Ep51 DSCR Loans & BRRR: Financing Strategies for Real Estate Investors with Dave Lewis

[00:00:00] Your loan to value and your interest rate, your loan to value goes down and your interest rate goes up as soon as you're a first timer. You get two or three under your belt and all of a sudden you can start hitting max and you're never going to get there until you swing the first hammer. So you just got to start doing it.

[00:00:12] From cornfields to high rises, office to industrial, houses to hotels, and every other asset class in real estate, we cover the people, the projects, and the profit. Welcome to the Investing in Iowa Show. This show is for go-doers, action takers, and business owners.

[00:00:29] It's for people like you who are sick of Uncle Sam taking a huge bite of your apple. If you're looking to get ahead of what's taking place in Iowa, learn who is doing what and how you can get in on the action. You're in the right place. Hosted by Neil Timmins, an Iowa native who has been involved in over $300 million in real estate right here in Iowa. Recording in studio from West Des Moines, here's your host, Neil Timmins.

[00:00:57] I've got Dave Lewis here on the show. Dave, welcome.

[00:00:59] Thank you for having me, Neil.

[00:01:00] I'm excited you're here. Say for the audience and say, who are you? Where are you from? What do you do?

[00:01:04] Sure. So my name is Dave Lewis. I work for Halo Capital. I am a mortgage loan originator for about 20 years. Where I'm from, I grew up in DeSoto, Adel area.

[00:01:13] Made it all the way over to Urbandale. Really big trip. Been in Urbandale ever since I was about 20 years old. Same time I got in the mortgage business.

[00:01:20] Yes. So how did you stumble into the mortgage business?

[00:01:24] So at the time I was in college and we had another gentleman and I had someone approach us about doing mortgages and how much money you can make. He's exactly the guy off of the movie, the big short. It's just greeny, gross. You don't want to deal with them. We didn't know that at the time. We got in there, realized what was going on, made some money, but realized what was going on and got out of there and got to more reputable spot.

[00:01:44] Okay. That's what got me in the business. It was just that greasy, grimy, go make money mentality.

[00:01:49] What year was that?

[00:01:50] 2004.

[00:01:51] All right. So things were on the up. That was the year I started in real estate.

[00:01:54] Okay.

[00:01:54] Yeah. Things were getting really good.

[00:01:56] So I'd tell people, I'd be like, well, what'd you do in 08 and 09? I'm like, you got to remember, I was 20 at the time in 04. So 08 and 09, I was 24. I was more worried about other things at that period in my life and not so much real estate and what was going on.

[00:02:09] I also tell people, I think it was a blessing because so many people who were successful in 04, 05, 06, when 07 and 08 came around, they were confused. They didn't know what to do with themselves.

[00:02:20] Yeah.

[00:02:20] They were lost. Whereas I was like, I don't know. I just head down and yeah, business as usual for me.

[00:02:25] A lot of those people found new professions.

[00:02:26] They did. And we've seen that happen again in the last few years and we're seeing that happen right now. It's your same thing. When it's easy, we have this influx of people, real estate side, mortgage side, whatever.

[00:02:35] Yeah.

[00:02:36] When it gets hard, those people get weeded out pretty fast.

[00:02:38] I've always said, I bet you could probably track the number of agents, as I suspect in your world, right? The number of mortgage brokers industry to its peak.

[00:02:46] Yes.

[00:02:47] And then identify, all right, when we get to cross a certain threshold, you better be mindful of what's coming next.

[00:02:53] So we were just in a class and Craig Christensen was there, who's the guy that runs the division of banking.

[00:02:58] And now they call it something else under some other silo or whatever of the government.

[00:03:02] But we are peak was like 14,000 loan officers in the state of Iowa. A lot of those are quick and in Wells Fargo call center people.

[00:03:10] We're down to like 6,000.

[00:03:12] Wow.

[00:03:13] Like 40% of the peak just in two, three years, not like 20 years ago, like two years ago.

[00:03:19] Yeah.

[00:03:19] It's pretty wild.

[00:03:20] What are some of the biggest changes that you've seen over the course of your career as it relates to financing?

[00:03:26] Well, I mean, Dodd-Frank was obviously huge in the rollout of that.

[00:03:29] The biggest thing that I think I've seen last was the CD requirements or closing disclosure requirements for primary residents and the timing of that.

[00:03:36] And real estate agents being confused about when a seller has to see one versus a buyer and all of how that shakes out.

[00:03:42] So in the first few years I was out, there were closings missed because they didn't get sent out at the right time or they weren't disclosed properly.

[00:03:48] That's kind of ironed itself out.

[00:03:49] But for a couple of years, that was rough.

[00:03:51] Yeah.

[00:03:51] That was really rough.

[00:03:52] And we're starting to see that now a little bit with the real estate commission.

[00:03:55] There's no consistency to it.

[00:03:57] I mean, the change isn't monumental in my opinion, especially from the commercial space.

[00:04:01] We've always negotiated commission in the commercial space.

[00:04:03] So it's kind of business as usual, really, from my perspective.

[00:04:06] But from the agent's perspective and the paperwork they have to do, it's different.

[00:04:10] Yes.

[00:04:10] And it's not consistent.

[00:04:11] And the verbiage isn't consistent.

[00:04:13] And so that gets a little bit confusing right now.

[00:04:16] And what I have to count and not count.

[00:04:18] And agent pushback, like, we'll have to ask agents, how is this deal being compensated?

[00:04:22] We have to know.

[00:04:23] We do have to know because if a client agrees to pay their own buyer side commission, we have to source that now.

[00:04:29] So my cash to close number, if it's financed in the deal, maybe let's made up math, $10,000, right?

[00:04:35] Yep.

[00:04:36] If there's a buyer commission in there, the buyer agreed to pay five grand.

[00:04:39] I have to source $15,000.

[00:04:41] As part of the transaction.

[00:04:42] So we have to know that information.

[00:04:44] And we get pushback and people yelling at us, telling us we don't need it.

[00:04:47] It's like, we don't actually care.

[00:04:49] We have to do our job, though.

[00:04:51] So we have to show it.

[00:04:51] It's interesting.

[00:04:52] Yeah.

[00:04:53] Well, that's incredible.

[00:04:54] If it's POC, right?

[00:04:55] Paid outside of closing.

[00:04:56] You still have to prove that they have the funds to do it.

[00:04:59] Right.

[00:04:59] But they're still part of the real estate transaction.

[00:05:01] Correct.

[00:05:01] You still have it on a real estate document.

[00:05:03] That's right.

[00:05:03] So we still have to know about it because we're facilitating that transaction.

[00:05:07] Yep.

[00:05:07] And if you actually paid commission truly outside of closing, that's not legal from Fannie, Freddie, FHA.

[00:05:14] All that money has to be sourced and shown on a closing.

[00:05:17] Yeah.

[00:05:17] And disclosed to the lender.

[00:05:18] Correct.

[00:05:19] Otherwise, money has to be disclosed to the buyer.

[00:05:21] Like everything has to be disclosed.

[00:05:23] Otherwise, it's not technically legal.

[00:05:24] So that's why we care.

[00:05:25] Yeah.

[00:05:26] That is interesting.

[00:05:27] One of the things that I find interesting about you is you run the gamut relative to what it is that you finance.

[00:05:32] Yeah.

[00:05:32] What you do.

[00:05:33] A lot of people end up doing one thing and just doing one thing forever.

[00:05:36] You seem to have some varied interests.

[00:05:38] And that probably opens up the ability to converse, have conversations, think about, and help a multitude of people.

[00:05:44] Yeah.

[00:05:45] So we're talking a little bit before we started this about, so when I started in the business, it was just primary residence, traditional mortgage lender helping people.

[00:05:52] But I myself got into doing investment properties, saw what banks do and don't do, realized there's opportunities in the marketplace of what can be done.

[00:06:00] And trying to get all of that molded into one big happy, I'm using my hands, you can't see this, but all one big happy hug or circle.

[00:06:08] So at Halo Capital, we do, and I, we do run from small private money of like $3,000, $4,000 payday loans, kind of for employers that are self-employed looking to fund payroll that week.

[00:06:20] Yeah.

[00:06:20] All the way up to multi-million dollar, you know, commercial properties and anything in between.

[00:06:25] Yeah.

[00:06:26] One of the things I think has been the, one of the largest changes in relation to single family investments is the creation and the usage.

[00:06:35] I say widespread across the country, maybe not necessarily here in the backyard, but DSCR loans, right?

[00:06:39] It relates to single family.

[00:06:41] Maybe for the audience's sake, if they don't know, if they've never heard of DSCR, what does that mean?

[00:06:46] And then, you know, what is a DSCR loan as it relates to single family property?

[00:06:50] Yeah.

[00:06:51] So DSCR is just debt service coverage ratio.

[00:06:55] So essentially what you're doing is you're using the debt, in this case, the house or the apartment complex, the income that unit can generate.

[00:07:03] Can it, will it cover the mortgage payment?

[00:07:06] That's it in a nutshell.

[00:07:07] That's as basic as it gets.

[00:07:08] What we were talking about and what happens is banks start to have their own rules and policies around how they want to implement that and what they count for the debt that you have to qualify with, what they'll use for the income that you want to count.

[00:07:20] And so we have to look at it depending on what type.

[00:07:23] Single family is different.

[00:07:24] So back up.

[00:07:26] So one to four unit single family on debt service is pretty straightforward.

[00:07:29] You have a thousand dollars a month in rent.

[00:07:31] We need to keep your payment ideally in that scenario at a thousand dollars or less.

[00:07:35] One to one.

[00:07:36] One to one.

[00:07:37] We can do that all day.

[00:07:38] The magic number is 1.25 or higher.

[00:07:42] That's the gold star.

[00:07:43] You don't have to be at the gold star, but that's the gold star.

[00:07:46] So that would be round math, a rent of 1250 and a mortgage payment of a thousand dollars.

[00:07:51] The benefit of that being the gold stars, I suspect what I hear you saying or reading between the lines is you probably get better debt pricing.

[00:07:57] Correct.

[00:07:57] You get higher loan to values and you get higher or lower rates.

[00:08:01] Yep.

[00:08:01] Yep.

[00:08:02] Okay.

[00:08:02] Yeah.

[00:08:02] And single family homes.

[00:08:04] Yeah.

[00:08:04] The benefit of this is you can get a 30-year fixed rate.

[00:08:07] That's the other part of this.

[00:08:09] So this style of loan where you're comparing the rents to the payment is very similar to commercial financing in general.

[00:08:15] The difference is going to be that we're not doing it on a five-year balloon or arm with a 20- or 25-year amortization.

[00:08:21] This is a true 30-year fixed amortized over 30 years.

[00:08:25] So now what you're qualifying for, again, that payment is going to be lower than what a bank would use for a payment.

[00:08:31] So you don't have to have the same math to make the deal work.

[00:08:34] We just priced the, we're working on a pretty significant refinance on a commercial property.

[00:08:39] And it just, you know, we're interacting with a handful of banks, but I just had a bank yesterday.

[00:08:43] This is an absolute net deal.

[00:08:45] So I'll explain that.

[00:08:46] But I'm going to tie this back.

[00:08:47] To the point I want to make here.

[00:08:49] Absolutely.

[00:08:49] Net deal means the tenant's responsible for everything.

[00:08:52] Taxes, insurance, the roof breaks, the parking lot breaks.

[00:08:55] It does not matter.

[00:08:55] They're responsible for all of it.

[00:08:57] So the bank sent us their underwriting and they, off the top of the rent, they hit us for 5% vacancy.

[00:09:04] They hit us for 3% in replacement reserves.

[00:09:08] And they hit us for 4% on management.

[00:09:10] And my argument to them, of course, you know, we have almost a decade left on a lease is there is no management.

[00:09:15] They pay everything.

[00:09:16] Literally a check, ACH comes in once a month.

[00:09:20] There is no interaction with them.

[00:09:21] I mean, there is no management, but we take it, you know, add those three up.

[00:09:25] It's a 12% haircut off of rent.

[00:09:28] Right.

[00:09:28] Before we can then go price.

[00:09:30] That's our new number.

[00:09:31] Yes.

[00:09:31] And what I hear you saying is you're not taking a haircut off that rent number.

[00:09:35] So uniquely, as you mentioned, we have a big gamut.

[00:09:37] So I have a couple of local banks that I partner with as well.

[00:09:40] Yeah.

[00:09:40] I don't work at a bank, so I don't know everything that they do, but I'm familiar with their product pretty well.

[00:09:44] Sure.

[00:09:44] I can offer it.

[00:09:45] Yeah.

[00:09:45] So yes, they typically, depending on the bank, will have a vacancy rate, a maintenance rate, a property management rate, and some other stuff baked in it as a bird flies rate of something.

[00:09:56] Yeah.

[00:09:56] And it's somewhere between 8% to 15% that usually take off the top.

[00:09:59] Yeah.

[00:10:00] For anything that I do on the secondary market, there's none of that.

[00:10:03] It is face value.

[00:10:04] Right.

[00:10:04] So now we're comparing apples and oranges a little bit.

[00:10:07] In a good way.

[00:10:07] Yep.

[00:10:08] Because we're taking face value for a 30 year versus a haircut over 20 or 25 years.

[00:10:14] One thing that I find interesting is you say it's a secondary market.

[00:10:18] You're underwriting this to a standard in which ultimately is going to trade on Wall Street because they're going to package these things in a ballroom.

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[00:11:04] So that's the question I get a lot.

[00:11:05] Well, who's buying these?

[00:11:06] Who's buying them as mutual funds and insurance companies?

[00:11:09] That's who's buying them.

[00:11:09] They have to invest in something.

[00:11:11] They can't invest in the stock market.

[00:11:12] So they're investing in tangible assets.

[00:11:14] We're packaging these together.

[00:11:15] They're not insured by the government.

[00:11:17] So they're not taking a bunch of money off the top.

[00:11:19] But if people don't know, that's what they do on standard FHA conventional deals.

[00:11:23] The government takes some of the money before the investor gets it.

[00:11:25] This is all just investor money.

[00:11:27] Just whatever they want to do.

[00:11:29] I don't know.

[00:11:29] We'll have to find out because every investor has different rules around certain little

[00:11:34] things.

[00:11:34] Yeah.

[00:11:35] And that's what's unique to us.

[00:11:36] So we have about 30 investors that we work with.

[00:11:39] I imagine like 12 of those are straight commercial, but every one of those has a little different

[00:11:43] rules.

[00:11:44] Good example.

[00:11:45] I had a property where it was a six unit and one of the overall square footage worked.

[00:11:50] The numbers worked and all of them.

[00:11:51] It mathed just fine.

[00:11:52] But the investor had a policy that no individual unit could be below 500 square feet.

[00:11:58] So we got the appraisal back.

[00:12:00] One of the units was 450.

[00:12:02] So that investor that squashed the deal.

[00:12:04] They wouldn't do it as just their rule.

[00:12:06] Couldn't get around it.

[00:12:07] At another investor, the average square foot has to be over 500 square feet.

[00:12:12] So I could move that to that investor knowing that now they had different policies.

[00:12:16] So same concept, but a little bit different in how it's underwritten.

[00:12:19] So we can kind of nuance in and out of those as necessary based on the property.

[00:12:24] Yeah.

[00:12:24] When you say investor, it's largely a big financial institution that's behind you that

[00:12:28] ultimately has an underwriting standard, funds the deal, does everything.

[00:12:33] And then ultimately they package it up and sell it to somebody else.

[00:12:36] Correct.

[00:12:36] Two services and usually droves of a hundred units or what have you.

[00:12:39] As a result of having, you know, back to the single family side, I would imagine most

[00:12:44] of those, what you call the investors behind you, you can play stuff with most of those

[00:12:48] people probably have very similar standards.

[00:12:51] Is that fair to say?

[00:12:51] No.

[00:12:52] They're all over the board.

[00:12:53] I would say of the standards that we have to meet, 70 to 80% of them are similar.

[00:12:57] Okay.

[00:12:57] But I would say there's probably a good 20 to 30% that are investor specific, be it

[00:13:01] loan amount, be it property type, be again, that square footage thing, just little nuances

[00:13:05] like that.

[00:13:06] There's more differences than you would think.

[00:13:08] Yeah.

[00:13:08] Can you give me an example?

[00:13:09] I mean, can people cash out or refinance if they've got a same with you like this, can

[00:13:14] they package property together and do more than one at one time?

[00:13:17] And so some of our investors will allow you to do cash out on with this debt service coverage.

[00:13:22] If you've got leases in place up to about 75% of the property's value.

[00:13:27] Right.

[00:13:27] And you can package if you want to, you can do those individually.

[00:13:30] So if you had 10 properties, you could do 10 independent loans, all at 75% go from there.

[00:13:35] We have some investors that will package them together in either pools of a million dollars

[00:13:40] up to like 10 or 12 units, individual homes, and just do one loan against all of them.

[00:13:46] So yeah, we could do 10, 12 units or single family homes, 75% cash out, get copies of

[00:13:51] 12 leases, get 12 appraisals, but it's one loan, poof away you go.

[00:13:55] Probably say some fees as a result of that.

[00:13:57] Yeah.

[00:13:57] So the last one we're working on, say about $1,500 a house in fee.

[00:14:01] So it'll request 12 units or 10 units in that case.

[00:14:04] Yeah.

[00:14:04] $15,000, $20,000 you'd save by packaging that together.

[00:14:08] Wow.

[00:14:08] And then you've got one payment, especially if you're managing your own portfolio.

[00:14:12] Sure.

[00:14:12] Now you've got a few less things to check on every month as you're writing checks.

[00:14:16] Yeah.

[00:14:16] Try to simplify it.

[00:14:17] That you've got confidence to know that you have a fixed rate for 30 years.

[00:14:22] And that's on a fixed rate for 30 years.

[00:14:23] So that's the other piece of that puzzle is, in theory, if you go to a bank and get a five

[00:14:27] year balloon and five years are going to come back to you and say, oh, you're still good

[00:14:30] and redo it.

[00:14:31] And it'll be pretty simple.

[00:14:32] But if your credit's gone down or you've got a job loss or the tenant trashed the house

[00:14:36] and you're in a limbo spot, you're in a pretty tough spot with the bank at that point.

[00:14:40] Or if interest rates go up.

[00:14:42] Yeah.

[00:14:42] And then there's that piece of the puzzle.

[00:14:43] If we go back to what the 80s and they're at 13, 14%, you don't have to worry about it.

[00:14:48] Right.

[00:14:48] They do have prepayment penalties.

[00:14:49] We can waive them.

[00:14:50] Again, there's a fee.

[00:14:51] Usually a short period, one to three years.

[00:14:54] We can go five on the rates cheaper on a five.

[00:14:57] Yeah.

[00:14:57] But you can sell them off individually.

[00:14:59] In that case, there's a little bit of a penalty, but you can sell them off.

[00:15:02] But you don't have to refi.

[00:15:03] You can though.

[00:15:04] So if rates go down, back down to Fed goes back to zero, which I doubt ever, but maybe.

[00:15:09] Right.

[00:15:09] Then you could refi them all, that whole package again.

[00:15:11] Or I could refinance the whole package again.

[00:15:12] If rates dropped to fives instead of sevens and eights where they're at, if they dropped

[00:15:15] to fives, sure, let's refi.

[00:15:18] What kind of properties are you investing in?

[00:15:20] And I'm wondering at the same time, how are you utilizing your skills and your expertise

[00:15:25] on the finance side, kind of put a package together for yourself?

[00:15:28] Yeah.

[00:15:29] So I've been doing mortgages about 20 years.

[00:15:31] So about eight years ago, me and my business partner on the real estate side, not the mortgage

[00:15:35] side, we're like, hey, we should buy a house.

[00:15:37] He used to do construction.

[00:15:38] I'm like, sure.

[00:15:39] I've got some cash burning a hole in my pocket.

[00:15:41] I guess let's figure it out.

[00:15:42] Yeah.

[00:15:42] So we bought our first house and just kind of winged it.

[00:15:44] Honestly, we didn't really know who we're doing.

[00:15:46] I'm sure if you calculated our hours spent for how much money we make it, it's a really

[00:15:50] scary number, how low it is.

[00:15:52] But from there, I got onto bigger pockets and started listening to different things.

[00:15:55] It's kind of got that itch and kind of researched more of the burr method, really.

[00:15:59] Yeah.

[00:15:59] And nowadays, we've got 10 doors, all burr method.

[00:16:03] Yeah.

[00:16:03] We've got other flips in there that didn't work for the burr, that just worked as a flip.

[00:16:06] Sure.

[00:16:06] That we've done as well on top of that, but we've got 10 in the last few years that at

[00:16:10] this point on paper, I have zero money into them.

[00:16:13] I have several hundred thousand dollars in equity and we cash flow several thousand dollars

[00:16:17] a month.

[00:16:18] I had money in the transactions along the way.

[00:16:20] Yep.

[00:16:20] In my business, we had money up to them, but we've got it all back out and then some.

[00:16:25] Yeah.

[00:16:25] And we still have hundreds of thousands of dollars in equity and cash flow thousands

[00:16:29] of dollars a month.

[00:16:29] That's incredible.

[00:16:30] What are some of the lessons you learned along the way on that side in the real estate

[00:16:34] business that took you probably from the first transaction to success?

[00:16:37] Yeah.

[00:16:37] Is, you know, we all think we can do it cheaper ourselves, right?

[00:16:41] Oh, I can get that done.

[00:16:42] Oh, I can do that.

[00:16:43] No, you can't.

[00:16:44] And maybe I shouldn't say that.

[00:16:45] You can maybe, but you really have to start.

[00:16:47] There's books and all things you can read about.

[00:16:49] You know, if your hourly rate that you normally get paid is 40 bucks an hour, but if it's like

[00:16:53] a hundred or 200 or 300 bucks an hour, it's pretty hard to justify spending your time

[00:16:58] sanding drywall when you normally don't make $20 an hour.

[00:17:02] It's pretty hard to justify that on a Saturday away from your family.

[00:17:04] In my mind, everyone's different.

[00:17:06] So obviously that's the biggest thing is being quick to allow other people in that space

[00:17:11] to do their job.

[00:17:12] We save more money by letting someone who is a drywaller do it because of the time and

[00:17:17] overhead carrying costs, right?

[00:17:18] So we come to you or someone like that for hard money.

[00:17:20] Right.

[00:17:20] So on some of these deals, we do hard money up front.

[00:17:22] Yep.

[00:17:22] I can get money sometimes secondary market.

[00:17:24] Quick easier sometimes works better.

[00:17:26] So we use hard money as well.

[00:17:28] If we have carrying costs and you think, oh, I can save two or $3,000 by drywalling this

[00:17:33] or putting in this flooring or having my brother, Bob fix that plumbing issue, but it costs

[00:17:38] you an extra 30 days of carrying costs.

[00:17:40] Did you really save any money?

[00:17:41] Right.

[00:17:42] And usually the answer is no.

[00:17:43] Correct.

[00:17:44] So that's the biggest thing is just that and just not being scared.

[00:17:46] Speed does matter a lot.

[00:17:48] You said oftentimes you can do it cheaper.

[00:17:50] You know, I've been in, we had flipped hundreds over the years.

[00:17:52] If I spend too long inside of a house with the guys talking about whatever, they literally

[00:17:57] like time to get out.

[00:17:58] Time for you to go.

[00:18:00] They know.

[00:18:00] I just know.

[00:18:01] They know.

[00:18:01] I don't own a hammer.

[00:18:03] I always said if my wife ever left me, I'd own 50% of her tools.

[00:18:08] I'm skillless in that regard.

[00:18:10] We all have been blessed in one way or another.

[00:18:11] Know thy strengths.

[00:18:13] Yeah.

[00:18:13] Well, and I grew up, my dad did construction.

[00:18:15] Yeah.

[00:18:15] And so I know how to hang drywall.

[00:18:17] Yeah.

[00:18:17] I have tools.

[00:18:18] My hands are soft though.

[00:18:19] And I wear gloves when I swing a hammer.

[00:18:22] Or just so everyone on this podcast knows the reality.

[00:18:25] But I just don't do it.

[00:18:26] I let those guys do it.

[00:18:27] Get with the right people.

[00:18:28] The other thing that I think I've learned and I tried to talk about it in some of the

[00:18:32] other groups we're in is you gain so much knowledge and are exposed to so many more

[00:18:36] opportunities just by doing it.

[00:18:38] Sure.

[00:18:39] That's probably the biggest insight I've gained literally this morning.

[00:18:41] Doing it meaning taking action.

[00:18:43] Yeah.

[00:18:43] So literally this morning, I drove by a house I'm currently flipping.

[00:18:46] Yeah.

[00:18:46] And I was in there looking at the drywallers who were going too slow for me.

[00:18:49] And I was there and my general showed up and we were talking and he's like, oh, hey,

[00:18:54] I got a lead on this house.

[00:18:55] I don't think I can buy it.

[00:18:56] Do you want to go look at it?

[00:18:57] I'm like, ah, maybe.

[00:18:58] So they'll like right now.

[00:18:58] They want to sell it.

[00:18:59] It's from a guy that lives in Tennessee.

[00:19:01] He doesn't want it anymore.

[00:19:02] He wants to do seller financing.

[00:19:04] Yeah.

[00:19:04] I'm like, well, I'm in.

[00:19:05] Let's go.

[00:19:06] Yeah.

[00:19:06] So I picked up a house this morning by literally going and looking at drywall in another house

[00:19:10] just because I was there and checking on some.

[00:19:13] It's unbelievable.

[00:19:14] Opportunity just taking action creates more opportunities.

[00:19:16] It does.

[00:19:17] We've had ones like that where the neighbor will buy a house and they're working on it and

[00:19:20] the neighbor will come over and go, do I buy mine too?

[00:19:22] Yeah.

[00:19:23] So we call that.

[00:19:24] So way back in the day, I used to sell windows and siding for a hot minute, which is wild

[00:19:28] and it's a story for another time, but we used to call it teeing up the lead, right?

[00:19:31] So you'd go to a house that needs a rough, but you'd look at both neighbors and across the ship.

[00:19:34] That's the T.

[00:19:35] So I do that now when I go look at properties, I knock on all the doors.

[00:19:40] I talk to all the neighbors.

[00:19:41] I give them my business card, let them know if they see shenanigans or know anything to

[00:19:45] call me.

[00:19:45] But I also am like, hey, we buy houses, cash.

[00:19:48] Have you ever thought about, if it looks a little rough, have you ever thought about selling

[00:19:51] your house?

[00:19:52] You'd be amazed the conversations, not me, but my sister or whatever.

[00:19:55] I amaze the conversations just knocking on some doors.

[00:19:58] You're going to be there anyways.

[00:19:59] You have valid reason to knock on the door and just give them a heads up.

[00:20:02] Hey, there's going to be a bunch of dudes in trucks coming up that you may not know who

[00:20:04] they are.

[00:20:05] Yeah.

[00:20:05] If they're causing problems, call me.

[00:20:07] Most of the time, you got a friendly neighbor and somebody sooner or later hit that neighbor

[00:20:10] who watches the whole neighborhood.

[00:20:11] It was everything.

[00:20:12] Oh, dude, we get those calls all the time.

[00:20:14] Sure.

[00:20:14] Hey, Tim was over there today.

[00:20:15] Yep.

[00:20:16] Hey, thanks.

[00:20:17] Maybe I was calling you for an update about who was there.

[00:20:20] Yeah.

[00:20:20] Yeah.

[00:20:21] It's crazy how much that stuff just creates opportunities.

[00:20:24] So really trusting the professionals, you know, and the analogies that I use a lot that

[00:20:27] I read in a book, correction, I listened to in a book.

[00:20:30] Yeah.

[00:20:30] But you can read about swimming, but until you're actually in the water, it doesn't matter.

[00:20:34] Yeah.

[00:20:34] And it's the same thing with real estate at a vast and a lot of people like to read about

[00:20:37] it and it's great to get your general knowledge, but you really just need to do it.

[00:20:42] Yeah.

[00:20:42] And get some advice from some people who can help you, but get your first deal under your

[00:20:46] belt.

[00:20:46] Because even with some of the financing types we're talking about, one of the first questions

[00:20:50] that I have to answer is what's your experience?

[00:20:53] So we can also do fix and flip loans.

[00:20:56] Yep.

[00:20:56] Just like your hard money, right?

[00:20:57] So the first question on that questionnaire is what's your experience?

[00:21:01] Right.

[00:21:01] And your loan to value and your interest rate, your loan to value goes down and your interest

[00:21:06] rate goes up as soon as you're a first timer.

[00:21:08] You get two or three under your belt and all of a sudden you can start hitting maxes and you're

[00:21:12] never going to get there until you swing the first hand.

[00:21:13] So you just got to start doing it.

[00:21:15] What's your goal in your rental portfolio?

[00:21:18] I'll set it up this way.

[00:21:19] Interest rates have moved pretty heavy over the last 24 months.

[00:21:22] Tell me more.

[00:21:22] And so I'm curious about how that's impacted your BRRRR methodology and then what the goal

[00:21:27] is moving on a forward basis, utilizing the BRRRR methodology.

[00:21:31] If you're a house clipper, execute the BRRRR strategy or do double closings and are in need

[00:21:36] of money.

[00:21:36] Little Guy Loans is your go-to lender here in the Des Moines area.

[00:21:40] Time is money.

[00:21:42] Loan approvals in 24 hours.

[00:21:44] Closings in five days.

[00:21:46] Little Guy Loans was founded by Neil Timmons, an investor just like you.

[00:21:50] Since he has been in over 10,000 homes in Des Moines, there's never an appraisal.

[00:21:55] Houses, multifamily and commercial property loans up to $1 million.

[00:22:00] Check out www.littleguyloans.com.

[00:22:04] So the only thing that it's impacted for me would be, well, two things.

[00:22:08] One, rents have gone up in the last two years, the same time that rates have gone up.

[00:22:13] So I would say proportionately, it hasn't really changed much on paper, a little bit.

[00:22:17] It has papered out a little bit tighter.

[00:22:19] But I do two numbers.

[00:22:20] So I do my BRRRR method right now.

[00:22:22] Am I making enough money to meet my debt service coverage to do a refi and get out of

[00:22:26] a hard money or a construction loan?

[00:22:28] Can I meet that criteria?

[00:22:29] And then what does my math look like in five years?

[00:22:33] What I mean by that is if I can refi to a five or a six versus a seven or an eight.

[00:22:38] That plays into if I'm waffling on a property we recently bought, right now isn't a home run.

[00:22:43] It worked.

[00:22:44] It burred.

[00:22:44] We broke even.

[00:22:46] We're making about $100 a month on it.

[00:22:48] It's rented.

[00:22:49] It's not a great deal.

[00:22:51] We didn't lose any money on it.

[00:22:52] But I know that when rates go to five or six, now it's cash flowing for your $400 a month.

[00:22:56] So that deal was a good example of where I'm looking at rates.

[00:23:01] Does it cash flow today?

[00:23:02] Am I losing money?

[00:23:03] No.

[00:23:03] Is it a home run?

[00:23:04] No.

[00:23:05] Will it be a home run when rates drop?

[00:23:07] Yes.

[00:23:08] But I'm going to buy it today because when rates drop, it's going to cost more to buy

[00:23:11] it.

[00:23:11] And that's the other part of this puzzle that we haven't talked about that it's huge

[00:23:14] that people are missing, I think.

[00:23:16] But what's not going into your analysis because you don't play that game is the appreciation

[00:23:20] factor.

[00:23:21] Correct.

[00:23:21] But I think that what's unique about that here and where I caution people when I talk to them

[00:23:26] is feel free to Google whatever you want, right?

[00:23:28] Look it up or TikTok.

[00:23:29] I guess Googling isn't a phrase for these young kids these days.

[00:23:32] If you want to TikTok it or whatever, the problem is they don't take into account what

[00:23:35] happens in Iowa.

[00:23:36] So they talk about these wild swings we see in like Arizona, Las Vegas, California, New

[00:23:41] York.

[00:23:42] We don't get those here, right?

[00:23:43] In 07 and 08, on average, the appreciation in Iowa was negative 0.1.

[00:23:50] So I'm not saying that there's not people, you don't know Tom's sister's friend, Sally,

[00:23:54] who had a house who bought it for too much and didn't make any money.

[00:23:56] That happened.

[00:23:57] But as a group in the state of Iowa, even in the worst bubble that we had in real estate,

[00:24:04] Iowa on average, negative 0.1.

[00:24:06] That's not my, I can send an article whoever wants it from the state of Iowa.

[00:24:09] So we tend to average around 4% to 5% appreciation.

[00:24:13] Last year was over 5%.

[00:24:14] So these houses at 200,000, not only if you don't buy them today at 7% rate, let's just

[00:24:19] use that as a benchmark or the watermark.

[00:24:21] The house is 200,000 today at 7%.

[00:24:23] I'm not sure I want to buy it.

[00:24:24] Well, I'm going to tell you in two to three years when it's 240 at 5%, it's not going to

[00:24:29] make any better math on paper.

[00:24:31] Yeah.

[00:24:31] That's also 5% unlevered.

[00:24:33] Yes.

[00:24:34] So as soon as you start adding in, they've got a 70% or 80% loan to value.

[00:24:39] Right.

[00:24:39] You know, the equity multiplier as a result of that appreciation.

[00:24:42] Are massive.

[00:24:43] Correct.

[00:24:43] It's huge.

[00:24:44] And so that's where I think, so we don't typically use that.

[00:24:47] So when you Google or look up, how do I calculate NOI?

[00:24:50] How do I look up DSCR?

[00:24:51] How do I calculate, I just forgot a term, cap rate.

[00:24:55] Sorry, there I go.

[00:24:56] If you want to do it by the book, you don't take that into account.

[00:24:58] I do in my personal stuff because I feel comfortable with what I know, what I've seen

[00:25:03] happen and know that, okay, if I can buy this at this number while I'm not making a bunch

[00:25:07] of money monthly on it, maybe right now I've got this game coming.

[00:25:09] Yeah.

[00:25:10] In bigger picture in Iowa, one of the fastest growing states, the Midwest in general, if

[00:25:15] you look at an appreciation schedule for projections, it's one of the highest.

[00:25:20] They're saying the coasts are already pulling back.

[00:25:22] Rents are coming down on multifamily.

[00:25:24] They're going up on single family nationally, even more so here from what I see personally.

[00:25:29] So I do take that stuff into consideration when I look at buying stuff for myself or when

[00:25:33] I talk to investors, just about what works.

[00:25:35] Now you still have to make it work on paper today to get the deal done.

[00:25:38] Yeah.

[00:25:38] But if it's tight, I don't feel as concerned because I feel like the market's in a good

[00:25:42] spot for future growth, I should say.

[00:25:44] Yeah.

[00:25:45] The goal there is, or the hope is we have tremendous growth that actually real.

[00:25:49] Yeah.

[00:25:50] Supply and demand, the largest things that are removed pricing, simply a factor of supply

[00:25:54] and demand.

[00:25:55] Right.

[00:25:55] We have job growth and population growth.

[00:25:58] Yeah.

[00:25:58] We're headed one direction as it appears, and it's been the fastest growing Des Moines.

[00:26:02] MSA has been the fastest growing city in the Midwest for more years now.

[00:26:05] Yeah.

[00:26:06] And if you look at a general population, so we've got a couple of things in housing that

[00:26:10] are interesting.

[00:26:10] So you've got boomers who have nowhere to go.

[00:26:13] What I mean by, and this is a bigger housing conversation, I guess, for this, but they have

[00:26:17] nowhere to go.

[00:26:17] So the retirement communities and the long-term care facilities, people have a stigmatism of

[00:26:22] nursing homes from the 70s and 80s, and probably rightly so.

[00:26:26] I remember my grandma being the one and it was awful.

[00:26:28] Right.

[00:26:28] And so they don't want to go anywhere.

[00:26:29] So they're holding onto their houses, which isn't creating supply.

[00:26:32] Right.

[00:26:32] At the same time, we have the next largest population in the US turning somewhere between

[00:26:37] the ages of 25 and 33.

[00:26:39] Well, the average first-time home buyer is 33 and a half historically.

[00:26:43] So you have this swath of population coming into a market.

[00:26:47] Boomers aren't selling.

[00:26:48] You have people coming that need to buy.

[00:26:50] We're already a housing shortage.

[00:26:52] Correct.

[00:26:52] It's not.

[00:26:53] And they're talking about trying to grow the US in general because we're actually have a

[00:26:57] population decrease.

[00:26:59] Correct.

[00:26:59] Without immigration, which getting into that.

[00:27:01] But from a population standpoint, we're trying to grow.

[00:27:03] We don't have enough housing.

[00:27:04] So that's going to supply and demand on all fronts, whether it be retirement, young kids,

[00:27:09] Iowa, blah, blah, blah, blah.

[00:27:10] It's all going to push housing pricing higher.

[00:27:12] Shy of significant intervention, i.e.

[00:27:15] them literally handing out tons and tons of money.

[00:27:19] Yes.

[00:27:19] Affordable housing cannot be created.

[00:27:21] Only creation option is an apartment or condo.

[00:27:24] Yes.

[00:27:24] Like some sort of multi, highly concentrated.

[00:27:27] That's the only way you're going to get costs under control.

[00:27:29] And there's only so much of a segment of a population who will accept that as the option.

[00:27:35] And then as you know, and that's a harder market to make money in because they tell

[00:27:38] you what bucket you can make certain money in.

[00:27:40] It's not an aggregate.

[00:27:41] It's all this spot, that spot.

[00:27:43] And it's a lot of paperwork to make a little bit of money.

[00:27:45] Okay.

[00:27:45] I don't know.

[00:27:46] It's going to be tough.

[00:27:47] Yeah.

[00:27:47] It's going to be tough.

[00:27:48] It's going to be interesting.

[00:27:49] What are you most excited about for 2025?

[00:27:51] What we're talking about right now.

[00:27:52] Yeah.

[00:27:53] I think the opportunity.

[00:27:54] So two things.

[00:27:55] As investors listening to this, you have to remember during COVID, there was a forbearance

[00:28:01] that happened for house payments and you couldn't foreclose.

[00:28:05] So in certain states, certain rules are different, but basically properties, if you look it up,

[00:28:10] foreclosure rates are at an all time low and everyone's talking about it.

[00:28:12] Politicians are talking about it.

[00:28:14] Housing in Iowa was talking about it, but it's low because they couldn't physically foreclose.

[00:28:18] The number of buyer brokers opinions that are being done by banks on houses that are being

[00:28:23] foreclosed on right now is a lot.

[00:28:24] There are foreclosure inventory coming.

[00:28:26] It just hasn't hit the market yet because we haven't been removed.

[00:28:28] They couldn't start foreclosing until the beginning of this year of 24.

[00:28:31] 24.

[00:28:31] Normal foreclosure process in Iowa, the fastest you can physically go is six months.

[00:28:35] Really?

[00:28:36] Well, that's not true, but basically if anyone wants to fact check this, go for it.

[00:28:39] I'm talking roundabouts and issues, but it's like six months about as fast as you can go

[00:28:43] to a year.

[00:28:44] Yeah.

[00:28:44] And if you got a good attorney into being foreclosed on, it's probably closer to two years.

[00:28:47] To two years.

[00:28:48] Right.

[00:28:48] So we're only at 10 months.

[00:28:49] Right.

[00:28:50] Into a cycle of being able to foreclose.

[00:28:52] And those places are overwhelmed with that paperwork.

[00:28:55] So that stuff's coming in 2025.

[00:28:57] I do think rates come down in 2025.

[00:29:00] We're not going back to 3% and 4% rates, but they will come back down.

[00:29:04] I think there's going to be a lot of good opportunity in the next couple of years.

[00:29:08] A huge, huge opportunity.

[00:29:09] You could do what you do anywhere.

[00:29:11] What keeps you here?

[00:29:12] Why Iowa?

[00:29:13] I grew up here.

[00:29:14] Yeah.

[00:29:14] I'm going to say I visited a lot of places.

[00:29:16] I say Iowa is a great place to call.

[00:29:18] I've yet to be to too many places where I could see myself raising a family there.

[00:29:23] We still have Iowa.

[00:29:24] Nice.

[00:29:24] People still open the door for you.

[00:29:25] They still say good morning.

[00:29:26] People genuinely actually care about each other here.

[00:29:30] Typically.

[00:29:31] Yeah.

[00:29:31] You don't get that in a lot of places.

[00:29:33] From that perspective, I like it.

[00:29:35] Dave, you ready for the final three questions?

[00:29:36] Oh, jeepers.

[00:29:37] Here we go.

[00:29:38] One piece of advice you would give your 20-year-old self.

[00:29:42] Meet more people, take more risks.

[00:29:44] Two books that changed your life.

[00:29:46] Napoleon Hill, Think and Grow Rich.

[00:29:49] And a second book.

[00:29:50] Oh, you know what?

[00:29:51] Most recent book, and I've read it multiple times, is Greenlights by Matthew McConaughey.

[00:29:54] But if you have not listened to him read it, you have to.

[00:29:57] That's fantastic.

[00:29:59] Yeah.

[00:29:59] If you were cast away on an island for a year, you can only get three pieces of data about

[00:30:04] your business each and every month.

[00:30:06] I'll let you define your business however you want to.

[00:30:08] Three pieces of data about your business each and every month.

[00:30:10] What three things must you know?

[00:30:13] For my job to do it?

[00:30:14] Job or the real estate side?

[00:30:15] You pick however you want to answer that question.

[00:30:17] That's a tough question.

[00:30:18] Actually, three pieces of data I need to know in order to do my job.

[00:30:21] Where mortgage rates are.

[00:30:22] My cell phone number.

[00:30:24] And now I'm getting a piece of paper so I can do some math.

[00:30:27] The things that I need to know.

[00:30:29] If anyone who knows me knows, I've always got a notebook and a sheet of paper somewhere

[00:30:32] and I'm mapping something out.

[00:30:34] I've asked lots of questions.

[00:30:35] What's one question I did not ask that I should have asked?

[00:30:38] I mean, I guess use you and use me if you're looking to do anything in real estate.

[00:30:43] Leverage the people you know or don't know.

[00:30:45] Reach out.

[00:30:46] Ask questions.

[00:30:47] There's a...

[00:30:48] I mean, it's a collaborative community, is it not?

[00:30:49] And you and I are in multiple groups.

[00:30:51] We overlap with each other.

[00:30:53] Yeah, I'm honored to even be included in this podcast or any of this.

[00:30:57] Some of the names you've had on here are pretty amazing people.

[00:30:59] Well, we're adding Dave Lewis to the list.

[00:31:01] I'm mixing my hymn, but...

[00:31:03] For people that want to find you, they want to follow you, they want to connect with you,

[00:31:06] where can they go?

[00:31:06] What should they do?

[00:31:07] Yeah, I would say so.

[00:31:09] I'm not a big social media guy.

[00:31:11] I'm a little older school like that.

[00:31:13] So my phone number, you can call me, email me, text me.

[00:31:15] I'm Dave Lewis with Halo Capital.

[00:31:16] My email is Dave at Say Halo.

[00:31:18] My phone's 515-321-5913.

[00:31:21] Text me.

[00:31:22] Spend smoke signals, do whatever you got to do.

[00:31:23] But I'd love a conversation or a coffee.

[00:31:25] The details are below in the show notes for buddy Dave.

[00:31:28] I appreciate you being here.

[00:31:28] Thanks, sir.

[00:31:29] Thanks for listening.

[00:31:30] If you're enjoying the show, may I ask a favor of you?

[00:31:33] Naturally, subscribe so you never miss an episode.

[00:31:35] But would you rate and leave an honest written review on Apple Podcasts?

[00:31:40] Does a lot for us here at the show.

[00:31:42] And I appreciate reading your thoughts.

[00:31:44] Great guests make for a great show.

[00:31:46] If you know of another Iowan who would be a great guest,

[00:31:49] or you yourself have interest in being a guest, well, get on our radar.

[00:31:54] Visit Investing in Iowa to fill out an application or recommend a guest.

[00:31:59] And if you want to connect with me one-on-one, go LegacyImpactInvestors.com.

[00:32:05] Click on the Invest With Us button in the top right corner.

[00:32:08] And there, you can pick a time for the two of us to get on the calendar and connect.

[00:32:12] Until next time, keep investing in Iowa.

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