Retire Wealthy and Happy

Ep25: 2023 Real Estate Lending Trends with Andrew Brough

• Andrew Brough

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Whether you're a prospective homebuyer, real estate investor, or simply an industry enthusiast, this episode offers valuable insights into the current trends that are shaping the 2023 lending market. Join us as we explore the world of mortgage lending with Andrew Brough to gain exclusive tips from an industry insider. Start making informed decisions by tuning in!


Key takeaways to listen for

  • A unique approach to applying for loans from lenders
  • Lending market trends and their impact on construction projects
  • What risks are associated with variable interest rates?
  • The impact of rising interest rates on the market, buyers, sellers, and lenders
  • Key metrics and red flags to watch out for when underwriting a real estate deal


Resources mentioned in this episode


About Andrew Brough
Andrew Brough has been an active real estate investor for four years with current ownership in 531 multi-family units. He has worked in the banking industry for 23 years, primarily as a commercial lender. He is a Commercial Relationship Officer for a regional financial institution and manages a multimillion-dollar commercial loan portfolio. 

Throughout his career, he has reviewed/underwritten over $850 million in commercial loans.  He has a solid background in deal negotiations, underwriting, client relations, and market analysis. He has originated construction, bridge, and long-term real estate loans secured by all the major asset types. He is happily married with five children and is from Northern Utah. He graduated from Weber State University with a Bachelor of Science in Business Administration.


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[00:00:00] Andrew Brough
It's hard to make deals pencil. I use a debt service coverage requirement and, and that is hard to hit when rents aren't able to meet the debt service coverage requirements. I have to ask for more equity and, and it's a challenge for a lot of these investors right now to, to get bill to pencil. 

[00:00:16] Podcast Intro
You are working professional but struggling to balance the workload of your career, family obligations, and preparing for your financial future. If so, this podcast is for you. You've spent years learning your craft, and now it's time to focus on your financial future. This podcast will teach you what you need to retire wealthy and happy. Let's dive in. 

[00:00:41] Ben Waller
It takes a whole village to raise a child. Good lenders are one of the behind the scenes members of the village that helps our real estate investments grow and develop. On today's show, we get to learn from Andrew Brough.

[00:00:52] Earl Cline
Welcome to the Retire Wealthy Retire Happy podcast. We're excited to have Andrew Brough here with us today. Ben has lost his voice, or at least he was mostly lost it earlier. He says it's come back a little bit, so we're gonna have him in and out today. If he throws up his hands and says, Earl, you gotta take over. We'll do that. When I thought he wasn't gonna be here, I figured, well, we'll just talk about. The cats are away. The mice will play. So I guess I'm on my own and I can do what I want today, but it sounds like he's gonna be here watching and keeping an eye on me anyway, so there we go. 

[00:01:26] Ben Waller
Just a quick reminder to our listeners, this show is to provide financial tips and tricks to help you build up passive income, and also to provide methods that you can use to protect your wealth so that you can plan a better future for yourself and your family. We're grateful to have this podcast sponsored by Monument Real Estate Capital. Monument Real estate Capital, helping you retire 10 years early through real estate investments. 

[00:01:50] Earl Cline
So we're excited today. We've got a good friend Andrew Broth that's here with us today. Now, Andrew, I, I'm pretty sure that we met the first time out at, uh, the Adam Adams seminar back in 2019, out in Denver. I know we traded cards while we were out there. That was an incredibly fun event, by the way. I don't know how you felt about it, but I've been to a number of seminars and we love Adam and in fact, he's the one that's doing the editing on these, uh, podcasts for us. But we traded cards out there. Uh, you're in my contact with a note from there. And then I think you came to an event I was speaking probably apartment obsessions, if I remember right, that you came, talked about markets and that type of thing. And then last year we're at a closing. And I gotta tell you, one of the only lenders that I know of that shows up at a closing for those things.

[00:02:41]
But we sit there across the table and there you are, reached out going, Hey man, good to see you. We talked to Paul just a couple last week. We had Paul on. Talked about it, and that was the smoothest loan that I think I've ever done. Everything just as smooth as could be. I think the only hiccup was the closing as we're sitting there around the closing table, wondering where documents are for us sign. They were supposed to come out of New York somewhere, but other than that, that was a very, very smooth transaction. So we really, really appreciate your work on that. Andrew's a commercial mortgage lender. He is also an active real estate investor and um, What do we want to do? Uh, let's, Andrew, I'm gonna turn some time over to you and, uh, have you tell us a little bit about your background, how you got started in mortgage lending, and we'll go from there.

[00:03:28] Andrew Brough
Thank you. It's a pleasure being on your show today. Thank you for having me. 

[00:03:31] Earl Cline
We're really excited. So, yeah.

[00:03:34] Andrew Brough
So, I started in banking in 1998. I worked my way up the ranks and. 2004, I started doing commercial real estate lending, SBA lending, and it's really taken off from there. Switched over to a commercial bank and from there I, I got into some special asset workouts and things like that. And then, um, in 2011, I did some originations from 2007 to 2009, and then 2011 I came back. I'm doing workouts and started doing originations in 2013 with the, the organization with now. It's a great ride and I've, over years, I've learned relationships. 

[00:04:21] Earl Cline
Where's one of the things that I think is made working with you different. We just closed on a loan about six weeks ago, and it was interesting because the guy that underwrote the loan looked at my financials and he said, Klein, you lost $2 million last year. How can we loan you any money? Did you look at it? It's all, it's a lost carry for it from his depreciation on real estate. But it was interesting because he didn't understand that we finally got through it. But that was just a huge hurdle because he'd been in banking for forever, never in the, on the investing side of it. And he didn't even understand how it was that that was that, that that was possible. And what I was gonna say is we enjoyed about working with you. Was that you are also on the investing side. And so, so much of what we sent to you, you looked at it and go, this is reasonable. I don't even think you called me on my budget very much. So I always get called on on my budgets and stuff like that. But it was very helpful to have somebody that's like, yep, I've seen this before. I know what they're doing. I know, uh, you know that I can see their plan. And that's what made the thing go really, really smooth. So I appreciate that. So in 2018, 

[00:05:29] Andrew Brough
I started, I saw the. The benefits that some of my borrowers were receiving from real estate investing. And I thought, I gotta do this. And so I, I started the process, uh, created my own policy and just started learning. And yeah, I mean, exactly what you said, you know, I, I understand where the tax terms, I understand how these investors work and, and what they do, you know, with their investments and. And it's easy for me to underwrite a deal because I, you know, I can see those things. I, I've experienced those on my own. I'm investing, and it's not a surprise to me.

[00:06:09] Ben Waller
Andrew, when you're doing, um, real estate investing for yourself, do you prefer to be a limited partner or a general partner?

[00:06:16] Andrew Brough
I. Yeah. Um, I don't mind being a limited partner if I'm with the right group. I have done that. I a limited partner on a couple of deals. Um, general partner. I do like doing that as well. I think there is some upside for partner. Hey, general partner. That's, that's the way I'd like to go. I guess it just depends on situation where I.

[00:06:50] Ben Waller
Thank you for that. And could you share some details about some of your favorite deals that you've been involved in? 

[00:06:55] Andrew Brough
Yeah, so as an investor, there's a, a property we purchased as a partnership ina it's a 54 unit complex. Um, we bought it. With the idea of raising rents to, I think our project rents were nine five, they're all two bedroom units, and we ended up getting, we're we're getting so. We bought it the way we found it. Some partners found it. They were calling, just calling owners and were able to, uh, to find it. And, um, we bought it at the perfect time. It was right, uh, 21. So right before things were really started, you know, inflation started kicking in. So we're gonna get it for new advice and then, We were able to ride the increase of minutes.

[00:07:48] Earl Cline
And that sounds a lot like our, uh, whispering stands, Vermont property, doesn't it? We, uh, proform it to what, seven 800 a month. We ended up hitting a thousand and it looks like we can hit 1200 if we, uh, if we push it a little bit. 

[00:08:00] Ben Waller
Andrew, is that supposed to be more of a long-term project or is that more of a, a short-term renovation in sell?

[00:08:06] Andrew Brough
Yeah, so we, we renovated that, uh, within about 18 months and we were able to refinance the loan. Pull 95% of the cash-out, um, payback investors, and then, uh, got on a long-term loan. We'll probably hold it long term I think at this point, and we could, could probably sell it for a lot more than. You know, quite and get some, get some good returns. We sell. But I think the plan right now is just to hold it and, uh, we enjoyed that, uh, cash flow.

[00:08:36] Ben Waller
That makes sense. And are you a limited partner or general partner in that one? I'm a general partner in that one. Okay. Do you have any limited partner stories you wanna share with us?

[00:08:44] Andrew Brough
Well, let's see. I can tell you the. The first one that I did, and it was also this operator's first deal. It's not a great story, but it was a learning experience. They got in, it was 55 units total, two buildings. They're able to. I guess they got in and, and started renovating, but they were, weren't really able to get the built units leased like they wanted, and they were able to sell it and were able to get, I think, 15% return on that one, but it just wasn't what they expected. It was a quick turnaround, I guess. And then I've got, but the same operator this time, I invested with them again and they have a much better track record now. They've, they've been able to cycle through. I wanna say 10 or or 12 projects. And they're, uh, equity multiple on those is, is 1.5 to two times. So the other deal I just mentioned, the first one, they were able to get, uh, I think 1.2 equity super awesome. But going forward, I think we've got some great opportunities where we'll be able to get that two times equity, multiple and, and, uh, In about a three-year period of time.

[00:09:53] Ben Waller
Do you know what was causing them not to be able to get the rents they wanted? 

[00:09:57] Andrew Brough
I think it was just, uh, property managers. I think they cycled through several property managers just weren't doing their job, and it's a smaller property. So their, their times to scale weren't great, and I think sometimes when it's a smaller property, the property managers don't spend as much time on them. They give the attention that they ought to through property managers and not really getting the traction they needed.

[00:10:23] Ben Waller
It's just something interesting to consider, right? Because there's a lot of real estate investment opportunities out there, and the numbers can say whatever somebody wants them to say, but when we come to the real world, it's not always possible or easy to hit those numbers. And obviously experience plays a big role into that. Sometimes there's things outside of our control, such as market factors or whatnot, but making sure you. Working with a team that has experience and able to operate to produce the financials that they projected is a really important deal. Would you agree with that?

[00:10:56] Andrew Brough
Absolutely. Yeah. I, going forward, you know, anytime I'm gonna invest with someone, I think I wanna see a good track record and what they've been able to do, what kind equity they've been able to deliver consistently over time, newer operators. And there's a lot of risk that you can maybe get in or you can get on some of those smaller deals with them. But I. For now and for me, I think I wanna go with, you know, more experienced operators like you guys. And Earl you've been doing this a long time. You've, uh, you've cycled through quite a few units, I think, haven't you?

[00:11:29] Earl Cline
I have all the gray hair to prove it, or lack of it anymore I've been doing, and unfortunately for me, I started in property management, which meant I had all the headaches. All the toilets plugged on Christmas Eve to deal with and all the things that we joke about with property management, and I collected a salary that was, you know, it was a decent salary, but nothing that I would get too excited about today. So long, long time. Lot of gray hairs. Really, really glad to be on this side of the equation. And grow up my financial wealth a little bit faster than, uh, doing it from the property management standpoint, although I wouldn't trade that for anything in the world. The experience that I got today, and it's interesting, we sit down and talk with people and they just.

[00:12:13]
Assume because of all my experience that we're actually gonna do a good job. We get a lot of credibility up front. How's that? It works well for us property management. You're not on the investing side, you're not putting your money into a project. You're managing it for somebody else, and then you get all the headaches and hassles, but you don't get the reward when you're on the other side. You're raising money and putting the deals together yourself. I still get quite a bit of the hassle and headache, but at least I've got a property manager that we hire. To buffer that a little bit for us. And, but the financial reward on the, uh, investing side are really a lot, uh, greater than being on the property management side.

[00:12:52] Ben Waller
How's that? There's a lot of ways you can make money in real estate and it's important that you understand the difference is so that you can really reap the benefits of certain ownership aspects of real estate.

[00:13:01] Earl Cline
Yeah, and you know, we talk all the time with people about the first thing to invest in and is yourself and anybody wanting to get started to learn to do what it is that we do, I would strongly recommend that they spend a little bit of time on that side of it because you get paid a decent salary to do it, and you get a chance to invest in yourself, and you'll know when you're ready to make that leap, you know?

[00:13:25] Andrew Brough
Well, I imagine the property management helped you. In your underwriting, you're able to see where rents need to be to make it work. Um, I imagine that helped a lot.

[00:13:34] Earl Cline
I've had a number of deals where people have brought them to me. I looked and I ran the numbers based on what the owner sent me in the financials. And because of those years of looking, reading financials and knowing where they should be, I've had deals that literally nobody else could make them work. And I don't mean nobody. But they were passed around to a number of people that looked at them and said, I can't make this deal. And usually the culprit is the seller was doing a small rehab and he was putting his rehab expenses or in the operating expenses. So of course they bloat the operating. And no matter how much you raised the rent, you couldn't overcome the fact that they were paying way too much in expenses. And so absolutely I, it's one of the things that I'm able to do is look at something and go, oh my gosh, this is where the problem is right here.

[00:14:26]
And even though they're operating it at 1200 a unit, I'm gonna operate it at five or six when we get it fixed up and cleaned up. And that is usually enough to make the difference between being able to do those deals. And not do those deals. And so again, everybody has to get started what feels comfortable for them. But I will be forever grateful for the time that I spent doing a little bit of property management just for that exact reason. It gives you kind of a vision of what you can do and what you can't do. I might not sleep at night if I was doing some of the proformas that were, that were doing if I hadn't act, walked 'em through a few times before. Cuz some of the stuff we seem to proforma. Uh, would be out there a little bit, right, Ben? 

[00:15:10] Ben Waller
Absolutely. But that's the point of having the experience, so you know what actually is gonna play out. 

[00:15:14] Earl Cline
So, Andrew, I want to touch base a little bit. I'm gonna ask you a little bit about the programs that you currently offer. And I, I know the, the company that you work for, they're a little bit different in their approach. What do you think makes them different? What's unique about the stuff that you bring to the table there? 

[00:15:29] Andrew Brough
Well, I think it's just that, There's a difference in, uh, the way I approach deals and I think some of the things that I offer are not really seen a lot in the banking world, like a one time close. There's some lenders out there, banks in general. They, they'll have a construction loan and say they, they offer a three-year construction period with options to extend. I'll offer, uh, like a one-time close where, you know, they don't have to worry about those extensions. They can just get in, renovate the property. It converts to a long-term loan once a stabilized and. And they can just forget about it. So I think there's some, some of those, you know, that's one e example I feel like I can offer. And, and I try to do that wherever, you know, whatever lender I'm working with.

[00:16:16] Earl Cline
So the construction of PERM is really what you're, is that what you're talking about? As a construction of perm type of a type of loan in today's entire environment, that's gotta be incredibly valuable for, for a developer trying to get a project off the ground. And they're sitting here going, interest rates are at six and a half right now, but, What if they're at nine, by the time we finish this thing in two years, what am I gonna do? Because the deal probably wouldn't pencil it. That kinda stuff is incredibly valuable when you've got somebody, and that's what we noticed with the deal that you did with us. It was structured and tailored. To meet what we needed. Right. It was kind of a hybrid, it's a semi-permanent loan. Technically it could be permanent, but at a reasonable interest. It had an interest rate of a, of a permanent loan, but you also loaned us a si significant amount of the upfront money. So it performed kind of like a bridge loan also, not the upfront, but the repair funds. So it operated a little more like a bridge alone too. 

[00:17:11] Andrew Brough
Yeah, it's a picture straight. Initially, so you didn't have to worry about that. And it was good timing too, because rates went up quite a bit after that. 

[00:17:19] Earl Cline
They did. Oh my goodness. Yeah. I would love to get a couple more loans. If you've got a couple that are sitting there on the shelf that, uh, you had rate locks on and somebody didn't fulfill, I'll just step in and take those over anytime now. So anyway. So where you're at. And you and I have talked about this before. How has the lending market changed in the last six months? Tell us about some of the things that you see changing. 

[00:17:44] Andrew Brough
Yeah, so as you're all aware that the Fed has raised rates quite a bit, um, 500 basis points since last year, and it's really shocked the market. What I'm seeing is a lot of investors are on the sidelines not wanting to go forward with construction projects because they don't know where their rates can end up. What I'm seeing is I think the treasuries have seemed to settle down a little bit. And that's good. Short-term rates are still on the rise. And so I think generally there is still some uncertainty, but I think things are getting better. Hopefully, uh, we don't see any more fed increase fed rate increases so that, uh, things can kind of settle down. I think, uh, you know, buyers and sellers. There's still been a gap there between, you know, what's expected in price versus what the buyers are willing to pay.

[00:18:37]
Um, but hopefully that's coming, you know, that gap is coming closer to where these, they can find some price discovery and start going forward on deals. So, yeah, I mean the, the lending environment has really changed a lot. Uh, there is some uncertainty and people aren't, As willing to go forward with projects. And there are still deals being done though. Um, there are still lenders out there that are, are going forward with deals and it, you just have to kinda search for those and try and, uh, sync up with them and, and, and move forward. 

[00:19:07] Earl Cline
When I've spoken the past at, uh, R clubs and stuff, one of the ru cardinal rules that I always tell people is, Your cap rate needs to be 1% above whatever borrowing costs are. So when borrowing costs were three and a half percent, you could buy a four and a half percent cap rate, and sometimes people would squeeze that to a four, or even I see people buy a cap rate equal to the borrowing costs with the intention of raising the rents and, and growing into a little bit of a spread there when interest rates are six and a half. And I, I know there's some quotes out there a little bit lower than that, but generally, I think that's about where they are right now, isn't it? Yeah, I'm seeing a lot of rates around the mid sixes and even the 7% range. Okay. And so all of a sudden your cap rate, that used to be four and a half or five, Is now seven and a half and sellers are just not wanting to, that's a huge, huge loss. A half a point in cap rate makes just a huge difference in the price. And you bring it up by three points, three cap rate, and you do this right. You know, the investing side of it. So talk a little bit about the buyers that are still in the market. How are they doing it? That's a good question. 

[00:20:14] Andrew Brough
Yeah, I, I mean, I talked to one investor and he said, you know, he wanted to see 2%. He does, he buys single tenant assets and he. He wanted to see, uh, 2% of, uh, cap rate above the borrowing rate. I don't know if that's possible in the multi-family arena. Probably not. Um, but that's really a good rule of thumb is to, to make sure your, your borrowing, your, your purchase price, your cap rate going in is much higher than, uh, the, uh, the borrowing costs. So from what I've seen on, on the, uh, investing side, uh, in the lending marina, yeah, it's hard to. Make deals. Pencil, I use a debt service coverage covenant requirement, and that's hard to hit when rents aren't able to meet, you know, meet the, the debt service coverage requirements set. And we just, with those situations, we have to ask for more equity and a challenge for a lot of these investors right now to, to get bill to pencil that, uh, DCR.

[00:21:12] Earl Cline
Debt service coverage ratio could be your best friend and your worst enemy. My absolute favorite negotiating technique is I go in and put it under contract. I've got one. We're we're, uh, Ben and I are going back to, uh, Nebraska, probably Monday. We're just waiting for the final signature on the contract to walk about 55 units back there. And I looked at the thing we told 'em where we thought it would pencil. They came back and asked for a couple hundred thousand higher. I didn't even bat an eye. I said, oh yeah, I'll pay the extra couple hundred thousand because it's subject to financing and we're gonna go back there. And we're gonna walk the unit, we're gonna give 'em a list of everything that it needs.

[00:21:55]
And we're gonna say, by the way, while I'm back there, I'm gonna submit it to, uh, lender and they're gonna give me a, a rate quote, right? And I'm gonna go back to them and say, this is where this has to be to hit that 1.25 debt service coverage ratio. And, uh, if, if it doesn't, if it doesn't hit it, We gotta talk about solar financing or something else to make those deals work. So I'm sure you're on the one side where you're hearing buyers moan and groan about debt service coverage ratio. And Ben's laughing, but that's our best negotiating tool, I think, and they can't argue with it. Nobody can argue with that because I'm taking their numbers that they gave me. And just using current mortgage rates. We can argue all day long about cap rates and where it should be, and this is a better market and vacancy and all that kind of stuff. But nobody can argue with their operating numbers from last year. So anyway, that that service coverage ratio, like you said, you have to have it as a lender, you can't possibly do a deal that's not gonna pencil, cuz none of us have that kind of money in our pocket to make those.

[00:22:59]
Several thousand dollars a month mortgage payments. You were with us at the Best Ever conference, and one of the speakers got up and said, basically 20% of the syndicators probably wouldn't be in this space at this time next year. You were there, talked a little bit about it. Talk a little bit about how you see that playing out. Are you guys starting to see. Some loans come back. Is it still a ways out before And we may not see them come back. Right. But there's obviously with rates increase, there's probably some people that are gonna have trouble refinancing their loans because they were at low, low interest rates and lower cap rates and. And they're not gonna be able to refinance 'em. How's that working out? 

[00:23:39] Andrew Brough
So the, the reason why they're, they're not gonna be able to cover the debt. So they, they have variable rates, that's the issue, right? If they have variable rates, they're not gonna be able to service the debt with the rents they're getting. I haven't really seen, um, any issues like that, what I've been doing. But I know there are operators out there that don't have. Break caps or they don't have fixed rate going in on their bridge loan or something like that. And they're gonna have some issues for sure. And that's gonna be a challenge for them.

[00:24:09]
So like we talked already, it's good to, if you can get, go in with fixed rate going in and then you don't have any issues. And the things I'm working on, there's certain triggers or things in place that are preventing any default. I haven't had to worry about that, but, That's definitely an issue in the market right now. And these syndicators that don't, didn't, uh, take precautions, didn't buy those rate caps are definitely gonna have some issues we're gonna have to buy or sell or something to get out of those without losing the property.

[00:24:36] Earl Cline
How much has loan volume changed? Probably quite a bit, I'm guessing, but the volume of loans. How's it affecting the industry right now? 

[00:24:44] Andrew Brough
First part of this year that I think there's definitely been a slowdown for sure. I think things are picking up, you know, I'm seeing a lot more opportunities, but there was a slowdown with rates going up. It was just a, a shock to the. And hopefully going forward here, we're gonna have more, more opportunities.

[00:25:00] Earl Cline
Anything else about the mortgage market? What's going on that you see? 

[00:25:03] Andrew Brough
Well, I think it's just, uh, hopefully we can start to see buyers and sellers come together. You know, with, with, uh, hopefully rates are gonna start settling down a little bit, not going up as much, and we're gonna be able to see some deals getting done. From what I'm hearing, I don't think the fed's going to drop their rates. I think they're gonna hold, hold for a while. Um, so what does that mean for lending? I think maybe long term rates will come down a little bit. You know, if lenders are using the treasuries, for example. Maybe they're able to come down on rates there, but the short-term rates, if they're using short-term rates for construction or bridge financing. I don't think those are gonna come down for a little while. 

[00:25:44] Earl Cline
At least not until, uh, we get further into a full-scale election mode. And then, and then it's amazing how interest rates seem to come down for about six months as the, uh, group in power always wants to try and, and maintain power for as long as they can. Yeah, that's true. Gonna ask you a little bit about, uh, personal balance. How do you, like most of our guests, you're still working and got family, and how do you maintain balance in your life? What do you do too? Enjoy the other side of the fruits of your labor, so to speak? 

[00:26:16] Andrew Brough
Yeah, that's a good question. I think in my younger years I definitely violated that. I worked a lot and I feel bad. I, you know, I shouldn't have. Spend more time with family. But you know, in those, those years I was focusing on trying to build my, um, career and things. But I, you know, I've learned over the years it's really not worth it. It's, uh, you know, you gotta spend time with your family. You gotta spend time with them. And that's the whole reason why I would do this. And for me, there's a certain time of day I just. I cut it off and say, I'm done. This is it. And I try to shut it off work and not, you know, not go back to that and, and do other things. And certainly, you know, um, investing is part of that. I, you know, I've gotta spend time doing that to keep what I'm part of going. Um, but yeah, there's just time a day. Uh, either start a day or end a day where you just have to cut it off and, and spend time with those you love. 

[00:27:09] Earl Cline
I'm at the point in my life, I'm old enough now, I'm, I keep looking at it going. You know, I can't take a single dime of it with me to the other side, and I might just as well spend some of it. Enjoy my time. You probably heard Roger and I were in Miami last week and then rented some bikes and went down to Key West and uh, had an incredibly beautiful ride down there. So I'm at that point in my life where I could still work, but I'm enjoying a little bit more free time than I used to when I was to a desk, 60 hours a week or whatever it was. 

[00:27:42] Andrew Brough
So, Yeah, vacations are definitely, that's, that's always there. And that's the thing too with vacations even, it's, it's easy to get sucked into work while you're on vacation. The way with phones and things, we have that information available and ab ability to access wherever we are. And that's, uh, something I've learned too is just. Try to shut that off. It's hard, but it's important to spend time with family.  

[00:28:03] Earl Cline
I, uh, downloaded too many videos just before I left and it overloaded my hard drive on my laptop. So the second half of my trip, I wasn't able to use my laptop, so that kind of took care of that for a little while. I couldn't see my phone well enough to do very much work. And so if there's the solution, find a way to disable your laptop, even if it's unintentional and, uh, You'll be able to enjoy the last couple, uh, days of motorcycle riding or whatever. 

[00:28:32] Andrew Brough
That's one way to do it.

[00:28:33] Ben Waller
Hey, Andrew, speaking of balance, we love having people like yourself on that work in the lending industry, but are also an investor themselves. So would you be willing to share with our listeners a little bit about your personal investing philosophy and what it is that you look for when you're investing in a project? And maybe our listeners can understand how they can apply that into their own life. 

[00:28:55] Andrew Brough
Yeah, so like we've already talked about going in cap rates, uh, that's important to, to make sure those going in cap rates are higher than the lending rate. That's, that's one key metric. I like to look at other key metrics. I mean, I'd just like to grab the, the spreads and the proforma Excel spreadsheet that these investors are using to come up with their project. And I've analyzed that and I can always tell, and I guess it takes experience, but. I can tell where certain things are outta whack. Maybe they're increasing rents way too much in the first year. We're in a recessionary period or something, or in a pandemic, and we're just not gonna raise rents like they say. Or there's certain things in there. The exit cap rate, that's another one. I look at that and make sure that that's not too excessive.

[00:29:45]
I think some people use underwriting where they, they wanna see at least, uh, 10 basis points per year. The whole period increase in cap rate per exit, maybe even more. Maybe it's 25 base points. So those are some metrics. Also, I think as we've been talking, experience is a big, big factor and people who have experience, uh, like rural and and other people, I wanna invest with them, newer operators. It's a challenge for me. Now. I did invest later and that that investment didn't go so well. I wanna make sure I'm investing in people who have experience, they know what they're doing. And they've been able to produce the returns I'm expecting year after year in investment investment. Just trying to think of other, other things I look at with underwriting. Rent growth versus expense growth. So I always wanna see at least 2% increase in expenses per year. Some investors will, will. Match that with, uh, the rents, they'll have 2% increase in income as well as in 2% increase in expenses. Um, that kind of flattens things out. So, I don't know, there's just different things in those underlying spreadsheets and, and I think another key point, uh, some sponsors don't wanna share those spreadsheets with you when you invest and, uh, should be a red flag. 

[00:31:00] Ben Waller
I agree with that. Thank you for sharing those thoughts. There's a lot to be considered when you're investing either on your own or with other people, and you brought up some really good points about things people should be looking for with those underwriting models.

[00:31:11] Earl Cline
Hey, you can probably hear my dog curled up under my desk and was really, really quiet and all of a sudden she's chasing some kid down the street and not down the street, but uh, in the window, out the front of the house. She's not barking for a minute. But anyway, you talked about your underwriting methods and stuff like that. I always try to put. My income going up the first year income's different, but after that you have to have a cost of living increase. I always try to increase my expenses and a lot of people think that nets it out, right? If I increase my expenses by two and I increase my income by 2%, but it still makes the project grow because your expenses are typically only a third. Of what the total income is so I can increase them and get a realistic expense. And it still grows at a small rate, just not at the same rate that the first year income growth that we're putting in there.

[00:32:02]
So those make perfect sense to me. As I'm sitting down, I think they're built into my model that we use. So it's always really fun to talk to somebody who has probably more insight in what's going on in the market than, uh, But even we do, right? Because you're there and I know that got meetings with, with people who are watching the Fed and seeing what they're doing and all that kinda stuff. It's always great to get those kind of insights from someone who, who really watches those and knows exactly what's going on. And, uh, we, we really, really appreciate your insight. I know we've met together a couple times and tried to get the inside scooped from you, so we appreciate that a lot.

[00:32:40] Ben Waller
Andrew, we're gonna jump into the final four. These are four questions that we ask everybody that comes on our show. So Andrew, would you be willing to tell us what your favorite business book is? Favorite business book would be?

[00:32:49] Andrew Brough
Well, I just got done reading, uh, Sell or Be Sold by Grant Cardone. That was a good one. I dunno if that's my favorite, but I'll, I'll say that.

[00:32:59] Ben Waller
Sounds good. Grant Cardone's got a lot of good information, so it's hard to go wrong with him. Andrew, tell us what is it that brings you happiness? 

[00:33:07] Andrew Brough
I think relationships, being with people and, you know, helping people out, that really is rewarding to me. And seeing that those benefits, uh, they last a lot longer than you may think. Helping people with projects, with things that they're working on. Um, I think that's probably most rewarding to me. Just, just being there for people and, and associating with people and getting to know people. 

[00:33:32] Ben Waller
Thank you for sharing that. That's a, a common theme we're seeing when we ask people this question. So, uh, thank you. Tell us what your future retirement looks like. 

[00:33:41] Andrew Brough
Future retirement. I don't know if I will retire. If I'm not working a W2 job, I'm still gonna be doing stuff. I'm still gonna be investing, and I may be in my eighties and still doing stuff. I don't know if there will ever be a retirement. You know, I'll, I'll probably spend a little bit more time doing some of the other things I like to do, but, I, I'm still gonna have my hands in, in deals and, and working on things and, and, uh, making money. 

[00:34:08] Ben Waller
What are those other things you would do that you enjoy? 

[00:34:11] Andrew Brough
I like fishing. I like skiing. Cycling. You know, spending time with family golf. Golf is a, is a good one. Takes a lot of time, but I like it. 

[00:34:22] Ben Waller
All good leisure activities. Andrew, the last question today is what do you think is the best way to give back?

[00:34:27] Andrew Brough
The best way to give back? If you think about maybe money is the best way to give back and, and that is definitely helpful, but I think we all have. Uh, talents and, and abilities that we can share and giving of those is, is probably the best way to get back. Finding a need and then filling that need, whatever it is. Uh, keeping your ears open to the way, you know, to things that are going around that are needed.

[00:34:52] Ben Waller
Great ideas. Thank you for sharing that. Andrew. Is there a good place for our listeners to find you online?

[00:34:57] Andrew Brough
You can find me on LinkedIn. Uh, you can find me on Facebook. Those are probably the best places to find me.

[00:35:03] Ben Waller
We'll have those links in our show notes as well. 

[00:35:06] Earl Cline
So we really appreciate, uh, the time you spent with us, and, uh, we hope we, we know our listeners are gonna get quite a bit out of it. We spent a little bit of time looking at your background. We spent quite a bit of time talking with you about, uh, mortgage markets and where you see them headed on some tips to, uh, underwrite their deals and. From somebody who looks at you, probably look at, I dunno more, but I know you probably look at as many deals as I do in a week. And so you can't look at that many deals and not get pretty good at, at seeing the errors of, uh, somebody's figment of their imagination, so to speak with underwriting. But anyway, we really, really appreciate that. And then, Yeah, of course. The final four. We, it's always nice to get a little different perspective from our guests and, and, uh, books and what brings them happiness.

[00:35:52]
By the way, the, the comment on what brings you happiness is your association with your family. We did an entire podcast. On that one topic. And it was amazing how everything else, the money, the fame, all those things pale in comparison to our relationship with our families. And so encourage everybody to do what you can to, uh, make the spouse happy, cuz uh, it's probably not, uh, it's not a lot better on the, on the, on the other side, so to speak. Uh, so anyway, once again, Andrew, we wanna thank you for, uh, joining us on our, uh, Retire Wealthy and Happy podcast. Uh, it's been a real pleasure. We enjoy hanging out with you. We need to get up and take you to lunch one more time, and we really need to, we've got a couple of deals coming up. We've, uh, been talking about getting you to, uh, including you in some of those and working with you on some of those. We look forward to doing some deals with you here in the future. And, and again, thanks so much for, uh, coming on and sharing with our listeners. Thanks for your time, man. 

[00:36:52] Andrew Brough
It was a pleasure. I appreciate you having me on. 

[00:36:53] Podcast Outro
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