Never do this in a housing bubble! How to prepare going forward!

hello and welcome to the Ken McElroy show I'm your host danil and Ken is back in the studio what's happening everybody sorry we're a few minutes late uh we thought we were live but now I know we just started talking basically to ourselves and then uh we're like oh we're not live so anyway apologize for that well you've been traveling though so you were in um Plato Karma Cancun for your Collective event yeah so we had some incredible speakers we everybody was talking about a plan B you know a secondary passports uh we're offshore um that kind of stuff so that was really really fun we got James Hickman The Sovereign man if you don't know who he is uh look him up uh went over to his house uh he's uh he's got quite a following uh you know for being a sovereign individual so it was really neat to learn that stuff yeah well and then you went up to Idaho and you spoke at AJ Green's conference uh story Osborne yeah okay sorry about that that's okay eight uh you know AJ is a good friend uh he has a massive Self Storage followings uh and I spoke at his National Conference there's people from all over the country uh my kids came which was fun I don't know that they've seen me talk before live right and they're getting older now so they're enjoying well now they want to go as a personalized Dragon them you know so anyway that was fun and then my younger son decided to stick around and and he kept going to some of the learning events yeah yeah which is awesome so that was kind of neat yeah well we have a great show today um but just gonna do a little housekeeping first um check out the happy hour tonight for the Inner Circle members we have tarl that's going to be on the inner circle you'll see him on Bigger Pockets um they're going to be basically just discussing you know the state of the housing market so it's uh Inner Circle K sorry Ken's innercircle.com to sign up uh for 30 a month for our premium membership but uh you get things like the happy hour and you can ask taroul and Ken questions yourself this is a good timely topic I was talking to Tara last week about you know what's happening in his world and um it's nuts what's going on with mortgage rates and and buyers and home builders and and flippers uh you know he's in the he started in wholesaling so he's gonna have a very interesting uh he doesn't have anything to sell which is what I really like he's just gonna talk about what he's seeing uh you know and he and he he does a lot of volume so uh if you if you're in single family don't miss this one yep that would be really really good and uh secondly we have your book club on Wednesday night at five um and uh Inner Circle members uh make sure to check that out that's gonna be fun too and then for those of you that are not Inner Circle members I have a webinar next Monday at five and uh I'm bringing on Jorge he owns a bunch of airbnbs uh if you're looking to get started in airbnbs or you have an Airbnb and you're looking to optimize it he's your guy he does he buys airbnbs but he also arbitrages them so he you know strikes up deals with landlords to run their airbnbs so even if you don't have a lot of money it's a great way to get started yeah you can get started in Airbnb Fern is zero exactly zero dollars that's what he teaches yeah most people when they start in real estate they don't have any money so it I think it's a it's a good thing to learn even if you're not going to do it absolutely and uh so that's just um chemekroy.com forward slash webinar uh to join that and that one is free and it's open to everybody and hit the like button everybody that really helps us out all right that's a lot we're doing a lot lately yeah well the members this is what the members want yep so I think that um you know it's good uh thank you by the way these are all most of these suggestions are from our uh our uh subscribers and Inner Circle members and we're trying to deliver and yep it's very exciting absolutely so so today we're going to be chatting about why most of you are here is things you never want to do in a housing bubble because we definitely were in are in a housing bubble and it's starting to deflate let's start with that first though let's talk about because I think a lot of like a lot of people you know might dispute that issue are we in a housing bubble I think we're an asset bubble so the stock market the housing there's a lot of things that are inflated right now with these low you know with these low interest rates that were introduced well over a year ago and money's cheap money became very cheap and it basically inflated a lot of markets and and made people stretch for pricing and that kind of stuff and now the cost of debt is going up cost of equity is going up too so these are all things that are changing you know affordability and people are stretching I read an article this morning that said in many cases mortgages are a thousand dollars more a month as a result to some of these rate increases and and so um times are in a flux and I was watching some videos over the weekend too the YouTube stuff I'm gonna I'm gonna talk about this on my Friday learning video so I'm not gonna let the cat out of the bag yet but there are people that are saying you know that um that the that the collapse in the in the housing or the Slowdown um you know is creating you know all these other issues and I guess in some cases they are but I'm going to get very clear on that I I think we you have to be there's no question things are slowing down guys price of money's going up but the question is you know if they've gone from 20 let's say rent growth to ten it's still good right you have to put it all into perspective but I still believe uh first of all there's going to be lag from the last federal reserves increase by the way I was on stage this was a pretty cool I think it was Friday when the FED increased the rate when I got off the rate when I got off the stage somebody showed me that they had done it three quarters of a point they have um they have a couple more meetings this year one in November I think it is and the next one after that is in December and um you know it looks like they're going to do it again yeah I mean you keep saying that you know Powell's not really hiding his intentions he wants to increase inflation or increase rates until inflation is under control so the reason is you think inflation hurts everyone every single person you know and and not everyone is buying houses and not everyone is using that you know but it is the the if you're high in credit card debt you could be you could be in a little bit of trouble I was looking um you know some of the credit card rates are you know two three percent higher than they were you know and if you have a ten thousand dollar balance you know that's a lot absolutely absolutely um so a lot of people so we are seeing you know prices correct you know we ran into our uh realtor Elisa at the gym and she was saying you know it's like crickets out there as far as buyers go because first time home buyers are getting priced out and then investors are just waiting well I think yeah there's a couple things to look at you have to look at you know which markets or investor markets and I think that you have to put on your investor hat or your you know you just your call your home buyer hat you know of the people who are who are not investing right and they're very different people so if if and by the way they're treated the same of course based on interest rates but Phoenix it was generally an investor Market largely and so I think this is important because they they're they're purchasing in Phoenix is subjective whereas like uh like if you or I were gonna go buy another house you know we we do it because that's where we live and that's where you know my kids are and you know that's where we want to be it's very different that if you you have a choice so you might be living in Canada or Seattle or Portland OR San Francisco and buying in Phoenix and so you what you have is you have a lot of investor driven markets that are really changing the Behavior's changing because the the payment has got up a lot right and then obviously investors you know base their rents on the payment and then people that are home buyers are just basing on what they can afford yeah so what's happening is um the inventory is going up right which is softening rent growth so you have rent growth softening maybe even declining but declining from what you know so you know it's still growing but it's declining from let's say six months ago three months ago one month ago um it's just not as aggressive but real true rent growth I built my whole career on three to four percent rent growth so you know these these rent growth numbers are nuts and they have been for a while so you have to keep it all in perspective it's you know but the point is is that the mortgage growth the mortgage payment growth I should say and the rent growth are very disappointed you know they're they're they're just not even close absolutely so the monthly payment for the for the debt is is growing significantly more than rent and expenses are growing too so so as an investor you know you're looking at these markets and going you know I'm going to pass or I'm going to hold off see what happens because prices have gone up debts got up and rent has gone up but not even close to those other two right exactly well and you always say you know in these housing bubbles you know don't catch a falling knife right yeah so let's explain what that means so I've been through a couple Corrections and I do believe we're in a correction I put a video out last week or two weeks ago I said correction or crash and I get it was a very uh uh mixed bag on what you guys thought by the way thank you I love it uh you know now the definition of a crash um is 20 lost in value that's very hard to predict that we're definitely going through a correction and um and all that really means is that you know things are really really slowing down and so you just have to look at the facts so Cash Out refinances are down 83 percent from one year ago that's a lot and people were using their homes as ATMs we're at a 22-year low for mortgage applications okay that's huge right so all the signs are here but there's a lag with it all so you know these a lot of these numbers don't show up immediately so a federal federal uh you know when the Federal Reserve met last week you know there's a lag that's that's not even going to show up until October November December well rents do was kind of saying that uh he cited some Economist um that inflation's actually more under control than we think if you calculate in the new housing prices I hope so yeah yeah that wouldn't that be great I I um you know you you very well could be right I think that um I've been told that um uh in in many cases uh housing prices is not included in the basket of goods that makes up inflation but there's a lot of different factors in there yeah um but you know it'd be I I hope he's right I think that we do need inflation under control it it fixes a lot of stuff right but the the don't catch a falling knife is um I I use that back in like years ago because what happens is you there's a progression as things adjust and it could take it took years to get to this point um and you know and or months or however you want to measure it from but it also it's going to take a while to unwind so you know there's an unraveling you know there are people that come to terms with Home Building or Flippers or hard money or loan maturities or rate cap expirations or whatever you want to call it you know those are all those are all decisions people are making right now even we're making decisions around low maturities and rate caps if you don't know what a rate cap is it means that when you buy something you put a cap on it well you know those caps are are being tested right now because you know thankfully we bought caps so it bumps up to the cap then there's a there's a maturity on those caps and for us it's three years so you know so we're in the you know we're going okay where are rates and where are the caps and what's the cash flow and you so you're looking at all those things and those are all people are making a lot of decisions in these back rooms right now on existing properties yeah and so let's go over you know what people don't want to do in a housing bubble right so there's certain things that people just should not be doing right now so the first one you know that we're going to mention is it's not the right time to flip a house but let's talk about why Okay so the biggest issue well first of all you have labor costs are up if you're doing a refinance I'm sorry if you're doing a remodel and most of these are most of these are value-add Flips so labor costs are up supplies are up I mean Jesus I just had I had a compressor go out in my Sub-Zero That Was Eighteen hundred dollars for a motor uh you know crazy like just for a motor for a refrigerator no you know and and we're seeing it at all around we have uh Ross and I we have close to 70 million in in remodels right now in in renovations in our company so that's a lot 70 million so so we're seeing so those are up the the cost of hard money if you're doing a if you're doing a flip is up so and um you know prices uh for homes are actually going down so now all over the map and different in every market so uh you know certainly you know the US is not one big housing market so you have to look at all those factors but the old days of buying something with hard money turning it quick you know jamming and um you know getting contractors in there and and turning it really quickly and then selling it to the next person just don't forget the next person has to also get an interest rate and qualify apply for that home so you know so that's why we're saying I don't believe now is a good time to flip a house well there's a lot of flippers you know and some of you watching uh please comment if you're one of them are kind of in trouble right now that are sitting on some of these homes because they put a lot of money into it and then rates are really um screwing with their sale value yes so right so if you're a flipper and you're sitting on let's say you have some Equity you know and I hope you do you know and but now you're you're you have a hard money loan more than likely or you're paying somebody for above market rate uh you know Equity or debt to to do that and you always do that with a short-term thought right so they're you know you know let's call it less than a year but now you're you're you're forced with declining home prices and Rising interest costs for the whoever the exit is oh yeah so those are the things so now you're seeing there and you you might be getting eroded so your your home price might be going down and um the the interest rate for your exit or your buyer it's going up so affordability is going the wrong way and home prices are going down so those are those are you know I you know in fact but you know we with Taro I was talking to him last week he's going to be on the happy hour night that's exactly he's in the scenario he's got uh some that are in this and I said listen we both came to an agreement you know you need to get out of those right away you know because you got two more rate increases it's going to affect your exit your your buyer and depending on your hard money deal you know all that stuff is coming to come into play it's going to start eating away your Equity so you don't want to have to write checks and I think that might be what we're looking at for people that aren't studying watching the markets they think last you know last year is going to be the same it's not invest with Willis says a bunch of flippers owe me money so he's the hard money guy wow I uh yeah I I tell you what thank you for putting that out there I I think that I'd like to know more about that because I that's actually a a big issue is is um you know the the hard money guys do not want the real estate you know yeah they just want their money they want their money back right and uh you know so it's it's an interesting time so uh make sure if you're watching you hit the like button it really helps us out it helps get this channel to more people um so the second thing you don't want to be doing right now is now is not a good time while we're in you know a housing bubble to do floating debt yeah another really good point and you want to talk about why yeah so when you have floating debt you know your payments aren't aren't set in stone right they can be adjusted and with all these rate increases you know to Ken's point they're not going to stop anytime soon so anytime that the interest rates go up your floating debt payment goes up so uh for instance for me you know I locked in all my rates on my floating debt even though it was a little higher then the rate my floating debt was at because I saw this coming and I looked like a genius now yeah well I remember at the time you're like I don't know if I should do this I go do it and at the bank you know the lady is like are you sure you want to do this you're paying two percent more well now I'm you know about two percent behind so you know now it looks good but you know because sometimes when you guys go to the bank think you just assume they know what they're talking about and they just are looking I never assume that by the way you know what's in front of them so you know they're kind of like why would you be doing this and then now obviously it was a good decision so if you're in floating debt get out of the floating debt now before these interest rates get jacked too much guys you could listen if you're cash flowing now fix your payment and call it a day like you know do I'm telling you rates are going to go up they're going to continue to go up uh we still had eight and eight point three percent inflation now it might adjust again uh next month or the month after you know hopefully it gets down but the the truth is it you know even uh I was reading uh something my partner Ross sent over the sink from Wells Fargo you know it looks to me like 2023 is still going to be you know higher rates until they get inflation under control and they the the FED has made no bones about it by the way their rate increase that they just passed unanimously right voted unanimous so that is the whole Committee just unanimously saying yes we need a three-quarters you know Powell doesn't get to decide this on his own so um you know guys this is what's happening it's not controversial uh you know the FED committee is you know this is not a controversial subject for them right they need to bring inflation down absolutely um and we have a lot of really good comments you know on the YouTube chat and what I would say is you know people are saying the markets are going to correct but every Market's a little different so there's not a standard Market you know where one market they're all going to do the same thing they're all going to be be very different yeah and you gotta also decide like you know what does that mean the correction for a flipper it's a big correction but for a landlord not necessarily right you know so because remember residential and and multi-family uh you know residential housing for you know for for selling to to the next person is very different than a long-term renter cash flow passive income play very different one's a capital gain strategy one's a cash flow strategy so you know they're gonna they're gonna um those are all gonna be uh handled very differently yes so the third thing that you don't want to do right now that we're in a housing bubble is you don't want to get rid of a low interest rate that you already have yeah it's a valuable thing to have guys like just like what denim was just talking like can you imagine yeah well my condo is at 2.66 I think and I I can't I mean like if you're sitting on a piece of property and it's at a 2.6 interest rate or three percent interest rate and you have to move and you can't afford to just not you know have an additional home I get it but if you can find any way to keep that property and run it because that 2.6 3 interest rate I mean there's some pros and cons so one is the the con is is that you can't scoop that equity right now yeah you can't do the cash out refi well you can but you know you're gonna your your rate's gonna be three to four percent higher it's gonna double right the the pro is that your mortgage payment is less so if there's any softening in the rental market you have lots of room right yeah like I can't remember how much you cash flow but I if I remember it's it's a lot almost a thousand dollars a month right yeah so you you have a cushion personally uh if if rents get hammered let's say and I'm wrong about rent growth um you know you have the ability to lower your rent if you need to because your your payment is fixed so it's very important point and that's why you want as much cash flow as you can you don't want to be tight some of these Airbnb folks are tight the only way the deal works is if the Airbnb it so if they put a long-term renter in there they're negative cash flow a lot of people so this is why we always push and advocate for cash flow cash flow cash flow it's really really important guys and this is all going to tested now in the next six months yeah and that brings us to point number four which is now is not the time to buy and hope for appreciation which is why which is we just telling you guys to not buy and hope for appreciation but some people because the market was so crazy you know we would get people writing in all the time like well I bought this and it doesn't cash flow but I'm gonna sell it in a couple years and I'm gonna make some money and we always said don't do that and this is why well hope isn't a strategy let's just put it that way it's just guys the market fundamentals um work when there's more people coming than leaving and when price of debt is cheap okay so you know those are big factors and right now even on markets that are growing from a migration standpoint then there are several markets that are still growing like population wise okay you know don't forget real estate exists um only if people are there like I shouldn't say it exists it works if people are there so I if you've ever driven through towns where they're like ghost towns there's the reason is you know maybe there's a mining town or whatever it was back in the day or Detroit is a great example so you know the the a lot of the jobs left and and um you know there's a whole and even where you're from yeah Cleveland Cleveland and Akron you know you go to some of these markets and uh they have never really recovered so uh you know you have these beautiful buildings that were there real estate only works with people are there so that's number one but the second thing is the cost of debt so the cost of debt is everyone when when money's cheap then then consumption's high right and it's it's going up yep absolutely and Ed Edward said something interesting he said why do people think the interest rates are going to get cut in the next few months to avoid a deep recession I think they're just hoping once again yeah it's a it's a great question um there there's really in my opinion I haven't seen a good argument for that so I have you got to pay attention to who sang it so my guess is that um it's probably somebody that's selling you something right right or somebody that wants to buy something yeah yeah ORS in the middle of something and they're just not looking at it um you know they're in a bit of a denial perhaps or uh or they read something somewhere which I always find you know I was looking at these New York Times or Wall Street Journal or whatever you know they're always like well you know cost is going up you know inflation's uh interest rates are up these are all bad and food's up fuels up because the cars are up credit card that's uh all this stuff's up but savings rates are up so you're okay I was like oh well like that's so ridiculous like you know to think about that you know that's how they're spinning it so be careful guys it's it's still a horrible time because even if your savings rate is two percent if inflation is eight you're going backwards negative two or sorry negative six so it's just not good you know and so be careful of what the media says yeah and um somebody commented on here that the 30-year mortgage right now is 6.8 percent oh geez getting up there hey by the way not that I want to be right but I predicted it was going to be eight by the end of the year so and I got a lot of oh this could be good so I predicted three quarters of a point three quarters of a point and a half a point federal funds rate it's gonna be um I can't remember exactly what I said in my video somewhere between four and five and um we'll see and uh you know but just guys listen they're battling inflation and if you're not paying attention you know then you'll see that you'll be wrong so the fifth point is right now is not the time to have to sell your a house or a property and I think some of these um you know new home builders flippers people that bought Airbnb and now that that's slowing down certain people are being put in the position where they have to sell I know and that's not a great thing right now it isn't but I would do it guys listen if I I mean this like like if you have equity and you're in a situation it's not your primary home of course and and you're not cash flowing you have to uh you know you want to die a uh A Thousand Cuts or just make one cut you know and and and call it a day so you know you wanna you wanna be in a situation where you're harvesting a little bit uh if you're thinking that prices are going to go up or interest rates are going to go down um you I you very well could be wrong and uh if you've got Equity now I would take it I would move on cut your losses and by the way they probably aren't even losses but even if you do have a little bit of losses I would take it all right I think rates are going up I think prices are coming down even more and uh it's just going to get worse yep and lastly uh now is not the time in a bubble to add value to properties well right that's kind of a subjective there are potentially some things you couldn't do so uh you know one of the things that um you got to be careful of is how much money you're spending if you're doing it to to flip a house I would say you're right yes but if you're doing it to increase rent you know I mean you can move the needle on rent by upgrading uh you know pushing washer and putting washers and dryers in and you know upgrading a unit with better flooring and things like that you know you can slowly upgrade your rent over time um you know because people will pay for something that's newer uh that's um you know as opposed to something that's older so um but there's also some debate on that you know going into this kind of a market where you have high inflation rents are going up maybe you keep it we've talked a lot about this into what we call a classic unit which means you know you don't renovate it maybe you just keep the rents lower and then you um you know you take care of you know the rent growth or the renovation later but again we're we're a long-term holder so I can make those decisions I can buy something today keep them all classics if the cash flow and renovated been five or six years if the market allows but so those are all strategies that you can do later I have properties that I've owned 15 years I'm on my third renovation you know right and there are times where you just cannot renovation when we're buying an 08 9 and 10 there was no such thing as a value-add you know this might be the end of the value-add error actually that's a good idea for a video Terry isn't it the end of the value add okay guys that's right well and I I think we have some interesting you know comments so we've heard this before but I want to address it Chad is asking how much do you see rents going down in the worst case scenario but my question back to Chad was why will rents go down yeah and I think that's what you have to ask yourself is what would make rents go down it would have to be a bigger supply of rentals that's a very insightful question Chad so again you know what does rent go down mean does that mean that it's going down slower then it's going up um you know so so for me if if your rent's at 1500 and goes to 1400 that means rent to go down but if they went from 1400 to 1500 to 1600 and then instead of going 1600 they actually go down to 15.50 that just means that they've gone down less so I think you have to look at that you you know we're not seeing negative Rec growth what we are seeing is we're seeing less of uh less rent growth so in other words so you have to look at the actual rents and we haven't penetrated those so um the first thing that happens with rent is um concessions are offered so the very first thing that you need to watch is concessions so let's say we'll use that same scenario 1500 rent the landlord or the property manager will say we'll give you a hundred dollars off or 200 off or half month off that's the first thing that happens so when you start to see concessions in a market to you know that means that there's more people looking than there are Supply right or so the other way around the other way that means you have more Supply than there are people looking and that means the landlord has to actually offer more incentive to try to get the renter it starts to be competitive for the renter because the the renter has lots of choices so we still have a supply issue in my opinion you know and there are markets that do not have supply issues like um San Francisco LA Portland Seattle New York you know the list goes on Chicago you know and not you know that's a those are big cities so not every place in those areas are all affected but you do have people moving away from markets and you do have people moving in and um and if there's a residential issue where people can't buy it forces more people into rentals or keeps them there so that's what you have to be mindful of and if you're enjoying this video please hit the like button really helps us out we're at 152 try to get you know up to 250. secondly is don't forget to check out my webinar on Monday I'm going to be talking to Jorge it's totally free he does Airbnb he does uh he buys airbnbs and also does arbitrage so you can get started with no money it's uh chemekroy.com forward slash webinar and it's at five o'clock you can ask Jorge or myself some questions if you're an inner circle member Ken has a happy hour tonight and a book club on Wednesday to sign up for that go to kensinnercircle.com yeah you guys want to talk to me Direct that's the spot yep absolutely so we have a few questions on YouTube that are very interesting so Dan kind of asked the million dollar question which is should I buy now or should I wait and this for Dan it's going to be his primary home you know he's worried about where interest rates are going but also if pricing comes down yeah it would depend on where so um you know uh if it's your primary home Dan I I think I would wait you know I hate to say that by the way because I'm a real estate investor but I really believe that the where you want to take a look around February or March you know you're going to have both rate increases by the end of the year the election is going to be over so we'll stop hearing about all the politic nonsense that's going on all that'll be over um and the most of the corrections hopefully uh we'll be able to see the new inflation numbers you know you're going to want to see what 2022 inflation numbers are in January and and also I think there'll be a settling so um you know a lot of this unraveling it still needs to come out and so I don't know where what Market you're in but if I were you I would I would lock in a um a rent uh and uh you know maybe sign a six-month lease or wherever you are and and and just you know save some cash and and wait but get pretty qualified and be ready you know be ready to buy you know even on a primary home he could look at some seller financing deals yes those are really great right now there's lots of those the other thing is there might be some deals from some flippers and some home builders that uh you know they're they're bumping you know against uh some negative so you might be able to cut some deals there um and to your point though you know if you could you could step into something I do think rates are going up so that potentially is an issue but I do believe once we get inflation under control I think that's going to be well into next year then you'll start to see rates come down again because they got to kick start the economy again so we're going to go through this you know adjustment so it's a very good time for you to sit back and watch and let the real estate fall a bit as a result of the cost of debt going up and then get get yourself in a cash position and and then when rates start to come back again you know that's a good time to strike yep and Jay Sanchez asked on YouTube you know he said well should I buy a rental that breaks even because he's feeling the pressure to do that and he said that he feels like he needs to just pull the trigger I I yeah I I think you just need to keep looking um I I don't I'm not a break even uh yeah I don't think it's worth it I would never break even if you think it's break even you're negative yeah that's what guys say when they get back from Vegas how'd you do I broke even well I I'm just like I just believe that you know you should be cash flowing because like in denial scenario it's a great one like you know I know you've got some that are seven eight nine hundred a month in cash flow right so you have a lot of room there um to you know with rents going down or you have your interest rates fixed so that's good um you know there's I just don't think for instance you know I had to fix my air conditioner in my one unit four times the summer four times and I you know it's so fresh it's not an old unit but to to my point of you're not really going to break even I mean every time was between you know 150 and 400 right so you start adding up these things that happen and if you're breaking even you're coming out of pocket for that stuff that's a good point yeah I you know just be careful and I I saw you were from Los Angeles as well and and uh you know there's all kinds of other things going on there um I first of all I'm you know I I I'm in a lot of there's a lot of people you know negatively talking about California we love it we spend the summer there we like to go there we don't like to buy real estate there yeah but you know um I don't know uh I just I just don't think you should be buying Break Even deals ever I don't think it's a good strategy yep I agree because once again now you're not getting the appreciation right so you could get it going down and then you don't have cash flow right um so Sally from the inner circle so we're going to jump into the Inner Circle questions kenzcentercircle.com to sign up thirty dollars a month you can ask 10 questions do happy hours book clubs Etc so Sally wants to know I'm interested in understanding seller finance structure so if she wanted to find somebody that has seller finance what does that look like yeah so we have a bunch of uh podcasts on this and we've done a bunch of videos on this it's actually quite simple so um the basically the seller carries the note that's it so it's a great deal if you guys are getting started with no money so if you want to find a really cheap interest rate around there yeah and so you know you negotiate everything's negotiable with seller financing the rate how much you put down if you put any down uh there's so many things that you can do I I have a friend that started a business um there was one vacant commercial uh space and he wanted to start a gym and the gym owner because he wanted it full gave him the unit free and helped buy all his equipment and started started a gym business so that's all it is it's it's a negotiation with the seller that that is trying to move inventory and it has some kind of you know payment on it um you know so there's a lot of scenarios on this I don't want to go down a rabbit hole on negotiation and terms and all that kind of stuff but there's quite a bit of really good information that we've done on this show that um and also put it out there on the internet you know say hey I'm looking at seller financing any great ideas you'll be very surprised you might even want to do it here uh you get some very good feedback and and there's a you know no no deals the same exactly exactly it's a great option if you can find seller you know notes to carry right now it could be a very good thing and I think you can but don't catch a falling knife right like are you taking somebody's position you know um that might go down and make sure that deal is papered up by your attorney um so Jeff from the inner circle he owns a condo in Laughlin Nevada fabulous Renner but she's maxed out as far as she can afford on rent uh he could charge her another 200 in rent would you recommend I leave her in the condo and pool 65 of the equity out and move that into another property or sell the property and do a 1031 exchange into a property that has a higher cash flow his Capital right now is 5.7 what's he cash flowing he didn't say he said his cap rate is 5.7 well first of all there's a lot going on there so the the first of all I I if you have a good tenant that's in place and you can only run them or you have a 200 increase I would just I would keep that tenant we talk a lot about this they're gold like good tenants paying on time that are not pains in your ass are gold so you know I would just personally I would lock that person in if they're great and and give them a little bit of a break because really it's 200 a month really going to change your life if you're if you're really tight cash flowing and it's tight different issue so if you're really tight and you're not cash flowing or you're you know breaking even I guess then um you're probably better off to move the money but the problem is is what are you going to move it to rates are a lot higher prices are a lot higher um are you really going to get that much better of a deal right now I don't think so and you may not and the cash out refiser you know you you're also um you know there's a cost for that so you know there's there's a bunch of scenarios here I wish I had more information here I don't I don't know um you know when you say 65 what's your rate going to be what's your payment going to be what's the rent you're going to pay what what are your operating expenses do you cash flow do you not cash flow you know it's so all those things come into play but if you have a Lock and Load deal where you got a tenant in there that's covering all your stuff um I would wait for a while yep absolutely don't the grass isn't always greener um Laura from the inner circle she said I just finished you're closing your first deal lesson and I'm ready to get started do you have any investor conferences coming up Limitless happen before I had this Epiphany to start investing in real estate yeah I don't I just we have Limitless next year well yeah we have Limitless in June yeah uh 15th through the 17th I thought I'm sorry I thought that she was talking about something uh you know right away okay um I don't have anything we just I just do the one conference a year and um but there's plenty of really good people to follow um you know uh tarl yarber Pace morby just a David Green a Bigger Pockets you know these are all friends they'll all be at the conference but um you know they might have some stuff uh that you can that you can watch I I think there's a lot of really good people out there that are doing stuff um be careful you know thank you for for for going through the program and and um uh you know but again things have really changed from the time we did that program you know uh rates are up prices are up uh and uh you know we could see some stagnant rent growth so be careful yeah and definitely check out Limitless uh 2023 as you know we're gonna have people on there talking about all of that and it will be very different even then um I was gonna oh Amelia had a good question Ted I was talking to a realtor here in Tucson who told me that developers are starting to get desperate because people aren't buying he said they're coming to him for deals yeah but Builders are yeah Builders and flippers guys they're you know they're sitting on a lot of inventory uh that happened to you in the 08 when you were flipping condos yeah no 100 I'll tell you the story we we did uh several thousand condos um you know when the when things changed they changed quick we were sitting on uh like on one project we had 440 units we had 60 to 70 units left luckily everybody was paid the bank was paid uh we used to uh Lehman Brothers and um I can't remember who our first was but Lehman was our second and uh you know Mezzanine Financing or hard money or whatever you want to call it everyone's paid so that was our inventory we had like 12 million bucks I was supposed to be all profit and uh we ended up we have way less than half of that you know uh when the thing stopped things stopped so you know again don't catch a falling knife you know the the thing about Builders uh is that they have a cost if they they might be into the house let's say you know 2 000 square foot house you know they might be at around 300 000 cost in that house so you know you just got to be careful I think and and I think it's a little too soon too yeah absolutely So Daniel from the inner circle he is he just bought a building he's upgrading a couple units and he's creating two more units so he's asking should he be focused on the number of months until I'm paid back for my investment with the higher rents or should I focus on viewing those Renault costs in light of what I could potentially refinance for in two to three years after rent stabilize yeah I think right now what you're you should be solving the cash flow um you nobody knows what the Market's going to be like in two or three years uh rates could be higher and uh prices could be a lot less so you know you can't base the future based on what we just went through and and so I think what you want to do is you want to solve the cash flow now make sure everything you have is covered financially you want your debt covered you want your expenses covered you want a good renter in there and um and then Ride This Out that's what you want to do so George has a good question on YouTube he said what are the motivations for a seller to finance and that's a great question so why would a seller finance you a deal versus just selling a flipper look you know I I the gentleman was saying the flippers owe him a lot of money uh you got to think of the motivation of the seller right and um so maybe they have a bunch of Trapped equity in their home and it's a great way I know people do it for tax reasons so you know they can let's say they're retiring and they have you know a bunch of equity in there and they don't want to they want a capital gain so you know they can piece it out over time maybe you have a builder that has a property that's sitting vacant and they have a credit line with a with a on a construction loan you know there's a bunch of scenarios where um there's a Motivation by sellers you know you know I I think I I understand the question it you know the traditional you know like like I'm I I have no motivation to sell my home right now like so I get that that's where most people are so but there's a lot of people that are in very different scenarios you know they've renovated something they flipped something they're in a hard money deal um and uh maybe they have bad credit uh and they've gotten an above rate Market uh and it's the loans maturing there's a zillion things that uh you know sellers are trying to get out from under yeah and um also you know it's really in the seller's interest like if you stop paying them they get to keep all their money and get your property don't forget about it so it's you know it's uh seller financing means if you default they get the house back so it's a great way for them to get some cash flow you get into a house um you know just like a wood on a lender oh you know if you you know if you can't pay your uh this is what happened in 08 910 you can't pay your mortgage the goes back to the bank well instead of the bank it goes back to the seller so well anyway exactly and a lot of times you need to teach people about seller financing because your average Joe person wanting to sell their house doesn't even know about it so you know you have to find these deals educate the sellers and you know work out work out something you know Sunil that we had on our podcast a few weeks ago you know he does a lot of seller financing deals and he just goes around and educates a lot of times these more older people about why it's beneficial for them and it takes a little bit of convincing but it is and um you know they a lot of times they eventually sign up for it right and he he he approaches it from the tax angle which I think is a pretty smart idea you know um they still own the house and they get these reoccurring monthly payments yep over a long period absolutely so Eric has a good question on Inner Circle he said I plan on doing a 1031 exchange to sell a condo and buy either another condo a single family or a multi-family in a better Market closer to where I live I have contacted the 1031 exchange experts do you have any advice or lessons you have learned you can share about doing a 1031 exchange that's a really good question I've learned a lot the biggest problem that you have is if you're in escrow and you now have a gun to your head on finding a replacement property and I'm going off a memory but I think you have to identify in the first 90 days and then you have to close in six months or so it's pretty close to that so what that means is let's say you're in escrow and by the way you can't touch the money so the money goes into an exchange account and if you pull any out it's taxable the the property itself that you buy has to be more than the one that you're coming out of so let's say you're at 500 Grand on the one you sell the one that you're going into has to be more than that otherwise it's considered what's called boot which means let's say you let's say you 1031 into something that's 400 000 that means you have a hundred thousand dollar issue oh and they call that boot that's taxable so there's all these things but the the biggest thing from my standpoint are the people that get stuck in an exchange account financially so and then they're scrambling to try to find another deal so with the they do is they start to make they let the tax Drive the deal they're trying to save tax so whenever a broker calls me and they it's fighting because Brokers think that they have this big Advantage broker calls me up and says I got somebody that has 10 million or 20 million let's say in a tax deferred they're in a 1031 and they're looking for a replacement property will you sell I know I got them because they they have a Time window I don't so so what happens a lot of time is sophisticated sellers might even Jack that number up even more because now the seller has a tremendous advantage to somebody who's stuck in an exchange account so um so the right thing to do is to have the identify the replacement property before you go into escrow and that's what you want so you want to you want to have that replacement property identified and then and then go into escrow and have them all kind of happen at the same time so you can just close roll that money into the new one um and you don't want to be caught in the middle yeah because then you're scrambling just to buy whatever you can possibly buy a good deal or not just to avoid tax yeah yeah all right so Megan has a good question and somebody on YouTube had a similar question she said how do I find a mentor in real estate yeah well it's it's interesting I think that they're they're everywhere and and I don't know where you live but the best thing you can go into these real estate clubs you can find um you can look at transactions you can find acts from property managers from real estate agents it's really as simple as just buying somebody a cup of coffee and say can I meet with you once or twice a month that's what I did you know and you don't realize the wisdom you know sometimes they don't even realize that they're teachers all you really want to do is shortcut a lot of problems so you want to find the real teachers are people that have really done stuff that's one of the big issues I have with the school system in a lot of ways I'm not going to go down this Rabbit Hole too far but sometimes I go on even YouTube and I see these these young kids you know trying to talk about real estate um you know they haven't been they really don't have a lot of experience of trying to sell you trinkets you know books and products and all that you know like it just you know be careful who your teachers are and but always just remember if you want to um uh you know if you want to buy real estate go surround yourself with people that are doing it own it and they understand the tax issues the property management issues they they've bought a bunch of them and they've made mistakes that's who you want to learn from and it's actually quite simple and it doesn't really cost you anything you just have to find them I wish there was a database but there isn't but just continue to ask this question everybody you know that's actually doing deals um and I I I guarantee you you'll find somebody that will meet with you for me um I met once to twice a month for 10 years and and I learned a lot absolutely and somebody asked um you know who your Mentor is well it's you no you know I've had a bunch over the years so I've believe it or not I've had mentors and coaches for almost everything for book writing obviously I would say Kiyosaki in a lot of ways was one of one of mine a guy by the name of Charlie Dunlap um you know and you've had different mentors at different you know different stages different stages right because right you get to a certain point and then or you Veer a certain way and then you need a new month you need a different Mentor yeah yeah and you know I've had mentors in Property Management I've had mentors and Acquisitions I've had mentors for book writing I've had you know I've had Mentor I have a uh when I've climbed um well with took my kids to Kilimanjaro twice climbed that I had a coach and a mentor for that Kevin Trilla who who climbed Mount Everest um you know like so I just find people that have done that are remarkable in you know whatever it is that they're doing um trainers I have the same thing like I I need that you know it's already kicked my butt that that that is a good trainer so I I I um you know at any given time I probably have a half a dozen um I I always I come from a school of thought that um you know that people uh that are really really good at things are uh there's a reason and so I just want to learn from them so Christian said honestly Ken You Were My Invisible Mentor I got where I was because of you so but I think it's important you know there's tons of ways you can learn you know podcasts you know YouTube reaching out to some of the people um you know they hear on these kind of shows because they might be your Mentor so uh anyways we are going to wrap it up make sure you check out the webinar next Monday comeback warrior.com forward slash webinar that's with Jorge and airbnb's totally free he can show you how to get started with no money or by buying your own Airbnb and then tonight we have kenzenercircle.com the happy hour with Taro yarber from BiggerPockets gonna be discussing the single family market so go to Ken's innercircle.com to check that out and to sign up and uh hit that like button because it helps us out yeah thanks guys great great chatting with y'all foreign [Music]

Channel: Ken McElroy

Views: 72,845

Keywords: Rich Dad, Entrepreneurship, Investing, Personal Development, Get Wealthy, Earn Wealth, Ken McElroy, Entrepreneur, Rich Dad Advisor, Success, Business, Coaching, Real Estate, Real Estate Entrepreneur, Real Estate Investing, Lifestyle Business, Hustle, Ken McElroy Housing, Ken McElroy Real Estate, MC Companies, Real Estate Investment, Investing in real estate, Federal Reserve, Interest Rates, U.S. Economy, housing market 2022 forecast, housing market crash, housing market 2022

Id: 5w1-gM3lpFU

Length: 56min 38sec (3398 seconds)

Published: Mon Sep 26 2022