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Where to Invest In a Potential Housing Crisis

Episode 033

John Larson and the Real Estate Cowboys talk passive income real estate investing.

Hear new episodes every Sunday morning at 8 a.m. The Cowboys talk about the potential market crisis and what are the safe investment opportunities to shield yourself from loss during a market downturn.

Keep the #CowboyCoffee hot while listening to John, and the Cowboys talk about how to #BeACowboy and earn passive income in real estate.

Episode Transcript

Announcer: Have you thought about becoming financially free through real estate investing, but don’t have the time or knowledge to get started? Welcome to the Real Estate Cowboys podcast. Each week we discuss passive income investment opportunities in the red hot Texas market. John Larson and the Real Estate Cowboys will show you how to leverage their team to build wealth in real estate through passive investment opportunities. And now here’s John. 

John Larson: Hello everyone, welcome to another edition of the Real Estate Cowboys. This is John Larson. Uh, we took a little break for the Thanksgiving holiday. Hope y’all didn’t miss me too much, but we are back in action this week discussing where to invest with an upcoming housing crisis, where to place your money. Uh, I know a lot of investors including myself, where should I be putting my money with this potential housing crisis looming. And we’re already starting to see some prices dropping in many areas throughout the country. Even here in Dallas and some of the higher end areas, you’re seeing some price drops, you’re seeing some new housing, new home construction startups slowing down. Um, and it’s due to the fact, I mean quite simply, it’s due to the fact of the rising rates. I wouldn’t necessarily say that we’re in a crisis just yet. I think a lot of people are, you know, kind of running for the hills and are kind of blowing it out of proportion. I don’t see that just yet. Houses are still moving, but they have to move at the right price. And it’s because the rising interest rates. You know, it’s because of the fact that there’s some areas throughout the country like California and some of the higher priced areas in the country that, where the price just ran to high. The everyday person can’t afford to live in some of these middle class neighborhoods. When middleclass neighborhoods, when the values become too high to where middle class people can’t afford to live there. That’s usually a telltale sign that the market needs to start correcting itself. And so the Fed raising the rates is one of those ways that they can kind of cool the market down and get the pricing back in check. 

So I don’t expect to see huge price drops in markets like Dallas, Austin, Houston, you know, the state of Texas in general because of the diverse economy that we have here. And we have jobs and as long as we have jobs in a diverse economy, you’re going to still see people moving into the market and they’re obviously going to need housing. But you’re potentially going to see some price reduction in areas like Detroit, Cleveland, you know, the Midwest cities that I’ve been naming all year. You know, I’ve been, I’ve been predicting this, this correction, I’ve been saying that this correction is coming in and it’s starting. We’re starting to see it. It’s starting to unfold. I wouldn’t panic. It’s not a recession. We’re not in a recession. We’re not in a housing crisis yet, but we’re showing signs of a slow down. And like I said, we have to attribute that to the rise in rates. And this needed to happen at the end of the day. Values were just running too high. Even some suburbs here in Dallas where your demographic that’s going to move into these neighborhoods are going to be your, your middle class earners. You know, people that make 60, $70,000 a year. You know, the household that makes that type of income, they were not able to afford houses in these neighborhoods. So you have to slow the market down somehow and sually the way to do it, the go-to is to raise the rates. It’ll slow down the buying pattern. 

Now, if you’re an investor who has rentals, this could be very good for you because it’s going to, that means that more people are going to want to rent, right? When potential buyers are seeing rising rates, they’re probably not going to buy. They’re probably gonna kind of wait and see to to see how things work out and so they’re gonna go to renting again. You’re going to see a higher influx of renters coming into your markets. What’s concerning though is I’m starting to see layoffs, uh, potential layoffs coming in the automotive industry. GM just announced that they’re looking to lay off 17,000 people and they’re going to start discontinuing some cars that they’re producing. One of them being the CT6, which I thought was a very popular model. They’re doing away with sedans and that is going to cause layoffs in that manufacturing part of the big three. That is where a lot of your renters are and your entry level home buyers, you know, just your first time home buyers or people that currently own a house. They lose a job, there’s a good chance that could potentially run into a foreclosure situation that’s going to drive down values. And history has shown us, that is what drives values down back in the last crisis, right? There was a lot of layoffs in the big three and you saw that effect. A lot of areas in the Midwest, Detroit, especially. Another thing that’s concerning is, you know, with the rising rates and that means that there’s less mortgage applications, right? Which Quicken Loans is a big business in the area of Detroit and just the mortgage industry and real estate industry, real estate agents. You’re going to start to see some of those guys fizzle out. When there’s just not as enough, as much movement in the market, there’s not a need for as many mortgage brokers and real estate agents. So I see these people looking for new jobs here in the next year or so. But it’s definitely, it’s coming. For me to even be experiencing it here in Dallas makes me feel that this is real and this is going to be happening in, in other areas and hurting other areas that don’t have the type of diverse economy that we have here in Texas. 

Just layoffs of 17,000 people from GM can have a great, great impact on a lot of these areas where these cars are manufactured. And I’ve been saying, you know, Detroit, I’m from Detroit, I’m from Michigan. I love the market, but you know, I love the city. I love the city of Detroit. I love my home. But I was telling people that, look, I just feel like at this point it could be the wrong time to buy in a market like that. Especially with these layoffs coming now and it’s just going to have a negative impact on the economy there. So you just have to be careful about where you’re investing, what cities you’re investing in right now, if you’re still looking to purchase single family homes. I’m not saying it’s a bad time to buy them, it really just depends on what your goals are. 

We talked about this and we do talk about this on the show quite often, you know, tax benefits and things like that if you need those. Single family homes are still a big go-to. Um, still makes sense. You know, you don’t have $100,000 to invest, but you have 20 or $30,000 to invest and you want to get into real estate, single family homes give you the power of leverage. So you can still get that 20 to 30K working for you with a single family home. So it just really depends on what your goals are. Now mortgage rates are expected to reach five and a half percent by the end of 2019. Right now they’re sitting at about four point nine percent for a 30-year fixed rate loan and that’s a full percentage point higher than it was a year ago, so that’s pretty much the main reason why you’re seeing a lot of buyers pull back. 

You’re also seeing sellers, now this is negative for sellers to because sellers, we’re not getting the prices that we’re accustomed to for the past two, three, four years. Right? Because there’s less buyers because the rates are going up, you’re starting to see sellers having to decrease prices on the properties that they’re selling to get them moved. Now that is where that correction is going to start. And like I said, it starts with that rate, but it needed to cool down in a lot of these metros across the U.S. 

But Forbes has been talking about cities that are headed for a crisis. Detroit was on that list. Cleveland was on that list. Those cities that really rely on manufacturing, right? Now with Dallas, history has shown us that in the last recession we didn’t see steep declines in pricing and like I said, I really attribute that to the fact that we have a very diverse economy. If, you know, one area of business is not doing so hot in Dallas, there’s so many other companies here; home to the most corporate headquarters in America. So, you know, so many other jobs here. Many white collar jobs here, so I wouldn’t be too scared about investing in markets like this with diverse economies in today’s market and I wouldn’t be too scared about your property that you currently own in Texas, DFW, Houston going down drastically. I don’t, I don’t see that. But you know, I think, like I said, a lot of people are blowing the whole thing out of proportion in terms of the market correction. It is coming, you know, it, it, it is happening right now. I wouldn’t necessarily call it a crisis just yet. But the rates needed to go up to slow things down. That’s 100 percent. Now, what we found as well as the higher rates have also helped push down mortgage applications to a four year low. Okay, so like I said, that’s where you know, you have lenders out there, mortgage brokers, they’re getting less loans, you know, there could be potential layoffs in the mortgage industry as well with the shift that we’re seeing in today’s market. We saw that last time. I was living in Michigan, living in Detroit during the last crisis and I had a lot of friends that were working for Rock financial, which is Quicken Loans today. And many of them lost their jobs because obviously we went into a period where no one could get approved for a loan. There was no mortgage applications coming in or they’re very little. I don’t expect to see that type of drastic recession, but there’s definitely going to be less mortgage applications coming in. That’s obviously evident today. You know, mortgage applications are going to slow down with the rates where they’re at. 

With those applications down, you’re seeing more Americans tapping into the equity of their home. So potentially, I’ve been saying cash out refinance, you know, earlier this, this, this year was a great option. You know, if you did a cash out refi this summer, good for you. This past summer, because you were probably able to tap into the equity you’re going to see in your property, uh, in the coming years. So this past summer was a great opportunity to do a cash out refi. Some of these areas right now I think there’s still opportunity, but you’re going to start to see some, some pricing depending on where your property is. You’re going to see some pricing coming down in, in the areas where you own that property due to the fact, like I said, these sellers are forced to have to discount the value of, or discount the sales price on their home to get it moved. 

So that is going to have a negative effect obviously on the comps in the area. This past summer we still saw a lot of properties being moved and moved at a high value. But that is definitely changing as we speak. So. But you see homeowners took out 14.6 billion against their homes in the third quarter. That’s a lot. That’s a lot. You know, this past summer, that was the best time to do it. Moving forward, I would just be a little bit more cautious. I’d probably have a local real estate agent or broker do a CMA to see what the properties are selling for in that area, but a cashout refi could potentially be a great option for you right now. Moving forward, like I said, depending on what market it’s in. Like for example, the Midwest, 17,000 layoffs from GM. That’s just from GM. I mean if GMs talking about doing this, Ford is probably going to be talking about doing this. Chrysler, Fiat are gonna be talking about doing this. That’s going to have a negative impact big time and people are gonna start losing their homes. And when foreclosures hit the market, that’s when you really see price reductions, right? The market becomes flooded with new inventory. It’s trying to be sold as a foreclosure, so it’s sold at a discount. There’s, there’s a lot more inventory in the market. It’s gonna start driving prices down. So if you have a property or you’re sitting on a decent amount of equity, I would look at a possible cashout refi. 

Another thing that we’ve been seeing is, and I’ve been seeing myself with my own houses and I’m flipping, even in the Dallas market, that higher price point has just really slowed. The houses that are priced at 250,000 and below, they’re still moving. Especially because, I mean we had to, we saw so many people moving into the market. Now, other areas of the country, Michigan. Even my investments up in Kansas City, I flipped houses there, too. You know, in Missouri. It’s cold there. They just had a big snow storm. There’s not a ton of people moving into the market. So you’re going to see a slow down there. You’re going to see properties sitting on the market longer than they should. Um, the increase in rates doesn’t really help. But um, I’m even seeing that with some of my Dallas flips, you know, my properties that I’m selling for over $400K, I’m having to drop the prices to get them sold. They’re still moving luckily, but they’re not, my profit margin in there is not what I thought it would be. So that goes back to, when you’re investing for equity, you know, there’s really no for sures. You thought you were going to make $40,000 on the flip and now you’re only going to make 10, 15 because you have to sell the property at a discount to get it moved. 

So you know, that type of stuff, you’re going to see that. House flippers out there, you’re going to see that in today’s market. It’s just the nature of the market, the ebb and flows of the market. And right now we’re in a situation where with the rising rates, you know, you’re going to have to sell the properties at a lower value potentially to get it moved. But obviously it is our goal to get it moved. So I would rather, you know, celebrate now and just cash out and get what I can out of the property then hold it and continue to pay the loan and you know, and when you’re selling $400,000 houses in this market, they don’t rent for that much. So even if I was to put a tenant in property and hold it, still going to be a negatively geared investment. So it’s just better for me to just get it off the books. 

Like I said, I’m thankful that I’m in this market and I’ve been flipping homes in this market because I’m still able to move them. I have been hearing some complaining from a lot of real estate agents nationwide that homes are sitting on the market much longer than they should. And you know, I, I feel you, you know, even in some some real estate agents here that I’ve been talking to, you know, they’re starting to see that hey, the gravy train is slowing down. But like I said, I mean I feel like the market is, it’s full of real estate agents and a lot of people that shouldn’t be real estate agents, so this is kind of where the strong survive through this period, right? I think we’ll potentially lose a lot of these wannabe agents that just got the real estate license and don’t know much about what they’re doing out there and they kind of get in the way of making deals happen. 

And you know, you’ve got a lot of mortgage brokers out there as well. So the strong will survive. We’re not in a situation where, you know it’s going to completely collapse, but you’re going to see some people getting out of the mortgage business and you’re going to see some people getting out of the real estate business, uh, real estate agent specifically. So it’s okay. But there’s still gonna be opportunities to make money. But yeah, the sales of existing existing and new single family homes, they’re down 9.3 percent compared to the peak in November of 2017. So down almost 10 percent from last year. And existing home sales have declined on an annual basis for eight straight months and I’ve definitely seen that happening here in, in Dallas. Slight declines, but not in every area of Dallas, like I said, just some of the higher priced areas. Um, and some of the areas in Dallas that are really true middleclass areas where the price has just got a little out of control. So, not saying it’s a bad time to invest here. I still think it’s a great time to invest here just because of the fact that the economy is so good, but it’s gonna have an effect on the cash flow numbers, right? There’s not going to be much cash flow, you know, when buying single family homes in the Dallas market today. 

And like I said, I always caution, you don’t chase a yield and buy, uh, a lower price property in a worse neighborhood just to try and achieve some certain number on cash flow. It’s just going to result in a very un-passive experience for you and probably end up costing you more money down the road because you’re going to be evicting tenants. Tenants are going to be damaging your property and there’s crime in those neighborhoods and so on and so forth. So you know, I want investors to be cautious during this period. You. This is the time when you have to be extra smart when looking to put your money into a single family home investment or any real estate investment. You have to be extra careful because like I said, with the rising rates, you know it’s gonna make it harder and harder to find these, hit these cash flow numbers that you’re looking for and the last thing you want to do, like I said, it’s just buy a lower priced property to hit this specific number that you’re looking for because it just, it could result in just a bad investment for you. I don’t want you to lose your money. The idea here is to obviously make money and if you break even on these investments, it’s still profitable for you because of the tax incentives that are available to you. 

The fact that the tenant is paying down your principle and interest payments each month and you know you’re hedging your bet against inflation as well by taking out these 30-year fixed mortgages today. So rates are not going to go down anytime soon. They’re going to continue to go up and so if you think the rate is high right now and you’re interested in investing in single family homes in 2019, it is not going to go down in 2018. In fact, like I said, they are predicting the rates will get to five and a half percent by the end of 2019 and they’re really, they’re already there for investors that I’m talking about. This is for just regular homeowners that are buying personal residences, it’s going to go up to five and a half percent. If that’s the case, then you’re definitely well over six as an investor. It’s just, it’s a time to be cautious and just do a lot of extra due diligence before investing in a property and just very, very careful about the asset that you’re purchasing in the market that you’re purchasing in. 

So another thing I wanted to touch on is from 2014 to 2017, home price appreciation accelerated from roughly four percent to around seven percent. So that three year period is where you saw the greatest influx and appreciation over the next three years. This from Goldman Sachs, they expect home price appreciation to slide back to a three to four percent annual pace. And that’s, that’s really where we kind of need to be. That’s typically what you’re going to see, and historically, that’s what you’re going to see is the average appreciation across the nation is three to four percent. That seven percent, that just shows that pricing was just moving way too rapid. And that’s just because you know, the money was so affordable, the rates were still so cheap and it just, it made so much sense to buy. Right? And that’s why we had so many buyers flooding the market and obviously with the amount of buyers that we have, when buyers outweigh the sellers it becomes a seller’s market and sellers are able to sell their properties at much higher than they thought it would be. Because you’re running a multiple offer situations and things like that. And so, you know, I wish my mother would have listened to me. She still lives in Michigan. I actually just spent time with her up in Michigan over the holidays and she bought a beautiful new house, but you know, I believe she overpaid for it and I told her that. You know, she sold her house in literally a week, then they were scrambling trying to find a new house to live in, to move into. And everything that they were offering on was just multiple offers, multiple offers, and houses were getting overbid and so she paid $20,000 over list price just to get this home and it wasn’t her first choice. Many of her first choices, just couldn’t get her hands on them. Someone offered more than that. That was concerning. That to me, just showed, okay mom, this, this market is running way too hot. You sold your house in a week and you’re having difficulty finding a new home and they’re just getting overbid. That shows that there’s inventory issues, that shows that there’s way too many buyers, and plus in the Midwest and cold weather states, you know the market always moves faster in the summer. Kids are out of school and people just don’t like moving in the winter. Right? It’s a pain. It’s a pain to move in general. You don’t want to group in winter, when you’re moving. So you know, that’s why in my Midwest cities I don’t see a lot of movement in, in the winter, you know, my recommendation to her was, mom, find somewhere, I know it’s a pain to move, but find somewhere to rent for a year and just see what happens with the market next year. And now look, now we’re starting to hear about layoffs. The big three. That tells me that next year, the next summer, she would have been able to find more properties, probably. There’s going to be more foreclosures hitting the market, more people desperate to sell so that you’re going to see a correction in the pricing. And then now with the rates going up, that wouldn’t have really helped her. She would have had to pay a higher interest rate to get the home, but maybe in a more affordable value on the property. So you know, and maybe she would have been able to get something that was her first or second choice instead of, you know, her third or fourth choice, which is what she had to settle with. Still a beautiful home. But like I said, settled on her third or fourth choice. So you know, I’m seeing that and that was a key indicator to me that okay, things are definitely gonna have to start cooling here. And then next thing I knew the Fed was raising the rates again. 

Goldman also talked about three indicators where we’re seeing a potential crisis coming, and the slowdown in the market. And obviously number one is the mortgage rates. And they have increased by 100 basis points since 2017. And that obviously puts pressure on affordability. House prices have grown much faster than the rents. That is true. That has been happening. That’s been happening now here in Dallas as well, where the rents were moving quickly here in Dallas since we got in this market in 2012, it’s now at a point where a lot of them are starting, they’re plateauing. You know, you can’t push the rents any higher than what we could in these suburbs that we’ve been investing, in these cities that we’ve been investing in here in Dallas. 

It’s just, you know, you’re pricing out your demographics. So, and, and that’s been happening since 2012. And then the impact of the rising rates and the 2017 tax law changes from Trump have reduced the tax benefits of owner-occupied housing. You know, I mean, that’s true. You can only write off up to $10,000 of your property taxes on your personal residence. Now, that didn’t have an effect on our investors, right? You can write off whatever amount. If it’s a rental, it’s an income producing property and it’s an investment. But for homeowners, that kind of, you know, probably deterred some people from purchasing a home and maybe just looking at renting. 

There’s a lot of things that you need to look at here, but the point of the show is to talk about, you know, obviously that there’s a potential housing crisis coming. There’s definitely a correction going on with the pricing. You know, where’s a good place to invest my money in this type of market, right? We’ve been used to a healthy market here for so long and low rates; you know, now investors are starting to think, okay, well is it not a good time to buy a single family home? I still need to invest. I still need to build for my financial future. Where should I put my money? That’s what I want to talk about today. You know, and I also want to talk about some of the markets, you know, that had been seeing strong gains and are still seeing strong gains like Vegas, Phoenix, Tampa and just Florida in general. Keep in mind these were the areas that saw the most significant drops in home pricing during the last financial crisis. And so those are probably areas at this point that I would avoid along with a lot of the Midwest cities, um, that I’ve mentioned, you know, Detroit, Chicago, Cleveland, Indianapolis. These are all cities that I believe that the property values are just back at their peak and they’re not going any higher and the only way they’re going is down. 

So I would take a wait and see approach on some of these because I’m telling you, you’re gonna be able to get deals on these houses. Again, you’re going to see, even with the rising rates, you’re going to see higher yield because the values and the sales prices of the homes are going to go down with these, these layoffs that we’re starting to hear. And I have a lot of friends that work for GM and you know, it’s just scary thing. But we saw this last time during the last financial crisis, there was a lot of layoffs in the automotive industry and we just, you know, it really affected that region of America. I’d be careful there when there’s layoffs in areas like Michigan and Indiana and Ohio and Illinois. They’re probably more apt to move to cities with more opportunity like Texas, like the city major Metros here in Texas. You know, you’ll see a greater influx. Although we see so many people moving here on a daily basis already, you’re going to see people fleeing some of these cities with no opportunity or little opportunities for cities with a lot of opportunity. You’ve got to look at both ends of the spectrum with all of these know, potentially negative things that will be happening coming up with the housing market and just our economy in general. You’re going to see people that are going to be, like I said, if you lose your job in Detroit and you have a hard time finding a job in Detroit, you’re going to flee to or move to a city where there are jobs where there is opportunities. So I think that that is a possible benefit for a market like Dallas, and so that’s going to basically take me into what I want to discuss next, which is where to invest, how to invest, what things to invest in, what type of investments should I invest in coming into this potential housing crisis and already a market correction that we’re seeing. So when we get right back from this commercial break, I want to start talking a little bit more about where to potentially invest and how to potentially invest during this market correction and potential market or housing crisis that will be going into. So stay tuned, we’ll be right back. 

And welcome back to the Real Estate Cowboys. This is John Larson. We’re talking about where to invest or how to invest in today’s market with a potential housing crisis looming here. We’re already starting to see some markets that are taking some hits with the slowdown, with the rising rates. You know, properties aren’t moving, they’re being sold at a lesser value. We’re starting to see some price decreases in a lot of major metros here in the U.S. And I’m even starting to see them here in Dallas in some areas. So many of my investors are coming to me. They’re looking for a good cash flow opportunities and you know, with rentals right now with the way that the rates are moving up, we’re going to see our investors right now, you know, six percent with 20 percent down, maybe even a little above six percent. It’s going to have a negative effect on the cash flow that you’re gonna be able to generate from these properties. So if cash flow is a main goal for you, I would definitely look into private lending, which we offer here at American real Estate Investments and the Real Estate Cowboys. And that’s what I’ve been getting more and more into because, flipping homes, I’m not making profits that, that I’m accustomed to. And that’s because of the rising prices that we’ve seen. And, and now there’s been a slow down with my investor interest on single family homes because of the rising rates. Because my investors are looking for cash flow. So I have to give them another option and so that was why we started to offer our private lending opportunities where we can get our investors double digit fixed returns, right? So you’re not having to deal with maintenance and vacancies and things like that, which has a negative impact on cash flow. And if you’re trying to beat the rising interest rates, like, okay, well I want to buy a single family home, but you know, now this rate’s six percent or greater, you know, it’s just not making sense for me. I don’t want to buy a high risk property just to try and hit the numbers because I know that that can result in a lot of problems and I’m looking for passive. 

Well, if you’re that person, then private lending is the best route for you because it’s fixed returns and they’re guaranteed returns in the form of an interest payment, right? And a dividend. I was just on the Real Estate Guys talking about debt opportunities, debt syndication opportunities versus equity syndication opportunities. And in my opinion, you know, it’s really gonna come down to the market, uh, for, for these opportunities. Like I wouldn’t invest in a debt opportunity in a market where I feel like there’s not a very diverse economy and it’s a market that’s dependent on one source of business, like the automotive industry, right? Where we’re seeing layoffs, potential layoffs with GM. I’d want to invest in a market that has a very diverse economy, so even if there is a dip in manufacturing or whatever it may be, that there’s other businesses and there’s other sorts of businesses and other jobs that support that city’s economy. And that’s why I really like Dallas and why we do all or most of our private lending opportunities in Texas in Dallas specifically because I feel like it’s still a good market to loan money in for a commercial project. 

There’s very high demand for office space here. Very high demand for retail space. There’s still demand for housing. You know, there’s demand obviously for multifamily in this market. Apartments are still very popular, right? Millennials like apartments, they like the brand new. They like luxury apartments, they like the amenities, they like the ease of just being able to move in when they’re only committed to one year. Gives them the freedom that they’re looking for. Many millennials don’t, you know they’re not repairmen or not handy, they don’t want to deal with repairing homes and the maintenance of homes, so they prefer to rent. Which is also why single family homes are still a popular option here as well as far as rentals, but it’s gotta make sense for you, you know? And my investors that want cash flow and they desire cash flow and they’re looking to supplement or replace income or build towards retirement, cash flow’s important, right? We only have so much time, so you need to maximize that time and maximize your cash flow during that period of time. 

So double digit fix returns to me, if I’m somebody that’s looking for cash flow and looking to supplement or replace income, private lending sounds like a great option. And what’s your real risk with lending on an asset? I mean there’s not much, because if you have first lien position, which all of our offerings give you first lien position, the worst thing that can happen is the borrower forecloses and you take the property. So we’re actually raising funds for a office building in Carrollton, which is in North Dallas, suburb, right near the Addison airport, right off the toll way. It’s a great, great opportunity where this building has already over 80 percent occupied and it’s already cash flowing right now. And the seller just wants out of it. He owned some businesses in the building that he’s since sold and really has no use for the building anymore and all it is is just occupying his time right? Because time is a very precious thing to us. And although it’s cash flowing for him and putting money in his pocket, he’s been managing it himself and he really doesn’t have use for it anymore. He has so many other investments that he’s been looking after. He owns a single family home portfolio and many other things. And so since he sold his businesses, he had a mortgage business that was in the building that he sold. So there’s two empty spaces because of that. One of them is actually going to be filled on January 1st. So much demand for office space here. I think this is a great option. A year term, double digit returns during that time. Got many of our investors who are self directing funds and investing through a retirement account, which then the interest payments are going to be paid to them tax free or tax deferred depending on the account that they have. 

So, I just think it’s a great, great option and then just the passiveness of it, just the passive experience that the investor has. They loan money and they just get a fixed check each month. Now there’s not really any tax benefits with private lending, but like I said, I have investors that are coming out new that just want the cash flow. Well, this is a great option. It’s a great, great option for you. So I would say that’s a great place to find cash flow in today’s market. You know, there’s equity syndications that are out there as well. I just feel like those could be a little bit more risky in today’s market because we’re seeing a decrease in property values and I think we’re going to continue to see that and it’s going to become greater and greater as time goes on here. 

And so, you know, like I said, here’s a perfect example with an equity deal, let’s say you lent me money to go flip a house in today’s market. And I thought I was going to be able to sell it for $450K and I ended up having to sell it at $400K. Well, where’s your profit coming from? And that’s a real thing that’s happening to people right now. Houses are staying on the market longer than they should. Houses are being sold at a lower value than what you initially anticipated. That’s the risk that you take with an equity investment. With a debt investment, you have first lien position and you get immediate fix returns. That’s why I really like the debt option and that’s what I talked about on the Real Estate Guys podcast and I’m planning on doing another podcast that talks about debt and equity syndication as well. I’m also going to be going on Keith Weinhold’s podcast again, Get Rich Education, to talk about this same structure. 

So another question that my investors have been asking, is now a good time to sell? I still think there could be potentially an opportunity to sell right now and cash in on the equity that you have sitting in your property. I think if you wait too much longer, it’s going to be a bad time and you’re just going to have to wait it out, ride it out and hold the property through the next market correction that’s coming. Because then you’re just going to be selling the property at a greater discount, You’re going to lose that equity that you have in that property. So if you don’t sell soon, then you’re going to probably have to wait it out, you know, and that’s fine. It’s a rental. So you’re with mortgage rates going where they’re going, it’s going to slow down the buying pattern that we’ve been seeing and you’re going to start seeing more and more people wanting to rent. So that’s a good sign for you if you have a rental, but it would not be a good time to sell it. Uh, you’d have to kind of weather out that, or ride out that uh, that recession, that correction and wait for values to start creeping up again from obviously lower interest rates, lower mortgage rates, and we’ll see that again, you know, everything is cyclical. So I wouldn’t say, uh, I would say it’s still, there’s a short, short window to still sell your property and cash in on equity or potentially do a cash out refi. 

And a lot of investors are asking should I still buy more homes? And, and like I said, I think that depends on the goals and the amount of capital you’re working with. You know, I wouldn’t necessarily put your money in the stock market. I’ve seen a lot of volatility with the stock market this past year and you know, with layoffs, with GM and if GM is talking about laying off people than other companies are going to be looking at layoffs as well. I don’t know if the stock market is the best route to go. If you want to buy single family homes, I still think there’s an opportunity. I still think you should wait and see on some of the markets that I’ve mentioned, some of these Midwest markets, because I think you can start getting some deals here in 2019. Whereas you know you’ve been buying properties at the top of market value, these turnkey homes, I think you’re going to start to see an opportunity to buy homes at a discount. Now you’re still going to have to deal with the higher rates. But hey, if you’re getting the property at a more affordable value, that can offset the rise in rates, right? And historically we have seen that anything below seven percent is still a good rate. Still a good rate at anything below seven percent. We don’t foresee it going over seven percent next year. So I still think it’s a good time to buy, especially if you want to take advantage of the tax benefits of owning real estate, if you need that kind of tax shelter that real estate can provide to you, then buying single family homes is still a good tool for you, right? But it depends on the goals. If your goal is strictly cash flow, I would be looking at other options. And private lending is is a great one, right? Cash flow is still going to be tough to come by with the rising rates and values of homes where they’re at right now. Just like I said, very goal dependent. And that’s why every time an investor reaches out to us, my investment coordinators have an initial consultation call with you as the investor because we want to find out what your experience investing, what have you invested in before, what are you currently investing in, what did you like about those investments, what don’t you like, and just what are your goals? And many of the investors come to me and they’re just. They want cash flow. 

Well, that was, that’s where we start to talk about our private lending deals and private lending opportunities so we can get you that fixed cash flow you’re looking for. I mean you are not going to get double digit returns in the form of cash flow on rental properties in today’s market. You’re just not. Unless you’re buying these properties that are what I would call, a paper yield, a fake return on a spreadsheet. You know, a property in a, for lack of a better word, ghetto area of a major city here in the U.S. If you’re buying a property for 40, $50,000. I mean that’ll look like it’s going to cash flow great, get a great return. But it just comes with so much more risk. Trust me, those returns just never come to fruition. They just never become reality. The property ends up becoming a money pit and that’s the last thing that you want, so don’t get fooled by that. 

We talk about that a lot on the show. Do not get fooled by these paper returns that these turnkey providers and companies put together, okay? Now, when you’re putting together a private lending opportunity and filing it with the SEC and having an attorney put together your PPM and analyzing the deal and making sure it’s a good deal. That should make you feel pretty comfortable about moving forward with the deal. And like I said, double digit returns in the form of interest payments. Dividends paid out monthly and your risk is really very low because of the fact that you have a first lien position. So that to me is a great option, especially through a retirement account, self directed retirement account where you can loan out of that and see those interest payments come back in tax free or tax deferred. 

And I would say, you know, a lot of people have asked, am I safe loaning money in today’s market and, and I think that that’s market dependent and the economy plays a big role. The economy in that market plays a big role. I feel comfortable about loaning money. I would feel comfortable about loaning money in major cities here in Texas because our economy is so strong and so diverse. There’s going to continue to be businesses moving here because of the business friendly climate that we have. So investing in office space in the Dallas market, I think it is a pretty good idea. 

If you like what you heard on today’s show, you’d like to hear past episodes, you can go to All our previous episodes are housed there on the website. We also have more information on all the things that I talk about on the show. More information on private lending opportunities, more information on single family rentals, how to get started, uh, information on vacation rentals. You know, we really love Belize. You know, we still talk about Belize. So do the Real Estate Guys, so do a lot of people in the industry, I mean, usually if everybody’s talking about it, that’s uh, got an audience here in the U.S. and is knowledgeable in terms of real estate. There must be something good going on there, so. We have information on vacation rentals as well, so you can go to Get this information. I also have my book, the Passive Income Guide. If you liked what you heard on the show and you’d like to get more information on how to generate passive income and real estate, I recommend getting the book. It’s a really quick, easy read, very affordable, and it’ll give you more information, more in depth information on the stuff that we talked about on the show. You can also go to our American Real Estate Investments website,, input your information and have a consultation with one of my investment coordinators at American Real Estate Investments. They can give you more information on our current offerings and what we have available. Until next time, everyone, thanks for tuning in. I’ll see you next week and always remember what is your return on life. This is John Larson signing off. 

Announcer: All opinions expressed by the host of the show are the opinions of American Real Estate Investments LLC and do not reflect the opinions of guests or sponsors. No personal or professional advice on this program should be considered an endorsement to follow a real estate financing or investment strategy. Before acting on any information, seek advice from your financial tax, mortgage or real estate advisor, as the information is not guaranteed and investment strategies have the potential for profit or loss.