Inflation’s Real Estate Ripple: Government-Backed HELOCs, Low Inventory, & High Competition

Mike DeHaan: [0:00] Real quick, guys. If you want to take your real estate investing business from 6 to 7 figures in the next twelve months, and you wanna do without being a slave to your business, then you have to check out our scale community. You can get the full details at collectingkeys.com/scale. But very basically, it is a community of like minded investors who are working to become the absolute top tier investors in their market. Along with three coaching calls per week led by Dan and myself, we also have a whole bunch of videos and materials that go into all the different SOPs that we use to run our business on a daily basis. This includes how we manage our sales team, how we hire, how we do our marketing systems, how we get the best assignment fees possible, how we do renovations, how we do all the different kinds of creative financing. And if you are serious about taking your real estate business to the next level, it is absolutely something that you should check out. So go to collectingkeys.com/scale, see all the details and see if you're a good fit.

Dylan Koch: [0:59] And if the trend is true for everything that we're saying, if if, you know, big if inflation is gonna run rampant, then having your money in real estate is probably not a bad idea.

Mike DeHaan: [1:13] What is going on, guys? Welcome to today's episode of the collecting keys real estate investing podcast. This is the show where you teach to make massive income, not just passive income with your real estate investing business. If this is your first time here, this is Wednesday, the Mike and Dan show. And I am Mike DeHaan here with my cohost, Dan Austin. And on these shows, we talk about real estate investing business and whatever else we feel like this week, kind of depending on what's going on. And we are doing something a little bit different for these Wednesday shows for, I don't know, maybe today, maybe a little bit longer. We'll find out.

Dan Austin: [1:50] We'll see how it lasts.

Mike DeHaan: [1:51] Yeah. We have a third member to the show today. So this might be the, I don't know, MDD show here going to the future. But we have a long time scale community member, Dylan Cook, who is joining in on these Wednesday shows to kind of help us have a little bit more grasp or, I guess, contact with reality of what most real estate investors are going through in this current market. Because, I mean, I hate to say it, but, like, also not really. Dan and I, we have grown our business a lot, and we tend to look at things these days from kind of like a... Almost like a pedestal. We're a little bit more removed. And, Dylan, you've been in the scale community for about two years, and you are still a sole operator. And so we thought it would be awesome to bring in and, you know, just bring some news, some Some flavor. Some flavor, I guess, that is a little more apple to a of people.

Dan Austin: [2:43] Not diversity, though.

Mike DeHaan: [2:44] Yeah. So, Dylan, maybe give the audience a quick thirty second intro of who you are, what you do, and what your business looks like.

Dylan Koch: [2:51] So thanks for having me, guys. I think this will be fun. And my goal is to make it to episode two, I guess, of the MDD show. I'm based out of Cincinnati, Ohio, was a former pharmacist, left out in October 2021. And since then, we've done over, I think it's 150 off market transactions, it's about 1,500,000 total revenue over those couple of years. And that's not including any of the buy and hold stuff, you know, about 4,000,000 in real estate in the buy and hold side.

Dan Austin: [3:17] So it's awesome.

Dylan Koch: [3:18] And I am just looking to grow that also scaling up. But like you said, I'm in the business every day, making the phone calls still with the sellers. Maybe get some opinions around the nitty gritty side of the business.

Mike DeHaan: [3:31] Yeah, absolutely. As your business has grown, you've gone the path that every real estate investor goes where you become another white guy in your 30s who decides you want to talk about real estate on the internet. So you... You'll fit right in.

Dan Austin: [3:42] Welcome to the club.

Mike DeHaan: [3:43] Exactly. And if Dylan sounds familiar to you guys, because he was on episode two zero seven a couple months ago and had a really, really popular episode back there. So I guess how we will do this this week, Dylan, you have kind of done a little bit of research for us, dove into the real estate industry, kind of like news and different things, and discovered some good talking points. And so I guess for everyone's context as well, Dylan's a very well read person, very educated, very sort of in tune with the economy as a whole, whereas Dan and I have a couple of knuckleheads. So you bring a ton of additional viewpoints things. And so

Dan Austin: [4:17] too, which is incredible.

Mike DeHaan: [4:18] You're you're smart. I mean

Dan Austin: [4:20] You're smarter than us.

Mike DeHaan: [4:20] One of the jokes you made when you're setting this up was, what'd you say? You said you've seen some real dumbasses make good money simply because they worked instead of procrastinated. And I was like, yeah, this is honestly me. So

Dan Austin: [4:31] You described me. I'm not offended.

Mike DeHaan: [4:34] So but awesome, man. So what have you found for us today? Or what are some of the big things going on in the real estate

Dylan Koch: [4:39] The biggest thing that I found recently that I think is going to fly underneath the radar is there's an article put out by a couple of news outlets, it came up in Time versus or like a financial magazine. And it was basically about a Freddie Mac getting into the HELOC business, or like the home equity line of credit. So to give a little bit of context, when a loan is set, you know, they usually these services are just checking boxes that are set from Basel III post 2008. And they mix them all together, and they sell them off. The government is basically on their books as mortgage backed securities, right? And nowadays, since post two thousand and eight eighty five percent of mortgage transactions take place like originated and go through this process that are either FHA or VA, so any of the four government agencies. And so now they propose this, and I think of somewhat of a timely manner, where they expect 1 to $2,000,000,000,000 being extracted from equity in really later boomer type people's homes, because that's where most equity sits. So I can deal with my more talking points, what are you guys' first initial reactions to that?

Mike DeHaan: [5:48] So are these are HELOCs or are these like home equity loans that they're doing?

Dylan Koch: [5:52] They're like HELOCs. And so they would be in second position and the guidelines they have it running now is they're 80% total of the LTV. So right, if had a million dollar home, you have 500,000 on it, you could take up $300,000 as a line of credit.

Dan Austin: [6:06] So 80% of the actual equity.

Mike DeHaan: [6:08] Yeah. It seems weird for me for the government to wanna get into HELOCs because, I mean, the whole thing with the Fannie Freddie loans is it's a sort of fixed amount of of income and interest to be coming to the federal government through these payments. But with the HELOC, you basically just have these big lines of credit. I mean, if it's gonna be trillions of dollars worth of lines of credit

Dan Austin: [6:29] My question on that is, I guess, why you're pulling on the thread, Mike, is with this, do they call it like a closed end loan? Meaning, is that a government term, like a closed end loan? Does that mean like they're like, it's a twenty year loan or a twenty year term? What does that mean? I don't know what that means.

Dylan Koch: [6:43] When they put this out, it's a sixty day, what they call it, like a writing period or a feedback period. And we haven't even gotten through that yet.

Mike DeHaan: [6:50] So Oh,

Dylan Koch: [6:51] new. But from what I understand so far, this is going to be like a traditional line of credit that you could pull in your house, but basically secured by the federal government. And then they'll use like the Rocket Mortgages or other services to help service the loans. Right? But...

Mike DeHaan: [7:07] So then I guess, how does it work? So basically, they're using Rocket Mortgage or whatever to, you know, service the loans. If a person draws it, do they just like sell it to the government like immediately? What happens if it's a kind of janky shit we do?

Dylan Koch: [7:21] It's already on the government's books. It's not like it already... Just like your mortgage today, just already be back in the government's books, but you're still the same servicer.

Dan Austin: [7:28] Yeah, they they back it and then they basically just sit there like on their balance sheet on the... Would it be the Federal Reserve's balance sheet or something like that, right? As a as a security that's backed by a second... Its second position in a property.

Dylan Koch: [7:41] The author of this of this podcast too, that really got my attention to it was they think that if the economy is going to downward trajectory, we have an election in November, and this is supposed to start taking place in September of this year, then they basically want to use this equity as a cheap way of financing. So those already affluent people will tap into two, three, 4% debt again, and use that for consumption, right kind of drive up those GDP numbers. Is there

Dan Austin: [8:11] Donate it to the Trump campaign. That's what they're gonna do.

Dylan Koch: [8:13] Whatever campaign that you want.

Dan Austin: [8:14] All those boomers are gonna tap the equity dude. You gotta get them out of prison. So here's some, I guess, some like unfiltered thoughts I have on this. It would be a great time to be a loan officer to originate these. It reminds me like the refinance boom where your loan officers are making $800 a year just doing freaking, you know, cycling through loans, cycling through the refinances. I would assume that there would be some similar incentives to underwrite these HELOC. I think it's a terrible idea, like, not good to just... And and what they're seeing is... You you made the comment, Dylan, like, basically cheap debt or easy easy debt to add because they're like, where the hell else are we gonna grab debt? We already know we'll get our asses handed to a office so we decide to print more money, especially going into an election year. And it's another hidden way to provide this and get the economy stimulated and then be like, well, we don't know where inflation came from, so it's a terrible terrible idea from that standpoint. Don't think it's great. What I'm seeing is we've found that homeownership is the quickest way to wealth. Like during the COVID period, this last several years of inflation, the reason why everybody has so much equity in their home is because their their homes are their, like, largest assets. Right?

Dan Austin: [9:19] And those grew, And in some markets, they grew, like, way faster than inflation because that's where people were migrating to. So I think that this is just squeezing more juice out of the home equity orange, you know, to use that euphemism, and it's going to just put people in a way worse situation. And the problem is is then all the millennials and gen z's are gonna be pissed because they're already mad that their mom and dad are rich and not giving them money. Wait till mom and dad tap the equity in in their lake home and spend it on a car, and now they're like, darn it. We don't have our lake house anymore.

Mike DeHaan: [9:53] Yeah. I mean, I think it's gonna keep prices high, obviously.

Dylan Koch: [9:57] Right? Because one

Mike DeHaan: [9:58] of the biggest reasons people sell properties right now is because they look at it and they're like, we have $700,000 worth of equity. We don't wanna get a longer term fixed payment that's higher. But if now they can just tap, like, parts of that super easily to be able to, you know, go on vacation or buy the boat or do whatever during their... Especially their retirement, Like, no one's gonna sell anything anymore, especially if they're easy to get. I guess, what's the advantage or, like, what are the term difference gonna be with getting one of these, like, government backed ones versus one that's, like, from your local bank or credit union? Did they outline that?

Dylan Koch: [10:32] Good question. The author of the podcast, so make a link at the end too, basically said that they're treated differently, where if it's basically sponsored by the government, there's a recent FHA buyers have a lower interest rate than someone who's conventional, right? It's gonna be the same thing. If it's backed by the government, then they might be able to get a HELOC at 4%. Where if they just went to a local lender, they'll have to get it to five or 6%.

Mike DeHaan: [10:53] So you said they're like cheaper HELOCs?

Dylan Koch: [10:56] Yeah, it'll be not only backed by the by the real estate, but it'll be cheaper just because the government's gonna back it and like there's no really risk of loss quote unquote.

Dan Austin: [11:05] Jen, I'd be curious to know too if that has something to do with income requirements that a bank might that if you're gonna put 80% of your equity on a recurring line of credit like that, maybe for the baby boomers and people that are retired that maybe don't have great income source, but a lot of their wealth is locked up in their house, right, then they can use that and because it's backed by the government, maybe the underwriting will be less than maybe like, oh, you're on social security, you have a little bit of pension money coming in, we're okay with you getting an $800,000 loan at at four or 5%, you know, when you use it interest only type thing.

Dylan Koch: [11:36] Right. And I think the the bigger aspect that you both kind of alluded to is one, yes, they'll probably keep prices higher. And it kind of even widens those alligator jaws of people who are just starting like millennials or even Gen Zs, who are trying to afford these homes. Or is it the people who already have the assets for forty years and forty years of declining interest That it's just going to widen the wealth inequality, think, because like you said, most people, most of their net worth is in their house.

Dan Austin: [12:04] Yeah. Yeah. And I would think too is maybe it's like, there's some forecasting of these people like us all who probably have very low interest rate mortgages. A lot of people don't wanna move or sell their house because they are... They're mentally locked into a two and a half percent interest rate, and they also bought pretty high compared to a high interest rate environment. Right? Like, we haven't seen prices decline that much, but they have softened in some markets. So if you think about it from the macroeconomic standpoint, it's like one of the number one drivers in our economy is real estate and construction related to real estate, and nobody wants to trade off of their loan. And these banks that are servicing these loans probably would love to get them converted to five or 6%. You know, I think doing this is going to... Would, you know, force that people out of that kind of, like, groove where they're not gonna do shit with their house because they don't wanna give up their interest rate. They don't wanna sell their house. Right? So it's like a... They're maybe foreseeing an issue with these low interest rate thirty year mortgages already.

Mike DeHaan: [12:57] Yeah. These only for primary residences? Can you use for, like, rental properties?

Dylan Koch: [13:02] I don't know, but I would assume that they're only for primary residences.

Mike DeHaan: [13:05] Because if they got in these for rental properties too, stuff's gonna get real weird real funny.

Dan Austin: [13:09] God. All these Airbnb guys, like, I'm just gonna max this out. We gotta gotta pay for my cleaners.

Mike DeHaan: [13:15] Even looking at our stuff, Dan, with all the equity that we have in our properties, I mean, imagine if we could just go get, a million dollar line of credit at, like, 6%.

Dylan Koch: [13:23] Right. And can you reinvest that at higher than 6%? Probably. Of course.

Dan Austin: [13:27] Yeah. Oh, yeah, dude.

Mike DeHaan: [13:29] Do you think that it'll start to affect those sort of things though as well? Like, I don't know. Mean, what what is this gonna do to some of these, like, cash counts or, like, t bills? Are these even connected at all at that point?

Dylan Koch: [13:40] I don't think so. But it would if you're an investor, an everyday person, you would look at your opportunity costs, right? Okay, you go buy a t bill at 5% guaranteed rate, or you could take out, you know, a million dollars and 6% and try to reinvest that.

Dan Austin: [13:52] Yeah, really.

Mike DeHaan: [13:53] Yeah. Yeah. I mean, it is interesting. I do, I guess, get concerned with the government suddenly giving people access to $2,000,000,000,000 in a way that can be treated like a long term credit card.

Dan Austin: [14:08] What would people do with it?

Mike DeHaan: [14:09] All sorts of dumb shit, dude. My fucking neighbors across the street bought like a boat and like another house then got divorced, and it was a whole fucking disaster.

Dan Austin: [14:16] Right. Yeah. And they moved in all within... They did all that within a year.

Mike DeHaan: [14:20] They did... Seriously. Well, they bought their house in 2020 for like $585. Right? They said they sold it for a million bucks after they got divorced, like, I don't know, less than four years later. But in that period of time, like, they refinanced it. They got the HELOC. They did all these things, and they were all of a sudden buying the $150,000 boat. Bought a lake place and all these things. And then, like, it went from them, like, living high on life, they got divorced. The dude was... He was asking me if we had any rental properties in, like, Hilliard, in, like, the worst neighborhood that he could move into. Right? And he's like he's like, yeah, my budget's, like, $1,400. I'm like, dude, you're gonna be living in a cardboard box here.

Dan Austin: [15:00] Are the same guys that always tell you divorce is expensive. They're like, yeah, dude. It's expensive when you do dumb shit all the way up to your divorce. Yeah.

Mike DeHaan: [15:06] I know. But they were they were leveraged in hell. And a lot of it was because they got this big HELOC and another thing. And because I know they did that because that's what I told them we did.

Dylan Koch: [15:14] You're like, you should do...

Dan Austin: [15:15] You should totally do it. Minus the boat bar. Right? You didn't tell that.

Dylan Koch: [15:20] I think to the furthest point, it's like, how much of the government do you want to be directly correlated to housing? If they're already 85% of the primary residence market or like origination market, sorry, like original loans, now you're adding HELOCs on top of that. I mean not that they're ever going to go away because that would literally cripple the economy, but I don't know. My personal opinion with that is I would like more competition for that kind of space.

Dan Austin: [15:44] Well, how far are we away from I guess the government owning housing? Are we far away? Are we not far away? Because I mean, think about, like, hedge funds. We've known that they're leaning hard into single family rentals. Right? They've been doing that for the last few years. Like, I mean, they've been... The iBuyers have been around for a while, but, like, legit, like, JP Morgan Chase and, like, companies like Tesla are, like, taking money off their balance sheet to put it in residential real estate. So what's the difference between the government basically taking over all of your housing because nobody can pay for it anymore in a hedge fund invest. Right? Because it's like all the same money, and maybe they use the hedge fund essentially as, like, an extension because they buy up all these cheap ass mortgage backed securities.

Mike DeHaan: [16:25] I mean, other countries have that where the government kind of owns all the housing. Yeah. I mean, not not always good countries, but it's mostly shitty countries that have that.

Dan Austin: [16:34] That would be communist in a way or socialist in a way, but I could see the the government utilizing one of these these big banks, these big hedge funds as an extension of basically doing that though. Because what's the difference between, you know, JPMorgan Chase owning your house and the government? Not a whole lot.

Dylan Koch: [16:51] Yeah. I mean, and I think I'd encourage anyone to... I mean, this this podcast says it was like ninety minutes and it goes into some of that stuff that's really in-depth.

Dan Austin: [16:58] What's the name of the podcast?

Dylan Koch: [16:59] It's The Thoughtful Money. And it's written by Adam Tagger. And I'll I'll link you to the episode like

Mike DeHaan: [17:04] Okay.

Dylan Koch: [17:05] Number, whatever it is. Just think it was like a week or two weeks ago that release.

Mike DeHaan: [17:08] Yeah. So like a really quick Google search. I found a Reddit group. Mike and his Reddits. Yeah. If anyone's a a Redditor, the easiest way to realize how little people on Reddit know is to find a subreddit that you actually know what the... Like, about the topic.

Dan Austin: [17:24] Yeah.

Mike DeHaan: [17:24] So takes it for a grain of salt. But I did find a little post talking about the wealthy countries that have solved affordable housing, and a lot of it's around subsidized housing, kinda like we're talking about. And people list mostly Asian countries, Japan being one of them, Singapore.

Dan Austin: [17:38] And the difference with Asian countries and, like, Anglo countries like us is, like They're all the

Mike DeHaan: [17:44] fucking same people, dude.

Dan Austin: [17:45] Well, they well, they they take care of each other, and they have, like, they have, like, you know, like, where they take care of their families and stuff like that. So, like, their culture is to, like, hey. We all have to live here. Let's, like, make sure we do it okay. In, like, our country, they're like,

Mike DeHaan: [17:56] They're also the opposite of a melting pot. Like, they are literally all the same people.

Dan Austin: [18:00] They're all the same. Yeah.

Mike DeHaan: [18:01] Yeah. Yeah. But, like, people go to Japan, and they're like, why are they so polite here? It's because they were raised exactly the same.

Dan Austin: [18:07] Right.

Mike DeHaan: [18:07] You know, they don't have 18 different cultures in, like, a city of 100,000 people.

Dan Austin: [18:12] Yeah. People aren't flying to Japan to move there. Right?

Mike DeHaan: [18:14] Yeah. They're not Very,

Dan Austin: [18:15] very rarely.

Mike DeHaan: [18:16] They make it hard to do that.

Dylan Koch: [18:17] I think a good topic for next week, I'll actually dive into that, is like, how many hedge funds actually buy houses? Because I think it's over exaggerated for a lot of people think... What things. So we'll put some data behind that and maybe talk about the following.

Dan Austin: [18:28] Let's talk about it. Yeah.

Mike DeHaan: [18:30] Hey. We really appreciate being a listener of the collecting keys podcast. Did you know that we also are on social media and on YouTube? You should go and shoot us a follow on those as well. You can find both Dan and I on Instagram. I am at Mike underscore invests. Dan is at investor main Dan. You can also find short clips from the show at collecting keys podcast on Instagram. And if you wanna see our faces talking while you're listening to this show or you wanna check out some of our crazy animated adventures we've been putting together into some funny little web cartoons that sort of show the crazy stories that guests tell on the show, then you should go over to YouTube and check out the collecting keys channel. Shoot us a subscribe over there. It really helps in human grow our audience. We really, really appreciate it. Well, anyways, enjoy the rest of the show you guys. We appreciate you all. This whole discussion though, too, it's actually making me think as well. I know you had a second topic that you wanted to bring up around.

Dylan Koch: [19:21] Yeah. So at the end of that same article said, right now, 11% of FHA loans are delinquent, which was actually higher than like 2006, 2007, 2008. And that's currently. But so that just shows kind of I think that wealth inequality we touched on earlier, the upper people are doing just fine, right? But the lower people are just coming in the workforce or don't make a whole lot of money for the area are really struggling. And I've even seen that anecdotally in my own market deals that come in that I think is gonna be great deals with the payoff is too high, To make the deal work.

Dan Austin: [19:53] How much of that do you think was artificially caused by this COVID event when people were doing forbearances? And now they're in delinquency because they're they're probably... Maybe they had to do... Because they had a job where they were working in person, they couldn't work from home, so they were out of work for, you know, a few months or something like that or a year. Who knows? But say they went into forbearance for six months, but they're paying now, but they have not paid their forbearance. So they're technically without considering them in default or something in that nature that would inflate that or at least have caused this delinquency because they missed six months and now they can't pay for their forbearance fees?

Dylan Koch: [20:30] I think the forbearance thing is just like they just threw the payments on the back end of the loan. They basically just extended the loan, right? So I don't think they're actually paying any more now than they would have been.

Dan Austin: [20:39] Okay, that would only affect them at payoff.

Dylan Koch: [20:41] Right, they might owe more than they think they do. But I don't think their monthly payment is changing all that much. I just think it got so overblown that people were pushing those, especially FHA, like, I think the underlying standards might be need to be a little bit more robust because you could buy too much house too easily.

Mike DeHaan: [20:57] Yeah. Dude, I mean, that was the story at 2021. Everyone was selling overpriced homes to these FHA dipshits that were coming in and

Dan Austin: [21:04] Shithole houses, Mike and I did the same thing, and shithole houses, and their agents coming in with a 30 to $40,000 over ask, because nobody wanted an FHA buyer.

Dylan Koch: [21:14] Right.

Dan Austin: [21:14] So the FHA buyers again got screwed by the environment and the economy around them, and their quote agent, who is a new agent because they're dealing with FHA buyers who are typically younger or lower income. So it's an agent with three months of experience, and they're like, I heard on the internet, on Reddit, if you put a $30,000 offer over over asking, you'll probably get accepted, which is not actually wrong.

Dylan Koch: [21:36] Yeah. It's not it's not wrong.

Mike DeHaan: [21:38] I mean, remember that one, Dan, where we literally had to pay off the guy's credit card? It was like $27 for him to meet it. Yeah. That's insane. It

Dan Austin: [21:46] it did to FHA.

Dylan Koch: [21:47] Yeah. The article that in question here is from Axios, it was posted on May 13. And the title is over one in three US homes are bought with cash. And it's kind of a clickbaity title, in my opinion, because this is not necessarily hedge funds that are coming in, or real estate investors like us that are coming in, this could be grandma, grandpa, or the parents of someone who just buying their kid a home that are already built up. Right?

Dan Austin: [22:13] Sure.

Dylan Koch: [22:13] So there's some nuances around that. But what do you guys think as far as the one in three homes being bought with cash nowadays?

Mike DeHaan: [22:19] Well, it's gonna become more than that here pretty quickly if people can suddenly get HELOCs super easily because people are just gonna tap into their existing home and buy their millennial kids who have been complaining about not being able to buy a home with the equity in their family home. Right? And it's, you know, it's technically so tied to debt, but it's much easier to get than a bank loan. Right? And it's basically their way of the family being able to give that family equity to their kids to buy another asset. I mean, that's honestly kinda scary too because what'll start to happen is you're basically buying these homes with, like, rotating debt. They're using HELOCs. Because let's say they started out at, like, 5% on the HELOC, and then all of a sudden it increases to 11% for some reason or another. Now you have the parents who are, hey. You need to, like, go pay that off now. Yeah. Right.

Dan Austin: [23:06] This is

Mike DeHaan: [23:07] a lot. Yeah.

Dan Austin: [23:08] Right? I mean, I'm looking at this graph, and it doesn't honestly scare me much because I'm looking at 2013 and it was higher. It was like 37%, maybe 36%.

Mike DeHaan: [23:18] That's because homes were cheap back then though.

Dan Austin: [23:20] Right? And well, in 2012 through 2014, it was about the same, maybe a little bit lower. If we macro, like, what scanned out to, like, nineteen eighties, I'd be curious to know what that number was percentage wise. If it follows the trends of interest rates too, like, higher interest rates people deploy cash more than not, I have no idea. But I've just... It doesn't scare me just because of the the trend because it looks like it's following a cycle that actually follows interest rates.

Mike DeHaan: [23:48] I'd be curious to see how much of this is tied to, like, migration. Right? So people that have their home that they sold in Santa Barbara for $2,500,000 that they bought for $400 twenty five years ago. Right? And so why they couple couple million bucks and they're moving to, like, Boise, you know, and they're buying, like, a sick home for a million dollars cash.

Dan Austin: [24:08] Well, we definitely saw that. You would have seen that a lot. You would have seen, like, say, '21, '22, and the numbers have slowly climbed since then, so maybe people are still migrating out outside of that, you know, out of those areas.

Mike DeHaan: [24:19] I think you're still seeing that. I'd see if anything now, you're probably seeing that more because you can still sell your houses for a pretty penny, but you're less incentivized to get debt. Back then, people that were wise to that, they would have been happy to get a mortgage. They're getting them at two and a half

Dan Austin: [24:32] percent, 3%.

Mike DeHaan: [24:33] Yeah. Now they're getting them at seven. So I could see the play with a lot of these people being they sell their Santa Barbara house for $2,000,000. They move to wherever they want in Rifle, Colorado, whatever the hell, buy their house, and they're gonna just refinance it when rates come back down again. Possibly.

Dylan Koch: [24:51] No. I think that's a good point. I think that if you overlaid this with cash purchases and then, like, the Sunbelt right now, Orlando, Florida, like, of these hot destination markets, it's gonna be a lot higher than areas that are Yeah. The more affluent areas part of town.

Dan Austin: [25:04] Yeah. That's a great point. Yeah. If you looked at like it could be market, like we're looking at averages, but you could go to some of these other markets. I bet to your point, Dylan, I bet you Sunbelt states are always higher on average than, like, where we all live up in, like, the shitty North. But, like, on average, I'm I'm assuming nationally, it's still treading higher.

Mike DeHaan: [25:21] So I guess here's a a key question though to make this all relevant for real estate investing show is how does this affect your guys' thoughts on, like, real estate investing business? Does this change any patterns? Does this change any way that you view, I don't know, your goals or or kind of what you expect for your lead flow, your deal flow?

Dylan Koch: [25:39] If you're asking me personally, I mean, no. I mean, and the thing is like, and we'll touch on this in the third segment, but like real estate is so local. And it does like your margin of safety is the price that you buy it at. Right? So if you're a good negotiation, or you can get the house, it's a dilapidating shape, then you can make any deal in any market work dispense with the price you pay.

Dan Austin: [26:00] Yeah. I agree. I don't get influenced by macroeconomic stuff mostly because it takes, like, effort, like, which Dylan puts in effort to, like, find, like, the real data, where my effort's like, oh, what's the headline? Fuck that. I don't wanna read it because it's already clicked. You know what I mean? It's clickbait. Right? It's just trash and they're they can... You can spin this graph like that you send us, Dylan, any way you want in a headline. So I just don't ever get bothered by that stuff. But also, to your point, Dylan, most of the people that get worried about what the actual market is doing are people that have no ability or skill set to buy off market at a discount. Discount. They don't know how to market the sellers. They don't know how to find the sellers. They don't know how to negotiate deals with the sellers. And that to me, I'm like, I can buy a scream a deal and I have bought scream a deals in low markets and high markets, you know, price wise. And so it doesn't really affect me much.

Dylan Koch: [26:45] And if the trend is true for everything that we're saying, if if, you know, big if inflation is gonna run rampant, then having your money in real estate is probably not a bad idea.

Mike DeHaan: [26:53] Right. Totally. Yeah. And having systems to find opportunities is never gonna be less valuable because everyone's gonna think the same thing. I mean, this is one of the big reasons that Dan and I have always leaned so heavily into, like, the wholesaling model or honestly, like, been happy sticking with residential real estate where so many people are, like, we're chasing these larger multi families and industrial and commercial side of stuff. So I absolutely recognize the opportunity in that, but I can't tell you how many times Dan and I were out, like, these, like, GoBundance meetups or these other sort of, like, real estate meetups, and these guys were like, you guys do residential. It's like, well, I do 30 to 50 unit multi families. And then they they talk about their deal, and I'm like, so if things go perfectly and the economy doesn't shit the bed, you're gonna make like $200 in like four years. Right. It's like, we can make that in two months. Like, just, you know, doing transactional real estate, and you're gonna honestly tell me that what you do makes more sense. Like, we're not getting... Bringing on investor debt. Right? We're not going and risking your grandma's retirement.

Mike DeHaan: [27:52] Sure. It's more active, I guess, throughout the process, but the opportunity cost for your time.

Dan Austin: [27:57] I don't even think it's more active, dude. It's definitely not for

Mike DeHaan: [28:00] us now. When you're starting out, it probably feels that way.

Dan Austin: [28:02] Maybe. Yeah. I I agree though. It's like, I really do think that most people have a really hard time actually figuring out what ROI means from a, like, return on actual cash invested and time invested. And they come up with these things that they think are super sexy, and they're always... They're like drug acts, they're chasing the dragon, chasing that next high, chasing that next, like, what is everybody else doing right now? And most of the time, by the time you find out about that, the dude who, like, pioneered that is already making the money. And now he's just, like, looking like it's easy. But it's like, dude, that guy's five years into it.

Mike DeHaan: [28:32] Exactly. They're all just driven by the fact they wanna go on Instagram and be a white guy in their thirties that says, I own 400 doors. You know? It's like, yes.

Dan Austin: [28:41] Percent of 400 doors.

Mike DeHaan: [28:42] Yeah. Exactly. 1% of 400 doors. I cash flow $1,500 a month. It pays half of my rent.

Dylan Koch: [28:48] Yeah. I mean, if you're following the trend, it might be very too late. And an anecdote to that is there's a guy that I know who's in gobundance who made great w two income. So all he did was LP stuff, using seven different LP positions, Like 50 ks piece. One of them is currently paying.

Mike DeHaan: [29:04] Oh, really? Shit.

Dylan Koch: [29:06] That sucks. That's brutal.

Dan Austin: [29:09] That is brutal. That's always the risk. Speaking of which, I better go check my LP investment.

Mike DeHaan: [29:14] I think I think our one is probably good. He's he's communicating well.

Dan Austin: [29:18] I think we're sick. It's a development thing. So...

Mike DeHaan: [29:20] Yeah. But I mean, and that that's a valid point, though. Right? And if you wanna make real money and you wanna go by the, you know, model of our show, learn to make massive income, not just passive income, you have to focus on the business systems. And the great thing is if you learn how to build out the marketing and the sales teams and kind of do general analysis, identify opportunity, kinda like Dan said, you can make money in any economy or any market

Dylan Koch: [29:42] Mhmm.

Mike DeHaan: [29:42] Kinda regardless of what things you're doing. It's like, sure, there are periods of time where you can make more money. Like, we definitely made way more money in 2021 than we have over the past couple years, but we did that because we were primed and ready to go. Yeah. You

Dylan Koch: [29:55] know? And how many people left during that time? Like, how many people were doing it for five or six years like, f this, I'm out.

Mike DeHaan: [30:01] In 2021?

Dylan Koch: [30:02] Well, like leading up to COVID. Right? That's what I'm trying

Mike DeHaan: [30:04] tell Leading up to COVID, a lot of people did. Yeah. Yeah.

Dan Austin: [30:07] Right. Everybody did. Like our main competition, like that's when they were all like exiting where we were like blowing up.

Mike DeHaan: [30:11] I literally remember hopping on a like Zoom call. It was like the Spokane, One of, like, the biggest guy in town he put on the Zoom call, and it was, like, he... A private invite thing that he sent out to all of the, I would say, active players in Spokane. So there was, like, 20 of us on here when we all had to sit in our houses in fear because you didn't know if you're gonna walk outside and get killed by the trees or wherever we thought COVID came from at that point. And he was literally like, we are all getting out of the business. Like, like, this is the end of it and all sorts of stuff. And Dan and I are sitting over there, and we're like, I feel like we should just do more of this. And sure enough, we did.

Dan Austin: [30:48] Kinda invested in this at this point.

Mike DeHaan: [30:50] Yeah. And I was like, I got some cost bias. I got I got nothing else. Yeah. And sure enough, it took off because there was that gap that was there. But then going into 2021, right, everyone that was in the industry was making handover fist money. Yeah.

Dan Austin: [31:03] You know what's funny is a lot of those guys are kinda, like, not coming back, but, like, they kinda have tried to come back, and they can't even get close to coming

Mike DeHaan: [31:09] back. They can't do anything. They can't hang at all, dude.

Dan Austin: [31:12] Changed so fast. The industry changed so fast in like a few years.

Mike DeHaan: [31:16] Yeah. I mean, just like so much more technology has come into play, so much more sophistication, so much more money behind it.

Dan Austin: [31:22] More professional people, like guys like Yeah. I mean, honestly, like Dylan, like you're coming in like you're not you're not a dummy. You know exactly what you're doing and you're, you know?

Dylan Koch: [31:29] Dude, some of the OG players, they would write down their deals on a piece of paper. Right? And they would just go through a Rolodex of people they knew.

Dan Austin: [31:37] Yep. Exactly.

Dylan Koch: [31:38] But I wanna touch on something, like how many different markets are you guys in right now?

Dan Austin: [31:42] 14? Are we at 14? 15?

Mike DeHaan: [31:45] I think we started 14 this month.

Dan Austin: [31:47] 14 this 15 maybe including our home market.

Dylan Koch: [31:50] Do you know what your lowest and highest, like, median home price would be in any of those markets? Like, the lowest bar and highest one?

Mike DeHaan: [31:57] The lowest price point, god, this area we're in is Central Texas, dude. We're getting contracts for, like, $8,000.

Dan Austin: [32:04] So Pretty brutal.

Dylan Koch: [32:05] Pretty brutal.

Mike DeHaan: [32:06] Yeah. There's there's a lot of homes that are in, the sixty to eighty thousand range. On the high end, right now...

Dan Austin: [32:13] Are you close to a million? $7.50?

Mike DeHaan: [32:16] Yeah. We're not getting stuff up there, like, consistently consistently, That's

Dylan Koch: [32:19] true.

Mike DeHaan: [32:20] I would honestly say on the high end for us, it's probably probably pushing Spokane, dude. Like, 500,000 average. Yeah. Yeah.

Dylan Koch: [32:27] Okay. So the reason I ask is because this data is straight from Redfin. And this is a median sales price we see from 2013 up until 2024. And it's still up into the right, pretty much regardless of what market that you're in. With like LA County being a median price of 900 ks and Philadelphia on here is being like $2.50 ks. And I say this as like an anecdote of all the different markets you guys are still pushing deals. And like my home market, we still have 2.5 of inventory, which is like low for us. So like, if you flip a house, Eric's a good deal, it's gonna get sold pretty quickly. My buddy Drake, who's also in scale, my GoPod accountability. Mhmm. He's in like a Central Texas market, and they have nine months of impact. Right? So does it doesn't stop him from doing deals, but it's just different in how you underwrite maybe the deal on the back end or doing the flip. Right? You might be a little bit more conservative with your ARVs, etcetera.

Dan Austin: [33:25] Mhmm.

Mike DeHaan: [33:26] Yeah. I mean, in... I mean, more conservative account for more holding costs. Right? Expect prices to shift throughout the period of time that you hold it. But, I mean, that's a really valid point. Yeah. So we were at, like, thirty two days on on market for average when we looked at this, like, I don't know, a month or two ago. And I have my old primary home that is in, like, kind of the a class area, top school district. Right? Put it on the market for a price that I thought was too high and accepted and, like, basically, no contingencies offer $20,000 over asking price in the first twenty four hours.

Dylan Koch: [34:00] Wow.

Mike DeHaan: [34:01] So, I mean, it happens everywhere. Or, like, also here, we have a major affordability issue because a lot of people at liquor just don't make a lot of money. And so the lower end stuff will sell super, super fast. What kind of gets tricky for people is, like, the higher price points and, like, the b class neighborhoods. You know? Because people would rather, like, buy up to the a class or just stay more affordable.

Dan Austin: [34:21] Mike, I'm looking at the stats. You live in the third highest area in Spokane medium home price.

Mike DeHaan: [34:27] I believe that. I mean, like, my people across you just sold for a million bucks.

Dylan Koch: [34:30] You got room to go up, is what I heard.

Mike DeHaan: [34:31] I did. Yeah. I

Dan Austin: [34:33] I was trying to fact check your stats here and see what you're saying, but like what I'm looking at is like, first first statement here is our MLS. I think it's ran by dumb people. It's quite possible.

Dylan Koch: [34:42] Their ability to like,

Dan Austin: [34:44] actually show data is so challenging and like they're using such poor measures to do this, but yeah, I would say just my my qualitative metrics on like data, like thought process on this data is I know flippers that are flipping and they're doing alright.

Dylan Koch: [35:00] Right.

Dan Austin: [35:00] They're pricing their properties different. My neighbors across the street are selling their house. They've already got people on to buy. We had another neighbor up here selling their house. Like... So things are moving. It doesn't feel like a frenzy, which is actually kinda nice, but things do seem to move and and I would say that our... I would say that there's probably a higher number of houses that fall out of contract and it maybe takes two two buyers to get it closed though. You'll see that quite often.

Dylan Koch: [35:25] Right. I think the... From, you know, my perspective, I'm doing underwriting on a deal. Now it's more important to see what is listed and currently pending versus what sold six months ago. Yeah. Right? Because I think that might get you in trouble. Right?

Dan Austin: [35:37] Mhmm.

Mike DeHaan: [35:37] That's been a big change we've made to our underwriting too is looking at what what's pending and trying to like see how long it's been on market for to sort of hypothesize hypothesize if if it's it's going going for for list price or it's going below.

Dan Austin: [35:49] Yeah. Let me ask you this Dylan. You're marketing to everywhere in Cincinnati that you wanna buy stuff. If you come across kind of like a weird one, what do you do with it? Like you're like, oh, this is a decent deal on paper, but it's weird. Like, it doesn't have a living room or some shit. Know what I mean? Yeah. No. It's got a weird layout. What do

Mike DeHaan: [36:05] you do? How do you

Dan Austin: [36:05] pricing that? Are you just walking away from them?

Dylan Koch: [36:07] So lately, I've been done more actually flipping than wholesaling. We can touch on that because I used to also wholesale to buy and hold people, but with rates of 7%, it's basically only exclusively flippers lately. But I would look at it, can I take it down, change the layout, right and make it work? Other than that, I would try to just do some solid negotiation skills, get it at a price that makes sense and go to my go to buyers.

Dan Austin: [36:29] And so

Dylan Koch: [36:29] I could do that. I personally probably wouldn't wanna take it down if it has too much stuff going on to it.

Dan Austin: [36:34] Right. Sell it to some flipper that's that's gonna flip it and do their thing that maybe has better systems. Like, you know, Mike and I have found we don't wanna buy things on busy roads. We don't wanna buy things with quirky little weird layouts because buyers have options right now. So they're going to be like, oh, yeah. That really... You did a great job in the rehab, but my kid's gonna get hit by the car in the 45 mile an hour, you know, speed zone right next to it, stuff like that. Like... Or that just has, these weird, you know, they're everywhere. There's these weird funky layouts or weird funky locations that you know, just weird lots, all that stuff.

Dylan Koch: [37:03] I'm doing a house right now that would consider high end for Cincinnati. And this will be in my hard lessons on the Slack channel that we got in the scale community. I've literally... If we close on the expected day, which is latest month, I will have owned it for three fifty six days. And the reason is that it's a great remodel. All the feedback I get is love the house price accordingly, great school, four bed, three and a half bath with a pool on an acre. All that's great. It's right next to goddamn highway. So the highway noise deters everybody at that price point.

Dan Austin: [37:31] Yeah. But you know, in '21 or even probably when you bought this thing, might not have mattered to people. But now it definitely matters.

Dylan Koch: [37:38] Well, didn't think it mattered because someone lived there before. Yeah.

Dan Austin: [37:41] Totally. That's true. Yeah.

Mike DeHaan: [37:43] Yeah. Yeah. Stuff like that always gets tricky. But either way, I think point being with all this is don't focus on, like, the little economic details. I think it's important to be informed, Right? And to kind of understand what's going on, and you can use that to... I would say, like, pitch things to buyers or understand your own opportunities, especially if you're, for example, sitting in your own home with a bunch of equity. If you're gonna be able to get a little bit of a easier, cheaper HELOC that you can use to do some flips or some loans or whatever you wanna do, understand that. But, really, if you learn to market and, you know, run a sales team and analyze opportunities, you can make money pretty much anywhere that you want to. Just balancing expectations. Right? That's the other thing too is so many people they want their business in Central Texas to look exactly the same as business in the Northeast, and that's just not how it works. It's difference in economy.

Dylan Koch: [38:34] You live in the Bay Area, so it's harder to, you know, flip there, which is like we can have the discussion. But just don't be the guy that's on citydata.gov or whatever for ten hours trying to figure out what the best market to invest in.

Mike DeHaan: [38:45] Yeah, some

Dylan Koch: [38:45] of that data and then pick and go for it.

Mike DeHaan: [38:47] Absolutely. Just pick anywhere. And I can tell you from experience of being in our 14 markets, you can find leads literally and you are doing the same things. It just comes down to expectations over how many leads are there... You're going to get and how complex the conversations are gonna be. Because here's other thing too. If you're in a more expensive market, people are gonna understand that. It's not like you just find dummies in San Francisco who are like, you know, I bought it for 300 in 1995. I think $3.50 sounds pretty good. Like, they're all fully aware. Even if they're, you know, a little bit more of a interesting person. The thing that always gets me in Idaho, we'll have these people that didn't graduate middle school, dude, And they will know down to like...

Dylan Koch: [39:27] Dan, it's right here.

Mike DeHaan: [39:29] Yeah. So down down to the cost per square footage what their property's worth. It's crazy. They got no teeth. They are queued in

Dan Austin: [39:36] to the value the deal.

Mike DeHaan: [39:38] What are you talking about? Don't you remember like the junkyards and shit that we used to get? Like the leads? Yeah,

Dan Austin: [39:44] you're right. I was traumatized.

Mike DeHaan: [39:46] Dude, this is crazy.

Dan Austin: [39:47] I think the point too to... The point to make here, if I could, is like, I've seen people crush like real estate in a town of 3,000 people, and I've seen people crush it in a city like Chicago, and you... Your business model needs to adapt to that and the way you do it. Like, a guy in the 3,000 people, he just goes around and tells everybody he's buying rental properties, and the next one time their grandma dies, like, he goes and buys it, rents it out, you know, rehabs it, rents it out. Guy in Chicago has to figure out exactly what he needs to do in this market, this competitive big city market to actually get deal flow. You just have to adjust, just can't go listen to what the guru on the internet says that worked for him five years ago.

Dylan Koch: [40:23] Yeah, that's props to you guys too in the scale community. I think you guys have adapted as the market has needed the past couple of years. So that's what I like about your group too. Like it's not just repeat the same shit over and over and over again. Like, oh, you're just not doing it right. No. Like, let's try something else.

Mike DeHaan: [40:40] Yeah. Yeah. I appreciate that. The value of being an operator guru, not just a guru, like so many dipshops out there.

Dan Austin: [40:46] Yeah. We're both operator gurus.

Mike DeHaan: [40:48] Yeah. Right.

Dan Austin: [40:49] You know what? I love that tagline, actually. I'm not just a guru. I'm an operator guru.

Mike DeHaan: [40:54] Yeah. Right. You could make that your thing. But awesome. Well, we're at about time here. Dylan, appreciate dropping on for this first one, dude. That was fun.

Dan Austin: [41:01] This is fun, man.

Mike DeHaan: [41:02] Definitely a different take. I enjoyed that conversation. We'll see how people like it too. And I'll ask our producers, and if they're like, you guys sound like squares now, figure

Dylan Koch: [41:09] out Alright. That Well, regardless, thanks for the opportunity, may or may not be back.

Mike DeHaan: [41:14] Yep. So either way, Dylan, what are your socials though? He'd wanna follow you.

Dylan Koch: [41:18] Yeah. Just type my name into any Facebook, Instagram, any of them, which is it Dylan, d y l a n. Last name is Koch, spelled k o c h, and it'll pop right up.

Mike DeHaan: [41:26] Yep. It's Koch, not cock. Remember that everybody.

Dylan Koch: [41:29] I would have subclassed. You got it wrong. Yeah. Yeah.

Dan Austin: [41:32] Yeah. Guess I might learn that.

Mike DeHaan: [41:35] Alright, guys. Well, thanks for listening, everybody. We'll talk to you guys next week.

Dan Austin: [41:39] See you.