Passive Income, Active Wealth - Hard Money for Real Estate Investing

Bill Fairman

00:00:00

On the other. Hello, welcome. Oh, look, Wendy has shown up out in the west somewhere. Oh,

Jonathan Davis

00:00:10

Nice.

Bill Fairman

00:00:12

Her campsite. So this is welcome to this week. And as the headlines say, Zillow reports, the sky is falling in well, right after this message.

Bill Fairman

00:00:49

So looking for, I love it. It's like, did their algorithm tell them that? Yes. And we always believe what Zillows is. Excuse me. So 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 lenders in the Southeast for real estate professionals. If you have a project that you would like us to take a look at, go to Carolina, hard money.com and click on the applying out tab. If you are a passive investor, looking for passive returns, go to the accredited investor tab. Don't forget to like share subscribe, hit the bell, all that good stuff. And don't forget about Wednesdays with Wendy. Wow. That was quick. Okay. So Wendy books, 30 minutes per person on Wednesdays, there's a link to her calendar. Checking out. She's usually booked a couple of months in advance. Now it's three because she took a month off, sorta on a vacation. As you can see, she's at her, what do you call that? Campsite? This,

Wendy Sweet

00:02:01

This is a campsite we're in just outside of Sedona, Arizona in a place called Jerome.

Bill Fairman

00:02:08

Oh, I've heard of that.

Wendy Sweet

00:02:10

Yeah.

Bill Fairman

00:02:12

They not. Have have actual vegetation there and it's not desert. Like

Wendy Sweet

00:02:15

It's just a little bit, most of it's, you know, rock and like that kind of thing. I don't know if you can see all that rock, but it's and it's between a hundred to 110. It's not bad.

Bill Fairman

00:02:33

My first question is, does the air conditioner work

Wendy Sweet

00:02:37

Inside? It does. Yes. It works well. Well,

Bill Fairman

00:02:39

I'm assuming inside, well, let me finish this up. We are speaking at quest expo. So let's plug that real quick. Sounds like the music can't catch up with itself. So quest expo, it's a great place to be. If you wanna learn about self-directed IRAs and how to invest it, we have a, a code for discount firm and 30. And how I'm gonna say is you should go. You should go. You should go.

Jonathan Davis

00:03:29

Yeah. Any kind of investing, note, investing, buying real estate. What have you, I mean, even if you wanna look, I think they even have crypto and gold

Bill Fairman

00:03:39

And oil and gas, oil and gas. Of course it's under attack right now, but still oil and gas. If you wanna be in, you need to be in the energy sector right now. That's the one that's gonna have the most growth either way, whether it's clean renewables or awful fossil fuels that are the most efficient you need to be in energy. Okay. So Wendy, how's your vacation going? Can you hear me?

Wendy Sweet

00:04:10

Yeah, you're kind of going in and out for me and I'm sure it's, it's probably my problem. Cause I'm out in the middle of nowhere. I told you.

Bill Fairman

00:04:20

Okay. It's

Wendy Sweet

00:04:21

It's a connection

Bill Fairman

00:04:23

Stare at me. I'll just move on. Okay. Excuse me. So I, I know we did this last week. I, I I've got another person. I don't want, I, I get a lot of questions from our investors, worried about what's happening with the economy. And they keep seeing all these headlines that the sky has fallen in and you know, it, it bothers 'em and I, and I get that, but they need some help understanding what's really going on in the marketplace.

Jonathan Davis

00:04:58

Yeah. We need to make sure we understand sensationalism and headlines and yeah. You know, like Zillow, the, you know, the housing market is crashing. That's a headline

Bill Fairman

00:05:08

And, and, and don't get me wrong. It's a great way to get eyes on your, on your site. It's we call it click bait. Yeah. Cause you see those headlines, people are gonna click it on automatically. So somehow I ran across this particular video from Darrell minor. He's does a lot of videos on real estate investing real estate in general. And he has a, a course there's his YouTube channel. You can check it out for yourself. And while he's a nice guy, he, he does. If you look at his, what do you call 'em little splash images. It's always, the sky has falling in versus there are a few good points on some of them with some arrows going up, but most of 'em are going down. And, and I get that. He's trying to get eyes on the, on the channel, but I, I wanna help alleviate some folks' fear based on some of the data he's getting from Zillow. Okay. So let's, let's play the first clips Scott,

Video Recording

00:06:13

"You waste it in the housing market is continuing, continuing to go down, down and down, but let's jump right into this. It says housing affordability hits 15 year low as prices. Mortgage rates rise May, 2022 market report. We've known that affordability when it comes to the housing situation is getting ridiculous. It's getting ridiculous. It's getting to a point where no one can afford a home because we have interest rates that are ridiculously high. And what is the number? One thing that I always say for every 2% that the interest rate goes up, you lose $200,000 of buying power. Just think of that. Currently you've lost $200,000 or more in buying power based on these interest rates. And no one wants to go down from a $300,000 home to a hundred thousand dollars home. No one wants that mortgage payments are higher than rent and 45 of the 50 largest us metros up from 22 and 2019. What did they just say?"

Bill Fairman

00:07:17

All right. So we're gonna unpack a little bit of that. Mortgage rates are not ridiculously high.

Jonathan Davis

00:07:24

If anything, they're still ridiculously low. I mean, what's, I think what is it? 7.9 is the historical average of mortgage rates and were at 5.5.

Bill Fairman

00:07:35

Yeah. Now when he did this video in may, the rates had climbed up to in the sixes for a short period of time. So I get that, but they they've settled back down a little bit since then, but

Jonathan Davis

00:07:49

Now comparatively, are they high from historic lows of 2.8? Yeah, yeah, yeah, yeah. Sure. But I mean you, if we only look at, at the market from a, a three year perspective, yeah. We can, we can lose sight really quickly of what's going on and we can get, you know, believing that we are in historical highs. But if you look back, I mean, anything under 8% is still on average low. Yeah.

Bill Fairman

00:08:19

And, and we talked about this before, even if you're at 6% over time, you're, you're paying dollars back that are going down in value versus rents that are continued to go up. If you rent.

Jonathan Davis

00:08:34

Yeah. See what he, you know, inflation, if it continues, you're using dollars today's dollars that stay consistent over the 30 year period to pay down.

Bill Fairman

00:08:44

Yeah. And the last thing I'm gonna say about this is my interest rate was 14 and a half percent. I know I've said this before, when I bought my first house, that was the FHA going rate. So I would've been really happy at that rate now. Yes. Prices have gone up and we need that to try and lower the appreciation rates. Wendy, you got anything to add?

Wendy Sweet

00:09:07

I, if I do, it's probably gonna be choppy. Can you hear me?

Bill Fairman

00:09:11

I can hear you fine for now.

Jonathan Davis

00:09:12

We just, I mean, we just love the background, stay there. Cause we just love the background.

Wendy Sweet

00:09:16

Listen, I'd love to stay here. It's pretty awesome. I, I agree. I think that this guy's just way over the top with him talking about the mortgage rates being so high, cuz it really is. It's like 7.81 since 1971 has been our, our average and that's pretty, that's pretty incredible. And it's way lower than inflation, right?

Bill Fairman

00:09:45

Yeah. Yeah. Currently.

Jonathan Davis

00:09:47

Well, and also, so what, what do you all think about? He said he, I think he said, I always say this for every 2% interest rates rise, you lose $200,000 of buying power. Do you think that's true? Or

Bill Fairman

01:10:04

I don't know. I'd have to calculate it.

Jonathan Davis

01:10:06

I, so

Wendy Sweet

01:10:07

I think that's too.

Jonathan Davis

01:10:08

I think that's too simple of

Bill Fairman

01:10:10

If, if it's 2% on this one and then another 2% on top of the 2%, then it went up now it's 4% higher. So

Jonathan Davis

01:10:18

Well, so I, I think it's, that's too simplistic of a, of a, an explanation. I mean you have

Wendy Sweet

01:10:25

Yeah.

Jonathan Davis

01:10:26

Appreciation. So if, if, if interest rates go up 2% at the same time that you have appreciation at 20% on a house in a year that I think that statement might be true if you have, if you, if rates go up 2% and appreciation on homes are back at their average of, you know, one to 3%, I don't think that's true.

Bill Fairman

01:10:50

Well, he's probably talking about a, a snapshot in time and that that's probably credible. All right, Scott, let's go to the next

Jonathan Davis

01:11:00

One. Scott says we rates artificially low. Yes.

Bill Fairman

Yes.

Video Recording

01:11:08

"Appreciation is finally starting to slow easing slightly from 20.9% annual growth in April to 20.7% in may. Yes. And why is that going to happen? Because we are inching closer and closer to a recession. And what you don't want is you don't wanna be left with the hot potato in your hand, ah, with a house that you overpaid for, with the high interest rate that is now worth less than what you bought it for. Hmm. So how does that look? You buy a house for 350,000. The recession hits and you overpaid 50,000 for, so it was really worth 300, but now it's only worth two 50. So now you're a hundred thousand dollars under now. We don't know inventory continues to recover from February lows, but it's still 50% below 2019 levels. Well, I expect that. But remember when everyone was saying inventory is so low, the housing market's gonna go 20, 30, 40%. Like it did year over year, over year, over year for the next five years, those people are crazy. There's no way that the housing market keep continued to go up that fast at that continued rate inventory is going to slow because people are"

Bill Fairman

01:12:27

All right. So let's unpack a couple of this, these statements. I love this man. Have you noticed how he, he was concerned that the appreciation rate was dropping from 20.9% all the way down to 20.7?

Wendy Sweet

01:12:44

Woo.

Bill Fairman

01:12:47

Again, our, the average appreciation.

Jonathan Davis

01:12:51

So

Bill Fairman

01:12:51

He over property since the fifties has been like three and a half percent.

Jonathan Davis

01:12:54

Yeah. So I need, I, I didn't watch these videos. I had no clue that he was, but so I, I nailed it 2% with 20% of

Bill Fairman

01:13:01

Yeah, pretty much. Okay. Another thing was owning a home in a recession. It's gonna drop $50,000 or it's gonna drop in value at all. Scott put up that price draft for me. All right. So here's the us price index since 1900, the year 1900. If you look at this graph, you see one place in the entire history. Well maybe two or

Jonathan Davis

01:13:33

Yeah, but a very major, major one

Bill Fairman

01:13:35

Major in 1990, but there's basically only one place where historically dropped a punch. And that was, you know, the crash in 2008, which was caused by housing. This recession has nothing to do with housing. This recession has to do with policy and energy costs being too high, which is also caused by policy. Of course, some of it has to do with the pandemic. I'm gonna give him credit for that. And the what do you call it? The supply chain issues. Yeah. This is not a housing recession that is going to be coming up. And the, the fed really has no tools in their toolbox other than to raises rates. But this is not a housing recession. Your house is not gonna go down in value. It may be harder to afford a house. I agree. Yeah. Because everything else is costs more too. I, I don't argue with any of that stuff, but you're not gonna buy a house now and expect to have it go down in value. What do you guys think?

Jonathan Davis

01:14:39

No, I mean, so there is yeah, one occurrence in 120 years of, of data where, where values went down, even close to $50,000, like his example one time. And like you said, it was due to what we had the subprime market. I mean, we had, you know, we had tranches of securitizations that were falsified or a lot of data. I mean, it was, it was a housing crisis. Yeah. This is not, I don't think that, I mean, will your home lose value? No. Will it, will it not be worth as much as fast as it has? Yeah. I mean, appreciation has to slow down and inventory is picking up for housing, which will hopefully help bring that, bring that down. Interest rates rising will help bring that down. But to, to say that we're gonna lose value at this point. I, I don't subscribe to that. I don't see any data that would point to that, to that result,

Bill Fairman

01:15:47

Wendy.

Wendy Sweet

01:15:48

Yeah. The thing, the thing that's gonna hurt people is the cost of everything else. That's, that's, what's fallen from the sky is right. The cost of everything else. You know, traveling out west, we've had to fill my car up at least twice a day at $125 a pop. Wow. Well

Bill Fairman

01:16:11

That it costs a lot of money to tow your house around with you.

Wendy Sweet

01:16:14

The, the large, that would be getting eight to nine miles a gallon per gallon. But the, the cost of gas that I've seen coming across the country, the lowest I saw, it was 3 86. Believe it or not. And I've seen it over $5 a gallon. So it's been it's those things that are gonna put the serious dent in everybody's wallets, everything else, food, everything.

Jonathan Davis

01:16:41

Yeah. I mean, we, we said this before, I mean, goods and services and commodities like that, like they, they have to come down and value long before your house ever would. I mean, people, people are still like, I'll give you an example. My LLC bought a, bought a vehicle to buy that vehicle. It had to pay a premium over MSRP because you can't get vehicles right now. And they just increas the premium that they're charging for those vehicles over the MSRP. I think it's now like $10,000 over MSRP. Yeah. So those things have to stop occurring long before housing value will ever get touched because people will not buy cars or new cars long before they'll they'll ever say, I don't need a house.

Bill Fairman

01:17:35

Right. People always need place to leave no matter what. Yeah. Okay. Let's move on to the next one. There Scott,

Video Recording

01:17:42

"Go up guys. Incomes are lagging further behind fast rising mortgage costs leading to the most significant and affordable challenges. In the past 15 years, the latest affordability data available from April show's monthly payments taking about 28% of homeowner's monthly income dangerously close to the 30% threshold beyond which is considered a cost burden. Now we know that guys like we know that we, I did a video on that, where I talked about how close we're getting to individuals, getting to that burden cost. That point where we were in 2008, when people just gave up homes, we're 2% close to that number, guys that should scare you guys and know that something is coming around the corner. You see all of these red flags. There is no way that we're coming around the corner and you see 30,000 flags that are all red and they're all in the bucket of housing market. And you still don't think that there's gonna be a recession. Make it make sense. Although rents have soar since the start of 2021, the rapidly rising cost of a mortgage still make rent, a cheaper option. A typically monthly rent in the United States, basically $2,000. Monthly rents are up 15.9%. The pace of annual rent grows slowed for the third consecutive month. Whoa. Look at that. It's slow. Look at that. It's going down."

Bill Fairman

01:19:07

Okay.

Bill Fairman

01:19:13

On that one. Okay. There's three things. Bill wants to talk about that one. Okay. Number one, he mentions. Damn I've already forgotten it. All right. So I'll go to number two. Wage Scott, pull up that wage graph I put on here. He is correct. Wages are not keeping up with inflation, but wages are not stagnant. Here's a graph right up through December 20, 21. Do you see any wages going down? No, they're all going up and they're actually going up more than the trend line. So they're actually going up higher than they had been previously. That little dotted line is the trend line from 2019. So they actually increased quite a bit in 2021. Same thing with 2022. I'm assuming, but I can't get the data, but they're still not keeping up with inflation. All right. You can drop that if you like Scott. Yeah. The here's the hyperbole.

Bill Fairman

02:20:18

What do what you, he's talking about with getting up to that 30% of housing costs. This is for new buyers. This is not for people that are already in their houses. There's not gonna be a housing crash for people that currently own their house with the ridiculously low rates that we have. These are people that haven't bought the house yet. This is why it's not affordable. And I get it. There are gonna be people that can't afford houses, but that happens in every market cycle. There's people that are new, new home buyers in that range, they can't afford it. They're gonna have to get their debt down in order to do it. And E even if their debt is complete, their debt free and their housing costs are still at 30% of their total income. They're not gonna qualify for a house unless they borrow less money, put more money down, borrow less money, or find a less expensive home. All that said again, this guy is not falling in.

Jonathan Davis

02:21:20

Yeah, no. I mean, I think did he, did he say that rents are higher than the average

Bill Fairman

02:21:28

Mortgage? Oh yes. In a lot of these cities,

Jonathan Davis

02:21:30

That's not true.

Bill Fairman

02:21:31

Rent rent is higher. And then look all, let's talk about that. Well, if your mortgage is stagnant, but they're still higher than rents, do you think rents are going to go up or down over time?

Jonathan Davis

02:21:43

Correct. They're gonna go up, but maybe I'm wrong here, but I'm pretty, I'm pulling from, from my, my brain here from something I read before, but I thought the average mortgage was $1,800. I don't in the United States. Yeah. I

Bill Fairman

02:21:58

Don't know where he

Jonathan Davis

02:21:59

Got. I'll have to go look that up because if he's saying the average rent is 1927, then the average mortgage is not over $2,000. Now, like the average mortgage in the Northeast probably is if you wanna break it down to regions. But I think if we wash it all together, that's that, I don't think that's a true statement, but let me, let me research that and we'll get back.

Bill Fairman

02:22:22

But yeah, if you're telling people that rents are, it's better to rent because mortgage payments are too high. That's only temporary. If you still buy a house and your mortgage payment is slightly higher than the average rent for that area, eventually the rent is gonna be higher than the mortgage payment cuz the mortgage payment is fixed. Correct. All right, Wendy.

Jonathan Davis

02:22:45

Yeah.

Bill Fairman

02:22:46

All right. So she's just nodding.

Jonathan Davis

02:22:49

Yeah, but I mean, so rents have risen very quickly over a short period of time due to a lot of factors that we've already discussed, will they continue to rise at that rate? No, they, they will not. I mean, I think there's a lot of people and, and I'm, I'm one of 'em they've kind of hit their peak for a little while. I don't think we're going to see, you know, 10 and 15% rent and growth. Sure. Over the next few years, I mean, I don't think that's gonna happen. I think it's gonna be way, way smaller. Sure.

Bill Fairman

02:23:21

And rents don't have to go up quickly, but they will. If you're a smart landlord, you're gonna make sure that your good tenants can stay into place. Yeah. And as inflation continues to go up, I mean, there's, there's some costs that can be passed through. There's some costs that can't be. So you may have to have a little bit less of a margin, but the same holds true the value of your property as the landlord is going up and hopefully you've got your loans locked in. Now it depends. If it's a commercial loan and you have to refinance after a certain period of time, then you're kind of outta luck there. But yeah, people don't wanna evict folks unless they're tearing the place up or not paying. Yeah.

Jonathan Davis

02:24:09

You know, I, I saw an interesting, some data on a graph. I think it's a couple days ago it was showing the trend line between wage growth and housing, you know, value, growth. Right. So from 19, I think it went back to 1980, from 1980 up until 2000 and oh Lord, what was it? It was like 2018, 19. They were pretty consistent. It's only after 2019. The, you know, when we have the pandemic, everything where you see it actually separate where housing values are rising at a much higher trend than, than wages. So it's a very new phenomenon. And what we know about new phenomenons is we don't know. Right. Is it gonna be a trend that continues probably not.

Bill Fairman

02:25:05

Well, this is part of market forces correcting themselves. Yeah. And this is something that's ne needed. So I'm gonna summarize today what we're talking about. Don't, don't pay attention to the headlines. They're generally it's noise. You need to get into the meat of the data. We need a slowdown in the market. We have to, because what has been going on is unsustainable. We need to have at least six months worth of inventory. And I think through most of the country, we're still working on one to two months worth of inventory. And that's why the prices went up so high. They will eventually come back down and we

Jonathan Davis

02:25:45

Don't. They already are. Yeah. We we're already seeing soft. Like we're seeing softening in price points that you don't even, we, we didn't, I didn't even expect we're seeing softening in under two 50 price points. Right. Like I didn't expect that. Well,

Bill Fairman

02:26:00

That that's a little unusual. Yeah. But key is getting, I got something for you. What about the last word? This is for Wendy. Did you see

Wendy Sweet

02:26:20

The graph? Let let's hope it. Yeah. That's really cool. Let's hope it comes across so you can, can you hear me?

Bill Fairman

02:26:27

Yes, I can.

Wendy Sweet

02:26:28

Okay. So shoot. I forgot what I was gonna say now. It was really good. The

Bill Fairman

02:26:35

Graphics blew your mind.

Wendy Sweet

02:26:39

No, we did a, a special show last week on sunrises, where we were talking about the days on market and the number of houses available. And we still only have a little over one month supply in the Charlotte area, which is really low. And somebody was on there from Virginia saying the same thing that their supply is the same. It's it's still at one month where it should be six, six is normal.

Jonathan Davis

02:27:08

Yeah,

Wendy Sweet

02:27:09

That's it. And

Bill Fairman

02:27:09

This is why the trend line that Jonathan was talking about has kind of veered off where the affordability based on income is off, off the track because there was not enough inventory. People were buying stuff up. We have to get it normalized in order to sustain this. And, and the market will fix itself. Eventually. Is there gonna be a little bit of slow nests in the market? Is there gonna be a little bit of pain for a first time home buyers? Absolutely. So, but just hang in there. It's not a market crash. This guy is not falling in. I'm not wearing a helmet.

Jonathan Davis

02:27:47

Well, and I, I just wanna say it's, you know, it's something that I tell my, my nine year old daughter, some, you know, when she wants me to give her an answer, instead of her thinking through it, if, if you want someone else to think for you and give you the answer, they always will. They always will. But what we need to do as savvy, I is not get our information from one source, get our information from multiple sources and use people, industry professionals, or friends or whatever, multiple sounding boards and you know, and pull that information through funnel so that we can pull out the important pieces because yeah, you can watch of a YouTube video and think, well, my house is worth a hundred thousand dollars less than it was two months ago. I'm screwed. That's no, no. Look in, you know, find multiple sources and think through these things and align yourself with people like Wendy or bill, you know, to, to sound, you know, to use as a sounding board, Wednesday with Wendy's with Wendy is a great tool. She is a great sounding board for anything to do with real estate. So utilize those.

Bill Fairman

02:29:07

Absolutely. All right. Well, we're running overtime. Thank you guys for so much for joining us. We are the real estate and investor show hard money for real estate investors. We are Carolina capital management. If I can remember our name,

Jonathan Davis

02:29:22

They put it there on the screen.

Bill Fairman

02:29:24

We are 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. 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 to share like subscribe hit the bell. And don't forget about Wednesdays with Wendy. We will see you guys next week. Hope you enjoy your vacation, Wendy. She.

https://youtu.be/pgjlTpBq7VA

Bill Fairman

00:00:01

Hi, everyone. It's great to be back in this show. We're gonna answer this burning question. Greetings I'm bill Fairman I'm with Carolina capital management and welcome to the real estate investors. Show hard money for real estate investors. If you are in the market for a loan for one of your projects, go to Carolina, hard money.com and click on the applying L tab. If you're an investor looking for passive returns, go to Carolina, hard money.com and click on the accredited investor tab. Don't forget the like chair subscribe, hit the bell. And don't forget about Wednesdays with Wendy,

Bill Fairman

00:01:07

Wendy devotes, 30 minutes per person on Wednesdays to talk about real estate. Well, she'll talk about anything, but you're smart if you'll choose the real estate thing, because that's where all the value is. Anyway, she's usually booked up a couple of months in advance. So go ahead and get on her calendar. It's also gonna be over in the comment section. Speaking of comments, sections, we have comments, questions that you can answer on the right side of your screen or underneath, depending on the platform that you're viewing us from. And one last little bit I want to talk about is the upcoming quest expo in September

Bill Fairman

00:02:05

Quest expo is excellent event. It's all education on real estate and investing and how you can invest yourself directed to IRAs. We have a coupon code, Fairman 30, get you 30% off. It's like I said, it's an awesome event. It's three days wonderful place to network and learn about how to invest that self-directed IRA. I can tell you that most people go through the hard part of getting their money rolled over into a self-directed account, but they fail to invest enough of the money and it just sits there. That's not helping you at all. So it's a great place to go okay. To our show. Well, I have an investor that sent me a video a few weeks ago. His name is Steve. I'm not gonna tell you his last name, cuz I didn't get his permission, but he sent me a video of, of a fella. His name is Nick Joley. He runs Reveture consulting and he's a data guy. And the big headline was wall street, landlords taking huge, huge losses and is gonna be forced to do liquidation. So I wanna kinda go over his data and I'm not arguing with his data. I am just, I don't agree with his conclusions. So let's start with this first clip

Video Clip

00:03:43

Market. Redfin just reported a couple days ago that investor home purchases crashed by 17%. In the first quarter of 2022, they quoted a realtor in Nashville who said that a few months ago, 95% of homes for sale in Nashville would get at least one cash offer from an investor, but not anymore folks because today most homes aren't getting any investor offers. The realtor went on to say that this is good news for regular home buyers, regular home buyers. Like you all watching this channel are gonna have more inventory and cheaper home prices to choose from. However you need to note this investor fire sale and crash is gonna be most severe and specific cities and neighborhoods around America in 2022 that I'm gonna reveal to you later in.

Bill Fairman

00:04:26

Okay. So a couple of things I wanna address with that, yes, investor purchases have dropped and you know, for a couple of reasons, number one, lack of inventory, it it's harder and harder to find inventory out there. Another reason is the prices have gotten too high for investing numbers to make sense. So if the numbers don't work as investor, why are you gonna be buying properties? When Redfin is interviewing realtors about investor offers, I always take that with a grain of salt, most investors, professional investors, number one, they don't buy retail. They don't buy off the MLS. So let let's face it. Those Redfin and the realtors don't do anything about those purchases. They're they're buying off market properties. That the only way they would know about those purchases, if they did a search on title transfers in the area and yeah, the hotter markets are the ones that are gonna have investor purchases dropping the most. And because like I said, the prices are too high. Investor purchases are not emotional. They're they're about the numbers. And if the numbers don't work, they're not gonna purchase. Now. Of course he, he calls it crashing 17%, but they were all already way up there. Now the ones that bought early enough in a lot of these markets, when the prices were relatively low, they could still buy stuff off the MLS and still make the numbers work. But not anymore. The prices have just gotten too high. Scott let's do the next, but

Video Clip

00:06:14

First I need to address a question that I think is already brewing on a lot of your minds. You guys are probably San to yourselves. Wait a minute. All we heard about for the last six to 12 months was that investors were taking over the housing market. Why are they now all of a sudden bailing out what's going on? Well, folks, the answer to this question has everything to do with two main trends that are developing right now in the housing market. Number one is increasing mortgage cost and cost of debt. Well, number two is declining profitability for landlord rentals. And that second point on declining profitability is a key one that a lot of people don't understand because if you look at the last eight years of data on investor cap rates, AKA the rental profit that comes from buying and renting outta house, we can see that the cap rate is all the way down to 4.4%.

Video Clip

00:06:54

Meaning that if a wall street investor bought the typical priced home in America of 350, 2000, they would earn about 16,000 a year in net rental income. After deducting expensive. This cap rate in investor return has been on a consistent downward decline over the last eight years, forcing many investors to accept lower profits in order to buy into the housing market. Now here's, what's interesting, accepting lower profits made sense for a while because these wall street investors could borrow at very cheap costs of debt. Especially during the pandemic. You can see if we add the orange line to this graph 30 year mortgage rate in America during the pandemic that cost of debt went down to 2.7%. Meaning that even though the profitability of the rental was declining, the cost of debt was declining by more, which meant that there was still an incentive to buy.

Video Clip

00:07:39

However, this incentive no longer exists today. As the mortgage rate has shot all the way up to 6% well above the income potential of the property. And this is a huge deal, everyone because the fact that the mortgage rate now the cost of debt is above the rental profit yield. That means that any investor buying into the 2022 housing market with debt is likely losing money after they rent the house out to a tenant and then pay their lender, which is why way fewer investors bought homes in the first quarter of 2022. And why fewer are buying homes this quarter and why by the end of the year, we're gonna see a big real estate investor sell off, especially in certain cities, cities.

Bill Fairman

00:08:14

Okay, let yeah, let's stop there. All right. So there's a lot to unpack here. First of all, the big wall street landlords that you talked about earlier have less than a 7% market share on single family homes nationwide. So it's really the mom and pops investors. The PE the people that have probably five to seven houses are the ones that have most of the single family homes in the us as investment properties. By the way, they're not losing money because interest rates are going up. They're, they're not buying properties. You're not gonna sell off a bunch of properties because interest rates have gone up because you already have locked in the nice long, low rate mortgages, just because rates are going up. Doesn't mean your're losing money. You wouldn't buy. If your rates are too high, you'd have to buy at a, a lower price.

Bill Fairman

00:09:16

I don't know anybody that is buying single family rental properties in a four cap, a four and a half cap. If, if you're investing in single family homes, you're gonna be at worst a seven or an eight. And again, you're buying off market properties. So in the end, you're probably more at the eight or a nine cap rate in those areas, the, the 4%, four and a half percent cap rates. Those are class, a apartment complexes and self storage type properties. Those are not single family homes. That makes no sense. And he is correct. Those cap rates are way too low, but in my opinion, it's not on single family homes. Okay. Now Brian is correct. One of the benefits of a 6% rate now is that we currently have a 9% inflation rate. So as you're paying these mortgages off over time, you're paying it with dollars that continue to be worth less and less and less.

Bill Fairman

01:10:27

And then your values of these properties will continue to go up and then rents will continue to increase, but you're not gonna buy a property that you're losing money on. So yes, he's correct that the, the purchases are gonna slow down, but there's not gonna be a big giant sell off because those properties aren't losing money. Of course, I'm gonna address that later with some occupancy issues. But then again, there's a lot of tools in the toolbox for that. So the slow down and investor purchases, in my opinion, is not gonna be a crash. We actually need a slowdown in purchases overall, a normalized market. Since the fifties has been three to three and a half percent appreciation, we've been at 1720 or higher in some markets. And that is just not sustainable. Yes, things are slowing down. They should, they need to, in order to have a healthy market, it has to get lower because we can't sustain that type of appreciation. Scott, you wanna go to the next clip

Video Clip

01:11:39

Where companies like progress, residential operate progress. Residential is the largest private landlord in America. They own over 80,000 housing units and they've been very active in buying up single family homes during the pandemic, and then trying to Jack up the rent on prospective tenants. You can see this very clearly on a property that progress residential owns in Phoenix. They bought it for $427,000 in early April paying 200% over the previous sales price. They then listed it at 24 50 a month for rent a sky high rental rate for this market. However, they haven't been able to find a renter and they've been having to cut the rent ever since. And it's likely that progress residential is gonna need to cut the rent even further on this house in Phoenix, in order to attract a tenant, which is gonna be an issue, cuz it means that their income yield and their return is gonna go even lower just as progress residentials cost of debt and borrowing is surging.

Video Clip

01:12:30

Cuz over the last 12 months, we can see that the interest rate progress residential is having to pay on its mortgage back security issuances, which it uses to finance these acquisitions. Well, the interest rate's gone from a minuscule 2.2% in the summer and fall of 2021 all the way up to 5.3% in June of 2022. So this is the explanation for the data we looked at in the beginning of the video that 17% slump in investor home buying it's all related to increasing interest rates and declining profitability. And I believe when Redfin's second quarter investor home buying report comes out. We're gonna see an even bigger crash in purchases, which already is dramatically pushing inventory up in certain cities around America and pushing prices down, particularly in a Metro like Phoenix, where investors have purchased nearly 30% of all the homes on the market. In the last 12 months, I predict home values in Phoenix are going to plummet over the next six months as this investor fire sale takes hold, particularly in certain zip codes to the Southwest, into the west of the Metro where nearly 50% of all the homes in certain neighborhoods are being purchased by investors.

Video Clip

01:13:29

We could see massive paying 20, 30, even 40% price decline. Another Metro that's in the crosshairs is Charlotte. North Carolina, over 30% of home sales in the last year were to an investor and amazingly there's certain zip codes were over 60% of sales were to investors and in just one second, I'm gonna reveal even more cities that investors are gonna crash cuz you folks need to understand.

Bill Fairman

01:13:51

All right. Thank you Scott. So again, a lot here to unpack that specific example of a house in Phoenix is they obviously just paid too much for that house in the first place. And that market is, and I agree that market is slowing down and is overpriced. That's one of the markets where things are gonna slow down, but we need that additional inventory to bring the market back to normalcy again. Okay? Yes. They, they overpaid for that house. It has nothing to do with their, the financing or the leverage that they used. They just paid too much for that house based on the rents. As you can see it, they paid 20% more than it was worth a year earlier. So those are the markets that heated up too quickly. They own 80,000 units. They have, he showed one example of a house that was over bought at the wrong price and they're gonna have to lower the rents.

Bill Fairman

01:14:54

That's what happens sometimes. So you gotta be smarter about your purchasing now on the Charlotte side of things. Yes. There's certain zip codes that have a really high investor percentage of ownership, but these are the markets that people are continuing to migrate to. So I'm not very, I'm not too concerned about that. We still have some upside in the Charlotte market. Now here's the other thing he's talking about a liquidate. These people are gonna be forced to liquidate again. I said that you've already got most of these in place at, at lower rates. You know, you have more tools in your toolbox than just dumping your properties. You don't have to continue to raise rates. You should have had enough margin in there where you can keep your rental rates at flat or even lower it in, in some cases, if you need to, you should have enough margin in there he's predicting and you, you didn't get that part of the, the clip, but he's predicting an inventory surge similar to the crash of 2008, with all these people getting rid of these rental properties.

Bill Fairman

01:16:12

That's going a little over the top. I think because like I said, just now within the last probably six months or so is when the interest rates have gone up, that has nothing to do with the homes that have already been purchased and have already been priced appropriately. Your professional investor is not buying at retail. They're buying at wholesale. They're making sure that they're in it properly and they have good cash flow. The cash flow is going to continue no matter what the economy is, people always need a place to live. If anything would happen where they would have to get rid of some properties, it would be in the multi-family space because that's where most of the institutional investors own their rental properties is in the multifamily spaces, not the single family spaces. So in my personal opinion, I, I don't disagree with the data because he's just using raw data. I disagree with his conclusions. We are not gonna be into a crash. We do need some normality back into our market. What I said was earlier that what we had is unsustainable. It's gotta slow down at some point and it's, you know, market corrections, keep in mind if there's more inventory, anytime there's a downturn in the market, that is more opportunity for you to get properties at a lower price. At this point in the game, you guys should be holding onto your cash.

Bill Fairman

01:17:59

So you can take advantage of these opportunities that come up. It doesn't mean you crawl into a hole and not buy anything. You just have to be. You just have to make sure that the numbers work that's all. And again, you have plenty of tools in the toolbox. You don't have to sell a house because your occupancy drops. You just lower the rents a little bit. Those values on those homes over time are gonna go up. If you're invested in real estate, it's not a short term thing. It's a long term thing. It's just like investing in the stock market. If you're investing into different types of funds, they're all gonna be five to 10 years maximum or minimum investments, rather because of the liquidity nature of real estate. This is not other than your fix and flip. These are long term investments. And over the long term, the history is you're always gonna end up with, with good value in real estate. So thank you guys so much.

Bill Fairman

01:19:02

Lemme see. Do we have one other? No. All right. Thanks so much for, oh, our money is still a good source of funding deals. Yes, sir. Mr. J, that, that's another thing. If, and I'll, I'll leave you with this. When things start to tighten up, you need a network of people that you can get private capital from and it's getting more and more apparent right now as wall street is starting to get a little concerned. A lot of your short term bridge lenders are having a hard time getting securitizations now, and they're not offering the same deals that they did recently. And we'll, we'll do a show on that too. We had a big securitization that happened last week from some institutional lenders that are doing short term bridge loans, like what we do, but you know, they're selling it on wall street as securitizations and the securitization had failed.

Bill Fairman

02:20:02

So when I get some more information on that, hopefully we can add that on the next week's show. 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 lenders in the Southeast for real estate and investors. If you have a project that you'd 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, don't forget the like share, subscribe and hit the bell. Have a great week. Talk to you soon.

Visit our website: https://carolinahardmoney.com

Rising rates? High Inflation? Now is the time to be doing the best due diligence of your life! Join the Carolina Capital Management team every Thursday at 12:00 PM Eastern for the Real Estate Investor Show - Hard Money for Real Estate Investors. In this episode, Wendy Sweet and Jonathan Davis shared their thoughts on what you should be doing to ensure that you are putting your best foot forward on your investments.

Timestamps:

0:01 - Introduction

0:52 - https://www.CarolinaHardMoney.com

1:39 - Wednesday with Wendy: https://meetings.hubspot.com/wendy166...

3:57 - Bubble Market Might Lose 20% of their Value

6:07 - Housing Completion Per Year

8:17 - Fannie Mae Expects Housing Purchases To Drop

10:42 - RE Market Is On Unchartered Waters

11:09 - What Is Data Tape?

12:38 - Importance of Due Diligence

13:10 - What To Do As Investor

13:53 - Are They Putting Bad And Good Mortgage Notes Together?

15:04 - Apartment Complex In Detroit, Should We Invest?

16:52 - An Example Of What Good Due Diligence Can Do For You

22:55 - What Is Subordination And Non-Disclosure Agreement?

27:22 - Carolina Capital Management Fund & Loan Programs - https://www.CarolinaHardMoney.com

28:31 - The 3rd Annual Quest Expo - Sept 23, 24, & 25, 2022 - https://www.QuestExpo.com

Promo Code: FAIRMAN30 - 30% discount Listen to our Podcast: https://thealternativeinvestor.libsyn...

YouTube Channel: https://www.youtube.com/channel/UCYzC...

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https://youtu.be/L6hXoZYNZOw

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The Most Important Investment Ever! Do you invest in yourself? Join the Carolina Capital Management team every Thursday at 12 PM Eastern for the Real Estate Investor Show - Hard Money For Real Estate Investors! In this episode, Bill Fairman and Wendy Sweet shared their biggest lessons learned from last week's Freedom Founders Mastermind event. Timestamps:

0:01 - Introduction: Do You Invest In Yourself?

1:19 - https://www.CarolinaHardMoney.com

1:59 - Wednesday with Wendy: https://meetings.hubspot.com/wendy166...

4:09 - https://www.PuntaGorda2022.com

5:09 - The 3rd Annual Quest Expo - Sept 23, 24, & 25, 2022 - https://www.QuestExpo.com

5:32 - Promo Code: FAIRMAN30 - 30% discount

6:08 - Freedom Founders Mastermind Event

6:37 - "How Leadership Actually Works" by Larry Yatch

8:05 - "Inflation" by David Phelps

9:09 - "The Apprentice Model" by David Phelps

9:35 - Entrepreneurialism: Things You Will Never Learn In School

12:00 - What Is Your Freedom Number And How To Achieve It

14:23 - Reduce Your Burn Rate

15:54 - Reduce Your Debt or Mortgage

16:33 - Look Into Your Investment Portfolio And What Kind Of Cash Flow You Are Getting Back

17:52 - QJO Investment Tool

20:24 - Identify The Three Most Important Things You Need To Do For The Day

21:38 - Let The Professional Do It

26:00 - Sonrisers Investment Group - https://www.facebook.com/groups/12438...

Listen to our Podcast: https://thealternativeinvestor.libsyn...

YouTube Channel: https://www.youtube.com/channel/UCYzC...

Facebook: https://www.facebook.com/CarolinaHard...

Wednesday's With Wendy: https://meetings.hubspot.com/wendy166...

Visit our website: https://carolinahardmoney.com

Join the Carolina Capital Management team every Thursday at 12:00 PM Eastern for the Real Estate Investor Show - Hard Money for Real Estate Investors.

In this episode, Bill Fairman, Wendy Sweet, and Jonathan Davis will be discussing the latest breaking news in the real estate world and what might the future holds for short-term rentals.

Timestamps:

0:01 - Introduction

1:10 - https://www.CarolinaHardMoney.com

1:40 - Wednesday with Wendy: https://calendly.com/wendysweet/wedne...

2:27 - The 3rd Annual Quest Expo - Sept 23, 24, & 25, 2022 - https://www.QuestExpo.com

2:46 - Promo Code: FAIRMAN30 - 30% discount

3:03 - How To Put Mobile Homes On Land - June 22 & 25, 2022 - https://www.PuntaGorda2022.com

4:13 - Breaking News

5:18 - Unemployment and Labor News

8:56 - https://www.Stessa.com - Free Management Software

9:50 - Recession Red Flags

12:49 - Top Ten Popular Markets

14:45 - Place Where Home Price Drops In April 2022

18:24 - The Future of Short Term Rentals

19:45 - Common Mistakes when Investing in Short-Term Rental Properties

22:35 - It Always Comes Down To Buying It Right

25:22 - Things To Keep In Mind

26:56 - Most People Travel For Business Not For Fun

Listen to our Podcast: https://thealternativeinvestor.libsyn...

YouTube Channel: https://www.youtube.com/channel/UCYzC...

Facebook: https://www.facebook.com/CarolinaHard... https://youtu.be/0jJAeCQ0FiY

Visit our website: https://carolinahardmoney.com

Join the Carolina Capital Management team every Thursday at 12:00 PM Eastern for the Real Estate Investor Show - Hard Money for Real Estate Investors.

In this episode, Bill Fairman & Wendy Sweet will be discussing the current state of the Real Estate Industry!

What's going on? Houses sitting on the market longer? Interest rates rising in response to inflation?

Timestamps:

0:01 - Introduction: State of the RE Industry

1:12 - https://www.CarolinaHardMoney.com

1:40 - Wednesday with Wendy: https://calendly.com/wendysweet/wedne...

3:08 - The 3rd Annual Quest Expo - Sept 23, 24, & 25, 2022 - https://www.QuestExpo.com

3:20 - Promo Code: FAIRMAN30 - 30% discount

4:23 - How To Put Mobile Homes On Land - June 22 & 25, 2022 - https://www.PuntaGorda2022.com

4:34 - 75% Off Code: puntagorda2022

5:44 - Breaking News

6:00 - April Monthly Housing Sales For New Homes Drops!

10:28 - Current State of Bubble Market Houses

15:42 - Metroplolitan Statistical Area

16:53 - Consumer Price Index Data For April

20:24 - Hard Money Loans Are Picking Up Like Crazy

22:31 - Watch Your Price Range (High-End Luxury Market)

23:47 - The Recession-Resistant Housing Is The Best Position

25:27 - What Size Loan Are You Staying Away From?

26:46 - Carolina Capital Management's Programs - https://www.CarolinaHardMoney.com

Listen to our Podcast: https://thealternativeinvestor.libsyn...

YouTube Channel: https://www.youtube.com/channel/UCYzC...

Facebook: https://www.facebook.com/CarolinaHard... https://youtu.be/e2E9r1CL5Ew

Visit our website: https://www.CarolinaHardMoney.com

In today's episode, the Carolina Capital Management team is joined by Fernando Angelucci to discuss the benefits of adding self-storage to your retirement portfolio, the current market, and any changes due to higher financing costs in underwriting.

Fernando Angelucci started doing real estate on the residential side by wholesaling & acquiring residential rentals. Then went on to build a multi-family rental portfolio spanning the Midwest. To prepare for the next cycle, IMPACT now focuses on self-storage.

Fernando worked at Dow Chemical, a Fortune 50 company, rolling out a flagship product estimated to gross $1B in global revenues.

When he was 23, Fernando started doing real estate on the residential side by wholesaling and acquiring residential rentals. Fernando then went on to build a multi-family rental portfolio spanning the Midwest. In preparation for the next down cycle, Fernando and the team divested from residential real estate to focus on self-storage.

Listen to our Podcast: https://thealternativeinvestor.libsyn.com/

YouTube Channel: https://www.youtube.com/channel/UCYzCFOvEt2n9TchgECLwpww/

Facebook: https://www.facebook.com/CarolinaHardMoney/

Confessions of a Real Estate Deal Maker| REI Show- Hard Money For Real Estate Investor

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Dave Payerchin joins Carolina Capital Management Team to share some of his Confessions as a Real Estate Deal Maker.

Dave has been in real estate since 2005.

He has bought/sold/fixed/rented over 1000 properties in his career. He actively owns/manages a portfolio of 100+ houses and flips 100+ houses per year!

Timestamps:

0:01 - Introduction:

1:13 - https://www.CarolinaHardMoney.com

1:56 - Wednesday with Wendy: https://calendly.com/wendysweet/wedne...

2:54 - Today's guest: Dave Payerchin

6:41 - Massive Business Changes With Dave's Real Estate Business

10:02 - The Risk of Turnkey Business

13:53 - People Are Major Investment For Your Business

15:55 - How To Make Money In Real Estate

19:03 - What's Happening Now In The Real Estate Market

24:37 - Area Where We Will See More Foreclosures

27:42 - Connect with Dave Payerchin - https://www.CreamRe.com

29:06 - The 3rd Annual Quest Expo - Sept 23, 24, & 25, 2022 - https://www.QuestExpo.com

29:30 - Promo Code: FAIRMAN30 - 30% discount

Listen to our Podcast: https://thealternativeinvestor.libsyn...

YouTube Channel: https://www.youtube.com/channel/UCYzC...

Facebook: https://www.facebook.com/CarolinaHard... https://youtu.be/K2KxAqsI05w

The Biggest Opportunities For Real Estate Investors In Today's Market!

Visit our website: https://carolinahardmoney.com

Join the Carolina Capital team LIVE every Thursday at 12:00 PM Eastern for the Real Estate Investor Show - Hard Money For Real Estate Investors!

In this episode, Bill Fairman and Jonathan Davis give additional insight into the current state of the real estate industry.

What's going on? Will the housing market remains strong? What to do with the increasing short-term rates?

Find out the biggest opportunities for real estate investors in today's market!

******

Carolina Capital Management is partnering with Therapy Resource Group for the event called "Bourbon & Bubbles" on May 13, 2022

Carolina Capital Management believes in helping the community receive the mental health therapy that so many people need.

If you are interested to attend you may email Jonathan Davis at [email protected]

Therapy Resource Group Event: https://bit.ly/trgevent Website: https://therapyresourcegroup.org

Timestamps:

0:01 - Introduction:

0:55 - https://www.CarolinaHardMoney.com

1:24 - Wednesday with Wendy: https://calendly.com/wendysweet/wedne...

2:19 - The 3rd Annual Quest Expo - Sept 23, 24, & 25, 2022 - https://www.QuestExpo.com

2:50 - Promo Code: FAIRMAN30 - 30% discount

4:13 - https://bit.ly/trgevent - Therapy Resource Group Event: https://therapyresourcegroup.org

8:09 - Breaking News - The Feds Are Raising Short Term Rates

12:45 - The Housing Market Will Remain Strong

14:05 - New Legislations Will Come In To Regulate The Real Estate Space

16:40 - The Best Thing To Do If You Are A Wholesaler

18:24 - We Will Not Do Business As a Lender To Any Blue States

21:15 - Long-term Investor Loans Might Be In Trouble

24:15 - What Are The Biggest Opportunities For Real Estate Investors

26:15 - Carolina Capital Management's Programs - https://www.CarolinaHardMoney.com

Listen and subscribe to our Podcast: https://thealternativeinvestor.libsyn.com/rss

Visit our Website: https://carolinahardmoney.com

Facebook: https://www.facebook.com/CarolinaHardMoney/

https://youtu.be/_gGnF2sHELU

State of the Real Estate Industry! | REI Show - Hard Money for Real Estate Investors

Visit our website: https://carolinahardmoney.com

Join the Carolina Capital team LIVE every Thursday at 12:00 PM Eastern for the Real Estate Investor Show - Hard Money For Real Estate Investors!

This week Wendy Sweet & Jonathan Davis will be discussing the current State of the Real Estate Industry! What's going on? Houses sitting on the market longer? Interest rates rising in response to inflation?

Timestamps:

0:01 - Introduction: State of the Real Estate Industry!

1:21 - https://www.CarolinaHardMoney.com

2:04 - Wednesday with Wendy: https://calendly.com/wendysweet/wedne...

3:04 - What is an Accredited Investor?

4:08 - Everybody Wants To Know What's Going On In The Market

6:19 - Historical 30-Year Mortgage Rates: 1971-2022

7:35 - How can you keep on surviving in today's market.

9:28 - As a real estate investor, you need to make some changes.

13:20 - It's how you buy not when you buy a property.

14:05 - Shortage of Housing and Inflation 17:36 - Communal Housing Market

18:21 - Rents vs. Wages

19:26 - The 3rd Annual Quest Expo - Sept 23, 24, & 25, 2022 - https://www.QuestExpo.com

19:57 - Promo Code: FAIRMAN30 - 30% discount

21:14 - How To Put Mobile Homes On Land - https://www.PuntaGorda2022.com

21:36 - 75% Off Code: puntagorda2022

22:52 - Foreclosures Are On the Rise

24:42 - Don't Give Up Margin To Try To Be Competitive

25:34 - Carolina Capital Management's Programs - https://www.CarolinaHardMoney.com

Listen to our Podcast: https://thealternativeinvestor.libsyn... YouTube Channel: https://www.youtube.com/channel/UCYzC... Facebook: https://www.facebook.com/CarolinaHard...

https://youtu.be/iZ5dyWoy3SY