Hello my friends. Welcome back to Passive Real Estate Investing where we dive into the world of real estate investing among other related topics. To help you with your real estate investing journey, today we’re doing something a little different. We’re going to take a trip down memory lane and showcase an important episode from the past on what we call our throwback Thursday episode. Now, whether you’ve been with us since the beginning, which goes back to 2015, or you’re tuning in for the first time, this episode is a must listen, we are revisiting one of our more popular episodes from the past, and believe me, what we discussed back then, whether it’s six months ago or six years ago, is just as relevant today. So sit back, relax, and let’s rewind the clock for this great episode. Enjoy.
I have one of my great, great investment counselors on with me today. His name is Oliver, Oliver Fu.
Oliver, welcome to the show.
Thanks so much, Marco. Great to be here.
It’s great to have you back on. It’s been a while since I had you on.
<Laugh>.
We’re, we’re long overdue. We’re long overdue. Yeah. So just to kind of tee this up so the audience knows what we’re gonna be talking about, and we we’re kind of kicking some ideas around, none of this is scripted. This is gonna be completely, you know ad-lib, I guess is what they say. But, you know, we were talking about what are some of the more common real estate investor questions today, or, you know, maybe to some degree the more frequently asked questions. But, you know, we’re late in 2024. Mortgage rates have been up for quite a while. They’ve come down a little bit and then, you know, they’ve been going back up again. Recently. We just had a, an election, you know, it’s election year. And you know, I think today real estate investors have a lot on their minds, especially with the market dynamics shifting this year.
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Throwback Thursday Episode (The episode originally took place in the year 2024)
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You know, inventories are still low, interest rates are still relatively speaking high, higher than what they used to be, but historically speaking, they’re still pretty low. So I thought you and I can just get on and talk for 20, 25 minutes about some of the more common questions that you’re getting today. ’cause You’re on the front line, you’re talking to real estate investors every day. You know, people are looking for help. They contact us because they want to know where to invest, what to invest in, should they be investing, all that kind of stuff. So I guess maybe let me kick it off, unless you have something to add to what I just said to this point, but I would probably kick it off by asking this. I hear people ask me, is now a good time to invest in real estate? And I have a canned answer to that <laugh>, but before I say it, because I’ve said it many times on the show, lemme throw it to you. What do you tell investors when they say or ask you, is now a good time to invest in real estate?
That’s probably one of the most often asked questions I get day in, day out for every year since I’ve been investing in real estate. Is now a good time? Is now the best time? And there’s a couple of different answers to that. Number one is, it depends, depends what you’re trying to do. Depends what your strategy is. Depends if you’re trying to do something for taxes for 10 31, or if you’re trying to purchase before your end, or if you’re really trying to target that one property within that specific price range, in that interest rate, in order to cashflow a certain amount. So to answer the questions that it depends, but every single person I had spoken to just about always wishes they would’ve purchased yesterday, last month, last year, 5, 10, 20 years ago, they all wish they would’ve purchased before today. So is today the best day? Time will tell, but most of the time I always get the same response, which was, Oliver, I wish I would’ve purchased when I first spoke with you. Two months, six months a year, two years ago.
Right. Yeah. And you know, my response to that is, by the way, I, I hear kind of the same type of thing. I mean, nobody ever regrets investing in real estate over the medium and long term. They might have hesitation or mild regret if they invest in the short term because interest rates have gone down from when they invested, or maybe property values pulled back for a short period of time, a quarter, two quarters, maybe one year, but then, you know, started to appreciate again. And then, you know, their rent started to go up and they started to see improvements in their returns, their cash flows, et cetera, et cetera. But short term, you know, there’s gonna be ebbs and flows long term. Nobody, nobody that I know has ever had a regret investing in real estate unless they made a mistake getting into a particular deal because they invested in the wrong area, the wrong neighborhood, or maybe there were a lot of deferred maintenance items on the property and they didn’t do their proper due diligence.
I mean, I hate to say it, that’s their fault, you know, in many ways because they just either didn’t know what they were doing or they didn’t do proper due diligence or, and, or they didn’t have the right team around them to help guide them hold their hand, right, walk them through the process. But generally speaking, nobody long term ever regrets investing in real estate. It preserves wealth, it creates wealth, it creates cash flow, it creates financial independence because of the financial freedom it ultimately gives you when you build a portfolio and that, you know, that leads to your time freedom
And the immense tax benefits that come from that as well. That one little disclaimer when I was at first answering your question was, as long as the deal makes sense from day one, that’s the biggest criteria that I always try to tell my clients. You know, the deal has to make sense from day one, and that’s really what helps set the foundation. Most of the time, people that regret invested in real estate, it’s because that deal did not make sense from day one. You know, they invested in something that are too leverage or maybe just the numbers didn’t pan out, but they thought it would, because, you know, California’s been appreciating by X number every single year, so why wouldn’t I put all my money in this one basket? You know, for sure next year it’s gonna, you know, go up 30% and then the next year it’s gonna go up and keep going up and then I just sell it and make a huge amount afterwards. You know, that’s what the mentality of a lot of investors or, you know, a lot of amateur investors might be. But those are the, that have been in the game for a while, think very differently about that.
Yeah, and that’s a very good point. And the thing I add to all that is this is to me, when someone asks the question, is now a good time to invest in real estate? It’s not about when it’s about where, regardless of where interest rates are or mortgage rates are, there are always opportunities around this country. There’s over 500 metropolitan areas that you can choose from, and there are submarkets and submarkets and then neighborhoods within all of those markets. There are deals all the time, peppered all around the country. Now, some markets and some regions are obviously better suited for investing than others because of price or inventory or availability or tenant landlord laws or whatever it may be. But there are always opportunities. There are always deals to be had. There are always properties that you can purchase that make sense the day you buy it where it’s well positioned.
It’s in a market that is not declining. It’s a market that has stability, it’s got jobs, potentially job growth, ideally population growth. So you’ve got sustained demand for that real estate. But you know, if the property makes sense, it cash flows, or at least at a minimum carries itself. It may not have great or maybe any cash flow, you know, that first year or two for whatever reasons there, there are some exceptions and some reasons to that. But if you’re in a market that is experiencing growth and is expected to experience growth and has cash flow and, and you’ve got a property that can carry itself and it doesn’t have deferred maintenance issues, that’s potentially a good deal, maybe a great deal. But you’ll find those almost all the time around the country. It’s just a matter of knowing where to look and having the right team to help you make that acquisition or that investment. Did I miss anything? Do you agree? Do you disagree? You can push back on anything I said.
No, I agree with that. Having the, the team there is crucial, is very important. And that team, one thing to keep in mind is sometimes that team does evolve and you need to find additional contractors, maybe new property management companies, if ever, you know, there’s some sort of disagreement at some point in time. You know, that team evolves in each market. So as you or your real estate portfolio, it involves maybe you need a new property manager. I don’t know if this is like a pause or not, but if you wanna get into property management, because I know that’s a huge topic that we can probably go into,
Bring up whatever you want. This is just like, we’re just kicking ideas and thoughts and concepts around, and who knows what’s gonna come out of our mouths. It’s probably something that people who are listening or watching this are thinking about or maybe will be thinking about.
Yeah, so, so what I was getting to with that is sometimes what I’ve noticed through my investing career, which is, or investing journey really, which has been almost 14 years now, is I have changed property management companies numerous times across the board. Some property managers I’ve stayed with for many, many years and others other times I’ve had to change just because I’ve noticed that things weren’t going well. The communication really fell off. Everything was going spectacularly well at the very start. Maybe when you have 1, 2, 3 properties with that manager, you know, they can handle that easily. Once your portfolio starts to grow, things start to change. You really start to see how well that property management company can really tailor to what it is that you’re needing as an investor in terms of communication, in terms of what you need payment wise, the efficiency of their teams doing rehabs, turnovers and everything else. Things can change. Put it that way.
Is that bad luck of the draw or is it a good property manager gone bad or another factor?
There are a couple different factors. Sometimes it can be a property manager that started off, you know, they might have had maybe a hundred, 200 properties to manage and their growth trajectory just kept on going up and up and, you know, they were adding a hundred, 200 properties per year and they weren’t able to have the sustained interior growth within the company to hire new personnel, to hire new employees to train people up so that way they know what to do. Or maybe they tried different, I’ve seen this happen numerous times. They, they went to some conference and, and then they completely revamped their property management company. People within the company take over different roles that they never should have done to start with. And unfortunately that causes a, a cascade of frustration <laugh> for the investor because now you’re speaking with someone that doesn’t know what it is that you’re needing as, as an investor.
You know, they don’t understand maybe the legalities around, for example, having squatters in a property, what to do about that, how, what the timelines are to, to get somebody out. You know, unfortunately that’s something that I’ve had to deal with. And this is a little side story. The property manager for one of the properties that was being turned over, I had an advised them to install an alarm system in the property as soon as the tenant was being evicted, which is, you know, unfortunate that the tenant was evicted. But, so as soon as they left, we got confirmation of that. I informed the property management company right away, install an alarm system so that way we would know if ever, you know, the door was open, there was any type of motion within the property, we would be advised right away. And then you have a very short period of time in which you need to alert the police so that way they can actually make it out to the property and take care of that situation and potentially get rid of the individuals that are trying to take possession of that property.
Unfortunately, the property management company did not do that. They thought they did, but they actually never put an alarm system in there. And then come to find out, they call me up and they’re like, Hey Oliver, there’s somebody in your house that’s not supposed to be there. They have a lease that’s signed. They said that they sent someone the security deposit and the first month’s lease and the police can’t do anything about it. This is now a civil suit and you’ve got to take this to court and go through the proceedings. That whole process took about nine months to get them out. Wow. Yeah, yeah. So anyway, so it needs to say when it comes to communication, communication within that property management company is so crucial because when you have someone that’s used to, for example, only doing leasing, only used to doing, you know, bill collections or only used to doing maintenance, taking work orders or something along those lines, and then suddenly you give them the role of overseeing 50, a hundred, 200 properties because that’s what they were taught at some management company or at some conference, that that would be the best potential way you essentially force people into these roles.
Sometimes that can really work well because it forces the individual to grow. But if that person at the company doesn’t have that type of capability, it unfortunately causes huge turmoil for the investor who has spent tens or if not hundreds of thousands of dollars of their capital into these properties to try and, you know, build wealth and build cash flow. That’s why, you know, on my end, I’ve had to change property management companies a few times because I have noticed things like that occur. And there’s a fairly distinct pattern that you start to notice in the in the management company before you get to that phase where, you know, they might end up selling off their entire portfolio to another management company to acquire, or maybe, you know, they end up closing up shop or they just more or less force you to have to change as well. That’s another, you know, potential too.
So, I mean, that kind of begs the question how, you know, how do you find a good property manager? And I’m sure many investors ask that question, you know, whether to themselves or, you know, to you and I, so based on that, your story and the question of how do I find a good property manager? Like what are some, you know, high level suggestion or recommendations? I mean, we obviously, we work with property managers in all the markets that we have rental properties in, like turnkey rental properties that clients purchase, but it’s almost like the property management company is attached tied to those investments. Now, the the investor, our clients don’t have to use that property management company. They could use their own property management company. They could self-manage if they want. Exactly. But you know, the people we refer typically almost always come highly recommended. But for someone listening to this, who’s doing it on their own, you know, how do they find a good property manager? Or how can they mitigate those types of issues?
There’s a couple of different ways to go about that. And I’ve seen this many times over the years. A newer investor typically will ask me for a property management referral and you know, Indiana or Indianapolis for example, you know, and we have two or three, and then they’ll send that property manager a list of 50 or a hundred questions to answer. And the property manager’s like, you know, listen, we can’t really do this. We don’t have time to do this for everyone that wants to do that. So there’s a couple of, you know, quote unquote gurus out there that say, here’s my, my list down on this PDF and I’ll send you all the questions to ask every manager. Why Right <laugh>? Well, the number of managers that actually wanna spend the time with you to answer every single one of those questions is going to be challenging.
It’s not an easy job. So property managing is not easy. It’s quite challenging. You’re dealing with a lot of people, a lot of personalities, unfortunately, sometimes tenants, you know, they get sick, they lose their job, they have to move, you know, for familial reasons. Sometimes unfortunately they pass away. You know, that’s happened unfortunately a few times at some of my properties. You know, it’s unfortunate. But the property manager, they deal with this stuff day in, day out, and they deal with people not paying rent. You know, they have to go door knocking to ensure that, you know, the property’s up to par that they’re doing their inspections. I mean, the whole slew of things that the property management company needs to do after doing this for so long on my side, just having a, a discussion with the property manager is crucial. Asking them, you know, just your usual run of the mill questions, how many properties do you guys manage?
Which is the usual turnaround when it comes to answering emails, you know, what’s the expectation when a property becomes vacant? What’s your usual procedure for getting someone in there just to gimme a scope of work? What does that usual timeline look like? How many contractors do you guys have? Do you guys use in-house folks or do you guys use third party contractors that come in and, and do all of the work? It really depends on property management side, how quickly you can actually get somebody on the phone versus are you needing to wait? You know, I mean, I work with one property management company. Having that initial discussion with the, the, the property manager is crucial. I have one property in my portfolio that I have with this one property manager, and they do not ever answer the phone. I am only with them because of one criteria that they have, which is they guarantee rent every single month.
And I pay a very high property management fee. It’s 20%, 20% property management fee. I think they’ve upped it to maybe 23 or 24% now. ’cause The program has gained some traction. But I wanted to give them a test phase to see what the projections would look like if this scenario actually worked. They guarantee rent, they charge us pretty steep property management fee, but they guarantee that amount of rent will be deposited in your bank account minus their management fee every single month. In addition to that, they’ll also take care of any and all repair and maintenance items that come up during that month, as long as it meets a certain criteria upon initially onboarding with them, more or less, ensure that everything is working at the property properly. They’ll more or less cover just about anything and everything that comes up thereafter. So if it’s a plumbing thing, if it’s no dishwasher goes out, or, you know, HVAC system needs servicing, they actually cover all of that. They’re
Covering the expense, correct. Not just their fee, they’re covering the expense itself.
They cover the expense itself. Correct. There’s a, there’s a couple things that they, they don’t cover, for example, the roof, but with this particular management company, they’re very tech oriented. I can only get someone on the phone when I dial, when I need to call into their emergency line. I have to do that a few times for some, you know, tornado related things. But anyways, otherwise their schedule is out almost four weeks whenever I try to book with ’em online on their calendar. Wow. Yeah, so, you know, I, I was willing to give that a shot and see how that would turn out. It’s been similar comparatively when I compare that to my other properties where I’m paying anywhere between eight to 10 property percent in property management fees compared to the 20% in terms of what my repairs and maintenance related items are for that particular year.
Sometimes it’ll be slightly lower, sometimes it’ll be slightly higher. And this is within the same market, a very similar property profile, a single family home, you know, three, two, et cetera. Underwent the rehab in the same year. I’ve noticed that it tends to be very similar. So am I gonna continue with that, you know, guaranteed rent scenario, you know offering that they’re, they’re doing at the high property management fee. I think I’ll continue doing that for a while until maybe I decide to you know, sell the property or do something different. But I like to test out different management companies, you know, someone that has a portfolio, and this is what I recommend doing as well. Especially if you’re looking at alternative options for property management from where you’re currently housing all of your properties. You can, when you’re calling up new managers, start with one property.
That’s the other. I think the pretty important thing start with transferring one property. See how that whole process goes. If it goes well, okay, you know, continue on with the second one. If you transfer one property and you notice it takes 2, 3, 4 weeks to get an owner portal set up to get your utilities online to speak with a property manager to get your PMA, your property management agreement, that tells you from the get go what the most likely scenario will be in the future for your entire portfolio. And you then know, hey, I should look at a few other areas. There are some markets where I do have a handful of properties in one market, and I do, you know, and I work with four different management companies. There are markets where I have multiples because I know that they’re good in their own independent strengths and, you know, at some point where I maybe merge them all potentially, but for now, things are it’s a progression. Put it that way,
<Laugh>. Yeah, and I think it’s important to make sure that people listening to this understand that what you just described is not the norm. That management company, and it sounds like to me it’s a form of insurance. You’re paying a big premium on your management fee in order to have those benefits or perks. So it’s, it’s very much like kind of a, a rental guarantee, insurance policy type of thing. That is absolutely not common. It’s very unusual.
It’s very unusual. In the past, I’ve seen some companies where they have offered like a, a type of insurance on the rents, but in order for you to actually get a payout on those, it tends to be very challenging. And, and the payouts can take quite some time. There are a few companies that I’m aware of where you can purchase a type of protection plan, quote unquote. So if ever there is ever the tenant, for example leaves the property without notifying the property management or the owner, or if fortunately, you know, if someone gets evicted, then they will actually pay out up to a certain amount. Usually it’s about a thousand dollars or so as a quote unquote insurance policy, right. On these. And, and those policies might cost you maybe 150 to $200 a year. But, you know, if, if you’re on the verge of, you know, unfortunately there’s been 2, 3, 4 months of missed rents from the tenant and things are looking like, fortunately you’ll have to go the legal route, you know, that $200 investment is well worth it.
Yeah. So for me, when it comes to finding a good property manager, if I can, you know, just kind of summarize what it takes or what I would look for one for sure is good communication, being responsive and thorough. To me, you know, poor communication is one of my pet peeves. So no matter who I’m working with, but especially true for property management, I wanna know that they’re responsive, detailed, thorough, timely, because they’re really, you know, my eyes and ears and boots on the ground. They’re not just my property manager. I look at them as my asset manager. And so they’re managing and responsible for taking care of my asset. To me, it’s, it’s one of the most important roles. It’s a thankless job, but I wanna make sure that they are responsive and communicative. Mm-Hmm, <affirmative>. So for me, communication’s a big, big one. And how they communicate is also important.
Second, I wanna make sure that it’s not a one man show. I’ve said this many times, I want full service property management. Good property management companies in my experience have been those that have different staff or individuals responsible for different things. Some of them are leasing managers, some of them are administrative and operations, and some of the people that work there are responsible for maintenance and repairs. You know, they, they handle that role, that department, because for one person to try and juggle all that is very difficult, especially if you’re trying to manage a large number of properties. You just can’t scale and things will just slip through the cracks unless, you know, unless you have very challenging the right team. Mm-Hmm. <affirmative>, yeah. You need to have a team. Everybody’s, you know, got their area of specialty. So again, we can help you with that. If you’re working with us, it’s, you know, we’ve got property management companies that we work with all over the country, you know, in the markets that we work in. But it’s important to find a good property management company and, you know, you can do the vetting yourself. We have referrals as well. I mean, it’s important to know, I mean, you want a trustworthy, efficient property manager. It’s crucial. It’s crucial. Mm-Hmm, <affirmative>, you’re, you almost, almost live and die by your property manager
<Laugh>. So, and having expectations in place is very important from the get go. Sometimes there are folks that expect a response within 24 hours or less, and if they don’t get it, you know, then they send follow up emails, you know, consistently until they get that response. So having and knowing what your property managers communication style is like, is very important. So that way there’s no cross communication on that front with what your expectations are as opposed to what their usual standards and procedures
Are. Yeah, for sure. I think another common question, you can almost chalk this up into like frequently asked questions, but this tends to change a little bit from year to year as the mortgage landscape changes, but how can I finance my investments? The answer to this question is pretty much the same almost all the time. You know, there’s very few things that change. The variables might be interest rates, qualification criteria, maybe the types of mortgage loans that are out there, but I don’t know how often you get asked the question how, you know, how can I finance my investments? But I think a lot of investors like to explore alternatives to the traditional loans, like the conventional loans, and they’re out there. In fact, I just did a podcast episode like a week or two ago on DSCR loans, and, you know, there’s different lenders out there doing property based, like debt service based loans. Mm-Hmm. <Affirmative> rather than just you being the borrower and qualifying 100% for it, regardless of what the property is. Do you have any thoughts or comments about financing and questions you get about financing properties today?
Yes. So just as a quick recap, in case, you know, this is a first time investor that’s listening to the show. Every individual in America has allowed to have a totally 10 conventional loan slots inclusive of your primary residence. If, if it’s a couple, you can split that up into you know, into 2010 each. Again, it depends on the income and qualifications, assuming that both parties do qualify for those loans. If you have a, a primary, for example, that’s titled to both of you on the loan side, you know, that would take up one loan slot for both of you. So then you would have nine loan slots con for conventional financing each. Now, once you’ve exceeded that, DSCR is your next best route, almost every single time it’s a type of financing that I think is in some ways a bit easier.
It depends on the individual, but typically what the lenders will look at is simply your credit score. They wanna ensure that they wanna look at the last maybe two to four months of your personal bank statements to ensure that you’ve got enough funds in your account. And they’ll also wanna see how the property performs, ensure that it does indeed generate maybe some form of cash flow, but that it is able to sustain itself. Those are usually the three main points for that type of financing. Very easy in my opinion. You can finance that directly through the LLC, which is typically encouraged almost 99% of the time. I’ll also recommend that type of financing for some clients I work with that have very, very complex income structures. So they might, you know, have multiple companies across the country or maybe, you know, across the planet because they, they’re involved in so many different types of businesses, they don’t want to spend hours and hours trying to put together this entire package for, you know, a conventional loan.
Instead, we go the easy route where they just look at the credit score of bank statements on the property, and that’s it. So there’s no tax returns, you know, there’s no W2, there’s no pay stubs, there’s no, nobody asking you more questions about your personal finances. Now, the downside to DSCR type financing, it’s typically, again, it depends on the season, but typically you’ll, you’ll be looking at about an eighth to a quarter, maybe even half percent higher on the interest rate side. Again, it depends on the season though. In addition to that, sometimes the loan origination fees will also be a little bit higher. What I’ve seen a lot over the last, I’d say about four months, and it’s actually continuing, it probably will continue until the end of the year, is that some DSCR lenders have decreased their loan origination fees.
So typical is about 2% of the loan amount. So for example, you know, if a, if you’re putting 20% down on a house, that’s $200,000, so you’re looking at $160,000 loan amount. So 2% of that would be $3,200. That’s your typical loan origination fee on its own. That doesn’t include anything else. So there’s still lender, you know, there’s still title insurance, there’s still all of your usual types of closing costs associated with that transaction. So you’ll be looking at a slightly higher overall closing cost, but also you’re trading that off for the my opinion, you know, the ease of being able to do this type of financing. But if you do qualify for conventional, that’s usually your first step into this. For 95% of investors, they’ll always first use up all of their conventional loan slots. And once we’ve exceeded that, then we start going the DSCR route.
Okay. Yeah, that makes sense. I mean, the lending front doesn’t really change all that much. You know, the, the lending options have been pretty much more or less the same out there. The things that change are the mortgage rates and then, you know, to a much lesser degree the qualification criteria. But those are pretty consistent. But there’s definitely money to lend out there and there’s a lot of loan options. A lot of lenders want to lend on real estate because they love Mm-Hmm. <Affirmative> lending on real estate, their loans are secured by the real estate. It’s a lower risk type of loan. So unless you have horrible credit, you know, you should be able to get some sort of financing.
Right. And also the type of financing we’re, we’re talking about here is more that traditional long-term amortize over 30 year type of financing. This is a completely separate discussion. If we were to have one about folks that are looking to flip or do the, you know, the bur type method or anything along those lines that, that’s a completely different realm, completely different discussion.
Right. Do you get asked questions and, you know, I’m just thinking of like the more common questions today being 2024 or late 2024. I almost want to ask you what other common questions or frequently asked questions you’re getting today that’s more based on the year or the time that we’re in, rather than, you know, just questions that are the same questions for the last 20 10, 20, 30 years. Are there any that, you know, come out or stand out that you get more so now than before?
I’ve noticed that investors are paying a lot more attention to, maybe they’re buying timeline and election cycles. I’d say the few weeks prior to, you know, the, the actual election day, you know, there, there wasn’t much activity, put it that way. ’cause A lot of folks I think were maybe hesitant or they, they want to wait and see what the election results would be before they decide to make their next move. But interestingly enough, few days after the election and when the results were released, suddenly, you know, a lot of investors started to pick up the phone and call me, email me. You know, there was a, a pretty significant rise in in activity and, and interest overall. Right. So, yeah, that, that’s, that’s definitely a, been a, a theme for for this, you know, the end of this year.
Yeah, that would make sense. And you know, this is not a political show.
Yeah, exactly. This is not a political show or anything along those lines. <Laugh>, just like you, Marco, you’ve been around for, for quite some time doing this. And question for you, can you predict interest rates and what’s gonna be happening here for the next few months or the next six months or the next 12 months? What are your thoughts on that?
Well, nobody has a crystal ball. Well, anybody can give you a prediction, but nobody can tell you definitively what’s gonna happen. But you gotta look at money flow and liquidity. If money is flowing into the markets and more specifically the bond market, that is a very good predictor of whether mortgage rates are gonna go up or down. It’s not the Fed funds rate, it’s not the interest rate set by the Federal Reserve. It’s really Mm-hmm <affirmative> the bond market. If people are interested in bonds and they wanna buy bonds and they’re putting money into bonds and they’re driving that market, you know, that’ll determine whether rates go up or down. What has been a surprise to a lot of people actually here in the last, I don’t know, several months or for a while, is the expectation was that mortgage rates would drop and continue to drop.
And they did briefly like this year for a little while. Then they turned around and started going up and everybody’s asking the question, well, you know, why are mortgage rates going up? But, you know, it’s because people were feeling more confident about putting their money into, into bonds in the bond market and, you know, mortgage backed securities. And you could pull this up on any chart. You could, you could just see the trend of mortgage backed securities, whether it’s going up or down. And as that price goes down, if you read a chart as that price goes down, the mortgage rates tend to go up. When that reverses, you tend to see mortgage rates go down. So it’s a very quick and easy, just kind of a dirty litmus test, if you will, to just see that that is your predictive model. If you want a crystal ball, that’s what you should look at to see or predict where mortgage rates are gonna go. It’s pretty accurate.
That was a great answer, very descriptive. And it also helps provide the listeners with something to be able to go and and see what these bonds are doing on a weekly, monthly basis. And that’d be more of a potential predictor as to where we’re at.
Yeah, it’s like in everything else, it’s supply and demand, like pricing, rents, interest rates, commodities, currencies, all those things are driven by supply and demand. It’s economics 1 0 1. It really is, you know, people overcomplicate things, but it’s really supply and demand
To touch on that as well because you know, interest rates are something that does come up very often in conversations because they do play a pretty significant role in terms of how a property will perform based on the rates that, you know, where there they’re at now compared to where they were in maybe two, three years ago. But also let our listeners know that we do have, in some markets, some fantastic rates where our teams were able to work out a few things with conventional lenders, also some DSCR lenders as well. But you are still able to secure financing with 20 or maybe sometimes 25% down payment with rates that are still in the four and 5% range. So I think it’s just really important for our listeners to, to hear that if they haven’t heard of that for a while, that type of financing is indeed still available on a 30 year note.
So just to keep that in mind. So if that’s of interest, definitely reach out to us because we still have those options available. I know most of them are doing it until the end of the year. What’ll happen 20 at the start of 2025? I’m not too sure if that program will still be around. I think it might, but I, again, I I, I can’t predict that definitively. So definitely reach out if that’s of interest because to secure a property, even right now, you know, at a high four or even mid 5% range on 20% down payment, I mean, that’s a, that’s phenomenal. It
Is, it’s a great, great deal. People have to remember, it’s always worth waiting and listening to the entire show right through to the end. ’cause Often it’s like a lot of golden nuggets and great tips and pieces of advice that come towards the latter part or towards the end of our show. And so I’ll, I’ll drop one or two <laugh> right now. First, you know, just food for thought or kind of a frame of reference. People have to remember that the long-term historical average for mortgage rates, like if you go back 30 to 40 years, is right around seven to 7.7%. So, you know, you just think about it, it’s in the 7% range. That’s the long-term historic mortgage rate. And we’ve seen mortgage rates up into the 18, 19, 20% range back in the early eighties. So you might think mortgage rates are relatively speaking high today, but they’re not.
We’re in line with historic norms, you know, the 30, 40 year long term average. So don’t think that mortgage rates are high or expensive. We’re right in line with that long term average. Second, this is, this is kind of like golden nugget if you will. It doesn’t matter what mortgage rates are. If the deal makes sense with the mortgage financing today, then the deal makes sense. It’s worth getting because you’re gonna get all the benefits from real estate, the appreciation, the cash flows, the tax benefits and all that stuff. If the deal makes sense, the deal makes sense. If the numbers work, the numbers work, it doesn’t matter what the rate is, you just have to look at the whole picture, not pieces of it. You have to put the pieces together and look at the big picture. But then think about this, it doesn’t matter whether your mortgage rate today is 7%, 8%, 10%, if mortgage rates goes down, you could always refinance it unless you have some crazy prepayment penalty, you know, that doesn’t make sense to refinance it.
But if rates go down enough in a year or two years, or three years, or even five years from now, there’s always gonna be lending options where you can refinance into a lower rate, increase your cash flow and do it. You could control the cost of refinancing, but you can do it by controlling the cost of that refinance. So it does make sense. It pencils out on paper and you can lock in a lower rate. Now granted, you, you’ll reset your 30 year rate, like your term. Mm-Hmm. <Affirmative> will reset 30 years, but that’s okay for two reasons. One, your tenant is paying your mortgage, and two, you’re gonna continue to create wealth and cashflow from that property regardless of whether you have 20 years, 30 years, 40 years left on your, on your mortgage. Third, if you really want it to pay off your mortgage, you can accelerate your payments and you can knock that new 30 year mortgage down to a 28, 25, 20 year mortgage by adjusting how much extra principle you pay each and every month. So you can accelerate that and catch up to where you were if you really wanted to do that. So people need to think about financing in those terms. Does that make sense?
Absolutely. makes a lot of sense. So the one thing to always ask yourself, you know, you’ve heard it from me and from Marco, when you’re purchasing a property, look at the numbers. Does this deal make sense based on the, the scope of work, based on, you know, what was done to the property based on the the current projected performer of the home? Does this deal make sense? Yes or no? And that should guide whether or not you’ve decide to invest more time, energy, effort, and finances into that deal.
Exactly. Yeah. Very well said. Cool. Well, Oliver, I think we’ve gone long enough. We’ve gone about 40 minutes or so. <Laugh>
Thought we were just getting started. Marco
<Laugh>, believe me, there’s a lot more we could talk about, but I think we hit some of the big ones, some of the more common real estate investor questions today is now a good time to invest? How can I finance my investment? What, you know, loan options are out there. Property management’s a big one, kind of like a pain point for some people managing risk. We touched on that. I think we hit some of the big ones. I mean, we could always do a part two and talk about other things, you know, that we didn’t cover today. But I think for the sake of time, we can just draw a line in the sand, cut it off here so we are not going too, too long. But listeners are interested in, you know, having a part two to this, by all means email me, marco@noradarealestate.com or marco@passiverealestateinvesting.com, or they can just go to the real estate website and just fill out the contact form. Of course, you could always, always go to the Ask Marco section on passiverealestateinvesting.com and just say, Hey, I like the episode with Oliver. Let’s do a part two <laugh>, and then we’ll have you back on.
That’d be great. Yeah. And also for listeners out there, if you’re interested in, you know, sometimes specific questions when you’ve built a portfolio, like how would you deal with X, Y, and Z? Sometimes it’s hard to gain that type of insight and experience unless you’ve gone through it. And both you and I have gone through that and you know, unfortunately I didn’t have a lot of mentors when I was starting out with investing. And as I progressed through the years, a lot of it was through trial and error. And I find that now I really help with conveying that to to a lot of the the clients I work with. You know, it works out, I’d say 99% of the time, the 1%, there are issues that come up no matter what. And that’s one thing that I always try to also convey to to investors, is that real estate can be very unpredictable at times. You know, there are things that come up. I mean, there, I have countless stories of things that came up that I never in a million years could have thought that, you know, I’d be dealing with this particular type of situation. But that might be for part two, Marco <laugh>.
Yeah, for sure. Well, that’s good. Oliver. Hey, thanks for taking the time today. This has been a great conversation. We didn’t plan this. It wasn’t scripted, it was just whatever came up around that theme and, you know, hopefully it’ll provide some value for people who are listening. So again, thanks for coming on Oliver.
Absolutely. Thanks for having me, Marco.
I hope you enjoyed this week’s throwback Thursday episode. If you haven’t already, remember to subscribe so you don’t miss out on a single episode. If you have a question about real estate investing or finance, simply go to passiverealestateinvesting.com and click the Ask Marco button. . I read all of them, I reply to many of them, and sometimes I cover them on the show, and I’m gonna try and do more of that. So, I am going to encourage you to go to passiverealestateinvesting.com and submit your question for Ask Marco. Lastly, help us share the show with other like-minded people that you know who can benefit from it as well. Just visit us on your platform. Most of you are on iTunes and leave us a rating and review. I would greatly appreciate it. I read them all and I will thank you in advance. And that is it for today. Thanks for listening. I will see you on our next episode.
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