Discover what you need to know and what to watch out for so you can make 2024 your best year ever. We'll cover all the hot topics; the economy, interest rates, the upcoming election and how they will impact flipping houses, owning rental property, creative financing and so much more!
Real Estate Investing in 2024
Phil: I have my senior leadership team here with me today, Brian and Devin, welcome to this 2024 talk on real estate investing. Thanks for being with us. First, for those of you who don't know who Devin is, we have a great video that introduces this senior leader of our team here: Introducing Devin Sheehan - Apprentice Becomes Mentor. And Brian, another senior leader, if you don't know him, watch this video, Student has become the Teacher – Brian Busch. We'll dive right in, gentlemen. So let's talk about first and foremost, the economy of 2024. Devin, we'll start with you. What are your thoughts on the economy?
2024 Economy
Devin: This is a big topic, Phil. People talk about a future recession. I would argue that we are in a recession right now. People just haven't seen the impact of it just yet, but when you look around at the cost of gas and groceries, people are having trouble putting money together for themselves. I think we're in a recession and it may get a little worse as we continue into 2024, but it may pull back a little bit as we get back to the presidential election to stabilize things.
Phil: What are your thoughts, Brian?
Brian: I absolutely agree. To say we're not in a recession would be a stretch. Everyone's feeling it in every realm. I think the presidential election that you mentioned is really the big one. We're going to see a focused market, to the extent that no one's going to do anything too drastic. They're focused on the election; they certainly want to make it look as good as possible. So I think that's going to add a little bit of stability amidst it's already difficult.
Phil: What I find humorous is the definition of recession. They continue to change it depending on what their objective is. So we're already in a recession. It appears that's going to continue through 2024. What does that mean for the real estate market, Devin?
2024 Real Estate Market
Devin: Each market across the country has its own niches, but when you look from a national perspective, I think it's going to stay stabilize just because of the lack of inventory. When you look at homes that are on the market right now, the inventory is so low in most markets that there's still multiple offers on these properties. So I think the inventory limitations and how small the inventory is, I think the market stabilized. COVID drastically increased price points, but we really haven't seen them come down that much.
Phil: Absolutely. That is definitely at the forefront. What are your thoughts, Brian? Anything different as it relates to the real estate market on a macro scale?
Brian: No, I think Devin's spot on there, the lack of inventory is going to continue to drive things. There's still plenty of demand and therefore prices, everyone's making adjustments and doing what they can. But I think it is very much as you said, specific to the area located in. So we all have to dial that in according to where we're doing business.
Phil: We also need to consider not just the overall market, but the individual price points too, right? Because if we're talking about a house that sells for $800,000 to $900,000 in a market that has an average sale price of $250,000, that's a real stretch for a lot of people. I also think that we see where the inventory levels are lowest in most markets. As you get lower and lower down the price point scale and then the builders and all the new construction tends to be in the higher price points. So there is more inventory there. For those that are diving into real estate in 2024, another key component is the look of inventory for each individual deal someone's considering. How many other properties are on the market that are in a similar condition, similar price point, who are you competing against? And if you're competing against almost no one, well then that has more than half the battle. So I love your perspectives on that.
Why is the Housing Market Rock Solid?
2024 Interest Rates
Phil: So in addition to the real estate market, in addition to macroeconomics, let's talk about interest rates. Devin, you're a successful real estate agent and investor, so you see both sides of this. What are your thoughts on interest rates?
Devin: I think initially interest rates really shocked the market. Let's say it usually takes three to four months for the buyer pool to get used to the current interest rate. I think we're going to see the interest rates come back down again towards a lower interest rate, maybe in the mid fives, low sixes, just because of the election to stabilize the current economy. But for a while, a lot of buyers did step out and say, “Hey, I'm going to hold off on the sidelines”. And then it becomes normalized and then more buyers want to jump back in because they want a house. They've been looking, they've been trying for houses. So I think again, to sum it up, interest rates are going to come down. It's not really pushing buyers, it's pushing a certain number of buyers out, but they're still plenty of people bidding on homes, especially as you get to that $400,000 to $600,000 price point and below. There's a lot of people bidding on those homes.
Phil: Interesting perspective. What are your thoughts, Brian?
Brian: I agree. I think there's definitely an adjustment that the market has had to make, buyers have had to make in terms of what they can afford due to the interest rates. I think they're going to come down some as things stabilize, especially this year. And I think overall we see lenders also taking certain moves to relax standards reasonably to try to make sure that it's attainable for buyers to move forward. So I think it's going to remain strong.
Phil: Now it's interesting, my perspective would be, I don't see the interest rates coming down quite as low. I have admitted many times that I'm terrible at predicting interest rates, but I think the Fed funds rate is going to stay about where it's at. I don't think they're going to drop for quite some time. I think the feds are going to continue to watch what's happening. I do think it's going to continue to gradually come down a little more. We hit almost 7% today, and so maybe it gets to 6.5% - maybe. I'm betting more on 6.75%. But this is why I surround myself with such brilliant people, they all have their different perspectives.
2024 Mortgage Financing
Phil: Devin, as a real estate agent, what are you seeing on the lending side that is giving buyers more opportunities than before?
Devin: I think the biggest thing that stands out to me is the 5% conventional on multifamily owner-occupied properties. I mean, before for the longest amount of time it was 15 to 25%. So you're looking at the ability for somebody who may not be able to afford the single family, but the 5% conventional gives them tremendous opportunity to get into a 2, 3, 4-unit property. They’re able to offset their monthly mortgage amount and buy something in the market that we're in, even though the interest rates are higher.
Phil: Yeah, what a great point. A lot of folks may not be aware that if someone is trying to get an owner occupant, move in primary residence loan on multifamily, they now can get a 5% down conventional. In fact, I was debating with Devin on this a few weeks ago when we had talked about this and I said, “Well, why is that any different than an FHA?” Because in FHA, you can get a two to four unit with only 3.5% down. And Devon said, “Well, there's a couple of arguments against FHA. We already know the issue of condition. We know that not every two to four units is going to pass the FHA inspection, but also conventional has higher limits. And conventional is just sometimes a lot easier to get the seller to agree to. It's a much more powerful offer if you're a conventional buyer as opposed to FHA.” So yeah, great points on that front.
Flipping Houses in 2024
Phil: Alright, so now that we've covered some of the bigger, more broad strokes, let's dive into flipping houses in 2024. I think some would look at this and say, wait a minute, we're going into a recession, or we already are in one and we have slightly elevated interest rates, why would now be a good time to flip houses? So Brian, what is your answer to that concern that people have?
Brian: I think there's always a demand for affordable housing. People are always looking for a roof over their head, and on the investor side, I think it's going to be critical that we go back to the fundamentals, that we're really focused on what we have seen tried and true in getting deals done. I think it's going to be an unforgiving market. If you're not focused on those fundamentals, you're going to really pay the price. So I think that's going to be critical.
Phil: So, if someone is using the tactics that worked by sheer luck in 2021 and 2022, those are the kinds of people that are going to struggle in 2024. But the folks that are highly disciplined, know exactly what they're doing, have the right advisory team to make sure they don't make those mistakes; for them it can be a banner year. I read an interesting article related to a big survey from a large hard money lender that just got released related to the sentiment of house flippers. The professional ones across America and more than 75% are extremely excited about 2024 because they feel like there are lower inventory levels, which means it's easier to find a buyer. But they also like the fact that a lot of the competition has disappeared because it's not as easy to flip houses as it was a couple of years ago. So, I'm on that side of things. I'm extremely excited because we've done so well and our entire organization has, especially in the latter half of this year because of less competition, plenty of buyers, and we follow the right fundamentals. We're doing deals. I think there's more of the same coming to 2024, but let's hear your thoughts too, Devin.
Devin: I think one, people forget, and the techniques that we teach, are people are constantly going through life situations, especially as a recession comes about. So there are people that need the skillset that we have to get them out of trouble. They may not have the equity in their property because they purchased it in 2021 or 2022. So we have different strategies that we can deploy that allow us to make money on the backend creatively but get them out of a bad situation. So a lot of people always like to time the market, but you have to understand that again, people are selling at all points of the market. So I think we're going to have a very strong 2024 from an investment side.
Phil: What a great perspective too. I love that you shared the idea that because we're in a recession, there's going to be more motivated sellers. I always think it's hilarious when you have those that complain that the market's low or the market's too high or the market's this at any moment in time. There are strengths and weaknesses to every market condition, but I'm going to lean toward, I'd rather have a 2024 than a 2021 because, yes there's going to be more people in a position where they've got to make something happen and a lot of them are going to look to sell their home as the equity so they can continue to pay for their groceries with the cost of things. That's one of the last bastions of wealth they have left. Love your point there.
Rental Investing in 2024
Phil: Alright, so Devin acquiring rental property. Where do you see the best opportunities for acquiring trophy rental properties in 2024?
Devin: Like I said previously, Phil, on our last video, I like focusing on necessities, asset classes that people need, and the necessity that everybody needs a roof over their head. As debt mounts on the younger generation, they're going to be renters. As buyers feel like the interest rates are too high and they don't want to jump in, they're going to be renters. If people are downsizing and want to put as much money in cash as retirement and savings, they're going to be renters. So, I think that I'm extremely bullish, as I've said before, Phil, on places people need to live. I think there'd be tremendous opportunity. Plus, if you look at from the investment standpoint of who owns these types of properties, the baby boomer generation, there's a ton of them that are going to be exiting and selling these properties, if they're not passing them down. So I think there's a tremendous amount of opportunity for people that have held these assets for a long time and are looking to cash in. And we can put together deals that allow us to win either creatively or buying the deals off market that we can force the appreciation on.
Phil: Now, Brian, when I drive around, whether it's Orlando, Miami, or Tampa, major cities for me in Florida. You're in Texas, driving through Dallas. I'm seeing a lot of development of luxury apartments. So Devin's principles are indisputable, but how do we reconcile the fact that there is more inventory on the multifamily side hitting the market in major cities?
Brian: There may be more inventory, but I'm looking more towards on our side of things; where we have seen plenty of folks that purchased in 2021, their taxes are going up, their insurance is going up, their housing is just not affordable and they're looking for solutions when life hits and they've got to make a move. That provides opportunity for us. It may not be the same amount of equity, but it provides a great opportunity for Subject To, owner financing and other things like that. So I think when we can capitalize on those opportunities, people are always searching for roofs over their heads and whether it's rentals, whether it's these larger highlights, there's just demand. I'm seeing that all over my market and I'm sure you guys are as well,
Phil: And I'm seeing luxury apartments renting for such a higher amount than what most people can afford. And I think it's those developers that put those deals and those developments in place 3, 4, 5 years ago that are now looking and wondering, where are my renters going to come from? Because the renters want to be in duplexes, triplexes, and quads that commercial investors would call class B or class C or even class D properties. And I'm seeing where those luxury developments are not even a competition for investors like us because I'm not going to provide luxury housing. I'm going to provide affordable housing, and that's where I see the most demand and literally no inventory.
Creative Financing in 2024
Phil: You mentioned Brian, about creative financing, or creative real estate. You touched on it just a moment, but where are the opportunities in that realm for 2024?
Brian: I think in single family houses, I think there's again, lots of folks that are going to end up in positions where the rise in taxes, the rise in insurance rates, just the cost of living and the cost of eggs, everything combined is going to make it more difficult. You have folks that are going to have to downsize, get into something more affordable, and that provides us opportunity because we can provide solutions that don't fit for the standard real estate agent.
Phil: And when we say creative financing, a lot of times we're talking about Subject To financing. What I'm excited about is the fact that there's so many opportunities to take over a 4% loan, a 5% loan, when the rental rates are still high, but the debt payments are a lot lower. What are you seeing from your perspective, Devin, on this topic of creative financing?
Devin: Again, it comes back to the point, I think back when we started to ramp up in 2020, '21, '22, people got very low interest rates on their houses. And if they run into life situations or trouble as taxes rise or as their insurance rises, or job losses happen, there is a great opportunity to slide into a very low interest rate and be able to structure a deal that's a win-win for the investor and the home seller.
Phil: Yeah, I've seen it with our apprentices every day with these leads we're looking at. I saw one yesterday in Iowa; the monthly payment (that's taxes, insurance, and the whole nine yards) was just over a $1,000 and it could rent for $2,000. And look, this is in Iowa, we're not talking about a major city here. And you look at that cashflow! Now, yes, that seller was going to expect about $10,000 in their pocket, but still the math on that is beautiful. Give the seller $10,000, you get a thousand dollars a month, you have over a hundred percent cash on cash return in the first year. And there's the instant equity and of course that income is taxed advantaged. So yeah, we're really excited about creative financing around here. But let's talk about some things that aren't going to be working as well in 2024. So Devin, what are your thoughts on short-term rentals in 2024?
Short Term Rental Investing in 2024
Phil: But let's talk about some things that aren't going to be working as well in 2024. So Devin, what are your thoughts on short-term rentals in 2024?
Devin: I think short-term rentals are on the decline. I think they're on the decline because one, they're a very labor-intensive business to manage. You need to be on your reviews and make sure your house looks perfect. I mean, you're competing against hotels essentially, right? And the expectation that the property is in pristine condition is important to the guest. Also, there's so many rules, regulations, and laws that are changing. You’re going to buy something thinking you can cashflow it at a certain level and lo and behold, the next year, the zoning of that changes. So I think it's a very risky investment, even though I own a few myself. I think it's a very risky investment across the board just because of the law changes that are happening and the labor intensiveness of running that Airbnb. I think that's the stage that's going to be set for the short-term rental arena.
Phil: Couldn't agree with you more. The latest statistics in Sevier County Tennessee, which is in Gatlinburg Pigeon Forge area, for the last five years has been the number one highest ROI of any short-term rental market in America. Now inventory levels are up 15% and income is down 15%. That's a 30% delta. The latest news, I just got this from my property manager today, is that Sevier County is going to put in place a licensing requirement for each unit. Which means they're now going to inspect your property. So, if you turn that bonus room into a fourth bedroom, they're going to pull that from you because your septic didn't perk for four bedrooms, it only perked for three. I've been getting texts all day from some of our people that own there and they're freaking out. They're like, “Phil, it's going to kill my income”. And I'm saying, “Welcome to short-term rental investing in 2024”. Ladies and gentlemen, it's going to be a tough road.
Traditional Investing in 2024
Phil: Now Brian, what about traditional house flipping and buying foreclosures? I think people are thinking there's going to be more foreclosures in 2024. Is that going to be an opportunity, or do you see some peril in that direction?
Brian: We may see some foreclosures. I think compared to where we were 15 years ago, it's still a stronger market. You don't have as many folks in terrible trouble. While we may see a rise in some, I think you're going to see a lot of lender programs and other things to try to hedge that. I think we are going to see though, back to Subject To opportunities, where folks don't have very much equity, they need to make a move. Again, going to the real estate agent, paying the standard commissions and so forth doesn't leave them a way out. And so we can provide an opportunity to allow them to move on with life, and a great opportunity on our end because again, we're picking up things oftentimes with the lower interest rates and the rents just keep going through the roof. So it's good for us.
Phil: But Devin, as far as an agent, if you're trying to help someone buy a house on market that they're going to renovate and resell, where do you see that fitting into someone's game plan in 2024?
Devin: This is where I feel like the investor skillset for me and the clients that I work with is a tremendous advantage. I think that a lot of people make the mistake on the ARV (after repair value); really understanding how to compute what that property is going to be worth. I think you get a lot of people that think investing is all about buying on market deals, fixing it up and selling it. That strategy is going to be proven to be very weak here. If you don't understand how to comp the properties out, and if you don't know what the ARV is and have a good grasp of what things cost to get that property to the AR value it needs to be to sell it and make a profit.
Phil: I think that on market deals are going to continue to be a train wreck from an investment perspective. I think there's more demand than there is supply and as more foreclosures hit the market, it won't even make a dent in the demand. And I think if people are buying on market properties, even those that need a lot of renovation, I think they're going to be sorely mistaken if they think they're going to make a lot of profit. From what I'm seeing, if they don't find their deals off market, it's going to be a hard road in 2024. There is just a lot of hungry investors out there willing to push the envelope on how high they can buy a house only to then do everything they can to cut costs. Then at the end of the day, there's still no juice at the end. So yeah, I think it's just absolutely fascinating what you all have shared here. This has been so exciting.
Brian’s 2024 Investing Wisdom
Phil: Brian, do you have any other thoughts? Any last minute wisdom on real estate investing in 2024?
Brian: I would just go back to what we mentioned, the fundamentals. Again, if you got into the market in the last three years, you might've come in and not had to focus on some of these fundamentals. However, now's the time to go back to them because if you will stick to those, really get the core understanding, being able to analyze deals, making sure that you have the right pieces in place, it's going to set you up to succeed.
Devin’s 2024 Investing Wisdom
Phil: Love it, love it. How about you, Devin? Any wisdom for 2024?
Devin: I would probably echo what Brian said there. I think the wisdom that I can give is don't get caught up with trying to time the market. Understand there are strategies for every market and knowing what to do within those markets is what makes us and our students very successful in real estate investing.
Phil’s 2024 Investing Wisdom
Phil: I love it! My advice to everyone is don't make the mistake of being on the sidelines. I saw what happened during the early parts of COVID. It seemed like every investor, every hard money lender, everyone closed their doors. At Freedom Mentor, we didn't. We just kept rolling and boy did we make a lot of money in the second half of 2020! We have stuck by that methodology, as Devin was just sharing, that we don't time the market, we just stay in it and we pick up opportunities before people know it's an opportunity. Trends occur and we live it versus being the one to try to react.
So my big advice is don't be on the sidelines. Get the right mentoring help so you know exactly how to follow the fundamentals and don't time the market. Get in there and get some deals going. It's going to be a big year for us. I know we're going to make a lot of money and I hope a lot of others jump in with what we're doing so they can make a lot of money too. Gentlemen, thank you for being on Real Estate Investing in 2024. I think there's been some brilliant insight.
Every Successful Creative Real Estate Investor Has a Mentor
This is the time to get a mentor and to get going! There's never been a better time to get started. I'm not saying there won't be challenges in 2024, but we'll turn those challenges into more money, and you can too as a part of our team. When you get us behind you, you're unstoppable. Get your mentor here: Freedom Mentor Apprentice Program.
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