Mortgage Sweet Spot With Co-Host Robert Orfino

TRE 87 | Mortgage Business


There was a time when people used services and animals as currency, and that shows that financial assets are volatile. In this episode, Jason Bible and Robert Orfino let us know why investing in the mortgage business can help overcome a financial asset’s volatility, especially with the rates its running. They share in detail how we should approach the transition of converting financial assets to real tangible assets. There are a lot of sources on certain strategies for getting into the landlord business, but Jason and Rob take it up a notch and talk about the technical side of investing.

Listen to the podcast here:

Mortgage Sweet Spot With Co-Host Robert Orfino

We’re talking about mortgages, rates and what’s the time to do it. We’re going to talk about the sweet spot. This magical point in mortgage rates that will make an insane amount of sense to you. It comes along maybe once a decade, maybe even once every two decades and once a generation like 25 years or 30 years.

There’s some interesting news coming out and one of those things is a 50 and 100-year bond. What I find interesting about that is there are 40-year mortgages out there. There are non-QM products. There’s not a whole lot of them and it’s not like you can go to your traditional lender and get it. Rates can go to zero and people still can’t afford houses. It’s becoming inordinately expensive for first-time homeowners to buy a house.

It has nothing to do with rates, it’s the affordability index. The price and your monthly payment become too high and you don’t have the DTI to cover it.

The only way to do that is to expand the payment time.

To lower the payment.

I can see Fannie Mae with a 50-year bond starting to offer 40-year mortgages.

What we heard about the 40-year mortgage during all the refi’s in the recession that a lot of people kept the same mortgage, expanded it out 40 years and lowered the rate. I’ve never seen one but I’ve heard that’s what they were doing.

They’re not Fannie Mae back loans. That’s the difference. One could make the argument that the Federal Reserve is in the business of selling mortgages. At some point, someone’s going to say, “Let’s do a 50-year treasury and let’s offer a 40-year mortgage.” It’ll be somewhere between 1% a quarter, 1.5% or maybe 2% over prime but it’ll be a 40-year amortized loan, which is going to be insane. I was doing some market research in an area town that you and I are buying some stuff in. What I found fascinating is the assets were either built in the ‘20s or ‘30s and some in the ‘40s and then you see a handful of assets that were built in the early 2000s. I’m like, “I recognize what that is. You built it for free.”

What do you mean?

There are certain areas of town in which real estate investors win in and build brand-new in early 2000 up until about 2007. They did so because the money was free. In 1920, 1930 and 1940, it’s where a lot of these things were being built. There’s this little blip between 2004 and about 2007 where you see all this new construction and it’s all little apartments.

You think that was the reaction from the stock market crash after 9/11 and that was Bush, Jr.’s first term. There was a lot of economic stimulus going on at that time.

It was 125% construction loans, too. There was a lot of that going up.

All the way up to 2007. You’re right.

You can see this little blip of all the stuff that was built originally in between the ‘20s and ‘40s. For twenty years, there was this slow growth. We’ve built this little duplex and this little quadplex here and this house that we eventually turned into a duplex. Between 2003 to 2007, you’ll see all this additional construction there.

Is it weird that it was years ago? Because I feel like we’re still in the same economy from there.

Every deal you have should work at 7%. That’s the magic number. Click To Tweet

I had the exact same thought. I was like, “2007.”

I don’t think anything has changed since 2007. I still feel like I’m in the same economy and same mindset. Is that weird?

No. I had this exact same thought. I started pulling the small apartments up and I started looking at them like, “That’s rough. It’s was built in 2007 and that’s years ago.” I’m the same way. Anything with a two in front of it, it feels like yesterday but it’s not.

Forty-year mortgages are non-FHA backed and you have to have good credit to get them.

Not everybody can get it. However, I can see that changing where Fannie Mae will eventually start offering those loans. Especially, when they started talking about 50 and 100-year issuances. You’re sitting here and you’re looking at, “What do you do with these bonds? What can they be pegged to?” If you look at the 15 years and the 30 years, how we make our money in real estate is by playing that spread between the price rate and whatever we’re renting our property out at. It’s the same in single-family as multifamily. That spread is where you make your money while you own the property. When you sell it or when you pay it off, it’s a different thing. The reality is that you’re making money on the Delta and we’re in a place where there is a window in which the real estate has not been repriced for the price of the mortgage. I predict here in the next couple of months that we will see a fifteen-year below 2.5% which is insane.

That takes us to what we’re talking about the sweet spot. I have some properties that I got mortgages on but I didn’t have the greatest credit score because I had a lot of debt carried the care cover of my businesses and a whole bunch of other things. I’m at five something on my homestead here. There will come a time when that fifteen-year will get low enough that I’ll be able to refi on a fifteen-year and lower my mortgage payment. That’s going to happen for people who didn’t do the big refis in the last couple of years and made it through the recession at 6.25% or 6.5%. That 2.515% is going to be sitting out there and you’re going to be able to refi, lower your monthly payment and get a shorter-term on your loan.

I was reading some data. I want to say it came out of axiom and they said, “Every 0.125%, that rates are reduced by, we add nearly one million homeowners that can refi.” This is when you start talking about cycles like, “Where are we at in this cycle?” It’s the houses appreciate it a ton in the last couple of years. Rates are coming down and we’re going to zip right past to 2.56% which was the lowest for the fifteen-year. We’re going to zip right past that and people are going to start refi. I don’t know if rates will go from a warehouse line to zero but I could certainly see where mortgage companies are making money on fees because banks are doing that already. They don’t make any money on the money unless they’re lending it out. The reality is that where are they going to make most of their money? It’s going to be on the fee side and I can see that with mortgage companies.

It already is.

To a certain extent. If you’re a real estate investor out there, the money’s free at this point.

We’re dealing with some funds that we’re either going to do 2% or we’re going to do this fee. There’s a floor and we’re always going to take the one that’s greater. If it’s $3,500, 2%. If it’s a $100,000 loan, then we’re taking $3,500. They don’t care about the points and interest. I’m sure they’re making something on the back and they’re shopping for their profit. We’re looking at this already. I’m interested to see and we have a close eye on the non-QM market. Non-Fannie Mae, non-FHA, privately held money, bank money or insurance company money, there’s a lot of different products out there. I’m waiting to see that the market starts to come down because we’re buying rental properties somewhere between 5% and 7%. You can buy it down the rate to about five and the cheapest when we got on the refi’s were working out is 5.125%. That is a good deal on a rental property. I’m waiting to see those start sliding. I’m waiting to see if it comes down 0.5% if we’re going to be talking about between 4.5% and 6.5%.

What’s fascinating for a real estate investor we’re at 5.25% and we refi to Fannie Mae at 4.125% so it’s not about 1% and if the difference between 4% and 5%, and 5% and 6% is the difference between not being a deal and not. It was never a deal to begin with because it doesn’t change that much.

Every deal that you have should work at 7%. That’s the magic number. You should run your mortgages at 7% and if it makes sense, you’re good. We run our calculators at 9% as if we have a 9% mortgage on it. if the deal works then we move forward at 9%. if we get 5.5%, it’s that much more profitable.

If you get into the math, 7% is free money but there’s no risk-free rate of return anymore because that’s effectively zero since rates are essentially going negative outside the United States. Back in my day, several years ago, when I went to business school, 7% was free money. I post two or three articles a day because I’m always reading stuff. A lot about some Zero Hedge and I’ll add my little commentary or blurb that is important from the article. In most articles, the real truth doesn’t happen until paragraph eight. You got to be able to skim through quickly. We have a question, “What’s up with the article you posted about mortgage defaults are up 3%?” That’s true. Here’s the problem of data. A lot of people would say, “An aggregate all this stuff is going on,” but tell where those numbers came from? Are we finally foreclosing on people from Hurricane Harvey a couple of years ago? Is it we’re finally clearing out Jersey from Superstorm Sandy? Which I know there’s still a bunch of stuff up there. You start having to ask the question, why did we see this increase in this particular number?

I don’t think it was an increase in foreclosures. It was the increase in zombie homes meaning there are vacant homes. I don’t think the foreclosure rate went up at all. People that were in foreclosure left the house. That was in the article.

I’m zipping through it but I don’t think everybody’s waiting. What I find fascinating this time around is everyone’s waiting for 2007 to 2008 to happen. Back in 2005 and 2006, there’s a great YouTube clip of Maxine Waters ripping the Bush administration. They’re in Congress. It’s in one of these and I can’t remember what committee it was. The official from the Bush administration is like, “If we do not curb, lending these GSEs, which is Fannie and Freddie, are going to fail.” Which they eventually did to the tune of $1 trillion or something, ridiculous. That was 1.5 to 2 years before it all fell apart. She’s like, “No, you need to give some more money. We got to do this and we got to do that.” We don’t have those times now. People back then, forget the news every day and the financial articles where real estate is going to increase in value daily.

TRE 87 | Mortgage Business
Mortgage Business: For every 0.125 of a percent that rates are reduced by, we add nearly 1 million homeowners that can refi.


Everybody expected real estate to continue on this locomotive path of straight-up 3%, 4%, 5%, 7% or 10% a year. Give the homeowner the money because it’s going to increase in value. This time, everyone’s waiting for the other shoe to drop and conventional wisdom is often wrong. I don’t see this big crash coming. We’re all looking for indicators of a real estate crash. I don’t think a crash gives me real estate. It’s going to be elsewhere.

It can be pensions or either to be a massive retirement crisis.

A lot of those pension funds are also backed by pension insurance which is a government bailout.

Maybe, it’ll be an entitlement program we work. The retirement age goes up to 68 to 72.

It makes sense if you ask me.

When it was designed, people only expected to live five years after they were retired and the model is fubar at this point. Max, so you’re aware, you got an FHA catch out on a buy and hold that’s good. Remember, you can only do four of those and save those four because that’s important. I know there are people out there who tell you can do ten but it’s hard to get to ten and people get you to six. If you ever want a line of credit for your business, you’re not going to do more than four FHA Fannie Mae loans in your personal name. That’s something we learned when Merrill came in. Four is a sweet spot on that.

The other side of that coin is how many of these things do you want in your name? Ask your attorney.

Not a lot. I’ll tell you what you want. You want your homestead and you want four units. You want twelve rental doors and your spouse has got rental of four units, four flexes so there’s 16 and 12 between you’ve got 28 doors. You rushed to pay them off as quickly as possible and let them create $25,000 to $30,000 a month at the end of ten years.

One of the things I enjoyed about our small apartment meet up is when you’re having these conversations to people where it’s like, “You don’t have to buy 10,000 doors.” I get that everybody wants to be Grant Cardone with the watches, the planes, and all that nonsense but you only need ten or twenty of these things. You don’t need a 500-unit apartment complex.

You need twenty and you’re getting $1,200 a month rent on them. That’s all you need and that’s a good living.

If you want to grow more than that, that’s not a bad way to make a living. With the way the real estate is going to continue to appreciate, it makes sense where you could sell half and then pay the other half of the portfolio off.

I’m going to address what Max is talking about. There’s a room in this town that teaches you to go out and get ten FHA rental properties. Max is saying, “Don’t do ten, do four because that’s what you’re going to need if you’re going to get into the landlord business.” We’re talking about 20, 30 to 40 units. You’re going to need a line of credit to get lines of credit from local banks basically and that line of credit from those banks where you have ten assets in your personal name, ten FHA mortgages, will negatively impact your ability to get a line of credit. We’re saying, “Do four.” There is a big room in this town that tells people to go get ten. A big real estate club goes get ten. We know that there’s plenty of FHA and Fannie Mae mortgage guys who push you to buy. I will tell you that some of them know that it’s hurting you and most do not.

Most do not recognize that the advice that they’re giving you is going to hurt your ability to get a line of credit. If you’ve got cash and you don’t ever see yourself in a $500,000 line of credit, then go ahead and get them. That’s fine but we’re trying to get lines of credit so we can do some Airbnb and we can do some other stuff without having to keep going back to the well. In that world, we only suggest four. Five is okay but four is better and six starts pushing the number down because we want to get lines of credit from local banks basically. When you have a lot of properties in your own name, your credit profile does not look as good as having the four which is the sweet spot. I get that there’s a ton of people in this town that have been told that advice, “Go and get ten,” but what those people are advising is they don’t understand that you will then not get a line of credit. it’ll be more difficult to get a line of credit.

What’s also interesting is the vast majority of those folks will never even make it. They’ll get to four maybe five but that’s it. If you look at the most successful people in those groups, they end up forming partnerships in these LLC’s and then they build it that way. The reality is that putting that stuff in your personal name gets those Fannie Mae loans. It works but it doesn’t work as well as you think it does if you want to build it a little bit larger.

The decline in 30-year rates has been equivalent to a 15% increase in buying power. It means that prospective homebuyers shopping for the average priced home could pay $45,000 more for a home than last fall while keeping monthly payments the same. There’s an article out there that looked at near-zero interest rates and the impact on real estate in France. They had an increase of something like 16% or 18% in the price of real estate in less than eighteen months. If you think real estate’s expensive now, just wait. We popped an article talking about everyone’s always focused on the United States, “They’ve printed like $3 trillion.” China printed $15.2 trillion. Here’s the reality. This stuff is worth nothing. We talked about cash is king. No, it’s not. Cash is worthless in the long-term and by long-term I mean more than ten minutes because we can print this stuff. You can’t print a single-family house in Katy. They’re like, “Where’s the cash?” They all want cash, I bet. The reality is that you have got to convert that cash into assets as quickly as humanly possible.

If you’re going into the landlord business, you’re going to need a line of credit. Click To Tweet

Because it’s losing value every day.

That’s right. When you sit down and look at the stock market, you’re like, “I’m up 15% this year.” What’s your real rate of return after you pay taxes after you sell it and after all that stuff? Is it 3%, 4% or 5%? That’s why I make a lot more sense to go into real estate that produces cash and appreciates at the same time. What are you converting it to? You’re converting it to cash which is worth less every single day. I’d rather own that piece of real estate free and clear regardless of what the currency du jour is. Right now, it’s US dollar and it could be bananas for all I care. At the end of the day, you want to own the asset and you want to convert these financial assets to real assets as quickly as humanly possible.

The key is that real asset. You can own a gazillion startups, IPOs and all the other stuff. All of that maybe goes up and down but you have a physical asset in a house. I’m not a big fan of collectibles so I wouldn’t call those physical assets. There are people who’ll put money into art and other things like. They need something tangible.

I was reading an interesting article about the gentleman that started Uber who is not CEO anymore. He’s on the board but one time, he went and bought into a $150 million which for him is nothing. He’s worth $3 billion or $4 billion so $150 million is walking around money. He went and bought into a startup that buys distressed real estate and rehabs it for tech companies but it’s a real estate play. That’s interesting. It’s like strip centers and stuff like that. It’s a class C. It’s not like, “We’re converting this class A building fee from a gas company to tech company. It’s like class C space and they’re converting it for little tech startups but he poured a $150 million into it. I’m sitting there and I’m looking at this thing. I’m like, “How much stuff do they have?”

There is a critical portion of this economy that is distressed in these strip malls and I drive by it all the time. We go through tons of little towns in Texas and you’re like, “Can someone come in here with a good satellite hookup?” You can put some small businesses here for some tech companies there. That would be awesome.

He’s not starting another app company like Uber. He’s on a real estate. It was interesting and if you guys driving around town here, especially over in Bear Creek, I’m still amazed how many strip centers and commercial retail locations are still shuttered from Harvey.

That’s what I’m saying. Look at Dickinson. It’s crazy down there. I wonder what that capital stack looks like. Where can you go to the community and get it?

He’s totally playing that game.

What does he get from taxes, motivations, parking lots and things like that? That’s good.

He’s not parking $150 million to make $150 million, right?

Yeah. I like that play. I’m talking to a guy that’s got a 3D printing company out of Austin and they build cement houses. 3D printing with cement and they usually get it done in about fourteen days.

Did they say the price per square foot is?

No, they’re still working on it. At this point, they’re still working on government grants and companies are giving them money to figure it out. You can build a house in two weeks.

About zero labor.

It’s close.

TRE 87 | Mortgage Business
Mortgage Business: If you ever want a line of credit for your business, you’re not going to do more than four FHA Fannie Mae loans in your personal name.


The 3D printing will be what disrupts real estate. By the time it’s mainstream, we’ll be done.

I need to be out by then.

It’s not going to be the next five years but it could be the next ten. You start asking the question, “What does 3D printing mean?” You literally can print a house so let’s explain what that technology is. There’s a big robotic arm that squirts out cement, some epoxy or whatever it is.

A number of different feeders are going into it and it’s pre-programmed to build a wall. When it comes to a window, it knows how to make a window. When it comes to the door frame, it goes back and forth with quick-dry cement. The machine moves fast enough to make us feel comfortable but it could move a lot faster.

Rob, you alluded to 3D printing. We’ll put that in the Mr. Texas Real Estate group on Facebook. If you want to join that group, join in.

Give us your email and swear that you will not spam us.

Do not spam our group. We got some dirty little spammers there. I kicked some people out. One of the things that Elon Musk said is that, “Robots will move fast and you will only be able to see them with a strobe light,” which is insane. If you’re looking at timing belts, you get an idea if it’s in time. I’m not a big Alex Jones fan but he comes off as a complete nut. You’ve got to find that YouTube video of Alex Jones and Elon Musk. He put them right next to each other and you go, “This is one of the smartest men in the world. He’s saying the exact same thing as this guy.” Somebody had a little Facebook post with a picture of Alex Jones and it talked about all the stuff he ended up being right on. Somebody said something like, “Don’t feel foolish now.” It was funny. My favorite still is the alien-human hybrids.

They’re not aliens. They’re interdimensional beings.

I went down that whole rabbit hole and everyone starts talking about taking mushrooms so you can meet these elves and stuff. I don’t know what’s going on here. It’s the clockwork elves.

I’ve read something and I heard the word spinster. Do you know what a spinster is? It’s usually women. I thought, “Were they always sisters?” Because I remember The Waltons, the two spinsters. I was told, “No, they don’t have to be sisters.” I thought, “Maybe our society wasn’t sophisticated enough to recognize that when two women were living together that maybe they weren’t old spinsters but they were partners.” That has passed us for the last few hundred years. I don’t want to go down this hole but clearly, there have been gays and lesbians forever. Where were they living together? Was it more parents were using a colloquialism calling them spinster? That hit me and I was like, “Did I hit something here or am I totally wrong?” That was interdimensional beings and spinsters.

Clockwork elves. That’s what you get with this show. It’s not sometimes real estate, otherwise it’s weird stuff.

I watched Carnival Row, the pixie thing on Amazon and I went out there seeing it. It’s a new series on Amazon. It’s fantasy-based and it’s steampunk setting. It’s the end of the Victorian era. There’s some electricity there but all the fairies, satyrs and centaurs are all there. They’re all living with humans. It’s a great concept but here’s my thing. The female actress is a model and they got her nude a few times but she could not carry the show. The supporting cast around her was a much better-quality actress than she was. I kept looking at her going, “This is bad ‘30s acting. It’s overdramatization,” so I got turned off by it. Orlando Bloom was fine. He was like a superhero and he was good but I was like, “Ah.” I don’t know why every fantasy has got to be soft porn. I don’t understand why that needs to happen. I’m waiting for the dragons. That’s all we are waiting for.

The dragons are nude.

Should the Wookiee wear pants?

Katee Sackhoff has a new show. I absolutely loved her. If you have not seen the newest Battlestar Galactica, it will blow your mind. It is good and I’m watching her. I’m a huge fan of hers. If you watch up to the last episode, you’ll be like, “That was insane.” Everybody in that show is amazing. I watched a new sci-fi show. I got through the second episode. I look at my wife and I’m like, “I can’t do it. She’s amazing but she’s terrible at it. What is going on here? I don’t get it.”

You have got to convert your cash into assets as quickly as humanly possible because it’s losing value every day. Click To Tweet

There’s a rush to deliver content.

That’s exactly what it is but the gal that was in Battlestar Galactica, she’s a model. She had a spin-off show that ended up getting canceled after the second season but it was absolutely incredible. She was good at that.

It was a 50-year. It was a prequel and Eric Stoltz was in it?

Yeah, it was a prequel. I’m watching this thing and I’m like, “Jeez,” but you’re right. That’s what it is. There’s this rush to content. We can make all the cool graphics and we can make a little bit of drama but I don’t think you can only put much in that sack. You can’t put 100 pounds in a five-pound sack. Sometimes they’re pushing too hard and it doesn’t come outright.

I binge watch that and also binge watch Mindhunter 2. Have you seen Mindhunter? It’s good. You will enjoy it. It’s the beginning of the criminal profiling division of the FBI and how they’ve started as they went around and interviewed these high-profile, extreme violent criminals. They’re all in there. They added Charlie Manson as one of the characters. The first year was intense. It was not shot like any other TV show I’d ever seen. It was telling a story even though it made you feel uncomfortable at times. In the last episode, when this big seven-foot serial killer gives the agent a hug and he walks out the room, he has a total nervous breakdown from there, the guy’s like, “I could kill you or I could hug you.” It’s playing with his mind and I watched that one late at night. I was in Hawaii and I was binge-watching Disney. I watched that and I was like, “My goodness.” The second season came out and it’s well done. There’s no general story to tell. There’s no, “We’re going to get you.” This is what happened and our characters are in this historical timeline.

I’m still trying to get into Dune but I can’t do it. I got reading problems. I’m trying to read Jordan Peterson’s book, but I cannot read how he writes. It’s like, “I get that you’re a professor and you’re a smart guy. Does it have to take 50 pages what you could have said in five?” I’m going between that and the secrets of it as a whole interesting. I’ve never read it.

Don’t read it, just watch the movie.

I’m watching the movie, one day. I get in ten minutes, I’m like, “This is weird, I can’t click. This is not for me.” When it gets metaphysical like from right out of the gate, everyone talks about Think and Grow Rich. I will tell you that it is a spooky book.

It’s unreadable.

It is a spooky book.

I’ve tried to read it. It’s an unreadable book. It’s tough.

It is a tough book and you have to read the original version. Do not read Sharon Lecter’s version of it. I’m in between those two but Jordan Peterson, I’m like, “I need to skip the first five pages of each chapter.”

I have the app that basically reads the book for me and does a twenty-minute audio version. Every day, they do something new. The secret is good. I’m the guy who gets the parking spot.

I haven’t gotten that far.

I’m the guy who says, “I’m going to get great parking.” I pull in and Kathryn’s with me and she’s like, “Unbelievable.” There’s a parking spot in front of the doors and someone’s got to get it. That could be me.

TRE 87 | Mortgage Business
Mortgage Business: Having ten FHA mortgages in your personal name will negatively impact your ability to get a line of credit.


It might as well be me. That’s a parking spot.

The secret is good and then Bob Proctor did a follow up to The Secret and he said, “They left one thing out of the movie and it’s called work.” He did one of these whole 30-minute things, “It’s good to visualize, set goals, understand all the stuff and attract the right people and the right things to you but you also have to work.” That was the secret.

Which is funny because Canfield’s in it. I’m like, “Yeah, but you still got to work.” Somebody’s going to work. Somebody has to work here.

I will take Zig Ziglar over most of those guys because Zig Ziglar pounded the pavement selling pots, pans and coloring. That’s how he made his money and then he became motivational. Not a motivational guy who just became a motivational guy because he could write a book. Jim Rohn sold potions and lotions for many years.

He’ll tell you that. He sold potions and lotions and he’s another one that is incredible.

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