Florida's Real Estate Market is Crashing - Which Market is Next?

Mike DeHaan: [0:00] Real quick before we jump into the show, we created the collecting keys podcast to be a real estate investing podcast that is created by real estate operators for real estate operators. And we want operators everywhere to know what it really takes these days to be successful in this business rather than all the fluff that all the other content creators and podcasters out there make. And so one of the challenges with this is that it's challenging to grow because most operators are too busy out there working. Right? And they aren't always learning or actively seeking new learning material. And so if you could please share this show with any fellow operators you know, you know, you can text it to them, you can post it on your socials, you can leave us a good review that you then share somewhere, that would be amazing. But really, whatever, it really helps us continue to get excited to create content, and it will also help you because everyone that you expose us to will get better as a real estate operator and close more deals. So if you could do that for us, it would really need a ton. And, otherwise, we appreciate you guys, and let's get into this episode.

Jon Brooks: [1:04] Board of market is so messed up, and I wanna feel like I'm exaggerating. But, frankly, we're at, like, that lowest number of sales.

Mike DeHaan: [1:13] What is going on, guys? Welcome to today's episode of the collecting keys real estate investing podcast. If this is your first time to the show, this is the a real estate operator show for real estate operators made by operators for operators so you can continue to grow and expand your business in this ever changing market. I am Mike DeHaan here with my typical cohost, Dan Austin and Dylan Cook. And today, we have a special guest, John Brooks, out of Jacksonville, Florida. John is a very successful real estate, I guess, brokerage owner down there, an agent. And you're a good buddy of mine from GoBundance, and you have really great opinions on the economy and real estate and everything else. So we will have a really fun discussion with you today. You wanna give a quick plug slash overview of kinda what you're doing down there in Jacksonville?

Jon Brooks: [2:02] Yeah. I own a real estate brokerage with my wife. It's called Momentum Realty. We've got about 250 agents who are just crushing it in the Jacksonville market. We're very focused on economic data, education, and wealth building for real estate agents. And the sky's the limit. I mean, we started in 2020 during COVID with zero agents, and now we're the number two independent brokerage office in the area, and it's one of the largest MSAs. So we're very excited and and blessed to be where we are today.

Mike DeHaan: [2:29] Sweet. Yeah. And you've been oh, say are they still crushing it with the way Jacksonville's going, or is that like, you know, thing of the past?

Jon Brooks: [2:37] That depends on the agent, Mike. You know? Some agents suck, and it's usually, like, the bottom 70% are awful. They're part time. They don't produce enough to actually guide somebody through a transaction. They put everybody else's licenses at risk because they don't answer the phones. They don't communicate appropriately. And then there's the your top 30% who are are really good, and then there's the top 2% that do most of the sales. And that's just how it is in the majority of markets. So those top 2%, guess what? They're still kicking butt. They're relaxing. They're coasting. It's that bottom 70% that had all those fish jumping in the boat 2020, 2021, even a little bit at the beginning of 2022. They actually have to work hard now to earn a commission check. So, yeah, we are seeing things kinda deteriorate on the ground pretty rapidly. But, again, the top people are are always gonna continue to slay because they've got the habits that make them successful in the first place.

Mike DeHaan: [3:26] Yeah. And then you're you're seeing that in every industry. Right? Like real estate, plumbing, you know, freaking you name it, you're gonna see the same patterns there. Totally. Like, you know it's getting bad when I literally have had HVAC guys that have worked for me, like, reach out asking if I know of anyone that needs HVAC work. Right? That's always been like the one thing that seems to be tried and true, especially in the Northwest where it gets pretty cold. Not anymore. Apparently, they're all starving to death just like everybody else.

Dylan Koch: [3:49] I posted as a quick aside, I posted in a Facebook, like, investor channel that I was looking for contractor work for like because we had like four or five projects coming up, I need to expand it.

Mike DeHaan: [4:00] Oh, it did.

Dylan Koch: [4:00] My phone blew up for the next forty eight hours. I just had to like turn it off. I'm just like Oh, wow. It was awful.

Mike DeHaan: [4:07] Yeah. And Mhmm. And since they were all contractors too, was it like in all caps and like a jot run on sentence? They were trying to figure out how to use their phone.

Dylan Koch: [4:13] I mean, that's pretty on brand. I did say, I'm gonna make you send a w nine. I'm gonna ask for references. You're gonna have the show. All that. And so that probably eliminated half the people.

Dan Austin: [4:21] 90% of them.

Mike DeHaan: [4:22] Yeah. At least. Yeah. So no. That's funny. It's a time of time. Sign of the times, though. So with that Florida market, John, I know you're a big economics guy. Dylan is as well. Usually, how the show kinda goes is Dylan, like, brings us headlines that he wants to talk about, and we just poke holes in it with our very uneducated opinions.

Dan Austin: [4:39] Just shit talk it.

Mike DeHaan: [4:40] But this Florida market, I've been asked by several people about why it's going so poorly. And if you look at it from, like, a high level view, I mean, I guess, fundamentally, it makes sense, but I guess, like, if you're looking at specifics with all your research and reading everything that you do, why is Florida really having a hard time? And is it all Florida, or is

Jon Brooks: [4:59] it really just Jacksonville? It's spreading everywhere. I mean, we're a top 10 brokerage in Gainesville too, all the way down to Palm Coast, Orlando area, and it's it's everywhere. I mean, you can't hide at this point. I mean, we could literally talk for two or three hours about why the Florida market is so messed up, the history of boom bust periods. But, like, just to give you the top three influences of what's going on, from 2020 to 2024, we had this huge influx of people relocating to Florida from high cost areas with a ton of cash buying up properties, and the builders to meet that demand just built like crazy. Of course, they got over their heads and over their skis thinking that the COVID demand would last forever. It didn't. You know, we have a ton of inventory, phase two, phase three, phase four, beautiful homes just stacking up, now selling fire sale prices of a $150,000

Mike DeHaan: [5:46] Wow.

Jon Brooks: [5:46] Off with buy downs from 7% down all the way down to 4% to move this inventory to get their cash back. So, you know, we had a speculative bubble from investors and from people relocating here. The investor situation started in 2014 where we had these large hedge funds come into the state and just start purchasing, you know, 2,000 square foot homes, four bedrooms, two bath, and they were buying up forty, fifty of them a month every single month, making the supply really tight. So and then once 2020 hit March 2022 when the fed started raising rates, they pulled out. So Mhmm. 35% of purchases were from investors and second home buyers. Wow. There's no investors or second I mean, there's very few. I mean, there's they're out there, but it's not anywhere close to that. So when you have that sort of demand drop on top of the supply coming on, it's like just a perfect setting for catastrophe, to be honest. I I wanna feel like I'm exaggerating, but frankly, we're at like that lowest number of sales. We look at pending sales this month, year over year versus last year, we're down 34% for the month of April versus last year, which was down 20%.

Dan Austin: [6:51] Yeah. So what's that relative to, I guess, Dylan, you're a smart guy, what are what are the sales in the Ohio market? Like, do you guys have a decrease in sales? I'm just curious.

Dylan Koch: [6:59] So we have a decrease in sales, the volume, but our actual price is about even with what it would like year over year. Gotcha. And our days on market is still, like in my specific MSA, still below 30.

Jon Brooks: [7:11] Wow. Wait, Dylan, people say that real estate goes up every single year 4%.

Dylan Koch: [7:16] Yeah. That's not the case. Yeah. Not the case. But I mean, we are steady and not not declining. Like, I feel like a lot of other markets Yeah.

Dan Austin: [7:25] Washington's quite similar, but I don't know. I think our I don't know what our days on market are, like, we've declined I think in price. Sales have gone down a little bit, but it's like feels kind of average strong. Our days on market being in May was thirty five.

Mike DeHaan: [7:38] Yeah. So pretty solid. So still pretty reasonable. Yeah. I mean, and we've selling stuff with multiple offers in the first weekend still if they're nice properties and start our price points.

Dylan Koch: [7:47] There's only like one what's the metric? One and a half months of inventory right now in Cincinnati? Yeah. Like, that's still pretty that's pretty good. Pretty dry.

Jon Brooks: [7:56] Yeah. See, we're we're up to six point four months, and our inventory per month is going up like a thousand homes net per month. The only reason why you don't actually see it higher is because thousands of homes are expiring and haven't yet come back on market. So we expect by August through the end of the year Oh, shit. These properties will come back on, and we could see a supply of twelve months supply of inventory by the year. That might be a little extreme, Abraham overshooting it. But if the trend continues, it will be that, and we will be in an official kind of more of a correction and more of some sort of crisis as people will be stuck into their homes and start doing foreclosures and short sales.

Dan Austin: [8:31] So is this a good time to buy in Florida? Should we be buying in Florida?

Jon Brooks: [8:34] I mean, or no? This is the worst time in history to be purchasing in Florida. And I'm saying that as like a real estate brokerage owner, buying now and selling in the next two to three years, you're gonna be underwater with the transaction fees definitely. But if you're planning to be here for ten plus years, I'm not sure it's gonna make that much of a difference for you if you're comparing it versus renting. But if you're a short very short term player in the market, then I would probably hold and wait and rent for a few years before purchasing, which hurts to say, but it's the truth. Wow.

Mike DeHaan: [9:03] Yeah. That's valid. So like as a real estate business owner, right, like, you're a lot more than a realtor, but you have all these people that are on your team and, you know, you're doing something a lot bigger. How does, like, this sort of economic situation affect the decisions that you're making at, like, a higher level? You know, like, are you, like, pushing for growth? Or since you're a brokerage owner, are you still trying to recruit agents even though there's fewer and fewer agents to recruit from? Are you you trying to like expand in new markets? Like where are you pivoting with all this?

Jon Brooks: [9:34] I used to own more than 200 units, sold the units from apartment complexes, sold 17 single family rental properties, gotten cash, and then started lending the money out because my return on equity on my real estate portfolio was like two or 3%, which sucks. And so I just sold it. Once I saw March 2022 come around and rates started to go up, I know when rates go up, asset prices backed by debt go down, And so it was quite obvious to me to sell at that point. So I started working really hard to get my tenants out of the properties and start selling them. Very happy I did. The stuff that I was selling, you know, I'd sell it for like $4.50, they're now trading for $3.80. So I'm happy that I made the decisions I did when I made them. But in terms of the real estate brokerage, we cut expenses, right? We're getting really lean, we're making sure that we're only partnering with producers with growth mindsets, we don't wanna be around the people who are negative and just crying around the water cooler all day. And we're thinking long term. We're thinking how do I set myself up for success for the next decade. Right? We used to be thinking like, what's my goal for this year? What's my goal for this year? What's my goal for this year?

Jon Brooks: [10:35] It's like, hey, what are the right moves to make for the really long term, and how do I position myself now that I have cash? I didn't have like ten years ago, had no money. So now I have money. So how do I protect the money that I do have? And then how do I get the agents who don't have any money into production as soon as possible and skill them up for short sales and foreclosures and creative financing solutions that other brokerages frankly aren't teaching because their leadership don't know or maybe they're scared of it. We're one of the best positioned brokerage for a downturn because we're super affordable for the value that we provide, And our leadership team just has way more experience from an investment standpoint and from a market standpoint than any other brokerage leader in our local market, hands down. So it's really easy for people to make the decision. We we grew, like, 80 agents last year, and we're probably we're on track to grow another 80 to a 100 this year. And the agents who join and show up and participate, their businesses are are growing. And we still have some agents who are having the best year that they've ever had, you know, from a profit standpoint because they took our advice.

Jon Brooks: [11:35] They're getting lean, they're getting rid of the stupid stuff that they were paying for, they're focusing on the key variables that matter and move the needle in their business, and they're ignoring all of the noise. And so I think this is a really good time to reset your business model if you were a little bit out of control, which a lot of people were out of control the last few years.

Mike DeHaan: [11:53] Yeah. And I I think at its core, the thing that you said that you're focusing on there is providing like good service. Right? Mhmm. When time gets weird, people have choices. It becomes a buyer's market in everything, not just in real estate exactly itself. Right? But people are gonna wanna go to people that provide the best service and the best experience, you know, whether that's in as a real estate brokerage or a trading company or I was just at a meetup in Las Vegas at acquisition.com with Alex and Mosey's crew. And I met a guy in the time of the recession, right, where people are spending less money or whatever that is taking home a million dollars a year with a one location mini golf facility.

Dan Austin: [12:28] Pretty amazing.

Mike DeHaan: [12:29] Right? It's because he focuses on service. Right? And he focuses on getting good reviews and doing everything he can to get people the best experience possible. Mhmm. And so when people are deciding what they're gonna do on a random Saturday afternoon, they're gonna go to the mini golf place that's awesome that they know everyone's gonna have a good time. Yep. Right? And people are getting more selective with their dollars and how they do business. So you can do well in everything. Right? You just need to be leading from the the front and not kinda trying to squeak out like a little bit extra here and there at the expense of your longer term income.

Dylan Koch: [12:57] Maybe that's a good thing in our mainly wholesaling businesses.

Mike DeHaan: [13:01] Oh,

Dylan Koch: [13:01] yeah. Everyone came out the woodwork from 2019 to 2022. And I don't know, the people who just simply can't cut it, they'll be gone. Totally,

Mike DeHaan: [13:11] dude. It's the same thing. I mean, we we got a deal recently where the lady was talking to six other people. Do you wanna know why we got the deal? Because we were the only ones that showed up on time and said we were gonna do. The other five were late or no showed. Easiest deal ever.

Dan Austin: [13:27] Which is crazy because I know they don't got that many leads.

Mike DeHaan: [13:31] No. They of course they do.

Dylan Koch: [13:32] Especially if you're paying $2.50 a lead, like, is washing that down the drain.

Mike DeHaan: [13:37] Totally. You know, the barrier to entry gets smaller and smaller as technology and stuff increases. But I would say, like, the level that you need to be at to, like, just beat everybody continues to get small as the barrier to entry gets smaller. Right?

Jon Brooks: [13:49] Because you

Mike DeHaan: [13:50] have, like, the more c players that will come in and just try to piecemeal some bullshit business, and then all you have to do is literally just do what you say you're gonna do. Mhmm. Even my wife, she's an artist. She has, like, the most easy to dismiss product when the economy gets weird. Right? People aren't gonna spend excess money on art if they don't need to. She's currently, like, crushing it for the first time in her life as an artist because she has all these stores that are wanting to, like, sell her stuff, and she's the only one that is answering the phone and fulfilling orders in a reasonable time period.

Dan Austin: [14:20] So simple. It's so simple.

Mike DeHaan: [14:22] And it's funny watching her go through this part of her entrepreneurial journey where now she's like, they were carrying all this other guy's stuff, but I guess he just, like, isn't delivering on time. So they're calling me, and now I'm filling up their store. I'm like, yeah. That's how easy it is. All you gotta do is just do what you say you're gonna do and you can make a lot

Dan Austin: [14:37] of money. Do it as well as you can.

Dylan Koch: [14:38] The bar is a lot lower than I think non business owners think.

Dan Austin: [14:42] Yeah. Much lower. John, you mentioned something about teaching and coaching your your agents about short sales and foreclosures. I'm just curious from from the audience standpoint too, as well as for me, how do

Mike DeHaan: [14:52] you do that? Like, how do

Dan Austin: [14:53] you build, like, an agent business based on short sales and foreclosures? We saw that kind of pre 2008 or post 2008. A lot of people a lot of agents did really well doing that. Is there like some some trick like lead gen that you go off of on that stuff, or is it really just navigating the difficulties of dealing with fucking banks?

Jon Brooks: [15:10] Yeah. It's it is difficult. It's definitely not easy, but if it's the only way to make money and that's where it is, you gotta go to where the money's at. So foreclosures specifically are a lot more challenging because you need to network with asset managers at bank and you need to be, you know, assigned the REO properties and that takes it's relationship building. And usually they hire, you know, their cousin or their friend or a family member to be the agent to sell it. And then of course, they go to Bahamas and do some back dealing

Mike DeHaan: [15:36] Of course.

Jon Brooks: [15:36] You know, whatnot. Yeah. Exactly. I literally think that's like 95% of it. Like, it's a Wow. It's a pay for play type of thing where they're finding a creative way to get kickbacks. And the short sale side is really where you can get a lot more business because a lot of properties now, if you bought in '23, '24, '25, or in '22 in a new construction neighborhood that has multiple phases, you are currently underwater in your house. The DTI ratios, the debt to income ratios that some of these people is just like crazy. Like 63% of borrowers are over 43% DTI ratio. So they're underwater. They barely have enough money to pay the mortgage. And so it's just one of those things where short sales are gonna be popping up everywhere. So what do we do? We bring in a short sale attorney. We teach them. I used to do short sales when I was producing from 2016 to 2019. I was a top agent and I did a bunch of them. You know, they just take longer. It's a lot more paperwork, but you know, you just work with the seller, identify what their distress is, get the package from the bank that they have the loan with, and figure out what they need, submit it to them, and then get the house in the market, start bringing offers. So, I mean, it's not a rocket science thing.

Jon Brooks: [16:41] It's just a lot of paperwork, and you need to work with sellers and educate sellers on how to do it. If you can stack them up, you can stack up enough of them. Eventually, you can have a really nice business. There's some agents, you know, from 2010 to 2012, that's all they did, and they were still making a million dollars a year. It was just it was just painful, and they had to have, like, a really good follow-up system with the banks so they didn't get lost in transition.

Mike DeHaan: [17:04] Mhmm. Yeah. It's funny because you're basically being a wholesaler right now.

Dan Austin: [17:08] Pretty much.

Mike DeHaan: [17:08] You know, it's just your exit is gonna be a little bit more legit because you're licensed and you, I guess, go on the market at the end of it. Right? Versus what we would do is we would go and try to find an investor that would buy the house at a steeper rate. But when you're doing those short sales so I've never done one. I've never I've never been around when that was a thing. Like, I started buying properties in 2018, and I was, like, at the very end of REOs, right, where you saw the bank owns out. That's how I started buying flips. The cycle time on those short sales, like I said, it's very painful. Like, what is a realistic timeline? Are you looking at, like, six months for the bank to do, like, its whole committee review process before they even explore doing a cut? You know, it has to be somewhat significant for them to walk away with from, like, of such a significant loss on paper.

Jon Brooks: [17:54] Yeah. First, the seller has to prove that they're in distress.

Dan Austin: [17:57] Okay.

Jon Brooks: [17:58] Then they have to get this they have to submit all their financial documents to the bank. And during this time period that you get all that information to the bank, also have the property listed as short sale. It's not short sale with price approved, but you know, it's listed as a short sale property. There's separate addendums that you have to use for those. But it can take six, twelve, eighteen months. These asset managers only look to review this about once per quarter.

Mike DeHaan: [18:22] Interesting.

Jon Brooks: [18:22] So if you just missed that quarter, you could submit the package and not hear back for two to three months. That's a really painful place to be. So they you also have to educate the buyer like, hey, this could take a long time, And then the bank may not approve your price. The bank will usually come back with an approved price. They'll usually do some sort of BPO, broker's price opinion, or an appraisal. And they'll determine at their asset management meetings. They basically all just sit down and look through all their packages and say like, oh, like, what would be the price would be comfortable to take a haircut on this on this deal? And then they get the bank approved price. Sometimes you have to go through multiple buyers because the buyers fall out.

Mike DeHaan: [18:54] Uh-huh.

Jon Brooks: [18:55] So you need a buyer that's willing to hang on for a long period of time. The problem with that is if they get it under contract for one price and they get it bank approved, and then the market continues to move down, your buyers can fall out during that long time period of waiting, or they can find another house to purchase during that time period. So it is a little bit of a game, and it's not fun to play. But I have a feeling that's gonna be the next wave of opportunity for real estate agents to create a consistent business. Mhmm. Or, you know, we have a property management division as well. So one of the reasons we started that was because we saw properties would be underwater, and those owners would have to find a way to get out of the situation. If they don't wanna short sale it or can't come with cash to close, they can refer it to our property management company, we can go out there and and manage it for them. And maybe it's better to just lose 2 or $300 a month for a decade than to take the big hit now.

Mike DeHaan: [19:44] Mhmm. Yeah.

Dylan Koch: [19:45] I got a question that revolves around this, and I I'll start with the premise, and you say if you agree with agree with me.

Mike DeHaan: [19:50] Sure.

Dylan Koch: [19:50] I think a lot of the asset price appreciation we have in real estate stocks, basically hard assets, has come from a lot of the printing that the Fed did, basically post COVID. I have the opinion that if things go south, they're gonna have their own put again. I think they go back to quantitative easing. So is there a world where that happens, and then all these short sales actually don't happen because of them pumping money back into the economy, we just rinse and repeat and do the same thing all over again?

Jon Brooks: [20:16] They can't. We're at a credit crisis. The consumer is completely tapped out. The government is completely tapped out, the world is completely tapped out on debt. They can only kick the can so much longer until there will be pain. There's no scenario that's possible to avoid pain in a credit crisis. Sure, they can kick it another year, but it's gonna come due. So if they lower rates now at this point, let's say they do some sort of quantitative easing where they cut rates, it's just gonna make the bubble even bigger, and it's gonna prolong the pain that needs to happen to reset the economy.

Dylan Koch: [20:48] Totally agree, but they've been doing that for twenty years. So it's like they can't do another five.

Jon Brooks: [20:53] I mean, can I just I don't think it's sustainable? I think there's going to eventually be some sort of crack and crisis that's gonna be a big price reset for both stocks and real estate. Especially true for stocks. Like when you look at stocks on a PE ratio historically, they're overpriced by about 40% Yep. According to the mean. And when you study history, there's always mean reversion. So we don't know when mean reversion will occur, but it always It's the same thing with real estate in Jacksonville, depending on how you cut it according to their historical norm and for affordability factors, prices here are still overpriced by 31 to 39%. We will have mean reversion. I can't tell you when and I can't tell you what will cause it, but it will happen. I don't know. Could be one year, could be next year, could be three years, could be five years. I do think it will be in the next five years where we'll have some sort of event that'll bring prices down. Not all at once. In real estate, it's an illiquid asset, so it does take time to go down. You know, from o eight to 2012, you know, it was four years until prices really started settling out and hitting bottom. It'll be the same this time around

Dan Austin: [21:57] Mhmm.

Jon Brooks: [21:57] At least in the state of Florida. But for stocks, it's very rapid and it's very painful in a very short period of time. They sell off within a few weeks, just like we saw. We had a 20% sell off and then we had a 20% boom back. That could just be a bounce, a temporary bounce, and and all the upside is priced in and we could see our way back down. But once the stock prices go down again, it really hurts Florida because we have a lot of retirees who are terrified

Dylan Koch: [22:21] Mhmm.

Jon Brooks: [22:21] Of losing their four zero one k and turning into a three zero one k. So if we see stocks come down from here, they're screwed. Yeah. I mean the the whole thing is just gonna come to a halt, transactions slow down, people become fearful, the house sells for a little bit less, that becomes the next one for the appraisal, and then you're just starting to see this type of spiral. And we know studying history that when the market goes down so drastically, it continues for some time. Once the sentiment has changed, it takes a long time for the sentiment to come back. The consumer in Jacksonville and the consumer in Florida, their sentiment's now negative. They are no longer highly motivated to purchase real estate at today's prices and interest rate. They are very cautious. Their motivation is waning, and they're always asking questions, and the cancellation rate is now 35%.

Mike DeHaan: [23:11] Wow. That's crazy.

Jon Brooks: [23:12] Of people going under contract to canceling. So we are seeing that across the board. People are scared. And I think that's just the sentiment is the number one thing that drives whether or not someone's motivated to purchase a home, and right now the sentiment's falling out. I think it'll eventually hit you guys, Dylan, Mike, Dan, where you guys are at as well. I think it comes for everyone. When you see sort of like an extreme scenario, you know, correlations all go to

Dylan Koch: [23:35] one across the board. And Florida usually leads some of that too, both in the ups and downs.

Jon Brooks: [23:40] Yeah. We have a boom bust cycle here. So it's normal for us. When we we look at

Dan Austin: [23:43] the charts, it happens every ten to twenty years where we can see, you know, up to a 20 to 30% decline. Can that mean reversion in your context though? Can it actually revert over a longer period of time with zero growth or even just minor minor decreases? Or are you saying we need to drop 3% in four years, so every year year over year? Because it feels like in some markets, like even where Mike and I live, like, oh wait was not a good thing, but it didn't like crush us. Right? It we're kind of in like a temporary market. And so for a lot of these markets, could it mean reversion, which I agree with you on that theory. I I do think you get fucking average growth because you have big big years and little years, not the same growth every year. And so could that be 0% growth, maybe 4% decline over a longer period of time?

Jon Brooks: [24:31] No. The only way that we would have growth in Florida is we continue to have massive waves of people migrating to Florida with high incomes

Mike DeHaan: [24:41] Mhmm.

Jon Brooks: [24:41] Or the people here would have to have higher wages. Mhmm. Those are only two ways for prices to continue to move up because it's an affordability crisis. So you're saying this in context of Florida only, like, you wouldn't necessarily

Dan Austin: [24:53] see a massive short term mean reversion in say Washington or Ohio where we're all at.

Jon Brooks: [24:59] Yeah. So there's charts, and I have it on my YouTube channel, you guys can check it out. I I have all the charts that kinda show the areas that are doing really well and really poorly. Mhmm. Arizona is starting to struggle. Mhmm. Texas is obviously one of the main issues. North Carolina around Raleigh, Durham, RDU Triangle. All these places where people moved to and had population growth from COVID were now experiencing inverse COVID. And the places that people came from that hurt during COVID are now going actually back up.

Mike DeHaan: [25:27] Mhmm.

Dan Austin: [25:27] They're like, this place ain't that cool, man.

Jon Brooks: [25:29] This kinda sucks. Dude, people are moving out of I'm telling you. So, like, you know, we have people that we know that have lost their jobs, and they're used to having their New York income of $304,100,000 dollars a year, and they're doing remote work in Florida, they're getting fired or they're getting called back to work Yep. You know, to work in office. And that is destroying a lot of these people who are thinking they could have the best of both worlds by living, you know, in Florida by having the income of the North. Wow.

Mike DeHaan: [25:54] Yeah. That's interesting. I mean, that's very similar to what I would say we are seeing here in Washington. It's kind the optics. We had a ton of people that were fleeing the blue state of Washington, right, to go to like Idaho. Trying to show they're going down to Boise. They're going to the Panhandle. But now, like, those markets suck versus Washington State where things are rocking. But here, we do generally have a high income. And even, like, on the lower end of the totem pole, we have a very high minimum wage. Minimum wage here is $16.66. And so you get a bunch of kids that are in the same house, right, that are renting, all making minimum wage plus or $20.20 dollars an hour. They can actually afford rent in like a decent place, right, with their roommates like they're doing. And so starting to see that on the the home affordability side as well. And I know that there's like this massive, like, credit card crisis and everything else, which I'm sure exists. But even then, you look at that, I would be fascinated to see that from like a geographic perspective.

Jon Brooks: [26:47] Oh, there's parts on that. I can send it to you guys after this.

Dan Austin: [26:50] Yeah. I'd love to see it.

Mike DeHaan: [26:51] Yeah. I would love to see it because like the numbers that Dylan sent over what does it say here, Dylan? 11.12% of cardholders are making just minimum payments or are basically falling delinquent.

Dylan Koch: [27:04] Which is like 2% higher than the previous year.

Mike DeHaan: [27:07] Yeah. But like, is that I call localizing a single place? Like, how does that distribute it based off of income in these different states?

Dylan Koch: [27:14] Yeah. It's a good follow-up question. But the crux of that is delinquencies and credit cards are at a twelve year high.

Mike DeHaan: [27:20] Yeah. For sure. Which is, you know, a larger overall issue. If you can give me about thirty six seconds, I just wanna share our SCALE community with you. So SCALE stands for scaling cash flow assets, leverage, and equity. It is our exclusive community for real estate operators looking to take this game seriously. In the community, you get to hang out with myself, Dan, Dylan, and other operators around the country who are all working to be the best in their market. We recently did a survey, and every single member said that the community had directly contributed to major growth experience in the last twelve months. On top of that, you get all of our processes around marketing, sales, building a CRM, and you even get preferred relationships with Lowe's and different financing slash lenders so that you can get your deals 100% paid for without a headache. So if that sounds like something you're interested in, go to collectingkeys.com/scale. Let's see if you're a good fit. I feel like now more than ever, real estate is such a localized thing. You know? Because ultimately, what it comes down to is the affordability crisis. But if you have a place where people can afford stuff, you're not gonna have the same crisis with real estate like you would, you know, somewhere where people don't make any money such as Florida where most people are rec retirees.

Mike DeHaan: [28:24] Mhmm. Or Arizona, same thing.

Jon Brooks: [28:26] Yep. The other thing to talk about too that's draining the capital from the consumer is these student loans restarting.

Mike DeHaan: [28:32] Yeah. That'll be a huge one.

Jon Brooks: [28:34] That's big. And we've had deals fall through on the mortgage side where, you know, they're like, oh, it's restarted and my credit got hit a 150 points. And the thing is like a lot of these people are co borrowing, their parents get hit a 150 points too, and now their mortgage rate's up in the 8% because their credit sucks, and they're just like completely priced out of the market. And Yeah. Today, we just saw the ten year treasury crack 4.5%. I mean, this entire real estate asset class is dependent on the ten year treasury rate. And so over the last forty years, we've seen it drop from 15% all the way basically to near zero, and now it's up to 4.5%. So that was a forty year kind of swing, and there's no guarantee that it's gonna come back down. I know a lot of people are praying, oh, rates need to come back down. I just don't see it, like to Dylan's point, like, know, if they're gonna start cutting rates and all that stuff, until the employment situation gets really bad, I don't see a reason why the Fed would reduce rates at this point, unless they're just gonna pump the bubble even bigger than it is.

Dylan Koch: [29:36] Well, inflation just came in under expectations today, which like that's the other thing. If you're gonna lower interest rates, you're worried about inflation. So it's like these dual mandates that the Fed has. But I to clarify, John, I'm on the same point as you. Was trying to play devil's advocate of the people in charge of the monetary system and congress are going to do everything in their power to try to keep it going. Whether that's more kiwi, whether that's stimmy checks that they used to do. Right. You know, like all those kind of stuff that they're change the debt to income requirements, like all this stuff. Like they'll pull every hat or every check they get out of the hat. So no one knows the timing. That's the biggest thing, is the timing to this.

Jon Brooks: [30:12] Well, my thing was my wife and I are like, what do we do with all of our cash? Like, we've got a bunch of investments. Like, do we put it in do we keep buying real estate? Do we put it in stocks? Well, stocks are overpriced. Real estate's overpriced. Do we put it in treasuries? Well, yields are going up. Right? So treasury prices are going up. Like, where do you put your capital?

Dan Austin: [30:29] Yep.

Jon Brooks: [30:29] Because let's say we have a good mark stock market for 10, you know, 10% next year, 10% the next year, and then it drops 40%. That's still like Mhmm. Crap returns for three years. So you just don't know when it's gonna hit. So we're just kinda sitting on the sidelines waiting and watching and being really careful. In the meantime, we're doing private lending to real estate agents for fix and flips, and and making about 12%, 15% returns on that, which we're happy to be like low balance real estate deals where if prices really do come down fifteen, twenty, 30%, we're still okay from a lender standpoint.

Dylan Koch: [31:01] Three of the four people on this panel now lend.

Dan Austin: [31:04] Yeah. Totally. Let's go, buddy.

Mike DeHaan: [31:06] I mean, and especially for real estate people, lending is a very attractive option because it's still in the knowledge base that you've come to know from flipping and buying houses over the last however long. Yep. And you're in a levered position from the beginning if you lend correctly. If you lend like a dummy, you can still put yourself in a stupid spot. Yep. Right? And it is a high yield return that should be on a short term timeline being under twelve months. And so from a cash flow perspective, it is very attractive. But, obviously, you need to have money to be able to do it. You need to understand underwriting. You need to not be like a lot of the rookie lenders that I know John and I you and I both know that are going and making stupid decisions and lending to people without checking credit or their checking background.

Dan Austin: [31:47] Don't know shit about what they're doing.

Mike DeHaan: [31:49] Or don't know shit about what they're doing. So if one goes sideways, they lose their ass. It was funny on our our GoPod call the other week, one of our other guys, he was like, I keep hearing about these guys that are losing their ass in lending. You know? Like, like, what do think that is? And John just goes, because they're a bunch of idiots. Yeah. Like, honestly. Yep. And and some of these, like, these guys talked to, like, well, it was a contractor who's done a bunch of work for me, and he really wanted to flip a house himself. So I just wrote him a $300,000 check.

Dylan Koch: [32:14] Oh my god.

Mike DeHaan: [32:15] Yeah. No shitty fucking stole your money, dude. Like, I won't even, like, give him a a check for the work that I'm 95% sure they did until I verify it myself because there's the one off chance that, you know, something happened in their personal life.

Dan Austin: [32:28] No shit. Jesus.

Dylan Koch: [32:29] They sent you someone else's house.

Dan Austin: [32:30] Yeah. Fascinating.

Mike DeHaan: [32:31] Yeah. Exactly. You know, that is a great question, though. I think everyone is dealing with right now, John. Because for the 11 and a bit percent of people that, you know, are living off of credit card minimum payments for all of the section eight people that are gonna be losing their stipends since Trump is apparently canceling that now, to all the people that are really starting to get by.

Dylan Koch: [32:52] It's going back to the states, Mike. Don't you gotta do both sides of the

Mike DeHaan: [32:55] argument. Whatever. Whatever.

Jon Brooks: [32:59] Yeah. We just did a YouTube video on that and like where's the state gonna get the money for that?

Dan Austin: [33:03] Good question. I don't know. Not my tax dollars.

Dylan Koch: [33:06] Hopefully, it's not more property taxes. Those are already too high.

Dan Austin: [33:09] Yeah. No shit. Yeah. Not in Florida, dude. They're getting rid of them.

Jon Brooks: [33:11] Oh, the answer is the state's not gonna do it, and it's just an excuse to get rid of it. Of course.

Mike DeHaan: [33:16] Yeah. Of course. You know, amongst all those people though, there are those of us that are doing pretty well that, you know, or have done well over the past couple years. And the question is, how do you invest in your business? How do you invest with, like, your surplus cash as an individual? And in my my opinion, I think the key answer there, John, is patience. Right? As you probably don't know. And I think that people that have only really been entrepreneurs for, like, the last years, you kind of have this drive to always be pushing, but sometimes it does make sense. Always deployed. Right?

Jon Brooks: [33:44] You always wanna be deployed. You don't wanna be waiting on the sidelines. Right?

Mike DeHaan: [33:47] Yeah. Totally. And you're worried about like inflation or whatever, but if you can have a million dollars in the bank and you do nothing for five years, then but five years from now, you do a deal where you make use that million dollars to make another million dollars, that's a 20% APR for the previous five years. Right? And a lot of people don't think that way because, you know, it's not a guarantee, I guess, but also so is growth. Growth is not a guarantee either.

Dan Austin: [34:12] I think the only challenge with that argument to devil's advocate is is like, then when is enough enough? Like, when when have you waited enough? Because, like, we're in a time where sentiment's, like, pretty upside down

Mike DeHaan: [34:22] Mhmm.

Dan Austin: [34:22] If if you were to ask me. I mean, there's a lot there's still people out there that have like a bold mentality, like, hey, I'm I'm all in, and they're the ones that are continuously trying to chase alpha and and make the make these great big giant swings. But like, sentiment's like, when do you go back in? Because you don't really ever know when it's at the bottom or the top. Right?

Jon Brooks: [34:39] You're all

Dan Austin: [34:40] and you have the same exact uncertainty when it's at the top as you do when it's at the bottom. You're like, you're looking at it. You're like, this like wave can't go forever. I better pull my money. I kinda like you to John, and some people time it really well. Right? And then but you don't know because Mike and I also know guys that left the business in 2021, and they missed out on multiple 7 figures because they were already established businesses, but they They're a little early. They're a little early, and so you never know. It's like when is that that sweet spot? Because at some point in time you have to deploy your capital doing something.

Mike DeHaan: [35:08] Yeah. Well, is the getting rich versus staying rich argument, David. Mhmm. Right? Because like back in 2020 when everyone here locally was pulling out and knew me went full on into the business, we really didn't have anything to lose.

Dan Austin: [35:19] Right.

Mike DeHaan: [35:19] Right? Whereas, like, all the people that left, they kinda did. Yep. You know? And this I guarantee you, there will be something that people right now will figure out where they will go and make millions of dollars or tens of millions of dollars over the next couple years because that happens every time that there's volatility.

Dan Austin: [35:34] And that's a good point because you can't benchmark yourself off of the edge case either.

Jon Brooks: [35:38] Like, well, that guy did it,

Dan Austin: [35:39] and he came out on top and was, like, perfectly timed. It's like the guy who perfectly timed it might also be like, I got fucking lucky.

Jon Brooks: [35:44] Yeah. Totally. You know?

Mike DeHaan: [35:46] Like They do.

Jon Brooks: [35:47] I mean, we all thought this guy was falling in 2020, you know? Right. A couple of months, we're like, oh my god, we're gonna lose all we everything we built, you know, within a couple months. And then it came pouring back. So, you know, there's one of the local investor here who had like 12,000 properties, single family properties, got it under contract in 2020, and then COVID hit and the deal fell through. And thankfully, because he sold it again in late twenty twenty one for like $50,000,000 more, the exact same properties, to the same buyer.

Mike DeHaan: [36:14] That's crazy. To the same buyer.

Dylan Koch: [36:16] That's nuts.

Dan Austin: [36:17] That was so crazy.

Dylan Koch: [36:18] No. Was gonna say, like, not only with the staying rich versus getting rich, but like when you guys came into the the wholesaling in twenty nineteen, twenty twenty, the minimum bar is higher than it was the previous five years.

Mike DeHaan: [36:29] Oh, yeah.

Dylan Koch: [36:30] And that's gonna be the same for the next five years. Mhmm. And so like, if that is like, you don't know any other standard. So like, when you're just starting, you're like, well, I guess this is how it is. Mhmm. Versus if you're five years into it, like, I don't wanna work any harder and make less money.

Dan Austin: [36:42] Yeah. You're right. You're right.

Dylan Koch: [36:43] So like that's also some of the reason that they leave.

Mike DeHaan: [36:45] It's a good point. When also, if you like really wanna like have major growth in a short period of time, meaning like not your entire life, you do kinda need to bet the farm. You do. Right?

Dan Austin: [36:55] I agree with that.

Mike DeHaan: [36:55] If you wanna make tens of millions of dollars earlier in your life and you have a couple million dollars, you kinda need to bet that couple million dollars. You're not gonna grow $2,000,000 to $20,000,000 in your thirties or forties if you don't really push things out there. You're not gonna do that by just getting a nine or 10% preferred return every single year. It just mathematically won't happen.

Dan Austin: [37:15] You're right.

Mike DeHaan: [37:16] Right? And so for all those that were starting, you know, Dana, you and you and me were betting tens of thousands of dollars to start that we turned into millions in 2020 and 2021.

Dan Austin: [37:25] Now we have to be willing to bet millions to make tens or hundreds of millions. That's that's the reality of it. Are you willing to do it?

Dylan Koch: [37:31] Totally. I thought you're gonna say tens of hundreds of thousands.

Jon Brooks: [37:34] Yeah. No. No.

Dan Austin: [37:36] Come on. 10 x that shit. You know what

Mike DeHaan: [37:37] I mean? Sometimes it does feel that way. Not gonna lie.

Dan Austin: [37:40] But Yeah. Seriously.

Mike DeHaan: [37:42] And those are just things that everyone has to consider for themselves. That's the personal question and and the risk that you're willing to take with everything.

Dylan Koch: [37:48] Did you guys unless you got something else on that, do you see that bonus appreciation 100% might be coming back?

Dan Austin: [37:54] I did see that. I saw that come back.

Mike DeHaan: [37:55] I feel like we've been talking about how it might be coming back for a long time.

Dylan Koch: [37:59] Well they just issued like their formal agenda, what like yesterday?

Jon Brooks: [38:02] It's in the proposal.

Dylan Koch: [38:03] Yeah. And the 2025 rate was supposed to be 40%, and this is retroactive to 01/20/2025. I'm buying four rentals next week, so like that's good news for me.

Dan Austin: [38:14] How does that help? Like, and and I want true. I'm not trying to be facetious here. Like, how does that help, like, our investors that are listening? And who does it help?

Dylan Koch: [38:21] I think it's any helps anyone that's a buy and hold investor. Honestly, the the perfect scenario is someone who has a high w

Dan Austin: [38:27] What if you're poor and you don't make a

Dylan Koch: [38:29] If you're poor, it doesn't matter.

Jon Brooks: [38:30] Okay.

Dylan Koch: [38:30] If you have a high w two, like a spouse, and you can qualify as a real estate professional, and then you can reduce some of your spouse's income. That's the number one Right. Candidate for something like this.

Dan Austin: [38:40] Mhmm. That makes sense.

Dylan Koch: [38:41] But so I mean, that kinda fits my scenario, so Yeah.

Mike DeHaan: [38:43] But I mean, you're still gonna wanna sell the properties eventually, don't you? You're gonna be paying all that back anyway.

Dylan Koch: [38:48] Yeah. At a reduced rate. It's what's the The depreciation recapture is like 2525%.

Mike DeHaan: [38:53] You say that right now all smugly, but wait until you have to pay it, it's still gonna hurt.

Dan Austin: [38:56] It still sucks.

Dylan Koch: [38:57] I've sold properties, Mike. I know I know you have to pay it, but Yeah.

Dan Austin: [39:01] It sucks.

Mike DeHaan: [39:02] But Yeah. Because I mean, I know a lot of guys that were doing that accelerated appreciation in like '21, '22 on some of these big multihomes they were buying. And tell you what, now that they're really having to get out of them because their rates adjusted and they went up, and now they're selling them at like a loss, that sucks ass. Totally.

Dylan Koch: [39:18] And those are the people who did they risk their own money? Are these the GPs who are just committing fraud or were idiots, and they took LP money?

Mike DeHaan: [39:26] Probably both. That is the key question is that I think it's probably all

Dan Austin: [39:29] of you. I will say this though, like, and I and I ask that because you know where Mike and I stand on this, because, you know, Mike and I don't love anything long enough to own it more than five years anyhow. But like, we we were having a a discussion about this on a buy and hold here in town, and it was like, all the tax benefits will be so awesome. Like, it's gonna save you $300 annually taxes

Jon Brooks: [39:49] Yeah.

Dan Austin: [39:49] To own kind of an okay house. Like, fuck that. I don't wanna own a shitty house for $300 in true tax benefits. So it's like, people get so wrapped up around the idea of like, well, I'll have all this depreciation, and it's just like, you have to be in the right position. And and I think if you are in your situation, John, if you're running like a brokerage, you have high high cash flow, high income, and you're able to like write it off, and you're a long term person, like you're thinking like about your portfolio in like a ten, fifteen year timeline, it makes a lot of sense to be able to access that, assuming you're having a higher than usual income during this year. Unless you wanna just keep buying and buying and buying just for the tax benefit, which I think is kind of like

Dylan Koch: [40:25] an unsus The hamster wheel does eventually catch up. It's kind of

Dan Austin: [40:28] an unsustainable thing. Yeah.

Jon Brooks: [40:30] Yeah. I don't know. I like being a private lender, guys. I don't like owning any assets. So I sleep well at night. I get cash flow on the first of each month. It's awesome.

Mike DeHaan: [40:38] Mhmm. Yep.

Jon Brooks: [40:38] You're saying like when's the right time to buy? When's the right time to go back into the market? It's when it's mean reverted or a little bit more. I mean Mhmm. You know, you're not gonna hit the bottom exactly, but the ratios are gonna say, hey, like now's the time to buy. Right now the ratios are saying the exact opposite. Mhmm. And it can last quite a while, but eventually it will come back down. So if you can get in, you know, at the bottom of 2020 or the bottom of 2009 in terms of stocks and stocks have outperformed real estate pretty heavily if you actually look at the numbers. And there's some guys in GoBundance, Mike, that are like, oh, if I had just, like, closed my flipping business and put all my money into stocks, I'd be, like, worth 10 x more than if I would, you know, stayed flipping and doing all the work. And so it's interesting to look. So you wanna once you have money, you wanna look at it a little bit differently than if you if you don't have money. Obviously, you don't have money. You need to borrow from a private lender and keep the flipping and the wholesaling business going. But if you already have money, you play the game completely differently than when you start.

Dan Austin: [41:34] Right.

Mike DeHaan: [41:35] Yeah. For sure. And it's important to have realistic views on the gains that you can expect or, you know, both realistic about what your actual risk is. Totally. That's a big thing that I think people, when they don't have any money, that they tend to worry, I would say over worry about, is if you lose your $30,000 that you have, like, yeah, that sucks. But also just one good win in real estate can recover all that money right away versus if you're risking $3,000,000. It's still gonna take a little bit to get back regardless of how good you are. Right? Totally. So Totally. Awesome. Well, John, buddy, we're here to wrap up. I know you need to go pick up your kids from school and stuff, so we'll let you go here. Before we do, I know you started doing some stuff on YouTube, you've been off to a great start. You wanna talk about that a little bit?

Jon Brooks: [42:19] Sure. Yeah. I mean, I'm I guess I'm a doomsday real estate guy on YouTube, so you can click on my book bait stuff on it's called Think Big Question Everything, which is my substack. So I have a substack newsletter that you have, like, 30,000 subscribers to, and I recently created a YouTube channel. So I I collect charts. Like, I'm a chart junkie. I like to look at the data, and so I just do a YouTube channel where I go over charts that I found during the week that I think are interesting or topics that I think are interesting. And so far, so good. And if you wanna follow, you can you can do it. It's the real Jon Brooks, j o n Brooks. And you can go ahead and subscribe, or you can follow me on Instagram at I am Jon Brooks. Very responsive, happy to connect. If you need anything in real estate for Florida or Georgia, I am your guy. I can get you connected with the top of the top, the best agents that actually know how to navigate this market, know how to negotiate, and how to get things done for you. Feel free to reach out, and I can get you connected into our ecosystem.

Mike DeHaan: [43:13] Awesome, John. Well, thanks for all that, buddy. And then, obviously, if you're listening to this show, you are a fan of no BS real estate talk and people that actually know what they're doing. And if you can't tell, John is kinda one of those guys. Fits our profile. Really good buddy of mine, and there's a reason that me and him have connected so well in the very short time that we've known each other. So awesome, guys. We appreciate you all for listening. John, thanks for coming on the show.

Jon Brooks: [43:34] Thanks, Adam.

Mike DeHaan: [43:35] And we'll talk to you guys next week. See y'all. See you. 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.