A Major Mortgage Fraud Crisis is Coming — Here’s What We Know

Mike DeHaan: [0:01] We've been having the same pool of buyers fundamentally since '23. Those people are slowly buying houses, so it's gonna just keep getting smaller and smaller and smaller and smaller. And I don't think it's replenishing at the same rate. What's going on, guys? Welcome to the collecting keys real estate investing podcast. So, Dylan, here we are at the middle end of July, and things are starting to get interesting. I think nationwide, real estate wide, everything's starting to get pretty, I don't know. Who knows? We have, like, the midst of the Epstein stuff going wild. You know, we have all the talks about the interest rates and the feds and, you know, are they gonna lower rates? Will that actually affect mortgages and everything else? But then weirdly enough, I feel like almost all the people that are winning in real estate right now are the residential folks, you know, us included in that. Like everyone that I know that stuck with their residential business despite the cooling housing market has been doing pretty well. So I guess looking at how things have been going, I mean, Q2 is really, really solid. You have your notes up here. What are you kind of seeing like big picture wise? Is this year's been worse or better than like last year for you? Like, in terms of, like, revenue and just opportunity and everything else.

Dylan Koch: [1:14] Revenues were ahead of last year. Nice. And the profit per deal is also higher. I contribute that to taking more down than the previous year. I will say that we all I mean, so we did nine deals in q two, which is a little bit lower than our average. So the volume wise is about the same as last year, but the just the revenue's a little bit up. And that's mostly because we did more flips and hold tails versus assignments.

Mike DeHaan: [1:38] Yeah. Which is also interesting too, because we've also had this movement towards more like flips and hold tails, which is honestly, it's kinda counterintuitive to how the real estate market's been. Right. Because stuff's been slow, allegedly.

Dylan Koch: [1:52] Well, we'll get into it. My my q three right now is I mean, I have a couple of stuff on the books. Like, there's about a 100 k in accounts receivable. But to be honest, like, I'm not super happy with, like, current deal flow. My cost per deal is definitely going up. Cost per lead is going up. My latest round of mail feels like crickets.

Mike DeHaan: [2:08] Yeah. Oh, really?

Dylan Koch: [2:09] Yeah. I don't know what's kinda going on right, like, at this very moment.

Mike DeHaan: [2:13] That's interesting. Because I would say, like, this year more than last year so our our lead flow is definitely down, but our deal flow from that is significantly higher. Like our efficiency of our marketing and like the number of leads that we're requiring to get deals right now is improving a lot. So even right now, our current cost per deal on direct mail is $2,400

Dylan Koch: [2:37] Yeah, that's great. Which mine's $24.27. So we're right on track.

Mike DeHaan: [2:41] Totally. But like last year, we had a larger operation, a little more waste going on, but we were pushing 3,500 on average. And then even if you go back years ago in our market here in Eastern Washington, our if we if it was we're doing good, it was about 3,000 at 3,200. So we are vastly beating like our historical averages with that. But our cost per lead is almost double what we normally would see. Right? So our cost per lead on everything is about 280 for direct mail, 240 across all channels, which typically we were looking at about $1.40 to $1.50.

Dylan Koch: [3:12] That makes sense. And I would just contribute that to your guys' probably follow-up process more than other people's.

Mike DeHaan: [3:17] That is a huge thing too, which I always do explain to people. I mean, even this past, what day is it today? Thursday, we're recording this. On Monday this week, we got a deal that it's been in our system since February. Right? And the thing that's really funny about this one is so our VA lead manager, who's a rockstar, she locked it up because like we were traveling different stuff. Like half the team's been out. You know, our main sales guy Cody has been in Europe. And so when Cody walked to this property five months ago, it was such like a cool deal. He only took like five photos. Like it sucked. And so when Jesse was following up, she kind of saw like the conversation, where it was at. She saw that they were at like two fifty and she was able to run like a quick scenario. And she was like, I think if I told them between $1.80 and $1.90, it's probably a deal. She's been around long enough to just know that that number would make sense. And sure enough, she got them to approve a one eighty seven five hundred, which was based off of just, Cody's, like, five photos that he had and got it signed. You know? And we had to send somebody else out there again to get proper photos and probably sell it for either, like, the low 2 hundreds, $20.05, or we might just wholesale it for, like, a $2.70 exit. But the point of being is that is over the same time, they've talked to a lot of other people. Right?

Mike DeHaan: [4:30] Like back when we talked to them back in, you know, February, they were talking to everybody in town. And then when we followed up, they were like, oh, we kind of had stopped talking to all your companies because we hadn't heard from anybody. And so we were the only ones that were left there.

Dylan Koch: [4:42] It's amazing. A lot of people think that, you know, they send out direct mail and you have to get that contract on that first call. That hardly ever happens.

Mike DeHaan: [4:49] It never happens. Yeah.

Dylan Koch: [4:51] And if it is, they're like the lay down leads that hardly, you know they're once in a bloom in. Yeah. There's one that I was just talking to right before we hopped on here that I walked back in July 2023. And she's got hit every month for a while, and she finally just responded to my VA. And now we're set up to As soon as we jump off this podcast, we're going have Tony, my acquisition, and then myself call her back.

Mike DeHaan: [5:13] So Nice. That's awesome.

Dylan Koch: [5:15] It's just stuff like that.

Mike DeHaan: [5:15] And you get compound interest, right? Because those are the ones from two years ago now, right? And then the ones that you're mailing today might call you two years ago in 2027. Yeah. And it just continually starts to build up, Right? And so like, even if I look at like, I have our our KPIs pulled up right here. So half of the direct mail leads that we've gotten so far in July because I I do tracking campaigns based off the different kinds of mail we send. Half of the ones we've gotten in July so far are actually for mailing that we sent out in May. So there's like a sixty day lag before they even make the decision to call us.

Dylan Koch: [5:51] Yep.

Mike DeHaan: [5:51] You know? And so you have to just keep doing it for a long period of time.

Dylan Koch: [5:54] And that's the thing about mail is that you'll get calls a couple of years. So like, I've held on to this for a couple of years where with cold calling or PPL or texting, like, if you don't hit that lead multi like, keep hitting that lead, like, they're not gonna call you back. Yeah. There's a stickiness, I guess, to direct mail.

Mike DeHaan: [6:09] Yeah. There is. For sure. I mean and that never really goes away because, like, the next of kin finds letters in grandma's house after she dies. And, you know, it's like pinned to the fridge or whatever. Yeah. And they give you a call.

Dylan Koch: [6:20] Our return on ad spend was like 900%. So like it was still really good.

Mike DeHaan: [6:25] Nine x. That's sick.

Dylan Koch: [6:26] That's huge. Yeah. Yeah. So that's better than last year too. So but to me that just says, okay. Spend more. At the same time, it is like with how I kind of feel our market's a little bit turning, and I don't want to really I'm less pressed to take title in q four just because seasonally, it's slower. Then I still battle the decision. Okay. Do you sign more? Do you take stuff down, maximize revenue? Like, I don't know if there's ever a perfect answer.

Mike DeHaan: [6:50] There isn't. Right? I think you just need to get slightly better deals expecting to hold a property for three or four months longer, right, than

Dylan Koch: [6:57] hard money. But

Mike DeHaan: [6:58] I mean, the challenge is though, like you said, is the kind of cash piece with it because you end up with a lot of projected revenue that forecasted, right? Stuff can change on that. So if I look at our year right now, currently half of our revenue for the year is is still projected, like pending revenue because it's all tied up in hotels and flips that we've been waiting to sell. Right? Or that we're working on right now.

Dylan Koch: [7:19] Right. And managing that cash can be tough.

Mike DeHaan: [7:21] Like Yeah.

Dylan Koch: [7:22] I've had a lot of cash go out lately and, like, it causes some anxiety. And, look, the only thing that keeps me sane is going back to the numbers and be like, okay. You know, like, this is what's coming in. These numbers should be rather accurate, you know, barring some unforeseen circumstances. But it's still, like, you might need to pull lines of credit or something in the interim.

Mike DeHaan: [7:39] Yeah, exactly. Mean, know, and like having the ability to float that is a really, really key thing. And it's also why I think people that are debt averse should not get into real estate in general. Because whether you're a real estate agent or you're a wholesaler, you're flipper, the cash conversion cycle is very long. It's not like selling widgets where you get paid the second someone swipes their credit card. Do you know about all this stuff that's going down at the end of September? I'm assuming that you do with how all the COVID forgiveness for everything on debt is going to be ending at the very end of September?

Dylan Koch: [8:12] Correct.

Mike DeHaan: [8:13] Yeah. What are your thoughts on how that's going to affect your business? Are you planning to like do anything for it? And so for people that aren't aware, there's all these COVID release programs and everything from mortgages to student debt to, I think there's like some medical stuff that's in there. So a bunch of different things. And I did a YouTube video with John Brooks that actually came out this past Tuesday. I'll put the link in the show notes. It was pretty well received. Actually got 12,000 views in the first day. But we dove into this quite a lot. And I'm trying to remember the exact numbers, but basically the amount of people that participated in these relief programs, it was like 30% of them are currently expected to default at the end of September. And that 30% represents around 10.5% of all consumers, like debt holders in The United States period, which is extremely substantial because the whole two thousand and eight crisis, right, that was tipped off by like a 2.5% default rate. And so we could be looking at almost like five times that, four times that, right? And one of the talks right now is, a, what's that going to do bigger picture to the economy? But also in our business, A, we have an opportunity when that happens, but we also hold a lot of risk because if that starts to negatively affect real estate values, we obviously don't want to be stuck holding the bag.

Mike DeHaan: [9:31] So are you anticipating that at all? Are you doing anything for that?

Dylan Koch: [9:34] Well, the way I would I would use it, kinda like the two prong approach that you just mentioned. One is, you know, the reality is if people come distressed and they have equity in their home, that is an opportunity for us sometimes to capitalize on that.

Mike DeHaan: [9:46] Mhmm.

Dylan Koch: [9:46] They need quick cash to cover some things. But And student loans aren't you can't file them out of bankruptcy. Like, they stay with you forever. My understanding is once they're declared delinquent on the credit reports, they're not thirty days late. They're ninety days late already. So it's already kind of like they're really behind.

Mike DeHaan: [10:05] Yeah. And not only that, but the debt's been compounding. Right? Because it's not like a forgiveness program or it wasn't like they just paused it, but they were taking the unpaid payments, and they were adding them principal and interest onto the end of the loan.

Dylan Koch: [10:17] To the tail end.

Mike DeHaan: [10:18] Yeah. Yeah. And this is for the real estate and the student loan stuff. And so

Dylan Koch: [10:22] It's going to come to a sticker shock for a lot of the people that Yeah. You know, we've even seen, like, what do you mean I owe $30 more? Let, you know, deals fall apart the last second.

Mike DeHaan: [10:30] We had a deal, like, it was supposed to close last week, actually, that the lady was expecting to have enough money to go and buy a house. She was actually under contract to buy a flip from one of our competitors here. Right? And then instead of getting that money, she actually found out she's going to have to bring $8,000 to closing. Right? So she went from making probably $50 to having to bring $8 to get out of it. And now she's completely screwed. And like the way the deal was, it was already pretty tight. So there wasn't really a lot we could do there.

Dylan Koch: [10:59] Not to get too off track too, but I think a lot of the lenders are going to be, at least at the beginning, like, oh, we'll take it. You have plenty of equity. We'll let it go to auction. Like, because they think they're gonna get a 100% return on their capital. They're not gonna do short sales right off the bat. But so the other side of that is we sell to a lot of first time homebuyers even if they are conventional. You know? It's still the first time or the second time they're buying a home. So your buyer pool of who's gonna buy your flips is probably going to get diminished as well.

Mike DeHaan: [11:25] It is. For sure. And that that's something else too that I've been thinking about this recently because we've been in the same, I would say, like, real estate environment for, what, since '23, late twenty two now, where prices have been fundamentally similar, maybe dropped like a little bit. Some places like Florida, Austin, they've dropped a lot, but most of the country hasn't experienced that. Right? Interest rates have stayed the same. So you end up with this affordability issue with rising inventory. Right? But there's also this current situation right now. I've been reading about this where if people can't sell their homes because they have low interest rates, they're just not selling at all. Yep. Right? So you've seen less people taking low offers and less price drops and more people just being like, actually, I just won't sell. And so what'll happen, especially as inflation grows, is we've been having the same pool of buyers fundamentally since '23. Those people are slowly buying houses. So it's going to just keep getting smaller and smaller and smaller and smaller, like the people that can actually afford to buy or have an interest to buy period. And I don't think it's replenishing at the same rate. You know? Like, there isn't, like, all these new people that are suddenly crushing it and wanna be a homeowner, especially if they've been watching kind of a hairy house market for the last couple of years. You know?

Mike DeHaan: [12:32] And so we're kind of all competing for, like, the same pot right now that is getting emptier by the day as people do buy homes.

Dylan Koch: [12:40] I mean, I do know that every seller I've talked to, and I think I'm pretty good at speed to lead, has already talked to somebody.

Mike DeHaan: [12:47] Every time, dude. Never fails.

Dylan Koch: [12:49] And, yeah, we can still get deals done. But my point being is your competition, right now, at least mine, I hear some of the offers that they're giving some of these people, and I'm just like, you should take it. There's there is no freaking way that I'm gonna be even come close to that. There was one yesterday that I offered a 145. She's like, oh, I have one for $1.78. I'm like, okay. I'll talk to you in two months probably when they don't buy it.

Mike DeHaan: [13:12] Well, that's a whole other conversation. Right? Because that's still people that are falling for the the guru bullshit of, you know, lock up high and then price drop right before. Or

Dylan Koch: [13:19] Sure. Sure. I just feel like there's a lot of it right now where a lot of my offers have been I feel like I'm I haven't really changed my underwriting all that much to reflect the conversation that we're having. Yeah. And I'm still getting priced out a lot. Yeah. I don't know, Mike. I haven't really thought that far ahead. I was more thinking seasonally adjusted for, like, q four just being slower to be more conservative.

Mike DeHaan: [13:37] Yeah.

Dylan Koch: [13:37] But the fact that this comes up in September, which is around that same time frame, would even cause me to even be more conservative.

Mike DeHaan: [13:43] Well, totally. Right? It's always tricky because there's these headlines and kind of these impending things that you can always kind of try to predict. Right? But once it actually comes, you never know what the outcome's going to be. And the people that are over conservative tend to miss out. And the people that are over aggressive tend to lose, you know, and sort of like how do you stay in the middle?

Dylan Koch: [14:03] There's you'll appreciate this. There's a an acronym going around in in political circles called TACO, which stands for Yeah. Trump always chickens out. Yeah. My point being is that if shit starts hitting the fan, you know, if people can't afford houses, if people if bankruptcies and foreclosures start skyrocketing, I do think there will be intervention because history is at least the past twenty years of history have told us that they'll do something to ease the pain. They're very good at kicking the can down the road. It's just we don't really know what that is. And then once those whatever they decide to do, once it takes effect, how long those effects take to actually pan out.

Mike DeHaan: [14:38] Yeah. I mean, there always has been historically. Right? I will say that this administration is probably the first one that, at least to me, it seems like is more than happy just to let things burn. Right? Like we've already had some stuff that's gone like so awry and how they've dealt with some of like the higher profile situations that have happened most recently, like these floods in Texas, right, which is just a massive tragedy. And instead of like addressing the situation or even like making a statement, they all like fucked off and on vacation. They were like pointing fingers at each other. Like just doing stuff that doesn't really make sense, Right? And I feel like they might do the same thing, whereas if stuff does collapse instead of it being, you know, like, do we kick the can? It would just turn to, like, how do we point this at the other party and make it so it was their fault and use that as, like, a excuse to try and, like, build more rage with their following base, which is how they've sort of found power so far?

Dylan Koch: [15:33] Maybe. But I guess the the tariffs are actually a decent example where he's like, we're gonna put all these, you know, tariffs on these other countries. And then now, pretty much, they keep getting delayed and delayed and delayed. And I think that's just because, you know, I think he's saying, I, you know, I can't play hardball forever. Right? And I do think, you know, Scott Bessent, Howard Lutnick, the people that surround Trump, even though he tends to do his own thing every once in a while, they're gonna be like, bro, we gotta do something. And he's always calling for the firing of Jerome Jerome Powell, which I don't think it's going to happen.

Mike DeHaan: [16:03] Well, he can't. Like, technically, he doesn't have the authority or power to do that.

Dylan Koch: [16:07] Correct. He does. It'd have to be an act of congress. But he had his reelection's up relatively soon. And so are they gonna replace him with someone who's technically more dovish or who is a yes man who was gonna do, like, these, you know, 300% interest rates declines, which the Fed is supposed to be independent. So we'll see what that if it actually happens or not. I don't know if we're just like rambling now, but I guess my point being is I don't think they'll take pain. I don't think they'll point fingers and be just like, I think they'll actually intervene. I just don't know how.

Mike DeHaan: [16:33] Yeah. For sure. And I think that's kind of the challenge, right, is in this conversation we've said maybe a bunch of times, and I don't know if a bunch of times. Right? And that's how it's hard to fully predict something that's going to happen and adjust your business accordingly. But at the same time, I always think it's important to be aware. Right? And at least be into a position where you're not overleveraged and you're not like, facing a situation where you could get cooked if stuff gets bad. I mean, honestly, it's very similar to when, like, COVID stuff started to get bad and, like, the interest rates first started to go up. What I was seeing a lot of actually, this is during the Silicon Valley Bank thing was when it started to come out a lot. A lot of the really rich guys that we know, they were just pulling all their lines of credit and everything just out of the bank right away. With the theory being that if you are completely leveraged against you, they're probably not going to call you due because they're going to be afraid that you don't have it. Right? And they're worried about if it was not being utilized, the lanes would want their money back. Right? But I'm giving that example because they were in a kind of defensive position where they're like, that's something that they can do very, very quickly that gives them some kind of security. And I think if there's any sort of uncertainty in the market, that's what you should do, right? So like if you have stinker properties that you're holding onto that you're waiting to sell, probably get rid of those ones. Be buying houses with extra margin, right? And if you have any funny loans, adjustable rates, those sort of things that you're still sitting on, you should refinance out of those ASAP, even if it means you're going to be losing cash flow, which is a false metric anyway, right?

Mike DeHaan: [18:05] Because what you don't want to be is going into something where all of a sudden you can no longer get refinanced loans because the banks aren't doing those anymore. Like that happened in 2020 in COVID. I remember when all of a sudden you couldn't refinance anything because the banks were like, we're not issuing debt anymore for like six months.

Dylan Koch: [18:22] Yeah. And honestly, even get good relationships with maybe a local lender too because they they might be more likely to be like, okay. We know you. We know your book of business. They might issue you a loan when a JPMorgan or Wells Fargo is gonna be like, get fucked.

Mike DeHaan: [18:36] Yeah. Totally, dude. Yeah. Or like you're trying to reach out to these new banks to establish a relationship, and all of a sudden you appear from the woodwork to talk to them when stuff's getting weird. That's like a red flag for them. Right? Like, you've never heard of me before, and now all of a sudden things are in complete downfall, and now you're hearing from us trying to, you know, make face and get a loan. Like, they don't typically like that. If you are a real estate wholesaler and flipper and you want to be around other people that are looking to grow and expand your businesses in this ever changing economy, then you need to check out our scale community. Go to collectingkeys.com/scale, and you can get all the details there. But long story short, we are a small tight knit little group of serious real estate entrepreneurs that are looking to really make massive income and not just passive income to this ever changing economy. So if real estate wholesaling flipping is kinda your thing, go to collectingkeys.com/scale. You can book a call with me in there if you want, and I'd love to see if you'd be a good fit.

Dylan Koch: [19:30] We have a deal right now, Mike, where the seller bought it at the end of twenty twenty three for $485 cash, which is a higher price point in our metro market. He got into some financial trouble. He sold it to me for 390 k. In that eighteen months, he'd put on a brand new roof and added a heated indoor pool in the back. Nothing really else had changed. We have it listed for $4.89. So just $4 above what he bought it for. Literally, have, like, like, showings. Nice. Nothing.

Mike DeHaan: [19:59] Yeah.

Dylan Koch: [19:59] Like, nothing. And so, like, we have room to drop if needed, but, like, that is, like, one that scares me right now. I'm like, what the fuck is happening?

Mike DeHaan: [20:05] Yeah. When did you say you bought that?

Dylan Koch: [20:07] It would have been late twenty twenty three.

Mike DeHaan: [20:09] That's the worst timing, dude. Yeah. Like, that late twenty two to late twenty three period. Anyone that's bought anything then is gonna be underwater for, a long time.

Dylan Koch: [20:18] Yeah. But the my only rebuttal to that is there's a couple comps in 2025 at the low 5 hundreds.

Mike DeHaan: [20:24] Well, even then. Right? So if he's at the low 5 hundreds, you're what, at $4.89. Yep. Just transaction costs alone, he's losing money on the house. You know, if you take into account the cost that he incurred to buy it, even if he bought it cash.

Dylan Koch: [20:36] Oh, no. I mean, so we bought it $3.90. He bought it for 40. He took a 100 k bath when we bought it.

Mike DeHaan: [20:41] Oh, I see what you're saying.

Dylan Koch: [20:42] I'm just saying, like, you know, we have a a loan out there now for Mhmm. What, $3.75 around there. I know.

Mike DeHaan: [20:48] Gotcha. And I

Dylan Koch: [20:49] just want to it's just sitting, and I'm just like, okay, it's an expensive hard money loan to just sit on. Right? So like, okay, how quickly do we price reduce? How quickly do we make concessions? Like, that kind

Mike DeHaan: [20:59] of stuff. I mean, it just yeah, it's death by a thousand cuts. And that's what gets people though. Right? That's what takes down companies like ours after a while because also too, since we have such a long cash conversion cycle, not only do you have those money payments and stuff that are slowly whittling away, but as your revenue starts to drop just because you're getting less opportunities, less deals, market uncertainty, it becomes like a self fulfilling prophecy on the collapse.

Dylan Koch: [21:24] Yes. I mean, let's say you've done this for two to three years and you've managed to save up a couple $100. Don't let one deal ruin two to three years of hard fucking work.

Mike DeHaan: [21:34] No shit, dude.

Dylan Koch: [21:35] No shit. That that would be my, you know, sage advice to anybody that's out there.

Mike DeHaan: [21:39] Yeah. I mean, and I know that's happened to people. Right? I personally know people that were millionaire status three years ago that now can barely pay their bills. Yep. Because like all that money, it went into real estate losses. It went into the tax bills that they weren't paying correctly Oh, yeah. Years ago because they were taking accelerated depreciation. And now they've been selling off properties to pay for their lifestyle. Right? And now they're having to pay all these extra taxes and things they didn't account for. And, of course, what do dummies do? They sell a property in April. And they're like, cool. Got a $150,000 out. And they they spend it for the rest of the year. And then they get to the end of the year and like, well, you also you own long term capital gains plus your depreciation recapture on that. So that $80,000 that you shouldn't have spent, I need that now.

Dylan Koch: [22:21] Oh, I talked quickly. That reminded me. I'm talking to a newer investor the other day that was at a meetup. And he was basically like, okay. I bought it. I'm buying it for a 150. And then we did the BRRRR strategy. I refinanced. And then long story short is basically he got, like, $50 back at closing. And when he went to sell it, he thought his capital gains was gonna be reduced because he got he's like, the payoff's now $2.50. And he only netted, like, no. It's that's not how it works. It is what you bought it for, your cost basis minus what you sell it for. It doesn't matter what happened in the middle of those transactions. Yeah. And so I don't know if that's like everyone knows that, like, duh, Dylan, but this guy didn't.

Mike DeHaan: [22:56] So I mean, you'd be amazed at how people don't know that, though, right? And I've seen this a lot with people that got refinances in '21 when rates were super low. And so they max cashed out all these things and now real estate prices have come down. And they're like, Oh, I got to sell this property. I don't have that much equity anymore. It's like you're still paying gains on that.

Dylan Koch: [23:14] Yep.

Mike DeHaan: [23:14] Like that cash out refinance that you took that you got $100,000 out of that you were stoked on, that's basically you just accelerating the gains on that property. You got to pay taxes on that when you sell it.

Dylan Koch: [23:24] Yep. Exactly.

Mike DeHaan: [23:25] You know? And a lot of people don't even understand that, which becomes very, very problematic.

Dylan Koch: [23:30] One thing that's beneficial, at least to most of the properties that that I am looking to acquire, is my worst case scenario is, okay. I'll take it down now and then, you know, rent it out, basically. But now if what you're saying comes true, it's like, okay, well, now the lending environment's gonna change and you need to be 70% LTV and it's gonna be seven and a half, 8% rates, obviously, that changes the calculation a little bit.

Mike DeHaan: [23:52] Yeah. Yeah, exactly. Yeah. On that note, I'll just talk about this very loosely because I don't have all the details yet. But with our hard money lending company, we did get some whispers over a very, very massive loan mortgage fraud situation that's affecting both private DSCR loans and Fannie and Freddie stuff. And my information on this is from like two short conversations and two emails. So I don't know all the details of it. But they're doing huge crackdowns on a bunch of locations, really increasing underwriting status. This is all coming over, like, the next month or so. And from what I've gathered, it seems like the fraud could be as, like, several $100,000,000 worth of mortgages. And, you know, with how coy they're being about it, I imagine it's probably worse, you know, than they're actually saying. And, you know, if that comes to full fruition and starts to affect the market here directly, the lending environment could get very, very weird, very quickly. You know, and one of the indicators I've had, so I'm working on a couple different loans right now, some lines of credit and different things on some rental properties. And very strangely, all like for the past two weeks, all of my correspondents, like my client manager or loan officer or whatever, just disappeared off the face of the earth. They weren't answering emails.

Mike DeHaan: [25:03] They weren't answering calls. They weren't participating in the process after I was sending things. And I like, where is this? Right? And it directly coincides to when I know the first instance of this whole big fraud situation started to occur, right? It was two weeks ago. And literally, like that same day, everyone disappeared off the face of the earth, and I heard nothing for two weeks. And only yesterday did I start getting small communications again. And they're moving along kind of like, I would say business as usual. But now they came back with all this underwriting criteria that they want that is significantly deeper than it was two weeks ago. And wanting all kinds of details on random stuff. I'm like, I've never even thought about that before.

Dylan Koch: [25:45] Yeah. I mean, this is public knowledge, so I can say it. There's a a group in the Cincinnati market called Vision Beyond Properties, and they basically got in trouble with colluding with a title agency who wouldn't record mortgages. Mhmm. And so then they'd go out and get two, three loans on the same property. Right? And they basically got millions of dollars. And the one guy, I think, is he might be in jail, but there was another one, and he, like, flew back to India or Iran. He fled the country. Yeah. And but I don't think that's not an isolated incident.

Mike DeHaan: [26:15] No way.

Dylan Koch: [26:16] I think this is happening a lot.

Mike DeHaan: [26:17] Oh, yeah. I'm I'm sure it's happening at, like, an even institutional level too, right, with, like, the the really large stuff, especially a lot of these, like, bigger names that have been getting roasted on these commercial deals that we're getting called. I can only imagine how much fraud is going on there. We have this whole beef in Spokane. So there's this developer here. Anyone in Spokane, this is very public. You can go and you can see me and him get into arguments on the Internet and on Reddit. But he's very well known guy, and he's like I know several people that have lost millions of dollars investing with this guy here locally, and there's been a whole bunch of different lawsuits. And it's funny. And after me and him had little exchange online, his wife got after me and he, like, texted me and called me and was very upset about the things I was saying. And he's like, he's like, well, I want you to know all those people have been like, not all of them. He said, most of them have been settled by either accepting payments terms or equity on these deals. And I'm like, bro, you just fed them a shit sandwich. Basically, you're like, I lost you your money. Here's what I can do for you.

Mike DeHaan: [27:16] Right? And either way, you're fucked. So he didn't actually solve the problem, but in his mind, he did. But anyway, point being, a lot of this came to light because one of the properties that he owns, he also owns a business inside of it. It's a very well known brewery here in Spokane. And the real estate's going to auction, right, because he defaulted on the loans. And so it's going to foreclosure auction at the end of the year. And I was talking to one of my friends who brought this really valid point is like, owns the business inside of it that's very profitable. How the hell is it going to auction? Is he not paying his loan? Right? Because he has full control over the business books, right? And the money, and he is just choosing to not pay the bank back. Right? Like, it's not like he has an unperforming tenant or he has an empty property or he has like a value add deal that went sideways. He is just cognitively choosing to not take the money from the tenant that he is and pay his own loan on the real estate that he owns as in a separate business.

Dylan Koch: [28:16] Do you think he's going to try to renegotiate with the lender?

Mike DeHaan: [28:18] No, dude. Because this is like everywhere. And it's not just this deal. It's like all of his deals. You know, I've heard through the grapevine that there's all these different deals that he has similar structure and that he's defaulting on all of them.

Dylan Koch: [28:29] If he's the only collateral, I don't I guess I really really don't care if he's losing his own money. But if he's got other people involved, that's when it gets shady.

Mike DeHaan: [28:36] And I'm pretty sure that's what it is, right? Is he is preserving all that money to try and pay off all these people that are suing his ass. Gotcha. Right? The whole point of that though is like, that's just another case of people doing shady stuff at like a pretty big institutional level, right? You know, and I imagine that's so much deeper than we even realize right now. Because like, his total portfolio is tens of millions of dollars that's going to be defaulting both at the local bank and then also with all this real estate and all these businesses.

Dylan Koch: [29:04] I won't say the name, but, you know, I got inside information the other day from a very common syndicator who basically said that if they sold today, their LPs are gonna get 10 to 15% of their money. Mhmm. Or they could wait three to seven years and get maybe 20 to 40% of their money.

Mike DeHaan: [29:19] Yeah. That's that's and think of the biggest real estate name you guys can think of, and that's probably it. Yeah. That'll that'll be coming out here public really, really soon, which is a shame because, like, some of these ones too, I would say they aren't even necessarily malicious. The guy in my area is definitely malicious. People are doing malicious shit. But there's also people that are just dealing with it right now, man.

Dylan Koch: [29:38] I guess, Mike, if we're looking at this, like, you know, I've always wanted to do bigger deals, but I've done, you know, the single family support units because one, there's there's a higher volume of them. Our off market business is, I won't say easier, but it's more sustainable that way. Yeah. But we're gonna have opportunities, I think, both. Do you guys or you and Dan have any things like, okay, do we try our hands at a commercial deal if there is blood in the water somewhere, larger stuff, or you're just gonna keep your head down and keep doing what you're doing?

Mike DeHaan: [30:04] I'm just going to keep doing what I'm doing. Right? And there was a a couple years ago, I was very interested in the commercial stuff, mostly because of higher profit potential. We had some money. I had some more expertise. You know, I joined like a mastermind and stuff for it. And then once I got into it, was like, this is not for me. Mostly just because I don't like how illiquid it is. Yeah. I really think that when you are facing a tricky economic situation, you want to be doing stuff that allows you to be as liquid as possible. Because it allows you to pivot. Right? Even people right now that are strictly flippers or,

Dylan Koch: [30:37] you know,

Mike DeHaan: [30:37] like rental property only kind of people, you need to be realistic about what your property is actually worth and what you can sell it for. You know, like you were just talking about that cool house you have with the indoor heated pool that has had three showings at $490,000 There's a shit ton of people that own properties just like that. And they look at the comp down the street and they're like, My house is worth $500 It's like, Well, if no one's going to pay, write you a check for that this week, it's not worth that.

Dylan Koch: [31:01] Agreed. Agreed. And a lot

Mike DeHaan: [31:03] of people tend to ignore that, and that's where they get into trouble. And commercial real estate is even worse because your buyer pool is significantly smaller. The value of it is heavily based off of the interest rates and the cap rates that you can get for it. But at the same time, I know some dudes like Drew Wiard, good friends of both of ours, he's crushing it with his commercial stuff right now. But he's also doing the most unsexy commercial real estate ever. He's doing like $400,000 warehouses in like New Mexico and shit.

Dylan Koch: [31:28] Yeah. He's found in he's like, you know, riches are in the niches. He's found his niche. Yeah. And I guess if you are someone who tracks your net worth with I I think everybody should, just be realistic with yourself on on what you think your ARVs are, the properties that you own. And if it is a, you know, commercial building, in bad economic times, cap rates go up no matter what. Yeah. That's just as a fact.

Mike DeHaan: [31:51] Always.

Dylan Koch: [31:51] So if you think earlier that you bought this place in a couple years ago and then trade a six, seven cap, it might be eight or nine now, which on a couple of $100,000 of NOI is a huge difference.

Mike DeHaan: [32:01] Huge. Right? That can be your entire deal. Like all of your profitability, especially if you raise money as a GP, you're left with a situation of either you pay back your LPs if you can, and, you know, you walk away with nothing, or you just steal their money and, you know, you go get a break. Like, half people seem to have done.

Dylan Koch: [32:18] I think I mentioned to you, it was on the podcast, but I got an off market opportunity for 25 units in a like a submarket here of Cincinnati, which is a popular submarket. And we are trying to sell them at 75 a door, which a couple years ago would have flew off the shelves. And I've not been able to move it. And now all my biggest buyers are like, no. I'm good. And it's almost like they don't even, like, not like the deal that much or it's like, hey, man. I'm just I'm too nervous right now.

Mike DeHaan: [32:42] Yeah. Totally. And that's the important thing to understand, you know? This is also why I like am really into our lending business right now is because it's shorter term. We get to have additional room on their leverage that they're already taking, on the on their space they've already created. And then, you know, we get personal guarantees and those sort of things. And so they can take the risk and we have, like, extra collateral if needed. But that's the other thing too. Like, you are interested in real estate and you like paper, paper's relatively liquid. Right? Because you can sell notes a lot easier and quicker than you can sell real estate because there isn't as complex of a title process. But, yeah, I don't know, man. It's like a it's a tricky sort of thing right now. And it's fine. I feel like we've been talking about, like, what's gonna happen, like, for years. I do feel like we're at a position where we're kind of at a tipping point, an inflection point. And I don't know. My biggest guidance for people is just do stuff that allows you to be mobile and get stay liquid and focus on deals that are, I would call, like, near certainties and not ones that are speculative. Because there's not time to be doing anything speculative right now.

Dylan Koch: [33:45] Yeah. I was guilty of this. Like I said publicly on the podcast, like, okay, I wanted to do a million dollars top line this year. And by numerically, we're still, like, barely on track for being through six and a half months of the year, seven months of the year. But I don't want that to be, like, a pressure to chase a bad deal.

Mike DeHaan: [34:03] Exactly. Yeah. Totally. That's why I'm not big on, like, setting financial goals like that either because I feel like people make dumb decisions by it. Right? Like, I guess people set these lofty goals that are based purely off of numbers or, like, ego goals, it leads to two things. They either cap themselves unintentionally because they set a goal that's definitely achievable, or they are chasing something for kind of no reason and they make poor decisions as a result.

Dylan Koch: [34:27] And I found myself like having somewhat like mental anxiety of like, I'm not gonna hit this. I'm like, I'm still doing better than last year. Yeah. It was just kind of like, why am I it was mind games almost. And so I needed to have an almost come to Jesus system up there to, like, it's okay if you don't hit it because you're still kind of doing very well in this business.

Mike DeHaan: [34:44] Exactly. And look at your big picture, right? And be realistic about what your financial situation is and everything else. Because after a while too, once you make money to kind of have your lifestyle, you don't need to keep making money, Right? Right. Realistically.

Dylan Koch: [34:58] Right.

Mike DeHaan: [34:59] It's good to, like, have additional money for opportunities. Or if you want to buy something in the future, you want to escalate your lifestyle. But that doesn't mean

Dylan Koch: [35:05] to do it like today. Yeah. Totally. Real quick while while we have it, just because this is gonna be top of mind in the next, like, week or two. The Fed does meet on 07/29, and they'll have a decision on 07/30 if they're going to cut rates or not. Some latest, like, economic data come just came in. It's called the PPI, which is basically the the CPI for manufacturers. How much did their products, like raw materials, increase in price and whatnot? And it was relatively flat both month over month and year over year. So that would indicate, like, they're less likely to to lower or raise rates. Like, why change anything if the inputs aren't changing?

Mike DeHaan: [35:42] Yeah.

Dylan Koch: [35:42] Right? And so it is forecasted right now of no rate change at the next meeting. The Fed does publish what's called a dot plot, which is their own, like, internal barometer of what they think rates are going to be. And they do think for 2025, the median should be, like, 3.9, which is currently trading at this is the Fed funds rate, 4.25 to 4.5, which would indicate still 50 basis points cuts through the end of the year.

Mike DeHaan: [36:05] Yeah. But the thing is tricky now, and this is where a lot of people don't understand because their entire, I would say, knowledge base or experience with interest rates was in 'twenty one when there was always like, Oh, are they going to drop them again? And now we're like 2%. It's crazy. Mortgage rates don't necessarily have to follow the federal interest rate.

Dylan Koch: [36:23] And it hasn't. Right? It hasn't.

Mike DeHaan: [36:25] Yeah. It's since '23, since they stopped buying

Dylan Koch: [36:27] MBS. Mortgage work securities. Yeah. MBS. Yeah. Realtors.

Mike DeHaan: [36:31] You can tell the newbie fucking realtors that took the whatever Keller Williams stupid class around like how to get your buyers to, you know, get off the toilet and buy a house. They're posting about like, oh, the fed rates are going to come down, so it's time to, you know, get in your loan application. That's not true. Right. Because there has to be a buyer for that debt, and the US government's no longer buying it. And then no one is buying US debt in general. So even if they do lower rates, it'll make the banks, it'll allow the banks to bail out of some of the shit that they're in. It's But not really gonna trickle down to the rest of us, I don't think.

Dylan Koch: [37:03] The one I don't wanna butcher this because I I'm trying to remember what I heard on podcast. But we've talked about the k shaped economy on here, whereas wealthy people versus, you know, people not doing so well. When the Fed's funds rate is higher, a lot of money market accounts with wealthy people can just throw millions of dollars into a money market account that's paying four and a half, 5%. Now money market rates do follow the Fed's funds rate a little bit closer than, like, a ten year treasury would. So they're theorizing, like, okay. If that does actually come down to, let's say, the mid threes, well, that money that is in those money markets accounts might go chasing yield somewhere else because now their yield is going down. But, that's just rich people buying assets again.

Mike DeHaan: [37:44] It is. Yeah. Which is already the recurring theme that we're seeing. That's why we have a massive period of economic uncertainty, but the stock market is still sky high, right? Because you have these people that are selling this real estate and everything else and think, what the hell I do with my money? I'll just put it in stocks because that's doing good right now. Right? And it becomes like a you know, really promotes the Wall Street slot machine even more because people are just taking the wealth they've accumulated elsewhere and dumping it over there.

Dylan Koch: [38:10] They just there was an article out there that they're gonna try to incorporate private equity offerings into four zero one k's the other day.

Mike DeHaan: [38:16] I saw this.

Dylan Koch: [38:18] That is the worst idea, I think, I've seen in a very long time. 100%. Illiquid. The returns are not great, and they're like it's a it's a box. Don't You even know what the returns are until, like, it basically, the thing is sold. So that I was not happy when I saw that. But

Mike DeHaan: [38:31] Yeah. Well, mean, that's just them trying to open up all those $40.01 k funds to the people that wanna, you know, exploit that money and do weird shit with it. But, anyways, cool. Anything else, Dylan?

Dylan Koch: [38:42] I think I'm good for this week.

Mike DeHaan: [38:43] Yeah. Alright. Cool, guys. Well, thanks for listening. Go and tell your friends that, you know, you've had this real estate business economy show that's pretty good sometimes, and you learn stuff. Sometimes you're entertained, and, sometimes you're not, but that's your problem. So alright, guys. We'll talk to you guys next week, and have a good one.

Dylan Koch: [39:00] See you guys.

Mike DeHaan: [39:02] Thanks for listening, everyone. If you want more from us, you can shoot us a follow on Instagram. I am at Mike underscore Invest. Dan is at investor man. Dan and Dylan is at Dylan underscore does underscore deals. Choose to follow and send us a DM to let us know what you think

Dylan Koch: [39:15] of the show.