Top Lending Companies Are Showing Warning Signs of Another 2008

Mike DeHaan: [0:00] I guarantee you 100% what is happening is they are packing a bunch of crap in there that shouldn't be in there that will eventually cause issues over the long term. You look at, like, the audience for kind of the real estate finance space and who's in that, Facebook is the correct medium for it. And even though Facebook kinda gets, a bad rap and you guys both are like, well, the young people are not Facebook. That's fine. I don't wanna work with young people. They don't have any money. They're not the ones that are participating in our business right now. What's going on, guys? Welcome to collecting keys. I'm Mike DeHaan here with Dylan Cook today. Dan is out. We just got back from a conference, and he is scrambling to get some loans done because we had a busy, busy week. And, you know, turning over end of March went into April. It's always extra busy. But, anyways, I wanna do the rolling start. What was that, Dylan?

Dylan Koch: [0:46] Did you have to beef off your LinkedIn profile now that you're trying to I don't know.

Mike DeHaan: [0:51] See, I feel like the LinkedIn thing is like what employees do. Okay. I don't know a lot of business owners that really use that or, like, I don't know how what it is for, like, lead generation for what we do. Like, I would say that I feel like in our kind of business, LinkedIn is really good if I wanted to build a a following to recruit talent. Yeah. Okay. Sure. Right? Yeah. As opposed to, like, the Facebook stuff, I think, is really good for finding investors, finding borrowers, finding other people that are, like, in the small business space. Whereas LinkedIn, I don't know if it's quite the same.

Dylan Koch: [1:25] I have a LinkedIn, but I haven't updated it in probably ten years. And I don't really want to.

Mike DeHaan: [1:30] It's a really good place for hiring when you're in the finance space especially. We would a past few job listings that we've put up there, we'll get, I don't know, 80 to a 100 applicants in the first few days. But like the LinkedIn influencer thing, I don't know. I don't get it. But

Dylan Koch: [1:45] Going back to the conference, Mike, I guess Yeah. You know, these lenders and these bigger companies, obviously, they're big. They have hundreds of millions of dollars, and they wanna know where their their capital is, if it's safe or what's going on. So I don't know if you can give

Mike DeHaan: [1:59] the audience some takeaways. Yeah. Yeah. Yeah. So so just for some background. So Dan and I were just spent the last, I guess, two and half days in Las Vegas at this pretty big lending conference. It was put on by the the law firm that

Dylan Koch: [2:10] we use to do all

Mike DeHaan: [2:11] of our legal stuff. And, like, all the big dogs come out to it. Right? So you have, like, heads like Kiave, Renovo, you know, all the kind of bigger lenders, as well as, you know, wide ranges of smaller lenders too. But the big guys typically do talks on different things they're seeing in the industry. And I made a a Facebook post about this yesterday. Apparently, I'm a Facebook influencer now. My post last week got at 700,000 views, which is crazy.

Dylan Koch: [2:34] That is crazy.

Mike DeHaan: [2:35] That's larger than, like, any other piece of media that I've ever done that wasn't like a meme. You know? Yeah. Yeah. So the post I made yesterday was kinda just reflecting on it and the sort of messages that they had. And there was two big messages that were sort of carried across a lot of the talks. And one of them was around the housing market as a whole. And same stuff we talk about on here a lot, right, where it's very much like across the country, who knows? Some markets are down a ton. Some markets are doing fine. There's a general concern about affordability, both for buyers and for renters. A lot of that concern, what they're coming from is stemmed around the increase in insurance and taxes, even more so than just like the general economy. Because the way they view it is they will like write loans three years ago that are fine. And then all of a sudden, the insurance and the tax, the local governments are increasing their taxes. And it's now threatening the loans that they did three years ago because now the DSCR is negative. Right? Now the person is no longer sustainably handling that property. And so I talked kind of about how to deal with that.

Dylan Koch: [3:35] Does the letter have any recourse? I mean, can't go back and say, I want my loan money back. Right?

Mike DeHaan: [3:40] Like No, you can't, dude. And so that's the concern is you have these third parties that are threatening their collateral. Right?

Dylan Koch: [3:47] Yeah.

Mike DeHaan: [3:47] And so that was a big part of conversation. But the second part was a lot about fraud. Specifically, the massive uptick in fraud that there's been in the last six months, especially when it comes to appraisals. And when it comes to the appraisals, like, it's always a contentious thing from the real estate investor and the lender's perspective because, I mean, I've been on both sides of the table a bunch of times now. And everyone, you know, a lot of real estate folks listening to this, everyone's had this experience. Fix up a property, gonna do the BRRRR method. The appraiser comes and looks out. The appraiser's like way low. And you're like, what the hell? You know, like this appraiser's an idiot. I don't know what they're doing. Here's my comps. I don't know why they picked those comps. Totally valid. Right? And then from the lender's perspective, they're like, well, you're asking for $350,000. Of course, you wanna pick your own comps.

Dylan Koch: [4:33] We can't have you do that. It needs to

Mike DeHaan: [4:34] be a third party, all these kind of things. And it's like, how do you meet in the middle? It's always gonna be contentious. Right? And so where you started to see fraud is actually with, like, a lot of people that are the kind of people who listen to the show where you're doing a ton of volume. Maybe you're buying twenty, thirty houses a year. After a while, start seeing the same appraiser, and you guys kinda become homies. Right? Oh, you know, it's Steve, the appraiser that's coming out to look at my house again. How's your family? How's your stuff? And the valuations just start to naturally get more favorable. Right? And then if it doesn't get more favorable, maybe you're like, oh, maybe Steve wants to go to dinner. Maybe Steve's into the Red Sox. Right? And you start to see these little handouts that are going out, and that they started to investigate some of these things. And so it's basically, in their view, artificially inflating a lot of these values, which are going against the trend of the actual real estate market. And one of the reasons that they're looking onto it is because of exactly what I just sort of stated there, where they are seeing appraisals, like, tend to regularly come in high. Right?

Mike DeHaan: [5:31] While the real estate market as a whole is trending down, which doesn't make sense, like just fundamentally, right?

Dylan Koch: [5:37] Well, my only caveat here is there's definitely a difference right, especially right now between Absolutely. An appraisal report and what a market sell price is, like a market price. Yes. And like even on my own refinances that I've done in the past couple months, I know that appraisal report that I got back, I'm like, if I try to sell it for this price, there's a 0% chance it sells for this price. But like, what am I to do? Like, I'm just accepted the value and got as much leverage as I could. Mhmm.

Mike DeHaan: [6:01] Yeah. And I mean, and honestly, as a real estate investor, that's what you should do. You should always be maximizing your leverage as long as you can because it's going to allow you to play with other people's money. Then fundamentally, the bank's taking more risk. Yes. You're not planning to default no loans or whatever. But if shit does hit the fan, you've gotten as much of your money out as you can. Right? If you're trying to play the cash flow game where you pay off your properties, I think that's a loser's game in the short term. But, know, you do you. That was what basically what my post that went super viral was about too. So there's like, you're starting to see these recurring patterns. And so what they've done in the past couple of years is they'll now require you to get these CDAs, which basically a desktop analysis, and it has to essentially match the appraisal. And what's silly, and we've had a couple of loans go sideways because of this, is the appraisal comes in on par. That's great. We order the CDA. The CDA comes in low. And now the investors, the people that we sell the DSCR to, they go, well, actually, we're gonna ignore the appraiser, the thing that you paid $700 for.

Dylan Koch: [6:51] And who has been in the property.

Mike DeHaan: [6:53] And who's been in the property. Yeah. And now we're gonna use this CDA that comes from an algorithm, and we're gonna use that as the value instead.

Dylan Koch: [7:00] Dumb. This happened on all my loans with you guys. There's a $100,000

Mike DeHaan: [7:03] That's crazy. See, did we do another appraisal on that one, or what do we do?

Dylan Koch: [7:06] Yes. And we got it we got it done.

Mike DeHaan: [7:08] And so that basically, either you have to go with a lower value on the CDA or if you get a second appraisal, then they'll take that. Right? But well, a lot of what we're talking about doing now is essentially requiring two appraisals all the

Dylan Koch: [7:17] time. Wow.

Mike DeHaan: [7:18] Which sucks. Because like that's, A, it's expensive. B, we already know that the skill set that exists amongst the appraisal population is generally pretty low. And it's obviously they try to make it, you know, as sort of structured as possible.

Dylan Koch: [7:32] By the way, the youngest appraisal I know is like 50 years old. I don't know a single young appraisal. So like, I don't think that people are going to this.

Mike DeHaan: [7:39] We've seen some younger ones, but the problem is there's always a subjective nature to it. You know? Even though they have, like, their platform they plug stuff into, there's, like, little things they can do. So for example, we had one go sideways where they went and walked the property. It's in Spokane, and they basically said that the property was in a declining market because it was in the hood. Right? We'd literally done a loan earlier that, like, month that was down the street that did not have that. And we were like, what the hell? We were so frustrated. We went and looked up the appraiser. They live in, like, this big uppity house, like, out like, not even in the area. They're, out in, like, North Idaho, this whole thing. I'm like, yeah. So she, like, shows up from her high castle and comes down to the ghetto. She's like, damn. This place sucks. Declining market for sure. Right? I'm like, it just doesn't make sense. You know?

Dylan Koch: [8:26] And if they get grilled on that, they have to have some objective data, like a decrying, like, population or something like, I don't know, like, pointing to an employer leaving, something that would indicate that. You would think so.

Mike DeHaan: [8:36] But the challenge is is from a lender's perspective, there is no advantage for, like, how an appraisal comes in. Right? Like, what you need is the analysis to best reflect what your risk profile is on it. And it's very easy. Like, we all know that it's a lot of investors that have rose colored glasses on the buy of their properties. We know there's a lot of fraud. We know there's a lot of uncertainty in the market. And so from a lender's perspective, if an appraisal comes in kinda low, that's okay. Like, we don't care. Right? And then the borrower's going to walk, get frustrated, whatever. Unfortunately, for all the borrowers out there, there's a shit ton of you guys. Right. Right? And so if we lose one, it's not like losing like a wholesale deal where you're like, damn. I I don't know if I wanna pay for my marketing next month. There's so many different borrowers out there.

Dylan Koch: [9:19] Like a buyer who was supposed to close on Tuesday this past week for three houses, and I haven't heard from him in four days?

Mike DeHaan: [9:24] Yes. Yes.

Dylan Koch: [9:24] That's a big deal.

Mike DeHaan: [9:26] Yeah. You know? It's a

Dylan Koch: [9:27] huge deal.

Mike DeHaan: [9:28] Like at this point, I think it's like a 15% not close rate on our loans.

Dylan Koch: [9:32] Okay.

Mike DeHaan: [9:32] And that's just kind of standard. And it's always because of stuff like that. Background checks not coming back. We go and we pull their credit, and they thought it was 800, but it's actually $7.15, and that affects pricing. But then they go and they talk to another loan officer who's like, oh, well, I'll give you the price that you want. They haven't pulled their credit yet. Same shit's gonna happen. You know, especially on the DSCR side, we're all selling the same thing. Any lender that can tell you they can do something different or special on a DSCR is not honest with you. Because at the end of the day, it's the same three companies that are buying all the DSCR's you go down the line, and everyone's playing by their rules.

Dylan Koch: [10:05] I hate the marketing that comes out from lenders or brokers that says, thirty year DSA starting at 4.99. Yeah, you buy 10 points down. Exactly.

Mike DeHaan: [10:14] Yeah. No shit.

Dylan Koch: [10:15] But they don't disclose that. And somebody who's new is gonna be like, Oh, this is so much better. And they're gonna get to the finish line and be like, Oh, sorry, it's at 7.5.

Mike DeHaan: [10:22] I know. Right. Yeah. You have to do a buy down. It's at 50% LTV. You have to have 800 credit. Yeah. The DSCR needs to be 1.5. Like, it just doesn't make any sense. I think that there is also on all sides, both like the the bottom of the totem pole for the lender side, as well as the appraisers and the investors. Right? Everyone just trying to make their buck. You know? And so, like, there has been a big uptick in fraud issues within the lending companies as well, where you have, like, an LO that is not being fully transparent about the conversation that they're having with their borrowers. Right? And also too, there's kind of this mentality right now on all sides of the deal, whether it's, like, within the lenders teams or it's the appraiser or to the borrower, whatever, where everyone's just, like, trying to make their buck, like, right now. Like, there's been a really big issue recently. I've seen this a lot as well because people are working with, like, most lenders, a lot of their lead flow comes from these brokers that are basically just shopping around and bringing them borrowers. But you've had this issue with, like, LOs within companies that will just not fully open up about all the details of the borrower, and they're kinda concealing stuff because they're making a commission. Right?

Mike DeHaan: [11:33] And they don't give a shit if the person has to foreclose two years later or a year later or whatever.

Dylan Koch: [11:38] Yeah. Because they already made their money.

Mike DeHaan: [11:39] They already made their money. Like, that's why you kind of have underwriting and stuff. But especially with, like, the loan officer thing, it's very relationship heavy. So it's not hard for it to be like, oh, yeah. We'll kinda play inside baseball. Chance, our our lead LO, we went to lunch with the guy here that works for a very large lending company. And he said LO, he's a loan officer. And he literally was, like, bragging about some of the shit that he gets through. And he said verbatim, he's like, I don't give a shit if they have to foreclose. He's like, he's like, I already I already made my commission, so that's their problem. Like, he's sitting there saying this. I'm sitting here thinking, like, the big short where you have, like, the those guys that are talking about the boats that they buy. He's like, I used to be a bartender. And I like, now I own two boats. Yeah.

Dylan Koch: [12:19] Right. They're ninja loans. Yeah. They didn't give a shit.

Mike DeHaan: [12:22] Seriously, man. So I don't know. There's a lot more checks and balances that I expect to see coming down the track for thirty year fixed debt. And, you know, to make up for that too, I will not be surprised if we start to see rates, like, just sitting higher. They've already gone up an incredible amount since all this Iran stuff started. And I don't think that they'll be going back down very soon just because they're also like, you know, these people are worried about the risk that's increased with it.

Dylan Koch: [12:49] What people the general population doesn't understand is that a thirty year fixed, you know, mortgage on your house is just a a long call option on a the the basement of the dollar.

Mike DeHaan: [12:58] It really is. Yeah.

Dylan Koch: [12:59] That's all it is. You're locking in thirty years of debt at a fixed rate, and then if inflation continues 2%, like, you're just locking in that return for the entirety of that loan.

Mike DeHaan: [13:08] Yeah. And so, like, what currently happens now with thirty year DSCR debt, very similar to what happened with like all the Fannie Freddie stuff, like the 2008 stuff where they would take all these mortgages, they would bundle up in the tranches, they would sell them to banks. That exact same thing that happens with these securitizations, where they'll take these 150 to $200,000,000 tranches of DSCR debt, or even hard money debt. They'll do with hard money loans too. Right? And they will sell them essentially as like a bond, right, or like a fixed income vehicle to these large banks, these large financial institutions. And where it's getting really sketchy, if you look from a macroeconomic standpoint, is you've now started to see the rise of what they're calling unrated securitizations.

Dylan Koch: [13:51] Oh, boy.

Mike DeHaan: [13:52] Right? Where they're not doing full due diligence on everything, or they have, like, a lot, you know, more flexible guidelines for these different loans. And this has become kind of the new standard is previously everything had to be rated. So you didn't see a lot of securitizations on private debt. Now they've gone to unrated. And so you're now getting all these ones that have, like, kind of sketchy appraisals, a little more flex in the credit. And I guarantee you 100% what is happening is they are packing a bunch of crap in there that shouldn't be in there that will eventually cause issues over the long term, and that would just get tighter and tighter and tighter as these big banks are looking to place their money.

Dylan Koch: [14:23] And it's like you repeated twenty years ago. It's just kinda crazy.

Mike DeHaan: [14:26] Yeah. You know? But the thing is a lot of people that are in the space, they weren't around twenty years ago. So they don't care. They don't learn from the past mistakes because they're again, they're just trying to make their buck while while the sun shines.

Dylan Koch: [14:37] Especially if, like, anything's are in their I guess, we're old enough, but, like, the lower twenties. Like, they didn't.

Mike DeHaan: [14:42] Mhmm.

Dylan Koch: [14:42] And they have no historical reference to that. And, like, they probably heard about it in textbook, and there's, like, one that earns out the same thing.

Mike DeHaan: [14:49] Yeah. Or even the guys that are, like, in their mid forties that are running a lot of these companies, they were, like, 25 when that happened. You know? They like, if they were even in lending, which a lot of them weren't.

Dylan Koch: [14:58] Right.

Mike DeHaan: [14:58] They were in finance. They were getting their MBAs. They were doing whatever. You know, they had their internship at Goldman. They're like, oh, yeah. I remember that. That was crazy. What we're doing is different because x y z, when even though fundamentally deep down, know it's exactly the same.

Dylan Koch: [15:11] It's interesting because I think a lot of the people saw the cracks, at least people early in like 2006, 2007, and the crash was until like March 2008. So I wonder and I'm not calling for any kind of crash or situation here because there's so many different variables. But you just wonder where you're at maybe in that potential analogy.

Mike DeHaan: [15:29] Yeah. You know, and, like, when it'll come, who knows? And we have so many other extenuating factors right now that I don't think fully existed in 2008. I mean, yeah, we have, like, the Iraq war, but that wasn't the the brand new Iranian conflict that, like, just started, right, in the midst of all that. Like, at that point, the Iraq war had been going on for, like, six or seven years.

Dylan Koch: [15:48] Yeah. Was 2001, 2002. Yeah.

Mike DeHaan: [15:51] Yeah. So there was that thing whole thing going on. We didn't have, like, this whole AI unemployment thing.

Dylan Koch: [15:56] Yep.

Mike DeHaan: [15:56] Because, like, that was kind of the the cause of a lot of the unemployment was the whole financial crisis. Now we have this other thing that is causing all this unemployment that is actually counter to the economy because the economy is booming.

Dylan Koch: [16:10] Yeah. The people do like, there there is a recession. People do lose jobs, which, like, this oil thing could cause a recession if it goes too high. Yeah. Then these people who lay off a bunch of people, when they go back, they're just gonna look to, okay. How do I come back to business with with leaner staff? They're gonna be like, let's hire everybody back.

Mike DeHaan: [16:24] I have a legit question. What do you think so there's all these companies that are laying off all the staff. They're trying to optimize everything for more efficiency. They don't care where these people are gonna work, whatever. Who's gonna buy their products when no one has money anymore?

Dylan Koch: [16:40] It's a great question. The circular question.

Mike DeHaan: [16:44] Do you think that the thing is that everything is gonna be b two b? Right? And, like, we don't really care about consumers anymore because we're basically just, selling stuff to each other. You know, or we're just selling stuff to like corporations. But eventually you need consumer money at some point.

Dylan Koch: [16:58] Well, I mean, consumerism is like 50% of The United States GDP. Yeah. And that's like retail. That's not B2B consumerism. Mhmm. But like we talked about, a lot of that is the affluent class. So yeah, they might be able to still do their part. But yeah, I mean, and this would have to be like the, I don't know, pick a you go to McDonald's like every day, like the people eating out for these small meals, that's probably gonna be less or any discretionary money.

Mike DeHaan: [17:19] And even if it is the affluent class, right? They're gonna choose where to spend their dollars. Just because they have the dollars, somebody's gonna spend them with you. Right. When we were driving back from, like, from our hotel to the airport in Vegas, we had this very chatty Uber driver, super nice lady. And she's been down there for twenty seven years. She's telling us all the stuff that's going on. And she was saying one of the big things down there I hadn't heard of these, but we did see some already down there. These like Amazon, like self driving cars.

Dylan Koch: [17:43] For delivery?

Mike DeHaan: [17:45] No. They're like these these like little cars that essentially they have like predetermined routes. One of which is to the airport. Right? And they drive on normal roads. And they're, like, funny little cars. They almost look like a little like a little smart car. And you get in this thing, and they just, shuttle people. They're getting four people at a time. And And she was telling us about, like, how they're almost structuring how they work to directly compete with Uber. Right? Because you can order it through the app. You know, the way that you, like, do the routes and everything's all the same. The app actually looks really similar to Uber and all this kind of stuff. And she said where it's really gotten kind of shady is they've essentially been and and this is Amazon. Right? This is Jeff Bezos. They've essentially been subsidized by the city because they don't have to pay for a full vehicle registration like Uber's do either.

Dylan Koch: [18:30] Interesting.

Mike DeHaan: [18:31] Right? And so, like, she's like she pays, you know, $200 a year for her car registration. Currently, for one of those to be registered on the road, it costs $10.

Dylan Koch: [18:38] Wow.

Mike DeHaan: [18:39] Okay? And it's and it's significantly cheaper. All the money just goes to Amazon. Right? To make things even crazier. Right? For right now, since they're kind of piloting, they're completely free. So you can just go and get one. You don't even have to pay. It's because he's trying to get adoption and kind of figure out the bugs. And she said the only really issue with them right now is if it rains, which in Las Vegas isn't often, they don't work. They, like, have to go and, like, go to their hive or wherever they go and live. Otherwise, they're out all the time. I understand the principle there, but you're cutting off the head of, like, the lowest people. The ones who are doing, like, the kind of day to day random work that no one else wants to do.

Dylan Koch: [19:17] The the Uber ish person, DoorDash person is a great it's just like a great example of what might be to come. Because I do think we will have driverless cars in the next five to ten years. Totally. Okay. So take that a step further. What does that mean for parking garages downtown? Do we need as much parking in in general cities anymore? Because people are just gonna Uber in and out?

Mike DeHaan: [19:38] Maybe. But like, the direction it's been going is you'll have driverless cars that are privatized and run by an individual. What happens when we have subsidized driverless cars? So like you wanna go from your house to downtown. You don't have your own car. You ping Amazon bot that comes and picks you and your family up and takes you down. Right? So all the money is just going to them. What happens when that's your only option and you cannot afford to order an Amazon car because your job has been done by AI and you no longer have an income? You strap to your house? Like, what do

Dylan Koch: [20:06] you do? So what is Ford and, like, all these big, like, automobile companies doing right now? Like, you know, I it's hard to tell.

Mike DeHaan: [20:14] Bro, they're making their money right now. Well, they can.

Dylan Koch: [20:16] Yeah. Yeah.

Mike DeHaan: [20:16] I know. You really think the CEO of Ford gives a shit if Ford exists in fifteen years?

Dylan Koch: [20:21] You would think he would. Right? Like, I don't know. Maybe I'm too optimistic.

Mike DeHaan: [20:25] It depends on how much of a boomer he is and how much of, like, pride he has in that. But, like, when he eventually gets replaced by the 39 year old exec that sort of has come up the rank, that dude doesn't care. He's gonna make his $20,000,000 a year as the CEO plus stock options, and then just fuck off just like everybody else.

Dylan Koch: [20:41] One thing that going back to the previous point was what's different than twenty years ago is, like, the demographic changes.

Mike DeHaan: [20:48] Mhmm.

Dylan Koch: [20:48] Like, the biggest population now is I think, technically, it's millennials, but there's a bunch of baby boomers, and they're still dying off. Right? Like and so but they're the ones with all the money.

Mike DeHaan: [20:57] Yeah.

Dylan Koch: [20:57] So I, you know, I don't know if they're the ones spending it. Is it gonna go to their kids? Most boomers in my opinion are assholes, so no. But

Mike DeHaan: [21:04] I mean, there's a whole that's a whole other ballgame, but there's already a huge amount people aren't gonna be getting inheritances because their parents don't have that much. It's a very concentrated wealth accumulation up there. Like a lot of the people that are in, like, the I have money, but not a lot, most of their money's gonna go to their end of life care.

Dylan Koch: [21:18] Yeah. That's a valid that's a valid point.

Mike DeHaan: [21:20] Like, your your last years of life, people can spend millions of dollars to have the worst quality of life possible for three years in, a home, and you, like, don't even know what's going on.

Dylan Koch: [21:32] Dude, those nursing homes, even here, like, if you try to go to a nice one, it's, like, 8 to $10 a month.

Mike DeHaan: [21:38] Yeah. Yeah. Easily. And that's not including like all the medical interventions that you have to constantly get to be able to go home and,

Dylan Koch: [21:46] I don't know, bathe yourself.

Mike DeHaan: [21:48] Like, lick the carpet or whatever they do because they're so out of their fucking mind.

Dylan Koch: [21:53] Yeah. One thing I'm paying close attention to lately is the oil prices because they're at that $1.12 right now. And what I've seen from people who I trust, it's like, there are people talking about $200 oil Mhmm. Which if you go, like, inflation adjusted back to the 2008 scenario, like, that would be like a new quote, unquote new all time high. And that seems to be like $1.50 to 200. It's like, this is uncharted territory, and this will break a lot of stuff, and it's hard to even determine what stuff breaks first.

Mike DeHaan: [22:22] Dude, like, I think with the Iran war thing, I think I've figured out what the objective is.

Dylan Koch: [22:28] Oh, boy. This is gonna be good.

Mike DeHaan: [22:32] Because they're always the government forever has done I don't know the term for it. They're but, like, is it a straw man where, like, you have, like, watch this over here so you don't see what we do over here.

Dylan Koch: [22:41] Sure. Yeah.

Mike DeHaan: [22:42] Right? Yeah. And Trump made a comment yesterday that I've been thinking about a lot. I think it reveals the true motivation. I just saw the little sound clip. It was on Reddit, is very liberal, so you don't really know the full context. But he essentially said along the lines of like, oh, we can't have state sponsored childcare. We can't afford Medicare. We can't afford Medicaid. He's like, we're a big country and we have a war that we're fighting right now. We can't afford any of that stuff. And I'm like, ah, is this how they're going to justify axing Medicare? Which they've been talking about forever. Because the thing about Medicare, if you look at the budget, right? When I talked about this last week, you don't remember, the national deficit is, you know, 70,000,000,000,000 or whatever it is.

Dylan Koch: [23:27] It's like 40. But

Mike DeHaan: [23:28] yeah. Is it 40? Oh, sorry. I think it's like 40. So that's just what's on the balance sheet. On the off balance sheet liabilities that we have is Medicare, Medicaid. Right? Because those aren't things that are currently being paid. They're basically accumulating. It's like double the actual debt. Right? If you look at including that and like the full balance sheet. So it goes from being like 40 to being like almost 100,000,000,000,000 in debt if you account for that eventual expense that they will have to pay. Right? And so if they can just make that disappear because, oh, sorry. Can't pay it anymore. Sorry. We need to spend the money on the war. See national security. Like, we're we are viewing something else today. We just don't have it anymore. I'm like, maybe that's the objective. And he's hoping that a lot of the, the crowd bases that are around will be like, yeah, we're gonna support that because we're also racist and hate Middle Eastern people.

Dylan Koch: [24:18] On the other side of that, I do think government sponsored health care increases the cost of health care to an extent. Like, you know, if health care knows they're gonna get paid. Like, it's just like the same thing with student backed loans. Right? If you want wipe those out, loans will be down. But when the whole Doge thing was coming out, the critic that that I had and a lot of people had was the Pareto principle, the eighty twenty rule. Right? It's like, Dodge can try to make all these cuts, but there's like three things that account for 80% of our deficit on the debt. And it's Medicare, Medicaid, defense, and our own interest on said debt. Yeah. And so the interest thing is hard because you're just recycling that and the front end of it is very heavy right now. So you're just recycling, recycling, recycling. But like and the defense is rising with the war. So where where can you cut the most?

Mike DeHaan: [25:04] But the defense is rising less than the existing liability of Medicare that is off the books right now.

Dylan Koch: [25:10] Correct.

Mike DeHaan: [25:10] Yeah.

Dylan Koch: [25:11] Right. And

Mike DeHaan: [25:11] so just mathematically, it makes more sense to lean on that and get rid of all the Medicare.

Dylan Koch: [25:18] Do you imagine the uproar if they're like, we're eliminating or at least reducing Medicare, Medicare, and then also probably Social Security would be involved in that too?

Mike DeHaan: [25:27] You know what? It will be done with a silent bill while nobody's watching because they're too busy talking about something else that doesn't make any sense at all.

Dylan Koch: [25:36] Yeah. Yeah. Well, in response to this, I'm kind of surprised that a lot of the bonds haven't moved a whole lot. Like they're generally down on the day, which would make sense. Flight to safety means more people buy more bonds, yields go down as more people buy them. Kind of how that works. But like they haven't really moved a whole lot.

Mike DeHaan: [25:52] Yeah. And I think that's a good exercise for people to understand how the mortgage rates, interest rates that we all pay aren't tied to that like they always tell you that they are. Because interest rates have gone up a lot from a mortgage standpoint.

Dylan Koch: [26:05] To differentiate for the audience, like if you're getting an FHA conventional loan, yes, they're following like most of the ten year is what people say. But like an investor DSCR loan or a fixed and flip loan, there's not. And I think that's the point.

Mike DeHaan: [26:16] Well, even then, they're also diverging from like, the conventional stuff is diverging from the ten year as well. Okay. You know? It has been for a while. Like, it's it's converged more and more since the Fannie Freddie stopped buying loans about back in 2023. Right? Because the main the main buyers of that conventional debt are no longer the government. Private institutions. They're the same people that are buying the DSCR debt. Right? They're just weighing it against a slightly different instrument, you know, which traditionally has been the ten year. But now they're realizing that we can kind of control what those prices look like a little bit because we're buying it from the banks.

Dylan Koch: [26:47] I wonder what the ten year is today. I'm just gonna look. Okay. So the yield's 4.311%. If you got a $100,000,000, you can just basically get it risk free like a ten year treasury. So like, okay. Let's go lend out the money to a well qualified borrower at what? 7%. And like Yeah. Yeah. The number sounds small, but when you have that much volume and that much capital, it's billions of dollars.

Mike DeHaan: [27:08] Yeah. They're in the tens, hundreds of billions. You know? It's just a whole different game. I mean, all this to be said, I think that the lesson is when it comes to, like, if you are planning to make any changes to your debt is lean on kind of, like, what you know right now and don't, like, try to play the market or anticipate what's gonna happen because there's been never been so many things diverging from each other as there is, like, right now. And I've talked to so many people that are like, oh, we're gonna wait for rates to come down, that kind of stuff. Because they listen to all the pundits and all the people on social media that are like, oh, we're gonna wait for rates to come down. There's no guarantee that'll ever happen, like, at all. You know? Especially because now the original sort of line that that was based off of is no longer controlled by the same people as it was three years ago. You know?

Dylan Koch: [27:59] I wanted to bring up that I think on the rental side of things, you know, people are trying to get defensive because of the uncertainty. One thing that I think a lot of mom and pop rental investors don't consider that they should is their portfolio architecture. And what I mean to that is the debt side. Do you have thirty year fixed or five year arms or it should be refinanced sooner than later? There is that aspect, But also where your properties are located and tenant demographic. And that could be as simple as, okay, have properties in Cincinnati and the Sunbelt and somewhere. You could do that. I don't. You could. Or even, like, for example, my own portfolio, about 25% of it is on subsidized housing. Not great areas, but like, okay, we do have a recession and white collar people, they lose their jobs. At least I have some guaranteed income from section eight over here. Right? And so, yes, you could have all of it on the good areas, giving up cash flow for appreciation, all that kind of stuff. But I like having my current portfolio as it is because it does offer a little bit of more of a safety net.

Mike DeHaan: [28:59] Yeah. I mean, I guess to your point, what do you think is like the best makeup?

Dylan Koch: [29:04] Oh, it's a good question. Because it's going to be dependent on what those are actually spinning off in cash flow versus equity.

Mike DeHaan: [29:11] For sure. So I will tell you from my personal experience, My portfolio was at its largest. I had a mix of A class, B class and C class. When I look over the five, six five, six years that I've had most of those properties, the a class properties on average were my worst performing from a cash flow standpoint. Not just because, like, the rents and stuff would kind of say the same tax would go up, but they typically have longer vacancies. Right? When you renovated them, the standard that you had to renovate them to was higher. Right? The amount of, like, little maintenance requests and stuff that would come up were more frequent with those kind of renters. Right? The c class ones on average have been my best performing month to month on a cash flow standpoint, but typically have my highest cost to turn the units when they do become vacant, even though it's lower standard just because they kinda trash the place. Yeah. And the b class have typically been the most steady, but the you know, the where you're balancing is, like, are those areas the ones you're still gonna appreciate if you care about that? Like like, how do you sort of find those properties that are typically the most desirable? And if I look at it, I think that, like, if I was to build my portfolio from today, I would pretty much exclusively buy B class properties.

Mike DeHaan: [30:32] And I would only do A class stuff if it was honestly almost new. Right? Even if I was buying it at an extreme price, like a high price, Because then I know it would be hands off and I would just need to break even because I would believe in that asset from a longer term. But I would probably, I don't know, it would be tricky. The C class items, I do think people will eventually move down to those. But I also think that those will be the first people that will become unemployed and will default. And so even if they're getting subsidized, I don't know, they're kind of less likely to figure it out. It's tricky.

Dylan Koch: [31:05] Right. But I mean, some might subsidize. So it's literally like 100% of rent. So this depends.

Mike DeHaan: [31:11] Yeah. It'll be interesting to see because you have those established. What's gonna happen when 40% of those, like more of those come on the market?

Dylan Koch: [31:19] That's a great question.

Mike DeHaan: [31:20] The local government's gonna run out of money. You know? Or they're gonna be like, we were paying a 100%. Now we can't do that. There's so many more of those. We're going to have to start reducing how much we're willing to pay. Or they're going to cap what that rent's going be. That's how you start to get rent control and those kind of things too.

Dylan Koch: [31:34] Hell, God, I hope not. We have a very socialist mayor, so maybe we will. Anyway, a guy I know who has built a portfolio strictly around the University of Cincinnati. And they don't get me wrong, they cash flow great. They're a great area, but they are building so much inventory there and, like, new inventory. Right?

Mike DeHaan: [31:52] Yeah.

Dylan Koch: [31:52] Right? And so he's kinda worried.

Mike DeHaan: [31:54] He should be. Well, I mean, like, you're getting a whole other ballgame too. The issue I have with that is he is being bullish on the university system.

Dylan Koch: [32:04] Exactly. Yeah.

Mike DeHaan: [32:05] Which I don't know what that's gonna look like over the next ten years. Right? Like, there's already a massive decline in people going to college. Like, ten years from now, what's gonna happen when the University of Cincinnati has 50% of the students that it did? And it has all that new inventory. Your properties now, they're just kinda like hood ass student rentals that nobody wants.

Dylan Koch: [32:24] Yeah. Now you're renting instead of 700 a room, you're going for 300 a room.

Mike DeHaan: [32:28] Like, you

Dylan Koch: [32:28] super positive? I hope so.

Mike DeHaan: [32:30] I know. That's how I feel about a lot of the creative stuff people are doing, like the student rentals or like, you hear all people doing like the old folk homes and those sort of things. Those people are eventually gonna die. You might print money for five years. What happens when you have like another COVID and they all evaporate?

Dylan Koch: [32:44] Yeah, dude. These are good questions. Like, every investor should have tail risk in their head, at least thinking about it and accounting for some level of it.

Mike DeHaan: [32:53] They're all what ifs that we've talked about. I think that in my mind because no one knows the future. Like, the world is such a different place than it was ten years ago. I mean, you know, twenty years ago. Right? It's even more so. I think that the way that you approach real estate is you buy it at a discount on day one. So that way, you know that you've locked in your gains. Right? And then I think that realistically, the time frame that you should expect to hold most properties is like, I would say, to seven years. And then at that point, you need to be reanalyzing if that asset still makes sense over the next four to seven years. Right? And you can sort of be analyzing things on like as you go instead of just like saying, I'm going buy this for thirty years and never think about it again, which is stupid.

Dylan Koch: [33:35] Well, to your a lot of the landlords are those like, they never fix anything. They own it for thirty years. They don't want to put more money into it. There are a couple properties I have now that I know, like, for example, that are on the thirty year that when my my arm is up, okay, I can refi. I can probably pull out a decent chunk of change, but that chunk of change should go to unit turns, CapEx issues. So I can hold it another five to ten years, but that's a hard pill to swallow.

Mike DeHaan: [34:01] Yeah. Right? And when you do those those cash outs, you are taking those future gain. You're taking them right now. You know? A lot of people don't realize that. But you know, or you could be like a real shit gun. You go buy a boat.

Dylan Koch: [34:14] Yeah. The only lake near me is the like, body of water is the Ohio River, and I'm not going on that.

Mike DeHaan: [34:20] It doesn't matter if you use the boat. You just have the boat.

Dylan Koch: [34:22] Oh, yeah. Can put it on Instagram. What does that mean?

Mike DeHaan: [34:26] Yeah. Yeah. It'll be interesting. I don't know. The conference was like the big takeaway though is focus on what you know right now. And if you hate going through like the thirty year lending process, better get used to it because it's only gonna get tighter. And especially now that the exit on a lot of these DSCR loans is these securitizations, which are very, very similar to how conventional loans have typically been traded, we're going to start to see like, just like we already have, the gap between what a conventional loan feels like and a private investor DSLR loan feels like, they're going start to be very, very similar. Right? Like just going through the whole process, if you're gonna ask for similar information, you know, it's going to be just as much of a colonoscopy getting a property, a loan on your rental property as it is on your personal residence.

Dylan Koch: [35:09] Well, I think the only thing you guys don't require now that a conventional does, at least the last time I did one, would have been like tax returns, maybe w twos.

Mike DeHaan: [35:18] Yeah. We don't don't require that. It'll look at but we do look so that's also because you have money. Right? If people don't have a lot of money or they're it's like a negative DSCR property, we absolutely ask for their income. So if they're trying to refinance a property, it's gonna go into a negative DSCR or it's gonna be really, really tight. And they only have $15,000 to their name all the time. But, like, hey. What do do for a living? Like, we don't ask you your tax returns, but we do wanna see that you have money coming in on a regular basis.

Dylan Koch: [35:43] That makes sense. I I I can't refute that. So

Mike DeHaan: [35:46] Right on, guys. Thanks for hanging out with us today.

Dylan Koch: [35:48] Share the

Mike DeHaan: [35:49] show with your friends if you like, if you want them to be maybe smarter. You know? I feel like we talk about stuff that's most people don't know about, but I don't know. Maybe maybe we're at the dumb ones, Dylan. Maybe. So my my Facebook post that went semi viral, I don't know, 700,000 views viral. I feel like that's pretty good.

Dylan Koch: [36:04] I feel like that's pretty viral. Yeah.

Mike DeHaan: [36:06] Most of the comments that were on it because so basically what I said is like, kind of we talked about in the show, owning property from a cash flow perspective for the long term is very kind of dumb, and you're gonna have all this maintenance and stuff that's gonna eat it up, the tax rate increase. I basically sort of outlined what we talked about here. According to most of those comments, I am the dumbest person that has ever lived, and I am so wrong.

Dylan Koch: [36:25] My favorite comment was, maybe you're just bad at this. Right. Yeah. I think I liked it. Some of them

Mike DeHaan: [36:35] were awesome, dude. It was so funny. People were getting heated. And then like people were some of these people were saying things like, that's because you only buy slumlord properties. If you bought a class properties in nice neighborhoods where the rents always go up, you wouldn't have this problem. And I was like, literally nothing in your statement is true. I don't buy slumlord properties. No. Rents don't always go up, and the value doesn't always go up in those neighborhoods either. So what are you talking about? He never responded to me.

Dylan Koch: [36:59] I think that not to go into tangent, but if you would take the average age of the people who commented, they're all probably in their forties and fifties who bought properties 2010 to 2016. Right? No matter what they bought, it made money. The market bailed them out. Right? And so they have this bias because they think they're God's gift to earth.

Mike DeHaan: [37:18] You know, or they're just internet warrior. They've never actually bought anything, they just spent a lot of time watching YouTube and scrolling Instagram and listening to Pace Morby and all these other dumbasses. Cool. Alright, everybody. Well, thanks for listening. We'll talk to you guys next time.

Speaker 3: [37:31] This episode is sponsored by Sir Lenzalot LLC, also known as SLA Capital, which if you didn't know, is Dan and I's private lending company. So, yes, we are sponsoring our own show, but what you're gonna do about it? It is our private lending company that offers hard money and DSCR loans to real estate investors of all types. So you

Mike DeHaan: [37:48] can be a new investor,

Speaker 3: [37:49] an experienced investor. You can be buying flips. You can be buying rentals, whatever. We can do everything. And not only that, but the rates that we offer are just as competitive, if not cheaper, than pretty much every other company out there. So whatever big company you've been working with, bring us their term sheets, and I guarantee that we can probably beat it. We have the same connections they do. We just don't have all the overhead and middlemen. So if you wanna come and check us out, go to slacapital.com/keys, and I will know that you came from the show. And by seeing that you

Mike DeHaan: [38:16] came from here, when you

Speaker 3: [38:17] get the closing, you will save $500 on your first loan with us. So slacapital.com/keys, we would

Mike DeHaan: [38:23] love to fund your next deal.

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