242 How To Scale Responsibly | Real Estate Investor Show - Hard Money for Real Estate Investors

7 Oct 2022 · Passive Income, Active Wealth - Hard Money for Real Estate Investing

00:26:00

Bill Fairman

00:00:00

Oh, see that. Hey, welcome back. We are going to talk about scaling responsibly. One of the things that we run into is, should you scale in a coming downturn? Absolutely. You have to scale responsibly. We're gonna talk about that right after this.

Bill Fairman

00:00:37

Welcome. We're back here with our take two or question 2.0 with Hunter Big to elevate capital. We're gonna talk about scaling responsible respons. Sorry guys, I'm actually out of town right now, so I'm a little sluggish. Let's get started off with a little bit of housekeeping. Thank you so much for joining us on the Real Estate Investor channel, Hard Money for Real Estate Investors. We are Carolina Capital private lenders in the southeast for real estate professionals. If you have a a project you want us to take a look at, go to carolina hard money.com and click on the Apply Now tab. If you are a accredited investor and you're looking for passive returns, click on the accredited investor tab. Don't forget to like, share, subscribe, Hit the bell and don't forget about Wednesdays with Wendy. Wait. Oh wow. That was quick. That was a nice one. Yeah. Yeah. Wendy, excuse me, gives 30 minutes of her time per person on Wednesday afternoons to talk about real estate. There's the link. It will be in the chat side to the right side of the page or underneath, depending on the pro, excuse me, platform you're viewing us from.

Jonathan Davis

00:02:03

You good there? Yeah, you got all about It's

Bill Fairman

00:02:06

Alright. It's a lot of loans.

Jonathan Davis

00:02:07

It's alright. But yeah, no, Wednesdays Wendy's a great thing. If you want to join on the calendar link, you can do that. You will get something from it. I guarantee you. She has a lot of experience and she will tell you she's made a lot of mistakes. So learn from her mistakes.

Bill Fairman

00:02:24

And before we get started, I wanted to mention the Quest Expo was awesome. If you, you guys didn't get a chance to go, I think you can still purchase the videos from all the speakers that were there. It was excellent event. I think there were over almost 900 people, I

Jonathan Davis

00:02:44

Think 857?

Bill Fairman

00:02:45

Yeah. Yeah. Okay. Well that's close enough to nine. Yeah. Thanks for being so exact.

Jonathan Davis

00:02:49

It's my job. It's his job. Yeah.

Bill Fairman

00:02:52

But there was great information. Excuse me, If you have a self-directed ira or if you don't know what a self-directed IRA is, then there's plenty of implication for that. If you want to go to quest trust.com, all the information is free, so check it out.

Jonathan Davis

00:03:11

Excellent. So we wanna talk about scaling or responsibly. Yes. And what the heck does that even mean?

Bill Fairman

00:03:19

Well, it means getting either bigger or we're Okay. I promise I wouldn't say this, but it's about cleaning your fish.

Jonathan Davis

00:03:28

No bad joke. Yeah, yeah, yeah. But no. So we have Hunter on here with Elevate Capital and since February of 2018, him and his partners have been investing into multifamily in primarily North Carolina.

Hunter Bick

00:03:44

Oh, actually all North Carolina. All

Jonathan Davis

00:03:46

North Carolina. Okay.

Hunter Bick

00:03:46

We looked elsewhere, but

Jonathan Davis

00:03:47

Yeah, you like North Carolina. So they have went from zero doors to several hundred in that time, you know, timeframe.

Hunter Bick

00:03:57

500 ish.

Jonathan Davis

00:03:58

500 ish. It was more, But you just sold 120, didn't you? We did, yeah. Yeah. So they were over 600. So they have scaled in that time period from Jan, from February of 2018 to now on several hundred doors. And to kind of wanna just pick your brain on, what was your thought process like? You know, when you were looking at this, what, like, did, did it feel too much, too little or kind of how, how did you look at adding to your portfolio?

Hunter Bick

00:04:30

Yeah, that's a good question. You know, we kind of, we, we, we've always kind of taken the approach where if this deal makes a lot of sense and we think the upside is large, it's our job to figure out how to get it done. Sometimes that meant buying four things at once. Like there was a day we actually closed 200 doors in one day. Wow. There are other times where maybe we go several months without putting anything under contract. But the va, we knew the value was the value and we were always really confident when we thought we had a really great deal under contract, we had to figure it out. Our approach has typically been, you know, we found so many great deals off market that our approach has typically been how do we keep as much equity as possible? And that often meant hard money, hard money, maybe a debt stack, maybe some investor capital, whatever it was that we needed, we were going to do it.

Hunter Bick

00:05:27

But the first choice was always keep all the equity with a, with high leverage because we knew we were gonna add the value so quickly that we could refinance into permanent debt in six to 18 months, depending on the deal. And, and so the higher leverage was not for us was, was not risky or not scary because we knew it was gonna be very short term and we knew the value was gonna be there. Yeah. And so that's how we've done a lot of our deals. You know, you get to a certain size and, you know, you see more opportunities. And so we are, we are looking, we are kind of getting to the point where we're gonna be taking more passive investor capital to do some of those, some more deals. You know, we do think we're gonna see some really good opportunities here in the next 12, 18 months. I agree. We're getting positioned for that and create a little more, you know, a predictable type of, you know, capital process. Yeah. You know, and with higher interest rates, it's a little trickier these days to count on low interest on a per, on a per loan 12 months from now, which

Jonathan Davis

00:06:31

Is more reason why Yeah. You win when you purchase it. Right?

Hunter Bick

00:06:34

Absolutely. Yeah, absolutely. You know, and so obviously the, the lower the basis, the, the more money you're gonna make and it really is that simple.

Jonathan Davis

00:06:44

Yeah. I wanted to go back, you mentioned debt stack. So for everyone that doesn't know what debt stack is, you have your primary, like first lean position loan, which would be, you know, just your, your, what you would normally get. And then on top of that, you can get mezzanine debt, which can be secured by a second lean or it could be unsecured. And then on top of that you can give up. You, you have equity and then there's multiple levels of equity that you can give up and that just gets, you know, higher and higher. So that's, that's what a debt debt stack is.

Bill Fairman

00:07:17

I I call that a wallet full of credit cards. That's my

Jonathan Davis

00:07:21

Well, and that's how a lot of people

Hunter Bick

00:07:22

Use a lot of those on the way too.

Jonathan Davis

00:07:23

Yeah. That's how a lot of people do this. I mean, like, when you're buying five, 10, 20 million properties, like no one's really using their own money to do that typically. Now they might use some of their money, but typically people don't have $5 million to just say, Hey, let me put it here. And because that, you know, even if they have $5 million, you wouldn't do that. So you want to stack your debt with, you know, mezzanine or, you know, whatever the case may be. A as Hunter said, like their, their whole goal has been to try to avoid giving up equity and you know, why? Well, that's allowed them to capitalize on the back end, on the exit at a higher return, which then, like he said in the previous show, he took the earnings from Applewood and 10 31 them into another project. So it allowed them to buy more assets. It allowed them to scale.

Bill Fairman

00:08:22

And, and as markets change, we, we are in a higher rate environment as well as an environment where credit's gonna be a little tighter for the institutional type blenders. So you have to take on a few more equity partners in order to get these same deals done, because the fact that they're going to be a little tighter on the credit means that they're gonna lend less money on it. Yep. If you do go the mezzanine route with a larger gap or a larger percentage of that, those rates are typically a lot higher. Correct. You're almost better off having an equity partner to fill in that gap than the, than the mezzanine financing am I

Hunter Bick

00:09:04

Agree. Well, it, well, well, depends on a couple. I, I would agree or disagree depending. Right. Every deal is different. Absolutely.

Bill Fairman

00:09:12

Every situation

Hunter Bick

00:09:13

Is different. Absolutely. How long, how long do you need the Mezz debt? Right? Yeah. And or you know, if it's a longer term for construction project on a bigger asset and you're gonna, and you wanna, and your options are take some equity partners versus loaded up with 10% debt, but it's an 18 month project that 10% debt's gonna be expensive for 18 months. Right? Yeah.

Jonathan Davis

00:09:32

And so how long can you negative carry?

Hunter Bick

00:09:33

Exactly. And so you gotta, you gotta factor the negative carry in and all of that. And so equity partnerships become, they become less risk if something goes wrong, you can bring others in to profit along with you, you know, it's important to align incentives at all points, by the way. Yep. That's a huge thing for us. But yeah, so the, and the other thing too, in to your point Bill, and today, today's debt markets, even a year ago, nine months ago, you could get bridge debt for, in the fives five and a quarter, five and a half for 80% of the purchase and a hundred percent of the construction today, that quote is 75% of the purchase, 75% of the construction, and it starts with a nine, right? Like it might be nine and a half. So different types of debt are appropriate depending on the market. Hard money at what, 11, 12? Where are you guys right now? Yeah, something like that. Between

Jonathan Davis

01:10:23

10 and 12.

Hunter Bick

01:10:24

Yeah. Okay. Hard money is now all of a sudden really, really cheap because there's no alter. Well if you're gonna go 75% on bridge at nine and a half, why would you not go a hundred at 11? Like that's a no-brainer. Right. And so, not to mention you don't have the breach debt org structure and all the crap that comes with it. Yeah. So that's, you know, that's a tool that has become more attractive right now For sure.

Jonathan Davis

01:10:50

Well, yeah. When, when you break it down, I mean, someone's gonna do 75 and 75, so 75 of the purchase, 75 with a re that means you have to bring 25% of the costs of the total cost. So typically you're not gonna have that. You're gonna have to either get mezzanine debt or equity, and typically you're gonna give up equity and what is that equity gonna cost you? So when you're factoring this, you're factoring, okay, I'm paying nine for 75% of the cost and then this equity's gonna cost me X amount. And if you can get 95 or 90% loan to cost on, on hard money or private lending at 12 or 10 or whatever the case may be, when you run those side by side, a lot of times the private lending is the cheaper option in the long run. But again, it comes down to the carry. Can you, you know, is there a negative carry? Is there a lease that period? Do you have to get out all the units, you know, flushed out and then rent them all? Can you rent em them as you go? So each one is different, but I will say it debt is always cheaper than equity.

Bill Fairman

01:11:58

Well, yes, I, I totally agree with that. That's what we talk, we talk to people about that all the time. Why do you get a, a money partner who's gonna take half of your equity when you can get a hard money loan and spend, you know, five, 10 grand worst case scenario on your financing on a, on a home Yeah. Scaling. You have to have good systems and processes in place. Do you wanna absolutely. Talk about any, how you guys are doing it?

Hunter Bick

01:12:28

Sure. You know, so I mean, for us, everything starts with, you know, a goodbye. Right. And so, you know, we probably model a hundred deals for every one or two that we buy. I mean, we're super, and, and everything's off market too, so it's not like we're, you know, modeling deals that are on LoopNet or Right. Publicly listed. Like we don't bother

Jonathan Davis

01:12:47

Except that first one.

Hunter Bick

01:12:49

Well, yes, except that first one. But, you know, so, you know, so, so has to start there and like, you ha you just have to be, you have to stick your guns and you have to be super selective because it's very easy to like go through your spreadsheet model and say, Okay, well I think I can whittle the, I think I can get this rental done for 10% less and oh yeah, I think I can get 10% better on my takeout loan or a little bit better leverage. And before you know it, you've just, you know, inch your way, you talked yourself into doing a deal that maybe you shouldn't be doing. Right.

Jonathan Davis

01:13:19

You've modeled a unicorn situation that probably won't

Hunter Bick

01:13:22

Happen. Exactly. Yeah. So we try to, we always, I always try to say, I mean, everything be is a probability again, you know, so what's a range of probabilities for each piece of the process? What's the average, what's the worst case? What's the best case? And if you know, kind of that between average and worst case, if something like that still works, then it, it's, it's gonna be a great deal. If things can go wrong and you still make money, it's gonna be a really good deal.

Jonathan Davis

01:13:47

Do you, when, when you're modeling this, do you stress test them at higher cap rates on the exit? Do you, you know, like let's say like, you know, Charlotte's trading on a B level asset, I don't know, a six cap, do you stress test them at a, at a different cap rate? Or kind of what do you do to to stress test those, those models?

Hunter Bick

01:14:07

Yeah. So the way we kind of look at it, we're less worried about the cap rate because the, the, the, the end result, because we're not doing, we're not doing a new construction, right? We're, we're doing B and C value add and so on, on the takeout. If it's, if, if it's a sell, the NOI is really what's gonna matter, right? That's gonna drive it. And you know sure. If, if, if we have to have a five cap on the finished NOI in order to make any money, like no. Right? Like, I mean, come on. But, so if we're gonna make money at selling it at a seven, it's probably a great deal, right? Yeah. For us, we always wanna see what can we refinance at that? Can we do a cash out or would a refi require cash in? That's what we never want to do. Always. You always wanna cash out or cash neutral worst, you know, worst case for us. And, but the cap rate's not the constraining factor there. The, the cash flow is especially in a low cap rate market like Charlotte, right? So, you know, so yeah, we definitely look at different exit scenarios, like what happens if there's some, if the expenses are actually higher than we're projecting, what does that do to each scenario? But we always wanna have multiple exits. We don't wanna be locked into a one path.

Jonathan Davis

01:15:20

Yeah. And we, you know, for the people out there, if you're working with syndicators or other people who are doing this, you know, that's what you want to be savvy about is understanding the net operating income, understanding that there's a difference between the acquisition capital capitalization rate and the operating capitalization rate and the exit capitalization rate.

Hunter Bick

01:15:40

Yeah. Lemme talk about that real quick. Yeah, go for it. So the acquisition cap rate is I think, a huge misnomer, right? That matters a lot if you're buying a stabilized asset. Like if you're buying an A and you're buying this thing for the cash flow and you're buying it for, you know, market appreciation, call it the going in cap rate does matter. Anything else, like value add, the cap rate means nothing because the whole point is you're buying something that's already distressed. Yeah. So we've bought zero caps, like a, an empty property is a zero cap, right? Yeah. We've bought one caps because the financials were so bad, right? Yeah. That, that means nothing because all we care about is what's the cap rate after we renovate, stabilize, you know, improve the operations, What's that cap rate? Exactly. Because that's what, that's what matters. Yeah. All, all in on, all in on cost. So those

Bill Fairman

01:16:29

Of you in the single family fix and flip business, it's basically what's the place gonna be worth after the repairs your thing? Same, You're not buying a, a property because it's, it's valued at what, what it's the sales price is. That's not why you're doing

Jonathan Davis

01:16:44

Yeah. Yeah. And, you know, just to, to beat the dead horse here, I mean, we've, we've, you know, Hunter and I've had, I don't know how many hours of conversations about cap rates, but

Bill Fairman

01:16:54

I got feeling there were adult beverages involved

Jonathan Davis

01:16:57

Maybe on some of them. Yeah. Yeah. But yeah, it's like people don't understand like what's the most important, is the most important or two things, and Yeah. Excluding if you're buying like an A level asset, which, you know, like that's not what we're talking about here. It is your operational cap, right? What, what is your yield, what is your cash flow? And then what can you, what multiple can you sell that asset for? Those are the only things that matter. Not, it's like, well, I can't buy it, it's a four cap. It's like, that doesn't matter. I mean, if, if you're gonna be putting in $600,000 and raising the rents 200 per unit four cap doesn't matter.

Hunter Bick

01:17:38

Exactly. No, exactly. And that's the key thing a lot of people get tripped up on.

Bill Fairman

01:17:41

Now, as Jonathan was saying, if you're involved in a syndication, you're a passive investor in this syndication, what is it you would like more the sale of the property and get a big chunk of change at the end, or a refinance at the end of the out, and you get a big chunk of change. What's more beneficial

Jonathan Davis

01:17:59

Depends on where you are

Bill Fairman

01:18:00

To the investor.

Jonathan Davis

01:18:01

Well, it depends on what you are. So if you,

Hunter Bick

01:18:03

How good was the buy? Yeah.

Jonathan Davis

01:18:04

How good was the buy? Like, am I willing to pay the, the capital gains on the, on the sale if the buy was good, or would I rather take the no capital gains on a refinance cash out? So it depends

Bill Fairman

01:18:18

That, that was my point. If you get the same amount of money on either end, and if it's a refinance, it's tax free.

Jonathan Davis

01:18:24

Yeah. So yeah, that is true. So if you were an equity member on this property, that's, that, that refinances that is a cash or a tax free transaction that you get. But again, as Hunter, you know, pointed out as someone who does this, what am I selling it for? What did I buy it for? Right. You know, I, I might not mind to pay the taxes if it's

Bill Fairman

01:18:44

At, at the same time, if you're getting a capital gain during the process, you're probably also have some passive losses that you can also add Dang. To them.

Jonathan Davis

01:18:53

Exactly.

Hunter Bick

01:18:53

And the cash out refi for us, I mean that's, that's how we, that's along with, you know, high leverage on great deals. The cash out refi is how we got here. I mean, the cash out refi is the best thing ever. It's non-taxable. You get all this cash back as long as the property can support the new debt. And if it can't, then you haven't done your job. Right. But it's tax free dollars to go do, do go do more deals. And that's, it's, I don't know how many great cashout we're gonna see for the next 18 months, but thankfully we got most them done. But Yeah, prior to now,

Jonathan Davis

01:19:27

Not on the ones that bought Yeah. You know, Yeah. Two years and less ago. I mean, that's, that's gonna be tough.

Bill Fairman

01:19:32

I don't think the cash out's gonna be the issue. Is it, will it support the loan? New loan?

Hunter Bick

01:19:37

Yeah. Well it's, yeah. I mean, the ca you can, the cash out still exists. It's just not gonna be as good.

Jonathan Davis

01:19:41

Yeah. The, the debt service coverage ratio is gonna be a big issue for, you know, and that's just how much does gross does the property make? And then how much does it spend on interest principle taxes, insurance, and any HOA fees.

Bill Fairman

01:19:55

But it's not the end of the world either cycles or just that they're cycles. Would

Jonathan Davis

02:20:00

You say that cycles are cyclical? Yeah. Yes. Okay.

Bill Fairman

02:20:04

The lower rates will come back around at some point.

Jonathan Davis

02:20:07

Yeah. Yeah. I mean, yeah. I mean, like I said, you know, talking with different people, I mean there, there's some people who think that, you know, it's all over. It's, yeah, it's all over. And for the next 20 years it's just gonna be, you know, a blood bath. And then there's some people who think, Oh, you know, January of next year fresh start, we're gonna be great. And you know, I think neither one of those are right. I think we're between those two where exactly. You know, that's the question. But, but yeah. I mean, when we talk about scaling, like right now, in the next 18 months, are you excited about scaling or are you nervous? What's your thought process for the next 18 months? We're

Hunter Bick

02:20:47

Always excited. Yeah. You know, I think for, for different reasons, depending on, you know, what the market gives you. I mean, you have to be able to adapt to what the market gives you. Right. No one's smarter than the market, and I don't try to pretend that I am, but I do try to be prepared for different eventualities. And so, you know, right now it's harder, debt is more expensive, it's harder to get that huge cash out after the value add period. Yep. Okay. No problem. So the, the move there is probably more equity, a little less debt on, on, on the buy simply because you don't know when you're gonna be able to get to, you know, 4% per debt again. Yep. That could, that could be a while. So bringing in equity investors to participate is, is, is, is, is, it's a good way to handle that.

Hunter Bick

02:21:35

Staying, staying sticking to our guns on good buys is more important than ever. Yep. And maximizing the value of the properties. You do have, I mean, we're still an 11% rentre renting Charlotte's environment and Charlotte, even Fayetteville, seeing huge fayville, seeing huge ones. So as owners of multifamily real estate, you know, that for properties are already in low interest debt that is going to benefit us if more cash flow from those, it allows you more, you know, buffer, you can deploy that toward new deals. You just have to, you can't assume that what you did before is gonna work forever in any business. Yep. Especially this one. But you

Jonathan Davis

02:22:12

Just, you just adapt the dumbest sentence in the English language is that's how we always have done it. Isn't,

Hunter Bick

02:22:18

I think that's Oh, it's terrible. Yeah. Yeah. Like, you know, you have to, you just have to be realistic about, well,

Jonathan Davis

02:22:23

We talk about pivot, and you have to be able to be nimble and pivot. I mean, so to back up on the equity piece that Hunter was talking about, why is that so beneficial and how can that help you scale? Well, equity, true equity, if, if you're giving up equity as like a, an lp, which is a limited partnership, so you have a general, general partner, and then you have a limited partner. When people invest into multi-family as an equity member, they've become a limited partner. And the general partner is the operator would be, you know, Hunter in this case. How does that help you scale? Well, the debt is a fixed monthly or quarterly or however it's, you know, amortized, it's a fixed payment and that payment is the payment, and it is every month or every quarter with the equity, you can set a lower preferred rate of return with your equity members.

Jonathan Davis

02:23:13

Like maybe they're okay getting 4% cash flow over the life of the, the project because they're going to get depreciation and maybe that depreciation equates to an 8% return on top of the four, and that gets 'em to 12. And then there's a, you know, a backend equity piece that they get and it jumps into 20, like a 20% irr. So, you know, like there's, that's the way to do it. It, it helps you on the cash flow, it helps you manage that asset while you're working on it and while you have it in your portfolio. And it gives them a benefit, you know, they get some money, they also get a tax benefit, and then they get a back end benefit.

Hunter Bick

02:23:52

And it also allows you too, to, you know, one thing we always do, incentives are super important. You know, you want s to be a hundred percent aligned. What we typically do is, you know, we waterfall the equity, in other words, so like outta the gate, our investor would have, like, we did one where our investor had 99% of the equity until we performed. We have no problem with that because we knew we were gonna perform and then they're protected in case something goes wrong. And I think that makes a lot of sense, and we're more than happy to do that. Of course, once a threshold is met, well then the equity changes. But everyone's made their money at that point.

Jonathan Davis

02:24:23

And so, and anyone out there syndicating deals right now where you're an lp, is your GP willing to give you 99% of the, the equity until they perform? If they don't, maybe you should visit elevate capital group.com. Appreciate,

Bill Fairman

02:24:40

And keep in mind too, multifamily is vet as recession resistant as you can find. It's residential in any economy. Again, you need two things, food and shelter and

Hunter Bick

02:24:51

The foreclosure rate for B and c multifamily in peak financial prices, 2009 was less than 1%. I mean, yeah, that's, yeah, that's about as good as it

Bill Fairman

02:24:59

Peak need a place to live.

Hunter Bick

02:25:00

Nothing is bull, nothing is perfect. But yeah, multifamily, real estate's pretty

Jonathan Davis

02:25:04

Resilient. 1%. And you'll, you'll play those all the time,

Hunter Bick

02:25:06

All

Bill Fairman

02:25:07

Day long, just like the base.

Hunter Bick

02:25:08

Exactly.

Jonathan Davis

02:25:09

Yeah.

Bill Fairman

02:25:10

All right folks, thank you for joining us on the Real Estate Investor Show. We are Carolina Capital Management lenders in the Southeast for professional real estate people's. If you have a pr, if you have a project you'd like us to take a look at, go to carolina hard mini.com, click on the plan out tab. If you are a passive investor looking for passive returns, go to the Accredited Investor tab. This is a great show. Thanks again, Hunter, for being our guest today. And we guys, we, we will see you next week. Thanks.

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251 Plans & Goals For 2023: Real Estate Investor Show - Hard Money For Real Estate Investors
20 Dec 2022· Passive Income, Active Wealth - Hard Money for Real Estate Investing
Bill Fairman (00:01):

Hi, folks. This is the time of the year that you hate. It's called Setting Your Goals for 2023. We're gonna have more about that right after this.

(00:33):

Thank you for joining us on the Real Estate Investor channel, hard Money for Real Estate Investors. We are Carolina Capital Management private lenders in the Southeast for real estate professionals. If you have a project you'd like us to take a look at, go to carolina hard money.com and click on the Apply Now tab. If you're a passive investor looking for passive returns, go to the accredited Investor tab. Oh, and you must click it as well. Don't forget the like, share. So subscribe. Hit the bell, sit there and look at it. , don't forget, Wednesdays with Wendy. Wendy sets aside 30 minutes per person to talk about anything real estate related. On Wednesdays, there's a link to get on her calendar. She's typically booked up pretty far in advance, so get in while the giddings. Good.

Wendy Sweet (01:36):

excuse me. So Wendy, you had the Quest Con thing, and I'm pausing, I feel like the president when I'm reading a speech pause here,

(01:59):

.

Bill Fairman (02:01):

So tell us about it. How'd it go?

Wendy Sweet (02:04):

It was a great, it, the whole event was incredible, but the panel was terrific. I was just so honored to be with the two panelists that I was on there with, that their, their brains are incredible. What was really cool is that were all three lenders and we all three underwrite a little bit differently. And, and that's really what we talked about were the, the different things that we look at. So you can still buy a recording from that event, so it's worth it. If, if you do that, it's well worth it.

Bill Fairman (02:40):

Is there a URL that you know of where people can

Wendy Sweet (02:43):

I'm sure there is one, but No, I don't know of it. But if you get on Quest Con Live 2022 on the, of course the internet Googles it, as we say. Well,

Bill Fairman (02:56):

I'm, I'm pretty sure it'll materialize

Jonathan Davis (02:58):

In our comment section.

Wendy Sweet (03:00):

That's exactly right. . But that'll, and, and then you can buy it at a discount too with Carolina 15, I believe is what we had that I'm sorry,

Bill Fairman (03:11):

I said sweet. Yeah,

Wendy Sweet (03:12):

That's

Bill Fairman (03:13):

Me,

Wendy Sweet (03:13):

Not you. Sweet . Well, I, you know, it, it pains me to see you guys with that background of, you know, the beautiful

Bill Fairman (03:23):

Tropical, tropical

Wendy Sweet (03:24):

Plant. Sure. Yeah. It's cold here.

Jonathan Davis (03:27):

It was, it was really tough to set out there this morning.

Wendy Sweet (03:32):

I feel bad for you

Jonathan Davis (03:32):

Guys barefoot while, you know, the sun, you know, was just beaming over the water.

Wendy Sweet (03:38):

Just amazing how you guys constantly just take it for the team.

Bill Fairman (03:41):

,

Wendy Sweet (03:42):

,

Bill Fairman (03:42):

Those who don't know, we're in Fort Lauderdale at the family office event. Yeah. It's called the Family Office Club. There's ultra high net worth individuals office here. Yeah. there's institutional investors as well as people that are trying to raise capital and people who are trying to deploy it.

Jonathan Davis (04:01):

One of the great things, if, if you are interested in learning how to talk to or approach family offices, this is a great event because there's many panels with the, the managing partners of those family offices, setting there, telling you what they're looking for and how they look at things. So it can give you an insight into how to approach a family office, which is, which is is a great resource for a lot of people when you're looking f to, you know, a little bit more than buying or selling one or two loans, you know, kind of scaling.

Bill Fairman (04:35):

Yeah. Quick tip. One pager and a one liner on what you do. They don't wanna see a whole blown out email your slide deck and all that. They're not gonna look at it to get inundated with stuff.

Wendy Sweet (04:46):

Awesome. To explain just for a quick second, what a family office is, because many people may not know.

Jonathan Davis (04:53):

Yeah. Family office is just it's a aggregation of family a family or multiple families. and they typically have a minimum of 10 million net worth.

Wendy Sweet (05:07):

well jump change.

Jonathan Davis (05:08):

Most of them are probably closer to the a hundred million plus smart, but minimum of 10 million to kind of make the metrics work to start a family office. And it basically just helps you propel your wealth forward through multiple generations so that you can create a legacy. I mean, that's really it.

Bill Fairman (05:29):

Well, most, most people that are in a family office or at start one, they want the money to last at least five generations. Mm-hmm. and unfortunately ultra net, high net worth families tend to run outta money in three . So it takes planning,

Jonathan Davis (05:52):

A lot of planning, a lot of money, but yeah, no, it's, it's great to, to be here. we've enjoyed a lot of the connections and conversations and, and really the insights, I mean, on how to capital raise and how these, you know, we, we sat in on a panel with six different family office members, and they were judging and rating the one liners and the one pagers that were submitted. And it's so, you know, it's so interesting because you would get ranged from, oh, a scale of one to 10. Someone would give it a three, another person would give it a nine. Huh. And it's, and it's, and it's because it's just knowing who you're talking to because like, a family office isn't a family office isn't a family office, they're all different and they're all looking for different things. So it's just knowing who you are, knowing your voice and setting it for that. and, you know, that's, that's really it. And just being clear and concise. Yeah. Like Yeah. Oh, a one-liner should be a one-liner, not a one paragraph or .

Bill Fairman (06:50):

It was funny, they were judging this one that took up the whole freaking slide and it was supposed to be a one line. Yeah. And it just went on and on and on. And the, the guy's holding up a three, he goes, yeah, you could have stopped after the first four words.

Jonathan Davis (07:06):

. Yeah. So it's, it's, it's been insightful. So really good, you know, and the weather makes it a little more enjoyable. Yeah.

Wendy Sweet (07:14):

four guys.

Bill Fairman (07:15):

Yeah. Here's how I suffered. I had to come here and get into a t-shirt because I had already soaked through my dress shirt. Had to take off my sport coat because it was so hot walking over here. . Wow. Yeah. Isn't that awful? Yeah.

Wendy Sweet (07:28):

That really is.

Jonathan Davis (07:30):

Well, and to, to segue this, you know, a little bit into what we're talking about goals. So one of our goals is to, you know, partner up or source more capital from mult or from family offices. So that's why we're here to learn how, you know, how they think, what they're looking for. Right. Because that's part of our long-term goal.

Bill Fairman (07:50):

Right. Right. Good, good segue. Yeah. All right. Before we get started with goal setting, however, we do have a little bit breaking news talk about, and when I say a little bit, I mean a little bit haven't been keeping up with the news much this week, but I did see that the consumer price index, CPI and the ppi, that's the producer price index, all came in this week. And I'm not giving you exact numbers, but I can tell you that they were less, a little less than expected mm-hmm. , which is better

Wendy Sweet (08:37):

Than expected.

Bill Fairman (08:38):

Yeah. Less inflation than inspect than expected. Right. And it, it's kind of given us an indication that maybe we've kind of hit the, the peak and hopefully it's going down from there.

Wendy Sweet (08:54):

Can only pray fairly,

Bill Fairman (08:56):

Excuse me, fairly certain that the Fed raised the rate another 50 basis points today mm-hmm.

Jonathan Davis (09:05):

, and you know, it's not, you know, I, I got a nice little headline. what is it? The, the, the buying sentiment. So people who believe like now is a bad time to buy has reduced, it's reduced from 80% of people think it's a bad time to buy down to 79

Bill Fairman (09:27):

to buy what?

Jonathan Davis (09:29):

To buy real estate single family, like they're primary residents. Yeah. Yeah.

Bill Fairman (09:34):

Well, also it has to depend on people, you know, what are they doing with their next house?

Jonathan Davis (09:40):

well, yeah. The people who wants to sell, and

Bill Fairman (09:42):

If they're, if they're moving up or they're having to change jobs and or they don't have any choice if they're changing jobs and they have to move. Yeah.

Jonathan Davis (09:50):

Well, the, the, the sentiment of selling, the percentage of respondents who said it was a good time to sell increased from 51 to 54%. So 1% people think it's or, you know, there's, you know, better time to buy and 3% think it's a better time to sell. So maybe it's starting to move in that in a good direction.

Bill Fairman (10:12):

I think it's, prices come down a little bit, that'll change, but it, it's really all gonna be reflected in how much can I forward per month. So it really has a lot to do with interest rates. Interest rates come down

Jonathan Davis (10:25):

$900 more per month is what it costs

Bill Fairman (10:28):

You. Yeah. So we, we've already proven it doesn't matter how much the house cost, it's how much can I forward a month? Mm-hmm. .

Jonathan Davis (10:34):

Yeah.

Wendy Sweet (10:34):

What's, what's the cash flow too?

Jonathan Davis (10:36):

Well, on the assessment side. Yeah. What's, you know, what's, you know, what's the house produce. Yeah. So, I mean, and that's, you know, we, we, we beat it into the ground all the time, but it's, you know, it's not what you sell the house for. It's what you buy it for. So yeah, there's still good deals out there. You just have to find the right motivated buyers and or Right. Motivated sellers rather. And, you know, apparently there's being a few more of those popping up.

Wendy Sweet (11:01):

Well, as a matter of fact, I, I've had deals literally dropping in my lap just this past week. and it's just a amazing how it really just flipped and flipped so quickly. That's amazing and exciting. And I mean, and they're deals, they're,

Jonathan Davis (11:20):

You're getting these from wholesalers who have had, you know, someone fail to close or, or how are, how are you sourcing these, or how are they dropping in your lap?

Wendy Sweet (11:27):

Well, you know, when you're in the lending business, you kind of hear about deals first. And when people are backing off of them and don't want to buy them, you know, they're wholesalers are just reaching out to anybody else just so they don't lose the contract. Yeah. so, so, you know, a lot of that tends to, tends to occur pretty quickly. but just people, I know, people I've been talking to saying, Hey, if you wanna sell it, I'm interested. And it, it's amazing how that's, how, how it's really changed. Like, I have three of 'em sitting here for, for this week that that I'm pretty excited about. And Don Harris says he's a hundred percent ready either way. I love that. .

Bill Fairman (12:13):

So we, Don's always that way.

Wendy Sweet (12:15):

Yes, he is. And he is al he's always ready to go and ready to perform. We love Don Harris.

Jonathan Davis (12:22):

Oh, well.

Bill Fairman (12:23):

So let's move on into our segment for this week. it's best time of the year when you wanna start setting up your goals. you know, we'll have our annual meeting in January mm-hmm. , but, and each year we, you know, we're setting up goals for the, for the upcoming year and, and you need to do that. Mm-hmm. , I know. It's, it really is a pain. People hate it. Well, most people hate it. There are people that love setting goals. I'm not one of 'em .

Wendy Sweet (12:55):

I like it.

Jonathan Davis (12:57):

I like it too.

Wendy Sweet (12:58):

I like having a target.

Jonathan Davis (12:59):

I mean, so, I mean, I'll, like last, last year when we set the goal of, we wanted to fund 50 million in, in loans, and we set that in, when did we set that? Jan? It was right around January. Mm-hmm.

Wendy Sweet (13:13):

the beginning.

Jonathan Davis (13:14):

And we're like, and yeah. Remember, do you remember that meeting? I

Wendy Sweet (13:17):

Thought you were

Jonathan Davis (13:18):

Nuts. You, you were like, you, you and everyone else were like, oh, this is crazy. We're not gonna hit,

Wendy Sweet (13:22):

There's no way. Why are we setting it up so high?

Jonathan Davis (13:24):

Because the, the, that year prior, we had just closed out at 33 million I think it was. That's right. 3 million. That's right. And they're like, we're, we're not, like, you're not gonna increase by 50%. Come on now. so, you know, it was like, you know, we'll, we'll set it. and then we're closing out this year right. At 80 million.

Wendy Sweet (13:42):

Yeah. That doesn't suck.

Jonathan Davis (13:44):

Yeah.

Bill Fairman (13:45):

So we were sandbagging

Wendy Sweet (13:47):

. Yeah. Jonathan, what were you doing, ? Well, the thing is, is, you know, and, and we should, you know, we're talking about this, but we should let people know we had an additional stream of income through a long-term product mm-hmm. that we didn't have the previous year. We were actually had just started a previous year, and that's really what we were thinking or what you were thinking when you came up with that 50, 50 million to be funded. So that did occur mm-hmm. and did make a big difference. But the over and above didn't come from that. It came from really a different portion or a different segment of an asset that we really got much more into. And that's the small commercial type loans that we were doing.

Jonathan Davis (14:34):

So, you know, to, to break it down, we've, you know, we did 30, 33 million last year in total originations. And if we break it out for this year, of that 80 million, 45 million is our short term construction fix and flip, small balance commercial. It's not the, the long term loans that we added. So we almost hit 50 million with just what we do on the short term side. Right.

Wendy Sweet (15:05):

Right.

Jonathan Davis (15:05):

Phenomenal.

Bill Fairman (15:07):

And if rates hadn't gone up in the middle of the year, we had really blown it out of the water.

Wendy Sweet (15:11):

Yeah. That's,

Bill Fairman (15:12):

That's it really slowed down that that revenue stream because everybody kind of paused on, you know, longer term stuff Yeah. Thinking it was gonna go down, or I don't know what they're thinking.

Jonathan Davis (15:24):

. Yeah. Well

Wendy Sweet (15:25):

That's, that's one of the things that a lot of, some of the other companies, other, other hard money lenders or private money lenders are running into that we're depending on those long-term D S C R products to grow. You know, they did really well this past year too. A good majority of them are now out of business because those programs have been pulled. So I mean, that's a great example of, you know, be careful what you're concentrating on. You have to have the multiple streams mm-hmm. of income to be able to, to, to turn that ship when it, when it needs to be turned. And, you know, I'm, I'm very interested in seeing what's gonna happen, especially in the first quarter coming up because it, it, from how it looks to me is we're just actually getting back onto the normal track of what it was two years prior, which is, you know, it's gonna slow down in the winter, the middle of February, light turns back on and things start to sell again. So I'm interested to see if that's the path that we're back on. It appears to be, but you know, our, our site is so short in front of us at this point that it's really a week to week. We don't know what's really gonna go on, but that's kind of what we're planning on. That's what we're hoping on and planning on.

Jonathan Davis (16:46):

Yeah.

Bill Fairman (16:47):

And just to make sure that we keep with some additional revenue streams. I run down to the stoplight in front of our office at lunch, and I clean people's windshields.

Wendy Sweet (16:57):

got that big cup that says raising funds, , we'll work for Food .

Bill Fairman (17:05):

We're, we're trying to grow that part of the business. .

Jonathan Davis (17:09):

Yeah. I mean, but you know, part of, you know, our goal setting and part of our, just our overall goal is that we want to be as much as we can be in control of our destiny and in control of the returns to our investors. now, you know, Wendy alluded, you know, these people who are going out of business on these DSCR R loans and other, other brokering, they're dependent on somebody else to say yes or to, you know, here's the funding, here's your line of credit, what have you, you know, warehouse facility, whatever it is. when you, like, for us, when we run it through a a fund model, we are in control of those funds and how they're allocated out, which also allows us to control the returns back to our investors. So, you know, while these people are dropping on the D S C R programs and either other, other short term programs, we're still able to keep moving forward lending and while also getting outsized double digit returns to our investors.

Wendy Sweet (18:17):

Right.

Jonathan Davis (18:18):

So it, like, that's one of our goals and always has been. And that goal has, and I think a lot of people's eyes made us s kept us smaller than other people. Mm-hmm. . Mm-hmm.

Wendy Sweet (18:32):

.

Jonathan Davis (18:33):

But right now, I'd rather be smaller. I

Wendy Sweet (18:35):

Smaller and solid . That's, that's the key. You know, the other thing too that I think will pertain to a lot of people that are listening is, you know, not only only are we pretty vanilla in our lending category, but but solid in that. But personally, our, our personal investments with the self-storage mm-hmm. and single family long-term rentals are, you know, we've been building that as well. you know, all of us individually, whether it's 30, 60, 90 days or long term or, or you know, Airbnb, whatever, whatever those models are, and we do all of those. it's, it's important too that we stay diverse in that market as well because you have to jump from what's hot to what's not

Jonathan Davis (19:33):

Mm-hmm. . Well, and you have to, you have to be able to move, but all within the scope of what you're, of, of your expertise and your lending, you don't want to just be jumping from place to place. you know what, what Wendy's saying is, you know, you wanna move, you have, you have a couple different buckets that you have, and sometimes you fill one bucket, you know, halfway, and sometimes you fill the other one up all the way, and you just move between those, depending on what the market's doing, they're both your inside your wheelhouse. You're not just trying to go find a different bucket that you've never done before.

Wendy Sweet (20:05):

That's right. Right. You know, I, I'd like Scott's question over here, you setting weekly, monthly, annual multi-year goals? And the answer to that is yes. Absolutely. we, we meet quarterly to change to, to evaluate and change any goals or adjust goals that we may have. We also meet monthly, you know, for, for our financial and our dashboard to see what's going on there. And absolutely, we go multi-year. We have a three year target. We have a one year target, we have a three year target, we have a five-year target. And, but that target's always moving because we have to adjust with what's going on in the market.

Jonathan Davis (20:47):

Yeah. And, oh, bill,

Bill Fairman (20:49):

I was was gonna say,

Jonathan Davis (20:50):

I can fill him, just,

Wendy Sweet (20:52):

It's amazing. He hasn't talked ,

Bill Fairman (20:54):

, I'm learning. So you have to get, you can get very granular with this too. So, you know, take that year end goal and then break it down into 12 months, what you have to do to achieve that, that goal. And it's easy to go backwards once, once you set the goal, then figure out in smaller segments what you have to do to achieve that number. Mm-hmm. , I, I want to talk about the, the book the Gap and the gain. And I'm sorry, I didn't have the author pulled up right in front, but while I'm doing this the, the basics of the book, the gap in the gain is that not enough people celebrate the smaller achievements. They'll set a goal, and I'll give you an example. Let's say your goal is to walk to the horizon. Well, we know you can continue to walk to the horizon and you're never gonna get there, but when you turn around and look behind you, you've seen the progress you've made so far, and you need to celebrate those wins. thank you Scott . So Dan Sullivan and Benjamin Hardy,

Jonathan Davis (22:09):

I would, you know,

Bill Fairman (22:10):

I, funny enough, Benjamin Hardy was the, the keynote speaker at CG this past couple of weeks ago.

Jonathan Davis (22:18):

I was just gonna say my commentary on, you know, setting the goal for the horizon and looking back to, to appreciate all, you know, that's actually, you know, setting an unattainable goal and looking back and seeing how you can never get there. Like you just saw all your failures when you look back,

Bill Fairman (22:32):

, , no, because you have progressed quite a bit. It, it just hadn't gotten to you that particular goal that you have. But this is a, a great short read, and I recommend it highly if you are into audible, like I am. It's a couple of trips to working back .

Wendy Sweet (22:52):

Yeah. Well, you know what I like too, Jonathan, that you brought up failures. I hate to use that word failure. because really it should be something that's a learning lesson. And so many people think that failures are, are bad.

Jonathan Davis (23:12):

No, they're

Wendy Sweet (23:12):

Great. They're a great opportunity to learn and to move forward and to be more cautious. you know, we had, we had issues from December s 2017 through the entire year of 2018, having to take back a bunch of houses and all the disposition. And Don Harris was a big help in, in making that happen for us in on the good side when we were recovered . But it, it's it's been the best lesson that I walk with every day, you know? Really, really I, I refer to it every day in my brain, you know, how, what, what did I do then that we need to change now? Mm-hmm. and, and so, so when you have these meetings, going back and looking at, at your, at your wins is important, but looking at your losses and scars are really important because that's what will make you so much better. It's like shooting for the stars and coming up short, but you hit the moon. I love that.

Bill Fairman (24:17):

Good job, Ron. that's why we call it failing forward. Yeah.

Wendy Sweet (24:21):

Yeah.

Jonathan Davis (24:22):

I mean, every, everything is what you make of it. I mean, you know, every experience that happens, you get to choose how that shapes you. It can be your destruction or it can be a per, like propulsion forward. Just what do you want to, what do you want? How hungry are you? how, how important is that goal? you know, and one of the things that, that we do and I think a lot, I hope a lot of people do, if you don't start, is when you set those, like, know what you're like, we'll talk about lending or, or real estate investing. Know what you want to invest in and don't deviate from that. Right. Right. You know, like, like put it, you know, put it on your whiteboard, whatever you need to do to help it stay in front of you. Like keep it there because you don't want to deviate from that. Because as you start to deviate, not only do you, you lose your goal inside of your goal and achieving it, you also find yourself in riskier unknown waters. So stay, write your goal down. Write what the asset you're after or, or the mechanics of that asset and how you want to achieve it, and then keep it in front of you every day.

Bill Fairman (25:30):

, there was a, a panelist today that was asked the question in, in real estate investing, there's so many things you can get into and clogs your brain. And you guys stay on track. And the one guy said two letters, N and o learn how to use 'em together. Yep. .

Wendy Sweet (25:52):

That's exactly right.

Bill Fairman (25:54):

So said. it's important to set goals. If you don't set goals, guess what? You'll never achieve any of them. The map

Jonathan Davis (26:04):

. That's right.

Bill Fairman (26:05):

You do need a rudder. we highly recommend the EOS system for those who are in business, even if you're just one person or a three person shop. Mm-hmm. , it helps you set up matrix that you can follow KPIs. So you know, when you've you know what data to look at and see how you're achieving your goals.

Jonathan Davis (26:29):

What's KPI mean?

Bill Fairman (26:32):

I forget

Jonathan Davis (26:33):

Key performance. Thank you. Indicator.

Bill Fairman (26:35):

I

Wendy Sweet (26:36):

Knew it was, and then, and then that book to learn about EOS is by Geno Wickman, and it's called Traction. Yep.

Jonathan Davis (26:43):

Yeah. Traction. Very good stuff. Yeah. I mean we would love to know kind of your all's goals if you wanna set 'em in the comments or, or, or shoot 'em to us directly. We would love to know that because we would love to be a part if there's a way, you know, your goals helping us achieve our goals.

Bill Fairman (27:01):

Mm-hmm. . And by the way, with that yep, there

(27:05):

It is. We can help hold you accountable if you, if you send them out to us and we put 'em out here in the ether then you have to keep up with them, right.

Wendy Sweet (27:14):

Or you sign up with the Wednesdays with Wendy. We can talk about your goals and Yep. And you

Jonathan Davis (27:21):

Get together all the time, don't

Wendy Sweet (27:23):

You? All the time. Yeah.

Bill Fairman (27:24):

Yeah. So we talk about be Hags, which is your big, hairy, audacious goal.

Wendy Sweet (27:30):

That's right.

Bill Fairman (27:31):

Let's hear what your be ha is and we'll, we'll make sure to help hold you accountable to 'em. All right.

Wendy Sweet (27:38):

Awesome.

Bill Fairman (27:39):

You good?

Wendy Sweet (27:40):

I'm good. Are you good?

Bill Fairman (27:42):

I'm, I'm, I'm really good.

Wendy Sweet (27:44):

. You're better than me. You're in 80 degree weather. .

Bill Fairman (27:49):

Yeah. I'm not coughing as much, so that helps.

Wendy Sweet (27:51):

That's good.

Bill Fairman (27:52):

All right, now I said

Jonathan Davis (27:55):

That, that Uhhuh.

Bill Fairman (27:58):

All right. folks, thank you so much. hope this was helpful. we are what are we,

Jonathan Davis (28:07):

Carolina

Bill Fairman (28:07):

Capital Manager. Yeah, I know. I'm trying to do the, damn, what do you call it? No, I'm not doing that one. Thank you so much for joining us on the Real Estate Investor, show Hard Money for real estate Investors, . Now we are Carolina Capital Management private lenders in the Southeast for real estate professionals. If you would like us to take a look at one of your projects, go to carolina hard money.com. Sorry, I didn't mean to mess you up, Scott Carolina hard money.com. Click on the Apply now tab. If you're a passive investor looking for passive returns, click on the accredited investor tab. Don't forget to like, share, subscribe, hit the bell. See you guys next week.

Wendy Sweet (28:47):

Thanks.
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250 Issues & Anomalies: How To Figure Your Daily Challenges | Hard Money for Real Estate Investors
16 Dec 2022· Passive Income, Active Wealth - Hard Money for Real Estate Investing
Bill Fairman (00:01):

Greetings, everyone. We are live. Thank you for joining us. Wendy will not be with us today. She is currently at, I don't know, 30,000 feet on, on an airplane. So we're gonna talk about the year end review, even though the year isn't over with yet, but I don't know what much more will transpire between now and the first. So we're gonna, I'm do a, I'm, we're in a review today and we'll get to that right after. It's funny, that graphic we're showing the, the passive income gang. Yeah. With all the money flying. I'm going, that looks kinda active to me. ,

Jonathan Davis (00:59):

He makes so much money passively, he just actively throws it away. Is that what Yeah, I guess that's

Bill Fairman (01:03):

The, so by the way, welcome to the show. We are what is the name of the show? I keep forgetting? It's real estate. Real Estate Investor Show Hard Money for real estate investors. We are Carolina Capital Management private lenders in the Southeast for real estate professionals. If you have a project that you would like us to take a look at, please go to carolina hard money.com. Click on the apply now tab. If you're a passive investor looking for passive returns, we have a place for you as well. Click on the accredited investor tab. Don't forget to like, share, subscribe, hit the bell. And don't forget about Wednesdays with Wendy, since this is Thursday. She's not here. . So Wendy Dev devotes 30 minutes per person on Wednesdays to talk about anything real estate. Yep. She's usually booked up in advance quite a bit. So there's a link to get on her calendar.

Jonathan Davis (02:07):

Yeah. She's usually a month or two out. Yeah.

Bill Fairman (02:09):

Yeah. Take advantage of it.

Jonathan Davis (02:11):

Mm-Hmm. . Absolutely. Well, a month in review, or a month in review, A year in review, that's even worse. But

Bill Fairman (02:18):

First

Jonathan Davis (02:18):

Yeah.

Bill Fairman (02:29):

I always like freaking out our production group.

Jonathan Davis (02:31):

I love that. Yeah. I mean, we'll, we'll get to the, we'll get to the breaking news in a second. But yeah, I mean, just kind of a, an over overarching cap. Like we

Bill Fairman (02:39):

Had a lot

Jonathan Davis (02:39):

Going on this year has been Wow. It's just, you know,

Bill Fairman (02:44):

Yes.

Jonathan Davis (02:45):

Not to, you know, the same, the same investor loan that would've captured over 4.1% in January is capturing an 8.7% rate in December. I mean, it's, that's a big swing.

Bill Fairman (02:58):

Yeah. And if you're, you know, if you bought a piece of property and before you get it finished and then the numbers don't work out for you mm-hmm. you're gonna have to readjust. Yeah. Obviously.

Jonathan Davis (03:10):

Yeah. I mean, I think the, you know, if you, you know, $400,000 investment in house, you know, typically, you know, you need about $1,800 of rental income at a three and a half percent rate to cover it. And with the rates jumping where they are, and now you need $2,700 in rents to cover the, the payment Yeah. Rents while increasing didn't increase that much. Right.

Bill Fairman (03:34):

And they will eventually. But, but do, do you wanna lose money until then? No, you always have to have cash. It has to cash. Even if it's only $200 a month.

Jonathan Davis (03:48):

Even if it's only $50. I mean something, you know, 200 is better than 50, but Yeah. Don't have a negative cash flow. Yeah.

Bill Fairman (03:55):

But like I said, in the long run the rents will eventually outpace. Mm-Hmm. And then, you know, at some point rates should come down and then you can refinance and improve that.

Jonathan Davis (04:09):

I love the certainty of the wood. Should makes me not think of that. Never know. What's that phrase? Don't should all over me.

Bill Fairman (04:16):

Don't shit all over me. It's nice. All right. But before we get to this year end review we have a little bit of breaking news. I a little, oh, the corner. You guys can't see it from here, but we got an emoji of Oh my gosh. What are you talking about,

Jonathan Davis (04:46):

? Well, so, you know, not necessarily breaking, but you know, it's news nonetheless. What is interesting is the days on market or the inventory market in, in a single family is 1.6 months for October for the prior month, which is almost,

Bill Fairman (05:07):

That's not even close to normal,

Jonathan Davis (05:08):

Not even, but for the last five years, that is the lowest days on market for the last five years.

Bill Fairman (05:18):

Is that nationally?

Jonathan Davis (05:19):

Yes. Nationally for the last five years. So that even, even with what we're going through, higher interest rates, low, you know, low supply, we still, you know, loans are, houses are still closing and they're closing fast.

Bill Fairman (05:34):

So as we always say here, a stable market is six months worth of inventory. Mm-Hmm. . And so now we're talking about still less than two months. Yeah.

Jonathan Davis (05:42):

Yeah. Absolutely. also, you know, you know, just wanna throw out North Carolina, Charlotte, and Raleigh they made it into the top 10 best markets for growth for multifamily and single family. So looks like Raleigh Raleigh came in at nine and Charlotte came in at seven. Wow.

Bill Fairman (06:06):

Yeah. Well that just goes to show you all the people that are migrating to these parts.

Jonathan Davis (06:11):

Yeah. And notables, you know, Tampa came in in the top 25. So did Atlanta. And those are also places that we lend in. Yeah. so, you know, we love that. And then, you know, the top five multifamily markets to invest in, just released by, who is it? Yardi, Yardi Matrix. Number one is Atlanta. You know, we get that. But number four, Charlotte. Wow. Yeah. So, you know, even, even with everything going on, you know, it still rounds out the top five for markets to invest in a multi-family.

Bill Fairman (06:44):

Yeah. I, I lived in Atlanta in the very late seventies and early eighties while I was going to school down there. And I was always told if you can't get a small business off the ground in Atlanta, you'll not be able to get a small business off the ground

Jonathan Davis (07:01):

Anywhere. That's true. There's a lot of small businesses in

Bill Fairman (07:03):

Atlanta. Cause it was just a market that even in those high I mean that at that time they were high interest rate. We were in the middle of recession as well.

Jonathan Davis (07:14):

Yeah.

Bill Fairman (07:15):

And people were still very optimistic about you know, business growth in the Atlanta market. Mm-Hmm. . And that has really kind of translated into most of the, the southeast, because Yeah. A lot of people are migrating here. You got anything else?

Jonathan Davis (07:30):

Just, you know, I thought it was interesting. Maybe you all will as well. I did not know exactly how many hours the average renter had to work to pay for their rent. Mm-Hmm. it's 62 hours. Yeah. 62 and a half hours.

Bill Fairman (07:44):

For the month's rent.

Jonathan Davis (07:45):

For the month's rent, they have to work 62 and a half hours to, you know, to pay their month's rent, which is now, which that is up six hours more than it was Yeah. Before the pandemic. So, you know, you have to work six more hours to live in the same place. I, I like, you know, equating those things together, it's like what, you know, we, we can say it costs $200 more, but, you know, or it's, you know, you know, we like, you know, we like the expression of time returning time return on effort. You have to work six more hours to stay in the same place.

Bill Fairman (08:15):

Well, you think about that if you're trying to qualify for a mortgage, your housing expense can't be more than what, 28%?

Jonathan Davis (08:26):

Yeah. Yeah. 28. Yeah. I think that's right.

Bill Fairman (08:29):

Brian, if Brian's listening, he'll

Jonathan Davis (08:31):

Go correct it. Yeah.

Bill Fairman (08:32):

He'll chime in. But I, I think it's in the 28% range, so mm-hmm. that's much higher. 62 hours is much higher than what it's gonna be to qualify for a mortgage. Yeah. So rents are going up higher than your affordability for Oh yeah. Buying a home.

Jonathan Davis (08:52):

Yeah. You know, and they'll say like, rents have, you know, have slowed down. They have the rate of appreciation or arising has, has slowed down, but they still rose seven over 7% year over year for October. Yeah. Which is, you know, yeah. You know, more than average, but, but slowing down.

Bill Fairman (09:12):

Okay. So let's talk about the, and I'm gonna talk about single family prices first or home appreciation for the year in review.

Jonathan Davis (09:23):

This is the year in review. ,

Bill Fairman (09:34):

It looks like a heavy metal here in

Jonathan Davis (09:36):

Review. I love it. I only did that cuz I like to throw bill off.

Bill Fairman (09:39):

That's okay. It's easy to do. So peak home appreciation hit in June of 2022 at an annualized rate of 20%.

Jonathan Davis (09:56):

Did you round I think it was 19.8.

Bill Fairman (09:58):

Yeah, I rounded it. Yeah. 20%. That's incredibly high. And as we always talk about here, unsustainable

Jonathan Davis (10:07):

, 20% growth. Yeah. Was is unsustainable.

Bill Fairman (10:11):

So what what's funny, I, I hear a lot of the, the pundits talk about this and how all the markets are overvalued, which they are for the most part. And as the things shake out, they believe that appreciation will drop all the way down to between two and a half and three and a half percent.

Jonathan Davis (10:31):

You mean to normal,

Bill Fairman (10:32):

Which is been the normal rate of appreciations. It's the fifties.

Jonathan Davis (10:36):

It's terrible. It's going to, it's gonna just crash. The market's gonna crash, it's gonna get down back to normal appreciation.

Bill Fairman (10:43):

2022, I also saw record energy prices.

Jonathan Davis (10:48):

That is true. Yeah.

Bill Fairman (10:50):

Our fuel has gone through the roof, which means that's gonna add pain to everything that we do. Yep. Everything.

Jonathan Davis (10:59):

Everything.

Bill Fairman (10:59):

Yep. That's one. I mean, we had inflation because of supply chain, which was, you know, kind of a short term thing.

Jonathan Davis (11:07):

Yeah. I I didn't, it was supply chain. It had nothing to do with four, you know, what was it trillions of dollars? Was it 4.2 trillion being printed? Well, that didn't help.

Bill Fairman (11:16):

Yeah. But I mean, we did have inflation because we, we had a lot of people demanding stuff. We couldn't get it. Yeah. So if you could get it, you were gonna pay more for it.

Jonathan Davis (11:25):

Sure. But you had 4 trillion more dollars.

Bill Fairman (11:27):

No, I, I get all that. I'm not saying that's not the only thing, but that would've been temporary. But the, the cost of energy going up keeps it going even longer. Yeah. And then the Fed, in my opinion, it's not the rates that were so low that caused a lot of this and then the free money that the government was giving out, but the balance sheet of the Fed mm-hmm. . I just wanna, they weren't reigning that

Jonathan Davis (11:55):

In. Just wanna point out, bill said, you know, the free money that the government was handing out, as you all know now, there is no such thing as free money. You're feeling, everyone's been feeling for how long? Yeah.

Bill Fairman (12:07):

It's free to some people.

Jonathan Davis (12:10):

Not to us. Yeah.

Bill Fairman (12:12):

And here's another thing that's been kind of an issue. We have the lowest employment participation rate since the oh eight crash.

Jonathan Davis (12:22):

Yeah.

Bill Fairman (12:23):

And that's also causing inflation, but it's, it's more of a employment inflation because you're, you have a shortage of of workers. Yep. And so you have to pay more to get 'em there. And then a lot of them are, you know, playing that off and just going from one place to another.

Jonathan Davis (12:41):

mm-hmm.

Bill Fairman (12:42):

.

Jonathan Davis (12:42):

And, you know, you, you know, record energy prices you brought up. And it's not just here, it's in Europe and everywhere abroad. But I thought it was notable. I remember mentioning this way back after, you know, right after the pandemic. Do you, do you all remember what the first business or first thing that Warren Buffet bought coming outta the pandemic?

Bill Fairman (13:07):

Oh,

Jonathan Davis (13:08):

An energy company. Oh, no. Smart guy.

Bill Fairman (13:11):

Yeah. That's why he was the, what do they call him? The something of Omaha, the,

Jonathan Davis (13:18):

Oh, I don't know.

Bill Fairman (13:19):

No. Anyway, something important of Omaha. The Oracle.

Jonathan Davis (13:25):

The

Bill Fairman (13:26):

Oracle. The Oracle of

Jonathan Davis (13:27):

Omaha. I had no sir Dam in my head. I couldn't, couldn't get

Bill Fairman (13:30):

It out. Yeah. No, he, he's a smart guy. , let's go to how things have changed. So 2020 OB or 2021, we obviously had inventory issues with single family housing. Yeah. So in, in order to keep up with that change a lot of investors started moving into smaller and multifamily and self storage. Yep. Those are two property types that are still recession resistant. Sure. the multifamily, you still have to have a place to live mm-hmm. . And while the, you know, the zero, there's a few more zeros on 'em, there's still great investment opportunities. Yeah. so what do you think about that? From an investor's perspective? People get a little concerned about the extra zeros that makes them a little afraid. It makes, it's easier to do the single family homes because it makes you feel better. You can get rid of one. If you run into trouble, if you have an apartment complex or a self storage facility you're dealing in a lot higher dollar amounts and people get a little nervous about that.

Jonathan Davis (14:43):

Oh, that's true. You know, there's a whole lot of different ways to look at it. So we, we know that in like sales and cap rates, multifamily was the big winner in 2021. Mm-Hmm. . And it looked like in 2022 for the first half of the year, they were going to be as well. And then, you know, then the interest rates and inflation and everything happened. But with single family, you are tied solely to the conditions of the market to that ebb and flow, to demand supply interest rates. You are tied solely to those things. And there's not much you can do to increase your value beyond market. You know, unless there's just, you know, no supply. And, and then we've seen that what's, you know, 20% appreciation in multifamily. While there are more zeros, you have more control. And you can, you know, with the rising or rising rents, you know, rents are, are, are rising.

(15:48):

So you can increase your net operating income. And that is based off of the capitalization rate of whatever the market is in that area. We know how much demand is. But you know, you're kind of stuck with that. And so now what do you do? Well, you can create a shared laundry room where you create additional, you know, income or you can create other avenues of income for this property or, or take away expenses from the property and you can, and you can inflate or deflate that price or that value accordingly. So it just gives you a little more control. So we're still seeing multi-family selling. Not like it was, you know, six months ago and definitely not like it was a year ago. You know, October, November and December of last year. I mean, we saw record sales and multi-family. The interest rates are, you know, are hurting a bit of that cuz you know, you have to buy in at a much lower operating capitalization rate, which just means how much you're gonna make off of it.

(16:55):

So that's really compressing the market for a lot of people. Those additional zeros. Most people kind of get around that additional risk factor by bringing other people in, whether it's equity investors or partners in the llc, what have you to kind of share that risk across the board. Which you don't really, you see it in single family, but the, the, you know, to buy a hundred thousand dollars house or a million dollar multi-family, I mean, you know, you can, you can make the risk more palatable on a hundred thousand. You can a million for one person. Yeah.

Bill Fairman (17:30):

There. And there's differences in commercial financing. It finances differently in a lot of cases. You can't get 30 year fixed rate. You have to go to more of a a on multifamily 20. I mean there are some available, it's not,

Jonathan Davis (17:47):

We do 30 year fixed on multifamily.

Bill Fairman (17:50):

The way to value of property is based on the income that it receives. Mm-Hmm. , you can add value to the property, raise rents and then, or lower expenses or a combination of the two. Mm-Hmm. and you will add value to the property, which is not gonna happen on a single family home. No. It's just gonna go based on what home down the street sold for.

Jonathan Davis (18:15):

Exactly. Exactly.

Bill Fairman (18:16):

So there's a lot more you can do with those that you can with a single family home. That said, if you need to move it quick, single family homes are the most liquid

Jonathan Davis (18:27):

. That's true. There are more buyers in that. And it's, it's a faster move. It's a, yeah.

Bill Fairman (18:32):

It's

Jonathan Davis (18:32):

Easier financing, lower due diligence period. You know, all those things. Yeah. Wendell asked, will appreciation go below inflation? Well, I like that you didn't put a time period on that, so I'm gonna say yes.

Bill Fairman (18:46):

Well, the numbers for appreciation will go be below the current inflation rate, but I don't know if they go below the inflation rate at the time they, they drop down to the lower single digits.

Jonathan Davis (19:04):

Say that again to me. I'm not sure. I

Bill Fairman (19:06):

Don't know that we'll have high, that high of inflation when I'm expecting appreciation at some point to be in the five to six range. Yeah. We may not have inflation at five or 6% when that occurs. Well, we could, but that's okay. It, it's

Jonathan Davis (19:24):

Are you saying it be above or

Bill Fairman (19:26):

Below? But what I'm saying is inflation may be in the fours when we have appreciation in the sixes, but it could be that it goes into the threes and we still have inflation in the sixes.

Jonathan Davis (19:38):

Mm-Hmm. ,

Bill Fairman (19:39):

It's not gonna stay that way for long.

Jonathan Davis (19:41):

Yeah.

Bill Fairman (19:42):

It will eventually bottom out. And again, if, if the homes appreciation rate, if you're buying single family homes for rental, it doesn't matter because it's about the cash

Jonathan Davis (19:54):

Flow. It's about the cash flow and what you bought in at.

Bill Fairman (19:56):

Yeah. And you know, and Wendell, you already know this, the house does not care what it's worth. Mm-Hmm. , it depends on the income that's coming in. It's all about the money coming

Jonathan Davis (20:05):

In. But yeah, I mean, in short, yes. Appreciation will go below inflation. I mean, you know, they ebb and flow as Wendell knows. That was a great question.

Bill Fairman (20:15):

Yeah, that was awesome

Jonathan Davis (20:16):

Question. But, you know, win win is always, it's, it's not, you know, it's not really if it's, you know, it's win and no one really knows that.

Bill Fairman (20:24):

I'm also seeing, and this is just from me noticing this is not scientific data , I've noticed a few self storage facilities, the a class property types, I'm noticing a lot more available tags on the doors versus locks.

Jonathan Davis (20:44):

Mm. Okay.

Bill Fairman (20:45):

So vacancy rates are getting a little, little bit higher.

Jonathan Davis (20:48):

I always wondered where you win in the afternoons. I guess you're just, you know,

Bill Fairman (20:51):

I'm just perusing self storage facilities. I'm gaping through the fence.

Jonathan Davis (20:56):

Ooh. Available .

Bill Fairman (20:58):

But I am seeing occupancy rates starting to drop a little bit in the cell storage. But that's,

Jonathan Davis (21:07):

And that's, and that's okay because they've been, you know, if doing, they're, they're class A and if they're doing what they're supposed to do, they're, they've been pushing those rents Yeah. Month after month pushing them up and now they have to bring 'em back down a little

Bill Fairman (21:19):

Bit. Right? Yeah. People will not change facilities if you move it up 10 or 20 bucks a year. Mm-Hmm. . But when you move it up 10 or 20 bucks every quarter

Jonathan Davis (21:32):

Or every month, some of them have gone, I've seen some dollar, like five, $10 a

Bill Fairman (21:35):

Month. Yeah. They'll, people say my $500 worth of stuff needs to go somewhere else. Mm-Hmm.

Jonathan Davis (21:41):

. Yep. Absolutely.

Bill Fairman (21:43):

But those are great markets to be in. I am, well we are going, it's all about me. We are we're gonna discuss Carolina Capital now for the end of the year.

Jonathan Davis (21:57):

Everything that happened to Carolina Capital was all because of Bill

Bill Fairman (22:01):

. Yeah. we had record dollars funded for the years since we've been in business thanks to this man.

Jonathan Davis (22:09):

Right. All it was a team effort, but all of us, yeah. So we, you know, as we set right now we're at 71 and a half million dollars out the door this year, year to date. So

Bill Fairman (22:22):

What was our, what was our biggest year?

Jonathan Davis (22:24):

The biggest year before that Yeah. Was like 36 million. Yeah.

Bill Fairman (22:29):

Yeah. So that was a big jump in a year. Yeah. So 2022 was really good to us. We also had the highest fund returns since 2017. And, and Ysa since 2017. Or why is it different? Why the returns higher? Well, in 2017 we were charging a lot more for loans.

Jonathan Davis (22:51):

, you were charging a lot more and you had less assets under management. That's true. So the, the fewer assets you have under management, the easier it is to organically produce higher returns. Right. The more money and more assets you have under management, the more difficult it becomes to produce those higher returns.

Bill Fairman (23:14):

And and back then we didn't have a lot of competition. And during the end of 17 and the 18 and the 19 you had a lot more Wall Street firms coming into the hard money space. Yeah. And, you know, we obviously had to get competitive cuz they were charging a lot lower rates because money cost them nothing.

Jonathan Davis (23:34):

I remember seeing someone advertising hard money at five and a half or 5.75. It's like, wow,

Bill Fairman (23:42):

That right there is not very good management of your client's money.

Jonathan Davis (23:48):

Well, and the thing is,

Bill Fairman (23:49):

The risk, the risk is so much higher than a 5%

Jonathan Davis (23:53):

Interest. Well, and, and here's the thing. They were probably returning through investors a high single low double digit return, but they had that money levered four or five times. So when things, you know, when things change, like we just saw change their investors are last in line to get their money and all the creditors that they levered their money with are first. So

Bill Fairman (24:14):

Now that said, with the proper leverage, you can have, and I'll give you a quick example. You have a fund that is loaning money on an apartment complex, right? Mm-Hmm. . And they can be giving the apartment complex market rates and still return their investors well above

Jonathan Davis (24:34):

Market. And if you wanna find out about that, schedule a call with Bill. Cause this is the year in review.

Bill Fairman (24:39):

That's right. I won't get into it. . All right. And then we lastly we have the highest amount of money under management now that we've had since we've been in business,

Jonathan Davis (24:49):

Correct?

Bill Fairman (24:50):

Yes. And this is not a sales pitch, but we could always use more.

Jonathan Davis (24:54):

Yeah. Always more So, you know, give the disclaimer real quick before I start throwing out some numbers.

Bill Fairman (25:01):

Yes. your mileage may vary. This is consult your attorney, read the PPM before you invest and invest wisely.

Jonathan Davis (25:10):

Invest wisely. Yes. so last year our fund averaged 10 and a half percent return to the investors. This year through three quarters. It's done the same and it's done the same with more money under management or more assets under management. So we have as a team been able to absorb that money, additional capital, place it, and manage it, and still meet or exceed the returns we were doing with less money. And, you know, if you know anything about managing a fund, that is, that, that's the difficult part. That is the very hard part of this. And you know, Wendy, you, me and then our team here, like everyone has done such a great job helping us, you know, manage and place money. It's it's,

Bill Fairman (26:04):

And, and we and we do it without leverage.

Jonathan Davis (26:08):

Correct. So we do not lever our fund at all. If something happens and investors in our fund need their money, they are the first in line to get it. There's no one in front of them. Right.

Bill Fairman (26:20):

And that, that's key. There's two reasons you don't wanna lever your money. And one is that, that your investors are in second position essentially. Yeah. And number two, if you're investing with an ira, the IRS doesn't like your IRA being levered and they could charge you a EBIT tax on that as well.

Jonathan Davis (26:42):

But if you're making high enough returns, you don't really care. It's just the filing that really gets you Yeah. It's a pain. It's a pain, you know.

Bill Fairman (26:48):

Well,

Jonathan Davis (26:49):

But, but no, it's, it's been a great year. Yeah. We started out, like I said at the very beginning of this, you know, we could do loans at 4.1% on a 30 year fixed. And now, you know, we're, we're looking at, you know, mid to high eights. There's some people even doing nines and tens on, on investor loans bridge loans and, and like fix and flip and new construction, you're still seeing, there's a few guys out there doing it. Probably, what, eight to 10%? Probably not many. Most people are going to be in that 10 to 14% range right now. Just, just because, you know, like we have cost of funds and then every, every risk profile above zero gets assigned an interest rate above that. And, you know Sure. So as you move down the line, you know, you, you, you know, you get new construction right now, new construction is, you know, unpredictable at best, , and definitely especially on the timeframe.

Bill Fairman (27:47):

All right. So as an investor, I'm not worried at all in this market. We needed things to slow down because they were unsustainable. Mm-Hmm. . There's still plenty of opportunities out there. And another thing this type of market does is it shakes out the trees. It takes the people that were doing it part-time, the folks that were just looking at hgtv. Yeah. it takes the real estate agents and brokers that were essentially part-time and it allows the real professionals to handle the customers because

Jonathan Davis (28:19):

Like Don Harris. Yeah.

Bill Fairman (28:22):

It, it's a shame that the people that are just doing it part-time, a lot of times they don't, they don't have the number of transactions that they have gone through to get the experience, not to make mistakes. Mm-Hmm. and what it does, it reflects badly on the industry. Same thing would happen to, you know, a new fix and flip person who gets into the industry and hasn't had the bumps and bruises, or worked with a mentor to understand some of the mistakes that can happen. Mm-Hmm. . And it can give that industry, you know, a bad name as well. Yeah, very true. So what's gonna happen now, because things are a little bit tighter, it's the professionals that are gonna be maintaining and they're still, like I said, there's always gonna be deals in any market. Mm-Hmm.

Jonathan Davis (29:07):

And the professionals know that whether the interest rate is 8% or 15%, it doesn't matter. It's how much, you know, how much risk can I tolerate and how much money will I make? And that's all that matters.

Bill Fairman (29:19):

And you make your money on the buy.

Jonathan Davis (29:21):

Yep. Absolutely

Bill Fairman (29:22):

Not the

Jonathan Davis (29:23):

Sale. And if you can't make it on the buy, well, you try to make up for it on the rehab and then that doesn't really work. And

Bill Fairman (29:29):

. All right. So before we go Wendy is gonna be speaking at a few places. I don't wanna run through that real quick. And the first one is Quest Expo.

(29:44):

Oh, I'm sorry. Quest Con . It is online version, and it starts on December 9th. There is a discount code. Carolina 15 gets you $15 off, unlike the Fairman 30 that got you. $30 off, but it's not as expensive. So take the break. What else we got coming up for Wendy. Okay. Invest her. Wendy is actually doing a, she's hosting a, a webinar on December 14th. We don't have a link for that yet, but we'll make sure we get it in the notes. Yeah. What else we have? Oh, and then the Raleigh tria, that's the greater triangle area of High Point. Winston-Salem, Greensboro Raleigh, or no, maybe that's Carrie Durham, chapel Hill, I don't know, but she'll be speaking at

Jonathan Davis (30:42):

Somewhere in North Carolina,

Bill Fairman (30:44):

January the 12th. We'll get you some information on that too. They have a great R group up there. They really do. Mm-Hmm. . Anything else inside cell storage? Wendy is actually, yeah. Gonna be a featured speaker in Las Vegas. Do you see how she elbows her way into speaking positions? We've owned a self storage facility for like six months and she's already a featured speaker at Self Storage do it nationally. So we'll make sure that if you can't attend, we'll do our best to get some video of it. Yeah. All right. Are we good? All right. Excellent. Folks, thank you so much for joining us. I hope your year was as good as ours and as blessed as ours has been,

Jonathan Davis (31:41):

Those are my favorite moments.

Bill Fairman (31:42):

He, he has got to get that thing

Jonathan Davis (31:44):

In there, didn't he? I think he's just messing with you right now. .

Bill Fairman (31:48):

So, thank you so much for joining us on The Real Estate Investor, show Hard Money for Real Estate and Investors. We are Carolina Capital Management. We are private lenders for real estate professionals. If you'd like us to take a look at one of your projects, go to carolina hard money.com and click on the Apply Now tab. If you are a passive investor looking for passive returns

Jonathan Davis (32:07):

And, and you wanna, you know, join the other investors that we have, that outpaced inflation.

Bill Fairman (32:12):

Yep. Go to the accredited investor tab. Don't forget the like, share, subscribe, hit the bell, all that good stuff. Next week.
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249 Your 2022 In Review! Real Estate Investor Show - Hard Money for Real Estate Investors
5 Dec 2022· Passive Income, Active Wealth - Hard Money for Real Estate Investing
Your 2022 In Review! Visit our website: https://www.CarolinaHardMoney.com

Join Bill Fairman, Wendy Sweet, and Jonathan Davis, LIVE! every Thursday at 12 pm ET for the Real Estate Investor Show - Hard Money For Real Estate Investors!

As 2022 is nearing its end, the Carolina Capital Management team takes a look back at the relevant real estate events that occurred this year.

What have you learned and accomplished this year? What are the preparations you need to look out for in order to survive the ever-unpredictable real estate market? Be up to date, be informed. Be educated.

Learn the numbers and data. Discover the best niches of the real estate business where you should invest.
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248 Today's Market and the Non-QM Loan | REI Show - Hard Money For Real Estate Investors
18 Nov 2022· Passive Income, Active Wealth - Hard Money for Real Estate Investing
Today's Market and the Non-QM Loan

Join the Carolina Capital Management team LIVE every Thursday at 12 pm ET for the Real Estate Investor Show - Hard Money For Real Estate Investors!

This week, Bill Fairman, Wendy Sweet, and Jonathan Davis are joined by Bryan Maddex of AmeriFirst Home Mortgage to discuss Non-Qualified Mortgage Loans!

With over 20 years in the financial industry, Bryan used his experience and insight to help get financing and loan products for his clients, many of whom are first-time homebuyers and real estate investors.

One of his top priorities is providing consistent and frequent communication. His team ensures that the buyer knows exactly where they are in the mortgage process, as well as their agent and listing agent.

Amerifirst works with many clients who have not been successful in getting loan approvals from other lenders. They take the time to educate their clients on overcoming prior obstacles to achieve success as they navigate the steps to homeownership, including the pre-approval process.

It is not unusual for Bryan to work with his customers for a year or more to help them get their credit mortgage ready, and for him, it is especially gratifying to share in his client's joy on closing day.

Amerifirst offers a full line of flexible loan products including FHA, VA, USDA Rural Development, renovation, and conventional mortgages.

They also offer a range of non-traditional products such as Investor Cash Flow Loans and Bank Statement Loans.

Bryan is proud that his Amerifirst team includes his wife, father, and brother, and they feel truly blessed to be able to serve their clients as a family.
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247 Market Updates & DSCR Loans | REI Show - Hard Money For Real Estate Investors
18 Nov 2022· Passive Income, Active Wealth - Hard Money for Real Estate Investing
Join Bill Fairman, Wendy Sweet, and Jonathan Davis LIVE! every Thursday at 12:00 PM ET for the Real Estate Investor Show - Hard Money For Real Estate Investors!

Brett Sims, the Head of Growth of Renovo Financial, joins the Carolina Capital Management team to talk about the current market updates, especially the DSCR loans.

Renovo Financial:

Their story begins in 2011, at the Starbucks on Sheffield and Armitage in Chicago’s Lincoln Park neighborhood. It’s here where Co-Founders Kevin Werner and Daniel Rosen met to discuss founding a new real estate investment company.

But this company would be different. They wouldn’t simply throw money at clients and expect them to figure out the rest. No, they would take the time to assist their clients through the entire process, never sacrificing service to make a quick buck.

With the help of Granite Creek Capital Partners, the initial equity firm that back Kevin and Daniel, they were ready to start growing their new company, Renovo Financial.

With support from Granite Creek and caffeine in their system, Kevin and Daniel began slowly and carefully lending in Chicago and building their team of rockstar real estate lenders.

For the first five or six years, they focused solely on the city of Chicago. Today, however, Renovo is rapidly expanding across the country with local lenders in more than 10 markets stretching from San Diego to Boston.
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246 - How To Raise Capital | REI Show - Hard Money For Real Estate Investor
4 Nov 2022· Passive Income, Active Wealth - Hard Money for Real Estate Investing
00:00:01

Greetings, everyone. Welcome to the show. We are going to talk about capital raising and why it's important to your deals right after this.

Wendy Sweet

00:00:34

That's funny. That's like a so funny when you see people on the news doing a news set and they say something and they just wait for stuff to happen and they wait for stuff to happen, it's,

Bill Fairman

00:00:45

Well, just so you guys know, half of our, our crew is in another country, so it's occasionally there.

Wendy Sweet

00:00:52

Two different countries.

Bill Fairman

00:00:53

Yeah. There, there's occasionally a little bit of lag time when we talk. So that's, that's really it.

Wendy Sweet

00:01:00

So the whole show's coming from three different countries. That's true. Actually. That's pretty

Bill Fairman

00:01:03

Cool. And technology amazing. It anyway is, thank you so much for joining us on the Real Estate Investor Show Hard Money for Real Estate Investors. We are Carolina Capital Management and we are private lenders for real estate investors in the Southeast. If you'd like us to take a look at one of your projects, go to carolina hard money.com and click on the apply now tab. If you're a passive investor looking for passive returns, then click on the accredited investor tab. Don't forget the like, share, subscribe, Hit the bell. And don't forget about Wednesdays with her.

Wendy Sweet

00:01:38

Woohoo. Awesome.

Bill Fairman

00:01:46

Wendy devotes like 30 minutes per person, right?

Wendy Sweet

00:01:50

Yep.

Bill Fairman

00:01:51

Every Wednesday, but she's booked out a couple of months in advance, so get on her calendar

Wendy Sweet

00:01:57

That, And I actually got this idea from our guest that's coming on.

Bill Fairman

00:02:01

That's right. It was Tuesdays with Jeff,

Wendy Sweet

00:02:05

Whatever, whatever day anybody could get in with Jeff that, that's the big thing.

Bill Fairman

00:02:09

So, So anyway, the link is right there and also in our comment section, which is on the right side of your screen or underneath, depending on the platform you're viewing us from. Anything else to add?

Wendy Sweet

00:02:21

Well, I just want to say this, you know, we always talk about, you know, if you're interested in passive investing to go in and, and click on our pass our investor tab. But I, we've got some bragging rights. We've, we've had, we've had a phenomenal year. Our trailing 36 month is really good, but I, I mean our, our last quarter we were at 10.76

Bill Fairman

00:02:46

And this is not a solicitation for selling of any type of security. Do your due diligence, your mileage may vary, blah, blah, blah

Wendy Sweet

00:02:56

Ppm. Yes, it's very important to do that. But we need to, I mean we need to talk that, cuz it's been, it's been really great. It's been over, well over 10 for the

Bill Fairman

00:03:04

Year. The, the real estate business. While it sounds like it's really going downhill, if you listen to the news, it's still way outperforming the

Wendy Sweet

00:03:13

Stock market and it's adjusting to normal. Yeah. Which is really nice. We, we all need a little normal.

Bill Fairman

00:03:19

All right, real quick, some breaking news. Good Lord.

Wendy Sweet

00:03:42

It, So now the news isn't breaking anymore. It's, it's old already.

Bill Fairman

00:03:46

It's, it's old news now. So the Fed raised the rate another 75 basis points.

Wendy Sweet

00:03:55

That's right.

Bill Fairman

00:03:56

It's like there's, it's like 3% height now since they started, or at least close to it.

Wendy Sweet

00:04:02

I can't wait to hear Brian Maddox talk about it tomorrow on our sunrises meeting that we have every Friday morning at 7:30 AM

Bill Fairman

00:04:10

Yeah. And I'm sure we'll have a link to that over here in the comment section

Wendy Sweet

00:04:13

As well. Yeah, yeah. It's, we, we'll talk in depth about that. That's, that's good stuff.

Bill Fairman

00:04:17

Yeah. There it is right here.

Wendy Sweet

00:04:18

Yeah. Awesome.

Bill Fairman

00:04:19

Sweet. Thank you. Sha

Wendy Sweet

00:04:21

We, we also know that when the Feds hike the rates like that, that it really isn't your mortgage rates that are going up 0.75. A lot of people assume that it's completely correlated and it is attached a little bit, but really

Bill Fairman

00:04:40

Historically, the Fed is always chasing the market, right?

Wendy Sweet

00:04:43

That's right.

Bill Fairman

00:04:44

If you, if you, well, you have to know people that have the graphs, but they're always behind the curve. Yeah,

Wendy Sweet

00:04:51

Always. Yeah, for sure.

Bill Fairman

00:04:53

They're trying to destroy the housing market and they're working on it pretty well. Yeah,

Wendy Sweet

00:05:01

We're not gonna let 'em do that

Bill Fairman

00:05:02

Though. What

Wendy Sweet

00:05:04

Else? So I was reading this morning on a newsletter that I follow called Essa, S T E S S A. They always have some good information, but they were really talking about the rent and apartment complexes versus single family residential, which I thought was really, really interesting. You know, apartment apartments have been going up and up. The rents for apartments have been going up and up. The vacancies have been going lower and lower, which it's been very, very strong and it will continue to remain strong. However, what we're seeing is that one and two bedroom apartments are for the first time in a very long time going down in price, which I thought was really interesting. And you brought up, because people are getting roommates to, to

Bill Fairman

00:05:59

Probably having higher vacancy rates. So they're bringing their rates down a little bit. Yeah. Try and fill 'em, but it's because people can't afford to live on their own

Wendy Sweet

00:06:07

Anymore. Yeah, yeah. But the whole point of that article is really to talk about single family rentals and how strong the rent is for a single family home. And, you know, it's a great day to be in the buy and hold business. It's always a great day to be in the buy and hold or the build and hold business. It's, it's,

Bill Fairman

00:06:32

But it happens. If you can't afford mortgage payments, you have to rent. You

Wendy Sweet

00:06:36

Get cold.

Bill Fairman

00:06:37

Yeah. You have to rent. Yeah. So there you go. For sure. Or if you can't buy a house, you can rent one until the rates come down. That's right.

Wendy Sweet

00:06:44

Right. That's exactly right.

Bill Fairman

00:06:46

Or you can find one with a lease to own kinda deal as well.

Wendy Sweet

00:06:49

That's exactly right.

Bill Fairman

00:06:50

All right. So enough Gibber, Joe.

Wendy Sweet

00:06:52

Well, I wanna talk about, just a quick point too, for the sunrises for our meeting on sunrises. Tomorrow at seven 30 is on Zoom and that link is right there in in the chat box. We are going to be talking about subject to real in, in real estate, in the real estate business, which is basically taking over a property subject to the financing in place. So I'm really excited about us talking about that

Bill Fairman

00:07:20

One thing, that

Wendy Sweet

00:07:21

Particular type.

Bill Fairman

00:07:22

I have a quick question before we move on. I'm always concerned about how you get the person that has the mortgage to agree to take over that mortgage when they're ultimately responsible for it.

Wendy Sweet

00:07:35

Well, you need to turn tune in tomorrow and because that's the topic we're gonna talk about

Bill Fairman

00:07:41

For that would be my biggest fear is letting somebody else take over my mortgage, even though I'm the one that's on

Wendy Sweet

00:07:47

The Yeah. And there are ways around that. We're definitely gonna gonna talk about that tomorrow.

Bill Fairman

00:07:51

It's a great way to do it because you know, obviously you're not gonna take over a, a loan with a high rate.

Wendy Sweet

00:07:56

That's right. Not these days.

Bill Fairman

00:07:58

That's right. That's

Wendy Sweet

00:07:59

Right.

Bill Fairman

00:07:59

And they don't have any more non qualifying FHA loan assumptions out there anymore.

Wendy Sweet

00:08:04

Nope. Long gone. So folks, we are really, really excited about our guests today. You'll, you may have noticed if you've been watching for the past, what, four weeks? Three weeks? Four weeks. We have been talking about raising capital and raising capital from your financial friends, which could be your family and friends, people that you know, like, and trust. And we really wanted to end this theme with a dear, dear friend of ours, Jeff Johnson, who is the bomb. And he's really, really good at raising capital. That's how he runs his business. So folks,

Bill Fairman

00:08:48

And, and by the way, he's also known for packing more than one belt with him when he travels. So thank you for that.

Wendy Sweet

00:08:54

Evidently he pulled you out.

Bill Fairman

00:08:56

I forgot to pack my belt.

Wendy Sweet

00:08:59

So here's our friend Jeff Johnson. Jeff, welcome, welcome to the show my friend.

Jeff Johson

00:09:05

Hey guys, how are we doing?

Bill Fairman

00:09:07

Great. Wow. You look like you're like doing a reality show.

Jeff Johson

00:09:12

Well, this is a house that I just finished and is going on the market tomorrow. Is that right? Tomorrow.

Wendy Sweet

00:09:17

Wow.

Jeff Johson

00:09:18

Look tonight at that

Wendy Sweet

00:09:19

Beautiful, beautiful kitchen.

Bill Fairman

00:09:21

That's gorgeous.

Jeff Johson

00:09:22

Yep. So there you can get a little, a little vision, a little view of what's going down.

Wendy Sweet

00:09:27

That is gorgeous. Okay. Tell us a little bit about, Oh, look at that fireplace. Oh my goodness. Tell us about this house. Where is it? What's the price? What, what's the deal?

Jeff Johson

00:09:39

Okay, so this is one of four houses that I built up in Oakhurst, which is 28, 2 5 in Charlotte

Bill Fairman

00:09:46

Live there. My first house was in

Jeff Johson

00:09:48

Oakhurst. Yeah, yeah, yeah. So I bought a, I bought a lot and you guys saw Shannon, my realtor, actually Shannon helped me get this lot, but bought this lot from the guy. There was a single house on it. We ended up splitting it into four lots. So I built four houses down the, down the road here. And so this is the first one that's going on the market. So let's see, I paid 4 65 for the lot. So what is that? A little over a hundred thousand dollars per building lot. Yeah. Not too bad.

Wendy Sweet

01:10:21

Not in that area.

Jeff Johson

01:10:23

Yeah. So my build cost in these is right around three 50 I think. So this is a 2,700 square foot house, this one. And this one's going on to market tomorrow or tonight for 7 99 9. So not too bad.

Wendy Sweet

01:10:37

Wow. Wow. That is awesome. Okay, I'm so glad you're throwing those numbers out. So Jeff, how did you finance this? What, where'd you get the money? What'd you do to raise it? Tell, tell me about what that looks like.

Jeff Johson

01:10:51

Well this, this actually was a combination. So I actually did an partial owner finance. So the lot was 4 65 and the owner actually gave me a $300,000 owner carryback. So I only had to come to the table with 165 grand.

Wendy Sweet

01:11:09

Wow. Nice.

Jeff Johson

01:11:11

And then he, he subordinated his loan to a bank loan. So I actually was able to do all this construction with a bank loan. But that, you know, that's taken me years to get to that point and build my business to a point where I can go in and get a, you know, $1.5 million loan to build four houses. So.

Wendy Sweet

01:11:26

That's awesome. And what kind of a bank is it? Is it a local bank? A a credit union, a regional bank?

Jeff Johson

01:11:32

It's a, it's a local bank. Yeah, it's a local bank that I've had a relationship with for probably seven years now. They've financed several homes for me over the years. So we've got a, you know, ongoing relationship.

Wendy Sweet

01:11:45

That's awesome. That's awesome.

Bill Fairman

01:11:47

You know, you're, you're throwing those numbers out there and I told you my first home was in Oakhurst. I paid 23 5 for a 14 year square foot two story house on Commonwealth Avenue.

Jeff Johson

01:12:00

Don't, don't you wish you, I built one on Commonwealth too. Don't you wish you would've kept that?

Bill Fairman

01:12:04

Yeah. Oh my gosh, no doubt. Absolutely.

Wendy Sweet

01:12:07

He even had his motorcycle in the living room. I remember that. It

Bill Fairman

01:12:11

Was never in the living room. It was in the foyer.

Jeff Johson

01:12:13

Nice, nice.

Wendy Sweet

01:12:16

So are you nervous at all about being in that price range in these dark times that we're living in?

Jeff Johson

01:12:26

Well, sure. I mean, everybody's a little bit nervous. I mean, you know, I think part of the problem was, is we all got used to things selling in 35 minutes and now it's kind of back to normal the way it was before Covid. So, yeah, I mean this is, I started my business in oh nine, so I was used to, you know, two months, three months to get something under contract. So this is not something I haven't experienced before, but I think a lot of people who just got started are probably a little bit freaked out because it, you know, they didn't figure in holding onto their properties for three months or six months. They didn't figure that into their costs. Plus, you know, everything got so expensive there for a little while that, that everybody just assumed that they were gonna make their money on the back end. You know, I always say you make your money when you buy the property, just like I did with this property. I made my money when I bought this property. If I'd have paid a million dollars for this, I'd be super nervous.

Wendy Sweet

01:13:19

Yeah. Yeah. I actually had a call this morning from someone that we did a loan for. She's still in it eight months into it, you know, the contractor didn't really do a right. She had to let him go. So she's working with a new contractor, but unfortunately her, you know, our appraisal subject to appraisal when she bought it came in at 2 65, 8 months ago. Right. And her agent told her she could easily get a little over 300 for it. So I, you know, I, and, and, and so she's been moving forward in her head, putting her own money out instead. Yeah. Because we're only gonna fund from the numbers we run. And now she's sitting at a place where, you know, she'll be probably getting what the appraisal originally said it would be worth. And she's, she's not gonna make any money on this deal. I mean, that's the difference between somebody new and somebody that's experienced.

Jeff Johson

01:14:20

Right. Well I think, I think a lot of what you're seeing is people who, you know, way overpaid because they wanted, they just wanted to keep growing or they wanted to get more property. I actually really, I kind of stopped buying rehab property the last few years because I saw what was happening with the prices and I knew it couldn't last.

Wendy Sweet

01:14:39

Right.

Jeff Johson

01:14:40

So I sort of tapped out, kept doing new construction and cuz I can add the most value doing new construction. Sure. And there's less unknowns, you know, once I, once I get the foundation outta the ground, there's really not a whole lot of unknowns when it comes to cost.

Wendy Sweet

01:14:53

Right.

Jeff Johson

01:14:54

So, so

Wendy Sweet

01:14:55

Jeff, talk a little bit about really how you started raising funds and what kind of people you were approaching to lend you money. How, how did you get started and all that? Cause I, I think you are just so superb at having a good tool bag full of financing opportunities.

Jeff Johson

01:15:23

Well, it's a, I mean it's a, it's a long story but a short story. I mean, I I, I started, you know, rehabbing in oh nine and I was in a, I was actually in a men's group with our church and I used to drag my trailer to the men's group cuz I'd be, you know, that was my Fridays as the days I'd go do my real estate. And I was doing it all with, you know, hard money loans or whatever. And, and one of the guys in my small group said, Hey, what's with the trailer? What are you doing? And I started to explain to 'em and I had just taken a class on borrowing money from people's self-directed IRAs. And so this was a friend from, from my men's group. And so I used all the tools. I just had, I had just learned and said, Hey, you know, if you want to invest with me, you can lend me money from your 401K and I can pay you a return.

Jeff Johson

01:16:16

And I think that the stock market had tanked at that point. So he was very unhappy with his stock returns. So I ended up borrowing I think $50,000. We ended up changing his IRA over to his self-directed ira and I ended up borrowing, I think $50,000 from him to help with one of my projects. And then I returned his money and then he said, Well now I have a hundred. So I, I'm, I'll lend you a hundred pretty soon. He, he had basically liquidated his entire regular 401k with his jobs. He worked for Bank of America and, and had put it all in a self-directed RA and, and, and lent me every penny that he had in his retirement account. And he still does. So that was in 2009. So what is it now? 2022. So he is been lending to me for 13 years and I think we've tripled, I've tripled his money since he started as he started lending to me.

Wendy Sweet

01:17:08

That's awesome. Now is, is he, are you doing the same kind of deal with him that you did in the beginning or has your, have your ch terms changed

Jeff Johson

01:17:19

Any Nope, same exact same exact terms. We haven't changed anything. It's been the same interest rate since day one. I have not changed it one bit. It's, you know, it, in my mind I wanted to give my lenders a return that was good enough that they wouldn't go anywhere else. And that, you know, once we build that trust relationship that they know that, that they're gonna get a great return and they're gonna get their money back to me because what, I don't buy any crappy deals. And then, but I didn't want it to make it too much to where I couldn't actually deploy the capital. Right. You know, I think that's part of the problem is you get a lot of private lenders, they want these crazy interest rates and it's, right now it's almost impossible to deploy the capital, which is as, as expensive as it is to rehab properties and build. I mean, gosh, my build costs went from, for these houses I used to probably maybe $120 a square foot. I'm $175 a square foot.

Wendy Sweet

01:18:18

Wow. Wow.

Jeff Johson

01:18:20

And that's in two years. Wow. So, so that only took two years for that change to happen. So it's gonna get harder to deploy expensive capital in this market. So

Wendy Sweet

01:18:30

Now is, is he lending Yeah. You know, in a secured position or are you, is he just lending to your llc?

Jeff Johson

01:18:39

Okay, so he's, right now he's lending us about a million dollars total and he's probably got about half of that inec secured loans. And then the other half is in unsecured, you know, loans to the llc. But one of the things we don't do is just have that money floating around in the Ethereum. We actually have it assigned two properties. So it does have an as it does have assigned property that it is loaned on. Right. But we just don't have a deed to trust on it.

Wendy Sweet

01:19:10

Gotcha. So, Gotcha. So, so how has he helped you if, if at all, raise more capital?

Jeff Johson

01:19:20

Well, he was very stingy at first cuz he didn't want me to go borrow money from anybody else cuz he, you know, he wanted to keep his capital working. But I, I told him, I said, I won't go borrow any more money until I'm sure that I can keep your capital work in. That happened like year two. So I met another guy, bought a, another crazy story. I bought a inversion table for my back off of Craigslist and it was a trailer both times that got me, this got me this money, which is funny. So I had my trailer to go pick up the, the inversion table and the guy said, Hey, you know what's, so what do you do? You get a trailer? And I told him, you know, I i I flip houses. And he's like, Oh, I'm really interested in that. So I ended up sitting down with him and having lunch.

Jeff Johson

02:20:01

So what, what I did between my first and second lender is I actually put together what's called a credibility package where I took all of the deals that I had done and I listed them out what I paid for 'em, how much my rehab was, how much I sold them for, and then how much my investor got paid. My, my lender got paid and I think at that point I had maybe 12 or 13 properties that I had done. And so I was able to give them this, you know, 10 page credibility package and show 'em like, here's the listings, here's the price I paid, here's how much I made, here's how much my lender made. And that was, that made it so much easier once I had that credibility package to start having those conversations. So once I got that done and I had that second lender, I just started meeting with other people and I started, actually, I didn't really solicit, but you know, you, you can make posts on Facebook and you get people who are interested in what you're doing and then you're ha starting to have these conversations. And I started beating people for lunch and for breakfast and taking 'em to my properties and showing 'em what I was doing. And you know, it just unlocked all sorts of doors with money cuz you, I mean, it would blow your mind how many people have money sitting in an IRA or a 401K that's not doing anything.

Wendy Sweet

02:21:15

Right.

Jeff Johson

02:21:17

Lots of people, it's just sitting there, they don't know what to do with it. They're afraid to put it in the stock market, but they don't know how to invest it in real estate and they don't want to, they don't wanna actually own any real estate or flip real estate cuz they know that that is a, you know, not passive investing. So I just started having those conversations and then, and then of course, you know, I wrote that book a few years ago and now if somebody's interested I just send 'em a copy of the book and say, Here, read this and then let's talk when you're done reading it. So I don't even have to explain the process anymore. It's all in

Wendy Sweet

02:21:48

The book. That's awesome. What's the name of that book, Jeff?

Jeff Johson

02:21:51

It's called Retirement Returns With Real Estate. And I actually wrote it for other investors to be able to use. So I have people all the time that will send that copy of that book to a potential lender and say, Here, read this book and then let's have a conversation and it just saves you, you know, three or four lunches or breakfasts of Yeah. Explaining how it all works. And then the questions are just like, okay, what's, what's the project and how much do you need? That's what I want to get to before I even have a conversation with somebody. I want them to feel comfortable enough that I know what I'm doing. That they're just asking me, Okay, what's the project? Right. What are we talking about here?

Wendy Sweet

02:22:28

So, so here's what I think is so super cool of what you've been able to do. Number one you put together, and I love the name of it, your credibility package. Yep. You're, you're showing people what you do because you're, you're going after two different personalities. You've got the engineer person that wants details and numbers and that kind of thing. And then you've also got pictures and graphs and things for the other type personality that wants to see the summary and hear the stories. That's, that's perfect. Yep. The other thing that I love that you did is you put together a book. You're teaching them how they can become wealthy.

Jeff Johson

02:23:09

It's Exactly education I think is so important. I mean, and, and I think the other thing too is, you know, I ran a, I ran a, a subgroup for the local R for a long time for about six years. And I used to do education in that group for potential lenders. There was no no pitch. I wasn't trying to actually raise money, I just wanted to teach people about how to use private money. And so I ended up getting, you know, a lot of people that had private money come to that meeting and then ended up creating a relationship with them and borrowing their money. So it's really been sort of of organic the way it's all happened. But the funny thing is, once you push, start pushing that 600 pound boulder, once it starts rolling, it's hard to stop it because, you know, then you have people throwing money at you and you're like, Hey, I need to hold on. I need to get some more projects and some more things. That's right. So I can, you know, that's a good problem to have cuz you in, in real estate, you almost al you always have either a money problem or you have a house problem.

Wendy Sweet

02:24:06

Right.

Jeff Johson

02:24:07

So you either have too much money, not enough houses, or too many houses, not enough money. Yeah. I'd rather have the too much money, not enough houses problem. Yeah,

Wendy Sweet

02:24:15

Yeah. You and me both. You and me both.

Bill Fairman

02:24:17

So you go back to your original lender

Jeff Johson

02:24:20

Yeah.

Bill Fairman

02:24:21

Bank of America. And you

Jeff Johson

02:24:23

Well he worked, he worked for Bank of America. Yes. Right.

Bill Fairman

02:24:26

Yes. But you know, he has the opportunity to get with b of a wealth management so he could put all of his money. I mean, they're very well known for all their wealth management stuff. I wonder how much he would've made if he would've stuck with the traditional way of earning in his

Jeff Johson

02:24:43

Farm. Definitely not. The returns that he got from us. Not even close. Right?

Wendy Sweet

02:24:47

That's right.

Bill Fairman

02:24:48

Isn't it? Isn't it weird how that works? The people that actually are in the financial industry finally get that light going off, What, what am I doing here?

Wendy Sweet

02:24:59

Yeah. Yeah.

Jeff Johson

02:25:00

Well the other cool thing too is, you know, he's been a, he's been part of my growth. So every year when we, when we, you know, look at our profit numbers, I always send him, I send him an email or we go have lunch or breakfast or whatever and I say, you know, I could not have, I literally could not have done this without you trusting me with your money.

Bill Fairman

02:25:18

Sure. That that's awesome. No, he appreciates it.

Wendy Sweet

02:25:21

What a gift.

Jeff Johson

02:25:22

Yeah, no, absolutely. So he's been part of my journey. Every lender's been part of my journey. And then when we started Better Path Homes and really started to grow, I think we're, I think we have 70 some odd houses being built right now. We have, you know, dozens of lender partners that have come alongside of us and we've been able to help them build their wealth and they've watched us build our business. It's been a really wonderful partnership.

Wendy Sweet

02:25:43

That's awesome. And you lend your money too. You're, you're self

Jeff Johson

02:25:47

An IRA money? I, yes. I led to you

Wendy Sweet

02:25:51

Fact.

Jeff Johson

02:25:51

I put my money where my mouth is.

Wendy Sweet

02:25:53

I'm gonna get some more here shortly too. So,

Bill Fairman

02:25:57

So you know Chris Miles? Yeah. We had him on the show a little while back and he was telling us a story about his dad because, you know, Chris' is used to be a financial advisor, he's now the anti financianal advisor. And his dad wanted to retire. He'd had a 401k, all of his, you know, working adult life. And he asked Chris to take a look at it and asking kind of where he was. And Chris said to him, you know, you've done all the right things, you've done everything that is expected of you in a 401k. Your only problem is you have to die in five years.

Jeff Johson

02:26:36

Right. Cuz you can't afford to live any longer than that.

Wendy Sweet

02:26:38

Right. Yeah, that's for sure. I, I, I'm just, I'm telling you, Jeff, I've known you for such a long time. You're a dear friend, an awesome human being, and I'm, I'm just blessed to have you in my life, but, and I'm so excited to have, have watched you turn into this incredible successful real estate investor and builder in, in the, the time that I've known you. Just watching you grow has just been incredible and learning from you. And you know, I, I steal all these great ideas that you have and I appreciate that you allow me to do that. It's, it's just, it's been a pleasure and, and I can't wait to see what you have in the future. And, and we're so grateful that you came and Yeah, absolutely. And shared this information with us that I think it's important that people know that everybody can do this.

Jeff Johson

02:27:32

Yes.

Bill Fairman

02:27:33

How can people get ahold of your book anyway?

Jeff Johson

02:27:36

It's on Amazon. You can just look it up. It's Retirement Returns with Real Estate. Jeff Johnson's the author and I, I have it, I have it priced, you know, so cheap that you can just send 'em to your friends and family, whoever you want to talk to about Awesome, awesome. Investing with you. So that was the whole point was to be, you know, give others a tool, a very specific tool so it's very specific to our industry so that they could have start having those conversations with people.

Wendy Sweet

02:28:02

Right, right. Awesome.

Bill Fairman

02:28:04

Well, Valerie just made a comment saying that she can't wait to read your book. Thank

Wendy Sweet

02:28:08

You. So yeah. Oh look, there, there it is.

Bill Fairman

02:28:11

See, see how quick our staff is. Yeah.

Jeff Johson

02:28:13

Bam. Look at that. There you go.

Wendy Sweet

02:28:15

There you go.

Bill Fairman

02:28:17

That's

Wendy Sweet

02:28:18

Awesome.

Bill Fairman

02:28:18

So the first time I met Jeff, he was working on the house right next to me, which was kind of funny. I won't get into that story, but it was a good one. It has been, it's been quite the journey since then, hadn't it?

Jeff Johson

02:28:30

Yes, it has. It has. That was a, that was a funny story.

Bill Fairman

02:28:33

When we have an, when we have an additional hour, I'll,

Wendy Sweet

02:28:36

I'll tell.

Jeff Johson

02:28:37

Yeah. Okay. Deal.

Wendy Sweet

02:28:39

Jeff, thank you so much for coming on. We really, really appreciate your, your, your story and, and your, your desire to share with, with everybody. Thank you so much. Yeah,

Bill Fairman

02:28:50

We're

Jeff Johson

02:28:50

Gonna thank you guys.

Bill Fairman

02:28:50

Green room for just a second while we close this thing out so we can thank you properly, if you don't mind.

Jeff Johson

02:28:58

Okay. Thanks guys. Thanks

Bill Fairman

02:29:00

Jeff. Folks, thank you so much for joining us on the Real Estate Investor, Show Hard Money for real Estate Investors. We are Carolina Capital Management. We are private lenders in Southeast for real estate professionals. If you'd like us to take a look at one of your projects, go to carolina heart money.com, click on the apply now tab. And if you are a passive investor that doesn't wanna give money to Jeff, click on the accredited investor tab. Don't forget to like, share, subscribe, and hit the bell. Don't forget about Wednesdays with Wendy. See you guys next week. Bye.
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245 Investing With Family & Friends | REI Show - Hard Money for Real Estate Investors
31 Oct 2022· Passive Income, Active Wealth - Hard Money for Real Estate Investing
Bill Fairman

00:00:02

Greetings. It's another week,

Wendy Sweet

00:00:05

Ola.

Bill Fairman

00:00:06

Lovely time in the, in the city. The big, big city of Rock Hill. South's, right? Carolina, Excuse me.

Wendy Sweet

00:00:12

Poor guy.

Bill Fairman

00:00:14

Today we're going to talk about investing with family and friends, and we will get to it right after this. Hello win. Thank you for joining us for another episode of Real Estate Investors Show.

Wendy Sweet

00:00:45

We forgot the name again. That's what happens when you're over

Bill Fairman

00:00:48

Hard money for real estate investors, we are Carolina Capital Management. We are private lenders in the southeast for real estate professionals. If you have a project you would like us to look at, please go to carolina hard money.com and click on the Apply Now tab. If you are a passive investor looking for passive returns, go to the accredited investor tab. Don't forget the like, share, subscribe, Hit the bell. And don't forget about Wednesdays with Wendy. So every Wednesday, Wendy gives up 30 minutes of her time to folks that would like to have a real estate conversation. The link to her calendar is over in the chat, which is to the right or underneath your screen, depending on the platform you're viewing us from. She's usually booked up a couple of months in advance, so get on now.

Wendy Sweet

00:01:50

Sometimes I just come into the office. Yeah, well that's what happened yesterday. It was awesome.

Bill Fairman

00:01:56

So apparently since I don't allow people to talk here much, Wendy has to go out of town to do most of her talking. So we have a few events coming up right after this.

Wendy Sweet

00:02:15

Boy, that was quick. Yeah, it's short, Short and sweet.

Bill Fairman

00:02:17

So where, where is it? Where are you going? What are

Wendy Sweet

00:02:20

You doing? Where's Waldo or where's Wendy? That should be it. Right? So the, I think the first one is actually this Saturday Best Her love that name. It's a great, it really, really is her, how you spell her. That's right. And it's in no confidence in spelling that one on, on the tv. It's, it's gonna be this, they're, they're actually having the event this Friday and Saturday, which is what's, what's the weekend this 29th and 30th? Yeah.

Bill Fairman

00:02:51

Yeah. It'd be this weekend

Wendy Sweet

00:02:52

Or maybe it's the following weekend. 29th and 30th is this

Bill Fairman

00:02:56

Weekend. Halloween is on Monday, correct.

Wendy Sweet

00:02:57

Oh gosh. You know what? I forget the days. I, it is the following weekend.

Jonathan Davis

00:03:00

We've really prepared for these shows.

Wendy Sweet

00:03:02

I have to look at my calendar. I'm sorry. But anyway, it's, it's gonna be really good. It's, it's, it's, it's for invest her, it's for the chicks, but the guys can show up too, cuz you'll be able to learn great stuff. And that's gonna be in Winston Salem.

Bill Fairman

00:03:16

You pointing at me personally?

Wendy Sweet

00:03:18

Yeah. And then the next one is

Bill Fairman

00:03:26

Quest Con.

Wendy Sweet

00:03:27

Yeah, Quest Con. So we love Quest Iron

Bill Fairman

00:03:30

And this is about the future. So you have to have your crystal ball.

Wendy Sweet

00:03:33

That's right. And here's an opportunity for you to save $15 on the event. It is online. They call it a live event because it's gonna be on Zoom Live, but you will be able to get a discounted ticket to get on there. It's, it's gonna be great if you attended the Quest event that just occurred, you know, what was it? A couple, maybe a month ago? Yeah, it was fantastic. Great group of people. Almost a thousand people were there. Yeah, the speaking was incredible and it's gonna be similar to that but online. So I'm really looking forward to it. I don't think they've done one similar to this one. I

Bill Fairman

00:04:13

Still want it to be all about me.

Wendy Sweet

00:04:14

Yeah. But I'll be speaking on a panel called Be the Bank. Ah, thanks. So that'll be really good.

Bill Fairman

00:04:21

And,

Wendy Sweet

00:04:23

And

Bill Fairman

00:04:23

Do we have any other,

Wendy Sweet

00:04:29

Oh yeah, I forgot about that one too. Yeah,

Jonathan Davis

00:04:31

No, State Korea Millionaire.

Wendy Sweet

00:04:33

The Upstate Korea is, that's upstate, that's the Greenville Spartanburg Real Estate Investor Association meeting. And they do this millionaire panel, but they invited me to be on it anyway. And it's really just talking about how you got started, you know, what's the worst thing that ever happened and, you know, how'd you get out of it. So it's, it's good stories about scars, which I always think is really excellent. Yeah. And then there might be another one. Yeah. Is there another?

Jonathan Davis

00:05:06

Nope, don't think so.

Wendy Sweet

00:05:08

Nothing that we have online. It's back to your show. I do have a couple more, but we, we'll talk about those later. I, I don't remember the exact,

Bill Fairman

00:05:16

You didn't remember the ones we had listed. I

Wendy Sweet

00:05:18

Know, I know. Oh, I'm speaking at the Raleigh Real Estate Investor Association tria in January. And I'm, I'm really excited about that too. I think that's the 23rd of January. All

Bill Fairman

00:05:28

Right, sweet. So there's a lot going on in the fall and almost early winter.

Wendy Sweet

00:05:34

Well, now's the time to learn, get networking, make sure you understand what's going on. Cuz it changes week to week.

Jonathan Davis

00:05:41

I wanna, yeah, I wanna rescue a word that I think fell off a little bit after a couple years ago in these unprecedented times. It's really good to plug yourself into local areas and, and masterminds and, and people who are in real estate. Yeah,

Bill Fairman

00:05:56

I was kind of, of hoping we had gotten rid of that for a while, but it is coming back. Okay. Little bit of breaking. Okay. This was a nice little headline on, on Fox Business and the headline was that prices, home prices were gonna drop 20% the next year. And this was Alan Shepherdson, which is a Ian. Oh, she, Oh, Alan, yeah, Ian. She, I was confused with the last name.

Jonathan Davis

00:06:41

No worries. You want me to read it

Bill Fairman

00:06:43

For you? No, Chief economist of Pantheon Microeconomics said in an analyst note published last week that really for the first time since 2001, because interest rates have gone up to 7%, he anticipates that home prices will plunge 15 to 20% next year. So, and I thought about that and first I was a little ill because I thought that was kind of dramatic, but

Jonathan Davis

00:07:12

Yeah, well, I mean, get quite clicks, doesn't it?

Bill Fairman

00:07:15

No, that's true. And this was actually on the Fox Business channel too, so it was just taken from one of their segments. But I did a little research, and I'm sure Don can attest to this as well, our upcoming guest, by the way, who we haven't mentioned yet. So I've spoiled the surprise You just did. I went and I looked at my home at the peak of 2018. Yeah, 2018, the highest point at 2018. And then I went all the way to what it's valued now, and I reduced that value by 20%.

Jonathan Davis

00:07:55

It's still higher than

Bill Fairman

00:07:56

20 and it was still 40% higher than it was in 2018.

Jonathan Davis

00:08:00

Yeah, that's, that's, that's, yeah, that's not a

Bill Fairman

00:08:03

Bad fault. And if I take the five years now, let's say we lose 20%, and I take the five years where it's still up 40%, that's an 8% year appreciation for the last five years, which is

Jonathan Davis

00:08:16

Still average, The average

Bill Fairman

00:08:16

Appreciation since the fifties has been three and a half.

Jonathan Davis

00:08:19

It's almost three

Bill Fairman

00:08:20

Times ago. So it's okay to look, listen, there are some people that are gonna feel pain from a 20% reduction, like the person who just bought the house last week

Jonathan Davis

00:08:29

And needs to sell. Yeah,

Bill Fairman

00:08:30

Right. That said,

Jonathan Davis

00:08:33

I'm not sure I subscribed to that, but

Bill Fairman

00:08:35

We need to, we need to have a correction because what we had was unsustainable. And even if it does drop 20%, we're still 40% ahead in most, And

Jonathan Davis

00:08:44

Of course it has to do with the market. There's yeah, there's too many variables. I mean,

Bill Fairman

00:08:47

Like, I'm just saying it's not as bad. Like

Jonathan Davis

00:08:50

What we're seeing right now is like the, the lack of inventory is increasing prices, but the rates are, he like, it's, it's like a tug of war right now and they're still appreciating. Yeah, I mean, I think we're between eight and 9% on appreciation still. It, I mean, unless inventory increases or rates, you know, jump to 14%, I mean, yeah, I think you're gonna have to have something a little more extreme than what we're experiencing right now.

Wendy Sweet

00:09:18

And that's year over year through the end of September, October. Once we get those numbers out, I think we're gonna see a little difference. But not much. Not a

Jonathan Davis

00:09:26

Whole lot. And Brian Max, even if the market does drop, you don't lose money unless you settle. There

Wendy Sweet

00:09:30

You go, buddy.

Bill Fairman

00:09:33

Excuse me. Or unless you're trying to get a big cash out refi and now you're not getting as much money as you thought. That's right. Anyway,

Wendy Sweet

00:09:40

It's getting gone in here. I don't wanna miss out on him. Yeah, I only got

Bill Fairman

00:09:43

15 minutes. Okay. So introduce him.

Wendy Sweet

00:09:46

I I would love that. So folks, not only is this guy just incredible in his industry, he's a real estate agent. A real estate investor. He

Jonathan Davis

00:09:57

Got me out of a problem,

Wendy Sweet

00:09:58

A lender. He's a lender as well. He is just a stellar standup human being. And a dear, dear friend, and I just wanna welcome Don Harris to the show.

Bill Fairman

01:10:10

Welcome, Don.

Don Harris

01:10:17

Hi guys. Good to join you.

Bill Fairman

01:10:20

Yeah, you had, you had your own intro video.

Jonathan Davis

01:10:24

Hey, you're, you're lucky most people don't get on the show until at least 20 minutes in, so

Wendy Sweet

01:10:28

That's right. I had to get Billy to pause.

Don Harris

01:10:31

Yeah. Yeah. Well the good thing about that, it doesn't leave much time for me to stumble on myself, so,

Jonathan Davis

01:10:37

Oh, don't worry. You know, it's, it's a change of pace you stumble on yourself as opposed to Bill doing it.

Don Harris

01:10:44

So,

Bill Fairman

01:10:45

So Don, I our, our theme has been this month a couple of things, but we're kind of focusing in on investing with family and friends. I I understand that you're doing investing with your kids, your wife, other, other friends and, and you're, you're you basically helping them with their ira investing through real estate. Can you give us an idea of what it is you're doing with that?

Don Harris

01:11:12

Yeah, I'll try to give the Readers Digest version of that. But, but that, that is what we're doing. I'm a real estate agent by day and then I'm an investor by night is typically how I say that. And an investor, I strictly loan money as a private lender. Now sometimes we do that in conjunction with like your company and we partner on a note with you, but most of the time it's family and friends. We have a b a lending opportunity. And so my wife and I, we have six different self-directed IRA accounts and we cobble those accounts together. And in the last two years, my, I've introduced my daughter to this lending as investment in a self-directed ira. And many times she will be involved in our lending as well.

Wendy Sweet

01:12:23

Awesome. Now, I've been blessed to be one of your borrowers for my personal investments as well involving your, your wife and your daughter. And what I really, and, and I've been bragging on you to so many other people is what I really love about you is that you don't let your money sit idle in between deals. You have the next one queued up when you know you're about to get paid off on, on on the one you're already in. And h how, how are you keeping up with that? What does that look like for you?

Don Harris

01:13:03

That's a great question. It's the same story that Sue was saying last week, that idle money is not working money. And the good thing about investing is lending is that your money's working for you 24 hours a day while I'm sleeping. It's still earning interest. And so I don't like for, I don't like lazy money that's not working. So we are, you know, I network a lot of the same events that you all do and talking to investors who are building new homes or flipping homes or a buy and sell opportunity that you're helping another family with. And so I've always got my feet on the street listening to opportunities and then qualifying the people that I may potentially invest with. And then when they have a transaction, typically I'm being pitched transactions on a pretty regular basis. So if, if the same that I've heard you say, you need to have a kind, a handful of lenders that you work with, especially if you're dealing with private lenders.

Don Harris

01:14:19

And then you can use capital, Carolina Capital Management as well to where you've, you're always have access to capital if you're the borrower. If you're the investor. Because if you come to me with a transaction opportunity, I may be a hundred percent loaned out at the, at this particular time you said I try to be, but I also anticipate when a note's going to be paid off. And that's when I start having more conversations with people who are about to close on a deal. And so we just try to time it close to when money's in the self-directed IRA and when money needs meets opportunity.

Wendy Sweet

01:15:03

So, you know, there are so many people that wanna do what you're doing, but they have a great fear of how do I really qualify not only the deal, but the person that I'm lending to. What are some of the things that make you say no,

Don Harris

01:15:22

No skin in the game. And I would say no experience, but you can overcome ex lack of experience with skin in the game. So if someone's willing to risk a whole lot more than what they're asking me to do than, and the numbers, the metrics of the transaction work, then we can consider that transaction. But it's mostly the character of the folks that you're doing business with.

Wendy Sweet

01:15:58

Awesome. You know, that's something that's still important to us with the size of the fund that we're dealing with, the number of borrowers that we're dealing with. Character is still number one for us as well.

Don Harris

01:16:12

It's always character number one. And then, then you look at the transaction and you know, it turns out to be repetitive people, right? The good people borrow money, do a transaction, make a lot of money, pay a little bit of interest, and then do it again. And so that, that, that's the majority of our transactions. It's, it's on rents and repeat. And then so have you go ahead here. Here's something else though. When if I don't personally generate a transaction or an opportunity, then I've gone to Carolina Capital Management and asked if you guys have any notes that you would sell, you know, the whole note or part of a note any times I've invested in notes with you guys and that takes capital that is sitting on the shelf and puts it to work, you know, instantly. And that's, that's where somebody who wants to start, that's a great place for somebody without any experience who wants to lend, is to take a piece of a note that you guys may have.

Wendy Sweet

01:17:28

Awesome. Thank you for mentioning that. We we love doing that. That's, Jonathan works on that hard.

Jonathan Davis

01:17:34

Yeah. And you know, just pointing out one thing, it's, you, you, you mentioned it idle money and like when you combine notes or have deals like you can hold out and try to get that perfect situation where you think you're gonna get 12, 14% or you can put your money to work. Now if you wait three months to find that, that situation, you might find it that's three months of idle money that you weren't making anything. So your 14% isn't 14. That's right. You know, so it, it's getting it working and, and you know, sometimes work, I mean, not sometimes all the time working money is better than not working money. So we completely agree with you on that.

Don Harris

01:18:15

And if I can, and what a new investor who wants to, who's just opened a, a self-directed ira, they don't have the experience in lending. They don't know how to qualify a deal yet. They don't know how to qualify a buyer yet. They don't know how to do the paperwork yet. They don't know how to collect the money. They don't know how to even fund the transaction. And so you guys are a good entry ramp into someone who wants to get into that space.

Wendy Sweet

01:18:46

Awesome. I have one more question for you and then I'll let other people talk. I am really curious about how you handle any loans that you've done on your own. Like that people are afraid. What happens if I have to take it back? What happens if I lose money? Has that happened to you and how did you handle it?

Don Harris

01:19:06

You're, you're starting to sound like my wife now

Wendy Sweet

01:19:12

Donna and I are tied.

Don Harris

01:19:14

Yeah, yeah. You, you know Donna real, real well actually we don't do a transaction loan unless we do talk about it. And you know, that's always the question. Well what if they don't pay a properly underwritten loan if it doesn't pay and you end up getting the property back either through, through them de it back to you or through a foreclosure action, you should come out whole or okay. And yes, I've had, I've had multiple transactions that have gone backwards over the years and some of those we've made money on, some we've broke even and some we've lost on. And with all types of investing, you cannot be willing to make the gain if you're not willing to take some of the loss. And you just have to be right. Most of the time you're not gonna be right all the time and you mitigate your risk by not putting all of your eggs in one basket. You spread the risk along as many transactions as you can and you know, your underwriting is probably along the same lines as mine. We're looking to be into a, an investment at no more than 65 or 70% of its after repair value. So if you do get a property back then you still should be in, in the property back of what its actual value is.

Wendy Sweet

02:20:49

Hmm. Now when you say you've lost money in some deals, can you give us kind of a round percentage of what that investment might have been that you lost? I mean, you, you lose it in the stock market. It's bye bye forever. You lose it on real estate. What, what is a common percentage on something that you may have lost funds on?

Don Harris

02:21:14

The most we lost on one was probably 40% and it was a, we just got duped by a repeat person, however. Wow. But we got duped by this person and yet, you know, you learn from it and you moved on from there. Another one early in my lending experience very early on, one of the very first people that we loaned money to, we, we ended up getting the property back. But the, the real problem with the transaction was our paperwork was bad. We got, we got a bad note from our attorney that un closed the, the transaction Wow. And actually collected on their insurance malpractice insurance for part of the shortage. And so we, that's the one we broke even on. So from then I hired John Hier to write a note for me for what we were attempting to accomplish. And at that point in time I was doing equity participation loans. And I remember asking John about that at a conference 10 or 12 years ago and he said, That is an intriguing idea. Send me what you're trying to do. He investigated it, did the research, wrote the note, and then sent me the bill for writing that note. And then since then, you know, on his trails around the country, sold that idea and sold that note hundreds of times.

Jonathan Davis

02:22:58

You didn't make any money off that, those transactions though, did you? I did no

Don Harris

02:23:02

Commissions the residual check, but I did well enough on the notes that we participated in over the years we've built houses with builders around Charlotte, you know, with equity participation notes. That's and just shared in the equity win lose or draw. Right. So if you are willing to make it, you've gotta be willing to lose it. That's right. And so when you do equity participation, it's win lose or draw.

Wendy Sweet

02:23:28

Well said. Well

Jonathan Davis

02:23:29

Said. Well it seems a shame to have him on here, not ask him what he's seeing in the local market. Yeah.

Wendy Sweet

02:23:36

Cause you are now in tune.

Jonathan Davis

02:23:38

So kind kind of give us a, you know, give us your crystal ball, your current Yeah. What are you seeing out there, and then your crystal

Don Harris

02:23:44

Ball. Yeah. Yeah. As a real estate agent, I was kind of cringing when Bill was going through that 20% drop in the market that he was explaining there. I don't, I don't see that happening in the Charlotte market. There may be some markets that are extremely overpriced and have bad politics and have bad economies as a result of that, that people are fleeing from and their prices could very well drop in the Charlotte area. Our job growth is still so strong and is projected to be so strong to where the rate of increase has drastically reduced. But I still think we will get that three to 6% year over year increase in value. We're just used to, you know, we got really spoiled with the 10 to 20 in the last couple years. That was a unique period of time. Sure. And so that's probably ne never going to happen again in our lifetime. But if we just get, you know, 3% year over year as the standard, what is historically done in real estate, then that's a great return. You know, we're approaching the $400,000 range for an average price. Now that 3% is on the $400,000. So even if you've only put, you know, 10% down on the property, 40,000 and it goes up 3% next year, what's a $12,000 return on a $40,000 investment?

Jonathan Davis

02:25:32

Pretty good.

Don Harris

02:25:34

I might have to take my shoes off to do the math, but those are pretty good numbers. And people forget that the, the rate of return is on the whole pie. You know, un unless you're just a cash investor and you're doing a cash on cash calculation,

Jonathan Davis

02:25:50

Isn't it? Right.

Don Harris

02:25:51

And see, let me figure that out. I'm optimistic, I'm, the business has slowed down, but I'm optimistic with the current interest rates has slowed the market down. But next year, you know, people still have to do real estate transactions due to life, diapers, diamonds, death, divorce, default, all still happen.

Jonathan Davis

02:26:15

And

Don Harris

02:26:15

So that's still, those alone will be four plus million in transactions next year. Yeah. And then you add on people who just want to move.

Jonathan Davis

02:26:28

I and I, and I have to say, I had to explain this to someone the other day when these people are talking about 10 or 20% plunges, I, there's a lot of people that are like, if I list it for X and I get 10% less than what I listed it for, the market's falling 10%. No, no. That's, that is not, that is not the definition of a plunging market. That is the definition of, you know, buyers having more power in the market in a market, you know, you know neutralizing. Like, just because you list it for something and you get 10 or 15% less than what you listed for it as an offer, that's not a plunge. That's right. So just wanna make sure people understand that.

Bill Fairman

02:27:04

It's nice that people are able to actually negotiate now. Yeah.

Jonathan Davis

02:27:08

It's a good thing.

Don Harris

02:27:08

Right, Right. It's it, the, the market is balanced back to the buyers and the buyers favor more favorable. The buyers have been abused the last two years

Wendy Sweet

02:27:20

To say the least. And

Don Harris

02:27:21

Most real estate agents are glad to see the, the market balancing out. Yeah.

Wendy Sweet

02:27:26

Yeah.

Don Harris

02:27:26

And so that's my day job. And then lending money and, and investing is my night job.

Wendy Sweet

02:27:32

Well, not only are you an incredible lender, but you are a kicking real estate agent as well. Real estate broker. We, you've sold several houses for us over the past few years. That

Jonathan Davis

02:27:46

One in Concord, I mean, he saved me on

Wendy Sweet

02:27:48

That one. You you really are, you know, there's people that are, are real estate agents and there's people that, that take it seriously and really understand their market and really care for whoever their buyer or whoever their seller may be. And you take it to the extreme and I just, I cannot promote you enough on that. So folks, if you wa you do South Carolina now too, or just the north? Of

Don Harris

02:28:15

Course. Yeah. No, I do not. You

Wendy Sweet

02:28:17

Do both states. So, you know, there's the, there's his email address, Don Harrison, [email protected]. It's, he's,

Jonathan Davis

02:28:28

We can't, we can't recommend anymore cause we use him. Yeah.

Don Harris

02:28:30

Thank you very much. That's,

Bill Fairman

02:28:33

Well see, this is another benefit of market slowdown. There's been a lot of part-time realtors getting into the market when it was really big. Yeah. And it has, unfortunately, they're not as experienced and they've made some mistakes and it gives realtors a bad name and when the market slows down, that's when the professionals are are still there. That's

Wendy Sweet

02:29:00

Right.

Don Harris

02:29:01

It's still a complicated transaction. Yes. And I never appreciated what a realtor could do for someone until I became one.

Wendy Sweet

02:29:10

Right.

Don Harris

02:29:11

And I had bought hundreds of properties prior to that point and yet I was clueless. And so I, I do know it's a valuable service and yeah, I have a good time doing it, enjoying doing it with family and friends like you guys. So thank you very

Wendy Sweet

02:29:25

Much. Well, there, there's a lot that can go wrong and you are so great at nipping things in the bud to keep things like that from happening and, and you know, we're grateful to you for, for what you've done for us not only as a real estate agent, but also as a lender. So keep that coming.

Don Harris

02:29:45

You can picture me on a show anytime if you're gonna brag and talk.

Wendy Sweet

02:29:48

That's right. Well the truth is the truth.

Bill Fairman

02:29:52

I did, I have to mention this, I did see a post on Facebook that you put up about if that customers that work with you are, have more money or better looking and are much smarter than the average person based on a survey by yourself. Yeah.

Don Harris

03:30:10

That is my survey. And those are the facts.

Bill Fairman

03:30:15

Thank you so much for joining us on our show today, Don. We really appreciate it.

Wendy Sweet

03:30:19

Yeah, enjoy it. Good stuff

Bill Fairman

03:30:21

Folks. Thank you so much for joining us on The Real Estate Investor Show. Damn, I forgot

Wendy Sweet

03:30:28

It again.

Bill Fairman

03:30:31

Hard money for real estate investors. We're gonna show the side of Wendy here as I'm

Wendy Sweet

03:30:35

Doing this, my profile.

Bill Fairman

03:30:37

We are Carolina Capital Management. We are lenders in the southeast for real estate professionals. If you would like us to take a look at a project that you may have going on, go to carolina hard money.com and click on the apply now tab. If you're an accredited investor, click on the accredited investor tab. Don't forget to like, share, subscribe, hit the bell and Wednesdays with Wendy. Have a great week.
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244 Profitable Small Dollar Lending | REI Show - Hard Money For Real Estate Investors
25 Oct 2022· Passive Income, Active Wealth - Hard Money for Real Estate Investing
Bill Fairman

00:00:01

Hi everyone. We're right on time as usual. Sorry about that. Mike. Thanks for hanging around for an extra minute. Our theme this month has been Small dollar lending, raising capital, and investing with family and friends. Yep. And we are going to get in depth with our special guest who's going to give us some insights into her. What is it? What are we talking about today?

Jonathan Davis

00:00:32

Small dollar lending. Lending with smaller amounts.

Bill Fairman

00:00:35

And we'll do that right after this. Hi everyone. Thank you so much for joining us on The Real Estate Investor Show Hard Money for Real Estate Investors. We are Carolina Capital Management and we are private lenders in the Southeast for real estate professionals. So if you'd like us to take a look at one of your projects, go to carolina hard money.com and click on the apply now tab. If you're a passive investor looking for passive returns, go to the accredited investor tab. Don't forget share, like, subscribe, hit the bell and all that good stuff. And don't forget about Wednesdays with Wendy. Wow, that was four seconds. Was that four seconds? Yeah,

Jonathan Davis

00:01:43

I think it

Bill Fairman

00:01:44

Was, It seemed like two and a half.

Jonathan Davis

00:01:46

Oh,

Bill Fairman

00:01:46

Okay. So Wendy devotes 30 minutes per person on Wednesday afternoons to talk about anything real estate related. If you go to our comments section on the right side of your screen or underneath, depending on the platform you're reviewing us from, then you can click on get right onto her schedule. Yep. She's usually booked a couple of months out in advance. It's well worth it. So let's get into some breaking news,

Jonathan Davis

00:02:17

Some breaking news. I like it.

Bill Fairman

00:02:32

So England's newest Prime Minister resigned this morning. So this is now six prime ministers, no, four prime ministers in the last six years.

Jonathan Davis

00:02:46

So

Bill Fairman

00:02:47

That's what I call stable government.

Jonathan Davis

00:02:50

Yeah, yeah, absolutely. To, to bring a more, more home are what we're sitting right now at the average 30 year mortgage. It's 6.92 for a full 30 year. I think if you get a five one arm, you're right around 5.9. So we're almost, we're creeping up on 7% inflation staying around that eight to eight and a half percent mark when you take out, you know, fuel and food, cuz apparently those are too volatile. You don't want to include those in the, in the core numbers, you know, but, you know, not like people need food and fuel. So it's sticking around there, which is probably going to lead to at least two more interest rate hikes. This year of anticipation is 75 basis points. Each one.

Bill Fairman

00:03:50

It, it's not the rate that really is gonna hurt, it's the how quickly they're, they're going up on these things.

Jonathan Davis

00:04:00

Well it's the, it's the, this is the well, and, and so we can have a little, you know, history with this 6.92 is the highest 30 year fixed mortgage rate since 2002. Right? So 20 highest one in 20 years. Our interest or our inflation is, you know, obviously the, you know, the highest in 40 years. So we are, we're, we're navigating some interesting waters. One of the interesting things that I thought, or that I found was through all of this, now we know that, you know, single family homes, the appreciation is were still right around what, eight 9%?

Bill Fairman

00:04:40

Yeah.

Jonathan Davis

00:04:42

Mobile home appreciation. 35%. Yeah. Nationally.

Bill Fairman

00:04:49

Well it is the, one of the most affordable housing alternatives. And so people are turning the mobile homes cuz they can't afford to get into some stick built

Jonathan Davis

00:05:00

Homes. Yeah, I think I think the, the average cost of a mobile home now nationally bringing it it's around 1 50, 1 60 is kind of the, which is a lot higher than it used to be.

Bill Fairman

00:05:11

The the average five years ago was 65.

Jonathan Davis

00:05:15

Yeah. So,

Bill Fairman

00:05:16

So it's, it's jumped up quite a bit.

Jonathan Davis

00:05:17

It's jumped up a lot.

Bill Fairman

00:05:19

And then the most recent builder sentiment survey, and and I I love this, they're not using actual numbers, they're just, how do you feel? They, they survey how they feel about the market. Not necessarily And how's the market doing?

Jonathan Davis

00:05:33

Well it's how we feel that determines what the market does because it determines what we

Bill Fairman

00:05:37

Do. It's how the, it's how the general public should be feeling, not the, not the builders.

Jonathan Davis

00:05:43

Mm. You think so?

Bill Fairman

00:05:44

Yeah. Well in, in my opinion. Yeah. And this is my opinion, if you're behind 6 million homes, you know, based on population growth, even though there's gonna be a slowdown, wouldn't you want to continue to at least kind of get ahead of the game so when it does turn around quickly, you'll have plenty of inventory.

Jonathan Davis

00:06:07

Yeah. The the, the sentiment is when will it happen? Yeah. And how can they time it and do you get,

Bill Fairman

00:06:11

So you build 'em to rent and then when it's time to you, you put 'em on six month leases or anyway you have 'em available to sell when the, when the time comes, Bill

Jonathan Davis

00:06:21

Will be putting a mastermind together for all the developers. If you would like to join [email protected].

Bill Fairman

00:06:29

See, last thing, what was the last one? Oh, housing sales for the month of September, 4.2 million, which is usually in the close to 6 million a month, which is down considerably, but the price of homes still went up 9% for the months. So the, the sellers and the new buyers haven't reached that equilibrium yet. The people selling still think the homes are worth a lot of money. And apparently the people that are buying, I agree with 'em cause it still went up

Jonathan Davis

00:07:10

9% the people that are buying. But also, you know, it's this weird place that we're in between high inflation, but jobs are still good. Yeah. Like, so it's like until, until jobs get hurt, I mean you're gonna have this weird relationship between buyers and sellers and, and the home prices. The homes won't start coming down until jobs get hurt

Bill Fairman

00:07:31

And, and, and again, there's still a lack of inventory. There's plenty of families being informed and there's not enough single family homes to go around. So anyway, that's our news for this week. I'm sure there'll be some next week whether we want it or not. Right.

Jonathan Davis

00:07:50

News or noise. We're trying to determine which one it's gonna be.

Bill Fairman

00:07:54

So let's, let's get this train wreck moving. Huh? What did that mean?

Jonathan Davis

00:08:06

Like it was just to cut you off, it was just to like get Bill to stop talking.

Bill Fairman

00:08:09

All right. I don't wanna keep Sue in the green room too long. Sue Jensen is one of our favorite people. She's invested with us. She's an experienced lender as well. She has self-directed IRAs that she has been taking control of for years and she's got great experience that I wanted her to share with our audience on getting your money invested. Sue, welcome. Come on out of the green room. Hey guys, how are you?

Susan Jensen

00:08:45

Good, good seeing you guys.

Bill Fairman

00:08:48

You too. You as well. I, I love that brick wall behind you. That's awesome.

Jonathan Davis

00:08:53

It almost looks real.

Susan Jensen

00:08:54

Yeah. I'm on my back porch in the breeze

Bill Fairman

00:08:58

And the only way I can get real brick is if I have a fake background that the software system helps us with.

Susan Jensen

00:09:06

Yeah.

Bill Fairman

00:09:08

So one of the questions that I had for you is, because I know for a fact that you have several accounts you work with and then when you have Roth accounts and then when you have traditional accounts and, and then you know, you, you have entities that you invest with as well that have nothing to do with self-directed retirement accounts. They all typically have, you know, different dollar amounts and there's a lot of people that have IRAs that may only have $20,000 in it and they're like, well, you know, I'm very limited on what I can do to get this money invested. Give me an idea of what you've done to, to get those smaller dollars invested alongside of the, the larger dollars that you have invested.

Susan Jensen

00:09:57

Yeah, so, so my husband and I deal, we have four IRAs, self-directed IRAs. We also have a, an LLC outside our IRAs that we invest with. And then I manage my son's ira, my son-in-law's ira and another pastor's ira. So, so I, what I try to do is leverage all of our IRAs so that we keep that money working in all of them. And especially with the, the young guys, they're just starting out building up their self-directed IRAs. My son-in-law, he's, he's up to 20,000 now in his, but he just started a couple years ago and he's slowly building that. So yeah, so we just leverage with each other and, and just try to build our wealth and with for one another.

Bill Fairman

01:10:56

So what are the some, some of the things that you have to do cuz you can't just depend on each other to invest the money. You have to get other, at, at least network with other like-minded people to get involved in deals. Cuz it's easy to find people that want to invest their money, but it's little bit more difficult to find the deals to put 'em in.

Susan Jensen

01:11:20

Right.

Bill Fairman

01:11:22

And and I, I know being, I'm sorry, I didn't mean to cut you off, but being a part of an IRA group that has education and events and put those things together, is that part of what you do as well?

Susan Jensen

01:11:36

Yeah, I meet a lot of people just watching a lot of webinars. I walk, I, I get a lot of Quest education. I'm usually watching a Quest webinar at least once a week. And so I, I try to get a feel for who these people are, whether they have a fund or whether they are looking for capital. And, and then I go to events and I'm in a mastermind. I, I lend to a lot of people in, or a handful in the mastermind. And, and then I tend to, once I find someone that I really like, like you guys for years and years I started with you guys and I've been working with you for 10 years now. You guys got me started, Wendy did. So once you have a good person to work with you, you keep going back to that same, that same lender, the same borrower, and you, you just keep working together and then, you know, we, people know people and you, you just build your circle that way.

Bill Fairman

01:12:42

Well, I know one of the unique things that most people aren't gonna do this, but one of the things that you did that was extremely smart was you volunteered to be the president of our local R group for a year or two. And you certainly meet a lot of people that way. It's a lot of work. Don't get me wrong. You were doing it not because you were just trying to meet people to do deals with, you were doing it to volunteer your time and, and also learn. But I mean, volunteering anything in a, in a local r or a mastermind is gonna be beneficial, right?

Susan Jensen

01:13:18

Yeah, yeah. There was, that was about three years that I did that and I'm put a lot of subgroups into the r and met a lot of people that way. So yeah, it is, it's, it's great to be able to volunteer and join arms with other people. You really get to know them that way. And, and in my, in my business, my number one priority is the person. So with lending they say it's, you know, you've, you've gotta do your due diligence on the person, the paper and the property and that's all right. But the, the person to me is the most important. I just wanna make sure that I'm working with good people that I can trust and that I like.

Bill Fairman

01:14:04

Yep. Well the, the key to making money is making sure it's making money consistently. And any time there's a break in between, you're not making any money. So whether you get a property back or not is not the issue is, is my money working for me while I'm waiting to do this stuff? And you know, if you're lending, you don't want the property back, If you wanna buy the property, then that's fine. Yeah. You can do that too. Yeah. Did you have something you wanted to add or you want me to just run off at the mouth the

Susan Jensen

01:14:39

Whole time off?

Jonathan Davis

01:14:40

You're doing, you're doing great.

Bill Fairman

01:14:41

I'm, I'm just, I feel, I feel guilty because I keep cutting you off.

Jonathan Davis

01:14:45

Oh, that's all right. Keep going, Bill, you're doing

Susan Jensen

01:14:47

Great. No, I would say about, about that point, I usually, I, one of the things I really don't like is when any of our accounts that I'm managing are not working. If there's any money in there that's if, if if I've got an account that's up to $8,000, $10,000, that's just, just doesn't sit well with me. So I'm looking for a place to put it. But I've gone as low as one of our accounts going as low as $7,000 and linking that up, partnering with three or other accounts to get that money working. So as long as your borrower doesn't mind cutting four checks per month, it's a great way to build up your small dollar ira.

Jonathan Davis

01:15:34

So you're, you're talking about linking up with other people's IRAs and, and you know, someone's needing a hundred thousand, but maybe you have, you know, 8,001 30 in another and just kind of pairing them all together. Yeah, go

Bill Fairman

01:15:48

Ahead Bill. I was gonna say real quick to, to kind of get around that, if the borrower doesn't wanna write four checks, you can always hire a third party manage That's right. Servicing company, send all the money to them and they'll cut the checks for you.

Susan Jensen

01:16:01

Yeah. Like you guys did.

Jonathan Davis

01:16:03

Yeah.

Bill Fairman

01:16:03

Yeah. Well to, to be fair, we're not really a third party servicer. We can only service loans that we have a piece in. We, we have to own a piece of the loan before we can services. However, there are plenty of companies out there that hire out, they have to be licensed. Some states require certain licenses, others not so much. But there are companies out there that are, are specifically there for IRA folks. Right.

Susan Jensen

01:16:32

It's good for when you're new at this to have a third party servicer or, or someone like Carolina hard money to take care of your loans. And then if something goes south, you're not just left hanging trying to figure out how, what to do with this property. You've got someone that's experienced that can help you with that.

Jonathan Davis

01:16:53

Yeah. I mean, yeah. Cause when, when things, you know, and things do go wrong in real estate and, and notes all the time. So, you know, it's, you know, do they have that loss mitigation experience to help you through a default, through a foreclosure, through a bankruptcy? Yep. You know what, what have you until you learn those things yourself. Yeah, I know. Let's see, someone says, so as little as 20 K would be okay to partner with someone as little as $1,000, as little as 500 would be okay to partner with somebody you, you know, as long as the need is there. Yep. And you can partner with somebody. It doesn't matter what amount you have.

Susan Jensen

01:17:31

Just, I've finished Quincy's book, Quincy Long wrote a book on self-directed IRAs. It's really, really good. It's self-directed. Self-directed. IRA Secrets revealed. He's got a, a chapter in here on small investing, small dollar amounts. Nice. Are you guys still there?

Jonathan Davis

01:17:54

Yeah, yeah, we were, we were just, it was just focused on

Susan Jensen

01:17:56

You. Oh, okay.

Bill Fairman

01:17:57

Cause it cause this show is all about you, so,

Susan Jensen

01:17:59

Okay. I thought I was wondering if I was all alone. So, but he had a, a piece in here that was so good. He, there was an investor that was looking to get a $5,500 loan from someone he connected with this lender who had $550 in his Roth ira. So what he did was he connected six other people, I think it was six five, let's see, there were eight different accounts and five people, IRA owners, and they came up with the 50 555,000. But he, he got, he, they gave him, he gave him 12%, he gave him two points. The guy who found the deal kept the two points and everybody split the, the undivided interest of their, of their, they

Bill Fairman

01:19:03

All got the 12%.

Susan Jensen

01:19:04

Yep. And in the end, and after 10 months, this guy with $550 in his Roth made $1,100 on that. Yeah. So, I mean it's a, it's it's work and he really leveraged his time and his knowledge and Sure. You know, his effort and everything and his network, I mean he found all those people and he made it happen.

Bill Fairman

01:19:28

Yeah. Yeah. And to Mark's question, if you have, if you know someone who needs a loan and you know some other people that have larger IRAs that are willing to go in with you, and because you're the deal maker, you're the deal architect, Right. You put the deal together. Let's say for example, you charge two points. Yep. And let, let's say you split the one point with the, the other people in the deal and you keep one point because you're the deal maker, right. And you take your 20,000, you could charge a little bit. For example, you could do a, and I'm just throwing out easy numbers, you could do 12% and everyone else is charging 10 and they each get a piece of that one point. And then you get to keep the difference between the 10 and the 12 on your $20,000 and that, that way you can right. Jack up your $20,000 fairly quickly because you're the one that put the deal together. Right. It's, it's a great way to do it. How else are you getting into deals? Are you just a lender in some of these, in most of these deals or are you doing other things? Are you purchasing anything? Are you doing any kinda options or, or wrap loans or anything like that?

Susan Jensen

02:20:43

The only other thing I'm doing besides lending is from our self-directed IRAs, I've been converting a lot of our money into investing in syndications.

Bill Fairman

02:20:53

Okay.

Susan Jensen

02:20:54

So self storage and multi-family, The multi-family only in the south and the red states. And I've got money in one self storage syndication in Pennsylvania. And another one that I'm looking at with that has like five self storage facilities in the south and in Texas. So that's what

Bill Fairman

02:21:20

I'm see that's a, you, you were saying that you were always concerned that your money is working constantly and when you invest in a fund, any, any kind of fund including the syndications, you know that money's always working,

Susan Jensen

02:21:33

Right? Yep. Yeah. And we do have some money in one fund. It's a real estate fund, but that's in our self-directed IRAs because our llc, we live off that money. So I've gotta keep that cat that mailbox money coming in. Right.

Jonathan Davis

02:21:49

I want to answer Al Cook's question here. You may have covered this, but what security do you use for these loans? You can use whatever you want. However, I know Sue, no matter what she's doing, she's taking a lean position and probably a first lean position when, when you have these, like when you're working with other people, there's, there's different ways to do it. But I'm gonna tell you probably the, the way that most people with IRAs are gonna do it, it's just gonna be a fractionalized para pursue interest. So everyone has a shared first lean position based off of your investment amount

Bill Fairman

02:22:23

And para pursue, meaning everyone is equal in the transaction based on their percentage of the investment.

Jonathan Davis

02:22:30

Para Sue is French for equal footing. Yes.

Susan Jensen

02:22:32

Yep. It's all undivided interest and it all, it's a percentage and everybody gets what's what's fair.

Bill Fairman

02:22:39

Yeah. And it has to be among people. Either you need to have a third party putting these together who are, is gonna make the decisions for you or somebody in the group has to make the decisions with the, you know, on the front end of this before you ever get into it saying that, you know, if this happens, this is what we're gonna do and if this happens, this is what we're gonna do. Because you can't have, you know, four or five captains and no lieutenants.

Jonathan Davis

02:23:06

Well and that brings up the, the prime

Bill Fairman

02:23:08

When, when something

Jonathan Davis

02:23:09

Does go bad, that's the prime example of, you know, and, and Sue's been with through this with us as well, where we have like, you know, her money and other people's money into a, a fractionalized position on a loan. I'm thinking of the, the movie theater and, and what was it, Monroe, right?

Susan Jensen

02:23:25

Monroe. Yeah.

Jonathan Davis

02:23:27

And you know, we, you know, we had to play quarterback on that because we went through, you know, we had a, we had a movie theater in a restaurant and we went through Covid and you know, it was shut down. And so how do we, you know, work through this and well sue, you know, did it work out okay?

Susan Jensen

02:23:45

Yeah, it worked out great in the end because our agreement, our note it was, we made sure that we were covered with extension fees and late fees. So even though it was months and months, we all made out. Well we just had to be patient.

Jonathan Davis

02:24:02

Yeah. I mean that's, that's the thing. Yeah. You, you, you, you, you'll make mo you know, tip, you know, when you have someone that can handle these things and you know, and favorable outcomes, you know, happen all the time. But you, you will make more than you ever thought you were gonna make when you initially got into the loan. It's just gonna take a little bit longer. That's, that's the trade off.

Susan Jensen

02:24:22

And we're work and you guys are working on one right now with Dewey out in Oregon. Same thing. Yep. Just months of no payments. But you've just gotta be patient and because you guys are competent, you know what you're doing and you've got good attorneys in the end it'll be great. It's just, we all wanna get our principal back.

Bill Fairman

02:24:42

Would you mind telling my wife that I'm competent? Yeah. My my my point to all this Al, is that someone has to be in charge. If it's not a third party, it needs to be one of the people that's invested in the loan. Right. Because you can't have everybody making different decisions. If you can't get a consensus, then that person that wants to go a different direction needs to buy the others out. Right. And then they can take it over. So those are the only things you need to look out for. Everybody needs to be like-minded and understanding that everybody just wants to get the, the return on their investment.

Jonathan Davis

02:25:20

Yeah. And if you wanna avoid any issues like that, if you, if you wanna be a little more savvy, you can do inner creditor agreements when you do loans like this where it outlines all of that for you.

Bill Fairman

02:25:31

Yeah. Who, who makes the final decisions, that kind of stuff. Yeah. Awesome. So thank you so much for being a part of the show. If we have anyone that would like to get in touch with you and pick your brain a little bit more or maybe you want to get in on a deal with you, how can they get ahold of you?

Susan Jensen

02:25:51

Yeah, they could email me at Susan Jensen 97 gmail.com.

Bill Fairman

02:25:56

Excellent. We got it right here in the screen and we will have it over there on the comments section as well.

Jonathan Davis

02:26:02

Yeah, like I said, she's been doing this for over 10 years. There's a lot of experience there, a lot of lessons learned. So a lot of good

Bill Fairman

02:26:09

Stuff. You know, I remember when you had a few accounts with Equity trust and you met a guy in equity trust who you know, right after 2008 all the banks dried up with their lines of credit for buy here, pay here, car dealerships, remember. And that guy was using his IRA to do little lines of credit for those car dealerships so they could buy cars, you know, wholesale and then as they're selling 'em off the lots, they, he would charge a release fee of the title and then he was getting 18% interest on his, on his small little lines of credit. Yeah, I remember that. I thought that was

Susan Jensen

02:26:50

An awesome way. Yeah, glad about that. I remember that now.

Bill Fairman

02:26:53

Yeah, it's funny, it was your group and I'm the one that remembered it. It just stuck out with me that I thought it was a really innovative way to put Yeah, put his IRA to work. But, but you have to understand how all that works and it is, you know, almost a full-time gig doing it anyway,

Susan Jensen

02:27:12

So yeah, I love being around smart people and just learning from smart people cuz there's just so much you can learn in this business.

Bill Fairman

02:27:22

So I, I don't know if you saw that or not, but Tracy Z is on the comment section saying hello and that you're doing a great job. Yep.

Susan Jensen

02:27:30

Hey Tracy.

Bill Fairman

02:27:31

Hey Tracy. All right, now we're gonna have to wrap this up, Sue. Thanks again folks. Thank you so much for joining us on the Real Estate Investor Show Hard Money for Real Estate Investors. We are Carolina Capital Management. Did I say something wrong?

Jonathan Davis

02:27:48

No, I was just, Oh, I don't know, it just tickled me. We,

Bill Fairman

02:27:52

We are private lenders in the Southeast for real estate professionals. If you want us to take a look at one of your projects, go to carolina hard money.com, click on the apply now tab. If you are a passive investor looking for passive returns, go to the accredited investor tab. Don't forget the like share, subscribe, hit the bell and Wednesdays with Wendy. She's gonna, she's gonna hate that picture.

Jonathan Davis

02:28:22

That's an old one.

Bill Fairman

02:28:23

Yeah, don't, don't put that picture back up. Anyway, Wendy is going to be speaking at some events coming up. I think we got some names and we'll put links in the comment section after the show closes out. Let's look at the first one perhaps. Okay.

Jonathan Davis

02:28:51

The

Bill Fairman

02:28:52

Fear message that that one is actually today. So you're gonna be late.

Jonathan Davis

02:28:56

Yeah, that's in or Yeah, that Orlando, she flew down there.

Bill Fairman

02:28:58

Yeah. And here might be another one and Real estate invest her. I don't know exactly when that's coming up, but we'll have all that in. Do we have two more? Okay.

Jonathan Davis

02:29:21

I hope,

Bill Fairman

02:29:22

I hope you wrote all that down.

Jonathan Davis

02:29:24

Quest gone. But yeah, we will put all the links.

Bill Fairman

02:29:26

I'll have it all into

Jonathan Davis

02:29:27

Yeah,

Bill Fairman

02:29:33

I didn't know we had a millionaires panel in the upstate

Jonathan Davis

02:29:35

Man. We have a lot going on. That's right.

Bill Fairman

02:29:37

Sure. Good about all that. Okay, I think we're done. You guys have a great week. We'll see you next week
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243 Hot Topics In Real Estate: Small Dollar Lending, Investing With Family & Friends, Raising Capital
14 Oct 2022· Passive Income, Active Wealth - Hard Money for Real Estate Investing
https://youtu.be/peAAjhtlKxA

Bill Fairman

00:00:02

Greetings. Hope everyone is doing well. We are actually live with this show. Maybe you didn't know this, but last week's was not live. It was prerecorded because we were all out of town. So we're going to talk about several things today, being a small dollar lender, investing with family and friends, and raising capital. And we'll get to some examples right after this. Hi everyone. Welcome to the Real Estate Investors, Show Hard Money for real estate investors. We are Carolina Capital Management. We are lenders in the southeast for real estate professionals. If you have a project you'd like us to take a look at, go to carolina hard money.com and click on the apply now tab. If you are a passive investor looking for passive returns, then click on the accredited investor tab. Don't forget to like, share, subscribe. Hit the bell. And don't forget about Wednesdays with Wendy.

Bill Fairman

00:01:35

I think this one is so short now that we should just play that twice Next time. Not now. Next time. Yeah. That's funny. So Wendy devotes 30 minutes per person each Wednesday. Talk about anything real estate, there's the link, it will be over in the chat, which on the right side of the page or underneath, depending on the platform that you're viewing us from. And in case you were wondering, yeah, somewhere in the same shirt that's been on this show three times in a row. I don't think anyone was wondering that, however, but way of telling yourself it's very, I'm being very self-conscious about it. Yes, it's been watched. It's a nice shirt. Yeah, you can see the crease. Thank you. Yeah. Anyhow, let's do some breaking news. You man. No.

Bill Fairman

00:02:41

So today, very important. CPI numbers came out and that stands for consumer price index. This is the third quarter reading and this determines people that are on fixed income social security on how much they will get raised for next year. Yeah. And it came in at eight point, excuse me, 8.2%. So we have inflation of 8.2% year over a year. The core number for month to month was 0.4%. So it is higher this month than it was last month. You pull out energy and food, which as we all know, that is really the most expensive and the most important.

Jonathan Davis

00:03:28

So that is the core.

Bill Fairman

00:03:29

It's still 6.2%. I mean that's, that's pretty high. Yeah. So that means everything is going up. So guess what? The stock market didn't really appreciate that this morning and I haven't looked at it before we came on the air today, but we were below 2,900 on the Dow, you know, before I came to work. Yeah. On the, on the future's market. So those folks that were hoping for the Fed to maybe postpone or maybe do a 50 basis points raise in the interest rate, Nope. Be prepared for another 75 basis points. Oh

Jonathan Davis

00:04:10

Yeah.

Bill Fairman

00:04:10

That's all I can say.

Jonathan Davis

00:04:11

It's coming. And yeah, I mean they have stood by, you know, bringing inflation down and as you know, these numbers continue to, to set where they are. If they do what they say they're gonna do, it's, it's gonna be 75 or even, you know, one full, you know, percentage.

Bill Fairman

00:04:29

Well, they were too slow to act because they said it was transitory. The rest of us knew it wasn't.

Jonathan Davis

00:04:34

Oh gosh. Yeah.

Bill Fairman

00:04:36

And then on top of that, you've got our, not just our government, but governments around the world are counteracting what the fed's trying to do. Every time they try to slow stuff down, the government gives out more money and more money. They give out more. It's stimulates activity. And you can't lower inflation if you have an activity being, I mean the whole point of raising rates is to have what we call demand destruction.

Jonathan Davis

00:05:09

Yeah. You want, I mean, right now they want to, you know, lower the demand for houses and also, you know, and raise the, you know, unemployment. Yeah. I mean that's, that's the goal.

Bill Fairman

00:05:22

Well the, the target is housing and why do they target housing? Number one, it's one of the largest expenses, but all the other products that are connected to housing, furniture, H V A C, all that stuff. Yeah. Building materials. There's a lot of things that are attached to housing that if, if you slow down housing, you're gonna slow down a large chunk of the overall economy. Correct. Yep. That said, I don't want anybody to freak out people. Were still fixing and flipping homes and making a profit when home. We, we still hadn't figured out if we were at a bottom yet after 2008 crash.

Jonathan Davis

00:06:11

Yeah. I mean like, like we were talking about with a, a room full of real estate investors last week. I mean, or real estate lenders rather. We're really excited. We're excited for our partners and ourselves and our clients because opportunities will now be more readily available.

Bill Fairman

00:06:33

Yeah. And as a selfish note, businesses like ours and we're, we're talking to other private lenders, hard, hard money and private lenders that are balance sheet lenders like us, we are all going to capitalize on this because the short-term lenders that got in bed with the institutional financing people who are pulling back because interest rates are going up and getting nervous. Yeah. That's not affecting us. Cuz we hold our own loans. Yeah. It's really affecting them. We, we had some information that there are some people in our area that are gonna have to start laying off a bunch of their, their folks because they can't get the capital anymore.

Jonathan Davis

00:07:19

Yeah. I mean it's what we've been talking about for a long time. Scaling responsibly and you know, not building a machine that you have to feed and when market shift there's nothing left to feed it. Right.

Bill Fairman

00:07:31

And I got one more breaking news before you get to some Okay. Multifamily stuff today.

Jonathan Davis

00:07:38

Oh, look at that

Bill Fairman

00:07:39

Is our man, Scott's birthday. Happy birthday Scott Fatten

Jonathan Davis

00:07:45

Since, since he

Bill Fairman

00:07:46

Wonderful smile

Jonathan Davis

00:07:47

Since he runs the, the video we had to print something off to stay incognito. It's funny. Happy birthday. So yeah, well wanna talk a little bit about multifamily. So real page has been keeping track of absorption or you know, you know, how much, how many units are being rented by the quarter. And they've been doing this for about 30 years and this third quarter of marks the first quarter ever in that 30 years where there was a negative absorption rate. What does that mean? It means that there's just less people in the third quarter renting apartments and getting those apartments. And so typically why is that? Why is that anomaly typically third quarter is very strong. Everyone that's, that's a strong lease up period. Fourth quarter is usually the, the, the, the, the ti you know, where it trails down. So this is quite an anomaly. We'll, we'll keep track of it. That being said, you know, vacancy is still 4.4% nationally. So it's, you know, vacancy's really low. It's just, we've had such a run up to this point that,

Bill Fairman

00:09:07

And that's what I was gonna ask are, are we getting to a point where there's over saturation in we're

Jonathan Davis

00:09:13

We're building, we're a building towards that. Yes. That will con I think that's a trend that we will continue to see for the next few quarters.

Bill Fairman

00:09:21

And if you think about it too, we have an oversaturation of a class Yeah. Properties too. So, so these are the brand new luxury type apartments. That's what's been being built over and over again. And as the economy slows down and people start spending less money Yeah. They're going to start going towards those B and and C class properties. Yeah. Cause they can't afford that rent.

Jonathan Davis

00:09:50

Now the other side of that is we're seeing, you know, rents kind of where they're, they're around 20% year over year of last year. Now we're running in the nines, which is still an increase. It's just, it, you know, it seems to have plateaued and, and coming down now everywhere except Florida. And that is due to, you know, most recently the, the hurricane there. Sure. There are several instances I was, you know, of people renting two bedroom, one bath houses for $5,000 a month. Wow. I think it's, it's, it's crazy. During one, they

Bill Fairman

01:10:27

Weren't damaged by

Jonathan Davis

01:10:28

The hurricane. Yeah. Because it's because people are scrambling to find shelter and Yeah. So everywhere, unfortunately

Bill Fairman

01:10:35

A lot of parts of the Florida that got hit are second home. We call 'em snowbird homes. So I, about half the population that's in those areas that were hit are only there in the winter.

Jonathan Davis

01:10:50

Yeah.

Bill Fairman

01:10:51

So it's not like it's their primary residence. I don't think it's gonna be as bad as it could have been in other areas because you know, the housing that was there was in most cases wouldn't occupy it anyway. Yeah. And as much as we like to get into the warm weather in the winter, you, you may have to stay home this winter until you Sure. Get your place fixed up. But if your place was not damaged, then you can still rent it out to others who need a place. Not to mention all the contractors and stuff that are coming in the area. Sure. They're gonna need the place to live Always. Yeah. While they're working down there. I know when, that's where Wendy is right now, she carried a, I think they have like a 32 foot travel trailer and she had to park it at a campground that's an hour away from Englewood. Oh wow. Because you, there was no places available any closer.

Jonathan Davis

01:11:46

Well let's jump into, I know we wanted to talk about, so Oh

Bill Fairman

01:11:50

Yeah. So our theme this month is how to do small dollar lending, investing with family and friends and then raising capital and we're gonna go over some of these items and then later on in the month we're gonna have some guests that are gonna be coming on that have experience in this and they'll give us some case studies on how they did it. Cuz the one thing I love about the real estate business is that there's a problem that is solved, whether it's on the lending side or the acquisition side or raising a capital side. And there's,

Jonathan Davis

01:12:33

That's the, you know, with everything that, that anyone does in, I think in any arena you don't look at how much can I make or how much will I pay? It's what problem or what pain is being solved or what pain or problem is being caused and how do I solve that. So if you can look at it that way, that's usually the, you know, better way to go about it.

Bill Fairman

01:12:54

Oh, I'm sorry, one last thing before we get onto this. I did see a piece yesterday, I believe it was about this second quarter for 2022 was the smallest percentage of fix and flips since 2009. I think it was.

Jonathan Davis

01:13:15

I believe it, It have to be. Yeah. However,

Bill Fairman

01:13:18

It was the highest profit of any time since then.

Jonathan Davis

01:13:22

The, the the net game per property. Yes. Yeah.

Bill Fairman

01:13:25

So two things to, to consider with those numbers is that there are fewer, we'll call 'em non-professionals doing it now. Yeah. So because it's harder to find inventory and things are questionable on how the future's gonna look. I, I think you're professionals that have good marketing, those are the ones that we're able to find the properties and, and get 'em fixed up and sold. Yeah. Secondly, excuse me, the reason they're making the most money is because, you know, the market in the second quarter was still pretty good. Yeah. Right. Oh yeah. I mean it was still about seller's market that said, I hate when they always come up with these fix and flip numbers because they only go by what they paid for it and what they sold it for. They have no idea how much anybody has put into it cuz they don't have those numbers. So how do we know they really profited more? We don't,

Jonathan Davis

01:14:30

It was the potential of profit is that

Bill Fairman

01:14:33

They just sold it more than what they paid for it originally.

Jonathan Davis

01:14:35

Yeah.

Bill Fairman

01:14:36

So, Alright.

Jonathan Davis

01:14:37

I mean there was more demand. Yeah. The, the highest, you know, appreciation. Yeah. So they had the, Hey Scott, happy birthday.

Bill Fairman

01:14:51

Have a birthday.

speaker 4

01:14:52

Happy a birthday. Thank you. Sure will. Get me out of here.

Bill Fairman

01:14:58

So that's funny. Gotta love live streaming, don't you? Yeah. Okay. So let's talk about the, the first one that we discussed, the small dollar lending. There's a lot of people that have small, say a Roth account that they're just getting started with their self-directed retirement fund and they have no idea how to get that money and put it to work.

Jonathan Davis

01:15:21

Yeah.

Bill Fairman

01:15:22

So one example is networking. If, you know, if you have a good network, you know people that need money, you know, other people that lend money Yeah. You can put that to work fairly, fairly easily. So I I'll give you an example. Let's say, you know, someone who needs a hundred thousand dollars loan,

Jonathan Davis

01:15:43

That's a small dollar amount.

Bill Fairman

01:15:45

No. Oh, you need somebody, you're no, you know, someone that needs a hundred thousand dollars loan.

Jonathan Davis

01:15:49

Okay.

Bill Fairman

01:15:50

You know, another person that probably has $99,000 they could lend if they wanted to and they wanna put that money to work. But you have a, you know, a Roth IRA that maybe has a thousand dollars in it or it might have six or $7,000 in it, but you don't have to use all that money. So how, how can you put that money to work or at least jack that up quickly?

Jonathan Davis

01:16:15

I feel like you're gonna make a VUL on reference. No. Oh, okay. Go.

Bill Fairman

01:16:20

So because you be, because you become the deal architect.

Jonathan Davis

01:16:23

Okay.

Bill Fairman

01:16:24

You have the borrower that needs the money, you know the person that has most of the money. Let's assume an interest rate of 10%. Okay, well the person that has money that's not doing any of the work,

Jonathan Davis

01:16:37

Can we do 12%? And that's really easy math for everybody.

Bill Fairman

01:16:40

Okay. Whatever.

Jonathan Davis

01:16:41

All right. 12%.

Bill Fairman

01:16:42

All right. So it's 12% interest rate,

Jonathan Davis

01:16:44

1% per month. Crazy.

Bill Fairman

01:16:48

You as the deal architect, you put the deal together, you get the, the friend who has, we'll just say 99,000. Okay. And then you have a thousand that you're putting in from your account. Now how is that a good deal for you? Well, you charge the actual interest rate is 12%, but the person that has the 99,000, they're happy getting 10, right? Yep. You also charge a couple of points origination on this thing. Yep. And maybe you get two or there's two charged total. You get one and the person that has the $99,000 loan gets one. Okay. Right. It's still 2% of a hundred thousand. That's $2,000. Okay. So the thousand dollars that you just

Jonathan Davis

01:17:40

Correct.

Bill Fairman

01:17:41

So now none of your money is at risk.

Jonathan Davis

01:17:44

You've, you've already, you've already made a hundred percent return and you haven't got the first right. Monthly check yet.

Bill Fairman

01:17:51

So as this loan goes on, you're the one collecting the payments, you're sending the 10% part to the person that has the 99,000. Actually you're not sending it to them, you're sending it to their custodian ira, assuming that they also have an ira. Yeah. And then you're keeping the additional 2% of that payment and it's going into your Roth throughout this transaction. So not, not only did you make a thousand dollars because at the end when it pays off, you get that thousand dollars back, plus you made a thousand dollars plus you're making 2% of the payment the whole time and you've only put that little small amount to work. So that's how you put small dollars to

Jonathan Davis

01:18:34

Work. And I know everyone's out there saying, But if I do that, aren't I subject to third party servicing laws? No, you're not because you're in it at a thousand dollars or 1%, you are an owner or a lender in that deal. Right. So you own a lean position and you can service your own debt, which allows you to service the entire loan. Right. So anyone that had that question pop up, which I know several of you did, just wanted to put that

Bill Fairman

01:19:01

In reality, nobody asked that question, but they should, In some states, you're not allowed to service a mortgage loan unless you were a licensed servicer.

Jonathan Davis

01:19:11

Third party just means someone else's loan. Yeah.

Bill Fairman

01:19:13

Unless it's your loan.

Jonathan Davis

01:19:15

Yeah. You are in every state of the United States, you are allowed to service your own loans. Right.

Bill Fairman

01:19:21

And because you have a piece of it, you're not a third party. Yeah,

Jonathan Davis

01:19:24

Exactly. You are a party to the transaction. Right? Yeah.

Bill Fairman

01:19:27

And then, and the other way of doing it is you could just be in second position in, in, in another small deal. But what it, what it boils down to is you still need to have a network. You can do these smaller deals, you just need to have friends that have deals. Yeah. You just need to be the deal architect. You don't have to have a whole lot

Jonathan Davis

01:19:49

Of money. And that's, you know, like that, that's just how it is in, in real estate. And, and most, I think in most things, you know, if you have a thousand, 2000, $5,000, you're gonna have to do a little bit more work to get that level of return. However, that work is going to allow you to get up to, you know, 150 and 200% return on your money and that can grow your small balance IRA or, or whatever investment vehicle it is. It can grow it rapidly. So that was a, you know, a really good, good point, Bill.

Bill Fairman

02:20:22

You wanna talk about investing with family and friends?

Jonathan Davis

02:20:25

Don't do it.

Bill Fairman

02:20:28

Okay. From a banker or from a lender side of things. Yeah. Never, never lend family money because if you, you have to assume you're not gonna get it back.

Jonathan Davis

02:20:39

Always go back to that, you know, setting at the Thanksgiving table. Yeah. It's like, you still owe me $30,000. That's right.

Bill Fairman

02:20:46

But there's nothing wrong with investing with somebody getting equity to a piece of property. At least you know that if something happens, you know, on a piece of property that's worthless.

Jonathan Davis

02:20:57

Yeah. Yeah. I mean, and you, you can jump

Bill Fairman

02:20:59

In. I'm just kidding. Family and friends are the first people you go to when you start.

Jonathan Davis

02:21:05

Especially when you're looking for more like mezzanine prep and common equity. Do

Bill Fairman

02:21:13

You want to explain that, what mezzanine is and common

Jonathan Davis

02:21:16

Prep? Sure. Yeah. So, so you know, we talk about capital stack all the time. So you have, you know, your first lean debt, which is typically like your banks or someone like us that's gonna take a firstly position. It is your, your first lean debt and then beyond that you're gonna have mezzanine debt, which can be a second lean position behind that. Or it can be unsecured or secured by, you know, some other vehicle through the llc. And then beyond that you have preferred equity, which is typically granted to, well you're limited partners in an llc. So you have limited partners and general partners. General partners are typically the operators of the property. Limited partners are the people who are bringing the equity and you, they get preferred equity, which means after the debt, they are the first people to get paid out. And then the general partner has the common equity, which means after the debt's paid, the pre equity's paid, then they make their money. So it's, it's just a waterfall effect.

Bill Fairman

02:22:21

And if you're wondering why it's called mezzanine. Yes. You're still in the building hearing the same concert, you're just doing it a little bit higher up than the Yeah,

Jonathan Davis

02:22:30

Yeah. Good, good reference bill. Yeah.

Bill Fairman

02:22:33

Takes you longer to get your popcorn.

Jonathan Davis

02:22:35

Yeah. So yeah, with friends and family, that's the best way is to do kind of, in my opinion, you know, that that pre and common equity route, just because it's people that you typically know, like, and trust. Right. And you feel comfortable maybe not having a, a fixed lean to a real property. Right? Yeah.

Bill Fairman

02:22:59

And let's cover capital raising very quickly. Well,

Jonathan Davis

02:23:03

That's the best one.

Bill Fairman

02:23:04

Some, some people are really good at it. Yeah. Some people are not. But if you're in the capital raising for any project or fund that you may have, it's all about relationships. People are not going to invest with you unless they like you and they trust that your decision making is competent. Right. Yeah. And it has to be, whatever project you're doing has to be easily explainable and at the same time it's got all the numbers have to work. It's, it can't be kind of one of these projects where if everything doesn't fall into place, you're not gonna profit. It has to have many contingencies that if this happens, we still make money here. If this happens, we still make money here. Yeah. If this happens, we can sell it. If this happens, we hold onto it. Yeah. It's all about

Jonathan Davis

02:24:06

Relationship. It really breaks down to, to each side, you know, to raise the capital, to be the salesman, to tell the story, to know, to know the project. And then the other side is the person who has the capital to be able to look at the story and look at the project and look at the numbers and say, Hmm, that works, or No, I don't think that works. So there's, there's really two sides to it. So if you're, if you're on the raising capital side, you want to know that inside and out. Like the, one of the, you know, I think pitfalls that a lot of people when, when they talk to me about raising capital, when I, you know, when I ask questions, they don't know the answer to them. And not that those are tricky questions. It's like, you should know, right? What are you purchasing at?

Jonathan Davis

02:24:51

What is your run? What run rate? What's the cap rate? You know, if this is commercial or multifamily, what's the cap rate you're buying into? What's the cap rate you're operating at? What's your profor cap rate that you're exiting at? If it's single family, you know, what am I buying this for? What are the comps in the area? What are, you know, what are the rents if something goes bad, you know, the what the project that we're taking on, do the rents, the market rents that area cover this. If they don't, what's that rate of return going to be based on those rents? To know all of those things and to be very transparent and, and open and forthright with them. Like that's the, that's the easiest way because when someone talks to me or when I talk to someone else, like when you know these things, it doesn't matter. Like I'm not saying like, let's make 24%, we're gonna just crush it. Right? Like people aren't looking for that because it's their, it's their money that's you hard earned or you know, whatever the case may be. They want to know that it's safe. They wanna know that you know, that you're gonna take care of it and you know what you're doing. There might be people out there who just want 24%, but my experience has not been that case. Yeah.

Bill Fairman

02:26:05

And look, you have to know number one, who your avatar is and who, who it is you're speaking to. First and foremost, when you set up the deal, it has got to be beneficial for each party. And from my perspective, it needs to be more beneficial to the investor than it is the sponsor. In our case. And we deal with a lot of private professionals, dentists, orthodontists, when you look at their business, and this may surprise folks that aren't in that industry, their overhead is in the 70% range. So they're operating on only about a 30% margin or less.

Jonathan Davis

02:26:52

Yeah.

Bill Fairman

02:26:54

Okay. Our fund last year had a 67, no, was it seven 67% profit margin,

Jonathan Davis

02:27:05

Different models. Yeah.

Bill Fairman

02:27:07

Now again, there's not nearly as much overhead, but what we do, what we try to do is make sure that the investor is benefiting the most we, you know, listen, we're still making a living or we wouldn't be doing it. Sure. But in, in order to keep your investors coming back and continuing to put money with you as your projects change, make sure that they are the, the biggest beneficiary of your investment investment. Right. And that you will never have trouble continuing to get capital raised because you're always number one, you're provi providing them with a good risk return and at the same time you're giving them the largest benefit Yeah. Of the project. Yeah.

Jonathan Davis

02:27:54

And, and again, like you said, you have to know who is your audience. Right. Are you talking to a lot of people who have self-directed IRAs? Well, equity doesn't mean a whole lot to the, Well, it doesn't mean anything to them, honestly. Right. Just don't get the, they don't get the tax benefit. So they're looking for growth and cash flow. So they're either gonna say, Hey, I don't mind to not take payments for a while if I can get X amount. You know, so just know who you're talking to and if you're talking to someone who has their, their cash and it's like they're, that's their savings that they've been working on. They don't have a retirement account. What's important to them? Probably cashflow. Cause they want to live off of that. Right. So maybe a higher payment is, is better for them. So just know who you're talking to

Bill Fairman

02:28:36

And, and at the same time, depending on where you are in life and what your needs are, some people already have what they have and they're just trying to protect it and outpace inflation. Yeah. And then you have other people who are young and have plenty of time to catch up. Should something go backwards on 'em or someone who got started saving late and they need high returns in order to, you know, catch up where they need to be and they're more willing to take risk. Yeah. So if you have a project that is low risk and we'll say a moderate return, you're not really gonna benefit the folks that need it right away. Yeah. So it's just not a good fit. So don't get discouraged cuz your deal is not, not good. It's just not right for them at this time.

Jonathan Davis

02:29:28

Exactly. Exactly.

Bill Fairman

02:29:30

So keep keep that in mind too when you're doing your little questions with your potential investors, what they're looking for, what their needs are, that type of thing. And then in this industry, there's, there's a lot of us that know each other and we're, while we may be competitors or we also work together, you could recommend that person to another fund manager who has some of those opportunities. Yeah. And they will in turn recommend people to you that are, you know, more in line with what it is that you're trying to accomplish. Absolutely. All right, so sorry we were long-winded. We had a lot of breaking news and Scott's birthday.

Bill Fairman

03:30:13

So thanks guys for joining us. Hope to see you again next week. We are Carolina Capital Management and thank you again. Sorry, I'm messing up with the stuff at the bottom. It's all right. No one notices until pointed out. Thanks for joining us on the Real Estate Investor Show Hard Money for real estate investors. And once again, we are Carolina Capital Management. We are private lenders for real estate professionals in the southeast. If you have a project you'd like us to look at, go to carolina hard money.com. Click on the apply now tab. If you are a passive investor looking for passive returns, click on the accredited investor tab. Don't forget that. Oh, I forgot about this. Yes. Wendy is going to be speaking at the Wise Women Expo and here is the link. It is October 14th and 15th. It is a Zoom only kind of event, but all the women are really smart women investors. Would you say they're wise? They are wise. Okay. If I was truly wise, I would've figured out that we had a graphic for that too. And I would've just shut up. Anyway, the link of not completely finished. I love it. Where was I? Don't forget to like Sheriff subscribe, Hit the bell Wednesdays with Wendy. Have a great week. Take care.
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242 How To Scale Responsibly | Real Estate Investor Show - Hard Money for Real Estate Investors
7 Oct 2022· Passive Income, Active Wealth - Hard Money for Real Estate Investing
Bill Fairman

00:00:00

Oh, see that. Hey, welcome back. We are going to talk about scaling responsibly. One of the things that we run into is, should you scale in a coming downturn? Absolutely. You have to scale responsibly. We're gonna talk about that right after this.

Bill Fairman

00:00:37

Welcome. We're back here with our take two or question 2.0 with Hunter Big to elevate capital. We're gonna talk about scaling responsible respons. Sorry guys, I'm actually out of town right now, so I'm a little sluggish. Let's get started off with a little bit of housekeeping. Thank you so much for joining us on the Real Estate Investor channel, Hard Money for Real Estate Investors. We are Carolina Capital private lenders in the southeast for real estate professionals. If you have a a project you want us to take a look at, go to carolina hard money.com and click on the Apply Now tab. If you are a accredited investor and you're looking for passive returns, click on the accredited investor tab. Don't forget to like, share, subscribe, Hit the bell and don't forget about Wednesdays with Wendy. Wait. Oh wow. That was quick. That was a nice one. Yeah. Yeah. Wendy, excuse me, gives 30 minutes of her time per person on Wednesday afternoons to talk about real estate. There's the link. It will be in the chat side to the right side of the page or underneath, depending on the pro, excuse me, platform you're viewing us from.

Jonathan Davis

00:02:03

You good there? Yeah, you got all about It's

Bill Fairman

00:02:06

Alright. It's a lot of loans.

Jonathan Davis

00:02:07

It's alright. But yeah, no, Wednesdays Wendy's a great thing. If you want to join on the calendar link, you can do that. You will get something from it. I guarantee you. She has a lot of experience and she will tell you she's made a lot of mistakes. So learn from her mistakes.

Bill Fairman

00:02:24

And before we get started, I wanted to mention the Quest Expo was awesome. If you, you guys didn't get a chance to go, I think you can still purchase the videos from all the speakers that were there. It was excellent event. I think there were over almost 900 people, I

Jonathan Davis

00:02:44

Think 857?

Bill Fairman

00:02:45

Yeah. Yeah. Okay. Well that's close enough to nine. Yeah. Thanks for being so exact.

Jonathan Davis

00:02:49

It's my job. It's his job. Yeah.

Bill Fairman

00:02:52

But there was great information. Excuse me, If you have a self-directed ira or if you don't know what a self-directed IRA is, then there's plenty of implication for that. If you want to go to quest trust.com, all the information is free, so check it out.

Jonathan Davis

00:03:11

Excellent. So we wanna talk about scaling or responsibly. Yes. And what the heck does that even mean?

Bill Fairman

00:03:19

Well, it means getting either bigger or we're Okay. I promise I wouldn't say this, but it's about cleaning your fish.

Jonathan Davis

00:03:28

No bad joke. Yeah, yeah, yeah. But no. So we have Hunter on here with Elevate Capital and since February of 2018, him and his partners have been investing into multifamily in primarily North Carolina.

Hunter Bick

00:03:44

Oh, actually all North Carolina. All

Jonathan Davis

00:03:46

North Carolina. Okay.

Hunter Bick

00:03:46

We looked elsewhere, but

Jonathan Davis

00:03:47

Yeah, you like North Carolina. So they have went from zero doors to several hundred in that time, you know, timeframe.

Hunter Bick

00:03:57

500 ish.

Jonathan Davis

00:03:58

500 ish. It was more, But you just sold 120, didn't you? We did, yeah. Yeah. So they were over 600. So they have scaled in that time period from Jan, from February of 2018 to now on several hundred doors. And to kind of wanna just pick your brain on, what was your thought process like? You know, when you were looking at this, what, like, did, did it feel too much, too little or kind of how, how did you look at adding to your portfolio?

Hunter Bick

00:04:30

Yeah, that's a good question. You know, we kind of, we, we, we've always kind of taken the approach where if this deal makes a lot of sense and we think the upside is large, it's our job to figure out how to get it done. Sometimes that meant buying four things at once. Like there was a day we actually closed 200 doors in one day. Wow. There are other times where maybe we go several months without putting anything under contract. But the va, we knew the value was the value and we were always really confident when we thought we had a really great deal under contract, we had to figure it out. Our approach has typically been, you know, we found so many great deals off market that our approach has typically been how do we keep as much equity as possible? And that often meant hard money, hard money, maybe a debt stack, maybe some investor capital, whatever it was that we needed, we were going to do it.

Hunter Bick

00:05:27

But the first choice was always keep all the equity with a, with high leverage because we knew we were gonna add the value so quickly that we could refinance into permanent debt in six to 18 months, depending on the deal. And, and so the higher leverage was not for us was, was not risky or not scary because we knew it was gonna be very short term and we knew the value was gonna be there. Yeah. And so that's how we've done a lot of our deals. You know, you get to a certain size and, you know, you see more opportunities. And so we are, we are looking, we are kind of getting to the point where we're gonna be taking more passive investor capital to do some of those, some more deals. You know, we do think we're gonna see some really good opportunities here in the next 12, 18 months. I agree. We're getting positioned for that and create a little more, you know, a predictable type of, you know, capital process. Yeah. You know, and with higher interest rates, it's a little trickier these days to count on low interest on a per, on a per loan 12 months from now, which

Jonathan Davis

00:06:31

Is more reason why Yeah. You win when you purchase it. Right?

Hunter Bick

00:06:34

Absolutely. Yeah, absolutely. You know, and so obviously the, the lower the basis, the, the more money you're gonna make and it really is that simple.

Jonathan Davis

00:06:44

Yeah. I wanted to go back, you mentioned debt stack. So for everyone that doesn't know what debt stack is, you have your primary, like first lean position loan, which would be, you know, just your, your, what you would normally get. And then on top of that, you can get mezzanine debt, which can be secured by a second lean or it could be unsecured. And then on top of that you can give up. You, you have equity and then there's multiple levels of equity that you can give up and that just gets, you know, higher and higher. So that's, that's what a debt debt stack is.

Bill Fairman

00:07:17

I I call that a wallet full of credit cards. That's my

Jonathan Davis

00:07:21

Well, and that's how a lot of people

Hunter Bick

00:07:22

Use a lot of those on the way too.

Jonathan Davis

00:07:23

Yeah. That's how a lot of people do this. I mean, like, when you're buying five, 10, 20 million properties, like no one's really using their own money to do that typically. Now they might use some of their money, but typically people don't have $5 million to just say, Hey, let me put it here. And because that, you know, even if they have $5 million, you wouldn't do that. So you want to stack your debt with, you know, mezzanine or, you know, whatever the case may be. A as Hunter said, like their, their whole goal has been to try to avoid giving up equity and you know, why? Well, that's allowed them to capitalize on the back end, on the exit at a higher return, which then, like he said in the previous show, he took the earnings from Applewood and 10 31 them into another project. So it allowed them to buy more assets. It allowed them to scale.

Bill Fairman

00:08:22

And, and as markets change, we, we are in a higher rate environment as well as an environment where credit's gonna be a little tighter for the institutional type blenders. So you have to take on a few more equity partners in order to get these same deals done, because the fact that they're going to be a little tighter on the credit means that they're gonna lend less money on it. Yep. If you do go the mezzanine route with a larger gap or a larger percentage of that, those rates are typically a lot higher. Correct. You're almost better off having an equity partner to fill in that gap than the, than the mezzanine financing am I

Hunter Bick

00:09:04

Agree. Well, it, well, well, depends on a couple. I, I would agree or disagree depending. Right. Every deal is different. Absolutely.

Bill Fairman

00:09:12

Every situation

Hunter Bick

00:09:13

Is different. Absolutely. How long, how long do you need the Mezz debt? Right? Yeah. And or you know, if it's a longer term for construction project on a bigger asset and you're gonna, and you wanna, and your options are take some equity partners versus loaded up with 10% debt, but it's an 18 month project that 10% debt's gonna be expensive for 18 months. Right? Yeah.

Jonathan Davis

00:09:32

And so how long can you negative carry?

Hunter Bick

00:09:33

Exactly. And so you gotta, you gotta factor the negative carry in and all of that. And so equity partnerships become, they become less risk if something goes wrong, you can bring others in to profit along with you, you know, it's important to align incentives at all points, by the way. Yep. That's a huge thing for us. But yeah, so the, and the other thing too, in to your point Bill, and today, today's debt markets, even a year ago, nine months ago, you could get bridge debt for, in the fives five and a quarter, five and a half for 80% of the purchase and a hundred percent of the construction today, that quote is 75% of the purchase, 75% of the construction, and it starts with a nine, right? Like it might be nine and a half. So different types of debt are appropriate depending on the market. Hard money at what, 11, 12? Where are you guys right now? Yeah, something like that. Between

Jonathan Davis

01:10:23

10 and 12.

Hunter Bick

01:10:24

Yeah. Okay. Hard money is now all of a sudden really, really cheap because there's no alter. Well if you're gonna go 75% on bridge at nine and a half, why would you not go a hundred at 11? Like that's a no-brainer. Right. And so, not to mention you don't have the breach debt org structure and all the crap that comes with it. Yeah. So that's, you know, that's a tool that has become more attractive right now For sure.

Jonathan Davis

01:10:50

Well, yeah. When, when you break it down, I mean, someone's gonna do 75 and 75, so 75 of the purchase, 75 with a re that means you have to bring 25% of the costs of the total cost. So typically you're not gonna have that. You're gonna have to either get mezzanine debt or equity, and typically you're gonna give up equity and what is that equity gonna cost you? So when you're factoring this, you're factoring, okay, I'm paying nine for 75% of the cost and then this equity's gonna cost me X amount. And if you can get 95 or 90% loan to cost on, on hard money or private lending at 12 or 10 or whatever the case may be, when you run those side by side, a lot of times the private lending is the cheaper option in the long run. But again, it comes down to the carry. Can you, you know, is there a negative carry? Is there a lease that period? Do you have to get out all the units, you know, flushed out and then rent them all? Can you rent em them as you go? So each one is different, but I will say it debt is always cheaper than equity.

Bill Fairman

01:11:58

Well, yes, I, I totally agree with that. That's what we talk, we talk to people about that all the time. Why do you get a, a money partner who's gonna take half of your equity when you can get a hard money loan and spend, you know, five, 10 grand worst case scenario on your financing on a, on a home Yeah. Scaling. You have to have good systems and processes in place. Do you wanna absolutely. Talk about any, how you guys are doing it?

Hunter Bick

01:12:28

Sure. You know, so I mean, for us, everything starts with, you know, a goodbye. Right. And so, you know, we probably model a hundred deals for every one or two that we buy. I mean, we're super, and, and everything's off market too, so it's not like we're, you know, modeling deals that are on LoopNet or Right. Publicly listed. Like we don't bother

Jonathan Davis

01:12:47

Except that first one.

Hunter Bick

01:12:49

Well, yes, except that first one. But, you know, so, you know, so, so has to start there and like, you ha you just have to be, you have to stick your guns and you have to be super selective because it's very easy to like go through your spreadsheet model and say, Okay, well I think I can whittle the, I think I can get this rental done for 10% less and oh yeah, I think I can get 10% better on my takeout loan or a little bit better leverage. And before you know it, you've just, you know, inch your way, you talked yourself into doing a deal that maybe you shouldn't be doing. Right.

Jonathan Davis

01:13:19

You've modeled a unicorn situation that probably won't

Hunter Bick

01:13:22

Happen. Exactly. Yeah. So we try to, we always, I always try to say, I mean, everything be is a probability again, you know, so what's a range of probabilities for each piece of the process? What's the average, what's the worst case? What's the best case? And if you know, kind of that between average and worst case, if something like that still works, then it, it's, it's gonna be a great deal. If things can go wrong and you still make money, it's gonna be a really good deal.

Jonathan Davis

01:13:47

Do you, when, when you're modeling this, do you stress test them at higher cap rates on the exit? Do you, you know, like let's say like, you know, Charlotte's trading on a B level asset, I don't know, a six cap, do you stress test them at a, at a different cap rate? Or kind of what do you do to to stress test those, those models?

Hunter Bick

01:14:07

Yeah. So the way we kind of look at it, we're less worried about the cap rate because the, the, the, the end result, because we're not doing, we're not doing a new construction, right? We're, we're doing B and C value add and so on, on the takeout. If it's, if, if it's a sell, the NOI is really what's gonna matter, right? That's gonna drive it. And you know sure. If, if, if we have to have a five cap on the finished NOI in order to make any money, like no. Right? Like, I mean, come on. But, so if we're gonna make money at selling it at a seven, it's probably a great deal, right? Yeah. For us, we always wanna see what can we refinance at that? Can we do a cash out or would a refi require cash in? That's what we never want to do. Always. You always wanna cash out or cash neutral worst, you know, worst case for us. And, but the cap rate's not the constraining factor there. The, the cash flow is especially in a low cap rate market like Charlotte, right? So, you know, so yeah, we definitely look at different exit scenarios, like what happens if there's some, if the expenses are actually higher than we're projecting, what does that do to each scenario? But we always wanna have multiple exits. We don't wanna be locked into a one path.

Jonathan Davis

01:15:20

Yeah. And we, you know, for the people out there, if you're working with syndicators or other people who are doing this, you know, that's what you want to be savvy about is understanding the net operating income, understanding that there's a difference between the acquisition capital capitalization rate and the operating capitalization rate and the exit capitalization rate.

Hunter Bick

01:15:40

Yeah. Lemme talk about that real quick. Yeah, go for it. So the acquisition cap rate is I think, a huge misnomer, right? That matters a lot if you're buying a stabilized asset. Like if you're buying an A and you're buying this thing for the cash flow and you're buying it for, you know, market appreciation, call it the going in cap rate does matter. Anything else, like value add, the cap rate means nothing because the whole point is you're buying something that's already distressed. Yeah. So we've bought zero caps, like a, an empty property is a zero cap, right? Yeah. We've bought one caps because the financials were so bad, right? Yeah. That, that means nothing because all we care about is what's the cap rate after we renovate, stabilize, you know, improve the operations, What's that cap rate? Exactly. Because that's what, that's what matters. Yeah. All, all in on, all in on cost. So those

Bill Fairman

01:16:29

Of you in the single family fix and flip business, it's basically what's the place gonna be worth after the repairs your thing? Same, You're not buying a, a property because it's, it's valued at what, what it's the sales price is. That's not why you're doing

Jonathan Davis

01:16:44

Yeah. Yeah. And, you know, just to, to beat the dead horse here, I mean, we've, we've, you know, Hunter and I've had, I don't know how many hours of conversations about cap rates, but

Bill Fairman

01:16:54

I got feeling there were adult beverages involved

Jonathan Davis

01:16:57

Maybe on some of them. Yeah. Yeah. But yeah, it's like people don't understand like what's the most important, is the most important or two things, and Yeah. Excluding if you're buying like an A level asset, which, you know, like that's not what we're talking about here. It is your operational cap, right? What, what is your yield, what is your cash flow? And then what can you, what multiple can you sell that asset for? Those are the only things that matter. Not, it's like, well, I can't buy it, it's a four cap. It's like, that doesn't matter. I mean, if, if you're gonna be putting in $600,000 and raising the rents 200 per unit four cap doesn't matter.

Hunter Bick

01:17:38

Exactly. No, exactly. And that's the key thing a lot of people get tripped up on.

Bill Fairman

01:17:41

Now, as Jonathan was saying, if you're involved in a syndication, you're a passive investor in this syndication, what is it you would like more the sale of the property and get a big chunk of change at the end, or a refinance at the end of the out, and you get a big chunk of change. What's more beneficial

Jonathan Davis

01:17:59

Depends on where you are

Bill Fairman

01:18:00

To the investor.

Jonathan Davis

01:18:01

Well, it depends on what you are. So if you,

Hunter Bick

01:18:03

How good was the buy? Yeah.

Jonathan Davis

01:18:04

How good was the buy? Like, am I willing to pay the, the capital gains on the, on the sale if the buy was good, or would I rather take the no capital gains on a refinance cash out? So it depends

Bill Fairman

01:18:18

That, that was my point. If you get the same amount of money on either end, and if it's a refinance, it's tax free.

Jonathan Davis

01:18:24

Yeah. So yeah, that is true. So if you were an equity member on this property, that's, that, that refinances that is a cash or a tax free transaction that you get. But again, as Hunter, you know, pointed out as someone who does this, what am I selling it for? What did I buy it for? Right. You know, I, I might not mind to pay the taxes if it's

Bill Fairman

01:18:44

At, at the same time, if you're getting a capital gain during the process, you're probably also have some passive losses that you can also add Dang. To them.

Jonathan Davis

01:18:53

Exactly.

Hunter Bick

01:18:53

And the cash out refi for us, I mean that's, that's how we, that's along with, you know, high leverage on great deals. The cash out refi is how we got here. I mean, the cash out refi is the best thing ever. It's non-taxable. You get all this cash back as long as the property can support the new debt. And if it can't, then you haven't done your job. Right. But it's tax free dollars to go do, do go do more deals. And that's, it's, I don't know how many great cashout we're gonna see for the next 18 months, but thankfully we got most them done. But Yeah, prior to now,

Jonathan Davis

01:19:27

Not on the ones that bought Yeah. You know, Yeah. Two years and less ago. I mean, that's, that's gonna be tough.

Bill Fairman

01:19:32

I don't think the cash out's gonna be the issue. Is it, will it support the loan? New loan?

Hunter Bick

01:19:37

Yeah. Well it's, yeah. I mean, the ca you can, the cash out still exists. It's just not gonna be as good.

Jonathan Davis

01:19:41

Yeah. The, the debt service coverage ratio is gonna be a big issue for, you know, and that's just how much does gross does the property make? And then how much does it spend on interest principle taxes, insurance, and any HOA fees.

Bill Fairman

01:19:55

But it's not the end of the world either cycles or just that they're cycles. Would

Jonathan Davis

02:20:00

You say that cycles are cyclical? Yeah. Yes. Okay.

Bill Fairman

02:20:04

The lower rates will come back around at some point.

Jonathan Davis

02:20:07

Yeah. Yeah. I mean, yeah. I mean, like I said, you know, talking with different people, I mean there, there's some people who think that, you know, it's all over. It's, yeah, it's all over. And for the next 20 years it's just gonna be, you know, a blood bath. And then there's some people who think, Oh, you know, January of next year fresh start, we're gonna be great. And you know, I think neither one of those are right. I think we're between those two where exactly. You know, that's the question. But, but yeah. I mean, when we talk about scaling, like right now, in the next 18 months, are you excited about scaling or are you nervous? What's your thought process for the next 18 months? We're

Hunter Bick

02:20:47

Always excited. Yeah. You know, I think for, for different reasons, depending on, you know, what the market gives you. I mean, you have to be able to adapt to what the market gives you. Right. No one's smarter than the market, and I don't try to pretend that I am, but I do try to be prepared for different eventualities. And so, you know, right now it's harder, debt is more expensive, it's harder to get that huge cash out after the value add period. Yep. Okay. No problem. So the, the move there is probably more equity, a little less debt on, on, on the buy simply because you don't know when you're gonna be able to get to, you know, 4% per debt again. Yep. That could, that could be a while. So bringing in equity investors to participate is, is, is, is, is, it's a good way to handle that.

Hunter Bick

02:21:35

Staying, staying sticking to our guns on good buys is more important than ever. Yep. And maximizing the value of the properties. You do have, I mean, we're still an 11% rentre renting Charlotte's environment and Charlotte, even Fayetteville, seeing huge fayville, seeing huge ones. So as owners of multifamily real estate, you know, that for properties are already in low interest debt that is going to benefit us if more cash flow from those, it allows you more, you know, buffer, you can deploy that toward new deals. You just have to, you can't assume that what you did before is gonna work forever in any business. Yep. Especially this one. But you

Jonathan Davis

02:22:12

Just, you just adapt the dumbest sentence in the English language is that's how we always have done it. Isn't,

Hunter Bick

02:22:18

I think that's Oh, it's terrible. Yeah. Yeah. Like, you know, you have to, you just have to be realistic about, well,

Jonathan Davis

02:22:23

We talk about pivot, and you have to be able to be nimble and pivot. I mean, so to back up on the equity piece that Hunter was talking about, why is that so beneficial and how can that help you scale? Well, equity, true equity, if, if you're giving up equity as like a, an lp, which is a limited partnership, so you have a general, general partner, and then you have a limited partner. When people invest into multi-family as an equity member, they've become a limited partner. And the general partner is the operator would be, you know, Hunter in this case. How does that help you scale? Well, the debt is a fixed monthly or quarterly or however it's, you know, amortized, it's a fixed payment and that payment is the payment, and it is every month or every quarter with the equity, you can set a lower preferred rate of return with your equity members.

Jonathan Davis

02:23:13

Like maybe they're okay getting 4% cash flow over the life of the, the project because they're going to get depreciation and maybe that depreciation equates to an 8% return on top of the four, and that gets 'em to 12. And then there's a, you know, a backend equity piece that they get and it jumps into 20, like a 20% irr. So, you know, like there's, that's the way to do it. It, it helps you on the cash flow, it helps you manage that asset while you're working on it and while you have it in your portfolio. And it gives them a benefit, you know, they get some money, they also get a tax benefit, and then they get a back end benefit.

Hunter Bick

02:23:52

And it also allows you too, to, you know, one thing we always do, incentives are super important. You know, you want s to be a hundred percent aligned. What we typically do is, you know, we waterfall the equity, in other words, so like outta the gate, our investor would have, like, we did one where our investor had 99% of the equity until we performed. We have no problem with that because we knew we were gonna perform and then they're protected in case something goes wrong. And I think that makes a lot of sense, and we're more than happy to do that. Of course, once a threshold is met, well then the equity changes. But everyone's made their money at that point.

Jonathan Davis

02:24:23

And so, and anyone out there syndicating deals right now where you're an lp, is your GP willing to give you 99% of the, the equity until they perform? If they don't, maybe you should visit elevate capital group.com. Appreciate,

Bill Fairman

02:24:40

And keep in mind too, multifamily is vet as recession resistant as you can find. It's residential in any economy. Again, you need two things, food and shelter and

Hunter Bick

02:24:51

The foreclosure rate for B and c multifamily in peak financial prices, 2009 was less than 1%. I mean, yeah, that's, yeah, that's about as good as it

Bill Fairman

02:24:59

Peak need a place to live.

Hunter Bick

02:25:00

Nothing is bull, nothing is perfect. But yeah, multifamily, real estate's pretty

Jonathan Davis

02:25:04

Resilient. 1%. And you'll, you'll play those all the time,

Hunter Bick

02:25:06

All

Bill Fairman

02:25:07

Day long, just like the base.

Hunter Bick

02:25:08

Exactly.

Jonathan Davis

02:25:09

Yeah.

Bill Fairman

02:25:10

All right folks, thank you for joining us on the Real Estate Investor Show. We are Carolina Capital Management lenders in the Southeast for professional real estate people's. If you have a pr, if you have a project you'd like us to take a look at, go to carolina hard mini.com, click on the plan out tab. If you are a passive investor looking for passive returns, go to the Accredited Investor tab. This is a great show. Thanks again, Hunter, for being our guest today. And we guys, we, we will see you next week. Thanks.
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241 How To Find Emerging Markets | REI Show - Hard Money for Real Estate Investors
3 Oct 2022· Passive Income, Active Wealth - Hard Money for Real Estate Investing
https://youtu.be/YmfjzV0YiwI

Bill Fairman

00:00:01

Not this time. Oh, we're on now. What a surprise. So there's been a lot of discussion about how to get into markets that are not overpriced. So we're gonna do a show today about finding emerging markets, and you will get that information right after this.

Bill Fairman

00:00:44

Good afternoon everyone. It's Bill and Jonathan and or special guest hunter. But we were, we were gonna tease him in, but too bad he's already here. Thank you again for, well, not again, but thank you this time for joining us on the Real Estate Investor, Show Hard Money for Real Estate Investors. We are Carolina Capital Management. We are a private lender for real estate professionals in the Southeast. If you have a project you'd like us to take a look at, please go to carolina hard money.com and click on the apply Now tab. If you're a passive investor looking for passive returns, click on the accredited investor tab. Don't forget to like, share, subscribe, hit the bell, all that good stuff. Excellent. And don't forget, Hey, Brian. What? Oh, Wendy. Wendy. Don't forget about Wednesdays with Wendy. She, and yes, I will talk right through the graphics. Anyway, Wendy devotes 30 minutes per person on Wednesdays that wants to talk anything about real estate. So there's her link. It will also be on the comments and chat section on the right side or underneath, depending on the platform that you are viewing us from. She usually gets booked out about two months in advance. So book your spot now

Jonathan Davis

00:02:16

For everyone out there wondering. I'm six foot two hunter's, just seven foot.

Bill Fairman

00:02:24

Yeah, I'm

Jonathan Davis

00:02:25

Just sure. I'm trying to keep my head in the

Bill Fairman

00:02:26

Frame for you. I can go ahead and admit that I'm vertically challenged. Oh, that I don't have an issue with that. No. So yes, we have our, our guest Hunter B he is with Elevate Capital. We have what about a three year history? Guess? 4, 4, 4

Jonathan Davis

00:02:45

And a half. Four and a half year history.

Bill Fairman

00:02:47

It's a great story. We're gonna let him tell it instead of me or Jonathan tell

Jonathan Davis

00:02:52

It. Yeah. And before he tells that, I just wanna get some quick information in for everyone. Just want, this was some data that we have that will kind of lead into what Hunter's gonna talk about, but also about the emerging markets. We are, this is what, the third month in a row where we've seen rents slow, but they are still rising. Charlotte is kind of, I think in the top seven on still rent increases, which is 11.5% year over year. The median rent in Charlotte right now is almost $1,800. And if you've followed the show, you also know that the median house payment for a mortgage is 18, 18 50. So they're, they're right there with each other, which is, you

Bill Fairman

00:03:49

Know, that means there's room to grow.

Jonathan Davis

00:03:50

I suppose so. I suppose so. So we're also seeing, give me a second.

Bill Fairman

00:03:57

No issues.

Jonathan Davis

00:03:58

We're also seeing a slow down and starts on single families and a slow down and starts on multifamily. However, construction that is in process is up on multifamily by 27% and up on single family still by 4%. So we're still seeing, you know, there's still growth, but we're next, you know, Hunter and I were talking a little offline a little earlier, and you know, as the next month and, and two months comes in, we're gonna see that decline and that slowing down hit even harder and boasted because of the interest rates. Supply chains, picking up lumber, you know, as we were talking about earlier, as, you know, back to pre pandemic levels, which is good. So also if the, if you're in the way of the hurricane, we're very sorry. I think, Bill, did you lose a home?

Bill Fairman

00:04:51

Well, yeah, that's what I was gonna jump in into before we got too, too far into this that you guys pray for the folks in Florida, we have some short-term rentals down there, but we don't live there full time. So it's not affecting us like it would the people that live down there full time. And there are people that are missing as well. So keep 'em in your prayers. It's gonna be a while to recover where it hit the hardest. Yeah. That said, starts almost always do this when there's a coming recession.

Jonathan Davis

00:05:24

Exactly.

Bill Fairman

00:05:25

People are being a little bit more cautious. Banks are kind of holding off on commercial and residential development because through every downturn, or we'll just call it a crash. Yeah. What's the first thing that goes under? And it's the start of a development. Exactly. So it, it, here's the problem though. We're still 5 million homes behind where we need to be based on the population growth. So all it's gonna do is increase demand for what's out there. Yeah. Right. Yeah.

Jonathan Davis

00:05:57

Well, talking about increasing demand, want, you know, get Hunter talking here. We wanna know kind of, you demanded each stop by we demand. So wanting to know kind of how you all got started, What was the first project, and then just kind of take us through and, you know, I'm sure Bill and I will interrupt and jump in from time to

Hunter Bick

00:06:17

Time. Okay. So like the three to five minute version, not the 20. Hey, you

Jonathan Davis

00:06:21

Take all the time you need. We're on your time, man. Yeah.

Hunter Bick

00:06:23

All right, cool. So we kind, we, our, our partnership Elevate Cowboy Group got started really, we started 2017 ish, mid 2017. And one of our partners, it was high school, buddy of mine, his name's Matt. And then we met our third partner, Shannon, pretty shortly thereafter. And we just really clicked really well. And you know, we at the time, even, even now, but like the, the whole idea is effectively we do is value add multifamily, where we can go in, find something that's underpriced because of distress or a bad rent roll or whatever it is. We can go in, renovate, improve the quality of life, improve the asset. And

Jonathan Davis

00:07:06

You pulling those off with mls, right?

Hunter Bick

00:07:08

No. Now the very first one had been on LoopNet, believe it or not, our very first deal was in an emerging market. So good segue. Yeah. In Fayetteville, North Carolina. And it had been on loop net, we made an offer, didn't get it, came back to us a few months later, fell out a contract and it was $2 million for 56 doors in Fayetteville, which in today's world would be Absolut absolutely unheard of. That was, and that was in

Jonathan Davis

00:07:33

2018.

Hunter Bick

00:07:34

It was 2018. And at the time, everyone told us we were idiots for wanting to buy anything in Fayetteville, and we'll get into that in a minute, but they were wrong. And so we had an appraisal for this property and we had like a hundred grand to buy an apartment building. And we had an appraisal, said it was worth two and a half million. And Shannon and I were talking about it, We were like, Well, why don't we put hard money on it? So we came down here to Carolina Hard Money, aka Carolina Capital Management now, Excuse me. Yes. Yep. And showed you guys what we had and you guys got it. And that's what helped launch us. We wouldn't be here today without, without that first deal and all the other ones we've done together and, and you guys gave us a hundred percent of the purchase and some rental money five months later, that thing appraised for 3.3. Yep. And we did a cash out. I think our new loan on it was two and a half, maybe paid you guys back, took some cash out to put towards future renovations. And that's kind of how we found our model. It's basically like a leveraged buyout private equity type model. Yeah, we've done that. We've done what, 20 deals now? We've done most of them in some similar structure. I was gonna say on this first deal. Yeah.

Bill Fairman

00:08:55

It was based on market conditions. It was pretty much fully occupant, right?

Hunter Bick

00:09:00

Yeah. It was like 85 something.

Bill Fairman

00:09:02

Yeah. And while it, there might have been some updates that could be made. It wasn't that it was in bad shape, it was just outdated. Right? It

Hunter Bick

00:09:13

Was, it was compared to some of the stuff we've seen, it was not in bad shape. Yeah. It, it definitely needed some deferred maintenance. It had some issues. The that one though, the, the income statement was where lot of the value add was, right? Like the expenses were off the charts. Like the previous owner was, this is not, this is no joke. He was spending $400 a month to lease a copy machine. Why on earth does an apartment comp? First off, you could buy one for half of that. Second of all, what is an apartment comp? Like what is it like, why would that be on an apartment complex as

Bill Fairman

00:09:45

Books? Right? It was installed in a new car. That's the difference.

Hunter Bick

00:09:48

It must have been. Right. And so, you know, we knew enough to say, okay, 400 times 12 is $4,800 a month, $4,000 a year to divide that by, at the time it was like a seven cap. I mean, the math on that is big money on the valuation. And so we, we, we fixed a lot of stuff like that.

Jonathan Davis

01:10:09

And that's, you know, just, just to jump in. I mean, when you're looking at these that it's not what you can increase. Everyone thinks what can, you know, what's the rents that I can increase, You know, and under market rents. That's, that's, you know, a great way to look at it. However, this particular asset that when I was underwriting it, it was actually the, you know, when I joined with Wendy Bill, this was the first multifamily that I under underwrote for them. We could see immediately there was exorbitant amount of expenses on there that shouldn't have been there, that created hundreds of thousands of dollars of value once they just removed them.

Bill Fairman

01:10:44

No. Now on, I was gonna say on the reverse side of that, if your brother-in-law is gonna be able to do stuff a lot cheaper than the market Yeah. That's not gonna count than the valuation. So something to keep an eye on when you're looking

Jonathan Davis

01:10:57

At these things. Yeah. You can't say like, you know, well my expense ratio is gonna be 20 when market's 35. Right. You can't say that.

Hunter Bick

01:11:04

No. I mean, you can, but no one's gonna believe you.

Bill Fairman

01:11:06

No

Jonathan Davis

01:11:06

One no, no price's

Hunter Bick

01:11:07

Gonna use that. Yeah, no, no. Good lender will buy it. Yeah. Yeah. And so, you know, the commercial real estate is valued on the operating income, the, the, the net operating income, the noi, and that's the game. And depending on the deal, it could be that could be through, you know, buying an empty property and fixing it and, and leasing it to market. It could be cutting expenses from mismanagement. It can come in many different ways. Yep. And you know, a lot of 'em, the CapEx, some of them need so much CapEx that doesn't generate revenue. Like we looked at one where capital

Jonathan Davis

01:11:40

Expenditures, things that you have to do to the property is what CapEx is. Yeah.

Hunter Bick

01:11:45

Thank you. Yes. And so, but there's different types like roofs, structures,

Jonathan Davis

01:11:52

Hvac,

Hunter Bick

01:11:52

H H V C

Jonathan Davis

01:11:53

Sales things don't add value because people expect a roof and they expect, you know,

Hunter Bick

01:11:57

Exactly. A lease is a two-way document and these things are supposed to work per your side of the leasing, the lease contract. And so you don't get bonus, you don't get anything for that. But if all of the, all of the CapEx that a property needs is unit upgrades or improving the landscaping or the curb appeal or things like that, those things drive value immediately. And that, and so you ideally you want properties that have new roofs and new parking lots and don't need structural work. Yep. And you can just go renovate doors. Now all your CapEx money is going to where it makes the biggest difference. Yep. And so you can see any combination of that. Some, you know, some deals work, some people don't. But you know, that's definitely something to, to look for.

Bill Fairman

01:12:41

And and your typical business model is essentially whatever the, the best deal is. Right. It's not just about buying hold, it could be buy or renovate and sell at the same time, depending on the high

Jonathan Davis

01:12:55

Best use for the

Bill Fairman

01:12:56

Property. Cause there could be some great offers that are coming in. Yeah,

Hunter Bick

01:12:58

It could be. Yeah. You know, when we go in, we, we don't want to be married to a particular exit strategy. Sure. You know, and so if, if the deal only works, if we can turn around and sell it in a year, 18 months, probably not gonna do it. Right. There have been a couple, there would, I can think of a couple exceptions to that, depending on markets and different types of assets. But in general, like, you don't wanna be locked in to one path because if that one path doesn't work and you're gonna, if if it doesn't work and you're gonna lose money, that's tough. That's not a situation you wanna be in because real estate's illiquid, it's expensive to sell. You don't wanna be in a situation where path A you lose X and path B you lose X times two. That is not a situation. Our job, my job is to keep us outta that situation. Right. So everything we do, we wanna be able to have the option to refinance it. Yeah. We

Jonathan Davis

01:13:48

Sell it. Absolutely. Yeah. That's, we talked about multiple exits always. So why, why is Hunter here on this show for emerging markets? That's because when I talk with him and his partners, what's really important and what they're really good at is sourcing deals and underwriting deals. So much so that like, you know, in 2018 they were, you know, in Fayetteville before a lot of people got into Fayetteville. And what we want to talk about is, Hunter, what are some of the metrics that you look at when you're underwriting a, a project or a property and maybe it's in a, you know, a market that you're not familiar with or you're thinking about getting there, or it seems like it's a great deal, but, you know, what are the metrics you look at for those particular markets?

Hunter Bick

01:14:38

Sure. Yeah. So the first thing we, the first thing I wanna look at for any deal is the rent roll, right? Is I wanna know where are these rents compared to the average or median in that market, right? You look at some markets where maybe the rent roll 600 bucks, it's like, okay, well that, that could be high, that could be low. It depends on the rest of the market, right? Yeah. And so then the, you know, the, the second thing, if it's a new market, we wanna see rent to median income. Yep. Where, how low are the rents compared to the median income? And if you look at, But that only matters if you look at a bunch of other cities too, right? Everything's relative. So when we were looking at Fayetteville, for example, in 2018, Fayetteville's rent media income at that time it was like 18%. If you, Charlotte was like 32, all these other cities were like high twenties, like Raleigh times 20,

Jonathan Davis

01:15:24

They're 25 and up.

Hunter Bick

01:15:25

Yeah. Yeah. They're all 25 up. And then here's Fayville, like all the way at the bottom, like way below like every other, you know, 30 other cities. And we're like, okay, clearly the media income in Fayetteville can support higher rents, you know, in the near

Jonathan Davis

01:15:38

Future. And, and in rents to median income, it's, it's just a, a hunter's way or someone who's buying multifamily or lender. It's the same way as looking at like your debt to income. That's, it's it's the exact same thing. So kind

Hunter Bick

01:15:52

Of at scale it's

Jonathan Davis

01:15:53

Yeah, yeah, exactly. At scale. So it's instead of an individualized debt income, it's a generalized debt to income for what are the average people making and what are the average rents. Right?

Hunter Bick

01:16:02

Exactly. And so, and, and so then, so you wanna have an idea of not only where, where are rents at this particular asset, relative to this particular market, but what higher risks can this market in general support? Yeah. So that's kind of the by far away when you,

Jonathan Davis

01:16:17

When you 18% you think could

Hunter Bick

01:16:20

Rise. Yeah. Yeah, it could rise. Absolutely. Yeah. When plenty of other cities are sustaining at 30, right?

Jonathan Davis

01:16:25

Yeah. But when you see something at, at 28, you're like, hm. You know, Yeah. It might rise a little bit, but there's not a lot of potentially a lot of meat

Hunter Bick

01:16:32

There. And it may not disqualify it either because even, let's say, let's say it's a 28 or 30 for the market, but this particular asset is still $200 below the average in that market. Still a great deal. Right?

Jonathan Davis

01:16:43

Exactly. Yeah.

Hunter Bick

01:16:44

So, you know, so you wanna, you just wanna have the perspective of all that together. The other, the other big one of course is what kind of employers, what's the job base? How stable are these jobs? The case with Fayetteville and you know, we tell the story a lot, but so many people told us we were crazy to be buying in Fayetteville because obviously Fort Bragg is in Fayetteville. That is the biggest military base on the planet by far.

Jonathan Davis

01:17:10

By personnel. Yeah.

Hunter Bick

01:17:11

Yeah. By, by by count is 45,000 active duty soldiers. It is the home of the US special forces and, but then there's another like 30 or 35,000 civilian contractors that work on that base every day. So obviously that's a key economic driver of Fayetteville. No question. They also have a lot of healthcare, higher education. They have other job, the other industries that are doing well and growing. Yeah.

Jonathan Davis

01:17:37

This their support systems all around for for that.

Hunter Bick

01:17:40

Yeah, exactly. So people were like, Well, you're crazy mother, what if Fort Bragg goes away? It's like, okay. It's like, can we talk in probabilities please? Because okay, sure that might happen. But what is the probability of the US government moving the biggest military base on the planet out of fort away from Fayetteville? Why would they do that? That will probably never happen. So, I mean, I'm a former poker player, everything's a probability to me. Let's put a probability on this point. Oh oh 1% maybe? Sure. Maybe oh oh two, maybe oh two. Perfect. I can model that. Yeah. Great. I'm willing to take that chance to buy something that is half off. Yeah. That is half, literally half of what this asset is worth all day long. Yep. No problem. I'm happy with that risk.

Bill Fairman

01:18:25

Now do you still have that asset?

Hunter Bick

01:18:27

We actually did sell that one. Okay. That one we 10 31 into try house. Oh

Bill Fairman

01:18:32

Nice. Now let's start at the beginning. What'd you pay for it

Hunter Bick

01:18:37

For? For Apple Applewood. AK metal metal 0.2 million. Right. 2 million. And then

Bill Fairman

01:18:43

And you sold it, You exited for what?

Hunter Bick

01:18:45

Four three. Four four. And

Bill Fairman

01:18:47

You did that and how many years

Hunter Bick

01:18:50

Was it two years? Yeah, it was 18 months. 1818 months was 18 months was 18 months. I think it was 18

Bill Fairman

01:18:55

Months. So not a bad roi.

Hunter Bick

01:18:58

No, that's going, That's going. Yeah. I wish, you know, I wish all of them were as easy to underwrite as that one and that one, you know, our thing with FA too is like the cash on cash yield for buying doors at 40 grand a door in Fayetteville when the rents were like 700 average, the cash on cash was ridiculous. It was like almost double digits, right? Yeah. And so we were like, it is only a matter of time until bigger institutions who already love North Carolina noticed this. Yep. And these properties are gonna bid up like crazy cuz the cash yield is so good. And so we, everything we could find under, I think under 50 a door, like we bought a couple hundred doors under 50 a door and we didn't say no, whatever it was, we just, we said we had figure out to own this and that's what we did. And just a couple years later, man, I mean a hundred a door on average, I've seen things straight for 1 25 a door in Fayetteville. Like Yep. Decent bs not even a's or anything. The A is over 180. Yeah. You know? Exactly. So that did end up happening. So we were fortunate there, but trust your analysis, you stick your guns

Bill Fairman

02:20:00

As these larger markets and, and even Charlotte is not exactly a major market. It's approaching one, but it's the largest market between Atlanta and say DC Yeah, right. So we'll, we'll

Hunter Bick

02:20:13

Call it And multi in multifamily is a major market though.

Bill Fairman

02:20:15

Yeah. Well, we'll call it a major market. That said, how do you, how do you find or how are you marketing to get properties in these smaller tertiary markets?

Hunter Bick

02:20:28

Yeah, I mean really just building relationships. You know, one of our partners, you don't know Margaret, do you, We don't only do much, you know, one of our partners, his, his primary focus is, is our deal sourcing. And without, you know, we talk about this a lot, but without a deal that has a lot of money, you know, money made on the buy basically like built in equity off market has a lot of upside. Once you fix the problems, you can, you can come up with the most brilliant financial strategy in the world and you can be the best operator once you own it. You can be the best operator in the world and you can have the best construction crew in the world, but none of that's gonna matter if you overpay for a deal. Sure. Like you can't engineer your way into a great return if you're overpaying at, at the beginning. And so, but do we always

Bill Fairman

02:21:16

Say you make your money on the bank?

Hunter Bick

02:21:17

Hundred percent. Absolutely. Even

Jonathan Davis

02:21:19

In multi-family money. Even in

Hunter Bick

02:21:20

Multi-family or you

Jonathan Davis

02:21:21

Have forced appreciation because you can only force that appreciation based off of the cap rate, the capitalization rate in that area. And you can only force it to market rents and maybe slightly above. So it's, there's, there are limitations even there.

Hunter Bick

02:21:37

Absolutely. And, and so, you know, we realized pretty early we're like, look, we have to have, we have to be able to find off market deals that need a ton of work and have a lot of upside. And and that's really, that's really where it starts and makes

Jonathan Davis

02:21:52

Me think of what's, was it that one off of Arrowwood

Hunter Bick

02:21:56

Victory aka Greenwood Village Town Homes.

Jonathan Davis

02:21:59

That's okay. Greenwood. Yeah. So this was in Charlotte and what was it, 24 units, is that right? 24

Hunter Bick

02:22:07

Doors, Yeah, 24 doors. Town

Jonathan Davis

02:22:08

Homes. And

Bill Fairman

02:22:09

They were big units too. They

Jonathan Davis

02:22:11

Were, they were

Hunter Bick

02:22:11

Beautiful. It's a cool property.

Jonathan Davis

02:22:13

I'm, I'm, I'm going off here, but didn't you like, wasn't that the highest per door sale for a B asset in Charlotte?

Hunter Bick

02:22:21

I believe it was. That's what the broker said. Yeah. And that was a good exit and I think those guys did, did well on the purchase. I mean it was just a rapidly improving part of town, so they hoped they did well with it. Yeah. But yeah, then we sold that in the one 30 s for

Jonathan Davis

02:22:38

One 30 a

Hunter Bick

02:22:39

Door ish. Yeah. Something

Jonathan Davis

02:22:40

Like that. And what'd you buy it for a door? Do you remember?

Hunter Bick

02:22:43
I need a lot of work. I mean we, we put in Yeah. 30 a road.

Bill Fairman

02:22:49

Yeah. You you did a lot of work on

Hunter Bick

02:22:51

That place. Yeah. Yeah. It was a total redo that

Bill Fairman

02:22:54

This place was located off the nations for road, but you had the south end was kind of creeping up towards that area and it, it was a neighborhood that was turning around

Hunter Bick

02:23:05

And that big cpcc campus right

Bill Fairman

02:23:07

Across the street from CPCC campus down there. And you guys did a nice job going in and rehabbing that place too. Well thanks. It had great large apartments. It had three bedrooms in some of 'em,

Hunter Bick

02:23:21

Didn't it? Yeah, I think two thirds of 'em were three beds.

Bill Fairman

02:23:23

Yeah. So it's, it may have been a B property to start with. When you get a lot of room like that there are, you know, larger families that are moving temporarily because they couldn't find a home in Charlotte buy because it was so hard to find inventory. And it's, that's the perfect place for people to move in to have larger families too.

Jonathan Davis

02:23:43

And when we say like, you know, A is, you know, new construction, then you have B, C, and even like D properties. So you have the, the c and D level assets, but you also have the c d level locations. So picking up a D level asset in a B location is what Hunter looks for

Hunter Bick

02:24:04

For an a

Jonathan Davis

02:24:04

Location or an a location

Hunter Bick

02:24:05

Motor landings an a location. Yeah. Dset and an A and you know, so that's, that's the best possible. The dset in the A location is like assuming the price reflects the dset, you know? Right. Yeah. That's, that's really the nice, the dream deal. And they're going Fayetteville like that where, you know, they were c minuses in an A minus location and Yeah. You know, you, you just, they'd been ignored for

Jonathan Davis

02:24:31

40 years. I mean cuz think about it. I mean we're talking about Fayetteville cuz that, you know, again, they, they got in there in 20 17, 20 18, which you know, was, you know, a couple years before I think really? I didn't see a lot of activity there until 2019 from other guys.

Hunter Bick

02:24:43

Everybody started noticing

Jonathan Davis

02:24:44

It. Yeah. But I mean you realized quickly it was like anything near and supportive to a base that has 70 plus thousand personnel on it is probably an a minus location.

Hunter Bick

02:24:57

Unless the base goes away.

Jonathan Davis

02:24:58

Unless the base goes away. Which is a, we, you know, we can see at 0.002. So,

Bill Fairman

02:25:03

And what was unique as well about his apartment complex, there was, so there was a certain number of unit units that were kind of like an Airbnb. Right. They had short term, you talking about

Jonathan Davis

02:25:12

Victory or are

Bill Fairman

02:25:13

You talking about the one in Fayetteville? Were, weren't there any furnish

Hunter Bick

02:25:16

Yeah, there furnished to bunch

Bill Fairman

02:25:17

If you had contractors that would come in and wanna stay and, and that's a perfect thing to do in some of these. Yeah,

Hunter Bick

02:25:23

Yeah. And that's not a, depending on we, our system is a lot better. We learned and we learned a ton since a couple of these man, I would love to go back and do 'em again. Yeah. Just cuz like we always learned. I know right. What we do for some of our properties now that are in decent proximity to Fort Bragg, what we do is our property manager has like a, like a furniture rental place and we actually rent the furniture for whatever it is and then charge, you know, upcharge on that to the tenant. That way we don't have to be in the furniture storage, furniture maintenance business. That's a nightmare. So anything, we always look for ways to like smooth out the logistics. You make a little bit less money, but it's more worth Yeah. You make it back in the time.

Bill Fairman

02:26:01

Nice. Absolutely

Hunter Bick

02:26:02

Damage.

Bill Fairman

02:26:04

Get

Jonathan Davis

02:26:04

A question real quick.

Bill Fairman

02:26:05

Yeah, go ahead.

Jonathan Davis

02:26:06

Yeah, let's throw up the question of the week guys if we could. It's got it. All right. So the question of the week is, we want to know what metrics do you look at to identify emerging markets? I know we, we talked about, you know, the, the average rents, the median income. We also look at, you know, migratory patterns. We're looking at, you know, what are some other metrics that you all

Hunter Bick

02:26:38

Look at Who, who the employers are, the employers state, How stable are those jobs? Yep.

Jonathan Davis

02:26:42

Yeah. Is it, is it a medical or a base or is it, you know, a telecom service? You know those, those have different weights to them. Education's good. Yeah. A lot of people work there. It's stable. Yep. Yeah. So what metrics do you all look at to identify emerging markets that we didn't list or maybe something we did list? And you have a better explanation than we do.

Bill Fairman

02:27:05

I will say that North and South Carolina, both are a bunch of medium size cities or are a little smaller than medium size city. We have large populations in both states, but they're not, it's not like Atlanta where Atlanta covers most of the states.

Jonathan Davis

02:27:21

It is Georgia. Exactly.

Bill Fairman

02:27:24

So there's a lot of opportunities spread out all, all throughout the southeast really. Yeah. So yeah. Answer that question. Put it in our, our chat. We'll keep up with and we'll talk about it next week. I hate to do this. We're running out of time before

Jonathan Davis

02:27:40

We run outta time. I have one more thing. It surprised me. It was a metric that I read this morning that surprised me. One like in multifamily starts, the northeast has seen an increase year over year that I did not I, and in a 4.6% increase in multifamily starts Wow. In the northeast. It's only beat out by the south, which is at 5.6, which, you know, every other region is actually declining but the northeast is increasing. I and but we expected the south to, but I didn't expect the northeast,

Bill Fairman

02:28:13

I, I'm wondering if you dig deeper, are those areas that are further outside the larger cities? Cuz people wanted to be a little bit more into the suburbs and there wasn't enough single family housing to support those people have

Jonathan Davis

02:28:25

Remote work, they want more space nexts. They can maybe.

Bill Fairman

02:28:27

Absolutely. All right. So folks, I know we had a great time and but it ran out quickly. So thank you so much for joining us. And Hunter, thanks for being a guest. Thanks for having me. We are Carolina Capital Management. We are lenders in the southeast for professional real estate individuals. If you want us to take a look at one of your deals, please go to carolina hard money.com. Click on the apply now tab. If you are a passive investor looking for passive returns, go to our accredited investor tab. Don't forget to like, share, subscribe, hit the bell. And don't forget about Wednesdays with Wendy. We'll see you next week.
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240 What Financial Freedom Means To Us! | REI Show - Hard Money For Real Estate Investors
23 Sep 2022· Passive Income, Active Wealth - Hard Money for Real Estate Investing
Bill Fairman

00:00:02

Hello, everyone. Welcome to the show. Our whole theme. This month has been about financial freedom and we are going to discuss this, to discuss what financial freedom is for each of us, Jonathan, Wendy, and myself, right after this greetings everyone. Bill Wendy, Jonathan. We are Carolina capital management. And thank you so much for joining us on the real estate investor show hard moneyed, real estate investors. What

Wendy Sweet

00:00:48

We've been running up the steps. You can't get your breath.

Bill Fairman

00:00:51

We have been running around a lot. We're getting

Wendy Sweet

00:00:52

Ready to leave

Bill Fairman

00:00:54

For the quest expo. So we're trying to put all our stuff together. So where was I? Who

Wendy Sweet

00:01:00

Are we and where, what we do?

Bill Fairman

00:01:01

We are here, Carolina, capital management. We are lenders in the Southeast for real estate professionals. So if you have a project that you would like us to take a look at, go to Carolina, hardman.com and click on the apply. Now tab, if you are a passive investor, looking for passive returns, click on the accredited investor tab and get all the information you want there. We would also like for you to like share subscribe,

Wendy Sweet

00:01:27

Tell all your friends, hit the bell, the bell liking the bell.

Bill Fairman

00:01:31

Anything else?

Wendy Sweet

00:01:31

That's it Wednesdays with Wendy? Yeah. Yeah.

Bill Fairman

00:01:33

Nope. Nope. Not yet. We have a question and answer thingy on the side or underneath. Oh yeah. If you'd like to talk to us during the show and after the show and leave wonderful comments.

Wendy Sweet

00:01:46

Cause we do monitor it bad ones and we answer questions. So it's yes we do. Yeah.

Bill Fairman

00:01:52

Oh, excuse me. Don't forget about when.

Wendy Sweet

00:01:56

Yeah. Now he says, now you're good. That was

Bill Fairman

00:02:09

Cool. We won't go there. But that was a neat little graphic. Wasn't it? Yeah, it was, it was, as I was saying earlier, we're on our way to

Wendy Sweet

00:02:19

Questex quest

Bill Fairman

00:02:20

Quest expo.

Wendy Sweet

00:02:22

Yeah. Which is in Houston, right?

Bill Fairman

00:02:25

Yes. I was waiting for the final quest expo graphics.

Wendy Sweet

00:02:31

So ETT Smith will be there. I'm excited about that. I really like him. He's he's pretty awesome.

Bill Fairman

00:02:36

Yeah. I got to meet him about five years ago at another conference. He's been, I'm not about that. He a real estate investor for many, many years. So he's not just there because he is a pretty

Wendy Sweet

00:02:44

Face. He's not just a pretty face. He's a smart guy too. That's

Bill Fairman

00:02:47

Awesome. By the way, the Wednesdays with Wendy, you can get on her calendar because she's usually booked up a couple of months in advance and it's gonna be over there in the comment section. So just click it on and get on our calendar there. Yeah. Yeah. So if you haven't got your tickets yet for quest expo, I'm sure you can get 'em at it. It's

Wendy Sweet

00:03:08

Not too

Bill Fairman

00:03:08

Late at, at a discount with using our code. Yeah. But your airplane, ticket's probably gonna be pretty expensive.

Wendy Sweet

00:03:15

Yeah. Unless you're already in Houston because for

Bill Fairman

00:03:17

Close by. Yeah. Or you could drive there. Yeah. All right. So let's get the breaking news.

Wendy Sweet

00:03:44

The, the sky is falling.

Bill Fairman

00:03:45

How many of you have surround sound on your device that you're listening to us? Rob?

Jonathan Davis

00:03:50

I was gonna say, you know,

Wendy Sweet

00:03:51

The sky is falling. Stocks are falling.

Jonathan Davis

00:03:53

The, the fed raises are up the fed raised at 75 bases points. Volker is proud. Vulgar is gives the chairman from the early eighties.

Wendy Sweet

00:04:08

Voker yeah.

Bill Fairman

00:04:09

Yeah.

Wendy Sweet

00:04:09

It's

Bill Fairman

00:04:10

Been a while. So here's to sum up our breaking news rates are high stock market low

Jonathan Davis

00:04:16

To, to, to sum rates are normal. Yeah. Yeah. For answer normal. They're not high higher. They higher than, than the historic low of 1.9. 5%. Yes.

Wendy Sweet

00:04:28

Yes. But, but, and people need to remember that when the fed raises the rates, mortgage rates usually drop a little bit. So,

Jonathan Davis

00:04:37

Well the average just crossed the 6% to 6.02. Oh, I know. Well, I mean, it's up from 1.95. So you're, you're sitting at like, yeah, right at six and you

Bill Fairman

00:04:50

Know, so the fed chairman and this comments and press conference afterwards basically said, we're gonna have another 75 basis points to raise in January. They'll at that point, they're gonna let the data, see where it goes. But frankly,

Wendy Sweet

00:05:11

Prices come down on everything. Yes.

Bill Fairman

00:05:13

But they're looking at 2025 before they think, right. We will be out of a recession, so to speak. They, they keep saying, they don't know whether it's gonna be a recession or not, but it's gonna take until 2 25 to work this through the system. They want to have a higher unemployment rate and they want,

Jonathan Davis

00:05:36

We're not sure if it's a recession, but if it is, that's what we want. It'll be 20, 25 before it's over. Yeah. But we're not saying it's,

Bill Fairman

00:05:43

It's, it's gonna take a while to move all this thing through the system. Yeah. That said they

Wendy Sweet

00:05:47

Want prices to come down. That's bottom

Bill Fairman

00:05:49

Line. I'm pretty old. And I have lived through many, a downturn. I remember before I even got my driver's license sitting in the gas lines, I bought my first house when Jimmy Carter was president.

Jonathan Davis

00:06:02

Oh, I thought they were on steam at that point.

Bill Fairman

00:06:05

But my pretty much my, my whole point to this is it's not the end of the world. You just have to manage your expectations. Gotta

Wendy Sweet

00:06:13

Roll with the changes should

Bill Fairman

00:06:15

Be something. And there, there have been real estate investors when rates are high, the real estate investors, when rates are low, when prices are high and when prices are low, that's the thing about being a real estate investor is that you're a problem solver. That's right. And there's always gonna be problems.

Wendy Sweet

00:06:32

That's right.

Jonathan Davis

00:06:33

Right. I don't know. Sometimes I feel like I'm a problem survivor.

Wendy Sweet

00:06:37

It does feel that way. Sometimes

Bill Fairman

00:06:39

You're a problem creator.

Jonathan Davis

00:06:42

Well,

Bill Fairman

00:06:43

But if you know how to create him, you know how to fix him. Right.

Wendy Sweet

00:06:46

He's just, practicing's putting on practice for himself. That's

Bill Fairman

00:06:48

Right. So our theme this month has been, you know, financial freedom, how to get there. Your

Jonathan Davis

00:06:55

And members go ahead. Before, before we get there, just, just to give a little more backstory or not backstory, a little more data. Like for the inflation numbers we are using inflation is, is measured year over year. So it's, you know, August of this year to August of last year. Well, we didn't cease inflation above 3% until October of 2021. Right? So this October, when we can compare those first inflationary numbers to the year over year, that's gonna give us a better idea. That's gonna give the fed a better idea of what's going on. Right. Is it, is it, is it staying around seven to 8%? Is it nine? Or is it, is it two? You know, and if, if those numbers come out and they're a lot lower, then that that rate probably won't happen. That rate rise won't happen in January, but with what three and a half percent unemployment, 11 million jobs still unfulfilled, you know, everyone's fighting for talent and over, I'll use the word overpay

Wendy Sweet

00:08:03

That is everybody doing for work? I don't understand. Yeah. Where did all the employees go?

Jonathan Davis

00:08:10

Well, and so everyone's fighting for new employees or the, the higher and they're overpaying and now will, and it is

Wendy Sweet

00:08:16

Overpaying. Oh yeah, no doubt.

Jonathan Davis

00:08:17

And that is one of the key ingredients to inflation. Yeah. And that's one of the key ingredients to the inflationary numbers and why they're so high is the, the income, or I guess the, you know, the average salary or monthly, you know, wage has increased dramatically in a short period of time,

Wendy Sweet

00:08:35

$15 to flipping a hamburger. That's pretty strong.

Bill Fairman

00:08:39

Well, to me, it's the energy that's what's causing inflation. Energy is a part of every single piece of our economy. Well,

Jonathan Davis

00:08:50

Gas is going down bill

Wendy Sweet

00:08:52

Way down. That's,

Jonathan Davis

00:08:53

It's not $5 anymore.

Wendy Sweet

00:08:55

I just paid for 4 29 a gallon this morning.

Bill Fairman

00:08:59

But if we continue to try and listen, I'm, I'm in awe of the above, but you can't just cut one off and start another. Right. Because right now the other is not very reliable and it's not inexpensive to operate. Yeah.

Jonathan Davis

00:09:15

Yeah. And the question, I think Scott said, well, wages drop. Yeah. The question is when, cause

Wendy Sweet

00:09:22

You know, as soon as we have an Bundance of employees, well,

Jonathan Davis

00:09:24

It's, it's that, but you know the cause what, what is that doing with those higher wages it's causing the cost of goods to, to go up,

Wendy Sweet

00:09:32

Continue and shipping costs too. I mean, that adds a whole lot to it. That's gonna be hard to reverse that. I

Jonathan Davis

00:09:38

Think, yeah.

Bill Fairman

00:09:39

I disagree with you. Okay. I think love it. I think, I think wage point counterpoint wages, wages are sticky. You can't even say, and you can't once you've you can't put the toothpaste back into two.

Wendy Sweet

00:09:50

Yeah. That's true. However,

Bill Fairman

00:09:51

They can find other ways to be more productive so they don't have to pay as many people. Does that make sense? Like more,

Jonathan Davis

01:10:00

I would agree with you if we, if we passed a law federally that the new minimum wage is $15 an hour, if that had happened, I would agree with you. However, that has not happened. And wages are dependent on where you are. Yeah, no agree. And the federal mandate is seven and a quarter still or the seven and a half. Right. There are at seven. So is it sticky because it's double what the minimum wage requirement is. I'm not sure I'd use the word sticky

Bill Fairman

01:10:33

Again. That's good. It's a lot like real estate it's location.

Wendy Sweet

01:10:38

Yeah. It is location driven.

Bill Fairman

01:10:39

And when, when you, when we end up and what the fed is hoping for is that we have a higher unemployment rate. Sure.

Jonathan Davis

01:10:46

Yeah.

Bill Fairman

01:10:46

Because you're, they're trying to take demand and get rid of it or at least lower it. And that's how they cure their, the inflation. Yeah. That's a sticky

Jonathan Davis

01:10:58

Question. Thank you.

Bill Fairman

01:11:00

But they're trying to do demand destruction right now and that's gonna cause unemployment rates to go up, which means fewer people will have jobs, which means there won't be as high a demand on increasing wages. Yeah.

Jonathan Davis

01:11:16

At

Bill Fairman

01:11:16

That point.

Jonathan Davis

01:11:17

And to clarify, no one, no employer is going to say, oh, now instead of paying you $15 an hour, we're gonna lower you down to 12. Right. Right.

Wendy Sweet

01:11:25

That're just gonna,

Jonathan Davis

01:11:26

That doesn't happen either. You have you a turnover and that person leaves or you help them leave. Right. Yeah. And then you hire in, at a lower

Wendy Sweet

01:11:35

Wage, right?

Jonathan Davis

01:11:36

Yeah. Or the other side of it is the wage appreciation just becomes stagnant. And that way it allows, you know, the cost of goods to catch to lower, which

Wendy Sweet

01:11:48

May be the 20, 25 number might

Jonathan Davis

01:11:50

Be, you know,

Bill Fairman

01:11:51

You get back to contract employees. That's where, where a contract employee started anyway, as wages were going up. And I, I don't wanna single at any particular company, but go ahead. Bank of America used to do that all the time. Yeah. They would eliminate certain departments or eliminate people in departments. They would lower 'em but then they would end up no same people would get jobs with contractors that were doing the same jobs they were doing before. But now they're working with another company who was under contract with bank of America, making less money. Yeah.

Jonathan Davis

01:12:22

Yeah.

Bill Fairman

01:12:23

And they didn't have to pay 'em benefits. And that kind of,

Jonathan Davis

01:12:25

I feel like you just proved my point. Well,

Bill Fairman

01:12:27

He I'm saying wages are sticky, but there's other ways to make 'em less expensive for the

Jonathan Davis

01:12:33

Less, less sticking.

Bill Fairman

01:12:35

Yeah. Less.

Wendy Sweet

01:12:36

I wonder too, what, how higher education is gonna come out on this? You know, because you know, to go to college, now you have to take out a loan. It's pretty sad. But, but it's, it's almost imperative that, that you borrow money to go into college unless your parents have been able to save money for you or you've worked to make that happen

Jonathan Davis

01:12:58

Or you don't

Wendy Sweet

01:12:59

Go that's right. And, and you know, I hate that they're considering this $10,000 or they might have already proved it. Reduction on what's owed on, on college education. I hate that they're doing that. We're teaching people not to be responsible, but I, I, you know, the college college tuition should come down. I don't know that it will, but I do believe there are a lot of people that will be coming out of high school learning trades rather than paying those high college prices.

Bill Fairman

01:13:34

There's a Senator. I hope that it is introducing a bill that wants the colleges to pay half that bill and also be more open about the income that their students, after they graduate are earning and that type of thing. And one of his comments was that he's tired of the universities charging extortion amount for tuition while teaching stupid stuff that has never happen. Like men getting pregnant.

Wendy Sweet

01:14:06

Yeah. That's a good one. Now. I don't

Bill Fairman

01:14:09

Know. I don't know how, how far that will go through, but at at least they're bringing it to the attention. All right. So we we're,

Wendy Sweet

01:14:18

I know we're close. We gotta keep moving.

Bill Fairman

01:14:19

We've been, we've been rattling on about the breaking news now. Yeah. For almost the entire session. Yeah.

Wendy Sweet

01:14:24

We're gonna solve the

Bill Fairman

01:14:25

World's problems. What's financial freedom to you, Jonathan.

Jonathan Davis

01:14:28

What is financial freedom to me, man? That I can, yeah, just up in it is appreciation depreciation and cash flow. Like that is what financial freedom is to me. What do I mean by that? It means I was, I was having a conversation with friend today and you have friends.

Wendy Sweet

01:14:52

I do have friends one at least one.

Jonathan Davis

01:14:54

Yeah. They'll never admit to it. But we were talking about how the credit unions are being saturated with more and more money because now the savings accounts are paying over a percent.

Wendy Sweet

01:15:08

Woo.

Jonathan Davis

01:15:08

What they're paying over percent. Wow.

Wendy Sweet

01:15:10

And

Jonathan Davis

01:15:11

You know, that's one of the things, you know, I think I use the word stupid money, but yeah, no, I, I still I'll keep with it. The stupid money.

Wendy Sweet

01:15:19

Yeah.

Jonathan Davis

01:15:19

Puts all their money there. Cuz I can make 1%. It's been paying 0.2, five before, but now can make

Wendy Sweet

01:15:25

1%. That's right. That's right.

Jonathan Davis

01:15:26

And inflation is how much, like you are losing at an eight, a negative eight one rate ratio. Right. So how about don't do that because you're giving them free money to lend out which well, you know, on the, on the lending side, people love it because that's what we were talking about. Like friend, he, you know, he would use their money to buy multifamily, but I guess I'm getting a long way. Like don't put your money there, put it in an asset that appreciates over time allows you to depreciate on your taxes for capital expenditures and then also gives you cash

Wendy Sweet

01:16:04

Flow. That's right. Like

Jonathan Davis

01:16:05

If you can, if you can cover all of those things, you will outpace inflation. You will outpace the stock market and you will be financially free. Now it's not an easy road. I was having dinner with a, with a guy the other day and we were talking about how expensive it can be, especially right now to own real estate and stay in it and not just sell or, or become a whole seller or

Wendy Sweet

01:16:31

What have you. Yeah. Taxes are up.

Jonathan Davis

01:16:32

Taxes are up all, you know, they've reassessed all the values when you know, they won't be reassess. Well they have to do it every five years. Yeah. It'll be a while. They won't be doing it at any time soon. Yeah. Right. So us taxes are gonna stay high. Yeah. So it is expensive and it is, it is difficult and it's not the easy path, but it is the one that leads to financial freedom.

Wendy Sweet

01:16:52

I agree. I agree. So for me, financial freedom is one sentence. My money working for me instead of me working for money. Yep. That's that's the bottom line and which is really what you're talking about. Yeah. I, I, you know, I will never retire and I let me knock on wood. When I say that I have no intention to ever retire and walk away from working. I enjoy it. You know, I I've got like a serious, you like having you around, well, I, you must want something. So I love real estate. I have a serious passion for real estate. All that entails real estate notes, you know, rentals, self storage, apartments, whatever it is. I love everything about real estate. It's just a passion for me. I don't ever wanna stop learning more and being involved in the art of the deal, which is my favorite part of real estate. I don't ever wanna stop that. But what I do want is the opportunity to say, I don't have to do this if I don't want to. Right. You know, I want my money to work for me. I wanna be able to go to sleep at night and know that I've got money. That's being deposited into my account. You

Jonathan Davis

01:18:09

Know? And, and you mentioned the art of the deal. I mean, that's one of the pieces of financial freedom is that when, when you do have that knowledge base and that drive and that, that determination to do deals and that desire, like you need the space to be able to do so. So part of that freedom is having the space to analyze deals, to look at them, cuz you can't analyze and look at deals and close 'em. If you're out there scrubbing toilets or cleaning up your

Wendy Sweet

01:18:36

Rentals. That's exactly right. So that's exactly right. And you know, a lot of people will say that part of their financial freedom is being able to lead their children a legacy, but they

Jonathan Davis

01:18:46

Can build their own legacy.

Wendy Sweet

01:18:47

I that, and you know what, I think I must be a terrible parent cuz I don't feel that way at all. I mean, sure. I would never want my kids to suffer, but my legacy to them is teaching them what I know, teaching them, what I do and their relationship with Jesus Christ is, you know, the number one legacy I'd love to, to leave with them so that they're always seeking him in what they do. But you know, I don't wanna leave a bucket full of money for them.

Jonathan Davis

01:19:13

We, I go back to, you know, Scott Patton who's, you know, running the show for us. One of the things that he said was, it's a saying, I think in Canada, short sleeve, long sleeve, short sleeve, and you know, the short sleeve is the guys out there working in the fields or, or what have you do a manual labor. And then they're, they, they build a legacy and then their sons become long sleeve. They, you know, work in an office, they get, you know, soft whatev what have you. And then the next generation of short sleeve again, because they had a soft generation prior. Yeah. So yeah. Good point. You want to instill more than more than you wanna hand out dollars to your kids or assets. You want to hand out,

Wendy Sweet

01:19:52

Give more fish and pole,

Jonathan Davis

01:19:53

Give em work ethic and the ability to, to do

Wendy Sweet

01:19:57

Things. That's right.

Bill Fairman

01:19:57

All right. So for me,

Wendy Sweet

02:20:00

We're out of time too

Bill Fairman

02:20:01

Close. Well

Wendy Sweet

02:20:05

That's airport

Bill Fairman

02:20:06

Financial freedom for me is doing what you want with whom you want when you want and not have to worry about where you're doing it. You know what I mean? At the

Wendy Sweet

02:20:18

Bar, you

Bill Fairman

02:20:19

Can go anywhere. You want to go and not have to worry that you're not being able to maintain that same lifestyle. Right. And with real estate, well here right

Jonathan Davis

02:20:29

Now, here's, I've heard transient people say they do that.

Bill Fairman

02:20:33

The, the stock market game right now, if you're a stock market person here's on now that the market is dropping here is the defensive play I'm gonna get into treasuries because the person that loses the least is the winner.

Wendy Sweet

02:20:50

Yeah. Now

Bill Fairman

02:20:51

How is that? How is that investing that is just grasping on to not losing when you're in real estate, you have an asset that continues to go up in value and it's paying you an income. And your whole goal there is to have essentially a balance that increases in value that you can live off of at the same time and keep that same lifestyle. Right. Right. And you wanna do it as passively as possible. So you can do what you want with whom you want when you want and where you want,

Jonathan Davis

02:21:22

You know, just finished up a, a book called mandals. And it's about, was

Bill Fairman

02:21:27

It a look about Dennis?

Jonathan Davis

02:21:28

It was not, you know, it was their actually their last name, not their, not their job, but

Wendy Sweet

02:21:35

What was it called

Jonathan Davis

02:21:36

Again? The mandals. So

Wendy Sweet

02:21:37

The mandals. Yeah, the mandals. Yeah, the

Jonathan Davis

02:21:40

Mandels okay. And it's, it's a dystopian book, very well written around economics. It's a lot of, you know, you get on professors, our characters in the, in the book, but basically it takes you, it's taking you through kind of what we're going through now. And then, you know, extrapolating that to like the worst case scenario. Yeah. Like the, the fall of, you know, our economy. Wow. Which in the book is, you know, because of some external forces as well as internal forces. But the thing that struck me in the book was with 30 and 40% inflation rates that they're, you know, talking about in the book on groceries and what have you, the only winners, or I don't even say you can say winner. The only people who survive at a semi comfortable rate are those who own real estate and those who own energy and those who control the produce. Interesting. Those are the only people who are doing okay. And just, okay. But again,

Wendy Sweet

02:22:45

So I got the chickens and the, the real estate covered. Yeah.

Jonathan Davis

02:22:50

Well, cause you

Bill Fairman

02:22:51

Just need to get the energy part that's right. Figure it out

Wendy Sweet

02:22:54

Really well.

Jonathan Davis

02:22:55

It's, it's a really good book. I've been listening to it on audible. I was actually, I listened to it, a good portion of it driving six hours. And I remember like, it sucks you in so well, it makes you feel how poor and awful things can be. I remember stopping at a gas station after listening to it. And I saw that the gas was like three 90 something, a gallon. I was like, I can't afford this. How am I gonna do this? And they're like, wait, wait, no, I'm, I'm not there. I'm here.

Bill Fairman

02:23:24

I'm not the book. All right. Folks. We were hitting out to. All right. Yeah. We gotta ask the question. Yeah. Our question for this week is would you like

Jonathan Davis

02:23:40

To take yeah. Yeah, sure. So with the stock market in, let's say turmoil cause it's right there. Yeah. Turmoil, tumultuous, tumultuous time is your money management in alignment with your goals? We we'd love to know that. I know a lot of people who have talked we've bill, Wendy, and I we've all talked to people who are moving money out of the stock market, which, you know, I understand, you know, six months ago would've been better, but you know, they feel that way too. Yeah. You know, what, what are, what are your goals? And you know, are you moving money outta stock market? Are you keeping it in? Are you moving into other assets? Which we'd love to know. Yeah.

Bill Fairman

02:24:24

You can't, you can't win when you're trying to time the market. Not too many people do. Right. Same thing with real estate. You don't time real estate. You get in it and you get in it at a price that makes sense for the numbers. Yeah. Same thing with the stock market. It's you get in with the numbers. Make sense. Yeah. But you certainly are gonna have less fluctuations and you're gonna have an asset that continues to grow in value in, in real estate. So folks, I'm gonna switch you over here to nothing about everything about me. Anyway. It was great. Having you on the show. We are Carolina capital management. This was the real estate investors show hard money for real estate investors. Like I said, we're Carolina capital management and we are private lenders in the Southeast for real estate investors. If you have a project you'd like to take us, you'd like for us to look at, go to Carolina, hard money.com and click on the apply. Now tab, if you're a passive investor and you wanna

Jonathan Davis

02:25:25

Get outta the stock

Bill Fairman

02:25:26

Market, looking for passive returns, go to the accredited investor tab. Don't forget to like share, subscribe, hit the bell. Hopefully we'll see you guys in Houston for quest expo this weekend. Don't forget about Wednesdays with Wendy. See you next week.
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The Meaning of Financial Freedom | REI Show - Hard Money for Real Estate Investors
16 Sep 2022· Passive Income, Active Wealth - Hard Money for Real Estate Investing
Bill Fairman

00:00:00

I don't even see it up there. Oh, hi folks, bill Fairman here. We are going to talk about what freedom financial freedom actually means to you right after this greetings from the grand downtown rock hill, South Carolina. Woohoo. We are Carolina capital management. Thank you so much for joining us on the real estate investor show hard money for real estate investors. Wendy reminds me. I have to smile.

Wendy Sweet

00:00:57

You can do it. You can talk. At the same time.

Bill Fairman

00:01:00

We are Carolina capital management. We are private lenders in the Southeast for real estate professionals. And if you have a project that you would like us to take a look at good Carolina, hard money.com, click on the apply. Now tab. If you are a passive investor looking for passive returns, then click on the accredited investor tab. Don't forget to like share subscribe, hit the bell. And don't forget about Wednesdays with Wendy. Wow. That

Wendy Sweet

00:01:35

Was cool. And short and sweet. And it matched my junior high school school colors. That's

Bill Fairman

00:01:40

Right. Very nice. So Wendy donates 30 minutes of her day per person on Wednesdays to talking about real estate. She's usually booked up a couple of months in advance. So there's the link. It will be over in the comments and questions side, which is either gonna be on the right hand side of your screen or underneath, depending on the platform that you are viewing us from. Well, since we teased it last week, this show is recorded.

Wendy Sweet

00:02:08

That's

Bill Fairman

00:02:08

Right. So we don't have any breaking news because that would've been last week's news.

Wendy Sweet

00:02:12

That's right. We don't know. We can't see into the future. Although sometimes we claim that we do, but we really can't.

Jonathan Davis

00:02:18

I mean, when it works out, you have any

Bill Fairman

00:02:19

Additional commentary you'd like to add for the fake breaking news for

Jonathan Davis

00:02:23

The fake breaking news.

Wendy Sweet

00:02:24

Yeah.

Jonathan Davis

00:02:26

No, but no breaking news, but you know, we are, we, we would where we're at, like the first month in 17 months where homes are selling under asking price. Oh

Bill Fairman

00:02:38

Nice.

Wendy Sweet

00:02:38

Yeah. Yeah. That's so amazing.

Jonathan Davis

00:02:39

The first time is 17 months homes are now selling under asking price.

Bill Fairman

00:02:43

It must be a crash.

Jonathan Davis

00:02:45

That's what they would have you believe. Yeah.

Bill Fairman

00:02:47

Do you remember back in the day when people actually negotiated price?

Jonathan Davis

00:02:52

No one knows what negotiation means anymore.

Wendy Sweet

00:02:54

Well, we do now and that's, you know, that's something that investors really need to, especially wholesalers. And rehabers really need to understand that because if you're using cops from six months ago, they're not real, are they? They're real. They're just not relevant. Yeah, that's right. You need to use the ones from, from very, very, you know, past 30 days or less, or from the future, you know,

Jonathan Davis

00:03:15

You can do that,

Wendy Sweet

00:03:17

Which is what we do

Bill Fairman

00:03:19

Kind of our point here is that you don't wanna hear, you don't wanna listen to the noise. The noise is just that it's noise. We were not in a normal market. We haven't been in a normal market and several years. Yeah. It has been crazy out there. And all we're doing is we're coming back

Wendy Sweet

00:03:34

To reality,

Bill Fairman

00:03:35

To a normal market. And we're still above the, the normal market. Yeah. Yes. I mean, we really need 60 to 90 days on market for homes and we still don't have that yet.

Jonathan Davis

00:03:46

I mean, the, the average home value, I think is like 3 75 now, which is way more than it was two years ago. Yeah.

Bill Fairman

00:03:52

And listen, I don't see the days on market slowing down an awful lot. I mean, it's gonna come down. I get it. But we, we still, yeah, but

Wendy Sweet

00:04:02

We change, sorry. We had this

Jonathan Davis

00:04:04

Conversation the other day and it really got me

Wendy Sweet

00:04:06

Stop limit me around.

Bill Fairman

00:04:08

We still have a housing shortage out there. We're about 5 million behind on new homes. Yeah. And we still create households. People still need a place to live.

Wendy Sweet

00:04:16

Rents are going up.

Bill Fairman

00:04:17

All right. So I'm going to pause right now for another fancy David Phelps moment.

Jonathan Davis

00:04:32

I just took a deep breath, man. That's how I feel when I'm around David. So yeah, that's really, really relevant.

Bill Fairman

00:04:38

David has been gracious enough to give us two shows. He's an awesome guy, great friend of ours. Let's bring him on. Thank you so much for joining us. David

David Phelps

00:04:49

Brush off the beach. I'm here.

Wendy Sweet

00:04:51

You get a sunburn from that.

Bill Fairman

00:04:56

So one of the great things that you do is you teach people, mainly private professionals,

Wendy Sweet

00:05:05

Doctors, dentists, but,

Bill Fairman

00:05:06

But anybody that wants to learn, cuz you have a lot of books out there about this too, is about being financially independent and, and free. So what does it mean to be financially free?

David Phelps

00:05:20

It's to have enough income, enough cash flow that's produced by investments. I like, I like asset based investments. So asset based income that will produce the cash flow that you need for your essential lifestyle, whatever that lifestyle is to me, that's financial freedom. And we'll go into more depth on what that, what that allows people to have, why I think it's important, but essentially financial freedom gives you choices and options. If you don't have to go to work or keep the business running or operating the way you've been doing it or putting up with certain people or clients or whatever it is you think you have to do when you have, when you're financially free, you can change the model. You can try things, you can test things, you can take new ideas on it. And that's that's I think the, the real goal in being financially free, it's not to do nothing.

David Phelps

00:06:11

It's not to be on that beach that you guys stuck me on for the last week. That was great. I don't, I don't, no, I can't live there forever, which is nice. I, I, I need to be doing something, but I wanna do it the way I wanna do it. I wanna work with people that I choose to work with that. I think we have some, some values in, in, in common that I can actually provide a service or a product that, that they actually appreciate. And there's an exchange for services. It's about the money, but it's at that point, not all about the money and that's what changes your whole mindset about always trying to, you know, eat out enough money to pay the bills and have a nice vacation. And maybe you get a better car. That's just the, the common we call the treadmill last week or the hamster wheel. Jonathan said that too many people are on. And it's just, it's just changing the mindset about how money works that can really change the lives of, of people at any, any dimension in their, their life, whether they're modest income earn, moving their way up or middle income or, or even higher income, which typically they have the hardest problem. High income actually have the harder problem with this than people that are a little bit lower on the scale.

Bill Fairman

00:07:20

Hmm. Interesting. Is, is that, do you think that's because they had that mindset of, they don't know what enough is yet.

David Phelps

00:07:28

Yeah, I think, I think, I think not knowing how much is enough. And then I think also there's that tendency to elevate one's lifestyle because as you earn more money, because you're more proficient efficient, better at what you do, better products or services. That's, that's great. We should all aspire to do that. As the income goes up, then typically it's like, well I need nicer things and there's nothing wrong with that. It's just, don't let that get out of hand. I, I, I'd rather see people make investments that can then provide for the nicer things that they choose to have.

Wendy Sweet

00:07:59

Well, one of the things that, that I think is so important that you teach through freedom founders is you, you allow people to have the fear removed what's gonna happen. If I stop, if you know, highly paid professional is, you know, their business is running great, as long as they're there, but when you're no longer there what's gonna happen. If I stop, how can I stop? I have this great fear of doing that. And you have just done an incredible job of teaching people that they can throw that fear out the window because alternatives, right?

David Phelps

00:08:41

Yeah. And it's, it's not even just to stop Wendy it's, it's just even to, to cut back a little bit or let's just be very pragmatic. It's getting home in time to actually have dinner and maybe go to your kids' soccer games. I hardworking people who just feel like they have to grind to your point. Don't know how much is enough. Feel like that they'll miss the opportunity. If they don't get all they can while they're young and energetic, but they miss out on the very thing that they can regret later in life. When they get to a point of quote retirement, don't like the word, but you know, retirement, but then where are the kids? Kids are gone. It's like, oh, but now I have the time I have some discretionary money. I could actually live my life that you missed out. And so giving permission back, removing the fear that people have by not having to grind and actually take some extra time off.

David Phelps

00:09:32

That's the biggest thing that, that showing people, how investments in alternatives, particularly real estate provides that sustainable passive income that can start to replace the need for the person, the hard worker to have to grind as hard as they grind. So you can start to taper it back. I've got docs that are, you know, in their thirties and forties, you've met many of them. They don't have any, any idea of, of giving up, you know, what they do anytime soon. But they just like the fact that they can actually take, you know, a full day off during the week or maybe a day and a half, or, you know, get it down to three days a week and not feel compelled to have to keep at that grind because everybody else is. And that's like Harrison factor that doesn't serve. Absolutely. That's pretty well at all.

Jonathan Davis

01:10:15

Yeah, no, you know, touch on, on financial freedom. It reminds me of a few episodes back. We had Chris miles on here and Dr. Phelps, I know you watched it, so I'm not gonna tell anything you don't know, but you know, he was on there. He's telling about, you know, the financial freedom model that everyone is prescribed in America. And the world abroad is invest, you know, put money into your 401k, you know, put money in savings. And he gave this, you know, description of his father retired and you know, was gonna draw on his 401k. And he wanted Chris to look at it. And Chris did and said, well, you're gonna have to die in about five years because that's all this is gonna last you. And like, and that was like the wake up point for him and, and his dad apparently too, but like that's not financially free. So, you know, that model of what we're prescribed, doesn't seem to work your model. David, can you kind of, I know you've kind of tiptoed around him, but can you kind of give us a little more of the nuts and bolts and the nuances of what you are telling your people, how to build this financial freedom and that, that maybe isn't 401k.

David Phelps

01:11:27

Yeah. The 401k, the traditional financial retirement model, as you describe it, Jonathan is an accumulation model. It, it is about discipline and discipline's important. That's taking money and, and putting it in a vehicle, this, this case, an IRA or a 401k, that's basically invested by somebody else. Who's gonna choose stocks, mutual funds, bonds, whatever. It might be kind a mixed financial portfolio. And, and that's supposed to just, just, you know, sit in those accounts and, and grow over over the years. Well, they grow. And then of course, then we have a market downturn and, and it, and it drops back down and, and back to contribution level this up and down what retirement requires, or let's just say removing yourself from active income, what it requires is cash flow, not at accumulation. It requires cash flow. The traditional model that we're talking about, the 401k does not provide for cash flow.

David Phelps

01:12:19

The, the whole game there is well build up as much as you can. And then you ask a financial advisor today. Well, how much should that be for, you know, any one person just, they can't give a really clear answer? Well, of course not because the, the, the variability in the economics today with inflation factors and, and all the volatility, they can't really. So what they tell people is just, well, as long as you can keep working, keep working, you know, well that's cause they wanna manage more, more the capital. There's a little bit of a incentive in there for, to keep, you know, keep managing their money. But the problem is they accumulation models based on you have so much. And they try to run these algorithms with this fancy software to say, okay, well, based on how much you've got here, we're trying to forecast, you know, another 25, 30 years down the road, how can they forecast the economic models?

David Phelps

01:13:03

Could they, could they forecast COVID could they forecast all the helicopter money we've had? Can they forecast? No, they can't forecast any of that. How do we do it with cash flow? Well, it's the fundamentals of real estate. As we know them very well is in as real estate keeps pace with inflation. So I don't think it's very healthy for our economy to be running it eight and a half or 9% inflation. The CPA CBI rate that we have now, that's not healthy, but you know what our assets, and you've already talked about it earlier, reds, go up the values, go up. So at least we can keep pace financial model, not, not the case. You start having to deplete that financial model, that accumulation model depleted over time and try not to run out of money. Chris miles talking about his father was looking at that saying, yeah, dad, you, you need to take out this much every year or two pay for your burn rate because there's no cash flow in this model.

David Phelps

01:13:50

It's just, you just stacked it up as high as you could get, but you only stacked up enough to last you five more years. You look at inflation rate today and let's just say, let's just, let's just P it at eight point half percent or even 8% to I do the math in my head, use the rule of cutting two every nine years with an 8% inflation rate, the purchasing power of your dollar or your a hundred thousand dollars or your million dollars, whatever you have is cut in half, cut in half. So you thought you had a million dollars. It was me. That's gonna work really well for me for the next next number of years. Oh, but gee, in nine years it's only gonna be worth half a million dollars. And then in another nine years, it's worth a quarter of a million dollars. How's that gonna work out when you've not attached your, your plan to a vehicle that actually keeps pace with inflation?

Bill Fairman

01:14:35

Very well said very well said. Yeah. And when, when you, when you look at that model as well, it has a lot to do with timing. I, I know our mutual friend, Ryan Parsons and Chris miles. I, I had discussions about this when you use that accumulation model, when you're using the 401k, putting money in the stock market, especially with the 401k we have. And then this is anecdotally, I don't have actual statistics on this, but everyone that I've known that

David Phelps

01:15:05

I'm surprised you don't,

Bill Fairman

01:15:08

That I know that has had a 401k over a period of 20 years, they end up with about the same amount of money yeah. That they had for their contribution and their employer's contribution. They made no more or no less, pretty much in that same ballpark. So having it in the stock market, really, for the most part over that long period of time, all it did was hold it in place.

David Phelps

01:15:32

Well, it's, it's, you know, it's it's wall street, wall street is a, you know, billions and billions of dollars, trillions of dollars platform, major marketing marketing platform, and essentially wall street indoctrinates the majority into thinking that's the plan. And so it's, it's just trying to change people's mindset to say, there is another way to do it, right? It's not as easy as cooking a mouse. It's not as easy as just, you know, having money pumped into your 401k. But if that plan's not gonna work, then I tell people, shouldn't you be considering something different, even if it means you have to do a little work and do get a little education to figure out how this is gonna happen. Doesn't that make sense for you? Otherwise, you're gonna be in a very nebulous place when you want to actually take your foot off the pedal of that active income and actually go into some transition to maybe some kind of retirement model. Whenever that might be, you can't do that with the accumulation model. It's just, it's not, not, it's not there.

Wendy Sweet

01:16:28

Yeah. Well, and just as inflation changes, so does your financial number, you know, depending on what age you are and you know, what's happened all around you, you know, how do you keep up with that change in what your number is? How often should people reevaluate where they are and where they're going?

David Phelps

01:16:52

Well, I think relatively often, and, and most people don't, you know, we talk about in businesses and I think you mentioned earlier, you know, Wendy about, about having, you know, a with, with a business, you know, you have a regular monthly, you know, financial meeting and you go through, you know, the expenses and, and the, the revenues and look at profit. And I think you've gotta do that on the personal side too, whether you do that yourself and you're using a QuickBooks, or you have a, you know, have a accountant or somebody can help you. But I think you've gotta look at it on a regular basis because there is creep even without high inflation there's creep. So you add inflation into the normal creep and, and, and things can get out of hand. So you've gotta keep a real eye on what that creep looks like and realize that, that it, it does increase over time, unless you really are judicious about, about removing the things that are no longer need to be part of that burn rate that we talked about

Bill Fairman

01:17:46

Something you okay, you're always taking a breath. I'm not sure. Well, the good, the good news is I'm taking breaths. So I, I know we all preach diversification in our real estate portfolios, and everyone has different goals with their freedoms, freedom. Some of it is traveling a lot. Some of it is, you know, making sure I have a legacy that I can pass on spending time with the grandkids. Yeah. Good causes that you wanna participate in. Do you feel like it's more important to own actual assets or to be a part of more passive invested in investing syndications funds? Yeah. And again, I, I know it probably depends on, on each person and what their goals are, but we'll just talk about you in your opinion, because of your lifestyle, what you wanna do. Are, are you more in the passive stuff or more in the property holdings? It's extravagant lifestyle driving around that 1996 Toyota. Yeah. Right. It's more of a, it's a Honda accord because they are the most

David Phelps

01:19:07

Reward.

Bill Fairman

01:19:07

It's expensive to operate over a period of time.

David Phelps

01:19:12

I, I think your answer is right. It depends. And it, it it's changed in my life. So when I'm younger and I have much more time than I have money or capital to invest, then it makes sense for me to put the time in and, and really own the specific assets. Like that's what I did. I started buying properties, rental properties. I got into understanding the, the note side or the debt side and, and, and financing properties and carrying paper or buying paper. But basically I was, I was involved in the operational aspect of, of locating, acquiring the, managing the, the, these particular assets when I was younger. And that made sense where I'm in my life today. No, I don't want, I don't wanna talk to another tenant. I I'm done. I'm done with that. I'd rather have somebody else managing my assets. And that's what I call, you know, one degree of separation from your money.

David Phelps

02:20:06

Now, if I'm managing my own stuff, then I'm, I'm, I'm fully engaged with that. I get to call the shots. And so that's control and control's good, but then control also requires time. I want more time back in my life. So I can, I, I can be one degree of separated, separated from my money by investing my money in Carolina capital, because I know bill Winnie and Jonathan, I, I, I get to know you, I meet with you. I break bread with you. I'm inside kind of inside like the boardroom of what's going on with how you're managing my money. That's as best I can get without doing it myself on wall street. I could never do that. I maybe I get some financial reports, but I never actually get to talk to the people, the principals who are actually running operations to really know what's going on inside the culture. You're very open and transparent. You, you talk to people all the time. You have Wednesdays with Wendy and you're you do these shows. And I can really get to know you and decide, you know, are these people that I really know, like and trust. And, and I want to be a past investor in this point in my life. So I think it just mattered depends upon where you are in building your, your game plan, your wealth plan as to how active or passive you might want to be.

Wendy Sweet

02:21:14

And it, the networking is so important in, you know, being involved in a community that has the same values and goals. People that are like-minded that networking is so very important. You know, we we'd love everybody in the world to put their money in our fund, but we also have friends that operate funds and syndications, and that we're happy to refer to other people because we know those operators as well. So, you know, you find one good one, you know, ask them, you know, who else would you recommend? Because we all kind of think alike. We, those of us that think alike stick together, and you've done such an incredible job of doing that through freedom founders, the, the, the group of people that you have chosen not only as trusted advisors, but the people that are coming in as members of freedom founders, it's, it's just amazing how you've been able to pull just the right matchup of people.

David Phelps

02:22:25

It, it is important to surround yourself with people that are like mine have similar, similar values and are on a similar path of, you know, again, in this case, you know, creating freedom, different ways to do that different definitions, but with the same mindset of, of, we don't have to follow the herd. You heard mentality the group, think of you do the 401ks. I mean, it's one of the first things that happened when people come, you know, to our group, right? Is, is they typically have, have the 401ks and they've done all that, but they really recognize very quickly that in a place where they are networked and associated with like-minded people that there is a no like, and trust element to it, that they can go off in a different path and be much more successful as their own financial advocates and not just advocating it to, you know, a platform like wall street.

Wendy Sweet

02:23:13

So, David you've, you've said this before, if your, your, your current self was talking to your younger self, what advice would you give yourself in starting off investing your, your 25 years old? What, what advice would you give yourself?

David Phelps

02:23:34

Well, I, I started about then at that age. And so that was a good thing. I got started. Just make a decision get started. So that's number one. What I, what, what I, what I could have done better. And maybe it wasn't my fault, but I, I, I would've found mentors like local mentors more quickly. And, you know, we didn't, this is back in the dinosaurs where we didn't have smart phones. We didn't have internet, we didn't have Facebook, we didn't have up groups. There probably was some kind of real estate group that, but you know, how do you, you know, I didn't know how to find them. I just, you know, just, I didn't know today, it's so easy to get connected. So I'd say, make the decision get started, but surround yourself, find somebody a group, or, you know, a mentor. What I have found is that, you know, I've been a mentor now to mentees in the same regard that I wish I would've had, where I have deployed capital.

David Phelps

02:24:32

And you do the same thing when you deploy capital with somebody who is, you know, boots on the ground investor, rehabbing houses to fix and flip or hold as a portfolio asset. They they'll, they'll ask you for advice. I mean, the smart ones will, the smart ones say, and of course you're not gonna loan money, unless you think the, the, the business plan is, is relevant, but no, you're there not only to deploy capital with them and help them with that aspect. But also you've got all these years of advice. Why not access that while you're building your plan?

Wendy Sweet

02:25:02

Exactly. That's, you know, that's what I try to tell my kids too. I try to remind them, remember, I've got 61 years of experience. So I, through all that stuff that you're, you're trying to avoid,

Bill Fairman

02:25:15

That's what you're thinking. You're just old.

Wendy Sweet

02:25:17

Yeah, that's true. That's

Bill Fairman

02:25:19

True. I don't need to be listening to them.

Wendy Sweet

02:25:21

It's it is tough. I often say I was never as smart as I was when I was 21. That's

David Phelps

02:25:27

All downhill.

Bill Fairman

02:25:28

Well, David, let's talk about your book inflation. I, I want to plug that, but I also, there's another one I wanna plug. As soon as we're done here, we'll have the link to the Amazon in the chat as well. Let, let's talk about your newest book first.

David Phelps

02:25:47

Yeah. The inflation book we published in April this year, I sort of saw the T leaves of what was probably coming. And so we got, got with it and wrote this book to give people a sense of what, what does, what does this mean in a time of inflation, which we haven't seen in 40 years, really, since the seventies in early eighties, did we not have inflation of this level? And what does that mean to the financial markets? What does that mean for people's retirement plans? What does that mean for, you know, all the financial plans that people put in place, there's gotta be some changes there. And so the book creates a lot of the economic backdrops of how, how this came to be, how we got to here. But most importantly, like what do we do going forward as our own financial advocates? So the books there, thanks for putting the link up.

Bill Fairman

02:26:29

Oh, absolutely. The other one, since we're talking about financial freedom, I want to talk about own your freedom. It's another book that is fairly recent. And you want to talk a little bit about that as well?

David Phelps

02:26:42

Yeah. Own your freedom. I co-wrote with one of my mentors, Dan Kennedy, who has, who I've spent a lot of time with. And so we co-wrote the book we had. We, we outlined it. So didn't really be a lot of the fundamentals of how, how money works, the mindset of money. We each wrote separate chapters, but they, they, they, they cross pollinate each other. So you get to hear two different voices, different experiences. I'm very pleased with that book, cuz I think at a, at a very high level, it has something in there for everybody, no matter where you are in your life, what age you are, there's concepts that it's really a book of concepts. I'm not giving specific strategies about how to go out and you know, flip houses or you know how to invest your money per se. But it's a lot of key concepts that I, I wanna make it an evergreen book that would be kind of a, a really a staple in somebody's library if they chose to, to utilize it.

Wendy Sweet

02:27:35

Well. And then your other book too, I have to talk about this. When we talked about the next gen and what you would say to your younger self, what's the book that is good for your teens and young twenties,

Bill Fairman

02:27:49

The apprentice

Wendy Sweet

02:27:50

Model. Yeah. The apprentice model. That one, I, I gave that to both my kids and both my

David Phelps

02:27:57

Sons. Well, yeah, yeah. Oh, thank you. There. I was looking for it. I should be on a shelf here somewhere close by. Shouldn't have funny how that works. The apprentice model. Yeah. That's a book I wrote a few years ago really to, to focus on next gen younger generation. And, and you know, some of the concepts we talked about today about, about, you know, getting started early and realizing there's different pathways to get to freedom. You don't have to get degree after degree after degree in college or graduate school. It's not, it's not a requirement at all. Now. I'm not saying it's not something for some people to do, but I think there's better pass. And the defense model is really based on a mentor, mentee experience, find people in business or investing or real estate that, that are good people that you value who they are as a person and their values and that they also have some business or investing sense. Just go work for them. I don't care what you make. You know, that's not the important part. It's just go work for 'em for six months a year, get the experience. It's the best thing you can do as a young person before you get out and get kind of roped into to a, a career path, you'll have a much bigger exposure to the world and really what's important for you.

Wendy Sweet

02:29:07

Yeah,

Bill Fairman

02:29:08

Well frankly, that's the way the trades all used to work. Yeah.

Wendy Sweet

02:29:12

The

Bill Fairman

02:29:13

That's why we have a shortage. Tradesmen is because you don't have that apprentice model anymore. And the guidance counselors at all, the high schools pushed you into a four year college and it's

Wendy Sweet

02:29:26

Almost like they get a kickback, isn't it?

Bill Fairman

02:29:28

Well, here, here's the thing. If, if you are, if you have any business acumen at all and you follow an apprenticeship model yourself, you can be in business for five years and then open up your own place and make tons of money

Wendy Sweet

02:29:45

Easily and be happy in what you

Bill Fairman

02:29:46

Do. Yes, absolutely.

David Phelps

02:29:48

David. So yeah. There's I was gonna say there's, there's, there's so many skill outside of a technical expertise skillsets that are transferable sales, communication, marketing, just understanding the operations of the business. Anybody can take those degree or no degree and go run with that. And I think those are important skill sets that, that are missing badly today.

Wendy Sweet

03:30:09

Absolutely. Absolutely.

Bill Fairman

03:30:11

Listen, I, I appreciate you being so gracious. Yes. Thank you. Coming on and spending all this extra time with us,

Wendy Sweet

03:30:19

It's been great.

Bill Fairman

03:30:20

It's been an awesome show. I know it's be beneficial to a lot of folks out there and can't wait to see you in October. Yeah. Weeks, but it's a little more in a few weeks, but it's close enough.

David Phelps

03:30:34

Well, I'm back to the green room, the beach and the Mar

Bill Fairman

03:30:40

Food going now.

Wendy Sweet

03:30:42

Are you gonna be at quest? You're gonna be at the quest event.

David Phelps

03:30:44

I'm not gonna be able to make that one. I can't.

Wendy Sweet

03:30:46

Oh, I hate we're gonna miss you there. Yeah,

Bill Fairman

03:30:49

Well it's okay. It's hot and humid.

Wendy Sweet

03:30:50

That's right. Well who lives there?

David Phelps

03:30:53

Not the hotel, the hotel.

Bill Fairman

03:30:59

So anyway, thanks again for joining us. Thank you, Dave folks.

David Phelps

03:31:04

Good. See you.

Wendy Sweet

03:31:11

Yeah.

Bill Fairman

03:31:11

Okay. So I forgot something, which is our question of the week. What is your financial focus? Priorities values is your money management in line with all of that. And you can leave a comment in the comment section and we will get to the answers on the following show. Since we're doing all these in advance, it's hard for me to keep up with them. Anything else we need to put?

Wendy Sweet

03:31:40

Yeah. Just say, bye.

Bill Fairman

03:31:41

Okay, bye. So, oh, we're back. They're gonna mess with me now. Thank you so much for joining us on the real estate investor show hard money for real estate investors. We are Carolina capital management, private lenders in the Southeast for real estate professionals. If you have a project you'd like us to look at, go to Carolina, hard money.com and click on the apply. Now tab, if you are a passive investor looking for passive returns, click on the accredited investor tab. Don't forget the like share subscribe, hit the bell. And don't forget about Wednesdays with Wendy.
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238 What Is Your Burn Rate? | REI Show - Hard Money for Real Estate Investors
9 Sep 2022· Passive Income, Active Wealth - Hard Money for Real Estate Investing
Bill Fairman

00:00:01

Hi folks greetings today. We're gonna talk about your burn rate. What's important about it. Does it change over time? We will get that and more with our special guest, Dr. David Phelps, right after this Wendy's Hasling me because I wasn't smiling enough. So I'm just gonna talk like this, the rest of the way. Greetings. I am bill Fairman Wendy sweet in the middle and Jonathan Davis, over there to the left. We are Carolina capital management. And thank you so much for joining us on the real estate investor show hard money for real estate investors. Like I said, we are Carolina capital management. We are a private lender in the Southeast for real estate professionals.

Wendy Sweet

00:01:04

If you're unprofessional, won't, don't call us.

Bill Fairman

00:01:07

If, if you'd like us to take a look at one of your projects, go to Carolina, hard money.com and click on the apply. Now tab, if you're a passive investor, looking for passive returns, click on the accredited investor tab, don't forget to like share, subscribe and hit the bell. And don't forget about Wednesdays with Wendy, Wendy donates 30 minutes per person on Wednesdays to talk about anything real estate related or faith. If you'd like to discuss faith, she's really good about that. She only makes fun of you sometimes. Just kidding. She's always booked up though. So here's the link to get on her calendar.

Wendy Sweet

00:01:58

Awesome. And what was really cool? The last Wednesday happened to fall on a couple months previous, I had done a special talking event with some of the kids from freedom founders. Oh cool. And I'm saying this cuz of course David is with us today and my calls all last Wednesday was all freedom. Founder, children of freedom, founder people. It was really cool.

Bill Fairman

00:02:24

Nice. Yeah. Well we do have a question and comment section on the right hand side of your screen or the bottom, depending on the platform you're viewing us from, you can also get all the links that we're sharing over there as well. So we have, we don't have any, there's nothing breaking this week, right?

Wendy Sweet

00:02:43

Broken. We had a little

Jonathan Davis

00:02:44

Bit of commentary in before we go into the burner. Yeah.

Bill Fairman

00:02:48

Okay. Well, in that case, I'm gonna surprise SHA cuz I said we had, no,

Wendy Sweet

00:02:53

You should ask your cohos breaking

Bill Fairman

00:02:55

News. So I'm gonna say I'm giving I'm talking over longer so she can have plenty of time to queue up the breaking news. When will it end? I feel like I'm on a mission and possible said anyway that awesome. Thank you SHA for jumping right in there and taking over. So yeah,

Jonathan Davis

00:03:35

Well we're, we're gonna talk about burn Ray, which we're gonna let Dr. David Phillips explain exactly what that is, but kind of to build into that, you know, just last month we received reports that consumer spending and consumer debt rather is a lot higher than it has been in fact way higher in, in 20 years. Yeah. People

Bill Fairman

00:03:56

Living off their credit card.

Jonathan Davis

00:03:57

Yeah. Well that's, that's the thing. It, I think year over year rose a hundred billion dollars in credit card usage. Wow. A hundred billion dollars. So that is more people stacking up consumer debt and we can let Dr. David Phelps tell you how that'll affect your burn rate. Also we're seeing, you know, slowing down in the appreciation of homes, we're continu, I think we're four or six, four to six months of continual slow slowing down in that, which is good. We needed it. It's getting to normal. It's down to 18 now. Yeah. Woo. That's great. Down to 18, you're seeing more, you know, more inventory lingering on the market. Hopefully, you know, people will lower prices and we can start moving things and get a little bit back to normal, whatever that means for the time period that we're in. The only thing that is still rising are rents. Right? They are. Thank you Lord. Going up. Yes. That's great. Which it, it was, the report came out for the highest rent appreciation, I suppose, in the nation and by percentage. Right. Do you know what city that was? Hopefully Charlotte, no, no Lexington, Kentucky where I'm from really. Wow. Interesting is the highest I got, you know,

Bill Fairman

00:05:21

Because it started off so low

Jonathan Davis

00:05:22

It's exactly. Yeah, exactly. Yeah. Lexington, Kentucky is number one, followed up by Corpus Christi in Texas. Now on the list on the top declining markets in rents are Irving, Texas and Plano, Texas, really? And number four and five. Huh? Chicago's number three. Huh? Yeah. But interesting. So, you know, Corpus Christi, Cincinnati and Columbus, Ohio. So basically what you're seeing is affordable places that have been historically affordable yeah. Are rising again because people are seeking out that affordability. Yeah. That makes sense. Yeah. That makes sense. You know what I

Wendy Sweet

00:05:57

Thought thought was really interesting too. You were talking about how, how sharply consumer debt has increased when, you know, two years ago, you know, COVID COVID time, you know, and, and as a, a, a friend of mine, who's speaking on sunrises tomorrow, Jordan Nabb, he's an attorney. He said when the helicopter was flying around dropping money on everybody, the not only was consumer debt really low, but savings was really, really high.

Jonathan Davis

00:06:28

I, I didn't put the chart up and I'll, I'll make it available to everyone. But yeah, you can see in 2020, when you know, extra surplus money was made available to everyone, it was a negative 17% year over year. Wow. Wow. Which means people just crush their debt down just, and then now since then we're up at, oh gosh, where we're at. Nope. 12.6%.

Wendy Sweet

00:06:53

Wow. Year over

Bill Fairman

00:06:54

Years. And it's the fed continues to raise rates. Then those cards are costing you even

Wendy Sweet

00:06:59

More that's right. That that's right. That's right. Exciting news.

Bill Fairman

00:07:03

O okay. So that was some great breaking news.

Jonathan Davis

00:07:05

Hey, you know, builds for Mr. David fell. Our Dr. David helps Rather's

Bill Fairman

00:07:10

For sure. David's gonna get bored sitting over here in the green room. So I'm gonna bring him on in just a second, but we have a special visual treat for him first that that's where we all wanna be right now, David,

Wendy Sweet

00:07:30

That you

Bill Fairman

00:07:32

And

David Phelps

00:07:37

The room looked like God, it was close. It was close. So thank you for that. Thank you for having a nice place for me to rest and relax before I on your,

Bill Fairman

00:07:49

You left some snacks for others later

David Phelps

00:07:52

With a little umbrella. Yeah. It's all there.

Bill Fairman

00:07:56

So, so our, our first burning question for you is what is a burn rate,

David Phelps

00:08:04

Burn rate? Yeah. That's, that's overhead, that's a cost of operations. And that can go for one's personal life, personal overhead, personal burn rate. Certainly if you have a business that you run, you've got an overhead or a burn rate in your business. And you know, within that, there's fixed in variable costs, but we all need to know what our burn rates are, you know, personal line business, because, well, I'm probably leading the witness here, but burn rate burn. Rate's very important. I'll let you get, let you take 'em there. I'm not interviewing you. You're interviewing me. So I'll give it back to

Bill Fairman

00:08:33

You. No, listen, we love that. You can take a question and just go with it. We always love the interviews that we have with folks that will go yes.

Wendy Sweet

00:08:42

That's it.

Bill Fairman

00:08:45

Or no.

Jonathan Davis

00:08:48

So

David Phelps

00:08:49

You're gonna give like essay questions. Is that what you're saying?

Wendy Sweet

00:08:53

Your own words? My

Jonathan Davis

00:08:54

Own words.

Bill Fairman

00:08:56

So what's, what's the importance of getting your burn rate and we'll say under control or at least knowing what it is.

Jonathan Davis

00:09:03

Yeah. What does it even mean? It's just, what does it mean, basil?

David Phelps

00:09:07

So, so, so I'm, I'm gonna focus on the personal side. Remember there's burn rate for personal and business. Both are important. I'm gonna focus on the personal side burn. Rate's important because I talk a lot as we all do, because we love real estate. As a vehicle, as an investment real estate provides, you know, cash flow. So if I want to gain freedom in my life, then I need to somewhere start replacing my burn, my personal burn rate with something else that doesn't require me to go to work now, nothing wrong with going to work. We all start there. We need to work. We get an education. We get training in something, get a career, or be an employee somewhere. We, we earn money to pay for our burn rate. But if our burn rate starts to escalate over time, which often it does, because the idea is is you travel through life, your education you're experience, your skillsets, allow you to earn more money.

David Phelps

00:09:56

That's a good thing. But what happens to too many people is they let the lifestyle burn rate also escalate. Now I'm not saying it's bad to aspire to have a, a nicer home, bigger home, maybe a better car than which you started with when you were just getting outta school, which that's nothing wrong with that. But if we focus on what's my real burn rate and how quickly here's the question, how quickly with a plan in place, could I start to replace the cash flow? The income required to fund my burn rate with asset based income? How quickly could I do that? That's what I call a freedom number. And that's why it's important to understand what's my burn rate. Cause we don't have any goals set on that. It can continue to escalate forever. And that's where people get on that treadmill. The treadmill of I earn more, earn more.

David Phelps

01:10:44

It's all good. It's all good. I'm living out a bigger life, a nice life, great life provide for my family, but I'm on this treadmill and where do I ever get up? Get the treadmill even a little bit, even drop the incline a little bit. Right? I mean, you guys go to the gym, you know what I'm talking about? You know, at some point you just can't keep that incline up here, running it in higher RPMs. You've gotta drop it down. Well, in real life, once you're on that trim, it's, it's hard to turn it back down again.

Jonathan Davis

01:11:09

Yeah, yeah. You know, it's makes me think of hamster on the wheel. I mean, yeah. That will, can only go as long as that hamster's running and once you step off, it's done. So, you know, to kind of illustrate the point, you know, we need something that's moving that wheel even when we're not on it.

Bill Fairman

01:11:27

And I don't wanna lead the question, but I'm going to already know the answer, but I'm gonna, I'm gonna ask it anyway.

Jonathan Davis

01:11:39

You know, I've found that when people say that most often they don't know the answer.

Bill Fairman

01:11:48

Is it easier to lower the burn rate than it is to increase the income?

David Phelps

01:11:54

I think it's easier to increase the income personally. I, now you can do both. You can do both. And I think people should do some of both to look hard at the burn rate and say, where could I potentially cut back? But I would say it's easier or probably most focused should go on increasing the income, the cash flow.

Bill Fairman

01:12:15

And, and, and that's something that, you know, we all want to do is take that active income and turn it into passive income. And we're gonna talk about that on our next week's show is about our freedom number and how to get there and the best way to get there. And the, in my opinion, the, the, the best class of assets to get there with.

Jonathan Davis

01:12:37

Can I jump in real quick? Absolutely. So, you know, when you said increasing the income is the easier path, I would, I would probably assume that most people watching this would've thought decreasing your expenses, cuz it kind of like fits into that. Like, you know, Dave Ramsey mindset, like, like to be wealthier, to be successful, to be free, there has to be suffering involved. Like you have to, you have to take away. And I love that you came in and said, no, like it's easier to add income, right? I mean, when you, well,

David Phelps

01:13:12

We're, we're all about suffering here. Are we not? We're we're suffering each other right now. No, we're not. We're enjoying this, but, but yes, Jonathan look, there's, there's a sacrifice period. Unless you were born with a silver spin in your mouth or a trust fund baby, there is a sacrifice period. We have to go through it. Working hard, being dedicated, persevering at whatever is in front of us, whatever our goals are, task career path business. Yes. We have to sacrifice to an extent. So if you wanna call that suffering, maybe there's a little bit of suffering. I think we all had jobs, you know, as we were growing up that maybe you look back, you know, that was suffering, but it was a good for our character building. All right. So get beyond the suffering though. And let's get to a place where we can be more strategic and leverage our experience, leverage collaboration with other people, which is a lot what we're doing right now today.

David Phelps

01:13:59

What you, you all do so well, there's ways to enhance your income, even if it's it's part of your business plan or also as we'll talk about, I'm sure on the, on the passive side, you can do both more easily than you can on the quote suffering side. So I don't want people to think about suffering, but yes, I think I talked to young people and, and Wendy, you were talking about, I'm so glad you were able to connect with, with our, our, our young next, next gen from freedom founders and sewing to them. You know, if I could go back and, and talk to my younger self or talk to these kids as we do, it's, it's like, don't lift your lifestyle escalate too quickly. You know, stay in that mode where, you know, you, you've had to kind of, you know, eek it out and, and, and don't ramp it up.

David Phelps

01:14:46

I was talking to a, a doctor just this last week, you know, he, he does quite well, but he's, he's kept his burn rate low. And I said, I said, how have you been able to do that? Because most people, as they escalate, their income goes right up. And he said, you know, my wife and I just got used to the fact that when we got outta school, we had student loans to pay off. And that required us to, you know, to live modestly. And he said, even after we got our student loans paid off, we decided to know happiness and joy doesn't come from necessarily elevating our, our lifestyle. So we've kept our burn rate low. Well, that doctor today has, has, has a son and a daughter ages four and eight. So he's, he's under 40 just giving you a little bit of character. He's under 40. And, and he's got a lot of flexibility in his life. A lot of flexibility to, to, to do different things. Even with his technical expertise in dentistry, he does different things. He's not, he's not anchored down to one schedule, one place to go, you know, four or five days a week, like so many are. And so he's built that freedom and by keeping his burn rate modest,

Wendy Sweet

01:15:45

You know, it's funny when you're talking about that, it really reminds me of my two sons. I have a 19 year old son and a 21 year old son. And they are like rich, but dad, poor dad, you know, one is, is, you know, saves his money. He works hard. He, he, he almost bought himself a boat and he asked my opinion, mom, should I do this? When I I'm really interested in buying a house, that's my big goal. And he's 19. And I said, well, how does buying a boat help you get a house? And he said, that's all I needed to hear. And he walked away from that desire. Now had I said that to my, well, my 21 year old wouldn't have even asked me, but you know, had I said that to him, he'd be flying around in a boat. Yeah.

Wendy Sweet

01:16:35

You know, as fast as he could on the lake. So, oh, I was getting ready to say, that's, that's pretty incredible that he could fly on the boat. Yeah. It's an near boat, but it's, it's, you know, I loved when we were at your last freedom founders event and you were talking about burn rate and you, you, with this group, you went through all the things you really need to look at. And question, is this something you really need now? Do you really need the big house? You know, do you really need the fanciest? You went down that list. And if you could talk just a little bit about just really giving people an idea of things they really should be looking at to decrease that burn rate.

David Phelps

01:17:22

Well, house living quarters is certainly one of the big ones, whether you rent or, or own, you know, the larger, the square footage, the more utility cost you have just to heat and cool, right. Property taxes are higher. Insurance is higher, just maintaining a certain square footage, interior and exterior has a cost factor to it. So even if you have a free and clear house, which is a great goal to have, but if it's large, then it's gonna require a certain overhead or a burn rate just to sustain that large capacity house. If you rent, I mean, same thing. You're gonna pay proportionately for the size. So do you need all of that? Right? I think so that that's a big one. I think other aspects would be. And I, I just look at vehicles, I, for me, a vehicle or car is just something that will securely and reliably get me, you know, from here to there where whatever my, my transportation needs are, I'm not judging people who want to have nice cars at all.

David Phelps

01:18:20

I'm just saying, it's just look at, I, I just always buy used cars and I just drive. 'em a lot of miles. That's just that's me. It is. It's like, it's almost like a badge of honor for me. And I think I got that from my dad. My dad was the same way. So like father, like son, you know, I just, I just drive. But you know, I just feel good about that because going back to your point, Wendy, about your two sons, I've always looked at the additional discretionary dollars I have by not having those, you know, inside of my burn rate, having to put fund my lifestyle. If I can cut that back, I've got more dollars I can put into investments. The ones I like that will produce, you know, additional income. So when I do want to enjoy something more, like rather than buy a boat, I would just tell your son rent, go rent the boat.

David Phelps

01:19:03

You can rent a really nice boat for a weekend or a week or whatever you wanna do. And then just give it back. See, I think that's the way to do those nice things. People like to have vacation homes again, not judging, but I think it's better personally to, well, you'll like this Wendy rent, Airbnb, you go where you want to go rent the air and B for in the weekend, the week, whatever you can go to different places and people, oh, well you you're just wasting your money. No, actually I didn't have the extra expenses, the, and, and the hard costs and, and the mortgage and everything else on that. Airbnb. Now, if you run it as a business, different ballgame, but I'm just saying people that like a vacation home, why don't you just get the extra money, invest it in something, an asset they'll produce. And then you can go have, have vacations all over the place when you decide to do it.

Wendy Sweet

01:19:46

That's right. And if you go to sweet spots, stay vacations, you can find any kind shameless blog shameless.

David Phelps

01:19:56

I hear that to you just about right. Was that about the right letter? Yes.

Wendy Sweet

01:19:59

Thank you. The other thing too, I, I think little things make a difference as well. And people don't think about this. How much are you really paying for your cable TV that you really need it? Like, even, even us as a company, every time we have our financial meeting, once a month, we still go through all of our credit card statements. We look at all the auto, automatic payments that are being made here and there, those little things, the first time we ever did it, we saved $16,000.

Jonathan Davis

02:20:28

And that was nothing big. That was all just like little, little things here and there that were just tacked on. I mean, we, you know, all the time it

Bill Fairman

02:20:36

Was outdated. We weren't using it. Like we should have it wasn't efficient,

Jonathan Davis

02:20:40

But I mean, David hit a, a great point and, and I don't want it to be lost on people. It's like, you know, your, your burn rate can increase, but do it in conjunction with your assets producing income increasing. Absolutely because that, that's the, that's the first piece, get the assets producing. Then you can increase over here, cuz these assets are, are supply that which is counter to most Americans who've added a hundred million or a hundred billion in instant gratification. Yeah. In instant debt.

David Phelps

02:21:14

Yeah. To me, to me, to me having asset based income quote, passive income in, in the right investments is, is like the best insurance policy. Sure. When, when I have the benefit and the blessing to, to work with couples and again, these are, you know, educated couples, typically one, one of the others, a professional practice owner, oftentimes not always, but oftentimes the spouse who, who is the spouse, who is the matriarch, the then I call the, typically the nurturer, the protector of the family. And, and they do a great job of that. We have to hand it to the, the moms and our wives who, who, who they function at much higher degree than we do typically in that regard. So they look at everything from the standpoint of, of, you know, investment or expense and most things are in expense to them. Cuz they're trying to again, protect the family, protect the family.

David Phelps

02:22:04

What I realize is, is in talking to a lot of these couples, the high income earner who goes out and you know, works, works outside the home is, is thinking well, you know, sky's the limit, you know, I can, you know, keep earning and keep building and she's thinking security, security, okay. Well guess we have insurance. We have life insurance and disability insurance. And, but that's not enough. I want to know if something happened to his or her income capabilities, what's there besides an insurance policy that would keep some kind of cash flow coming. And what I realized is when I showed them that you don't need to be able to just replace hi his or her income, if you can just replace your burn, rate your lifestyle burn rate with that asset based income, that's like the best security in the world because now, and, and I see the, the stress come out of their faces. They don't have to understand all the financial machinations of how real estate works and all that. They just wanna say, you know, are there checks in the mail or ACH, you know, that are coming in, that I can actually see and they're coming from not his or her work it's coming from this investment that we made and that's producing and sustainable is predictable. That's what, that's what so many of the women I see that are these protectors and nurturers, they wanna understand that part.

Bill Fairman

02:23:16

Right. Right. Well, I, I did wanna touch on one little thing before we wrap up this segment, you still have a motion that gets involved with that home that you've been in for probably 20, 30 years raised your kids in even, you know, if it's free and clear and, and in my opinion, that's, that's a way to downsize take that extra money and use it to invest in something that is gonna create some cash flow for you. But you, you know, you still have that emotion. When I first started originating mortgage loans, as soon as the wife started talking and I'm sorry, it's usually the wife. I don't mean to, yeah, don't be a bigot. But

Wendy Sweet

02:23:59

Usually

Bill Fairman

02:23:59

When they're already talking to me about, you know, they've picked up or picked the curtains for certain rooms, I knew this transaction was going through. Yeah. Because it's about the emotion. How do you overcome that emotion or, or do you,

David Phelps

02:24:13

Well, I don't think, I don't think you overcome it. I think, I think that that, that plays into part of everybody's lives to some extent. And so if you're talking about the, the sentiment of a family home, that you've raised all your kids in, but look, I think we have to, at some point, let go, you can, you know, you can always take pictures, I take pictures,

Wendy Sweet

02:24:36

Take pictures.

David Phelps

02:24:37

And, and then when you get together at Wendy's Airbnb and you call this great memories you had there, but yes, John effectively, you got the money working better for you. So

Bill Fairman

02:24:50

Yeah. You remember when aunt SU kept tripping over that step? You wouldn't fix there.

David Phelps

02:25:00

Memories, bad memories there, the book you don't keep those.

Bill Fairman

02:25:05

That's

Wendy Sweet

02:25:06

Awesome. We wanna also bring up his book, right? Yeah. Let's talk about your book, David.

David Phelps

02:25:11

Sure. All right. Well, I, I published the book. I published the book get's behind me, but I, I actually have a yeah. Copy there. And I think it's there's so it's inflation inflation, the silent retirement killer. You all were talking about a little bit on the front end of, of the opening of the show today is that yeah, we are in different times than this country is seen in really four decades. And we're seeing, you know, heavy headwinds of inflation and what the fed is trying to do to offset that and what, what that may cause as a, as a down line situation with recession correction. So we just, yeah, we, we put together this book and, and it's a there's there's history and, and fundamentals and economics in it, but there's also, you know, what you can do. I mean, part of this show today is like what people can do to protect and hedge themself against inflation, the high costs, and then protect against, you know, downside risk protection in, in the markets. I'm talking about like financial markets that are very, very volatile typically. And that's why we like real estate because there's much less volatility in real estate, much more predictable.

Bill Fairman

02:26:13

So you can, we

David Phelps

02:26:14

Got, you can pick. Yeah. You can pick that book up off of Amazon and thank you for putting the

Bill Fairman

02:26:20

Oh, absolutely. Absolutely. We, we have a, a direct link to the page over there in the chat and we will, well, that will stay on there so you can just click it on and go right to it. David has a lot of books and he does a really nice job of explain, taking the complicated and making it simple to understand. And

David Phelps

02:26:39

I like, I like the idea of, of how to outwit the fed that's Jerome Powell. Don't you wanna, everybody wanna outwit Jerome Powell? I kinda do. I wanna outwit him. So we have a prior attack on how to outwit Jerome Powell. I'm not, I'm not saying he's a bad guy. I'm just saying let's just outwit him. Right. He's

Wendy Sweet

02:26:56

Shouldn't be too hard.

Jonathan Davis

02:26:57

And

Bill Fairman

02:26:57

I may just comment last week, the real estate space in the right space. It it's a defensive play that continues to grow. So you can still get growth over time. You get, you can get some tax benefits as well. And, and it's still a, a defensive play. Although if you read the headlines and they talk about the real estate crashes, those are the people that aren't investing.

David Phelps

02:27:21

Yeah. Well, headlines are click baked. I mean, they just, they, they have to always make hype everything. Everything, everything is is, is extreme, extreme, right. Everything today. And so yes, if you're, don't, don't watch that the, we know from our experience decades, decades of investing in real estate, that real estate is much less fault. Yes, it is affected, but we there's lag time. There's plenty of time to position yourself the right way. And, and that's what I love about real estate. I don't have to be a trader in fact, watch the market every day and see what's happening. Go, oh my gosh. You know, I just lost 20% on my, my account. Nope. That didn't happen in my real estate. Nope. Didn't happen. Right.

Wendy Sweet

02:27:57

That's right. That's

Jonathan Davis

02:27:58

That's, that's the point I was gonna bring in the stocks. You worry about actual principle loss often. And in real estate, you very rarely have to worry about principal loss. Right? Right.

Bill Fairman

02:28:09

David, thank you for being so gracious and being on our show. I wanna mention that David will be on next week's show. So if you see all of us in the same close,

David Phelps

02:28:18

Because

Bill Fairman

02:28:19

We're recording this right after this one,

David Phelps

02:28:22

Just one question. Do I have to go back and sleep in the green room for the next week?

Jonathan Davis

02:28:26

Yeah. You

Wendy Sweet

02:28:27

Hope you send yourself some green. M and Ms.

Bill Fairman

02:28:32

Thank you so much, David. Thank

David Phelps

02:28:34

You guys.

Bill Fairman

02:28:35

Jonathan, would you like to ask the question of the

Jonathan Davis

02:28:38

Week? The question of the week is this one right here? That's right.

Bill Fairman

02:28:41

We're fancy have Monica

Wendy Sweet

02:28:48

It's right there on the screen.

Bill Fairman

02:28:49

Scott told me to pause.

Jonathan Davis

02:28:50

I, that picture looks like I have way more white hair than I don't. I dunno. Makes you look smarter. Okay. All right. All right. So the question of the we guys we want to know is what is like, well, I mean, money mindset is a precursor to spinning behavior. What is your money mindset right now? Is it positive? How do you think about and relate to money? We wanna know. I mean, this on the heels of talking about burn rate, what you can do to, you know, increase income. Also consumer spending is higher than it's ever been in 21 years. So just kinda wanna know what your mindset is. And

Wendy Sweet

02:29:23

You can answer right here on our chat. Yeah. Whether it's live or not,

Jonathan Davis

02:29:26

You can below side, I don't know. Wherever it is on your, there might be a be you ring. I don't know.

Bill Fairman

02:29:33

And yes, it's an essay question because it's like don't

Wendy Sweet

02:29:36

Pal question.

Jonathan Davis

02:29:37

Yeah. We won't accept answers less than two paragraphs.

Bill Fairman

02:29:41

We upcoming quest and you, you can still get 30% off by using the code. Fairman 30, which is also over in the chat bar. Yeah. It's a great way to network with folks and learn all about ways to invest your self-directed IRA who see you there.

Jonathan Davis

03:30:18

One of my fun personal games is to count the second I, that it takes you to realize that you've been muted and something else is playing, but you're still talking.

Bill Fairman

03:30:28

Listen, I never stopped talking three. Okay. Thank you so much for joining us on the real estate show hard money for real estate investors. We are Carolina capital management, private lenders in the Southeast for real estate professionals. Like I told, look at a project of yours, go to Carolina, hardman.com and click on the apply. Now tab, if you're a passive investor, looking for passive returns and click on the accredited investor tab. Wait a minute. Okay. Don't forget. Delight, share, subscribe, and hit the bell. And don't forget about Wednesdays with Wendy C next week.

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03:31:14

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237 How Do You Mitigate Risk? | Real Estate Investor Show - Hard Money for Real Estate Investors
2 Sep 2022· Passive Income, Active Wealth - Hard Money for Real Estate Investing
Jonathan Davis

00:00:01

Hi everyone today we're discussing risk mitigation. And what are some of the risks that you may not be thinking about while investing right after this?

Jonathan Davis

00:00:35

So I'm stepping in for a bill today. He usually gets through the, the whole intro, but just, you know, bear with me here we are. This is the real estate investor show. We are Carolina capital management. We are investors and lenders for the real estate space. In the Southeast. We are private lenders for real estate professionals. And if you would like to invest into real estate or get a loan, go to Carolina, hard money.com and click on the apply. Now tab, we also have a fund for credited investors. So if you are interested in receiving passive returns and getting outsized passive returns, then go to the accredited investor tab. Don't forget to like share, subscribe and hit the bail. And then also Wednesday with Wendy,

Wendy Sweet

00:01:42

They

Jonathan Davis

00:01:43

Were quick. I like it. Yeah. I know Wednesday with Wendy, Wendy donates all of her Wednesdays to help you in anything to do with real estate or business. She's a great resource. She's booked out usually several months in advance, but go ahead and it's a Calendarly or it's a HubSpot meet up. There you go. Just click on that link and you can schedule a time to talk with her and, you know, just kind of dive into everything that is business and real estate.

Wendy Sweet

00:02:10

You know, what was really cool this past Wednesday, which was yesterday as far far as I know, I do five calls a day and all five calls were faith-based. You know, how do you balance your business and your relationship with Christ? It was majorly cool that all five people, that was their intention. So it was kind of a Jesus best. It was neat.

Jonathan Davis

00:02:37

That's awesome. That is awesome. Quick though. Before we bring on our guest today, I do want to just some quick news,

Wendy Sweet

00:03:08

We're giving CNN a run for their money. Aren't we,

Jonathan Davis

00:03:12

I know right before I get into the news, I just have to say how concise and moving forward this show seems to be compared to bill.

Wendy Sweet

00:03:24

What do you mean?

Jonathan Davis

00:03:25

Yeah, no. So, so I, I do wanna discuss a couple things. The first being, you know, mortgage applications, mortgage originations, the volume of mortgage is at a 22 year low, not, you know, anything groundbreaking. We know that when the rates have, you know, doubled in the last, you know, year and you know, housing prices haven't really come down. Yeah. It's, it's hard to afford a house and volumes will go down. So that's not terribly surprising, but it is a 22 year low. The other piece is BlackRock, I believe has just now finalized their 30 billion fund to take advantage of the upcoming months and years of what they anticipate to be a lot of opportunity in the real estate space to buy at, you know, high volume to get great discounts. Mm. So that is a signal I think, to everyone else, it's like be patient, keep some powder, dry, do your due diligence and also understand risk mitigation. Understand it. So without further ado, when we wanna talk about what is risk mitigation and what can we do about that? I want to bring on Rob Napolitano. He's a friend of ours and he has been working in the NPL space, which is the non-performing loan space, the insurance space, you know, gosh, pretty much everything that has to do with, with real estate. So I wanna go ahead and bring Rob on,

Rob Napolitano

00:05:10

Hey guys. Thanks Wendy. Jonathan. Thanks for having me. I really appreciate the, the time we're spending together today.

Jonathan Davis

00:05:18

Absolutely. No, we appreciate you being on. Yeah,

Wendy Sweet

00:05:22

Billy's listening. So we can't make fun of him. We highly respect him. We love him. He's my brother. I have to love him.

Rob Napolitano

00:05:31

What, what are the subtitles coming across saying? Don't believe anything Wendy is saying I'm

Jonathan Davis

00:05:41

Oh yeah. That's good. Well, again, thanks for, for coming on. I you've just recently made a, a big move from the Northeast down to the Southeast, right? That's

Wendy Sweet

00:05:53

Correct. To the dark side.

Rob Napolitano

00:05:54

That's correct. Yeah. I, I, I, I not only am a man of many words, but I'm also a man of action and I voted this year with my feet and picked up my family and moved out of the Northeast where I was just tired of the, the loss of freedom that I was experiencing. Mm. Yeah. So yeah, I'm

Wendy Sweet

00:06:17

Outta there. You less people there.

Jonathan Davis

00:06:21

Excellent. Excellent. Yeah. Well, we're glad to have you down in the Southeast, you are one of the many who have, have made that move smartly. We like to think, but, but now

Wendy Sweet

00:06:31

We, and you're like really a neighbor, like you're in our town and stuff like that. That's really cool. It's good to have you down here.

Rob Napolitano

00:06:37

Yeah. I'm not officially anyone. Should I start talking and saying y'all, but I haven't gotten

Wendy Sweet

00:06:41

Her yet. That too shall come. Or it'll

Jonathan Davis

00:06:44

It'll sooner than you think

Wendy Sweet

00:06:46

Sooner. Bless your heart. Yeah.

Jonathan Davis

00:06:50

Well, I, I, I, I want to give you an opportunity, Rob, to kind of tell everyone a little bit about your, your background, how you got into the space and where you are now, before we start getting into, into the meat of what we wanna talk about.

Rob Napolitano

00:07:05

Yeah. For great. And I, I appreciate you having me come on and talking about this, but I wanna say one thing first, what the hell is risk mitigation? Risk mitigation is the term that common people don't use. That's what big banks and, and people use. But although we do it every day and part of my story talks about risk mitigation and what risk mitigation is, is just keeping what's ours, right? It's what we accumulate. What's ours. And then kicking somebody's butt. If they try to take it, it's all it is. And coming from the Northeast of New Jersey, you know, actually that's part of where my story starts. I was always that kid in the, in, in, in grammar school, that was always in detention because I was always caught in a fight in the schoolyard because the bully was always beaten up on the kid that couldn't defend themselves.

Rob Napolitano

00:07:46

So I ended up always being, you know, getting inside of a fight, defending somebody else who couldn't defend themselves. And there's some risk mitigation, right? Like me and it, it, it ended up, it ended up, you know, maturing throughout my career. As I started in real estate investing many years ago, 20 something years, I've been investing in real estate. And I went through the normal course that everybody does. You go take a course, you pay the money, you buy a couple properties. You, you, you get some mortgages and you take all the risks that you want. Then you don't know everything. And you learn as you go, it's a school of hard knocks. And I ended up getting caught up in the, the 2008, 2009 financial crisis. At that point, actually, I had gotten into the mortgage business a few years prior. I was doing writing loans, learning about the banking industry, started my own mortgage bank, doing some private lending.

Rob Napolitano

00:08:41

The sub subprime mortgage crisis happened, caught me off guard as well. And so personally I went into a chapter 13 bankruptcy, and I had to learn how to get myself out. I, I, I actually hired an attorney. And at that point I was so interested in what was going on with the crisis that I actually went to law school, become a paralegal and learned more about how the mortgage backed securities and the securitization process all worked. And I started a legal litigation support services, where we were helping attorneys to help homeowners stay in their homes. Because a number of those foreclosures going on back then were being done illegally, hence forth the bully coming in on the homeowners, me stepping in trying to beat up on the bully. But I found that was a hard way to actually make a living. And at that point I had just started my new life as a new husband and father.

Rob Napolitano

00:09:34

I need to actually make a living as well. And so we did that and I learned, learned the legal system, how it all worked, got involved, a number of, of, of cases. Matter of fact, one of my briefs decided in the state Supreme court of Massachusetts and, and what I've learned is taking on the bank's head on was a Herculean task. And what I wanted to do is, okay, so if these banks own these loans and you know, they have problems processing and paperwork, and they didn't want to do all the heavy lifting of trying to modify loans. I wanted to be in that business. So we started a fund in 2014, buying loans raised a bunch of money doing it. And one of the things that I found in my experience and going through what I went through is that all the banks were always covered.

Rob Napolitano

01:10:22

And they always had this insurance on their bets that they made not to get too technical, but they were, you know, credit, default swaps and different ways that they covered their losses. And I said, wow, there's no real insurance for the risks that we take as actual real estate investors. How do we get that covered as well? And so I found another product and I started a second fund of, of, of buying life settlements with partners there as well. And we used the life settlements as a way to cover and, and absorb some of the risks that we take on the buying of the notes that we buy. So now we're buying notes, doing private lending and also buying distress life insurance policies as a suite to cover ourselves and mitigate simple, let's say keep a lot of the money that we're making through the insurance pot.

Rob Napolitano

01:11:12

So we kind of self-insure ourselves, but that came through, you know, my experience of what I went through. I had to go through, you know, the doldrums and it was a very lonely place going through bankruptcy and long story short, I ended up coming outta that bankruptcy suing two of the big banks to the major institutions. They ended up paying off all my creditors, paid my bankruptcy state, paid all my attorneys, and I actually walked away with a profit outside of my bankruptcy. Wow. So it's a very rare case. And, but yeah, I had to go through all of it. So I, I, I learned how to get to the very bottom, find out how it all works and then build upon something upon that as well. And it's not, it's not nice what these banks and these financial institutions do to people. So I've always been now that advocate of helping people to generate their wealth.

Rob Napolitano

01:12:02

However they choose to do it. I think real estate's one of the best ways to do it, but it doesn't come without risk without failure, without pitfalls. And you, you're never gonna know everything because there's always outside forces involved as well, but there are certainly ways to protect yourself. And, and, and I'll give you maybe as a, as, as, as, as an anecdote to it, it's like playing any professional sports. I mean, we're here in the United States. There are gonna be people elsewhere listening outside the United States, but let's use American football. As an example, we have an offensive team and we have a defensive team. So in that scenario, if we are playing in the super bowl and we're up by three points with two minutes left to go, how do we protect ourselves? How do we protect lead? How do we protect that trophy?

Rob Napolitano

01:12:52

That's right in front of us all relies on the defense. And when we talk about this risk mitigation, it's just about financial defense. How do we protect ourselves from the risk and risk is nothing more than the potential of something going wrong. And the probability of that happening, we live in risk, right? So it's always there. So how do we protect that probability and work on the defense and nobody ever talks about defense, right? The super bowl it's, you know, the quarterback was great. And did you see that play, that wide receiver caught that not running back, did that great. Never talks about the defense. Right. And so it is in, in, in our financial side and no one talks about the defense, how do we protect ourselves? But it's important. It's important.

Wendy Sweet

01:13:40

Yeah. You know, I think, I think that's probably the biggest mistake that people make is they don't put the defense into place. You know, the thing that I lo the part of your story that I love the most is the scars. Yeah. That, that you've acquired. And, and you're not afraid to tell people, Hey, here's what I went through. Yeah. And that's, I would much rather invest in people that have been up against the wall that have felt the pressure of, of being at the bottom that understand, because that makes you so much more risk aversive. I mean, you're, you're really looking, you're really looking to make sure that doesn't happen again.

Rob Napolitano

01:14:26

Absolutely. No, I listen. It's absolutely. I mean, and I, I I've said that to people as well for too, you know, when they try to compare, well, you know, we like to see people's historical track record. Why that's gonna happen again? What do they always say after historical track record, past performance, not an indication of future future

Wendy Sweet

01:14:44

That's right.

Rob Napolitano

01:14:46

Basically saying, I'll show you the numbers, but don't believe any of this B BS that I'm about to show you because I may screw up moving forward. So it's, you know, it's, it's a forward looking thing, but you're absolutely right. No one knows it's gonna happen moving forward. It's a risk that we're taking, but don't, you want to be with those that have been through the DLL drums already so that no matter what comes forward, no matter what happens, no matter what's in front of us, we want to be with the people that have been there already, because it is scary. Right? We're not about this stuff. So having the right partners, having the right people, that's why I love doing stuff with you guys. Okay. You guys have been through the worst of the worst as well. You know, you guys understand this stuff. The, the three of us here, we don't know everything, but we know how to get through everything.

Wendy Sweet

01:15:31

That's the key.

Jonathan Davis

01:15:32

Well, and that's, you know, that, that's one of the things that talk to tons of people about, and it's, it's like, you know, everyone wants to say, you know, the, if we talk about real estate, it's, you know, it's cyclical things, you know, things keep happening over and over that are similar. Sometimes, almost exactly the same, but there are never caused by the same thing. And that's what risk mitigation is. It's knowing that there is going to be a loss of some kind. And the mitigation is how do I position myself in my investments, in a place that reduces the amount of loss for the unknown thing that's going to occur that I know is going to occur. I don't know when, and I don't know what it's gonna be, but it will occur. So how do I position myself in that best place?

Rob Napolitano

01:16:22

Yeah. Absolutely.

Jonathan Davis

01:16:23

Position the assets in the best place. So, yeah. I mean, that's, that's all we like, we know it's coming. We just don't know what it is.

Rob Napolitano

01:16:30

Well, let's, let's look back at the football game. Right. Does anybody expect to win a super bowl without ever letting the opposition ever score any points against us?

Wendy Sweet

01:16:41

That's

Rob Napolitano

01:16:42

Right. No, that, that, that, that's just totally ludicrous to have that expectation. Of course the other team is gonna score. The idea is to obviously score more than them or slow down how potent their offense is. So they don't score more than us, but don't have the expectation they're not gonna score.

Jonathan Davis

01:17:00

Yeah, exactly.

Wendy Sweet

01:17:03

You know, the other thing too, I think that's really important for people to understand whether you are an investor or whether you are lending. You need to have a healthy fear, but you can't live in fear. No doubt finding that balance of, of, you know, here's your plan a, but here's my plan B my plan C and my plan D you know, you, you try to make sure that plan a is gonna work, but you have to have the risk mitigators in place to be able to follow up with plan B, C, and D, and make sure that what's the worst thing that can happen. Can you live with that?

Rob Napolitano

01:17:52

So I call that awareness very simple, right. I have a 12 year old daughter, and we're in the conversations now of my 12 year old daughter and, and dealing with drugs, not that she's dealing with drugs, but we're making, we're telling her, she's

Wendy Sweet

01:18:07

Dealing drugs again.

Rob Napolitano

01:18:08

Yeah. You tell her, stop touching my drugs now. So we talk about, we talk about drugs and at, at her age at 12, and in the next couple of teen years, she's gonna be experiencing that and she's going to be exposed to that. Right. And we show her some of the things that can happen with drugs. We talk about it. We talk about things that, not that I'm trying to be doom and gloom, not that I'm trying to scare her. Cause some of these things are scary. And I tell her this, this is not to scare you. This is not to stay, stay away from people that you don't know or, or, or, or, or all your friends. Cause you can come from anywhere. Okay. But it's to make you aware that as you go out into the world, this exists, you can have friends relationships, you can go out and you know, other people's houses, parties, and, and other events and stuff and everything enjoy life, but be aware and be in tune that these risks are out there as well and act accordingly and be prepared for it.

Rob Napolitano

01:19:04

So by being prepared, it's not necessarily a doom and gloom thing or out there to try and scare it. But it's a matter of awareness. And honestly, that's, that's, that's part of the distinction between winners and losers in this business, right? I mean, being aware, being able to absorb the risk, embrace the risk, embrace the loss, embrace the failures and know how to move forward from there is a key difference and anybody can do this. I mean, anybody can accept a failure. Anybody can, you know, take the right mindset and move forward and move through things. Anybody can do that. So anybody can make money in this business or any business really. There's no real secret to it. You can do it. That's

Wendy Sweet

01:19:43

Right.

Jonathan Davis

01:19:44

No, there's, there's, there's good risk mitigation and good timing. And that's, that's probably about it.

Rob Napolitano

01:19:51

Timing. I think timing only really applies in, I forget what the second thing was, but the first thing was sex was timing. And the second thing I guess, was racing. I thought it was sports, sports and sex. And we know two things that timing was really important, but I don't know, someone else told me that earlier today and just stop whatever, but you can't time a market that you can't do.

Jonathan Davis

02:20:15

No. It's it's time timing. Yeah. I mean, it's just coincidence.

Rob Napolitano

02:20:20

Yeah. You know, you know what just, you said before Jonathan too, is that, you know, you see these things happening over and over again. This is so we're going through right now. And, and, and in not only here in our country, but in the world, we're going through one of the greatest wealth transfers that our time has ever seen right now. But just because we haven't seen it before, doesn't mean this hasn't happened before empires have grown and fallen all throughout the course of, of history and humanity. Okay. We just happen to be on the downside of a, of a falling empire going on. When you say, when you say transfer of wealth, what are you referring to? There's always when, whenever, whenever, so a couple of things going on here, I don't want to get too overly, hyper technical with it, but many times we'll keep it real simple for principle purposes.

Rob Napolitano

02:21:09

I know we're limited on time, but many times civilizations rise and fall based on consumption and debt and, and, and money and the use of money. And, and, and, and, and, and the control of money gets to a point where gets outta control. It. It's like, it's like keeping your own credit card and your own house and order your own balance. You know, you get two outta control, you end up in a bankruptcy, right? Cause you, you have to take too much debt. You don't have enough income and it's just, you know, regular economics, 1 0 1 and economies go through that. And, and, and world powers go through that as well. And we're at a point now where we've taken on, not just here, but around the world, too much debt with not enough consumption. And we're seeing the loss of, of power in purchasing power, the, the us dollar as a world reserve currency.

Rob Napolitano

02:21:53

But again, I don't wanna get too macro, but the point of it is that when you, when that happens, it's similar in real estate. When people take on too much debt on their real estate and they go into foreclosure, okay, the debt has to get restructured either has to be cut in half, not half, but it's gotta be cut, take a haircut and it's gotta be resolved and it's gotta be unlevered. Okay. And when that happens, there's not many people that know how to do that, to understand the money and how the wealth occurs. You set it before that BlackRock is, is, is, is, is ramping up to, you know, pick up all these distressed homes. Okay? Perfect example. They're getting ready for the wealth transfer to take homes from people who can't afford it into their own portfolio and their investors. It's the same thing with debt.

Rob Napolitano

02:22:36

We're gonna see a lot of transfer of, of wealth and financial assets and real estate coming. And we're gonna see a great opportunity to, to grab some of this piece of apply for ourselves. Okay. We're gonna, I mean, there's, opportunity's gonna be tremendous. Everybody should be getting involved one way or another with the right partners. Because remember, while there's always one party that's winning on the other side, there's always another party that could be losing too. So who you pick as your partners and who you go through this with is very, very, very important. And people must be doing, doing this. The challenge that I see with, with, with, with investors out there, and I'll come back in real, into real estate, but I'll make it more generic is that people agate the responsibility of building their wealth to financial advisors, traditional financial advisors that want build into traditional stocks. And guess what, maybe before inflation that worked, but that doesn't work anymore, right? That model is gone. People need to take back responsibility for building their own wealth for their own family and make their own decision and stop abdicating that out to some other financial advisor. Who's gonna put you into something where he's betting against it, that you're gonna lose. I mean, that's part of the game. Part of the game is they put you into things and they bet against it. You're gonna lose. Okay. Yeah.

Jonathan Davis

02:23:53

That's, that's just like we had Chris miles on here a week or so ago. And you know, his father, you know, did the whole stock market, had a financial advisor. He retired. And then he met with, with, with him and said, you know, how much time do, how much runway do I have? And he was like, well, dad, you you've gotta die in five years. Cause that's, that's all you got. And it's like, and he is like, well, where did I go wrong? He's like, you didn't, you did everything that you were supposed to do, everything that you were told to do. Yeah. And that's because that model doesn't work. Yeah. Yeah.

Rob Napolitano

02:24:31

And I think people need to look at, look, I talked to a lot of people. I think the real issues out there today is, you know, now we're in the aftermath of a multi-year pandemic that affects different people, different ways, right? Whether we're going into a session, depending on how you wanna define a recession, you know, people are in a recession. People are not in recession the way you are. We have runaway inflation. Taxation is going off. The rails mortgage rates are going up. Crypto is crashed over 50%, right? We get massive layoffs. We're getting scarcity and resources and supply chains. We're getting energy crisis wherever we are. And then you got all this increase in violence and social stability. This all has to do with money. This all has to do with, you know, survival of the fittest financially. Okay. And going into stocks, look at where that's gotten us, look at where we are, right. Doing it personally for yourself, with real estate, with the right partners and taking responsibility for yourself is what people have to do. Which goes back to what I said, four, I did it with my feet and I picked up my family. I moved them elsewhere, mitigating the risk of living up there because of taxation, number, other reasons, but because of taxation as well, it's part of the risk mitigation, part of keeping what you've earned.

Wendy Sweet

02:25:43

That's right. And you know, you also talked about being with the right partner. Bill, put a statement in, I don't know if he's actually in the air now and he can't hear us anymore, but he, he wrote in the comment section in the right real estate space, your investment can be both growth and defensive. And I think what people need to understand is there's different ways of protecting your wealth. You have a fund, we have a fund. When, when you put your money into a fund you're you're with other people, you are mitigating your risk by being spread out of that's right. A number of loans or don't number of notes.

Rob Napolitano

02:26:22

That's right.

Wendy Sweet

02:26:23

One goes bad. You're not, you know, when the toilet, if you're one on one, you're in the toilet, that's

Rob Napolitano

02:26:29

Right. All your eggs are in one basket at that point. Right. And that's why I'm a big advocate, especially, you know, so that's diversification, right? You wanna diversify your portfolio, right. You wanna diversify as best and as, as granularly as you can. And so your point there is that when, when someone invests in a fund you're diversifying and spreading your risk across all the assets inside their fund and not just one particular asset that's right. So yeah, that's, that's absolutely a good move to do for diversification. That's

Jonathan Davis

02:26:57

Right. Yeah. I mean, we, we, we talk about, you know, geography, diversification, asset diversification. I mean, there's many different ways to diversify also wanna point out there are many ways to over-diversify. Yes. So, you know, pick the things, diversification in the places and things that, you know, best, not just everything and try to shoot a shotgun pattern, you know? Yeah.

Rob Napolitano

02:27:24

Yeah. And that's why the cookie cutter portfolio stuff doesn't work. Right.

Wendy Sweet

02:27:28

Because

Jonathan Davis

02:27:28

This is perfect. It's shotgun. Yeah.

Rob Napolitano

02:27:30

It's, it's, it's, it's, it's, it's personal. Everybody's, everybody's in a different stage of life. Everybody has different dreams and aspirations. Everybody, you know, has, are on a different path to have different types of successes in their life. Okay. When's the last time a financial advisor, you know, other than coming over to pick up a check, actually sat and, you know, talked with your children and wanted to know what they wanted to be when they grew up. Right. Had that intimate with your kids. Yeah. I haven't seen that happen.

Wendy Sweet

02:27:59

Yeah, you're right. We are over our time limit already by really fast

Jonathan Davis

02:28:07

It's time flies when you're having a good conversation. It's good stuff.

Rob Napolitano

02:28:10

I just started slowing down my speech. I just started catching my breath, flowing up.

Jonathan Davis

02:28:14

Just got settled in.

Wendy Sweet

02:28:17

We're gonna self destructive. We don't close it up.

Jonathan Davis

02:28:20

Well, before we do wrap up, I do everyone out there. Our question of the week. I wanna go ahead and throw that out there. I guess we're not gonna have a graphic for that's. Okay. How do you mitigate risk? We want to know. I mean, there's all kinds of ways to mitigate risk. We mentioned, you know, diversification through assets, through geography. What do, what do you do? So we would like to know, know that

Wendy Sweet

02:28:48

And that they can go right online. And even the recording, you can respond to that question on this recording. We will see your answers on this. And Rob, you have been just a wealth of information. We'd love to have you back.

Rob Napolitano

02:29:03

Oh, I, this is, this is a lot of fun.

Jonathan Davis

02:29:06

I, I told him already, we're gonna have to have a part two so that, that that's gonna have to happen.

Rob Napolitano

02:29:12

All right. We'll have to have part two. Okay. Fine.

Jonathan Davis

02:29:15

Twist your arm. Well, all right guys. Well, thanks so much for joining us on the real estate investor show. We are Carolina, hard money, Carolina, capital management. If you are a rehaber or a real estate investor, you can go to Carolina, hard money.com and click on the apply. Now tab, if you are an investor and seeking outsized, passive returns, you can click on our credited investor tab and don't forget to like share, subscribe, hit the bail and join us next week. We'd love to have you.
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236 Cash Flow To Wealth: Stock Market vs Real Estate
26 Aug 2022· Passive Income, Active Wealth - Hard Money for Real Estate Investing
Bill Fairman

00:00:02

Are continuing doing our of wall street versus real real estate. And we got a great

Bill Fairman

00:00:23

Greetings it's bill it's bill and it's Jonathan and we are our Carolina management. Welcome so much to the what show again, the real estate, the real estate investor show char money for real estate investors, investors, Carolina, capital management. Once again, we are private lenders for real, for real estate professional, no east. If you have a, our project, rather that if you'd like USD like us to take Carolina hard money.com.com, click apply. Now tab. If, if you are a passive investor looking for passive returns, click on the credited and credited investor tab, don't forget to like share some, share, subscribe the bell. And, and don't forget about Wendy's with Wendy. Wow. That's new graphics. I like this because, because they always keep us on our, secondly, we devotes 30 minutes of her time per person, each Wednesday day that anything real estate related, there's a, there's a there to get on her calendar. She's usually a couple of months in advance. So good book now. And I'll talk about the upend upend coming expo.

Bill Fairman

00:02:00

So it on the 20, the 25th, I believe no 23rd through the 25th, 5th of September. And the note speaker is Emett very cool. I've cool. I've got, got a chance before Emmett real estate entrepreneur after football. So he's got the really interesting story story. So you can get there. We have a code to get the percent off it's Fairman Fairman it will be over in the comment set comment section, from what I understand, stand our audio really freaking out. So out. So IMing on Chris really quick, because, because I don't have a better voice than, than the rest of rest of us. Yeah. He's not having, he's not having the technical days that we are having Chris miles with, with moneys. The what, what is your title? The anti, I think you're muted though. Let's let's let you,

Chris Miles

00:03:11

Am I anti anti Financianal advisor? Right?

Bill Fairman

00:03:13

Anti financial advisor. I, I don't know why I keep that, but, but welcome to the show went on again and I, I apologize for our audio.

Chris Miles

00:03:23

No problem. It's issues. It's kinda like it's kinda listening to Max's headroom. You know, if you remember him from the 1980s, like Matt Max's headroom, you know, it's kinda like that. So it's kinda cool actually.

Bill Fairman

00:03:34

Oh man. You back some not so fun memory, but I did love, ah, okay. So our theme this month been about being able to build able to build what in real, versus getting rich in the stock market, right?

Jonathan Davis

00:03:58

Yeah. Yeah. The, the, the premise is what, what builds more wealth than when we say wealth, generational wealth,

Bill Fairman

00:04:06

Cash flow,

Jonathan Davis

00:04:06

Cash flow, everything. I mean like, like when, before it was, was, you know, you know, risk, you know, like, like the risk mitigation side of it, like you thought of it, like, you can get rich really quick in the stock market, but you can also lose, lose who's really stock market and knowing how to play that at whereas real estate, it's more of a long, long marathon and you know, marathon's appropriate I guess, for Chris, but, but

Bill Fairman

00:04:37

Yeah, cuz he is running these marathons. All right, we're gonna stop and, and let you say something, but first of all, talk a bit about your story where you started and what you're doing and what you're doing now.

Chris Miles

00:04:49

Yeah. You know, I, I started not learning about money, right? I was, I was raised by great parents. You know, it taught me good values, but the one thing they really didn't know a lot about was money. And, and when it did come to money, it was usually about scarcity. Right. I remember sitting around the table and you know, although my dad would say, Hey, you can be anything you wanna be right. But then he would also say, we can't afford this. Or what do you think I am made of money, money doesn't grow on trees. You know? And then even hearing things about his work saying I'm gonna work until I'm dead. I mean like that, that was like his outlook on life. You know, it was like he was gonna die working now understand he was like the quintessential saver. He was like the perfect saver.

Chris Miles

00:05:31

In fact, he would be like, Dave, Ramsey's older brother. You know, that taught Dave everything. He knows cuz my dad was not just a big penny pincher. He saved everything. Although, you know, he did splurge every once in a while, but he pretty much was a big time saver paid off his house. Early. Very proud of that saved in his 401ks, did everything you're supposed to do. But again, he was always talking about money, being a scarce thing. And so like most kids, when they see their parents, they say I'm never gonna be, be like him. So as I became an adult after doing some college and everything, I decided to drop out, become an entrepreneur and I became a financial advisor. And so as a financial advisor started to learn the things, hoping that if I learned something different that I would be able to help give my dad some of his life back.

Chris Miles

00:06:15

Now the problem with this is that after several years I sit down with my dad at his, at his kitchen table. This time he's asking me for advice. He says, Chris, I'm 61 years old. I wanna retire. What do you got for me? What can we do here? And I look at everything he's debt free. He's saved in his 401ks. And I said, dad, here's the deal. If you decide to retire today, you have to die in five years because you're gonna run outta money. Luckily you got a little bit of social security so they can help push you along a little bit longer. But if you didn't have social security, you'd have to die five years after retiring. And he said, okay, well what do I do? I said, I don't know. You've done everything right? Everything that I was taught as a financial advisor you've been doing.

Chris Miles

00:07:03

And this really disturbed me because as I'm looking at this, I'm saying, wait a minute, he did everything right yet. He's still not financially free. And then I started looking at my own clients, even clients I inherited from decades of previous financial advisors, they were in the same boat. They weren't financially free. And then I started looking at the financial advisors around my office. Even the guys had been working there since the late 1970s. And they weren't financially free either unless they have commissions coming in. But without the commissions, just based on mutual fund investments, they wouldn't be financially free. And then I looked at my own life and realizing I was on the same exact path as my dad, even though I vowed never to do what he did, I was trying to be cheap. I was trying to save everything. Hopefully if I saved up a couple million dollars, by the time I was 40, I could live on a whopping $60,000 a year lifestyle, 5,000 a month, which I thought was amazing 20 years ago.

Chris Miles

00:07:53

That's not the case today. And, and I realized there was a big problem. And, and of course when the students ready to teach our peers, that's about the time that my, you know, my, that I started to meet guys like you, you know, guys in the alternative for real estate space, people that were doing things in, in the real estate game that were retiring in like their twenties and thirties financially independent. And so I started to learn from them, started doing some of those same things, learning. It was about cash flow, not about accumulation of money. And the next day I know I'm able to become financially independent myself when I was 28 years old. And you know, and since then I've been teaching people how to do that today. You know, as like the anti Financianal advisor, telling people to go away from the stock market now understand even in my background, I mean this not only was I pro stock market pro mutual fund, I was also pro stock trading because I was also by the time that I was right about the transition between becoming financial, independent and quitting as a financial advisor, kind of in that middle section right there, I also became a stock coach.

Chris Miles

00:08:54

I was teaching people how to trade stocks and options in the market. So they could be like George Soros, right? Or some people would claim Warren buffet, but Warren buffet doesn't trade stocks. You know, he buys companies it's different. And so I was teaching people how to do that stuff for a few years as well. So I trained about 200 people, just one on one, how to buy and sell stocks and options. And I'll tell you even being in that world, having been there, I can assure you that just like in the financial advisor world, although you have more hope if you do your own stock trading, the truth is that even the best traders in the stock market will not do much better than 20% a year. That's it now 20? Percent's nothing to, to shy at, right? But when you hear people out there saying, oh, I make hundreds of percent on my trades.

Chris Miles

00:09:42

Or there's even people that try to raise capital and funds saying, I'm doing options trading. I'll pay you 10% a month, which is bull crap. They can never do that. Every time that's happened. Every single time I've seen somebody get shut down by the S sec because they can never sustain it unless new money's coming in. Cause it's basically like a Ponzi scheme, right? So you hear all this kind of crap out there. But the truth is that George Soros himself has only done about a 24% average over time. That's why he's in his really about 90 years old. And he's a billionaire still not the top of the list. He's up there, but it took him 50, 60 years of this Warren buffet. Same thing. His average has been about 24, 20 5% buying companies buying interest in those companies and watching his portfolio grow.

Chris Miles

01:10:26

He's also nearing a hundred years old. And yet he's still about the richest guy in the world, right? So the truth is is that if you go with wall street, you're gonna have a much harder time of success because most people aren't investing like this. Most people are putting their money in mutual funds, which the S and P 500 for the last 30 years has only averaged. And I just updated it's about 7.7, 5%. That's without fees that's without taxes that's without anything going against it. Most people on mutual funds don't even get that high, cuz almost the vast majority of mutual funds never get the height of what the S and P 500 does. They usually do a lesser return. So think about that compared to a 401k fees, it's ridiculous.

Bill Fairman

01:11:11

The S and P 500 hundred average was that inflation adjusted as well.

Chris Miles

01:11:17

No, non inflation adjusted. That is the true actual yield of the S and P 500. So when people tell you 10 or 12%, that's bogus, it's bull. It. It's never been the way. And I was taught that as a financial advisor, and yet I found out that wasn't the case.

Bill Fairman

01:11:34

Well, well, I know I've had conversations with others as well about 401ks and we, and we had a conversation of recently and anecdotal speaking, I don't know anyone that has made, and this will, and this will do another the week week, but anyone who has made more on their 401k, they than what they've and what their employer has, lawyer has con over say a 20 year period. And again, it's anecdotally, but the, really the gains I see to the 401k 401ks attritions and the, the free, free money you get lawyer. Yes. Not really from the market,

Jonathan Davis

01:12:13

It's it boils down to, to a little better than bank saving account.

Chris Miles

01:12:19

It's true. I mean, even if you, I mean, even the 20 year average of the market, it's even worse than that. It's, it's less than 7% in the S and P but you know, you're right, because 401ks the average fee, I mean, fees will vary in 401k. Some of the times, the larger corporations, if you have tens of thousands or hundreds of thousands of employees, sometimes they'll be between a half to 1% of a fee. Right. Which is good. But there are some 401ks out there that I've seen that are like between one and 2% a year that you're being charged, whether you make money or not, some are even over 2%. Right? So think about this. Even if you happen to get close to the S and P 500 returns, most likely because you have variety of mutual funds or you're in the, you know, whatever target age fund that you're in.

Chris Miles

01:13:03

You're lucky to pull off 7%. But if you have a 1% fee coming outta your 401k, that means you only netting a 6% return. And of course you throw an inflation in there, which we all know is a lot higher than two or 3%. We're looking more like five to 7% minimum average. Right. You're you're right. Like you're maybe just keeping up with inflation inflation. Funny enough. It's it's I for, I didn't realize we'd be talking about 401ks cuz the argument everybody always talks about is the match, right? Like, yeah, but I get the match. Now, if you're your own employer, like you're a dentist or something like that, the match is really ridiculous because you pay your own match. You really don't get anything. Right. There's no real argument for that. In fact, you'd be better off just buying your own mutual funds outside of a 401k plan because it costs you more money than just investing yourself.

Chris Miles

01:13:50

Yeah. But for those that have, that are employees, they'll say, yeah, but I get this a hundred percent or 50% match on my money for every 6% I put in, I get 3% in the rare few cases you might put in six and get six. And that's usually the best I ever see. So funny enough, I was actually just getting ready to record my own podcast to release about three weeks from now. So you guys are gonna get the sneak peek, but I ran those numbers because what people always say is, let's just say you get, you get that a hundred percent match. They'll say, but guys, this is a hundred percent rate of return. You can't beat that. That's free money. It's brainless and you're right. It is brainless. If you just think it's free money and you think it's a hundred percent return because you put in a hundred percent compounded return in a calculator, you can go to calculator.net and do this, go put in a savings.

Chris Miles

01:14:39

You know, interest bearing calculator put in a hundred percent a year putting in say 6,000 a year. So you're putting in 6,000, get a hundred percent return. You'll find out you're gonna be richer than, than buffet or Bezos in the next 30 years, I can promise you at 6,000 a year, you will never be a billionaire multi billionaire. But that hundred percent return because it keeps doubling every year makes it look like it. What you're actually getting is a total, a hundred percent return. Whether you invest for one year or 40 years, you only double your money with the match. And so you run the numbers like you're putting in. Let's see. Actually I think I ran those numbers. Let's see. I put in yeah, 6,000. So I was doing one where I was putting in 6,000 a year, making six and a half percent.

Chris Miles

01:15:22

I was being pretty, pretty generous for people that believe they get a higher return on their 401ks, six and a half percent for 30 years, you will have 1.1 million when you get the match. But the funny thing is, if you only put in the 6,000, not get the match, you have 550,000. So you have exactly half the money. So you only double it. And with the whole rule of 72, right that 72 says for every 72 years, whatever the interest rate is, it doubles. Well, if you save for 40 years, that means it really only adds a few percent return to that six and a half. In this case, when I ran it, because it was that full hundred percent return, it got you from a six and a half percent return to a 10% return. So it actually gave you a three and a half percent over 30 years, the shorter of the term, the better.

Chris Miles

01:16:08

But you and I, we all know we, we could do way better in the alternative space. And it's not about accumulating that money cuz even if you got the same and I even showed earning 10%, for example, in alternative investments, you would have the exact same number as a 401k. If you only put 6,000 a year, you wouldn't have the match, but you would still match what they made. You'd have about 1.1 million. Here's the difference when you're in mutual funds, right? Obviously you're not earning those aggressive returns. When you hit retirement, when you hit retirement, you gotta start taking those conservative returns. So even wall street journal last October said, don't believe in the 4% rule anymore. That's too much money. You will run out of money with people living longer. You should only pull out 3% a year. So if you have 1.1 million, that means you're actually only pulling out $33,000 a year, where if you're earning 10% on 1.1 million, you're pulling out $110,000 a year.

Chris Miles

01:17:06

Because if you're in alternative investments, just like you guys have with your fund, you got regular cash flow coming in, paying, you know that that's gonna pay way more than 3%, right? You're gonna pay more than that. And it's not even touching the principles where most people are pulling out 3% and they could very well be touching the principle depending on what's going on in the markets, pulling money out, hoping not to run outta money. By the time they die. It's a very different mentality that, you know, I didn't even understand as a financial advisor cuz I was in that accumulation mindset. But when I got on that cashflow mindset totally different.

Jonathan Davis

01:17:38

Yeah. I mean, people are taught to, you know, like the biggest lie of, you know, of the finances put money in your savings, accountings account, like put all your money in the savings account. Please have some, but you know, like save it, just save it just then with the 401k, just, just put it there. And it's there. And it's like accumulation of money is, you know, if, if even the capitalist society with, with, with inflation, it's worthless.

Chris Miles

01:18:02

Yeah. Put

Jonathan Davis

01:18:03

It there. Like you can, you can put it into an asset, has a tax depreciate, appreciation it, cash flow and builds and builds. It's like, like people just don't know that you, you, you can lower your taxes CR well through appreciable appreciation that you can too later. And while having cash flow along the way,

Chris Miles

01:18:27

Like that's right.

Jonathan Davis

01:18:28

Yeah. 401k. Can't K can't do that. I mean, savings account can't do that.

Bill Fairman

01:18:32

And the average person have the, the network in place to buy these properties and do this stuff on their own. So that's why there's different, different funds that you can get into and still achieve the same benefit. Because now you're an owner in a fund that owns properties and then yep. Or that's right. Lends me own property, that type of thing. So you're still getting all those the upside side. And then the, the time

Jonathan Davis

01:19:00

Let's Chris, you wanna wanna take that?

Chris Miles

01:19:03

Let's see, can you take the match and move the money outta the 401k into another retirement vehicle? I suppose maybe some want you to keep the money then there until you leave the company. Good question. Cuz the truth is of the 401k. If you're, if it's with a current employer, you can't get it out, right? Like it's locked up in prison. I actually tell the people that, that most of the time, what you're taught traditionally with money is to keep your money in prison, lock it up in home equity. Don't take it out, pay off that house. Right? Lock it up in your 401k, which you can't get to unless you get fired or quit. Don't recommend either of those necessarily. Right. I mean, everything's just locked up, you know, and, and that's what the banks and the finance institutions want you to do. Cause they want the money in their possession, not yours. Right. So, so yeah, with the 401k, can you move it? Yeah. When you leave the company, you know, if you change jobs or anything like that, then yes, you can roll over to a self-directed IRA. And now you've got a lot better options than the alternative space you can invest into, which definitely are great. And of course you guys just advertise the quest expo, which is a place you can roll your money over for that, you know, IRA, you know, self-directed IRA.

Bill Fairman

02:20:10

Well there, well, there are some plan ed admins that will allow you to take a portion out and self and self-direct, that's very rare. And a lot of time, a lot of times direct is not really, really self-direct there, here, here's a basket of funds that you can choose your money and money into and that's not taking it out the market.

Chris Miles

02:20:30

Yep. That's true. Yeah. If you're, if you're, if you're over the age of 59 and a half, you know, so you don't have that 10% withdrawal, you know, penalty that you have. There are some rare situations. You can ask your HR manager. If you work for an employer and ask them, you know, can I take, what's called inservice distributions. So if you ask about inservice distributions, that means you can actually pull the money out of your 401k while you're still working there. And if you're the employer and you own the 401k, there's lots of things you do to either dismantle the plan and then roll it over. Or you can do other things with it too. I know I'm actually worth the dentist that both of us know that he's saying, I don't wanna get rid of this plan. Now this 401k plan's useless. None of my employees care.

Chris Miles

02:21:13

I even gave him the idea. I said, well, what's your match 3%. Like, why don't you just tell our employees effective today? I'm giving you all 3% raise you do it, the money, whatever you want, pay off your credit cards, you know, go blow it in Vegas. What, whatever you wanna do, you know, save it in your own retirement plan. That's gonna be less in fees than get this 401k plan, do something else. Or, you know, do a once in a year trip with the, with the couples, like, you know, I had no one dentist that actually took that 401k plan, got rid of it and said, you know what, instead, we're just gonna do, go do carnival cruise lines over every labor day weekend. And we're gonna get drunk off our butts for a few days and then come back to work. Hopefully not as hungover, but you know, just do that. And the crazy thing is like, they actually have the best recruiting ever. They never have to fill a position because once they know there's a position open, all the employees are going out saying you gotta work for this company. It's so awesome. Once a year we go into this cruise, we get drunk off our butts. It's great. You know, so there's a lot of options you can do besides 401ks.

Bill Fairman

02:22:14

Oh, I'm sorry. I'm we're pretty sure that that's not, that's not on their dental website.

Chris Miles

02:22:19

Yeah, that's right.

Bill Fairman

02:22:20

There. Won't be anybody anybody's skid for that Tuesday morning.

Chris Miles

02:22:24

Exactly.

Bill Fairman

02:22:28

Talk to us about how you are instructing directing debt on cash flow through through products.

Chris Miles

02:22:39

Yeah. We're I, I kind of give people the three key pieces of advice is get lean, get liquid, get out, right. Get lean. Just meaning, like let's get really responsible, understand how much money's coming in, how much is going out, tracking your money. I think using tools like mint, you know, mint.com or the there's the app mint that you can use as well. Great tool to use, to be able to just track your money, see what's going on. I mean, really get clear on that because the more you can put away, the better, especially the more you can put away outside of things like 401ks or outside of trying to pay off your house aggressively early, things like that. If you can get that money in your possession and in your power, now you have options to be able to use that money. So that's one is get lean and get lean means don't necessarily be cheap.

Chris Miles

02:23:24

Don't live on rice beans. I don't mean that. I don't mean even giving up, giving up that latte. Like other people will give you advice for, it just means be a Y steward of the blessings you've been given and prioritize it. Two, get, get liquid. Right? That means it's kind of the same thing I said is let's get it into savings. A simple place could be savings account. I even teach a strategy called infinite banking where you can actually get a tax free savings account that will actually allow you to double dip on your returns when you invest with it. But basically get liquid, get that money liquid and available and then get out means where's their money trapped, right. Is it trapped in IRAs like old 401ks or something like that or Roth IRAs? Is it trapped in home equity? Can we get that money out of those places and then deploy it into alternative investments?

Chris Miles

02:24:10

And, and there are so many that you can do. I mean, obviously you can do lending of sorts, right. Or funds, you know, things like that, where like, like bill had just mentioned, you know, going in putting that money in a place where they're managing it, they're creating the returns. You create a real true passive income from that. Right. And it's awesome. And you can get, you know, high single digit or even double digit returns potentially on those kind of things. There's things like if you don't wanna buy and be the property manager, because everybody wonders about rentals, they're like, yeah, but I don't wanna be the property manager. Well then don't, you know, get a turnkey rental property where somebody else manages that for you. Again, you buy it and collect the checks. Same thing there. I was actually running numbers on that. Comparing that to the 401k, just with some of my properties.

Chris Miles

02:24:53

It, the last three years I was comparing it with the stock market from 2019, till 2022, compared to when I bought a property in North Carolina. Right. And your guys's neck of the woods. Right. And funny enough, my total return on that North Carolina property there in Fayetteville was actually a 200. Oh, wrong one here. There we go. It was with now without appreciation, it was a 60% like six, 0% ROI without any appreciation that was just paying down. My, having my renters pay down my mortgage, a few thousand bucks and earning all the cash flow with appreciation, which I definitely won't deny. It made it a 218% ROI. If I had that same $27,000 down payment that I put in the S and P 500, I would've had a 42% ROI. So I went, I basically have like, you know, over 80,000 bucks of the property where I would've had about $38,000 in the stock market, right. From 27 to 38. So I mean, hard to beat that. I mean, I was already beating the stock market without any appreciation, and that was just icing on the cake. Right. So, so I look at that

Bill Fairman

02:25:58

For time, you're gonna end up with a free and clear property, clear property that mortgage will be paid down and then you're getting me more cash flow. And that property is gonna continue to go India to go up in value for going to get cash flow time. That is going to increase. Rent are going to increase and, and their banks are gonna increase.

Chris Miles

02:26:19

That's that's a good point because it, yeah, because the other thing I'm doing too, that 27,000, what's paying me about 300 bucks a month, the beginning, but now it's getting up to about 400 bucks a month of net profit that I'm making. And I think they're even talking about raising it again, because rents jumped up like 15% or 20% in that market or last year. So they're saying just to keep up with market rents, you know, maybe we'll go in, in between, you know, maybe we won't quite quite go as high as market rent, but we can still go pretty low. And for this long term rental, that's never moved for the last three years. So there's yeah, you're right. And that's all tax free where if I'm in the stock market, I get the full on biggest tax that could possibly get, especially if it's in a 401k or an IRA where it's ordinary income tax, the worst tax bracket you can be in, you know, here I haven't paid taxes on this money.

Chris Miles

02:27:06

Yeah. Because I've been depreciating the property. Right. And all those profits have been getting written off. So, so it's awesome. You know, there's other things like syndications, you can invest, pull your money together, kinda like funds. You can pull your money into certain specific deals. Whether it be like self storage, it could be apartment buildings could be commercial buildings. It could be oil and gas. I mean, there's so many things there in last year, I even bought raw land. You know, where I did a, a business partnership with someone who's buying and selling raw land for me, I'm financing it, but they're doing that. And I'm making great cash while on that right now, too. So there's, there's just so many more options that when you take that, when you take that red pill, right. That matrix red pill, you take it, you realize there there's so many more options. And then this tiny little wall street, world of mutual funds and bonds and things like that, it's just, you really realize you're just eating really, really bad, you know, British food, you know, it's like, like British quiz meetings, like, wow, I got Shepherd's pie, but there's no flavor here. It's kind of like that wall street. It's like, this is all you're giving you. Gimme mutual funds, stocks, bonds, annuities.

Bill Fairman

02:28:12

That's it. You tell, I tell my wife that you're dis Shepherd's pie. Anyway. Thank you so much, by the way, for joining us, us, you have a podcast. It's those podcast as well.

Chris Miles

02:28:31

I do. I have the money ripples podcast that I do have two episodes a week come out and yeah, it's a great show there. Plus even our YouTube channel, the money ripples channel, we've got videos coming out every day. So lots of good stuff. You could click out there. Jeff,

Bill Fairman

02:28:43

Anything you wanted to ask?

Jonathan Davis

02:28:44

I was gonna tell him, thank you for taking the lead on, on. Yeah. Since our it's our microphone connection. We're not sure what it is is causing disturbing the force

Bill Fairman

02:28:54

Disturb force.

Chris Miles

02:28:56

Not at all. I love it. Appreciate you guys having me on.

Bill Fairman

02:29:00

Thank you so much, Chris.

Jonathan Davis

02:29:02

Wanna, I'm sorry. You wanna ask, you know, everyone out there, out there anecdotally about collectively, we still haven't talked to somebody, talked to somebody who has exited a 401k or like vehicle in retire in retirement with, or then their contributions shins from the employer. The question question is, is there, is there someone, is there someone out there that different ex experience than that we would love to know if, if you have received more than your contributions when you exit that retirement vehicle.

Bill Fairman

02:29:35

Yeah. And we'll give them, yeah. We'll your answers. Just put it over there in the com comments, either in the live or in the live show or we'll continue to check those and then we will, we'll give the, the answers next week again. Thank you again again, Chris so much joining us. We really, really appreciate it. You always do a wonderful job. I'm trying to exit to my exit cam camera. So I'll see you shortly, shortly. So fo thank you so much much for, for joining the real estate investor show show. We are line capital management. We are, we are a private lender in the real estate space space, real estate professionals. If you would like us to take a look at one of your project X, please go to Carol mini.com and click on the, on the apply now. But if you are a passive investment investor, look at returns, click click on the accreditor tab. Don't forget the like light share drive, hit the bell. And then don't forget about Wednesdays with Wendy. We will see, we will see you guys next week. Better audio, take care.
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235 Building Wealth vs. Getting Rich | REI Show - Hard Money for Real Estate Investors
19 Aug 2022· Passive Income, Active Wealth - Hard Money for Real Estate Investing
Bill Fairman

00:00:02

Hi everyone. We are continuing this theme of how to build wealth, whether it's in the stock market or real estate. And we've got a wonderful guest right after this,

Bill Fairman

00:00:37

Your eatings, once again, from the, I wanna say it's the capital of South Carolina, but it really isn't. It is not. No, yeah, we're just on top of the hill here. That's rock hill, South Carolina. Thank you so much for joining us on the real estate investors show hard money for real estate investors. We are Carolina capital management. We are private lenders and the Southeast for real estate professionals. If you're interested in having us look at one of your projects, go to Carolina, hard money.com and click on the apply out tab. If you're a passive investor, looking for passive returns, go to our accredited investor tab and click it on and get all the fine info there. Don't forget the like share subscribe, hit the bell. And don't forget about Wednesdays with Wendy when Wendy dedicates 30 minutes per person on Wednesdays to talk about anything real estate for free, even though it's free, it's it has value.

Jonathan Davis

00:01:49

Oh, it's extremely valuable. Now,

Bill Fairman

00:01:51

Especially if you're talking real estate, now you can talk anything you want, but you wouldn't be wasting your time if you didn't talk about real estate. So if she's usually booked out a couple of months in advance, there's the link to get on her calendar. And it's also in the chat section, which depending on the platform that you're viewing us from, it's either gonna be on the right hand set of your screen or underneath.

Jonathan Davis

00:02:13

Yeah.

Bill Fairman

00:02:14

Welcome.

Jonathan Davis

00:02:15

Welcome. And on this show, we're excited. We have Dean Rogers with us. Former NFL player turned real estate investor. It's it's gonna be a great show and we're gonna kind of, you know, pick his brain on how to build wealth and you know what he's experienced over, over his tenure in, in investing before we get to that though, do you have any breaking news or

Bill Fairman

00:02:39

Actually, I don't know if it's breaking news, but the president signed the bill that supposed to be lowering inflation, if not. So that was kind of anti-climatic. Yeah,

Jonathan Davis

00:03:06

Well, you know, to, to build on that inflation is down in July from June from 9.1 to 8.5, right? It's flat month over month, I guess is the best way to describe that rents are still rising in a lot of metros. We are seeing decline in, in some, you know, namely Miami we're seeing the highest rent climbs in, well, Raleigh's in the top three,

Bill Fairman

00:03:34

By the way, average median rent nationwide for the first time hit $2,000 a month.

Jonathan Davis

00:03:43

Wow. Yep. Still going up, man. Yeah. So yeah. All that I think, yeah. I said for all these number three, I think San Francisco is number one, but I think they were hit the hardest. So, I mean, you expect the one that dropped the most would have the yeah. Hopefully have the highest appreciation. So yeah. Other than that, millennials now make up 43% of all home purchases in 2022.

Bill Fairman

00:04:10

Good.

Jonathan Davis

00:04:10

Look at that. Look at

Bill Fairman

00:04:11

Them, go they're the largest population. They should be climbing even higher.

Jonathan Davis

00:04:16

Yep. Absolutely. Well, without further ado, I guess we need to bring on our guests and we talk about building wealth.

Bill Fairman

00:04:22

Yeah. So before I bring him on, you know, Dean played in the NFL with San Diego chargers, I, I don't know why he would've left other than what most people leave for worried about your, your health because your body is being brutalized in the NFL. Yeah. But he was, I'm not sure if he still lives there or not. And we will ask, but San Diego it's like room temperature all the time.

Jonathan Davis

00:04:48

Yep.

Bill Fairman

00:04:49

And they have some great food there too. Dean created a book, the wholesale playbook and provides resources to people that want to get into the real estate investing business. He owns an active seven figure business in real estate. And we want to talk to him about creating wealth. Yeah. Whether it's best through the stock market or real estate and you know, where our bias is. So without further ado, Dan, come on outta that green room.

Dean Rogers

00:05:23

Well it's time guys. How you doing?

Bill Fairman

00:05:25

I'm doing great. Thank you so much for joining us.

Dean Rogers

00:05:28

Yeah. Thanks for having me. I mean, we we're, we're just meeting, but I, I can't help, but say I like you guys a lot already, not only the, the humor, but some, some implied opinions on some certain topics can't help, but, but like where you're, what, what you're thinking.

Bill Fairman

00:05:47

Well, we are somewhat opinionated,

Bill Fairman

00:05:53

You know, in, in my working career, I've either been self-employed or I've been commissioned only for the vast majority of my life. And I think when you're an entrepreneurial in the first place, and Jonathan's the same way you, you just have a different take it's about it. It's about hard work. It it's about working smart and you have to use common sense when you're talking about business. I have very little patience for people that expect to get handouts. Now there's nothing wrong with helping people that fall through the cracks and helping people that are needy. But if you're fully able and capable, I ain't got no time for you.

Dean Rogers

00:06:40

I can't help. But agree with that.

Jonathan Davis

00:06:43

Well, well, Dean tell, tell us about, you know, you know, first getting in, you know, in the NFL and then what made you wanna leave and then kind of, why did you choose real estate?

Dean Rogers

00:06:55

Yeah. So let me, let me take you a trip down memory lane here. So, you know, going back to when I was a little kid, you know, I was, I was the sports guy. It's all I, all I did, right. Eat, sleep and breathe it. And, and, and class, when you fill out, what do you want to be when you grow up? I was almost embarrassed to write that I wanted to be a professional athlete and you know, every other year was, I want to be in the NFL or, you know, be in the NBA through high school. I finally realized that, you know, my best shot was probably playing in the NFL as opposed to the NBA, cuz you know, 6, 2, 6, 3, and, and, and didn't necessarily jump out the gym as I would've probably needed to. But that being said, that's, that's what my whole life was.

Dean Rogers

00:07:44

You know? And for me, I also recognized me kind of like reflecting on, on my life and having different perspective. Now I always wanted to be that guy. I always wanted to be the provider. I always wanted to like put, put the family on my shoulders. And I grew up in a good family of entrepreneurs who provided everything that was needed. And, and I saw the ups and downs of that. And it actually funny enough convinced me by seeing the ups and downs, that when I was older, when I grew up, I wanted to go be a hard worker for a company and get paid a lot of money, but not have to take on the risk, which is interesting where I, where I wound up. But that being said, being the sports guy, you know, I was kind of under recruited my, my whole life.

Dean Rogers

00:08:37

I always got stuff done, but maybe overlooked or maybe wasn't fast enough or whatever it was, but always, always showed up, put in the work and then got the results on the field. And, and that without question is translated to my professional working career now, but yeah, get getting through kind of the, the system of high school and, you know, excelling and, and doing great there being recruited by, by different colleges. And ultimately I went to UC Davis to play football there, a small school, not really on the radar, but had a history of quarterbacks and tight ends going to the NFL and I played tight end. And so, you know, my, my later seasons, I had Scouts coming to practices and, and watching me and, and some other people. And, and there, there it happened, you know, it came together was, was called and signed by the chargers.

Dean Rogers

00:09:37

And, and all of a sudden my, my dreams became a reality and it was the most, you know, surreal experience ever. Now the, the thing that kind of led me to making the decision to walk away and hang up the cleats was not because I didn't like it. I loved it. It was, it was insane. You know, I had a locker, you know, four for lockers down from Phillip rivers and I'm one of the guys, right? I'm, I'm, you know, talking with Antonio gates and, and you know, these are my teammates, these are my peers. These are the people who I looked up to and played the video games, played as them on the video games. And now I'm, I'm one of them. Right. And it was, it was a dream come true. And I've got endless stories that could go down about what that experience was like.

Dean Rogers

01:10:31

But it, it was without question that Hollywood first, you know, a class lifestyle, first class lifestyle kind of roll out the red carpet experience everywhere we went. And, you know, it was pretty wild. Now that being said that year 2011, when I, when I went into the NFL was the year that ESPN finally started talking about concussions. They never really talked about it before, but now all of a sudden they're talking about concussions and oh my God, they're bad for you. Well, no kidding. But, but now, now we're talking about it. Okay. Now that same year junior Sal kills himself. Right. And I'm now on the other side of the fence, seeing these veterans, seeing the, you know, alumni and seeing how some of these people are just beat to hell. And for me, what was the biggest shift and why I made the decision I did is they changed positions on me.

Dean Rogers

01:11:34

So I went from tied end to full back. Okay. And as you can imagine at, at fullback, instead of being on a, let's say a running play, instead of being a tight end, then you're a yard or two yards away from, from the defensive end. And you gotta, you know, get 'em at a nine technique and block 'em and, and, and seal the edge there. Or you're, you're blocking with the tackle and, you know, rolling up to the, the linebacker, who's three or four more yards away. You're now running 10 yards, full speed, trying to kill each other. Right. And you're trying to run through a hole that's this narrow and the best way to do that because my shoulders are so wide is to lead with my head, right. If I want to be effective and I wanna block this guy effectively, I gotta lead with my head because that's, that's the first thing that's going through the hole.

Dean Rogers

01:12:25

So I would literally go back from just practices and be icing my head thinking like, holy crap, I, I don't know how long I can do this. Because from the neck down, I felt amazing. Like, I felt like a superhero. I, I had the best nutrition, the Bo best vitamins, the best, you know, support team to, for physical therapy and everything. After every practice, every game, I felt amazing from the neck down. But from the, from the neck up, I was like, okay, I'm gonna be brain dead in, you know, 10 years from now when I'm done playing. And so it was hard now, what made it even harder? Okay. And, and probably what makes me sleep well at night and feel some somewhat fulfilled is I had north Turner stop me in the hallways, tell me I'm gonna have a long career. Just keep doing what you're doing.

Dean Rogers

01:13:13

And I'm like, holy crap, man. Like, this is crazy. You know, I I've made it. I got this dude who I've been watching coaching, you know, winning teams telling me this, like this, this means something right. I'm onto something. I, I, I know I'm here and I've made it, but I had this terrible feeling inside. If I keep doing this, I'm gonna be dead in a vegetable. So there was only a handful of people that made the decision around this time. But people started to make the decision like, Hey, you know what? I got other things to live for. I got other skills. Right. I got other opportunities. So I made, you know, the hardest decision in my life to this day to walk away from the game I love from, from, you know, what the lifestyle provides, you know, millions of dollars, literally on the line to walk away from it. So I still have dreams, you know, I'll wake up and think I'm still there in the locker room playing, getting ready for a game. And you know, it makes me a little sad, but at the same time, I know if I would've stuck through and done it, I'd be in a world of pain right now, without question,

Bill Fairman

01:14:18

Well, you, you made the right decision. It, it's nice to have those that, that adrenaline every week. Yeah. Not to mention the adrenaline after the game where the after parties,

Dean Rogers

01:14:30

But,

Bill Fairman

01:14:32

And, and it's, I know it, I don't know from experience, cuz I've never been at that level, but I can only imagine what it's like to, you know, not have the, we'll call it the adoring fans hanging around all the time. Yeah. So I know that's kind of, kind of tough to give up, but again, you have a lot, what's the average career in the NFL about three years or

Dean Rogers

01:14:59

Something like three years. Yeah. Yeah.

Bill Fairman

01:15:01

So you do, you do have life after football. Yeah. I was fortunate enough to be a, a colleague with Allen Vinegrad. He was a offensive tackle for the Cowboys during the Emmett Smith years won several super bowls. And when I first met him, I thought he was a basketball player because he was so skinny and I couldn't believe all that. He had to go through to maintain his weight as a offensive tackle. It's amazing. He looked completely different, but that said, so what got you into the, to the real estate business? Yeah.

Jonathan Davis

01:15:40

You, you you're walk, you decide that you don't wanna do this. Yeah. What, what triggers you to, to say, okay, here's my path.

Dean Rogers

01:15:47

Yep. So I walk away from football, right. And, and some close buddies, buddies of mine that I played college with. One, one in particular reached out and he said, Hey Dean, you know what, now you're done playing football, but I got a really great opportunity for you. I'm working for this corporation and San Francisco. So I'm thinking to myself, well, great. You know, he explained to me everything that was going on and it just seemed like the, exactly what I was dreaming of once I got into my professional working career. Right. So he basically walks me in the door. I, I join and start working for them and move to San Francisco. And after a year of busting my ass, doing what I always do, like I, I literally would be, you know, spinning in my, my seat thinking like, this is all it is like, I just gotta slap this keyboard around. This is the easiest thing I've ever done in my life. Like, this is a joke, you know? Right. Like I get paid to do this

Bill Fairman

01:16:42

After two days

Dean Rogers

01:16:44

After, after, you know, waking up at six and you know, practicing all day and then you you're in film and everything. You're, you're not getting outta there till 8:00 PM. You know, you're just doing it all day long. And, and this was just incredibly easy to me. So I, I worked my butt off. And at the end of the year, I'm thinking, well, surely they're gonna recognize how skilled I am and the value that I bring, like, I'm, I'm ready for the big pay raise right now, mind you, I went from signing a seven figure contract and walking away from it to signing a $65,000 annual salary. Right. So I kind of had to, to adjust to that, but I'm thinking, all right, I I'm ready to take it to the next level. I'm ready for the six figure, you know, pay, pay, increase, like, let's do this thing.

Dean Rogers

01:17:34

And they're like, wow, you know, great work. We're gonna increase your salary by $2,000. You know, like, congratulations. I'm like, what now, mind you, I wasn't in a sales position where, you know, my effort could necessarily have those big jumps, but that being said, it really opened up my eyes like, holy crap. If, if I wanna have the lifestyle that I, that I had in my, my hands and my fingertips and, and I wanna be able to provide and live the lifestyle of, you know, abundance and freedom and, and create wealth. Like I wanna be that guy, remember I wanna be that guy that provides and, and generationally people are like, wow. He, he, he paved the way for all of us. And, and now we have this, this wealth and freedom. This was not the path, right. This was not the path. So I did the good old Google how to get started in real estate and found Sean, Terry don't know if you know Sean, Terry, but Sean Terry has the, the flip two freedom podcast.

Dean Rogers

01:18:35

And all it was was a free podcast that I listened to and immediately was obsessed. Like as soon as the first episode I listened to, I was like, whoa, how to get started with little to no money, how to, you know, basically start a business from scratch without any prior experience. Like you can find deals, you know, by following these strategies, to me, it was, it was something that just, you know, drew me to it. So I became obsessed was listened to it all day, every day at every opportunity I could. And three months from that very first day, I found it. I did my first deal. Coincidentally, I actually did it by co wholesaling it with Sean Terry, because I was following what he was saying. So to the book that I was actually marketing in his market rather than my own in, in Phoenix.

Dean Rogers

01:19:28

So that was the proof of concept. That's all it took for me to know, this is what I want to do after doing like a couple deals that first year I even told my wife, Hey, you know what, you, you could stop working. I got this thing figured out little little did I know that it definitely required a lot more effort, a lot more work to create that consistency and build the income, but yeah, flash forward to where I'm at today. You know, we have a, a seven figure a year business doing wholesale and flips, you know, kind of started out by wholesaling, single family houses. And then after a year found my business partner, we started flipping houses, which we've done, you know, hundreds of flips at this point. And, and for me, I realized that there was kind of a, a, a lot of de missioning returns.

Dean Rogers

02:20:19

The more flips we did, right? The more cash was out. The more I was stressed out, the, the less money we were making per flip, but we were really good at finding deals. So in 2018, the, the, the light bulb went off. Well, dude, if I, if I wanna build wealth, I'm on the hamster wheel right now doing 20 flips at a time doing a hundred flips a year. And I, it is just a revolving door of cash and always feel like I have none. So in order for me to have that shift, we focused on more wholesale with the, you know, handful of flips at a time and buying rentals. Okay. So for me, I finally realized that to build wealth, the, the people who are truly wealthy, they own real estate, and they get all the benefits that we, we all know about the appreciation, the principle paydown the depreciation and the cash flow, right?

Dean Rogers

02:21:16

So all four of those were all the areas that the light bulb went off. And for me, I was like, okay, I need to start buying. So to this day, we've, we've got a 63 doors or something like that, nothing too crazy, but it's, you know, $10 million worth of real estate that if I do nothing else, I don't buy another property, which I know I'll buy many, many more properties just with appreciation and principle paydown is gonna be, you know, multiple eight figures, you know, 10, 20, $30,000. By the time my kids take it over. And for me, that, that feels like a great accomplishment already, but naturally I can't help myself competitive and driven and, and wanna to grow it more and more.

Bill Fairman

02:22:01

Yeah. Well, you know, it's funny people don't think about the, the fix and flip and the wholesale business in the way of, I mean, you can get wealthy that way, but you're not growing wealth that way. It you're only as good as the last deal that you did. You

Jonathan Davis

02:22:17

Can get rich that way.

Bill Fairman

02:22:18

Yeah. Yeah. And you know, one of the things that you didn't mention about owning the real estate is if you leverage it with cheap, long term money, you're at that point, you're also paying in inflation adjusted dollars, much less over time, which that helps even more, in my opinion, this is why we don't do any long term loans. Oh yeah. Personally, out of our fund, we only do short term. Yeah.

Jonathan Davis

02:22:49

It's inflation adjustment also while rents. Right. Do what increase

Bill Fairman

02:22:53

That that's right. Yeah. I tell you, I like the old school loan business where, and you're probably too young for this. We would do. What's called a call option. Not a, not a, what do you call it after three years or five years.

Jonathan Davis

02:23:13

Oh, you mean an arm? Yeah. Yeah. You do a call auction on it. Yeah.

Bill Fairman

02:23:16

So you do a call option where you're allowed to either adjust for rate increases. You can leave it the same, or you can actually lower it if you want, or you could call the thing due. And that way you're never obligated to a long term contract. Now, what market are you ending?

Dean Rogers

02:23:36

So to answer your question earlier, I still live in San Diego. I was in San Francisco, realized holy smokes, it's cold and windy here. And I don't see myself raising a family. I, I was pretty, I was pinching myself when I was playing in San Diego. So we moved back to San Diego. We're in LA JOA, if you know where that's at. Yep. And so, so love that area. Yeah. We, we love it here. We, we do the, the golf cart life. You know, we drive the golf cart to the beach and to go work out and get food and all that stuff. So I still pinch myself all the time about that. But my business is actually where I grew up, which is central California. So for me, I love investing in the market where I grew up because it's all, you know, houses that are actually at and below the medium, the, the national medium price point, which in California, I mean, most people don't even know that exists.

Dean Rogers

02:24:32

Right, right. Central California, where I grew up, which is more intimately known as the central valley people don't even realize that it's there. I tell 'em, oh yeah, I'm from Visalia. And a lot of times they're like, well, where's that, you know? And so the nearest city that people kind of relate to is Fresno and maybe be they, because Fresno state has kind of put them on the map. Right? Sure. From a sports standpoint. So for me, you know, houses, I'm buying for a hundred, 200, $300,000. It's rare that I'm buying anything above that. And, and so for me, I sleep so well at night because those are just easy to understand. There's such a, such a demand for that price point. Now you look at compared to San Diego, I've done some flips here. I mean, I was thinking all the time about my flip that I had in ocean beach that, you know, I bought for $560,000 and, and had it on the market to sell for seven 50 after I put, you know, 60, $70,000 into, I couldn't help, but think about it every day, because the interest payment was, you know, 6,000 bucks a month or something.

Dean Rogers

02:25:43

Whereas, you know, in, in my market, it's, you know, pretty much a thousand bucks or less. And, and you can have a lot more of those that you're taking on. So,

Bill Fairman

02:25:53

Yep. Go ahead. I was gonna say, that's exactly what we preach. Yeah. We only lend in those median price points anyway, because as a lender, we have to look at it this way. If we have another 2008, so there's a worst case scenario and everyone's a seller and no one's a buyer. We can at least rent out those homes. Yep. For our expected return in our fund, it is the most liquid of the single families because you've got empty nesters that are looking for those homes. You have first time home buyers and you have investors that will all look at those homes. So it is the most liquid. And it's the easiest to move. If you have to, you're also not gonna get big price fluctuations when the markets change in those markets as well. So yep. There, there's another thing we have in common.

Dean Rogers

02:26:44

Yes.

Bill Fairman

02:26:45

That's awesome. Listen, I, I wanna make sure that I promote your, you have a, do you have a class or a book or

Dean Rogers

02:26:54

Yes. So I have a coaching program. So something unique that I'll just kind of touch on is over the past couple years when pardon part, in my opinion, but when the scam demo happened, you know, I, I couldn't help, but notice that the more that I networked and, and reached out to other people that more opportunities kept coming to me. So the more that I helped, the more that I had the abundant mindset, the more that opportunities came to me from other people and, you know, blessed our business. And, and we kept, you know, doing more deals, making more money. So that same kind of concept with, with good friends around me, kind of encouraging me to, to do deals with other people to, to help other people learn, had some good friends, kind of push me off the edge to get into the education business.

Dean Rogers

02:27:45

So I started what I call the wholesaling playbook, which is essentially step by step exactly what we're doing in our business from, you know, a marketing standpoint, how we're negotiating, how we're, we're structuring our deals and analyzing them and the processes and systems we have in place, how we built our team, how we built out our CRM, everything that we're doing from a to Z, we cover that in the wholesaling playbook. So sweet with that. You know, I have a coaching program that has all of that. You can go to Dean rogers.com and check it out. I got a video that explains everything that's in it. And, and really my goal with that is to build a community of other people who are developing the skills, who are getting deals, closing deals and, and helping them elevate in their life and change their lifestyle and, and their resources.

Dean Rogers

02:28:42

And, and as a result of that, there'll be many more people around me in my community that are also winning. And that just without question opens up more doors, right? Absolutely. The whole reason I just joined the family mastermind, where we met was being around other winners who are doing the same thing. And already as a result, it's opening other doors and new relationships. So that's kind of the motive behind the wholesaling playbook and the coaching program is just to elevate other people. Naturally, I'm super passionate about the business and, and love, love doing deals and helping other people do deals too.

Bill Fairman

02:29:21

Excellent. Well, we, we are very passionate about masterminds as well. We also have that abundance mentality. All it does is bring more like-minded people into the fold. You can't think of PE people that are in that business as competition, because at some point you guys are gonna be doing deals together anyway. Yeah.

Jonathan Davis

02:29:42

Rob Robert Ingersol, you know, we rise by lifting others. Yep.

Bill Fairman

02:29:45

Now, absolutely.

Jonathan Davis

02:29:47

Before I forget, I want to go ahead and get the question of the week out to everyone.

Bill Fairman

02:29:53

Yes. Go ahead.

Jonathan Davis

02:29:53

Yeah. So

Bill Fairman

03:30:03

We have to be, we have to be careful. I love it. We, we don't hesitate for our graphics coming in. Yeah. We

Jonathan Davis

03:30:08

Just talk. So we wanna know what is your preferred way of building wealth? You just heard from Dean, you know, he was in the NFL kind of kicked around in the corporate life and then figured out, Hey, I wanna build well through realized wholesaling, wasn't it. So, you know, rentals. So into the real estate section, what are you doing? We wanna know, and we'd love to talk about it next week.

Bill Fairman

03:30:33

So yeah, you can put it in the comment section and then we will follow up with you guys next week and we'll put it in our lab broadcast. Thank you very much, Dean. Thank you so much for joining us. I appreciate you spending time with us. You got a great story. The, the one thing that I caution you on is that you still live in California.

Dean Rogers

03:30:56

I still question that too. It's so beautiful here. You know, I, I know to look out the front door and see a, a little sliver of the beach. I go to the corner of the, the end of the block and, and see it and can drive to it in the golf cart. So it's, it's hard to leave that, but man, they, they sure make it easy to wanna leave.

Bill Fairman

03:31:13

We have many friends out in California and the typical comp you know, comeback from that is that's the price of living in paradise.

Dean Rogers

03:31:22

Yep. True.

Bill Fairman

03:31:25

Again, thank you so much. Hang around. We'll we'll talk here right after we get done folks. Thank you so much for joining us on the real estate investors show. We are Carolina capital management. We are private lenders in the Southeast for real estate investors. If you have a project you'd like us to take a look at, please go to Carolina, hardman.com and click on the apply. Now tab, if you're a passive investor looking for passive returns, then go to the accredited investor tab. Don't forget the like share subscribe, hit the bell. I did forget that to mention that we're gonna be at the quest expo September. I believe it's 23rd through the 25th. That's also over in the comment section. You can get a discount of 30% by putting in Fairman 30. That's also in the comments. We will see you guys next week. Have a great week.
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234 Who's Your Daddy?: Rich Dad or Wealthy Dad! | REI Show - Hard Money for Real Estate Investors
12 Aug 2022· Passive Income, Active Wealth - Hard Money for Real Estate Investing
Bill Fairman

00:00:01

Hi everyone. Bill Wendy and Jonathan here. We're gonna talk about rich dad. Poor dad. Who's your daddy. Once again, greetings. Thank you so much for joining us on the real estate investor show hard money for real estate investors. We are Carolina capital management lenders in the Southeast for real estate professionals. If you would like us to take a look at one of your projects, please go to Carolina, hard money.com and click on the apply. Now tab, if you're a passive investor, looking for passive returns, go to the accredited investor tab and

Wendy Sweet

00:00:59

Send us some money.

Bill Fairman

00:01:00

That's right. Don't forget to like share most importantly subscribe, and then you can hit a bell too. If there's one available Wednesdays with Wendy it's. So unlike me to be so busy talking, I forget about

Wendy Sweet

00:01:26

The grand page. Yeah.

Bill Fairman

00:01:28

Anyway, Wednesday with Wendy is a volunteer thing that Wendy does to donate her time to anybody who wants to talk about real estate. She gives everyone 30 minutes, but get on the list, her calendar she's booked out all the time.

Wendy Sweet

00:01:47

Not all the time.

Jonathan Davis

00:01:47

All there's times available.

Wendy Sweet

00:01:49

Yeah.

Bill Fairman

00:01:51

Get it while it's high.

Wendy Sweet

00:01:52

Yeah, that's right.

Bill Fairman

00:01:53

Am I leaving anything out? Quest expo?

Wendy Sweet

00:01:56

Yeah, that's coming.

Jonathan Davis

00:01:59

There's a graphic for that.

Bill Fairman

00:02:14

It's coming up soon. Anyway. It is a great opportunity to meet like-minded people. You can get a 30% discount by using Fairman 30 and it's September the 23rd through the 25th. I highly recommend it.

Wendy Sweet

00:02:30

Great networking opportunity. Absolutely great opportunity to learn about all the different opportunities to invest your money. Yep. Right? Absolutely. There's a lot of stuff.

Bill Fairman

00:02:41

So do we have a, a question of the week by the week?

Jonathan Davis

00:02:45

Yeah. So the question of the week, and we'll, we'll follow it up later in the show as well, but in your opinion, you know, what is the difference between being rich and being wealthy? Hmm. And, you know, kind of a, you know, a caveat off of that is what are some strategies that you employ to build wealth now we'd, we'd love to talk about those next week. So anyone that puts it in the comments, we will be discussing it. And

Wendy Sweet

00:03:14

We'll actually be talking about that over the next few weeks. So yeah, there's, we've got a lot of great speakers and, and topics lined up to where we're really addressing building wealth versus getting rich because there's a big difference in the two and, and rich dad, poor dad is what came to mind when, when we were coming up with this and yep, absolutely great book. If you haven't read it and you've been living under a rock, if you haven't, but it's, it's a great book. Rich dad, poor dad by I think that's key.

Bill Fairman

00:03:49

So for breaking

Jonathan Davis

00:03:52

The news,

Bill Fairman

00:03:53

Breaking news,

Wendy Sweet

00:04:06

When was the last time your home was rated?

Bill Fairman

00:04:10

Last time I used bug spray. Yeah,

Wendy Sweet

00:04:13

That's good.

Bill Fairman

00:04:14

So the producer price index came out today for the month of July. That's basically what manufacturers pay for their goods before they're manufactured and then passed on to the consumer. It was slightly below what expectations were. But when you strip out food and energy, food is way up there. Yeah. Energy dropped and we all know that gas prices oil came down.

Wendy Sweet

00:04:48

Not much. We're still above where we should be.

Bill Fairman

00:04:50

Right? No, I get that. Yeah. But the point to this is that it's still into 9%, almost. It was 9.8%. They were expecting 10 something. So it's still high. They're still gonna manufacturers still have to push their cost increases forward. So we're, we're gonna be in inflation territory for, for quite some time. And unfortunately,

Wendy Sweet

00:05:14

If you wanna call it inflation

Bill Fairman

00:05:17

And the fed don't

Jonathan Davis

00:05:18

Call it recession. I mean,

Wendy Sweet

00:05:19

We're not,

Jonathan Davis

00:05:20

It is not a recession.

Wendy Sweet

00:05:21

That's right.

Jonathan Davis

00:05:22

Don't vote this November for not in a

Wendy Sweet

00:05:25

Recession donation. That's right.

Bill Fairman

00:05:28

So, you know, the fed is gonna continue to, to raise rates until they, I, I, I heard the chairman of the Minneapolis fed say that they're getting down to 2%, no matter what. So they will continue to raise rates until they get the inflation rate down to 2%, which means they're gonna continue to raise rates

Wendy Sweet

00:05:49

For a while. Yeah. Yeah.

Bill Fairman

00:05:51

I did wanna touch on the general mortgage outlook what's been going on. So I got this article from the mortgage news daily, and this is, this is based on refinancing. And I said last week it has picked up refinance index was up 3.5% from the previous week. It's largest gains it's June, but it was 82%, less than last June at this time. Just

Wendy Sweet

00:06:22

A little bit different.

Bill Fairman

00:06:25

We, we had Brian on a couple of weeks

Wendy Sweet

00:06:28

Ago, Brian Maddox.

Bill Fairman

00:06:29

And you know, if you're in the mortgage industry and you weren't paying attention to your purchase money business, you're in a world of hurt right now. Excuse me. I

Jonathan Davis

00:06:40

Don't know. You're up three and a half percent.

Bill Fairman

00:06:44

No, you're down

Wendy Sweet

00:06:45

82%. It's all on how you look at it. I was, I was at the airport at 4:00 AM this morning. That's a whole nother story. But while I was sitting there, I was reading about loan Depot, big company. They had 11,500 employees. They've laid off almost half of 'em.

Bill Fairman

00:07:08

Wow. Well, I didn't hear about half.

Wendy Sweet

00:07:10

Yeah. And they expect 900 more. Yeah. I hear they're going to be laid off. Yeah. So they're and they're stopping their wholesaling, which I thought was interesting. Yeah.

Bill Fairman

00:07:19

Well, they're not gonna have too many retail businesses that are gonna be using

Wendy Sweet

00:07:25

Them. Yeah. That'll be selling 'em now, you know, they're finishing out their pipeline, right. They're not leaving anybody hanging. Like it happened back in, you know, oh eight. But, but they're making some big changes.

Bill Fairman

00:07:36

Now, purchase applications decline 1% week over week, but they're, they're just down 19% from a year ago, which is still bad, but that's better than 82. If you're in the mortgage business, that's where you're gonna get your right. You know, your, your workflow from your cash flow. Now I thought was interesting was the size of the mortgages grew from now, these are refinances 378,000 to last, last week. It was 374 or no 374 7 is they've gone up, you know, $4,000. Almost obviously people are taking advantage of still having equity in their house. And in my opinion, if you're refinancing, now it's not rate and term it's, it's cash out. Refinances. People are hoarding a little bit of cash. Yeah. Or they're spending a bunch of their money with credit cards to pay for food and shelter and gas. Yeah. With their cards and they, they need more cash.

Jonathan Davis

00:08:47

Well, I mean, it could be rate term, probably not. I mean, you probably have some five, one and seven one arms that are coming due that are, you know, people have

Bill Fairman

00:08:54

To, if you, you had a five, one or a seven one arm in the last three or four years, you're on moron.

Wendy Sweet

00:08:59

That's crazy. Yeah. Crazy.

Jonathan Davis

00:09:01

Well, well, you wouldn't come due in the last three or four

Wendy Sweet

00:09:03

Years. Yeah, that's right. You would've been, you would've five years ago.

Jonathan Davis

00:09:06

Well, seven years ago.

Bill Fairman

00:09:08

My point is, why wouldn't you have refinanced before then? I mean, you couldn't qualify

Jonathan Davis

00:09:13

Well, remember in 2018, you know, mortgage rates were in the fives. Yeah. I mean, just that's four years. Guess

Bill Fairman

00:09:19

What? I mean, as soon as they got down below three. Yeah. Why wouldn't you have been refining?

Jonathan Davis

00:09:23

Well, I'm saying, so you'd be, you'd be refinancing from 2015 to 2018. Yeah. And yeah, I wouldn't, your rates would be pretty comparable to where they are now

Bill Fairman

00:09:32

Or higher, but that just means they're, they're going to an adjustable and yeah. You might wanna go to a higher fixed rate and be stuck with a higher adjustable and not knowing where it's gonna go. I get that. But I think again, unless you couldn't qualify, you should have already done that. So you're still more on or not paying attention.

Wendy Sweet

00:09:53

Do you have a graph that you wanted to show no online or that's just for us to look at. Okay.

Bill Fairman

00:09:59

That's that's going into our next segment. Oh, gotcha. But thanks for reminding me purchase mortgages prices rose to 416,300 from four 13. So we still have prices that are going up

Wendy Sweet

01:10:15

A little bit and that's nationwide too. So it's gonna be different depending on where you are located. Sure,

Bill Fairman

01:10:22

Sure. So average interest rate for a conforming loan was, you know, between it was 5.47 compared to 5.43, which is not a big deal. Here's what really surprised me though. Jumbo 30 year fixed the rate was 5.9% since when is a jumbo more expensive than

Jonathan Davis

01:10:45

5.09.

Bill Fairman

01:10:47

Yeah. Yeah.

Jonathan Davis

01:10:47

Okay. Yeah. 5.09.

Bill Fairman

01:10:49

Yeah. What did I say? 5.9. Yeah. Okay. 5.09. So barely a tick above five. So since when is jumbo rates lower than conventional rates?

Wendy Sweet

01:10:59

Yeah. Amazing. Huh?

Jonathan Davis

01:11:00

Because most loans are jumbo now with, you know, 4, 4 16 being the average loan

Wendy Sweet

01:11:05

Size.

Bill Fairman

01:11:07

And that really shocked me. Yeah. That is that's crazy. And it, this, this article, and again, it was in mortgage news daily, yesterday, you can get the whole thing, but they were showing these rates with, you know, some points, a little bit of points, but the points were basically the same. Yeah. For all of these, I'm just, I'm just shocked that the jumbos

Wendy Sweet

01:11:29

And the key to all this is how is that really going to affect real estate investors when they're trying to fix and flip properties, you know, how are the sales gonna change if they're, they're going to change. We still through all of this, have a shortage of housing. Yeah. You know, we're, we're still low on the housing. So, you know, things are still gonna be moving along.

Bill Fairman

01:11:53

Well, the, the one thing I want to add to this is that unless you're in California or certain areas of the country bubble units, you're not gonna be getting, if, if you're an investor, you're not getting a jumbo. So if, if those houses are, are moving, it's gonna be for more than likely people that are owner occupied. Sure. Yeah. In smaller units that are gonna have a lot of investors in. So as people are getting priced out of the market, the market will come back to them. Eventually wages still aren't keeping up with inflation, but at some point wages will, as inflation starts to come down and then prices on, on homes will, I don't wanna say flatten, but they'll get more realistic.

Jonathan Davis

01:12:42

Yeah. Yeah. Everything will adjust.

Bill Fairman

01:12:43

You keep beating the same drum here that this appreciation rate is unsustainable

Jonathan Davis

01:12:50

And it's a great time to be a landlord. Yeah. Yeah. That's a great job. Rent have never been higher. That's right. Rent's never been try.

Bill Fairman

01:12:57

All right. So we are going to talk about wealthy versus rich,

Jonathan Davis

01:13:05

Wealthy versus rich.

Bill Fairman

01:13:07

So what I'd like to talk about is the difference between getting rich in the stock market and getting wealthy in real estate. You have any thoughts on that?

Jonathan Davis

01:13:19

Do I have thoughts? I have a lot of thoughts on that. I mean, I'll focus more on the real estate size. That's more of my, my wheelhouse. There are so many different ways to invest in real estate and there's. And so you can be diverse between asset classes be between geography. You can, you know, have cash flow. You can have appreciation. We were just talking about unsustainable appreciation, but you can also have depreciation, which is a tax advantage. You can even hypothecate if you want. So, you know, it's just pledging an asset without conveying title. So there's all kinds of ways. And, and the thing to remember, I think for real estate is where the shiny object syndrome happens in, in stock market. My cousin put, you know, 10,000 in, on this stock and it blew up and he, now he's a millionaire that, you know, that's great.

Jonathan Davis

01:14:24

But the chances of that occurring are so minimal. Like it it's, it's it? Yeah. It's so tiny, but in real estate, you don't get that quick fix that everyone like, you know, like, you know, it's a headline, everyone just wants the headline. I made a, I made $400,000 when I sold this house. It was fantastic. Like that's not typical. It's, it's, it's not, it's a, it's a long process. Yes. And it's a long game that you have to play and you have to diversify yourself. But that long process is the wealth. That is where the wealth is generated. In that process. You can, you can get, become a millionaire in stock market overnight from some anomaly happening that you had no control over. It could have gone a thousand different ways, but it went this way for you. Congratulations. Now, what do you do with it? I suggest take that money invested in real estate, but you

Wendy Sweet

01:15:19

Know, yeah. Yeah. Plus, I mean, you talked about assets and all of that, you know, different classes, but not only that, but you can also choose to be active or passive in investing in real estate, whether you're funds syn syndications, or are you investing in individual people that, you know, are you buying notes? You know, there's

Jonathan Davis

01:15:43

Yeah.

Wendy Sweet

01:15:43

Are, are so many different things

Jonathan Davis

01:15:45

You're buying and selling notes. Are you buying performing assets? Non-performing assets, reperforming assets, commercial, residential, you know, mixed use, raw land, whatever, you know, what have you, I mean, there's so many different avenues you could do. You can do seller financing, you can create a note and then sell that note or sell a portion of that note, sell the first half of it and retain that the second half. Like there's, there's so many options. And again, I'm only speaking from the real estate side that I know, but I don't think you have that many, well, you have options in, in stock market, but I don't think you have, it's not the control tied with an asset.

Wendy Sweet

01:16:26

Right.

Jonathan Davis

01:16:26

That's, that's what we

Bill Fairman

01:16:27

Like. If you're confused about all the different ways and how to do this, how, how many people that are invested in the stock market know all the different ways to invest in the stock market. That's

Jonathan Davis

01:16:39

Right. Probably none of them,

Bill Fairman

01:16:41

Most of them just have money managers that they can say, okay, that sounds good to me. I did. I read an article yesterday from JP Morgan chase advisors and the, in the article, it was stating that the average investor after inflation ends up with about a 2.9 to 3.1% return. Wow. Over the 20 years, because they always buy it the wrong time. They sell it the wrong time. They pay too high of fees, all that stuff, taxes. Yeah. All, all that is involved because they, they don't know. They trust other people to manage it for 'em and if they try to do it themselves, they, they make even less money.

Wendy Sweet

01:17:28

Yeah. They run scared.

Bill Fairman

01:17:30

So through, if you'll put up that graph that shows the home prices versus the stock market since 1900. So it's the, here's the appreciation. And, and let's talk about, and, and I, I couldn't find one that went beyond 2010, really, that would show a long term in the market. So this is since the 1900 stock market versus home appreciation basically. So the red line is the stock market. And as you can see, they run fairly parallel through from 1900, all the way to 2010. So the values are basically the same. Yeah. The prices are basically,

Jonathan Davis

01:18:20

The only difference is you don't have steep losses and gains in the housing. As you do in stock.

Bill Fairman

01:18:27

Housing is, is pretty steady until you get to, you know, 2008 and eight where it went down, but it, you know, it recovered fairly well. Just like the snack market did in 2008. I mean, it dropped two. Yep. But here's a little difference in building wealth versus getting rich. Could you put that back up again, if you don't mind with that, the housing, those prices are the same, but the value is not in the price. The value is in the income that those properties pay. You let's switch over to that graph where I have the, there, there we go. And I know it's kind of hard to read this. This is the 30 year and the 20 year history of the S and P 500. And these are the returns for 30 years. The average return was nine point. I can't read

Jonathan Davis

01:19:24

That 9.84.

Bill Fairman

01:19:25

Yeah. 9.8, 4%. And then adjusted for inflation. It was 7.15. Now this is in price, right? If you're, if you own real estate and you're getting rental income from real estate, do you think you're gonna get somewhere in the seven to 9% return on those investments?

Jonathan Davis

01:19:48

I think most people that we work with get somewhere between seven and 12% on their

Bill Fairman

01:19:53

Investment. Okay. Now that's on the, we'll call it the dividend part on the real estate. Yeah. You're not gonna get a dividend like that in the stock market, your typical dividend paying stocks, number one are not going to follow that same trend line as far as pricing goes. And your dividend typically is gonna be between, depending on the company two and a half to 4% return. Yeah. Okay. With the housing market. We'll, we'll just say in single family, I'm not gonna talk about anything else right now, because the graph is based on single family housing, you are getting a seven to 9% increase over time, every single year with a few exceptions, but over time. Yeah. You're, you're getting that same appreciation as the stock market, but you don't get paid in the stock market until you sell. Right. Well, with real estate, you're getting seven to 9% returns. And then you get DEP profit. When you sell, if you decide to sell, plus you also get the tax advantages. Yep. With, with depreciation. Now, a lot of people are gonna say, well, yeah, that's fine and dandy, but I don't, I don't wanna be a landlord. That's a lot of trouble to get what

Jonathan Davis

02:21:12

Property management companies

Bill Fairman

02:21:14

Are for. That's right. You don't have to do it yourself. You can invest in funds that do the same thing that are that's right. Backed by the same assets. Yeah. Or you can get the same tax advantages that you can buy owning real estate because you essentially do own the real estate because it being an equity partner in a fund, you are one of the owners. Right. And you get those, those same tax benefits.

Jonathan Davis

02:21:37

Yeah. And you say all of those things that are included into the real estate and building wealth, and we, you know, sometimes get overlooked, but the amortizing loan, like you get to buy a property or, you know, or, or refinance or whatever you do with it, with to, and pay that loan in today's dollars for the next 30 years. Like the value of that is immense.

Bill Fairman

02:22:05

Let's touch on. Yeah. Leverage. So you can do the same thing in the stock market. You can leverage, you can get loans to buy more stock and you have money to buy the stock with. Yeah. But what happens if the price of that stock goes down? Oops, what is your lead forage happen? What happens? You either you have to sell

Jonathan Davis

02:22:24

Called. Yeah.

Bill Fairman

02:22:25

You either have to sell, or you have to put up more money because that leverage is based just like on a house, a percentage of the value. So if the value drops, you have to bring your percentage back up again by either adding cash or selling the asset. Yeah.

Bill Fairman

02:22:41

And the housing market, it doesn't matter if the price of the house drops, they're not calling your loan or making you put up any more money. No. The only time you would have to put up more money is if you had to sell for some reason and you owed more than, you know, what the mortgage before, or, or yeah. You couldn't sell it for what the mortgages were. Yeah. And, and again, and I'm gonna continue to quote this until the day I'd die, because it's a great quote from David Phelps, the house doesn't care what it's worth.

Jonathan Davis

02:23:11

That's right.

Bill Fairman

02:23:12

It's still producing an income. Yeah. And even in down times, recession periods, people still need a place to live. They still need to eat. And in real estate, you're providing them with a place to live. Now, there is very important. Sure. If you're in certain states, they may, the government may come in and say, I'm sorry, these people can't afford it. And we're not gonna let you a victim.

Jonathan Davis

02:23:41

Yeah. Yeah. That's why we don't like to do business in those states. So you have to be,

Bill Fairman

02:23:46

You know, due diligent about where you buy your real estate.

Wendy Sweet

02:23:50

Right. Right.

Bill Fairman

02:23:51

Very important. So that does happen.

Wendy Sweet

02:23:55

But not in most places. Yeah. That's not happening in most places.

Jonathan Davis

02:23:58

Yeah.

Bill Fairman

02:23:58

And most people wanna pay their rent. You are gonna get people that play the system. But in most cases, you're gonna get people

Wendy Sweet

02:24:06

That wanna pay. You know, another thing that I think we should touch on too, is, you know, when we talk about building wealth, you talk, we were talking about all the advantages you get when you're in real estate versus being in the stock market. Well, if you, when you're getting into real estate, that be careful about how, what dollars you're taking money from, you know, are you investing with a IRA, 401k, or are you investing with cash knowing that if you're owning property, you don't really wanna use your IRA to own the property because then there's so many other advantages tax advantages that you're not gonna get using your IRA.

Jonathan Davis

02:24:51

Yeah. The

Wendy Sweet

02:24:51

Depreciation ver versus using cash for that. So, or

Jonathan Davis

02:24:57

Someone else's

Wendy Sweet

02:24:57

Money. Yeah. So leverage, so make sure you, you, you are investing from the right pool, buying the right things from the right pool. Does that make sense? Yeah.

Jonathan Davis

02:25:08

Yeah. Absolutely.

Bill Fairman

02:25:09

There are rules you have to follow with self-directed retirement accounts. And we've always found that if you're investing your retirement account, be a lender in a business that does is not tax advantage. Then that's where you put your IRA in. Yeah. If you're investing in something that is tax advantage, you're not getting that advantage because you're already using money. That's tax deferred or tax

Wendy Sweet

02:25:38

Exempt. And it's not a bad investment. No, it's just not as, Wise's not,

Bill Fairman

02:25:42

You're not utilizing your, all the benefits. Yeah. All the benefits entitled. Yeah. I have one other thing I wanted to talk about on this subject, but I'm old and I forgot

Jonathan Davis

02:25:53

Why I'm thinking about it. Let me share the, the question of the week again. So we, you

Wendy Sweet

02:26:11

Type fast. I know, right?

Jonathan Davis

02:26:13

We want to know, in your opinion, what is the difference between being rich and being wealthy and then what do you do to achieve being wealthy? We assume that's what you want.

Wendy Sweet

02:26:25

Yeah. So how can people answer this question? You can do it right online watching this.

Jonathan Davis

02:26:30

Yeah. You can believe in the comments and we'll, we'll pull it from the comments,

Wendy Sweet

02:26:33

Whether we're live or recorded. It doesn't matter. We're still gonna see it. Yeah.

Jonathan Davis

02:26:37

We're pull it in. Glad

Bill Fairman

02:26:38

You didn't say dead.

Jonathan Davis

02:26:40

We're gonna talk about it next week. Cuz we're interested to see what other people are doing. Yeah. What, what strategies you all are employing to build wealth or get rich. I don't know what, whatever you wanna do.

Bill Fairman

02:26:53

Excellent. So

Wendy Sweet

02:26:55

Nothing wrong with both.

Bill Fairman

02:26:56

Does anyone have a last word?

Jonathan Davis

02:27:00

So last word. I don't know. Like

Wendy Sweet

02:27:09

Hypothecate yeah, that was a good one.

Bill Fairman

02:27:13

That's it?

Jonathan Davis

02:27:14

Hypothecate hypothecate do it if you can, because you do not have to convey title

Wendy Sweet

02:27:20

And then for next week.

Jonathan Davis

02:27:22

So we're gonna, we're gonna close out here. It's been great. Hope. It's been entertaining and hope. You've learned something next week. We're going to have Dean Rogers on with us and we're gonna be talking, you know, former

Wendy Sweet

02:27:36

FF N NFL football player. Oh, turned apartment. Yep. Fish a good one.

Jonathan Davis

02:27:44

Yeah. So, so we're gonna talk about building wealth versus getting rich. It's kind of a thing that we're going with here. And again, we'll have Dean Rogers with us. So guys it's been great. If, you know, remember we are Carolina, hard money, Carolina capital management, go to Carolina, hard money.com and you can click on the investor tab. If you would like to invest into our fund, a passive investment that gets outsized returns. You can click on the borrower tab and fill out an application if you would like to borrow money for fix and flip new construction, short

Wendy Sweet

02:28:15

Term and long term, right? Yeah.

Jonathan Davis

02:28:17

Multifamily. And we do long term rental loans as well. So it anything else to add guys,

Bill Fairman

02:28:23

See you next week.
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233 Self-Storage: Lessons Learned So Far! | REI Show - Hard Money for Real Estate Investors
5 Aug 2022· Passive Income, Active Wealth - Hard Money for Real Estate Investing
Bill Fairman

00:00:03

Greetings folks. So, you know, we love self storage. We love 'em so much. We ended up buying some. So in this episode, we're gonna talk about lessons learned right after this. Thank you for joining us on the real estate and investors show hard money for real estate investors. We are Carolina capital management, private lenders for real estate professionals. So if you're looking for us to take a look at one of your projects, go to Carolina, hard money.com. Click on apply. Now, if you're a passive investor looking for passive returns, click on the accredited investor tab, and don't forget to like share subscribe, hit the bell. And don't forget about Wednesdays with Wendy is just a shadow of herself. Apparently our lights are not focused in properly, but Wendy does, excuse me, 30 minutes per person on Wednesdays. Anything you wanna talk about real estate. She donates her time to do this. So sign up on this link and we have one over in the chat, which by the way, we have a chat, it's either gonna be on the right side of your screen or underneath, depending on the platform that you're viewing us from. So if you wanna leave any comments, nasty or not can put 'em there,

Jonathan Davis

00:02:02

You know, bill, this is the most excited I've seen you in a lot. Yeah.

Bill Fairman

00:02:05

I'm getting ready to leave.

Wendy Sweet

00:02:06

Or I thought maybe it was cuz I was back. Yeah,

Bill Fairman

00:02:08

That

Wendy Sweet

00:02:08

Too. We had some great calls on Wednesday yesterday too. Wow. Five excellent, excellent calls. I just, I'm always amazed at the different topics and just really, really good stuff. Really good

Bill Fairman

00:02:23

Stuff. That would be a good way to take a couple of questions and then we can yeah. Do 'em here on the show and answer them. You don't have to say who asked them, but yeah, it might be good topics for,

Wendy Sweet

00:02:35

Well, I'm actually putting together a book from them that we'll talk about just all the different topics, cuz it's just so vast. It's, it's amazing all the, all the options in real estate. In fact, we talked about that yesterday. I, I don't remember which one I was talking to, but that, you know, you get into real estate and you think that it's, you know, fix and flip, right. You know, that's what you think it is. But my goodness, everything gets really broken down into a multitude of different options. And then when you choose that option, there's a multitude of different options for that. Right. You know, the layers are, are definitely, it just goes on and on doesn't it it's depending

Bill Fairman

00:03:14

On market timing, there's all kind of different ways to,

Wendy Sweet

00:03:18

And that's the key. My bro is figuring out what's going on. My green bro. That's and he is green today, but it's, it's, that's the key is really figuring out what's going on around you. And what can you do to go into that toolbox and use? What's gonna work for what's happening in that market.

Bill Fairman

00:03:41

Neat keeps real estate so interesting is exciting, constantly changing and evolving, but you know what? It's still the same. It's all that's right about the numbers. It's just different ways of tackling it based on different right

Wendy Sweet

00:03:54

Markets, basically the same, that's the

Jonathan Davis

00:03:56

Similar conversation that we, we had, I think at the last employee luncheon learn or whatever that we had talking about, you were saying the market is cyclical and you know, it's just all these things. And while that's true, the things that throw it, the occurrences that throw it back into that cyclical motion are never the same,

Wendy Sweet

00:04:18

Right? Like

Jonathan Davis

00:04:19

So good point. It, it keeps happening, but it's never the same thing that, that

Wendy Sweet

00:04:23

Pushes it over there. Trigger pushes

Jonathan Davis

00:04:24

It back. So that's the exciting part is we know it's cyclical, but we never know what will cause that cyclical motion.

Wendy Sweet

00:04:30

Yeah. Yeah. Great point.

Bill Fairman

00:04:32

That is true. But the, the majority of the time it's rate related,

Jonathan Davis

00:04:40

But what causes the, we had the same, but what causes the rate? It's never the same thing.

Bill Fairman

00:04:45

That's

Wendy Sweet

00:04:46

Right.

Jonathan Davis

00:04:46

We don't say the fed or the fed responding.

Bill Fairman

00:04:49

We, we know that the fed doesn't cons doesn't control

Wendy Sweet

00:04:52

Mortgage rates.

Bill Fairman

00:04:52

Yeah. The fed is always behind it's the market that controls rates.

Wendy Sweet

00:04:56

Yeah.

Bill Fairman

00:04:57

So

Wendy Sweet

00:04:58

Really good stuff. We do

Bill Fairman

00:04:59

Have a little bit of breaking news. Speaking of rates, breaking news, the average 30 year fixed rate mortgage dropped to 4.9, 9% for the week.

Wendy Sweet

00:05:21

Really? I don't know

Bill Fairman

00:05:22

That. Not from 5.3. Oh all the way down to 4 9, 9. Wow.

Jonathan Davis

00:05:27

And it was at five, five. What didn't they? Yeah.

Wendy Sweet

00:05:30

Brian Maddox said that would happen,

Bill Fairman

00:05:32

You know, excuse me. Keep in mind. It's still gonna fluctuate for a while, depending on slow downs and that type of thing. But a lot of people were pulling money back over in stocks and it worked out well. Yeah.

Wendy Sweet

00:05:46

Yeah. That's, that's

Bill Fairman

00:05:47

Good. At least for some of those folks that have been kind of sitting on the fence and hoping that they wouldn't spend half their life paying their mortgage off. All right. So let's, let's get this show on the road. Yeah. So a while back we were fortunate enough to purchase some self storage. She hasn't told the story. So because it could be fortunate or unfortunate. I'm not sure yet because we, you know, we land in that space and we love the space, you know, why don't we own any yeah. You

Wendy Sweet

00:06:23

Know what I mean? Why don't we own

Bill Fairman

00:06:24

Everything? So we're, that was cause we couldn't afford it. We're we're dipping our toes always can and, and Wendy is taking the lead on

Wendy Sweet

00:06:31

This. Yeah. Taking the lead and the middle and the behind on it. But you know, that's what I said I would do. And that's what I'm doing because the team here is so awesome that I don't even really have to do anything in the loan on the loan side of life anymore, which is sad, but also very exciting. But it opened me up to be able to do this. And you know, our mom, she might not be online now, but she will watch this. And she has seen me all my life. I don't just bite things off to chew. I bite them off bigger than they really need. It's an elephant at every opportunity for me. And,

Bill Fairman

00:07:10

And we, we call that jumping in with both

Wendy Sweet

00:07:12

Feet. Yeah. Yeah. And, and I always ask myself, why in the world are you doing this? And, but I always land on my feet, thanks to God. And you know, the same thing has happened here. We didn't just buy one storage facility. We had to buy two. And, and I'm so glad that we did though, because they've really been very different in the approach. The reason why we bought them were for really two different things. You know, one, one was a little bit bigger. One was, you know, that one's located closer to us. One's located farther away. It just, it's amazing how the two have reacted differently to what we're doing. And I'm kind of doing the same due diligence for both. But one came out to be a whole lot easier to work with, which is the one we didn't think would be than the one that we thought would be the breeze has turned out to be extremely challenging. Let's

Bill Fairman

00:08:17

Let's, let's talk about two. One is more of a conventional way of looking at cell storage all in one

Wendy Sweet

00:08:24

Land. Yeah. That's the one in Crossville, Tennessee.

Bill Fairman

00:08:27

And then the other one in Mexico, Missouri.

Wendy Sweet

00:08:29

Yes. Always wanted to go to Mexico, but not in Missouri, but is,

Bill Fairman

00:08:33

Is several parcels,

Wendy Sweet

00:08:35

Several parcels. And it's in a downtown neighborhood like it's downtown, but it's split up into four different parcels that are all within a block or two of each other. It didn't have a fence around it. They were painted brown and we'd gone in and were camouflaging them. They were camouflaging 'em they're, you know, not, no good lighting the weeds growing up everywhere. And, and so we we've done the rehab side of that almost complete for, for the most part, you know, with the new gravel and drainage and gutters and painting it. And it, it looks like a completely different place and it's now a hundred percent full. So now we're getting in starting to raise the rates and cuz you don't really wanna be a hundred percent full. You wanna be in the mid nineties

Bill Fairman

00:09:33

When this is recorded, we'll leave a link through some before and after

Wendy Sweet

00:09:37

Photo shots. Yeah. I forgot to send Scott some pictures of that and

Jonathan Davis

00:09:41

You don't wanna be a hundred percent full because if you are, you're

Wendy Sweet

00:09:43

Not charging enough. That's exactly right. I'm competitive in the market. Yeah, that's exactly right. It's, I'm glad that I have my hospitality background being in the hotel business and of course have a short term rentals as well because there's things about self storage that are really similar to the hospitality industry. D a little different than your regular long term rental, but very much like your short term, you care about occupancy, you know, driving up the rates on a daily, weekly or monthly basis based on what your occupancy is and what your competitors are doing. When I was in the hotel business, we had one particular hotel in Montgomery, Alabama and comfort in quality in there was a Marriott courtyard and a, a Fairfield all on different corners. And each, each, you know, we were the first ones comfort on that corner. And as everybody built a new hotel, you know, our occupancy was going down.

Wendy Sweet

01:10:42

So we would send the other, we knew nights that that other people were gonna fill up first. So we started sending their front desk people pizzas and say, Hey, we have rooms. So I say that because it's important to understand your competition. Yeah. And what they're doing and be on a friendly basis with them because there are plenty of the newer self storage facilities out there that are full. They, or they don't have the sizes that people need and you want them to recommend, you know, us. Yep. You know, cuz I don't mind being number two. It's okay. You know, we can still number two yeah. Or walling in it. So, so that's been, it's been really unique to me in that it's so much like the hotel business and, and the automation from it is really exciting too, because self storage is exploding. So, so all of the vendors that have to do with self storage, you know, they too are exploding and growing and what they're doing, where, you know, you, you can book a unit on your phone and you're key to get in is on your phone. You tell

Jonathan Davis

01:11:52

Like you can buy, buy like automated drones that when someone like security drones, when someone's on the property, they will circle and go to that's. Right. Like it, it gets

Wendy Sweet

01:12:01

Pretty high tech that's right. It does. Now they're running about $32,000 a pop. So we probably won't be getting any of those anytime soon. Well, but some of the bigger storage, but if you're

Bill Fairman

01:12:10

Hanging out around our facility for no reason, you never know, we may have

Wendy Sweet

01:12:14

One, you hear that buzz above you. Yeah. That's what we're looking for. But it's, it's, it's just amazing how automated it is. And you know, and another thing too, in self storage, you definitely wanna do that. Cost segregation study and take advantage of the, the, you know, tax opportunities that you're gonna have to be able to do that. So, so it has, you know, sell storage has so many different real estate types that are related to other segments of real estate that you're in. And they kind of all come into this one spot, which is really, to me, it's really exciting. I think

Bill Fairman

01:12:53

It's neat. So if you're doing fix and flip and other things and you're having trouble finding contractors and supplies, is it the same for self storage?

Wendy Sweet

01:13:03

It's similar, but not as bad, you know, I'm looking for people who can install fences, I'm looking for a painter, I'm looking for masonry guy that can repair that roofers.

Jonathan Davis

01:13:16

The things that are really like backed up are windows lumber,

Wendy Sweet

01:13:20

Trusses appliance

Jonathan Davis

01:13:22

Appliances. Right.

Wendy Sweet

01:13:23

So I'm not feeling all that you

Jonathan Davis

01:13:26

Concrete slab block and metal

Wendy Sweet

01:13:27

That's right. That's exactly right. And even like, you know, our Crossville Tennessee property had T one 11 siding. I had

Bill Fairman

01:13:37

No

Wendy Sweet

01:13:37

Idea what that is. Well, it's like fake panel. It's like the paneling from the seventies, but it's for the outside of a building. So it's, it's on the, the, you know, where the Eves come to the end. So it's really just on the ends of the building and it's all rotten. It needs to be replaced. And my goal or thought pattern was just to replace it with the same thing. But you know, my roofer comes in and goes, you know, we can replace that siding with metal rather than T one 11. Well, heck yeah. I'd love to have it replaced in metal. It's custom cut. And it's actually a little bit cheaper for us to do it that way and it'll last a lot longer. So, so I'm really, really excited

Bill Fairman

01:14:17

By that. So they using the same materials they would use for a metal roof.

Wendy Sweet

01:14:19

That's exactly right. And we're getting roofs put on, on some of the

Bill Fairman

01:14:23

Building. So corrosion resistant.

Wendy Sweet

01:14:24

Exactly. Exactly. So it works. So, but you know, the first thing I did before we bought these is I immersed myself in first of all, the North Carolina self storage association, a dear friend of mine Wende long invited me to accompany him to go. And it was, you know, just one of the best things I ever did. I'm so grateful that he, he directed me to do do that. And then I went to a bigger self storage convention in Las Vegas. You know, my favorite town, everybody knows I hate Las Vegas, but it's called inside self storage. And that was, you know, really, really good with all of the, the classes, the seminars, the vendors, there were, I don't know, 3000, 4,000 people there. It was really big, but very, and it was interesting to see too, who, who, who, who the owners are, you know, who is it? 52% of the people that own self storage is mom and pop, you know, real, similar to single family, burnt out landlords, you know, and that's who you wanna buy your properties from. So

Bill Fairman

01:15:34

Smaller multifamily too.

Wendy Sweet

01:15:36

Exactly. Exactly. And then you've got, you know, a few co corporations that have, you know, hundreds of facilities and are just doing really, really well.

Bill Fairman

01:15:47

And, and a lot of those are now developing new versus trying buy old. Cause it's cheaper to develop than it's to purchase.

Wendy Sweet

01:15:54

That's exactly right. And what was, and it

Bill Fairman

01:15:57

Functions more like they want it to

Wendy Sweet

01:15:58

Function. That's right. And go ahead, Owen,

Jonathan Davis

01:16:01

To build on that, you know, looking for, you know, those old box stores where they, you know, I think when we were talking with Fernando angel Luci, you know, they to self storage exclusively, I think you said it saves almost six up to 60% of build costs. If you can just get one of those shells at a decent price and go inside there. So you've seen a lot of people do that.

Wendy Sweet

01:16:24

Well, and that's, what's another, you know, we

Bill Fairman

01:16:26

Say, so start looking for coals. Yeah.

Wendy Sweet

01:16:29

Because they're going down. I'm just kidding. No, no, we love go.

Jonathan Davis

01:16:32

But I mean, like I swear, every Kmart is every old Kmart I think is

Wendy Sweet

01:16:36

Yeah. Self support. That's so true. That's, that's very true. And the other thing that, that we talked about when we first started this conversation, excuse me, was we talked about how like, its, if you go into fix and flip now, you know, it can be, get broken down into so many different types of things that you're gonna focus on. Well, self storage is the same way you're gonna have, you know, the self storage that doesn't have the fence around it. It's located kind of in a neighborhood it's, you know, low key a C class is what I would call it. Right. Then you've got your self storage that are a little more uppity. They have the fencing and they're really nice. And that kind of thing. Then you go to your, a class, which is your, you know, five, six story, temperature control, you know,

Bill Fairman

01:17:26

There's like an office building.

Wendy Sweet

01:17:28

Yeah. Yeah. So, so there's variations of that. One of the things that we're really pushing though at this inside cell storage, they really were just starting to talk about RV and boat parking. And you know how you can, if you have solar on the top of your RV cover, you know, if you're gonna build a cover for it, you get a 30% tax abatement for that, that if you're not putting walls on that building, it's not really an improvement.

Jonathan Davis

01:17:54

So it's not tax it doesn't add value to the assessment.

Wendy Sweet

01:17:58

So you don't, don't have to pay more taxes for that. So there's all kinds of little things that you can look for there. But one of the things that I have really learned when I'm looking at new properties is to really search for properties that have land or, or space a certain amount of space. And you need to understand what you need. Like you're gonna have to have 30 feet all around that space for turnaround and back in and that kind of thing. So you wanna make sure that you have space to be able to add our van boat parking and you don't have to have a cover on it. You just, you know, show 'em where they can park and, and you have no overhead for that, but

Bill Fairman

01:18:36

Gravel. Yeah. And that's one of the benefits of not having the big bucks, right. That you're doing or the new development, because they're paying a lot more for the land and they want to utilize it with we'll call it dwellings. Right. But if you're buying a, you know, a mom and pop that's out a little bit, the land was already cheaper. Right. And if they have land there, then you can either have portable units that you can put in there or you can turn it in the boat and RV and

Wendy Sweet

01:19:03

Yeah. And the cool thing about the portable units is portables are just that they're portable. So you can put those units in places where your local zoning won't allow you to do any kind of a permanent structure. So you're allowed to add additional space by having those portable units. But really when you sit back and look at the cost of the portable unit, why not turn it into just parking

Jonathan Davis

01:19:30

Spot? Yeah. The parking spot. I mean, yeah. It'd be beneficial if you have zoning that has like, you know, you know, offsets that are, you know, extreme, like, you know, like in some places it could be like 50 foot. Yeah. It's like, well, you know, 50 feet's a lot. Well, he can get a lot of portable units and 50

Wendy Sweet

01:19:45

Feet. Yeah. So

Jonathan Davis

01:19:46

That, but you know, that, that might be an

Bill Fairman

01:19:48

Opportunity gets back to work with what you have. Yeah. Based on the market conditions. That's

Jonathan Davis

01:19:55

Exactly right. I saw where some someone said we've seen a lot of seller financing for the smaller self storage facilities on the note side. I mean, yeah. I mean, makes sense. I mean, most of those on the smaller ones are, like you said, owned by mom and pop they're already paid for, they either built to themselves are paid it off or inherited it or whatever the case may be. Right. And they're just looking

Bill Fairman

02:20:15

And they're used to the cash flow.

Jonathan Davis

02:20:16

Why not continue cash flow?

Wendy Sweet

02:20:18

Well, and they're smart enough to know that if they, if they get all that money, they're gonna have to pay uncle Sam right off the back, you know, why not taking in increments? And if, you know, push comes to shove and they're not paying me, I just take the facility back.

Bill Fairman

02:20:33

If you go in and improve it and raise the rents. Yeah. And you're not paying, they they've got a place that's worth more money.

Wendy Sweet

02:20:39

Yeah. That wouldn't be mad. So, so some of the, the piles of number twos that I stepped in was, but this one turned out to be a good one was I didn't walk the property properly before we closed do that. How do you

Jonathan Davis

02:20:57

Walk it

Wendy Sweet

02:20:57

Properly? Well, you need to go inside units when you're there. And you should have a map of the units with you when you're doing that. And look for dead space. Like our prop, the property in Mexico, Missouri had 13 more units than we thought. You know, I always love when that,

Jonathan Davis

02:21:20

That that's a good, yeah,

Wendy Sweet

02:21:21

That's a benefit. They actually didn't have doors on 'em that it was just a building that was empty and it looked like it had doors, but it didn't. So, so that's a, that, that was a plus. But the other thing that it, that it hurt by not walking that property is, you know, when you're looking at a property you're looking for damages and things that you're gonna have to do to, to replace, but by not going into the units, I wasn't able to see the terrible job they did by putting a roof and a ceiling and how some of them were leaking. And there was a lot of masonry things on just the insides of the doors that I would not have noticed. I would've noticed had I opened up those doors and, and walked in. So, so

Jonathan Davis

02:22:07

Look at every single unit,

Wendy Sweet

02:22:09

I, I would do everything possible to get, get my eyes on every one of 'em. If I could,

Bill Fairman

02:22:14

Of course, that's hard to, do you have locks from the owners on those doors? You can't get in to see

Wendy Sweet

02:22:18

All yeah, that's true. I mean, it, it takes planning ahead to be able to do that, but plan to be there two or three times to be able to, to stick your head in there. And I know

Jonathan Davis

02:22:27

That I talk with Fernando. I mean, they usually, when they go look at a facility they're, it's like a one or two full

Wendy Sweet

02:22:34

Day. Yeah. They do a good job of due diligence, Fernando and Luci, their company does a great job, job title wealth. Yeah. They do a great job of due diligence. I, I just love what they're doing. The other thing that I can tell you was a real challenge and it still is. I don't quite have my arms around. It is the property in, in Missouri had a software program in place already called web storage, which isn't one that we stayed with. But the other one Crossville, Tennessee was run by the epitome of good old boy. And they literally kept everything on a sheet of paper. Like when somebody pay, they hand write, 'em a receipt, zero, zero software whatsoever. And it has, it has taken a long time to get all of that uploaded correctly. And they weren't even taking debit cards or, or any kind of credit card. They would take cash only. And I think a lot of that had to do with that under the table thing, but we kinda got that. It's amazing track.

Bill Fairman

02:23:44

They have multiple facilities. So if they're doing

Wendy Sweet

02:23:47

Multiple, yeah, yeah. That company that we, that would be hard, keep that we purchase that from actually has four other facilities in the area. And they're all being operated the same way. It blows my mind. It's a lot of work. Well somebody's making necessarily work.

Bill Fairman

02:24:01

I don't know, know if you don't have to

Wendy Sweet

02:24:02

Pay taxes on that gas? Well, when, when we closed on that, there were three people that were five years late or longer three that were, that still had stuff in there. Now we cleaned out a total of 33 units since we've had it. And just a few months of people that were were late, but you know, five years or longer, one guy owned owed $8,000 over $8,000 and, and had never been there. What was his monthly rate? I think he was sitting at 45, 40 $5,

Bill Fairman

02:24:34

Takes a while to get to 8,000 balance of

Wendy Sweet

02:24:37

$45. And the rates had not been increased in three years. And I mean, it's, it's, it's definitely work in progress. In fact, Alex is there now cleaning out three more units today. So we're working that one. It's it's coming along. So understanding the software and the books and that kind of thing. I mean, what, what I got was printed out on a sheet of paper, but it was all faults. It was just all fault. So that, that was a kind of a, a disappointment. And then the other thing that I've run into is the local government in Tennessee has not been very easy to work with in getting our corporation set up and, you know, so we can get our banking. You know, we bought it with one of our companies that has the word trust, cuz we bought it in a trust and they don't like that word trust.

Wendy Sweet

02:25:32

So we've really been going around for almost 45 days now, tell 'em we didn't make that word. I know it's for real. So try just trying to get them to respond to that and get it so we can actually deposit the thousands of dollars in payments that we have sitting on the desk waiting to be deposited is, is kind of frustrating. So those are kind of the, the good, bad and ugly items that I've been dealing with at this point. But I'll tell you, I, you know, I'm really excited about self storage. I'm looking forward to buying two more here real shortly.

Bill Fairman

02:26:07

Wait, wait minute. Before you do that, I want to give you an opportunity. Okay. To give the last word,

Wendy Sweet

02:26:14

Oh,

Bill Fairman

02:26:19

I have to use those graphics whenever I can go ahead.

Wendy Sweet

02:26:22

Okay. It's super istic. They SPOC.

Bill Fairman

02:26:28

So if you were gonna wrap it up with your last phrase yeah. Instead of the word, what would you do?

Wendy Sweet

02:26:33Don't be afraid.

Don't be afraid.

Bill Fairman

02:26:37

Says the person that jumps in with both feet. Well,

Wendy Sweet

02:26:40

And I'm still here. I'm still kicking. I've messed up more than most people have been successful, but you know what? You learn from everything that you do.

Bill Fairman

02:26:51

It's called earning why you learned. Yeah.

Wendy Sweet

02:26:54

Right? Yeah. The, the thing is, is, you know, you definitely wanna do your homework, but don't let fear stop you. It's just a few more zeros. And I know everybody goes, whoa, but it it's it's it's well worth it. It's exciting. It's doable. Anybody can do this. Yeah. Anybody can do this. You just need to do your homework and hook up with the right people.

Bill Fairman

02:27:17

And it is very recession resistant.

Wendy Sweet

02:27:19

Yes. Yes.

Bill Fairman

02:27:20

It's low maintenance costs. Once you get everything in place and you can automate a whole lot of it, right?

Wendy Sweet

02:27:28

Yeah. Oh, this is funny. So I love this question. Where are you buying last? The last two? I don't know. We're looking and that's the other thing too, is we can doesn't really matter where it is.

Bill Fairman

02:27:38

We would prefer to be in the

Wendy Sweet

02:27:40

Southeast in the Southeast, cuz that's where we are, but it doesn't really matter. But this other question from Alva.

Jonathan Davis

02:27:46

Yeah. Elder, I was looking at a mom and pop storage unit in the market is close to one of the corporate storage companies. Should I be afraid?

Wendy Sweet

02:27:52

No, no. They've already done all the homework. They've

Jonathan Davis

02:27:55

Done the homework, but, and, and again, that's the, the microcosm of what self storage is. It's not a zip code. It's not a county, it's not a city. It is literally a one to three, three mile radius.

Wendy Sweet

02:28:07

And your customer is not the same customer that the big corporate storage company has

Bill Fairman

02:28:12

Keeping in mind, same customer, the, the big companies they're raising their rates every six months. And you're gonna get people that are saying, all right, I'm done with this. I'm moving to someplace. That's gonna be a little bit cheaper. It may not be as pretty as this one, but we bought just more sense.

Jonathan Davis

02:28:30

We bought probably the ugliest storage units. You could

Wendy Sweet

02:28:32

Totally the ugliest. That's not what brown on brown, what

Jonathan Davis

02:28:36

They look like. It's what's the potential for them.

Wendy Sweet

02:28:38

That's right.

Bill Fairman

02:28:39

That's

Wendy Sweet

02:28:40

Great

Bill Fairman

02:28:41

Question. Yeah, no, that, that is, that is a great question. All right, listen, we need to wrap this thing up because we've been

Jonathan Davis

02:28:50

Great advice

Bill Fairman

02:28:53

Going on and on about this, but we have a lot more, we're gonna do some updates on this as we go forward and let you know what Wendy has stepped in. Because again, she's doing all this for us. So

Jonathan Davis

02:29:04

What's the purpose of the last word. If you have it, no matter who gets to,

Bill Fairman

02:29:11

Okay. Jonathan is now being cut off, cuz I'm going to this camera. Now

Wendy Sweet

02:29:16

Let me get out of the shot.

Bill Fairman

02:29:17

Thank you so much for joining us on the real estate investor show. By the way we are speaking in the, at the quest, excuse me, expo in September. We have a link in the chat over there for a 30% discount firm in 30. So check that out once again. Thanks again for joining us on the real estate investor show hard money for real estate investors. We are Carolina capital management. We are private lenders in the Southeast real estate professionals. If you'd like to like us to take a look at one of your projects, then click on, oh, first you have to go to Carolina, capital Carolina, hard money.com. Yes. What they said and click on the apply. Now, if you are a, what is it? An accredited investor looking for passive returns, click on the accredited investor to have, I am sliding out quickly. He's already on the plane. Thank you. Don't forget the like share subscribe, hit the bell. And don't forget about Wednesdays with Wendy. Have a great week and we'll talk to you later. Bye y'all.
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232 Current Mortgage Market Opportunities! | REI Show - Hard Money for Real Estate Investors
29 Jul 2022· Passive Income, Active Wealth - Hard Money for Real Estate Investing
Bill Fairman

00:00:02

Welcome everyone. I'm supposed to do a short tease. So already off to that start, we'll be ranked back after this.

Bill Fairman

00:00:32

Wow. And they told me there were no new graphics. Thank you. That was pretty interesting. Wasn't it? That was good. Yeah. All right. Well, thank you so much for joining us on the real estate investor show. What is it? Hard money for real estate investors. It's right there. Yeah. We are Carolina capital management, private lenders for real estate professionals in the Southeast. If you are a real estate investor and you would like us to take a look at one of your deals, go to Carolina, hard money.com. Click on applying. Now, if you're an accredited investor, looking for passive returns, click on the accredited investor tab, don't forget to like share subscribe, hit the bell. And definitely don't forget about signing up for Wednesdays with Wendy,

Bill Fairman

00:01:28

As you know, Wendy devotes, 30 minutes per person on Wednesday afternoons, not this month, cuz she's on vacation to talk about anything real estate related. She's usually booked out a couple months in advance. So grab a spot. There's a link to her calendar and we will leave it over in the comment section which we have on the left side of the screen or underneath, depending on the platform you're viewing us from. We are excited today. We have Brian Maddox of Ameri first, first mortgage. He is an expert in the conforming and investment mortgage business. And I wanted to bring him in to have some discussions, Jonathan Davis, to my side. And like I said, Wendy is still vacationing. Of course it's not the vacation she was expecting towards the end as she ruined her transmission carrying around that RV. It's so listen, let's get started with some breaking news. All right. So if you see sweat dripping off of us, yes, it is summer. For what? Whatever reason. It's really stuffy in this room today. Hey Sue.

Jonathan Davis

00:03:00

Thank you Susan.

Bill Fairman

00:03:03

So breaking news yesterday, the fed announced another 75 basins point hike in their rate. That was not unexpected.

Jonathan Davis

00:03:13

The good news is it was already priced in to most lenders. Yeah. Right.

Bill Fairman

00:03:17

And, and investors liked it because of the language he used after he announced it. They're basically want doing a wait and see kind of an attitude, right?

Jonathan Davis

00:03:26

Yeah. They anticipate they're at the top of the interest rate hike.

Bill Fairman

00:03:31

They said they're gonna be data sensitive

Jonathan Davis

00:03:34

Data

Bill Fairman

00:03:35

Sensitive. They're gonna trust the science

Jonathan Davis

00:03:36

Trust. The science man. I've heard that somewhere too. Before. I can't

Bill Fairman

00:03:39

Remember where the other news we are technically in a recession officially, unless you've changed the language that we've always had today, the GDP was 0.93. What is it? Retraction subtraction. We were below par. Yeah. By 0.9, 3%. Again that wasn't unexpected either. We all know we're essentially in a recession right now. Job. Market's still good. Yes. Right?

Jonathan Davis

00:04:18

Yep. And that's that that's leading to the, the kind of wait and see model is the, the jobs are saying strong right now that they feel like, okay, well maybe we can pause adding more. Right. Hikes down the way to see because cuz we do have such a strong job market.

Bill Fairman

00:04:36

And in, in a few minutes we're actually gonna let Brian talk. We doesn't have to just sit here and smile. He

Jonathan Davis

00:04:41

Will. Well, we're wait. He has the really interesting stuff. I'm just, this is just commentary.

Bill Fairman

00:04:47

Now the job market is gonna be a little bit tough in the mortgage business and I'm gonna read off some stuff. I, I typically don't like just reading off a prompter, but I have a lot here to cover. So experts are forecasting, a 35, 50% drop in mortgage originations this year, 2021, there was $4 trillion in mortgages and they're expecting it to go down to 2 trillion in 2022. Most of the drop is due to a decrease in refinancing, which makes sense as rates go up. Meanwhile, mortgage refinance applications are down nearly 80% from a year ago. And that's according to the mortgage bankers association, Brian, isn't that typically what happens when rates start to go up?

Bryan Maddex

00:05:35

Yeah. You get a lot of extra applications because I can't not refinance. The rates are so good. Well, everybody probably refinanced in 2020 and 2021. And we came into this year with rates in the threes. But by March they were in the fours and you know, pressing the fives right now. If you don't have great credit, you might be getting a 7% rate. Yeah. So if you've got a 3% mortgage, even if you've got some debt, sometimes it's not worth doing a refinance, but you want to talk to your mortgage person and look at your blended rate. And a lot of people don't look at what the blended rate is, but if you are

Bill Fairman

00:06:11

Yeah. Explain the blended

Bryan Maddex

00:06:13

Rate. Yeah. So let's, we'll use easy math. Let's say you have $60,000 in a mortgage at 3% and you have $60,000 on credit card debt, which sounds like a lot. But credit card debt just hit an all time high last month. So people are tapping into their, their credit much quicker than they have in the past. And if, if that credit card debt's at 19%, but it's half of your debt and then your mortgage is at 3%. It's half of your debt. If you blend those rates, you take three plus 19 is 22, your blended interest. Rate's 11% sure. Right? And so a 7% mortgage sounds horrible compared to a 3% mortgage, but it sounds great compared to 11% blended debt

Bill Fairman

00:06:55

And that 11% is now tax deductible,

Bryan Maddex

00:06:58

Possibly

Bill Fairman

00:06:59

Mostly

Bryan Maddex

00:07:01

Possibly they've changed a lot of those laws in the, in the Trump era.

Bill Fairman

00:07:06

So you can't deduct

Bryan Maddex

00:07:07

Just equity. You cannot deduct okay. Own equity. You used

Bill Fairman

00:07:10

To, you can only deduct the interest from your original purchase. Is that basically what

Bryan Maddex

00:07:15

Saying? I believe, yes. And then you may be able to deduct if there was some business expenses or some home improvement, but talk to your CPA

Bill Fairman

00:07:23

Or financial planner. And, and we are, none of those

Bryan Maddex

00:07:26

Bill is not a financial planner,

Bill Fairman

00:07:28

CPA don't

Bryan Maddex

00:07:29

Claim to be may maybe tax deductible.

Bill Fairman

00:07:31

So the devil's advocate would say, yeah, if I take my credit card stuff and put it into my house, then now if I run into the worst case scenario, right. And I can't afford my payments, you know, they can foreclose on me. If I don't put my credit card debt in there and my payments stay low. Right. I can tell the credit card companies to take a hike. They're not gonna take my house.

Bryan Maddex

00:07:59

This is true. And depending on the state, you know, some states offer more protection than others or your primary residents. But if your cash flow is so upside down that your credit card, debt's getting worse every month. Yeah. You're leading towards the inevitable. Right? Right. And so if I can refinance and save you 800 or a thousand dollars per month now, yes, the mortgage is larger and it is putting your, your home possibly at risk. But man, if you can reset your finances and now work within a budget that you're allowing, allowing you to add your savings instead of adding credit card debt every month, it really is. It's not a, for everybody, it just depends on your situation, but it could be appropriate still to do a refinance. I've got one closing today. She's going from a 3.2, five to seven. We're paying off $40,000 in debt. Wow. We're opening up four to $600 a month in her cash flow. She's also on a 40 year mortgage. She's not making headway, right. Her, she's got an equity line that she's been paying interest only on for 10 years. Wow. Right. So she's not G getting better financially. So yes, we're taking her rate up, but we're gonna massively change her situation. Now she's got debt being paid down and has extra money for savings. And, and

Jonathan Davis

00:09:10

I just wanted to say, everyone's scared of 7% interest rate. Like we're gonna, I'm gonna beat it like a dead horse, the average rate over the course that we've been tracking this since we've been tracking, it is over 7%. Yeah. Like 7% is not a bad interest rate.

Bryan Maddex

00:09:28

I've always used six and a half percent as the average. And so yes, we're on the high side of average, but these are average rates. Yeah. These aren't high. It only seems and feels high because we came from almost free money. Yeah.

Jonathan Davis

00:09:40

Yeah. It was free money. 2% free. We

Bill Fairman

00:09:42

Definitely have been living on, on free money for

Bryan Maddex

00:09:44

A while. Yeah. And we don't want to go back to 2020 that economy sucked. Yeah. Right. So we don't want to see two and a half percent mortgages. That means the, the economy is so broken. It's nice when you're borrowing, if you're buying, but it really it's, it's, we're paying for that.

Bill Fairman

00:09:59

So one last thing on that are, are you trying to keep lung values low? Yes. So people still have equity so they can get outta their house if they have

Bryan Maddex

01:10:09

To. Yeah. Even FHA changed their guidelines in the last 12 months where you can only go up to 80% of the value of your home. It used to be FHA. You could get up to 95% on a cash out refinance and they've restricted that. So any loan program that I can do 80% is our max cash out. Unless there's like divorce or inheritance or death, there are ways to get above 80% if you're buying out somebody from the house. Right. But for the most part, 80% is the max. You can go, okay. Now equity lines of credit could be an option for some people. Their interest only payments can be bad. Yeah. It could be nice, but they can go higher. Some of them will go it a

Bill Fairman

01:10:46

Hundred percent. Well, my concern is, and don't get me wrong. I'm not saying we're going into a 2008, but we have it in the back of our head. And we wanna make sure that there's enough space between what you owe and what your house is worth. Right. So you can liquidate without having to bring money to the table or walk away from the house. And we'd much rather if somebody is getting into trouble, be able to sell that house and get out from under it then to walk away from it. Right. Right. So we, we still need to keep that part of the problem that we had in 2008 was the hundred percent loan. The 1 25 loan.

Bryan Maddex

01:11:22

Thank you. Ditech yes.

Bill Fairman

01:11:25

The, you can buy this house fully, furnish it and build a pool all in the same loan.

Bryan Maddex

01:11:30

You don't have to job a job. Right? You tell us that you make money and won't believe ya. It was, it was a wild times. That's not the underwriting case. No, no. It's, it's so far different from that

Bill Fairman

01:11:39

Completely different. You, I think they have to do a blood test to get along anymore. Okay. Let's get to the good news. Wells Fargo laid off at least 114 employees in its mortgage lending team following a 33% drop in first quarter revenue, JP Morgan announced its most recent round of layoffs in its lending department on Wednesday affecting more than a thousand employees. The bank said, some employees will be let go. Others are moved to new teams. We're gonna talk about diversification in your business model. Yep. As an employee, you need to be multi-skilled. So when layoffs do come, if they have openings in other areas that you can move into, it's only gonna protect you. So don't be a one trick pony. So to speak layoffs are much worse at the non-bank lenders where less diversified business makes companies more susceptible to fluctuation and rates. That's what I'm talking about is having other verticals.

Jonathan Davis

01:12:43

You're talking about mortgage originators, who, you know, use warehouse line and

Bill Fairman

01:12:47

Just that's all they do. They're more likely to serve first time home buyers who are first get pushed out when rates go up as well. I wanna get back to that first time home buyer thing. When we're talking in a moment, the non-bank lenders also rely more heavily on refinance mortgages, which made up 63, 3% of all mortgages last year and obviously are expected to fall. I'm going to cover this real quick. Some of these non-bank lenders, better.com. They laid off 3,900 workers. Wow. And they started this back in December of last year. If you guys will remember the CEO, his name is Gar. I can't pronou. Yeah. Mission. He announced the first round of layoffs of 900 people in a zoom call. You might remember that classy. He said, if you're on this call, you were part of the unlucky group that is being laid off. Oops. Your employment here is terminated effective immediately. Now, in my opinion, this business was gonna go under sooner or later anyway, because better you have somebody. Yes. Because if you have somebody like this, leading your business, the culture, there is crap. Right? And eventually it would eat itself

Bryan Maddex

01:14:11

Well. And they wanted to, they wanted to disrupt the market and do a business model where the consumer did everything online. Didn't have to talk to a loan officer and they really thought we're gonna change the world in the mortgage space. Right. They lost money quarter after quarter after quarter, they were trying to buy market share. And you can only lose money for so long. And then rates go up and your business model is completely destroyed.

Bill Fairman

01:14:34

So they tried to get into the market as a FinTech, not as a mortgage company. Correct? Exactly. Yeah.

Bryan Maddex

01:14:40

They, they took,

Jonathan Davis

01:14:40

They took the Amazon model, but yeah. And they're getting break, spikes killed

Bill Fairman

01:14:44

That and they're getting rounds and rounds of public money. And that's how they were able to do these mortgages in the first place. Right. So yeah.

Jonathan Davis

01:14:53

What reminds me of that old saying, what is it? We, we, it costs us a dollar 25 to, to make these widgets and we sell 'em for, for a dollar. And it's like, how do you make money volume? It's like put, add up. Yeah.

Bill Fairman

01:15:09

So they were another 2,500 laid off from about a half a dozen larger lenders. Plus numerous smaller lenders have made cuts as well. Real estate brokerage firms are starting to feel the heat. Redfin compass, both made headlines announcing more than 900 job cuts on June. The CEO of Redfin said we could be facing years and months of fewer home sales, which is,

Jonathan Davis

01:15:40

I don't think is I think it's true. Yeah.

Bill Fairman

01:15:42

I'm not arguing.

Jonathan Davis

01:15:43

I mean, the inventory is just,

Bill Fairman

01:15:44

But it's says they're laying off Redfin 780, I'm sorry. 470 employees, about 8% of their workforce because they don't have enough work for their agents and support staff. Now I get the support staff being laid off, but agents aren't, they supposed to be independent.

Bryan Maddex

01:16:05

Redfin's another one of those companies that wanted to do things completely different. Yeah. Right. And so they would, they would pay agents. Like you wouldn't work with an agent through your home buying process. You would work with Redfin. And if you wanted to go see this house, they would've assign a agent to show you that house. Okay. That agent got paid a fee to take you and show you that

Bill Fairman

01:16:24

House. Okay. So that agent didn't necessarily work for Redfin. They just got a fee from Redfin.

Bryan Maddex

01:16:29

They were more of an employee model instead of the 10 99. Oh, okay. They're more salary based and makes sense. Comped based on activity instead of sales. So they just had a, again, it's a completely different business model they wanted to disrupt. And the traditional business model's, what's worked forever.

Bill Fairman

01:16:46

Yeah. So if you're a realtor and you're not eating what you kill right. Then you're gonna be subject to this. Right.

Bryan Maddex

01:16:53

The market's gonna hurt you a little more.

Bill Fairman

01:16:54

Yeah, absolutely. And then Zillow announced 2000 employees layoff 25% of the company in late 2001, a lot of that was due to that wonderful home buying program that they had, that they weren't making any money in

Jonathan Davis

01:17:11

Brian. So we talked about, you know, the CEO said that there was years of, you know, slower home sales. Right. Do you see that as well? I mean, cuz we see inventory. Yeah. We see, you know, how what's being put on the market, which everyone's talking about, but also what is even available and new construction, like do

Bryan Maddex

01:17:29

You see? Well, that's the thing is what they don't really drill into is there is less inventory. If there's less inventory, you can't have as many sales. Right. And then you've got people who don't have to move right now that are in two and half, 3% mortgages. Yeah. And if they wanna move, they're going into a six or possibly a 7% mortgage. Why, why do I want to make that move if I don't have to, to right. So maybe I'm gonna say as, as the price of houses have gone up and as interest rates have gone up, maybe I, I wanna wait and I wanna sit this season out. So we're seeing inventory increase right now. The media they sell by fear. Yeah. They're gonna say inventory is going up. That proves the market's crashing. Every summer inventory goes up. Every winter inventory goes down, that's a normal cycle for real estate. So we're gonna see that. Yeah. And we need to get a little bit of normalcy in the market. We can't sustain 20% growth of housing pricing year over year, which we are yeah. For the second year, a row, almost a 20%. I think the official number is 19.3% increase. Yeah. I saw 19 something. Yeah. Mm

Bill Fairman

01:18:31

It's crazy. It's crazy. The average has been three to three and a half percent since the fifties.

Bryan Maddex

01:18:35

Yeah. And you know, mortgage production is down almost 50%. I I've seen a lot of numbers that say 35 to 40%. This will still be about the third best year in the last 15 years for mortgage production. It's just the mortgage production set records

Bill Fairman

01:18:50

Had been so high.

Bryan Maddex

01:18:51

Right. Right. And so I saw another headline that said, I don't remember who posted it. They said foreclosures are up 440%. Cause they were down a thousand. We had like 16,000 foreclosures and all of 21, which was ridiculous low. And now it's up to a hundred thousand. So yeah,

Bill Fairman

01:19:09

It's up a lot. And why was, why was foreclosures down? Not necessarily because people could afford their homes, but they could sell 'em before they got in the foreclosure, they got equity were worth a lot. Right. They could, they weren't walking away from

Bryan Maddex

01:19:21

'em and we haven't been doing lending to your point from 2008, we've not been doing a hundred percent financing. People have been committed into the home. Sure. And then equity has just exploded. Right. So yeah, if you're in a bad way sell, you don't have to foreclose right now you can sell 'em and take out some equity.

Bill Fairman

01:19:36

So I, I wanna get back to the now to the opportunity that I see. And I wanna see if you have any comment on this. So first time home buyers being pushed out because payments are a little bit high. They have student debt, blah, blah, blah. Even though they're have a moratorium on the payments, they still have to qualify right with the debt and then everything else is going up in price. So it's harder for them to afford a down payment and mortgage payments. I get that. Now we've had empty nesters that have been sitting on the sidelines because they're number one, they're worried if they sell their house, they have no place to go because there's a lack of inventory, smaller homes. Now, if we have these smaller starter homes that are gonna be more available, I see empty nesters, not worried about the higher mortgage rates, because they can sell their home, take plenty of that equity, but it down on the house and get a reverse mortgage. Yeah. And then never have to worry about a mortgage payment, the rest of their life.

Bryan Maddex

02:20:34

Right? So the reverse mortgage is a great tool. It got a lot of bad rep in the eighties. Right? Cause there's a lot of people doing some shady things and pushing it to maybe people who didn't need to have that. Well now it's so hard to get a reverse mortgage. You've gotta go through some training and some counseling. Sure. Even to get it, but then they, they have math that they're gonna work out based on your age. You've gotta be at least I think it's 62 and a half or maybe even 65 to get a reverse mortgage. But if you've got assets, right, you sell your house, you could put maybe 50% down. And it depends on your age. Exactly what the requirement is. But you can put, let's say 50% down and then stop making payments.

Bill Fairman

02:21:09

Yeah. Done. Yeah. And who cares? What the rate is?

Bryan Maddex

02:21:13

Who cares and FHA? What a lot of people think the reverse mortgage, oh, I'm gonna inherit a house. That's upside down FHA caps. How much the debt can be versus the value of the home. It's an insurance policy, right. The FHA puts on that home and they guarantee you're not gonna go upside down and you can't outlive a reverse mortgage. Right. So if you get to a hundred, man, you've been living there maybe 30 years, 35 years, they they're not gonna kick you out.

Bill Fairman

02:21:37

Yeah. They they're really upset with my mother-in-law she's 91. She got a reverse mortgage about 25 years ago.

Bryan Maddex

02:21:46

Yeah. Living large. Right. That's right. She pays what taxes and insurance. Yep.

Bill Fairman

02:21:50

That's it. Yeah. And those are the only things. Well, homeowners dues

Bryan Maddex

02:21:53

As well. It's HOA if you've got, so

Jonathan Davis

02:21:55

That is an opportunity. I mean, for, you know, the baby boomers that are moving into, into that, in that is the

Bill Fairman

02:22:02

Largest. And what else does that do now? It helps with more inventory, more inventory. Now they're gonna be bigger homes. And that may, at some point

Jonathan Davis

02:22:13

That has prices have to come down,

Bill Fairman

02:22:14

Flatten the, the prices on, I don't wanna say luxury homes, but the probably figure on the mid. And

Jonathan Davis

02:22:22

Also when I say prices come down, I mean, not appreciated 19%,

Bryan Maddex

02:22:27

You know, like more of a black,

Jonathan Davis

02:22:28

More like, you know, like 2%.

Bill Fairman

02:22:30

Well, right. I did see some stats where the median home price now is like 4 12, 4 28, 4 28 where it was four 50 something earlier. Yeah. This year, that doesn't mean the prices on these. It doesn't mean the values have gone down. It just means people aren't paying more than the asking price anymore. Right.

Bryan Maddex

02:22:51

Yeah. I think in, in may the average home sold for 102% of the list price.

Bill Fairman

02:22:58

Yeah. It doesn't surprise

Bryan Maddex

02:22:59

Me, which is insane. Right.

Bill Fairman

02:23:02

I, I, I bought a lot in Englewood, Florida and the house next to me was pending when I bought the lot and it was listed for 6 99 and it finally went through and I was checking to see what the sales price and they, it was sold for 7 25. So the asking price was 6 99. It sold for 7 25.

Jonathan Davis

02:23:24

I mean, I, for example, I've listed a house in Concord in may and it sold for 102% of list price. I listed a house in Charlotte in the end of June and it's probably gonna sell for 98, 98 and a half percent of the list price, right? Yeah.

Bryan Maddex

02:23:42

Yeah. The pricing of the homes. And I talked to a lot of my agents that I work with about pricing of right. Three months ago, you couldn't price it wrong. You were gonna get an offer. Right. You were gonna sell that house no matter how you priced it right now, if you price it way too high, it may sit for two or three or four weeks. Oh God forbid. Right. And that's gonna spook the market, like what's wrong with that house. So I've got a agent that I've, I've known for a very long time and he would rather price it a little bit under and get a couple people bidding on that house. He thinks it's gonna do much better if he prices it a little smarter and more conservative, you're not driving away. Some of the traffic from the get go.

Jonathan Davis

02:24:19

Yeah. I mean, Don Harris, he's a friend of ours. He listed my house than con Concord. And that was exactly his strategy. Like, Hey, put it here and you know, let the market dictate. And that's what happened.

Bryan Maddex

02:24:30

Don is see, as I was talking about

Jonathan Davis

02:24:33

Don. Yeah. He's,

Bryan Maddex

02:24:34

He's great. He sold lot homes, but he saw quickly that the market is shifting. Sure. Now market shifting the media's gonna say it's crashing.

Bill Fairman

02:24:42

Don is not one of the Redfin model.

Bryan Maddex

02:24:45

No, he is

Bill Fairman

02:24:46

Not. He's an actual professional real estate person.

Jonathan Davis

02:24:48

He's

Bryan Maddex

02:24:49

Probably the best. But in 2019, 2018, when you listed your house, how long did it take to sell

Jonathan Davis

02:24:54

18? 19. Yeah. I mean what it, it would take what? 30 days?

Bryan Maddex

02:24:59

Yeah. 44, 6, 8 weeks. Yeah. That's a normal market. Yeah. Right. And so right now people are, oh my gosh. I lifted my house two weeks ago when it's not sold. Yeah. And they think the market's crashing. No, we're normalizing. Yeah.

Jonathan Davis

02:25:10

The average day is still 19 days on market. Like we're still that's,

Bryan Maddex

02:25:14

That's insanely fast.

Jonathan Davis

02:25:15

That's yeah. People, people have been used to you listed on a Friday and you have multiple offers before Sunday evening.

Bryan Maddex

02:25:21

Right. They were hoping for 19 hours to get that offer night, 19 days.

Bill Fairman

02:25:24

Yeah. So if you're in the mortgage business and you have unfortunately been dedicated to refinancing cash out, that kind of stuff, you're, you're gonna be hurting,

Bryan Maddex

02:25:39

Not the best time to be in the business. If that's

Bill Fairman

02:25:41

What you do. If, if that is your business model, you know, it's gonna have to change for you. If you're gonna stay in that business. What are your recommendations to, to folks that are doing that?

Bryan Maddex

02:25:50

So the, a lot of people, I've got a guy on my team who was in a refinance house and he saw the writing on the wall that rates are starting to go up and he knew I need to get out of this industry of the refi industry because the it's so dependent on the market and rates. And you've seen a lot of people that are used to doing lots of refinances, trying to get into the purchase business. And so you've got a lot of companies, the better dot coms and the ones that are doing the layoffs. Now they tried to keep their staff as long as possible. It's hard to reaff sure. Right. So they hang on and the way they hang on is they try to go very bottom of the profitability of a loan and maybe even take some losses on loan to try to keep volume up.

Bryan Maddex

02:26:30

Right? Yeah. We're making up in volume. Yeah. They're trying to protect the jobs. And at some point they just gotta let go and say, we can't manage this anymore. Sure. And we're, we're going to the end of our reserves. So now we need to meet, make profit on loans. We've gotta raise our rates back. That's gonna slow 'em down a little more and they just have to let staff go. So we had the staff up and, and all mortgage companies were insanely short in 20, 20 and 21. Sure. And trying to hire anybody they could. Well, now it's the opposite problem. We have capacity for $4 trillion in production, but we're doing $2 trillion in production. There's a lot of people you don't need. So if you didn't get out already look, but it's hard. If you're a refi guy, it's gonna be hard to get into another mortgage place. And a lot of the people that got in on the refi boom were doing something else before. Right. And we need a healthy pruning of the marketplace. We do. We relocation the workforce. That's

Bill Fairman

02:27:19

It for sure. I was gonna say the same thing with the, with the realtors. Yeah. As well. There's a lot of people that are doing it. Part-time

Bryan Maddex

02:27:26

I feel like everyone's

Bill Fairman

02:27:27

A realtor. These,

Bryan Maddex

02:27:28

It has been for the last two years. Yeah. Right. And, and

Bill Fairman

02:27:31

Really, if you're only doing a few transactions a year, you're really, unless you have been in the business for 30 years and now you're cutting back. You're really doing a disservice to the public out there because if you're somewhat new to the industry and you're still only doing a few transactions a year, you don't really have the experience that you're gonna be able to help these customers out the best because right. Things of all things change, you see all kind of stuff out there and you really need experience people out there helping you. If you're looking for a home. Yeah. What do you, where, where do you think the opportunities are gonna be for the next year,

Bryan Maddex

02:28:10

Man? I I've got some people who think the mortgage, the, the, the real estate market's gonna crash. Right. And they're holding their cash. And I think that they're missing the boat. I, I feel like nationwide. We're about three and a half to 4 million homes, short new construction. You've got about a third of new homes that are built, built directly for rentals. Right. So new, construction's not gonna save the day. It's not a quick fix. The marketplace can absorb some foreclosures, which we're seeing more foreclosures, but that's not crushing our real estate values as of may. We're still increasing crazy speeds. Right? Sure. So I think the opportunity is not sticking your head in the mud and waiting for a year. I think that's, you you've missed the opportunity. I do think we'll see the market open up and get a little bit more normal rates probably will top out in September.

Bryan Maddex

02:29:01

Hopefully the way that inflation data, it's a rolling average. They always replace last year's number. And last summer we had inflation numbers that were in the zeros, you know, 0.1 0.4. This year they're being replaced by 2% inflation. So it makes it look like it's much worse than it actually is. September was the last really low number. Come October. We're gonna start replacing higher numbers on that. Rolling average. So inflation should appear to start coming down. That should open up some more opportunity for rates. First time home buyers might be able to come back in into the marketplace a little bit, but if you're an investor, you just gotta run the numbers. And if the numbers work, I'm not sitting on the sideline right now. Right. I, I think that the, the, the boat you're gonna miss is by saying, I'm gonna wait six to 10 months.

Bill Fairman

02:29:43

Yeah. Your, your rent are gonna continue to increase over time. Even if your interest rates are a little bit higher than they have been, you know, the issue is you've been typically overpaying for these homes because the values continue to go up. Right. And the way to get around that obviously is to put more money down. Right? So you still keep up with your cash flow, cuz for the most part, we don't see values dropping. We just see the rate of appreciation slowing. Yeah. So those, those properties are still gonna go up in value. You're still paying a payment based on the same dollar figure for 20 years, right. When inflation is going to make that dollar worth less and less and less, right. And while your values and your cash flow continue to go up

Bryan Maddex

03:30:32

And people miss that part of your payment is a forced savings account. Right. Part of your payment's going towards principle. Right? So once you calculate in your amateurization growth of the value of your home, right? That's putting equi extra equity into your home every month, every payment, it it's still a good opportunity for most people. Now the numbers might be tighter. Yeah.

Jonathan Davis

03:30:53

Right. But it's, it's the whole thing. Like what, what we tell the staff here, when we talk about like, if we don't make loans, we don't make money. Now the market tells us a lot of times not to stop making loans, but how do we change? And in like alter what we do in making those loans, we still have to make them same thing in real estate with you're a real estate investor. You don't stop buying real estate. Maybe you change how you buy it. Change a little bit of what you're doing because of certain market conditions. Right? You don't stop buying because then how do you make money? If you just hold, hold your cash and you do nothing. You're, you're in a 9% inflation period. You're, you're losing a lot of money.

Bryan Maddex

03:31:36

You're safely losing money. You're safely

Jonathan Davis

03:31:38

Losing money.

Bill Fairman

03:31:38

Right. It becomes a contest on how, if I lose less than you do, then I'm winning.

Jonathan Davis

03:31:45

And I was, I was the smart one. Yeah.

Bill Fairman

03:31:48

So bottom line is as an investor, you make your money on, on the

Jonathan Davis

03:31:53

Buy on the purchase.

Bill Fairman

03:31:54

Yep. And unfortunately for real estate agents, it's gonna be very difficult to work with investors because you're dealing with houses that are on the market, unless you have a, a line of off market properties. So they're gonna have to buy below market and they're gonna have to put more money down in order to make the numbers work

Bryan Maddex

03:32:16

Or look at doing an alternate type of rent. Right. Maybe it's not a long term. Yeah. Purchase season. Maybe it's a short-term rental purchase season. Yeah. Could be right. Your, your margins could be higher. You've gotta run the numbers and you have to have a backup plan. What if that short term, right? What if the, the county puts an ordinance in place and stops short-term rentals? Yeah. North Carolina should be pretty protected from that happening because of the Wilmington case that, that we, we saw Charlotte, I heard had plans to tamp down on short-term rentals. And as soon as that Wilmington case was settled, they stopped that change. But other states, you just gotta watch out what could happen to this short-term rental. Right. But you've just gotta run numbers and it's a business decision, not an emotional

Bill Fairman

03:32:57

Decision. And it it's very important point. If you buy for a short term rental, make sure it works for long term because you always have to have an exit there's a, or a backup. Yep. Brian, thanks so much for joining us in person for a change. That's been it. Yeah. Great to

Bryan Maddex

03:33:13

Be here.

Bill Fairman

03:33:14

Now you get to look at my face. Thank you so much for joining us on the real estate investors show hard money for who? Real estate investors. We are Carolina capital management, private lenders for real estate professionals in the Southeast. If you would like for us to take a look at one of your projects, just go to Carolina, hard money.com and click on the apply. Now tab, if you are an accredited investor, looking for passive returns, go to oh, click on the, in the investor tab. Yeah. Same website. Don't forget to like share, subscribe, hit the bell and sign up for Wednesdays with Wendy. It's been a pleasure. Oops. Can't see that one. See you next week.
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Episodes

251 Plans & Goals For 2023: Real Estate Investor Show - Hard Money For Real Estate Investors

250 Issues & Anomalies: How To Figure Your Daily Challenges | Hard Money for Real Estate Investors

249 Your 2022 In Review! Real Estate Investor Show - Hard Money for Real Estate Investors

248 Today's Market and the Non-QM Loan | REI Show - Hard Money For Real Estate Investors

247 Market Updates & DSCR Loans | REI Show - Hard Money For Real Estate Investors

246 - How To Raise Capital | REI Show - Hard Money For Real Estate Investor

245 Investing With Family & Friends | REI Show - Hard Money for Real Estate Investors

244 Profitable Small Dollar Lending | REI Show - Hard Money For Real Estate Investors

243 Hot Topics In Real Estate: Small Dollar Lending, Investing With Family & Friends, Raising Capital

242 How To Scale Responsibly | Real Estate Investor Show - Hard Money for Real Estate Investors

241 How To Find Emerging Markets | REI Show - Hard Money for Real Estate Investors

240 What Financial Freedom Means To Us! | REI Show - Hard Money For Real Estate Investors

The Meaning of Financial Freedom | REI Show - Hard Money for Real Estate Investors

238 What Is Your Burn Rate? | REI Show - Hard Money for Real Estate Investors

237 How Do You Mitigate Risk? | Real Estate Investor Show - Hard Money for Real Estate Investors

236 Cash Flow To Wealth: Stock Market vs Real Estate

235 Building Wealth vs. Getting Rich | REI Show - Hard Money for Real Estate Investors

234 Who's Your Daddy?: Rich Dad or Wealthy Dad! | REI Show - Hard Money for Real Estate Investors

233 Self-Storage: Lessons Learned So Far! | REI Show - Hard Money for Real Estate Investors

232 Current Mortgage Market Opportunities! | REI Show - Hard Money for Real Estate Investors