Hey guys
It's Clint Coons here with my partner, Toby Mathis.
And we're going to talk about what's going on in the real estate market.
You know we're active real estate investors, and we work with thousands of investors
all over the country.
And so we want to just break down what we're seeing right now
and what we're hearing from those people that we're working with.
Toby. Yeah.
Depending on who you listen to, it's either the market's
going to crash or my gosh, it's going to be the worst thing ever.
Or like better or worse than 2008.
Oh, my goodness.
Or people are saying, hey, wait a second.
It's not the same thing.
There's definitely things that differentiate us
from 2008, and I fall into that camp.
But regardless,
because there's so much fear, it means there's a lot of opportunity.
Yeah, we'll see.
A lot of people, I think, tend to always look
at new home buyers and what they're buying.
And I have developer friends who then build in houses and those houses
are definitely sitting on the market.
They're, you know, 60, 70, 90 days on market.
And they're trying they're putting out offers to to buy down points
in order to help attract homeowners.
But the people that we typically work with, they're real estate investors.
And so they're not fitting into that category.
No, they're looking for cash flow.
And here's the thing. So I lived in Las Vegas.
We're in Las Vegas right now, but I lived in Las Vegas in 2007
where a house that would rent for $2500
a month was being sold for a million bucks.
And there's no way an investor is going to buy that.
There's no way it's going to cash flow.
And so people that were buying those homes on speculation
and hoping that they were going to go up
when the market shifted and they realized it were overbuilt.
We have too much inventory.
We had six months of inventory sitting there.
No investor
really wanted it, but there was a ton of activity.
I remember you remember this because we were flipping houses down here.
We would go to the auction,
we would put in 20 offers a day trying to get properties.
And you had the big BlackRock Blackstone's all these flippers,
all these other people
competing for everything that was in the cash flow range, which was
really at that time below 200,000, and they were bidding things up.
So it was a there were two worlds.
There was the, hey, let's comp this out.
This is what your house is worth because somebody paid that much down the street
and then there was, what's the return on my investment world?
And the return on investment world was going bonkers.
Our rents the rents on our rental properties went up during that time.
People needed a place to live and there was a lot of competition
for rentals.
And so like again, even when you think of a recession
or even if you go back
to the Great Depression, there was a lot of millionaires
made during that period of time that recognized it was an opportunity.
It was Warren Buffett that coined the phrase, I believe,
be greedy when others are fearful and fearful when others are greedy.
Well, so we have a whole bunch of fear.
I think we need to be a little greedy.
Yeah, well, so what I tend to look at is going back
and look at the historical trends and what we've seen in the past is that
you've got high interest rates right now and what you have in that are homeowners
that got into mortgages back in 2019, 2018.
Those are going to reset.
So now it's going to jump their mortgage from three and a half up to seven, seven
and a half percent.
Maybe they can't make that mortgage payment.
So that property could potentially become a bank on an Oreo property.
So they're going to run into
they're going to go delinquent, they're going to go into foreclosures.
We've already started to see those trends happening.
That started back in September.
The rates have been going up.
I think they're going up about 3% a month from month over month
with delinquency and foreclosure.
So those are buying opportunities for people to get in there and do
subject to deals because it kind of mirrors, in my opinion,
what we saw back in 2010 and 11 and nine, the
the real estate investors who were doing really well,
people who would be subject to help people out of distressed situations,
because when you lose your jobs, you seen a lot of layoffs in the tech industry.
Right. So what happens?
Those people who lost their jobs or in a mortgage they can no longer afford
or they can't make the payment on because they bought too much house.
They got property taxes.
So you can go and you can solve their problems.
Private lending, I think is going to be huge as well
because as interest rates go up, it compresses the ability
for people to borrow because again, standards can change as well,
especially for investors, because banks get nervous.
So be a private lender on that side.
And so those two strategies I think is something in Oreo
deals is going to be it's not now,
but I think you've got to wait
eight months or a year and you're going to see more of
those come in, come into play.
That might be the case because you see people,
whenever they're talking about interest rates increasing
and they immediately say, oh, my gosh, the market's going to crash,
keep in mind that the interest rates are only raised from that point on.
You're talking about resetting
a, you know, a small amount of the loans that are not fixed, right?
So if you have an adjustable rate, all of a sudden your payment goes up
and it could go up almost double and you're in a deep, deep doo doo.
Right. And so, you know, you got to get rid of it.
And you're in this this market where let's like the reality is
there's not a lot of inventory on the market.
It's about half of what normally is is about three months.
When you look at the default rate on mortgages, it's
about half its historical amount.
But we're seeing lots of default
for the people that bought during this last run up.
Like in the first half of 2022, if you bought a house
and you have a mortgage on it, you're probably pretty upset, right now,
you know, because the house price probably dropped a little bit.
And you're looking at it going, what?
What's my alternative? What should I be doing?
Maybe I should be walking away from this thing
and I think to your point, that's where the short sales come in
and that's where foreclosures could come in.
But here's the biggest factor for me.
Yesterday, the Harvard Joint Center for Housing put out another report.
And it used to be that the baseline of how many houses
we had to add to the inventory every year to keep up with demand was 1.2 million.
It's going to be the last few years.
It's been closer to 1.5, 1.6, 1.7 million.
And we're we were we were targeting that 1.2,
which just simply means we're under built.
And because
of interest rates increasing, it's going to exacerbate that problem
because new home builders are like, Oh, shoot, I'm not going to build nobody.
Nobody can afford my house. Yeah, but a lot of those.
Don't you think so? Here's what happen with the builders.
You're you were building when materials were at an all time high.
So now you've got all this money invested in the property
and you were expecting to sell it for X because real estate's been going up.
So you're willing to pay 75
bucks a sheet for OSB,
but now it's the prices aren't there.
Mm hmm.
But you can have people that can qualify for these mortgages.
So now these these homebuilders are sitting on inventory.
What are they going to do?
They're going to slash prices, take losses.
And I agree with you 100%, and it's going to bring that price down.
So, you know, so the numbers I tend to look at is how do home prices
for the new, you know, new single stories, how do they
how do they relate to rents?
And if the home prices take off faster than rents are rising,
then you have that big gap.
And that's that's your your loss, because there's an investor that will buy
any house just about out there.
You know, those be like as long as it's in a decent area, there's,
you know, as most of your major cities, right, where you have
where you don't have massive unemployment, you don't have massive amounts of crime.
Those are going to be your bread and butter for investors.
They buy those all day long and they're continuing to buy those all day long.
And they're looking at it saying, where is my cap rate?
So you might have a big fund who's looking and saying, Hey, I'm good at a
for cap rate, which is really a return on it, on the investment.
Right. And then the regular investor might say seven, right?
So they may be a little bit pickier and choosier,
but they will go in and buy those things as long as there's a return.
The problem is, is like you said, it's so expensive to build,
it's almost impossible
to build a single family house and get a return by renting it.
There are those folks that do the build to rent
and they're in their building more economically.
They're they're compartmentalizing. They're doing a lot of it.
So some of these are using prefab homes, manufactured homes.
We're seeing that to drive the cost per square foot down.
But if you're a home builder, you're looking at it saying,
I want to sell on comps, which again, I look at the neighborhood
and here's my price per square foot and maybe it's 250 or 300 bucks a foot.
That's what they're selling on.
They're not selling on return on the investment of what you could rent it for.
And those are the people that are getting the bloody nose right now
is the people that were basing it on comps because affordability is it?
I think it's at its worst point in history.
When you look at the mortgage rates in the affordability of homes,
you just washed out about half the home buyers,
which means less demand for those homes, which means the prices are going to fall.
Yeah. And they become tenants.
And that's why, you know, another thing I'd be looking at is raw land investing
because buying those, those manufactured homes, you can put them on there.
You're, you're into those at much less maybe 90 bucks
a square foot for a house like that to get that all set up.
And so that was going to get your cap rates back up to what you're looking for,
because if you're going out there,
you're trying to buy a home, as you just stated, that are at extremely high prices.
It's hard to get that return on the investment
you need because not only of interest rates
that are screwing that up, but you also have property taxes
that have gone up and they're so always so slow to go back down and adjust.
So you're going to get that double whammy.
And as more people tend to get laid off, especially in the tech sectors,
that's going to be a ripple effect.
And also what you're seeing is with the the mature women,
they go out to the sites, the contractors, the subs and stuff like that.
People that I've been talking to now, the generals haven't been paying them.
They've been
they're getting further and further pushback interest on their payments
for the work that they did, you know, back in October.
Right. Is when the interest rates really started to spike.
You've seen now a drop off in those payments back.
My brother, he's one as well and he just had to write off about $70,000
because he wasn't paid. I could see that.
And I think we're going to see deals like in the next,
depending on what the Fed does, because technically you're looking
at the ten year treasury for mortgages. Right.
But let's not kid ourselves.
It's it's the Fed in their raising of interest rates.
And we could have this topic, you know, debate all day long.
I personally believe it was the printing of money that caused inflation.
In fact, when you take the the M2 money supply and you overlay
the CPI with the inflation index,
consumer price index, they're almost identical like they are.
So it's, it's like, okay, what caused inflation?
How about
we printed like an extra $4 trillion and devalued all the money out there?
Like, you still are looking at that factor.
We are seeing quantitative tightening, which is good because that should lower
the interest rate, maybe stop the Fed from its aggressive increases.
We're already seeing the pivot
where the Fed is is not raising interest rates as fast.
Only time will tell to see what they what ends up happening.
It would be really interesting
if during 2023 the Fed ended up lowering interest rates
because that would be a strong indication that they went too far, too fast
and that they're really worried about hammering the economy.
But as we sit here right now, we still have really historic low
unemployment rate.
You just have lack of affordability in homes.
And I think that punches the luxury builders right in the face.
Maybe not the high, high end because they're buying on cash.
But for the typical homebuyer, it's not it's not possible now.
So they're they're just going to keep renting
and there's not enough properties out there.
I think we're 5 million units, depending on who you look at.
Freddie and Fannie, I think, said it was about 5 million units shy
for what means were under built, which means that there's more demand
for properties than there are properties which really hurt the lower class.
Right.
The folks that are below the median income, it's
really hurting those folks because all of a sudden their costs
of of of of of their home,
whether it be rents or buying, is a huge percentage of their income.
It's just in and it's not sustainable.
Yeah, but I see things like that in, in they talk about there's a lack of supply
out there for the demand, but is that demand really there.
Is it based upon historical trends are thinking
because a lot of people can't afford to buy that any longer.
I mean, rate locks have dropped over 20% just in January of this year.
So people are pulling out of deals or they're not moving forwards.
And it's going to be a ripple effect just because they bought it. Correct.
They drop rates three months from now.
Let's say they do a rate cut that doesn't hit the economy.
That's going to take at least,
you know, three quarters to start to see minimal impact from that.
And so, I don't know, I think over the next year, there's
going to be a lot more opportunities coming up for for real estate investors in
different areas, the market that normally they wouldn't have considered.
When you're in that hot market that we did in the past,
like we talked about, I talked about taxes going up.
So there's going to be opportunities for tax liens and tax deeds
for people to figure out those strategies to get in there and pick up properties
here in the next three.
Inflation affects governments, too, and they're raising the property taxes.
You have the raised rates, which is affecting affordability.
All that stuff is going to put pressure on people to either
downsize, get rid of a home,
maybe they're going to go back to being a renter.
But where's that opportunity then for investors?
Where do you think that the biggest opportunities lie
for investors?
I think maybe looking for distressed, distressed properties.
I think that's where it's going to be.
And as you stated, you know, houses are prices will still continue to come down
because as long as we have a strong dollar and it's only being exacerbated.
But what we're doing with the economy, you're locking out a lot of that
foreign investment that probably made up
10 to 12% of the market that you're going to see.
That is already started to dry up
because the dollar, the exchange rate is making the properties here in the U.S.,
which they used to want to invest in that much more expensive for them.
Yeah, they'll see if the dollar can soften, but
so I'm just going to add one little flavor to you.
I think that in the for investors, there's going to be continued
people being very aggressive in those areas.
I think that if you're looking
at homes under 200,000, I think you're you're not going to see this a fall off.
I think you're going to see the falloff
really in the 500 or 600,000 range, maybe maybe beyond that.
But your bread and butter homes, I think, are becoming unaffordable
for typical people. They're going to go rent.
But the part that really was confusing is everybody figured millennials
were kind of checked out.
Hey, the you know, the young people aren't looking for homeownership.
And then we just saw a surge in young people's home ownership and household
creations in the last three years that nobody really anticipated.
And that's going to throw a monkey wrench
in this whole thing because they're still looking for homes.
The dream of homeownership is not gone.
It's just I think we we kicked our coverage
in this particular case and the prices went up too fast.
The interest rates have now made those unaffordable.
So you're going to see some adjustment.
What is it going to do to the overall market?
I mean, I guess you could see something maybe on the worst end, 10%,
best case scenario, probably flat.
But I don't think it's going to be as dire as everybody's saying.
And, you know, again, when there's fear, then
just kind of get your reading glasses out and start really looking at the data
and figure out where the opportunities lie.
I think manufactured housing, I think buying land and putting in,
you know, inexpensive rental structures you see in California
as you see the auxiliary dwelling units that are used,
they can start renting a house because there's a strong need for housing.
And we need to fill that need because if we don't, all it's going to do
is exacerbate the issues for the folks that are below the median income.
Yeah, we talked about the jobs.
There was an article in the Wall Street that I read
this past week is really interesting.
A guy went to work at Facebook Metta
two years ago and they offered him triple his salary.
What he was earning as prior job.
He just got cut, of course, because it was too expensive.
And then you take a lot of the people that have moved and bought homes.
Those people are remote workers.
Well, now companies are requiring people to come back into the office
because they realize to some extent that remote work isn't that great
for the corporate culture.
So what about those people that move to Texas or Alabama or Florida
and their job is located in California somewhere else?
Either they don't have to give up their job,
which is going to impact their ability to cover their mortgage
or they're going to have to move and sell.
And as you sell more, there's more opportunities there.
But, you know, for those of you listening and you find this to be interesting,
you want to know more about the strategy
you and I were talking about, where we see the market going,
I would highly encourage you to take a look at infinity investing.
It's one of our sister companies that we run that we put on.
We help individuals just like yourselves look at the the angles
of the real estate market and get out there and start investing.
And so we teach many principles.
Why don't you tell them a little bit about because you run more of that than I do.
Yeah.
The the easy philosophy of Infinity Investing is that once you have
there's five income sources and we're talking about one of them
we'll talk about rents, but there's rents, royalties, dividends, interest and short
term capital gains on selling covered calls on your stock portfolio.
Those are the five income sources.
Once you have enough of those income sources to replace
and cover your expenses, then you can live an infinite number of days
without selling any of your assets and without depleting your asset base.
We don't believe that when you retire, you reduce your accounts.
We believe that when you retire, you're
at your actual value's going to continue to increase.
But we live off of the cash flow of these things.
And so we're cash flow hounds.
And there are opportunities in this market, just like
there are in any for cash flow properties.
It's just you have to use the right metrics.
And so we teach very concise principles about what we're looking for.
And it leaves you to bread and butter homes that cash flow.
There are obviously other ways to make money in the market,
whether you be wholesaling, flipping, buying distressed properties,
you know, the buy rehab put a renter in it,
refinance it and repeat the same process and just keep doing that.
There's those things as well.
But at its core, the Holy Grail is buying assets
that pay you enough to where you never have to work again.
And that's the principle.
Once you get there,
you can live in an infinite number of days without ever having to work.
Yeah, we teach a one day event.
It's called Infinity Investing.
And if you'd like to join us
during that one day event, as we talk about these principles in more detail,
you can click on the link below and I'll take you to a registration page.
And I can guarantee you, if you go to that
and you join us, you're going to learn about,
as Tobie stated, many different facets of the real estate market
and different ways in which you can take advantage of it in 2023
and other ways to ensure that you're going to take care of your financial future.
Yeah, there is no lack of opportunities in 2023 in real estate.