00:00:00:02 - 00:00:31:03
Unknown
Homeowners are not trapped by high interest rates, they're trapped by renovation debt, and almost nobody's talking about it. Listen to this data from a source I found. 64% of homeowners say that they would rather renovate their current house than move into a brand new, remodeled house. That's new house flippers who are remodeling these houses. 58% of them regret at least one recent renovation, and 22% say that they overspent.
00:00:31:05 - 00:00:59:06
Unknown
I think that's low personally, and 58% have nothing, save for any emergency repairs on their house. 30% went into debt just to complete their renovation. A lot of people will take out a home equity line of credit just to fix something up in their house. So here's the real question are we improving houses, or are we just shifting financial strain from buying a new house ready to go to fixing up and renovating and nesting in our own homes?
00:00:59:08 - 00:01:08:04
Unknown
All right, let's talk about it.
00:01:08:06 - 00:01:30:16
Unknown
Okay. Let's talk about this thing called the lock and effect. We all know what's happening in the housing market right now. Millions of homeowners are locked into two, three, 4% interest rates. And they look at today's rates. High fives, low sixes, up to 7%, depending on the borrower. And they're like, there's no way I'm giving up my payment.
00:01:30:16 - 00:01:52:15
Unknown
Because the truth is, right now, if you own a 20 503,000 square foot house on a 2% interest rate, even if you could sell at a high price point, you can get you can't get that same equivalent or bigger or better house on a 6 or 7% interest rate. So what sense does it make to move? Why do people move traditionally?
00:01:52:17 - 00:02:12:22
Unknown
Well, if you think about the journey of a homeowner, typically as you get a growing family, you start to make money in your W-2. You go out and you buy your first property. Your first property is not ever going to be your forever property. It's so rare that you buy one property and live in it for 40 or 50 years.
00:02:13:00 - 00:02:38:13
Unknown
What happens is your family grows and then you decide to increase the size, and then your kids leave your house. You become an old person and you look to downsize. And typically people will buy 2 to 4 houses in their lifetime. Those transition points are not happening today because of this rate lock that we're in. And if you think about it, people don't have a reason to move.
00:02:38:13 - 00:03:01:18
Unknown
And honestly, it makes sense if your payments low and the house works. Why move. Why do it? But humans do want change. They still want a better kitchen, more space, more usable bathrooms. They go on Pinterest, they see all these things and they're like, I want that. So instead of moving, they decide to renovate their property. And on the surface, it feels smart.
00:03:01:19 - 00:03:19:12
Unknown
They don't really know. They don't run comps and see what value that adds to their house. They just go out and they take that and they do it. But when you look at the data, something else is happening. So I want to break that down for you today. And I've got some data in front of me. So I'm going to talk about some of this data and what it means to us.
00:03:19:14 - 00:03:51:06
Unknown
Okay. 64% would rather renovate their house. 64% of homeowners would rather renovate their house than move emotionally rational. Right? Now, listen, if you think about this, they do that and then 58% of them regret at least one of the renovations they done. That's more than half. And the data says 22% overspent. I think it's more. I can tell you almost everybody I know who ignorantly does renovations to their house.
00:03:51:07 - 00:04:09:08
Unknown
They don't know how much value it brings to their house. And when they really regret it, is when they go to sell it and they say, hey, that really sweet $20,000 upgrade we did. We're not getting that back at the exit. When they pause my notifications. Now listen, our real estate company, we buy and sell tons of properties every year.
00:04:09:08 - 00:04:34:12
Unknown
We're flipping them or renovate them. We're doing creative finance. We got systems. I got a whole team. We have the right contractors. We got good, tight dialed in scopes of work. I would argue that we are the most conservative underwriting team. And listen, are we believe in money on the table? Maybe. But we're not going to lose because we're so dialed in on what we can pay, making sure we have a big margin and we still fight budget creep.
00:04:34:12 - 00:05:02:02
Unknown
Even with all that stuff. We've been around for a decade plus still fight budget creep. So you think some homeowner who's just doing an emotionally driven rehab is going to be able to have cost control? I doubt it. So if you imagine that average homeowner doing one renovation every 7 to 10 years, managing contractors themselves, getting some beds themselves, they don't know what prices should be and a lot of them are getting taken advantage of.
00:05:02:03 - 00:05:28:05
Unknown
I know a lot of contractors. Some people don't like to do investor deals because they can make so much more with what they would consider an ignorant homeowner who's going to overpay. So of course they're overspending. And here's the stat that matters the most. 58% have nothing saved for repairs. If you look at the economic conditions today, the brutal consumer debt is up.
00:05:28:06 - 00:05:52:14
Unknown
We have increasing unemployment. Plus we have millions of people sitting on the sideline who won't even go get a job. That doesn't just hurt the economy and people's ability to spend. It hurts our ability as a country to produce. It hurts our GDP, which is what a lot of US countries are measured off of globally. So that means they're renovating without any reserves.
00:05:52:15 - 00:06:19:14
Unknown
They're not upgrading intentionally. They're getting buried in debt and 30% when debt to complete this renovation. I bet it's more. These studies grabbed small swaths of people. I bet it's more, you know, that's helocs personal loans, credit card contractor. Given financing. So instead of stretching for a new mortgage and going to get your flipped property, they're stretching to remodel the one that they already have.
00:06:19:16 - 00:06:46:16
Unknown
Now, look, they're not removing and we're not removing any financial pressure. We're really what is happening is we just moved it from the mortgage column on the expansion over to the renovation column. And honestly, at least in the mortgage column, you're paying down debt. You're leverage on something that has more value, typically, and less prices go crazy and decline like 2008, more value typically than what you're going to get out of a renovation.
00:06:46:16 - 00:07:16:03
Unknown
Doing it blindly, right? So here's what I think is really happening. And 2020 to 2022 people stretched to buy. They took a big mortgage. They bid over asking and they chased appreciation. Honestly, the market was going up and up and up and up. And I mean, some people felt like it was never going to stop going up. Obviously that's foolish now 25, 26 going into 2027, these people are struggling just to stay in that thing that they bought.
00:07:16:05 - 00:07:44:12
Unknown
And for us, as real estate investors, we're getting a lot of leads that are like, there's not enough equity for us to truly do a deal. Now, look, I know the creative finance gurus will tell you to go buy houses with no equity on terms. I think it's a terrible idea. I think those people are idiots. If we're being honest now, these homeowners who don't have any equity and are struggling to stay because they took debt and they bought at a time when prices were high, they're anchored to their low rate life style.
00:07:44:12 - 00:08:09:17
Unknown
Expectations don't go down for normal people. Not everybody is like you who's focused on building wealth. Inflation is certainly not going down. So the cost to buy things is getting more expensive. Insurance isn't going down. If you're in Florida like me, insurance has been skyrocketing like insane three, 4 or 510 x and property taxes are insane today. Now, if you're in the Midwest, not too bad.
00:08:09:17 - 00:08:34:17
Unknown
But if you're in the Sunbelt, if you're in the northeast, if you're in the West Coast. Taxes are ridiculous. And this isn't like some like fearmongering housing crash story. You know, this is this is, really just understanding what's happening. And, look, the stress for these people, just because they renovated something doesn't disappear. It changed shape. This is a big story about liquidity.
00:08:34:22 - 00:08:55:04
Unknown
How much cash do people have to actually spend? And with consumer debt going up, we know that that is dwindling liquidity stress. It shows up slowly. You have some money, then you have less money. Then you have less money. Now in the headlines, nobody's really talking about this stuff. We're going to war with Iran going on. People are barely talking about it.
00:08:55:09 - 00:09:16:13
Unknown
It's made gas prices spike through the roof. Interest rates over the last three weeks since we went to war with Iran, they were declining beautifully. They got into the fights. I thought they were going to keep going down and then completely reversed course last three weeks. The interest rates, the thing that people most commonly relate to, even though it's not the most important, they're higher.
00:09:16:17 - 00:09:34:10
Unknown
So that causes a feeling for these people, a feeling of stress, an additional feeling of stress. Things are getting worse. And when people feel like things are getting worse, they spend less money. So what does it mean for us? What is it? Where is my mind at? What am I thinking about in my company? Who does off market acquisitions?
00:09:34:13 - 00:09:58:02
Unknown
Repositioning properties to create value in the marketplace? Right. If we talk about strategy because this is where it really gets interesting. First, distress is always delaying. So you guys are smart. You're listening to this. You're listening to other things. You're staying in tune with the marketplace and you're generating leads right now. But you're like, dude, what you're telling me isn't showing up in my leads yesterday.
00:09:58:04 - 00:10:16:22
Unknown
Of course it's not. Because distress, this distress is always delayed. It's not gone. It's just delayed. It happens all the time. Something some current event happens. We know that it's going to have an impact. We look at for the impact today. We don't see it. And then we start making new assumptions. It's a it's a it's a fallacy.
00:10:16:22 - 00:10:48:20
Unknown
You need to think about the delay that typically happens. And sometimes these delays are six, 12 and 18 months. If someone has renovation debt, if you think about your sellers, no emergency savings, rising insurance premiums, higher property taxes, they probably took like a hillock out on their property sitting in second position, literally. If they lose their job for any issue, even if they're working professional with an education, all that stuff, they lose a job for even a short amount of time, and they have one Hvac replacement, one roof issue.
00:10:48:23 - 00:11:11:13
Unknown
That's the kind of problem that we solve for people. And when that problem hits, they won't want to move, but they might need some kind of relief. And I think this is where we get confused as investors, what our sellers want versus what their real options and what they need is. And that's the difference between a amateur company and a professional company.
00:11:11:13 - 00:11:30:14
Unknown
They never accept what the seller says they want in the beginning. They understand it, they empathize with it. But then reality has to sink in at some point. If you're savvy and skilled, creative finance can win now. Not the kind of creative finance where you're buying houses with no equity, certainly subject to deals work, they've been around forever.
00:11:30:17 - 00:11:55:20
Unknown
I'm not saying that every brand new investor doesn't know anything, should be out, run and subject to deals, but I'm just saying, if you can come up with creative solutions in today's marketplace, you can be dominant seller. Carey lease options equity partnerships. When people are equity rich in cash, core creative investors have a marked advantage. Second, you need to watch for renovation fatigue.
00:11:55:22 - 00:12:21:07
Unknown
You're going to see more listings like projects started, not finished. Needs final touches. Bring your vision. These are all agent nonsense terms, but what they really mean is I could not get to the finish line on my project. They overspent. They're probably exhausted and they want out every half done. Kitchen you see in the marketplace is a potential deal for you from a marketing perspective.
00:12:21:09 - 00:12:45:07
Unknown
Driving for dollars or virtual driving for dollars or driving on the MLS or Zillow to see these things is a way to acquire new prospects to turn into leads. Now. Third, if you're flipping the houses yourself, you cannot over renovate today a 58% of homeowners regret their renovation. That tells you something about the buyers because the regret comes when they go to sell.
00:12:45:10 - 00:13:06:20
Unknown
The buyers are super sensitive to that. They're super cautious and they're financially stretched. So if you go over renovate a property, it's just they're going to make a choice, right? They're looking at multiple houses and they may take something that's not over renovated, but way more affordable than your over renovated flip. So you need to really think about that.
00:13:06:23 - 00:13:34:22
Unknown
This is not the time to go to HGTV and try to be somebody on that program, not the time you need to renovate. Not like a business owner, not like a house flipper, not like a real estate investor, but like a CFO, a chief financial officer. Focus on ROI, focus on the margin. Buyer psychology. Think about what they are making decisions on.
00:13:35:00 - 00:13:55:21
Unknown
They're financially stretched. Okay, so here's what I would be paying attention to. Our heal up balance balances increasing in your county. Can you pull that data. Is it improv stream? Is it in Bachelor. It's like do you have access to that data? Are you seeing more contractor financing offers like get your roof replaced 12 months, 0%, things like that.
00:13:55:23 - 00:14:25:00
Unknown
Are you seeing more unfinished renovation listings? Have you even looked or are you just doing the same thing? Are buyers pushing back carbon prices? I'm getting ready to do a presentation in, Cancun here shortly. And in that presentation, there's some really interesting data that I want to share with you guys. Now, I go through I'm just looking at it real quick and I go through the economy at a glance.
00:14:25:00 - 00:14:52:13
Unknown
I talk about GDP, recession, odds, inflation forecasts, what the effects of the Iran war and the oil shock, what it means for your business, mortgage rates. And then when I look at the housing market, price growth stalled. Looking at, you know, where people are moving to and from, that's important. Inventory climbing but decelerating flat margins, lowest they'd been since 2008 and saying to think about affordability.
00:14:52:17 - 00:15:21:17
Unknown
First time homebuyers average age is 4,062%. This is the stat I wanted to share with you. 62% of buyers got seller concessions and 2025. So when I say, are you seeing, buyers push back harder on prices, are you also seeing them ask for concessions? Look at insurance and tax increases. Are they squeezing monthly budgets? I can tell you I live in Florida, Pasco County.
00:15:21:19 - 00:15:42:09
Unknown
My taxes on my house are tank a year. It's insane. Here's the thing markets don't break all at once. I've talked about this at nauseum on this podcast and other places. Even if you look at the worst housing crash in the history of the United States, 2008 and dropped 40 to 60% in some markets, it was over four years.
00:15:42:11 - 00:16:18:16
Unknown
It wasn't overnight, they start to get pressure and there are all these indicators and you start to see it creep down slowly, almost like you can't even recognize it. And right now the pressure isn't necessarily new mortgages. It's this like renovation debt. It's this rate lock problem that people have. And as an investor, our job isn't to predict these headlines and to identify when stress is accumulating and where I was talking to a business owner yesterday and we we talked about the age old quote from Wayne Gretzky, you have to skate to where the puck is going.
00:16:18:18 - 00:16:41:16
Unknown
I can tell you that the biggest investors in the country, who are spending tens and tens and tens of thousands, if not $100,000 a month on marketing, aren't doing that today. Not the smart ones and the ones who are. Honestly, they don't have big margins. They might still have margin, but not good margin. And this is a really hard business to do if you're not going to be making money.
00:16:41:16 - 00:17:02:04
Unknown
Now, I'm not saying if you're in your first year ever, you should be making money hand over fist. It does take time to build the business, but you've got to identify where the puck is moving to, because where that stress accumulates is where the opportunity is created. So I'll end with this. And I'm curious for you guys, like, what are you seeing in your market.
00:17:02:04 - 00:17:23:18
Unknown
Because we'll states hyperlocal and we can look nationally and regionally in the data. But you might be looking down to the zip code or the subdivision, and it matters. Are people sitting tight? Are they renovating aggressively right now? Are you seeing new builds go up or are you seeing more hillock activity? What about unfinished projects? Go look for that data.
00:17:23:18 - 00:17:47:17
Unknown
Go do that today. Now tell me. Answer those questions. Drop a comment if you're watching this on YouTube or somewhere, drop a comment in there. Tell me what you see. I only really see for me. Tennessee, Florida, Georgia. I don't see all these other places. What are you seeing? I want to know what's happening, where you are. And if you're thinking about how this shift your strategy and whether or not you should pivot, good.
00:17:47:22 - 00:18:13:20
Unknown
You should be thinking about that. I hope that this podcast brought some light to the realities of real estate today. There's a big opportunity coming. It's a great time to become an professional, to become an expert. I didn't say it's a great time to invest. I said it's a great time to be building a business where you become an expert and a professional, because that's the person who's going to hit the big opportunity.
00:18:13:20 - 00:18:40:22
Unknown
Think about this. The real estate investing companies who were established had multiple access strategies and were savvy. In 2020, they had probably spent at least five years building up to that and some maybe a little less. They took advantage of that 2020 to 2020 to run up either buying rentals for cheap, that doubled and tripled in value, learning how to sell to hedge funds because they were positioned to do it and they had the credibility to do it.
00:18:41:00 - 00:18:49:09
Unknown
So this opportunity is coming and won't be the same as that time. You need to be prepared. I hope you got some from this and I'll see you on the next podcast.
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