Epic Real Estate Investing - 2025's Hidden Real Estate Crisis: Eddie Speed Reveals All | 1384

Episode Date: November 15, 2024

In this eye-opening episode, Eddie Speed provides a deep dive into the future of the economy and shares his candid perspective on the current recession and ongoing banking crisis. With expert analysis, he breaks down the impact these economic forces are having on the real estate market, particularly in the multifamily sector. Eddie discusses how rising interest rates and a series of banking disruptions have led to a significant downturn in multifamily investments, with rising vacancy rates, sky-high rent increases, and troubling levels of delinquencies becoming the new normal for property owners. But it’s not all doom and gloom—Eddie offers hope for savvy real estate investors. He reveals actionable strategies to navigate these challenging times, including the power of creative financing and seller financing as tools to secure deals and avoid the pitfalls many are facing today. He also takes a deep dive into the lucrative world of note-buying, explaining why it offers a more stable and profitable alternative to traditional renting in a volatile market. Throughout the episode, Eddie shares invaluable insights on structuring loans, identifying the right buyers, and capitalizing on opportunities in a shifting landscape. As the founder of NoteSchool, Eddie uses his platform to empower real estate investors with the tools and knowledge needed to thrive, even in the most unpredictable times. If you're looking for guidance on how to maximize your investments, make smarter decisions, and adapt to the evolving real estate market, this episode is a must-listen. Visit noteschool.com/epic for more information. Learn more about your ad choices. Visit megaphone.fm/adchoices

This is Terio Media. Hey, strap in. It's time for the epic real estate investing show. We'll be your guides as we navigate the housing market, the landscape of creative financing strategies, and everything you need to swap that office chair for a beach chair. If you're looking for some one-on-one help, meet us at rei-aise.com. Let's go, let's go, let's go, let's go, let's go, let's go.

Let's go. All righty, please help me welcome back to the show. I think for a third time now. Mr. Eddie Speed. Welcome back, bud. How you doing? I'm doing good, you? I'm good.

How are you feeling right now about the future of the country? Well, I feel like that we have a chance to get the economy squared away. I think there's going to be a bump in it before we get there because I don't think anybody can fix that except some time. But I'm pretty fired up about where I think we're going long term. So, yeah. Me too. What do you mean by bump, though? I think we're in a recession.

The banking debacle is it, to some degree, is unavoidable because it already happened. It's just been covered up. I think that the commercial real estate sector is already happened. The train's already left the station. What are you going to do to fix multifamily? You can't fix it. So there's some things that are going to happen that people are going to freak out a little bit. I thought Trump was going to fix all this.

Well, it's a little hard for a guy to show up when the. tubes out of the toothpaste and get blamed for that. But overall, I feel obviously very good about it. I think if you were a landlord, you'd have to have been really nervous. I think if you were relying on people paying you and performing as they were agreed and you've been able to take action if they didn't, I think we were headed in the wrong direction. You said, you know, I come from the single family world.

It's mostly where my attention is at, I say almost exclusively, really. but you said going on with multifamily and then we have to fix that. What were you talking about there? Multifamilies. They're already down over 20%, but the projections are that they could go down up to 50%. What's causing that? Well, first of all, you had a product type that was really promoted by promoters, right? It was the people that were the least experience in the business.

Unfortunately, were some of the best ones that were raising money. And they weren't necessarily great operators. but they were good promoters. You know this, Matt. Market will take care of you. Like, you can just look like a genius when the market's taking care of you. But rates rose, and all of a sudden,

the bank debacle happened. There are 72% of all commercial loans were done by banks other than the top 25 banks. That's 45% of their entire assets on their books is commercial loans. And you're looking at a third of those assets or looking at rate resets in about the next 18 months. All right.

So there's an adjustable factor in those types of loans. Yeah, I mean, it's a huge adjustable factor. And the fact is that rents are, everybody thought it was because of the virus and everybody's going to get straight and rents. So delinquency is increased in multifamily and vacancy has increased. You know, the Wall Street Journal did an article about six weeks ago and they did this chart.

I wish I could like show it to you super easy. it'd make your eyes pop out of your head of what their projections are. I've been called the ball on this for two years. It's not like this just happened. It's a market condition. And think in terms of this, Matt, this is all about like, where does your dollar go? I'm going to be honest to you, this is good for us. Because this has got a lot of dollars that we're chasing the easy thing of multifamily

and now they're trying to reposition themselves. Most people that are invested in multi-family syndications are out and their cash lows been cut off. That's not a hundred, nothing's 100% true. But majority of people that are invested in multifamily syndications, they're not getting a check. I've been operating from a certain premise for a while now of this huge imbalance between the population and available housing.

And you saying that multifamily's, a lot of vacancies, a lot of vacancies. the vacancies are up. Where are the people going? Well, I know there's an argument about how many houses are needed versus how many houses are available. And of course, the real elephant in the middle of room for sure is affordability. Absolutely. Affordability is a factor. And it's gigantically affected rent houses, as you know. There's a misrepresentation about how much of a housing shortage we have. Right. I think it's political. to be honest with you, I think we've been messaged things that the data doesn't really support that. There is a shortage of affordable housing.

That is the truth. But it's saying like, listen, multi-family dropped a million units on the market last year. They're going to drop close to a million units this year. Maybe it's 750, 750,000. Multi-family is definitely reaching a point of they don't have the absorption rate to absorb the units that are coming on the market. And generally what happens is this. This is my sixth real estate cycle. Usually what happens in the market is multifamily is the first to crash.

It is the brand new units get absorbed because they'll give away whatever they need to way to get them rented, whether that's rent or cable or parking or whatever it is, right? Free TVs. And then what happens is it sucks off of the B&C properties. That appears to be the case right now. But if anybody in your audience is like in total disbelieve, go read two pieces of information. Go read the TREP reports, TREP, which is the gold standard for commercial real estate.

All right. And go read the Fannie Mae Midger reports. The hedge fund guys, the bankers, that's what they're reading. You know, they're not listening to Facebook and some guy touting about how good multifamily is because he's got a new project to roll out. With the new administration coming and being so pro-business and then the Fed on the trajectory that they were on, do you see those things working together or do you see those things colliding? Oh, I think we're going to continue to see some sliding rates. That's a true.

I think the Fed's a little worried that inflation isn't over, and I think that's, I think they're cautiously doing it. I think Trump's going to end up sideways with the Fed chairman. The Fed chairman, here's my humble opinion, not that little old Eddie speed matters what he thinks, at all. But I'll tell you this. I think the Fed chairman did a great job of dealing with inflation and what he had to do with rates. We didn't like it, but he had to do it. What if he wouldn't have done it? They've not done a good job in managing or monitoring national banks.

And we have a bank crisis ahead of it. It's just because they let them run wild. There's supposedly 65 banks right now that are already labeled. There are supposedly 550 banks that are on the target list. And we read reports, you know, from various news sources, some credible, some maybe wild, who knows. But people believe that at least a third, some say a half of the national banks in the next two or three years are in for either or merger or a closing. They traditionally don't close banks like they did back in the early days of the RTC and stuff back in the 80s when I first started doing this, right? They're not doing it

that way anymore. They generally find a bank that will take over the bank, take over the deposits, take over the relationships, then they have what's called a putback period. They have six months to look at all the stuff on the books until the FDIC, we don't want this. That's a That's generally how it works. I've seen this a lot. I mean, I've seen tweets. I've seen posts and comments under my YouTube videos. I've seen it on reels and stuff like that about this bank crisis.

So 65 banks labeled and 500 or so targeted. What does that mean to like your average everyday, Joe? Ask people with a line of credit right now. How many people do you know that are having to reposition their business because the banks are not wanting to go play like they were two years ago. That's what it means. All right. So tightening of credit. It's a significant tighten of credit and available capital. Now, that's great for us. We're in the note buying business, right? So you buy notes when banks aren't doing good. Matt, there is opportunity every time there's a crisis. You agree with that?

100%. Yep. So this has fallen into kind of my perfect storm. Seller financing, seems to be way more profitable than renting houses. Nope. Note buying is good because people are liquidating notes to clean up their line of credit, and they're going to continue to do that. Banks aren't going to be as free to go get, have credit, so people are going to need to liquidate notes. And that's generally kind of the trajectory that we're owned.

And for a lot of your audience, they were only saw the market when it kind of shot up and everything was really good. the only way they felt like they could make money is like when they buy a property at this and it jumps to this, right? But the reality is you and I would probably look at the market and say, we make the most money in challenging times because that's when distressed real estate or distressed assets are the most prevalent. Yeah, for sure.

So you're in the no business. I probably already know this answer. But what are the plans for you? What opportunities are you eye in directly? Well, one of the things that we've really tried to do is show people how creative financing, particularly seller financing of property, becomes a very valuable alternative in today's market. As an exit strategy, right? As an exit.

Got it. And then what I do for them is I take seller financing and put mortgage banking over the top of it, so I show them how to make good notes. and that's how I bought 50,000 a seller finance notes. I didn't do it picking off one little deal at a time. I did it when I took companies

like home investors or other Mitch Stephen or other large real estate investors and showed them how to mechanize their business and create notes, showed them how to find the right properties, how to market to the right people, what a underwriting box,

a matrix looked like, so they wrote notes to a formula and not just made stuff up. and showed them how to go close with the title company so that they look like a mortgage banker, showed them how to use an RMLO and how to use a servicer, and then all of a sudden they, they wake up and they think, well, Eddie showed me how to make notes. They're more valuable than what I would have created. And so while I do more business, it's way better for the real estate investor.

And so, Matt, at Collective Genius or at Boardroom or any of those outmasterminds, that's what I'm doing is showing the rural state investors how to make better notes. On the other side, I have a training business. And my target audience today are people that are frustrated. They're burnt out landlords. Like, they're doctors, they're high-end realtors. They're all, they're people that have investable capital. And they're like, I don't like my rent house because expenses went up by 60% and rents went up by 20%.

So that's not good math. And so now they want to go buy a note. So I'm making a marketplace on both sides, how we create notes, because they're never going to go find the notes that I can help them create, right? Because they're not out there doing it every day. They're not grinding. On the other side, then I've got a marketplace where I can go take capital funds and insurance companies and stuff and marry that capital with my students' money in various ways to go create a secondary market where if somebody shows up and they've got 50, notes or 500 notes, I've got the capital to go take them down. So it's kind of my time. Yep. Yep, I see that. I want to make sure that people know how to get in touch with you and we'll talk about that in a second. But when you say someone like myself or burnt out landlords, showing them how to make better notes, what are some of the differences you see between just like

your everyday real estate investor when they sell a property, seller financing? What are a few things that they're missing to make a better note? I think that we are taught. We are taught, a lot of real estate investor myths that we're kind of told things and that's how you do it because they sit it on Facebook or whatever and stuff. Listen, I said the no system for home investors in 1990. I've been riding this horse a long time. So I would say, first of all, start out with the belief that you are going to help people that have been left behind by conventional mortgage lending. And if you know that to be the case, the first thing you do is you realize that, the mortgage credit availability index, February of 2020.

Okay, call it right when the virus started. Was it 185? Today it's at 100. That means that it used to let 185 people through the gate and now they let 100. So there's a lot of really good people that are left behind. You don't have to reach to the bottom of the barrel. Like, seller financing is not the financing of last resort, so to speak. or however people say that.

Like, it's just, it's better than that. It serves a better purpose than that. Then I show people how to structure loans. Don't go make a 92% loan if you're trying to sell it. Because if you come to somebody like me, I've probably got a cap at somewhere between 75% or 80% of the value of the property is the most investment compared to the property value that I can do. Simple math, a house is worth 100.

I cap out at about 75, 78%. If you have a 92% loan and, hello, you're fixing to take a big haircut just because you did it at too high of a loan to value. You might do a split loan. You might do a 10% down, 10% second, 80% first lane. So there's ways that you can just be taught how to structure it where you know how to think more. And so that's what we've tried to do is to help the real estate investor, you think about it like this. When you own a piece of property, you're in the real estate business.

But when you own a note, you're actually in the note business. Well, I'm trying to go teach them what our world looks like because most people just don't know that. Yep, totally. And when I'm talking to you and I catch myself almost every single time we're talking, and you're saying you bring up just the phrase seller financing, I'm always just thinking of acquisition. And you're talking about exit. So when you're helping people that have been left behind by the banking,

You're talking about buyers, right, who would be tenants, but now you're going to turn them into buyers. Exactly. Right? Okay, so I got that straight. And then when you say 92%, basically you're just saying you need a bigger down payment is one, or you can break them up. So if I had a 10, 10, 80, meaning I could sell the 80 to discount still hold one of the other, the 10, right? That's right. Okay.

And part of it is people being taught how to target the best buyer and target the best down payment. You've heard me recite this little ad before, but it's worth repeating. I've tried it every way you can do it because I'll help, as you know, Matt, thousands of real estate investors with the model of seller financing. Yep. Private financing for deserving buyers with large dam. I don't even say seller financing in my Facebook ad. I say private financing because seller financing to the consumer very likely could mean,

oh, there's no qualifying for people that deserving buyers, because people, they know they've been left behind, but they're thinking, I'm not some guy with terrible credit. Like, the market's just kind of shifted away from what can help me. So deserving buyers. And then the last thing is large down. I will tell you this, Matt, 15 to 20 percent down is the number. And I have people that swear to me, oh, you can't get more than 10 percent down. I'm like, oh, well, your neighbor down the street is a real estate investor.

He's getting 20% down. And they're like, what? I'm what he is. So a lot of it, Matt, I think is between our ears. Whatever we believe is going to be the truth. Yep, I agree 100% with that. Public sentiment, I think, is ruling so much of the economy right now anyway. So a good strategy would be like, say you've got a large down, say we've got 20% down,

and then say I put a 20% note and then the rest, the balance and a 60. Would that give me more flexibility on an extra strategy? Usually at some point, I don't know. Maybe on land that would be a better way to do it. But on houses, I don't really need a 60% loan. I mean, there's a certain threshold that I can do. Otherwise, it really doesn't matter. And there's a number of wealth strategies that you know, Matt, that are kind of hard to explain.

That's why we're going to give them a little class when they come here. But I'm going to show people like wealth things that they've never considered, like a partial, which is pretty cool math, right? You're selling me the front payments and you're keeping the back payments. But here's what you're really doing. You're selling me the payments that are more interest and you're keeping the payments that are more principal. So when you get the note back, you might still be owed 70% of what they're owed today.

Yeah, you're the smartest man. I know, Eddie, when it comes to this stuff, and I think everybody deserves to hear what you got to say. What's the best way for someone to reach out to you if they wanted to? Well, I found out that if you've got to. create an interest of somebody. The next thing is, is you need to really be able to get up on the whiteboard and show them something, right? And so we've got a little masterclass. And I know that may be an overused term, but you've been to my stuff and you know what I'm talking about.

Like this is so important in what you do for sure. Yeah. You've got to show people. And I think we're above average at what we do at our space for sure. So note school.com forward slash epic. And so this is a class that we do sell, but I'm giving it to your audience. You and I've had a lot of history together. Yep. And I so appreciate you and I appreciate your heart for your audience. And so I want to make sure that we could kind of be a go-giver and give something back. I like it.

Thank you. I appreciate that. I've got a question about where inflation comes into play with the note business versus the house business. Because houses is viewed as a hedge. against inflation and not so much when it comes to notes. Is that a consideration for you? Do you make it up or you just kind of play the game as... I mean, it's a total myth.

It is. How so? Have houses gone up in value since inflation? Have they anywhere tracked near what inflation did? No. The reason that is a myth is because rents don't track with expenses. Not in tandem, not at the same speed, but they eventually get there. if you have real heavy inflation, you're going to have people frustrated right now because they're not cash flowing the way they are.

And that's, I call the ball on that as soon as inflation started. And that was not what people thought was going to happen. See, I'm an old guy, right? I started this in 1980. So I was like calling on realtors and landlords and all that stuff in 1980. And I remember very well. Like, they're like, our expenses are choking us. right? So listen, I'm not negative one way or another. I'm going to give you a simple analogy,

and it's pretty undeniable. I have $250,000 to invest. I'm not going to go to L.A. because the math for a rental will never be good at $250,000, right? So I'm going to go to Dallas, which is a medium market. It's not the most extreme on either end. It's right in the middle. $250,000 buys me a house in a decent neighborhood. No problems, nothing skunky about it. And it's going to rent for $1,800 a month. And of that $1,800 a month, you're going to take a knife and you're going to cut it in half, and half of it's going to go to expenses, and half of it's going to go to income. So for $250,000, you're going to net $900 a month.

Got it. Take the same house or take the same capital and go buy notes. And today, right now, $250,000 buys you $2,700. $100 a month in income. $3X. It's just math. Yep. You know, every time I see you, I got a question.

I got a challenge for you. And you and I've talked about the modeling a lot, right? Yep. And I'm never, ever going to say that notes are always better. Mm-hmm. But I am saying that I have a lot of people now that are looking at notes in a way they never considered it before. And, of course, most of your audience are very real estate investor-centric.

This guy's talking about buying notes. notes, what's this old guy talking about, that kind of thing. But there are definitely market conditions, and I know you and Mercedes very well, right? And I know that y'all like your note income. We do. We do. Awesome. Again, I feels like I'm smarter every time I talk to you, Eddie, and I don't think I would be

where I am today and pulled off the creative crazy stuff that I have if I didn't meet you. And if you're hearing my voice right now and if you ever heard me say something where you're like, oh, my gosh, there's a good chance. I learned that from Mr. Eddie Speed. So if you have the opportunity, I highly recommend it. Nottschool.com forward slash epic. Thank you for sending that up. I didn't even know you did that, but I appreciate that.

So that's cool. I'd be happy to send you whoever I could. You're away because I think it would be a favorite to both of you. So I appreciate you to participate in that way. Let's stay in touch, bud. Love you, proud. Love you, too. Take care.

And that wraps up the Epic show. If you found this episode valuable, who else do you know that might too? There's a really good chance you know someone else who would. and when their name comes to mind, please share it with them and ask them to click the subscribe button when they get here and I'll take great care of them. God loves you and so do I.

Health, peace, blessings, and success to you. I'm Matt Terrio. Living the dream. Yeah, yeah, we got the cash flow. You didn't know home for us, we got the cash flow. This podcast is a part of the C-Suite Radio Network. For more top business podcasts, visit c-sweetradio.com.