The market is always shifting. That is why you need to equip yourself with different strategies that will allow you to ride through it. Host Jason Bible and co-host Robert Orfino have the path that will take you to success in real estate against the changing market: Mastermind. They invite you to check out their mastermind while sharing some of their deals and insights about the economy. They also shed light on appreciation and cashflow, naming the former as the one way to get rich in real estate that allows you to build real wealth. Learn more from this episode to overcome the struggles from the changes in the market.
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The Mastermind And The Changing Real Estate Market with Co-host Robert Orfino
What we’re talking about is interest rates are coming down. It is 2019 and we are looking at another series of rate reduction. When I came on the radio and I got on Facebook and I sent an email out to all of our subscribers to our email list 30,000 or 40,000 of you, I said, “I’m changing my tune on multifamily, in particular small multifamily because rates are going to continue to decline. The housing stock is in a cyclical decade long decline. We’re going to see a rent’s increased substantially over the next couple of years and rates are never going to get lower.” When Trump came out and said, “I don’t like what FLMC is doing. If they keep messing around with rates, the economy is going to crash.”
They listened to Trump which is crazy because the FLMC is technically independent. They came out and said, “We’re not going to raise rates.” The rumor was we’re probably going to see a rate reduction at the end of 2020. The only reason you’re reducing rates is because every single economic measure. It’s going to blow people’s mind. The economy is doing so well. If there’s anybody who turned out to be the biggest loser in all this, it’s when Obama said, “We’ll never see growth over 2%.” The only reason to reduce rates is because the ECB and Asia is doing it. We’re literally playing this game of chase capital to the bottom, which I’m totally okay with this real estate guy. Give me that 30-year money at 4.5%.
If you’re a currency trader, we’ve got some issues.
There are going to be currency guys jumping out the windows pretty soon. The foreign exchange market’s one of the largest out there. Those guys are all going to be on suicide watch. For us, real estate guys, this is great. What is LIBER at? What did they say the ten-year treasury was? We got to call one of our mortgage guys. I remember I called Monica, “What is a fifteen-year mortgage at?” Is it zero yet? Anything under 7% is essentially free money.
We have the one bank that will do fifteen years on an investment property. As long as it’s in your personal name under 4%.
The only way you’re getting rates that low is a full dock. They want to give you the full strip search. We’re refinancing one of our properties and we’re doing a traditional Fannie Mae. I may ask her what does a fifteen-year look like. We may just do a fifteen-year because I don’t think the payment’s going to be that different. The rates are going to be half-point lower. Zeus would pop that in Airbnb. The payments are not going to be an issue anyway. Why is that important to you as a real estate investor? It’s simple. One of our biggest costs of doing deals is cost capital. Here’s the deal and this is one of the things I love about the interest rate discussion, lenders and bankers. Lenders are in the business of selling you money. They’re in this business of showing used money.
A fifteen-year fixed is 3.125%.
That’s the printed rate. We have to find the newest rate sheet.If you think real estate's expensive now, just wait. Click To Tweet
This is all personal stuff obviously. The consumers are going to be buying your properties. It’s 3.875% on the 30-year fixed.
It’s getting cheap again. I don’t think it’s coming back anytime soon. I’ve got to catch a little bit of news when I was out doing the Utah thing. One of the articles I posted on my Facebook page, it was talking about the economy and all of the doomsayers who said, “The world’s going to crash.” I remember sitting there a week before the election, Trump gets elected and the whole world’s going to fall apart. I’m like, “That’s ridiculous. It doesn’t even make any sense.” All these people, “The economy’s going to crash.” I’m like, “Where is your data that says that’s going to happen?” I don’t see it. We’re getting all this additional data that says, “The Fed is going to continue to reduce rates. That’s going to have an impact on everything.” If I’m starting a business and I’m getting an interest-only loan, and that’s how my industry operates, I might have some concern borrowing 3% and 4% money.
At some point, it’s going to come back up naturally 5%, 6%, and 7%. That’s going to have a direct impact on your cost of capital. I don’t care if you are the world’s wildest capitalist. At the end of the day, when you’re taking on debt, you are borrowing from the future for expansion. That’s how that works. However, in real estate, because we’re buying these assets typically at a discount, we’re leveraging at a discount, but we’re also getting that in fixed principle payment dollars. If I’m getting a 30-year fixed mortgage, I’m locking it in. What’s my risk? My interest rate risk and my refinance risk are completely eliminated. I don’t have to worry about refinance. If I’m going to the next big multifamily webinar summit and there are 600 people in the room and I’m going to be a multifamily investor and it’s over a $6 million, $7 million project, you’re looking at ten-year financing. Let’s hope you’re not in the middle of a recession and you’ve got to refinance this thing in the middle of all that craziness.
Which is why the syndication deals are more and more in a commonplace because you don’t have to deal with the bank.
If you raise 100%, but what I see a lot of these guys doing is they’re going in and raising 25% to 30%. They’ve got some reserves. That’s how families get wiped out when they have to refinance and they can’t refi. What’s so attractive for the space that you and I are playing in the Airbnb space and in the small apartment space is we’re able to get 30-year fixed financing. We eliminate interest rate risk and refinance risk. I’ve seen guys that had wildly cashflowing portfolios. It was in the middle of the credit crisis. They could not find a bank to refinance them and they lost millions of dollars on stuff that was making a lot of money. They were doing well. It could be no fault of your own other than your financing, how that structured. We’re talking a little bit about the Mastermind.
There are guys out there that are struggling because the market is shifting. They’re absolutely struggling to find a wholesale deal. The deals they’re getting are thinner and thinner and they’re not working for flips.
Let’s talk about what a struggling real estate investor looks like. It sounds like this, “I was doing rentals and now I’ve decided to go into owner finance. I was doing flips and new construction and I decided to go into owner finance in middle of nowhere Texas.”
The flip to the ground up is a big telltale for me.
I can’t find any 70% flips so I’m going to do a 65% ground-up new construction.
If you do have a wholesale deal, you’re throwing it out there at 82%, 83% ARV. It’s like, “Look at this. The thing is worth $100,000 and you’re trying to sell it to $85,000.” I see it all the time. The market will tell on those. What happens is when you start getting leaner and thinner margins as a wholesaler, people just start dropping off and they’re like, “At this point, why don’t I do my own marketing?” You get a whole bunch of investors starting to do their own marketing, which pushes those buyers out too.
Nine times out of ten, they don’t know what they’re doing. I think Katherine is getting a little experience with that because of a homeowner. The conversation she’s having with those people and they’re like, “We’re getting inundated by these little wholesalers and I’m getting postcards and people knocking on my doors. I don’t know what to do. It’s freaking me out.” Everybody’s looking for yields somewhere.
We’ll talk about this deal. I posted it on Facebook. This is probably one of the best deals that I’ve done in my career and I think it’s going to be pretty sweet. When you get to 100 transactions a year, a deal like this comes by once every twelve to eighteen months. Looking at some of the data, I was going through it, I think we can pick up one of these once a quarter because the way the deal worked itself out. I’ll put together a little marketing campaign and identify a handful of zip codes where I think we can do this again and buy four or five of these a year.
The goal is to have conversations with landlords and say, “How many pieces do you want to sell off over here?” This whole, “I’m going to go sit down with the daughter, the sister and hammer them at the kitchen table,” and go through all that nonsense. That’s not us. God bless you if that’s what you’re doing because that’s a tough road. It doesn’t yield a lot and it won’t yield a lot as this market increases. We’re looking to shift our portfolio around and move on and sit down with professional guys that have been landlords for decades is a much better play for us.
When I started that house buying company, I was never the guy that liked to sit down across from the kitchen table with Meemaw and sit there and go back and forth and all that nonsense. I always like the business to business negotiations, which is what I did for a number of years in the private sector. I’d much rather sit down with a professional landlord or the guy who has got a pretty big portfolio and say, “How many you want to sell me?” You could start selling this portfolio off or I can deal with your kids and you and I both know your kids are not you.
We’re very zip code specific. We can just say, “We like this zip code. How many have you got there?” You want to liquidate.
They’ll say, “Some of them maybe need a little rehab.” We’ve got a whole team, that’s why we like it in one zip code. Poor Adam, he’s got a new address and it’s in EaDo. He’s literally going to be there for six months fixing all those houses. We essentially bought a block. I would much rather work with the professional landlord. If you’re a landlord out there and you’re going from single-family, big multifamily or maybe you’re cashing out and you’re done, give us a call and we’ll look at your portfolio. We’re not one of these guys. We’re going to give you the low-ball number, all that nonsense back and forth, “What’s the best you could do and when can we close fast?” If you’re looking to sell a portfolio, you could certainly give us a text at 281-401-9008. We’re not the high-pressure negotiating guys. Most of the time we’ll just take your number and then we look at and we go, “The number works for us or it doesn’t. It’s got to be this number instead.” The phone call before closing, “I need it for $50,000 or less.” We don’t do any of that nonsense. We don’t send it out to our buyer’s list.
Have we ever hit anyone at the closing table?Reading books and websites and watching videos is the best way to learn real estate. Click To Tweet
I don’t think I’ve ever done it in my entire career. I think it’s so shady.
I think I did it for a washer and dryer. It wasn’t listed in there and I was like, “This is not in there. I need a washer and dryer.” I was assuming it wasn’t involved. I assume that it was part of the deal and then it wasn’t listed in the contract. I said, “What’s going on with washer and dryer?” Our agent called me back and she’s like, “We got the washer and dryer.” I’m like, “Thank you.”
Secret weapon said, “Do you want some more?” I’m like, “Send them over.” She sent me a handful of other stuff and I’m like, “I guess we’re going to have to start selling some of these to our mastermind people.”
We don’t want to be in high school anymore. We want to get to the point where we’re doing our business. It’s not about all this crazy inventory stuff and it’s focused on, “We bought a seventeen-unit hotel. We’re about to buy a 32-unit hotel. We’re buying an eleven-unit hotel which has an expansion for eighteen.” We understand Airbnb to expert a level. People would come to us saying, “I want to learn this and I want to learn that.” We say, “Here’s a bunch of videos, here’s a bunch of books, here’s some websites, read all that and let’s go do it because this is the best way you’re going to learn.” When you do it, that’s when you work in a mastermind because you’re working through the actual problems, not straw man.
Most of the real estate masterminds I’ve ever been involved in or real estate groups, it’s all the straw man made-up stuff. It’s like, “What happens if a car catches fire in the parking lot?” I’m like, “I don’t know. We solve that problem when we get to it. Who cares? Buy the house.”
“Here’s what you can do. You could get a wrap and then you can wholesale the wrap over.” I’m like, “Have you done that? That sounds complicated and at least two lawyers are involved.”
We had a good friend of ours that came down for one of our Airbnb things and we’re sitting there eating lunch. You guys were all sitting there and let’s call him Bob. He’s telling me all the different clubs and seminars, “I’ve been to the ones at Florida and California,” and all these different places. He says to me, “Jason, have you ever done anything with real estate trusts?” I’m like, “Bob, I wanted to let you know this. I’ve done at least 1,000 transactions. You know more about real estate than I do and haven’t bought a single house or an apartment. You have done nothing.” You need to get to the doing phase.
That’s where we’re saying for our mastermind. I love the people we have in there already, they’re all super gung-ho. You’re an individual that makes $100,000 a year and you’ve got about $25,000 to $40,000, 700 FICO, that’s important. The rates and the numbers that we talk about are not going to be available to you if you don’t have a 700 FICO. If you’re a couple that has $150,000 a year job and you have about $40,000 to $50,000 in the bank with a decent FICO, then we’re ready to go.
We pulled up the HAR report. The total sales is down, total dollar volume is down. The reason for that is we’re running out of real estate to sell. There’s only so much churn that happens in a marketplace and we’re not bringing new real estate online. There’s very little new construction below $300,000, $400,000. For those of you who are buying, you’re seeing prices go up. You’ve been doing this for a couple of years. You’re freaking out and you’re like, “There’s got to be a crash coming because these numbers keep getting bigger.”
There’s no crash coming. That’s not what’s going to happen.
My next public marketing economic discussion, there’s a housing crisis coming, but it’s not the one you’re thinking of. Our housing crisis is going to be a rapid escalation in prices. It’s due to the fact that we can’t bring new inventory online. We can’t build new houses.
The expectation between now and 2030 was another eighteen million people. Let’s just say four per household. We’re going to be at 4.5 million. We have twelve years to do it. We have to build 400,000 houses a year to keep up with that demand. There will be a housing boom somewhere in the next decade, but we’re not doing it. We’re already missing the pace, which means basic supply and demand and the fact that interest rates are low, jobs are up, which means the affordability index starts rising.
I saw wages are up 3.5%.
Which means you’re going to qualify for better mortgages. If you’re not going to buy a better house, you’re going to buy the same house you were going to buy. It’s just 3.5% more.
You’re literally moving across town and living in the same house but it costs you 10% more.
This is the big mistake as amateurs and I would include myself that we make is that we look at the economy as a static set of data and it is not. It’s very dynamic. We say, “Rates are coming down and the income is going up. We can buy everything that we want in the 5th Ward or Kensington. You’ll see it will happen.” No, those prices go up. They keep pace. What happens is even though there will be people who have made a 3.5% increase in their wage and we have a second job in the household, you still won’t be able to get a house because the prices will move up.
You still have to qualify for that underlying mortgage. You still got 24 months to look back. The idea that, “Someone is making more money.” They go buy a nicer house. It’s a year to two years. When Trump came out and said, “We’re not going to raise rates.” There was a spike in mortgage applications. The rate was at a ten-year high. That is a leading indicator and it’s about a 12 to 24-month leading indicator. We’re not going to experience that increase in mortgages, in other words, new home purchases. By new, I mean someone buying a home, not necessarily that the home is new in the next 12 to 24 months. That’s not when it peaks. That’s when it starts. For all of you out there waiting for the housing crash, it’s not coming anytime soon. There’s no piece of data out there. In Texas it’s a completely different story. In California, it’s slowing down a little bit, but California is going to go through a natural cycle long before we do here in Texas. You’ve got about a three-year window. I’m not talking about you flippers and wholesalers because let’s be honest, you’re not investors anyways. Who cares? I’m talking about for those who you want to build wealth. You have a very finite window because real estate is getting so expensive. You will not be able to cashflow. That’s the big problem.There's really only one way to get rich in real estate. It’s through appreciation. Click To Tweet
The issue is the tools you have can’t be equipped for what happens. That’s what we talk in the mastermind because we can bring people in from California, Seattle and Denver who have seen the same trends in their markets and can share with them what is happening, what works in Seattle. Who’s successful in Denver and they can come speak to us and say, “This is what the next 24 months is going to look like.” We’re not teaching you how to put a yellow letter campaign together. We’re not interested in that. We’re not going to hold your feet to the fire if you didn’t make 25 phone calls. You are either serious or you’re not.
We don’t have a call center. We’re calling strangers.
You’ve got to have a decent income. You’ve got to have money in the bank and you’ve got to be able to perform on your credit profile. You got to have a good FICO score. We’re not talking about your vanity score and you got to be going after. Credit might loosen up a little bit, which is beneficial for all of us. That’s what we’re talking about. This is not a fear tactic. If you’re doing pre-foreclosure door-knocking, keep doing that as a wholesaler because you’ll have that forever. There’s always a bit of foreclosure in the marketplace. If you’re looking to buy a portfolio, build out a portfolio, whether it’s single-family, small rentals, Airbnb, small apartments or even large apartments, you have to understand that the market is beginning to shift and there are different strategies that need to be deployed.
Let me tell you how bad it’s gotten because this is the only metric that matters when HAR produces this report. Houses priced between $100,000 and $150,000 have decreased sales-wise by 32%. Those houses that was $100,000, $150,000 houses are $170,000, $180,000, $200,000 and rents are not keeping pace. If you want to be a landlord and you want to build wealth with real estate, your potential investment inventory just reduced by 32% in twelve months. You need to get going. Back to the mastermind and back to this pricing.
The mastermind is $7,500. There’s no negotiating. There’s no blue suit in the back of the room. We’re not pitching $50,000.
Don’t get me wrong, it sounds like a lot of money. I’ll also say, “How much is the semester of college?”
Four gurus are going to teach you a five-year-old strategy.
There’s a guy that is still running around teaching HUD foreclosures. He’s like, “Let’s do HUD foreclosure.” My other favorite one is, “Let’s talk about short sales strategies.” I’m like, “Let’s talk about not doing that.” Let’s learn dentistry in six weeks or less. I think there are easier ways to make money.” Let’s just go on MLS. Let’s go on HAR. Let’s talk to a couple of wholesalers and buy some stuff. How’s that sound? I think we can do that a little bit faster. If you are a brand-new real estate person, you’re thinking about getting into real estate, your potential real estate investment property, stuff at price points.
You’re talking about potential landlords.
If you want to be a landlord because that’s how real wealth is built. It’s not through flipping or wholesaling. If you want to build wealth with real estate, your available inventory has shrunk by 32%. This is why we use strategies. This is why we’re into small apartments because it’s not shrinking that fast. This is also why we’re in Airbnb because typically our properties are a little bit more expensive, closer to medium home price. We’re able to hold onto them for a little bit longer because they cashflow more.
We can ride the appraisal wave for five to seven years versus two to three.
We can ride this thing for a couple more years. Where a house, when we bought it for $140,000, it’s now worth $190,000. Can I hold onto it for two or three more years when it’s worth $250,000? Sell it then and I put $150,000 in my pocket on one single-family house.
The deal we’re doing, if we sell in two years, it’s $75,000.
It’s pretty simple.
We buy it for $25,000. We’ll make our $25,000 back plus another $75,000.
That makes much more sense and let’s move on to whatever the next thing is.
We’re doing a bit of speculation but along the way we’re still making money.
Jordan Peterson, one of the things he says is the most successful among us is bargain with the future. You’re going to have to do that as an investor anyway. We’re getting some cashflow, but where we make our bang for the buck is always on the exit. “There are five ways to make money in real estate.” Technically that’s true. There’s only one way to get rich in real estate and it’s through appreciation. Appreciation will allow you to pay off debt, hold on to things more long-term but it’s the appreciation that allows you to build real wealth. The rest of that stuff is icing on the cake.Understand that the market is going to shift and there's different strategies that needs to be deployed. Click To Tweet
That’s the big thing, it’s the cashflow and the appreciation that we’re going after. Even in small apartments, you may not get a huge appreciation. You will in this market because we’re buying distress. That’s our play and that’s one of the reasons why we get a little frustrated when we hear another lease option guru coming through or another buy and flip guy coming through or the horse lady’s coming back. She can talk about the horses all day long. Talking about cookies and horses in the market where it’s becoming increasingly harder and harder to find a flip. She’ll happily sell you a $20,000 program. We get a little frustrated by that because some of the gurus that come to town don’t know the market and don’t care to know the market. They’re just selling their books and tapes. Even so that what they’re teaching you is how not to be broke.
There’s no wealth getting creative in the flipping wholesaling place.
I get it. I’ve suffered the same thing. I’m still going through it and fixing it all up. It’s all good but you’ve got to absolutely move from that area of real estate into the wealth generation.
I have seen the books. They have shared them with me for most of the biggest flippers and wholesalers in the city and outside of the city. I’m much more familiar with the people that are here in the city. Nobody is getting rich flipping and wholesaling houses. They’re making a great income. I can tell you that. I’m on a secret WhatsApp group where it’s all landlords over 100 doors. Those guys are getting rich. They don’t feel like it because they’re robbing Peter to pay Paul. They bought ten more houses here and five here. Everybody else are doing nonsense to post checks on Facebook and go on goofball vacations. They’re not building any real wealth because a lot of those guys have already shared their books with me.
There’s a big conference that’s talking about scaling your wholesale business. I couldn’t think of a bigger waste of time and money getting better at wholesaling. You need to get better at closing deals that you’re going to hold on to it for at least two years. That’s what you need to get good at. The rest of this stuff is noise and nonsense. You could look cool by posting your checks on Facebook, but that’s not creating any real wealth. Although I always do find that ironic. It’s the check posting thing that I think is funnier than anything else. You’ve posted that great check on Facebook so that the IRS can take half of it. I don’t get it.
Professional ballers, tennis players and real estate investors feel the need to show their paycheck online. If you’re a doctor, it’s like, “I did another liver transplant right here. Check it out.” This market shifting and you and I both were doing fix and flips in this market and we still do one or two. I have a commitment to some people that I have to keep doing some fix and flips. We’ll keep doing them. Wealth is going to be the asset. If you guys are ready for that, then join the mastermind. If some of you are still trying to figure out cash and trying to get some big scores, you want to do some flips and you put a lot of money into those classes already, we totally get it. There’s going to be a natural transition. You’re going to see a lot of people that you see at the rear naturally fall off. There’s a big attrition.
It’s a big two to three-year cycle. These guys disappear. They’re a big-time “wholesalers and flippers” and they’re doing all the case studies and all of a sudden, they disappear in the ether after about two years because the market’s changed and they’re no longer competitive.
For us, we have a path that we think is going to be successful and good for us. We’d like you to come out to the mastermind and checking out. It’s 281-401-9008.
Thanks for reading. We will see you next time.