To start the show, Jason Hartman gives details on an exclusive financing offer for income property investors. He shares that although Trump may be good for business, he will usher in inflation and rising interest rates. Jason also talks to Joe, who explains the changes introduced by Fannie Mae, which is allowing investors to put 20% down on their first ten properties, but with caveats. They also talk about the ease or difficulty of qualifying for a loan.
Announcer 0:00
This show is produced by the Hartman media company. For more information and links to all our great podcasts, visit Hartman media.com.
Announcer 0:12
Welcome to the creating wealth show with Jason Hartman. You’re about to learn a new slant on investing some exciting techniques and fresh new approaches to the world’s most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine self made multi millionaire who’s actually been there and done it. He’s a successful investor, lender, developer and entrepreneur who’s owned properties in 11 states had hundreds of tenants and been involved in thousands of real estate transactions. This program will help you follow in Jason’s footsteps on the road to your financial independence day. You really can do it on now. here’s your host, Jason Hartman with the complete solution for we estate investors.
Jason Hartman 1:03
Welcome to the creating wealth Show Episode Number 794 794. Thank you so much for joining me today. I am just returning from a wonderful mastermind weekend with my friend Ryan Moran’s event his backroom mastermind, and boy that was really valuable that the power of the mastermind really cannot be overstated. It is just such an incredibly powerful thing to meet people to be in this intimate setting. We were in the wilderness in the mountains of Arkansas of all places. It was just great. We went ziplining and really had some good camaraderie eight meals together actually cooked one meal together. Well With a little help with from the caterer but it was a very, you know woodsy experience. We were in cabins and it was just great. I mean, I can’t remember seeing that many stars in the sky for a long time. Once in a while, we got to do that make sure we get out and, and see the Milky Way and, and realize that as large as our problems sometimes appear to be. We are in significant in the overall scheme of things. Our little problems are just incredibly meaningless in the vastness of the universe. So, let’s always keep things in perspective. When we, when we get upset about things, you know, maybe our tenant didn’t pay on time. Maybe they didn’t pay it, or maybe they left the house in bad condition. Maybe it’s every month we go through that with more, we’ve got problems with our, our spouse, our relationship, our job, whatever it is. The old saying, don’t what are the two rules first rule? Don’t sweat the small stuff. And the second rule is, it’s all small stuff. So good. Good to get some perspective like that once in a while. But yeah, you know, I just I just love the mastermind calm Except I think you probably know that by now, and I hope you’ll join us in Las Vegas March 10 through 12th. At the venture Alliance mastermind, we will be at the gorgeous Wynn hotel, Steve Wynn’s beautiful, extraordinary property there. And we’ve got a fantastic mastermind weekend planned. So again, venture Alliance weekends always start Friday evening at 7pm. And they end Sunday afternoon at about 430. So, you know, Las Vegas is an incredibly easy place to fly in and out of lots of very direct connecting flights. So so that’s easy. It’s just a super convenient location. One of the reasons I moved here besides the no state income tax, have I told you lately about living in a no income tax state? It’s a wonderful thing, folks. It’s wonderful thing. But um, anyway, yeah, join us venture Alliance mastermind calm we’ve got a bunch of new content On the venture Alliance website, a lot of new photos from our past adventures and maybe a lot of our members haven’t even looked there lately and seen them. So go check out venture Alliance mastermind, and join us as a guest. If you’re not sure, if you want to join, if you’re on the fence about it, you know, you’ve heard me talk about it. And the importance of getting together with other real estate investors and other people that just want to expand and grow and, and do big things and do meaningful things. You know, that’s what life is really about doing some meaningful things that leave a legacy that live beyond any of us. And you know, that there’s there’s a lot of dimensions and purposes to the venture Alliance mastermind, but those are some of them, not the least of which fine dining, fun, networking, I mean, resources, a lot of great stuff. So join us for that visit venture Alliance mastermind, talk to your investment venture lions mastermind.com to talk to your investment counselor about that. Also, I want to remind you about our unique new financing program. This is totally exclusive to us. I’ve talked about it on a couple of episodes, only two of them, where we will loan you money to buy properties in our network. And it’s an incredibly good deal. I mean, it’s not the Fannie Mae, Freddie Mac type stuff, which we’re going to talk about today because our guest, one of our lenders, that you may have met at one of our events, maybe to meet the Masters event, maybe at the last meet the Masters event. He is our guest today to talk about some awesome new Fannie Mae rules that make it a little bit easier for investors that allow us to get more leverage. One of the key wonderful components about income property, leverage, and so the rules are easing up and I think under a Trump administration, they’re going to ease up even more. And you want to make sure you position yourself to take advantage of that. Remember, once you You own the asset, the asset becomes malleable, where you have basically purchased an option to do different things in the future. But if you don’t own the asset, you don’t own that option. So for example, if financing becomes easier, and rates become lower, you can refinance. If financing is harder, and rates are higher. Well, that limits the number of new entrants, new investors entering in to the investor pool and providing more housing stock to renters. So what happens there? Well, naturally, the law of supply and demand rules the day and there’s upward pressure on rents, that’s good for you, right as an investor. The best thing is when you get the lowest rate and the best financing and the most leverage, and then later, you have that scenario that creates upward pressure on rents. But if you don’t have that scenario, and I talked about this, of course in the three Dimensions of real estate concept that I pioneered, or Well, it was always there. I guess I didn’t invent it. I just noticed it and explained it better than anybody else. So how’s that? I will take credit for that part. Certainly, the phenomenon existed before Jason Hartman, your humble host. So that is it allows you to take advantage of capital gains on your property and appreciation on your property. So that’s really good too. In our financing, talk to your investment counselor about that, check out the last couple of podcasts where I talked about that, and you can get more details on that. Also, if you are interested in diversifying your portfolio Look, I always think that owning the physical asset is the best deal. It definitely offers the highest return because it’s multi dimensional. It’s the most tax favored asset class in America. It’s the most historically proven asset class in the entire Our world, and it’s the best. But my second favorite investment, what is my second favorite thing? Well, my second favorite, that is owning the paper. It’s being the lender. When you do hard money loans and private lending. There are some pretty good options there. Now, why is that? Well, I think you already can tell from what I just said, why it’s not my most favorite asset. It’s not because it doesn’t offer as higher return. It doesn’t offer tax advantages. In fact, it’s tax disadvantage, right? Because you have to pay tax on the income from interest that you charge. But, but there is one really good thing about it. It’s simple. It’s really simple and easy. And it’s very scalable. You know, every time you buy a property, there comes some real responsibility with that. Now there Look, there’s responsibility that comes with everything, having stupid stuff. savings account where you’re losing money every month is a responsibility too. But loaning the money has less moving parts, right? Because, you know, you’re you don’t own the fiscal asset. It doesn’t offer as higher return. But it’s simpler. And it’s more scalable. So if you have a lot of money to invest, it’s certainly better than the stock market. It’s better than those Wall Street crooks. Now, I know. Lately, since these surprising Trump victory, the stock market has been on a tear. And, you know, I’m human, I get a little jealous. Once in a while I questioned myself, I think, Did I make a mistake? And you know, if I make a mistake, I really try to live by my own rule. Here it is You ready? Three things you do when you make a mistake. You if you mess up? Well, I guess that is the mistake. So there’s really only two things you do. If you mess up, then you fess up, and then you make up okay. Hey, fess up and make up are the things you got to do after you make a mistake? You know, if I make a mistake if I’m wrong about something, I think you know, if you’ve been listening for the last 793 episodes, you’ll hear me admit my mistakes. You know, I’ve told you what I’ve been right about. I’ve been right about a lot of predictions. But I’ve been wrong about a few startlingly wrong, like interest rates being one of them. That was, that was pretty bad. I did not predict low interest rates lasting this long. And they have been going up though, so maybe I’ll be right about that. Which by the way, a lot of articles I’m seeing about inflationary pressures, lots of those, lots of those lots of those. And I am on the plane on the way back from the Cosmopolitan area of Northwest Arkansas where By the way, I visited the Walmart headquarters, the incredibly humble, modest, and impressive Walmart headquarters. Now here we have folks that The biggest retailer. I mean, I think they are the biggest retailer on planet Earth. Right? I know they’re the biggest in the United States. But I think they’re the biggest on planet earth if I’m not mistaken. Now. You know, one of our foreign listeners maybe can correct me. Certainly IKEA does not be Walmart, do they? I don’t think so. But I guess pretty big deal. Anyway, you know, you’ve all had, we’ve all probably assembled one of those pieces of furniture at one time or another. And it’s, you know, why can’t they make those instructions a little bit? You got me. But anyway, the Walmart home office, incredibly humble place, but I drove around Bentonville, Arkansas, when I arrived, and check that out because a little time before the mastermind meeting, and you know, some things in life stick with you little tangent here real quickly. One of the things that always stuck with me is that interview that I heard with the CEO of Walmart, and this was you know, Few years ago, and it really stuck with me and it’s kind of how I feel about my business too. And Walmart gets criticism from every angle, right? They just can’t seem to do right by anybody. Yeah, at least in the lamestream left wing media they can’t do right by anybody. Because Yeah, they they get bashed for being get this too competitive. Oh, that’s the new sin in the minds of the overpaid liberal news casters and reporters, right? The the the people that make many millions of dollars a year and criticize every business person it’s mind boggling you know how easy their job is and how overpaid they are. And yet they you know, criticize every small business person that wants a tax break, right? But of course, they criticize the big businesses do they criticize Walmart, and so they criticize them for not paying high enough wages. they criticize them for being too competitive and putting smaller retailers out of business and listen, you know me, I don’t like the big corporatocracy, because I think the big corporatocracy becomes fascist it gets in bed with a government and Obama was one of the biggest centers in this area. By the way, Obama was a socio fascist. That’s how I described him because he was in bed with all the big companies and they were in bed with him. And you know, people of course, will say Trump’s doing them. I don’t know. Maybe it’s maybe we it’s too early to tell. Basically t TT too early to tell. Okay, so we got to wait at least 100 days, if not six months to pass judgment on Trump. And I don’t know. that press conference the other day was kind of a rambling. I don’t know. It was it was refreshing to hear him just talk without a teleprompter. Now, his predecessor would have had, you know, those two little teleprompter things up there. Trump Didn’t have any teleprompter. And he just talked. So you know, at least it was real, right? It was real. But God He is so weird. He says the weirdest things and he’s not Yeah, anyway, no for that. But Walmart back to Walmart. What are we talking about Jason we got to get to our guests. So Walmart is criticized for like everything right? You all know this. You know if you’ve been around a while and you read the news, listen to the news. You hear all this hate against Walmart. And some of it’s a little bit deserved, but not as much as the media would portray. But here’s the thing. The Walmart CEO was on this interview, and this just totally stuck with me. And it made me feel good about the way I run my business and my philosophy is he you know that the reporter came at him with a dig real dig and said, Look, you know, you’ve got this reputation these the these suppliers come to Your headquarters here in Bentonville. And they want to sell their widget. I mean, this is not what they said, I’m obviously paraphrasing, but this is the gist of it, right? They want to sell their widget in your stores, and you just beat them down. You grind them down, you make them give a better price. And they leave here thinking, gosh, how can I make any money so on to Walmart, or selling through Walmart? Well, you know, Walmart’s a big deal. If you get into Walmart, you know, you’re gonna sell a lot of stuff. And Walmart’s picky about quality. Okay, so they want quality and they want it cheap, so that they can sell it cheap, right? Walmart is the discounter that discount store. That’s what they’re known for. That’s their brand. That’s their USP, their unique selling proposition. And the CEO comes right back looks the camera right in the eye and I tell you, this impressed me. He said, We are the agent of the customer, it is our duty to bring our customers, the lowest prices and the best quality. We are the agent of the customer. I love that. I mean, I love that. Now every company, you know, they got a few audiences that they’ve got to please they got to please their shareholders, they got to please their employees and their suppliers and employees, I’ll lump those two together. And they got to please their customers, right? So it’s hard to you know, there’s a balance between pleasing all these audiences, right? And it’s not easy to do. It’s not easy to do because, you know, theoretically if you please one, and you’re more generous with that audience, well, then you’re taken away from the other audience. So, you know, when you’re, when you have a business, you you have the investors even if you’re a one person company, then you are the investor in your company, right? And you got to get them a decent return. You got to please your employees, because, you know, they give their, you know, a third of their life to You probably right? And you got to please them and take care of them. And you got to please your customers because they’re the ones that have faith in you and give you their money. Right. And that’s why I say like, you know, I hear investors sometimes think wrongly about their tenants. You know, in the final analysis, your tenant is your customer. When you’re a real estate investor. They’re the one giving you their money. I know tenants, a lot of times they’re irresponsible, and a lot of times they, you know, they don’t pay and they don’t take good care of the house. I totally get it. Okay. And a lot of times tenants are immature little babies, you know, they can act like hey, employees can act like that, too, right? I guess shareholders can act like that too, right? Everybody can. We’ve all got a little bit of that in us from time to time. And, you know, but you got to take care of all these audiences and your tenants are your customer in the final nail. So keep that in mind next time you’re frustrated with your tenant right. Jawad Mia, we’ve had him on the show a few times. When the venture Alliance was in Dubai last year we took the venture Alliance mastermind group to Dubai, and Jawad. Mia came and spoke to us for, I don’t know, about two and a half hours. It was fantastic. And he just, you know, we’ve got this small, intimate group, everybody got to ask him questions and grill him on things. And he writes this fantastic newsletter called stray reflections. And I was reading it on the plane, on the way here from the Cosmopolitan area of you know, Fayetteville and Bentonville, Arkansas. No offense to our Arkansas listeners, right. Hey, listen, my mom lives in Alabama. And that’s not exactly cosmopolitan, either. But I was reading his newsletter and God I gotta tell you for a Muslim writer, right, who named his newsletter after a Muslim ossifer right straight reflections. And he’s been on the show a couple of times. He spoke to us when we were in Dubai. He said in that newsletter unequivocably, he said, check your biases at the door. Trump is good for business. Okay? And he’s good for job creation. He’s good for wage increases. He’s gonna cause inflation and that’s good for real estate investors. And, you know, I got to get Jawad back on the show. He’s been on a few times. We’ve also got Harry dent coming back on and Harry just drives me crazy. You know, I was listening. He’s got a new book out and I’m listening to his audiobook and I love Harry’s work in terms of Harry dent we’re talking about in terms of economics from a demographers point of view, I think that’s spray him It really works right. But, but the problem with Harry dent and all these people like This is they lump real estate in as if it’s this single entity. They don’t differentiate between linear markets, cyclical markets and hybrid markets. In other words, high priced markets and low priced markets. And they just they call it they talk about real estate. what’s real estate gonna do real estate’s gonna go up real estate’s gonna go down, Real Estate’s in a bubble, Real Estate’s going, you know, on you know, it’s on the upswing, whatever it is, right? They talk about it like this, the single end to be it’s real estate needs to be segmented. First by market type, linear, cyclical or hybrid. Of course, I’ve talked about this a lot on the last 793 episodes. So go back and listen if you’re, if you’re a newer listener, and welcome to the show, by the way. So that needs to be segmented it needs to be segmented by product type, by price sale. mentation because of course, you could look at a linear market, like Memphis, for example, or St. Louis, or Kansas City, or, you know any of our linear markets, right Atlanta not as linear as it used to be more hybrid now, but you could look at these markets and of course, you’ve got low price homes in those markets, and high priced homes and middle priced homes in every market in every city. It’s like that. So you’ve got to segment by price by product type by market type of first by market type. That’s the most important thing, because it’s all about the LTI ratio, the land to improvement ratio, right? super important. So job me is newsletter fascinating. We do make that available to venture Alliance members, by the way. So one market I want to talk about the the poster child for cyclical markets, and it is having its Bubble Pop pop up. I knew this would happen. Of course, if you listen to the show, you know what happened to it was so obvious, right? You know this would happen. And I talked about it before. Vancouver, British Columbia, the beautiful city of Vancouver. I love Vancouver, had my very first long distance relationship with a girl from Vancouver. Many years ago, she was gorgeous, gorgeous Canadian girl. And but she taught kind of funny, you know, I remember one time we were in Beverly Hills when she was down for a visit when I lived in Orange County. And we were at the Hard Rock Cafe back. Well, back when the Hard Rock Cafe was sort of cool. It’s not anymore Just so you know. So you can obviously tell this was a few years back and I remember her asking the leader a question or the waitress a question or the server sorry, I don’t mean to be politically incorrect. The server asking a question and she asked a question about get this past past Not pasta pasta. I just started laughing. Oh, I love the way Canadians talk. I love our Canadian friends and neighbors. They’re great. But Vancouver is a disaster already. sales have plunged by 40% in Vancouver, and our venture Alliance member, Elizabeth, thank you for posting this by the way. She posted it in our content group. We invite all of our venture Alliance members to be in a special well two special Facebook groups. One is the venture Alliance group. But then there’s another one that’s optional, is our content group, where we review a lot of articles, discuss them, discuss news items, current events, and talk about some of them on the show. A lot of this content group on Facebook is ends up becoming content for the podcast. So I appreciate Elizabeth hosting this Seattle Times article and and she said preview of coming attractions in Seattle. Yes, I think so, Elizabeth. So I think you’ve got that pretty well nailed every cyclical market. It has its cycles. And, you know, I just, I’m not a fan of those markets. I’ve become too conservative at my older age. Well, I got a lot of time left, I hope. I hope so. And I think all of you do, too, because remember, one of the biggest problems you’re gonna face is too much life left at the end of the money. So you better plan for that too much life left at the end of the money. It’s good to live a long time, but it requires a lot of planning and investing in order to make that equation work, because in case you haven’t noticed, the government is broke. Okay. So that’s why we’re here to help you with the most historically proven asset class in the world. All right. I thought this would be a short little intro. It could really just be a whole show. Gosh, let’s roll. I got to tell you about Fannie Mae, this financing has gotten a lot better. So here is Joe, one of our lenders to talk to you about how financing has gotten a lot better. Here he is.
It’s my pleasure to welcome Joe back to the show. He is one of our lenders. He spoke at our meet the Masters event. He’s been out to several of our events over the years, and has helped a lot of our clients obtain something that isn’t always so easy to obtain, especially nowadays, or especially a few years ago, it’s gotten a little easier. And that is none other than financing. We all love leverage because it really makes our real estate deals, sing it makes them fly. And it’s not just about the leverage. It’s not just about the tax deduction of the interest. But it’s also of course about my trademark term inflation induced debt destruction inflation induced debt destruction. One of the other hidden wealth creators of income property as an investment So we’ve got some good news on the financing. It is loosening up a little bit slowly happening here. Joe, tell us about this recent Fannie Mae rule change that allows borrowers to put less money down and get more leverage on more properties. What’s the scoop?
Joe 26:18
Yeah. So recently, you know, Fannie Mae, who constantly, by the way, update their guidelines nearly every month with some kind of little change or nuance to their guidelines. But one of the major ones recently was they will allow borrowers investment property buyers to put 20% down now for the first 10 financed homes.
Jason Hartman 26:36
Yeah, let’s compare that to what it was before. So before they could put 20% down. Well, it used to be on the first four properties. And then I believe it went to the first six properties, but now it’s all 10. Right.
Joe 26:48
So here’s how the trend worked before it was just a force for for properties. You could put 20% down and then numbers, finance Six, five through 10 require 25% down and then Freddie Mac came out last year and said we’ll do 20% up to six financed homes. And then Fannie Mae followed suit with those guys allowing 20% down for six, and then still requiring 25 down for seven through 10. And now recently, they’re done. They’re just flat out 20% down for the first 10 financed homes, which is, is great for folks who are buying more homes.
Jason Hartman 27:21
Yeah, it is, it’s good. So so you can get that first 10 investment properties. Now, if you’re married, or you know, and if you’re not, maybe this is a good incentive. You can do 10 per spouse, so 20 for the family for the couple, but of course both spouses need to be able to qualify, so it’s but it’s 10 each at 20% down so you can do you know potentially for for a couple 20 properties with only 20% downs pretty pretty good.
Joe 27:49
Well keep in mind that the primary home is part of that count as well. So if both if both spouses are on the primary home that will really take up two spots. 20 so on A lot of the time we will refinance the primary into one of the spouses names to make it a total of, you know, 99 for the guy or the borrower with the primary home and then 10 for the spouse without any, you know, primary home debt obligation.
Jason Hartman 28:14
A lot of complex stuff goes into what I have. This is another one of my little trademark terms, I call it mortgage sequencing. I came up with that term in about 2010. I believe, you know, that’s, that’s important. And that’s exactly what you’re talking about there, Joe? So, um, okay, this is good news. Now, the bad news is rates are a little higher. And the trend is and the predictions from most people including you is that rates are gonna go up even more. So that creates some real urgency to lock in this three decade long fixed rate financing, doesn’t it?
Joe 28:48
Yeah, I think that you know, obviously the 30 year fixed rate. Residential financing is still the best option out there for our investors and our buyers, as opposed to like commercial financing or any other via So yeah, the urgency i think is now there to try and lock in as many deals as you can or lock in that rate on your properties as soon as you can. Because, you know, I think that with the new administration, if they do get those bills appropriated to spend a trillion dollars on infrastructure, and if they do overhaul the tax code and basically put money back in people’s pockets, then we’re going to see some inflationary concerns. Once we see inflation start to rise, then I think our mortgage rates will begin to rise and cut in tandem. So will that happen in the next six months? Maybe not. But over certainly over the course of the first two years in the administration. I think we’ll see that right. And Joe, I called it inflationary benefits.
Jason Hartman 29:43
Most people call it concerns like you did, but
Joe 29:46
I think I think it’s I think it’s the street has somewhat priced it into the market already. You know, they’re just predicting that it will happen. So that’s why we’re seeing rates elevated since the election. You know, because pre election rates were about, you know, three eighths of a point or maybe even a half point better.
Jason Hartman 30:04
Yeah, very interesting. So, Trump is going to have the opportunity, though to appoint a new Fed Chair. I mean, is that is that going to mean that you know that the Fed will be a little more friendly to the Trump administration? I, you know, I don’t know what you think. Tell us tell us what you think. But I think that Yellen is not really a Trump fan. She was appointed by Obama, you know, I mean, yeah, I mean, it’s hard to tell, I can just say from the last two threads Fed Chairman, you know, they were both very dovish in their approach.
Joe 30:35
They were quite cautious. I think with a new Fed Chairman, you might see a little bit more, some flexibility there in terms of what they might do with the Fed funds rate, etc. You know, I do think that, you know, under the Trump administration, we’re not only will we see rates rise, though, possibly, but we also see home prices continue to rise. Yeah, I think
Jason Hartman 30:56
so. So here’s the thing, and this is one of those counts. intuitive things in life. And I saw this so many years in the traditional real estate business when when I was in the traditional business, and the sentiment was echoed by everybody in the know, in that part of the industry. And it was it went like this. You’ve got all these potential buyers sitting on different levels of fences, right? Look at it this way, right? This is kind of a metaphor. And every time the rates bump up, you know, the the lowest level of fence sitters gets off the fence and buy something, and then the rates pop up again, and another whole swath comes into the market and buy something. So this may be the reason or Well, it’s one of the reasons that inventory is so tight nowadays. I mean, there’s, there’s, you know, a very low selection of good property. I mean, there’s lots of crappy inventory out there. That’s there’s never a shortage of that. But good inventory is in in short supply and people gotta act fast. A lot of our clients, you know, they get there. They say they want that property, they want that property. And you know, if they, if they think about it for a couple of days, it’s gone. So, you know, that’s just the nature of the market today. And Joe, I’m sure you see that all the time. But when rates go up, that causes urgency. And it gets people to take action, people are more they act more out of fear of loss than desire for gain when rates are going down. You typically people, they kind of wait, there’s not a lot of urgency, they’re like, Oh, well, you know, rates are going down. And, you know, I’m just gonna wait till they get lower. Right. And this is the same thing that happens, you know, in the overall economy when you have inflation or deflation, right. And that’s why deflation is such a, a terrible economic malady, because it causes people to wait. And if everybody just waits then nothing, nobody trades. And, you know, that’s a disaster obviously, right? Because the velocity of money slows.
Joe 32:59
I think it’s a very common trend that when rates start to rise, those fence sitters will jump and take action. I think the good part about locking in rates, I think with a lender like us is, we do have the ability to renegotiate the rates should the market turn and go south again and get a little bit better prior to closing. So really, we offer the best of both worlds in the sense of, hey, let’s protect the rate against a possible rising rate environment while you’re in process to close, but also, should it improve, we’ll renegotiate that rate at no cost.
Jason Hartman 33:26
Yeah. So tell us about your rate lock. How long is it? Do people have to pay a fee to lock the rate? How does it work?
Joe 33:33
No, no fee to lock the race. But we will lock the rate for a certain period of time based on the anticipated closing date written into the contract. So based on the turnkey providers timeline and renovating and delivering the home, we’re typically going to lock the rate a week or two weeks past the anticipated contract closing date. We want to give them a little bit of time just in case something were to arise and renovation. Maybe it’s a weather related delay or there’s a You know, they open up a wall and there’s some kind of structural issue that needs to be remediated or fixed. And we like to give an laughter rate and protect the rates for the borrower through at least the the anticipated closing date, but sometimes even beyond that, in case of unforeseen delays, now, the maximum length of time we could lock a rate for is 85 to 90 days, you know, the shortest period of time we could lock refers 10 days. So, you know, it just depends on on where and then each individual deal has its own individual characteristics, I suppose. But a lot of it depends on the turnkey provider and their turn time.
Jason Hartman 34:35
Now, I hate to ask you this question, Joe. But I’m gonna ask it and the reason I hate to ask you this question is because, you know, a podcast is perennial people might listen to this much later. And obviously, this is a very time sensitive question I’m going to ask you, but what are the rates today for an investor and just explain to our listeners the difference between non owner occupied interest rates And owner occupied interest rates. What is the typical Delta? between those two investors do pay a little bit of a premium, a hot little slightly higher rate?
Joe 35:09
Yeah. Okay. So assuming all things being equal with one credit score, let’s say it’s an excellent credit score of 740 or above, you know, the down payment requirement is going to your rates going to be indicative of a couple of things. The down payment, the 20% versus 25% is going to have a difference in race. Obviously, the credit score plays a factor in race, but also the property type, which you mentioned, Jason, whether it’s a primary residence or an investment property, whether it’s a single family investment property or a multi unit investment property, you’re going to have what we call loan level price adjustments to race. So specifically on the property type, if it’s an investment property, single family home, versus a primary residence, single family home, the Delta so to speak, or the add on to rate or the loan level, price adjustment, whatever you want to call us, for that individual investment property, single family home is going to be about the house Point to three quarters of a point higher and race, you know depending on the downpayment credit score of the borrower. So, again, if you put 20% down the rate today would probably be somewhere like 4.99 with no points. If you put 25% we’re going to lock in 4.625 with no points. So, that same rate as a primary residence could today be 4% or 4.125. For that same 30 year fixed rate, okay, do it give us the investor just repeat the investor rates? investor rate today for 20% down with a good credit score is 4.99. Okay, and 25% down what does that make it
Jason Hartman 36:35
that 4.625 Okay, and that’s a 30 year fixed rate loan
Joe 36:39
30 year fixed rate. Wow, that’s an
Jason Hartman 36:42
those rates are in credible,
Joe 36:45
incredible. They’re still very low points as well. So we’re not charging points to buy down the rate there some lenders in this space because the loan amount of so smaller times will charge those additional points to get competitive and race.
Jason Hartman 36:58
Okay, good. Well, That’s that’s just incredible. So where do you think the overall real estate market is going? And maybe any thoughts on the economy in general, if you want to share them under the new administration?
Joe 37:11
Well, I think I, you know, a lot of folks in our industry are, you know, looking forward to the Trump administration being that he’s a real estate guy himself. So, you know, I do think like I said earlier, housing prices, I think prices will continue to rise, I think obvious, you know, in the traditional sense of maybe one to 3% appreciation year over year, we’re not going to see the 567 percent appreciation that we did prior to, you know, in the early parts of the 2000s and prior to the crash. So I think you’ll see normal appreciation, rates, again, may make a change arise, but overall, I think we’re welcoming the new administration in terms of real estate, we think that he may replace the head of the CFPB or even get rid of Dodd Frank all together, which may be okay,
Jason Hartman 37:56
so, hold it so slow down, slow down on the second here. Just want to make sure people know what the CFPB is. That’s the Consumer Financial Protection Bureau. This is the new agency created under the Dodd Frank act. And many of you know, we’ve spent a lot of time on the show talking about the Dodd Frank act. But just for those of you who don’t know, that’s something that came out of the financial crisis. It’s been very restrictive on lenders, you know, it’s yet again, another example of how people that really don’t understand business or the real estate market or economics or anything, you know, government bureaucrats like Barney Frank, created this 2200 ish page bill that people have a very difficult time understanding, and it puts a lot of roadblocks up and it really gets in the way and Trump has specifically said he is going to dismantle Dodd Frank. Now, he may not succeed, but there are a lot of interim steps in that right. You know, it, he might dismantle part of it. He could soften it. He could Change the enforcement of it. So even without changing the actual act, you know, you can change the enforcement, right? There’s quite a bit of latitude there and something good is going to happen. I mean, it’s good for us. So what about the Consumer Financial Protection Bureau? What were you saying about that, though?
Joe 39:16
No, I think that the head of that right now, the leader of that bureau right now is someone who Trump the Trump administration has indicated they may replace, you know, with someone who is a little bit more friendly to, you know, administering the, you know, Dodd Frank, for example, and creating some lean leniency that doesn’t exist today with the current leader of the CFPB. So we’re kind of waiting to see what happens there with leadership of the CFPB. And whether or not that will in turn lead to those, you know, alleviation of the restrictions of the Dodd Frank act.
Jason Hartman 39:51
Okay. All right, good. So that’s going to be good news in terms of more money flowing into real estate because there’s more financing available. ability, you know, I mean, assuming it happens, of course. And so that’s great
Joe 40:03
news. What else? Do you see? You know, I think that, you know, overall as the economy grows or as these bills get appropriated by by the Trump administration for, you know, creating more jobs in the in the US, and overall, it’s just a generally good mood to create for the real estate investor and for homeownership in general. I think that regardless of where rates are, people are still going to be purchasing homes and the dream of buying homes in the US is not diminishing, I think in any fashion whatsoever, although we rely on a lot of rental income properties to create this wealth for our buyers. However, I do think that overall that the mortgage level of ownership and the button the homeownership level is not going to diminish to under this administration.
Jason Hartman 40:53
Yeah, and as I’ve said before, I actually wish the homeownership rate would decline because I like renters. I actually think it’s kind of artificially high. But yeah, I do think under Trump, it’s actually going to increase and improve. And he’s going to use that as you know, for bragging rights. It’s, it’s really the lowest level, it’s been in about five decades. But overall, you know, it, you either play it as a capital gains thing, if the market is on fire, everybody’s buying properties, then the prices are gonna go up. If the markets not on fire, and everybody’s sitting tight and renting properties, then the rents are going to go up. So you have one or the other and that’s the beauty is that you know, you have a multi dimensional asset class, so you can work with different dimensions and adapt to the market at that given time. And so that’s a wonderful thing. Talk to us a little bit about that. This sort of unseen thing that happens in the market, you know, it’s everybody sees interest rates. Everybody sees the requirement for how much do you have to put down But what they don’t really see and it’s, you know, I would call this like a softer it But it’s really not soft at all. It’s a hard core item. And that is they don’t see either the ease or the difficulty of qualifying. Oh my god. And yeah, I know this is the one that drives everybody nuts. And this, this really we almost have to segment this into, you know, to two categories of people. One is the traditional homebuyer, the owner occupant, and the other is the investor. And it is it is hard to qualify it and that limits the amount of competition of investors out there putting more rental properties on the market, more rental supply. And that increases rents ultimately, because, you know, puts upward pressure on rents. And so it’s what I what I want you to do is see that everything negative also has a positive and there’s a positive component to that it you know, when it’s really easy to qualify, everybody is increasing the supply of inventory. Right, you know, and I’m talking about rental inventory, and then your rents get suppressed. You see downward pressure on rents when there’s more competition for tenants. So, you know, it depends what side of the equation you’re on. But talk to us about difficulty of qualifying or ease of qualifying. I mean, it’s getting a little easier, right?
Joe 43:16
Well, yeah, I mean, listen, I got I come from veteran loan officer row loans and road paper long before the crash or the recession. And
Jason Hartman 43:28
how long have you been in business?
Joe 43:30
16 years?
Jason Hartman 43:31
Okay.
Joe 43:31
So went through the phase of, you know, where it was super easy to qualify for, for folks to buy properties and hardly produce any documentation. So, you know, is it a good thing that now we’re underwriting files and writing more quality paper since the recession? I think absolutely. Overall? Yeah, I think that’s but ultimately the knee jerk reaction to that, you know, correction in in terms of underwriting and documentation was very severe. I think we’re just seeing now, three, four or five years after the recession. Coming out of the recession, we’re seeing some of those guidelines be become a lot more less, become less restrictive and become a little bit more lenient for borrowers. I think you’re self employed, borrower still has the biggest burden of documentation to produce, because a lot of those guys will have multiple companies or multiple k ones, and they’ll have their, you know, various income streams, as opposed to the salaried employee who’s still relatively over documented, I think, but certainly not as much as an self employed borrower. So as we proceed into this administration, and maybe the leniency created in the Dodd Frank act, then then we might see these compliance regulations that were so severely held to kind of get released and relieved a little bit for us, which in turn will help us you know, push on through faster and close loans quicker and, and require less of our borrowers. Because right now, right now, we’re still double crossing the T’s and dotting the eyes and underwriting is very tough.
Jason Hartman 45:00
Yeah, it’s very difficult to qualify. In other words, and, you know, look, folks, this is a pendulum, it’s always swinging back and forth, just like societies throughout history, you know, society swings to the liberal side, then it swings to the conservative side. And you know, everything’s always swinging back and forth, you know, fashions change, everything changes all the time, okay. And then, and the beauty of income property is that once you buy it, and once you own it, and you control it as a direct investor, you’re basically getting yourself an option to make a change later. So for example, you could take out financing today, close on your property, owned it for a year. And say, for example, the requirements get easier and the interest rates go down. You can refinance, you know, you you you want, you’ve got to get in the in the in the seat to where you own the property because then you have options and you have control. Until then, you’re Just an outsider and the prices go up without you and you’re left behind, you know, the ship leaves the dock. So that’s what you want to do. You want to get yourself in the position where you have options. So that’s very important. Good. This has been very informative. Joe, I really appreciate you joining us and you can contact Joe through any of our investment counselors, they can put you in touch with them, just go to Jason Hartman calm, they’ll get you in touch with Joe, they can set up a conference call with you or an email, introduction, whatever it takes. And of course, many of you listening have been to our live events and you met Joe in person and he’s a nice guy and he’s got a great accent and you know, he’s a good loan officer too, just as a side thing, side benefit. All right. We appreciate having you on Joe. Thank you.
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