Hey Everyone!
Ken McElroy here, and I've got my good friend Tarl Yarber
What's going on, Tarl?
What's up Kenny? Let's jump right in.
You know, the feds obviously increase rates three quarters of a point.
What do you see?
And what are you seeing and what are you doing in your business?
Because I personally am actually selling my primary residence
and buying a new residence currently and seeing just the disparity
and of different interest rates
I'm getting over the last like 60 days that have been going through this process.
And if we didn't lock rates in at a certain time versus what they are now,
they're rapidly changing almost, it seems like, every day.
And we have a primary home
and it's a call Washington that we refinance like everybody else.
We're in the
you know, some people in the high twos
and low threes over the last couple of years.
And now I'm getting quoted out for jumbo loans all the way up into the fives.
And we have some local community banks in the area we're going to
that can get us in the low fours.
But I think it's just destroying people's buying power services.
At least they think they're buying power, which we're also out even on the houses
where we're you multiple offers and tons of showings, they're starting to reduce.
But I think that's part of people having a fear and pulling back
a little bit to see what happens in the market more than anything is
you have buyers not wanting to buy at the height of a market and
but they don't know enough to know
if it is the height of the market or not because rates are going so high.
So there's created this hesitation.
Most people do think about the interest rate, but really
they're thinking about how much can they afford.
Yeah. What's their monthly payment right?
Right. Yeah.
So is that that must be going on right now, huh?
It is. It's gone up quite a bit.
So even for us where we are, if we sold our house and let's, let's
call it for a million in our neighborhood, then at that point,
if we want to
laterally move to a similar home or maybe you want to upgrade
a little bit to a better home,
you can't find another one of my houses for the same price to get a similar house.
Right.
I might they're paying are going to buy another million to $1.4 million home.
And I also have a higher interest rate so if I'm at a 3% right now interest rate
because I refinanced or something
over the last couple of years, I'm going to sell my home. Sure.
I'm going to scoop all that equity out that a lot of people have built up
over the last two years.
But I'm going to put it right back into the next house
but have a higher payment even just because my rates jumped another
almost two points, depending on where you're at, including another couple
hundred grand extra in purchasing purchase price.
So my payment might go from 4000 a month to $7,000 a month.
That quick to get a not that much better of a house depending on where you're at.
And that's a big number
just because some people might live in areas where homes are two, three, 400,000
but in the Seattle market, the median home
price in King County is almost right around a million.
You know, in a normal housing market where you can,
you know, upgrade over time
and that's such a big difference in the payment.
It's going to it's going to reduce the number of listings, I would guess.
And it's also
it's going to keep people in place so it's going to reduce the migration
because they literally they probably have to move out of the area.
All right.
Yeah. Yeah. Right. And find a cheaper area.
Yeah.
Like in some of those cheaper areas aren't becoming cheaper.
So maybe you're moving from a better location to a worser location
just to get just because of affordability purposes.
Also, there's some people that are selling their homes, scooping that equity,
and then maybe they're going to go rent and go see what the market does, too,
which I think that might also not be the best play depending on what
your beliefs are, what's going to happen, the market
and the rental market's going out of control, too.
I mean, absolutely.
We had, you know, anywhere from ten to 30% rental growth
last year as well in some markets.
And that's not good for for for anyone, you know,
kind of like the housing, right that the rates that are affecting people
the most right now in my opinion are the real set
are the regular the average real estate investor
that's out there buying single family homes that we're maybe doing
something that I love to do called the BR strategy buy rehab rent refinance repeat
and they bought thinking maybe they're going to get like a 4%
or four and a half percent
interest rate on their take out financing which is they buy a crappy property,
fix it up, and then they go to refinance it and put a tenant in it.
They might have done their performa
at a four to four and a half percent interest rate
with maybe a DCR, a lender like a debt service coverage ratio lender, somebody
that's looking at the property and not the investor
and they're thinking to get it for four and a half interest rate.
But right now, most of those DCR lenders are all the way up in a five and
a half to six and a half percent rate now, and that's killing their cash flow.
I know we're putting on an event together and Scottsdale
in June, June 9th, 10th, 11th called Limitless.
It's Limitless Expo dot com.
We're going to talk a little bit about this, I think, and we've got what,
40 speakers or something.
And let's jump in to the next hot topic, which is I'm
watching these big, big funds and they're they're hiring these agents
and some of these local markets and essentially just paying all cash.
And you kind of you kind of mentioned it.
So what does that doing to the local agents, to the fiction
flippers, you know, the mom and pops, you know, just people
that are just trying to like do the BR strategy, you know, the
I mean, what does it it seems like it's just ripping inventory away from them
when it comes to these large funds and institutional buyers.
You know, I have nothing against them per say.
Right.
But the reason I what I have more against are actually the agents
and the wholesalers and other investors that sell all their portfolios to
the funds or a wholesaler which is somebody that ties up a property
off market and then sells it for a fee like an assignment.
B, I know a number of wholesalers that are in hot markets
that all they do is source properties for funds
and why are they selling the property to the fund
and not another investor like themselves is because the funds paying more.
And so a property that maybe they tie up for 90
grand in St Louis, they can sell to a local investor for 100
and they'll make ten grand but for whatever reason,
you know, opendoor or whoever will buy it for 110 instead of 100
and they're like, I'll make ten more grand,
I'll double my profit if I'm some of these guys
and they're done, look at them, buy these properties
for so much more than the local investors will.
And I ask these guys all the time, I'm like,
If every fund that you're selling to is buying over asking,
and a normal local investor is not doing that, have you ever asked yourself why
that is right?
Do you think that these guys that have raised
billions in capital are just doing it because they feel like it right?
There's a reason why they're buying up these tranches of single family homes
in all these markets,
so much more than what maybe a local investor is going to buy it for.
Let me ask you this do you feel like that
actually was a big part of the reason we had this run up in pricing?
Like let's just go back for the last 24 months
because of the funds.
Yeah, because them overpaying.
I wouldn't say that that's the only reason like for sure.
I mean, like there's investors like myself that definitely benefited
from the run up and stuff, but I think it's a supply issue.
It goes back to that.
I mean, it goes back to a true supply demand issue
and massive demand because of interest rates being so low
and then the supply just supply being so low as well.
Right?
So massive demand with very low supply, just basic
economics is going to run up pricing, especially in specific markets.
And the so I think that's been a huge factor of it.
There are certain markets out there where there's plenty of
like off market properties to go get and so forth.
But but the local investors, we think to short term, most house
flippers like myself, I'm speaking I'm preaching to myself here right six months.
That's what we think about, right?
Within six months or less. Right.
And you asked me to think 12 months out or two or ten years out in real estate
and be like not always to be alive, but then like it's like, this is my chance.
Like, I have six months.
So if we're only looking at a six month window on comps comparable
to the real estate market
and so forth, yes, we're only going to see that house as $100,000 house
because we're thinking we could flip it really fast
and we want to make a certain return.
Ten, 15% the fund that's buying it and think in ten, 15 years out.
Right. They, they don't really care, right?
They look at it going like, hey, it fits our, our, this specific model
that's in their proprietary software
where the hell they got that says, OK, well ten, 15 years out, we're good to go.
So yeah, we'll pay 110 for a $100,000 house
because they're thinking longer term and any market that's cyclical
and this even
what happened in the eighties with interest rate
and so forth, like markets go back up in real estate, real estate
is something that might crash in the short run,
but in the long run, typically always pans out.
I've had to work on that thinking quite a bit.
Yeah, biggest, biggest regret for years always is
I sold any of my houses right yeah.
So, so it's true.
Hundreds of properties, right?
I'd be I'd be as be a big boy like you if I had those properties.
But the truth is, I didn't. Right?
So made a lot of money selling them for cash. Right?
And we played a lot. We traveled a lot.
We enjoy a great lifestyle and we own some assets, right?
But we can have a lot more if we kept them but if we the reason why we did it
is because we thought six months, right?
We didn't think longer than that.
So and I think today
the average investor needs to start thinking
long term and start changing our mentality with that.
What we're getting into it flipping houses is great, cool.
You can make some cash, but long term from now you're going to regret that.
And what can you do to be able to keep that property?
Long term is really, you know, especially the way the economy is going,
America is going, rents are going, everything's going it's
not going to be a good time for some people in the next few years.
I don't know what it was pretty confusing, but that's
why we're doing this summit, guys.
And I know we keep plugging this thing, but Limitless Expo dot com.
Take a look at it.
You're going to see there's we're almost sold out right
yet we're close to it so there's you can ticket prices are going up.
So that's one way we stemmed the curve.
But like if you guys check out the website go to WW dot limitless expo dot com
you'll see whatever the newest ticket prices currently
and ticket prices will keep going up we are selling out
it it'll be an awesome event we'll have close to you know probably 1200
or 1300 people there and we have full stages
we have a lot of money going to charity, we have lots of exhibitors,
we got parties, we got this is the time the speakers are
there's no green room, there's no like place for them to disappear.
Like all of these experts are in the field
with you guys so you can talk to them as well
and it's going to be fun to listen every perspective.
And the best part is it's not all going to be the same.
Like there's no,
like there's going to be a lot of, you know, is it inflation or deflation?
Like George Gammon is going to be fascinating.
He's speaking there, too.
And, you know, I can't wait to hear that talk.
Well, Tal, it's always awesome, man.
Thanks and can't wait to see you soon, dude.
Can't wait to see you. See you in a month.
Buy tickets.