158 State of the RE Industry – Real Estate Investor Show – Hard Money for Real Estate Investors!

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158 State of the RE Industry – Real Estate Investor Show – Hard Money for Real Estate Investors!

In this episode of Real Estate Investor Show – Hard Money for Real Estate Investors the Carolina Capital Management team talks about the state of the real estate industry.

Should we be investing in real estate? Are we at the top of the market? Is inflation going to continue? Do we see a crash in the future?

Timestamps:

0:01 – Introduction – Are you being fooled by random?

1:21 – https://www.CarolinaHardMoney.com

2:07 – Wednesday with Wendy: https://calendly.com/wendysweet/wednesdays-with-wendy

3:19 – Jonathan in Collective Genius

4:33 – Breaking News

9:20 – Wendy & Jonathan discuss the relevant questions regarding the status of real estate industry.

11:22 – How much corrections are we going to see?

13:12 – Are we going to see a massive amount of foreclosures?

15:52 – How many people do you think will be underwater next year?

17:58 – How are we going to get the rents to come up where the values of the houses are?

20:40 – “Fooled By Randomness”

Carolina Capital is a hard money lender serving the needs of the “Real Estate Investor” and the “Small Builder” borrower who is striving to build wealth and generate income for themselves and their families. We offer “hard money rehab loans” and “Ground-up Construction Loans” for investors only in NC, SC, GA, VA, and TN (some areas of FL, as well).

As part of our business practices, we also serve as consultants for investors guiding them to network with other investors and educating them in locating and structuring transactions. Rarely, if ever, will you find a hard money lender willing to invest in your success like Carolina Capital Management.

Listen to our Podcast: https://thealternativeinvestor.libsyn.com/

Visit our website: https://carolinahardmoney.com

YouTube Channel: https://www.youtube.com/channel/UCYzCFOvEt2n9TchgECLwpww/

Facebook: https://www.facebook.com/CarolinaHardMoney/

Wendy Sweet

00:02:10

We’re so blessed that we’ve got our fingers in so many different incredible mastermind groups and just a brain trust that we have to fall back on, that I love to be able to share those people with you, too. I’ve hooked a lot of people up on all kinds of different topics. So in fact, Jonathan is in Tampa, Florida right now at our, one of our very favorite collective geniuses, right?

Jonathan Davis

00:03:26

Yup. Been here since Monday. So it’s been great to learn a lot. You talk with a lot of guys and gals, who know a lot of things, have different perspectives, and there is no shortage of learning. If you have ears and an open mind, you will learn something.

Wendy Sweet

00:03:47

Awesome. And on our next segment, you’re going to talk more in depth about that, right?

Jonathan Davis

00:03:54

Absolutely. I’ve got some fun stuff about how you measure your success in your market. And also personal stuff. Cause a lot of people are business owners and you gotta take care of yourself and how do you do that? And how does taking care of yourself translate to your business?

Wendy Sweet

00:04:15

That’s right. God, family, work. And you really got to keep it in that perspective. We’re so often completely upside down on that.

Jonathan Davis

00:04:23

Absolutely. We’ll talk more about that in the next section.

Wendy Sweet

00:04:29

So I guess now would be a good time for us to address the breaking news. 

Wendy Sweet

00:04:54

Have you looked up what’s going on today?

Jonathan Davis

00:05:00

I haven’t, but I will say that I read an interesting article and it was about the CEO of BlackRock, which if you’re unfamiliar with BlackRock, they’re a $600 billion asset under management. I think it’s a little over half a trillion, but one of the things he was saying is if he only had a hundred thousand dollars, he would invest in real estate today. That was the whole thing was now then you come in, you’re like, is he trying to do market manipulation because of his platform? Or is he being, you know, honest and transparent? It’s just offering this advice to people. Sometimes it’s hard to tell, cough, cough, Elon Musk.

Wendy Sweet

00:05:48

Isn’t that the truth?

Jonathan Davis

00:05:53

So, yeah, but I think that’s for me right now. I don’t have any stats to give anyone off the cuff, but like even where real estate is right now, there are deals and I mean, business is booming.

Wendy Sweet

00:06:09

Yeah, we’re getting loans. People are finding them somewhere. So what I’ve heard on the radio this morning is that they’re talking about unemployment and they actually said that in North and South Carolina, unemployment is down, which is good. It’s not that far down, but it is down, but nationally it’s actually up. I thought that was pretty interesting.

Jonathan Davis

00:06:40

Yeah. I saw a sign somewhere on the boardwalk and it was like, “Please be patient with us. We try to hire help and servers, but a lot of people just don’t want to work right now.” I was like, dang, they really went for it.

Wendy Sweet

00:07:05

Well, it’s a fact. And it’s just sad.

Jonathan Davis

00:07:09

We talk about this all the time. It’s when you want to incentivize your population and you have control over, whether it’s to do that or not.  If you give people money to be unproductive, there will be a section of that population that says, “No, I still want to be productive.” But there’s going to be a big section, as well, that’s going to say, “Okay, I’ll take it.”

Wendy Sweet

00:07:35

And I think what surprised me the most about this is that the section that says, “Okay, we’ll take it” is so much larger than I thought it would be.

Jonathan Davis

00:07:48

It is surprising. Yeah. But that opens up opportunities for other people. And then you couple, with this unemployment nationally that’s rising with, like, people can’t find the talent that they need to fill the jobs. We have such a talent discrepancy or that we can’t bridge or that employers are having a hard time bridging. I mean, we’re hiring right now for a key position and it’s tough, really tough. It’s tough to find that person because especially if you’re using LinkedIn or other search engines like that, are you getting quality candidates? Are you just getting people who are just checking off a box so they can keep getting their unemployment? I’m not trying to generalize people, but I’ve heard from a lot that that seems to be the case with a lot of people.

Wendy Sweet

00:08:51

Yeah. It’s absolutely scary.

Wendy Sweet

00:09:11

So the thing that you mentioned, too, that the BlackRock CEO said if he had only a hundred thousand dollars, he would be investing in real estate. So the big question is should you be investing in real estate? Are we at the top of the market? Is inflation going to continue? Do we see a crash in the future? What are your thoughts on that?

Jonathan Davis

00:09:43

I mean, will we have a correction crash? That’s the question everyone’s asking. Yes. We’ll have to have a correction at some point. As markets rise, there has to be a stabilization point. While they haven’t stopped rising right now, I think there are a few reasons. The Fed printed $4 trillion worth of cash. So a lot of people have money right now. And then, we have large REITs like BlackRock and hedge funds that are getting capital at next to no cost. And they’re buying up real estate. BlackRock’s in the negotiations right now to buy some rental company that owned 17,000 rental homes. So they’re trying to purchase that up. As long as they continue that buy-up, I don’t see prices decreasing. Now they may stabilize and they might still increase slightly, but I don’t see them coming down for a while.

Wendy Sweet

00:10:51

Yeah. And that’s the big question is- I did use the term “crash.” I should have used “correction” like you did because of the crash in 2008, everybody remembers that. But I really don’t think we’re going to see a big kaboom like we experienced in 2008, but we are going to see some kind of correction and the question is, how much of a correction are we going to see? I was talking with a guy on my Wednesdays with Wendy call yesterday. He is an investor out of California. And of course, he’s looking at properties outside of California because it’s ridiculous. The pricing there is absolutely ridiculous. So he’s looking in the Carolinas and his statement to me was, “I’m looking for property that has strong appreciation, and it’s okay for me to buy it now, even if it has a negative cash flow.” And I did my best, I said, “Get your California thinking out of your head, appreciation is the cherry on top. Don’t buy a house for appreciation.” But so many people are thinking that that’s the way you should do this.

Jonathan Davis

00:12:16

In my experience, when you gamble on appreciation, you’re usually buying at the top of the market because you’ve seen the appreciation. You have this track record, this backlog of appreciation happening. You’re like, “Oh man, this is great. It’s never going to stop. Let me go ahead and buy.” And then you buy, and then it stops. And now you have a negative cash flowing asset that is also underwater. That’s not what you want. So you are right. You always want to have positive cash flow. Appreciation is definitely the cherry on top. If you stay in the property long enough, you will gain appreciation. Real estate in America is historically appreciated. So I think you’re right. One thing before I get to the question that was just asked, I know everyone’s talking about foreclosures and are we going to see a lot of foreclosures or are they going to put a moratorium on it?

Jonathan Davis

00:13:19

I think they will continue to kick the can down. But the bigger thing is, hopefully, I don’t think most homeowners are stupid. I hope not. But your property has just appreciated a lot. If you can’t pay your mortgage, refinance, capture that equity. I think you’re going to have a lot of people who already have. And as we keep moving down the line, people will continue to do so is to recap, like recapitalized with that equity to-

Wendy Sweet

00:13:52

Resell it

Jonathan Davis

00:13:53

Yeah, or sell it. And, you know, the issue is now if you sell it, where do you go? But I mean, people can capture that equity, whether through a refinance, through eLOCCS, through second mortgages, what have you, there’s a lot of options out there for people. I mean my house, my gosh, in the last 18 months, it’s appreciated over a hundred thousand dollars.

Jonathan Davis

00:14:18

It’s insane. That’s a big bump, you know? And now I’m in South Carolina, so a hundred thousand dollars is a lot of money to us. It’s not like in California, but yeah, I don’t think we’re going to see this. Everyone tries to liken things back to the experiences that we’ve had. We try to liken this back to 2007 to 2009 and no, it’s not going to be that. We have better underwritten loans. We have the knowledge of what happened. And so now banks and other mortgage entities are doing things to mitigate all that to create that massive exodus of foreclosures.

Wendy Sweet

00:15:04

Yeah. And if I were a person that was going into foreclosure and I’m worried about not having a place to live because I’m not going to be able to afford the mortgage payment or that a much higher rent payment, because mortgage is going to be a lot lower than rent. I would do my best to find an investor that would be willing to buy my property and lease it back to me at a discounted rate for at least the next 12 months, giving me time to get my stuff together so that I could find a better place to live. And as an investor, I’d take that deal all day long. If the price was right, I’d take that all day long. There’s so many different ways around that. So that other question that is posed is how many people do you think will be underwater next year?

Jonathan Davis

00:15:59

I don’t think very many. 

Jonathan Davis

00:16:03

I think values will continue to rise through next year. It will stop. It will be corrected. It will decline, but I wouldn’t feel comfortable saying in the next 12 months that’s going to happen.

Wendy Sweet

00:16:21

No. Their appreciation is going to carry them across the threshold. The people that I think that are going to, you have Don Harris, that’s saying “Zero,” the people that I think that are going to lose any money or get behind in their payments are just really poor money managers and are in denial with what’s going on around them. Anybody that has that kind of attitude, they’re the ones that are going to lose, but you gotta be in a serious world of hurt to lose your house at this point.

Jonathan Davis

00:16:54

Yeah. And we talked about appreciation. I was telling you yesterday, that house, that flip-or-not flip, I guess it was a rental that I did in Charlotte. So if you went on Zillow before it was rehabbed, it’s going to be worth $110,000. I didn’t spend much, I mean, relatively speaking, I think $20,000 was with everything it needed. And most of that was just a brand new HVAC. So I’m like, “I might squeak out 150, but I’m really thinking probably 140 is what that value was at that moment.”

Wendy Sweet

00:17:34

That was really comps, I pulled on it. And it was pushing it.

Jonathan Davis

00:17:37

I just got the appraisal back yesterday. 181.

Wendy Sweet

00:17:43

That’s amazing.

Jonathan Davis

00:17:44

Like 30,000 more than what I thought the high end was for it. And the comps were all within one mile.

Wendy Sweet

00:17:55

Now, can you get the rent to match that? That’s the thing is the values are going up so high, but rents are stuck for 12 months. How are we going to get the rents to come up and really match where the values of the house are?

Jonathan Davis

00:18:12

Well, yeah. The rent in that house, I think it’s 1100 bucks.

Wendy Sweet

00:18:18

It’s a 2-bedroom, right?

Jonathan Davis

00:18:19

Yeah. Two bedroom, one bath, a really big yard. It’s nice. It’s cute. But yeah, the rents don’t match the value, but that’s okay. Cause I’m in it a lot less than that 180,000. So it works out. But I just, I mean, because the thing that shocked me was appraisals are backward-facing, they’re not using what’s happening today. They’re using what happened yesterday. And even using what happened yesterday, that value came in 30,000 more than I thought it would. So I’m just blown away about the appreciation in our markets.

Wendy Sweet

00:19:03

Here’s another good bump for you. It’s a corner lot. The backyard is huge. So it has lots of road frontage with the backyard and the city council just passed an ordinance saying that all the houses now can be multi-family, can be zoned multi-family. So now I can put an ADU back there.  

Wendy Sweet

00:19:27

ADU. An Additional Dwelling Unit. You sure can. 

Jonathan Davis

00:19:45

So the next show, two things, cause we didn’t get to it today. This section we’re going to talk about Collective Genius is where I am right now. It’s a national group of real estate investors, wholesalers, fix-and-flippers, buy-to-rent, lenders, and even service providers like data companies, stuff like that. A really good one that we’ll talk about next will be like Audantic. That’s a really great data company. And then also, if we have time, we’re going to talk a little bit about a book that was recommended to me by Bill Mann. He’s a great investor. Great, great human being. It’s called “Fooled By Randomness.” 

Wendy Sweet

00:20:37

Give us a little teaser on it. Just a little teaser.

Jonathan Davis

00:20:41

So “Fooled By Randomness.” There’s so much that happens in our world that is completely outside of our control. We have no way to choose it.  It just happens. And so often if we can string enough of these random things that happen, that benefit us that we’ve convinced ourselves that’s us. We’re really good at that. Like, “Wow, I’m really, I’m really good.” 

Wendy Sweet

00:21:14

Like buying a house that increased up to 181,000? Yeah.

Jonathan Davis

00:21:20

It was nothing I did. That was completely random. But like in this system, he uses kind of like the Monte Carlo system, and there’s so many outcomes that are possible. Like if you run the numbers enough, a Warren Buffet will pop out of the system. Every generation. Like it has to because there’s so many possibilities and not to take away from Warren Buffett. I think he’s a brilliant man, but there’s probably a lot of his success that’s built on just randomness.

Wendy Sweet

00:21:56

Thoughtful randomness, for sure. Thoughtful. That’s awesome.  

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