From Flying High to Investing High: Bill Ham's Transition to Real Estate Mogul

Imagine walking away from a high-flying corporate career and plunging into the world of real estate investing. That's the daring journey our guest, former corporate pilot turned real estate mogul, Bill Ham embarked on. In our engaging discourse, we uncover how Bill navigated the transition, building a formidable real estate empire that started from a single duplex to an integrated management company with a team of 16. But the path to success, we explore, is not always swift; it's a steady, sometimes slow climb, especially in the realm of multi-family investing. 

In our riveting conversation, we unravel the complex world of financing options in real estate. The focus is on the critical aspect of determining deal profitability and assessing the seller's asking price. Additionally, we delve into the intricate, often challenging task of purchasing a property through a loan, examining factors like calculating the debt service ratio and understanding the necessity of a down payment. However, as we navigate through the future of multifamily property investments, we're faced with market shifts, rising interest rates, and loan maturity. These factors beg the question - how do we adapt and thrive amidst these changes, and what does it mean for the future of the market? 

The current state of the real estate market, filled with low inventory, soaring interest rates, and cap rate compression, forms a crucial part of our discussion. We emphasize the need to adhere to fundamentals, not just follow the market. We also ponder on the possibility of trading multifamily assets without the metric of cash flow, and the implications it may have on the market. As we wrap up, we share resourceful ways to reach out to Bill Ham, from exploring his insightful books on Amazon to connecting via his website. Don't miss out on this enlightening conversation that promises a bounty of insights on real estate investing!

This episode is brought to you by Premier Ridge Capital.

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Transcript

Speaker 1: 0:27

Hey guys, welcome back to another episode of Latinos and Real Estate Investing Podcast, where individuals just like you come to learn how to create wealth, real estate investing, entrepreneurship and business ownership. In today's episode, we have Mr Bill Hamm. Bill in 2005, walked away from a pretty lucrative career as a corporate pilot and bought his first real estate investment a duplex. From there, he built a large portfolio of single and multi-family rental properties. In 2009, he built a management company with 16 employees at his peak and his portfolio went vertically integrated from that point on. For more than a decade, he has taught hundreds of students to become successful in real estate. Bill sir, welcome and thank you for being here. My friend, you're welcome.

Speaker 2: 1:23

I appreciate it. Yeah, that was a great intro. I need a cup of glass, that's really good.

Speaker 1: 1:30

You're welcome, man. You are welcome, sir Bill. Let's start from the beginning. You was a pilot, right? So that's a lucrative career, and you're a multi-family guy today, and that's what I want to talk to you about today. I want to talk about multi-family, how you do that, where you are today in your career. But I like to go back to the beginning, right, because people are listening to this. I'm going to presuppose that those that are listening are thinking man, that's a really cool career Pilot man. Why would anyone want to leave that? Why would I want to stop being a pilot to go and deal with the three T's, three o'clock in the morning, tenets?

Speaker 2: 2:09

all that stuff.

Speaker 1: 2:12

Tell us that story. How did that happen? Take us back.

Speaker 2: 2:15

Yeah, you know, flying airplanes is great and I enjoyed it and I loved actually flying the airplane. I did not enjoy being told when, where and how to fly the airplane. That is part of being a pilot to care for the job. I didn't see that coming. You know Flying and all that is great fun. What a lot of people don't understand about being a pilot is there's a lot of sitting around. You know you're sitting around waiting for someone else to show up and tell you where to go and when to go. Right, and so I didn't. There's a lot of down times being piloted. That just kind of was boring.

Speaker 2: 2:49

I also came to the conclusion that I was not a very good employee, that I was probably going to be a better entrepreneur than an employee. I just kind of knew that in my bones. Third answer I saw friends of mine flipping houses right and I was hanging out with them and we'd all go to the bar and we'd get up in the morning and I'd go to work and they would go do a real estate transaction and they would make in one or two flips what I was making all year long and I thought, all right, something's wrong with this picture. You know these are just average guys hanging out with me and what are they doing? That's so different than what I'm doing. And that's where I really kind of started to look at real estate. Look into it.

Speaker 2: 3:23

I spent about a year reading, studying, rich and poor at all those normal stuff that everybody reads and goes through, right and then ultimately decided to pull the trigger. I'd closed my very first deal as duplex. It was making about 300 bucks a month. I had 10 grand saved up and I just walked away from full time aviation and went into real estate. But I was 28 years old, wasn't married, had no children, so there's the but to that. So I'm not necessarily recommending that everybody with a responsible life to run out with their job and go to real estate, but it was the right move for me at that time.

Speaker 1: 3:59

Good. How has that move paid out for you today? How old are you today?

Speaker 2: 4:02

You don't mind me asking, I am 47 now, so I am still here Many years later. I've done made a lot of money, lost a lot of money, so I've had a lot of ups and downs of the business. I'm certainly willing to share all the aspects of that, but it's been great. I'm fine now, I'm good now. I live the lifestyle that I want now. But it was not quick. It's not as fast as I thought it would be.

Speaker 2: 4:23

I think that's one of the biggest things that your listeners probably need to truly understand about multi-family it's not as fast and as high-paced action as you might expect or even want it to be Right.

Speaker 2: 4:37

And so I think a lot of the people out there, a lot of the teachers, a lot of the gurus, really kind of sell a lot of hype around this and multi-family can be a slow, steady pace and you're not going to go out and close deals as fast as you might houses or duplexes you may only close one a year, one or two a year or so things of that nature. So I think that's a big sort of misconception a lot of people have is the pace of it. It's not slower or anything. So yeah, but that's how I got into it Just slow, steady, started small and then over the years got bigger and bigger. So I did not go straight into large apartment complexes like I do now. I started with two units, did some houses, did a nine unit it was my first sort of multi-family and then 20, 27, 44, on up the ladder from there. So it was a incremental process.

Speaker 1: 5:27

I didn't go straight up in the big stuff. I'm so glad that you said that there's a guru out there that you know and I know I'm not going to say his name. I listened to him. He's got a lot of good stuff to say and then I listened to some of the things he says and I'm like dude, you're out of context. I like to get your perspective on it, because you kind of just you kind of hit on it.

Speaker 2: 5:48

Absolutely. Yeah, I, I. We are probably thinking of the same individual, but there is one in particular, and it doesn't really matter who anybody is. If someone is telling you this sort of go bigger, go home type way in a view, be very, very, very careful about that information. It is a sales pitch, in my opinion, large and this individual is really telling you to go up to these big properties, syndicate, do high level stuff. That's not wrong, but is it right for you? And I have a lot of his students come around to me after the fact.

Speaker 2: 6:24

And what I find concerning is that these students are are passing on 10 units and 20 units or five units. They're passing on these deals that would get them started, get them into the business and get their momentum going, because their guru said do 100 units or plus or you're. You're doing it wrong if you don't go close to 100 units of this kind of stuff and I think that's very, very bad advice for someone who is new to business. To listen to someone that has this one track mentality of go bigger, go home, I think you're going to get hurt or, more more likely, you're not going to get anything done. You're just a mountain, burn yourself out, out here looking at 200 unit deals. This has very low probability of you closing right, and so, therefore, you just spend a lot of money in the program, you spend a lot of time, you don't get any action, you get bored and you wander off, and then one day you wonder what happened. Well, that was it. You just went too big, too fast, right?

Speaker 1: 7:16

Yeah, yeah, and you, you, you nailed it right. You said you started with a two, then you went to a 10, a 20, a 24 or something like that. You said and then same thing for me I started with a, with a one, a two, 2007,. Lost a lot of money, I think you're right 100,000 underwater within two years because I bought it at the hype of the market. Learned the lesson there, right, oh yeah, and it just kind of kind of moved up from there. But something, something you, you, you said right. So why is it not a good idea and I want to, I want to go into that as it retains to multifamily, to someone that's just starting out why is it not such a great idea for someone that's brand new, that's listening to these gurus tell them, going by a 20 or 40 unit first, or a hundred unit, whatever they say first, cause I need nothing else makes sense, you can't scale. Why is that not such sound advice? Tell us that.

Speaker 2: 8:15

It's setting the first step, which is always the hardest step. It's making the very first step a hell of a step, a doozy, you know, and I think that is a mistake. And as a teacher in this business, that's one thing I find is most people don't really know what is the first step or what is the next step. They get stuck. They're like okay, I know I should be buying real estate, I know I should have a market, I know I should do these things, okay, but how you know now, thanks Bye, like what great all these theories, but what is the next step I need to take right now and that's what I help people really learn is what is that actionable next step? And if the next step is, oh, you just need to go close some giant deal that has a low probability of success, what you're doing is you're telling that student to take that very first step is not a baby step now. It's this kind of gigantic leap and I think that increases the probability of failure in a new student and that's why I say it's. It's it's not good advice. In in a, a bubble, you have to take that kind of advice and say, okay, we're gonna go as big as you can. This is what I teach my students. You want to follow the old 80 20 rule. 80% of the time you want to be looking at deals that have the highest probability of closing. 20% of the time, fine, let's go look at these big giant deals that may be outside of your, your capability or outside of your probability of closing. So then I sit out with the student and I say, okay, well then, we got to figure out what fits into this 80 percentile for you. All right, one thing you got to understand about commercial real estate and there's this lots but one thing is that to qualify for these loans, you have to have net worth equal to or greater than the loan amount. All right, so right there, there's your number one metric.

Speaker 2: 9:53

What you want to do is you want to say what is my net worth Plus immediate friends and family? Right? If what is my that negative aggregate net worth? Right, friends, family we're going to take that number and translate that into number of units in your mark, right? And that's why that's very different.

Speaker 2: 10:11

Let's say I'm worth a million bucks and I say, okay, how many units can I get in Atlanta, georgia, for one million dollars? Well, that's a very different number than the amount of units. I'm going to get an la miami, new york, or you know, brownsville, texas or the middle of cowfields, somewhere very, very different all over the country. But your net worth, your, your loan qualification is static. That's your net worth right. That stays static. So just translate that into number of units. Whenever you go to a different market your market there's your 80% right, there's where you want to get started. So if this individual is told you to go out and close a 50 units or 100 years or some big deal and that's 20 x your net worth, that's not really good actionable advice and I would say that's not very good teaching. That's just my end all opinion on that. It's not actually you're, you're just setting students up.

Speaker 1: 11:02

So, bill, what are the deals that have the highest probability of closing for you as a teacher? What do you? What do you teach?

Speaker 2: 11:09

the one you can put the proceeds together to buy, that's the one that has the highest probability closing the one you could. You can get the money together, all right. Better question how do we what? Where is this money coming from? What money are we talking about here? Are we talking about you going over and borrowing money from a bank, getting a mortgage? Are you talking about you have all the cash right now sitting in a checking account? Well, those are very different answers, and so I would say from the average listener. You're talking about getting a mortgage. You're probably not talking about paying all cash all the time for all the real estate, if you are call me. But other than that, if you're like the one step, astride, you're going to go out and get a mortgage, then the loan qualification you're your ability to get the mortgage. That's the key.

Speaker 2: 11:50

And in one of the major factors there is net worth. Right, you have to have net worth equal to the loan amount. So if I want to borrow a million dollars, I have to have net worth equal to a million bucks. It's not about the doubt, right, I have to have that too, mind you, but I have to have that million dollar net worth. So that's what I'm kind of saying is like whatever your borrowing capability is, how many units can you get for that in that market? It could be a duplex, it could be 10 units, it could be 50 units, I don't know. But that's where you start right. There's a metric that you could actually take out, actually apply to a market and get an actionable step, not this theory of go big, go home, you know, but conversation. That's not really helping anybody in my opinion.

Speaker 1: 12:28

Agreed. So I want to challenge your thinking a little bit here, because I'm gonna A little bit here. So you're saying, if someone's starting out mortgage, right, got it. But you and I both know that A seasoned investors, you and I both know that the upper, the real opportunities, is not in the MLS Often time is not, it's off market deal. And in multifamily, especially when you're starting out, isn't that value add play? And that doesn't mean you have to go super heavy, but at that value add where there's that spread for increase in rents. So when, the where and how Um does someone Go get a mortgage on a property that has a value add play, which is, as you know, especially in, as we record this podcast, in 2023? You know what's happening in the commercial banking industry right now, right? So what are you teaching your students today About that, right? So, hey, I found this deal. It needs it's a great opportunity Underperforming rents.

Speaker 1: 13:33

I got a five unit. Right, it's a great little. Start right with a five unit, four unit. It's underperforming in rents. It needs about 30, 40 thousand dollars worth of work meter. Then push to rent up by 25 or 30 percent and now force, appreciate the asset and do all of that fun stuff that we do when we buy commercial multifamily investments. What are you advising them when it comes to that? Because you said go get a mortgage, and that means to the tip, to the average person. That means I'm going to go put 20 down. So let's clarify that. I'm going to go save 20 percent, 20 percent down. Now you're buying retail. What advice are you giving them? Value add? What is it that you're saying there?

Speaker 2: 15:37

Yeah, absolutely. Some of the best deals I've ever done were value add right. We're very low. Return at purchase right. Low cap rate, low cash on cash numbers are bad. You would look at it and say what a bad deal.

Speaker 2: 15:49

Yes, but there was value add, meaning somehow I could force the appreciation, I could raise the rents, I could do whatever to that property to make it operate better than it did. Therefore more about it. So that's what we're talking about there, but it doesn't. It's technically somewhat an irrelevant conversation, or I would say that there is a much larger conversation that you would have to have first. So what I do with my students is say don't worry about all that stuff. That's fine, that's technically, that's a detail, don't worry about it.

Speaker 2: 16:16

Step number one you must take possession of the property, control the asset. You've got to control the asset. All right, now that I just happen to mention the word mortgage, just keeping the conversation linear. Step one is we must now control the asset. I'm not using the word oh, control right, because now there are things like mass release options and seller finding. There's lots of different creative things we can do. So step number one I tell everybody start with an all cash purchase analysis. We've got to gauge our sellers craziness, right. So I say sit down, take the seller's income expenses, plug that into a calculator and let's just look at the seller's asking price and go put 100% down payment into your deal, analyze or whatever, right? So we're going to look at this thing cash money what is our seller trying to sell us? Right? And so if you see that the seller is trying to sell you a two cap rate deal, a 2% cash or cash or something like that, and it's not highly distressed, okay, that tells us right there, our sellers crazy. They're just. They just got a price that just doesn't make any sense in the market and it has nothing to do with the conversation about rates or down payment or any of that stuff. You're just saying cash money and I'm not saying you may paint cash, I'm just saying do the analysis. All right, cash money. If the property's produced in six, seven, eight percent cash cash, all right. We know now our sellers not crazy.

Speaker 2: 17:33

Okay, we go to the next step and say okay, can we get a loan, a traditional 20% down, whatever, like you're talking about loan on the property. We do that math. All right, right, there, you're getting to a debt service ratio. You've got to get the property to a debt service ratio of about 1.25. All right, so just kind of keeping it simple, what I would do there is say, okay, put in the asking price always, start with asking price income expenses. You calculate today's mortgage rates, everything that's going on. You got to pick today's mortgage, right. And what you want to do is you want to say what is the debt service coverage ratio which, by the way, for anybody that's listening doesn't know, is the ratio of net operating income to bank paint, right, that's your ratio. And so you say what is the debt service coverage ratio on the sellers? T12 right now, all right, not not perform it, not raise it, or it's none of that fun stuff, just what's it doing today? Because that's how the bank underwriter and the bank is going to say okay, we want to see your deal at a 1.25 debt service ratio, okay. So that's why I say do that quick analysis.

Speaker 2: 18:34

What is my seller trying to sell as far as a debt service ratio is concerned? Normal loan? Oh, it's 0.8. Okay, anything less than 1.0 is negative cash flow. Being less than 1.25 is not going to get a loan account. So you have two choices now, in that analysis, you can pay less or borrow less.

Speaker 2: 18:51

So what I say, do is now go up there and start lower or increasing your down payment. Maybe started with 20% down, try 25, 30, 40, 50, some amount of down payment. That debt ratio hit a 1.25. What you've done is to say, okay, if I pay that price for the property, here's my down payment. It might be a big one, you know, and you're asking is that worth cash and cash wise? Maybe the interest? No. So then you say, okay, well, I don't want to do that, go back, put 20% down. Fine, Now you come over to the price and you started lowering that purchase price until you get a 1.25 debt ratio.

Speaker 2: 19:22

What you've done there is now move to the deal to where it will qualify for traditional finance. If you do that math and you say, gosh, I'm taking 40% off the asking price and putting down a 50% down payment, this is just silly, this just doesn't work with traditional finance. Okay, then you move past that. Now we reach for some form of creative finance and that's where you're going to sit out and say, all right, what? What gets this deal done for me, for the seller, for the property? Like, what kind of offer can I make that solves everybody's problems?

Speaker 2: 19:53

And then you analyze the deal from that perspective and you want to then reach back out to the realtor, to the seller, whoever you talk to, and say, okay, listen, you know, cash price it's really low. I can pay all cash, but it's going to be this low number. You know. Go over to the bank. You know I'm with you. I think your property is worth a million bucks, but you know this evil bank, over a year, sets debt service ratio thing. So I'm with you, but the evil bank says I can't pay that much. So here's, here's what I would pay if I go to get a mortgage. If you don't like either one of those prices, you got to help me, help you get into this deal. So what can we do to solve our collective problem? That's how you then segue into seller financing, master lease option, some kind of creative partnership, whatever would allow you to take control of the deal. We're back to that starting point take control.

Speaker 1: 20:41

Awesome. That's a great, great answer, great answer which is always about controlling the asset. This is what I teach. This is what I teach, too, is it's about controlling the asset. You control the asset. Lock it up. It's always about having the flexibility to then make your mold for the future. I want to ask you how are deals being made in the multifamily space in your opinion today, in today's world where we you know I don't know if you saw the data CoStar had a report that recently came out off this space, seen in 2023, 2.5% decrease in valuation. Surprising, we were expecting to see more.

Speaker 2: 21:24

Other reports disagree and have much higher numbers. We're higher, okay, much.

Speaker 1: 21:28

But multifamily, you need to get off. We're talking year to date, though not since pandemic.

Speaker 2: 21:35

Okay, yeah, Well, the last two years. Some reports are putting that number much higher, yeah it's an argument, isn't it?

Speaker 1: 21:44

But the thing that everyone agrees on is coming down. It's definitely coming down. The other one that really shocked me, bill, was we're seeing year to date now, according to the CoStar report, was that for multifamily, we're seeing five points. We're seeing higher. It's leading the pack in terms of the valuation right. It incorporates the compressing and values going down. Now that makes sense as interest rates go up. We're under writing deals. We can't make the numbers work because of interest rates. We're looking at projecting out, you know these commercial loans, our 20, 25 years at best, and now you have a 7% interest rate. It's like dude, how do we make these? We can't pencil these numbers. Either we do either put more down payment or price goes down. One of the two right, because rates are the rate.

Speaker 2: 22:39

Third option you give up on profit, or you make real estate, you make real estate, you make real estate, you make real estate, you make real estate, you make real estate, you make real estate, you make real estate, you make real estate. If we're going to take that assumption, we want to make money, yeah, then you're absolutely right. There are only two other options here. Well, three the rates go back to 3%. Old your breath. Or the price comes down, or the reds go way up, and so the algebra play and out here. Let's kind of take a look at it from the Federal Reserve point of view. They say there's inflation in the world, too much money, we're going to raise the rates. We got to get inflation under control, okay. So what they've done by raising those rates is to immediately suppress that debt service coverage ratio. Right. And so by suppressing the debt service coverage ratio, you have three options.

Speaker 2: 23:27

Don't make money Okay, we're going to take that off the table. Number two put down a whole lot of money, which fights inflation Okay. It takes a lot of money off the street, doesn't it? Or take it off the purchase price Fights inflation. The Fed's cool with either one. So you don't make any money Fights inflation. You lower the price. Fights inflation. You put down a ton of money Fights inflation. Yeah, that's a great perspective.

Speaker 1: 23:50

That's what it's at man you put you when you think it's about a half thought of it that way, like I never even like that's all there up cheap, that is. That is that is I mean. You look at you like an other free.

Speaker 2: 24:05

So does America decide? And here's here's a real conversation we need to have. Does America decide that we're cool buying multifamily without the metric of ash flow, ever again? That is a kind of theoretical conversation we can have, because there are a lot of multi family assets around the world and even in America that don't cash flow, never have, never will, and nobody cares. They go up and value every day.

Speaker 2: 24:28

La's full of New York, a full of Miami's, full of real estate that goes up in value like crazy. And really, cash flow though China or Japan had is a very, very low cash flow Mark. India, some other nation's around the world have real estate that increases in value every day. Then, cash flow, hey, bar gold, how much is that cash flow? The ever bought stocks that did not pay a dividend, that went up in value. Why? Why'd that stock go up in value? Didn't pay you any more cash flow, didn't pay you dividend. Okay, see, that's a greater full theory of investing. And can multi-family someday get to a point where we trade those assets without the metric of cash flow? Yeah, absolutely, it's here.

Speaker 1: 25:15

Interesting thought and I want to dig in on that. I'm going to be on that, Tell me, because I just can't like man. I can't so for me as an investor, but I'm not for most of my listeners, right? Hey, man, my goal when I started investing was to get to financial freedom. Cash flow first, above all else. That's me. You agree with that, Kyle? That's me, that doesn't. And I know there's a lot of gurus out there don't agree. Equity, equity, this and that, Screw, that shit. My family eats with cash flow.

Speaker 2: 25:45

Listen, I actually need to circle back and forth before I get off this call, because I'll give you another point of view on that.

Speaker 1: 25:51

So I want you to unpack that for me. How does a nation, what does a nation look like? And I've heard about that in Japan, because Japan in the 90s had their economic situation. But tell me what that looks like, brother. How do we get to a place where we're trading multi-family assets with everything that comes with it, the risk, the tenants, dude? We got water in one of my 40 units right now where water's coming in, and I got roofer going on the roof, my handy guy going into the base. I mean we can't figure out where this water's coming from. It's just costing me money every time we go. We can't put the carpet in that apartment. So I'm going to do that for free? I don't think so, brother.

Speaker 2: 26:36

Hey, what do you do? I'm not saying what is going to occur today. I think it will occur in some decades, maybe 20 years, 30 years. We may go that route. That would largely long, long conversation. That would largely depend on the population in the country. If there are too many people all wanting to invest, then yeah, it'll move to that, where it just gets valued at that level. I don't see that happening anytime soon. So, again, I would not go running screaming away from all the family because I just said it's never going to cash. That's not true, Right? I think, hypothetically, having that conversation. Yeah, micro-macrocyte, it'll go. Microcycle will be in less than 20 years. Yeah, we're not going there anytime soon, so, okay, so there's your point.

Speaker 2: 27:17

Let's back this up. Are we all about next week to go out and buy real estate without cash flow? Nope. Are the deals still looking at it right now? Cash flowing Nope. So let's solve that equation. Okay, the rates go back to 3%. Yeah, okay, be gamble on that one. The rents double in the next couple of weeks, a few months. Okay, let's call that inflation back to the rate thing, right, or Christ comes out.

Speaker 2: 27:43

Which one are you betting on, right? It's not a hard gamble. It's a very narrow pad. We're going towards price reduction period. If you want to make money, you're going to already expect period. So who is about to take that haircut? Is it owners? Is it equity? Is it limited partners? Is that valuation decline going to go all the way down into lender equity? Very default? Yes, in some cases it will. Is it going to be some kind of a way crash cycle? I don't know about that, but yeah, the math in the equation all says that there's only a couple of paths we can go down. You know charitable work here no, profit rates decline, rents blow up or price comes down. Those are your options. Well, three of them were absurd. There's only one.

Speaker 1: 28:27

Cap rate decompression. Decompression of cap rates yes, sir, the price is that's not far. For how long? Yeah, the thing, the irony is that we're in a place right now, sir, that, as you know, bill seller stink still, Although we're seeing prices. Like I said, the CoStar report said that 5.6% multifamily either way, which surprised me, but also made sense to me in a way, because multifamily trade significantly more frequently than office space. So that would make sense that if I'm a seller and I have a situation come up and I have to move the asset or I'm moving into another asset that I got to adjust with time, so I got to bring my price down if I want to sell it. So that makes sense.

Speaker 1: 29:11

Where do you see the future of multifamily based on where we are now, and where do you think prices will really see an impact? And do you really think that we're going to see a commercial? I know this is a loaded question, but my brain is just kind of going here Do you really think we're going to see a commercial loan crisis? We are in a commercial loan crisis now, but do you really think we're going to see that in 2023 with the multifamily space?

Speaker 2: 29:41

Okay, so the reports all right now are saying Q4. October November. We have over 4 billion in loan maturity in those two months and it's the highest amount of loan maturity like ever and I think in the next 20 years or something like that.

Speaker 1: 29:58

Are those resets or loan maturity Loan rates?

Speaker 2: 30:03

No, no, no, no loan maturity who knows that come deep. The vast majority of this $4 billion the most amount of ever loans come in are short term two, three year IO adjustable rate mortgage and they were bought and originated two years ago. All right, two years ago, what were the rates? Three, three and a half, four percent, all right. So what has occurred is now these people have had these loans that are now coming due, right, and they didn't understand that. I have several books and I go through all this market cycles and all this. They just violated a lot of the rules and so what they've done is to buy, at the peak of the market, short term loans, not understanding market cycles. Now the feds are phrased the rates and they're going to have an exit on the other side of this rate mountain that has jumped in front of them, back to the debt service coverage ratio. When they go into the bank and say, hey, our loan is now due, a lot of those loans have extension options to them, right, and the bank is going to say, cool, but your debt service ratio is really bad because of the rates and to extend, so you just need to add a lot of money and pay the loan down and then we'll let you extend the mortgage capital call. So, yeah, I think that every single one of these deals that's come and do short term loans are all coming due to October, november could be worked out. I don't think they're going to be, because I think that is going to be a jet pile of equity brought to the world that doesn't exist. These are syndicators. They overpaid, they over leveraged, over borrowed, they over syndicated. They got short term loans. They were expecting the world to just keep going up, up, up, up up forever. They were wrong. Now it's shifted and there's going to be a lot of loan maturity or maturity exposure in that end of 2023. So I think we're going to see a lot of that distress actually realized in Q1 of 2024. Q1, q2, that's where you're going to see the opportunity start to show up.

Speaker 2: 31:52

So, if you're listening to this right now, I know this could be sort of a bit of dramatic, but I really am very now I'm very bullish on multi-family. Now it's time to start getting in. Here's not going to buy it, so it's the greatest time to get in. It's the greatest time to start study and learning. Listen to the shows just like this. Get your education together, get your momentum together and let's get right. But right now, this afternoon, yeah, deals are tough. There's not a lot out there, they're not really good priced, the rates are bad. You know these kinds of things. So just be patient, be patient. Know that I've been here for 20 years. You've been here for a lot of. We've seen these markets go. Go will not be like this for long. Just be patient. And again, that's what I said. Darling on the number one killer success in real estate is bored. Yeah, brother.

Speaker 1: 32:34

I'm glad you said it. So there's a lot of how do I put this? There's a lot of basic principle basketball I'm a basketball guy, right, so basketball is fundamental. So fundamentals are dribble, pass and shoot. You master dribbling, you master passing and you master shooting. You're going to master the game is that simple Real estate has this principle right.

Speaker 1: 32:56

There's economic principles to it, like hey, when the interest rates go up, prices come down right. That means an inventory goes up right, like all of these basic principles. But it's been really weird. It's been really a weird time bill since the pandemic to today, where all of those principles have been violated, like rates are going up but housing is still going up, like, like single family. I'm just going to talk about the broad market. I do a market update every week and houses are higher than they are at a peak now even still inventory is low and while the man has fallen, the you know listings are down, I think 26%. So it's just crazy.

Speaker 1: 33:38

All of the fundamentals are all out of whack here. All of them are out of whack. But I'm like you a basic principle, the extended holding, steady. The principles are the principles, the principles of basic fundamentals eventually will come up come will come. Do they're gonna be due? Because you cannot sustain a market with interest rates going up and the price is staying the same and you run. You just can't do it long. It's got to happen.

Speaker 1: 34:05

The question, and it just can't work like we're not good, there's not gonna be a business, others are not gonna sell, banks are not gonna be able to land, there's nothing. Eventually this thing has got to loosen up. Yeah, just question, not if, when, when is it gonna happen? Because we've been, we've been kind of projecting this stuff and and saying, well, this is gonna happen soon. It was supposed to be last quarter of last year, early into this year. Well, that didn't happen. Now here we are. Rates are crazy right and next week of the 26 of July, as we recorded, they might raise the rates again. Who knows what would you howling co is gonna do? Like man, it's just like it's a little bit confusing because the fundamentals aren't like we're not seeing what we know works. But if we both know you and I both know what works, it's got, it's got to hit.

Speaker 2: 34:54

Yeah you got. Stick to what is the right, even if the market says you're wrong. Stick to what is right. Do not chase the market. You know you sometimes you have to sit on the sidelines, sometimes you have to just get out of traffic. But yeah, if you know what's right, you know, analyze deals, do what is right. Don't chase that market. You're gonna get in trouble like that. I mean you might just have to do less deals for a little while, you know, or less less things come along. But yeah, fundamentals are fundamentals and that's why I keep going back to the point that if we're not gonna stop making money, then these trends in the market cannot continue because cap rate compression all right, just look at that. Let's talk that one concept if cap rates keep compressing, they go to zero. No cash flow, that's so. We're going to zero cap rate in a minute. That's what you tell it.

Speaker 1: 35:39

If the answer is, per, we're how to go to negative rates, for it to go to zero cap rate, like we need if we're gonna have cap rate decompression in the car.

Speaker 2: 35:47

You know they it's like that, doesn't?

Speaker 1: 35:51

make.

Speaker 2: 35:51

That doesn't make a lot of sense that's why I go back to that point. I kind of ask people hey, can you imagine a world where we buy and sell real estate without cash flow? It does occur. It's not an alien concept. I just don't think it's gonna be today in America, not anytime soon as a matter of fact. Right. But you know, that's the concept and that's why cap rate decompression for compression means, and that's why I kind of looked at that going yeah, I don't think so. You're about to see cap rate deep press. I think you're gonna see them DJ press rapidly for a short amount of time and then a look.

Speaker 1: 36:20

That's what I think well, it's got another question for you, my friend. So it's all what listening right now and they're like, okay, make sense what you and I are saying here, what you're saying here, what Bill's saying. It makes a lot of sense logically. I'm a logical person, I'm listening to this. This makes sense. Interest rates go up. Prices gotta go down, because you can't serve to that. We get rent aren't gonna triple, like Bill said. Can't happen, not gonna happen, right, okay, cool.

Speaker 1: 36:44

So I'm sitting here, maybe on 50, 20, 30 grand, or maybe I'm thinking, man, did I miss the boat? By the way, that was me in 2007. That's why I overpaid. I didn't know what. I didn't know, overpaid by a hundred grand on the property and my first duplex got my, got my butt handed to me two years later on that one. So they're thinking. They're thinking, okay, what should I be doing that? What am I, bill? What should I be doing right now in this market to be ready to take advantage of the opportunity? Bill, what are you doing today to be to take, to get ready to capitalize ethically on? The opportunities are gonna come ahead here in the next, you know, year or so absolutely nothing different than I do every other day of the week.

Speaker 2: 37:30

My job, what I do, the business. I run the business every day of the week and it doesn't matter about the market cycle, it doesn't matter about what the world says, it doesn't matter about any of that stuff. I know what a good deal is. I know the fundamentals. When I identify a good deal, I will purchase said good deal. When I don't see said good deal, I'm gonna go to something else in my afternoon, but I'm not gonna go. Oh well gosh, all the deals suck today. So I guess I'll just do a sucky deal and put a bunch of people's money in arms. Way that, trust me, because the seller says I have to be out of. I just want to realize right. So I fundamentals, I know what a good deal is and it means right now I'm just seeing less good deal, but it doesn't change what a good deal is. A good deal, by definition, is a good deal, isn't? It doesn't matter about the industry, training else. So that's what I'm saying you just got to know what a good deal is. You have to know your fundamentals and you have to apply them.

Speaker 2: 38:17

Now what I will tell everybody listening is what you really need to be following. If you're ever lost in real estate, you don't know which way to go, you know what you do it. There's only three things you ever need to be doing in real estate deal flow, deal analysis, network. That's it. So if you're ever wondering which way to go, what do I do this afternoon? It is one of those three categories. That's not all those three categories. It is an ancillary task like building a website or you know this kind of garbage. That's fine, but that that's not one of your three core competencies.

Speaker 2: 38:44

Deal flow three a week. If you tell my students you need to bring three deals in a week, three, what depends on what you're looking? Do you play just ten units, hundred, it's all right. She need to be looked at. Three deals a week in which to L I'm not saying they all got to be great deals this guy stuff you see deal flow three a week, right?

Speaker 2: 39:01

Deal analysis I don't look at that. I don't know what a good deal is. You know the numbers. You're a good deal is you look at everything under the sun? Is that gonna be key difference, right? So you gotta have consistency in your deal flow. You gotta have competency in what you're looking at, and then you gotta have the network to back. At the end of the day, you gotta be able to pay for the stuff, right. So that's that's just the organic network. He always be networking and that's the real answer.

Speaker 2: 39:23

What I'm doing now, what I'm telling everybody else to do right now, is just network. Network so that when you get the market shifts and these deals do come along, you're not caught on the back foot because you don't have people to help you pay for, right. So the deal analysis of deal flow, that's what I teach, that's what I help everybody with. The networking is something that you know I can. We can all teach you. I do, but it's really just going out, meet and friends of family, right, that's it. And that's what I would typically do right now deal flow, deal analysis and network, and that's that's any day of the week that matter about if someone's bill and they don't know what you mean by deal flow.

Speaker 1: 39:57

They're listening to us but they they're enamored by real estate and they know that 90 percent of millionaires around the globe or become millionaires to 90 percent of millionaires become become that way, self-made millionaires, that way through real estate. But they don't know what does he mean by deal flow? What is that deal analysis? I mean, you know what, what the numbers look like. What should I be doing to even just be part of that opportunity when it shows up? Maybe they love their job, maybe they're a pilot, like you were, and they have two or three hundred thousand dollars lined up in there like, hey, I like to, I like to go and invest in real estate. I have what should. What are you telling that person that that?

Speaker 2: 40:31

doesn't get it. Get an education in the business. Get an education you know. Get it in.

Speaker 2: 40:36

There are two ways you can get an education. You can pay for it. You can go out of the street, figured out on your own. Both are very expensive. One hearse less. You know you're, you're, you're gonna get educated and you're gonna pay for it. It's just where and how. That's the only question. So you need an education.

Speaker 2: 40:51

If you want to go out on the street, just run the gauntlet, like I did, figured out, lose money. You did make hundred thousand dollars in a hit. If you don't want to do that, then I recommend that you find someone who reputable not one of these people that closed their first deal last week and now they've got some bad people out there. I know they all tell you I yield this, I'm not from others. I mean, really spend some time that a mentor, make sure that that you know the value is there, that what they're doing in work with that individual. That's what I would tell you to do and get that education.

Speaker 2: 41:23

Read, study, listen to podcast, just this, books, just you know. What I would really tell you is to spend your hustle before your dollars. So don't reach out for a large, expensive mentor program, thinking that is the end all answer to everything. You know why. Why. Why didn't you buy that $20 book? You know why didn't you? Why don't you listen to the one more episode of this podcast? Why did you do this before reaching out for the big dollar thing?

Speaker 2: 41:47

Once you've spent all your time and energy kind of going through the free stuff, okay, now you want to invest your money in the natural mentor and pay. You know, like I have a program that I help students, I've also got a $15 book. Just just buy the book. Yeah, he and I make a real. Just come on, oh, and then call me once you've read book. That's just why I tell everybody I mean these, these people with these really high dollar programs, also have books. Why don't you just start at their low level and work your way through the period? You may find out that they're not serious and that you're not a fit for that person, without spending you know the same amount of money that you could put on a down payment on on a deal. You know we're bought a house in some cases.

Speaker 1: 42:28

Hey guys, this is really, really sound advice that Bill's giving. Hey, bill, thank you so much for coming on. My friend guys, bill's giving you really, really sound advice here I am. I'm a big proponent of education. That is what I tell my listeners all the time Go, and the first step is go get educated, go learn, go read, go listen to podcasts just like this, you know you go listen to other podcasts and keep listening to some. There's a ton of. We have a library of Just amazing content with people, just like Bill in this on this podcast. Just listen and then go learn and then output and take action and just take the first step. Attend meetups, go network right. Attend meetups. Go meet wholesalers, go meet people. Go and get your butt out there. Brother, thank you so much for coming on. It's been my honor.

Speaker 1: 43:20

My, not, we're gonna go into the untitled round. Bill, you ready to play? We're gonna ask you a series of questions. You just have to answer. One word answers if you want. You can justify if you like. It's up to you. And are you ready, my friend? Great, let's do it. Real estate is.

Speaker 1: 43:38

Difficult never underestimate the power of Cooperation. A million dollars is.

Speaker 2: 43:47

Not enough. That's a bad. That's why you're reading answer. I should think you first thing in my head out of.

Speaker 1: 43:53

I'm good with our. I've always wanted to travel to. That's a little, shall. We are watching for a pilot, for an ex pilot.

Speaker 2: 44:03

Yeah, I'm always wanted to travel to. I'm I Don't know, maybe like grease. I'm always gonna be cool place to go check out.

Speaker 1: 44:09

I was gonna go, agrees, check that yeah, I think the president right now is Uh, who is president?

Speaker 2: 44:17

friends or business? What's the difference?

Speaker 1: 44:22

angry client or angry co-worker angry co-worker wine or beer, beer, cats or dogs, dogs, words or action, both More time or more money. More time and, lastly, be a famous pilot or rich real estate investor.

Speaker 2: 44:44

Well, most famous pilots are dead and that's why they're famous. So I'm gonna be a rich real estate investor because most of them are still alive and I know. So I'm gonna go without like name. A famous pilot yeah, I don't know if I'm at least no burgers famous cuz he landed his plane in the river. I mean you know good there. Then you got real year art and she's dead like who else. Yeah that's true. I don't think you're thinking of any, you know. So now I'm good filing, but good question.

Speaker 1: 45:11

But not, that's realistic. Awesome, my brother. Okay. So if people wanted to get a hold of that? Yeah, so if people wanted to get a hold of you, my friend, and they wanted to connect with you, maybe join your program, find out about your book, get this, connect with you. Just how do they get? How do they get a hold of you? How do you find you where?

Speaker 2: 45:30

You see, first off, I have two books. They are both on Amazon. One is called real estate raw and that is a step-by-step how to build a portfolio. The second book is called creative cash and that is a book on how to use creative financing for that portfolio. Just builds real estate raw, creative cash, both on Amazon. I have a main website which is real estate rawcom, just like book. If you want any more free info articles, you want to find out about my coaching program, all that stuff, you can go right through the website. And then, if you have any questions, you want to talk to me or ask me questions, or just book a call of me mail bill at go broadwellcom. So, bi hellel at Go broadwellcom, go BROADWEL, just reach out. I'm right here.

Speaker 1: 46:19

Thank you so much for coming on, bill. It's a pleasure, honor, always love having good, high-level, intelligent conversations with other intelligent Like. Thanks for having me in the business, thank you, sir. Thank you, thank you for sharing your knowledge and your wisdom and your insights. Really appreciate it.