at a larger scale and exactly what I’m doing right now though.

Tony:
Awesome. Well great job, Logan, man, and I’m excited to see that journey take off, man, and the way you’re crushing it, I’m sure you’ll reach all those goals you’ve got. So, before we close out today, I just want to give a quick shout out to our Rookie Rockstar, and if you’d like to get shout out to Rookie Rockstar, get active in the Real Estate Rookie Facebook group on the Real Estate Rookie forum section on BiggerPockets, or you can slide into my DMs or Ashley’s DMs. But today’s Rookie Rockstar is Isaiah Foster, and Isaiah says that his first business partner and he closed on their first house flip last week. They purchased it for $100,000. They were all in for about 160 and they sold it for $265,000, and what’s crazy, this is what Isaiah says is we have literally used none of our own money from this flip. They use two lines of credit and then a hard money loan to cover the entire purchase and the rehab. So, congratulations to Isaiah for crushing it with that first house flip.

Ashley:
Well, Logan, thank you so much for joining us today. I have to be honest and tell you I slept two hours last night. I’ve been working on this project, I just wanted to get it done, and that’s why I was even a couple minutes late because I was hitting something on it to get it done, and I was like, “Man, I’m exhausted.” But I have to tell you, listening to your story and talking with you, I am all pumped up again. I can pull another all-nighter. So, just thank you so much for coming on and sharing your story. You are super cool, and I’m sure all of our listeners are going to appreciate hearing your story, getting tons of motivation like me. So, can you tell everyone where they can reach out to you and find out some more information about you?

Logan:
Sure thing. Mainly active on Instagram and YouTube. So, Instagram is @logankohn, sounds like ice cream cone, but spelled K-O-H-N. And then YouTube is the same name, Logan Kohn, that that is where I am mostly putting content and mostly active.

Ashley:
Well, thank you so much for joining us, Logan. We really appreciate it. I’m Ashley @wealthfromrentals and he’s Tony, @tonyjrobinson on Instagram, and we will be back on Saturday with a Rookie Reply.(singing)

 

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Purchase application data is now below 2008 levels! But I need to explain why this level has more in common with 2014 housing data than the credit stress markets of 2005-2008, and why you should care. Understanding this data line and what it is trying to tell you will be more valuable than erroneously thinking the market is crashing and we’ll see a wave of foreclosures.

In the previous expansion, one of my long-term calls was that the MBA purchase application data will never hit the volume level of 300 until the years 2020-2024. Credit growth in the previous expansion was going to be slow and steady until our household formation data got high enough to get demand higher. Right on cue, 2020 came and we hit the 300 level.

The years 2020-2024 were going to be the time when total home sales could finally reach 6.2 million, something that couldn’t happen from 2008-2019 because we didn’t have the demographic profile to get to that level until household formation grew.

However, the housing market did run into one problem in 2020. Inventory levels broke to all-time lows and thus created massive housing inflation quickly, which broke my model. I knew housing would be OK as long as home prices only grew at 23% over five years — 4.6% nominal per year at most. We are up 43% since 2020.

In the summer of 2020, I talked about how the housing market would change, but it needed the 10-year yield to break over 1.94%, which roughly means 4% plus mortgage rates. That happened in March of this year. With the massive housing inflation since 2020 and higher mortgage rates, we are back to familiar territory with existing home sales and purchase application data: we are back to 2014 levels.

Wednesday’s purchase application data was up 1% from week to week. It’s been in a range of -2% – +1 % for some time now, not counting the hurricane week in Florida. The year-over-year data is down 41%, and the four-week moving average is 40.25%.

For some time now, I have been talking about how the year-over-year comps will get challenging starting in October of this year, and this would mean purchase application data will be down 35%-45% during this period; that would be the norm. Since the start of October, the year-over-year declines have been in a range of 39% -42% each week.

The data looks correct. If we had another leg lower in demand, the purchase application data target would be down by 53% to 57%. We haven’t seen that in the data yet.

Looking at the chart below, purchase application data is below 2008 levels today, very close to the lows we saw back in 2014, which, adjusting to population, was the lowest level ever. This time around, we have not seen the kind of housing credit boom that we did from 2002-2005.

Post-2012, whenever mortgage rates rise, existing home sales always trend below 5 million. We saw this happen in 2013-2014 and 2018-2019. However, now with the historical price inflation we have seen since 2020 and the massive increases in mortgage rates since the start of the year, we have the biggest housing affordability hit of our lifetime in a short amount of time.

Purchase application data is back toward 2014 levels, and existing home sales have trended back to 2014. Mortgage rates are higher now than back then, and the price gains are more massive.

The glaring difference between now and 2014 is that total inventory levels are roughly 1 million lower now than the peak of 2014. Back then, the peak was approximately 2.3 million; today, it’s 1.25 million. Homeowners are in a better financial situation now, they live in their homes longer and longer, so the inventory channels have been much different post-2012.

NAR total inventory data 1,250,000

One thing about purchase application data and demand is that a traditional seller is typically a buyer of a home. Since the end of June, we have seen that the home seller called it quits earlier this year than usual, and now the new listing data is negative year to date. This means less demand for housing.

New listing data is down 5% year to date, as you can imagine. With rates spiking as they did, it isn’t appealing for some people to sell their homes and buy another note. Some people simply can’t move because they can’t afford to.

I still believe this impact on demand isn’t getting the attention it deserves. This occurred at the end of June when the housing recession also started. We haven’t had 12 months of data yet with this reality. New listing data must grow year over year in the spring of 2023, or else the mortgage rate lockdown discussion will get louder.

It’s a first-world problem; homeowners are in perfect financial shape and control of their lives, unlike what we saw from 2005-2008. However, it’s not a good thing for housing demand when new listing data is declining when we started 2022 at the lowest inventory levels ever.

That data looks even worse when adjusting to population and households. Traditionally, inventory levels have been between 2 million to 2.5 million. As we can see, the housing bubble crash was an abnormal historical period, just like what we are dealing with today.

NAR Total Inventory data 1982-2022: Most Recent Report

As we can see, purchase application data is really below 2008 levels, and existing home sales have trended back to 2014 levels, the last time purchase application data was negative. Purchase application data adjusting to population in 2014 was the lowest level ever recorded and we still had over 5 million total home sales back then.

Housing affordability, while not in a crisis before 2020, got into major trouble with price escalation since 2022. This is why affordability and a lack of new listings should be the focus for housing because those two are the real demand hits right now.

It’s rare post-1996 to have existing home sales trends below 4 million. It really only happened in 2008 after a major housing crash and credit dried up. The COVID-19 pause sent sales down to 4 million but we just shot right back up

NAR: Existing Home Sales Currently 4,710,000

Credit isn’t going to dry up as it did from 2005 to 2008, because it’s mostly a 30-year fixed mortgage loan we are providing these days. However, we do need to see new listing growth pick up next year to have a more functional housing market.

However, with the affordability hit we have today with rates over 7% and the lack of new listing growth, meaning fewer sellers who would-be buyers, we can get back down to 4 million and under if these trends continue. The point of this article is to show you the dramatic impact of higher rates and prices and that we need to focus more on the new listing data, which we all should want to increase.



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