This is episode #377, and my guest today is Brian Meara.
Brian and I get asked all the time about when the market will take it’s next downturn. While we don’t know exactly when it’s coming, we know it is. Truth is, you need to be preparing for it now.
That doesn’t mean that you should sit on the sidelines to wait for it, as it’s always a great time to be a real estate investor…if you buy right. But, for those of us that lived through the last downturn, we learned a thing or two, and will be ready to dominate the next opportunity.
Today we share our advice on the next market correction. How you can prepare to thrive when it happens.
Please help me welcome Brian Meara to the show.
Mike: This is the flipnerd.com Expert Real Estate Investing Show, the show for real estate investors, whether you’re a veteran or brand new. I’m your host Mike Hambright, and each week I bring you a new expert guest that will share their knowledge and lessons with you. If you’re excited about real estate investing, believe in personal responsibility, and taking control of your life and financial destiny, you’re in the right place.
This is episode number 377 and my guest today is Brian Meara. Brian and I get asked all the time when the next market will take its downturn. Well, we don’t have a crystal ball, and we don’t know exactly when it’s coming, but we know that it is coming. The truth is you need to be preparing for it right now.
It doesn’t mean you should be sitting on the sidelines to wait for it, as it’s always a great time to be a real estate investor if you buy right. There are different strategies you can play in up and down markets. But for those of us that lived through the last downturn, well, we learned a thing or two, and we’re going to be ready to dominate when the next opportunity pops up.
Today we share our advice on the next market correction with you, so we can help you prepare to thrive when it happens. Let’s go ahead and get started. Please help me welcome Brian Meara to the show.
Hey, Brian, welcome to the show, buddy.
Brian: Good to be back, Mike. Good to be back.
Mike: Yeah. It’s funny, we were just talking about being back. It’s been two and a half years since you were on the show last time. Hard to believe it’s been that long, but I’m excited to have you back again.
Brian: Time flies, man. It’s like what my mom said, “The older you get, Brian,” your mom always gives you this advice, “The older you get, the faster time will fly.” I just turned 43 last week, so I guess I’m figuring out that’s true. Mom was right.
Mike: I’m 43 as well, so I get it. It’s funny too, when you have kids, we only have one son. I know you’ve got a whole herd of kids. But when you have kids, you really see it. Especially if you use Facebook Memories, or whatever they show something that happened seven years ago, you’re like, “Oh my goodness. I can’t believe that’s been seven years.”
Brian: My boys, if you remember, I have triplets. I have three 14-year-old boys who next week are going to turn 15. They’re all freshman in high school, and they’re all playing freshman football. It’s like, “Oh, how did I get this old?”
Mike: And they’re all going to get their driver’s license in one more year.
Brian: Which means three cars. We won’t talk about that yet.
Mike: I don’t want to see any tears in your eyes today on the show. Awesome. And by the way, for those of you that listen to this show, if you didn’t know, we have another show called REI Classroom, which they’re usually short, five or six-minute lessons, and Brian has helped us create a ton of those. So wherever you watch your podcast, iTunes, Stitcher, just do a search for REI Classroom and you’ll see a whole bunch of other lessons that Brian has helped us create. Cool, man.
Well, I’m excited to talk about this today because we’re going to talk a little bit about how to prepare for the next downturn. None of us know when it’s coming, but we all know it is coming. Some of us that have been around for a long time, that learned in the last one, secretly you’re kind of looking forward to it because we’re going to be prepared. So we’re going to talk about that today. And you’ve been, obviously, very much involved in short sales and loan modifications and things like that. So you learned a ton during the last downturn that’s going to help a lot during the next downturn, right?
Brian: Yeah. Absolutely. And like you said, you don’t want to ever say, I’m very careful to tell people I’m not excited about it, because that, of course, sounds horrible.
Mike: Excited for the opportunity in real estate. We don’t want anybody to get hurt. We don’t want anybody to lose their house. We don’t want any of that. But the fact is that’s going to happen whether we want it to or not.
Brian: You’re right. Exactly.
Mike: It’s funny, I’m sure people ask you all the time. People ask me because they assume, “Hey, you’re really active. You know a bunch of people. When is the market going to take a downturn?” I’m like, “I have no idea.” But all you can do is get ready for it, right?
Brian: Well, we don’t have an idea, but we what we do have is data. So it’s really interesting, in fact, I do a lot of reading and online research, etc., on this topic. I think it was CoreLogic. I can’t remember exactly what the source was, but basically what they did, Mike, is they had a chart, numerous charts and graphs showing housing prices and appreciation and interest rates. Everything right there.
And they basically took that chart and they took another chart where we are today. So pre-crash 10 years ago, and where we are today, and they put them over a top of each other, mirror image. We’re like right . . . I have to send it to you, we’re right at the point where that’s why a lot of people are saying in the next 6 to 18 months something is going to down. Nobody has that crystal ball, but if you just look at the data, it’s telling a story.
Mike: Before we jump into this topic, for those of you that don’t know you that are watching right now, tell us a little bit about your background, my friend.
Brian: Yeah, sure. I got involved in the real estate business industry in 2007. Coming off of a divorce I went out and got my real estate license where I lived. So I live on the border. I’m originally from Jersey, but I moved across the bridge to Pennsylvania, right about 30 minutes outside of Philly. So I got licensed as an agent with Keller Williams in Pennsylvania and New Jersey.
It’s a funny story, Mike. I don’t know if you remember me telling you this. But when you’re a new agent, what do you do for leads? How do you get your first listing? It’s none of your friends and families that are going list. So what do you do? So an inner office email came out, I’ll never forget, saying, “I have a listing. I don’t want it. Who wants it? Just pay a small referral.” It came out three times. So on the third go around, I was insecure. I didn’t know what to do. So I said, “I’ll take it.” Raised my hand. Well, it was a short sale.
So there’s a reason looking back, that over 200 agents didn’t want any part of it. There’s nothing short about short sales. Me being, I didn’t know any better, so that’s my background, in that I did my very first deal as an agent, as a listing agent, took me nine months. I got it done. But over the course of the next two years, I really became the go-to guy for short sales just because I was doing something most people didn’t want to do.
It’s just a matter of having systems and the right people in place, learning how to do negotiation, learning how to properly submit the paperwork, and all the different steps to a short sale. That’s what I did for two years. Right during the time, so if you remember, depending on who you talk to, a lot of people will say April/May of 2008 was the official crash. But it kind of obviously didn’t happen overnight. It happened over time.
Mike: In different times in different parts of the country, too.
Brian: Exactly. That’s the other thing. It’s not like it happened on this day. No. What’s interesting though, is if you go back, so for those two years, people started flipping short sales, A to B, B to C flips, remember? Same day closings. Literally, you’re doing the title and escrow and you’re buying here and you’re selling here within minutes, for a profit. So as an agent, I would be making $2,000 for the deal, and I would see somebody flip it and make 40, 50, 80, 100 grand. How do I learn to be that guy or that girl? That’s what started me in the investing world.
Mike: That’s awesome. What did you learn during the last downturn? I mean, obviously hindsight is always 20/20, but in the real estate business, we know for the most part, that that’s going to come back around at some point. We go through cycles. So we don’t know when exactly. It sounds like you got your ear to the ground a little more than I do in terms of timing of what’s going on, looking at the data. But what are some of the main things you learned last time that helped you for the next time that we go through that?
Brian: A lot of things, man. A few things that come to mind, I always tell people, short sales will never go away. I’m still doing them now. I just picked up two new ones last week. Like you said, real estate is very particular to the market. So because Jersey is right there, New Jersey is still leading the nation in foreclosures. There’s a lot of reasons for that. There’s a very long time frame. It’s a judicial state. So there’s a backlog and all that. That’s a different talk for another day.
The point is, it’s still very heavy in concentration of your bank-owned homes, your foreclosures, your pre-foreclosures which are short sales, etc. And there’s other areas too. Houston actually has a lot of them right now. This is even before the events that happened. So you just have to know your market.
But what I tell people all the time is that what the reality is, is that certain things are never going to change. People are never going to stop, unfortunately, getting divorces, getting sick, cancer, losing their job. I mean, life changes and then all of a sudden, the mortgage can’t get paid and people lose their home. So to be able to come in and do a short sale, it’s never going to change. And I think that’s where I really realize is that I have a model that it’s recession proof.
Like you said, when things do take a turn again, that just goes up because now the cycle continues. But as far as preparing, I think that one thing people can understand is the process of the distressed market. Why do people lose their homes, and what are the choices with a bank? Most people don’t understand that to do this day, banks, for the most part, truly don’t want to foreclose. When they foreclose on a home, a lot of people don’t understand the concept of how banks make their money in the sense that with a fractional reserve banking system they can lend out only a ten to one ratio. So for every $100,000 in deposits they can lend out a million dollars. Ten to one.
Well, what happens when you have to take back an asset and sell it as a bank-owned home, that money is not in play. So depending on the type of institution and bank, if you will, if they have a certain amount of that debt, they’re actually going to lose the ability to lend further money. There’s a lot of reasons that they don’t want the house. So if presented properly to them to sell short, take a short sale, to an investor like one of us, it’s what they want to do. But unfortunately people just don’t know how to approach the bank the right way.
Mike: So for the agents, I’m not an agent, I haven’t been, never will be. I don’t really need it. And I’m not saying anything bad about agents. Every time I make an agent jab, I always have to say, “But my wife is an agent,” in case somebody is offended. I don’t know if that helps. I don’t if that gives me permission to . . . I’m not making a jab. I just don’t really need to be. But the question is, as you know, there were guys like you that truly became experts, and then at one point, every real estate agent, effectively said, “I’m a short sale expert.” But we both know that they weren’t.
So what will happen in the next downturn? Because markets tend to get more efficient. Next time there truly will be some experts that are ready to take this on and a lot of agents that are like you were when you started. Like, “This sounds like it’s going to be a little more work, but I’ll take it on because I need the business,” or whatever. What efficiencies do you see happening there with agents or even investors that work with agents to pull this off that will be kind of a little more finely tuned than it was last time around?
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Brian: A little more streamlined, right? So a couple things. I think that a good tip for any agent out there, and I still am an agent, by the way. That’s in referral status, I keep it active just because I don’t want to let it go. Obviously, I don’t list homes anymore and certainly wouldn’t compete with the agents I work with, because my primary way of getting business throughout all the years . . . and so when I created my course, remember I created the course on how to flip short sales? One of the training modules was basically what I call the realtor referral method. To this day, I’ve never done a mailing. I’ve never knocked on doors. I’ve never done the traditional marketing that most real estate investors do because I’ve always relied on real estate agents or realtors to bring me the deal.
So my value proposition to them was very simple. Listen, even though I’m an agent, I will do all the heavy lifting. Most agents, regardless if they’re good at it or not, they don’t want to spend all their time in front of a computer, on a phone dealing with a bank, pushing paperwork back and forth. So if I hadn’t built a team of negotiators and attorneys and people that work for me, I have the ability to go to the agent and say, “Look, you’ll never talk to the bank.” This is my little slogan, “And I’ll never touch your commission.” Like, let you focus on what you do, which is go get another listing, short sale or not, and I will handle the backend, which is what we always did.
Mike: Because you don’t have to be licensed to work a short sale, right? I don’t know if that’s different state by state, but generally you don’t have to be licensed to try to work through a short sale, right?
Brian: You don’t. Now that’s a very interesting point. So certain states like New Jersey, have very strict laws on the books, these consumer protection laws. And what they basically state, and that’s a big misunderstanding, is that you can’t negotiate a debt unless you’re a certified debt counselor or that you’re an attorney or mortgage broker, a real estate broker. But there’s a little footnote there — if you are charging the distressed seller. So if you never charge them any money, you can do it. You understand? Because now in the United States of America, there’s no law on the books that prevents you from negotiating the best possible price for your own purchase.
We’re the buyer. We fully disclose who we are, what our intentions are. And so as long as you never charged a seller, which a lot of people did and, frankly, got in trouble for it. Remember there were all these companies . . .
Mike: The agent commission is not going to you either. It’s going to them, right?
Brian: Correct. So the only profit I make is when I buy and resell the home, which is what investors do.
Mike: That’s cool. That’s good to know.
Brian: So part two to that question and what I think that agents and investors alike could do is there’s always people, as we mentioned before, that are going to fall on hard times and are going to get in trouble. Even though, in many, if not, dare I say, in most parts of the nation, the equity has come back, there’s been rapid appreciation of value. The thing that people sometimes I think forget, or really don’t understand, is that a lot of people have really heavily been relying on these FHA loans. You’re only putting [down 00:14:47] 3.5%, sometimes with a gift letter, right? So the actual equity in the property really isn’t where people think it is. So if you’re right on that line, and a lot of times people will say, “Well, I owe 250 and it’s worth 250,” or “I owe 240.”
But what about the closing costs? What about six percent for the realtor, and the other two, or three, four, depending on where you live, transfer tax, all that stuff? So if you’re selling a $300,000 house and you owe three and it’s worth three, well, do you have 30 grand to bring to the table? Because if not, you can’t do the deal, which means somebody is going to have to get cut short and there’s another short sale. So it’s not all these situations where, well, I owe 300, but it’s only worth 200, which we saw during the crash.
But what I’m saying is that even though the values have come back as they have, there are so many people today right on that cusp, where it’s a very dangerous situation. And by the way, somebody like that, the first hiccup that happens in their life, like their wife comes home and says that she’s leaving, now there’s a divorce situation, or a child gets sick, or something where the income stops, or separation, what do you do? That’s what people need to understand, agents alike.
If you’re marketing to the people who are in trouble . . . and how do you know if somebody is in trouble? Most people go after the low-hanging fruit. They’re going to wait for the public notice, which are generally when somebody is three or more months behind on the mortgage. Well, I always tell people, why don’t I get them beforehand? There’s data out there where you can actually reach out to people who are one, two, or three months behind on their mortgage payment. There’s lists provided.
Mike: A lot of folks are cold calling now, right?
Brian: Of course, they have to scrub it against the Do Not Call registry, but everything I tell them from doing direct mail campaigns, which includes handwritten letters, postcards, it’s all the standard stuff we know. Phone calls, where applicable, and actually you can call them. Door knocking, a lot of people are afraid, but one of the best ways to generate leads in that situation is go knock on somebody’s door. If they’re not there, have some type of door hanger to leave behind. So all the traditional methods that most investors do, just targeting specifically people who have fallen on hard times.
And here’s the thing, we’ve both been there. At least, I know I have, where you miss a payment. Money got jammed up. Especially entrepreneurs, people self-employed. Just didn’t have the money for your mortgage, so it went unpaid. But then what do you do? You catch up the next month. So that doesn’t mean they’re losing their home. We don’t tell people, generally if it’s a one missed payment, a 30-day, leave that alone.
But when it hits 60 days, and someone is two months behind on their mortgage payment, they’re headed towards trouble, because a lot of times with these banks, they won’t allow you to catch up if you’re two months or more behind. In other words you can’t just send in one payment now, like have a rolling 60 or 90. You have to catch up on all the back payments and all the fees and everything else. And we found that most people just can’t do that.
Mike: It starts to rub salt in the wound ultimately.
Brian: Snowballs out of control, absolutely.
Mike: Yeah, it’s crazy. Sometimes I forget how blessed I am, but when I look back at some people, truthfully if you look at stats on wealth in America or how much money people have, I’m not going to say these stats right, but 50% of American’s have less than $1,000 in savings, I think. Something like most people truly are living check to check. So something pops up, you get behind on something, it snowballs pretty fast.
Brian: It really does. One of the other things, the situation, it’s not even necessarily for the people, and I know we were talking about this before, who have no equity. It’s for people who also have equity and, dare I say, high equity, which is a new model that I know we were discussing, that I’m doing now, which is the high equity pre-foreclosures.
So what we do, Mike, is basically we’ll target people who are up for auction. It’s so funny. It’s such a different twist from what we used to do. We used to tell people if they’ll bring us a lead or a deal, “Hey, if there’s an auction date, it’s too late.” Why? Because think about it. Generally, the bank is getting ready to auction it off. We’ll get calls, “Hey, my house is going up for auction next Tuesday.” I’m like, “Dude, you waited a little too long for help.”
Why? Because at that point an investor-based offer, which is going to obviously not be full retail value, not full market, they’re not going to stop an auction for an investor offer. When you start prior to them, when there’s no auction set, of course they’re going to entertain more times than not. When the auction is set, it’s generally too late. What happens is my attorneys, my staff, everybody has to scramble for a deal that probably wouldn’t go through.
Now contrast that with what we’re doing with the high equity stuff. We actually look for people who are on the auction block next week, next month. What we’re doing is looking for people that have 150,000-plus in equity, reaching out to them, saying, “Listen, do you want to stay in your home?” “What do you mean” “We’re going to pay off your mortgage in full.” Couple of things happen there. There’s no short sale. That bank didn’t take a haircut. So when we contact the bank and say, “We’re going to pay you in full. We’d like you to postpone this auction.” Of course they do because they’re getting their money.
Now, here’s the best part. Here’s why I’m doing what I’m doing. First of all, I have to tell you, you’d be surprise at the amount of people whose houses are up for auction who have $150,000-plus in equity and they’re losing. Now what happens to that equity? It’s gone. They lose it. Why wouldn’t they sell? Why wouldn’t they list it with an agent? Two reasons.
A lot of times people, when they fall on hard times, they bury their head in the sand. Let’s say it’s some executive and he’s making really good money, and he loses his job, but he’s got a $6,000 house payment every month. Can’t pay it anymore. Looking for a job, hoping it’s going to turn around. Trying to get that loan modification, which generally doesn’t go through because now there’s no income. So all these different factors. Don’t want to take the kids out of school.
We generally see this situation most with families. You’re barbecuing with the neighbors in the summer, Halloween is coming up and you’re going to go with the kids in the neighborhood, you made friends with your neighbors, you don’t want to leave your house. That’s why they don’t list it, because they’re waiting to the very last minute in hopes something turns around.
So when they get that call from an investor like us who has access to private capital to actually keep them in their home, it’s a win-win situation. We take a small portion of the equity. We certainly let them retain the high majority of it. We just take a small portion as our fee. But what’s cool about that, Mike, and for me what’s personally rewarding, every short sale I’ve ever done, the bank makes them leave.
You can’t lease it back to them and say, “Okay, I bought it. Now you’re going to be my tenant. You stay here.” Bank is like, “No, they have to leave.” And it’s in every approval letter and affidavit. You can’t stay there. That’s called fraud. So they have to leave. Although we’ve done as a company, over all these years, over a thousand deals, every time they had to get out. But they don’t want to leave.
Mike: So the folks stay in their house in this model, you keep some equity. When do you get paid? When do you get to cash in on that?
Brian: It’s really interesting the model we’ve created. So what we do, and we perfected with over 300 deals in one county in New Jersey, so it’s a model that we’re rolling out. So we use private capital. This isn’t for a bank loan, a hard money loan. This is private investors. You take the average guy or girl and they have money in a 401(k). What are they making? Three percent, 4%, 5%? Single digits. Low generally. Or worse yet, somebody had their money in a CD making one percent a year.
How would you like a 10% to 12% return on your money, secured by real estate? It’s the standard pitch for private money. But it works because a lot of these private investors and private lenders are a little hesitant to lend on fix and flip. Well, what if it goes over contract, over budget? What if the contractor runs off with the money? What if you can’t sell? All this stuff. In this model there is no what-ifs. We’re keeping a family at home. And you get the deed as the investor, so you want 10% to 12%. Now here’s where this works. It’s two-year money. So 18 months into it, now remember, we’re leasing the house back to them . . .
Mike: They don’t own it, because then you’d get, not that you don’t necessarily want them to own it, but the problem is if you have to go through a foreclosure in a judicial state, you can get screwed in a hurry.
Brian: I’ll take it another step. You ready for this? We thought about it. Not only do they not own it, they’re staying there, but they’re not tenants either. What do you mean? Well there’s no lease, because with a lease they have rights. We use a U in O, a use in occupancy agreement. So should something go wrong, we could change the locks that day. There’s no court. So a lot of land owners are out there, ears perked up when I said that because it’s a brilliant model. I can tell, that over 300 test cases, we’ve only had to do that one time. These are people that you’ve saved their life. You came in and they’re not going to screw you. They are very appreciative.
And here’s the end game. Two years later we’ll take them to a bank, a lot of times the bank that they actually were getting foreclosed on and get them a new mortgage. How do they do that? It’s actually a refinance. So what we do is 6 months prior, 18 months in, we’ll do a quitclaim deed, put it back in their name, now they’re seasoning, so they refinance it and take out the private investor.
Mike: Wow, so they refinance the very same house.
Brian: Correct. And they get ownership back and now they own it again.
Mike: Awesome. Cool. So let’s talk a little bit more about, what did you learn during the last crash? Not just you, share some ideas to people that are listening, of what you learned that they can use next time around.
Brian: So we talked about a few things already. One thing would be the targeting. Really learning where to go, like they always say, I think it’s that Wayne Gretzky quote — you skate to where the puck is going to be, not where it is. So understanding that something will happen, again, none of us have a crystal ball and know when. But we know there will be.
And that’s the other thing too, people, today there’s generally two types of people for the most part. There’s the people who think it’s never going to happen again. They’re delusional, because if you track real estate over the last hundred years, there’s been a correction of some degree every 8 to 10 years. Again, if you track the last one back to April, give or take, the spring of 2008, well, we’re coming up November on Wednesday, we’re coming up on the time where at six months we’re at the 10-year mark.
So the point is this. You have the people who are in complete denial, and then you have the other people who think the world is going to end and we should all be building bunkers underground. I think there’s going to be a correction, not necessarily a crash, but something will happen. And to know that’s going to happen, to position yourself as an investor, as an agent to be that go-to guy or go-to girl, who has their finger on the pulse. How do you do that? You stay educated.
So some of the few things I could share with your audience here to keep their finger on the pulse, in real estate in general, I’m going to give you a few resources. These are all free, by the way. You want to subscribe to a daily email you get. One of them is called dsnews.com. It stands for Distressed Servicing News, dsnews.com. They have a paid version, but you can get a daily email digest and update. Every day you get an email, and that’s specifically on the distressed market. So how do you prepare for the distressed market? You watch and follow the current trends and you’re getting emails with numerous articles every day to literally keep your finger on the pulse.
Another really good one is HousingWire. I’m sure you’re familiar with that. They send out two emails a day. They have a morning and an afternoon recap. So housingwire.com.
These are just a couple different resources that people can . . . my whole thing I always did when I ran the coaching program when I trained investors, I said, look, keep your finger on the pulse. Wake up, you’re having your coffee, read your emails, see what’s going on so you really will know as things start to change. I saw a few articles recently about some values and longer days on market in certain key areas in California, and now that’s causing some “experts” to kind of say, “Could we be looking at the start of something here?” Like I said . . .
Mike: If you’re not in California, California is usually the first to the party. So when stuff starts happening in California, if you live somewhere else, you could say, “This is happening there,” start to expect that to happen maybe in the months ahead.
Brian: Exactly. They follow the [same 00:26:40] states.
Mike: Awesome. What can people do to prepare for taking advantage of this stuff next time? We talked about a couple of things that we learned. But if folks are newer, maybe some people that are listening right now, didn’t even go through that cycle, what are some things that they can do right now to get prepared for taking advantage . . . I’m not saying taking advantage of anybody, but taking of the opportunity that is going to come?
Brian: It’s funny, because it seems like everybody you talk to has a conflicting opinion about anything I guess, really, politics, you name it. So there’s two different schools of thought with that. A lot of people believe that in acquiring as much inventory as possible, specifically more for your long-term buy and holds, so acquiring this inventory, so if things go down, guess what? If you don’t sell, it doesn’t matter. People are always going to need a place to live.
I can tell you that by working with hundreds, hundreds of, if not thousands, of investors over all these years, specifically during the crash, meaning starting when I was an agent in the first few years as an investor, it was literally split 50-50 because the people who sold, sold at a loss or they just let it go. And then they come to me and say, “I need to do a short sale.”
Now a lot of times, don’t get me wrong, if tenants moved out and they didn’t want to put somebody or couldn’t put somebody back in there, there were reasons for that, and I understand. I didn’t really see personally a lot of what they call, strategic defaults. But at the same time, the people who rode it out, they did just fine, because look where they are today. And maybe if you had primed properly for your certain periods or percentages of vacancy, again it comes down to being a knowledgeable and educated investor.
I know guys to this day that are very transactional, and so all they wanted to do was they wanted to continue wholesaling houses. There’s nothing wrong with that. A buddy of mine in North Jersey made over 400 grand last year wholesaling houses. So people think, “That’s your entry level, wholesaling.” Really? You could do quite well. Or maybe you’re in that fix and flip mode.
Now that’s obviously where things are going to take a turn. If that’s your whole business model, how can one get prepared? Well, number one, it’s like they say, don’t have all your eggs in one basket. And if you’re just doing fix and flips and the market takes a really steep turn, you’re probably going to be in trouble.
Mike: Yeah. It’s funny, back to your comment on people that were holding, so I know people that held on to properties and they were upside down. One friend in particular that had about 30 or 40 properties, and he was upside down in all of them. But he didn’t want to file bankruptcy. He just wanted to suck it up. So the properties didn’t cash flow that well. Lost money in some years. But he hung on and then . . . this is in Denver, which has blown up in the last few years. So by the fact that he held onto that, he made a killing.
Brian: It’s kind of like the stock market. What’s your strategy? Are you in this for the long term? I always tell people, are you running a sprint or a marathon? I made the decision back then to become a real estate investor and go full time. I knew this was something I was going to do the rest of my life. It wasn’t a little thing just to do on the side, or I wasn’t just going to do one or two houses a year. I knew, like everything in my life, if I was going in, I was going all in and never getting out.
Mike: Some of the lessons I learned are just make sure you get financing lined up, because I don’t know about you, I’m sure that you’re the same way . . . I don’t know how active you are on LinkedIn. Are you very active on LinkedIn?
Brian: It’s so funny you say that. I think I’m just about to cross the 10,000, whatever they call it, contact, profiles. And I don’t know how it grew this big. I always accept . . . it tends to serve up the people I guess are of interest to you, like they’re in real estate, mortgage banking, which is really pretty cool. But I’m not as active as I should be.
Mike: That’s okay. I’m kind of like you, it’s on autopilot. There was a time when I used it 10 years ago, mostly before I got into real estate investing. And it’s just blown up over the last few years. But, honestly, I get a million requests. Honestly, I probably get a couple dozen requests a day. It’s like 75% of them are, they say they’re some sort of lender. Everybody and their brother is a lender now. They’re all private money lenders and stuff. But you know all those guys are going to go away first when the market takes a downturn. Lending dries up.
I started in 2008, and when we would talk to banks and private lenders, they would say, “We don’t lend on real estate anymore. Check back with us in a year or two.” It dried up in a hurry. But I think it’s important now . . . fortunately I had access to some private capital and we started doing more and more of that. But I think that’s one of the big lessons that I learned is even if you’re not doing a lot of fix and flipping, if you want to hold rentals or whatever, start to find those lenders now that have been around for a long time, or there’s more of a relationship there so if they back way out on lending, they’re looking for people like you that they know that might still be around, right?
Brian: I think that’s huge. That’s a huge piece of advice. One other thing I wrote down to say, I wrote down on my little scratch paper, was private lending. I talked about that as it relates to [inaudible 00:31:51] pre-foreclosures. Specifically in the time of a crash or a correction or downturn, there is not going to be any money. We saw that. All of your hard money, your joker brokers, all these people out there, they’re gone. It’s over. Then banks aren’t lending money, not that we as investors like to go to banks anyway, but the point is, the hard money, it’s all going to go. [inaudible 00:32:16] and then people tend to forget, they talk about the crash, well, look what happened to the stock market.
And do you know what happens with those people when they’re taking losses like that? Where do they want to park their money? Where do most of them still want to park their money today, which is in real estate. So if you have a stressed market and someone has that, where they’re making those single digit returns, you could show them how to make a 10% or 12% return when everybody else is losing money because, look, the one thing about housing we know, the price goes up, the price goes down. People always need a roof over their head. Positioning yourself and play real-world Monopoly, you’re going to win.
Mike: I think, like you said, people start to pull their money out of the stock market and other places, and I think this has happened quite a bit over the last few years and will only continue, is that I think people are just growing more and more distrustful, mistrustful, I don’t know which one is a word, about the stock market. It just feels like it’s a shell game.
The thing is, even if you’re not over there picking out paint colors and stuff, which you don’t want your lenders to do anyway, I think there’s a lot of people that as they get older in life and as they get more and more tired of the stock market, that they just feel comfortable investing in something in their market that is more local to them, or somewhere nearby geographically because they know at least they have first lien deed of trust on it. So they’ve got a real asset there. And if they ever want to go drive past it, they could. People just feel more comfortable with that. Even though they may never drive past it, they know they can.
Brian: That, plus the fact, and how I’ve always [positioned it 00:33:43] when I’ve dealt with private lenders, specifically those that were new to utilizing their money to invest in real estate, is that you get to become the bank. You are the bank. Think about that. You’re the bank. Who doesn’t want to be the bank? So you’re in a position, you have an equity stake, because as investors, we’re not going to present them a deal that exceeds a certain percentage of the fair market value, so should something go wrong you have a nice cushion for your money, regardless.
So I think that people talk all the time about raising private capital and raising private funds and it’s so hard. It’s not hard. We just have to learn how to have the right conversations with people to give them the facts, show them why it’s such a secure investment, frankly in my opinion, the best out there, and then you’re not going to have a problem raising private capital. But to get back to your point, that is one thing that people can do right away to prepare for that downturn, have access to funding and capital.
How many people listening to this have, whether it’s a spouse, a parent, a very close friend or relative, who have money in a 401(k)? One thing I’m really shocked about is people don’t understand the natures of investing. They don’t understand you can convert a 401(k) to a self-directed vehicle. They don’t understand, “If I take the money out, what about a loan?” Because they just don’t understand the dynamics of it.
So to do a [inaudible 00:35:12] and really direct your own future, it’s going to take a little bit more research on someone’s end to get that comfort level, but us as investors it’s learning how to have those right conversations, showing the value of who we are and what we do, that’s where it all works. I believe that’s the magic right there.
Mike: One of things when I talk to people, I told you just l had some live events last week, where people were asking, “What’s going to happen when have the downturn?” One of the things I think is powerful, it’s a powerful lesson if you haven’t been through a few cycles. It’s just to know that you could make money as a real estate investor in up and down markets. You just have to shift your strategies, right?
Right now, when it’s a sellers’ market, where I’m at in Dallas, it’s on fire, a seller’s market, and I do more selling activities. In fact, I’m about to sell off a few of my rentals here, some of my dogs that I never thought I would sell. But I can’t believe how much I can get for them right now. I’m going to take advantage of where the market is at right now. We do more, instead of wholesaling, to traditional investors, I’m doing more of wholesaling on the MLS to maybe end users or whatever, because I make more money doing that. I think that will pull back once the market pulls back.
But when it’s a seller’s market, do more selling activities. When it’s a buyer’s market, do more buy and hold activities. You just have to learn to ebb and flow. We do this in the stock market. You buy . . . I don’t buy anything in the stock market anymore, but traditionally people buy, they think the market starts to get too hot or overheated or it feels like it’s starting to get risky, and they sell off, and then they move into something they think is less risky. That’s all you’re doing is ebbing and flowing, trying to manage your return and risk.
Brian: That’s it.
Mike: Real estate is no different, but sometimes people start to act like it is. It’s a good time or a bad time. It’s like, if you buy it right, it’s always a good time.
Brian: It’s always a good time. You’ll always make, like anything, you make your money when you buy, not when you sell. If you’re buying right, if you have the right strategies, if you’re able to acquire the property at the right price, whether that’s for that passive monthly income, you’re going to do a quick turn, whatever the case may be.
One thing also that a lot of people can focus on, specifically where I’m from, is really incorporating the Airbnb model. We’ll always have it. It’s a rental and it’s a yearlong lease and they pay every month. Then you take it down a notch and say, “Okay, how do we really maximize this space? It’s a single-family residence.” How do you really maximize it? Because obviously, single family homes, the highest and best use is not really for a rental, we all know that. But there’s ways you could change that.
Student housing, if you live near a college, a university, look into student housing. If you’re buy a destination spot, like we are, we have Philadelphia, we have New York. There’s all local areas. Atlantic City, the Jersey Shore. To be able to understand that you can now do weekly rentals, vacation rentals. Then the next model, another notch, nightly rentals. Literally charging by the night. So it’s just a different way to think about it. It’s pretty cool.
Mike: Awesome. Brian, if folks wanted to get a hold of you, learn more about some of the stuff you’re working on or they thought, “Man, that guy sounds so cool. How do I find him?” Where do they go?
Brian: You make me sound cool on this show. Really just my website. Just investorentourage.com. The only thing from when I was selling the course, which I’m not selling it anymore, on short sales, I had a deal analyzer. So for anybody who’s interested in learning about how to analyze a potential short sale or maybe you think you don’t need it now, but you will in the future, it’s one of the training modules from the course. So it’s a video, it’s a downloadable audio. It’s a spreadsheet. It’s an actual calculator. So you can download that, and I think it says on the top of the page, “Put your email in for a free deal analyzer.” That’s just on investorentourage.com.
Mike: We’ll have links for that, DS News, HousingWire, all those things we talked about, down below the video here. Great to see you, my friend. Thanks for sharing with us today.
Brian: Thanks for having me back, Mike. Hopefully it won’t be another two and a half years before I come back again.
Mike: No, absolutely. That’s way too long. Again, guys, if you want to hear Brian, Brian drops a ton of knowledge whether it’s on Facebook or on his website or as I mentioned he’s been involved in quite a few of our REI Classroom lessons, so if you go to flipnerd.com, I don’t even know what the link is. Somewhere on flipnerd.com, if you go slash shows, we have our different shows there. But also on iTunes and stuff, you can check out REI Classroom and Brian has done a number of lessons for that podcast.
So, everybody, this was episode number 377 with my buddy Brian Meara. Appreciate you guys. If you could go out to iTunes, Stitcher Radio, Google Play, wherever you watch your podcast at or listen at, even YouTube, and subscribe and give us a rating, we’d appreciate that. I thrive on that stuff. I get energy from other people letting us know that they like what we’re doing here because we’re working hard to create 377 episodes.
Actually the REI Classroom, Brian, I think we had over 700 episodes of that one. So we’ve got a lot of shows. We’ve been cranking them out for you guys out there. Appreciate you giving us some love back. We’ll see you on another upcoming episode. Everybody have a great week. Take care.
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