August 8, 2023 • 22 mins
You're not just in for an informative episode but a wealth of wisdom on real estate investing trends and opportunities. Your hosts Michael and Andrew, roll up our sleeves to dissect the current state of the real estate market. We scrutinize the surprising resilience of the market despite the indicators suggesting otherwise, and unearth potential hotspots for investors amidst the projected downturns. Listen in as we delve into the boom of growth in the larger cities, predominantly in multifamily apartment complexes, condos, and class C apartment complexes. Plus, we reveal how savvy investors can ride the wave of markets that have strong job growth and tax benefits.
Venture with us into the second half of our episode as we delve into the challenges of providing affordable housing in today's market. From the high cost of construction to finding willing sellers, we unravel the complexities of this sector. But don't despair just yet! We share our insights on the hidden potential of manufactured homes and the opportunities that the current interest rate landscape may offer. And for those with an eye on the future, we discuss what economists predict about travel and spending habits come summer 2023. With Labor Day as a key date to watch, this episode is jam-packed with insightful tips, strategies, and forecasts that could guide your next move in the real estate investing world.
Onward!
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
This is the Legacy Wealth Code podcast helping you
build long-term wealth and alasting legacy through real
estate investing, tax strategiesand motivational stories from
some of the most successful andinfluential people out there.
Here are your hosts real estateinvestor and entrepreneur,
Michael Knoppam, and real estateinvestor and attorney, Andrew
Hook.
Speaker 2 (00:20):
Hey guys, welcome back to another episode of the
Legacy Wealth Code podcast.
I'm Michael Knoppam, here withmy partner and crime, andrew
Hook.
Speaker 3 (00:26):
Hey guys, how are you and?
Speaker 2 (00:28):
we are delighted, on a Friday afternoon, to bring you
some cutting-edge content aboutsome of the deal trends that
we're seeing, what we're buying,what we're looking at, what
we're staying away from, andthen just what we're hearing.
You and I talk to people allthe time in the real estate
world mortgage people so youhear the doom and gloom and then
(00:49):
you hear positivity and I thinktrying to decipher where to
draw the line in the sand, Ithink, is probably a struggle
for most people, including ussometimes.
Speaker 3 (00:59):
Yeah, I think to me and a lot of the conversations I
have I think question mark isthe best thing that comes to
mind at the time being is like Ithink certain markets you've
already seen downturns and ofcourse other markets, like the
market we're in Tampa, hasreally held its own.
I mean we've seen some slow downbut it almost defies the odds
(01:21):
and I feel like they're sort ofthis kind of stubbornness in the
economy, in the real estatemarket, that sort of.
There's all these signs andindicators that things should be
worse than they are, butthey're not really that bad yet,
or at all, and so that'sleading to all these questions.
Speaker 2 (01:37):
And it is kind of mind-boggling.
You look at some interest ratesdoubling, basically from where
they were a year, just over ayear ago, and people are still
buying these houses.
And at what point does thatkind of turn around?
And I think for us beinginvestors, you're always kind of
waiting for that downturnbecause hopefully that's where
opportunity presents itself.
Speaker 3 (01:58):
And you keep hearing that there's so many of these
people that are waiting for aplunge and like, oh okay, we're
going to wait for the market tocrash and the 2009-ish style
crash.
I don't honestly believe we'regoing to see a crash like that.
I think you're going to see aplateau or retraction Some
markets.
You're going to see maybe a10-15% drop.
(02:20):
I don't see these things.
I don't see prices of homesfalling 40% or more.
Speaker 2 (02:27):
Right or rent going down.
I mean we still have a housingshortage in the country, so it's
funny because Tampa's got somuch stuff going on.
I went to Nashville not toolong ago same thing.
There's 20 cranes up in the airand I think you talk to people
across the country.
It sounds like big cities Imean almost all of them have a
ton of growth happening.
(02:48):
A lot of it is aroundmultifamily apartment complexes,
condos, so you and I talk aboutthis a lot.
I still think that there's goodvalue in the Class C apartment
complexes that really have justit's a mom and pop that have
owned them for 30 years.
The rents are way under market,but that's because the
(03:09):
condition of the property isn'tgreat.
So I think there's anopportunity.
Obviously, the catch 22 of thatis make sure you understand how
to price out your deferredmaintenance costs.
Speaker 3 (03:19):
Yeah, I mean definitely that in interest-only
loans and variable rates andsome other things that can snag
you in that style of deal.
But I think the deferredmaintenance typically on Class C
is going to be.
You have to go in with youreyes open and understanding of
that.
But I mean, at the end of theday, if you can take a product
(03:41):
and you can give people a safe,clean place to live, you're
never going to have a shortageof demand for that.
Yeah.
Speaker 2 (03:51):
I mean you and I.
We're looking at some dealsright now like the one in
Cleveland.
I think when we start thinkingabout building long-term wealth,
creating a legacy, which is thegoal of the Legacy Wealth Code,
there's a lot of opportunity inmarkets to get a good cap rate.
Like Tampa's probably not goingto give you a 15 cap on
(04:12):
something that's turnkey.
You might get a 15 cap onsomething that needs a ton of
work that you can patch together.
But like the deal in Cleveland,fully remodeled and current
rent is like a 14 and a half capand ARV rent, just because they
haven't raised it, puts it likein 17 and a half.
Speaker 3 (04:32):
Yeah, and I think again I mean so.
If you know the point oftoday's podcast, the thing is to
kind of understand trends andto see where opportunities lie.
And I think you know I startedhearing people talk about it
used to be Tampa was very much asecondary market, maybe even
borderline tertiary, but theywere looking at Tampa as kind of
(04:56):
a secondary market and startingthe conversation as to smaller
areas as tertiary markets to saywe gotta start looking in these
.
And this is I mean I think I'veheard this now for about four
or five years.
So some of those people werereally early on in that trend.
But I think now is, as you said, you're not gonna find stunning
deals.
Or if you find stunning dealsin a primary or secondary market
(05:18):
right now, they're gonna be aneedle in the haystack.
So it almost forces you intokind of some of these outlier
markets where and I mean some ofthe things I think you look for
where do you have strong jobgrowth?
Where do you have a town orcity that's holding its own?
Maybe they're reinventingthemselves somehow, maybe they
just continue to prosper in somefashion as to they've got great
(05:43):
weather, they've got great taxbenefits or something along
those lines to keep generatinggrowth.
But if you can find those areasthat are kind of outliers maybe
not primary or secondary citiesjump on them.
Speaker 2 (05:56):
Yeah, well, it's weird for us because we talk to
people in these markets and it'spretty much a norm there, I
think, for people to be gettinga 14, 15 cap.
So if you start to accumulateproperties and you're getting
that kind of return, I think thepart that well, I guess a big
part of the legacy wealth codeis the fact that we push tax
(06:16):
strategy, tax planning, takingadvantage of things like bonus
depreciation and costsegregation, and when you start
factoring that into your caprate because you are I mean it's
either you're gonna send thatcheck to the government or you
can keep the money.
So you start factoring in whatthat looks like from actual
dollars in your pocket, Likethis one in Cleveland is 650,000
(06:40):
.
So you figure, reduce out the20% for land, so you probably
have a $500,000 asset roughlythat you can run the cost sag on
.
So just ballpark numbers,probably around 200 and 220 in a
year, one deduction.
You start looking at that in the35% tax bracket, that's
(07:01):
$100,000 in our pocket.
So now when you look at thatreturn, you're getting 17% back
on your money from just the purerent standpoint, plus roughly a
hundred grand that either youstroke a check to Uncle Sam or
you take that and you canreinvest it in real estate.
Speaker 3 (07:19):
Right, yeah, no, I mean definitely wanna be taking
advantage of those tax plays,but so, outside of the kind of
secondary, tertiary markets andlooking at some of those areas
that maybe you weren't lookingbefore, what else do you think
are creating opportunities rightnow?
I mean, one of the headscratchers for me and I always
(07:41):
get people asking about how dowe start in on foreclosures or
how do we start on distressedproperty.
I'm still not seeing a spike onthat, at least locally, and I'm
not hearing the stories on anational level as to spiking
foreclosure rates or anythinglike that.
So I mean it kind of begs thesequestions as to like, where do
(08:02):
you, where else do you look?
And I mean, what are you seeingright now for that?
Speaker 2 (08:07):
I mean, I think that there's a good opportunity just
because the cost to build is soexpensive now in those prefab or
manufactured homes.
You know, I can't remember whatwe were I think it was a
podcast we were listening to andthey were saying that their
cost is like $80 a square foot.
You know?
Speaker 3 (08:25):
And I think that was even after you tie in and
install.
Speaker 2 (08:31):
So and we're talking to builders here.
Now, tampa is a littledifferent because you got flood
zones and you're having to buildup to code, et cetera.
$300 a foot, 250 a foot.
You know, when you and I builtthat first house in St Pete, I
think our hard number was wewanted to be at 200 a foot right
.
Speaker 3 (08:49):
Yeah, with land costs .
Speaker 2 (08:50):
With land and everything and we got pretty
close to it.
But now I mean even these bigtrack builders, I think probably
are above that price and thefinishes aren't great.
Speaker 3 (09:01):
Yeah, I mean I also.
I mean the manufactured home iskind of what we were talking
about a minute ago on the ClassC properties from a standpoint
of providing a safe, clean,affordable place to live and
locally in particular and Ithink a lot of areas around the
country we're starting to hearmore and more about affordable
housing.
But I was listening to apodcast this morning and it was
(09:23):
talking about one of the.
One of the guests on there wasa builder out of the Salt Lake
area in Utah and his comment wasyou know, our bread and butter
for years was like the not megamansion, but like borderline
mega mansion.
They were building 5,000, 6,000square foot homes in smaller
communities with very, very highend stuff.
(09:45):
Their press lately has beenwe're building a smaller product
that's more affordable andthey're flying off the shelf.
And I really think that there'ssuch an opportunity if you can
figure out how to giveaffordable housing options and
(10:05):
when I say affordable housing Idon't mean, you know, low end
stuff, I'm talking aboutliterally middle first time home
buyer.
Speaker 2 (10:13):
What are they gonna?
Speaker 3 (10:14):
Middle class type genre of the segment of the
population that has a need thathas to be met.
The challenge around that, asyou just said, is if building
costs are so high, how do youmeet that?
But at the end of the day Ithink you have an unlimited
supply of demand if you canfigure out how to answer that.
(10:35):
And I think the manufacturedhomes are great one, you know,
smaller footprint homes is a lotof what this guy was talking
about.
Today.
Maybe you're going a little bitfurther outside of the urban
core to get a little bit cheaperland, you're putting a smaller
property on or smaller house onthat property, but any of those
things that you can do to kindof try to tackle the cost and
(10:58):
the ultimate.
You know, not everybody canafford a million dollar home, of
course you know.
And so you gotta be able toanswer that middle ground of 250
to 500 or slightly over 500.
Speaker 2 (11:09):
Yeah, I mean, and I would say the thing that
probably makes me the mostnervous, and not going into or
down a political path, butregardless of if you're
Republican or Democrat, the next12 months is gonna be quite an
adventure, I think.
Speaker 3 (11:26):
I agree, but I mean that's what creates opportunity
at the same time.
So I mean, I do think that andI think we're a little guilty of
this too, because you know, ifyou look at, we've been vetting
deals lately but we haven'tpulled a trigger on a new
purchase in a little while, andI think some of it is.
You know, you're kind of inthis head scratch moment of
(11:49):
there's so much informationcoming at you, there's so much
conflicting information comingat you.
There's a part of me thatthinks that sitting back and
waiting a little bit andwatching is still a good move,
unless you know that, hey, thisis a diamond in the rough deal
that I'm finding.
Speaker 2 (12:05):
Well, so we also have maybe a tad bit jaded, based on
the city of Tampa's permittingoffice and how great they've
been to work with, would youtell me I'm not doing anything
that requires permits anymorefor a while, which I can't blame
you, but I mean.
So you've got that.
And then you've got a lot oftimes these diamond in the rough
deals like the Indiana deal.
(12:25):
Hopefully it comes backtogether at some point.
But you know we talked about inthe last podcast and we had an
under contract.
It's just a lazy owner whodoesn't he doesn't care.
Speaker 3 (12:37):
Yeah, you have an unmotivated seller that doesn't
really wanna make somethinghappen at the end of the day.
But you know, I mean, does thatdeal make sense?
I think so.
It pencils out, and do we haveto do that deal though?
No, you keep looking and Ithink you know, as we said, the
likelihood of more deals comingonline in the next six, 12, 18
(12:58):
months.
I do genuinely think there'sgonna be opportunity there.
Speaker 2 (13:03):
Well, with these interest rates, there's a lot of
commercial play that's probablygonna, I would say, start
coming around, because they'rebasically coming to a balloon.
They're adjusting, and now theywere at 3% or less and now
they're gonna be at 8%.
You know, I mean that's the proforma, for whatever they
penciled out is definitelychanging drastically when the
(13:25):
interest rates adjust at thatlevel.
So, there might be a reallygood opportunity, I think in
that realm as well.
Speaker 3 (13:32):
Yeah, I agree with that.
So I listened to an economistspeak late spring, early summer,
and one of his forecastingpieces was that he thought
summer of 2023 was gonna stillbe pretty robust.
You're gonna have a lot ofpeople traveling.
You're gonna have a lot ofpeople that are out still trying
(13:54):
to.
You're even getting sort ofstill this kind of post pandemic
pent up of.
You know people still want toget out and travel.
They still have some cashflowing to him, whatever the
circumstances are, but he veryclosely targeted I can't
remember when Labor Day is, Iwant to say like September 5th
or September 8th or somethinglike that was the date he threw
(14:15):
out and his comment was watchthat date, because I think
things are really gonna changeafter that comes and goes.
And it's almost this idea oflike, put your head in the stand
a little bit, maybe, and you'rehey, we're having fun this
summer, we're doing our thingand we'll worry about that down
the road.
You know, that mentality, but Ithink you know, part of what we
(14:36):
started talking about earlieris like the stubbornness of the
economy, the stubbornness of themarket, and I really think that
we're seeing a lot of thatright now well, eventually
somebody's gonna be right.
Sure somebody's got to be rightat some point, because it's
been.
Speaker 2 (14:52):
I mean, I remember when we met, you know, I was the
realtor in our networking groupand I would stand up and give
the stats about the local marketand every week somebody'd say
you know I'm thinking aboutbuying something, but you know
the market's been so crazy forhow many years now I'm like it's
been crazy for a while and thenyou know, fast forward and
other year passes, they're stillasking the same question.
And I think where you hadtouched on like there's almost
(15:15):
like a stalemate right now ofyou know, a year ago you put a
house on the market and you have20 offers.
So that mentality is stilllingering.
I think, with a lot of people,investors, the savvy ones and
even really the not savvy oneshave gotten accustomed to their,
their prices here.
Yeah, and then.
So we're not seeing a lot ofprice adjustments or or even
(15:38):
decreases from where we are out.
Speaker 3 (15:40):
A year ago, you know and it's funny because that's
one of the things I scratch myhead at all the time right now
is why have these prices notcome down?
And I was talking with an agentactually this morning who said
he had kind of done a survey ofa couple different zip codes
within the Tampa Bay market andwhat he said he sees is it's
(16:03):
almost the back end manipulationof the deal, meaning the
sellers aren't decreasing theirprices but they're offering all
kinds of credits and incentiveson the back end.
So it's almost like keep theprices here but we're gonna help
you out on buying down yourrate or closing costs, you know
whatever exactly and I meanthere's all kinds of reasons you
(16:26):
want to do that and I think andagain that podcast I was
talking about earlier, about thebuilder in Salt Lake his
comment was they're alwaysconcerned about keeping sale
prices at because they've got tokeep their comps where they are
, to keep moving their inventoryand their product.
But his tackle on it was we aredoing permanent interest buy
(16:47):
downs For loans to get them intothe fours and five percent, wow
.
And he was like that's costingme $30,000 or more to do that,
but it's bringing me buyers.
Speaker 2 (17:01):
Because they're the only ones that are they don't
care.
Speaker 3 (17:03):
Their monthly payment is the same whether they're
paying that interest rate orwhether you're taking $80,000
off of that purchase price.
Speaker 2 (17:11):
Right.
Speaker 3 (17:12):
And, as the seller, he doesn't want to take that
money off the purchase price, ofcourse, but you know.
So you're spending 30 to makean additional 50, I guess, yeah
on the back end?
Yeah, but it's.
It's just funny to watchbecause I feel like there's all
this sort of like back end workto try to keep prices almost
artificially inflated and youwonder when that steam runs out.
Speaker 2 (17:32):
Yeah Well, in this market, Tampa doesn't seem like
it's going to run out.
Speaker 3 (17:36):
Very true.
And then?
Speaker 2 (17:36):
you've got other markets, you know, like the ones
where we're buying propertiesor looking at buying properties,
that have great cap rates.
Ten years from now, thoseproperties are probably going to
be worth about what they'reworth now.
They just don't ever see a lotof growth from an asset
appreciation standpoint, surebut.
But they're a good, solidreturn.
Speaker 1 (17:53):
Yeah.
Speaker 2 (17:54):
And I think that that's kind of the takeaway for
me, anyways, on what we'refocusing on is just, you know,
if it's it makes sense from likea pure cash flow perspective,
even if it's not going to bedouble the value in 10 years, I
mean it's going to be worth.
You know, likely be worth morethan it is today.
Yeah, but you've also got 20%return on your money every year
(18:14):
which you're never going to get.
You know, to bank, or you know,even a good mutual fund is
probably five or six percent.
Speaker 3 (18:21):
Yeah, so I think some of the key takeaways are, as
you said.
It's in particular myself.
I know not as much as you,because we, because we come from
different ends of the spectrum,but like I could probably talk
myself voice of reason sittingon my hands at during any market
.
you know, but but the reality isyou don't want to do that.
Of course you know, but I thinkthis isn't.
(18:41):
It isn't two years ago, whenyou could buy anything and you
know, or you know, using the2005 example, 2005, you could
literally buy anything and youknew that within 30 days it was
going to have gone up 10% ormore and and that's kind of the
the market that we saw for ayear and a half, two years, and
it was like you, you almostcouldn't make a bad buy, you
(19:02):
know.
But now I think you have toslow it down, look at it a
little harder.
But if you can make yournumbers crunch and stress test
it and make them make the dealwork as is without appreciation,
it's still a good buy, right.
Speaker 2 (19:19):
Use the 1% rule and don't.
You know, I've, I've learnedthis and you'll.
I think you'll appreciate thisbecause I'm usually the what's
all, that one in a million talk.
I'm all in.
But you know, I think that whenyou forecast a lot of these,
you have to forecast it for theworst case scenario, because
almost you know I wouldn't sayit usually is, but there's
always something that comes upthat you didn't really account
(19:41):
for.
Speaker 3 (19:42):
Well, what was the line that one of our masterminds
the guy talking was like?
I've never seen a deal actuallyoperate as the pro forma
anticipated it to.
Yeah.
Speaker 2 (19:54):
Or hard money guys.
Yeah, you know we'll do a sixmonth loan, but then you know,
for a 1% origination fee or 2%,we will extend it to 12% for you
Knowing that there's like a99.9% chance that one's getting
extended.
Speaker 3 (20:08):
I was thinking about that.
The other day we were closing adeal and it was one of these
where the borrower had beeninsistent on a six month loan.
No way, I'm even going to takesix months.
And I was talking to the lenderbecause I was representing the
lender, and I said what do youwant to do with this?
Do you want to stick with that?
Do you want to give them like12 months?
You know how do you want to setit up?
(20:28):
And and he said if they wantsix months and they're confident
about six months, so be it.
To their credit, they had thedeal, they had the deal fixed
and flipped.
It was at the day of closing orday before closing and the
buyer got cold feet and walkedand they and now they're going
to blow their six month time,which is out of their control,
(20:51):
of course, yeah.
Speaker 2 (20:51):
I mean, there's always stuff like that.
Speaker 3 (20:54):
You never know what's going to happen.
Speaker 2 (20:55):
You know, and so Just invest smart, look for good
passive income, you know, evenif you want to be active in it.
Just make sure that it the 1%rule, I think, is probably the
easiest and there's so manymarkets that you can find that
in.
Yeah, that, you know, as wekind of go into a year, I would
say, of uncertainty, becauseit's going to be just no one is
(21:16):
going to want to do anythingfrom like a government
standpoint.
So you've got to be preparedfor, on the other side of that,
what does it look like?
So just make sure you're kindof covering your basis, yeah, I
think it.
Speaker 3 (21:26):
Go back to the basics and stress, test and pencil
your deals and buy when you feelcomfortable and right about it,
but I don't think it's a timeto force buys.
Yeah, we've talked about this alot too, but, like you know,
whatever you can do to get yourlines of credit clear, your cash
ready, I mean, those are, thoseare where you want to be so
(21:50):
that when something does happen,you're ready to pounds.
Speaker 2 (21:52):
Yeah, and poised for it Cool Until next time onward.
This is the Legacy Wealth Code podcast helping you
build long-term wealth and alasting legacy through real
estate investing, tax strategiesand motivational stories from
some of the most successful andinfluential people out there.
Here are your hosts real estateinvestor and entrepreneur,
Michael Knoppam, and real estateinvestor and attorney, Andrew
Hook.
Speaker 2 (00:20):
Hey guys, welcome back to another episode of the
Legacy Wealth Code podcast.
I'm Michael Knoppam, here withmy partner and crime, andrew
Hook.
Speaker 3 (00:26):
Hey guys, how are you and?
Speaker 2 (00:28):
we are delighted, on a Friday afternoon, to bring you
some cutting-edge content aboutsome of the deal trends that
we're seeing, what we're buying,what we're looking at, what
we're staying away from, andthen just what we're hearing.
You and I talk to people allthe time in the real estate
world mortgage people so youhear the doom and gloom and then
(00:49):
you hear positivity and I thinktrying to decipher where to
draw the line in the sand, Ithink, is probably a struggle
for most people, including ussometimes.
Speaker 3 (00:59):
Yeah, I think to me and a lot of the conversations I
have I think question mark isthe best thing that comes to
mind at the time being is like Ithink certain markets you've
already seen downturns and ofcourse other markets, like the
market we're in Tampa, hasreally held its own.
I mean we've seen some slow downbut it almost defies the odds
(01:21):
and I feel like they're sort ofthis kind of stubbornness in the
economy, in the real estatemarket, that sort of.
There's all these signs andindicators that things should be
worse than they are, butthey're not really that bad yet,
or at all, and so that'sleading to all these questions.
Speaker 2 (01:37):
And it is kind of mind-boggling.
You look at some interest ratesdoubling, basically from where
they were a year, just over ayear ago, and people are still
buying these houses.
And at what point does thatkind of turn around?
And I think for us beinginvestors, you're always kind of
waiting for that downturnbecause hopefully that's where
opportunity presents itself.
Speaker 3 (01:58):
And you keep hearing that there's so many of these
people that are waiting for aplunge and like, oh okay, we're
going to wait for the market tocrash and the 2009-ish style
crash.
I don't honestly believe we'regoing to see a crash like that.
I think you're going to see aplateau or retraction Some
markets.
You're going to see maybe a10-15% drop.
(02:20):
I don't see these things.
I don't see prices of homesfalling 40% or more.
Speaker 2 (02:27):
Right or rent going down.
I mean we still have a housingshortage in the country, so it's
funny because Tampa's got somuch stuff going on.
I went to Nashville not toolong ago same thing.
There's 20 cranes up in the airand I think you talk to people
across the country.
It sounds like big cities Imean almost all of them have a
ton of growth happening.
(02:48):
A lot of it is aroundmultifamily apartment complexes,
condos, so you and I talk aboutthis a lot.
I still think that there's goodvalue in the Class C apartment
complexes that really have justit's a mom and pop that have
owned them for 30 years.
The rents are way under market,but that's because the
(03:09):
condition of the property isn'tgreat.
So I think there's anopportunity.
Obviously, the catch 22 of thatis make sure you understand how
to price out your deferredmaintenance costs.
Speaker 3 (03:19):
Yeah, I mean definitely that in interest-only
loans and variable rates andsome other things that can snag
you in that style of deal.
But I think the deferredmaintenance typically on Class C
is going to be.
You have to go in with youreyes open and understanding of
that.
But I mean, at the end of theday, if you can take a product
(03:41):
and you can give people a safe,clean place to live, you're
never going to have a shortageof demand for that.
Yeah.
Speaker 2 (03:51):
I mean you and I.
We're looking at some dealsright now like the one in
Cleveland.
I think when we start thinkingabout building long-term wealth,
creating a legacy, which is thegoal of the Legacy Wealth Code,
there's a lot of opportunity inmarkets to get a good cap rate.
Like Tampa's probably not goingto give you a 15 cap on
(04:12):
something that's turnkey.
You might get a 15 cap onsomething that needs a ton of
work that you can patch together.
But like the deal in Cleveland,fully remodeled and current
rent is like a 14 and a half capand ARV rent, just because they
haven't raised it, puts it likein 17 and a half.
Speaker 3 (04:32):
Yeah, and I think again I mean so.
If you know the point oftoday's podcast, the thing is to
kind of understand trends andto see where opportunities lie.
And I think you know I startedhearing people talk about it
used to be Tampa was very much asecondary market, maybe even
borderline tertiary, but theywere looking at Tampa as kind of
(04:56):
a secondary market and startingthe conversation as to smaller
areas as tertiary markets to saywe gotta start looking in these
.
And this is I mean I think I'veheard this now for about four
or five years.
So some of those people werereally early on in that trend.
But I think now is, as you said, you're not gonna find stunning
deals.
Or if you find stunning dealsin a primary or secondary market
(05:18):
right now, they're gonna be aneedle in the haystack.
So it almost forces you intokind of some of these outlier
markets where and I mean some ofthe things I think you look for
where do you have strong jobgrowth?
Where do you have a town orcity that's holding its own?
Maybe they're reinventingthemselves somehow, maybe they
just continue to prosper in somefashion as to they've got great
(05:43):
weather, they've got great taxbenefits or something along
those lines to keep generatinggrowth.
But if you can find those areasthat are kind of outliers maybe
not primary or secondary citiesjump on them.
Speaker 2 (05:56):
Yeah, well, it's weird for us because we talk to
people in these markets and it'spretty much a norm there, I
think, for people to be gettinga 14, 15 cap.
So if you start to accumulateproperties and you're getting
that kind of return, I think thepart that well, I guess a big
part of the legacy wealth codeis the fact that we push tax
(06:16):
strategy, tax planning, takingadvantage of things like bonus
depreciation and costsegregation, and when you start
factoring that into your caprate because you are I mean it's
either you're gonna send thatcheck to the government or you
can keep the money.
So you start factoring in whatthat looks like from actual
dollars in your pocket, Likethis one in Cleveland is 650,000
(06:40):
.
So you figure, reduce out the20% for land, so you probably
have a $500,000 asset roughlythat you can run the cost sag on
.
So just ballpark numbers,probably around 200 and 220 in a
year, one deduction.
You start looking at that in the35% tax bracket, that's
(07:01):
$100,000 in our pocket.
So now when you look at thatreturn, you're getting 17% back
on your money from just the purerent standpoint, plus roughly a
hundred grand that either youstroke a check to Uncle Sam or
you take that and you canreinvest it in real estate.
Speaker 3 (07:19):
Right, yeah, no, I mean definitely wanna be taking
advantage of those tax plays,but so, outside of the kind of
secondary, tertiary markets andlooking at some of those areas
that maybe you weren't lookingbefore, what else do you think
are creating opportunities rightnow?
I mean, one of the headscratchers for me and I always
(07:41):
get people asking about how dowe start in on foreclosures or
how do we start on distressedproperty.
I'm still not seeing a spike onthat, at least locally, and I'm
not hearing the stories on anational level as to spiking
foreclosure rates or anythinglike that.
So I mean it kind of begs thesequestions as to like, where do
(08:02):
you, where else do you look?
And I mean, what are you seeingright now for that?
Speaker 2 (08:07):
I mean, I think that there's a good opportunity just
because the cost to build is soexpensive now in those prefab or
manufactured homes.
You know, I can't remember whatwe were I think it was a
podcast we were listening to andthey were saying that their
cost is like $80 a square foot.
You know?
Speaker 3 (08:25):
And I think that was even after you tie in and
install.
Speaker 2 (08:31):
So and we're talking to builders here.
Now, tampa is a littledifferent because you got flood
zones and you're having to buildup to code, et cetera.
$300 a foot, 250 a foot.
You know, when you and I builtthat first house in St Pete, I
think our hard number was wewanted to be at 200 a foot right
.
Speaker 3 (08:49):
Yeah, with land costs .
Speaker 2 (08:50):
With land and everything and we got pretty
close to it.
But now I mean even these bigtrack builders, I think probably
are above that price and thefinishes aren't great.
Speaker 3 (09:01):
Yeah, I mean I also.
I mean the manufactured home iskind of what we were talking
about a minute ago on the ClassC properties from a standpoint
of providing a safe, clean,affordable place to live and
locally in particular and Ithink a lot of areas around the
country we're starting to hearmore and more about affordable
housing.
But I was listening to apodcast this morning and it was
(09:23):
talking about one of the.
One of the guests on there wasa builder out of the Salt Lake
area in Utah and his comment wasyou know, our bread and butter
for years was like the not megamansion, but like borderline
mega mansion.
They were building 5,000, 6,000square foot homes in smaller
communities with very, very highend stuff.
(09:45):
Their press lately has beenwe're building a smaller product
that's more affordable andthey're flying off the shelf.
And I really think that there'ssuch an opportunity if you can
figure out how to giveaffordable housing options and
(10:05):
when I say affordable housing Idon't mean, you know, low end
stuff, I'm talking aboutliterally middle first time home
buyer.
Speaker 2 (10:13):
What are they gonna?
Speaker 3 (10:14):
Middle class type genre of the segment of the
population that has a need thathas to be met.
The challenge around that, asyou just said, is if building
costs are so high, how do youmeet that?
But at the end of the day Ithink you have an unlimited
supply of demand if you canfigure out how to answer that.
(10:35):
And I think the manufacturedhomes are great one, you know,
smaller footprint homes is a lotof what this guy was talking
about.
Today.
Maybe you're going a little bitfurther outside of the urban
core to get a little bit cheaperland, you're putting a smaller
property on or smaller house onthat property, but any of those
things that you can do to kindof try to tackle the cost and
(10:58):
the ultimate.
You know, not everybody canafford a million dollar home, of
course you know.
And so you gotta be able toanswer that middle ground of 250
to 500 or slightly over 500.
Speaker 2 (11:09):
Yeah, I mean, and I would say the thing that
probably makes me the mostnervous, and not going into or
down a political path, butregardless of if you're
Republican or Democrat, the next12 months is gonna be quite an
adventure, I think.
Speaker 3 (11:26):
I agree, but I mean that's what creates opportunity
at the same time.
So I mean, I do think that andI think we're a little guilty of
this too, because you know, ifyou look at, we've been vetting
deals lately but we haven'tpulled a trigger on a new
purchase in a little while, andI think some of it is.
You know, you're kind of inthis head scratch moment of
(11:49):
there's so much informationcoming at you, there's so much
conflicting information comingat you.
There's a part of me thatthinks that sitting back and
waiting a little bit andwatching is still a good move,
unless you know that, hey, thisis a diamond in the rough deal
that I'm finding.
Speaker 2 (12:05):
Well, so we also have maybe a tad bit jaded, based on
the city of Tampa's permittingoffice and how great they've
been to work with, would youtell me I'm not doing anything
that requires permits anymorefor a while, which I can't blame
you, but I mean.
So you've got that.
And then you've got a lot oftimes these diamond in the rough
deals like the Indiana deal.
(12:25):
Hopefully it comes backtogether at some point.
But you know we talked about inthe last podcast and we had an
under contract.
It's just a lazy owner whodoesn't he doesn't care.
Speaker 3 (12:37):
Yeah, you have an unmotivated seller that doesn't
really wanna make somethinghappen at the end of the day.
But you know, I mean, does thatdeal make sense?
I think so.
It pencils out, and do we haveto do that deal though?
No, you keep looking and Ithink you know, as we said, the
likelihood of more deals comingonline in the next six, 12, 18
(12:58):
months.
I do genuinely think there'sgonna be opportunity there.
Speaker 2 (13:03):
Well, with these interest rates, there's a lot of
commercial play that's probablygonna, I would say, start
coming around, because they'rebasically coming to a balloon.
They're adjusting, and now theywere at 3% or less and now
they're gonna be at 8%.
You know, I mean that's the proforma, for whatever they
penciled out is definitelychanging drastically when the
(13:25):
interest rates adjust at thatlevel.
So, there might be a reallygood opportunity, I think in
that realm as well.
Speaker 3 (13:32):
Yeah, I agree with that.
So I listened to an economistspeak late spring, early summer,
and one of his forecastingpieces was that he thought
summer of 2023 was gonna stillbe pretty robust.
You're gonna have a lot ofpeople traveling.
You're gonna have a lot ofpeople that are out still trying
(13:54):
to.
You're even getting sort ofstill this kind of post pandemic
pent up of.
You know people still want toget out and travel.
They still have some cashflowing to him, whatever the
circumstances are, but he veryclosely targeted I can't
remember when Labor Day is, Iwant to say like September 5th
or September 8th or somethinglike that was the date he threw
(14:15):
out and his comment was watchthat date, because I think
things are really gonna changeafter that comes and goes.
And it's almost this idea oflike, put your head in the stand
a little bit, maybe, and you'rehey, we're having fun this
summer, we're doing our thingand we'll worry about that down
the road.
You know, that mentality, but Ithink you know, part of what we
(14:36):
started talking about earlieris like the stubbornness of the
economy, the stubbornness of themarket, and I really think that
we're seeing a lot of thatright now well, eventually
somebody's gonna be right.
Sure somebody's got to be rightat some point, because it's
been.
Speaker 2 (14:52):
I mean, I remember when we met, you know, I was the
realtor in our networking groupand I would stand up and give
the stats about the local marketand every week somebody'd say
you know I'm thinking aboutbuying something, but you know
the market's been so crazy forhow many years now I'm like it's
been crazy for a while and thenyou know, fast forward and
other year passes, they're stillasking the same question.
And I think where you hadtouched on like there's almost
(15:15):
like a stalemate right now ofyou know, a year ago you put a
house on the market and you have20 offers.
So that mentality is stilllingering.
I think, with a lot of people,investors, the savvy ones and
even really the not savvy oneshave gotten accustomed to their,
their prices here.
Yeah, and then.
So we're not seeing a lot ofprice adjustments or or even
(15:38):
decreases from where we are out.
Speaker 3 (15:40):
A year ago, you know and it's funny because that's
one of the things I scratch myhead at all the time right now
is why have these prices notcome down?
And I was talking with an agentactually this morning who said
he had kind of done a survey ofa couple different zip codes
within the Tampa Bay market andwhat he said he sees is it's
(16:03):
almost the back end manipulationof the deal, meaning the
sellers aren't decreasing theirprices but they're offering all
kinds of credits and incentiveson the back end.
So it's almost like keep theprices here but we're gonna help
you out on buying down yourrate or closing costs, you know
whatever exactly and I meanthere's all kinds of reasons you
(16:26):
want to do that and I think andagain that podcast I was
talking about earlier, about thebuilder in Salt Lake his
comment was they're alwaysconcerned about keeping sale
prices at because they've got tokeep their comps where they are
, to keep moving their inventoryand their product.
But his tackle on it was we aredoing permanent interest buy
(16:47):
downs For loans to get them intothe fours and five percent, wow
.
And he was like that's costingme $30,000 or more to do that,
but it's bringing me buyers.
Speaker 2 (17:01):
Because they're the only ones that are they don't
care.
Speaker 3 (17:03):
Their monthly payment is the same whether they're
paying that interest rate orwhether you're taking $80,000
off of that purchase price.
Speaker 2 (17:11):
Right.
Speaker 3 (17:12):
And, as the seller, he doesn't want to take that
money off the purchase price, ofcourse, but you know.
So you're spending 30 to makean additional 50, I guess, yeah
on the back end?
Yeah, but it's.
It's just funny to watchbecause I feel like there's all
this sort of like back end workto try to keep prices almost
artificially inflated and youwonder when that steam runs out.
Speaker 2 (17:32):
Yeah Well, in this market, Tampa doesn't seem like
it's going to run out.
Speaker 3 (17:36):
Very true.
And then?
Speaker 2 (17:36):
you've got other markets, you know, like the ones
where we're buying propertiesor looking at buying properties,
that have great cap rates.
Ten years from now, thoseproperties are probably going to
be worth about what they'reworth now.
They just don't ever see a lotof growth from an asset
appreciation standpoint, surebut.
But they're a good, solidreturn.
Speaker 1 (17:53):
Yeah.
Speaker 2 (17:54):
And I think that that's kind of the takeaway for
me, anyways, on what we'refocusing on is just, you know,
if it's it makes sense from likea pure cash flow perspective,
even if it's not going to bedouble the value in 10 years, I
mean it's going to be worth.
You know, likely be worth morethan it is today.
Yeah, but you've also got 20%return on your money every year
(18:14):
which you're never going to get.
You know, to bank, or you know,even a good mutual fund is
probably five or six percent.
Speaker 3 (18:21):
Yeah, so I think some of the key takeaways are, as
you said.
It's in particular myself.
I know not as much as you,because we, because we come from
different ends of the spectrum,but like I could probably talk
myself voice of reason sittingon my hands at during any market
.
you know, but but the reality isyou don't want to do that.
Of course you know, but I thinkthis isn't.
(18:41):
It isn't two years ago, whenyou could buy anything and you
know, or you know, using the2005 example, 2005, you could
literally buy anything and youknew that within 30 days it was
going to have gone up 10% ormore and and that's kind of the
the market that we saw for ayear and a half, two years, and
it was like you, you almostcouldn't make a bad buy, you
(19:02):
know.
But now I think you have toslow it down, look at it a
little harder.
But if you can make yournumbers crunch and stress test
it and make them make the dealwork as is without appreciation,
it's still a good buy, right.
Speaker 2 (19:19):
Use the 1% rule and don't.
You know, I've, I've learnedthis and you'll.
I think you'll appreciate thisbecause I'm usually the what's
all, that one in a million talk.
I'm all in.
But you know, I think that whenyou forecast a lot of these,
you have to forecast it for theworst case scenario, because
almost you know I wouldn't sayit usually is, but there's
always something that comes upthat you didn't really account
(19:41):
for.
Speaker 3 (19:42):
Well, what was the line that one of our masterminds
the guy talking was like?
I've never seen a deal actuallyoperate as the pro forma
anticipated it to.
Yeah.
Speaker 2 (19:54):
Or hard money guys.
Yeah, you know we'll do a sixmonth loan, but then you know,
for a 1% origination fee or 2%,we will extend it to 12% for you
Knowing that there's like a99.9% chance that one's getting
extended.
Speaker 3 (20:08):
I was thinking about that.
The other day we were closing adeal and it was one of these
where the borrower had beeninsistent on a six month loan.
No way, I'm even going to takesix months.
And I was talking to the lenderbecause I was representing the
lender, and I said what do youwant to do with this?
Do you want to stick with that?
Do you want to give them like12 months?
You know how do you want to setit up?
(20:28):
And and he said if they wantsix months and they're confident
about six months, so be it.
To their credit, they had thedeal, they had the deal fixed
and flipped.
It was at the day of closing orday before closing and the
buyer got cold feet and walkedand they and now they're going
to blow their six month time,which is out of their control,
(20:51):
of course, yeah.
Speaker 2 (20:51):
I mean, there's always stuff like that.
Speaker 3 (20:54):
You never know what's going to happen.
Speaker 2 (20:55):
You know, and so Just invest smart, look for good
passive income, you know, evenif you want to be active in it.
Just make sure that it the 1%rule, I think, is probably the
easiest and there's so manymarkets that you can find that
in.
Yeah, that, you know, as wekind of go into a year, I would
say, of uncertainty, becauseit's going to be just no one is
(21:16):
going to want to do anythingfrom like a government
standpoint.
So you've got to be preparedfor, on the other side of that,
what does it look like?
So just make sure you're kindof covering your basis, yeah, I
think it.
Speaker 3 (21:26):
Go back to the basics and stress, test and pencil
your deals and buy when you feelcomfortable and right about it,
but I don't think it's a timeto force buys.
Yeah, we've talked about this alot too, but, like you know,
whatever you can do to get yourlines of credit clear, your cash
ready, I mean, those are, thoseare where you want to be so
(21:50):
that when something does happen,you're ready to pounds.
Speaker 2 (21:52):
Yeah, and poised for it Cool Until next time onward.
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