Posted Tuesday, August 16th, 2022 by Richard Roy
Memphis investment loan officer, Tina Talarico, discusses interest rates. Will mortgage interest rates go up, or go down during the remainder of 2022, and what could we expect for interest rates in 2023?
[00:00:00]Brett Bernard: Welcome back to another episode of behind the curtain, where we discuss real estate issues, investment real estate issues across the country and in my favorite rental market, Memphis, Tennessee. I’m joined again by Tina Tallarico of capital city mortgage. Tina’s been in the business for 25 years and is a certified commercial lending broker, and I’ve done a lot of business with Tina here of late. She’s done a marvelous job for a lot of my investors that are looking for lending sources to build their portfolios and add on. So today we’re gonna talk about interest rates and by the way, I’m Brett Bernard with EPM real estate. I’m an expert in investment real estate. I call myself an expert, but our producer thinks that I’m over inflating my ego. I am an expert in the Memphis investment market. So if you have any interest in the Memphis market, if you have questions about real estate, feel free to call me directly on my cell at 901-692-7401. Welcome Tina.
[00:00:54]Tina Talarico: Hello today. You can reach me as well at 901-826-7218. I’m a commercial loan officer, a loan consultant and I can surely assist you in any type of residential lending that you need and other things too. But primarily I work with investors as well.
[00:01:12]Brett Bernard: Now, the last episode, Tina, we talked about the types of loans. We, we dug a lot into the arm loan investors. I get requests about my opinion of arm loans. We talked about how I hated arm loans for the various reasons, but then through our discussion, I think we both realized, yeah, it’s a dangerous loan for a homeowner, but for an investor, it can be an actual a great loan for producing cash flow, more cash flow and creating more wealth through an arm loan and we discussed a different topics. So go back and listen to our last episode and you can listen about the arm loans and the types of products and stuff that are out there. Today I wanna deal with interest rates. Literally this time, last year interest rates were two, two point eight, maybe three, where are they at now?
[00:01:53]Tina Talarico: Prime interest rates are in the fives now and as of June, the feds had four more rate increases planned. And one of ’em has hit us already in June. They’re scheduled to hit us again with a 0.50 or 0.75., and in my 25 years in the business it’s just is very unusual for us to see more than a 0.2 5 basis points in rate increase at one time. But they’ve been doing very frequently and hitting the rates with a half a point and three quarters of a point at one time. So they’re predicting by the end of the year as of June another 2% increase by the end of the year.
[00:02:35]Brett Bernard: That’s gonna put us where?
[00:02:37]Tina Talarico: And that’ll put prime lending right at seven, seven or a little over and those people that have not been in the housing market for very long, they’ve been spoiled with these low rates. Some, however I’ve been around when they were 14 and 15 mmm-hmm and 13. So 7% has been the norm for me and I’m like, what’s the big deal. That’s, that’s been, we just got lucky and hit a spot there where we stayed extremely low, historically low for longer than I thought it would last. However, we’re probably gonna be somewhere around 7% is what they’re predicting. I don’t think anybody can predict what the rates are gonna do. But i, I think they’re gonna top out, 7 ,7.5 and a half I don’t even know if they’ll reach eight. Let’s hope they don’t, but if they do it’s really not gonna slow anybody down. People still have to have a place to live and investors can still make money without a doubt. They just might have to as rates increase just have a little bit different strategy going and as we were talking about in the last segment maybe do an arm loan, an interest only loan where you’re paying the interest only on a property your investment’s still gonna grow. You’re still gonna have that equity grow. Without a doubt investment properties are the way to go. I talk with a lot of just your average everyday citizen, and they tell us you. I really would like to get into that. Anybody can do it, especially we don’t require tax returns. We don’t require W2s we don’t require, we don’t require any of that. As long as you have the credit score and some down payment money and closing costs, you can certainly purchase. Even a first timer. We take new investors as well.
[00:04:16]Brett Bernard: So we’re dealing with the current state of affairs in the market from an investment perspective it’s July 9th, 2022. But when you talk about interest rates at seven, I remember when I first moved to Memphis, I was buying and flipping houses. That’s how me and Glen met and became best friends. And back then the rate was. I think eight, eight and a half nine was considered a very good rate, and then Obama got elected rates went to zero and then stayed there for a long time and slowly crept up to one to two. So the last 15 years we’ve had the privilege of, or us 12 years of very low interest rates and there are some investors that started during that time that are now freaking out saying, oh my God, the world’s coming to an end. I can’t, what am I gonna do? But my older investors that have large portfolios, they remember the bad old days when you were paying 13, 14% and your cash flow is very slim and they’re not alarmed. They’re still buying. I’ve done 4 million more in sales this first half of the year than I did last year. I’ve done 3 million more than I did the year before. So I’m halfway through the year and I’m, I will exceed all my previous year’s records this year, probably by August. So for me, it’s not slowing down. Investors are buying up as fast as they can, and I think it’s because they are taking a different perspective of the process. If I buy a home and I can produce $200 a month cash flow, eventually that home’s gonna have a value of X. I paid X for it. I’ve got equity position. I’ve got an asset, that’s got a value and they’ll roll those assets, like you said earlier in our last segment, 1031 and take the cash and expand the portfolio or refinance some take cash, which Mario’s doing now. He’s refinancing taking that cash and buying an eight house package. So when we get into interest rates, I really wanted to talk about it because I hear the fear in investors, but I also hear the “doesn’t really matter to me. I’m fine.” It’s 7% big deal. It’s 5%, whatever it’s gonna be. So I’m seeing both sides of it. My younger investors are the ones freaking out. They, their hairs on fire. They’re running for the Hills. You predict we may be at seven.
[00:06:24]Tina Talarico: Now. That is on the residential prime side.
[00:06:27]Brett Bernard: Mm-hmm
[00:06:28]Tina Talarico: I do commercial lending. So commercial ending is always a little bit higher in rate than owner occupied purchase. Just earlier this year we were in the fours, high fours, mid fours to 5% when rates were, mid threes to high threes, and as rates have increased on that side, of course we’ve been hit with it too. So probably less than, oh, about 30 days ago, they were a little bit better than they are now but they haven’t increased significantly and you’re right. You shouldn’t be afraid to buy investment property because you know that refinance is always there. So we do a lot of refinances, a lot of cash out rate term, we do the rate term on arm loans. If somebody has , an adjustable rate mortgage and they want something fixed again, and they don’t wanna take a chance of what the market’s doing right now. Then they’ll refinance it into a either another arm with a five, seven or 10 year fixed period or a 30 year fixed. We offer both.
[00:07:32]Brett Bernard: My assessment of it is very simple. I’m a cash flow type agent. I’m very different than a lot of other agents. A lot of our agents spend so much time with market value. I get a lot of offers or I’ll send out offers and they come back and say the market value’s. X, I don’t care. If it only produces $900 a month, then the market value based on cash is $90,000 in my book. So if you want $140,000 good luck, keep it on the market for the next six months and see what you can do. But the flip side of that is also the same. If they listed it for 90, it’s worth 90, but it’s producing $1,200 a month in cash flow. I will tell my investor you’re all in cost can be up to $110,000 with repairs. You’re still breaking the 1% mark that every investor looks for. So why does it matter? Because in five years, that house is gonna be worth 120,000, 10 years gonna be worth 160, 170. So the asset’s gonna grow. Rent’s gonna grow. So why does it matter what the market value says today? So if I wanted to buy a $110,000 rental property tomorrow, one house, and I wanna do a, an ARM loan. I’m putting down 20%, what would be my current interest rate? If I did that today, if I locked it in today, what would my rate be?
[00:08:36]Tina Talarico: You would be around a, probably a mid seven to low seven interest rate.
[00:08:41]Brett Bernard: And if I were to say I’m buying 10 properties, I’m doing a million dollar loan. Would that change the power of my lending options and interest rate?
[00:08:51]Tina Talarico: it will, if you’re doing a portfolio or you’re talking about doing sure purchasing of a package absolutely. The interest rates on those portfolios. I see most of my investors doing their closing those with arm loans as well, because they’re gonna wanna refinance ’em at some point they may wanna sell some of ’em off and keep them good. Sometimes they’ll have a bad apple in there and they’ll wanna unload one of them. But typically investors are they have a change of plans. They may purchase. ’em thinking, Hey, I’m gonna sit on these and rent ’em until they’re paid off, that rarely ever happens. You have some investors that do that, but some that, that don’t.
[00:09:27]Brett Bernard: You end up with, and I did quite a few sales this year for investors that I put out in Raleigh four years ago, and they bought 60, $70,000 homes all in at 80. When the market peaked, I called a bunch of ’em said, Hey, have you ever been thinking about selling and rolling that money? 1031 now’s the time to do it. And I put about 10 different of those properties on and I think, the average sold for 110, 115,000. So in four years they. 25 $30,000 increase in equity. I don’t think that’s gonna happen again next year. I don’t think it’s gonna happen the year after. The thing about Memphis, it steadily grows, but it grows at a slow pace. But at the same time, when the economy tanks ,Memphis doesn’t take a dive like everybody else, it just dips and then starts going back up. So it’s the safe place to put your money. If you’re having fun in the stock market today, you might wanna consider taking some of that cash and throwing into some real estate in Memphis. So, for a commercial loan, I’m looking at 7% and. Is that considered the good rate?
[00:10:20]Tina Talarico: It is okay for commercial. We’ve seen, nine and 10% rates and we may see that again. There’s no way to predict that, but rates are running anywhere between seven and a quarter to eight and a half and if you’re doing a fixed and rent or fixed and flip we offer those as well, where we loan 80% of the purchase of the property and we loan a hundred percent of the rehab costs. That’s a 12 month interest only loan. We have options where you don’t make any payments while you’re rehab. People are usually, investors are usually in and out of there in three or four months and I have one in particular right now that purchased a property. It was in a trust and the property was just dated. It was a very big, 2-story nice house. It was just had the seventies, green and gold and so she purchased it. They had it on the market for quite a while and they could not sell it. After sat on the market, she paid a hundred thousand dollars for it. We loaned her $53,000 on that fixed and flip. She also buys properties and holds them. She buys them and fixes them and holds and rents. But this particular one had so much equity in it that she decided to flip it. She put it on the market for two 60 and sold it for two 60. So that was an, a little bit of an unusual deal, but you can still make a pretty good bit of profit off of a fix and flip.
[00:11:44]Brett Bernard: So basically if I find a home they’re asking a hundred grand for it, a CMA says the market value is gonna one 90. I put down 20%, y’all owe me 80,000. I need $60,000 to get it ready for market y’all will loan me a hundred percent of the 60,000. No payments or anything? Now, obviously the loan’s accruing interest through that year, so is that added back into the loan payout? When the house closes?
[00:12:08]Tina Talarico: That is true. However investors usually don’t hold those rehab loans that long. There has been an occasion where they do for any reason they have to, there are extension periods that you can get as well. But typically it’s on average about four months, is the timeframe that they hold them.
[00:12:27]Brett Bernard: What’s the interest rate for the loan and the rehab money?
[00:12:31]Tina Talarico: The interest rate is running in the eights on those. It’s running in the eight, I tell my investors, look, what are you gonna have it less than six months, three or four months. You’re not talking about a lot of interest there, so they don’t let that hold ’em back.
[00:12:42]Brett Bernard: They’re counting that interest that they’re paying into their profitability. So you’re right. If. A thousand dollars and you’re, you’ve got a mark of 50, 60 grand you’re gonna make on the house. It’s not really a significant number.
[00:12:53]Tina Talarico: So it’s a good place to go because those houses are out there that your average home buyer can’t purchase and the door’s wide open for investors for those.
[00:13:03]Brett Bernard: So I’m gonna have to come talk to you about that. I was a very big landlord at one time in new Orleans, Louisiana where I’m from, and a real estate developer. Me and my partner had 40 homes in new Orleans and it had gotten to the point where we were driving down at the beginning of each month with guns in our hips, going in the neighborhoods to collect our rent, cuz we weren’t getting paid, they were falling behind. And we mortgaged ourselves to the hilt because we, we were doing developments, we had tons of cash and we didn’t wanna use our cash. The best thing that ever happened to me was Katrina came through and wiped out every single one of them. Insurance paid out. I lost a good chunk of change, but I walked away from it. It was a nightmare. And I’ve heard those horror stories from a lot of investors who just buy into a property with the wrong idea. They don’t understand you’ve got someone else living in your home. You’ve got someone else that’s gonna break stuff in your home that you’re gonna have to repair. You’ve got someone else’s life who is, something goes wrong in their life. You’re not gonna get your rent on time, but that’s par for just borrowing money and so I wanna talk to you about that. I got out of it because I just was so burnt, but I think I’ve, my wife’s been pushing me to get back into it, but I love what I do. I love being an agent. I don’t have anything at risk I’m out there pounding the payments for my investors, making money, having fun, and I just don’t want the stress. My life’s so good right now. So in commercial ending, we’re looking. or 7% possibly today?
[00:14:24]Tina Talarico: Yes. Yes. Mid seven .
[00:14:26]Brett Bernard: Fixed and flips. You’re looking at maybe 8%? We’ve talked a lot about arm loans. Are there other product fixed products out there? 15 year term loans that investors may wanna get? Cause all they wanna do is buy it, lock in a rate, break it even for 15 years so it’s paid off and then keep it in their portfolio as a cashflow asset or sell it and take the money and put it somewhere else and build wealth that way? Not everybody’s in for the day to day cashflow. I’ve got investors that simply wanna break even they don’t care cuz they know the value’s gonna go up. Rents are gonna go up and eventually that asset’s gonna pay cash, but they’re more interested in the long term asset itself .
[00:15:00]Tina Talarico: And that renter is paying for their home and they’re gonna have those homes when they retire, and that’s just that extra income they have with their retirement so that they live a little bit better. It’s a pretty good deal. As far as the different types of financing 30 year fixed is popular and it’s only been really in the last few months that we’ve seen the arm loans really come back. However, we do offer 30 year fixed rates and the arm loans.
[00:15:29]Brett Bernard: Do you have shorter terms like 15 years? So basically pick your term 10, 15?
[00:15:33]Tina Talarico: Yeah. And as far as the programs go, we offer financing. As I mentioned in another segment, one to four family, one to four unit single family homes we lend on Airbnbs, which are short term rentals, long term rentals. We also lend on pods, non warrantable condos. If you have a condo that’s not warrantable, we can do those. A lot of times you can’t purchase condo in a building that’s not completed. Just a wide range of things.
[00:16:06]Brett Bernard: What about new builds? I’ve got a project going on right now. Builder bought 70, almost 80 lots near the Amazon Nike plant. I just rode contracts on seven properties for two different investors of mine. And when those are completed, they’re brand new rental properties. Quite nice, actually. So what they’re doing is taking some of these older neighborhoods tearing down and rebuilding new rental properties. So in that case, I think these guys are gonna, they’re gonna have to obviously lend. So I’m wondering at what point, so you can’t write the loan until that house is finished and been permitted, cleared and ready for market? Or can you lend on preconstruction?
[00:16:42]Tina Talarico: We land on the lot. Okay. We lend on the construction. We do it all. Okay. I have a builder now who is purchasing two lots. He owns lots elsewhere. However, he decided to throw up a couple houses in another subdivision, and we finance the lots as well as the construction. Yeah, so we do ground up construction, the fix and flips are fix and rent which are the rehab loans. We also offer, no doc loans, bank statement loans. So if you don’t want to go, DSCR now DSCR is our most popular loan.
[00:17:18]Brett Bernard: What does DSCR stand for?
[00:17:19]Tina Talarico: That’s debt service coverage ratio. Okay. That means that the underwriting is based on the cash flow of the property. They take the market rent versus the monthly payment principle, interest taxes, and insurance, and if there’s a management fee in there, they throw that in there, and as long as it meets that debt service coverage ratio, they don’t have to have any type of income, no proof of income. We don’t ask for business tax returns. No personal tax returns. We don’t even list the income on the application.
[00:17:51]Brett Bernard: Wow.
[00:17:53]Tina Talarico: In some of the programs we do ask for tax returns, but it goes at most recent year, but it’s not for qualifying. It goes to a different department only to show that you are filing your tax returns.
[00:18:05]Brett Bernard: So we’re gonna wrap this up. My name is Brett Bernard EPM real estate. I am an investment agent in Memphis. I deal with investors around the world and across the country buying and selling portfolios. With me as Tina Tallarico, who is a lending expert who can help you decipher what type of loan works best for you. If you’re just getting into real estate, if you’re an old war dog and you’ve got but you’re looking at refinancing or maybe expanding give me a call at (901) 692-7401. Give Tina a call. If you have any questions about lending at,
[00:18:34]Tina Talarico: 901-826-7218.
[00:18:37]Brett Bernard: Well, I appreciate you being here, Tina. We’re gonna keep you for the next segment as well. Thanks a lot for listening to behind the curtain.Be Social:
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