In this day and age, deals are hard to find and you must go places in order to find one. In this segment, Jason Bible sits down and talks with co-host Robert Orfino about the wars on cash and the smart ways to find deals in the real estate business, providing effective tips and great pieces of advice about finding deals in the market place. Join Jason And Robert as they impart their knowledge on dealing with real estate problems so you can take your real estate empire to the next level.
Listen to the podcast here:
Finding Real Estate Deals And Dealing With Issues In The Marketplace
We were in the hunting ground. I was sending some pictures to some friends of mine and I’m like, “Check out my new office,” and they’re like, “Where are you? That looks like a really fun place. Send me a picture of what office you’re sitting in.” Let’s do a little office check, I think I’m going to win that battle. We had a great time looking at a handful of our properties, some we had closed on and we’re in the middle of a rehab, some we will close, so we’re having a good time. While we were down there, we looked at two houses, a duplex. I feel like whenever we go down there, word gets out we’re on the hunting grounds. I do a Facebook Live at every single stop, so if you are following me on Facebook and you saw me go live 100 times, I go live at every single stop that Rob and I can share with you that we have somebody under contract.
Let’s say a wholesaler is bringing it to us or we have under contract, so there’s a lot of stuff we weren’t able to share with you, but I think I went live on Facebook Live six times. If you go to my Facebook page, you can see the properties we were looking at some were nice, some were not so nice. For example, the one I called we’re at home or we’re home, that’s going to be our office and our big Airbnb, it’s a beautiful property. The views from the rooftop are pretty much amazing. We had a great time. We are now looking at some commercial space down there and if you’re making offers on the deal I found, we can do it.
I think maybe just going about 10% off to see if they bite.
We’re doing a little reconnaissance too and when I go to a submarket and do a little reconnaissance, I’m looking for two things. I want to talk to the bankers and we had a banker meeting and another good referral. We were looking at class A and Rob’s joke is he is looking for the hipsters.
It’s like a little four-square block area in Corpus that’s where they’re at.
There’s the hipster. You know immediately when you drive in you go, “This is really nice. I saw nice little cars in here. There are a lot of people sitting out in a patio.” Let me explain what sitting on a patio is in Texas, for those of you who tune in the show that is outside of our market, when we talk about hangout in the patio whether it’s for happy hour, for coffees, what that means is you’re sitting in a parking lot. It’s not like overlooking some big, beautiful something. It’s literally like here’s this outdoor space, right up against the sidewalk next to a road, that’s what we call patio down here.
The greatest patio I’ve ever been on is Orange County, it’s in San Juan Capistrano. It’s next to Starbucks and you can see the entire city below you on the Pacific Ocean. There are a ton of deals to get done there. It is all guys. In California, you can always tell someone’s wealth by their shoes. You look at their shoes, but they’re all in shorts, and they’re all in $100 silk shirts. They’ve all got $100 flip-flops on, really nice kicks, and everyone is doing deals there and I’m like, “I need to be here every day. This is where I need to be.” We will go down there and do a Facebook Live.
Let’s go do a Facebook Live. We’re talking about Ben’s dealership down there where guys are on the putting green.Life is not a dress rehearsal. Click To Tweet
In Newport Beach Mercedes-Benz, there is a little putting green right there and they give free carwashes. The car is back all the way up on Saturday morning, but everyone goes in, there is a free Starbucks there and there is a free putting green.
I’ll buy a Merc just to do that. It’s bringing the old SLS in and goes, “We’re going to go here and play dollar whip out on that.”
Imagine that networking sitting in there, that’s going to be fun.
What’s so funny is I will say this and I think we’ll be the first ones to do it, there are small events that happened like that in Houston. For example, I’m on a group, there are about ten of us now and it’s a landlord group, but it’s all high on landlords and we get together. They get together monthly. I’m making about once a quarter, and we’ll have lunch. I’m so tempted to build that here in Houston whether it’s a Saturday morning thing.
If there are any fixed ops managers out there or sales managers or general managers of any dealerships in Houston, and this is a major car market, probably one of the top three in the country. We’d love to hang out after your group twenty sessions, let us know. If you want to talk real estate or if you want to get some insight and you guys are general managers, sales, managers, fixed ops manager at a car dealership, we’d love to start networking and let’s go have a coffee.
It will be super fun. Put a little green off to the right side of the sales floor.
That car dealership world is where Grant Cardone came from. That’s where he has made his bones. He was a sales consultant for car dealerships and he partied hard after the sales meets, so it called. I always tell folks to get out of the real estate rooms. Once you get to another room, you’re the most interesting person there.
I did that Facebook Live about the ID badge being the scarlet letter of the downtrodden corporate guy. I got some interesting comments back on that one. The one thing I talked about is, when was the last time you were the most interesting person in the room?
It was my dog and me and I think I barely eat them out. I was the most interesting person.
You’ve got to start asking yourself, when was the last time you were the most interesting person in the room. I get that not everybody wants to be that, but is your life as exciting as it could be? Here’s one of the things that Tom had said years ago, he was like,” Life is not a dress rehearsal.” If you’re miserable on what you’re doing, let’s make some changes here and see if we can get that fixed, but if you are a real estate investor who is doing this, every place you go you are the most interesting person in the room. I am reluctant at this point when people ask me what I do, I’m like, “Here we go.” I’ve been very coy about it with our bike team, but cats out of the bag on that one.
I tell people marketing.
Do you tell marketing?
“What do you do?” I do marketing.
You’re like a normal worker. When you go, “What do you do, Jason?” I’m like, “I do a little real estate, owned a couple of real estate companies in town.” They’re like, “Really?” and usually they’ve heard one of the companies. I’ll say something like, “I used to own Houston House Buyers.” They’re like, “You all have those big green billboards around town.” I was like, “Here we go,” and then it’s an hour-and-a-half of me talking the whole time, which is not a bad thing. Know that if you’re doing this business and you are networking, you instantly become the most popular person in the room because I have not met a person that said, “I don’t like real estate. I don’t want to talk about real estate.” Maybe I will run into somebody that says, “I tried that and it didn’t really work out. How is it working for you?” I’ve never run up against the, “I would never do that in a million years,” like, “Your life must be terrible.” I’ve not run into that person. Maybe because I’ve been good at vetting who I hang out with. That might be it, but I never run into that person. We were down in the hunting ground, hang out to some of the hipster places there, had a good time.
The Texas Surf Museum.
We were at the Executive Surf Club.If you think real estate is expensive now, just wait. Real estate is about to get incredibly expensive. Click To Tweet
The Executive Surf Club was awesome.
It was great. Did you see the historic mark craft, Rob?
It’s really sticky feet like my feet were sticking to the ground. The bathroom was horrible, but a good bar and good food, everything is served in the basket which is we can’t ask for more. It’s right next to the Texas Surf Museum, which I absolutely adore. As soon as I walk in, there is a huge picture of Dick Dale right on the wall. I was like, “This is my home. I’m here.” I had my DK shirt on and all the gears. If we can have a building right down the street, that would be awesome.
We’re looking at a building down the street, let’s say less than 15,000 square feet. We’d like to set up a home base down there. Every time I go down there and start looking around and we had a meeting with the banker and it’s fun. Here’s a quote for you, guys, “Familiarity breeds contempt.” You are in this Houston market, let’s say you’re in Corpus Christi, you are in Waco, you’re in some market here in Texas and you’re like, “I don’t know of this real estate market, I’m not sure,” because you’re so familiar with it.
I heard good things about Ohio.
Ohio is great. John and I went to a big multifamily investor meeting. Because of our experience three days in this weekend retreat, we think that real estate is too expensive in this market, so we’re going to buy in Ohio.
We want to buy one of the seven multifamily buildings in Cincinnati.
“This is going to be a great deal. My friend is a designer.” I’m like, “What are you talking about?”
Have you looked to Florida? Yeah, everyone has.
No one’s heard of Florida.
Going back to Queen Isabella, everyone has looked in Florida.
One has got to pick over, but I hear this all the time and it’s so funny. A conversation I had with one of the agents that we were working with down south and she has been in that market for a few years now and she is like, “I see so many opportunities here that the locals that had been here for many years, they can’t see it because they’re so familiar with it,” so familiarity breeds contempt. It’s like, “I don’t know. It’s an okay market.” I’m like, “You need to get out and travel.” What did we hear? Less than 10% of Americans have passports. Got to get out and I’m not talking the all-inclusive resort, got to go somewhere else.
I was in Austin and we’re looking at some assets over there. One of the neighborhoods I drove was not a neighborhood we’re going to invest in. This is probably the best way to put it. We had a fourplex in us. I was out there for the Quest Trust Trillionaire Mixer, a big thanks to Quest Trust for the invite. It was a packed house. The presentation I gave is my transition from single-family to multifamily and Airbnb, and I shared a massive amount of data that I’ve been collecting for a few years now on why now is the best day to get started. I’m not talking about big multifamily here. I’m talking about the small stuff, 5 units here, 10 units there, 8, 12, 30, not these huge 100-unit packages.
I’ll tell you some of the conversations I have were fascinating. It gets to a point when you travel around to enough real estate clubs around the country that you begin to see trends. In multifamily, we see a really big trend and that trend is for real estate investors particularly here in Texas and some other larger markets, there aren’t that many deals left anymore. For those of you out there who maybe are looking at getting into apartment buildings, we buy typically class C and class B assets. We’re not doing new apartments. Those new class A buildings, they are a couple of years old, they’re big, these are gorgeous, some are big towers. I have some mixed-use in there. It’s beautiful projects, but for most of us who are mom and pop real estate investors, we’re buying a building that’s 20, 30, 40 years old. We’re fixing it up and putting some tenants in there. The problem is how new class C buildings come to the marketplace. You can’t build class C apartments. The joke is if you want to build a class C apartment, build a class A building now, wait many years, it’s a class C. That’s how you build class C.
When I drive around the city, I don’t think I put 30,000 miles on my truck so far. I drive around the city and what I see are very few distressed apartments that are 100 units plus. These are buildings you can go to and they look like an absolute war zone. They might have a fence around them, there is trash everywhere, streets are all torn, parking lots destroyed and the roof has got a bunch of patches on it instead of replacing the roofs. The paint of the exterior is usually pretty sorted, but the problem is there are not that many deals anymore. I hear this when I travel around the country. I became a member of this multifamily apartment group and we bought an apartment from another member in the group. A lot of these groups end up selling apartment buildings back and forth through each other because there is not that much out there. It’s one of the reasons we’re big fans of small apartments because there’s a whole bunch of those.
I heard the same story. “I’m a part of this group, I’m a part of that group.” We’re buying and selling apartments back and forth to each other, getting an extra $10 a month rent here, $50 a month rent here and then we are selling and refinance it. That’s a lot of what’s going on in the marketplace. There’s no new supply in the market and I hear it across the country. There is more money than there are at deals. There is a massive amount of money. Some of you have been following the news, and I was basically sitting in the truck all day driving from one place to the next so I didn’t see it, but saw it on my news websites. If you’re watching the evening news, you may have noticed the yield curve inverted once again, and so much so that the difference between those two assets was negative 52 basis points. What does all that mean? It has never been as far as rates are concerned, the treasury has been so inverted since 2007. Rates are coming down and they’re coming down fast.Familiarity breeds contempt. Click To Tweet
There is an article here I’ve got and I’ll post on our Facebook group when I get a chance. It talks about this issue. What’s amazing is for every one-eighth of a point, meaning 0.125% interest rate reduction, every 0.125% increases the number of people eligible for a refi by nearly $1.5 million. I think we’re going to see a lot of single-family homeowners began to refinance their properties. Rates are getting insanely low. Do I think we’ll ever see a 0% mortgage? Probably not, but we see fifteen years in the low 3%s and I’ve heard out there that there are mortgages as low in the high 2% for a fifteen-year mortgage. What is it going to do? I know exactly what it’s going to do. All this money has to go somewhere in the system.
Banks make no money on deposits anymore, they make money on fees and by lending. If that money is not out there working, nobody is making any money. That money has to be put to work. Where is that money going to go? It could go to the stock market. I don’t know if it’s going to go there. A lot of it is going to end up in the real estate. One of the things I’ve been saying, if you think real estate is expensive now, just wait. Real estate is about to get incredibly expensive. Every single day we wait, the more expensive real estate gets. The money is all going to go somewhere. I know everyone is sitting around the table at these club meetings waiting for the next real estate crash. Here is what I can tell you for Texas, it’s not coming any time soon. In California, it’s maybe a little bit different and certain parts of Florida, but in Texas, I don’t think we’re going anywhere in time soon. That money is going to go somewhere and it ends up in apartment buildings, it ends up in single-family, ends up in the hands of Wall Street that use it for real estate. That’s a reality. The only place this stuff goes is where it’s treated the best and right now real estate has rates of returns that are positive rates of returns. They make money on this stuff.
Rates are coming down. If you’re a landlord, you’re looking a lot of equity you’ve got in these deals, maybe you’re a single-family homeowner. You got a lot of equity in your personal or you just want to decrease the rate that you pay for your mortgage every month that goes from 30 to a 15-year. Here is a great quote, “The decline in 30-year rates has been equivalent to a 15% increase in buying power, now you can pay $45,000 more for a home than last fall while keeping monthly payments the same.” That’s at the medium home price. A reduction in rates over the last twelve months is going to allow home buyers to increase the amount borrowed by 15% and their payments stay the same. I was in a studio at the office when Donald Trump started twitting at the fed, “Mortgage rate, the rates are too high, the economy is going to crash,” and I told everybody then, “It’s time to get in. We’ve got to go all in.” Multifamily, single-family, rates are coming down and they’re going to come down hard. It’s going to take the real estate market to recognize the spread between cap rates and interest rates, and that has come to fruition. That gap is widening which is where you make your money on the commercial side.
There is an article here I have not read, I pulled it up. We are now at a record low for the 30-year. Let me say this a different way, it’s a little bit more dramatic, but it’s absolutely true. There is a war on cash. There is a war on savers. Every day your money sits in a checking account somewhere you’re losing a massive amount of value. To give you an idea such cash is cheap. Debt is cheap. The cash is all but worthless because the yields are so low. If you hit me a pile of cash for 30 years, I’ll pay you 2%, that’s below 2%, I don’t know what the real number is, 1.9%, 1.6%, something like that. You can hand me a pile of cash and I will pay you 2% for 30 years. That is insane. This is why real estate is so attractive. You could lend your money to your next-door neighbor so they can buy a house and you make more than you would in treasuries. You could lend them 4% of the money for 30 years. Think about it, 2% to double your rate of return, that would be 4%, to triple it, we’re talking 6%. We are in a world of low rates and low rates have returned. I keep hearing the pundits say, “Rates are going to come up.” No, they’re not. They are not going anywhere.
We now have a world in which outside of the United States rates is either zero or negative. The United States from a sovereign country is the only one that’s quite positive, and it’s barely above zero. Alan Greenspan came out and said, “We might be treasuries below zero, that might be a thing.” I’m like, “You’ve got to be kidding me.” This was crazy talk years ago. I’ll share that article with you, that all of those pricing models, all of those great Wall Street analytical tools breakdown when your risk-free rate of return is zero or less. Let me explain what that means in terms that it makes sense. When you’re comparing two investments, if there is no floor for a rate of return on a relatively safe asset, the treasury is a great example. How do you evaluate different assets?
If I go put this on a bank and earn 3%, that’s relatively risk-free. When I go out in the marketplace searching for a place for my dollars to go and my floor is 3%, I’m looking for something better than 3%. Would I do 6%? Would I do 7%? Would I do 8%? The problem is when that number is zero, now where do I have to compare it to? You’re telling me 3%, 4% is much a better deal, technically it is. If they are paying 1% in a money market and you’ve got the opportunity to invest that 4% rate, that’s a massive swing, four times. The problem is all of these financial models, modern portfolio theory, CAPM, all of that stuff was designed for a marketplace with some natural balance in interest rates where the risk-free rate of return, some call it doing treasuries little tips, you can do it in money market 2%, 3%, 4%.
When the world is completely spun upside down, none of those models work anymore. How do you evaluate the risk of a loss? Technically if you get a negative interest rate, that’s technically a loss. Here you are, your risk-free rate of return is now negative. Something that is supposed to be risk-free in the world of finance, you write a check for, you invest in, and you are already losing money. Now you look at an apartment building, a single-family house, a storage facility, a mobile home park, and even at 5%, 6%, 7% looks good. I pulled up the 30-year treasury and the chart I’m looking at goes all the way back to ‘86, and people keep telling me, “Houston rates are going to rise,” everybody gets overworked up. I heard this for a few years now. I think it’s all worked up, “Rates are going up. If they don’t go up, everything is going to crash, it’s going to be crazy.” If you look at the long-term trend, rates are going to zero. There is no doubt about they’re going to zero.
We are at fresh new loads for the 30-year at 1.92%. That is insane, it’s the lowest ever. The tenant two inversions is a new record. The closest was March of 2007 before the crash. I don’t think we have a real estate crash coming, but we definitely have a recession on the way. It was a great interview with Peter Schiff. He basically said, “There is a recession coming. That’s a natural part of the market cycle. How bad and how long? It’s up to what the government is doing.” Quantitative easing is back. Rates are coming down. I don’t know what else the feds are going to do. We get treasuries down to zero. Are we giving mortgages away? That’s what I’m telling you, there is so much money in the system. It’s a massive amount of cash.
The only way to get rid of a debt load this size is with some inflation. You’ll hear the term inflate away the debt. Keep printing. I shared this with you during one show and I reiterated here. I had this great professor when I was doing my MBA in finance and he said, “I will give you a PhD in finance in five minutes,” and we said, “Okay.” He said, “Here is your job, to convert as much of these cash into real assets,” convert as much of your financial assets into real assets as possible. Take those dollars and convert them into something real, real estate, invest in companies that do something. If you want to read some hilarious math, look at the WeWork IPO as compared to other commercial real estate ventures that had the exact same model. WeWork was running around losing a massive amount of money. Telling everybody they’re a technology company, and I guess that gives them that ridiculous evaluation, but if you look at a commercial real estate company, they don’t lose money like that in this office space industry.
WeWork essentially rent office space by the room. There are a handful of companies that do that already, but we claim that since they are targeting these Millennial startup companies and they have this fantastic technology, so they’re a tech company. They are not a real estate company. Everybody with real money to invest is looking around going, “Are you guys a real estate company?” “No, we’re a technology company.” That was worth whatever it is, a gazillion dollars. “Yeah, but you’re losing a massive amount of money.” “We’re worth a lot.” “Really?” At some point that stuff has to stop or maybe it doesn’t. I heard there is so much money in the system looking for the next project, the next deal that it doesn’t matter. I’ll tell you whether the entire economy collapses and I’m being paid rent in sacks of potatoes or the US dollar, it doesn’t matter. The means of production are in real producing assets. The medium for exchange money doesn’t matter.
Trading those financial assets for real assets, that’s the name of the game. That is the only game in town. You’re sitting there looking at your checking account, 401(k), mutual funds, ETFs, all that stuff, whatever you invested in. You’re looking at these things and you’re saying, “I spent so much time working for these little green pieces of paper so I could retire, and now I have to go put it into an apartment building that needs a ton of work or single-family house. I know there is a lot of risks here. How do I evaluate that risk and make it less scary? I don’t think the real fear is in going real estate. I completely understand some people are like, “You’ve done a zillion deals.”
I think the real risk is in cash, I really do. Holding on to that cash is a real risk because it’s becoming reduced in value daily. At 30-year at 1.92%, I’m looking at fifteen-year mortgages and I’m wondering if we’re going to see stuff under 2.5%. This is what it’s like. You had a titled company and you’re doing the refinance and it’s like they’re walking in with a wheelbarrow full of money saying, “Take it, you don’t have to pay me for it. Take it and pay me back over 30 years with no interest. Here is a pile of money, just go,” and you’re like, “What are you talking about?” “Here is a pile of money.” That’s what it’s like. Anything from a finance standpoint, almost anything under 7% is free money, but now we’re getting into free money like no interest, a mortgage at 2.5%. Are we going to see fifteen-year mortgages in the 2%? Think of banking already. There is not an interest sparing account.
How do they make their money on fees? Maybe we will be doing mortgages for the fees. That’s a possibility. You pay a point, some processing fees, and that’s it, and the mortgage is free, the money is free, we want you to pay some fees, some closing cost. That very well could happen. You’ve got to pay two points, processing fee, underwriting fee, pay your title cost, and here’s a fifteen-year mortgage for free. That very well could be where this all ends up over the next couple of years is real money. Here you are with your 401(k) trying to figure out, “Should I invest in real estate or mutual funds? What should I do with the money?” Because they’re literally giving it away for free at this point. What’s the real value of money?
I pulled up the year, so the ten-year treasury tracks pretty close to fifteen-year mortgages. The ten-year is at 1.451% and I don’t know what nowadays’ inversion is. I don’t know when the economy will go into recession. It absolutely will happen. What will be the impact on real estate in Texas, I don’t think it’s going to be that big a deal. If you’re in class A apartment buildings, there is a big recession, a big slowdown there, I think there might be some challenges. Where do people typically spin their money or put their money at times of higher risk? Class C apartment complex for the most part have been relatively less risk during a recession.
It’s because everybody has got to have a place to live in. If you noticed what Rob and I are doing, it’s Airbnb and small apartments and a lot of our small apartments are at the affordable housing level. We’re not buying small and multifamily units in Montrose or in West U. We’re looking at a deal in the Heights and I like Airbnb, but we’re not buying something that is $3,000 a door a month in rent, $1,800 a door a month in rent. We’re buying these assets the entry point for someone who isn’t living with their family, isn’t living with their parents, or even living under a bridge. What are your options at this point?
When you start to get into these more expensive products, class A real estate, even some of these class B’s, there might be a little bit more exposure to a recession, it’s possible. The affordable housing business, it’s either live there or live in a bridge, live with mom or in your car. There are really no other options and there’s already a huge shortage of affordable housing. I think even recession rents are going to keep going up. Houses bought in $250,000 are going to continue to appreciate because people got to live somewhere. Look at these rates, 1.45%. What’s that going to put your mortgage at? Two and three quarters? 3% for prime? It would not shock me over the next couple of years and quote me on this if the mortgage is free and they want the fees. The bank wants the fees. They will give you the money for free. It’s a fun time.