How We Deal with Seller Concessions

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 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.

Dylan Koch: [1:04] One thing I think we mentioned, honestly, months ago that's finally starting to come to fruition is lenders reaching out to people and saying, hey. We got some bad deals on our books. You wanna take this over for what's owed?

Dan Austin: [1:18] Welcome back to another episode of the Collecting Keys real estate investing podcast. You got me here, my man, Dylan, the baddie from Cincinnati.

Dylan Koch: [1:28] I hate that. I hated that. I wanted to come up. I have

Dan Austin: [1:32] a whole another one too. I got a whole lineup for you, man, but he's the baddie from Cincinnati. Anyways, the real estate investing show by operators, for operators. We're talking about crazy stuff, including warrantable, non warrantable condos. Mike is not here. He's galavanting out in Europe this week. He's two weeks back to back. He's left me here to survive in the wild on my own. And you guys are lucky podcasts are even posting right now, but they are because we're here for you. Dylan and I are dedicated to the mission here at hand, is giving you entertainment.

Dylan Koch: [2:01] What's nice is I just find some bullet points to talk about, and then I show up. You guys do all the back end stuff.

Dan Austin: [2:07] And you do it. And I just show I read your bullet points, I'm like, damn, that's intelligent. Dylan knows more than me. Anyways, yes, welcome to the show. Let's let's start off because this is actually a really good conversation, is warrantable and non warrantable, because it's things that I have had to learn over the years. The first time we learned about like issues with condos was the condo that we still own, but we've had now for two and a half years, which we are under contract to sell, which is awesome. We're really walking on a tight rope here to see if this thing will actually sell off the traditional, like, think they're doing a conventional loan, will actually fund this thing. So more to come, maybe in like two weeks, you guys will hear more about that. But we have, as a lender, we ran into an issue. There was what warrantable and non warrantable means. And I don't know all of the terms. So there's gonna be a bunch of things that will actually fall under what is going to be warrantable and non warrantable. And we talk about that that we're talking about the title being warrantable or non warrantable. So typically, if it's non warrantable, like you said, Dylan, you're not gonna get the FHA, the VA, you're likely not to gonna get conventional. You can get DSCR loans, and and I don't wanna say you can't get a conventional loan, but it's on it's less likely.

Dan Austin: [3:16] You still might be able to find a lender to do it. You can get commercial loans on them from like a local credit union, which is like what a typical investor is gonna get, or you can get a DSCR loan on it, but they're gonna want really big LTV spread. So I'll give you the example of what we're we dealt with recently, and I'd love to hear kind of exactly on yours why it's non warrantable, because there's gonna be a ton of differences or reasons why. So we were looking at a five unit property. So the owner, the seller owned all five units. They had them, and then the buyer was buying basically the whole building. So you would think, oh, well, it's just an apartment building. Well, the way it's set up is they're set up as condos in the county records. They have their individual parcel numbers. They're not like separate plats, but they have individual parcel numbers. It's kind of a big deal. You'd have to do some, I don't know, you'd have to do rezoning and maybe some replatting. I don't know exactly in that specific market because it wasn't here in in Spokane. However, that's why you'd be like, okay, so it's an apartment building. Which the difference though is with this being a five unit, is that kind of pushes you outside of that one to four unit DSCR loan.

Dan Austin: [4:22] It pushes you more into the commercial side. So that's a different loan product as well. But for what we were doing, we were doing a DSCR loan for her. Well, the seller wanted cash because he lived in one of the units. He needed cash right away, and the lender she was working with, the DSCR lender previously, gave her 65% LTV because it was non warrantable. So she took the cash she did have, bought him out of two of the condos, and then came to us to get the other three because she was really bummed out that that other lender wanted 65% LTV. Well, we were able to increase the LTV a little bit, but because they're non warrantable, we could not increase the LTV enough to get the deal done. So I said, hey, go back to this person, and just instead of you coming out of pocket a bunch more money to get that LTV, just go ask him if he'll sell or finance the rest. Like, you just got him a huge chunk of money for him to go pay cash for his own new property, go sell or finance it. So then we just ended up not doing that deal. But the reason why it was non warrantable was because the same owner owned too much percentage of the HOA because she was owning a 100% of the HOA. So they would not warrant it because of that, meaning you had to have a riskier underwriting package for that loan.

Dylan Koch: [5:33] Kind of the same thing that they told us is that basically, my lender told me if it's over 50%, so I guess 50% or or under is okay.

Dan Austin: [5:42] Okay.

Dylan Koch: [5:42] But like that's just an automatic like non warrantable because I guess they have too much risk in one person.

Dan Austin: [5:47] Right.

Dylan Koch: [5:47] Right? And the other part of this that didn't help, this has been a big freaking mess, is that the previous there's only like 12 units in this whole complex. But the guy who was in charge, he was the president, the treasurer, like he was everything for the HOA board member, and he died.

Dan Austin: [6:03] Oh, shit.

Dylan Koch: [6:03] And he didn't really keep good records of anything.

Dan Austin: [6:06] Oh, man.

Dylan Koch: [6:06] So I really don't know what's gonna happen with how it's gonna go perform. Because, you know, they're asked for the past couple years financials, like, insurance is on the prob like, the condo and so, like, the complex itself, all this stuff. And it's like so, point being is like, now whenever I buy a condo, on the front end, it's like, you gotta figure this shit out immediate like, on the front. Is you're gonna have problems in the back.

Dan Austin: [6:29] So are you trying to buy the condo, like, essentially with a cash loan, or are you like trying to get long term financing on it straight away?

Dylan Koch: [6:36] No. So we bought it cash, and we're we flipped it. We're gonna sell it. Yeah. And the end buyer is the one that's looking for like a conventional loan, like an owner occupied loan. Yeah.

Dan Austin: [6:44] That's a pain, dude. That's exactly what happened to us. We bought ours for cash, dixed it up, had a huge chunk of money coming back to us. And then it wasn't that it was non warrantable, because actual condo itself was warrantable. What we ran into as an issue was the HOA's insurance wasn't, didn't meet the requirements of the conventional lender that they were, that the buyers were using. And the reason why is because it was set up, it was so stupid. And this is why you do need to look at, you gotta be, don't trust other people to do your due diligence on condos. Read the documents, figure it out, throw it in the chat GPT, ask it what is in here that you need to pay attention to, and what's like a risk and all that, because you gotta do this. We didn't do this, and this is how we learned the lesson. We just assume, yes, okay, condo's got its own insurance, We got a walls in policy for the for our unit as well. Mhmm. Well, way it was set up, the only way to get insurance on the units because imagine a cul de sac with like four duplexes. That was this HOA like total. And the only way for them to get insurance was to do it through the HOA because the guy who built them basically sold them on seller contract. But then he wanted to get out from underneath the seller contracts.

Dan Austin: [7:52] And so then he took them all from individual parcels to one giant parcel, created this HOA, and essentially made it so that there's a master insurance policy for everybody. Because if you imagine, like, if you're having an adjacent unit, what if that unit's like still catches on fire and burns your unit? It's like who pays for the loss? Right? And so they need the building that that walls out insurance. And so think of it as like, if it's a high rise condo in Florida or like a the one you're you're looking at, Dylan, in in like Cincinnati, you have to have that policy in place. Well, our insurance was only cash value, and it was because there was too many claims. Because there was three insurance claims in like the last five years. Two of them were the same for the same person whose basement flooded twice, idiots. And they basically, the insurance agent was like, no, we're not gonna increase your insurance amount. So the cash value of the policy was like $2.90, and we're selling it for $3.40, and then loan was gonna end up being like $3.15, and we couldn't do anything to increase the insurance at the time. That's awful. Yeah. It sucked. It was a pain in the ass.

Dylan Koch: [9:01] Yeah. I don't even know. Like, this is true sometimes in real estate, sometimes, like things outside of your control

Dan Austin: [9:06] happen. Yeah. Nothing you can do about it.

Dylan Koch: [9:08] But like, so what ended up happening? Do you just keep it, and now you're like Yeah.

Dan Austin: [9:11] Yeah, we've rented money, we've rented it out, made and lost probably, we probably broke even. We're losing money right now because we have it listed and it's vacant. And so I've fought tooth and nail the last couple years to get the insurance changed and increased, and we've hired lawyers and all that sort of stuff. We have it under contract right now. Funny enough for the same price, we actually had it under contract two and a half years ago, but with seller concessions. We have like an $11,000 seller concession. We have to replace the roof, and we have to put a radon mitigation system in.

Dylan Koch: [9:40] Is the rooftop part of the HOA taken care of? No.

Dan Austin: [9:43] So you have to they basically, the HOA bylaws say you and your housemate, whoever owns the other half of your duplex unit, the other half of the duplex unit, have to just figure it out on your own. Wow. Well, guess what? This guy doesn't have the money to do it. So we're putting him on a payment. He's gonna give us like $2. It's gonna be $11 for the roof. He's gonna be on a payment plan to pay us back. We'll put like a mechanics lien on his house or some sort of lien on his house or his unit. Yep. And then we just replaced the boiler because the boiler failed right before this was just $7. So we're just getting our ass handed to us on all this stuff. And just just to note, the way we're doing is I'm not replacing all that stuff until it closes, and I'm agreed to hold that money in escrow, and I've got the contractor contracts all lined up for it to be executed the day after closing.

Dylan Koch: [10:27] Yep.

Dan Austin: [10:27] Because the last thing I want this person's lender to do is say, sorry, we're not gonna do it because the insurance

Dylan Koch: [10:32] And you've already poured all that money it.

Dan Austin: [10:34] Exactly. So we're just kinda holding off on that. So if this thing falls through, we'll still own it. What's funny is no.

Dylan Koch: [10:40] It's not funny. But like, when we bought it, was like, condos are kinda sweet because like, I don't have to worry about the roof and the windows. I just have to worry about the cosmetic on the insides. Turns out that's not always true. So there's that. So I don't know. For the audience, just be more careful with the with condos than you think.

Dan Austin: [10:55] In your situation, the non warrantability was because there's one owner with more than 50%?

Dylan Koch: [11:00] That and I think it's a combination of the lack of documentation.

Dan Austin: [11:04] The lack of yeah. Yeah.

Dylan Koch: [11:05] But yes. Yeah. That's the president, treasurer, same guy owned like six of the 12 too. So it's also a problem.

Dan Austin: [11:11] Yeah. That is a big deal. That like having the bad records is a big deal. You wanna look at to make sure they have reserves. Lenders will wanna know how much the condo associate has in reserves, and they they'll have some requirement for reserves, for repairs, and all that Exactly.

Dylan Koch: [11:25] So this part of the due diligence process, add it to like a checklist if you're out there and like there's things that like, you don't really think about. Like, stuff like this. See if it's in a flood zone is another big one, especially if you're buying cash up front. But you mentioned the seller concessions you guys have to give. I like the way that you structured that. Like just doing it post closing, because that way you're not screwed if they back out. I have a I'm out 15 k in seller concessions on a on a duplex that we're selling, but 13 of the 15 is a new roof. Oh, really? Yeah. So like, it's not really that bad, but I told them I would go ahead do it, but now I might go back to them like, hey, here's the contractor, here's the half paid invoice, you know, here's this, maybe I'll just wait Yeah. To do it after we

Dan Austin: [12:07] It might make more sense because the worst thing that can happen is they back out. Yeah. Right? And now you've got this damn roof that you paid. I mean, in your case, least the new roof is okay, you maybe you did need it anyways, whatever. That's fine.

Dylan Koch: [12:17] I mean, it's a slate roof. It's pretty old.

Dan Austin: [12:19] Okay. Yeah. Exactly. For us on our stuff, like the radon mitigation thing is this joke. I always say no to that, but these buyers were like gonna walk if we didn't do it. And after like the concessions, the sale price comes down enough to where we're like so close to it being what the insur insurable amount is, that I'm like, I'm willing to like just at least go through this process with these people to find out if it works, because we're just like right there on on the cusp of it of it working.

Dylan Koch: [12:46] And there's something to reset about being done with it and getting your money back.

Dan Austin: [12:49] Exactly. Dude, we're so done with this thing. It sucks. We'll get some cash back, which will be nice, and we'll just reinvest that in our business and call it good. But the seller concession thing is a legit issue, and people are getting their ass handed to him if you're not accounting for that in your numbers up front. Because it's almost like it's almost like you flip a perfect house, and the buyer's gonna be like, this house is awesome. You pass inspection. I want $10,000 in in fees paid.

Dylan Koch: [13:17] And you're like, okay, because you don't like this duplex, I didn't really have any other offers. I almost feel like an obligation to be like, you know, I don't really wanna piss them off too much.

Dan Austin: [13:26] Well, exactly. Yeah. So you just kind of have to eat part of that. So when you're pricing out a flip, you need to price in some repairs. Like if you're leaving something open to an inspection, like one of our recent flips, like the roof, it would needed to be done, which is crazy that we didn't actually have to do it. We had some other seller concessions, but we did not have to do the roof. But I looked at it, and I was like, so yeah, this roof, I'm not gonna replace it because it's not actively leaking. I'm gonna clean all the leaves off it, make it look good. But I fully knew like, hey, if I'm gonna probably have to spend spend $10 doing this. We didn't spend $10 there. We spent $10 there helping pay the fees for the buyer. But it was just kind of like a realization of like, yeah, this is how it's gonna happen. And every offer I've gotten since we've, like right now we've got, I think, six list, six properties listed. And I mean, anytime we're getting an offer, it's coming in. It might be at ask or slightly below, but they're asking for things to get paid.

Dylan Koch: [14:23] Yeah. Yeah. Like five to 10, or maybe not that much, but like in closing costs, settlement charges, Like, rate buy downs too is another one. So Mhmm. You know? And I guess now as for underwriting too, here, the prices haven't really gone down. They're on the market a little bit longer, so now your holding costs are a little bit are a little bit longer or a little bit higher. But at the same time, you're you just have to, like, maybe on the rehab, if you did a 10% set aside for unexpected, maybe it's 15.

Dan Austin: [14:51] Right.

Dylan Koch: [14:51] You ought to just account for something. Because luckily, on this specific one, know, we're still gonna make I think like 30 or 35, but it went from being a great deal to like, it's still a good deal.

Dan Austin: [15:01] Doing a deal. Yeah. You're making money. You're not upset about that. But yeah. Yeah. That's an issue. And the funny thing I've seen too with some of these buyers where we kind of push back on this, their agent, and they could be just bullshit, but they're like, no, literally they have no money. Like they can't even do their down payment. I'm like, why are people buying it? Like that's a terrible choice. If you don't have enough money to like own the house, like without getting concessions, you shouldn't buy the house because right now is not the best time for homeownership. Like the American dream isn't thriving in homeownership right now.

Dylan Koch: [15:32] No. I mean rates are still kind of staying kind of where they have been right now. So like Yeah. I don't know. I like I think well, I don't know how it is in Spokane, but like Cincinnati specifically, our listings are up like 27% year over year, which is like, it's June, May, June. Wow. But our average shelf price is still up 5%. So again, like it's kinda like stagnant on the price.

Dan Austin: [15:51] Isn't that crazy?

Dylan Koch: [15:51] There's a lot more of them.

Dan Austin: [15:52] Yeah.

Dylan Koch: [15:52] But our days on market are a lot higher too. So, like, 51% higher year over year for days on cumulative days on market.

Dan Austin: [15:59] That's for your that's for Cincy?

Dylan Koch: [16:01] Cincinnati MSA.

Dan Austin: [16:03] Wow. Interesting. Yeah. We're definitely seeing numbers go up. I saw an article was it an article? Podcast article, whatever. I don't know what it was, but they were talking about there's 500,000.

Dylan Koch: [16:14] Oh, I saw the Yeah. Same More sellers.

Dan Austin: [16:17] Was it 500,000 sellers than their buyers?

Dylan Koch: [16:19] I think that was posted out of, like, a North Carolina, like, suburb or like North Carolina Okay. Like jurisdiction. But I think that's true in several markets.

Dan Austin: [16:29] What there's what basically saying is there is more sellers than there are buyers right now, which we obviously can understand. That's why it's a buyer's market, and buyers can make offers with, you know, concessions and repairs and all that sort of stuff. We get it.

Dylan Koch: [16:41] I think if I'm forward thinking a little bit, if you're looking at q four specifically, like, yeah, right now seasonally, like things still kind of go here and there, but it was slow kind of last winter. I mean, if you're taking on a project now and it's a six month rehab or four or five month rehab, that's something on our that would maybe I don't know. I'd be a little bit more cautious with that, I guess.

Dan Austin: [17:03] Yeah, that's interesting. So on the scale community call today, I shared just kind of one of the members asked what we're doing, what our strategy is going forward, how are we going to transact with real estate, and you know, we're feeling the June slowdown. I don't know if you're feeling it the same way, but our lead flow is is quite a bit lower like than it was last month, but we see that in Washington at least. And I know on on the listing side, like the actual market, you see the same thing just like you did off market. And I think it's just a byproduct of summer starting, kids getting out of school. It's like a transitionary season for a lot of people, especially in the northern climates. And I would expect it to ramp up towards the end of summer, into the fall, before it slows back down in the winter. However, I would say I am not trying, to your point, I'm not trying to take on huge projects that might take me six months to finish, and then I'm going into the winter market to sell it. We personally have three or four active novations. We're actively flipping one house, and then we've got like three or four wholesale deals. And maybe one other listing, I can't remember. So I'm kind of like topped up for our size of company. I'm kind of topped up. I don't want to take on another major flip. Oh, that's right.

Dan Austin: [18:19] We're buying another one. That's the other one. We're buying actually, we have two more in the pipeline we're supposed to be closing on that are on the higher end of the they're a little over our media price point, which is not good for us, but they're fat deals. So we're we're thinking about taking them down.

Dylan Koch: [18:31] And you guys are taking these down?

Dan Austin: [18:32] The yeah. One would be a whole tail, one would be slightly more than a whole tail. So that I'm like, I'm topped up. Like I don't like, if you come at me, I'm wholesaling it. I don't even I don't even wanna do a novation unless it's got a good margin on it, because I just don't and then novation needs to be like less than like $3,505 of repairs before. You know what I mean? I just don't wanna deal with it because you get all your capital tied up.

Dylan Koch: [18:55] You get all your capital tied up and your resources, man. Exactly. The name is not that much, hold on. 1234, I want 56. I look on our whiteboard. 7. 7 that we have, like, little legit, like, title on and going through rehab. So I'm doing That's all of the project management a lot. Yeah. And then there's a couple more. There's, I think, three more that are wholesales. One's clear to close for Monday, another one for the thirtieth, which are those are two good ones. But then we're gonna close another one, I think, on the twenty seventh, which might be another hotel. But I have to get the tenet out of that one. So like, it's tough because like as an entrepreneur and someone who has a revenue goal, I'm like, yes. I will take on all the bugs. I'll figure it out. That's always been my mentality. But at the same time, like, it's stressful, you gotta like, sometimes balls get dropped. It's just part of it.

Dan Austin: [19:49] They do. It's inevitable. And you just have to understand, like, what your business is doing. Like, where we're at, like, we're just taught, like, there's no reason for us to do to take on any more risk. Where we're at, we're gonna be making money. We'll we'll be able to chip away and make some wholesale fees to bring money in, and then we'll have our cash out on these flips and innovations that we've already got going, and then we'll just slowly let that trickle back. And that's kind of how we as a like our like our company, how we've done it recently, is we, you know, we're putting money out there, and then it'll slowly come back in, kinda like a tide. But then in between now, we're just popping off these little, know, sometimes 50 ks wholesale deals, sometimes 10 ks, but you just pop those off, and that kinda recovers our marketing. But then all of our real profits, not all, but a good chunk of our real profits, probably 60% have come from these like flips, novations, wholetails that were the long run, the long run profits.

Dylan Koch: [20:37] You take title, you control the asset. You yeah. Yeah. And those 5 to 10 to 15 k wholesale fees, I tell a lot of new people, like, those are what keeps the the the marketing going. It's what keep the lights on. But you really need the forty, fifty, 60 ones to make any real money in this business.

Dan Austin: [20:51] Totally. 100 percent.

Mike DeHaan: [20:52] 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 can hang out with myself, Dan, Dylan, and other operators around the country who are all working to be the best in their market. We really 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.

Dan Austin: [21:36] So transition, I got a couple topics I do wanna talk about. One, we talked about interest rates. The Fed is meeting today Yeah.

Dylan Koch: [21:42] I think it's today.

Dan Austin: [21:43] On interest rates. The FOMC is meeting today, and they're going to announce like tomorrow at I don't know. Was it like 11AM our time? So 2PM your time probably?

Dylan Koch: [21:51] Yep.

Dan Austin: [21:51] If they're going to increase rates, what do you think?

Dylan Koch: [21:54] I think they're gonna stay flat.

Dan Austin: [21:56] Sorry. Not safely. Was gonna are they gonna stay flat or are they gonna decrease? So you think stay flat?

Dylan Koch: [22:00] I think they're gonna stay flat. The jobs report was not too long ago, and it was not great, but not like, it was basically at expectations.

Dan Austin: [22:08] Yeah.

Dylan Koch: [22:08] And the Fed calls their meetings forward guidance. Yep. And the last thing that they try to do is I I feel like they portray what they're going to do ahead of time. And a lot of the fed commentators that I follow on, you know, x and stuff, basically said like, I don't anticipate any kind of cuts happening. So them actually cutting tomorrow would be like kind of a surprise to the market. I don't think they like that. They want certainty.

Dan Austin: [22:32] Yeah. They want certainty, right? Yeah. That's actually good. I I agree with that they're probably gonna stay flat. It just doesn't feel like they need to cut. Like it just doesn't feel like they do need to, I don't know. But it doesn't feel in the moment that they need to. You know, the inflation is going down, which is good, right? It sounds like anyways. So what's the point in letting it pop back up by exciting the market and dropping rates, you know?

Dylan Koch: [22:56] Yeah. And then the inflation number that was was lower. The rate of change was lower to, you know Yeah. Get the definitions right. But so to them, that's like, well, there's no re like, they're worried about inflation. Right? Yeah. So if they cut rates, that'd be the worst case scenario for them.

Dan Austin: [23:11] So in in that same vein then, I can't quote facts on this because I was listening to the All In podcast recently, and they're talking about one of the hosts was talking about their forecast for GDP in q two is actually like three point something like low threes. That to me is crazy.

Dylan Koch: [23:30] That to me seems pretty crazy too. Yeah. It's usually the Dallas Fed that gives out their GDP ones. Mhmm. Their metric. I don't really have much other to say than that seems pretty high.

Dan Austin: [23:39] Right. Because we're coming off of a negative negative quarter q one, right? Q one was was it negative? Yeah. Negative growth?

Dylan Koch: [23:47] Yes. And there's a guy named doctor Lacey Hunt. He was actually the Dallas Fed president, and I listened to a podcast with him. He actually thinks that the a lot of the numbers are kind of wonky right now. And a lot of it was because like some of the tariff stuff when they got announced, a lot of people front ran a lot of their spending. So he actually he thinks that the previous quarter, even though it didn't look great, looked better than it would have if those tariffs were announced because people front loaded their spending.

Dan Austin: [24:14] So there is an argument then that and the argument from the all in was that there's a 300,000,000,000 coming in, potential in in government receipts, essentially basically from tariffs and other things. So there will be like an increase to the US government of 300,000,000,000. So that's a good thing.

Dylan Koch: [24:34] Their revenue is going up, but you if you see the the big beautiful bill, those deficits are still getting bigger.

Dan Austin: [24:40] Right. There's a lot of there's a lot of tax cuts in there.

Dylan Koch: [24:43] Well, the tax cuts are the same from 2016, then they're just getting renewed. So they're not really tax cuts. It's kinda staying the same and not going back to what they were pre Yeah. The Jobs Act. Yeah. And quick aside, we can talk about bonus appreciation because that was mentioned in that bill. Yeah. But I don't know, think even though revenue's going up, I think the spending's going up more than the revenue. Gotcha. So I'm still that the deficits are gonna widen. And secularly, not like short term, but like I think we're in an inflationary decade. And if you're in an inflationary decade, you wanna earn hard assets. And hard assets, it's real estate. Yeah. Some stocks, other things, you know? So Yeah. That's how I've kinda positioned my whole portfolio.

Dan Austin: [25:22] So do you think we're in like the nineteen eighties decade, the late seventies to late eighties?

Dylan Koch: [25:27] I don't think we'll be able to get to those high of interest rates again, because our debt's too bad.

Dan Austin: [25:30] No. But like but that was like the last time we would have seen like a decade of high rates.

Dylan Koch: [25:36] Yeah. So you have wedding deficits, you have deglobalization, you have all the geopolitical problems coming back. So yeah, I would I'd say I don't know if that's a analogous decade, but probably the closest one in in recent memory.

Dan Austin: [25:47] Right. Like, yeah. That's all I could think of as far as like, okay, you had high rates for a long period of time. And I never actually looked at it this way, but when they raised the rates, was it Paul Volcker that was the Fed chair that raised the rates super high? But then really, it was a rate cutting environment for until like the two thousand.

Dylan Koch: [26:07] Forty years.

Dan Austin: [26:08] It was forever. It was forever, right? We're in

Dylan Koch: [26:10] that crazy.

Dan Austin: [26:10] But they jumped them up to like 20%. So they slowly, all we knew for that period of time was, we'll just utilize rate lowering to keep the economy pumping. Lower the rates. Lower the rates. Until they couldn't because then they were at zero.

Dylan Koch: [26:22] Because they're at the zero bound. Yep. And that was the great great financial crisis.

Dan Austin: [26:25] You could go negative, which some countries did. Japan's negative. I think Canada at least was negative for a while.

Dylan Koch: [26:30] Europe was negative for a while, but I don't wanna get into the semantics. It's a lot harder to get a negative interest rate when you're the reserve currency for the world.

Dan Austin: [26:37] Of course. Sure. Yep. Okay. That makes sense.

Dylan Koch: [26:40] So I guess I don't know where to top that off at, but the big like global macro picture is, like real estate did well over the past forty years because they had 40 of declining interest rates.

Dan Austin: [26:49] Right.

Dylan Koch: [26:49] We might not have that going forward, but that doesn't mean you still can't make money, and it's not like one of the fastest horses to use that analogy.

Dan Austin: [26:56] Well, so do you need to own? You said to own real estate in an inflationary period. I mean Hard assets, yeah. Are you getting cash flow with your real estate while you own it?

Dylan Koch: [27:04] Here I will.

Dan Austin: [27:05] Yeah.

Dylan Koch: [27:06] I mean, that's not true for all markets.

Dan Austin: [27:08] Yeah. Yeah, some markets you definitely won't.

Dylan Koch: [27:09] But even so, like that, with the off market business, Dan, and like with my current portfolio that I've established over the past couple of years, I'd have the cash flow from that, but the money's really made in the appreciation and the debt paid out.

Dan Austin: [27:22] Yeah.

Dylan Koch: [27:23] Right? And so I I don't see a reason not to just keep riding that train because I don't even if we have a short term price correction, if you ask me ten years from now if my prices are gonna be higher or lower than they are now, I think they're gonna be a lot higher.

Dan Austin: [27:34] You think so? Yeah. Yeah. Yeah. And you're gonna have the spread because you will have the debt pay down. Exactly. You know, that which is great. Yeah. And I I was kinda asking around this because it's almost like if I ask you this question differently, as in if you were a pharmacist and you're making excess income, would you take that excess income and buy rental properties off the market? No. Exactly. Because it doesn't make sense. Yeah. But you have a unique tool and skill set, and a lot of our listeners do, which is find things at a discount, add value to them. So now you you're forcing immediate appreciation, and then buy them in such a way that you can hold on to them. So if you wanna go along in real estate, you need to buy them in a way which everybody knows, oh, you make your money on the buy, which is true. But you need to buy them in a way that you can force a quick value of quick bump in value, because also that protects you in the near term if you do need to sell an asset. You've created some value where you're not losing money. Because here's the shooting about real estate. You can literally buy an asset and sell it for a more than you bought it for, and lose money on it.

Dylan Koch: [28:37] Yep. It sucks. Yeah. Yeah. Depending how much money you poured into it during the life of your ownership.

Dan Austin: [28:42] Absolutely. But think about it, if you just bought it and paid a $100 for it and you sell it next year for a 102,000, you're definitely losing money because there's transactional costs. It's Yes. And it's interesting where like, I was running this through my head in the shower the other day. So in Washington, we have a fund essentially a one point or like, let's just say 2% excise tax. Anytime you sell real estate, you pay 2% no matter what on gross proceeds. We also have a business, a B and O tax that's on gross sales of 1%. Jesus. It's stupid. I don't agree with gross anything when you're talking about, taxes, but it's less than 2%. But for this argument, it's 2%. So if you basically buy a or you sell a house for 400,000, say you owe 300, so you have a 100,000 in equity on this thing. So 400,000 times 2% is $8. You just paid an 8% tax on your gain.

Dylan Koch: [29:33] That just goes to the state of Washington?

Dan Austin: [29:36] Just goes to the government. Goes to the state of Washington. That's an 8% essentially capital gains tax, but they don't have a capital gains tax here. Right? But they do. I mean, actually we do now, but like Yeah. But you know what I mean? So then on top of that, you're gonna pay the federal government your potentially save 20% capital gain on that, depending on what tax bracket you're in. And bonus appreciation or that depreciation recapture? Yeah. So you're getting like, it really pays to own real estate over a long period of time, but you're you're gonna get taxed on that shit.

Dylan Koch: [30:02] Well, biggest thing like with in the our off market space is like, if are you trying to go cash flow or are you trying to grow wealth? We talked about the massive income versus passive income, so yeah, make a shit ton of money. But the way that I'm adding to my portfolio now is you buy at 75% of ARB minus repairs. So that way I'm all into a project with very little money. It's not they're not always perfect person, but very little money in. So I'm buying let's say I'm buying $90,000 worth of equity for $10. That's an $80,000 spread. Do that five times a year. You've made $400 on And

Dan Austin: [30:33] you can't do that any any other real way in real estate. Unless you get lucky, you can't do it consistently. And that's why I say is you can't build a business buying shit off the MLS or getting lucky.

Dylan Koch: [30:42] Yeah. Yeah. Yeah. And the wholesaling and the flipping provides some of the capital for that. And then going actually tying this back into the the big beautiful bill that they like to call it. It passed the, or the house reviewed it, they made some of their alterations, it went to the senate. The senate just reviewed their remarks yesterday, and they brought back a 100% bonus depreciation, but in perpetuity.

Dan Austin: [31:09] Oh, wow.

Dylan Koch: [31:09] So it doesn't go away. Interesting. So that'll be another avenue for like, I would just say like high w two earners to park some of their money into.

Dan Austin: [31:18] Yep. Totally. Interesting. If that comes back, I don't know how I feel about that. I don't know that I wouldn't necessarily use it all the time.

Dylan Koch: [31:25] Well, can be strategic without you use it too. You know, you don't it's not an all or nothing thing.

Dan Austin: [31:30] Yep. I would feel like we'd be remiss if we don't talk about the Tel Aviv real estate market, and anything else going on geopolitically, because we talked about it. You you mentioned it. I mean, do you think? Shit's popping off.

Dylan Koch: [31:45] Like I said before the podcast started, I don't I'm not informed enough to actually have like a really good opinion. I just think that if The United States gets involved, markets will probably freak out, and then it's gonna depend on how quickly that gets resolved. I think that'd be like a downward, like a stair step down as things kept escalating. But as soon as things resolved, I don't see a reason why it wouldn't go back up.

Dan Austin: [32:10] Right.

Dylan Koch: [32:10] But no one knows that timeline.

Dan Austin: [32:11] Well, exactly. There's this shock which, you know, the the headlines right now are like, nobody cares. Like, oh, Israel and Iran are bombing each other. That's just a Tuesday afternoon in The Middle East. Right? So like the because the market like, the markets aren't doing really anything of note. Yeah. If The US announced something that's big, then yeah, I think the markets would react. But again, it could be an eight day thing, a ten day thing, and all of a sudden we're back to it. So it's like, you can't just bank on something's gonna happen because you think it should. I will say I saw some shit on Instagram where I saw some of the I think it was f 30 fives, the Israeli f 30 fives flying in Iranian airspace, and they're like bombing shit. I was like

Dylan Koch: [32:51] Yeah.

Dan Austin: [32:51] This is real. Like, this isn't like launching This real. This isn't launching missiles anymore. This is like, they're really fighting.

Dylan Koch: [32:57] From a purely real estate perspective though, if The United States gets involved, people would have flight to safety, which means that they buy shit ton of treasuries Mhmm. Which means rates would likely go down. Which means that you can refi or sell at a lower rate. So I you know, do that information what you will. But.

Dan Austin: [33:13] Okay. So are we pro war?

Dylan Koch: [33:16] Nope. I not going there. Not going there.

Dan Austin: [33:18] Oh. So it does bring light. There has been a lot of conversations. And so if you wanna be a doomer, like our our comrade Michael, who sometimes is a doomer when it comes to this geopolitical stuff, know, the China Taiwan thing to pop off too. What a better time for China to go over to Taiwan when there's all these tensions, and it's a it's a strategic move. So then you have this whole other layer of issues. And then my conspiracy is that the riots going on around the country or protests, whatever you wanna call them, I think they're riots, are a psyops into America to allow for this open gate for people to go to war. So like, Israel's like, alright, We got those fools distracted. Let's go bomb the let's go execute, bomb the shit out of Iran and and say we're going out for the nukes. China might just slip through the back door down in Taiwan too. Who knows?

Dylan Koch: [34:08] The older I get, the less I trust the government. So I and that's just because of things that happen. Right? And so Right. That's exactly it.

Dan Austin: [34:15] You see it, you're like, what's going on here? And I'm not saying that that protesters aren't don't believe in what they're protesting for, and they aren't protesting for something that they think is, like, important. I'm just saying that it's potential that there's some psyops to really force that things those things to happen quicker in a larger scale.

Dylan Koch: [34:34] And with that, I wanna move on to the next subject

Dan Austin: [34:36] real quick. Conspiracy corner over.

Dylan Koch: [34:39] Yeah. The one thing I think we mentioned, honestly, months ago that's finally starting to come to fruition is we saw in the GoBundance channel of like lenders

Dan Austin: [34:49] Mhmm.

Dylan Koch: [34:49] Reaching out to some of the people, the basically the GoBros and saying, hey, we got some bad deals on our books. You wanna take this over for what's owed.

Dan Austin: [34:57] Right.

Dylan Koch: [34:57] And I think we're gonna start seeing more and more of that. So if you're a deal hunter, maybe talk to your favorite bank.

Dan Austin: [35:03] Yes.

Dylan Koch: [35:03] Maybe talk to a local credit union.

Dan Austin: [35:04] So interesting on this one, so to highlight this, this was a commercial asset. It wasn't residential, was it?

Dylan Koch: [35:11] It was commercial that in the specific post.

Dan Austin: [35:13] Yep. That's where I'm wondering. I do think that there's a lot of stressed assets in the commercial space, triple net space, larger, you know, multifamily, the res that that part of the residential space, I feel like you're not going to see as much of that in the single family, small multi, because I think those assets, not all of them, because if you've bought in the last few years, you're upside down.

Dylan Koch: [35:35] For

Dan Austin: [35:35] sure. Hands down. Yeah. Right? But as we still have a decently strong jobs market, people are able to pay those mortgages, and a lot of those lenders have a mechanism now to be like, oh, we're just tacking on the back end. Don't worry about it.

Dylan Koch: [35:48] Yep. You know?

Dan Austin: [35:49] And they're just they're just increasing the value of that security that they're gonna wrap up and sell. But I do think on that commercial side that that's where the distress is gonna be. Especially you have all these dummies that are like getting SBA loans, and I'm buying a You know what I mean? And then those commercial assets that are along with that business, the office building or the warehouse or whatever, I think that's a great opportunity.

Dylan Koch: [36:10] The past five years, you kinda got bailed out, bought a bad deal. That's not really the case anymore. And like my mind goes, so you're, you know, an FHA buyer for these, like, let's say you bought a four unit, but you're a typical, I don't know, American that doesn't really have any money, and you need the rent from those three of the units to pay your bills. Okay. Well, now a tenant just moved out, and they ruined your place, and you don't have the money to fix it up. Yep. Okay. So now what happens? You gotta rent it for half the value, and then it happens again? Like, I think we might start seeing some of that.

Dan Austin: [36:39] There's definitely some of that. And I think also in your your boy who loves co living or whatever he was that what he calls it? Co living. Craig? Yeah. If you're overpaying for an asset because you're gonna try to do co living, watch out. It's the same issue. I'm not saying that it's not a viable solution. I'm just gonna shit talk on Craig. And also, you saw that with Airbnb. People overpaying for assets because they're like, oh my god. The the agent told me we'll make $1,200,000 a year for this beachfront property. It's like, yeah, but it costs you 1,100,000 to operate or 1,300,000 to operate. You know what I mean?

Dylan Koch: [37:08] Yeah. But you can't put on Instagram that you own a beachfront Airbnb.

Dan Austin: [37:12] Yeah. This is true. And that you never get to visit because you can't afford to take a week off. That's what it comes down to.

Dylan Koch: [37:19] Yeah. And I I mean, those co lawyers are just getting more and more and more stressed.

Dan Austin: [37:23] They are. But your point is well taken. I do think that is an opportunity. Maybe it is cracking a little bit. Maybe these banks are gonna have some REOs to release to people. I do think I saw someone talking about getting some a couple REOs from a bank too.

Dylan Koch: [37:38] Yeah. They basically haven't done any in the past like five years, but now they had a lender like reach out and said, hey, we're gonna be we're gonna own these in the next couple of weeks. Like, you interested?

Dan Austin: [37:46] Right. Didn't that person make a comment that the lender also said they're gonna have like 12 more coming up?

Dylan Koch: [37:51] Yep. So they know. Yep. It's increasing in space. Interesting. Or in volume. Yeah. I don't I'd have to I should go back and see where he invests in. Yeah. If that's like a local thing or not.

Dan Austin: [38:01] Yeah. That would be interesting. I do I I every once in a while talk to my commercial banker who who does all our he helps. He's kind of our private banker as well. He kinda has a wears a few hats at the bank. But anyways, he does all the SBA loans for small businesses and stuff like that, and then and then there there he helps them restructure their their debt on their buildings and stuff. And I'm always like every time I tell him, like, hey. Anybody losing their ass? Anybody buy a business or a building that they can't afford to pay? And he's like, no. Not yet. So maybe I'll ask him this next time I talk to him.

Dylan Koch: [38:31] Have you ever heard of anyone actually getting denied for any of these loans?

Dan Austin: [38:34] For

Dylan Koch: [38:35] Like, I guess an SBA loan for one, but even like if you're buying a As long as you have the down payment, like a 25% down, No. Like We know they don't have any money, but they always get approved for the loan.

Dan Austin: [38:47] Yeah. I don't know, man. I've never heard of somebody get denied. I just heard of people not qualifying or having the equity in their primary house to give up to Uncle Sam when they don't they don't make their payments.

Dylan Koch: [38:57] Yeah. I guess you're signing your life away and probably not even realizing it. Yes. Anyhow. Do you guys have any real quick, do you know what the space or I guess with your lending stuff, can you do any non recourse loans? We won't. No.

Dan Austin: [39:12] Yeah. I haven't ran into any situation where nonrecourse actually came up. And I was talking to somebody, I can't remember who I was talking to, a lender, and they're like, well, there's technically no such thing as nonrecourse. Because they'll say nonrecourse, but you're still on the somehow you there's still some recourse to every type of debt you do. And so I never really vetted that out and asked them exactly how that works, but that always stuck with me when people bring up nonrecourse. Yeah.

Dylan Koch: [39:38] I'm trying to look for there's a guy I follow on Twitter. He's a local syndicator to here, to my market, but he's he actually knows what he's doing. He's been doing it since like the early two thousands. And he just posted the other day here. Fresh cash out refi quote came in for our 220 unit. This was only 6 days ago. A family debt, five year fixed, five years IO, 65% LTV. They did a max buy down that was 4.94% as of today. Wow. So the government debt, the nonrecourse government debt's almost better than I think some of the other stuff that you can get out there.

Dan Austin: [40:11] Yeah. Yeah, especially because you get the interest only period to build up your cash reserves.

Dylan Koch: [40:15] Yeah. So, I mean, maybe we're in the wrong space, Dan.

Dan Austin: [40:19] Probably, but that's okay. I'll keep chipping away.

Dylan Koch: [40:22] Yeah. Me too, buddy.

Dan Austin: [40:23] Alright. Let's close it out, man. We went on for a while. Sorry, audience. Me and Dylan are just we're just talking shop over here.

Dylan Koch: [40:29] Not sorry. You guys enjoyed it.

Dan Austin: [40:30] You guys loved every minute of this. Alright. This is from your host, investor man Dan, and the baddie from Cincinnati, Dylan.

Dylan Koch: [40:39] I hate that.

Dan Austin: [40:41] Go hit him up on Instagram at Dylan Does Deals and let him know he is the baddie from Cincinnati. And, other than that, have a good week. See you.

Dylan Koch: [40:49] See you guys.

Mike DeHaan: [40:51] 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 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.