What’s up, simple Passage Castro listeners, today we are going to be talking about mortgage loans for some of you guys who have rental properties, the turnkey or even your primary residents. I think recently, or last year we went to 5 0 6 offerings. Therefore, we only allow accredited investors.
So what do you do if your net worth is half a million dollars and. We’ve shut your doors on you. Maybe we’ll do a reggae plus offering in the future that will allow non-accredited investors to come in. But at this point on, don’t hold your breath on that. For more information, go to simple passive cash flow.com/club. And check out the new pet fund there where we’re paying investors, 12 to 13% monthly based on debt, because this is a strange time.
And we’re recording this in January of 2023. And I haven’t talked to Graham in quite some time. I think the last time we saw each other was at a event prior to 2019 and at the time we were still helping out investors pick up turnkey rentals and we had this program called Incubator, which if you are a non-accredited investor and you would like to sign up for the.
We’ll probably just give that to you for free. It was over 20 hours of coaching calls and I enjoyed doing it. Most of our investors are credit investors and have moved on. But we wanted to do this podcast for you guys to just catch everybody up real quickly. If you have rental ties or you are non-accredited investor looking to get a turnkey rental property, going on with the mortgage lending world where the Fed is jacking up interest rates?
As to date, 3% in the last what? Couple quarters, just unprecedented. But Graham, why don’t you introduce yourself and then your partner there, Aaron, and some of the updates ? Thanks, lane. Good to see you again, by the way. Yeah.
It has been since 19, I believe. My name is Graham Pham. I’m with Highlands Residential Mortgage. My production partner, Aaron Stelli, has joined me today and spoke with. I don’t know, 30 days ago or so, I said, Hey let’s talk about what’s going on in the market on the residential side as well as the like you said, the turnkey side, the one to four category.
It’s still a viable category. It’s it is starting off with newbies as you pointed out. And, but you gotta start somewhere, right? And the newbies need to, they. One to 10 properties, then they sell it all, do an exchange, and they graduate into your accredited program is typically how most people that have gr grown their wealth over the years.
It’s a simple graduation into the commercial end. But we wanted to talk a little bit today about, what’s happening with the market. Yeah. The Feds have have done a number on us. They, I’ve known Ohio, I think it’s six or seven increases last year on the Fed rate.
And the fed rate’s a little bit different from the interest rate. It does have a lot to do. With the cost of money and people say the fed rate is at this, but that doesn’t mean the interstate is at that. Okay. But it has pushed our interstates up. We’re probably, like you say, three points higher than where we were probably this time last year.
And has it slowed the. Newbies down. Yeah, because the newbies, they don’t know. Okay. They’re nervous, they’re scared. Plus they came off covid, 2021 with bottom basement pricing on rates and they expect to get that again. That ship sailed. It’s not coming back. Okay. Wall Street, is addressing the whole situation.
Cautiously, if you will. And the reason being is because, back in 17, 18, and 19, we were originating notes at a higher note rate as well. And the guys on Wall Street were buying these mortgage backed securities from FA and Freddy, and they were hoping to keep ’em on their books for a certain period of time, say three to five.
So they can make some money. That’s typically their mo. But what happened on the 17, 18, and 19 notes, it all got refinanced. And so they experienced a thing called E P O, which is early payoff. And the early payoff took the profit right out of the guys on Wall Street, and so they got stoned. They don’t wanna get stung again.
So they know this inflation that we’re dealing with right now is cyclical happened back in the eighties and nineties with Greenspan. Now it’s happening now. So we are eventually going to run into a recession wall, and when that happens, which say six to eight months from now, the rates will come back down and people that are securing loans today will probably come back and do a a refinance.
And what this one is this a 10 year. This is just the interest rates. So yeah, this agreement. Yeah, this is the interest rates. Okay. And then I believe that. All right. I guess Graham, once, don’t you go over like just little education for folks, right? You mentioned it earlier, the fed jacks up rates, right?
The fed rate. But then that doesn’t necessarily mean it impacts these rates. One for one. Maybe explain the disconnect there, just so people can sound cool in front of their friends why they’re not doing the stock market so they can explain it concisely. Or better yet, to their spouse. They don’t spitter and sputter over their words and say, no, you can’t buy a rental property or a syndication deal.
Give them the elegant way of putting it. When we have a fed increase, does it happen? Sometimes it doesn’t. You’re absolutely right. And there’s multiple factors, which I really can’t get into because I’m not an expert in that area. But one of the things I can tell you right now is that we have had an increase in the rates.
We probably topped out pretty well, and I’m trying to th see this chart here. I would say probably September was September, October was our worst month, but it’s been coming down since then and it’s been settling out, which is good. And people go to say, okay. What are investor rates right now on a single family residence?
They could range anywhere from six and a half to 7% right now. And people are going that’s not, that’s not healthy enough to gimme cash flow. That’s true. But as we discussed Lane, they’re, we’re the theory of, marrying the property and dating the rate is where most of these investors are taking a look at.
So I’m gonna buy a property, I’m gonna yield $150 a month cash flow. But six, eight months from now, I’m gonna read Financee saying we’re gonna get that thing more like in $300 of cash flow. But they’re buying these property cuz they’re more readily available out there. and they haven’t been in quite some time.
The inventory’s been very scarce and mostly the term key providers, as you alluded to, they’re doing more new builds because they just are running out of inventory. I don’t have any commercial loans or any syndications going in. I’m not the expert in, I or I stay in my own lane, in my own little box, but I do actually have up to 43 properties right now, and I can certainly exchange ’em all into your program. But, quite frankly I’m pretty satisfied with the cash flows that I’m getting.
But right now, I think my advice to people right now is don’t get scared by these rates. Anything below 7%, it’s a good rate. I’ve said that for years, and it’s true the cost factor sometimes has been higher than what we expected because of the appreciations, but those costs are coming back down, or should I say the prices, those sums are coming back down.
We are now in a full tilt seller’s, or excuse me, buyer’s market, which is good for the investor. If the investor understands that, then they’re gonna take advantage as we have transitioned to this buyer market for several months now keep in mind as a buyer, as you are maybe trying to build your portfolio is now that we are in this buyer’s market, we’ve seen the rise of seller credits coming back. Borrower might not necessarily be happy with their rate at six and a. We’ll get the seller to pay it down to 6%.
We’ve seen that just the seller buying down the rate and forms of points. For the interest rate. We’ve seen seller credits making a comeback the past several months While interest rates are currently nowhere near the lucky area we were at, so to speak, in just the interest rate world during the covid years.
Keep in mind there’s some more negotiating power that just wasn’t there during 18, 19, and 20. So we’ve seen really that kind of turnaround and a lot of times that can make or. That deal for the borrower as well, if you know all about that cash flow sometimes. That’s an excellent point, Aaron and a lot of the providers, the turnkey providers that are starting to retain more of their inventory than they would like simp because they’re the buyers themselves are a little reluctant to start buying. So they’re incentivizing, if you will, and they’re providing points.
And the reason why they’re doing points, not only to help relieve and make the buyer feel better, but where we are in today’s world, reflecting back to my original statement about wall Street recognizes that this thing is cyclical.
They recognize they’re gonna experience an early payoff in the next six, eight months. Consequently, they’re not juicing the rates. Like they have been before. I’ve been at this 25 years, I’ve always had the ability to do par pricing. Par pricing is a zero point loan, which means I don’t charge anything. I don’t give you any credits.
We haven’t seen par pricing probably for six months up until probably the last 30 days. But primarily on a 25% down, but not on a 20% down, you’re still looking at least a point and a half to two points to do a 20% down because the adjustments are more than doubled. The turnkey providers recognize this.
They say, okay, let’s get this buyer incentivized. Let’s just pay for those two points. And in the lending world for Fannie Mae, that is capped at two. You can’t go any more than 2% on Fannie Mae. The commercial world’s completely different. I, Elaine, you can share with me what some of the sellers in the commercial world is doing.
I think a lot of I think in the commercial world might be legging a little bit, right? As you mentioned, you might say you might guys might be calling it a buyer’ss market, which is this. But at this point in the commercial world, the buyers. Not realizing it’s a buyer’s market yet, because, it’s based on net operating income, not just comparable sales.
Like how residential. So I, I think maybe traditionally this has been the, what the case was and, but certainly what it is now, right? Where the commercial world is, just moves a little bit slower and then potentially legs. But going back to the turnkey world, their product is not really a, a home, right?
It’s a turnkey product that provides cash flow and when you add up the tax benefits, mortgage, pay down, appreciation, et cetera, you guys know the website, simple passive cash flow.com/returns where I add up all the stuff on the whiteboard, you’re making like two to three times greater at least than the crummy stock market traditional investments there.
I to backdate some of this stuff when I was buying this stuff prior to 2015, we would be able to cash flow, what, like 400 bucks per property with full expenses. Then that went to 200 bucks in 2019. If you guys, this is all new to you guys and you’re still in the market for turnkeys, make sure you grab the analyzer.
It’s old, but it still works. Simple passive cash flow.com/analyzer. But nowadays, as the price went up, there was negative cash flow, but. As silly as this sounds, it doesn’t really matter. It’s all what’s your other like in a negotiation, what’s your best alternative to negotiated agreement?
Your batna in this case, where else are you gonna put your money? You gonna put in the stock market where you’re gonna lose another 10, 20% this year? Or are you gonna put it into a hard asset, like a semi negative cash flowing property, like a turnkey, or in this case, it makes sense why they throw you points your way to get your cash flow.
So they can get their pricing, run their turnkey operation business. It is what it is, but you as the investor need to make that personal finance decision what you got in your portfolio. And is the turnkey rental or the syndication better than what you got? And that’s the name of the game, in my opinion.
You know you have to analyze the market and then you gotta pick your poison. Okay? Each market has an A, a, B, C, D property, okay? Typically, your A properties are not gonna bring as much cash flow because they’re newer in a better neighborhood, so forth and so on. Whereas the D, c, and D properties are gonna have a little bit better cash flow because they’re a little bit older.
And maybe in a little bit, not so desirable neighborhood, so you can get close to the 1%. And I think we’ve thrown that terminology around for a long time. 1% rule was something that we all lived and breathed for many years up until probably like you say, 19 or 20. And we started losing that 1% because the cost kept going.
Yeah. Then they went to 0.9, and then they stopped doing turnkey rentals in actually decent markets like Atlanta. Maybe you could throw Birmingham in there, which people are probably shaking their head. Birmingham is a decent market, and then I almost fell off my seat the other month when somebody said they were buying rental properties in B.
My goodness. Baltimore is the hood guys like straight up. That’s de class war zone properties, but hey, it makes the 1% real maybe, right? Is it, are those properties hitting 1%? They’re selling out there? No, not quite. It’s very hard to hit 1% of these days. Yeah. If, yeah, if you’ve been to Baltimore, they, they had these houses called row houses and if you’ve driven those neighborhoods, some people that live in a very nice neighborhood, it doesn’t, you don’t count Lane and you’re out in Hawaii people that live in a nice metropolitan area like Dallas or Atlanta, and then they go into Baltimore, sometimes that, can be viewed a little bit negative, but these are older properties.
They’ve been there for very, quite some time. Are they a C and D property? Maybe not. Maybe not so much. It depends. I’m not an expert on Baltimore, but we still have a lot of activity in Baltimore, believe it or not. Yeah, I mean it’s certainly far from the days when I think you. I think you landed on my, one of my properties way back in 2012 or 13 when I was buying that stuff.
And it was a nice, at the time of 70, $80,000 property in Birmingham in a B minus area. Today that would be like 120,000 in a still B area, but that’s just, the best time to buy was yesterday. I think that’s the thing that guess maybe that’s the point we’re trying to push home, right?
If you’re out there doing nothing, You’re just sitting on cash and your net worth is under two to $3 million. You gotta do something with it. Heck, go buy a turnkey rental. Heck, even in Baltimore I guess. But you gotta do something and this is the name of the game is get your money working, get it out of the regular stuff.
But with that I’ll get off my, I’ll get off my soapbox I guess. No. I’m mainly talking to the non-accredited guys cuz you guys gotta do something and you guys, that’s where I hear the most excuses. I’m just gonna sit on my money. It doesn’t cash flow you. No, please do not sit on your money. I’m still actively buying,
from the standpoint of appreciation, depreciation, I don’t think we’ve all caught up on caught up on that number itself. On paper just yet. California and the, new England, New York, and all the East coast. Those don’t really factor in because, those aren’t the markets that you and I are in, like Birmingham or Atlanta or.
Memphis, these type of markets. We haven’t really seen the depreciation yet. Now the appreciation was going up over the last four years, but it’s now starting to level up. We haven’t seen it go down yet. Okay. Will it? Probably, but I don’t think it’s gonna go down a lot, be honest with you. So let’s just say investors have their rental properties, or maybe they’re getting out of like the turnkey.
guess first of all, if you guys are in the investor club maybe we can swing it to another unsophisticated, non-accredited investor. So make a little P d F flyer and maybe we can move it for you if sucker is born another day. But what if you people wanna hold onto those things because sentimental value, whatever.
What are some options that we can do to pull out some of that equity? Because, likely if they’ve held onto the property for a little bit of. The property maybe went up from 90 grand to not 120 grand. They may, and with their 20% down payment, they may be sitting on 50 grand of 40 grand of debt equity there.
What are some options that they can use to, to tap that, that equity? That’s exactly what I’m doing. I’ve got three properties that were new Bill, 17, I think it was 17 when I bought ’em, and they built up probably 70, 80 grand of equity. Another property I have in Dallas, they built up about $170,000 worth of equity.
So am I cashing them out? Absolutely. Taking my money going elsewhere in this case and going back down to Florida. But yeah, you got some some equity there. You could do it one of two ways. You can get a ca a, a cash out refinance, which is what a traditional Fannie Mae loan will do.
And on the single family, you can go up to 75% on the two to four unit, you go to 70%, but you could also get a heli, which is extremely challenging right now. HELOCs are readily available for primary residents, which a lot of people still use, especially on the West coast cause they’ve got so much equity in their primary residence, they’re utilizing the HELOCs.
But what the HELOCs are doing right now, because the primary rate has gone up, the primary rate is sitting at seven and a half, and typically a HELOC is usually prime plus something either a half a point or a point. Now you’re at eight and a half. Or if you do a cash out refinance on a 30 year fixed rate, we’re still in the upper six.
So it’s a much better bet. Even though you’re paying interest only heloc, you still got a much higher rate of interest. Yeah. The nice thing about the HELOC is, you don’t have any costs, but the bad thing is they’ll sandbag you on the valuation. So what that means is maybe your property is worth one 20 and you have 50 grand of equity there.
use their pencil and say, ants worth 1 0 5. And then you’ll walk and be like, all right, I got screwed there. I guess I’ll take it. But you’re not gonna be able to squeeze the towel and get all the equity unless like you said you refinance it. There. But that’s why we say, try and get HeLOCK first.
If this is all new to you guys, get it rolling. Get the money, put, get into something by rental properties syndication to you, or make 12% in the pet fund. Something like that. Get it going. And then once you’ve tapped that initial equity tranche, then you gotta get at more of it, get the refinance.
But let’s just say some, I invest, some of my investors grammar are semi-active investors. They do syndication deals and they may go after some of that burr stuff. And what’s, what are like, you guys have this kind of three year. State the rate program or something like that.
Maybe it’s quick bit about this thing. We actually do if you originate alone, say in the next six months with us and at an elevated rate. Cause we don’t know what tomorrow’s gonna bring and it has come down a bit. But we know once it hits the recession law, it’s gonna come down even more.
We recognize that. So we want to keep activity going in the investment community. So buy the rate, buy their house today, marry the property date, the rate, because in 6, 8, 10 months down the road, the rates are gonna be decked back down. Give me a call, we’ll refinance it. We won’t charge you any closing costs, and you get your cash flow more in line.
So that’s something we’re doing for a lot of our investors. And is that Fannie Mae, Freddie Mac loan? And who backs that? Is it like a rate cap insurance company? And I guess for your listeners, for new guys ear mouse on this is more technical stuff. Not super important. Just my, I’m just I’m just wondering.
No we strictly do Fannie Mae loans. We do some D S C R lending, but the rate is much higher. The D S C R lending back in March of 2000. Okay. That’s when everybody said, okay, COVID, it’s here to stay. And everybody left the playing field. Jumbo commercial. D s, DSCR R, everybody left the playing field except for Fannie Mae.
For about six, eight months and you probably recall this lane and then eventually stay started coming back on the playing field. We’re starting to feel a little bit of that right now. Some of the capital markets are starting to get a little bit nervous, and I say some of the capital markets non Fannie made Freddie Mac, which are government backed, are starting to throttle back, which, and I’ve seen companies even go out of business.
We had one that we were doing along with just Monday. Can, the CEO o said, we’re not taking any more loans, and they were doing, gosh, billions of dollars of loans a year and they just decided to stop, for whatever various reasons. So it’s a kind of a fickle market right now and some of that will probably affect, some of the commercial lending as well on your side.
Whether it’s got to you at this point, I don’t know. But the D S C R lending stuff is, they’re starting to get nervous. They really. Yeah, so it, it seems to act really similar to like, when we go into one of these, if we do a bridge note, lot of times we’ll buy a rate cap, right?
To combo that little bit more risky strategy so that, say we buy a rate cap of, we don’t want the interest rate to go up more than 2%. Which could protect us in this environment where it goes up 3%. And with, lot of that, if my understanding it’s like third party insurance companies will ensure the lender.
So it’s not the lender putting up the money. I’m wondering is that kind of the same thing going on because it, it seems a good deal for the consumer, risky for your guys’ end because everybody’s betting on the Fed raising a couple of times this next year, like a 0.5 and a 0.5 again, and that means interest rates will grow up.
So that I’m sure you’ve built in some buffer into this three year date program, but Is there like a third party insurance company ensuring the rate jump or no the program itself is an internal program. Okay. We’re willing to take on the expense, if you will, and because our closing costs are nominal.
There are three. $1,300. We’re gonna waive those closing costs to get you back into a better rate. Okay. We don’t have, all of ours are government backed. They’re not insurance backed. That’s mainly primarily for the commercial market. Fannie. Like I say, we were, Fannie Mae was the only people left standing for six months back in 2020.
That’s the only people that were doing loans. And then they, and that started to turn back around and all the, everybody jumped back in the playing field. But no, we’re not insurance backed. Okay. Okay. So ensuring it in-house is what I’m hearing. And if interest rates jump another 2% and people actually call you guys on it and refinance or change it.
Then I guess you’re just working for free, right? ? You just originate a loan for free. Everything has a cost. Yeah. And we’re gonna try to minimize that cost as much as we possibly can. We still want to help out the consumer. I and as far as your prediction on increasing the rates, I have a strong suspicion that the economy is starting to slow.
And we’re seeing those effects in the race. Cause they have come down a little bit since probably November. And which is good. And how long will they sustain there? It’s a great question, but a lot of good numbers. A lot of good data’s coming in. C P I numbers have been good. G D P numbers have been good and we just hope that’s gonna sustain itself, so we won’t have to do any more Ray hikes.
Once again, I’m not running the administration. Yeah, I’d like to see what’s in your crystal ball. The way I see it, the data is saying that we’ve come up the high of 9.1% inflation. We’re now dancing in like the six and a half range. The stuff they’ve been doing, onslaught rates has been working.
Not to say it can’t jump up for a month here or there, or even come down even quicker. To me unemployment is still unimpacted at 3.5. That’s super, super low. So there’s some B dry powder there, but I think once we get under 5%, that might be a trigger for the Fed to really ease up on the rate hikes and I agree.
I just hope it doesn’t get that far. I really do. I think the next 30 to 45 days is gonna be interesting. I think they meet, I think Powell’s supposed to talk on Friday of this week or next week. I can’t remember to give a recap, if you will, of where his agendas are, and I’m hoping it’s gonna be positive or he’s gonna say, okay I’m feeling comfortable with the economy right now, but once again, we’ll have to wait and see what he says.
Yeah, I’ve got a lot of properties waiting to refinance and, So I’m chopping at the bit. I’m just maybe a little bit more pessimistic. Like I think we’ll hover around this 5% mark and we’ll it’ll just be in the doldrums a little bit, at least, that’s what I’m pessimistically thinking.
It’ll be like this for another six months to maybe a year, unless the, I don’t know when the next election is. Maybe the Congress will get pissed off and tell the Fed that you guys need to stop screwing around with the rates and lower it again. This not a politics. Yeah. Yeah. This is not a politics show.
Yeah. . Yeah. No, I think if we hold on for the next six months, I think we’ll start seeing a lot better improvement. Yeah. The next six months is gonna be challenging. One topic that comes up a lot from my investors, and I’m not a huge fan of is all in one loans. You wanna define that and maybe let’s talk through some of the pros and cons a little.
As I mentioned to you earlier we have that available. I do know it’s a working tool similar to a heloc HELOCs a great instrument. I love it. I ha I’m in, I highly recommend it even on, if you can get one on an investment property, which is challenging, but on, on a rock find, you can use it.
And I use it all the time. You find a property that you didn’t weren’t expecting and you didn’t have the available cash at the time, tap in your helo, go buy the property and then pay it back. So it’s a working instrument that’s very similar to what the all in, what is. Okay? A lot of you can secure a loan on a primary, or excuse me, on an investment property, and let’s just say you, the loan amount is a hundred thousand, but they give you a loan.
Tap, if you will, for 200,000. So you go tap into more equity if you want, or pay it down. Very similar to a heloc. I’m not an expert in that area. It’s a very complicated product. Actually I let my competitors run with that one cuz I stay focused and in my lane on the Fanning and Freddy stuff. But I, in some cases it’s not a benefit to the client.
It’s a very narrow niche. Okay. So I wish I could expand a little bit more cuz I just don’t sell a. Yeah, come on Graham. You’re the mortgage broker. You’re supposed to sell everything, right? No, but yeah, Graham, I’m a mortgage banker, just to let you know. And I, I’ve been, like I say, we did about a hundred loans last year and all are Fannie Freddy.
Okay. So that’s hundred month last year, Graham, you what? I said a hundred a month last year. Not total. Yeah, I’m sorry. Sorry. A hundred a month. Correct. Yeah, so here’s my two bits folks. Like the reason it’s not a fanny Freddie Mac backed loan, which you guys don’t really care about on the interest side, on the insurance side, on the backend, if that’s just who holds it.
But what that means for you is the terms aren’t as good and what terms mean are rate and other like loan of value essentially in the residential world. But a consumer, it’s not really the best option because again, the terms aren’t as. When you have a, one-off loan to a one-off tie to a one-off asset like a Fannie Mae, Freddie Mac.
And what I see is it’s one of those sucker products that mortgage brokers have. That kind of, all right, my client is super confused. They don’t know what to do. It’s hard for them to do paperwork cuz it’s face is a pain in the. And let’s just get ’em into this biggest loan that we have possible.
And just that way I can extract my or mortgage origination fee and get paid so we can all, I can have my salary right. And feed my family. But it may not be the best thing for the investor cuz now you’ve given up your flexibility too, that like selling off one of the properties you can’t do that.
You gotta sell ’em all or it’s really hard to. Create a loan where it’s piece, your ability to sell off individual assets one by one. You’re talking about like a commercial loan with release clauses? Yeah. Yeah. It just never really happens like that. No, unfortunately we don’t do those type of loans.
But I think I’m just, and when you talk about this kind of stuff, it’s almost, it makes me think way back before 2008 when we had the option arm, which was an excellent instrument that was utilized by a lot of investors. But unfortunately it was abused by a lot of brokers. to get people in houses they couldn’t afford.
And that’s, a lot of people blame the option arm cause of the deferred interest and all this. And I think it’s a fabulous product. I’d love, I wish they could bring it back, but unfortunately dod Frank Dak will not let ’em do that. Yeah. Yeah. That and interest only 40, 50 year mortgage. Exactly.
And I think that’s important to know, right? Cuz like a lot of new investors, they freak out and they’re like, oh my God, there’s gonna be a 2008. Like it’s still really hard to get a mortgage. A lot of you guys are accredited investors, multiple six figure salaries, and it’s, you gotta show a lot of legit documentation to get mortgage loans, right?
It’s not the wild West days of pre 2008. Anymore? There’s no liars loan out there anymore. There’s no stated income anymore. The closest we come to a stated income is like a bank statement loan. Show me your bank statements cuz a lot of people, they’ll write off everything they can on their taxes and nu down their net income to nothing where they can’t qualify on a traditional loan.
But, so now we go into a like a bank statement loan, which shows that an incoming cash flow from whatever business they’re doing and shows enough to. A loan, which is called a bank statement loan. And we are doing those. Yeah, I almost lost all my hair with this experience. A few months ago I started to look for a house to live in.
I still rent, right? Cuz here in Hawaii or even in California, it makes, to me, it doesn’t make any sense to rent unless your net worth is two or three times greater than that of your house. They’re better off investing your money or actually growing your net worth. But I, I was like, the prices are lower now.
It’s a buyer’s market like you. Let me zig when everybody’s zagging and buy a freaking house. But then I tried to get like qualified for a mortgage and it was like impossible. First of all my like I don’t pay taxes like cuz my income is nothing. Cuz it’s all passive and I use passive losses is zero it out.
But it like to get it through like a mortgage lender for a primary residence for me. Like it just wasn’t happening. And I just got really frustrated with the whole system. It’s like, how the heck can I not qualify? For mortgage. You actually can on the bank statement loan because you got a lot of incoming cash.
And it’s all evaluated from the bank started to show. Yeah. So we did that. So like the bank, we tried, we went down the route of, I guess this is more for the business owners out there who don’t have clean 10 90 nines or W two s no, W two s, W2 s the cleanest way. So we went down the bank statement.
and they just couldn’t make sense. Like the mortgage broker I was working with was like, I’m like, they got befuddled. Cause I had more than like I got 80 something K one s and like things coming in my bank account and they’re, they were trying to make this like spreadsheet with all 80 something of ’em.
I’m like, are you kidding me? I hope you guys didn’t do this. I hope you sent it overseas for somebody to make a spreadsheet and waste 40 hours on this thing and it. It was a waste of time, cuz we all know what was gonna happen. It wasn’t gonna add up to enough. But then they went down the debt service coverage ratio, like you said, approach.
But we’re not renting it out. Then they went down the 10 99 approach and that didn’t add up. That was close. That was the closest thing. But I noticed at that point I had drifted out into the outskirts of non Fannie Mae, Freddie mc. and I was getting really horrible terms and I’m no dummy.
And I told them, if it’s not a Fannie Mae, Freddie Mac I’m, I don’t wanna pay these like semi usy rates. So I told ’em like, all right, I give up. I’m just gonna buy cash with this thing when the time comes. And then when I talk about in my next book, for you guys who are higher net worth the ticket for hot multimillion dollar homes is you don’t get the mortgage on them cuz you max out at $800 million jumbo loans.
Instead get the debt on your stock market portfolio or your infinite banking, get the loan there. I’m looking at, like with JP Morgan private client, so SFR plus 2%, so right now that’s 6.2%, but in normal times or last several years, that could have been like a 2% three. Mortgage payment, doing that type of stuff.
But if you have some high network clients that are with some of the bigger banks in the private banking world, that a lot of times those those banks, especially if you have a lot of money in their bank, they’re pretty forgiving. They really are. And definitely take advantage of those.
Yeah. What do you say, what’s your take on if a guy’s buying a, I don’t know, three, $4 million house. What is the best solution If he wants to throw on some, any good at real estate investor wants to get some debt and not just have it paid off cash. But what are they just screwed?
Or what’s the best? Now you fall into the jumbo world. And the jumbo world is more critical than the Fannie Mae world, believe it or not. Their debt income ratios are less, their credit scores requirements are a little higher. Their underwrites are a little more challenging. Yeah and those type of worlds, it can be very difficult.
It’s a lot easier in the Fannie Mae world. So when you get in those higher loan they’re very challenging. Most, as most of our stuff and our bread and butter is the turnkey stuff, so a lot of times we don’t play in that category as much. We would like to, but it’s very challenging.
Is jumbo. Jumbo loans, like over eight, 500, 800,000, it varies on the state. Seven. Yeah. 7 26 2 is the latest conforming limit. So 726,000. But depending, especially on the West coast, different counties that does go up. It is a sliding scale but just your standard conforming limit across the US is that 7 26.
For a single family. Median home in Hawaii is like 1.1, I think. , , but So are the jumbo loans, are they all Fannie Mae, Freddie Mac, or are some of ’em Fannie Mae, or are they all non-conforming? All non-conforming. Oh okay. Yeah. Like you say Aaron says that it’s a sliding scale, but the general, as you say, 7 28, 7 20.
Yes. 7 26. 7 26, which is pretty much across the board except for some of the other areas like California. They have a high balance areas. Key West Florida High, very high. One of the things, another strategy that you probably know Keith Wek, he always touts the fact that he bought fourplex with an FHA loan.
And you could actually do that today and you could actually get an FH loan, a loan up too close to a million dollars, which is crazy in some of these markets. Yeah. Great for the non-accredited guys, we’re gonna need like damn near 10 of those fourplexes to make a dip in our.
Good for our kids. I think, to maximize their debt on portfolio yeah, it’s just a bad Yeah. It’s just it’s tough, right? when first word for problems, but I always tell my guys get that money working, right? Even. Yeah. You used to be, you could get a HeLOCK for 4% and then you put it into something making plus 10.
And now the hard thing is as you sat around on your butt, now the helos are what, at 6% or seven, right? Sometimes they’re even seven. The prime is at seven and a half. Yeah. And then whatever add your bank has chose to give you, that’s what you put on top. Yeah. So it’s they’re borrowing at seven and now deals aren’t as strong.
Like the best, the more con, most conservative thing is that we have is the pet fund making 12%. So 12 minus seven, the spread is five. I mean you should still do it, but like that spread is smaller. It takes some more conviction in Kones to do what is financially right. And then here I am now I’m working with this debt service coverage ratio, 10 99 loans and they’re quoting me like nine, 10%.
Yeah. I’m like, I should still listen to this guy Lane who said if as long as the spread is there, just go for it. 12 minus 10. But I just couldn’t do it. Ah, so I, I guess that’s a confession on my part. It was just that I was, I got rate shocked at that 10% level for that type of, and I still had to put 40% down payment for that.
We’ve got one going right now for a guy in Texas and he’s doing a, he is got a million dollar home and he wants to tap into his equity. We’re doing a half a million dollar loan for him. And he’s doing a bank state loan, but he actually ended up with around seven and a half, which is not bad because he was turning down multiple times because he does his income taxes very similar to you, which it doesn’t show any income.
So he got turned down three or four times and so we said, all right, let’s do a bank statement one, which actually makes sense mck, because he had a lot of cash flow coming in, so it the bank statements do work from time to time and so that’s 50, he did what? 50% down payment on that thing or how much down?
We do have a 50% L t V, but I don’t think it’s contingent on the L T V. We could have gone up to 80% if the bank statement income would allowed him to do that. Got it. Got. Yeah, I guess that this is more advanced level stuff, but at, at some point you guys have to figure out where do you apply the debt?
Where is your best source of debt? Is it the home mortgage at 5% to 10%, like Graham stain? Is it in your infinite banking at your, it’s some semi fix that, that one doesn’t fluctuate too much. It’s around five, 6% or your security back line of credit at. 2% to 6% in floating there and you have these three options.
It’s like wildcat football again. . It’s just like when we develop a property, we do develop it. Do we keep it? Do we sell it? , do we refinance it? Do hold it short term? We’ve got three options. And then think that’s what, where people want be getting to at some point. Yeah, anything else Graham, they, for folks still with their turnkey or with their primary residents to get the equity out?
It’s pretty much the, those three loans are still available. And once you do get the equity out and you wanna inva invest and if you still wanna do it, in the turnkey world, this is actually a pretty good time because the inventory’s up, the sellers are starting to see the pressure, and they’re starting to get more concessions.
And even the sell, the sales prices are coming down just a little bit, not much, but and once again, these are for the non-credit guys, not necessarily the type of programs that you solicit. Yeah, and I would kinda piggyback on that, just summarize and, definitely seems like a lingering theme throughout this call has just been that a lot of cases time is the biggest enemy.
And sitting on the sidelines waiting for things to change. And as you do, weigh your options, just keep in mind, like Graham mentioned, Seller credits are out there. Our refinance program where we waive their fees. So there’s tools, there’s benefits out there that can act as that encouragement to help you get off the sideline and keep that ultimate goal of whatever you’re working for.
Keep that in motion. Don’t put it in pause. Yeah. Yeah. I think said, Aaron. I think I definitely put in my propeller hat on this talking about secure back line of credits, et cetera. But yeah you, I. I think, so this is a problem that we have in our mastermind group is like we try to over-optimize things and some of the new people, or especially like the podcast listeners, would probably be in this realm where you hear this stuff and you just are confused and dazed and you don’t do anything.
And it’s like you’re sitting on a couple hundred thousand dollars of debt at lazy equity in your primary residence, or 30, 40 grand in your, one of your turnkey rentals that you need to, get it re-leverage and moving. If that’s you, that’s, we’re talking to you, we’re all looking at you in the YouTube.
I like that term. Lazy equity. I like that. But yeah. Don’t you guys drop your information just in case people wanna rejigger get some cash. Or maybe go buy the dream home that now is the time to buy it. Cause it’s a virus market. Zig, when everybody’s sagging, you can always reach us at 8 5 5 3 2 6 6 8 0 2 or you can hit us at the parham team@highlandsmortgage.com and my, anyone of my teammates will jump on it typically myself.