Are There MASSIVE Discounts Coming for Multifamily?

Mike DeHaan: [0:00] Really quick before the show starts, in case you haven't heard, we have a growing community of investors called the scale community, which is full of people learning to make massive income with their real estate businesses so they can reach financial freedom a little bit faster than building a rental portfolio solely over time, because honestly, that takes decades, and who has time for that? So if you're an investor who is serious about growing and creating a scalable business without needing to be a slave to it twenty four seven, then go to collectingkeys.com/scale and apply. And if you're a good fit, we would love to have you join the community. So, again, collectingkeys.com/scale. Go ahead and apply, and we'll see if you're a good fit.

Dan Austin: [0:38] It gets harder for people to actually wanna rent and lease out properties. Yeah. Because it is like you're finding, Mike, the cost becomes excessive to where you're like, I'm not getting return. I have to go to a different asset class that's not real estate.

Mike DeHaan: [0:50] What is going on, guys? Welcome to today's episode of the collecting keys real estate investing podcast. If I sound a little quiet today, I apologize. I'm sitting in a coworking space in Vancouver. I'm up here for a couple days with my wife. And, yeah, I just scrambled to find place to get this recording in, but wanted to spend some time talking about real estate today with my cohost here. If this is your first time to the show, this is the show we teach you to make massive income, not just passive income with your real estate business. I am your host, Mike DeHaan, here with my cohost, Dylan Cook and Dan Austin. And on these midweek shows, we talk about real estate investing business and whatever else we feel like for the week. So one of the things that we wanted to start with this week on the investing realm was this chart that you sent over, Dylan, specifically around multifamily and kind of the delinquency rate that we're seeing with these. And I think it's a good conversation to start with because it's something that, I don't know. I would say it's, like, been on the horizon for a while, but some of these multifamily properties that were getting bought at crazy low cap rates over the, you know, previous number of years, and now they're all starting to get taken back by the bank. And I remember way back when Dan and I started this show, we would kind of talk about this a lot, but it was always treated as, like, we don't really know what we're talking about because we're just

Dan Austin: [2:16] You guys are stupid.

Mike DeHaan: [2:17] So we're just the the dumb single family guys where they're all printing money by increasing their NOI and and with the low cap rates and everything else. But give us your take on this, Dylan, since you're mister economy and kinda why you think this all broke down.

Dylan Koch: [2:31] Well, for the listeners too, like, you look at this is from a Bravo's research, and they pulled it directly from Bloomberg Finance. And it's from 2004 all the way to basically the May of of this year. And the attention grabber here is like the Freddie Mac delinquency rates for multifamily housing is now like past what it was in the 2008, 2009, like Mhmm. Financial crisis. Right? And so when people see that, they're like, we certainly don't feel that in today's economy. How can that be? And I think what a lot of people don't realize is there's a lag effect, especially to some of the stuff that happened over the past couple years. And moving from 4% interest rates to now seven, eight, and anyone who's on a bridge loan, it takes a long time for that stuff to play out. Right? If they have reserves, if they have other assets, if they're doing a capital call, there are a lot of things people can do to stay solvent for extended periods of time, but eventually, like, know, the chickens come on to roost. I think that's what we're starting to see.

Mike DeHaan: [3:24] I mean, and and I think the big there's a couple of reasons that this happened. Right? But the big thing is people were buying stuff at lower cap rates than they had before because interest rates were so low. And they were making assumptions about how rents are gonna continue to increase even though we're facing an affordability crisis. And one of the big things that people were getting caught is a lot of these loans, they're adjustable rate. Right? And so you end up in these situations where you're expecting interest rates to stay the same three years after you buy them. You'll do these three adjustable loans, and sure enough, they now jump to 7%. And now you're just hemorrhaging money on this property, and you can't refinance it or anything else because you no longer have any equity.

Dan Austin: [4:05] I don't think that's even the reason. I think that's, like, a reason or, like, the output of a bunch of bad decisions. Because cap rate, like, ceilings have always existed. They've always been there. People have been buying multifamily forever. I think, personally, because there wasn't I'm looking at this graph in, like, about two years after the financial collapse is when the delinquency rate really started picking up, which to your point, Dylan, there's that delay effect. But there's no real immediate recession. You know, you got the 2020 so called recession, and maybe this is things shaking out of what should have been a longer deeper recession that wasn't because the fed printed a shit ton of money. I don't know, I just feel like there was something more cultural or something larger like social movement, because I know when we all joined GoBundance, if you would have like thrown a rock, you would have hit a syndicator and they all seemed to have the same persona. And that was they couldn't understand how to make residential, like, typical fix and flip, buy a duplex, buy a single family. They couldn't figure out how to make that work. They, generally speaking, had a wealthy family member or were in a high w two job that for some reason they wanted to run away from even though they were making $3,400,000 a year working twelve hours a week. That was the persona.

Mike DeHaan: [5:18] It's funny because I I know several people that have all of those things that you just said that used to go beyond and so far anymore. They were like, you know, the wife's a dentist and they work at Netflix and their dad owned the largest real estate company in X Y Z City.

Dan Austin: [5:33] Yeah. And it felt like though that there was like a social movement around that. Right? It wasn't like there was any data showing that you should be doing that, that they should be doing that. And so then the deals that they were looking at, they're basically just using they were leveraging close and near relate like near people in their circle for relationships to get that believed in them to sell them really crappy LP positions and and deals. I mean, that's kinda what I felt.

Dylan Koch: [5:56] Syndication, to your point, Dan, got super popular. It was a sexy thing to do, and that you could say you and, you know, 4,000 units or whatever it was. But I saw some of these pitch decks, you know, to people sending them to me. And even my own market, they'd be like, a c class neighborhood, and we think we're gonna get, you know, $1,500 for a one bedroom by year five. I'm like, the fuck you are.

Mike DeHaan: [6:15] I know.

Dylan Koch: [6:16] Right? Like there's just no way that that makes any sense. And I think a large part of this is like they would underwrite to perfection. Yes. And or even better for perfection, honestly. And like when those didn't happen, and you have rising cap rates at the end the tail end of that, it's just a recipe for

Mike DeHaan: [6:30] a recession.

Dan Austin: [6:30] You're a person that's reasonably sophisticated that understands because you are buying rental units, you are doing things. So they're selling these to people that have cash or some cash. And they're like, oh, yeah. You've talked about real estate a lot the last year. You seem like an expert. Let me invest my four zero one k, this self directed IRA that I now have. Let me invest that with you. Or they'll help you do that.

Dylan Koch: [6:51] They'll help you set

Mike DeHaan: [6:51] yourself Which is such a red flag,

Mike DeHaan: [6:53] by the way. Anytime someone offers to help you get more liquid so that that you can give them your money. Don't do that. Yeah. That's like an old thing. I'm I'm talking to people in the past that signed up for the sub two group, and I guess people said that he Pace used, like, a third party sales company. But, like, literally, they would do is they would coach people on how to get 0% interest credit cards. So they could pay, like, to join sub two, and they're like, oh, yeah. You'll just make it back when

Dylan Koch: [7:21] you pay

Mike DeHaan: [7:21] your first deals. Don't worry about it. And then sure, they don't do a deal because they're stupid. But back to the the multifamily stuff, though, I imagine there must be

Mike DeHaan: [7:30] a hell of a lot

Mike DeHaan: [7:31] of people that had LP positions in a lot of these. They've just gotten wrecked.

Dylan Koch: [7:35] Yeah. I mean, like I I shared with you guys prior to this, there's an old guy in GoBundance who I knew who's an an LP, and I think it was five or six deals, you know, 50,000 a pop, and he saw zero returns. Like, he lost all of that money.

Dan Austin: [7:47] It was at all of his LP positions too?

Mike DeHaan: [7:49] Yes. So crazy. Like

Dan Austin: [7:51] That was crazy.

Mike DeHaan: [7:51] I mean, you think about it, like, there's, for some people, that's probably all they have. You know? And they were fully bought into real estate as an asset, but they were busy with their jobs or different things, and they didn't wanna, like, start their business themselves. They trusted somebody else and have to go out to zero like that. Mhmm. I mean, that's the biggest knock on being a completely passive investor. Because if you're investing yourself and you're buying like a duplex, sure your return might be shitty. You might lose money, but it's probably not gonna go to zero. Like, honestly.

Dylan Koch: [8:23] Yeah. It'd be hard.

Mike DeHaan: [8:24] Always have the ability to hold on to it indefinitely if you really are worried about that.

Dylan Koch: [8:29] And I don't think any of these GPs were malintent. I just don't think they had the experience, and they, you know, they it's been so good for so long that they got caught up with everything. Mhmm. And I think they were probably genuine and they thought they were gonna get the returns that they did. It just didn't have the wherewithal to know what was

Dan Austin: [8:44] gonna of any like legit syndicators that have had trouble with deals where they're losing people's money? Brandon Turner. Is he like losing have people like

Mike DeHaan: [8:54] He was about to. He had to do a massive raise to pay off that loan for that Austin property that was all over social media for a little bit.

Dan Austin: [9:01] A big 400 something unit they bought?

Dylan Koch: [9:03] Yeah. I think there's another Houston one. I I can't don't there's another scale member who's an LP in it. I don't think he's allowed to say much right now, but it's not going well.

Dan Austin: [9:10] Video about it. I would caveat that with I would not consider Brandon Turner a legit syndicator operator. I'm not saying he's a bad one. I'm talking about the, like, the rich dudes that you've never heard of because they have, like, 10,000,000,000 under management, like that stuff.

Mike DeHaan: [9:23] Oh, no. Well, I think the thing is is with some of those guys, you look like in Grant Cardone, for example, like, McElroy. You get so big that you could just bail yourself out if you need to.

Dan Austin: [9:33] Yeah. Well, sure.

Mike DeHaan: [9:34] It's like how we are, you know, like, with our stuff down. We have stuff go sideways. Like, we have this we still have this flipping duplex in New Orleans that have this sub two called

Dan Austin: [9:44] We're not flipping it. It's a flipping duplex.

Mike DeHaan: [9:46] Yeah. It's a yeah. That got the sub two got called earlier this year. And now a year later, we still have this lunch. We couldn't sell this one. But we were able to get ourselves out of it because we just had the money to pay it off. Mhmm. Right? Like, if Grant Cardone is about to lose $10,000,000 of investor money, he might let it go, but he knows that would destroy his reputation. So he probably just pays it off or just raises it again and then uses that money to pay off the first people.

Dan Austin: [10:15] Or do something not illegal, but yeah. Something Yeah. Structured the right way to make it work.

Dylan Koch: [10:19] Yeah. Right. And there's something to be said for like, if you was I don't know what it is. Was like if you owe the the bank a million dollars, it's your problem. If you owe the bank a $100,000,000 is the bank's problem. Like, the bigger you are, they are more likely to work with you. But if you're a small and pop guy, they're like, we're taking this property to foreclosure. Get fucked. Like, we're just gonna Exactly. We're gonna

Dan Austin: [10:38] lose Exactly. Exactly. Of them

Mike DeHaan: [10:40] are crazy too. Like, there's a lot of the multifamily ones, but even some of, like, the mixed commercial ones. Like, I've seen couple people on Instagram post some of these ones in, like, Downtown Austin that, like, were bought couple years ago for, like, a 100 plus million that are now like, have gone to auction for, like, $2,030,000,000 bucks. Right? Just like pennies on the dollar.

Dylan Koch: [10:58] Yeah. The drawdowns are insane.

Mike DeHaan: [11:00] Because they're empty. Like, there's no one in them, and so they're not really worth anything.

Dylan Koch: [11:04] I think one thing too, if you are an investor the past couple years, and let's say you have an interest in buy and hold or small multifamily, assuming larger ones, and you were getting beat out by all these other syndicators, and you're like, how the hell are they paying that much money? Who knows? Maybe the next six months to a year, next couple of years is your time to shine. Because you were actually stuck to your guns, you didn't overbuy stuff, and your underwriting will now actually prove fruitful and you have

Mike DeHaan: [11:27] more opportunities. Yeah. I think there's tons there. And, you know, stick to your own numbers too. Like, don't look at what other people are buying and, like, think that they all know what they're doing and making good ideas. People can make dumb decisions. Just like in '22 when the market turned over, there were so many people that we saw in '21, Dan, that were buying these super, super tight flips.

Dylan Koch: [11:47] Uh-huh.

Mike DeHaan: [11:47] And it was so tempting to wanna compete with them. And they're like, well, they're just putting it on the market, and it's selling in three days, and they're making $30. Like, why don't we do that? And then sure enough, they had 15 of those in '22, and then they ended up losing millions of dollars. But same thing happens to the multifamily. The music stops. Exactly. Mhmm. So don't get FOMO and stick to your own numbers, but it's always a fine line. Because also if you just sit there and you're too cautious, you'll never do anything.

Dylan Koch: [12:10] Yeah. That's the beautiful thing about investing, man. Because I'm sure if we all had time machines, we've been like, we should have been more aggressive, you know, during this span. But you know, then we don't know when to stop. Or like if you have a super long rehab, that's the other thing with commercial too. Like, it just takes so long for these to develop. Yeah. You just don't know. If you don't have interest rate caps, like a lot of those loans have interest rate caps. So like they went from 3% to 9%. Right? Like but some of them, maybe the better operators, need to look out for that. They're like, okay. Well, the maximum interest rate you go is 6%. You know? And like so they can underwrite for that.

Mike DeHaan: [12:43] Yeah. And when it comes to LPs to limit family, a limited partner, it's just important to understand the person and their track record, and to be super hesitant if it's somebody that either isn't super financially sound himself or doesn't have a great track record. Because people tend to do shady things when they don't know that they're doing shady things or when they have their backup against the wall and they kinda need to. Because Dan and I both have do you do you have just one LP, Dan, or do have two?

Dan Austin: [13:10] Just one. I don't trust enough people to do more than one right now.

Mike DeHaan: [13:12] See, so I I thought I did a second one this year, but they're, like, the rare people that I've met that get really good vibe from them. I've gotten to know them. I like the deal. I like what they're doing. And I'll also say to you both the ones that I've done, they're not like these value add multifamily deals where they're kinda speculating what the area's gonna look like. The one that Dan and both did together, it's like a new build in this area that has a massive demand for new build properties with a guy that this is what he does. He's like a pro with it. And the second one I just did was part of a massive, like, self storage roll up. And the guy that's doing that, he literally liquidated his entire residential portfolio and put it was, like, 8 or 9,000,000 of his own money into the deal, and it's like a $40,000,000 purchase. So, like, he's into it himself, like, almost 20%.

Dan Austin: [13:59] A lot. He's all into. He's a good person. It's the person that matters more than anything. Totally. Trustworthy and do you have a little track record with him? And I mean, the funny thing about the new build one we're in is, I think, somewhat coincidence. When I I was at the recent Go Bunnings event, they had one of the big hedge fund operators there talking about, we don't do value add. Like, that's stupid. We do new build only. Yep. And here's why, because when times get tough or when you're going to get valuation, you're gonna get higher rents in a new build. When there's a 400 unit new build across the street from a 400 unit value add, the numbers pencil out much better on the new build because by the time you're done with the value add on the on the used one, you basically have to start over, and my my new one already still looks better because it's new. Right? So it takes the same time to build one as it does to value add one. Anyways, with the one we're in, it's new build, and it's just by happenstance that that happens to be a good performing deal. I guess a coincidence that that's the one we picked, but it was based on the operator that had the experience and is trustworthy. And it wasn't something that was way out of his, I would say, way over a skis or out of his typical deal. Yeah.

Dylan Koch: [15:08] So he wasn't a physician that decided to to pursue new new ground up development?

Dan Austin: [15:13] Yes. He wasn't a software developer that was going to be a syndicate. Yes. This was his craft. He had already scaled and sold a business. He ran a construction company, ran a property management company, had been doing redevelopment deals. This was sort of sort of a redevelopment deal, but with a with a new build component.

Mike DeHaan: [15:30] Yeah. And also not once did he say that the bulk of the return is in the tax benefits, which is just a great way of saying I'm trying to sell you a shitty deal. Like, honestly.

Dan Austin: [15:38] You really technically get a $100,000 in tax benefits. Yeah.

Mike DeHaan: [15:41] Fuck

Dan Austin: [15:41] off. So it makes it a $100,000 profit.

Dylan Koch: [15:44] Yeah. Exactly. So if you add that into your cash on cash, it's now at four Goddamn. Point two Yeah.

Mike DeHaan: [15:49] But alright. Yeah. Anything else to add on that? I think it'll be an interesting thing to see, but I think a good takeaway, Dylan, like you said, is if you're looking to get into that space, start, you know, reaching out to bankers and watching the auction because you could start to get some very legitimate multifamily deals for some good discounts right now.

Dylan Koch: [16:05] Totally. Yeah. And if you have relationships with lenders, like I have a couple here locally, you know, just maybe call up and say, hey, you know, if you got anything bad loans on your books for this type of asset, you know, give me a call. Because they don't wanna own the property, they don't want to have foreclosure. You could come in and save the day and get a good deal.

Dan Austin: [16:20] It's a

Dylan Koch: [16:21] win for everybody.

Mike DeHaan: [16:21] So it's good connections to have. Awesome.

Dylan Koch: [16:23] Yeah. So we'll we'll just go into it. Really, it comes down to like where most major institutions see home prices. And I know Mike, you have a a opinion on maybe a conflict of interest here, but the one is specifically from, like, the big names. Bank of America, Fannie and Freddie, Goldman Sachs, NAR, Wells Fargo, and basically, all of them have the consensus that we will see positive house prices in 2025, ranging from Apollo Global Management at 10.8% And year over year the only one that's negative out of like the 10 listed here is Moody's, which is a minus 0.4%. So basically flat. So the general consensus here is like, everyone thinks that we're gonna have positive appreciation through 2025 of next year. And that's a good contrast to last week when we mentioned how basically the the broker was like, I expect significant price declines to the middle of next year.

Mike DeHaan: [17:15] I hope you guys are enjoying this episode. We are seriously trying to grow this podcast so that the voice of what it really takes to grow a real estate business becomes kind of the norm versus the guru get rich quick b s that everyone is fed on a daily basis. With so many podcasts out there, it is hard for us to get discovered on our own. So a quick ask. Please share this episode on your social media accounts, be that a real story, whatever. And if you tag me at Mike underscore Invest, then I will give you a follow, and I will also send you a DM so that we can have a little chat about your business in and any ways I could potentially help you grow. So again, please share it on your socials. Tag me at Mike underscore invests, that's with an s at the end, and I'll follow you, and we can have a little DM, a convo about your business. And maybe I can help you grow a little bit, or you could just say what's up to. That'd be awesome. But appreciate everyone, and thanks so much for helping us grow.

Mike DeHaan: [18:07] So my big challenge with this one that you put together, I guess you found this somewhere, is that all of the companies listed are all businesses that give out mortgages. Right? You know, Bank of America, Fannie Mae. I'm assuming Goldman Sachs has something in mortgage that it gets involved in. I mean, HousingWire is a real estate housing company, the Mortgage Bankers Association, National Association of Realtors, Wells Fargo, Zillow. Like, they are all financially incentivized for people to continue getting mortgages and for properties to go up, which if they go and they say that, hey. We think property are gonna drop 10% value next year. People are gonna stop buying real estate.

Dylan Koch: [18:46] Mhmm.

Mike DeHaan: [18:46] Right? And that's always my whenever I see stuff like this, I always look at where exactly the message is coming from before I put any faith in it. Like, I would put more belief in what we talked about last week with that. Was that like a hedge fund analyst?

Dylan Koch: [18:59] Yeah. She's got like an independent consultant where she doesn't really like, it doesn't matter if it goes up or down.

Mike DeHaan: [19:04] She's basically like, just look around and give everything the bullshit test. Right? Like, people generally can't afford stuff. The general view is that interest rates are gonna stay the same and keep climbing.

Dylan Koch: [19:15] Mhmm.

Mike DeHaan: [19:16] You know, the ten year yield, which you're looking at earlier this week, has gone up Uh-huh. Over the past month, which is what mortgage rates are based off of. So I don't really see real estate going up next year unless all of a sudden people have more money, which they're not going to.

Dan Austin: [19:33] Would you have guessed it was gonna go up this year? In '24? Yeah. No. Yeah. Because it went up this year. Right?

Mike DeHaan: [19:40] Has it gone up this year? Mhmm.

Dan Austin: [19:41] Yeah. The medium house price nationally is up. Is it? It's yeah. It's margin. I don't know what it is, but it's marginal. It's probably two to 5%.

Dylan Koch: [19:47] Number of sales is lower, but the median price is Yeah.

Mike DeHaan: [19:50] A little

Dylan Koch: [19:50] bit higher.

Mike DeHaan: [19:51] How much higher is it, like, nationally?

Dylan Koch: [19:52] I'd have to look it up, man. I know it's just a couple percentage points.

Mike DeHaan: [19:55] Probably. Maybe a little bit. Right? Yeah.

Mike DeHaan: [19:56] Yeah. See, what but here's the

Mike DeHaan: [19:58] thing though that's interesting about that is I wanna see how that's broken down by area. Because I know, for example, Spokane has gone down.

Dan Austin: [20:05] I'll fact check you while we're live. Keep talking. I'll fact check you. I don't know what it is.

Mike DeHaan: [20:09] I mean, like, I know it has. Because I because I tracked the value of my own properties. Some my own properties have gone up Oh, yeah. You know? In the past year. Right? A lot of the major metros have seen declines in value, especially the ones that really exploded in '21 and '22. But if you're going to some of, like, the Midwestern markets where people have been moving because you can now buy a five bed, three bath home for $200, which is affordable for people and people who can work remote or even places like some of the Midwestern midsize cities like where you're at, Dillon, Cincinnati, and Cleveland, you're starting to have warmer people moving there for the large companies that are based out of there. Those things will pull up like the national average. Mhmm. Right? That's the other thing too when I which I hate with stats like that is that it assumes that the entire United States is, like, gonna go the same direction. When realistically, The US is a bunch of different countries that have their own micro economies.

Dylan Koch: [21:04] It's honestly, that's my same opinion when it comes to inflation. When like Totally. People are like, oh, we had a 2% year over year inflation. I'm like, it totally depends on the area you live Absolutely. Because housing is a big driver of that for one. Mhmm. But two, like, this transportation, gas, like, whatever it may be is is different for another. Or I don't know. It's just like I'm a pet peeve of mine, and I I think you're totally right. If you have like, Columbus, for example, which is not Cincinnati, but just up the road. They have an Intel factory or campus being built. Right? So how many new jobs are being developed right then and there? Like, no matter what happens, like, they're gonna have a positive Mhmm. Appreciation in the real estate market.

Dan Austin: [21:38] It's hyper local, and you gotta know you can't talk to people in one state, one city for the next. Right? Because it could change. Spokane house price according to Redfin is up 4.4. I don't know how.

Mike DeHaan: [21:49] It doesn't feel right. Exactly. You you don't know how, but I would say that that is not true. Like, if you go and you look at

Dan Austin: [21:55] What do I guess, do you think would drive that?

Mike DeHaan: [21:57] I wanna know where they're getting that data from.

Dan Austin: [21:59] Because if you think about it like this, again, this is a good point because, like, your houses that you might be selling are in, a nicer area of town. They're not, like, premium properties. Right? They're good first time homebuyer step up type houses. Right? But the lower end stock, which is the vast majority of Spokane, maybe it did go up

Dylan Koch: [22:18] a little bit. You know

Dan Austin: [22:19] what I And that could swing the number.

Mike DeHaan: [22:21] I don't know, dude. Even looking at the wholesale stuff that we're doing, like, can look at the houses It feels less. And and we can look at them and say, oh, dude, like, three years ago, we could have sold this the ARV on this thing would have been $3.50. Now it's maybe, like, 303, you know, $3.10 maybe. Sure. I don't know how they got that data, but I think it's wrong.

Dan Austin: [22:38] If you compare it to 2022, for sure, we're noted. You're gonna notice a big difference because it just felt like things were so much higher. But yeah. I guess here, according to Zillow, point 8% past year, median sale price, $4.33. So I mean, and these are these are month to date or month to month. So it could be, like, shifting twelve months Yeah. Is different than the actual year to date twelve months.

Mike DeHaan: [23:03] That's actually valid. So, like, it, like, bottomed out, like, last November.

Dan Austin: [23:06] Yeah. From, like, October to October, it's going to be higher. But if you actually looked at, like, year to date to year to date, like, it's lower. Yeah. Yeah. Yeah. I see what you're saying.

Mike DeHaan: [23:15] Yeah. I don't know. I think that fundamentally, one of the big things is just nobody knows. That's why it's important to be finding good deals in marketing for your own opportunities and, you know, sticking to your numbers and not overleveraging yourself just in case stuff gets weird.

Dylan Koch: [23:31] I don't know. I don't know how flippers who don't source their own stuff make it. Like, to be honest.

Mike DeHaan: [23:36] I don't know. Like, we have some buyers that source nothing from themselves, and they seem to do alright.

Dan Austin: [23:40] Yeah. Well, I will say this, all the flippers not all the flippers. The flippers that I know that have historically just the last twelve to twenty four months been trying to do more and more and more are peeling back and saying, I need to do less, less. Mhmm. But then there's these onesie twosie guys that they just pop off deals two or three, four a year, and they're happy to be buying. Those are the ones that, like, I just got a text from a guy now. He's like, hey. You got anything right now? He probably buys three or four deals a year. You know what mean? Maybe five.

Mike DeHaan: [24:05] Yeah. I think, like, the the flippers that outsource themselves, Dylan, what they're really good at is knowing their numbers and saying no.

Dylan Koch: [24:11] Yeah. That's a good point.

Mike DeHaan: [24:12] Right? Because especially if they have a brand, like, or or connections where they get opportunities all the time, it's very easy for them to say no. And because, you know, we only see a certain percentage of deals in each of our respective markets. Right? Mhmm. And so even though they say no to your deals constantly, there's other deals that they buy. Otherwise, they wouldn't be around. They wouldn't be in business that they like better.

Dylan Koch: [24:33] Some sellers, you know, especially have a very negative connotation around any kind of investing or investor. Right? They're like, I'm not selling this to an investor, and they'll go to a realtor. And the realtor will sell it to an investor, but they just went to a realtor first. So that could still happen off market.

Dan Austin: [24:47] The realtor five k.

Dylan Koch: [24:48] Yeah. You know, and they'll make their commission or whatever. But there's a trust aspect to that too, which can intertwine with you having a brand and a like a website and all this kind of stuff. If you just have this postcard that says, I'll buy your house cash, and they Google your company name and nothing pops up, that's probably a red flag to most people.

Mike DeHaan: [25:03] Totally. Yeah. I mean, make sure you have multiple access strategies on stuff too. Mhmm. Yeah. If your only access strategy is that you're gonna have to do a super lean flip, and everything's gonna have to line up right away, not the time to be making purchases like that. You know?

Dylan Koch: [25:18] Yeah. But So let me ask you this because there are some places that come up now that I'm like, okay, if this doesn't sell, I could rent it. But even on the rent side, like, I'd probably be losing a couple $100 a month in cash flow.

Mike DeHaan: [25:29] It's like, don't do it.

Dan Austin: [25:30] Like Yeah. What would be the situation, like, for you personally, if you're a loose tuner? Like, is it like, hey, I can hold on to $50,000 equity and then maybe lose $200, you know, like

Dylan Koch: [25:40] So that would be very location dependent. Right? If it's in a in a good area of town where I'm thinking, okay, I'm good if I hold this for five years, I'd probably do it. Yeah. If it's in a c class area or worse, I'd probably wouldn't. Or do you just wait for better opportunities or take it down and throw it on the MLS and see what happens? Like, those are like the risk rewards you have to take.

Dan Austin: [25:57] Yeah. And I think given specific circumstances, if there's like $5,050,000 in equity, and you can like just get that after sales cost, maybe it's 30. So it's a $30,000 flip. Or you hold on to it and go negative a few thousand dollars a year, like, I would take the equity now. However, if that's your flip and your alternative is to lose a couple $100, but you know you'll make it up over time, that's fine. You just can't do that all the time.

Dylan Koch: [26:20] Totally. And that and so if you're a newer investor, that strategy is probably not very viable.

Dan Austin: [26:24] No. It's not great. Yeah. Not great. But if you're

Dylan Koch: [26:28] you know, someone's been doing this couple years or your your current portfolio can kinda subsidize some of that, then that could be an option.

Dan Austin: [26:33] Yeah. Throw it into your portfolio and let it if you really like it and you're bullish on it and you wanna keep that that house or that property in that market,

Mike DeHaan: [26:40] hell yeah. Well, then just be realistic on, like, the long term upside with it because there's the expenses will pop up. They will change. Rents are always gonna be hit or miss. You're gonna have vacancies. So, like, my personal portfolio of 10 units that I own outside of Dan, I'm gonna be essentially breakeven on the entire year. Right? Because I had to turn one and a half units over the course of the year. I had a couple months of vacancy in in a couple different units. I just had a very unexpected vacancy where the person had stopped paying for November and actually cashed for keys to tenants and told them just to get out by the weekend, and then I wouldn't take them to court. I mean, it worked. So all in all, like, I think total net net, I'm gonna make, like, $500.

Dan Austin: [27:25] Hey, dude. That's that's positive. It's better

Mike DeHaan: [27:28] than negative. It's true. But like, then you look at the equity that I have in that, and it's like, what's the point, honestly?

Dan Austin: [27:34] Yeah. The opportunity cost. Exactly. I don't remember if you mentioned this last time we talked is, have you gone back and looked at every year, like, what your cash flow has been? And is this year an anomaly, or is it, like, underperforming cash flow wise from what you would have hoped?

Mike DeHaan: [27:48] It's been trending down since '21. Really? And because what keeps getting me is the increase in insurance and property taxes.

Dan Austin: [27:55] Yeah. Right? It just eats away at it, dude. It's been nuts.

Mike DeHaan: [27:57] Yep. And rents have slowly started to fall as well. Yeah. Right? Just like some of these places where they were so high. I mean, like, there's units that I had rented previously for $1,700. To be fair, I would when I rented for $700, was like, that's insane. I can't believe someone's paying that. But now I'm renting them for $1,500. Mhmm. Right? But at the same time, my property taxes have increased on that property $600 a month. Mhmm. Yep. And so those things kinda merge together, and the cash flow just disappears pretty quickly.

Dan Austin: [28:24] It kinda sucks too locally. I know everybody nationally is getting beat up on taxes, but in particular in Spokane where we live, we started buying like Mike and I, like rental properties and stuff right before they implemented a new system here in Spokane for calculating your property taxes, and it'll do it much quicker where before they just wouldn't change for years.

Mike DeHaan: [28:44] I know. For so long.

Dan Austin: [28:45] They literally couldn't assess it. They couldn't they would have to wait till they assessed it. You know, every time they assessed it, they'd have to go around and assess everything. Now they have a software that does it, and it does it rapidly. Mhmm. And it's kind of accurate, which pisses me off.

Dylan Koch: [28:57] Have you ever contested your property tax value?

Dan Austin: [29:01] I haven't. I wanted to before, but

Mike DeHaan: [29:03] It's really challenging. Yeah. So the risk you hold though, honestly, especially if in some of these units with how they are, they have like finished basements and things like that. I run the risk of it going up.

Dan Austin: [29:15] Because they don't include that? Mhmm. So I'll look at, like, the recorded square footage, and I'll decide if I

Mike DeHaan: [29:20] think it's similar or not. And if it's, like, a little bit low, I'm like, I better not say anything. Because they're gonna go, and they're definitely gonna increase my taxes.

Dylan Koch: [29:27] So here locally, like, they reassess every three years in Hamilton County. But if you bought a property for 300,000, like, you're not gonna win that case. Like you bought it for 300,000, the assessed value is 300,000. But if you do like the the the tricky stuff not tricky stuff, but some of the more advanced stuff where you buy it through an LLC or something where you really can't see the purchase price, and you try to assess it. If you come in with some valid comps and a and like an appraisal, I've had success with getting reduced, you know, property values before.

Mike DeHaan: [29:55] Yeah. I've heard it happening.

Dan Austin: [29:57] I was this is interesting. I know Mike, you got this email from our property manager. Mhmm. So in Washington state, they have a new law. This is I don't know my opinion on this shit, but I was thinking about this in the context of this conversation is if you wanna do a rent increase above 3%, you have to give the tenants a six month notice.

Mike DeHaan: [30:15] Wow. That is wild. Isn't that crazy? A hundred and eighty days.

Dan Austin: [30:19] Because they still only have to give you, what, twenty day move out notice? So you could say, hey. I'm raising your rent by 3%. And then twenty days before the lease is up, they tell you, sorry. I'm not gonna stick around. Mhmm. So it's kinda kinda tough.

Mike DeHaan: [30:33] Yeah. I think honestly what would make sense to start doing is you just bake it into the lease when they sign that they will be getting a five or 6% increase every year. Yeah. If you can

Dan Austin: [30:43] do that, like, that's your 100%.

Dylan Koch: [30:45] Yeah. Like, that's what a lot of commercial leases are. I wouldn't see why that Yeah.

Mike DeHaan: [30:48] Couldn't do the same. Yeah. I mean, then it avoids any timeline stuff, and then if there's any battles, like, oh, you when you signed the lease, this was in there.

Dylan Koch: [30:55] What we typically do is do an an annual lease, and then it has like a month to month like, clause in there.

Dan Austin: [31:01] That increases. Yeah.

Dylan Koch: [31:02] Yeah. If you go month to month, this will be your new So it's kinda baked in a little bit.

Dan Austin: [31:06] Yeah. The tricky thing, Washington has a tougher law around month to month when it comes to like move out, then you have to give them like a hundred and twenty day move out notice if it goes month to month. And so it's like tricky. You don't really want it, and then you your eviction, it it's tougher after month to month. So we have to be walking a fine line. You have to just have your

Dylan Koch: [31:24] shit wired. Yeah. Then we don't have those problems here in the Midwest.

Dan Austin: [31:27] Yeah. You have to be wired tight, like, on our stuff. The interesting is the next line down is if you have section eight, you just gotta give a thirty day notice to raise your rent. I'm like, the most low income modulation, and they just get a thirty day notice, because they have to pay a portion.

Dylan Koch: [31:40] It's because they're not paying it.

Mike DeHaan: [31:41] It's crazy.

Dan Austin: [31:42] Well, some of them have

Mike DeHaan: [31:43] to pay

Dan Austin: [31:43] a portion of it, And three to 5% might be a big deal to them. Maybe it's $20. That's, you know, I don't know, that's food for the afternoon or the evening or something. Totally.

Mike DeHaan: [31:53] Yeah. It's mentioned to see how that sort of pans out across the country as different things happen.

Dan Austin: [31:59] Yeah. Well, anytime that there's like an economic hardships, right, then the government wants to come in and protect those people that are in like a bad spot financially, and that creates more cost on the landlord and the owner of the properties, which in the interim is great for the the little guy. But then as time goes, it gets harder for people to actually wanna rent and lease out properties, you know, because it the cost is like you're finding, Mike. The cost becomes excessive to where you're like, I'm not getting return. I have to go to a different asset class that's not realistic.

Mike DeHaan: [32:27] Totally. Or you have to sell it. And it's funny. Some people think it's good because it'll go back to homeowners. But when it's like some of these funny, like, duplexes and triplexes and stuff, I'm like, no. Those are rental properties.

Dan Austin: [32:40] It goes to, like, a shitty person that doesn't know how to be a landlord, and then they're assholes to these people.

Mike DeHaan: [32:44] And then we end up full cycle.

Dylan Koch: [32:45] They're purposely built multifamily stuff. Yeah. Like, not a chopped up 2,000 square foot house.

Mike DeHaan: [32:51] And then it goes full cycle. In ten, twenty years, all those people are selling their properties to their back wholesalers just like us because they didn't maintain them, and they have

Dan Austin: [32:59] Had a discount. Yeah. They have We're excited to buy them.

Mike DeHaan: [33:01] Bad tenants. Exactly. Cool. Awesome, guys. So we'll wrap up there. Brown, guys. Well, appreciate you all listening, and I appreciate you all that responded to me on Instagram yesterday. I put a little post. I'm at Mike underscore Invest just asking for some feedback on directions on the show. And quite a few people, they said they wanted to hear more specifics around deals that we do that are we are specifically doing within our business. And so we're gonna be changing up the Friday episodes a little bit here where each week, it's either gonna be myself, Dan, or Dylan, and we're gonna talk about a recent deal that we have done. And I'm gonna be doing the first one here this Friday talking about a little four package deal that we did with the same seller, but that we had multiple different buyers on. So it was a pretty interesting one to sort of walk through. And, yeah. So we changed that around for the Fridays for a little bit. If you like that idea, hate that idea, you like those shows after you hear them, please let me know. All feedback is good, whether it's good, bad, or in between. So you can just shoot me a DM on Instagram, like, underscore invest. I'd appreciate that. And then you can follow Dylan at Dylan underscore does underscore deals.

Mike DeHaan: [34:05] You can follow Dan at investor man Dan. So right on. Thanks for listening, everybody. Talk to you guys next week.

Dan Austin: [34:10] See you. See you.