The Real Estate Market Is Broken: Who Is Actually Winning?

86% of Americans think it's a bad time to buy a house. And let's be honest, investors can't get anything to pencil. High rates, expensive holding costs, and non-existent cash flow. Today, we're sitting down with Jared Shore, founder of Mamba Mortgage. He has been in the mortgage business for over 14 years, and he works with our investors weekly. Over the next several minutes, Jared is going to break down exactly how difficult it is to win right now. So, I think we wanted to start just by getting in the nitty-gritty, just diving right into everyone's concern, which is rates. So instead of asking you maybe a lob question of like how are the rates Jared I want to kind of start with my experience which is uh right now is a bit demoralizing in 20 what 2023 2024 the narrative was rates are coming down they're going to slide down we're on the we're on the down slope and then it's like oh they went up in 23 and then oh they went up in 24 and then it's like 25 you know kind of wobbly 26 kind of wobbly um in the background there is you know taxes have gone gone up about 2 to 3x on some of these with the new assessments here in Maring County. Insurance is like 1. 5 times as high. I just had something that was 1,600 go up to,900. Yeah. And with the lack of wiggle room and rates, I have seen so many people tell me as a realer like, "Hey, these numbers don't work. I can't, you know, I can't I have no breathing room. In fact, they're selling. We're dealing with probably more sellers than buyers on the investment side is the God's honest truth." So, I guess um what are you making of this in terms of rates? I know the narrative was, hey, we're getting a new Fed chair. They're going to come down. Yeah. Well, then we decided to go bomb Iran and get in that quagmire. And that's a whole another podcast. And they didn't go down. And now we're sitting at higher inflation. Like, when people ask you Jared, hey, what's my rate? Where are rates going? You know, what are you saying? Speak into this. Yeah. So, I'm probably the uh anomaly when it comes to loan officers is I I truly don't pay attention to rates. um because it's I can't control them. Like it is what it is. Um you know, we can kind of look and maybe project a little bit, but um rates have been so steady over the last couple of years. You know, we've had we've been hearing that rates are going to go down for, you know, like you mentioned, for the past three or four years, and nobody wants to hear it now. Yeah. They I'm like, well, I'll believe it when I see it kind of thing. So, it's the one piece that we can't control um you know, in the entire process. um you know, we we kind of control the customer service experience and hey, do we have the right products available? And I think the hard part with rates right now is rates are are staying high, right? But house values are going up and and that's and that usually doesn't happen. And so I think that's the hard part in affordability both with primary people and with investors is that the values of houses are not are not going down with higher rates. And usually, you know, it's kind of an inverse, right? when rates go down, house values go up. When rates go up, house values go down. But, um, we're not seeing that. Um, you guys can probably speak more on the on the house values, but I think that's why you're hearing a lot of people say the numbers don't work right now because where rates are and where house values are, they're not lining up. The markets almost performed like too good. Yeah. For the rates, right? We're waiting for like bad things to happen in our market. like every time the jobs report comes out, you know, those are the things that drive um you know, the the numbers and the rates and nothing everything's good um or or not as bad as we need it to be, right? I think that's the awkward thing we're stuck in is like in this temporary moment, we have no recession, so rates aren't going down, which would help a bunch of people flood in and lead to housing boom, but we're like the market's too good. Yeah, like we just hit the medium price record in June and June like total volume sold was like the highest in the past four years. Like the market's people are buying. It's investors that I think are they're taking a bit of Oh, for sure. Our the pe the group that is winning right now are first-time home buyers. There's not very many uh you know, the competition is low and you know, you have somebody who potentially doesn't have, you know, the cash to go buy something, you know, with cash. Um, and so what what ends up happening is we have down a lot of down payment assistance loans right now. Um, we have a lot of first-time home buyers who if we were in a 2020 2021 market where rates were crazy low and you know the competition was out, they'd have no chance of of winning out on these houses. Um, so they're winning right now and they're getting houses. Well, first- timers, even first- time investors should not be complaining. Yeah, there's so much inventory. There's so much leverage for them. Yep. go buy buy a damn house. Like [laughter] why why are you guys on the fence? You have nothing to compare it to. Yeah. Yeah. No, there's uh there's opportunity out there, you know, regardless of where the rates are. I think when first time home buyers tell me like, "I can't get anything." I'm like, "There are homes on the near east 200k that are three bed, two bath that offer 0% down." Yep. Go crime me a river. Yeah. Like you don't have to move to Westfield and get a $500,000 house, your first one. But there's some pretty sweet opportunities out there to buy. just saying got to got to do it. What do you think the average what is the average mortgage payment you've written in the last 6 months for investors or Yeah, just stay in the investment lane. I would say you know if we're if we're including taxes and insurance into the whole whole equation probably in the,000 to500 range u would be my guess. Now again it depends on I told you I'd give you a bunch of it depends answers today. This is the the first one. We'll we'll keep a track on it. Um but uh the price points where we where we see for real estate investors, you know, you're probably looking in that 150 to 200,000 range, at least in the indie market, right? Where rents line up, right? Once you start getting kind of in the 250 300 plus range, their rents don't go up, you know, proportionate. So, um, you know, a little bit harder to finance sometimes, but yeah, I would say in that,000 to,500 range, which keeps profitability and keeps some some cash flow going. Yeah. So, with that, do you think there's cash flow available? I guess either of you. I want to I think what I've struggled with and what I'm curious from both of you is I've like refinanced two times in DSCR and both times my LTV didn't work because these aren't class C beaters. They were like decent properties. So like one is like 200,000 and the rent rate's 1,400. The other um well part probably a lot of that has to do with taxes would and so they're like a lender like yourself would say, "Hey, oh yeah, 1. 2 DCR." Well, I back in that payment and with the rate. Yeah. Oh, great. 60% LTV. Well, so [laughter] I I'll get ahead of myself a little bit um on on some of the stuff. you know that we there are options out there now where you can go to a a negative cash flowing DSCR ratio and still go up to 75% loan to value. Um, so I think where if you look at especially the wholesale side of lending, which is where we operate on, you'll see the investors get really aggressive. Um, it's just sometimes a little late to the game, right? So, like where where's the opportunity where we can go lend buy these loans? They're going to produce like you know they're they're going to um or I guess yeah produce I guess is probably the right word, but you know from the backend investor that are buying these loans, you know, they want to make sure they're they're getting paid, right? And so what's the risk level? And so if they're if it's just a few, you know, it's a $100 less than what they're going to be making per month, but we can back it up with maybe assets from the client, boom, you know, we can go to a lower a lower DSCR ratio with higher leverage. But you're right, there are a lot of lenders out there um who have a smaller sandbox to play with DSCR loans. And so if you start getting lower on that DSCR ratio, closer to one, yeah, banks, banks, you know, they have the D, they're just very rigid. Five years ago, none of these banks really did DSCR loans, right? Um once rates went up and the primary residence lending went down, DSCR was a, you know, it was a hot topic there for a while in the lending industry. We were ahead of the game and then like nobody was doing DSCR loans. Everybody does DSCR loans right now. And and and the crazy part with DSCR lending is you could have we have about 30 different lenders we operate with. There's 30 different sets of guidelines for DSCR lending. It's not like conventional FHA where it's, you know, Well, that's where I think you stand out with Mamba is like kind of the levers you can pull. Yeah. Uh, give me like the two second. What is DSCR? Well, I was actually asking a rate question for affordability. I wasn't even getting into DSCR. I mean, we you guys got really excited into into [laughter] DSCR. I was genuinely curious on like if there's a,000 to,500 mortgage payment. I think the myth should be that interest rates right now you still can cash flow and you still can get into a deal tax assessments may be increasing to your point. So like if you're still thinking about like burr strategy and getting some hard money into there what are you seeing are people still going that route in the bur strategy or numbers still working out on the back end? I've seen it less less than, you know, maybe a few years ago. But I think if you go into it with the right expectation, I think that's that's probably the biggest thing is understanding that I'm if I do this deal, I may not get all my cash back right now, right? Um let's let's assume that rates do go down, right? And if rates do go down, guess what? Property values go up. So, if you do get into, you know, quote unquote burr um home right now, you may just have to rate term refinance it and not cash out, your cash out may come two or three day, you know, years down the road when the rates do go down, hopefully values go up, hopefully, right? And then uh you get your cash that way. So, a little slower burn. Do we think investors are just like equity sitting because of that? Like you could then go apply that same logic to anybody that's bought from 22 to like 26. Everybody's just sitting on either a really low rate or really low equity. So there's this conundrum of no cash available to be able to actually infiltrate the market. I would say there's there's cash available, there's equity available, especially if you bought a few years ago. Um but nobody's going to refinance and touch it right now. um because they have, you know, it's kind of the golden the golden handcuff uh rule, right? Everybody's tied and that's kind of the problem with our market in general right now is everybody's got low rates because they did refinance or bought at a good time. Um we've also seen I've done more HELOCs this year on investment properties on primary residents this year than I've done in my entire career just because there's there's tons of equity. Nobody can nobody really wants to touch their first mortgage because of the where they're at in the rate. It doesn't make sense to go from a 3 and 1/2 to you know seven. So many people that are trying to flip with a heliloc. It's like everyone I know that is of certain age where they own their home for a certain period of time. They haven't done the cash out refi. Yep. And they're all trying to flip. None of them are taking the heliloc and buying a rental because that's a bit leveraged. But they are trying to flip to a double leverage. Well, you could burr too. I that could be another more people interested in flipping than burring right now because of the the cash flow situation is a little challenging just rentals in general like they just were at a difficult cycle where it's hard to make a rental work. Um you know but it's like we're cursed by the problem of the market performing too good. Yep. You know medium price just keeps clicking up even when rates are high. Yeah. So of course rentals are just harder. Yeah. They're not a cash flowing business anymore. They're an investment. Quick pause. So, I can give you some free game I normally only give to clients. When it comes to renovation projects in Indianapolis, House Construction has quickly become our go-to. House specializes in inspection repairs so that when you get a report that comes back loaded with a bunch of problems, they'll get you a quote fast with work that you can actually execute on. Click the link down below and we will connect you to House Construction today. Well, and I think uh you know, obviously we're we're in the indie market and so you know, a lot of the stuff we talk about is indie. seen we've seen a lot of people moving outside of the indie market into places like Anderson and Lwood and even Fort Wayne. Like Fort Wayne's a booming little town right now. It's not little, it's the second largest, you know, city in Indiana, but for whatever reason, it feels small um here. But um I I was up there the other day and they're they've got a one they've got a pretty cool investment community up there and uh it's it's pretty sweet up there. But yeah, Terraote. So there's all these other like kind of like subsidiary cities and if you're looking for cash flow if you're looking for cash flow to one of those cities. Yeah, the rents are the rents are pretty high compared to the you know the purchase prices. I always say like the the I'll say I coined this phrase. I don't know if I really did, but the financing on these deals is the easy part. It's it's finding a property that fits right and and what you're wanting to do is the hard part. Yeah. and and getting into them uh to be able to stay, which would lead into another myth that I hear all the time, which is that conventional is better than the SCR. How would you respond to that? Um, it depends, [laughter] right? Um, not again, back in, you know, I I hate using COVID because it that just wasn't real, right? That was a that was a weird time. Steroids, right? Exactly. Um, 90% of our investor did conventional lending back then. right now probably 90% of our our investors are doing DSCR lending and part of it is um in a normal market conventional is a better option um just in terms of rate fees cost all of that um however right now they're almost equal and here's why so DSCR um loans have a feature on them that conventional does not it's actually illegal to have this feature on a conventional loan and that's a prepayment penalty okay so normally you're like ah prepayment penalty sounds terrible Um, it actually is it's a protection for a DSCR, the lender on the back end, right? It's a it's a guarantee that they're going to get their interest. So, so they'll give you a, you know, a rate without necessarily having to pay to get that rate or, you know, with a buy down or prepaid interest. Conventional doesn't have that protection. So, they know rates are high. What are you going to do when the rates drop? You're going to refinance. And so what they're doing is charging you points at a pretty high clip um just to get a rate on an investment property. So the rates and the fees between the two are almost identical right now from what we've seen. Now obviously every every situation's a little different. Um, you know, I think one example, you know, where and and we can do this now. DSCR, again, you see the trends and, you know, slowly going, but we have lenders now that are doing 15% DSCR down on purchases. We didn't have that, you know, a while back. It was always 20% minimum, actually 25% almost guaranteed. And you could, you could, some lenders would do 20. we're seeing 15% with no PMI on DSCR and their rates are pretty good. Um whereas conventional you can do a 15% down on an investment property but you have PMI and so it almost you know it just kills the cash flow. Um so yeah well and the the debt not being in your primary name. Yeah. You close in an LLC. Yeah. Right. I don't think first or second time investors are thinking about that enough. It's such an advantage just to have that in your entity based on the cash flow. It's underwritten based on the cash flow and income, not your W2 income. Right. I I think the best thing to buy in Indianapolis right now is a like 350K plus single family. Maybe in one of those, not in one of those suburbs you mentioned, but outside of the city or within the city in Fountain Square, we're going to get 2700, three grand, 3,200 in rent, but never once will that ever pencil out for DSCR. And the reason why it's the best is because it's one of the only deals that you're going to double your equity position. Yeah. In the next 10 plus, have a little bit of cash flow along the way. How do you how does somebody get into one of those? It's a good question. Um, a lot of times we'll use [snorts] um short-term rent on those because obviously if you're doing an Airbnb um using that that style of income to qualify the loan versus long-term rents on it um we can use things like AirDNA um a lot of times the appraiser we can request to have the appraiser to give us um short-term rents on those comparables as opposed to um long-term rents. So the so sometimes we can um you know get the DSCR to qualify, excuse [clears throat] me. The the other thing as I mentioned earlier is you can go to a negative DSCR cash flowing property. Um and so something like that where yes, it's not going to cash flow. Um I agree with you. You know, a higher a higher valued property in a in a neighborhood that's going to appreciate. Yeah. You're going to you're going to build your equity at a faster rate. So, it may make sense to take a slightly higher rate right now um with a again a a negative cash flowing property just from an equity position. Yeah. And I think I'm comparing to like I have a I have a property that's 400,000 rented for 3,100 and the mortgage payments 2950 on it. Yep. And we put less than 20% down two years ago. Yeah. And like I don't hear from those tenants. Yeah. you know, they're not on the east side and turn over every single month. Like they're there and they're in place and they're they're solid. Well, from the lending, sorry, and from the lending side, too, we know those properties are good. And so that's why you've seen a lot of DSCR and oh, it may not cash flow, but let's look at your personal income just to say, hey, they've got the extra funds. Um, and it's still going to be a DSCR loan, but let's let's combine the two sources of income and not have, you know, it's got to be this, it's got to be this. We can use both of them to qualify. Yeah. Jared and Max, how I don't want a negative cash flowing investment. It's a horrible investment. Why would I do that? I just told you I'm cash flowing. I thought the payment was not with capex management. Oh, you were CL. You're you're basically breaking even on that. Like 100 bucks, give or take. But the reason you would negative cash flow is for equity. Like if if you know you don't want to lose lose a ton of money every month, but if you're appreciating and your goal is to cuz you're you're going to have at least let's call it 20 to 25% equity from the beginning, right? If you buy that property, if you're going to appreciate at a pretty pretty fast clip and the other reason maybe I'm I'm using this to lose money on purpose for tax purposes, right? We see a lot of that. some high wealth people that are like, I need to lose money on taxes um and show a negative cash flowing property. Yeah. A really good strategy, I was just talking to someone about this today, is you have your spouse, especially if they don't work, they put the hours in to manage it. You have to have 500 hours or a real estate license. and you know, you go buy that $400,000 property. Maybe it's an Airbnb. Maybe it's a duplex and you the husband could be the wife has the W2 high income earning job. They're they don't need the cash flow, let's just say, but they do want the 50, 60, 70K write-off, right? Yep. And so they put the hours in, 500 hours, which you just have to track it on a spreadsheet and just collected rent, made a maintenance call. Yep. Right. Um, and you know, then they go accelerate depreciate that because now it's 100% again and that's going to get you a ton of money off your taxes. I don't think the amount of people if they realize that this isn't we can teach you how to do this. This is very possible and you're getting a great asset that's going to appreciate many more people I feel like should be doing this because they're cutting huge checks. Yep. To the IRS when they get above that 35% bracket. It's crazy. Yep. Well, and I think it goes back to the it depends answer, right? Like every everybody's financial situation is different and that's where it's cool. You get to customize it and not we know not everybody's um goal is the same either. And so having you know a a lot of different products and and being able to kind of customize that um into a a loan and a property is is huge, right? I just think that from a from a real even a real estate agent perspective, it's just like that is a huge open market of like, hey, it doesn't have to cash flow. It can save you 100 grand on your taxes. Yep. That's the win. That's a lot of cash flow opened up. If you go buy a $500,000 property and bonus depreciate the whole thing, that that is very possible if you're at the highest tax bracket to get a ride off that big. And so there needs to be a lot more education out there um versus just, you know, you know, giving your money up to Uncle Sam. And listen, I've not a tax expert, so talk to your CPA on this, but uh we we've seen a lot of people use their helocks to pull a bunch of money out, right? And now that's non-t taxable income. And then they just pay pay the mortgage or the heliloc back every month. And then they just do it again year after year. And they're basically, you know, that is their income essentially. That is the heliloc that they're pulling out. And they don't have to pull it out of, you know, any investments and things like that and now, you know, have capital gains and things like that. So yeah, a lot of the smartest investors I know live off cash out. Y off debt just because it's not taxable, which is crazy. And Dave Ramsey will not like that. [laughter] But not at all. Not at all. The last myth that I would want to bust is that your loan officer doesn't matter. You can just go to [laughter] 1800loans. com and get whatever. Rocket Mortgage has great deals. [clears throat] I hear. Yeah. You know, it's um there's a lot of, let's call it, good loan officers that do a lot of business that, you know, don't know a whole lot about mortgages. Um, and so there's part of it like having a good team on the back end is really important. Um, and having somebody you can go to and trust and communicates well. That's that that should be just the base of what having a good loan officer in your corner is, right? Um, and then it goes to what products do they offer. And you know, there's a big difference between a retail um lender and and a wholesale mortgage broker like us where um retail has their sandbox that they play in. If you don't fit in their sandbox, like sorry, you you don't get to use them. We have 30 to 40 different sandboxes we get to play in and you just have to like I think the biggest frustrating thing if it doesn't fit with lender A, right? Well, now I got to start this process completely over with lender B, go through an application, get my credit pulled again, submit all the documents with with a with a wholesale lender like us, you don't um you know, we we do it once, you know, one credit pool that applies to all 40 of our lenders um that we operate with. And then it's our job to understand which one of these is the best fit for you. And so I think that's probably the biggest thing is just options. And um you know you're you're you've got 40 people competing for your business at that point. Um so you know there's the mortgage world's so competitive in the first place. I mean just right around here there's I mean you can go down the street there's 10 different lenders on one street, right? Um so I think that's where having a broker is is better. All right. It's better than retail. Um there's some there's some cases where retails is a better deal, right? They especially a portfolio like your credit unions, your chases, your um your bigger mortgage banks that they have their products. Yeah. It's just it's just what they've got. Um and then it gets a little more complicated even on that. You got portfolio lenders, you've got uh people that sell your loans on the back end. So again, it it depends, right? And I I think we've got a pretty good box to play with and um you know, we get to customize it pretty pretty well. Yeah. Yeah. I mean, even for us as real estate agents, I I get confused. Yeah. Like, how does this portfolio lender differ from Yep. this beg lender versus this mortgage broker? Yeah. I can't even keep track of all the products [laughter] and, you know, I'm like paid to study it. So, yeah, you you have to have someone who is in the weeds. And, uh, I think I've loved talking to brokers because I feel like I'm on their team. like, hey, it's us versus finding the best investor who's gonna lend it versus like a captive audience. It's like here it is. You know, it's just it's just lame, [laughter] right? The process seems to go a little bit smoother. Yeah. Right. Absolutely. That's great. Jared, we're can uh feel like you provide tons of value on this. like it's been really mind expanding and I I know you do it for investors we've put you in touch with and you're a gracious sponsor of our events and media. So where can people learn more about your business? Yeah. Um you know we're all we're on all the social media stuff. Um mamba mortgage. net's our website. You can always reach out to me. Um email's probably best. Jared mamba mortgage. net. Um yeah we we'd love to you know reach out to one of you guys. Get you guys connected you know get them connected with us as well. So, um, yeah, if you need a mortgage, hit up Jared. [music] We're mama. This has been another episode of the Roots Podcast. [music] Comment below your biggest mortgage miss. What did you think that would go wrong before you got your first mortgage? Peace.