Lower Rates Drive Higher Cash on Cash Returns

0:00This episode is brought to you by Indeed. Stop waiting around for the perfect candidate. Instead, use Indeed Sponsored Jobs to find the right people with the right skills fast. It's a simple way to make sure your listing is the first candidate to see. According to Indeed Data, Sponsored Jobs have four times more applicants than non-sponsored jobs. So go build your dream team today. With Indeed, get a $75 Sponsored Job Credit at Indeed.com slash podcast, Terms and Conditions Apply. All righty folks, if you are not paying attention, you should be. Mortgage rates are below 6%. We are once again with a five handle. This is going to spark demand. This is going to bring people off the sidelines for both purchase and refinances. But don't forget, lower interest rate means lower payments and that will have a direct impact on your cash on cash returns. We're back with Mike from Retailment or how you doing buddy? I'm doing great. Thank you. Absolutely, man. So I know you've been poking around and playing with interest rates and seeing the impact

1:02on cash on cash returns. What say you? What's going on? So I was just curious as to the impact that going from, say, a seven to a 6.5 to a 6% rate would have on the cash on cash return, cash on cash includes taxes, insurance, or expenses also. It's a little bit muted but the bottom line is on a 200,000 investment or $200,000 property. It's about 1.3% per half a percent of interest. So if you go from 6.5% down to a 6 handle, a 6.0% interest rate, you're picking up about 1.3% on your cash on cash return. Nothing to sniff at but it's also, it's not as dramatic as going from a 3 to a 6.

2:04You'll go in the other way so it's an improvement and it will help out some marginal deals probably. No, I mean it will absolutely help out marginal deals and if you add into this the fact that we have really a slow market still based on the January numbers. If you continue to do what I preach, right, disrespect for offers, follow up, get creative, and oh by the way, cost of capital is now a half a point lower. Deals can very quickly go from average to good and then from good to great and that's what I keep encouraging people to do, right? In my world when I did this, an average deal was 7.5 which meant a good deal was 9 and maybe a great deal was 10 or 10 and a half. In this world of lower rates, it doesn't have to move very much just for the math, just for the less interest to swing that from good to great. So I think you're under selling it. I think lower rates and let's be clear, the trend is even lower, right? It does seem to be the trend going one direction so I think marginal deals are going to start

3:09to look better. Yeah and I think what's really important is kind of some of the things you talk about at your conference and I've picked up from you is the buy box and you set your buy box, you get to know your market and the disrespectful offers really come into play. It's hard for us to model it that way because we don't know every market, we know the data in every market but that's only 10% of it, right? The other 90% is the people and the dynamics, the things happening in that market but when you combine a model like ours with that local expertise, that buy box knowledge, now all of a sudden like you said, I'm going in, the property's been on market for 120 days, they're asking 240, I'm going in at 160 and you put a low interest rate on that, also

4:15that deal looks really interesting. No that's the magic and again, the reason you guys keep coming back is because you do have all of the data and again that's stuff that my team can't go get, right? At best we're just employees who look at the MLS, you've got all the data there for us so we can again look at the entire market, we can also find different markets, a lot of investors go where should I look so you're giving us, let us go nuts and find what area speaks to us but yeah, once you get a buy box, it is so powerful because that's all you look at and then you're just playing with numbers, it's listed at 240, what happens if I go 180 or 195, what happens if I get the seller to take back 10% second, what happens if I get them to buy my rate down from 6 to 5 and 3 quarters, all of these things you can play with and that's the magic of this game, it's straight forward but it's not easy, it takes discipline, focus, execution, that's why most people won't do it because it takes daily execution but man, if you want to buy great deals, I would much rather

5:19buy again a market like today with no competition, versus waiting for competition, it comes screaming off the sidelines and suddenly we have bidding wars, I don't want to see that market again. Right. So one of the things that again I picked up, this was really emphasized again at your conference, when you're building systems, again it's kind of a clinical exercise, objective you want everything to work, the piece that I missed was the educational component, right. So we built the yield tracker as a tool, really we built it as, hey, this is the veteran investor looking for his next deal, right. The reality was when I was sitting there looking at all the education that's happening, I said this is an educational tool for a very low price, you can spend three months analyzing six different markets with real yields and going through the growth trend yield right through the cash on cash return and then you could take it further and there's no added

6:25cost for picking up the phone and calling an agent and saying, you know, this deal is interesting. I'm probably not going to lie, but let me talk to the agent and so it really is a great icebreaker for new investors, which I'm really starting to emphasize now because there isn't a better way to get the educational component at a very low cost and comprehensive and, you know, you can mess around with as many deals as you want and learn your buy box. I agree with you 1,000 percent because again, I deal with a lot of new investors who get the bug at the interest, but they just don't know where to go. Turning them on to Rantometer is going to allow them to play in five or six or seven different markets while they're figuring out their buy box, right. Nobody, very few people come to this with a buy box already known. So they're going to have to play around. They're going to have to take the metal detector. They're going to have to go to different markets as they know and figure out where it goes to BPP and, you know, do that. And then at some point, they're going to say, okay, great, you know, Columbus, Ohio, I'm just making a name up.

7:26And then they're going to get specific inside Columbus, Ohio. And then they're going to get even more specific. And then Bing O'Bangle, they got a buy box and they're ready to rock and roll, but that's not an overnight thing. This idea that you came to at the event is important because so many new investors are struggling. They can't, you know, find different MLSs and they can't find access and they just come to Rantometer and they, you know, pick up the old metal detector. The yield tracker and just, you know, go play for a little while and see what they see. Yeah. I mean, I really am trying to figure out a way to get an educational component or version launched. We're very busy with the commercial side of it with the real, the real people, but, you know, the real investors, but I think there's something there because again, once you're in the system, yeah, go crazy, try and try everything. Go nuts. You can get data, it's real analysis and you can really learn a lot. Yeah. Well, you've talked about my event a couple of times. I'd love to hear from your perspective. As somebody in the real estate game, you go to all kinds of conferences, both the kind

8:29of institutional, both the, you know, bigger pockets like with big names and then, you know, you come to smaller events like mine. I'm curious, what's some feedback thoughts, experience, what do you got? Yeah. First of all, it was a great event and thank you for having us and the chance to actually share some things. I don't know if we resolved whether the name is rental meter or rent, but, but, yeah, I have been to a lot of events and you go back, if I go back to my prior company, which was rent grow, property mint, prop tech, we, we did about 80 conferences a year, so we did a lot of conferences. Most of them were institutional, but we did a lot of affordable housing conferences, which were kind of smaller events, you know, you do the national stuff, the NMHC, the NAA, TAA, FAA, all these large states, regional and state organizations, and they, they're

9:33great. They're bustling. There's a lot of activity, but there's a, there's something to it that, you know, you, you, it's kind of like, there's a lot of people there just going along for the ride, whereas you go to the affordable housing events, they'd be at, you know, a small hotel in Kentucky, and you go in there and they'd be, you know, maybe 30 booths there and every single person there, you got to know. So after five years of doing that event, you knew everybody. You didn't know anybody on day one and you get five years later, you know, everybody. And really, it wasn't like, it took that long, right, right, to, to make connections and things like that. But over time, you just became a regular at the event and they're, they're real people. It's usually their money. And so when it's your money, you tend to pay a little more attention to what's happening like the bigger conferences, and again, they have their purpose. I'm not disparaging them in any way, but the bigger conferences, you deal with

10:36a lot of large organizations and it's people who don't have their own capital on the line, right? And you're trying to explain a product that actually helps preserve capital or create more capital. And, but, you know, your event, everybody there is putting their own capital and their own time on the line. And those are the best people to talk to because they, those problems are real in their front and center. Yeah, you know, as a first time person, you know, being a recurring guest, you know, a couple of times a month, my hope is people recognized you like, oh, I see you on the channel. They know what you do. And the other thing is, you probably heard a lot of great conversations just in my communities. Just buzzing. Yeah. And I had a lot of great conversations, people that I normally wouldn't have connected with. Deon, for example, it was great to meet him. I'd seen him at bigger pockets. I didn't get a chance to meet him there, but I just, you know, found him on it in his

11:37deon space. And he was very generous with his time and telling me all about what he does and how he does. And it was good. Yeah. We're building something special. Year three finally felt like a family reunion. I think, you know, this is the first time it felt like that to me and I can't wait for year four. I'm already working on year four. We moved the date to January. So we don't have any more Valentine's conflicts, super bowl conflicts. So, uh, yeah, be ready for next January, January, same venue or same venue. Yeah. I already put the deposit down. Great. Good venue. Good time. Yeah. Mike, where can they find you? Rentometer.com. Uh, and if you're looking for the yield tracker, rentometer.com, uh, pro tools yield tracker. Awesome. Mike, you're amazing. Thanks again. Thanks for coming out.