BiggerPockets Real Estate Podcast - 736: BiggerNews: Mortgage Rate Mayhem and New Rules That Could RUIN BRRRR

Starting point is 00:00:00 This is the Bigger Podcast Podcast Show 736. Fannie Mae came up with a guideline that said, hey, we're not going to let you refinance anything if you're pulling cash out unless it's been season for 12 months. Now, it used to be six months. This is where that six-month rule that everybody looks into that has to do with like the Burr method and, well, I can't refinance for six months. It's because of a Fannie Mae guideline.

Starting point is 00:00:19 Now they bumped it up to 12 months. I don't believe they've said why they're doing it. My suspicions would be they're trying to make it harder for investors to buy deals because they want home prices to come down without having to raise rates even more. What's going on, everyone? This is David Green, your host of the Bigger Pockets podcast here today with my co-host, Dave Meyer, doing a special edition of Bigger News. As you've noticed, we're in a beautiful scenic place. We're here in Denver, Colorado, bringing you one of the Bigger News episodes where we're going to be covering what is going on in the

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Starting point is 00:03:25 and talking, commenting, and diving into how they can affect the real estate market and our position as investors, Dave. Nice to see you. Yeah, man. That's a lot of fun. First time we're doing this in person. And you're even more handsome in person than you were on camera. I didn't think that it could happen. Wow. It's all this fancy equipment they have surrounding us. Yeah, it doesn't hurt. This is how hard they got to work to make me look good. But hey, I'll take it. I feel like we're going to break something. It's a lot of expensive stuff. Yes, that's true. When you're walking through it, you have that same feeling like you're a grandma's house and you're in the living room where no one's supposed to go. Yeah, exactly. And we look like real newscasters. We've got like our sheets of paper. We need like one of those little ear things that they put in. Yeah, I'll be Will Ferrell and you could be with Christina Applegate. Thank you. All right. Well, why don't we start with the first headline?

Starting point is 00:04:08 What's you got? All right. So our first headline, we need to talk about mortgage rates. I know this is something we talk about a lot, but they've been really volatile. And just for some history here, obviously we all know mortgage rates went up a lot last year. For a while, it seemed like they had peaked at about. 7.4% back in November, and they had fallen down to almost 6%. Now they're back up to almost 6.8%. And a lot of this seems to be because of recent economic data. There's just been a lot of things,

Starting point is 00:04:38 two things really. One, a really strong labor report back in January and inflation data that was pretty kind of ugly and disappointing. And this, to me at least, seems like this is like a green light for the Fed to just keep raising interest rates. What do you think about that? That's what it looks like right now. They're showing fearlessness when it comes to just being willing to continue raising rates. And we know the reason that they're doing that is they believe this is going to stop inflation. That's debatable whether it's going to stop inflation, delay inflation. It definitely has an impact on the economy in many ways. I would expect, and we don't, we can't predict here, we don't know, but I would expect rates to continue raising. And every time that there's anything

Starting point is 00:05:17 less than optimal in the economy in general, and they think that, oh, prices are going to get too high or unemployment is too low, we're going to raise rates to try to turn that around, which obviously affects our position as real estate investors. I think this is something that's very difficult is we typically base our decisions off of a comparable price for a home. And when rates bounce around like this, the value of homes bounce around like this too. It makes it very difficult to just not have a moving target where you can drill it and say, well, this is what a house is worth. Have you seen within the bigger pockets community like frustration or maybe some hesitancy of people to move forward and pull the trigger where before they may have done it when they felt more stability.

Starting point is 00:05:55 I hadn't really thought about that point about the the comping aspect of this, but it does seem like for a while, you know, in January and February, I think we talked about this recently, that people were starting to get back into the market a little bit and people were starting to feel like, you know, inflation was on a positive trend, mortgage rates were trending downwards, but now that it's reversed, I do think there's a risk that there might be some demand pulling back out of the market, at least for the next couple of months. But I don't know yet. I think it's just going to be really hard for people who are new to this to jump in with all of this volatility, because it's up, it's down, it's really hard to get a beat on it. And unless you're an experienced

Starting point is 00:06:36 investor who has been through something like this or just knows your number is so cold that you can be confident whether your mortgage is six and a half or seven percent that your deal is going to work out, I do think there's a chance that people, you know, take a lot of the money. a step back and pause at least till there's some more stability. You know, we were talking before we recorded about what you call the pump and glide method of driving, right, where my Uber driver was making me sick because they hit the gas and then they take their foot off the gas and the car slows down. If you drive like that, please stop. For all of our sakes, just don't drive like that. Well, it made me think that's what the market's

Starting point is 00:07:09 doing is you're seeing like we just had, on the David Green team, we had a really good February because rates had just come down, right? So it was like, well, we're moving forward. And then the rates come up and everything stows. And then it's moving this back and forth. And investors are having a very hard time getting a grip. So what I would expect for maybe at least the near future in 2023 is you're going to continue to see buyers jumping in as a group and buyers withdrawing as a group. And you're sort of playing this game where you're trying to catch the like the wave, right? Maybe you could think of like kinking a hose letting it out, kicking a hose letting it out. And as long as interest rates keep doing this, we probably just have to get used to the fact that this is how the market's going to operate. Totally. I think inventory is going to be kind of the

Starting point is 00:07:48 same way, right? We were starting to see people, more people start to list their property. Because rates went down, they think they could sell for more. So there's just going to be this, like you said, the pumping glide effect. And unfortunately, it just doesn't seem like there's a good line of sight on economic stability. Like inflation was looking good, took a step back. We all thought they're, you know, we're hearing a lot of job layoffs in the job market and tech market. Tech makes up 2% of the labor market. Now we're seeing that, you know, the January labor numbers were actually pretty strong, surprisingly strong. And it just shows. that no one recognizes what's going to happen right now. And we all just have to admit that and expect

Starting point is 00:08:22 some of this volatility. It doesn't mean you can't find deals, but like you should not expect things to be clear, I think for the next at least three, maybe six months. And then hopefully by them will at least know some direction, whether good or bad, like which way things are heading because it's just so murky right now. Yeah. Now, the good news if you're looking to buy in this market is that sellers are filling that same thing. They're putting their house on the market. Then they're hearing the labor report come out. They're seeing interest rates go up. They're also going from greed to fear and they're cycling, right? So if you are in the market to be buying a house, whether you just want to live somewhere or you're looking to invest, you've got your eye on a property, you're waiting on the right time.

Starting point is 00:08:59 I always watch the news and I wait for the doom and gloom and then I go write more aggressive offers. And that's worked for me several times where a seller saw the same news. We're like, oh, Jerome Powell just said, they're taking this thing to the moon. I need to sell now before there's blood in the streets. And then three months later, rates came right back down again. That's very good advice. All right. Well, maybe one day we'll stop talking about mortgage rates, but that's not today. It's giving us quite a bit of fodder to get into, right? There's always some new drama.

Starting point is 00:09:26 Mortgage rates are the Kardashians of the real estate market now. Exactly, they are. Everyone wants to know. But there are other good headlines for us to talk about. The second one today is about refinancing and really will impact one of your favorite strategies, the Burr Method. What happened was on February 1st, Fannie Mae, which is a giant mortgage lender, government-backed entity. updated its eligibility policy for cash out refinanced transactions to require that any existing first mortgage be paid off through the transaction be at least 12 months old as have measured from the note date of the existing loan to the note date of the new loan. So first and foremost, can you just explain what that means to everyone? Yeah. So Fannie Mae, you've often heard the name, Freddie Max, another one. They are, this isn't going to be perfectly accurate, but in general, they are the enterprise that will buy the loan.

Starting point is 00:10:17 loans from whoever your mortgage broker is when you're getting conventional financing. So because they say, well, if we're going to buy a loan, it has to meet these guidelines. Now all the mortgage brokers and the lenders go conform to what those guidelines are so that they can sell to Fannie Mae. This is what keeps what we call liquidity in the market. So if I lent you my money and you just kept it for 30 years on that property, I can't go lend to somebody else. So by lending you the money and then you go sell it to somebody else and Fannie Mae ends up

Starting point is 00:10:42 keep pushing money back in the number when they buy these notes, the government is able to keep rates lower than they would normally be. Even though rates are higher right now than they've been traditionally, they're still lower than what they'd be if we didn't have Fannie Mae. Well, Fannie Mae came up with a guideline that said, hey, we're not going to let you refinance anything if you're pulling cash out unless it's been season for 12 months. Now, it used to be six months. This is where that six month rule that everybody looks into that has to do with like the Burr method and well, I can't refinance for six months. It's because of a Fannie Mae guideline. Now they've bumped it up to 12 months. I don't believe they've said why they're doing it. My suspicions would be they're trying to

Starting point is 00:11:16 make it harder for investors to buy deals because they want home prices to come down without having to raise rates even more. And so this gives an advantage to people that are just a primary residence person who's going to be going in to buy. And there's also probably going to be an element of risk reduction for them because when rates fluctuate like this, it causes a little bit of anxiety in us buyers, but it causes massive anxiety in the lending industry. So they're going to take this loan. They're going to sell this to a pool of people who are going to buy it as a mortgage-backed security, those people don't want to go invest all their money into interest rates at 7% if they think they're going to be at 10% later, right? Or if rates are going to be going to be

Starting point is 00:11:54 going to be going to want to buy more when they're at 7%. So the pricing of these loans bounces around every time that the rates bounce around. All the people that are making loans right now, they typically have about two and a half years before they break even. So if I give a mortgage to somebody, the costs that are included in doing that, I usually don't get my money back for about two and a half here. So they don't like it when cash out refinances or rate and term refinances happen frequently. They want to slow that down. So this is another way that lenders who are actually putting money into the market to sponsor these loans can protect themselves by not letting someone go in, get a mortgage and then refinance six months later when rates are down by a point and a half.

Starting point is 00:12:33 Yeah, that's a really important note because at first my thought was yes. They're sort of taking aim at flippers and perhaps burr. But it also really matters that this is sort of their business. and that they need to make money as well. And so they're probably doing it, I would imagine, some combination of it. So what do you think? Is this going to impact Burr? Yeah, I think this is going to impact where people who are already struggling with Burr because rates were going up and values weren't increasing as fast as they were.

Starting point is 00:13:00 So one of the common mistakes I think people make with the Burr method is they assume they got to get 100% of their money out of the deal and that they have to do it in a six-month timeframe. That's like a grand slam if you can do that, right? When you compare it to the traditional method where you put 20 or 25%, then you dumped another 5 to 10% of the property value in on a rehab, you're looking at somewhere between 30 and 45% of the property's value is invested and stuck in it, right? So if you do a bur and you leave 10% of your money in there, that is still a clear win.

Starting point is 00:13:31 It doesn't have to be 100%. But this does make it a little bit trickier. There's no doubt about that that these lending fluctuations are sort of like, it's like an earthquake and then the ripples go out all throughout the industry, right? But we're having earthquakes like every single time the Fed announces something new. It's like it's going this way, then it's going that way. So there's all these changes that are happening. It does affect probably more burr than flipping because this only is for cash out refinances. This is if you're looking to take more money out of the deal than what you put in.

Starting point is 00:14:03 So a flipper, they're just going to be selling the note. They don't have to worry about a cash out refinance. But it also makes it even more important to pay attention to what's going on in fit. Like I've been saying this is the time in real estate where education, information matters more than it ever has before. For a long time, real estate was just the same thing for years. For decades, it didn't really change a whole lot. And now as we see these changes that are being made at a high level are having massive, massive impact on the way that we're doing business and what we expect home values to do. Yeah. So what do you think people should do? Is there a way to mitigate this or something that you can do to continue to do the birth strategy despite these new regulations? I think it's a way. I think it's

Starting point is 00:14:42 it makes it harder to do the perfect like buy a house cash out refinance get all your money back in six months buy another one that was like a supercharge method that people were like i was doing this to growing your portfolio very very quickly with the same capital recycling it these principles work but you're not going to execute it at the same speed what this really does is it benefits people that have a larger portfolio of properties that were accumulated over a longer period of time so if you bought real estate consistently for the last four or five years you can still cash out refinement refinance the stuff you bought four years ago, get that capital, put that back into new properties, and then refinance the stuff you bought three years ago. It makes it harder for the person who's

Starting point is 00:15:22 trying to get started, right? So the advice that I'm continually giving is one will keep house hacking. Because if you could put three and a half percent or five percent down, you don't need to do the BIR method. There's not a whole lot of money you're having to take out of it. Okay? That's one way you can get your portfolio started picking up steam. And the other one is just to decrease your expectations. The real estate should never be a sprint. It is a marathon all. the time. So it doesn't really matter what's happening right now because you're building wealth over the next 10, 20, 30, 40 years. And as you pick up that steam, you'll be able to do a cash out refinance. You'll be able to use any of the tools that we talk about without these regulations changing. They're always tools that affect the short term. And if you can get out of the short term model and into a long term model, you can operate independently of this stuff. Yeah, that's excellent advice. I think for the last couple of years, this low inventory where people have to buy quickly and sell and there's just so much going on in frenzy and you had to move. quickly, at least on the acquisition side, people get like ramped up and they feel like they need to do everything really quickly and it's not necessary. The other thing you can do too is

Starting point is 00:16:20 if you want to refinance something quickly, you can look into portfolio loans. As David was explaining, conventional loans, conforming loans get repurchased sold and repurchased to people like Fannie Mae and Freddie Mac. Portfolio loans are when the bank hold onto the loan. So maybe there'll be an emergence of portfolio lenders who will be willing to do cash out refies for investors. That's a great point. Portfolio loans. You avoid the whole Fannie Mae situation. The other one that I forgot to mention is DSCR loans. Yep. Right? We do a lot of those at the one brokers and when you get that loan, it's not being sold to a conventional lender. It's being sold in like private markets, basically. So some of those DSCR lenders are going to follow the Fannie Mae guidelines because they're kind of

Starting point is 00:17:02 the big dog in charge. What they do? Everyone else falls in line. But other ones won't. So asking a mortgage broker or asking a lender, do you have a DSCR lender that will do this? without making me wait 12 months. That's another workaround also. It's pretty much just applies to people that want the very best rate and the very best terms they can get. Absolutely.

Starting point is 00:17:20 But I feel like when these regulations happen in a capitalist system, someone fills the void, right? You know, and there's going to be a lender. There's going to be someone who sees that investors still want this type of product and probably will create something like that. It'll probably take a little while.

Starting point is 00:17:34 That's literally how DSCR loans came to be. Oh, really? Is yes. Like someone like me that has more than 10 properties, I just couldn't get another loan. get a conventional loan. So there was enough people that wanted them and they were like, well, we can't use Fannie Mae guidelines for this person. What can we do? We can use commercial underwriting standards where we just look at the castle of a property. We'll qualify it based on that.

Starting point is 00:17:54 And that's literally what happened is this new thing stepped into where there was a need in the market. So don't panic. Right. Don't need panic and anikins throughout wait and there will be a solution that will come to fruition. Awesome. All right. Well, that is very good advice and something will definitely be keeping an eye on. For our third point, We got to talk about Chad GBT. Are people talking about that now? I don't know if we're even a news show, if you don't mention it. You have to talk about it.

Starting point is 00:18:20 Have you used it? Yeah. No, but everyone else has. I have. I'm a little scared to use it. Is that weird? You should be because you're going to like it. That's what I'm afraid of.

Starting point is 00:18:28 Yeah. So chat GPD, if you haven't heard of it, is called a generative AI platform. Basically what it is, is you can go on and sort of like a text. You can ask it questions and a computer purpose. program, which has studied, you know, thousands of textbooks and websites and books will use the information from that studying to form unique and novel answers for you. So you can have like a real conversation with it. It's honestly, it's pretty remarkable to use. It's very conversate. Stuff like this has existed before. I think what's unique about the recent advances is how

Starting point is 00:19:06 conversational it feels. Like it sort of feels like you're talking to another human being. And it's not as like generic as it used to be. And, you know, this is clearly just the beginning and the pace of acceleration here in chat GPT. And it's not just chat GPT. Bing also has a new program. Google is working on one called Bard. So I think it's likely that these types of interactive AI systems are just going to keep growing and growing and growing from here. Do you think they're going to get along with each other? Do you think we're going to have a rivalry? Yeah. See, everyone always talks about AI versus like humankind as the best. battle that might happen, like the Matrix, maybe it's going to be AIs versus each other.

Starting point is 00:19:45 And we're like transformers. Yeah, exactly. It's like Transformers versus human. Decepticons versus Autobots here. Who's going to win? Yeah, but we're still going to be the collateral damage. That's true. It's kind of fun.

Starting point is 00:19:58 And as like a data science background person, I really enjoyed playing around with it. It's pretty. What are some of the things you've done with it so far? Oh, I was asking your real estate questions, honestly. I started asking a data question, which is a nice. not very good at yet, like interpreting data. So my job is safe for at least like six more months. Yeah. But it does do a really good job of, it is what's called like generative AI so it can like have a conversation with you, which is remarkable. And I, uh, I was curious what your feelings

Starting point is 00:20:26 about this and how it's going to impact the real estate industry. Okay, I am a bit of a contrarian in a lot of ways in general, right? I don't think, I think people ask the wrong question sometimes. Like when people say, how do I buy real estate so I can quit? my job in two years and never work again. Wrong question. You're probably going to get into the wrong deals if that's what you're trying to do. Right. Real estate works better over a long period of time buying in the right locations, letting an asset stabilize naturally over time than it does if you just rush in and try to buy a bunch of $40,000 properties in some turnkey market that end up causing your headaches. One of the wrong questions people ask is how do I make this easy? How do I automate

Starting point is 00:21:04 this thing so I don't have to do the work? And the problem with that approach is once it's made easy, it can be replicated and amplified at a big scale as someone with more capital resources than you can come in and do it very easily. You need a barrier to entry. Those are so crucial. Yeah, absolutely. Imagine if you're like,

Starting point is 00:21:23 you're trying to get people across a body of water and you're the guy that is hired because you know where the rocks are, you know where the sharks are, you know where the areas that you could get shipwrecked are going to be. You know the area very well. You will always have a job. The minute that you remove all those

Starting point is 00:21:38 and you just have a big, deep water, channel. Some huge boat can come in and load up way more people in you ever could and take them across and you're out of work. This is the problem with us always looking for an easy answer. The minute real estate investing became something that could be done at scaled from all the software, the systems, the ways that we were able to do it easily, BlackRock comes in and they buy all the houses. So I'm worried about AI doing the job of copywriting, doing the job of making your pictures of your property look better, looking at what short-term rental listings are doing, well, copying it and then just blasting it across everybody.

Starting point is 00:22:13 Because then you're not winning doing the job of what the best people did. You're just leveling the playing field. And now your property will not have an advantage over somebody else's because you pay more attention to it. That's my concern for how this could work with real estate investing is if you were a short-term rental operator and you were paying attention to the market and your competition was lazy and they weren't. You were changing, you were following the algorithm that Airbnb or VRBO had.

Starting point is 00:22:37 You were changing your description. you were getting new pictures taking, you were adding amenities as you saw what was happening in the market. You were the person on that little raft navigating these dangerous waters to help people. The minute that AI can come in and do that for you, the person who's not paying any attention to their property gets all the benefits of what the good operator was doing, right? So one of the ways that I'm looking at, like, I'm expecting that's going to happen. I'm trying to sit, figure out what properties can I get into, what asset classes could I buy, what approach could I take that could not easily be replicated. right the hacks that we're always looking for like do you remember when craigslist was brand new when you would list your Toyota Camry for sale and then people learned if they put Honda Accord in the

Starting point is 00:23:20 description that it would trigger the search engine of people that were looking for Honda Accord yeah yeah or everyone would put one dollar so like every everything no matter what your price actually was it would just show up yes it was a way of getting traffic to your page you wouldn't normally have got right that I think is just going to happen everywhere that type of thing and so I don't know what the answer is going to be yet, but when I look at AI affecting real estate investing, it means the masses will be able to do this. So you're going to have to be extra picky about the property you take. So when I'm looking to buy, let's say, a cabin in the mountains as a short-term rental, I need that that cabin to have something that other people cannot replicate because AI is going

Starting point is 00:23:58 to be able to replicate any advantage I might have in other areas, right? So AI can't replicate a view that other cabins don't have, right? Or a location that's going to be better. These fundamentals are the things we talk about all the time will become more important when technology improves to the point that everybody loses their advantage. What do you think? Yeah, that's a great point. I totally think so. And I think copywriting is definitely one of them. Anything where, you know, content creation, I think is going to be really interesting. Like people who are marketing for properties, for example, sending out mailers. Like, that's something AI could do really easily and probably write a pretty compelling letter to someone. I think as an agent, it will be really interesting. I read some article

Starting point is 00:24:36 about how agents are already using it to write their descriptions of listing that they're putting up, which doesn't seem that hard, I don't know, but put a lot of big adjectives and big fancy words in there, but I'm sure there is some art to it. I'm sure that's what they're doing

Starting point is 00:24:50 and they think that it makes their job better. The problem is every listing is going to read the same way. Right. So it's not going to stand out anymore. Yeah, totally. So I think it's going to be really interesting. I do think, you know, I was saying I was asking it data questions

Starting point is 00:25:04 and it doesn't really do that. yet, but I do think that is an inevitability. Like, eventually you're going to be able to say, like, what's the best cash flow market or something, and it will tell you? And then everyone's going to go to that, like your point. And so I think there's going to have to be this contrarian view or there's going to be, have to be some sort of genuine, like, thought leadership where people actually are doing something different than everyone else. And you can't just follow the herd of what, you know, the AI is telling you to do, but you're actually going to have to, uh, be doing the analysis for yourself and doing the hard work, like you said. It's a very good point.

Starting point is 00:25:40 If you think about how most people make decisions, they watch social media, they watch a podcast, they go on a blog, they hear what everyone else is doing, then they go do it. And for a while, that has been a pretty good, solid strategy. The problem is AI is going to make this happen so quickly that by the time you hear about what everyone's doing, it might already be done. It's just like Jim Kramer, right? Like, no offense to Jim Kramer. But like, these guys who talk about stocks on CNBC, right?

Starting point is 00:26:06 Right? By the time it's on CNBC, it's already too late. Yes. You know, like, and I think there's going to be some element of that and, like, predicting real estate markets, where to buy, neighborhoods, that kind of stuff. Maybe I'm just saying that because I do that a lot with my time and I think I can do it better. But maybe I do think they're at least going to attempt to start doing that. The other thing to be concerned about or just pay attention to with AI is the version of it

Starting point is 00:26:28 we're talking about now is radically different than what it's going to be in six months. Of course, yeah. Okay. So, like, us thinking that we can use AI to. strategize what we're going to do. Like it's very possible by the time the person listening to this, here's it, it's already evolved way past what's going to happen, right?

Starting point is 00:26:44 So already in the matrix. Yeah. If there's someone using AI to build their business an incredible way, how long before AI figures that you can ask it, well, help me do what Grant Cardone just did. It goes, boom, here's the game plan right here. Go do the same thing, right? How do I grow my followers from this to this?

Starting point is 00:26:58 And it can just do that for you. So I really think this is going to make real estate more valuable. because business, I think, is just going to be leveled out. The playing field is going to become very, very plain for so many people that are getting into it. But real estate is something that people are always going to watch. It's one reason why I'm more interested in investing in real estate when I see all the technological advances.

Starting point is 00:27:19 That's a really good point. Yeah. Hard physical assets will not be able to. AI can manipulate cryptocurrencies. They'll build it and manipulate NFTs. Like, I can't control anything that's happening. It will not be able to, at least I hope I'll build a build, build another property in the same place where mine is where people want to visit.

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Starting point is 00:30:34 So our next headline is about Facebook or their parent company meta, which will no longer support the ability for sellers, people who want to sell real estate as a business anymore. So you basically have to use your individual personal account. So for example, if you were a car dealer in the past, you could list all of your cars, even though that you're a business on Facebook. Now only an individual who wants to sell a car or real estate. state in our industry are going to be able to do that. So this brings up a lot of questions. I'm

Starting point is 00:31:06 first curious, you know, do you think this is going to impact people who are, you know, wholesaling or trying to sell businesses or even looking for tenants? I think it will, but I think this is a positive change for us in real estate. I don't want some huge house flipping business or BlackRock to come in and say, hey, here's 400 houses that you could buy in the same forum where somebody's trying to do a for sale by owner on a property, right? So if we're the investor, we're looking for the deal, you want to be person to person. I want to be talking to another human that's not experience in this, that is not a business that knows more than I do, right? I want to buy a car from a regular Joe. I don't want to buy a car from the dealership that has skills and experience what gives them an advantage,

Starting point is 00:31:48 right? That's why you go to Facebook marketplace, is to avoid getting taken advantage of by the people that know more. So I like Facebook getting rid of the professionals out of like the mom and pop type of a group, which is cool because we don't see much of that in real estate. We're losing the mom and pop feel as institutional money kind of comes into our industry. Totally. Yeah. I think it's, it like allows Facebook to almost specialize a little bit more. It's like if you want to see all the deals that an agent has go on the MLS. Yes. If you want to find tenants, like you can market that on dozens of different aggregator websites. Like it is actually kind of nice for for meta to be able to do this and allow people to sell.

Starting point is 00:32:28 you know, individual properties or to just sort of be able to amplify their personal businesses and listings in a way that they're not competing with major businesses. I'm just curious, do you think this has like any risk? It sounds like some of the feedback about this is that, you know, if you're a seller and you have to use your own name, that there might be a security risk there. Yeah, I suppose, but that's always been the case. Like, if you're going to use Facebook Marketplace, I believe it's linked to your Facebook profile anyway, right? So people can find out who you are. That's true. I don't think it's going to be

Starting point is 00:33:01 additional risk that wasn't there before. I'd like to see Airbnb do the same thing. I don't like when I'm looking for an Airbnb to stay at and then some big hotel has their stuff on air. I think most people see that and they're like, I'm trying to avoid the big expensive hotel. I'm trying to look for a local person to support or more value, a bigger space or less money, whatever it would be. When you let the people that are professionals at doing this come in, they just kind of bully everybody. else out. They have resources. They have marketing. They have skills. They have experience. We're trying to create like almost a barrier to that, like a barrier to that, like a barrier entry, like we were saying before. So I'm happy to see Facebook making this move. I would love it

Starting point is 00:33:39 if VRBO and Airbnb would take a similar step. I don't want to see a Hilton listing when I'm looking for a short-term rental to stay at in some city I'm going to be visiting. Yep, absolutely. That makes sense. Do you think this is going to be the, you know, the resurgence of Craigslist? All of a sudden it's going to rise to the top. That's what our producer, Is this going to be like the rise of Superman Craigslist going to come right back again? I think Craigslist has so many bugs that would be very difficult. That's why people moved into Facebook marketplace. They got tired of.

Starting point is 00:34:07 But it'll always be there. It's like Craigslist, every other technology can move light years ahead. And Craigslist will still be there being the exact same website. It's always been. Yeah, it's Jack in the Box, right? 2.30 in the morning, Jack in the Box is always there for you. Is it the best experience you're going to have? No.

Starting point is 00:34:24 Are you going to regret it in the morning? Yes. But it is there. All right. I've actually never been to Jack of the Box. In your whole life. Never. If they didn't really have it on the East Coast where I grew up, it's like a

Starting point is 00:34:36 California, it's like a West Coast thing. I had no idea. I just figured it was everywhere. I've never, never had it. So do you have a 24-hour place that you guys can go to on the East Coast? Not. He's going to be hungry. I didn't think of, yeah.

Starting point is 00:34:48 The 7-Eleven. I mean, they'd have like McDonald's. That was like 24-hour, but I grew up in the suburbs, so not, not there. All right. Probably a good thing. Yeah, yeah. Next time I come to California, we'll go. Okay, so for our last one, we have one more headline, which is the Biden administration, released a framework for rental protections.

Starting point is 00:35:09 And so you've heard of this, I assume. Oh, yeah. And my take on this, just so everyone knows this, is there's a lot of intention here, stuff that they're planning to do. But there's not a lot of meat. You know, there's not a lot to sink your teeth in to form an opinion on. But you have some thoughts on what has been. released so far? Well, there's a couple components to it. One of them has to do with, my understanding, it's like limiting background investigations that can be done on your tenant. So, like, they're

Starting point is 00:35:35 already starting this in certain places in California where they're making it illegal for landlords to run a criminal search on any potential tenant that's going to be coming in. And they're claiming that it's unfair to people who have a criminal history, that they don't have the same access to housing that other people do. So it's kind of, it's slipping into the fair housing ethos for certain jurisdictions, which obviously, it's just like every political change, it benefits some people and it hurts other people, or it benefits some strategies and hurts other strategies. There's always a give and a take. So if you're somebody who's coming from that place, you've had a hard time getting housing, this sounds like a positive change for you. If you're a landlord who has been relying on criminal

Starting point is 00:36:11 backgrounds and he'll make decisions for tenants, it's going to change probably where you're going to invest, right? I would assume in the cities that do enact these policies, you're going to see less investor demand. It's just, it doesn't mean houses aren't going to sell, but. It's just, it doesn't mean houses aren't going to sell, but you're not going to have as many investors going there. And if this does become a thing that becomes a sweeping regulation that this is something where landlords have less authority or control or autonomy, I should say, over the decisions that are made, the location you buy in will become extra important and maybe the price point, right?

Starting point is 00:36:43 So, like, I don't know exactly how that works out, but there could be, this might affect areas where rent is $400 a month, more than it would affect an area where it's $4,000. Right? So it's just, it's another thing to be. thinking about if this does pass, like location is going to become different. And then probably some other things like Section 8, I think, would gain some traction, right? Because if you're getting paid from the government for your tenant, you're not as worried about what the individual tenant is going to be up to considering their ability to repay. That's really interesting.

Starting point is 00:37:11 Yeah. That is one of them I'm interested to see what they actually recommend. And the reason I was saying before, what the Biden administration has announced so far is like they're going to direct the FTC to look into this or the consumer protection. What does that? at the Consumer Financial Protection Bureau to look into this. So we don't know these specific suggestions, but it does sound like they're sort of following the lead of California. And that might be one of the examples that they look into. One of the other ones is the FHFA,

Starting point is 00:37:40 which is the Federal Housing Finance Agency, announced it will launch a new public process to examine proposed actions, including rent or protections and limits on, quote, egregious rent increases. this would only be for federally backed housing, but curious what you think about that. Well, this is a form of rent control. It's not like it's a new thing.

Starting point is 00:38:01 We've had this for a long time in certain areas. Rent control is bigger than others. Again, I'm in California, so Los Angeles has significant rent control. San Francisco has significant rent control. Investors still do very well in those areas. But in certain situations, it can become problematic over time. So every once in a while we'll find a San Francisco listing where the landlord is not able to increase the rent past a certain point. So you'll get somewhere where fair market rent might be

Starting point is 00:38:26 $5,500 a month, and there's a tenant paying $1,200. Right? That will affect the value of the real state significant. They want to sell this property, this triplex, and two of the units are occupied at $1,200 a month. You can't get a investor that's going to go buy that property. But also, this kind of bleeds into house hacking, because it's not all pure investors. There's people in San Francisco that just have regular W-2 blue-collar workers that could not afford to live there if they would. weren't house hacking. And now you have two of your units that are not available that can't be rented out because they're occupied by below market rents. So I think long term, like if you're looking at how this could affect if this stuff does pass, this would actually make,

Starting point is 00:39:06 because traditionally real estate has done better the longer that you own it, right? This can turn the odds against you in some of those cases. So maybe short-term rentals will become more popular. There's going to be less long-term rentals, which ironically would reduce the amount of housing available, make it worse for renters, right? As there's less housing available, there's less supply. So now landlords can charge more because the demand versus supply is all whacked out. So this type of stuff when it happens, there's winners and there's losers in every category, right? Like you can't just blindly follow a mold. This makes the person who's paying attention to these things. It gives them a big advantage over the person who bought a property 20 years

Starting point is 00:39:42 ago and just doesn't pay attention to the market any. Yeah, absolutely. You're going to have to be pretty nimble and to pay attention to this. I do think this one is really interesting because, you know, what the Biden administration said was they were basically looking at public-backed properties, which isn't a huge amount. I think it's like 28% of the market. But there was also a letter sent to the Biden administration from some members of Congress that encouraging a more broad look at rent control. And I do think, you know, there's a lot of studies I've looked into this. There's a great Freakonomics podcast episode if anyone wants to listen to it about.

Starting point is 00:40:15 the pros and cons of rent control. And it just seems like it doesn't actually work even for the intended effect, which is like even if you wanted to help provide fair and affordable housing for people, it actually really helps the incumbents, like the people who are already had in property. Right. But for people who are moving to that city or moving to our apartment, it actually goes higher because landlords need to compensate for those, you know, the people who stay in their apartments for a long time. So they actually charge more for people who are moving in. in and there are some studies in California actually and I think in Portland also that show that it goes up. So I understand that there is an issue with affordable housing. I just hope that whatever comes out

Starting point is 00:40:57 of this is a, you know, evidence-backed solution that helps both sides. Well, my subjective opinion, again, this is just, I don't know this is going to happen. I'm not speaking for anyone but myself is that these changes make real estate investing less passive than what it used to be. Right. So the idea a passive income, buy a couple properties, live off the rent, never work. That's getting harder and harder and harder to do as we're talking about. You have to stay on top of the changes that are being made. If chat GPT comes in and makes sweeping regulations to the short-term rental market, guys like me, we buy short-term rentals, we hire a property manager. We're like, you do it. I don't want to hear about it, right? Next thing you know, revenue's down by 60% because my property

Starting point is 00:41:37 manager can't get a book because everybody's using the strategies that they used to have like an advantage in as a professional. Well, now there are no professionals because chat GPD can do it for everyone or like we were talking about with rent control. So that makes the people that are investing in real estate have to pay attention to what's going on with their property. It's turning it more into you're a business operator. You're more of an entrepreneur. You've always been an entrepreneur. But it is a more, it requires more out of you to manage properties than what it did before, which gives people listening to podcasts and reading the news and getting informed and advantage over the people that aren't paying attention. Absolutely. Yeah, the operational load is a great way to fire. Yeah,

Starting point is 00:42:17 it's just like you have to run a business. But hopefully you already knew that. You know, if you're going to get into real estate investing, it's not buying a bond. It's not buying a bond. Yes. And the people listening to us right now, they're fine. Those people shouldn't be worried. It's people that don't know about podcasts, don't know about YouTube, don't read books, don't follow what's going on. The ones that aren't hearing this message that are actually going to be the ones that are at the disadvantage. Yep, absolutely. All right. Well, those are all the headlines I got for you. I thought you did a great job putting these together.

Starting point is 00:42:45 Thank you to you on the production team. Well, yeah, it was all Kalin and Eric, but I thank you. It was really helpful here in your opinions on all this. And hopefully everyone listening to this got a lot out of it. We'd love to hear your feedback on it. If you like this, please give us a five-star review, or you can hit up either David or me on Instagram or wherever to give us feedback. I am at the Data Deli.

Starting point is 00:43:06 I am at David Green 24. All right. Well, thanks a lot, man. Yeah, thank you. And if you guys like this show, Leave us a comment on YouTube. Tell us what you liked about it. Maybe we missed a headline that you want to hear about.

Starting point is 00:43:16 Put that in there. We will look at that and we will add that in the next show. We really do look at your feedback. We look at your comments and we incorporate that into the shows we're doing to make them as good as possible. So thanks for joining me, Dave. I'll see you on the next one. All right. Thank you all for listening to the Bigger Pockets Real Estate podcast.

Starting point is 00:43:52 Make sure you get all our new episodes by subscribing on YouTube, Apple, Spotify, or any other podcast platform. Our new episodes come out Monday, Wednesday, and Friday. I'm the host and executive producer of the show, Dave Meyer. The show is produced by Ian K, copywriting is by Calicoe content, and editing is by Exodus Media. If you'd like to learn more about real estate investing or to sign up for our free newsletter, please visit www.biggerpockets.com. The content of this podcast is for informational purposes only. All host and participant opinions are their own.

Starting point is 00:44:21 Investment in any asset, real estate included, involves risk. So use your best judgment and consult with qualified advisors before investing. You should only risk capital you can afford to lose. And remember, past performance is not indicative of future results. Bigger Pockets LLC disclaims. all liability for direct, indirect, consequential, or other damages arising from a reliance on information presented in this podcast.

BiggerPockets Real Estate Podcast - 736: BiggerNews: Mortgage Rate Mayhem and New Rules That Could RUIN BRRRR

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