บทถอดความฉบับเต็มของ Condo Lending Rules 2026: What Owners Must Know

that seller gives you 20 and that saves you $175,000. And that's the beauty with the market today is you are really able to negotiate and get a really great deal right now. And so the media sells drama. So all you're going to see is, oh, house prices are going to drop. And then you have every realtor lender like, no, do this, do that. But ultimately there is opportunity during uncertain times. And I always tell people this, if you're in the market looking to buy and the numbers make sense and they budget for you, we're caring less about interest rate and more about what's the long term wealth appreciation of owning this asset. And we take a look at everything. And I have a lot of clients right now that have that 2 to 3% interest rate. And I've been able to show them the power of selling the property because they have these other high interest rates. They hold on to this low 3% rate, but believe it or not, they have other loans. They have a 10% car loan, they have a 30% credit card, another 30% credit card. So there is a lot of equity in homes right now. And how are we capturing that and then using that to go buy a home? Because 70% of homeowners right now don't see themselves being in the same home that they're in now five to ten years from now. And so how do we gap that affordability issue? And I think now is a really good opportunity with what the market's doing. 22 00:06:15.000 --> 00:06:39.000 And home affordability is only just going to become more and more of an issue as time goes on. So getting creative, finding ways, and to your point, Michael, it's looking at everything in a comprehensive manner and saying, hey, you might have 3% here, but if you're paying 30% over there, the net net is, is not that great for you. Let's get creative, be a true advisor and, and look at the big picture to really help you think about that. 23 00:06:39.000 --> 00:06:48.000 You have a 3% rate and then a 30% interest rate. Now, the balance on your credit card is going to be less. But if we're focused on interest rate, your blended rate is over 15%, right? 24 00:06:48.000 --> 00:06:49.000 Yeah. 25 00:06:49.000 --> 00:07:36.000 So you want to think about that. We call it the golden handcuffs. I got this low interest rate. This is my asset. Well, life happens, right? We're never guaranteed tomorrow, but that's where you have a really great agent that finds inventory, finds a home that's meeting their needs, and then getting with a financial leverage person that can take a look at all their finances and look at it holistically. And a lot of times it actually frees up cash flow. They're like, oh, man, my mortgage payments go up from 4,000 to 6,500, but we just shaved off $3,500 in debts by selling the property. Right. So everyone's situation is unique. Those are some situations that I want people to be coachable on because it probably is fitting. A lot of homeowners right now that are attached to that rate, but they have other debts that they could pay off and still have enough equity for a down payment. 26 00:07:36.000 --> 00:07:54.000 If you're holding off on selling or buying because of the interest rate, you need to contact a lender and have that conversation and figure out what your full financial picture looks like. Because like Michael's saying, you could be in a better boat or equivalent boat in a house that you actually want to be in, but you have to have that conversation and do those things. 27 00:07:54.000 --> 00:08:13.000 Great situation would also be to looping in a lender with your cpa because while credit card interest is not tax deductible, home interest or interest on a mortgage is to a certain point. A lot of homes in Southern California are going to be way over that cap, but around the rest of the country, you'll be below the cap and be able to deduct the majority of your interest. 28 00:08:13.000 --> 00:08:43.000 And for anyone that's younger and has older parents, grandparents that own a home, there's a proposition out there that allows for a homeowner, if they're over 55 and up, to transfer those property taxes. If they bought a long time ago, they can transfer those property taxes into the new home. And I think a lot of homeowners don't know about that because they're like, well, I'm paying more for less. My taxes are going to shoot up. Not necessarily. There is a proposition in California that does protect that. So, you know, it is a great time for that type of buyer as well. 29 00:08:43.000 --> 00:08:56.000 But that's not to say that it's always a Good decision. So in full disclosure, really know the numbers, know the situation, have a trusted advisor and go through the process to make a educated decision. 30 00:08:56.000 --> 00:10:37.000 But think about, in the market from 2020 to 2020 to 2023, you are writing up offers waiving your contingencies, you are writing up offers way above list price. There is no way in heck that someone that was doing down payment assistance that needed a seller credit to cover their closing costs was ever going to get their offer even looked at. We've had clients recently that literally paid for an appraisal and a home inspection. And through a seller credit and down payment assistance, we got them into a homeownership to start building equity. There has never been a cheap time to own a home. I've never met anyone that says, this is the time to buy. The people that buy the house five to 10 years from now, like, gosh, I'm so glad I bought my home. I don't know if there's ever been an easier. No one's ever said, great time to buy. People in 2020 were like, don't buy. You're paying way over for a home. We look back, you got a great payment, great rate, right? So I share that with people that are on the fence, that are first time home buyers. This is a great opportunity for you. And I don't see rent prices getting down anytime soon. And if it makes sense for your situation and we can access a down payment assistance and have a good agent that can

negotiate your closing costs, what's going to happen when interest rates come back down? Did you know for every 1% decrease in interest rate, 5 million more households qualify to buy a home nationally? And so all I'm saying is if you're waiting to buy a home based on a certain interest rate, that's like you waiting to buy a stock at a certain price. I mean, that, that's not. We're people of certainty. And if you're certain and you know what your payment is, you can make it work, then we can go on with that. So I share that because this market is a lot more comfortable for that type of clientele than it was in the past. 31 00:10:37.000 --> 00:10:41.000 Okay, tell us about condos. What is all this condo drama? 32 00:10:41.000 --> 00:12:38.000 So in 2021, Surfside, Florida had a terrible accident where two condos just fell, just completely collapsed. And so obviously a lot of those people that were living there had loans, okay. And those were backed by Fannie Mae and Freddie Mac. So there's changes that are coming now to not only protect the complex and the Lender, but also the buyer as well. And so a lot of these changes are going to be happening for anything. 10 units and above. Let me see that again. 10 units and above. 10 units and below. A lot more lenient. Okay, 10 units and above. In very simple terms, if you had a buyer that was buying a condo and they were putting at least 10% down, all lender cared about was a limited review. What's a limited review? We're just assessing the mastered insurance policy. That limited review is gone. If you're putting 99% down, you're still going to have a full review. What does a full review entail? We're going to look at their reserves starting in January of 2027. It's got to be 15%, whatever the revenue is, minus their expenses. There's gotta be 15% left over to cover for repairs. To have an engineer report to make sure that that condo is structurally sound. Delinquencies, you cannot have more than 15% more of the of the property owners be delinquent on an hoa. Fannie Mae and Freddie Mac won't do that. Who is Fannie Mae and Freddie Mac? They make about 70% of home loans right now. That's like your first time home buyer. 0%, 3% down, 5% down, 10% down. Market good credit score for that type of clientele. Now if you have a complex that's FHA and VA approved, you're good to go. We don't need to take a look at all the reserves and do everything like that. It's approved, it's good. That's a great opportunity for a military buyer or someone with not great credit and low money down. Fha, if it's approved and we can look that up, go all in for that. But those really are the big changes for anything. 10 units or above is the reserves and then the delinquency percentage on that. 33 00:12:38.000 --> 00:12:43.000 Now they 10 units, 10 units in the entire complex or 10 units in a building? 34 00:12:43.000 --> 00:12:53.000 Good question. In the entire complex. 10 units or above. So if you have a small complex of tenants

or less, they're not going to take the full review into account. 35 00:12:53.000 --> 00:12:55.000 And when did this come into play? 36 00:12:55.000 --> 00:13:12.000 Yeah, I mean recently. So this is starting this year and then right now it's at a 10% reserve. And then next year it's going to be 20, 20, 27. In January it's going to go up to 15%. And all of that is due to what happened in Surfside, Florida. About Surfside. 37 00:13:12.000 --> 00:13:15.000 Did they know the buildings were going to collapse? So People weren't in them. 38 00:13:15.000 --> 00:15:33.000 No, that was the problem is they just weren't really having engineer reports. They, they, it was one of those things where I think that they knew they were having some balcony issues, but they didn't have the reserves. They didn't have the money to fix that up. And when they had a engineer go out there and kind of assess what happened, that's really where the SB326 and doing the balcony structure. Now, we're logical. If your buyer that's buying a unit has a balcony issue on a, on a unit that is completely farther away from where they're living in, that's not a health and safety for the client. But we have to see kind of when they plan on making that fix. So we'll be logical when we do that. So if I am a condo owner right now and I want to know what I need to be doing to get started, Contact a real estate agent first and foremost and real estate agent, homeowner. Here's the four questions to be asking the hoa and they'll give this to you. And we have a much easier time getting this information from the seller. When a new buyer tries to ask, they're not going to give them the time of day. So it really is important that the owner takes control and getting this information. What percentage of the budget is allocated to reserves? And they'll be able to send you a financial sheet and your agent and the lender can take a look at this for you. But what percentage of the budget is allocated to reserves? Question number one. Number two, is there a current reserve study? Number three, are there any active or planned special assessments? And number four, has there been structural safety or water intrusion issues? You get those four questions asked, you are light years ahead. We as the lender can look on Fannie Mae and Freddie Mac to see if it's on the do not lend list. Whether it's already for reserves or whether it's for, you know, structural litigation issues. We can take a look to see if it's on the do not lend list. If it's on the do not lend list, it cannot go conventional financing unless you fix whatever an issue is that shows up on their website. We can also take a look to see if that complex is FHA and VA approved. Why is that important? When you're selling your property, you want to have the widest around of buyers that can own that piece of unit. Right? So FHA and va, that's going to be really important. If your complex isn't FHA approved, we can do a spot approval. And that can maybe be

for another topic, but those are the four questions I would ask. 39 00:15:33.000 --> 00:15:36.000 How long does that. That spot approval process take? 40 00:15:36.000 --> 00:16:17.000 Yeah, good question. So spot approvals are basically where FHA allows for one of the units to be FHA approved. I see a lot of success in getting that. When the property, when the complex was already FHA approved, it takes about five to seven business days. So we can't order an appraisal until there's a case number. And you're not going to get a case number until there's an FHA approval. So we get the budget from the HOA right away. I have my own condo team that handles this. We send it to fha and then FHA typically takes three to five business days, so about five to seven business days altogether, where we cannot order an appraisal. If a buyer has to go FHA financing, whether it's low credit, low down, but again, an opportunity. Right. 41 00:16:17.000 --> 00:16:18.000 For a buyer. 42 00:16:18.000 --> 00:16:19.000 So that's not. 43 00:16:19.000 --> 00:16:37.000 That's not something. If you own a condo and you know your complex is not FHAVA approved, you're taking a risk with all parties on board because you have to have a contract locked in to start that. Or is that something an owner can start now, like, hey, I want to get a spot approval before I hit the market? 44 00:16:37.000 --> 00:17:31.000 Good question. It cannot be done until there's an actual buyer escrow. Because the lender we. Actually, this is kind of like a selling point for me. We pay everything to do the spot approval. Most lenders charge that on the buyer to go through a spot approval process. That's why there can't be due diligence upfront in getting it obtained as FHA financing, because you need a buyer and escrow on a property to do that. VA is different. It is a huge process. They do not do VA spot approvals. If you get a VA approval, it's for the whole complex. Another value add is if the lender gets the spot approval on that unit, it's good for 90 days. So if you have another listing coming up or you have another. It's a marketing piece like, hey, I just close on a low down payment, low credit score. We were able to market it to a wider audience. Are you thinking about selling your property? I have a lender that can do it. And that's good for 90 days. 45 00:17:31.000 --> 00:17:33.000 And is that what you guys did with the Baltimore. 46 00:17:33.000 --> 00:17:34.000 Yes. 47 00:17:33.000 --> 00:17:45.000 Deal. Okay. Are you able to establish likelihood of getting approved prior to hitting the market? Or do you just. You Go into that spot approval a hundred percent not knowing. 48 00:17:45.000 --> 00:18:26.000 Great question, Shannon. Like, the question is, is there a way, based on the information that we get from the hoa, to see the likelihood if FHA is going to approve? Not before we actually have the FHA approval. Yes. When we take a look at the reserves, we have an idea if FHA is going to approve this, the loan or not. But again, it's not our decision. Right. It's FHA's decision. But yes, we do have a condo team and myself that have done these and know if it's going to be an issue or not. So to answer your question, is there a way to get all the reserves and the HOA information up front to see the likelihood? Right. Yeah, that's something that we can look into. But you cannot get an FHA spot approval until you have a buyer in escrow on a property. 49 00:18:26.000 --> 00:19:08.000 What problems are we seeing? Because, I mean, I'm seeing it on a small scale, right, with sellers and owners and everything like that is either a my HOA is going up or there seems to be a lot more special assessments than ever before. I have one owner that they flat out said to him, he said, hey, the proposed work doesn't align with the special assessment amount. And they said, oh, well, it's to cover all of that and also to catch up is what they told him. So I'm assuming that's to catch up to the percentage of reserves they need to be at, which will ultimately help them in the long run because I'm assuming values will tank in the areas that cannot get lending. Are you seeing that a lot? Is that the approach that a lot of these. 50 00:19:08.000 --> 00:19:47.000 Yeah, you nailed it on the head that I don't like doom and gloom, but things are going to get harder before they get easier again. I think this new guideline is going to hurt for six to 12 months. And then this is my professional opinion, and then in a year or two, you're going to see the condo market really take off. You're going to see that reserves are in place. You're going to. We had clients that purchased homes a while back that had $400 monthly choice that shot up to $1200 a month. Because unit. Because other, you know, they didn't have the reserve, so they had to put that on the unit owners. Like, that's crazy. 51 00:19:47.000 --> 00:19:48.000 That is crazy. 52 00:19:48.000 --> 00:20:24.000 And we were allowed to finance that. Like, you don't want that for your client? Like, no, you know, we're all about the hard part about the lender's job is like you're showing a client a property and they love the neighborhood, they love the unit. But what's behind the scenes, what's behind the wall, what's behind the finances? And that's our job. And ultimately, at the end of the day, we got to make sure that they're not going to be put in a special assessment situation, which in simple terms just means, hey, we're short on funds and we're going to throw that on you because we don't have a budget to allocate for this. So we're going to shoot your HOA up. What happens? They want to sell their property. Do you think a new buyer is going to want to take that on? Heck to the no. 53 00:20:24.000 --> 00:20:25.000 No. 54 00:20:25.000 --> 00:20:57.000 And so we're going to be in a situation where it's going to hurt. But HOA people that are in HOA typically live in the complex, right? They have a vested interest

to make sure that it's sellable, that ink prices are, values are going up. So it's going to hurt, but it's going to put that responsibility back to the HOA to make sure that everyone is kosher and has the reserve in order to meet the financing. So that was a really long answer, but. But yes, the hoas that are ran poorly are really hurting values right now. 55 00:20:57.000 --> 00:21:42.000 So I think it's a little bit more difficult and complex than that. So you have, of course, the balcony laws that's going to keep happen every few years, every time you have to do a re inspection, there's a likelihood that they're going to find things. So you're now having the additional expenses for the balcony repairs, you're having additional expenses for the insurances. Like, what was it two years ago when we saw a lot of the doubling, tripling of HOA dues was because of the insurance issues. And some complexes and communities couldn't even get insurance. And now you're adding higher reserves. I mean, one after another, all of these things adding on top of each other. It's not going to stop. And it's just going to keep getting worse and worse. And I think realistically it's probably going to take longer than 12 to 18 months. 56 00:21:42.000 --> 00:21:45.000 Can we clarify what the balcony thing was? 57 00:21:45.000 --> 00:21:59.000 The balcony inspections are similar to, even on multifamily similar to what is it the Florida issue when the whole building collapsed. And I think there was engineers who went out and says, hey, you have issues here, but they didn't have the money or the desire to fix it. 58 00:21:59.000 --> 00:22:04.000 Did people die? That's what in Florida did people die? It was that they were living, leaving, and the buildings collapsed and people died. 59 00:22:04.000 --> 00:22:11.000 Oh, yeah. Surfside condo collapse. It's really scary. Middle of the night people sad. Yeah, yeah. 60 00:22:11.000 --> 00:22:14.000 It looks like almost like you would see what a third world after an earthquake. 61 00:22:14.000 --> 00:22:15.000 Okay. 62 00:22:15.000 --> 00:24:15.000 For California, you had the situation in San Francisco where the, I think it was the University of San Francisco kids were partying in a balcony. Way more kids than should ever have been on a balcony. But regardless, there was a lot of deterioration, degradation of the structural components to the balcony. The whole thing collapsed. A bunch of college students plummeted to their deaths. So because of that, California passed this balcony law that goes into or that went into effect for both multifamily properties. For them it was anything three units or above wood structure, over six feet off the ground for six feet. Yeah, yeah. For condo communities, it's I think, something similar with the number of condos. But even for instance, like across our old Newport beach office, you had 880, which was thousands of condo units. And they were going and inspecting every single balcony, having to,

if they got passed, it was good, but if not, they had to redo the balconies for whatever the engineers and inspectors said they had to do. And that had to be ran through the city with permits and the permit. The city would sign off saying, yes, this is good. And with that, a lot of those condo complexes were dishing out tens of thousands, hundreds of thousands of dollars to repair the condos. And the balcony repair cost didn't just get pushed onto the owner of that individual unit, got pushed back onto the entire community. So first was, the first hit was insurance rates skyrocketing. Then they had the balcony inspections and repairs. And now it's the increase in reserves and the majority or a lot of HOAs haven't caught up. And of course you still want your assessments to be low because that in itself affects resale. And now, Michael, for you, you know, okay, a condo is $500,000, great. But then when you tack on a thousand dollar HOA assessment, that drastically reduces purchasing power for a buyer. So all of those things stacked on top of each other, I think it's going to hit the market, the condo market, for a lot longer than 12 to 18 months. 63 00:24:15.000 --> 00:25:18.000 Yeah. Why is this important? It's important because when you have a young family, the starter home was buying a low cost of entry. It's a condo. It's, hey, I'm going to live here for two to three years, build some equity, and it's going to be my down payment to get the yard when I start having multiple kids. Okay. And so what we need to be cognizant of is we're going to need to increase that time horizon where yes, it was almost guaranteed that you were going to get enough equity in three years to be able to sell that property with your agent, take that and use it for a down payment. Now we need to be probably stretching that out from probably five to seven. And so that's where location is going to matter, school is going to matter, all those things. But the dust will settle like it always does. I mean we've been in this industry long enough to know like ultimately it all kind of evens out. It's just how we're educating, you know, what's being done. But that's where it's really important is this is really factoring in. You know, San Diego is already really expensive market and condos are a lot more affordable and it's just going to need to be a little bit longer of a horizon. 64 00:25:18.000 --> 00:25:33.000 But even now you look at some of the new development coming in and they are planning to developments that for lenders purposes and correct me if I'm wrong, I think they're still categorized as condos. Even though they might be a townhome or completely detached, technically they're still categorized as condos and you're still going to run into the same issues. 65 00:25:33.000 --> 00:27:10.000 Yeah, this is all for attached property. So you have like detached condos and like Shannon's in an hoa. Like those are puds. Those are completely different. Right. These are attached walls. Right. Anything over 10 units. But there are ways around this, guys. So. And this is really where it's so important to have a good agent and a good lender because we are never going to put a client into a home that we would do for ourselves and put our family in. And so if the reserves are way short and we ask the hoa, is there going to be a special assessment? We want to calculate that. But let's say this is a reasonable non warrantable situation where the reserves are just under, but it's still okay. You can put 20% down, the interest rate is not that much higher. But if the, but if the reserves are low or the insurance is a little bit under what Fannie and Freddie would allow, you can do non warrantable financing. It's a 30 year fixed loan. The only caveat is you're going to have to put at least 20% down to get approved. So it's called non warrantable financing. It's a scary word. It's not, it just means that it's not going to a Fannie or Freddie loan, but it is like a 30 year fixed investor that will take a look at what the issue is. And guys, 99% of the time, if a lender is willing to take on a non warrantable, you're probably safe, we'll look at it. But the lender is insuring 80% of that unit. They're not going to do something to put themselves at risk. And it's our job to have empathy and to look at it and to make sure that you're safe and okay. But most of the time, if you're not getting financing and non warrantable, get. Don't buy that, 66 00:27:10.000 --> 00:27:12.000 don't do it. True. 67 00:27:12.000 --> 00:27:13.000 Yeah, yeah. 68 00:27:13.000 --> 00:27:15.000 If no one will lend you the money, you shouldn't buy it. 69 00:27:15.000 --> 00:27:40.000 Should not buy it. And I get it too. And there's some really bad agents, guys that don't care about that stuff. Stuff, they just care about the commission. Oh, but it's the perfect unit. You know, it meets. And again you guys have all the stuff with, you know, the square footage and the bathrooms and the bath and the kitchen and, and that all meets the needs. But having a good agent, that's like, hey, I wouldn't put myself in this shoe. This position goes a long way. And I don't see that, I don't see every agent doing that right now. 70 00:27:40.000 --> 00:27:42.000 No, you don't see it enough. It's sad. 71 00:27:42.000 --> 00:27:43.000 Don't see it enough. No. 72 00:27:43.000 --> 00:27:49.000 I think on the flip side, I, I'm probably too straightforward on that and being like, hey, this is not a good idea for you. 73 00:27:49.000 --> 00:27:51.000 You should not be buying also don't buy that. 74 00:27:51.000 --> 00:28:00.000 Oh yeah, I think that goes a long way. And there, and there are buyers that are like, no, I'm gonna buy the helmet, I'll find a way. And man, it's just, it's an awkward situation. 75 00:28:00.000 --> 00:28:24.000 A little bit of background we've touched on in the past, Michael. I think we talked about it before even we started. Shannon and I grew up in

Temecula before the crash. And all of our friends were like, all of our friends, parents were buying massive homes, the boats, the RVs, the four wheelers, all of that. And I was like, wow, everyone's rich, this is won. And I remember coming back from break from college and it's like, wait, why is everyone's house for sale? 76 00:28:24.000 --> 00:28:27.000 Which would have been like 2000, end of 2006. 77 00:28:27.000 --> 00:28:53.000 Yeah. So 2006 we left for college 2000, like 8, 9. Everyone was getting foreclosed on. So that's a lot of the experience I had at a young age. And through, you know, experience, academics, whatever, I really spent a lot of time researching that. And yeah, like, so many people should have never bought those homes. Someone should have said, this is a bad idea. So I think I probably went a little bit too far that way. And I do tell people like, you shouldn't do this. 78 00:28:53.000 --> 00:29:47.000 Can I bring up a tangent? I'm reading this book right now. It's called Same As Ever. And I love what you said, Daniel. And it talks about how Post World War II, in the 50s and the 60s, people were at their peak happiness. The income, lower income, the high income, it was all pretty much the same. Right. So people owned a home, they had the same medical it. There wasn't a competition in keeping up with the Joneses. It didn't really start until the 80s where you had these people that were like, I need to buy nice things. And the wealth gap really spread. And social media today is the worst thing because you see people that buy the boats in your face or the big house and they put themselves in a position that they're just trying to keep up with the Joneses and they don't have the finances in order to do that. And so it's really interesting when you look back in time Post World War II, when the military came back and the VA loan came through, that was like. I don't know if you ever talked about your parents parents, but like, that was like peak happiness. So I'm not saying, like, you know, 79 00:29:47.000 --> 00:29:48.000 we're far from it now. 80 00:29:48.000 --> 00:30:19.000 We're not, we're not living in the 50s and 60s. But I share that because it is important. What you're saying, Daniel, is especially in social media, you see these people that are buying all these things and you're like, how am I doing it? Am I not doing enough? And it gets into that depression and it's like, here's my thing. There's anything that makes me different as a lender. I'm looking at your finances and I'm trying to help you set yourself up for success. Is there going to be uncertainty on what this house is going to appreciate or depreciate? Yes. But I'm not going to put you in a position that you're going to feel financially strapped. 81 00:30:19.000 --> 00:31:02.000 And we have a large property management division of the company and we have, we manage a lot of very nice new homes, like very high end luxury homes, you know, 20, 30, 40,000. I think

our highest one's 120,000amonth. And you look at these homes and the people that rent them, and there's two different components. One is like, it's renting the dream, right? You could buy. You could rent a home, let's say a $20 million home for a fraction of what it would cost to own it right now because of interest rates or a bunch of other things. But then you have the people who are renting those $20 million homes. You look at their finances. You're like, you're living month to month, like, we can't accept you for this. And their response generally is, if I. Well, if I had the money, I would just buy. And it's like, well, you're never going to because you're spending every dime every month. 82 00:31:02.000 --> 00:31:03.000 Yes. 83 00:31:03.000 --> 00:31:05.000 And it's a hard conversation. 84 00:31:05.000 --> 00:31:35.000 When I entered this world with you four years ago, that was the biggest eye opener in the beginning. I was seeing, you know, the applications and stuff and the difference in everybody's financial situation and their comfort with debt and credit. Like, I just was blown away at how a lot of people are managing or mismanaging their money or don't even have the money. Like, it's just shocking because I live in my little bubble, right? And this is how we do things. And the keeping up with the Joneses is insane. 85 00:31:35.000 --> 00:32:45.000 We take for granted. We take for granted. Shannon, your expertise, Daniel's expertise, People take that for granted. Why? Because my parents and my parents. Parents, they were okay with renting, right? That was what they did. That was just how. That's how I grew up. And so of course, you're an agent. Of course you're going to tell me now is a great time to buy. There's nothing wrong with renting, but what are you doing to invest into yourself, into a situation where you're gonna retire and be able to have the life with your grandkids or have the life that you're looking to do and not feel like you're living paycheck to paycheck. What a really stressful life. But they don't. They don't know any better. They haven't been educated, or they think that agents and lenders are in their ear because that's what our commission relies on. And it's like, there is nothing wrong with renting. I had someone that I told the yesterday, like, you're. You're better off renting right now. You're. They're doing a great job. They're Investing into their 401k invest into something. But for a lot of people that you know are in the same boat, Daniel, thanks for bringing that information up. Is like, that's just the mindset that they're in. Did you know over two thirds of your net worth is tied up in real estate? 86 00:32:45.000 --> 00:32:50.000 Two, two thirds. You know that forced savings, huge savings. 87 00:32:50.000 --> 00:33:23.000 And you know how much more a homeowner's wealth is compared to a renter? 44 times. 44 times. And so again, homeownership isn't for everyone. And it's almost becoming more of a luxury, you know, than the American dream. And I'm helping combat the affordability issue with down payment assistance or with strategizing on seller concessions. But it is a mindset and the ones that are coachable and see the benefit and can see it through, they are going to reap the rewards. You're just not going to see it right away. We're such a culture of like, I need the instant gratification immediately. 88 00:33:23.000 --> 00:33:54.000 Something that more people are starting to talk about is still very, very little is renting your. Your personal home and then buying investment properties. So the home you live in, you're renting, but then you're investing in real estate elsewhere. And I think that's such a clever way of doing, especially if you live in like Southern California, super high value states, expensive states. You rent your home in the beach in California and you start investing in Arizona and you have kind of best of both worlds. But I don't know, think enough people. No, think about that. 89 00:33:54.000 --> 00:33:58.000 Did you buy your first home as a primary or did you buy it as an investment, Daniel? 90 00:33:58.000 --> 00:34:02.000 My first home was an investment. I was renting on the beach and I invested in Las Vegas. 91 00:34:02.000 --> 00:34:05.000 Oh, nice. Okay, so you went out of state more. 92 00:34:05.000 --> 00:34:06.000 Better. 93 00:34:06.000 --> 00:34:07.000 Better. 94 00:34:06.000 --> 00:34:08.000 Lower barrier. Barrier to entry. Great for you. 95 00:34:08.000 --> 00:34:09.000 Yeah, absolutely. 96 00:34:09.000 --> 00:34:18.000 Daniel bought investment properties and house hacked up until nice. Up until there was a counterpart. Yeah. But if people know what house hacking is. 97 00:34:18.000 --> 00:34:19.000 You want to talk about that? 98 00:34:19.000 --> 00:34:22.000 Oh, we've. Have we done a deep dive on house hacking? 99 00:34:22.000 --> 00:34:23.000 I don't think so. 100 00:34:23.000 --> 00:34:26.000 Did you? You knew you were house hacking when you did it. 101 00:34:26.000 --> 00:34:30.000 Yeah, absolutely. So I bought a four bedroom house, actually. Shannon helped me buy it. Four bedroom house. 102 00:34:30.000 --> 00:34:31.000 Oh, wow. 103 00:34:31.000 --> 00:35:02.000 Walk off the beach in Huntington beach. And I had three roommates, funny enough, I actually just went to one of their weddings in France last year. Yeah. So great friends. Not all of them were always wonderful, but the last three guys I lived with are still great friends of mine. I was living from free. They were paying my Rent and it was an awesome experience. Still owned properties out of state and yeah, I, I rented. My first few purchases were all rentals and and bar later was my first actual personal purchase. 104 00:35:02.000 --> 00:35:15.000 That's one of my favorite things about you was like during that time you were building businesses, you were hustling, you were far ahead of everyone else our age and I knew you were success wise

but the reality was you were living in a townhouse with three other dudes. 105 00:35:15.000 --> 00:35:16.000 Yeah. 106 00:35:16.000 --> 00:35:35.000 You never, yeah, you knew what you were doing early on. And when we have touched on this a little bit, that all shifts when you get married or when you have kids. Right. Like you can't house hack with a family of four in the primary bedroom. But you were doing that very early on and not the keeping up with the Joneses type approach to what you were doing. 107 00:35:35.000 --> 00:36:04.000 Michael Something I learned too late in my investing in Vegas is that while there was obviously especially after the crash, a lot of defaults on the hoas and then a lot of investors were going in. So I actually had trouble selling some because too many owners were in default or too high of a percentage of the owners were all investors and without them being primary residence or owner occupied. And I had trouble where some of them only were cash deals because there would be no one to lend on them. 108 00:36:04.000 --> 00:37:16.000 Yeah, the single entity percent ownership that's actually gone away luckily for the investment side but the delinquency is bad. But I want to touch on what you talked about Daniel because someone hearing this is going to be like wow, I can have people pay for my mortgage. Not in this market. You're going to buy a single family home. I'm sorry, you're going to buy a one unit property. Let's, let's say you buy a duplex. That other rent income is not going to cover all of your mortgage. And so what I tell people is ultimately at the end of the day your intention is to live in the property for a year. Just live in it for a year. You can put 3 1/2% down on the multi unit, you can put 5% down with conventional and then ultimately you can rent that property out. But for the economies of scale people look at like I want to buy the multi unit because I'm going to have more renters and more income. You want to be smart with how obviously you like, you know you're doing that and it can be done successfully. Just be cognizant too that like hey, it's going to help pay for the mortgage. Paint it, it's not going to cover everything. Like, it's a different market now. But, man, I tell people this all the time. It's like, if you think prices are expensive now, what do you think's going to happen 10, 20 years from now? 109 00:37:16.000 --> 00:37:18.000 And look at what they were 10, 20 years ago. 110 00:37:18.000 --> 00:37:25.000 Yeah. Like, Daniel, when you bought that unit, like, probably felt really expensive. Like you were taking a risk on that. And so I tell people all the 111 00:37:25.000 --> 00:37:29.000 time, like, comfortable, not that Vegas one. 112 00:37:29.000 --> 00:37:49.000 Yeah, you're. You're just, you're always taking a risk. You're taking a risk, not making a decision. Right. Ultimately. But that's a cool story. You know, you're putting your money where your mouth is. You're. You're a real

estate. You know, a lot of agents don't own their homes, which is fine. But you know, if you're gonna preach something, you know, I, I would hope that you kind of have your feet wet with what you're preaching. 113 00:37:49.000 --> 00:38:01.000 And at no point ever did I need that income to be able to afford the home. I just use it as a, as kind of a bonus. And also too, I didn't want to live alone. Had those three guys are some of my best friends. 114 00:38:01.000 --> 00:38:04.000 You were emotionally house hacking. 115 00:38:04.000 --> 00:38:30.000 But to your point, Michael. Yeah. Once you go up to 2, 3, 4 units, there's more of an opportunity. Economies of scales. There's also some downsides of it. But once you hit five and now you're a commercial loan, now you're putting 50, 60% down. That's a whole different beast. But across the board, there's opportunities. There's good ways of finding great opportunities. With the right team in place, a lender such as yourself, an agent such as Shannon, things could happen and. But you need the right team to be able to put it together. 116 00:38:30.000 --> 00:38:51.000 I have a kind of. This question popped up a little bit ago, Daniel, specifically with the property management portfolio and then investors that own condos. Is there a level of education that needs to happen? Do you think they're aware? It's obviously going to impact their overhead, which will then impact rent. Like, what is the strategy there? Just educate and decide or. 117 00:38:51.000 --> 00:39:07.000 Well, I think the biggest thing is education, but a lot of it's the uncertainty, and that's, that's where the difficulty comes in. Like, for instance, we had one of our clients owns in a condo complex in San Clemente. It was actually on the news that just hit the owners with like a $27,000 special assessment. 118 00:39:07.000 --> 00:39:08.000 Oh, I saw that. 119 00:39:08.000 --> 00:39:37.000 Yeah. So our client freaked out. Like, that's his profit for many years or when the assessment or the. Yeah, the normal monthly assessments go from 400 to 800. That's on a percentage basis, sometimes the entire profit. So it gets really difficult at that point. It doesn't make sense to own those homes because now you still maintenance, you have everything else on an ROI basis you've gone to zero or negative. So investing in condos wasn't or isn't what it once was. 120 00:39:37.000 --> 00:39:54.000 If a homeowner owns a condo and then they get hit with this special assessment and they don't have the funds for the special assessment, are they able to sell it and then just pay off the special assessment in a lump sum during escrow out of the equity of the home? Is that. So that's a strategy too. But then you have to sell your 121 00:39:54.000 --> 00:40:06.000 property, you have to sell it and also to your a bit of blood in the water with buyers because they know you got to sell. I mean, yeah, it's not easy. It definitely complicates the transaction. 122 00:40:06.000 --> 00:40:18.000 So overall, how do you see what are both of your predictions on a short term and long term for the owners that are in these less than exciting condo scenarios? 123 00:40:18.000 --> 00:41:06.000 For me I would look at the health of the condo and all condos are the same, right? Are you on a two story condo or are you on a seven story condo? How many units? You look at the health of the condo, the age of the condo, the hoa, who's running it and really understand what your potential risk and liability. If it's low, business as usual. If it's high, you really start thinking about if this is going to produce what you're looking for it to produce over the next few years. I think as with anything else, the free market will adjust over time. I think it's going to take quite a few years and hopefully the government doesn't come up with anything else that makes it even more difficult or unpredictable. But I think it's going to be a few years of pain and depending upon the, the, the building it could be really rough for some people. But over time it's going to go back to normal. I just don't know what that time 124 00:41:06.000 --> 00:41:08.000 period looks like, what normal will be. 125 00:41:08.000 --> 00:44:12.000 I would have a growth mindset in the sense that if I was thinking about selling my condo in the next couple of months or a year, get involved with the hoa, talk to them, go to their meetings. Right. If you want to make changes like get involved, right. And just have that like education type mentality where like I just want to get Educated, like, I just want to see how it's being ran. Take that back into the marketplace, I think is going to go a really long way for you. Here's the sad news, guys. Like, there are people that ultimately need to sell. They don't have a choice whether it's they can't make the payments or they're going through a divorce. Like, am I saying don't buy a condo because of all these rules and everything? Like, no. My gosh, could you imagine buying something 10, 15% undervalue? I just think the approach ultimately for a buyer is I'm going to buy this and hold it for at least five years. What is the. What do those numbers look like for me? And then if I'm a seller, I'm asking those four questions and I'm getting a part of the the board. And if it's a situation where I'm like, holy smokes, you know, what does it look like to potentially rent out the unit? And what would it rent cost if I got out of this complex and I needed something else? The problem is, is rent is so expensive, I'm guessing eight times out of ten you're probably in a better payment, even though it's not ideally what you're looking for with owning your unit versus. Do you know what I'm trying to say? It's like, well, I'm not going to sell now because I'm selling at a distressed amount if I see all these issues that are coming up in the hoa. So I'll rent it out because there's no issue. You own it, you can rent it out. Right. And

then I'll go rent somewhere else. The problem is, is like, what is that spread? And I wanted to bring up this, my last point. Do you guys know what dollar cost averaging is basically like S P 500. Let's say I give you $10,000, Shannon, instead of you vesting $10,000 at once, you're going to put a thousand dollars for the next 10 months. So days that are good, great. Days that are bad, not as bad. When you put a lump sum in, that's going to fluctuate a lot more. When you dollar cost average, it's a slow play. So I'm telling buyers right now is this. If you're like, hey, my mortgage payment's 6,500, but I can only rent this thing out for 4,000, that's okay. It takes time for that to catch up. And so your dollar cost averaging real estate, you're putting money into real estate, are you at a loss? Yes. Would investors say that's a terrible thing to do to operate a home at a loss? Absolutely. But also look at the tax savings and look at the appreciation growth over time and having someone that's going to pay off your mortgage and that principal reduction, there's also that side of it too. And it is hard to find a property right now unless you're putting 40, 50% down, that's going to rent out for what the mortgage is. I mean that's okay. Like it, it's rent over time will go up, but your mortgage payment is ultimately fixed and the worst case scenario is you refinance when hopefully interest rates drop. 126 00:44:12.000 --> 00:45:00.000 So in regards to that, for the sophisticated investor, even now with, with where AI is at, you could do something called an internal rate of return calculation which will take all of those things into consideration. It's going to take the monthly or the annual income discounted against risk. It's going to take the expected sales price, it's going to take into consideration the cash, the cost savings for taxes from depreciation, everything else. And it gives you an actual rate of return, the internal rate of return, not just a simple cap rate calculation. And that's how sophisticated investors evaluate these, these investments. So while you don't want to be negative on a month to month basis, when you look at the actual irr, that tells you real return relative to risk, depreciation, everything else. 127 00:45:00.000 --> 00:46:00.000 I had a investor, they're buying a nine unit property which we can do up to 10 units and he's underwater. But with Donald Trump allowing for cost segregation and bonus depreciation, he's like dude, this is a six figure tax write off on my active income. So he, he's okay to take a little bit of a loss on the economies of scale, like what is mortgages versus what the rents are now. But he'll invest in it, he'll get the market rents. But it's that tax benefit that I think a lot of people forget about. Like, like the salt thing was capped at $10,000. That's like your property taxes all in. If you had a million dollar house, you couldn't write off more than 10,000. Well that just increased to 40 grand. And that's a lot. Your mortgage interest, your property taxes, all those things really help from a tax standpoint, especially if you're an investor. If you buy a house, rent it out down the road and that's all long term plays and the ones that are coachable and can think that way are going to survive. 128 00:46:00.000 --> 00:46:30.000 And do well, another component to that, and it's a slippery slope. But let's say you're even breaking even on a property, and this is where it's a slippery slope. At the end of the day, you have tenants paying for your mortgage. You have tenants paying to pay down your principal on the property, to pay your taxes, to pay everything while you have appreciation and a tax deduction. It's not always the case, and there's some nuances there, but even if you're breaking even, you have a tenant paying for your asset, and that's dollar cost averaging. 129 00:46:30.000 --> 00:47:15.000 It takes. You're basically taking. It would be no different than Shannon putting a thousand dollars a month or being a thousand dollars short on my rent to what my mortgage is. You're just. You're paying that anyway. When you own a stock, stock spawns real estate, right? You're paying monthly out of pocket for something. But with real estate, you have the power of leverage and you have the power of the tax break. 65% of people right now think it's better to own stocks than real estate. Hear this example for me. Easy Math. Take a $400,000 home, okay? Let's say I do 10% down. I'm putting 3% appreciation on the $400,000 home. That means I put 412 down. Well, I only put 40 grand down. What's $12,000 divided by 40 grand? 30% ROI. 130 00:47:15.000 --> 00:47:16.000 Yeah, well, it's because you have leverage. 131 00:47:16.000 --> 00:47:34.000 You have the power of leverage. And people forget about that is, oh, my home grew, you know, 3%, which, I mean, 3% on a million. I mean, the numbers can be even crazier. I'm just talking. We're talking condos. I'm just starting 400,000. If you put 10% down and it just increased 3%, you just meet a 30% rate of return. 132 00:47:34.000 --> 00:47:36.000 You're investing with other people's money. 133 00:47:36.000 --> 00:48:01.000 It's the power of leverage. And I don't think a lot of people see that. They just see, like, you know, oh, I just got. You're. You're investing in the stock anyway, but you're just. It's just essentially appreciating. There's no tax haven. There's no benefit. There's no roof over your head. And so people Forget that a 30 rate of return on just a 3% appreciation, unless Bitcoin, but that's a risky asset. I don't know. You don't. You know what I'm saying? 134 00:48:01.000 --> 00:48:02.000 That's a whole other episode. 135 00:48:02.000 --> 00:48:03.000 Yeah, yeah. 136 00:48:03.000 --> 00:48:18.000 But you know what I'm saying. So the ones that are saying stocks are better than investing, I would love to compare that. Yeah, there's a mortgage, it's going to be higher. But your ROI is

actually better in real estate than it is investing in the S P 500, which most people do. 137 00:48:18.000 --> 00:48:20.000 No, it's all relative to people's positions. 138 00:48:20.000 --> 00:48:21.000 Yeah. 139 00:48:20.000 --> 00:48:59.000 Because like you, you could say the same thing on even stocks. You could invest on margin. Super risky. If the market turns against you, you're getting a capital call and you better hope you have that money. But it's all relative to people's positions. Like, I just saw a deal the other day in Laguna beach. It sold at like 1.07 cap rate. And I'm like, like what? I talked to the broker, he's like, yeah, the client was all cash. Had like, wasn't worried about the money, just needed to park the money somewhere and they were fine with it. I'm like, okay, yeah, that makes sense. For other people, it's like, why would anyone buy it at 1.7 cap? It's because they're buying on the beach in one of the most desirable cities in the country. It's only appreciating. It's safe money. It's a safe investment. 140 00:48:59.000 --> 00:50:31.000 Yeah. And that's the people. People say like, well, the incomes aren't keeping up. How can, seeing you how San Diego home prices continue to go up. This is what I say, when, when our times on this earth are done, San Diego will still be a demanded city. You can't build west, you're going to be in the ocean. You can't go south, you're in Mexico. You can't go north, that's Camp Pendleton. You can't build east, that's uninhabitable. San Diego will always be a limited supply market. And when you have limited supply versus the amount of people that are wanting to buy, prices aren't really going to fluctuate as negatively as you think they will. So could there be a small correction? Absolutely. Is it going to be anywhere near the housing crisis? Absolutely not. Those were completely different times. There were terrible loans that people did not understand. This is a completely. The, the 10 year yield is the highest, almost the highest since 2002. And it just passed 2007. And we all know what started in 2007. It's a completely different market. And people that are going online right now and seeing all those headlines, it makes our job hard. Right. Because that's media, that's drama. They, they eat that. They, they Suck that up. So it's, it's all relative and I take empathy but it is a completely different market in a completely different time. And if you're coachable to at least talk to an agent and talk to lender and just know that they are looking out for your best interest and not trying to tell you that it is a good time to buy and if it's not, they'll tell you take that risk. Talk to someone that is trying to help you retire and build wealth. 141 00:50:31.000 --> 00:51:02.000 My biggest takeaway is get educated. If you're in the price point where you're going to be buying a condo or you own a condo, do some research, contact Michael Stowers, contact Daniel myself. Get educated. Learn. Understand what's going on so you can plan and you can have a course of action as you go into that next sale or purchase. And I want to ask each of you if you how are you feeling about what the 2027 market's going to be like? If you had to sum it up in one or two words, your prediction, what would it be? 142 00:51:02.000 --> 00:52:50.000 Typically is always slower in the winter season. People don't want to move because the holidays it's going to be even slower. Sales are going to be down even more. For interest rates to come down, we're going to need some help from the treasury to buy mortgage backed securities to keep that in. I think the government will always come in to save the day. I don't think we'll be in a position where interest rates are super high because we have to repay that debt and we're already in a crap ton of debt. So higher interest rates do not make that any easier. I think for loan programs right now, if there's two, I'm looking at I think adjustable rate mortgages. I know that word sounds really scary because they didn't have caps on it in 08 when the housing crisis happened. I think ARM rates are a good product to look into. They're very low introductory rates right now and that is going to be fixed from anywhere from 5 to 10 years and how it adjusts is a very stable type of situation than it wasn't in the past. So I think look at ARM rates, if that applies for your situation and then temporary permanent buy downs, you know, being able to ask the seller to get a credit to lower my interest rate, that's going to be really good in this market. Are we going to see 3, 2 to 4% interest rates in our lifetime? I don't think so. I think can interest rates get to that 5% level. Yeah. Is Iran and US going to come to an agreement anytime soon? No, this is not a political stance, but the nuclear situation is really what we're trying to dry them out, economically speaking, like destroy them because they're not a safe country and that's not political. And so when will that time come? That's when there is an agreement that is put in writing. When the Strait of Hormuz, which covers over a quarter of the world's oil supply, when that starts to come back down and barrels become cheaper, interest rates will follow suit with that. 143 00:52:50.000 --> 00:52:51.000 That. 144 00:52:50.000 --> 00:52:52.000 Daniel, what about you? 145 00:52:52.000 --> 00:52:55.000 Well, the two words that you gave us, I would say slow and steady. 146 00:52:55.000 --> 00:52:56.000 Slow and steady. 147 00:52:56.000 --> 00:53:56.000 Slow and steady. Yeah. I think some people are being forced to make life decisions, whether it's divorce, kids, whatever. And they're going to have to change homes, move promotions, relocations. It's going to happen. So that'll still have a solid flow on transactions. Boomers aging out of their homes. People have been talking about that silver wave for a long time. It hasn't really come to fruition yet, but I think it will start trickling

through. The number of the baby boomer generations going from two and three story homes, needing one story homes. It's only going to continue increasing on the economic side for fiscal policy with the treasury, monetary policy with the Fed, zero control over that, contrary to Michael's opinion, I do think we will see 2, 3, 4% interest as in our lifetime. Hopefully we live long. And I think it's certainly possible. I think saying that we won't see something again over the next hopefully 70 years, I think is unlikely. 148 00:53:56.000 --> 00:53:58.000 You being hopeful or realistic? 149 00:53:58.000 --> 00:54:18.000 No, realistic. But granted, like it's those black swan events, right? It happens. We can never predict it. And the likelihood of it, when it does happen, it'll probably be catastrophic for a catastrophic reason, across the country, the world, whatever. But I think those things could happen again. Oil prices, buyers do not. 150 00:54:18.000 --> 00:54:21.000 That doesn't mean sit around waiting for that moment to happen again. 151 00:54:21.000 --> 00:55:28.000 No, no. And mind you, the last time that happened was after Covid. The world shut down. Like it counterbalances. Right. The Fed has monetary policy to stabilize the U.S. economy as one of their primary mandates. Likewise with employment. So the Fed wants to see roughly 2.2% inflation rate. They want to see employment at at 3%, which is relative to full employment. According to the government. They're looking to stabilize the economy relative to what they think is healthy. So while interest rates. So for instance, as gas prices go up, the. You would See a normal inverse effect on the economy. Gas prices go up, people decrease, their spending, inflation drops. That's not happening. We're seeing inverted yield curves and no one even caring about it anymore. There's a lot of first times happening, and we're all just kind of learning as we go. But I do think there's a likelihood of interest rates dropping that low again. I wouldn't say anytime soon. And if it does, especially soon, it would probably be because of a absolute, like, economic meltdown across the world. We'd be in a lot more trouble. 152 00:55:28.000 --> 00:56:22.000 Regardless, interest rates stayed too low for too long. We were at a 0% fed funds rate. They were buying bonds artificially. And the reason why interest rates are as high as they are and they've stayed high as they are is because interest rates should never have gone that way low. Did we enjoy those times? Absolutely right. But that it should have never, ever have gotten that low for that long. And so you have clients that are like, all the time. Shannon. It's like, I'll wait for interest rates to come down there. It was a 5% handle at the beginning of the year for two days. So it's like, I remember people forget, like, oh, I'll wait for interest rates to drop and then they'll get in the market. And it's like, okay, well, that. That's gone. Like, it. It changes. So, like, if you're buying based on rate, you're chasing your tail. That's a terrible way to look at something. And no offense, if you're trying to buy based on rate, you're not a serious buyer. No offense. 153 00:56:22.000 --> 00:56:23.000 That's a good way to put it. 154 00:56:23.000 --> 00:56:24.000 I'll say that. 155 00:56:24.000 --> 00:56:32.000 The simple way of saying is like, don't chase the market or don't try to time the market, whether it's real estate, bonds, equities. Like, you can't time the market. 156 00:56:32.000 --> 00:56:33.000 No. 157 00:56:33.000 --> 00:56:42.000 Yeah, you can't. And the government's going to do what the government does. But. But, yeah. The tale is oldest. Time buy when the numbers make sense for you. 158 00:56:42.000 --> 00:57:28.000 Okay, we're gonna wrap this one up. Thank you, Michael, so much for joining us and sharing your insight. We're gonna put all of your information in the description so people can reach out to you directly for any sort of advice. Lending needs, things like that. And as always, you can reach out to Daniel and myself. Some people have. It's been really fun. Like, subscribe, do all the things. Things. We'll see you guys next time. That's a wrap on this episode of AllView. 360 All Things Real Estate if you found this helpful, don't forget to subscribe, leave a review and share it with someone navigating their own real estate journey. Connect with us anytime on Instagram @AllView360 and on LinkedIn @AllView Real Estate. Until next time, stay curious and keep your perspective. 360.