Wealthy AF Podcast

The Power of Private Lending: A Conversation with Kevin Amolsch

• Martin Perdomo "The Elite Strategist" • Season 2 • Episode 270

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Ever been captivated by the world of real estate investing? Well, brace yourself for an exhilarating journey into the heart of this dynamic realm with our guest, Kevin Amolsch. A successful registered investor and private money lender, Kevin's story is nothing short of inspiring. From his soldier days in the US Army to achieving his finance degree to buying one to two houses per month while still in college with no cash or credit - Kevin's narrative is a testament to the power of determination, negotiation, self-education and creativity.

But that's not all. We go further, unmasking the intricacies of the private lending sector, with Kevin sharing invaluable insights from his transition from a mortgage broker to a private money lender. He expounds on how current market conditions favor private lending and the stark contrast between private lending and conventional loans. We also tackle the looming commercial mortgage crisis and its potential ramifications on banking regulations and the real estate market. Kevin’s apprehensions about office spaces are worth noting, alongside his predictions on the best investments in the years to come.

As we wrap up, we delve into the impact of banking regulations on commercial and multifamily spaces, as well as the effects of high-interest rates and overcrowding on property values. Kevin's take on how the owner-carry market could be a golden opportunity in the residential space is fascinating, as are his tips for new investors on collaborating with private money lenders. Tune in for Kevin’s invaluable advice on riding the waves of the real estate market amidst low inventory and high material costs, and his wisdom on honing in on one or two specific strategies for success. If real estate investing is your passion, this episode is a must-listen!

KEVIN AMOLSCH'S SOCIALS:
WEBSITE: https://pinefinancialgroup.com
LINKEDIN: https://www.linkedin.com/company/pine-financial-group/
INSTAGRAM: https://www.instagram.com/pinefinancial/

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Speaker 1:

Hey, guys. Welcome back to another episode of Latinos and Real Estate Investing Podcasts, where individuals just like you Come to learn how to create wealth through real estate investing, entrepreneurship, and business ownership. Today today's guest is Kevin Amos, and Kevin is a successful registered investor and private money lender. He earned his degree in finance after serving four years in the US Army After college, Kevin spent two years working with Wall Street as a market fund analyst before leaving to work in the real estate financing for investors full time. So, Kevin, I wanna definitely get in that because I wanna learn and understand a little bit more about mortgage bond, and I wanna talk about that in a little bit with you. He and his companies have closed over twenty four hundred transactions as a buyer seller or private money mender. He has spent two decades as a real estate investor and sixteen years in the real estate lending space. A lot happening in the real estate lending space right now, my friend. That's crazy, isn't it? I wanna talk about that too. And he's the author of forty five day investor, a frequent speaker, public speaker that has been quoted in the Las Vegas Review Journal, The Denver Post, Yahoo Real Estate, Denver Business Journal, and Forbes. Kevin, my friend, thank you for coming out and being a guest on Latinos Real Estate bus. Podcast. It's a pleasure having you be your brother.

Speaker 2:

Martin, I'm so excited to be here. You gave me a little prep before we we got on before you hit record there and sounds like it's gonna be a fun one.

Speaker 1:

Gonna be exciting, man. It's definitely gonna be a fun one. So so Kevin, tell us a little bit about how you got started in the journey of real estate. This journey of real estate. I know you went to the army probably picked up some disciplines there, then you you went and worked that well. So you tell us about that journey in, you know, three or four minutes or less.

Speaker 2:

Yeah. So quickly, I was in high school. And you know what? In high school, I learned I was so sick of high school. I I did not wanna go to high school. I didn't want one more class, but I didn't wanna waste away my life, either I I really wanted to be wealthy, I wanted to be rich, you know, all of those things. So I went into the army like anybody would do. They they sold me, man. They they got me on a laser tag. They said if you join the United States Army and you wanna be an infantryman, you're gonna be playing laser tag and get paid for it. So they got me a win in. Don't regret any of it. Learned a ton. I had some amazing friends, still friends with them today. But one of the things I learned while I was in the army is investing because I was I was building up a savings account. I didn't I wasn't spending money. I was living in in the barracks and eating at the mess hall, so I didn't have expenses. So I had a little bit of a savings account going. I started to read books like what to do with money. And all the books I was reading was pointing to real estate. So I decided, you know, this is the vehicle that I want to use to create some wealth and at the beginning, it was going to be just an investment. So I bought my first house, I was twenty one, just thirty twenty one years old, lived in there for two years, moved out. Put a tenant in, and I saw the cash flow, I saw the appreciation, all the benefits you get from investing in real estate lines. It decided then I'm not gonna do this as an investment. I'm gonna make this a career. So I start buying one or two houses a month. Shirkey because I was in college. So I was I was going to class. I was making phone calls to motivated sellers as I was walking between classrooms. Across campus and and I was working at night and and I was making it happen. And so one or two houses a month and I did that for years. That's that's how it got started.

Speaker 1:

As a college kid, one to two houses per month, you gotta tell the college kid's listening right now because we got a lot of young listeners. How does a a college kid buy one or two houses a month with no money, not much credit? How do you do that? How do you create that? What was your strategy? What what was skill set that you learned early on that helped you get that? So you have to be super creative here because you're right. You don't have cash or credit at that age. So the I had a unique situation. So I'll tell you that, and then I'll tell you how I move forward from there that anybody can do. So for me, I was in the National Guard after Active Duty, so

Speaker 2:

I had the guard paying for my school. And then I had the GI bill from the National Guard paying my living expenses, so I didn't have much need for income, but I went out and took a student loan anyway. Not for college. I use that student loan as a down payment on a piece of property. So that's how I got the the first rental. But when I learned as I was going through this process is I I love the hunt. I love the negotiation. I love sitting across the table from a seller. Trying to solve a problem. And when you could find the right problem that you could solve, you could do that without cash or credit. So I was doing a lot of lease options and other types of owner carry transactions where they weren't asking for down payments. They weren't asking for credit reports. They weren't asking for any of this. It was really and we could talk about on how to do it. But you have to find the right person to be in front of to negotiate a deal like

Speaker 1:

that. How did you learn that? You you know, because I think the biggest the biggest piece to to I always say that the first thing you have to do to be successful in this business is the first step is educate yourself. Right? You gotta know the language. You gotta know what a motivated seller is. You gotta like, you gotta educated. You gotta understand the whole cycle of of the business and whatever it is that whatever strategy you're gonna play in our in our business. But how did the twenty year old kid well, he was reading. So I think I think you mentioned that. But how did you what did you learn to scale? How did you learn that skilled as a twenty year old kid in college.

Speaker 2:

Yeah. That's exactly what it was. I was reading lots of books, but I also joined the real estate investment Association in town here in Denver. So it's just a it's a monthly meeting. You pay two hundred bucks I think it was for a year membership and I can go every year. They or every year, every month. They also had an online forum. And you could do this now with bigger pockets. So bigger pockets dot com is fantastic because it's huge community of investors, and it's all online, and they have and they have forms where you could ask questions, get advice. So it was it was that, but on much much smaller scale. And I gotta tell you the I picked up one book that really resonated with me. It was called multiple strings of income buying properties, no money down, something like that, super long title by Peter Conti and David Finkle, and I wrote read that book, and then I had a second book coming out right at that time. And when I read both of those books, it's the same concept. I literally did exactly what the book told me to do. I picked up the phone and I started calling people and talking to them. And and I got a couple of deals out of it, and and that's how that's how I got started, but then I joined a a mentorship program and I had some coaching and some help It's interesting you People say I'm self made and or I hear that a lot. I'm self made, whatever. Nobody's self made. Everybody had help. Yep. So I I got some help.

Speaker 1:

Yeah. That that I'm glad you said that, you know, because a lot of people a lot of people you yourself made to the degree that you yourself put to work. You you made those calls. You had to grit. That that in that respect, yes, you made that, but someone taught you. Someone grabbed your someone helped me. Someone said, a kid, don't go down that road because you're gonna get by. Someone said, oh god. You know what I mean? Do it this way because this way is better, easier. Either it was a book, a person, a mentor, someone, someone hunting. And that and that is correct. And Nowadays, we have podcasts. Right? Like, we have podcasts. They have YouTube. Like, we're not two decades. I mean, just two decades, you be being a real estate investor, be close to two decades as well. We didn't have all of the resources that we have today. There's no one We didn't have

Speaker 2:

cell phones. Remember, we didn't even have a cell phone.

Speaker 1:

I remember. That's one hundred percent correct. But YouTube, now I was looking at something I was reading a financial article the other day. And I think YouTube was came out in two thousand and three or two thousand and four, some I was, like, man, I was I I had a mortgage company. I was just starting my mortgage company back then, like, Totally, like, YouTube. Right? And YouTube such such a useful tool. It dominates now.

Speaker 2:

Yeah. That's crazy. Right? And we yeah. And it was hard to get the and then it was a tape or that that's where you'd put in your car to learn. You didn't have a yeah. You didn't have this resource like we do now.

Speaker 1:

Yeah. Have you ever heard or this is kinda kinda sad to talk about types of CDs? Have you ever do you know who Earl Nightingale is? Have you ever heard of him to strain the sequel?

Speaker 2:

Yeah. Of course.

Speaker 1:

So you've probably heard the Australian Secret in the world by Earl Nightingale. So the way I discovered that, someone I don't remember who. It's just one of those things someone mailed me the CD. Someone mailed me the CD of the strangest secret in the world by Earl Nightingale. And I was like, what is this? I have my mortgage company. I was just starting in my mortgage business. And they send me the CD, and I popped it in the CD ROM when computers used to have CD ROM. They've been removed. We popped it in there, and we and I played it. And I was I was enamored with this guy. It was the first time I heard airline Gail and some soul saw something in me and decided they wanted to gift that to me and I don't even remember who it was. It was just this thing that came in. I was like, what is this simple when I popped it in? And that was Part of my journey started opening me up to personal development and a bunch of other cool cool things along this journey. Kevin. My next question to you is, man. So you've been almost two decades in this business. You've seen a lot. You're a lender. You know, the market is weird right now. I like to get your thoughts. Right? Because the lenders man, the lenders are I was literally just talking to my LO literally ten minutes ago. And I'm refinancing a quad we bought in October. And he's like, hey, do you have the two leases? The two final leases? I was like, yeah, we haven't rented up, but my PM, we're waiting for the leases come in. And then we bought another property last month. A single family. My son bought his first single family. I said, oh, by the way, we Julian's property, we're gonna have that occupied. So we're gonna refi that. We're gonna have that occupied. On June fifteenth, we have a lease coming in June fifteenth, and the let the the the tenant is paying us for the whole year. Like, paying us the rent paying him the rent for the whole year. Then he said, oh, that's great. And I said, oh, oh, I'll be careful, man. I don't know if that's great because the lenders are really weird right now, and I don't know if they're gonna like that. So I don't know if I should tell them or not, or it's just weird, man. It's just a weird time right now. The lenders are really weird. So I like to get from your perspective yeah, we we kinda laughed. The point is we laughed and he was like, yeah, you're right. Who knows? Right? Because they're so weird right now with the way the lending space is today. It kinda reminds me of what it was in o nine, the ten, and eleven. What are you seeing? What is your perspective? And what are your thoughts on that?

Speaker 2:

Oh, gosh. We don't have enough time on this podcast to go through that because there's just a lot going on. I can say this. I'm I'm I look I work in the private lending world, so we're somewhat removed from all of that chaos that you're seeing. We definitely are benefiting from it. So when when banks start to fail like you've seen, by the way, that those aren't gonna be the last. I know the government's telling us, it's it is, but it's not. It it's gonna it's gonna get worse. Anyway, so when you see that when bank peers start failing it freaks banks out. Right? So now they tighten the suspenders. They tighten up. They put their pencils down. They're not doing loans. So us as a private lender, we get to benefit from that. Like, we have good quality bankable deals coming off across our desk. Pretty regularly right now. Deals that we would never have a shot out before. Right? So I for us, we're we're really enjoying this. Now we're getting squeezed a little bit on the margins because interest rates are higher. Interest rates, they're low now compared to historic, like, in the eighties. Right? And and you mentioned two thousand ten. I don't think there's a lot of other than a couple of bank failures. I don't think there's a lot of comparison between two thousand ten and what's going on right now. I think it's very much more similar to after the savings and loan crisis when we had hyperinflation and hyper interest rates. The difference between then and now is the interest rates doubled a hundred percent increase in rates at less than one year, even that didn't happen in when we saw interest rates of eighteen percent to nineteen percent. You know, those raised three percent, but they started at fifteen percent. So this is historical damage that the government is doing to the economy right now trying to get it under control. From the damage it created for itself during COVID?

Speaker 1:

Yeah, this is this is absolutely insane. So when you talk about private lender during the private lendees, space. Let's let's just educate people as to what that means. Right? And maybe we have some listeners that don't know. So let's just educate them. So what does that mean do you do in your space? What does that mean? That's what does a private lender mean when you said you said you made a statement of you're getting a lot of bankable deals that you would have never had not done any beyond before, but they're coming across your desk. You know, where is the opportunity right now to work with guys like yourself? And what is yeah, a guy like yourself. What is a guy like yourself does?

Speaker 2:

Well, let's talk about what private lending is first. So that was that was your question. And and you know this, but I'm gonna go through real quickly my story with you to help illustrate what what we're doing here. So in two thousand six, even before that a little bit, I was I was a mortgage broker. So you had a mortgage broker shop, it sounds like. So I was doing conventional loans before the SAFE Act. Now that was easy back then. As a Wild West, right? We didn't even have licensing in Colorado to do these loans. And as the the as the economy started changing in eight seven eight nine, you know, we had all of these regulations hit the industry, And what was happening is I was approving people for loans to buy it, you know, their dream home. Their their owner occupied borrowers want to buy a home to live in. And then by the time they got under contract and by the time they get to the closing table, the guidelines had changed on us and they no longer were approved for that loan. Now, they didn't protect borrowers then. Right? So we had to call them and say, you're no longer approved for this loan. And by the way, I'm shattering your dreams. So now I'm losing sleep at night because I'm I'm hurting my clients. So I felt like that even though it was I had no control. So I decided I needed to get control of the business. So what I started doing was raising private capital from just individual investors that wanted a nice steady, safe return and I use that money to loan out to real estate investors. Now we only work with real estate investors because of all the regulations on the consumer lending side. Real estate investors is a business lending side, so there's not the regulation. But this gave me the control I was looking for. So now we can underwrite the loans in house, we make the decisions on the loan in house, and we service all the loans in house. So I don't have to worry about Wall Street. I don't have to worry about Fannie and Freddie. I don't have to worry about banks and all of that. So that's what private lending is. It's just individual investors we bring them together and we make loans to other other real estate investors.

Speaker 1:

Do you hold it in a fund? Kevin or do you sell them do you do you hold them in a fund? And do you sell them off? Do you sell them to do you know, do you piece them off and sell them to Wall Street? But those those bridge loans. I'm I'm gonna assume they're bridge loans. I'm not sure.

Speaker 2:

Yeah. Yeah. They are. We portfolio them, so that means we keep them in our portfolio. You might hear the term balance sheet lender, so we keep it all on our balance sheet. Awesome. So we don't sell we don't sell loans into the capital markets. We do sell loans occasionally to individual investors that wanna buy individual loans, but we retain all the servicing. So from a borrower's perspective, we originate the loan and we service the loan. So we're the only person that they're ever going going to deal with.

Speaker 1:

Oh, that's fantastic.

Speaker 2:

And you asked if it was a fund. Yeah. We actually have four funds. And I'm most proud of this most recent one because it was approved to offer publicly. To non accredited investors, which is very rare in this industry. Most funds are private funds, which require mostly accredited investors only. Sometimes there'll be some limitations on a number of non accredited, but for us, it's unlimited, non accredited, or accredited investor it was quite the process with the attorneys to get that through and approved by the SEC, but we got it. And so that's that's what we're working on now.

Speaker 1:

Okay. So what is the so what I'm finding in my experience, and I have a lot of experience. I've done a ton of deals, but in this game for a long time. And what I'm finding is even with some of the private lenders, some of the bridge lenders, even those guys are tightening the belt. Right now. Yeah. Didn't you didn't know why that is? Yeah. So that was that was my question to you. So tell us tell us. Right? Because we have a lot of so we have a lot of listeners from from all box of likes. A lot of young people listen to us, a lot of newbies. And, you know, it's tough right now. Getting this getting money is tough right now. I'm finding on all fronts. Right? And I'm I'm in the forefront of this thing. Right? Bridge, even a guy like me with a tremendous track record, amazing track record. It's like, we want a little bit of your blood. We want your first horn. It's like, actually, I'm trying to get my draw. Like, let me get out of my way. You're in my way. If you're if you're gonna you know, you're making it difficult. We're supposed to be partners so I can make you money and I can make money. And and and some of these lenders are making it difficult. So if if you're new. And then and then on the exit side, same thing. Right? Even on the exit side, when you're trying to get into long into the long term debt, into long term debt. And I'm talking as an investor now. I'm not talking for regular consumers. They're regulated. You know, the banks have to give those loans to people for us, I'm talking about in in the space that we play it. Mhmm. So what are you guys experiencing? What is it that what do you what advice are you giving a newbie right now that we're about to see another we're we're we're we're about to see, in my opinion, another great opportunity in our industry to create wealth with all of these loans that are going to start readjusting in the multifamily space you have commercial, you have office, you have a lot of there's gonna be a lot of opportunity. You got all of these Airbnb guys that were starting to see him. I was selling properties Kevin. I was selling properties in twenty twenty one. We were flipping properties. I had people telling me paying me forty, fifty, sixty thousand dollars over asking, and they were calling them retail, by the way. And they were calling themselves investors and they were gonna STR these things short term rentals and put them on area b and all these websites. And I'm like, how are you penciling those numbers? They just don't make

Speaker 2:

That's a risky game. That is a risky game. There's so much regulation around that right now as I don't know where they're buying or these properties are. But if they're anywhere near resort towns, that's becoming a big problem.

Speaker 1:

Yep. They are. We're in the Poconos in Pennsylvania, which is a resorty type area. And everybody from New York and New Jersey wanted to come wants to come here and buy and that's cool. I I appreciate it because, you know, I I'm in the game. Right? It's a good goodbye. But I'm like, how are you running these numbers? And we're starting to see slowly in our marketplace. A lot of these Airbnb people that's what they call the STR is proper way. But a lot of these STR investors are coming back on the market with these properties. Yeah. We're starting to see him. So my question to you is, and I know that kind of went went went kind of wrong there. Well, my question to you is, what advice are you giving a new investor? A new investor, a seasoned investor, because the only way to take down an investment right now in my opinion, if you're not going FHA and you're not house hacking and you wanna this game as an investor is to through guys, through a company like yours. Right? How do you tell them yet to prepare and there's the opportunity? What are you telling them?

Speaker 2:

Yeah, that's that's a lot to unpack there. But and and I agree with everything you said. I think the opportunities are gonna be in commercial side more than the residential side with the exception of Airbnb. But even the Airbnb, if they all hit the market, we would still be in a inventory crisis in this country. There's just not enough inventory. So the Airbnb's alone isn't gonna fix that problem. Mhmm. But on their commercial side, we're definitely gonna see some opportunities, and it's because of the DSCR. Right? It's debt service coverage ratio. These loans no longer qualify because the interest rates have doubled. So that where the opportunity is, and we can unpack that if you'd like. And You're used to move for my thoughts on that. Yeah.

Speaker 1:

I'd love to hear a talk when you go there. Okay. So

Speaker 2:

there's there's close to seven hundred billion dollars in commercial mortgages that are terming out in the next two years by the end of twenty twenty four. Seven, that is a sub tag or B billion. Be it's a is that that's a staggering number. Right. And it's because because a commercial loan for the listeners is it like a consumer loan where you have a thirty year fixed rate and it goes on an amortization schedule. And after thirty years, you make your payments into the loans pay off. Commercial loans don't work that way. Now they they still have amortization schedules, but the only reason they have a schedule like that is to come up with a monthly payment. And it's not thirty years. Normally, it's twenty five or less. So let's say you have a twenty five year amortization schedule, so that helps set the payment. And then you have to make that payment until there's a balloon or a maturity. That just means that the loan is due a hundred percent in full on that date. So these have terms or maturities of five, seven on a very rare case ten years. Right? It's like five years is the most common. And then you have to renew the loan. And in the past, it was simple because the interest rates were low. You just the bank would just say, okay. Let's renew it. Here's a chart Give me another point or another one percent of the loan amount and a fee, and then we'll do another five years. Keep the payments the same, all of that. Super easy. Well, now with interest rates doubling, The banks aren't doing that, and they can't do that. They don't qualify under the debt service coverage ratio requirement to extend that loan. Now banks need the DSR to be at one two to one three, and that just means a hundred and twenty to a hundred and thirty percent of the income The income on the property is one hundred and twenty to a hundred and thirty percent of the debt service. So you have enough to pay the mortgage every month and twenty to thirty percent extra as a little buffer. So that's the requirement banks have. But these are coming in at eighty, you know, eighty Maybe ninety DSCR. That's not enough. The income is not enough to make these payments.

Speaker 1:

Of course. Yeah.

Speaker 2:

So what are the what are the banks gonna do with these loans? Not only can they not are they not going to renew them? They they literally can't renew them, but the regulation will not allow it they have to get these off the books. So if the sponsor or the owner of that property doesn't have the ability to come in with cash, to lower the loan amount so the DSCR qualifies, they're gonna have to sell the property, or it's gonna have to go to foreclosure. So we're gonna start seeing a lot more inventory hit the market in the commercial space over the next two years, I believe, and inventory drives prices down that's where the opportunities are going to be. Specific asset classes, yeah, office is hurting. Office is probably gonna be the the highest cap rate investment you can get in the coming years. But I'm I'm a little nervous about office quite honestly because I don't see the comeback to work. Happening as quickly as most people would like. So there's just a ton of vacancy and we're starting to see repurposing office space now. But I do think that small in line retailer, something that's insulated from Amazon, let's say, and some warehouse where like small bay warehouses. That's where the opportunities likely will be.

Speaker 1:

I have well, so I have a question around that. So you see commercial, which I agree with everything you just said about I see the same thing. My I didn't know that number was that big seven hundred billion. That's how that that's gonna So here's the thing. A number that big. Right? Here's the point I wanna make to you. It's and I wanted to get your perspective on a number that big will have a tremendous impact on overall lending. It's gotta impact everything everything in our in our economy. It's just a big churn number. So I think And again, this is just me logically processing this, Kevin. And I like to get your perspective on it because you're a lender. I'm not a lender. I'm an investor, but I'm a common sense guy, logical guy. Studies this stuff. Right? So so you got seven hundred billion in loans that potentially could go bad. If Half of those go back. Three hundred fifty billion of them. Right? And the banks don't work out. That's a lot of money that the banks are gonna they're gonna eat they're gonna eat a lot. They're gonna eat a lot of that. The banks are gonna there's gonna be a lot of pain with banks. And the banks And please correct me if I'm wrong. Money is money. It's all the same money as Wall Street bankers. When the but when one asset class suffers, Right? The way I see it is this asset class is gonna suffer to just because so I'm bank a and I have a hundred million dollars in losses. Shit. Everything I'm gonna tighten up everywhere else to make up for sure. So it's not like it's The way I see this is that that pain that's coming is gonna impact the rest of the industry. It's gonna impact the rest of us. Do you see it any differently Kevin because I I I've kind of played with this and I'm like, you know, this is not an isolated thing. This can't be this thing with office, you know, if we're if we're apartment I'm an apartment investor, and we own apartment buildings and things like that. This is gonna have an impact on us. Like, it But for sure,

Speaker 2:

the apartment space, for sure.

Speaker 1:

It's it's not gonna have an impact on us because this is it's the same bank and the same money. And if they're taking a loss, it's their balance sheet they're gonna tighten up elsewhere to make it up. What do you see? Am I right? Am I thinking? Am I off? I mean, tell me -- Absolutely. -- because this is what you do.

Speaker 2:

We're already seeing that in the in the multifamily space. Look, the multifamily spaces, in my opinion, overcrowded. There's too many syndicators out there doing these deals. And it's driving cap rates down. People are trading apartment deals at four caps

Speaker 1:

-- Yeah. --

Speaker 2:

across the country. Mhmm. How do you make any money at a forecast when you're borrowing at six? Mhmm.

Speaker 1:

You don't.

Speaker 2:

We call that negative leverage. You don't make money that way. Cap rates have to go up. For cap rates to go up, that means the value of the property has to go down.

Speaker 1:

Mhmm.

Speaker 2:

That's how cap rates work. They they're they're inverted. Right. So And it makes sense if you think about it because if you low if you bring the value down, you price down, then your rate of return should go up. So that's why that's why it's inverted. But we have to see cap rates going up. Now you cup you compound that with what you're concerned about, which is the credit tightening And that's absolutely true. I I think the guidelines could stay similar even as banks start to fall because they're pretty darn tight now. Mhmm. The problem is the the interest rates are so high that it's hard for that DSCR ratio to hit. So I'm I'm underwriting deals and I'm seeing down payments of, you know, forty ish percent just to get that DSCR to

Speaker 1:

work. Yeah.

Speaker 2:

Let's discuss the prices of the assets too high and the interest rate's too high. So that that's why I think you're gonna have to see an adjustment in values in the multifamily space.

Speaker 1:

Howard Bauchner: I interviewed a a developer here. Couple months ago, and he told me he's one of the biggest developers in the state. And he told me that he's getting Right now, his loan to his partnerships with banks. He is getting fifty five percent LTC brother. Fifty five percent LTC when he was to get he was getting seventy, seventy five. Fifty five. Do you like, I'm like, how are you thinking

Speaker 2:

was done?

Speaker 1:

That is insane. I mean, we're talking about he's doing hundred million dollar projects. Right? Like, he's doing three hundred units. Fifty five percent, you gotta race thirty five forty five million dollars to do a deal. And he was like, this is I was getting just last year seventy, seventy five percent. In some cases, I was getting even eighty, twenty, twenty one, nineteen. Right? And then say, I'm like, whoa, that's brutal. That is brutal. That just gives us an idea of where where the market is. Where do you see the pot going, Kevin? Where where is the opportunities? When all of this happens, where is the opportunities? In your opinion. Well, it's what we've been talking about. I think it is in the commercial space, and

Speaker 2:

I and it's hard for a lot of people that are listening to this here probably because residential is so much easier to get into. It's the financing is typically a bit easier. It's smaller numbers, less zeros. Right? So it's more it's easier in the stomach. But I don't think there's gonna be a ton of opportunity in the residential space with one exception, I do think that you're gonna see more owner carry opportunities. And the reason I say that is there's a lot of loans out there that are three percent, three point five percent, sub three percent fixed, thirty year fixed, three percent money. Now if you can come in and take over that payment, take over that loan, you're creating value immediately. You could pay more for a house when you could lock in a low interest rate. Right? So everybody else is out there borrowing at investor rates at seven and a half or so percent, and you can lock in at at three. You could pay more than anybody else. Just because you know how to structure the deal. So I think there's gonna be a lot of opportunity in the lease options, contract for deed, subject to's, just owner, assumptions, owner notes, all of those types of financing that's kinda died over the last decade. I think you're gonna see it all come back.

Speaker 1:

Yeah. I I agree. I think there's gonna be if you have the skill set to to know how to negotiate that and how to create those deals. Where is the opportunities for a new guy that is listening to us and they're like, okay, how do I get ready? How do I get ready to prepare myself? What can can you give us one, two, three, four steps to a new guy that's listening? To prepare himself be able to go to you and pick up the phone and say, hey, Kevin, you know, I'm doing my second, third deal or my first deal. I wanna flip this property. I found this great deal or I wanna buy this I wanna buy this duplex or triplex and rent it and I need to fix it. What do they need to be doing right now? To be able to get private money to do that deal. Give us one, two, three, four, five, whatever from things they need to be doing to get ready before they call you. Or a guy like you.

Speaker 2:

Yeah. So it's gonna be I can't believe I'm about to say this because this is my business, but I don't know that that's the opportunity, honestly. So I'm just shooting you straight here. I I I think the opportunity.

Speaker 1:

I'm glad you're being straight. Rather, it's it's what we got people need to know what's happening in the streets and what's really what's a real deal. Thank you for that.

Speaker 2:

Go ahead. Yeah. The fix and flippers and the people that are borrowing from me that are successful are pretty experienced at this point. We're not seeing a ton of new And the reason for that is there's no inventory. So here's how this works. If you have really tight inventory and a lot of buyers go on after that inventory, then that drives prices up. Right? That's basic supply and demand. But what what happens is if you have a wholesale price, like, think about your beat up property foreclosure type thing that you could fix up and resell for a profit. We call that like a wholesale, many of your retail price. What is it gonna sell for after you fix it up? So the wholesale and resale prices when there's tight inventory squeeze, they come together. And the reason for that is because there's just not a lot to choose from. So people that want to live in the house will actually bid on the wholesale deals and take on the project themselves. Mhmm. Now when you have a lot of inventory, lots to choose from, the owner occupied users are gonna focus in on that retail product because they don't want the hassle of foundation problems and mold and all of the stuff that us as investors look for. You know, they don't want the pretty house they can move in and bring their family in right now. So that creates a separation in up in the retail and and wholesale prices, and that creates the opportunities. So the newer investors are much better to come into a market that has that type of opportunity, that type of environment than someone coming in now where it's a little tighter. It's just a little bit more risk to get in as a fix and flipper right now. I I really believe that the opportunity is gonna be in in the long term patient money patient hold type of investment. So if you wanna go get a thirty year fix and you could figure out how to get it to cash flow, Fantastic. Otherwise, look at some of this owner, owner care stuff, learn up on that. And I can't believe I'm just giving this advice because a problem. I don't know what the listener that's listening to this even once out of it. Right? They might want to go buy an apartment building and not a single family home. So you gotta really look at what you're aiming for and what your goals are and what part of real estate is attractive to you. There's so many different ways to make money, so many different ways. One advice I would give those, try to focus, you know, a lot of us as investors and maybe you were the same way. We we look at the the shiny object we chase after that. Then then there's another one, and we chase after that one, and and entrepreneurs do that. Right? But as soon as you could focus that in on one or two maybe specific strategies, that's when you're gonna be successful.

Speaker 1:

That's exactly what happened to me. Right? When I when I decided, hey, this is who I am. This is my density, and this is the lane I'm playing. I was just talking to someone I think yesterday, I can't remember it was yesterday before. I was talking to a developer. And that's exactly what I what I I'm saying one of the biggest developers in Brooklyn, actually. And I was having this discussion with him, and I said, you know, it wasn't until I decided I focused that I was like, I'm gonna focus on, this is who I am. I say no to more things and I say yes to at this point. People calling me Right? Hey, there's a deal here. There's this a land flipping this. That I'm like, no, man. This is not what I do. This this is my lane. I buy apart especially now, so I buy fix and flip and I buy fix and hold long term. That's it. And this is not a flip market right now. This is not an omeic seasonal flipper. Right? This is not a flip market. That's I was looking at my it's funny because I was looking at my I would you just bought a flip last week to flip, and it was such a great deal. There's a hundred thousand dollar upside. It's ARV is two ten. So we, like, this is an affordable workforce affordable. We're gonna sell that regardless what happens in the market if we do we do a good product. And I was looking at I was I was with one of my partners, we're buying a five unit fire property tomorrow. I'm sorry. On Monday, today's Friday. On Monday, we're buying a fire property. And I'm looking at I was showing him I was we were I was showing him the my twenty twenty one purchase It was like my twenty twenty one purchases. It was like forty flips we did. And then my twenty twenty two and it was like last half because I saw all of this coming. Right? The beds are telling us rates are gonna go up. My And then this year, I haven't bought a flip. The last flip I bought was in October before I bought this one this week because I've been watching the market and now this is not the flip time. But we just bought a twelve unit of condemned the property that we're gonna fix, that we're in the middle of fixing, rehabbing it, renting it and keeping that long term. So the strategy has changed. The strategy has changed as to what we're doing. So so I I totally am in agreement with you if someone is out there, Kevin listening and I mean, what advice are you giving them a lender. You know, we have some we have some newbies and we have some experienced people. Maybe there's some people that are out there that are out there and they've been out of the game for a little bit maybe. And they're trying to get back in. I mean, what advice are you as a lender giving them? Are are are lenders just not lending to people that are just inexperienced? That's what I'm hearing right now. By the way, that's what I'm hearing with with the word on the street. It's like, listen, if you're an expert right now, the lenders I know, they're like, if you're not experienced, they're not they're not they're not they're not really lending you money and you better come with a hell of a lot of down payment. Is that the majority of what's happening out there in the private lending space right now?

Speaker 2:

Yeah. I mean, that's been kind of the theme for the last couple of years for sure. To go back to the advice, Yeah. So here's what I've seen a lot of investors do, even some of the seasoned guys, but don't want to work as hard. Like, I was discouraging against fix and flip. And as you were, which is appropriate, and people fix and flip in every single market. There

Speaker 1:

is. Absolutely.

Speaker 2:

You could still fix and flip. It's just harder. Right? It's it's just more work, more direct mail, more phone calls, more knocking on doors. It's all of those things. And a lot of investors aren't wanting that. They want to pluck one deal out of the MLS, fix it up, resell it, make your thirty, forty, fifty grand, plus another one out there. You know, the real easy basic model. And those are tough. Those are tough.

Speaker 1:

So what I'm seeing people do for years actually, Kevin. Those haven't been in the MLS and years. They're they're they're those they're just not around.

Speaker 2:

That's right. For what's Yeah. And when one does at the MLS scooped up, like, immediately. Right? So what we're seeing investors do is go into the investing in debt, so like what we do. They'll buy a note from us or they'll invest in a fund like this that that is making loans to other investors. And the reason they're doing that is because, one, they understand real estate, they understand how secure and safe it is, they're concerned with the stock market, they're concerned with the FDIC, that's a whole different world. And the bank failures, there's all these fears, but the one thing about real estate is it's there. You could touch it. You can go out and visit it. You can look in the county records and see who's on the lien, who owns it, all of those things. So we're seeing people come into this on the debt side because it's so steady and it's so secure and so safe. And then once the market shifts, my guess is they'll wanna exit the debt investments and get back into flipping or participating in equity equity type investments, that kind of thing. So that's I don't know if that's advice or not, but that is what I'm seeing happening right now.

Speaker 1:

Got it. When do you from your experience, I mean, two decades of of experience and a space. What is your crystal ball? Tell you things have got kinda back to normal. I was reading I was listening to Alto's research. Watching Alto's research are probably familiar with them. They do a lot of data. They give up data points. I read a lot of CoStar reports. And I I was looking at a number, and the number was we're up twenty one percent in terms of inventory nationwide from last year. Right? So we're twenty inventory is twenty up twenty one percent. It's down. It's down it's down over over all month over month, but that's something else. But twenty one percent overall. But we are about fifty four percent from pre pandemic level. So we're still his historically low inventory. Like, the inventory is is is his like, fifth we're at fifty four percent from what we were before the pandemic, which is insane. What's the solution for this in your opinion? Builders are starting to slow down. Right? So we have a bunch of housing starts happening right now with multifamily. Boom. There was a bunch of starts that's gonna come up. That's gonna be hitting the market later this year. And next year. Builders are starting to slow down because of the interest rate situation. Right? And people we have an affordability issue. Right? And the cost of material is still high. Right? Right? Cost of material is still high. So building us

Speaker 2:

to finance it. And the

Speaker 1:

cost of everything is very high. So it's it's more it's more challenging to make money and to turn a profit. Right. What do you see and when do you think this thing will turn in your opinion, and we'll get kind of some normalization, some, you know, where as business owners, we need to be able to have some some kind of predictability in our business in terms of cost and margins and material costs like, dude, I'm building a basement right now on the flip I told you we bought a week ago. I spent nine hundred. I'm up to I think I looked at the numbers eleven hundred dollars just in two by fours just to frame the basement. Oh, wait. Peter, would've done that I would've I would've done that with Like, four hundred dollars three years ago. Like, no. Like, it's not like, what it like,

Speaker 2:

that's insane.

Speaker 1:

Just just two by fours brothers, not even it's not even, you know, just the two by fours, we're just framing it. And I just I was looking at those numbers this morning. I'm like, damn, things have gone up so much. So we need some form of stability and and projections for us to project correctly. Of course, we we we must put that contingency to to, you know, to protect us against that, what do you see? When do you see things kind of leveling off and coming back to normal? The job report is supposed to come out this morning too, by the way. I don't know how that look. I haven't looked at it yet. Well, So the unemployment did creep up. So I think it's four seven now. So that's good. And I know that sounds crazy to hear. Right? It's crazy to say that unemployment going up is

Speaker 2:

a good thing. But that's the world we're in right now. We need that to go up so we could have inflation come down so we can get some relief from the Fed. But the bad news which they say is good news is job openings exceeded expectations. So I would suspect I don't know when you're gonna release this, but I I suspect that later in June when that Fed meets again, we're gonna see another another increase. Holy. Because we're just not we're just not seeing We're not seeing inflation come down fast enough and we're not seeing unemployment go up fast enough. So that's a whole different

Speaker 1:

That's kinda weird though, Kevin, because it's kinda counterintuitive. Right? Like, hey, so so unemployment went up ticked up. We're at four point seven, and I again, I I'm going by your word.

Speaker 2:

I believe so.

Speaker 1:

You get somewhere. So let's just say unemployment went up. Right? A couple of ticks. It ticked up a little bit. But yet, the jobs report, we we had more job openings than expected. You see, it's like counterintuitive. Like, how does

Speaker 2:

it makes no sense. Okay?

Speaker 1:

Yeah. Like, how does you like, how do you process that? Like, how do how do we how do we take that day?

Speaker 2:

The problem. Like, Unemployment number is the stickiest thing and it's so bizarre because the government has an attack on unemployment. If you can get unemployment up you're gonna see inflation come down. Inflation is absolutely devastating to the lower middle class. That's why they don't like it. It's killing them. So we gotta get inflation down. But to do that, you gotta hurt somebody. And that's where you have unemployment. So unemployment was last month at a fifty year low, fifty year low while the government has a direct attack against it. How does that make any sense? We had more job openings than we had people looking for work last month.

Speaker 1:

Yeah. It's it's crazy. It's I I think I think part of it, Kevin, is all that money that was printed in twenty twenty. That's exactly there's still there's still a lot of it out there. I was talking to my friend. She's a CEO of the of a local YMCA. To non profit. And yesterday, she she was like, I had seven people quit. She was telling me, last, she was telling me we're talking yesterday morning on the way to the office. She was like, I had seven people quit on me. Right? Seven, she's like, Martin, these are not, like, like, low, like, like, minimum wage jobs and she's like, we're paying people twenty two, twenty five dollars an hour, and they quit, like, they're just not people are not It's just it's just crazy. You know, we've created a society in a way where we've been we over the last few years where we've created an entitlement. Right? Because we gave so much money away. One guy, she said, he quit he didn't take the job. She made him a job offer a package of seventy three thousand dollars. And he called her over the weekend and he said, I'm not coming to take the job because You ready for this? I'm dying to hear this. See, because he doesn't wanna lose his Medicaid benefits and his free healthcare that she was gonna give him health care. And I I'm not gonna mention her name. He was actually gonna give him health care. And the health care that she he it covers eighty twenty, you know, some he had to come up with twenty. And, dude, he said no to the job, to a dignified job. It's it just makes man, it's just weird, man, it's It's just It's counterintuitive.

Speaker 2:

It it doesn't make it's like rent control. Like, I don't wanna get all political here, but help me understand how rent control actually helps affordability. Because all you're doing is making it so developers don't develop. And that limits that limits inventory. And it would come back to supply and demand. This is basic economics. Mhmm. You need more supply to bring the pricing down. Why don't we encourage developers to build more inventory so that the prices of the rent comes down? Instead of restricting it, Yeah. Weird. I don't I don't get it. But it's all political. Right? It's it's for votes because it sounds good.

Speaker 1:

A one hundred percent. That's what it comes down to. That's that's what it comes that's what one hundred percent comes down to. I'm working right now. I tell you we just bought a twelve unit apartment building and we're fixing it. And it's like, this city, three people died in this property. Kevin, I'm sorry, three people overdosed, two died, one survived, but three overdosed. City came in here, came in there, condemned the property. Right? Here comes a guy like me, I'm gonna drop four hundred thousand dollars after on top of the purchase, I'm dropping seven hundred thousand dollars to take this property, fix it, create a clean take a blinded property, make it beautiful, and the city is giving me shit. They are giving me hell. To get it done. They're holding me back, oh, you need you need architectural drawings and they need to be you need professional drawings and they need to be signed by an architect. You It is you cannot get a you cannot get a clean out permit. A double what? Without architectural joint. Now how does that make sense? Pump doesn't

Speaker 2:

unless you're adding some like, you're adding footage or footage or something, but

Speaker 1:

Thank you. Like, how does that make sense? How can I not demo all? Right? Does that how can I not demo a wall? Which I'm just taking the panel so I could push cheap rock without you having architectural climate? Like, how are you holding me back?

Speaker 2:

Right. You're not even moving the wall.

Speaker 1:

I'm not doing any. I'm just ripping and replacing. Kevin, they just take it away. What I get? You know what I mean? Just rip replace it. These are some of the things that governments governments don't know how to do well and they get in the way of people like us that actually create jobs and create housing, and why would I wanna go back there again? That's the question now. The question is, After I'm done after I'm done with this, it's a great deal. It's a million dollar upside for us. Great deal. That's why I'm dealing with it. It's worth it. But man, I gotta I gotta rethink that. Are you are you really the way you're behaving is not attracting me to come back there and and keep putting money into your community.

Speaker 2:

Oh, we see it all the time. It doesn't make sense.

Speaker 1:

You you know what I mean? It's just these these government, my friend.

Speaker 2:

I'm like speechless here. I don't know what to say because we're seeing the same thing. We're seeing the same thing in Minneapolis. Like, that city doesn't want investors there. But they say it's success.

Speaker 1:

What you want, but you I have You rather have blinded properties, ugly properties falling apart what what's your what's your choice here? What do you what do you want? Right? Like, you don't want us to come in because whatever your beliefs are about us, but what what do you prefer to have these ugly properties?

Speaker 2:

Well, I mean, it comes down to this. If you got a fix and flipper or developer or someone like you, I would call you a developer if you're with the amount of work you're doing on this one. But if you're a developer, you're not gonna do a project if it's not profitable. I mean, you're not in the nonprofit business. Right? This is a business to make a profit. We are for profit. Developers are across the board. Now, why would they do a project if they can't make money? And the city makes it hard to make money in certain instances like this one? So why would the developer do it? I I agree with you. What they should be doing I believe is making it very easy to remodel that property.

Speaker 1:

Mhmm.

Speaker 2:

Like, maybe even give you tax credits or thinking give you some kind of grant and thinking you -- Exactly. -- because now or Thank you, sir. The value's up. Thank you for getting here

Speaker 1:

and putting money into my community.

Speaker 2:

Yep. And the value's up so they got more tax revenue. Right? Because they're gonna charge taxes based on the value. And are you providing homes for their People, they're citizens.

Speaker 1:

Yeah. Quality housing. Right? Because I'm gonna it's a brand new apartment building. Everything sounds like it. Yeah. Everything everything is gonna be new. Every we're we're putting everything new. So Anyways, my brother, this was great great great great thank you for coming on and sharing with us. Every there. All of your wisdom and insights, man, and we're gonna go into the untitled round, Kevin. You're ready to play it, and I ask you a series of questions, you don't have to think, you don't have to justify you one word answers and it's perfectly fine. Are you ready to play my friend?

Speaker 2:

Let's do it.

Speaker 1:

Okay. Real estate is Fun. A million dollars is,

Speaker 2:

not enough.

Speaker 1:

People coming to Colorado should try. Skiing, of course. The housing market right now is crazy. I've always wanted to travel to

Speaker 2:

Africa.

Speaker 1:

My advice to new real estate investors is, just do it. The president right now is Biden.

Speaker 2:

President what?

Speaker 1:

Family or business.

Speaker 2:

Family one hundred percent.

Speaker 1:

Wine or beer. Beer. Success or happiness. Happiness is success. Angry client or angry coworker. A coworker. Cats or dogs. Dogs. And lastly, passion or stability. Passion. Thank you. Thank you, sir, for coming out, playing full loud, and being such a wonderful guy sharing your insight to wisdom. And I learned a ton. I got a I got a ton of notes here from from our discussion, some of the things I learned from you. If people wanted to connect with you, Kevin, how do they find you? Where do they connect with you? How do they how do they connect with you? You know, there's maybe there's a lender out there. I'm sorry. Not a lender. A borrower out there. That season, and it's like, hey, man, I'm looking to change relationship where wherever they are and they wanna give you a shot. How do they how do they connect with you, brother?

Speaker 2:

Yeah. So I I wanna share this. We talked a lot about the economy and and how the stability was a great question that you had for me. And and look, there it is uncertain, but we could learn from the past. Right? Mark Twain said the the the past rhymes. Right? The future rhymes with the past. So we have to look at what happened to try to determine what's going to happen. Now it doesn't always work that way. Of course, but at least you have a some kind of roadmap. So I wrote this report about the savings and loans and the nineteen ninety housing crash and how it compares to what's going on right now today. As we're recording this, and I'll give that away for free at the pinereport dot com, such as the pinereport dot com, And I think that will really help, especially the newer folks that are interested in real estate investing. And then if you wanna get a hold of me, the best way is just go to our website. That's pine financial group dot com.

Speaker 1:

Pine financial group dot com. And guys, the pine port dot com. Actually, highly highly encourage you to go get that. This is this is this business is a lot of of education. Right? Like, the more educated and the more you're listening to podcasts like this, the more you're listening and learning from guys like Kevin that have been through these things and get their and get his perspective and his understanding and the patterns. Right? Because wisdom is just a series of patterns that you picked up and you've seen in the past and now it helps you make better decisions in the future. That's what makes us older guys wise is when when we learn to identify by those patterns. So make sure you go make sure you go get that pine report dot com. I'm gonna check it out myself, Kevin. The pine. Dot pine. Dot pine. Dot pine report dot com. The that's dot pine report dot com, guys. The pine report dot com. Okay. Thank you, brother. Really appreciate you. And welcome back anytime here, Kevin. Love to have you back. Actually, let's let's let's let's have you back on here as this this whole economy continues to unravel. I love to get you back on here and and have that discussion with you as to what Yeah.

Speaker 2:

I would love it. I had a great time, Mark. Yes. So I would love to do that.

Speaker 1:

Same here, brother. Thank you again for coming on.

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Martin Perdomo

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