New Lending Rules Making Real Estate Harder for Wholesalers

Mike DeHaan: [0:00] There's like a $100,000,000 plus mortgage fraud fallout that's been going on across a handful of different markets right now. Alright. We're back to the Clinton Goose podcast with Mike Dan and Dylan. There we go. There we go. Rolling out

Dan Austin: [0:16] the keys for today.

Dylan Koch: [0:17] That was a Howard Stern, like, intro.

Mike DeHaan: [0:19] I know. Yeah. We should, yeah, bring back, like, real raunchy radio of the old days. You know? You can't you can't do shit like that anymore. People are too sensitive. But, yeah, what's going on, guys? Welcome to Collect the Keys podcast. We were just actually diving in. We are at the end of July right now. And if you guys listened to last week's episode, we were talking about some mortgage fraud stuff that has been going on. And to make it even more of an in-depth conversation around lending right now, Dylan was going on a nice little rant around how hard it is to get loans. And so share your grievances because I also feel personally attacked since you've been getting loans through our company. And it is bullshit, but the great thing is you only see the stuff that we show you. You don't see all the other nonsense that goes on on the back end.

Dylan Koch: [1:02] Yeah. Well, I hear you, and it'd be even more infuriating party if I was in your shoes. But, like, I didn't

Mike DeHaan: [1:07] It's feel like just in my staff's shoes. I don't deal with it. I pay them to do that.

Dylan Koch: [1:11] Well, same thing. Though, like, I did

Dan Austin: [1:13] By the way, before you start, nice haircut.

Dylan Koch: [1:15] Thanks. Appreciate it. Now every email I get from Chance, your guys, it's like, oh, we need your past seven years of tax returns. We need your No left one's asked for your tax

Mike DeHaan: [1:27] returns or your left TISN. They just want your colonoscopy report, which you're not 40 yet, so you don't even have. So

Dylan Koch: [1:33] It is a bunch of, I feel like, paperwork. And like, especially a couple years ago, because I haven't I mean, I got some commercial loans lately, but like like, for example, this will be the third appraisal on the same property within the three month span that they want to do. And it it won't change. It's the same appraiser, same person doing the appraisal, and they're a thousand bucks a pop. So the eventually, just told the guy, I like, hey. Can you just, like, ask for an exception? Because this is freaking pointless.

Mike DeHaan: [1:59] Yeah. The the challenge so this is good build off the the episode last week because that whole fraudulent situation, if you guys missed it, go listen out. Was me and Dylan talking about this, but there's like a $100,000,000 plus mortgage fraud fallout that's been going on across a handful of different markets right now. And a lot of that is because of situations though, where people are doing, you know, sort of backhanded stuff with the appraisers, right? They're fudging numbers. Their appraisers like their homie that's like promoting to high values and things like that. And so something that we've really noticed on the lending standpoint, it's important for people to understand this, just so you can prepare sort of accordingly, is they're really starting to be strict about making sure that everything is third party. Right? And that it is freshly done for each situation because they don't know what the previous story was. You know? And so in your situation, it's ridiculous because you're an honest guy. Right? And it's the same appraiser and it's the same property. It's all in a very short window. The problem is for everyone like you, there's also people that are like they have the exact same story, but they're doing hokey shit.

Mike DeHaan: [3:04] Right? Like, they're not telling us that those are the that's the fifth appraisal that you got, which was the one that was too high because the appraiser was your brother-in-law, you know, that basically came in and gave you a super high value. And so they now force you to go through these appraiser committees, and they do all this other sort of stuff.

Dylan Koch: [3:20] Well, the other thing they said too is like, oh, there's another one we're doing. Again, waiting on the appraisal that I guess has been done, but then the appraisal needed revised or didn't meet the lender's standards. I was I never even heard of that before.

Mike DeHaan: [3:33] So yeah. So now what a lot of lenders are requiring is on top of the third party appraisal, they are also doing an in house BPO appraisal to make sure that the people there actually agree with it. Right? And then numbers need to Dude, it's asinine, honestly. You know? And they have such stupid stuff that doing with how they're kind of like viewing and grading things. So we added another borrower for SLA Capital that's been going through a even more frustrating process, Dylan, because the deal cash flows like a beast. It's like pretty simple. We go and get the appraisal. Right? And there was one unit that wasn't in a livable condition. Right? And we knew there were issues with it. We went in. We made them we notified of them with that. That's fine. So we go through. And now because one out of four units is bad, they have essentially downgraded the entire property to say that it is no longer lendable. Right? Three unit and and, like, it's not like it's one building. They're, like, three four houses that are kinda, like, attached by a half wall, you know, and kinda, like, next to each other. And so the building's fine. And it literally cash flows like a beast. It's actually in your state too. Now the entire property is not lendable because the appraiser is like, I'm putting a flag on it.

Mike DeHaan: [4:40] And the real kicker so I went through and I I was talking to the borrower and I was like, okay. So maybe we can get a hard money loan on it, and you can, like, just fix up that unit, make it good enough, and then we'll do long term. So he's like, okay. That's great. I wanna know what the value was on the appraisal. The appraiser is not going to release the appraisal unless we give them an additional $100. That's Because they said because they're like, this property is too difficult to comp with the condition.

Dylan Koch: [5:05] Shut up. And they're like, lender's the one that paid for it. That is ridiculous. The borrower is. Or the borrower yeah. Sorry.

Dan Austin: [5:11] The borrower's the

Dylan Koch: [5:12] one that paid for it.

Mike DeHaan: [5:12] Yeah. They're trying to shake us down for a $100 because it's too difficult. I'm like, what are you talking about, dude?

Dan Austin: [5:19] Just the of the times, dude.

Dylan Koch: [5:21] Yeah. I'm that needed a third appraisal. The reason why it needs a third is because I went to a different lender the first time. My my normal people who I've used before, and they're like, oh, because the I bought it for 66. We put, like, 35 k into it. So was like 100 k all in, but the appraisal came back at 200 k. But he's like, because you we don't lend at 150 percent loan to cost, the max we're willing to give you is $90,000.

Mike DeHaan: [5:47] Mhmm.

Dylan Koch: [5:47] Was like, so you're willing to lend at 45% LTV just because I bought it at a good price?

Mike DeHaan: [5:53] So yeah. So so that's a bad lender that you talk to That sucks. For sure. Yeah. So Well, you never do that. No. Like and I would fight for you at the end of the world for that because we've been on the other side of that a bunch of times as

Dylan Koch: [6:04] a borrower. Right?

Mike DeHaan: [6:05] Stupid. And a lot of it is how you position it.

Dylan Koch: [6:07] I shared in the Slack what I said back to him. I was like, this is like really dumb. If I would have bought this for a 100 k, we wouldn't even be having this conversation. But because I had a good god's basis, now it's a thing. Like-

Mike DeHaan: [6:16] Is that a local bank that

Dylan Koch: [6:18] It's I can say it's Park National Bank. They're a regional bank.

Mike DeHaan: [6:22] They're

Dylan Koch: [6:23] you know? So

Mike DeHaan: [6:24] Yeah. So we used to face that a lot back in 2122. We were getting like local refinances from our our credit union that we bank with. And so what we would have to do and we had a we have a banker that's a g. He's like, just like tell us how you increase the value of the property versus how you bought it for me. Be like, yeah. We put in some flooring. We did some kitchen stuff. It looks good. Doesn't it? And they're like, yeah. Sure. Okay.

Dylan Koch: [6:45] Well, the thing is I had the before and afters. I could show like, it looked like this and now it doesn't. Like, you know, they

Dan Austin: [6:50] That's what's crazy. They wanna do that because like they I we get questions like that from some of our our lenders is like, why why did you get for so cheap? I don't believe you. Like, show me why it's so much below the value. And it's like, well, we gotta who cares? Like, we we got a purchase and sale agreement. The appraisal says it's this. Who cares? Like, they get kinda suspicious. But especially if you have pictures after you've closed on and all that stuff that you've like fixed it. Like, come on, dude.

Dylan Koch: [7:13] Yeah. Know, and what's worse is this bank has literally millions of dollars and like my own personal guaranteed debt. You know?

Mike DeHaan: [7:20] Which which I would actually say is one of the reasons they're probably more hesitant with you right now. Yeah.

Dan Austin: [7:25] Because Bigger line item.

Mike DeHaan: [7:27] You're probably a bigger line item. And I would bet you that there's people similar size or large than you that are shitting the bed right now.

Dylan Koch: [7:33] Yeah. Maybe. Very true.

Dan Austin: [7:34] Yeah. We I mean, we had the same thing here in Spokane where they they didn't wanna give us with our bank where they didn't wanna give us any more debt. They're like, you guys have kinda gotten a lot of loans in a short period of time and you guys are getting up there on the balance sheet. So they do watch that, especially for this like, our bank that we use probably similar size, would guess, the PNB. It's like we're like a regional bank in a decently well positioned bank. And so they're just they have their review boards and and you have to have bankers that can fight for you. But like our banker said, he's like, dude, I I fought for you last month. I can't fight for you every month. He's like, I only have so many like cards. You know what I mean? You can play. And he has to keep all of his clients happy.

Dylan Koch: [8:08] What's the saying if you and the bank a million dollars is your problem? If you and the bank a $100,000,000 is their problem?

Mike DeHaan: [8:14] Yeah. I think the secret is climbing up the chain to know who to talk to because there's someone in town, I can't remember if we talked about this last week, that I've had public beef with, and they're one of like the biggest name slash developers in town. Right? And they were major, majorly over leveraged at our bank. And I heard this years ago, and now all their commercial properties are getting foreclosed on. Right? But they were able to keep getting approved for these loans because they were buddies Yeah. With probably went golfing at the country club

Dan Austin: [8:42] with their

Dylan Koch: [8:43] HP level management.

Dan Austin: [8:44] You gotta look at how big their expense account is. Right? And then that's the the biggest expense account's the guy you wanna be talking to.

Mike DeHaan: [8:50] Exactly. You know? And and all your deposits and everything else, and the dude's just, like, embezzling money from other people to show a bunch of deposits.

Dylan Koch: [8:57] The way you and Dan have been talking, it almost sounds like this is only gonna get worse.

Mike DeHaan: [9:01] Oh, dude. I think it's gonna get significantly worse.

Dan Austin: [9:03] It'll get worse before it gets better

Dylan Koch: [9:04] for sure.

Dan Austin: [9:05] I don't

Dylan Koch: [9:05] even know what else I could give them. Like, they got everything they need to unless they physically come out and look at the house.

Mike DeHaan: [9:10] Yeah. The challenging thing, I think is going to get harder for new people. Right? Like people that are trying to get like their first properties or get started with hard money loans. We've already started to see a really big shift with some of like the hedge funds and stuff that we work with, and what their requirements are for like a new flipper in terms of loan to cost, how much rental they're willing to cover, the amount of due diligence they're requiring, like the borrower to provide in terms of like, what's your plan? What's your budget? Do you actually have a contractor's quote and everything else? Right? Like like, if you go back even six months ago, you didn't need a lot of stuff they want now. I also think it's gonna get harder for larger landlords that have more assets because what they're suspicious of is, are you trying to get debt to cover the shit that you're underwater on that you made bad decisions about two years ago? Yep. Right? So if you're kinda like a mid tier person like like what lenders want when times get tough, they want the rich dude that has a high income, you know, or high net worth and buys like three properties a year. Right? Because that's secured.

Dylan Koch: [10:15] They're not doing anything. 50% leveraged in total in their whole portfolio or something like that.

Mike DeHaan: [10:20] Yeah. Exactly. They have good equity. You know, they're not trying to max leverage everything. They have like a track record that's time based and not frequency based. Right? So if you've been around for ten years and you're still going, they like that a lot more than if you've done a 100 deals in three years.

Dylan Koch: [10:35] That's interesting. Yeah.

Mike DeHaan: [10:37] So because you because you're showing longevity, which Yeah. If you look at debt based businesses, longevity is rare because people eventually over leverage themselves and lose in a shorter timeframe because they don't know what they don't know yet. And they haven't learned their hard lessons.

Dylan Koch: [10:51] Yeah. Especially ones that have come out the gate firing. I think we all know people who are like, they built too quick, scaled too quick.

Dan Austin: [10:58] So yeah, dude. So we're talking we're talking specifically on the investor side of loans. Right? So getting hard money loans, getting DSCR loans, getting commercial loans, rental property loans is tightening up. Earlier in this year, I would say that was where the money was going. It felt really loose and good and everything was going. And so it is tightening up now. So given the fact that say we all agree that it's tightening up further, will the Fannie Freddie type loans, the FHA as well, maybe VA, your buyers, your regular buyers, will that money at least flow at the pace it's flowing now? Meaning, would still have opportunity as off market operators to be flipping houses where we may not be refinancing or buying rentals.

Mike DeHaan: [11:40] I think so. I mean, there's As long as demand stays for it, the affordability issue is going be the larger problem there. Sure. Because interest rates are not going to come down because Fannie Freddie is no longer buying the same level of tranches of mortgages like they were. Right. You know? And so the interest rates are tied more to private debt and long term treasury yields, right? Like ten year yields. But like that's something that I think people don't realize is that the affordability is going to continue because the buyer pool is going get smaller and smaller and smaller and smaller. As all those people that can afford houses ultimately buy them. You know, and interest rates stay the same and nobody moves for fucking the next ten years, you know, or longer. So I think there will continue to be opportunities, but you have to have the best product. You know? And just like if you're a trying to get like DSCR debt, you have to be the best investor, right? You have to And when I say best, I don't mean like you're doing the most. I mean, you're like the most organized, you're the most professional. You have the best rap sheet, You know? Even then, that doesn't always help you. So like I'm trying to get these HELOCs right now into my rental properties. And the dude called me yesterday.

Mike DeHaan: [12:47] I've been working with these people for like forty five days, like a month and a half. I'm like, hey, we're going to reject you because your DTI isn't good enough. I'm like, I'm like, what are you talking about? And he's like, well, we're looking at your attorney's listings. I was like, dude, I I had $650,000 in reportable income last year. That's what I reported. Yeah.

Dylan Koch: [13:03] That's what

Mike DeHaan: [13:04] I what did you not report? Yeah. Dude, I'm like, like, I'm as a real estate guy. Like like, what are you talking about? Yeah. And and and literally the guy's on the phone with me goes, well, let me go look. And he goes, yeah. I see what you mean. Let me go talk to my underwriters.

Dylan Koch: [13:17] Oh my gosh.

Mike DeHaan: [13:18] I'm like, what are you like, what is happening?

Dylan Koch: [13:20] It took forty five days for them to get to that point?

Mike DeHaan: [13:23] Yes. And and I've been sending them everything. You're talking about the seven years attached returns and, you know, they want the full genome of, like, my entire genetic line. What's your 23 and me lined up? Yeah. Right. That's what they're really trying to do. Trying to figure out if they should send ice to my house or not. Yeah. But dude, but like that's that's the nature of it. And if you're if you have a good track record, you make money, like that is where you need to be to get debt when

Dylan Koch: [13:50] I it comes to the mean, my assumption is they wanna like you know, let's say you had $6.50 last year. It could easily be you know, it could be a $100 shifts in either direction. And they usually don't like to see that either. Even it went up. They'd like, I'd rather use like $6.50 every single year for the next ten years.

Dan Austin: [14:06] I know. Don't want big swings at all. Yeah.

Mike DeHaan: [14:08] Oh, dude. Dude, there's like funny stuff they caught on to on that really quick. And this is why you should always be careful about where like how you sort of report your money. So I have a software that I referred out, you know, through scale and different things that I make like a tiny bit of money on. It's literally like it's like a $120 a month. Right? Super, super small. And I've been getting that like for years because I think we referred it like four years ago. Like, like, know, like before we even had like scale. Was like, I told some people about it in GoBundance and two people signed up with my link. And I've gotten like a $100 a month for the last like five years. My CPA that did my 23 taxes, they reported it on a ten forty. No. It's not on a ten forty full returns on like a like an actual business return. It just says like business income with like this, you know, a like ten ninety nine or something. Yeah. Like, yeah. With like like $1,200 for 23. And they're like, what is this? We need to see like the full tax return for where this money came from. I was like, I don't have anything.

Dan Austin: [15:06] Like, I don't even

Mike DeHaan: [15:07] know what it is. Yeah. I was like trying to figure out what the hell it was. Yeah. You know? And but like, they were scrutinizing me because of this. They needed to get like a letter of explanation from my accountant explaining what this money was and why they filed this way. I'm like, it's $1,200 for the whole year. What are you talking about? So

Dan Austin: [15:24] stupid, dude.

Mike DeHaan: [15:25] Anyways, we can move on

Dylan Koch: [15:26] from this. Well, my hope my my to finish it off, my hope is we all just bitch about this in public forums. And then hopefully, it was like This will change. Will be competitive and come back and like, okay, we're the new lender in town. We'll give you better rates. We'll give you better terms. And everyone I've HouseMax is the most popular name I've heard lately in all channels.

Dan Austin: [15:44] So they're having troubles too.

Mike DeHaan: [15:46] They are. So we went to breakfast down yesterday with one of my good friends. This is a good bonus guy who's a very, very prominent flipper in Austin. He knows Hausmax very well. Steve's literally done like over a thousand properties. Right? And has been his go to. And so how Hausemax actually runs, he was saying, is they have a massive, what's called a warehouse line on their deposits at the bank. Basically $100,000,000 warehouse line.

Dan Austin: [16:12] 600,000,000. 600,000,000. Sorry. Yes. There's a six there. Yeah.

Mike DeHaan: [16:15] So basically, they have a So big. Massive line of credit that's leveraged against the cash position in the bank. And and what they did is they raised money for that cash position. So they're basically paying on that, and they're paying on the warehouse line. And so their rates that are super cheap he said that their entire model is they're basically make like a quarter point or like a quarter percent or like a half percent spread. Yeah. But on, like, $600,000,000. But this isn't like a bank where it's, you know, federally insured or anything. This is like a private institution. And so, like, they're they're constantly trying to keep those low rates because if they don't keep that money moving, they're screwed. But also, they're they're tightening up just like everybody else. If they can't get that paper off their books, then as soon as interest rates fluctuate even a tiny bit, they're now losing.

Dylan Koch: [16:57] Yeah. Exactly. I can imagine. I mean, I understand they're all big numbers, but like you're basically baking in a 25 basis point profit potential? That's awful. Yeah.

Mike DeHaan: [17:06] On $600,000,000 the

Dylan Koch: [17:08] number I don't care what the number is. Like, that's Right.

Dan Austin: [17:10] It's a risk versus reward thing. Right? Because the number, the back end, the profit number is big, but for what you're risking, like, holy shit. Because, yeah, you're risking maybe they have like a two to one leverage on like their private equity or something like that. So say they have 300,000,000 sitting in a bank account they have to pay interest on, and then a $600,000,000 line, like, that's those are just big numbers, and the risk for what you're getting on a quarter point is maybe when the market's like this, it's tough. It's tough to justify.

Dylan Koch: [17:34] I mean 25 basis points on 600,000,000 is 1,500,000.

Mike DeHaan: [17:38] Yeah. See, that's not a lot. It's That's real tight. Right? But, you know, that's what they're making on, like, a recurring basis. Because what they do is they generate that, and then they they sell them off. Then they keep that spread.

Dan Austin: [17:48] Sure. Yeah. Yep.

Mike DeHaan: [17:49] Hey, guys. Quick little ask for you if you don't mind. We would love to continue growing this show. And being a small podcaster right now is honestly really hard. Pretty much everybody that I know that has a small show has been seeing a downward trend in listenership and downloads for, like, the last year and year and a half. So if you support what me, Dan, and Dylan do with this show, if you could please go and share it on your Instagram, tell your friends, share it on Facebook, wherever you hang out and you do your social media, just go and spread the word about what we do and the value that we bring to you and your business, and that will continue to help us grow and expand our listenership within your circles. So if you wouldn't mind doing that, we'd really appreciate it. And thanks, guys. We'll get back to the show. That that is like a valuable conversation though is what is the risk for the what is the profit potential for the leverage risk. Right? Mhmm. Because an another good example of this let's make this the freaking GoBundance show today. So they have this segment over there they do called seven to eight. If you don't know what that is, go freaking look it up.

Dan Austin: [18:48] My affiliate link is in the notes. Right. Yeah. They shouldn't give us an affiliate link.

Dylan Koch: [18:53] They they honestly They used to get you like money off your membership.

Mike DeHaan: [18:56] Now they only give them the Jamie Krueger.

Dylan Koch: [18:59] Yeah.

Mike DeHaan: [18:59] Bastard. They had they do a segment over there. It's called seven to eight, where they look at somebody that's net worth went from 7 to 8 figures and they should like follow their path. And they did one this past week. And basically his whole portfolio, he has a $100,000,000 real estate portfolio and his total net worth is about $15,000,000. 15 or 50? 15,000,000, right? On a $100,000,000 portfolio. But so it's highly leveraged. Right? And he's raised a bunch of money on things. As one of my good buddies pointed out after he watched it, he was like, hey, just just so for context on this, you have a $100,000,000 portfolio and your net worth is 15,000,000. If the cap rates go, what do say, from five to six? Right? He's he's now underwater.

Dylan Koch: [19:38] He's now he's gone.

Dan Austin: [19:39] He's now gone.

Mike DeHaan: [19:40] His entire thing is gone. Right? I'm like, so that is not a sustainable business. That's not a sustainable portfolio.

Dan Austin: [19:46] No. And that's assuming his 15,000,000 is like in equities, like super accurate. He hasn't traded it down because of the current market conditions. Like, nobody wants to go mark down their portfolio because the market's not doing good. But realistically, it's worth 6% less anyways with There's sales

Dylan Koch: [20:00] no way that accounts for any transactional costs either.

Mike DeHaan: [20:02] Of course not.

Dylan Koch: [20:03] But even 5% on a 100,000,000 is a lot. Yeah. That's $5,000,000 Yeah.

Dan Austin: [20:08] So it's really worth 10,000,000.

Dylan Koch: [20:10] Yeah. Isn't

Mike DeHaan: [20:10] crazy? That's so crazy. Right? And like, if you think about that too, the crazy thing is like those cap rates can change on commercial assets in like overnight.

Dan Austin: [20:20] Oh, yeah.

Mike DeHaan: [20:20] Right? It's even like residential where there's kind of like a general market trend down. It's basically like, oh, I think it's trade at a six and a half now. It's like, cool. You now owe like $5,000,000 to get out of your portfolio.

Dan Austin: [20:33] It really does feel like that type of money. And when I say money, the big REITs and the big funds that bring debt, like a $100,000,000 of debt, like that money pivots really fast. That money pivots because they had a meeting, their friend knew a friend who had a meeting at the White House and heard something, and now they're fucking like, nope. We know what's happening. They they it just seems more pivots way faster than like bank money. You know what I mean? Like, take

Dylan Koch: [20:54] This is why the whole buy and hold model, like, especially for the bigger stuff, but even in the res residential stuff, you know, doesn't really work unless you also have make several $100,000 a year. Yeah. Because you could it can be wiped out so easily. Yeah.

Mike DeHaan: [21:07] I mean, whether it's the properties themselves or just like the values, if you have like a big portfolio and things take a 10% drop, which can happen pretty quickly, your entire portfolio.

Dylan Koch: [21:16] I've had three tenants move out that have all been there for five plus years in the past two months.

Dan Austin: [21:22] That's fun. Yeah. That sucks.

Dylan Koch: [21:23] I think it's they're looking for cheaper housing. Honestly, that's what it is. Two of them two of the three are moving back home with, like, parents.

Mike DeHaan: [21:30] Mhmm.

Dylan Koch: [21:30] So and then then now it's like, okay. Now you do the unit turns. You got to get it ready. And then hopefully hopefully rent it for the same that it was, but it might not.

Mike DeHaan: [21:38] Well, no. That's why you just go to do a co living now, Dylan. You just

Dylan Koch: [21:42] take Right.

Mike DeHaan: [21:43] Jeez. Take three families with small children and a meth head and put them in the same house and pretend like that's a perfectly normal acceptable thing to do.

Dylan Koch: [21:50] I'm Mike, is I'm trying to sell a seven bedroom, three bath single family on the West Side of town to, like, someone who does, like, sober living right now because that's probably the best use

Mike DeHaan: [21:59] That's the

Dylan Koch: [22:00] for it.

Dan Austin: [22:00] That's the only use you can do for something like that. Yeah. I will say that's why your point of people, like, moving back or having options is why I don't really buy into like the whole like we're several million dollars underbuilt or several several million houses underbuilt in The US because people, yeah, they may not have a house, but their parents have six bedrooms and a second home.

Dylan Koch: [22:20] Yeah. You know, like Right.

Dan Austin: [22:21] So it's like for a lot for not all Americans, but for a vast majority of Americans, they do have that option. It's not like people are desperate living in shacks. Like, they can go Yeah. Move move back home. There are other units that are available. They're less preferable because, like, things people do move, and they and they can move. And the fact that people do and can move tells me that there's not an under like, we're not that underbuilt.

Mike DeHaan: [22:41] Like, maybe a little bit, but

Dylan Koch: [22:42] These renters are on both ends of the spectrum. Like, young twenties for two of them. So like, moving back home kind of makes sense to save the thousand The bucks a other one is like on older side, like limited income, social security. And I think the other aspects of life are just getting more expensive, food, other utility bills and shit.

Dan Austin: [23:02] Man, I can't It's affordability. It goes back to affordability conversation. And most people can't afford things until they're older now, just like the millennials were the start of that, right? We couldn't afford things until we were older, But we will be living twenty years longer probably than our parents. So

Mike DeHaan: [23:17] Yeah. I mean, assuming we don't all get brain cancer from being around our fucking cell phones from just AI. We

Dylan Koch: [23:23] have plastics in our balls. Don't you guys know that?

Mike DeHaan: [23:25] Dude, that's true. Yeah. Mean, I that's the big concern. On that whole piece, it's the general cultural way that we are in The United States, where we value independence. And there was always like this kick people out at 16 or 18, you know? And like go to college, you want to be able to have a house, you want be able all the other things. And the vacancy rate isn't necessarily an issue, right? It's not like there aren't properties available. It's just people can't afford them. Yeah. I mean, even around Spokane. If you need to find rentals, you go look on rentals available in Spokane or any other market right now. There's a bunch out there. If there was really a availability crisis, they would all be gone, but they're not. Right. Yeah, exactly.

Dylan Koch: [24:02] I always laugh at the ones when I'm trying to do like rental comparisons when I'm having a place to rent. Like, It's oh, they're trying to list us for 1,500, but it's been listed for eight months. I was like, bro, just take the to reduce the price. Right. Like, that you guarantee that someone's property manager is not doing them justice. Oh, yeah.

Mike DeHaan: [24:18] Yeah. Yep. But yeah. Yeah. But or there's, like, weird collusion that stuff will do too where, like, if you're trying to lease it, you can get different benefits from different cities and stuff. That's always been a thing in the past. But like Or here what was a really big issue, there's actually a big state lawsuit against several of the large apartment management companies that are owned by like a couple individual families because they were basically colluding to keep rents super high.

Dan Austin: [24:45] Right.

Mike DeHaan: [24:45] And so they had all had like a cool kids meeting where like the three families that owned all the property management was all the apartments were like, what if we just didn't lower rents? Right? And they would just keep them high. Then what they would do is they would share what they were telling people rents and stuff were that were like applying. So when they like applied everywhere, they could like pin people higher on, like, the rent estimates if they were, like, renewing and things like that. So that way people couldn't necessarily go and get somewhere cheaper because they would all be saying, like, oh, you're gonna increase to this? Cool. We're gonna increase to that too. So it was like a becoming a monopoly issue.

Dylan Koch: [25:18] Yeah. That a big case in like I recall it, like commodities not too long ago. I forget what it was, but like same thing. Like, you could basically price gouge.

Dan Austin: [25:28] And they oh, and they don't want us to do that as landlords? Right? Whoops.

Dylan Koch: [25:34] Fill in

Dan Austin: [25:34] the gaps.

Mike DeHaan: [25:35] Just kidding. Just kidding.

Dylan Koch: [25:36] No. I mean, it's just I just my default thing is just like, why why like, that's just being greedy. They've I probably own those things for ten years. Right? And they they they could have made money at their life changing at $50 a month to, you know, difference in rent? No. Like, I don't

Dan Austin: [25:50] You know what what to though? Get Probably actually is because if you think about it, so say you own like 3,000 apartment units.

Dylan Koch: [25:55] Sure. If you're going to base the whole portfolio on an NOI based cap rate, yes, Dan.

Dan Austin: [25:58] You're right. Then they're to get $25 for the ceiling fan that they're now renting to the section eight housing person on 3,000 units, and then they're going to get more leverage. And then they're gonna take that leverage and go build another thousand units.

Dylan Koch: [26:11] Let's talk about something else. What else we got? Some common thing I've seen in my business lately, and then we've touched on this a little bit, but I bet I'm not exaggerating. There's been six or seven deals that went under contract. And it's either a combination of the deal just dies because their payoff is insanely high, like compare even though they knew it or not. Or b, some of them are gonna make 30 or 20, we're now making five to 10.

Mike DeHaan: [26:32] We've had an abundance of those as well. And it's almost always because of excess fees and penalties from the lenders because they took like COVID relief. Right? And that's now been tacked onto the end of their payoffs. They didn't realize it. Or they'll have these other liens on their properties that started a lot of times in 2020 or 2021 when they were under quote unquote hardship. And now it has built up over five years of interest.

Dan Austin: [26:57] I do wanna bring up too on the same vein, Dylan, because obviously, you know, we have our wholesale deal struggles and stuff like that, and we've worked through quite a few this month similar to that. Mike and I are also getting raped on the sale of our portfolio properties. Like, we just can't we just can't sell anything, not because they're not great deals. Like, we we have one right now. It's almost some of it's like our sins, our our our past sins

Dylan Koch: [27:20] are kinda catching up with us. We're we're we're being too smart for our own good. Like, yeah. Exactly. Guys got years ahead of us, and there's no way you're through all the sins.

Dan Austin: [27:27] But yeah. No shit. Right? So like one of them, the one I was dealing with this morning most recently. So we have a private lender, a guy, a seller finance note, and we owe him like $80,000. We're selling the place for like $1.25. So we got some equity in there.

Mike DeHaan: [27:41] 0% interest, by the way. 0% interest. Just principal only payments.

Dan Austin: [27:44] And he refuses to give a payoff because it's not due until January 2026. So he will not accept our money. And I'm like, you can't like, he's like, like, basically How's

Dylan Koch: [27:54] it written in your contract? Can you say you can pay it off at any time?

Dan Austin: [27:57] So it does say so in the in the note we have, there's a couple things that are contradictory. One, it says the the property's due the loan's due on sale. So, yep, makes sense.

Dylan Koch: [28:07] K. Yep.

Dan Austin: [28:08] And then there's one in there that says that he must approve any prepayment. And within that line, there's a you cannot make any larger payments than the monthly payment until the note is paid and due. And then it says that and so then it also says that, what was the other? There's a third one in there that it says basically like the note is due on or before January 2026. On or before.

Mike DeHaan: [28:33] Yeah. And the funny thing is, is this note, like a lawyer drew this up. This wasn't like us putting together some This J. P.

Dan Austin: [28:40] Was like a lawyer.

Mike DeHaan: [28:41] This is from 2020, dude. This is before chat GPD was a thing.

Dan Austin: [28:44] This was back in early days of Mike and Dan. And so the guy's like, he's just being an asshole about it. And it's like, no, like we're gonna sell

Dylan Koch: [28:50] this Well, guys can do the math and know what the payoff is. Right? But it has to come from Correct.

Dan Austin: [28:54] Well, so the payoff, we have a third party escrow company and so they follow the rules and they have to get the payoff from him and he's refusing. So I had to talk I got our lawyer looking at the docs and it's like, either write a strongly worded letter or call the guy and be like, bro, you can't stop him from selling it. Do you want them to put your money in their pocket or do you want it in your pocket? Yeah. I mean, that's where it comes down to. You now no longer have an asset to protect it. You know? I don't even think he put a PG in there. No personal guarantee. So it's like, cool, dude. I will take your money.

Mike DeHaan: [29:22] Yeah. You know what I We should just we should just do that. And we should like send him like a a TikTok of us going to the casino and just like bet. Throwing it

Dylan Koch: [29:29] all away.

Dan Austin: [29:29] Betting his principle

Mike DeHaan: [29:31] on black. Yeah.

Dan Austin: [29:32] Yeah. Yeah. So we have that one. And so actually, there's two other ones that we got going on. So we've got that one, and then we've got the condo that everybody's heard about. I'm not even talking about the condo, but we are still in the condo. And we've been extending the contract for like the last forty five days trying to get proper HOA insurance so that the lender will fund the loan. And they're just being so dumb, like, oh, you don't have in your claws that your barbecues need to be 10 feet away from the structure. It's like, the fuck puts a barbecue 10 feet away from their Like nobody.

Dylan Koch: [30:02] I've seen too much melted siding to know that's a thing. Yeah. Know what to

Dan Austin: [30:05] make, right? Yeah. So it's like, just like these little things, like they, it's almost like they don't want to do the loan, right? They just keep kicking it back and the insurance provider's being an asshole. So that's a tough one. And then we have another one on a mobile home right now where the lenders like, send me pictures of the sink plumbing, because they want to make sure it's not the gray pipe or whatever. But it's just like these little things that usually- We're

Dylan Koch: [30:26] going back to the lenders being They are.

Mike DeHaan: [30:28] The

Dan Austin: [30:28] 100%. They're back to the lender being the problem. They're being announced. But also insurance, like, so so within that, it's not I I shouldn't say the lender, like the lender is requiring the insurance, but the insurance is basically like, we won't insure it if it has it. I'm like, okay. So just so I understand, if it has like 30 feet of plastic pipe in there, you won't insure it. Like, we'll go I'll go in there tonight and replace it for the guy. It'll cost me a $100. I'll go do it. Like, it's just like such a simple thing, but it's like these little prolonged freaking issues with selling a property that should be easy.

Dylan Koch: [30:58] I'll share one real quick. We had a a property we're about to sell, and we're we bought it. We got insurance, normal people. They but they now they're doing their own inspections. Right? They go out to the property and they send someone over, and it failed for the driveway. I was like, obviously, we're going to place the driveway anyway, so whatever. So we got that done. But then they came back and said, oh, you can't reinstate it because also you're missing window trim. In fact, we're just going to cancel the whole policy.

Mike DeHaan: [31:22] Nice. Oh my god.

Dylan Koch: [31:23] Yeah. So I just got a different insurance provider,

Mike DeHaan: [31:25] but

Dylan Koch: [31:25] still

Mike DeHaan: [31:26] like Insurance is such a racket right now. I don't know what the end game is with the whole insurance problem. Yeah. You know? And I heard this a while back, and I think about this a lot. And one of the reasons that insurance is facing so many issues isn't just because of the increase in claims, but it's because so insurance companies, they hold huge amounts of cash. And what they used to do is they would hold it in what they would call like top tier real estate, right, which was the skyscrapers downtown that will never lose value because it's downtown somewhere. But then when COVID happened, obviously nobody wants those properties anymore. So they have all this money that they've collected, you know, that they use for the insurance policies. They're now in assets that are worth 10% of what they used to be worth. So they've lost an incredible amount of value of their actual just like reserves.

Dylan Koch: [32:16] Yeah. Same thing. It's the same thing with pensions. They kind of offer it similarly. But that don't buy, you know, treasuries or government bonds when they're yielding 3% like they were in COVID. So you've gotten the risk curve looking for something else. Right. And then you buy this stuff thinking it's a it's a a steal or, you know, that it's never gonna lose purchasing power, and now here we are.

Mike DeHaan: [32:33] Yeah.

Dylan Koch: [32:34] You all seen the headlines of, like, Downtown Baltimore, downtown other places that skies are sold for $4 a square foot or something ridiculously cheap. Just crazy,

Dan Austin: [32:41] dude.

Mike DeHaan: [32:41] Yeah. Well, there was one in Austin that it got bought, I think it was in 2019, for, like, 200,000,000 or something, and then it got bought at auction, like this past year for like $17,000,000 Yeah.

Dan Austin: [32:53] Was unreal. Price drops.

Mike DeHaan: [32:54] Yeah. So but like, with that being known, I don't know how the insurance problem ever gets fixed, you know, unless they get like a huge injection from cash somewhere. But why would anybody do that when you know your money's always gonna be going to people's claims?

Dan Austin: [33:07] Because Yeah.

Mike DeHaan: [33:08] You're Everything is getting worse. Yeah.

Dylan Koch: [33:10] Yeah. I guess the actuaries are gonna have to redo their their math.

Dan Austin: [33:13] Yeah. Yeah. So on that same argument with the condo, like one of the reasons why we couldn't get the policy, a policy I should say rather with this one person, she was like, not very nice. And she's like, you need to rewire the whole house and replumb the whole house. I'm like, why? And she's like, because it's 60 years old. And I was like, okay. But like, what is the copper pipe different now than it was in the seventies? And she's like, it doesn't matter. It's too old. I'm like, but

Mike DeHaan: [33:39] my god. Don't know anywhere?

Dylan Koch: [33:41] Like There's

Dan Austin: [33:42] nothing wrong with it. And it's not like it was like CPVC or aluminum wiring. Right? It's like, no. It's like she's like, it's not to code. Was like, well, it is to code because there's a sticker on there that had passed inspection. I can't imagine washing L and I would pass. She's like, I have a friend that works for the L and I and it's not to code. And I'm like, but I don't believe you.

Dylan Koch: [34:01] This woman that seems like she's on a power trip.

Dan Austin: [34:03] Oh, She was totally, dude. She was so nice. She was so not nice to me. And I was like, I was just like curious, like, does somebody get insurance if they have to rewire a perfectly functioning house, replumb a perfectly functioning house? Oh, and she'd also say we have to do get a new roof too, which I was like, I get it. We are replacing the roof because it's a it is a twenty year roof that's past twenty years. But the whole roof thing is an interesting thing because that's like the funny thing is, is about insurance is most claims are roofs or water issues. And most policies, people don't know this, don't cover either of those. So your roof, say you get a thirty year roof, you buy your house, it's got twenty years out of it, it's got ten years left in life. They will only give you one third of the value of the replacement cost because the roof only has a third of its life left. So they give you one third life. So, okay. So you're coming out of pocket for the roof, plus you got a thousand dollar deductible, so you're already screwed. And then on water stuff, it is so hyper specific. Mhmm. They will not cover. If it's a slow leak that you don't know, they won't fix it. If it's outside water coming in, they fix Yeah.

Mike DeHaan: [35:06] So so in the the crazy situation on the outside water thing, so we had this house that flooded because the sump pump failed. So we had a way to mitigate any water on the outside of the house. K? And the water actually came from the sump pump because when it failed, the pump overflowed and went to the house. Right? The problem is they went and they're like, oh, the sump pump is outside of the footprint of the house? Sorry. It's now counts as outside water.

Dylan Koch: [35:30] Yeah.

Mike DeHaan: [35:30] Are you fucking kidding so unreal, dude.

Dan Austin: [35:32] So unreal. So why can't I have gone round and round on so many of these things with the insurance provider? But like, it has to be so hyper specific. It had like like a burst pipe. Right? It had that has to be it. And it has like, there's a lot of stipulations with when you call and how you do that and what you say. And so most people really, the only thing you're covered is like fire, you know? And I don't even know that. And I just say that because I've never had to worry about fire in my houses. But realistically, how often does your house

Dylan Koch: [35:56] Well, if you had

Dan Austin: [35:56] a burned down?

Dylan Koch: [35:57] Yeah. Even had a property burned down, they found that, like, the batteries weren't replaced like when they were supposed to, they're gonna deny the claim.

Mike DeHaan: [36:02] Totally. They're like, yeah. Yeah. So I I guess the lesson with that is next time your house floods, just burn it down. Just make sure that it

Dan Austin: [36:09] doesn't look just make sure

Mike DeHaan: [36:11] it doesn't look like your barbecue was closer than 10 feet because they'll project you on that.

Dylan Koch: [36:15] What's worse is, like, I have one insurance guy that I pretty much just text me like, hey. Like, he's like an insurance broker essentially. And we never go for even the cheapest policy. I go for something that has supposed to have like good replacement costs, like it has all this And I'm sure if I ever had to file a claim, I'd probably get screwed anyway.

Mike DeHaan: [36:30] Oh, yeah.

Dan Austin: [36:30] You will. I mean, I will I will say that's smart though, Dylan. Like, definitely get a better policy. Like, don't get the cheapest cheap because like it could screw you over and try to skip on it. Because like if you have an Airbnb and you don't have an Airbnb clause, you're not getting recouped rent.

Mike DeHaan: [36:43] You they won't do it. Yeah.

Dan Austin: [36:44] You know, making sure you have six months of like rental coverage and stuff. Because it, if you need it, like, and you at least can get rent recoupment, like that's important.

Mike DeHaan: [36:52] Yeah. Well, and everyone if you ever reviewed an insurance policy before, like in-depth, one of my favorite little things you put in there is how it doesn't cover acts of God. Right? Which is basically their way of saying, we can decide if God hates

Dylan Koch: [37:05] you. I am God, actually.

Mike DeHaan: [37:06] Yeah. Right?

Dylan Koch: [37:07] And so like, honestly,

Mike DeHaan: [37:08] so you look at like the floods in Texas. Right? And, you know, the hurricanes or things, those are always just acts of God. If that ever happens, then sucks suck. I don't know what

Dan Austin: [37:17] to tell you. Yeah. But really the best

Mike DeHaan: [37:20] case scenario is, you know, you just accidentally burn your house down by leaving a casserole in the oven or leaving the stove on and then going out to a movie and then being dumb about what happened. I'm definitely not suggesting that you do that, but

Dylan Koch: [37:32] Some of my replacement cost of my buildings. Yeah. I'm just saying, like, if someone wanted to arson some of them, I as long as the people are okay, I don't I wouldn't mind.

Mike DeHaan: [37:38] Yeah. Exactly. I mean, whoops. Whoops.

Dan Austin: [37:40] You know what? Here's here's actually the the best route to go, and then we can cut it here is just become Warren Buffett so that you're self insured, then go buy an insurance company, and then they have to file any liability or claim any liability claims go through because you fucking own them. Just saying. There you go.

Mike DeHaan: [37:57] Yeah. Yeah. Yeah. Rule number one, just go to, like, the top level of corruption and

Dan Austin: [38:03] Buy the insurance company. Buy the insurance company.

Mike DeHaan: [38:06] Yeah. Be be so big. You can do whatever you want. I mean, that's basically what all politicians do now. So cool. Alright, guys. We'll end it there. Thanks for listening, everybody. If you also have real estate grievances, I'd love to hear about them. Go ahead and DM them to me on Instagram at Mike underscore Invest, or you can email them to me too if you're old. Mike@ClickMehees.com. And, thanks for listening, guys. Talk you guys later. See you. See you. Thanks for listening, everyone. If you want more from us, you can shoot us a follow on Instagram. I am at Mike underscore invest. Dan is at investor man. Dan and Dylan is at Dylan underscore does underscore deals. Choose to follow and send us a DM to let us know what you think of the show.