Don’t Get Blindsided by the New DSCR Rules

Mike DeHaan: [0:00] This episode is sponsored by Sir Lenzalot LLC, also known as SLA Capital, which, if you didn't know, is Dan and I's private lending company. So, yes, we are sponsoring our own show, but what you gonna do about it? It is our private lending company that offers hard money and DSCR loans to real estate investors of all types. So you can be a new investor, an experienced investor. You can be buying flips. You can be buying rentals, whatever. We can do everything. And not only that, but the rates that we offer are just as competitive, if not cheaper, than pretty much every other company out there. So whatever big company you've been working with, bring us their term sheets, and I guarantee that we can probably beat it. We have the same connections they do. We just don't have all the overhead and middlemen. So if you wanna come and check us out, go to slacapital.com/keys, and I will know that you came from the show. And by seeing that you came from here, when you get the closing, you will save $500 on your first loan with us. So slacapital.com/keys, we would love to fund your next deal. There's been so many flippers that are refinancing now. And what's going to be interesting is there is eventually going to be an inflection point. We're already starting to see it a little bit. The funny thing with Chance, and it's funny you might listen to this, is that he he's really, like, focused on customer service, which I appreciate, which is great. But sometimes it is possible to have a salesperson that goes that's too focused on that. Or sometimes I'm like, dude, just tell him to fuck off.

Mike DeHaan: [1:21] And, like, we'll move on to the next one. Like, that's okay. Like, I'm perfectly fine with you doing that. Better not be me. No. What's going on, guys? Welcome to the Collecting Keys Real Estate Investing Podcast. I am your host, Mike DeHaan, here with Dan Austin and Dylan Cook. Dylan. And just to finish my point. Okay. Because talking about our lending company and customer. It's similar to like borrowers. Right? Not borrowers. The sellers. Where you eventually you will sometimes get these sellers where the deal is just so like whatever. But you wanna do the deal because making some money is better than making no money. But it probably makes more sense for you to just be like, no. I'm not buying your house. Go do deal with something else.

Dylan Koch: [1:59] Yep. In the beginning, I probably spent way too much time on people that I should not be talking to.

Mike DeHaan: [2:04] Of course.

Dylan Koch: [2:05] And now I'm just like, nah. I'm good. Bother somebody else.

Mike DeHaan: [2:08] Now with our lending company, we run the same thing all the time. And, of course, just like with the wholesaling flipping business, it's always the loans where the person has horrible credit, where the deal barely pencils. Right? But they're adamant that they need to close on it. They probably aren't gonna have enough money by the time you get to closing to actually meet the requirements. You're making, like, an eighth of a point on it because they're they've shopping you around. It's always the worst. Just like with a seller that's trying to, you know, pin you up against everyone.

Dylan Koch: [2:37] But That's the one that, like, buys a car, like, the day before, like, closing on a house or something stupid. Yeah. Exactly. Right?

Mike DeHaan: [2:43] So I mean, there there's that old mantra that the eighty twenty rule. Right? Like, you can apply that in pretty much any way. You can say, like, 80% of your profit comes in terms of your deals. You can also say 80% of your problems come from 20% of your sellers or your borrowers. Same principle.

Dan Austin: [2:58] I guess I've never really met anybody that was extremely successful that sweated the small stuff.

Mike DeHaan: [3:03] Totally, dude. Yeah. 100%.

Dan Austin: [3:05] You know, it's like the most interactions we

Mike DeHaan: [3:07] have it's not that

Dan Austin: [3:08] they just are oblivious to the details. That's not what I'm saying. But, like, you know, they don't do the whole step over dollars to pick up dimes. God

Mike DeHaan: [3:15] damn. Absolutely. So sorry. Dan's gonna be hopping off and on

Dan Austin: [3:18] the phone. Gotta take this phone call.

Mike DeHaan: [3:20] Hold on. Today while, always trying to manage our 12 closings that we have between today and tomorrow. But, yeah, Dan's totally right, though. You don't really see successful people that sweat the small stuff, you know, on things like that. Or, like, we've talked about over the years, if you've listened to this podcast or different things, around the importance of, like, having some hustle with getting some of these deals together. And sometimes you just gotta be willing to eat it. Right? You show up and move people yourself. Like, you have to go and drive an hour and a half each way to get a contract signed in person because the only place that they're comfortable, you know, signing a contract is eating lunch at some shitty diner down the street from their house. Right? Like those are the things that separate the people that actually hustle their way into success in this business versus everybody else. I know of that forever. Eventually, get to a phase where you pay people to that for you. When you're starting out, that's what happens. And it's the same thing if you're in a lending business or you're buying rental properties. Yeah. Sometimes you are gonna have a rate change two days before because they decided that the appraised rent was low and your DSCR isn't good enough anymore. But you have to decide is a reduction in $60 a month in cash flow worth it for you to not buy that asset? If it really is, you probably shouldn't be buying anyway. That means that deal kind of sucks, honestly.

Dylan Koch: [4:33] Yep. Well, and the other like, with the wholesaling stuff now, I'll do that interchangeably, but also, like, I it kinda depends on how thick that deal is. Of course. Right? Like, if I know it's gonna be, like, a forty, fifty, I was like, yeah. I'll go out there. I'll take them out of my day. But if it's, like, I don't know, $2,505, I'm like, I'll get it to it tomorrow.

Mike DeHaan: [4:49] Have you had one of those where you're expecting it to be like a $4,050,000 dollar deal, and then by the time you got through all the bullshit, it was actually like a $10,000 deal?

Dylan Koch: [4:55] Of course. That's the worst. Yeah.

Mike DeHaan: [4:58] Yeah. Because you're like, oh, once we get through it, it's gonna be so much better, and then things go, and then your buyers are interested, and the market shifts. Yep. And then like, well, I paid them $3,000 to move into a place.

Dylan Koch: [5:08] Yep. And now it's just to the point, like, I'm just too committed at this point.

Mike DeHaan: [5:11] I know.

Dylan Koch: [5:11] I gotta see it through.

Mike DeHaan: [5:12] I know. Yeah. We we had one that we did, and it was exactly that earlier this spring. And ultimately, we ended up selling it as just like a scratch deal.

Dylan Koch: [5:20] Mhmm.

Mike DeHaan: [5:20] Like, the assignment was $0. And it was just because we were, like, so committed to actually getting this deal done. We didn't want the buyers the sellers to be pissed off. Our buyer had been kinda, like, jerking us around, and then finally, like, agreed to actually move forward with it. We spent so much time on this deal doing everything else, and we were just like, of course, issues like that closing, and then our buyers are like, you know, they left stuff in the property. And we're like, figure it out with them.

Dylan Koch: [5:45] I don't care. Yeah. Like Yeah. Yep. Yep. I had one where the guy, like, they they bought it, and it was supposed be vacant and closed, but we didn't do, like, a final walk through prior to. And we do the closing, and next week, no. He still in the house.

Mike DeHaan: [5:58] Yeah. Nice.

Dylan Koch: [5:58] And it was like, oh, shit. Nice. And he the my buyer's like, I want my money back. It's not vacant. We all we ended up working it out. But, like, it's just, like, stuff like that that just happens.

Mike DeHaan: [6:08] What can you do? It's part of the business. But Part

Dylan Koch: [6:10] of the business.

Mike DeHaan: [6:10] Well, anyways, another news. If you guys missed our episode last Tuesday, our our hot takes, that was our most successful episode we've had in a while. Actually got some good engagement on, like, YouTube and stuff of that too. So go check it out. People liked it. Basically, it's three of us sharing two of our personal hot takes on real estate and the economy. And, it was a fun episode to record, people seem to really like it. So go check that one out if you listen to your shows. And then also too, we started to revamp our scale community, which has been an interesting shift as well. So if you wanna come and, like, hang out with us, talk business, everything else, go collectingkeys.com, and you can check out our like, right on the homepage, you can join the scale Slack channel. Come hang out with us and, hang out with the other members of them with us for a little while as well. It's completely free now. So if you wanna just come talk business, good place to hang out with that. But those are kind of the updates of our business now though. I know you said that stuff has slowed down quite a bit in your market

Dylan Koch: [7:00] Mhmm.

Mike DeHaan: [7:01] Dylan. I know we've been seeing that everywhere. Even a lot of our, like, our borrowers for mister Lens a lot, there's been so many flippers that are refinancing now.

Dan Austin: [7:10] Yep.

Mike DeHaan: [7:11] And what's going to be interesting is there is eventually going to be an inflection point. We're already starting to see it a little bit where people, they're not gonna be able to refinance without having to bring more money to the table. And they have equity. Right? But we've already seen a couple of these come in where it's like the DSCR is just so poor with your interest rates. The valuations are coming in lower because all of the appraisals are now looking at the stuff that is sold at lower prices. And so for them to refinance out, even though they have 20% equity, they're gonna need to bring 5% more down. And whether they choose to do that or they can even afford to do that has become the question. And a lot of that's just because the market slowed down. So it'll be interesting to see how that affects things bigger picture.

Dylan Koch: [7:53] I'm surprised with your markets with of how higher your median sales prices are. Like, here, we can gotta get away with that a little bit more, I feel like, at least what I buy where I could turn into a rental. But if you're 400, 450,000, and it's renting for what? I mean, you tell me 2,500 a Mhmm. I mean, does it even have a positive DSCR? Barely.

Mike DeHaan: [8:12] So, like, we literally have one of these right now. Because what'll happen to and everyone listening to this that thinks that they're like a savvy investor that's doing rent by the room and different shit. Just know every lender is, like, onto that now. And so if you're trying to, like, put together a lease that's actually for a sober living house, but it's in, a person's name. Right? So it's fine because it's a real lease, but it's for two x over market value. Like, they're they're onto that shit. Like, they're not gonna let you do it anymore, and they're starting to call it out. And so in this particular case, I don't know what the guy's situation is. He actually has a a property management company. But the fund that's actually providing the money for the DSCR, they took his lease rate and they compared it to the appraised market rent. And they basically said, we're only doing the market rent. So they will do the lesser of the lease amount versus the appraised Yeah. Market rent. Right? And so when we put it together, we go off of what his rent was. He put his application, everything else. It's like a 1.15 DSCR. Now with the loan amount he wanted, it's negative. And so we have to reduce the loan amount.

Mike DeHaan: [9:15] Yep. Right? So he's gonna have to be bringing money to the table, I think, this one. And it's gonna be a worse rate because now the DSCR is at one point o flat.

Dylan Koch: [9:23] Yeah. Getting hit with both fronts.

Mike DeHaan: [9:26] Totally. And with and also too to your point, Daley, not only the DSCR worse, but in these situations where the property's worth 400 k and you're to bring an extra 5% to reduce the loan to value, that's like a lot more money than when it's a $180,000

Dylan Koch: [9:40] Yeah.

Mike DeHaan: [9:40] And that's $20. Property in Cincinnati.

Dylan Koch: [9:42] Totally. Yeah. On the DSCR side, can you do cross collateralization? If I own my house free and clear or another investment property free and clear No. Throw that onto that more no. You can't do that.

Mike DeHaan: [9:53] You can only do that with short term stuff sometimes. Yeah. And, typically, they will only allow you do it for short term stuff for, like, additional renovation costs if you have, like, a huge reno. So let's say you're buying a house that's, like needs, like, $300,000 in reno, and the house is, you know, is only gonna be worth, like, say, 500. Right? So it's a huge percentage of it. Yep. They will require you to get across collateral to appropriately collateralize that.

Dylan Koch: [10:18] That makes sense.

Mike DeHaan: [10:19] But, you know, people trying to do it for, like, down payments and other stuff, it's not a thing.

Dylan Koch: [10:23] Yeah. That could get messy quick, but in there, like, you could try to re pledged the same collateral multiple times. Somebody all know how that works out.

Mike DeHaan: [10:29] Yeah. You know, but we're starting to run into that. Because, like, the challenges too is a lot of these people that are no long not able to sell and having to refinance and bring one to the table, they're also newbies. And they probably don't have the money that they need to bring to buy down to basically do their refinance. What do they do?

Dylan Koch: [10:47] Yeah. I mean Right?

Dan Austin: [10:48] Sell the house, go bankrupt, quit.

Mike DeHaan: [10:50] Yeah. Well, the thing is, like, they can't even sell the house. Yeah. You know? That's kinda like the whole point. But, you know, eventually, if you drop the price enough, you know, you can sell it. You got to

Dylan Koch: [10:58] move into it so you can refi within 95% levered loan.

Dan Austin: [11:02] Well, not with a DSCR loan. I mean, you could I guess you could get a Fannie credit loan.

Dylan Koch: [11:05] Well, I'm saying like, you'd have to abandon that entirely and just go move in.

Dan Austin: [11:08] Yeah. Yeah. Think people just need to be less scared to sell a property at breakeven or slightly come out of pocket a few thousand bucks because you're gonna come out of pocket a few thousand bucks a year if you're renting that thing likely in this market.

Dylan Koch: [11:22] And just the headspace. I'm selling one right now that I am a distressed seller. I'm telling you right now, like, just get me out of this fucking house. And I'm losing money out of but I don't care. Like, just getting it out of here. So Yeah.

Mike DeHaan: [11:33] One of the funny things that happens too, honestly, it's funny. It's actually pretty annoying and terrible, is what you will see happening, and I know people this happened to you recently, is they will have these properties that they desperately are trying to hold on to get out of PIF hard money loan. They will sell a different property that they feel like they've already kind of squeezed the juice out of. They refinance it a few years ago, whatever. Rates have started to go down. They don't like it anymore. So they'll sell that property to basically pay off the new one or get into the new one. Mhmm. Here's the thing people don't realize. Okay? If you buy a house if you say you buy a house in 2020 when rates were low, it's now double in value. You did a refinance, 75% of that. Okay. So you pull out most of your money. Now the values have gone down 10%. You still sell you still have a huge capital gain

Dylan Koch: [12:17] Mhmm.

Mike DeHaan: [12:17] That you're gonna have to pay from what you bought the property for versus what you just sold it for. And it's highly possible that all that equity that you think is there is gone because you already took those gains when you did that refinance. And so what happens is you're taking this equity that you think is yours go and buy another property. So you just dump it right away into that house. And then you have a huge tax bill that's gonna come up next year with your 20 to 25% long term capital gains. And where's that money gonna come from? You're completely screwed. Like, that's the nature of the business.

Dylan Koch: [12:47] You gotta bonus depreciate and cost seg the one that you just bought to offset that.

Mike DeHaan: [12:51] Mhmm. Totally.

Dylan Koch: [12:52] But then you're just in a you're just in a circle. Like, you have to keep on that hamster wheel for forever. Forever. Right?

Mike DeHaan: [12:57] And I I would say that's a much worse hamster wheel than just like having a freaking w two job. Right. The more and more I've done this, like been in this industry, the more I've realized that it is a stupid industry to be in, like basically owning rental properties, if you don't have a either a very high and sporadic or a consistent w two income. Well, I and that w two is like income. Right? Of actual active cash coming in because the long term scenario always, whether it's your long term capital gains, whether it's the market taking a hit and you having to, you know, buy yourself out of something, whether it's renovations, whether it's vacancies. Right? Whatever it is, it was always losing money. Here's a good use

Dan Austin: [13:36] case for it to your point. We have a a mutual friend, I think all three of us probably, with a guy in GoBundance that is a developer out in Montana. And I was talking to him yesterday about a project he's doing. So he has a high high income, 7 figures a year with his construction business. Does well. And then having some exits on some things, he's looking at a 400 or $500,000 tax bill. Like that sucks. And he's like doing he's doing the mental math that Mike just jumped through. He's like, do I chase bad deals? I've lost my ass in syndications that said they would give me tax benefits. All of those are options, oftentimes bad options. But then he was talking about this other project he's doing, a new build community of duplexes. By the time it's done, the asset value will be about $22,000,000 on the books, which is incredibly awesome. And so he's like, I think I'm just gonna do straight line depreciation on that instead of doing the whole like accelerated depreciation. Because if you think about it, what is it? $22,000,000 in an asset, divide that by 27 and a half. What does that I don't know even what the math. $7.50 a year in tax write off? $750,000 a year. So he can essentially write off the bulk of his income from his construction business with that single asset.

Dan Austin: [14:46] And he owns other assets with depreciation. But the conversation ultimately always tends to, when you're done with that, you need to to sell it and $10.31 it, or you gotta eat the taxes. And the only argument that I would have for doing the depreciation is that you want to keep as much of your active wealth building in your pocket so you can continue to scale that wealth quickly in a period of time when you wanna be active. So if you're making a million dollars a year and you have to give 300 away or 400 away to the taxman, when you could invest that into new stuff right now. And your use case is for the next ten years on building wealth. And by the end of it, those taxes will then be worth more than the 20% or whatever you're gonna pay, 25% you're gonna pay on tax. Like that's the only use case. A lot of these guys, they're like 60 years old and they're investing in real estate. It's like, when are you gonna like benefit from this? Are you still in your active wealth building phase or are you in your retirement phase? Like, okay, at some point in time you do pay taxes.

Mike DeHaan: [15:45] I mean, when you get to that age too, it's whole other thing because sure they can like die and leave it to their kids. But are they just gonna hold on? Like, they could live thirty more years. Right? And they they're not making money anymore. Like, what are you doing?

Dan Austin: [15:58] And then the point of was gonna bring up the last point on a new construction project is that actually makes sense because in the sense of you're not gonna have, like, shitty properties that are always breaking. Yeah. You're gonna have losses and stuff actual losses that happen. It's inevitable when you're building a $22,000,000 community. But you don't have the same issues that you would have with a 100 year old building that you just renovated, and the hot water tank goes out and wipes out cash flow and all that sort of stuff. And so Right. A depreciation actually is truly a huge tax benefit. You're not you know, it's just paper losses without any other other bullshit. And then you can sell it four or five years later without being getting raped by the government.

Dylan Koch: [16:34] Today's dollars are worth more than future dollars too, and that's

Mike DeHaan: [16:37] kind of

Dylan Koch: [16:37] the whole pitch when it comes to the the tax piece of it. But even when you like, the guy has 22,000,000, and he's gonna, okay, take straight line depreciation, and who knows what his building costs are. He could take out a 50 to 60% loan and have plenty of equity in that. Right? Or you can try to max the leverage and refinance. But, like, even in my own portfolio right now, because I'm under contract on a, I guess, a somewhat bigger deal, I'm like, okay. I could have the funds or I could sell something and just come basically zero money, you know, quote unquote, out of pocket. But a lot of my stuff is still in a five year prepayment penalty. Mhmm. So I really like my portfolio architecture portfolios thing is like, I mean, real estate's already illiquid, but this is even more illiquid because I don't wanna pay the penalties.

Dan Austin: [17:17] Yeah.

Mike DeHaan: [17:17] Yeah. Well, and I will say you said that you can take out a 50 or 60% loan against that property. It's highly possible you cannot. True. So we have another mutual connection that literally has already done what Dan's talked about. And we have tried and tried and tried and tried everything, and we cannot get a loan for him because his it's too big of an asset, right, for, like, these DSCR lenders. So it's a bunch of townhomes. They won't do it as a portfolio because the exposure is too big. Mhmm. Right? And so he has to go to commercial loan. Problem with the commercial loans is cap rates suck. Right? They want it to be fully leased, which can take a very long time, especially if you're in a market that the rental market has gone down. Double so if you built a luxury sort of thing that's like a higher price point, which no one's moving into right now. K? And they basically have death by a thousand cuts because they did what most people do, where they have a fund that they've set up that's paying a press. And then they also have a construction loan to build the massive community like they would that's at, like, 11%. Right? So they're paying an insane amount of money. I think their their total debt service on it's only, like, 50% of the value, quote, unquote, value. Right? So they only want, like, a 50 or 60% loan, exactly like you said, but no one will touch it because the exposure is too big and because it's not fully occupied. And they can't get it leased up because no one is renting townhomes that are that expensive right now. Yeah.

Dan Austin: [18:40] That's an interesting point of view though too. Or I guess a point that you make maybe unintentionally is like how much underwriting goes into these loans and how I mean, we've talked to several of these big funds that are all bringing $50.60, $100,000,000,000 to the table to put into real estate. And their underwriting criteria is freaking crazy.

Dylan Koch: [18:59] Yeah.

Dan Austin: [18:59] This is not the like three and a half percent down FHA loans that, hey, as long as your credit card bill is low enough, we'll still sell you or loan you money on a house. This is like, they really favor high credit scores. They really favor low LTVs. So it's just like it's it's interesting. To me, it means it screams less of a wave of, like, bad debt coming into the into the field, but there is a lot of money coming into real estate right now on the debt side.

Mike DeHaan: [19:23] Yeah. There's a time, but they're just as picky because, you know, it's just in different ways than Fannie Freddie loans.

Dan Austin: [19:29] Yeah. In a better way, I think. Way better. Sometimes.

Mike DeHaan: [19:32] But then there's really dumb stuff that happens. Like we have this one that you were just on the phone for before, and we ran into DSCR issues because they signed a six month lease instead of a year long lease. Right. So public service for you guys. If you wanna get DSCRL, then sign fucking year long leases. Because even though you can have a six month lease and six months from now, you can double it or, like, make it better. You can extend it, whatever. They just look at the fact that it's six months, which is a short term lease, which they value differently than a twelve month lease. Because they're it's so dumb because Which is dumb.

Dylan Koch: [20:01] Hold on. I wanna go

Mike DeHaan: [20:02] to my soapbox. They're so shortsighted on their thirty year debt that they're generating. It doesn't make any sense, but it's it's what they do.

Dylan Koch: [20:09] Our buddy Chance called me. He was, like, pissed because I had an eight month lease.

Mike DeHaan: [20:12] Yes. And I

Dylan Koch: [20:12] was being smart because it was, like, a September to April because I was like, April and May are the better times to rent these places.

Mike DeHaan: [20:19] Absolutely. Which I did

Dylan Koch: [20:21] this on purpose, and now it's biting me in the ass.

Mike DeHaan: [20:23] It is. Right. And that's that's gonna cost you, like, 10 to $15,000 that you can't pull out because your DSCR is gonna be lower.

Dylan Koch: [20:30] I mean, I already did it, but whatever.

Mike DeHaan: [20:32] Yeah. Well, stuff like that makes no sense. You know? But, like, that is the the trade off now.

Dan Austin: [20:37] What if you put a one in front of that eight?

Mike DeHaan: [20:39] Eighteen. Eighteen months. Well, they might be like, oh, that seems atypical for at least. I don't know. It seems a little bit too long. It's a little bit long.

Dan Austin: [20:46] This guy sounds like he's a scammer.

Mike DeHaan: [20:48] Okay. Yeah. Right? Yeah. Dude, even like little stuff, like we had we just had to adjust another one because I thought I was being savvy putting together the loan, and the borrower was also a sophisticated investor. So we put together an interest only loan at a higher rate to try and, like, flex the DSCR so that he could get a lower rate. Right? Here's the problem. I didn't know this. I learned this, like, three days ago. When they go and they underwrite it, why they even offer interest only loans? I have no idea. Because what they do is they look at what it will what the monthly payment will be when it locks in five years, and that's how they fucking determine the DSCR. Interesting. So I'm like, what's the point of it then?

Dylan Koch: [21:29] Yeah. What is the point? It doesn't make sense.

Mike DeHaan: [21:30] It doesn't

Dan Austin: [21:31] change it at all. Yeah.

Mike DeHaan: [21:32] If anything, it makes it worse. Like, honestly. It's just an important thing to understand when you're look trying to plan to get long term debt on stuff because you can like you said, Dan, you can completely shoot yourself in the foot without even meaning to because you think you're being crafty.

Dylan Koch: [21:44] Yeah. And that's what I did. Yeah. But I mean, how many messages have you got the past week, Mike, from people like, hey, my rate should be lower because that's the headlines I'm seeing all across my social media right now.

Mike DeHaan: [21:53] Totally. And so that's think people don't realize too is that when it comes to investor grade debt, it is not tied at all to the the federal interest rate, the mortgage rates that you see thrown around the headlines and everything else. So, yeah, Dylan's thinking that's a good transition. Bringing that up today because as of the time of this recording, there was this whole headline, all these headlines going on saying it's the lowest interest rates been in several years. Right? So we had several borrowers who are like, hey, can I get a reduced rate on the DSCRs or the loans we're working on? The answer is no because we actually got a notice this morning that all of our rates are up an eighth of a percent than they were yesterday. Right? And the one of the most challenging pieces just with debt in general is it's very I mean, it's very volatile and it's hard to predict because I think at the end of the day, nobody, not even the lenders you're working with fully know which direction things you're going to go. And who fully dictates it are the big big money, the big funds that are buying the tranches at the end of the whole rainbow. Right? And then along the way, from your your loan officer, whatever company they work for, to the aggregator that they sell to, to the hedge fund that they sell to. Right? Everyone's getting a cut along the way, and basically their spreads will fluctuate as well. So not only do you have like the big big ones hitting the prices, but you also have all these companies in the middle that are basically flexing their margins.

Mike DeHaan: [23:15] And so that's why it's always really hard to get like any straight answers when it comes to rates because honestly nobody knows.

Dylan Koch: [23:20] Well, so the headlines are probably right if you're a owner occupied thirty year person. Right? Like, those are probably lower than they've seen. But the DSCR side, maybe even the commercial side a little bit is what you're saying. Like, nah, man. Like, we're just waiting for our superiors to tell us what our rates are

Mike DeHaan: [23:32] gonna Well, commercial's even more different. Right? Because a lot of commercial loans will be based off of what the low your local bank or credit union or whatever, because they will carry those on their books. Right. Right? That's why they will be like a five year adjustment with a ten year balloon is because they wanna force you to give them that money back. And so that's like a whole different product entirely. But, yeah, like it's when it comes to the investment stuff, it's not tied to anything that the feds are doing. And and there's always been the sort of thought that it was based off of the five year for investment grade loans. But the problem is that's now varied a lot as well because currently with the volatility in the bonds, a lot of the the bigger hedge funds, they're selling stuff directly off the bond market, right, to, like, other banks. Like, we currently have one fund that we're working with. I had to just, like, sign all, like, all the agreements and stuff yesterday. Their primary source of liquidity is a bank out of Austria that is buying all their stuff directly. Right?

Dan Austin: [24:31] Mhmm.

Mike DeHaan: [24:31] It's not anything related to bonds or REITs or anything in United States anymore. They're just selling they have a yield that works for an overseas entity, and they're buying American debt. And so I don't know. What that means over the long term is hard to say. What is interesting though on the owner occupied side is now we're what are we, like, a month into the shutdown? It's starting to creep in now. I've been seeing this around on Reddit where people are starting to face loan and or housing issues with the shutdown as well. And so there's been a big sort of set of conversations this week I've seen on Reddit specifically around VA and FHA loans. I haven't participated in myself, so I don't know the details of it. But I guess there's been, like, certain be delays and then being like, we can't actually close on the house until the government shutdown's over because the money has to come from somewhere. And I guess it's coming from somewhere in the federal government. And so that'll be another thing that if now we start getting a stack up of all these houses that are all these sales that are unable to sell, right, where you're gonna have sellers that are like, well, I'm gonna go back on market to find somebody else. You're gonna have buyers that are exiting the

Dan Austin: [25:36] Yep.

Mike DeHaan: [25:37] Pool or, like, can't qualify when interest rates go up again in three weeks. Like, this is, like, their window, and they miss it just because they're literally unable to close a transaction. What's that gonna do?

Dylan Koch: [25:47] Yeah.

Mike DeHaan: [25:47] Because that's a huge percentage of deals right now.

Dylan Koch: [25:49] That would be interesting how the October and November numbers compare both month over month and year over year. But I've heard similar rumblings in, like, if you are in a floodplain, I guess, FEMA is is the deciding factor. So if you need flood insurance, like, they can't get approval because of shutdown.

Dan Austin: [26:05] You know the other bummer, Dylan, you're not gonna be able to get any of your cool data because the government's not gonna they stopped collecting it after this last report.

Dylan Koch: [26:11] I know. I don't really trust government data in the first place. Am I right?

Mike DeHaan: [26:15] Dude, what data can you trust?

Dylan Koch: [26:16] I feel

Mike DeHaan: [26:17] like it's all bullshit, especially with chat GPT and AI now. You can just make shit up. Like the episode we did two weeks ago where we had, like, that map that we talked about where I had it, like, map out where, like, the hottest real estate markets were, and it just, like, made trash.

Dylan Koch: [26:31] Mike, you know what's funny about that is, like, the day after I was on X and someone had made, like, something go viral. It's like, hey, Chad GPT. Where did you get these numbers from? And its response was, oh, I couldn't actually open the CSV file. I just said, wait. What? Oh my god. So it just hits a nail in the head.

Mike DeHaan: [26:50] Yeah. I have no idea. There was one I was trying to do something with recently. I wanted to read a PDF, and it said and it, like, gave me a bunch of answers. And I was like, I'm pretty sure that's not right. And its response was, well, that's a locked PDF, so I can't read it. And I'm like, then just say that. I like the I know.

Dylan Koch: [27:05] Fucking say that the first time. It'll get better. Right? You know, that's what the whole thing is.

Mike DeHaan: [27:10] Will it? I don't

Dylan Koch: [27:11] well, even with the government shutdown piece, I think someone will bend the knees soon. I mean, that's just my thing. In the next, like, week or two.

Dan Austin: [27:18] We'll see.

Mike DeHaan: [27:18] Why? Like, will they? I don't think so. I fully believe that they are dragging it out indefinitely because there's that Brett from Arizona that's gonna come in is gonna force them to release the Epstein stuff right away. She's like the deciding vote, and I think they're gonna wait until these couple elections are done here in November that they're hoping will flip a couple of the seats. And then if they do that, they will open up, then she can come in and they will lose the vote to release the Epstein Files.

Dylan Koch: [27:43] I'm all for that. I don't care. I I want the Epstein Files to be released, so I'm all for that.

Mike DeHaan: [27:47] But Everyone does. Except for them because, like, it must be some really wild shit in there because they are taking things so far.

Dylan Koch: [27:53] I mean, they did often. Yeah. Well, I mean, but yeah. But, like,

Mike DeHaan: [27:57] big picture, they killed the culprit versus they're causing all these issues for tens of millions of Americans with SNAP and housing and everything else. He's just one dude. Nobody cares about that guy, like, in the history of the world. Right? There's so much other fallout that is happening because of this whole situation. So I do really think that that is a larger motivator than we realize. Like, honestly.

Dylan Koch: [28:22] Time will tell. Let's say let's put a bet on it, Mike. I'll do give him ten days. Ten has to be ten and half, I guess. Are you gonna take the over or under?

Mike DeHaan: [28:30] Ten days. Oh, man. I'm saying over for government shutdown. Over over ten days. I think we'll get to Thanksgiving.

Dan Austin: [28:36] I think so too.

Dylan Koch: [28:37] K.

Dan Austin: [28:37] Yeah. I think what's more important is whose fault it is. That's the better conversation.

Mike DeHaan: [28:42] Well, that's what we were just talking about. Right? And I said that I do think that the driver is because there's that rep from Arizona that's waiting to get pledged in, and then she will be able to push the vote to release the Epstein files. They don't wanna

Dan Austin: [28:53] do that. They're not gonna release Epstein files, dude. That is such a stupid argument. You know that. Yes. They are. Bro, they released a videotape that never existed. It's missing one minute. Like, the minute he gets hung. Like, no, dude. It's all lies. It's all lies. Dude, you gotta Oh, dude. There's some man, I'm up to date on my conspiracy.

Dylan Koch: [29:08] Dan's gonna get heated.

Dan Austin: [29:10] I'm just like, man, you're a smart guy. Don't believe in the Epstein shit. It's all bullshit.

Mike DeHaan: [29:14] I absolutely believe in it because I think it is the ultimate self like, the ultimate selfish thing for them to worry about.

Dan Austin: [29:20] Here's my point then. Then why? Because the Democrats want Trump to release it. And why didn't they release it in the four years that they were in office?

Mike DeHaan: [29:28] Such a great question. Right?

Dan Austin: [29:30] Right? Totally. Then it's just in there dangling, dude. It doesn't exist.

Mike DeHaan: [29:33] Of course it is.

Dan Austin: [29:33] I'm saying it happened, but it didn't exist.

Mike DeHaan: [29:35] Totally. And so my conspiracy with that is that the Democrats were adamant that they were gonna win in 2024. So they didn't wanna release it because because they were just as bad, dude. The Clintons, like, everyone all knows this.

Dan Austin: [29:47] Yeah.

Mike DeHaan: [29:47] But now they are so just like, fuck. We're fucked because that's the way that their whole party is

Dan Austin: [29:53] Yeah.

Mike DeHaan: [29:53] And the Trump movement and everything else, that they are willing to just light those people on fire, like the the Democrats that are being incriminated because it is their last option.

Dan Austin: [30:03] So it's their it's their, like, broken arrow last stand?

Mike DeHaan: [30:06] It's their nuclear briefcase, dude. Like, it's what they have to do in order to get anything.

Dan Austin: [30:11] I really hope it happens. I'm on your side here, but I just think it's fucking bullshit. It's a farce. It's not gonna happen

Mike DeHaan: [30:17] ever. I think it is. I think that that is the real cause of the shutdown.

Dan Austin: [30:21] And if it does get released, it's gonna be a massive disappointment.

Mike DeHaan: [30:24] Of course, is. Because it's gonna be like

Dan Austin: [30:25] all like It's it's gonna have no information in it.

Mike DeHaan: [30:27] It's gonna be all, like, colored out with, like, red crayon, dude.

Dan Austin: [30:30] No. They don't even do that anymore. They just, like, delete shit and be like, the system glitched, guys.

Mike DeHaan: [30:35] Yeah. Oh, man. It wasn't we found it in Hillary Clinton's email inbox. Lap

Dylan Koch: [30:40] in our laptop. Yeah.

Mike DeHaan: [30:42] Let's let's bring it back. Sent sent it here.

Dylan Koch: [30:44] It says

Mike DeHaan: [30:44] Barack Obama sent it to her.

Dan Austin: [30:47] So bad. It'll be no. But it'll be like Barack's Obama because they're not smart enough to actually

Mike DeHaan: [30:51] Yeah. Right. Yeah. Yeah. It'll spell, like, Barack with a c k at the end.

Dylan Koch: [30:55] Like, whitehouse.gov or something stupid on there. Well, now that we're on the political tangent, you know, I'm just gonna download that autopilot and Nancy Pelosi's tracker and put $10 in it and just, like, retire in ten years. Absolutely.

Dan Austin: [31:08] Yeah, dude. She's been falling out, dude. She is falling out. Good. Isn't that another thing with the politicians where, you know, they're all like I can't remember which people. I know AOC was one of the leaders of it trying to get the whole no trading single stocks. How interesting it is is that was like a thing, and they're like, yeah, we're done. We got it. And then it just never goes into effect.

Mike DeHaan: [31:27] I know. That's like everything, dude.

Dan Austin: [31:29] This is a bipartisan agreement, and it

Mike DeHaan: [31:31] just never happens. Dude, this is every level of government, though. This isn't even like at the federal level. So even like at our local city level, this is a whole thing right now here locally where so we have a pretty big homeless problem in Spokane. K? Go and gloak up Spokane. That's what every meeting is. It's like it's so bad that people like come up here and they're like, that's the first

Dan Austin: [31:49] thing they notice. We're not Portland bad. The difference is we have no redeeming qualities like Portland Hallie's has redeeming qualities.

Mike DeHaan: [31:55] Correct. We don't even have like, you know, a whole herd of like local bakeries and coffee shops like Portland does. I mean, do. It's just different. But anyways, several years ago, we voted to basically make public camping illegal.

Dylan Koch: [32:06] Oh,

Mike DeHaan: [32:06] yeah. So which was supposed to crack down on just like the downtown being full of homeless people. Like, passed majorly. 78% voted yes to ban it. It got to the city and they just went, nah. We're gonna overwrite you. I know that the entire city voted for this. We're just gonna say no, and they just never enacted it. Homeless industrial complex, dude. Crazy. So, like, every election's a farce. Every political season's a farce.

Dylan Koch: [32:30] There's a the biggest developer in Cincinnati or say, at least the top three, is going to, like, litigation with the local municipality because the municipality basically said, yep. You did everything right. You're they got the environmental studies. You spent all this money. Everything you're trying to do is within your legal legal balance, but we don't want you to do it. So no. Damn. And it's just like, you can't do it. And so now they're going to legal troubles against it. I just don't get it.

Mike DeHaan: [32:54] Yeah. The thing that it always comes down to, and it goes back to kind of we talked about last week with my hot take that I think that you should be forced to sell property if let them be distressed. I don't know why I don't know if it's like as a US culture or if it's just like everything else. And and this goes through everything from the current elected Republicans, right, that are fully focused on themselves at the expense of everybody else, the local politics that are willing to let the homeless people just fucking destroy the whole city at the expense of every normal person, the selfish landlord that, like, has their completely disheveled property that is at completely at the expense of everyone else that has lower property values being nearby it, that has to live with, like, safety issues being near this property because people go in there and do janky stuff that has, an eyesore they have to look at. Why as a culture do we have so many things that just, like, allow one or two or, a small population of people do stuff at the expense of everybody else? Right? It doesn't make any sense. It's crazy.

Dylan Koch: [33:48] Have you been to Singapore?

Mike DeHaan: [33:49] I haven't. No.

Dylan Koch: [33:50] Okay. So I only bring that up because I've heard that someone who's like they have great things, but they have, like, capitalism, but their government's also, like, very strict. Whereas, like, if you litter, you're going to jail for, a year kind of a thing.

Mike DeHaan: [34:01] It's always really tricky to compare The United States to any Asian country because in Asian countries, they're very homogenous. Right? They're all the same. And so people always wanna compare The United States.

Dan Austin: [34:11] What do mean by that?

Mike DeHaan: [34:12] Oh, dude. Like, all the people, they're not like a melting pot like around The United States. You go to Japan, all the people that live there are Japanese. Right? They were grown up with very similar ideals even if they're, like, left leaning, right leaning, or whatever. There's, like, a certain cultural way that they raise everybody. Whereas here, we don't have that. I mean, not even, like, going across states, even in, like, the same neighborhood, dude. You know, how you're gonna raise your kids are gonna be completely different from the people down the street from you are gonna raise their kids because they have different religion, a different upbringing, a different background, different financial situation, and everything. And a lot of Asian countries, they don't have that. Or, like, even if you go somewhere like Thailand, it's a good example, because Thailand has a very visible difference between the, like, low income people that are living in basically holes in the wall that are a 10 walk from, like, modern Bangkok, which is like a freaking American city. Right? And there's Nice. Yeah. It's nicer, honestly. There's people in there working in, a Starbucks that are local Thai people at their virtual jobs. Right? Like that is like, those things are 200 yards from each other. Right? But they still have similar ideals.

Mike DeHaan: [35:21] They still were brought up similarly. Right? And they just don't have quite the same, like, we're gonna screw over everybody in the world for, like, one person. For one person. Maybe they do. But I don't know. It just doesn't seem that way quite as bad here.

Dan Austin: [35:33] I've got my whole argument about ADA sidewalks. Oof. Don't get me going, though.

Mike DeHaan: [35:37] ADA sidewalk. I have

Dan Austin: [35:38] a whole thing. Trust me. It's harming the masses for people that don't use ADA Sidewalks.

Mike DeHaan: [35:43] I mean, there's there's a lot of, like, disability stuff, old person stuff. I don't know. It's just so silly. Yeah. Yeah. And I don't know what the what the outcome is.

Dylan Koch: [35:51] Are you guys still seeing an increase in your loan volumes? And do you attribute that to you just trying to grow your business, or is that real estate related at all? Is there, you know, there's more people looking for loans or you guys just growing your business so that you're getting more business?

Dan Austin: [36:03] I would say a combination of both, but I would definitely say it's us growing our business mostly. Like we I would say for and I'm not bragging, but just talking to the people that we've interacted with that have been in the industry a long time, when we tell them the volume we're doing, they're like, holy crap. Like that's amazing for how, you know, like newish we are to it. We're not new to it, but like we planted our flag in the ground and said this is what we're doing like less than a year ago.

Dylan Koch: [36:29] Be like a wholesaler within six months is doing 10 deals a month as an analogy. Yeah.

Dan Austin: [36:33] Yeah. Exactly.

Mike DeHaan: [36:34] It'd be very Exactly. That's that's a a good analogy actually. And a huge part of that is because we we are a anomaly in the finance space, mainly in the way that we don't come from a finance background. Right? We come from real estate background. And not only come from a real estate background, we come from a very high transaction rate, heavy marketing and sales background. And so we can bring those same principles and just, like, start right away. There's even, like, little stuff. So every single industry has a CRM that is, like, made for the industry except for lending businesses. You know why? Because none of them have a fucking sales pipeline.

Dylan Koch: [37:12] Interesting. Yeah. At all.

Mike DeHaan: [37:13] So the fact that we, like, built something out and you can go and there's, like, efficiency to it and everything else, that's, like, unheard of. Like, lot companies, their whole model is they just it's like a real estate brokerage. They just go and find LOs that have a book of business, and they say, hey, we can offer your team your clients better rates. You should come work for us.

Dylan Koch: [37:31] And they rely on the LOs book of business to feed your business. Yeah.

Mike DeHaan: [37:34] Correct. LOs book of business. They just recruit those people. Or they go and they recruit like the young bucks who wanna get into sales. They teach them how to sell loans and they just get them out going to like meetups and stuff. And if you can do a combination of those things, that's where you make real money. And you can do it with some level of organization sophistication. But there definitely is a lot of people still looking for for loans right now. And then there are a huge number of people as well that have been flippers that are trying to get into DSCR because they can't sell their properties. That is a heyday for the lending side right now.

Dylan Koch: [38:02] So the market kind of turning down has been good for you guys. Totally.

Mike DeHaan: [38:05] And then if the market goes up again, it will be even better.

Dylan Koch: [38:08] Yeah. Because you're doing both the short term and the DSCR stuff. So it'd fun both ways.

Mike DeHaan: [38:12] Yeah. So I don't know, man. It'll it'll be interesting to see what what happens with a lot of that stuff because I think there's just more and more things that are kind of getting, like, tighter and tighter. So we'll find out. Unless you wanna

Dan Austin: [38:24] wrap up?

Dylan Koch: [38:25] No. I just think with the the Fed meeting this past this was on, what, yesterday or two days ago, a lot of stuff went down. Yep. Bitcoin equities and stuff.

Dan Austin: [38:34] Why why do think that is, Dylan? Like, what's driving that? The long term rate?

Dylan Koch: [38:37] Well, they went down 25 basis points, but then they pretty much said, we know the lower economic citizen is hurting. And they gave more uncertainty to their cutting cycle going forward. And so I personally and they're stopping QT this week. Jerome has said we might need to be more accommodating. I think you give it a couple of months, and they're gonna be printing money again. They're not gonna call it QE. They're gonna call it something else. They'll have a new acronym for it, but there'll be a pro liquidity environment in the next six months. And I think, honestly, that will help asset prices and real estate. So

Mike DeHaan: [39:10] Yeah. Totally. Should I buy Bitcoin?

Dylan Koch: [39:12] I buy some every day. I'll put it

Dan Austin: [39:14] that way. I do too, but, I mean, I don't have as much as you saw. I'm like, do I need to put put put some money in there?

Dylan Koch: [39:18] My answer is yes.

Mike DeHaan: [39:19] Because it was up at $1.20.

Dan Austin: [39:21] The interest was up at $1.20.

Dylan Koch: [39:22] Yeah. My answer is yes. If you ask me if six months is gonna be higher or lower, my answer is higher. So

Mike DeHaan: [39:27] Always. The question is how much is it actually worth it? Because I sold all mine when it did that first push up to, like, $1.20. And I just took my, like that point was, like, 15% gains or whatever. And I said, I'm gonna put that in other stuff because I can control it more.

Dylan Koch: [39:40] I don't

Mike DeHaan: [39:40] care to.

Dylan Koch: [39:40] Well, it's funny. It's like when I first started this business, I had I sold three, and they're they're $10 a peach. And so that's $30 that I sold to help fund this business. Today, that's what? $330?

Mike DeHaan: [39:51] Yeah.

Dylan Koch: [39:51] Totally. I've made way more than that I know. In the over in the duration of that time, like, running my business.

Mike DeHaan: [39:56] So Well, I think pretty much every sort of investment like that is so overly inflated. And to round this out, I saw this post this morning that was talking about NVIDIA's $5,000,000,000,000 market cap. Because it just hit $5,000,000,000,000 market cap the other day. Yep. K? And this is everything that it is worth more than. And I'll just read through these, and then we'll finish it up. So NVIDIA, $5,000,000,000,000 market cap, which makes no real sense. K? It is now worth more than two Canadas, a 166 Icelands, one and a half Germanys, all US regional banks combined, the world's billionaires three times over, the entire NFL 35 times, every pizza sold in history, every item on Amazon put together, NASA plus SpaceX plus Boeing, Toyota plus Sony plus Nintendo, every oil company on Earth, all of global gold reserves combined, the entire crypto market, and then all 54 African countries combined.

Dan Austin: [40:54] The entire continent of Africa?

Mike DeHaan: [40:56] Yeah. It's now worth less than Nvidia. And they haven't

Dan Austin: [41:00] even started selling to China. And there's a I think there's a, like, a bill that they're trying to get past that'll let them sell to China.

Mike DeHaan: [41:06] Meaning, if that happens, they're gonna be screwed because then China's gonna be like, cool. Let's make the same thing but cheaper and better.

Dan Austin: [41:12] Well, yeah. That that's that's the argument. Let's China win the AI race and, like, that's the only thing keeping of you know, this is argument. The only thing keeping The US ahead of China in any in any little bit.

Mike DeHaan: [41:22] Totally did. Well, if you look at, like, the entire market, it's

Dan Austin: [41:24] so heavily propped up by AI right now. Although Singapore is selling China black market NVIDIA chips, so they kind of already have them.

Mike DeHaan: [41:32] Anyways, what'll happen? We'll find out. Tune in next week to collecting keys where we talk about what the world looks like on in November.

Dylan Koch: [41:40] So Okay.

Mike DeHaan: [41:42] Goodbye. Alright, guys. Well, you have a good one. Talk to you guys next time.

Dan Austin: [41:45] See you. See you.

Mike DeHaan: [41:47] 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 of the show.