Interest Rate Hike Real Estate (What Now?!) | Housing Market Crash 2022

The interest rates are going up. buyers can’t afford the interest rates going up. But if I can map it out for them, that is the same payment as it would be if they’re renting? Now they can see the value, they own the home. And they’re paying essentially, for what would the same thing is for rent, but it’s also paying down the principal is paying interest, and they own the actual home.

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Yo, yo, welcome back to the science flipping podcast. I am your host, Justin Colby. And today’s episode is about what to do with the interest rates that are jumping up at an all time high? the Fed just increased a half of a point. So there’s a lot of questions out there that I’ve been asked about, what should we be doing? How are you changing your business? Should there be changed what’s happening? So let’s answer some of these questions and get to the point of how this can affect you, me and the investors alike. Now, if you’re listening to this on iTunes, make sure you give me a five star review, I’d greatly appreciate that. And make sure you get your butt over YouTube and subscribe. Because there’s really cool video of this exact podcast where you can engage with me, you can talk to me you can or you can’t talk to me, I guess. But you can see me talking. And there’s some really cool features that my video editor does on these podcasts. So make sure to pay attention to that.

Now. What I will tell you is I am getting a lot of questions from students, as well as prospective students that are just saying, Hey, how are you changing your business? I know you do a lot of wholesaling and flipping and you know, buying and holding. And so let’s jump into this. The first point I’m gonna tell you guys, and it should always be the case is you never ever, ever wanna be a one trick pony. My students who are you know, heavily fixing flipping right now, I’m cautioning them, I’m telling them I’ve been there before I’ve seen this type of thing happen, right where the money has been incredible for them for the past 5, 6, 7, 8 years. They cannot do wrong. Essentially, everything sells for top dollar, they’re making way more money than they ever thought even possible. But I’m saying listen, this is where the hogs get slaughtered, the greedy, do not do well in this area, because they’re buying based around, you know, maybe trying to see if they can get another 10% on that market value, even though it hasn’t really happened there’s nothing proving that to be right. So they are they have been winning is the reality, they have been getting that done, they have been making even way more money they even thought when they first bought the property. So that’s speculating. Okay, that’s the word I was looking for right there that is called speculating. This is a very, very dangerous business model business habit. I encourage you not to speculate, and especially right now. So many of my investors, I can think of one one student specifically, she buys very, very heavily from wholesalers. And that has been awesome for her over the last five years, she has absolutely murdered it financially. And I’m always congratulating her and she’s a highlight student and she’s doing so well. But I’m also letting her know, here’s where you wanna de-risk yourself. Don’t be a one trick pony. Okay, don’t go into every single wholesale deal and figure that you can buy it from the wholesaler, you now need to try to find deals that are direct to home owner. The reason being you don’t have to give away that margin that gives you some cushion. Okay? The margin is the wholesale fee, right? And so instead of her constantly buying from a wholesaler, I want her to now start implementing some marketing strategy so she can have her very own deals. I got caught in this trap years and years ago, I only bought from the courthouse steps. And then when the hedge funds came in, I couldn’t buy any more because they could out price me. Then I only bought from wholesalers and I realized, you know, I was doing flips and making 10 grand. After 90 days, well, that’s a whole lot of work to do 10 grand to make 10 grand, then, in the marketing space, I was only doing direct marketing. My point being is don’t ever be a one trick pony. That is first and foremost.

Now, the second part here is going to be I guess a little more philosophical, right? Is that essentially to make sure that you can weather the storm you have to be fluid. Right? Bruce Lee talks about how you know being fluid like water. Well, that’s as entrepreneurs and real estate investors specifically we need to be fluid meaning there are times where rehabbing such as the last 5, 7, 10 years can be the very best business model, because you can make the very most money, then there are times like right now that it could get a little more risky, right? Meaning your end buyer is having a harder time getting a loan. So now you put something up, because you, you know, put it a top value trying to make as much money and all sudden, you’re gonna have to start doing price decreases, right? To try to find a buyer that can afford your home and get the loan that you need to, or to get the loan that they need to get and buy their home. So you need to be able to flow with what’s happening in the times. This goes back to point number one, which is really making sure that you’re wholesaling, flipping and buying and holding. In fact, right now we’re doing more creative finance deals than have ever done before, because of what is currently going on in the market. There are people that still need, you know, to get out of their home, there are people that are open to doing seller finance, there are people that need to buy a home, but they can’t go get a loan. So there’s two deals right now that we’re doing, we’re actually going to buy it, and then we are going to sell or finance it off to the buyer, right. And so they’re going to give a you know, percentage down, and then we’re going to map out a payment.

So it’s essentially like they’re renting, but really, it’s a mortgage payment to us. So being fluid really allows us to be able to monetize each lead to be able to be flexible in different markets. Now, like I said, most investors over the last 5 or 10 years have been absolutely murdering it. So if you’ve gotten this game within the last 5 or 10 years, I’m hopeful that you’ve been murdering it because you deserve it. But also realize, here comes some waves, I don’t believe there’s going to be a big foreclosure crash, I don’t believe in all that kind of stuff, there’s just, there’s too many economic points that would say that there’s not gonna be however, I believe that crazy speculation of could we get an extra 10% by flipping it, that is is going to go away, right, we’re gonna see some softening of this appreciation that has been happening. So if you stick to your core buying model, right and your core model, and make sure that you could take in leads and be able to diversify how you exit them, then you won’t have as much trouble as people who are one trick ponies. As I mentioned, even those that are buying rentals, I have another client, great client, he only wants to buy rentals, this is only business model. So I work with him about finding as many leads as possible, so he can buy as much as possible. So this week, he’s been, you know, hitting me up about, hey, you know, these lower price point homes that I’m buying in the south in, you know, Alabama and Oklahoma and Mississippi and Louisiana, they’re really not making a whole lot of sense right now. Because when things go wrong, like an air conditioner or roof, it really takes away any profit I would be getting over the next year or two or three. I said, You’re right. And he said, Okay, so those are easy for me to buy cash, because some of these homes are literally 20, $30,000 $40,000, I can buy those cash. But now I have this other model, this is my student talking, that he just bought a $2 million dollar Airbnb, right. But the challenge now is his financing is changing. So now the profit margins on the Airbnb are getting more challenging. And basically what I was telling him is very similar to what I was telling you. And what I’m saying on this episode is just gonna be, you need to be able to diversify, having the lower price point homes having a higher price point homes, you need to overlook all of it as a business model. And sometimes the lower price point homes are gonna be easier. You can even do seller finance with them. You can get good numbers, you know, with small amount of money in. But then also you have these higher priced homes where you can make more money monthly. But there’s gonna be challenges with your loan that you’re going to be getting on that price point. And so I told him, he shouldn’t be diversified across all kinds of price points, right, the 20,000 $30,000 price points in markets that have those deals great. The $2 million dollar high end Airbnb, great, but he should also be in more of the middle price point of a rental like 150 to 250. He should have a portfolio that at any given time, he can continue to make profit margins very similar to what a you know, like a hedge fund would do with stocks. They diversify what type of stocks so they can look at their entire portfolio and have a certain earnings year over year. Now, that’s one scenario, right? This is all predicated on what is going on with the interest rates.

So I just told you one of my biggest pivots if you will, and me being fluid is now I’m doing more seller finance deals. Not I’m buying seller finance more which I am actually but as I Actually, I’m buying it and then selling it as a seller finance. Why does that make sense? It makes sense because the interest rates are going up. Buyers can’t afford the interest rates going up. But if I can map it out for them that it’s the same payment as it would be if they’re renting. Now they can see the value, they own the home and they’re paying essentially, for what would the same thing is for rent, but it’s also paying down the principal is paying interest, and they own the actual home. So when things like these interest rates spike start to happen. I’m just looking at my entire business model, right? And I’m figuring out how I can make sure I’m diversified. I heavily do cold calling as a marketing strategy heavily. I have a great cold calling floor out in Mexico. It’s not my floor it’s that company I use if you want to know that company, let me know I’m more than happy to suggest using them. They’re phenomenal. I do heavy Pay-Per-Click advertising on Google, I do heavy Pay-Per-Click advertising on Facebook. I do heavy text messaging, right? This so I’m diversified and how I’m getting my deals. I do email marketing campaigns to realtors, I use privy now because it just, you know, hit my world like a Mack truck. So I’m super excited about using privy, I’m diversify how I’m acquiring these deals. And then because I can diversify my exit strategies, I’m never really at risk even if interest rates go up. But overall, that one point is why wholesaling is such a brilliant model. I can wholesale 10 to 20 deals a month. I don’t have any money invested. I have zero risk. It makes sense. But it should never be your only business model. I bought 14 rentals. I say this all the time about 14 rentals last year with none of my own money. You think that makes sense for me think that would make sense for you?There’s money everywhere. You just aren’t looking for it in the right place.

So listen, guys, if you liked this, smash the like button on YouTube. If you’re not subscribed yet go to youtube.com/justincolby. Make sure you subscribe to my YouTube channel. I’ve enjoyed this is a hot topic right now. And I look forward to continue conversations about this. I’ll see you on the next episode. Peace.