Navigating high-interest, high-price markets: 3 Winning investment strategies

The Remote Investor

In this episode, we discuss 3 different real investment strategies that you can employ in a high-interest rate, high price real estate market.

Transcript:

Hey, what's going on everyone, welcome to the remote investor show. I'm Michael Albaum. And today I'm joined by my co host,

Tom Schneider,

Pierre Carrillo.

And for this first episode, we're gonna give you all a quick intro into us as individuals who we are as people and investors. And then we're going to be diving into today's topic. So I'll take the forefront here. So my name is Michael Albaum. I work full time in the property insurance industry for the better part of a decade. Now. I'm also a remote investor. I've been investing since 2014, with an emphasis on investing in areas that are not where I live. And we wanted to bring you all a lot of the content, about remote investing about what it's like to live a life every day as an investor, all while working a full time job, so that everybody out there who's in the same boat can do the same. Tom, you want to go next?

Sure, yeah. My name is Tom Schneider. And I am a remote investor. And specifically, what I mean by that is starting in around 2012, I started saving money and acquiring rental properties outside of where I live. So I live in Northern California Bay Area, started acquiring properties in Florida, in Georgia, in Pennsylvania, and kind of all over the place. And I've been doing that, you know, for the last 12 years or so, a little bit personal about me. I work in technology product for these types of companies doing single family rental and kind of peripheral stuff and very system minded in the way that I approach investing and general kind of career stuff. So that's, that's a little bit about me.

Love it. Pierre.

My name is Pierre Carrillo I met these guys about five years ago. And then I knew nothing about real estate, I was making my pivot into the marketing space from the performing arts world. And yeah, just got into the topic of real estate from working next to these guys and have transacted on one property. I've learned a lot through it, but I'm still a beginner. So I'm here as the moderator producer, and someone to ask the dumb questions and bring the topic that back down to earth.

You're selling yourself short, you transacted on one investment property, but then you just bought a primary residence, right?

Oh, yeah. Yeah. But that's not Yeah, that's a little off topic. But still a lot of great experience in there. But

a topic would be fun to to dig it in the future about, you know, digging out a pool that was illegally governed. So yeah, not super remote. I mean, very opposite, or very, very lucky, local hyperlocal. Interesting thing I'd love to try to dig into in a future episode.

I definitely have some tips after after that experience, for sure.

Awesome. Alright, guys. Well, today, I think I want to talk about because of where we are in the market, what are three things that people can do, given the fact that we have both high interest rates and high real estate prices, because supply and demand curves and just economics one on one tells us when interest rates go up, demand should go down. But we've just a I don't think have seen that. And B the prices haven't fallen with the rising interest rates. So we'd love to get to dive into this topic a little bit more on a couple tangible things that our listeners can do today to help combat that position themselves to be in a better spot to be able to actually make a move. So one idea that just came to me about things that people can do is just look for seller finance deals, like if you're having to go to the bank to get your financing for these deals, and the prices are high on the asset itself. And the interest rate is high. A lot of people you're not seeing cashflow. And so I just thought hey, what if we went seller financed for some of these deals and went to the seller directly? And so Tom, do you just want to give like a quick description of what seller financing is for anyone who might not be familiar,

I'm gonna start with the why Michael? So you know, these issues are on high interest rates, like well, it's like kind of painful for buyers and not Oh, you know, darn it, I can't get my kind of traditional financing it is equally painful for sellers just because that really kind of tightens the market up on who is buying from them. So I think I kind of a fun lens to take a look at this is like at the other side of the table of these folks who are selling you know, I love to do like 1031 exchanges and all kinds of stuff like that and you know, the the the type of buyers out there is just a little bit tighter. So I personally have not done a seller finance deal. So I don't want to like speak out of pocket I can kind of provide some generalities. But Michael, I think you might be a little bit better attuned or, you know, repertoire kind of to talk about this type of kind of non standard creative way in this type of environment weighted way to finance.

I love that you mentioned this the selling side too because I think that there's frustration in the market both on the buyer side but equally on the sell side. And I think like what I've been hearing from a lot of fellow investors is that a lot lot of these sellers are still living in the Circa 2021 2022 era thinking that they're going to get those prices, because interests are like two and 3% on a lot of even investment properties. And so people are like, Yeah, I can sell my property because people can buy this and pay this price. And the reality is that they just can't pay those same prices, given today's interest rate. So taking a step back for just a second, like just a seller finance deal, what is it at its core, it's basically the seller is the bank. And so Pierre, if you owned a property, and you were looking to sell it, and this works really well, when when the property is owned, free and clear, so if you didn't have a mortgage on the property, and let's say you were selling it for $200,000, if I as a buyer, were to come to you and say, Hey, Pierre, I'm gonna buy, you know, I'd like to buy your property, I'll pay $200,000. But I need financing. The options for me as the buyer is I can go to a traditional lender or a bank or credit union and say, Okay, I need 80% of this purchase price. And they might give me a loan or a mortgage for for 160 grand, I think I did my math, right, I think it's about 80% of the purchase price. And then I've got to come up with the extra 40 grand as my down payment, plus whatever closing costs and stuff such that Pierre you get your full 200 grand when we close this transaction, what a seller finance deal says is pure, because you own this property free and clear. You don't have to go pay off a mortgage on your end, you're going to collect all of the proceeds, that you're I come to you from the sale of the property, I can look to you and say, Hey, Pierre, what if you gave me a mortgage, you're going to finance this deal for me, then you and I can be as creative as possible around the terms when it comes to the mortgage or the financing. And the terms I think are one of the biggest undersung heroes of real estate deals in general. If we change the terms of a deal, like just simply the amortization, how long the loan is paid back over, that can have a significant impact on the monthly payment. And so instead of again, going to a bank, and then then telling me dictating to me what the terms are, okay, Michael, you're gonna have a 30 year amortization, with a principal and interest payment at 7% interest. This is what the payment is, Pierre, you and I can work out. Okay, what is it that you need Pierre as a seller to finance this deal for me? And I think that's why it's on. Oh,

so I am picking up what you're putting down, Michael. I think though, you know, as an investor, is there, like a really well, like made path to do this? If you haven't done it before? I feel like if I was gonna go do this, like, there's some details that I don't necessarily know, or there's like, there probably some way that I might be getting, I don't know, like hosed or screwed or like how, you know, how would you kind of like articulate going into some sort of non standard kind of financial thing, because I know, when I do a regular loan, I feel pretty good. You know, it's, you know, a lot of them done all the time. Like, I feel like there's just way more room to get kind of a raw deal with seller financing. I'd love to hear you speak to that.

Yeah, I think it's a great point. And it's funny because I've I've actually never closed a seller finance deal. But I've come pretty darn close on the sell side, somebody approached me about seller financing, and I was open to the idea. And so we were kind of dancing around, it ended up not happening. But I think you're right there there is this, there's no governing body, I would say around seller finance deals like there is in the lending world that protects both buyers and sellers. And so it's a little bit kind of like the Wild West, we can be as creative as we want. But then that gives rise in space to people taking advantage. So I would say definitely, definitely involve your agent. And your agent should know, you should have an agent that has done seller financing before, if they're going to be involved in that transaction. And two, you're definitely going to want to involve a real estate attorney, that's well versed in these types of deals, whether on the buy or the sell side, you want to be protecting yourself from those unknowns. And there's going to be contracts going back and forth, that you're gonna want to have your attorney review. And so I would say at the end of the day, these deals can be costly, because you're going to want to have your attorney reviewing these things. But by that same token, you're not going to have traditional finance charges like you would at a bank. So it might be six of one half a dozen of the other. But definitely you want to kind of cya make sure you have people that understand these transactions, reviewing everything you're signing your name to, again, both on the buy and the sell side. Like

it makes sense. Tom, you might have touched on it briefly, but it went in one ear and out the other when you said it. Why why did the seller want to do this? Yeah, totally.

So a seller might want to do this. Let's say you know, you have a you own a property, you own an asset. And all of your potential buyers are stuck at like, you know, 7% or 8% or whatever it's at. And let's say you know, you walk to you went up to a potential buyer and said like, Hey, you're going to increase the buyers capacity to buy, by lowering their monthly payment by offering an interest rate is below that of what is available through like the Standard Bank. So, you know, you're kinda like net of, you know, total money collected is you're gonna get that listing price or whatever you're trying to sell it at, you're gonna have a better opportunity to get that if you're providing financing that is advantageous. Now, you know, as from a seller's perspective, I feel like this could be a zone isn't an episode, you know, and I think like, at some point, it will be, you know, you're the mechanics of the money coming back to you is going to be a little bit different. And, you know, Michael, you can correct me if this is not, right, but it's going to be kind of more incremental, because you're acting as the bank, you know, which I think in some cases is kind of fun, you know, in that, you know, you're you're continuing to make money off of this asset, through, you know, the interest you're making on that loan that you're selling, but you're also providing a great benefit to that buyer, and that they're able to get an interest rate, you know, that is a little better feel like there's like probably like a marketplace, you know, a product and just my product that is turning on and like how what, wow, you know, why isn't there like a standardized like seller financing? You know, maybe there is, you know, holler at us, you know, in the comments on wherever you're listening, you know, a little research. Yeah, yeah.

And, Tom, just to just to kind of piggyback off what you said, I think that there's opportunities for sellers, even to maybe make the same interest rate that lenders are offering in the marketplace, or even more, simply by changing the amortization period. Most investors are familiar in the residential space with a 30 year amortization mortgage, 30 year fixed or 10 year fixed, or five year fixed amortized over 30 years. But if as a seller, you say, Hey, let's go to 4040 years, or 45 years, that just spreads out the payment, and you could still be making the same interest rate that a lender is going to be giving that person so I love the idea, I think we should do an episode on reasons to seller finance a deal, but just kind of to give you an insider look at what it was like because having had this conversation with myself and, and thought experiment, you can use the whole reason people own property, for the most part is to earn cash flow on it, there's the appreciation factor as well, too. But if you're earning money every single month as a property owner in terms of cash flow, great, that's awesome. Well, if you sell the property, most of us think, Okay, well, now that cash flow goes away, I need to go replace it with another cash flowing asset. Well, if you sell or finance the deal, you can still make cash flow every single month. But now, instead of having to deal with the property itself, and the insurance and the taxes and attendance and the repairs, you now are dealing with a borrower. And so you're still making cash flow in the form of monthly mortgage payments, right.

And you're originating that in a high interest rate environment, where if you were to sell as a lump sum and try to put that money into another property somewhere else, you'd be dealing with those high interest rates yourself? Exactly. You're gonna have to go get a mortgage. Yeah, you're just that's taking the loan as the asset.

That's exactly it, the loan becomes the asset. So I think that's a perfect way to say appear. And I want to I want to keep us moving forward, because I think yeah, Tom, you the other, we could absolutely do a whole episode about this. But so I think the second thing that people should be considering in this high price, hydrate environment, is looking for deals that have been sitting on the market for a long time. And Tom, I know that you're a very advantageous buyer, when it comes to procuring your deal. So give us some insights on why people you know, why, why is that something people should be considering right now,

you know, I think there's some sellers who don't care and you know, and can just, like, afford to let it sit for like, whatever, 100 whatever days, but I'm gonna dovetail this thing into into two pieces. One, it's, you know, getting offers in on homes that have been sitting for a while, and then to just getting more offers and like doing more kind of, like, reps, right, of like underwriting and like offering. So, you know, I've done this strategy, I'd say, it doesn't necessarily matter, like, what the environment is, is kind of like identifying those homes that have been sitting, you know, a little bit longer. I will say, though, you know, important to kind of have your eyes wide open while looking at these because it, you know, there could be some kind of little local thing like, Oh, it's right, by the railroad tracks, or, Oh, it's, you know, there's a loud dog next door or something like that. So,

you know, there's six months worth of manual labor in the backyard. There's, yeah,

there's an illegal pool or there's an illegal building. With, yeah, trouble. So, you know, I say that with a caveat. And that, you know, you still want to have that same level of diligence when going through diligence level of rigor, but I really liked this exercise and kind of dovetailing with, you know, doing it like a bunch and kind of getting those reps in the way that you're evaluating and underwriting because, you know, that doesn't cost any money. And those are skills like muscles that you're going to build over time, the more properties you looked at, and the more kind of like, performance that you're filling out. So I think this is a great strategy. and kind of a tighter environment is kind of identifying those longer, longer setting properties. Yeah,

I think I think that those are both great points to make. The whole reason I brought it up is I think that so many investors, whether it be a homeowner or an investor, look at a property see it's overpriced and then move on, and are on to the next one. And so if you never get a second chance of making a first impression, and so a lot of these properties are passed by simply because the price doesn't make sense, and are never going to be revisited by that buyer potential buyer. And so we as investors might have the opportunity to come pick up on something, if it was overpriced to begin with. And maybe it's had some price reductions, because people have already passed on it. And so targeting properties that have been sitting for a while, maybe because they were overpriced, or it could be exactly like you mentioned, Tom, that there's something wrong with them or something hyperlocal about the property that makes it undesirable. Even still, maybe we need to get a little bit more creative. As investors as buyers, maybe we need to be able to take on a little bit more value, add a little bit more hair as part of a deal. In today's high interest rate and high price environment, we're not going to be able to find the perfect deal at the perfect price. Because those are all tending to get snapped up pretty quick. So I love I love that you said that. The third thing that people should be cognizant of and thinking about in today's environment is just save more like take this time to get the reps in, like you mentioned Tom to get really to hone your craft get really good at the analysis piece at the identifying properties piece, all the while saving turbocharging, you're saving, so cutting expenses, cutting out frivolous spending, whatever that looks like, for you, as an individual look to start hoarding cash right as as much as you can, such so that when things eventually do change, whether it's pricing or whether that's interest rates, and they will, right, because markets run in cycles. You're ready? You're ready. Yeah.

And I think we're in a really interesting time. In that, you know, a lot of the mechanisms that are causing these super high interest rates, they're also like, allowing for like super high savings accounts that have like pretty high. So I mean, I've seen north of five, five and a half percent in a savings account, you know, so being crazily proactive on that front. I know you know, a lot of stock market like index funds have been ripping what I like to kind of do on this front is just love a love of drawing love a flowchart is just kind of like have, alright, my different income systems are coming in, I'm allocating XYZ to this, this much to the savings account that's getting whatever five and a half percent, the you know, all of these things but I would you know, advocate you know, writing it down, you know, if it's gonna be just like, it's just like a scrap piece of paper or, you know, something more fancy. Just so you can like kind of see like that fun flow and, and where it's going and optimizing. Kind of like turbocharging as Michael put the, your your savings that you have been proactive about it?

I dig it, man, I dig it. I'm period question for you both. What are you guys doing right now? When it comes to the investment space? Are you waiting? Are you watching? Are you actively investing give give us all an insider's look

similar, I just found out a wife is pregnant with third kid. So like, not dedicating like massive amounts of time to, to, you know, proactively kind of underwriting stuff. So, you know, more or less handing holding, standing pat, like with the portfolio that I have, you know, kind of filling up little savings accounts, here and there. And again, being proactive about that. So, you know, probably more in that, like, you know, option three bucket that we were talking about it, I love the idea of getting into seller finance deals, you know, like you were kind of like referencing before, Jim, because I mean, that makes a ton of sense in this type of environment, both on the sell and the buy side. Yeah,

there's no question. It's, you know, it's funny, similar I, I spent the last I spent probably all of 2023 getting all of my financing in order, because of the announcement that interest rates were going to be rising. So I just closed in September, a big cash out refinance deal. So I've got some dry powder as they say that I'm sitting on waiting to see what happens with prices and interest. And I've made a couple of offers on things that I've seen that that I wanted to be opportunistic on. And nothing happened. I just sold a seven unit out of my portfolio because I got a great price for it. And I said, Hey, let's just let's put up some some more savings. And then I actually just launched my own real estate education platform called My Fire Academy. So I've been really focused on that. And so if if something pops up, I'll absolutely take a swing at it, take a pass at it, but I've been so heads down focused on on a couple of other things at the moment. So I'm just going to kind of waiting and watching too, and then we'll see. We'll see. I mean, they talk about interest rates coming down. But I'm curious just to get your guys's thoughts, it's a gut reaction when interest rates come down, where do you think prices are going? It's

hard to imagine them not going like up, you know. I mean, I think there's a lot of like institutional buyers that are still, like, somewhat active. I mean, a lot of them are now kind of getting into, like build to rent type stuff. But I think just from the like, owner occupied, I think is gonna get a little bit more competitive, I would, I would assume, you know, buying in this sort of 150 to $300,000 range, where like, that gets a lot more competitive for kind of like owner occupied stuff. I would say that I'd say the other thing I'm doing right now is that I just kind of always do is I have a couple of like targeted searches with like Zillow. And Redfin is just to kind of keep my finger on the pulse and markets that I like, and any identify any kind of new stuff that's coming out. It's just sort of like a regular kind of hygiene of just knowing the market that I like, to markets that I like to invest in

here. Yeah, we're watching the interest rates just so we can refinance, because we did buy last year. So that would be nice. Looking at you guys with your sub three sub for interest rates, and

I'm in the same boat as you I bought my new primary last October, I'm sitting at a six and a half percent rate. I'm curious, Pierre, because you you just bought last year as well, when you were going through that process? Did you have this kind of interest rate? question in mind saying, hey, rates are high right now, if they do come down, prices are only going to go up. So let's buy at this price today, because prices are likely only to go higher from here.

Totally over 30 years, it just made sense. It's not the most optimal time to buy, but we wanted to start a family if we wanted to get going and it is the price that we had to pay today. If it if interest rates do come down, we'll be happy to refinance. But we're also we also made the calculation knowing that we could afford it at the rate we bought at I

think there's a quote that Michaels like itching to say, but I'm going to steal it from him. Do it. Yeah. Okay. All right. I got that. Gotta get it right. It's you you marry your house, you date your mortgage? Is that the right thing? Is that the right?

Oh, you know, it's funny, I didn't have anything in my back pocket. So I was like, I'm curious to see what you're gonna cook. I love that.

That's a great quote or subconscious. You're thinking about it. You know, the theme is like date, you can marry them your dairy your property, your mortgage, like, oh, yeah, you might be seeing it for now. But you can see it. Maybe you marry your basis? Yeah, sure. There we go. Yeah. I think the same analogy kind of works with mortgage and home. Oh,

this is great, guys. We should wrap things up here. But any final thoughts for folks listening on things to think about consider given the fact that we are finding ourselves in a high interest rate and high price environment,

get at bats get at bats underwrite homes, kind of sharpen the saw all of all of that. Jazz is is really important. Because you mean you really don't know when things are going to turn around and somebody had a crystal ball like, Man, I'd be making a lot of money. So I think put yourself in a position to jump when you you know, by looking a lot of deals, underwrite and all that, all that good stuff, because I mean, you really, you really don't know when it's going to turn. So that'd be my 10 cents. Yeah.

No, I think that's great. And I just had this visual pop into my head, anyone who doesn't know me. I'm a very visual person. And so I like I see Life in Pictures. Some people I think, think in words, I think in pictures. I just had this vision of like, remember that scene in Jurassic Park when the Raptors were like testing the fence. And like the crazy cage and the the guys like the learning. And I think Tom to your point is like, do your ad bats underwrite the deals, but also test stuff, like go make offers, because you'll test the market? You'll see. You'll never and you'll never, you never know unless you ask. And so maybe the market is still really hot and really tight. But you happen to find the seller that's open to taking an under market offer. Right? So I think get your at bats and get started building those muscles. And then test this stuff because making offers is free.

Love it. Yeah. And it's like, no, there's a whole psychology thing to it. And that definitely counts as a bat at bat is making an offer like that whole kind of fun. Fun. cycler sure,

for sure. Awesome. Well, thanks so much everyone for hanging out with us. Really appreciate it. We look forward to catching on the next episode.

Thanks, everyone. Happy investing. Happy investing.