Track These 2 KPIs to Transform Your Real Estate Business

Mike DeHaan: [0:00] Really quick before the show starts, in case you haven't heard, we have a growing community of investors called the scale community, which is full of people learning to make massive income with their real estate businesses, so they can reach financial freedom a little bit faster than building a rental portfolio solely over time. Because honestly, that takes decades and who has time for that. So if you're an investor who is serious about growing and creating a scalable business without needing to be a slave to it twenty four seven, then go to collectingkeys.com/scale and apply. And if you're a good fit, we would love to have you join the community. So again, collectingkeys.com/scale, go ahead and apply, and see if you're a good fit. If that does go into effect, all of a sudden, if you're doing any sort of real estate with long term projections, or if you are doing multifamily real estate that is its valuations are based off cap rates that is expecting some kind of growth, this will absolutely affect your upside potential on that. What's going on, guys? Welcome to today's episode of the collecting keys podcast. Today is Wednesday. This is the off market operator update. So I'm calling to show that. And if you're thinking...

Dan Austin: [1:16] We've operated that, right?

Mike DeHaan: [1:17] Yeah. We did. If you're thinking that sounds like another real estate operator show, Cole Rudd Johnson's, because I saw that he abandoned it on all of his socials. So, Cole, I'm stealing it from you. If you have an issue with that, you can go ahead and send me a DM on Instagram at Mike underscore Invest. But this is your first time here. This is the show you should make massive income, not just passive income with your real estate investing business. And our new goal is to help 2,000 real estate investors build 7 figure businesses. So if you're interested in growing or scaling a business, this show is for you. Welcome. And on these Wednesday shows, we do a deep dive into kind of what is going on in the world of off market real estate, specifically real estate investing and people doing it at a high caliber level. And so we dive into news, things that you should probably know, and just overall market conditions if you are a real estate investor trying to scale a business. And so I'm Mike DeHaan here with my cohost, Dan Austin and Dylan Cook. Hey, And Dylan, what do you have for us today? Because we have a handful of things to dive into.

Dan Austin: [2:17] What did you bring?

Dylan Koch: [2:18] Yeah. No, we got a couple of things to talk about today, so I'm looking forward to it. But the first one, as we kind of teased last week, is like the most successful operators I know are very data driven. Right? And they let data decide their decisions and vice versa. And I think what Peter Drucker is the famous guy, says what gets measured gets managed. So I wanted to kind of dive into KPIs, specifically what off market people should be looking for. In my opinion, like cost per lead and cost per deal are probably the two most important. But also we can even get more granular of, you know, what marketing channels, how that changes it, your profit per deal, if that changes. Okay. But I'll let you guys kinda run away with it, and how you guys are managing your team, and what you guys are looking for across all your different markets.

Mike DeHaan: [2:57] Sure. And I'll say that when comes to KPI conversation, if this thing sounds boring, don't turn it off. There's a couple different reasons to be aware of your KPIs. A, so you can actually make decisions with your business in an analytical fashion, kinda like you tease you that Dylan, not like an emotional fashion. But also too, when you are getting pitched things on social media Mhmm. Or by marketing companies or by coaches or by communities or by whatever else. If you know the basic fundamentals of what a successful real estate investment company looks like, k, then you can actually know if they're full of shit or not pretty easily. And if you've listened to the show over the past, don't know, couple of years we've been doing this, you might hear when Dan and I get fired up when we had a guest on the show previously, and we would dive into some of their numbers. And they would have numbers that were on track because all of a sudden, we would know that they are verified versus we get some of the other people that come on and their cost per lead is crazy low. Their, you know, lead gen per deal is just off base from what it should be. You know they're full of shit because all the people that we have verified are good operators. We kinda have the same numbers or at least we're on, like, the same ballpark. Right? You know? And and even you, Dylan, versus, you know, where we are, like, we have vastly different scales of businesses in terms of, like, our team size and everything else.

Mike DeHaan: [4:13] But our cost per deal are relatively similar. Like, it's not like, you know, one of us is 25% of the other one. You know? Because ultimately, it doesn't fundamentally make sense. Every business has market standards. And if anyone is outside the market standards, it means they're either either lying to you or they're not sharing exactly what they're doing. And they are

Dan Austin: [4:31] Or they're doing something illegal.

Mike DeHaan: [4:32] They're doing something illegal.

Dan Austin: [4:33] Yeah. One thing I've noticed too is, like, just to to preface everything like you're doing, Mike, is, like, if things don't sound right, they probably aren't. I remember when we were starting out and you'd be looking at stuff on online or talking to other people, you're like, yeah, I just don't know how they're doing that. That much more better. Like, are they doing that? And in reality, none of they were. And it was just talk and it was fluff. And then you get into business, and you start realizing what those benchmarks look like. You talk to other solid operators that you trust, and you start getting that weather vain for what good looks like. And then you stop envying or thinking that other people are doing that much better because you can either say either they're lying and it's all bullshit or they're just, you know, actually doing well. It's just not as well as you think it is because, you know, you only hear the the wins a lot of times when it's external. And if

Dylan Koch: [5:19] you're in the beginning of all that too, like, that could bode your confidence pretty well because you could get down on yourself pretty quickly

Dan Austin: [5:25] like Totally.

Dylan Koch: [5:26] Why is my cost per deal not a thousand dollars or $1,500? What am I doing wrong? In reality, no one's is. No one's doing this at any type of scale. Right.

Mike DeHaan: [5:33] Yeah. So. And I think that the thing is is you don't actually know what your true numbers are for your business. Honestly, until you've been operating for, like, a year or longer Yeah. And you spent, I don't know, I would say, a $100,000 total on your business. Probably. Like, over the course of a year or or longer than that, then you can reflect back and see what your real numbers are because it's kinda like when you're doing cold calling. Right? You know that if you cold call enough people, you will eventually get a deal. Statistically, you could get a deal on your first ever phone call. Statistically, it could take your fifty thousandth phone call. Right? Like, the most extreme other way. And somewhere in the middle there, you're going to get a deal, two deals, whatever. And the thing that you need to figure out is what your average is after you get not one deal, but five, ten, fifteen, twenty over that period of time to be able to get your your actual metrics. And so when it comes to an off market business, I think there's there's really... I would say the two largest ones that I care about the most are your cost per deal and your close rate on your on your contracts that you get. A lot of other ones, cost per lead, you know, offers per deal, those sort of things, They'll vary a lot depending on kind of the lead generation that you're doing and how good your sales team is, how tough your market is, things like that. But cost per deal and your close rate seem to be pretty universal, what those look like across everybody. And so it'll go up as your business kind of grows, and you tend to have more inefficiencies.

Mike DeHaan: [7:03] And so for us and for, like, a lot of, like, the more skilled operators I've seen, the typical cost per deal is typically between 4,000 to 4,500 right now. For people that are single person operators or, like, small teams, like, less than three or four people, they seem to be in that, like, 3,000 to 4,000 range, kinda depending on the market. And then across the board, the typical close rate of an aggressive company that is taking down a lot of appropriate shots is typically around 70%. So that means that 70% of the deals that they're signing are actually closing. And anyone that is significantly below that, it means they're probably not making very good offers. Anyone that's significantly above that, if someone tells you that they're doing, like, a huge amount of volume and they're significantly above that, then they're probably full of shit. If somebody's doing little bit of volume, like, you know, 100 deals a month and they're significantly above that 70%, they're probably not taking as many shots as they should.

Dan Austin: [7:58] Or they're a person that just closes on every

Mike DeHaan: [8:00] Or the person that closes on everything.

Dan Austin: [8:01] Close on everything as in as in you will not drop a contract, and if you can't wholesale it, you'll still take it down and flip it, which there are operators out there, which is fine. But some people will do it at all costs, even if that means they lose money. And so then what that skews your close rate, because you have a 100% close rate, technically. Right? Sometimes too, in that in that close rate, why people like, well, why are you trying contract? So you can't deal. Like, there's nothing you can do. Right? There's there's title issues that you just can't overcome. Or you get a property under contract, and lo and behold, the guy you signed a contract with doesn't own it. Shit like that happens in this in this business. So naturally, you're gonna fall in that 70 to 80%.

Mike DeHaan: [8:35] Exactly. Or, I mean, properties in worse condition, they tell you. Right? Very, very common. Or something happens over the course of the transaction. Actually, I made a post recently. I actually shared it from somebody. Can't remember who I shared it from talking about if you're dropping, like, the price or or to renegotiate it right before closing your dirtbag.

Dylan Koch: [8:52] Oh, yeah.

Mike DeHaan: [8:53] And somebody here in Spokane actually messaged me, and they said, actually did that recently. But the reason was that there was a tenant in the property who completely trashed it the day before closing.

Dan Austin: [9:03] Yeah. That's out of your control.

Mike DeHaan: [9:04] That's out of your control. That's valid. And so the opportunity

Dylan Koch: [9:07] And why you have final walk through is too, by the way.

Dan Austin: [9:09] Yeah. Exactly.

Mike DeHaan: [9:10] Yeah. There's always always conditions, things... Or, like, honestly, sometimes if you're actually trying wholesale, you can't find a buyer. You know? If you're in your due diligence period and you need to drop the deal because of that, that's part of the game. Like, it sucks. You should minimize that as much as possible. That it... But that is something that happens if you're if you're doing enough business.

Dylan Koch: [9:28] I think with that though it's just set the expectations right at the seller. Especially if it's like their primary residence, and they're like yep pack up your bags, know we got this thing sold, and you have no intention on closing it if you can't find a buyer, like that's when I think it it gets a little on the shady side of the gray area.

Dan Austin: [9:45] Going back to the KPIs, like I wanna step back to the the cost per lead discussion, because it's an important metric, but I don't wanna overlook what Mike said about it's not as important as like cost per deal. And the reason why Mike said that is because cost per lead is going to vary between lead source, and people get caught up and and you could very easily, if you're looking at it that way, you're like, my cost per lead on cold calling is vastly lower than my cost per lead on direct mail. Direct mail is a higher cost lead source. However, your cost per deal may be different on the back end of that thing, and that's what matters. Because if it takes a 100 cold call leads to get one deal versus it takes, you know, 20 direct mail leads to get one deal, your cost per deal will not actually vary as much between the two lead sources, because you're having to spend as much, you know, dollars times a 100 versus whatever that math works out on a lower number for direct mail leads. So it's important, I think, to look at that though, because you very well might say, hey, I need to get some leads in here. So what is my lowest cost per lead? And you might think, does that matter? Well, when you're first starting out, leads matter. Talking to people matters, and helping maybe a new person on your staff if you're hiring get good swings.

Dan Austin: [10:56] You don't wanna be spending a ton of money on bail just for them to throw down the drain. So that's, you know, one use case for that. But the cost per lead is a great metric to monitor. But remember, that's at the top of your funnel. And ultimately, you want to know how much money you need to spend at the macro level to get a deal. So if you're only cold calling, who cares what your cost per lead is, right? What is your cost per deal? If it's $3,000, $4,000, you just need to know you need to ramp up your cold calling to get to that level, to get two deals, to get three deals. And you might get a little bit better over time, so your cost per deal, instead of going to 4,000, might be 3,800. So you're saving a little bit of money because you're you're getting more efficient at it. But really, that's why we're looking at the back end of those metrics to understand how much money you need to put into the top end of your marketing machine on the back end to close deals.

Mike DeHaan: [11:42] And if you are trying to figure out what that number is for you or what a realistic expectation is, is look at people that have businesses that are operating and that you verify at scale and just try to hit their numbers. And the perfect example of this is I did a a little coaching call over the weekend with one of our scale members, and they're trying to figure out their first deal still. Turns out over the last several months, they have spent $12,000 total that they've spent on marketing over the last, you know, I think it was, like, six months or so. And they're trying to figure out why, you know, they've had a couple shots, they've missed out, things like that, but when that first deal is going to come. And it's like, well, you're really spending $2,000 a month on marketing. It's like, yeah. And you sure you should have had one total, I guess, out of, like, that 12,000 that you've spent so far. But if you're just taking such small bites every single time, it's still gonna take you a very, very long time to get that initial one across the finish line.

Dan Austin: [12:33] How much money would we spend on marketing to get our first deal?

Mike DeHaan: [12:36] 30,000.

Dan Austin: [12:37] 30,000 to get our first deal.

Dylan Koch: [12:39] Which is about what I was too.

Dan Austin: [12:40] And Dylan, you were the same way. And that's coming from folks, would say, I know us, and I know Dylan, very skilled operators at this point. We've done a lot of deals, but you suck at first too. Like, you just kinda suck.

Mike DeHaan: [12:51] Yeah. That number seems to be pretty common too.

Dylan Koch: [12:54] Yeah. During my specifically, that cost per deal will go down actually the more you do it because you'll start cycling through those leads that take three, six, nine months, or maybe years to to close. Right? And so if I closed the deal, I think last week, that was originated in 2022. So how do you like manage that? Right? Yeah. Exactly.

Mike DeHaan: [13:11] And as you build up like that lead snowball, you know, and you can keep like sort of like chipping away at it, it will bring down your total cost per Yeah. Per deal as you just go over time. Because the the leads you generate today, very realistically, could be a deal a year from now.

Dan Austin: [13:27] Yeah. Yeah.

Mike DeHaan: [13:28] Generally today in order for that to be an opportunity.

Dylan Koch: [13:30] Do you guys do anything with your cash conversion cycle that your other operators talk about? Basically like Did I learn what that word was from a scale member at KeyzCon this recently? Hidden not the west. Reference. Basically, if you spend $5 on direct mail, when do you expect to get that back is kind of like the the question to ask. And that's a very hard question to really answer in this business, especially with direct mail.

Mike DeHaan: [13:53] I would say that we don't do that just because we've been doing this business for so long now that we, like, just have an abundance of stuff at all times.

Dan Austin: [14:00] It's like a a mental note as well. Yeah. We make mental notes of, like, okay. We're gonna have, like, 500 k going out for these projects. We need to spend this much money. We expect, you know, 200 this month, 200. You know, you kinda have a mental note. We don't forecast. We've tried in the past, but it is hugely important because what happens is you get so excited about deals in front of you that you run out of money, and you're like, oh, crap. I can't market or I can't operate or something. And so, Mike and I learned early on because probably just because we sucked at everything. So we're like, we just need a lot of money. And so we started lining up like lines of credits, HELOCs cash in the bank, and we always personally had cash reserves. So we never like starved the business because neither of us were willing to put money into it, because we have those reserves and we just kind of mentally committed that stuff. So I think mentally committing cash and reserves and lines of credit is very important and not going 100% mask because that's when we always see people get their asses kicked. Cause eventually, you'll get your ass kicked on something. And if you're at 100% consumption of your capital reserves, you have no backup plan. And that's when you get the... I get calls from people like, hey, do you wanna come in on this deal? We gotta finish the rehab.

Dan Austin: [15:07] We're looking for another $40. It's like, fuck no. I don't want anything to do with that. I've been asked that by other investors. It's like, that's the wrong person to invest when they're halfway through a project or they

Mike DeHaan: [15:16] need more money. Totally. I hope you guys are enjoying this episode. We are seriously trying to grow this podcast so that the voice of what it really takes to grow a real estate business becomes kind of the norm versus the guru get rich quick b s that everyone is fed on a daily basis. With so many podcasts out there, it is hard for us to get discovered on our own. So a quick ask, please share this episode on your social media accounts. Be that a real story, whatever. And if you tag me at Mike underscore invest, then I will give you a follow. And I will also send you a DM so that we can have a little chat about your business and any ways I could potentially help you grow. So again, please share it on your socials. Tag me at Mike underscore invests, that's with an s at the end, and I'll follow you and we can have a little DM and convo about your business. And maybe I can help you grow a little bit. Or you could just say what's up to that'd be awesome. But appreciate everyone, and thanks so much for helping us grow.

Dylan Koch: [16:11] And the other thing, let's say you're one to three deals a month, but you wanna get to five, and you know that your profit per deal is 20 k, right?

Dan Austin: [16:17] Mhmm.

Dylan Koch: [16:17] Well, you could always reverse engineer

Mike DeHaan: [16:19] Mhmm.

Dylan Koch: [16:19] How much marketing that you need to spend to try to get to that number. Right? Which is why it's important to kinda know some of these things going in.

Dan Austin: [16:25] Yeah. The other one on that note too, Dylan, is the contract to close. Part of that cash conversion cycle is, when you get a property under contract, how long does it take you to close? And like, you can also go back and look at when a deal comes into your pipeline, how long does it take to close. So maybe it's sixty six days. So you know on average, if you're spending money in marketing, say I'm gonna drop $5, it's gonna drop this Friday, it's... They're gonna start calling me on Monday. From Monday, on average, it's gonna take you sixty six days to hit your average profit per deal, which might be 20 k. So in sixty six days, you'll get a four x return on that marketing, at least four x on that one deal.

Mike DeHaan: [16:59] And that's why people tend to really struggle with cash flow in this business. They don't account for that. Right? Exactly. They're not understanding that the stuff that they generate right now, they're prob... Even if it goes well, they're probably not gonna get paid for several months.

Dylan Koch: [17:10] And then,

Mike DeHaan: [17:11] you know

Dylan Koch: [17:11] Well, they don't wholesale it. Well, they decide to flip it. Yeah. Exactly. Yes.

Mike DeHaan: [17:15] Well, if you're worried about getting paid right now, you should not be flipping anything.

Dylan Koch: [17:19] Totally. Yep.

Dan Austin: [17:20] Yeah. That's that's so much truth to that. Holy cow. Yeah.

Mike DeHaan: [17:23] Cool. Alright. Let's move on from KPIs. Me get into some news, because we actually have some pretty interesting things to go over. And we've had several different legislation pieces pop up over the last little bit. Which one do wanna start with, Dylan?

Dylan Koch: [17:35] The one that I think you sent me today, this is the head... I'll read the headline for everybody is this Yeah. Biden calls for rent control, which is obviously a kind of a click baity title. But as you dive into this, it's kinda like the who does this really apply to kind of a thing, and you know, is this, the other part of that is, is this just another step creeping up, you know, government taking another step into just being involved in the housing market and what could this be as a precedent. But to set the stage, it's Biden announces his rent control plan to limit rent increases to 5% per year for corporate owners with the corporate owner definition basically being 50 units or higher. And this only applies to existing housing stock, not stuff that is going to be or currently being built.

Mike DeHaan: [18:22] And I wanted to talk about this one mostly because I've been... I've seen it being shared around social media by people that have, like, eight properties, and they're super freaking outraged by it. And, like, to me, that's the same as when you have the person that's, like, so blindly Republican that they freak out about tax increases when, like, they work at $35,000 a year job. It's like, don't don't... It's not gonna affect you. Don't worry about it. Right? And the thing is with this too, it's only temporary. Right? They're saying they're gonna only do this for two years, which is pretty interesting.

Dylan Koch: [18:52] So that's what they say, but the TSA is supposed to be temporary too. Right. Exactly.

Dan Austin: [18:58] I get patted down.

Mike DeHaan: [19:00] That's true.

Dan Austin: [19:02] I got three points here that I I wanted to share that I think. These are my opinions on this. One is, this is a typical politician, Hail Mary, let me grab some votes. What is... What's... What are people saying on TikTok and Instagram and Reddit and all these social... We can't afford rent. We can't afford rent. And politicians on both sides, they outdo this. Right? It's like, what are the average people screaming about that aren't even the average people, they're just like the the loud 1%? Like, can't afford things, so let's get rent control. That'll get people to connect to this as a value add, as me being a value add. I do think that there is, if this is a real policy and a real practice that goes into effect and becomes the normal, it does have trickled out effects. So you say 50 plus units, doesn't bother me, right, like I don't own big apartment buildings or whatever. However, when they can only raise their rent so far, guess what, you can't raise your rent any farther past that, because nobody's gonna rent from you. Right? So if you want to, if the market's demanding an eight or 10% rent increase, but all the big dogs in town can only do five, there is some level of trickle down that I think it does actually slow rent growth. Again, I don't know that this policy itself will ever go into effect in that manner. I think it's kind of a bullshit like Hail Mary type vote grab.

Dan Austin: [20:15] And then the last thing is it's a stupid solution. Rent control is the dumbest thing. Like, doesn't matter who you are, that that's putting a Band Aid on something, like, on the wound that already happens instead of stopping the wound from happening by implementing policy that actually helps reduce the cost of house, which is what we want.

Mike DeHaan: [20:33] Yeah. Well, the the problem is is they're not regulating the expenses that increase for landlords.

Dan Austin: [20:38] Totally. Everything is expensive. Right?

Dylan Koch: [20:40] Why do think rent went up? Property taxes, You know, it's a big...

Dan Austin: [20:44] It's a huge one. Insurance is the other one. Property tax and insurance alone, every investor... I mean, we we we're all in GoBundance. We hear people talking in the in the chats about like, how their insurance company just dropped them completely. Like, just crazy shit.

Mike DeHaan: [20:56] Yeah. I mean, especially the last couple years. I mean, my my personal cash flow off, like, the handful of properties I own was, like, less than halved. Like, it it got just axed by the property tax increases.

Dan Austin: [21:06] Isn't that crazy?

Mike DeHaan: [21:06] I had one property as a triplex that I own. The property tax increase was like... Was it like $6,000 a year, like $500 a month? It just took away the vast majority of the cash flow on this thing.

Dylan Koch: [21:17] Yeah. All of that. Totally. And then you

Dan Austin: [21:19] have, like, local cities like we have here in Spokane where you have, like, you have to get a license per unit, and you have to, like, get inspections, and then you have these repair costs that go up, which isn't all bad in itself, but it's an additional cost. You add all these regulations around it, and then you have macroeconomic regulations that affect, like, the cost of everything. And then you're like, oh, by the way, we're gonna cap for for you guys, we're gonna cap what you can make. But all the other businesses, don't really care. But for real estate, because that that is something people which I do believe, like, everybody in America should have the right to housing, but at what level? Right? Like, we're in like a best country in the world, and we have people that can't afford housing. I do think that's a problem. However, the way to do that is not more regulation.

Dylan Koch: [21:59] Dan, like, to your point, one, there's more renters than there are homeowners, so like, the political graphs make sense to me. But the regulations they should be going for is like, how do you just provide more affordable housing? And rent control has proven over and over again it doesn't work. They've tried this in history before. New York's had rent control since 1943. Like you said, it's a political grab to me, and I don't think... I actually don't think this will even pass in the first place. I don't

Dan Austin: [22:25] think so. It's kinda like the student loan things. It gets people. It gets the Republicans all riled up. I can't believe they're gonna pay off their student loans, but then there's a a niche group that it may actually help. But all the... You know, Biden's doing that or the Democrats are doing that because they want to show they're doing things for the constituents. Unfortunately, politics has distilled down to, like, what are you doing for me so I vote for you kind of thing. At least that's the perception that I see in the media anyways.

Mike DeHaan: [22:49] Yeah. Either way, something to keep an eye on though. Yeah. Because honestly, if that does go into effect, all of a sudden, if you're doing any sort of real estate with long term projections, or if you are doing multifamily real estate that is these valuations are based off cap rates that is expecting some kind of growth, this will absolutely affect your upside potential on that.

Dylan Koch: [23:12] Probably. And this ties into kind of our probably last and final topic for the day. But, basically, the government sponsored loans, Fannie Mae, Freddie Mac, basically this has been in the works since 2023 to take place probably in 2025. But if you are a multi family investor or a big commercial investor, if you get a loan from them, you have now more stipulations for your tenants than you did previously. So this says that the federal housing agency announces tenant protections that will be opposed on all multi family properties with financing from GSEs, which is Fannie Mae and Freddie Mac. So new properties signed after 02/28/2025. As of right now, government sponsored entities hold about 48% of all outstanding multi family mortgages. But here's like the protections that they're saying, they're saying thirty day written notice in advance of any rent increase, thirty day written notice in advance of any lease expiration, and five day grace period for any late rent payments. It's like, this is what they're proposing. So for me, in my home market of Ohio, these are pretty much on par with what's already in place.

Dan Austin: [24:22] That's way better than we have in Washington. Ours is sixty day rent increase, or a 120 if you don't tell them before sixty days of lease expiration.

Mike DeHaan: [24:33] Yeah. So I guess with this overwrite state stuff?

Dylan Koch: [24:36] I think isn't the rule that it always goes with the more stricter policies? Yeah. If your state is more strict, you'd follow state. But if it's not, you'd follow federal. Totally. Yeah, man.

Mike DeHaan: [24:44] Yeah. I mean, what they're probably trying to get away from is some of these states where you can just like show up and just like wrap them out by the hair and like throw them out in the streets.

Dan Austin: [24:51] I mean, when you think about it, like, there are some like reasonable things that are unreasonable, like things, like policies. Like, it's kinda shitty to tell somebody twenty days before their leases expire that their rent's going up or, you know, just not communicating it all, then all of sudden they get a bill, which is in some states what it has been. Granted, I think that there has always been, like, an unwritten, like, I guess, contract between tenants and landlords. Like, the landlord's not gonna try to screw the tenant if this tenant doesn't screw over. Like, if your lease is coming up, right, as a renter, you kinda know. At least I did when I was a renter. I just always expected they're going to increase my rent. Right. So there was that there, but it can get out of hand.

Dylan Koch: [25:32] The two big things that I think this touches on is one, should it be a federal decision or should this leave up to the states like it currently is? Then two, the point is if you are a multi family investor and you're going to get your financing options, the private lenders might be a little bit more appealing to you now if you don't have these regulations from a government sponsored entity. So the theory is okay, if I'm a regional bank or something, or if I'm a local lender, I might be able to charge maybe a fee or a little bit more expensive of debt because I don't have these regulations that the government does. Right? Because the landlord might not wanna deal with some of those items.

Mike DeHaan: [26:09] It's kinda interesting because I feel like this is the most recent thing we've talked about that seems to be like pushing the government away from mortgages a little bit more. Because last week, we talked about the forty way... Forty year mortgages. Right? And how those are not... Those are gonna be held in house by banks. And now we're talking about this. You know, it's with larger multifamily stuff, but you're right. Like, it will push people towards going to private lending institutions. Yeah. I'm wondering, I'm like, is the government, like, secretly trying to get away from the mortgage industry a little bit? Because now they've locked in trillions of dollars and, like, 2% mortgages. Right? And they've kinda shot themselves in the foot. And they also have all these institutional buyers bringing in trillions of dollars of money who are not gonna be getting federal mortgages most likely because they're gonna be just holding them on their books for yield. Because they look at things at, like, a macro level that none of us even have data for.

Dan Austin: [27:07] Yeah. There's a reason why. Like, there's, like, the... You're right. There's the unrest about, like, this is bullshit policy, whatever, for whatever your reasoning is, like, the the kind of whip effect you're on the end of the whip, you're like, this is kinda crazy. But I do think you're right at the at the macro level. There could be a backing out of trying to unwind with some of the policies. Right? Like the the policy that was recently put in or at least put out in front of voters or something like that, that you could re... You could refinance your your mortgage with the current... The existing interest rate you already have. So you do a cash out refi and keep your current risk rate. What that is is that's trying to drive money into the system, trying to keep the real estate industry moving. Right? But so you see all these different policies that are focused around, like, government subsidized loans. Why is what you should be asking? Not like what?

Mike DeHaan: [27:56] Yeah. And and, you know, what does that potentially mean? Because it would be interesting if, like, I don't know. Now now I'm getting in, I don't wanna say, like, like, conspiracy range sort of like

Dan Austin: [28:04] No. Just understanding what's driving the macroeconomics, dude. You're you're an economist.

Mike DeHaan: [28:08] Yeah. My hypothesizing is, like, is there a movement by the US government to try and get away from the mortgage being one of the largest cruxes of their GDP, right, of actual

Dan Austin: [28:18] Well, it definitely is, like, the linchpin of our American economy at this point.

Mike DeHaan: [28:23] It is totally. I mean, it's the number one wealth generation thing for for most people.

Dylan Koch: [28:27] I think there's a lot of the blacks, like, black stones or vanguards or the people who are topping on the shoulder of the the people for these two, but they're kinda just looking at opportunity costs. If they locked in debt at two to 3%, and now they can buy their own debt at five and a half percent, or even like sovereign debt at five or 6%, I just think when you multiply that by trillions of dollars, it's like what is their opportunity cost That's a really good point. Of where they're gonna put their money. Mhmm.

Mike DeHaan: [28:53] Yeah. Don't know. I'm not sure what what all it's it's going towards. It's just interesting to see these keeping continuously coming up, like over and over and Yeah. Over

Dylan Koch: [29:01] It'll be interesting to see this stat that says like 48% of outstanding multifamily mortgages in q o twenty twelve... 2024. If we look at a year from now or two years from now, what that percentage is. What percentage from 48 down to whatever? I mean, will

Dan Austin: [29:15] say this personally. Like Mike and I, we operate in Washington, and honestly most states have policy around like this. I think it's kind of odd from the mortgage perspective to manage, like, how you manage your tenants essentially. But, like, it doesn't affect how we operate at all. Having all these tenant protections in place, Mike and I have always said this. Like, I do think that there is... There's some risk when you have a very, very tenant friendly state like we have in Washington. The counter that risk is you have to operate your business like a freaking business, and you have to understand you... Do you think if BlackRock had to deal with this and we're managing tenants, that they would let a lease lapse over that time without initiating a rent increase? No. Because somebody smart is gonna be like, hey, we could increase our revenue by 3% if we just stop letting these things lapse and telling tenants in advance. Right? And so I think personally just the policy won't really affect it too much. But for the macro level with the larger conversation here, I think you're right. It will be interesting to see if that 48 goes down to 32 or 36. Don't know.

Dylan Koch: [30:13] If you're buying a multi family property and your operation, your deal is set on, if these implications will make or break the deal, that's a bad case scenario that you're in.

Dan Austin: [30:23] Totally. Totally.

Mike DeHaan: [30:25] Well, it's it's kinda weird though too because like, they're technically making their loans more risky.

Dylan Koch: [30:29] Yes.

Mike DeHaan: [30:29] Yeah. They should make it so that you can do whatever you want with the tenants. Socially and ethically, that's not correct. But in terms of covering the debt, that would make it so that the loans are less likely to default. Yes. But instead, they're making it more difficult for the landlords and the owners. Yeah. I don't know. Yeah. Again, it's another one of those things that you need to to keep an eye on. Right? And like like you said, Dylan, if you are getting into any of these larger assets and you are expecting to be able to do rent increases or anything with, like, a certain amount of speed, like, you need to be aware of this. And, you know, I'm thinking about all these guys that we know that are like, I do multifamily properties in the Rust Belt or in Southeastern States. If this was to go through, all that's gonna change. Like, the whole part where you go in and you evict all 60 people in, like, that slimy brothel, cracked in multifamily, you won't be able to do that anymore.

Dan Austin: [31:22] Yeah. Like Yeah. It takes a little bit longer. Yeah.

Mike DeHaan: [31:25] Yeah. Which, I mean, in those kind of properties, that little bit longer can hundreds of thousands of dollars across.

Dylan Koch: [31:30] Totally. Especially the carrying cost or something like that. Yeah. It's interesting, guys.

Mike DeHaan: [31:34] Yeah. What'll be fascinating will be if this trickles down to, like, residential stuff. Because that'll be very, very different.

Dylan Koch: [31:40] That's the thing. Like, are these things that they're building now, you know, next year they gotta come out with something for two to four units, then something after that, know. So that's kinda like the precedent that I think people are kinda to keep their eyes on. Like, how far in the cookie jar are they gonna put their hand?

Dan Austin: [31:53] Yeah. I mean, the you know, the risk is like it sets precedence, and then only... And that... You never peel back regulation, always just add. And then eventually it goes to supreme court, and they say whether it was valid or not, but either way, after ten years you got... You lost money or whatever happened to you for that period of time, you

Dylan Koch: [32:07] can't make it back. Totally.

Mike DeHaan: [32:09] Cool. Alright. Well, anything else finish up?

Dylan Koch: [32:11] I think that's it. And then we got a couple more topics ready for next week, but we'll touch on it then.

Dan Austin: [32:15] Awesome. Yeah. Cool.

Mike DeHaan: [32:16] Right on, guys. Well, thanks for listening. Please help us grow this show by sharing it with anybody who is interested in real estate or apparently macroeconomics, cause that's what we freaking are good at. Honestly, at is what we talk about now.

Dan Austin: [32:27] Yeah. We opine. We opine.

Mike DeHaan: [32:29] After Dan and I grab asking for two and a half years, here we are actually trying to make some English substance.

Dan Austin: [32:35] We are kind of smart. We just needed Dylan to let you guys know that.

Mike DeHaan: [32:37] I know. We just need Dylan to let us know what to talk about because I would say I would say that we generally kinda know, I don't know, how to analyze things. It's just hard to know what exactly to analyze because Yeah. I mean, I don't know. I don't I don't get my news from any sort of reliable source.

Dylan Koch: [32:52] These are getting pulled from

Dan Austin: [32:53] Reddit, Mike. So... Wikipedia. Yeah. Reddit and Wikipedia. That's Mike's...

Mike DeHaan: [32:57] Reddit's honestly pretty good. Like...

Dan Austin: [32:58] In college, Mike was like, citing sources, Reddit.

Mike DeHaan: [33:02] Yeah. I I mean, not

Dan Austin: [33:03] gonna dispute that. Mine is

Mike DeHaan: [33:05] just chat GPT. Chat GPT. Shit.

Dylan Koch: [33:08] That's bad.

Mike DeHaan: [33:08] Yes. So awesome. Alright. Well, thanks for listening everybody. We'll talk to you guys next week.

Dan Austin: [33:12] See you guys.