Real Estate Investing Podcast

Is it real estate boom or doom?
Posted Monday, September 19th, 2022 by Richard Roy

In this episode we talk about the existing real estate market and all the changes that have happened, mortgage rates, and why now is a great time for investors to buy real estate in Memphis.

[00:00:19] Brett Bernard: So today we’re gonna talk about the, existing market and, all the changes that have happened. I know across the country, I talk to a lot of investors around the country and around the world that buy here in Memphis and, talking to them about California, New York. Utah or wherever, you tend to think that the whole world’s real estate market’s coming to an end that is collapsing. Which is true in California. They’re seeing some massive drops New York is, but keep in mind in these major metropolitan areas like that, yes, they have huge upswings and they have, they, they take off like a rocket and they drop like a bag of bricks. Memphis, me. on the other hand is a little different. I think it’s, and I always equate it to the fact that we’re a distribution City and that’s so many people inside the city limits of Memphis work in distribution. They work in the service field, and 49% of ’em rent. So because of that humongous renter base that has kept our rental market pretty solid, pretty stable. In 2008, yes, we saw reduction, but nowhere near like the rest of the country. Memphis, recovered fairly quick. I would think Aaron, was about two years after the collapse in 2008, Memphis was back to a previous level and then by 14 we had already exceeded that level when the rest of the country was still struggling, trying to get back to their previous level of 2008 on value.

[00:01:38] Aaron Ivey: Yeah. You know, Brett and I love to talk about our experiences in real estate and I’ve been doing this for about 22 years, so I got to see the initial issues with the economy in the very late nineties. Of course, the boom in the early 2000s, a legitimate crash that happened in ’07 and ’08, finding a floor in ’09 and ’10, and then the market beginning to take off again in 2011, and we’ve had this long, both in the stock market and in real estate. This long bull market that is just going up, up, up, up. So one of the things that Brett and I often talk about with other investors is the regionality of real trends

[00:02:15] Brett Bernard: Because the experts all told us last year, oh, here it comes. So we got a bus coming, things are gonna fall apart and the market’s gonna tank, and so what happened? You had a lot of these hedge fund groups start just buying up thousands and thousands of homes, hoping for it to tank and then allowing it to rocket et back, and at that point, when it rocket’s back, they were gonna liquidate and make a profit.

[00:02:36] Aaron Ivey: Yeah.

[00:02:36] Brett Bernard: That never happened here. We’ve seen a little cooling, which is normal for this time of year and normal for an inflationary issue, and with high prices on on gas, and I mean, that’s just gonna affect the market. But overall, the market hasn’t really dropped in Memphis. It’s actually stayed pretty steady.

[00:02:54] Aaron Ivey: Yeah.

[00:02:54] Brett Bernard: It’s just not rocketing and climbing like it was previous this year.

[00:02:58] Aaron Ivey: Yeah. I think that there is a, little bit of a correction, probably the most obvious area of correction that we’re seeing right now is that the hedge funds, which were just gobbling up and consuming all these properties, they have really slowed down on their offers.

[00:03:13] Brett Bernard: They predicted this horrendous downturn.

[00:03:16] Aaron Ivey: Right.

[00:03:17] Brett Bernard: One would ask the question: if you see a downturn coming, why are you buying up so many properties? Well, if you think of the way these hedge fund groups work, they don’t care what they pay for it all they care for what it’s producing and what it elevates to four or five years from now. Now that they’re not seeing the Memphis market waffle the way they expected it to, and it’s staying pretty steady, they realize they’re not gonna see. I don’t think they’re gonna see the gains they wanted in the next five years, but they’re gonna see slow, steady growth, and for our hedge fund group, that’s not acceptable. They’ve gotta pick up something that has tremendous increase over a short period of time for their investors.

[00:03:51] Aaron Ivey: Right, and we also need to take into consideration that buyers have a very specific goal as to why they purchase property, how long they hold that property, how they depreciate that property and the expenses that they have during their time of property ownership, and what that does for them year over year. There are organizations and I believe that these organizations that have been buying up these properties are going to need years where they’re able to show losses. They’re gonna need years where they have cash and they need to do capital improvement and this…

[00:04:20] Brett Bernard: I think they’re all market in Memphis to do that in cause we’re just not seeing the losses that everybody predicted.

[00:04:25] Aaron Ivey: Sure. Right. Exactly. It’s all strategic it’s what do I need this year? You’re given advice by whoever your CFO is for this year for what to do next year if next year it’s time to acquire 15 million in real estate in Memphis, Tennessee, then that’s going to be the goal of this corporation is to just once again, get back into this acquisition phase. I think what these groups are doing right now, just to sort of close out this concept. Is that they’re they’re satiated, you know, their, their goals for acquiring properties have probably been met and the whole interest rate thing that everybody’s talking about and how the fed is getting involved in everything needs some clarification, because really what’s happening is the fed is raising the inter loan lending rate between banks, and so banks then have to pass that on to the borrower. So it’s not that the fed had, you know, they can’t raise or lower interest rates directly to the consumer, that has to be the bank. That’s not their job. So these corporations are definitely dealing in cash loans, they’re definitely getting financing from their own net worth. They also use the B-R-R-R method. Just like the small investors. So here’s my thought on this, as far as how this affects our listeners. I believe that our listeners were sort of bullied out of the market or pushed out of the way by larger, more in tune and in touch, and more capable and wealthier groups and buyers, and I think the last three years, one of the biggest complaints we’ve seen online is that owner occupants say, well, I can’t get to the house fast enough, it’s gone before I get there. This investor group is offering a 10% premium, I can’t afford that for my family where I don’t qualify for a loan that big, and so it is, is pushed those people outta the way. Well, it’s done the same thing for a lot of our investors who want to buy properties, but then other investors get to it before they do and maybe they don’t have the means to do the rehab that’s needed at that elevated price. So here’s what I’m seeing in the maket. I am seeing a plateauing right now over the last 45 to 60 days of property values. So, they’re still going up, but it’s slightly, yeah, exactly.

[00:06:35] Brett Bernard: More, more or less it’s plateauing is slowing down, but the, the biggest sign for me is that properties on the market for seven or 10 days versus last, earlier this summer, it was on the market for, you know, 24 hours.

[00:06:47] Aaron Ivey: Right.

[00:06:48] Brett Bernard: I don’t think there’s as many buyers as there are properties, which then creates a perfect scenario for an investor trying to get into the market here in Memphis. Right now would be the perfect time to start.

[00:06:59] Aaron Ivey: Exactly. I have teenagers. There’s a social media app called TikTok and I watch TikTok. So there are all kinds of real estate investor trainers and teachers talking about how the next 12 to 18 months might be one of the biggest buying opportunities for the next 20 years.

[00:07:15] Brett Bernard: Mm-hmm

[00:07:16] Aaron Ivey: And it’s because there’s going to be some softening in the market. It doesn’t mean that if you bought in March that your house is gonna be worth less next year, hopefully it’s not for sale next year, if you just bought it. Right? So like you have a longer term buy and hold philosophy. Most of our investors do, and it’s great that they own the real estate and they’re gonna have all the benefits of owning that real estate, even if the value of that home vacillates by 3%, 4% over the next 18 months, that is a nothing change in value. So what we’re trying to encourage our investors to do at this point is watch for the opportunities, right? Look at the days on market, get a feel for whether or not this property has been in and out of contracts a couple of times. Figure out where can I gain the advantage, you know, in this purchase?

[00:08:00] Brett Bernard: Well, let me tell you one good advantage you can gain is by get yourself a good. In, in a hot market, good agents that are worth their salt will get you the deals you want. And there’s all kind of creative ways as a good agent can work very hard on your behalf to make your offer more desirable to the other side. The second thing I wanna mention is that, and I get this from all my investors, if you’re long term buy and hold, then you really should not care about current market value, you shouldn’t care about current market swings because if you’re holding it for 10 years, I, I will pretty much go on record right now and guarantee you that within 10 years, your property’s gonna be worth more than you paid for it. So get away from all the scare, the nervousness about the market and just take Aaron’s advice right now is a good time to buy because there are so many more properties than buyers, which means sellers are more motivated. I just did a deal today. I just did the inspection on it and we went $30,000 under market because the house had sat there for two weeks when the agent got nervous, because she was used to selling houses in a day. So yeah, sellers are motivated. Take advantage of it.

[00:09:05] Aaron Ivey: To that point as well. So Brett and I are realtors, obviously, and we talk to other realtors and what Brett said is exactly true. There are realtors that are out there that do not know they have never experienced a downturn during their career.

[00:09:20] Brett Bernard: Most of ’em will be back to their old jobs by the end of this year.

[00:09:23] Aaron Ivey: Right. Yeah, and, and we won’t mention what, I mean, you can imagine what these people were before they became realtors, but there are soon going to be more realtors than there are selling opportunities. So when that happens, realtors begin to drop out. What Brett and I are really just trying to convey is it’s a phenomenal time to get in. I think it’s gonna continue to improve for buyers, in the area of being able to make below market offers with where there are opportunities and just let the seller make up their mind. Right. Like if you’re used to living or operating real estate, instead of a context where you quote unquote don’t wanna offend the seller by offering too little, like get out of that mentality.

[00:10:03] Brett Bernard: They’ll always counter.

[00:10:04] Aaron Ivey: Well, I mean maybe sometimes, I mean…

[00:10:06] Brett Bernard: Most of the time

[00:10:07] Aaron Ivey: You’ve got some lows that are insane.

[00:10:09] Brett Bernard: Yeah, but if I submit an offer below asking, I always contact the and say, look, here’s our offer. If your seller’s inclined the counter, please counter don’t just reject. And 9 times outta 10, we get a counter and we negotiate it a lot of times we meet him in the middle, so.

[00:10:22] Aaron Ivey: And Brett, by the way, pays attention every day. He doesn’t rely on what he knew yesterday to get him through the day today. And he is always paying attention. He and I both are educating ourselves, getting a feel for the market and changing our strategy, and just for the listener, I have to say this Brett is the most boots on the ground realtor that we have ever worked with. He will knock doors, he will talk to neighbors, he will drive streets, he’ll drive streets, week after week, you know, watching and seeing how that particular community is improving or not improving. He has a conscience, ladies and gentlemen, and so, he’s gonna tell you if he sees something that, that we need to be concerned about, and that’s something that I love about Brett, and I think that you will too. So anyway, if you’re interested in knowing more about the Memphis market, please give Brett a call and get a better idea about, what the opportunities are out there. Tell Brett where you are, tell him about your financing situation and what your financial goals are, how much money that you have to put down. These are all very personal questions, but without this information we can’t advise investors properly.

[00:11:23] Brett Bernard: I get asked that question a lot. Do I need to have cash? Well, yeah, obviously if you have cash, you’re more competitive buyer, but there are so many other ways to make a conventional loan offer, as competitive as a cash offer through escalation clause, there’s all kinds of things that we can do to make your offer enticing. Most agents don’t worry about it. They won’t spend the time to try to win the offer. All they wanna do is write the offer, throw it out there and see what sticks. And I’m not saying I’m the only agent that does that, but a lot of agents just don’t put in the extra time. So find you an agent that puts in the time to, to get you the offer and win the bid.

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