Podcast Details

Episode 11

Noel Christopher

Join us on the Hacking Real Estate Podcast where we reconnect with Noel Christopher, a real estate maestro with an impressive track record spanning 24 years and over 10,000 transactions. Listen in as Noel unveils the art of seizing foreclosure opportunities, sharing his journey from commercial real estate to residential properties, and the strategies that helped him navigate the post-financial crisis landscape. His innovative approach in collaborating with small banks and applying a commercial mindset to residential investments provides a treasure trove of knowledge for anyone looking to expand their real estate portfolio.

In this conversation, we pull back the curtain on the critical process of evaluating distressed assets for investment. Noel imparts wisdom on the significance of understanding the end customer and the necessity of ensuring a property is free from title issues and other encumbrances. He walks us through the key areas to inspect before investing and stresses the importance of due diligence, especially with properties that have a history of neglect. His insights into maximizing rental income and building durability underscore the finesse required to generate a robust return on investment in the world of foreclosures.

The episode wraps up with a comprehensive look at various real estate investment strategies and insights into current market trends. Noel highlights the role of hard money lenders, the changing investment landscape, and the nuances of managing properties with existing tenants or those under the Section 8 program. With his expertise, he elucidates the importance of conservative estimates in rent and value appreciation, advocating for a well-informed investment approach that doesn't rely on market crashes. Tune in for a masterclass in unlocking the potential of the housing market, whether you're a seasoned investor or just starting out.

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Key Takeaways

1. Foreclosure Investment Strategies: Noel Christopher shares valuable strategies for investing in foreclosure properties, including the importance of working with small banks, understanding the post-financial crisis market, and applying a commercial mindset to residential real estate investments. He emphasizes the need for in-depth market knowledge and underwriting skills, as well as the critical nature of due diligence in evaluating distressed assets, such as checking for clean titles and estimating repair costs to ensure a healthy return on investment.

2. The Role of Relationships and Financing in Real Estate: Building relationships with smaller banks and leveraging different financing options, like hard money lenders, are highlighted as key factors for success in real estate investments. Noel discusses the changing landscape of the market, with fewer institutional buyers and more private investors, stressing the importance of having experienced brokers to access off-market deals and navigate the complexities of buying properties with existing tenants, including Section 8 housing.

3. Market Analysis and Investment Timing: Noel advises against waiting for market crashes to invest in real estate and instead advocates for making investment decisions based on sound current analysis of local market conditions. He underscores the resilience of the single-family rental market and recommends setting conservative estimates for rent and value appreciation, suggesting an annual increase of around 3%. Understanding housing market trends and being well-informed can offer opportunities for investors despite market fluctuations.


00:20 - Noel Christopher (Guest)
This is the Hacking Real Estate gone down. Well, you have to look at that's just the price of a median house and with little small transactions it could be that it's just you have a less data point. So median house price when there's not very many transactions doesn't matter, but what's the value? So if you're waiting around for a big market crash, you're probably going to miss out on deals that you could have done.

00:43 - Brandon Hall (Co-host)
So welcome to the Hacking Real Estate Podcast, where we dive into the stories of seasoned, hands-on and tech-savvy real estate investors. We'll learn the strategies and tools they use to maximize returns and minimize hassle, all while navigating the rapidly changing real estate market. I'm your co-host, Brandon Hall, and managing partner of Hall CPA, and I'm sitting alongside my co-host, Vikas Gupta, CEO of Azebo. With our combined 15 years of experience in real estate investing and entrepreneurship, we're here to help you up your real estate game. Let's get hacking.

01:15 - Vikas Gupta (Host)
Hi everyone, welcome to today's episode of the Hacking Real Estate Podcast. Our guest today is Noel Christopher. You may remember Noel from season two, episode six, where we had a wide ranging conversation covering his broad range of experiences in real estate. We invited him back on this episode to do a deep dive into his experience buying homes out of foreclosure. If you didn't get a chance to listen to that episode, I highly recommend it. But to give you a brief introduction, noel is a seasoned executive with 24 years in real estate, specializing in single family rentals and build to rent sectors. Over his career he's overseen over 10,000 transactions. He's a thought leader with expertise in sales strategies, partnerships and corporate real estate M&A. Noel, welcome back to the show.

02:07 - Noel Christopher (Guest)
Thank you for having me. Great to be here. I'm so happy to be a repeat guest.

02:11 - Vikas Gupta (Host)
Well, thank you. Why don't we dive right back into it? Tell us about your experience buying homes in foreclosure. How did that start? How did you get there?

02:20 - Noel Christopher (Guest)
So yeah. So before the great financial crisis back in I guess leading into that I was in commercial real estate. I had a career in commercial real estate. The whole world fell apart and in 2008, I started just myself with some business partners. We were buying in Chicago. What we were doing is we were buying two and three flat buildings out of foreclosure in Chicago directly from banks and then we were remodeling those homes, finding an investor that was interested in buying Usually it was small investors and back then you couldn't even get purchase loans.

It was impossible. But you could refinance. So what we would do is we would provide them a hard money loan and then we would season that loan and then have them just refinance right out of it. No cash out. You couldn't do cash out refinances. We would refinance them out of that into a 65% loan to value loan and we did about 300 of those types of transactions in a couple of years and so we amassed a pretty good portfolio of homes that were buying, rehabbing and then renting out and having. We got a good portfolio of small investors. Well, that quickly grew.

At the same time, I was acting as an REO broker, so I was doing a ton of transactions for banks, listing the homes, spending them on the market, and that was kind of the world I lived in for three or four years and we were helping a lot of banks that a lot of small banks had owned and this is an interesting tidbit so a lot of small banks that own these portfolios that weren't government-backed loans, that were on their balance sheet, that were commercial real estate but not commercial real estate. We were helping them work those properties out, get them rehabbed and then get them back out onto the market without going through a full foreclosure. Usually it was cash for keys or deed in lieu of foreclosure. And because I had a commercial real estate background, we kind of put that model to how we were buying homes. We didn't look at this as residential real estate, we looked at it as commercial real estate and put that mindset behind it.

And then fast forward to 2012, I started working with the institutional funds that were buying foreclosures and so in a matter of a couple of years we bought close to 3,000 homes in the Chicago area. Most all of them were homes out of foreclosure. So we're buying directly from banks and created bank relationships and at the same time as we were buying these homes for these institutional funds. We were learning the institutional underwriting and they would turn away 80% of the homes and some of them are really good.

So then we started pushing those out to small investors and created we kind of had these hot sheets that would go out and this is back, we're doing everything in Google Docs and we would put these hot sheets out. We'd have small investors come to us and they would want to buy the home. They need somebody to rehab it. They would need somebody to then manage it, find a tenant and then also manage the home. So we kind of created this portfolio while we were also doing the institutional business. And you know, it was really just learning how to underwrite and learning the markets and the micro markets and really I mean, we're focused on Chicago. We did a lot of things in some other cities, but Chicago was the main city that we focused on.

05:51 - Vikas Gupta (Host)
Wow, I mean, that's from 900 homes to 3000 homes. That's pretty incredible. So take me back. So you were in commercial real estate. Great financial crisis happens. Real estate goes to hell in a handbag. What's the point at which? What was the event that got you into foreclosure? Was it like you saw an opportunity? Someone came to you? Take me to that sort of tipping point.

06:17 - Noel Christopher (Guest)
So before the great financial crisis, I was a commercial real estate broker and I was also. I was a commercial real estate broker and I was also myself and a couple of partners we were buying small multifamily. So we had I don't even want to tell you how many of the millions we had in our pipeline and we had totally performing, everything's going great. And all of a sudden, we have our small community banks that we're working for or working with, that got their lines of credit pulled. So they came to us and said your line of credit is pulled. So then what we started to do was we were in that position of, well, there's no reason to have these foreclosed, we'll give it back to the bank. Then the bank hired us to then get these fixed and then so we could figure out a way to take them back. And then they started saying, well, hey, we have these other homes or these other buildings. And it was kind of funny because back then if you got a you know, let's say you were doing a bunch of multifamily deals you'd say, well, you know, let's put my home in this, let's, you know, we're going to buy this house, you know, it was just. It was a multitude of type of real estate. And so we had these banks coming to us saying, hey, we've got these portfolios. We need to rehab these homes and get them back on the market Now. They took a different route than some of the larger Fannie Mae, freddie Mac, fha. All those guys let the homes go into foreclosure. They sat vacant for a long time. They lost a ton of value. The community banks were a little bit more hands-on and they would say let's not let this lose value, let's get these homes up to a standard to get sold or rented or whatever. And then they held some stuff on their balance sheet. So that's how I got into it, actually, and we started realizing there's other opportunities. And I wish I bought more homes for myself during that time, because if you look at where the values have gone and at the same time, since we were doing this, we had a brokerage, we started getting those REO contracts to work all that through and you would get 200 homes sometimes and say, here we go. There's a pipeline of stuff coming through.

Fast forward to today. You're going to see less homes that have just been sitting there for months or years. I mean we were working on homes in 2012 that had been sitting around since 2006. And so you can imagine the value of a home that lost its value condition for condition. So a good condition home loses 40% value and now that home loses another 40% value because it's been sitting there, there's squatters, it's in disrepair.

Homes are like a lot of things If you don't upkeep them, they get in disrepair very quickly. They can't just sit there, they need to be used and worked and things like that. So today that's not the case as much. So you're going to see, the banks are smarter. They're going to push less things through to foreclosure. They're selling portfolios of notes to people at definitely not pennies on the dollar, but they'll sell them at a discount and have somebody else come in and be that note holder and that servicer and they'll come in and work things out with their investor.

They're really honestly taking more of a commercial approach where you see these buildings that you hear about, that you know were written down to zero, and then somebody comes and buys them and then they take that on. Well, the good thing is that that building never just sat there and the homes are less likely. So you're going to see a lot less. I mean, ok, we're making some assumptions. Let's say there's some more homes who want a foreclosure, and there's always a. You know it's ticking up assumptions. Let's say there's some more homes who want a foreclosure, and there's always a. You know it's ticking up. It's not the same volume that it was before, but you're going to see a lot of different entities that will own these and then try to work them out, and you'll see a lot of portfolios being sold with a homeowner in place, right, and somebody's living there and now they're a tenant, or they are a tenant or they're a note.

So it's going to be interesting to see, as if we shift anything, that's more of a recession. First off, how many foreclosures will there be? There's still always foreclosures happening, and so that opportunity is always there.

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11:03 - Vikas Gupta (Host)
So let me play back what I heard and make sure that I got it right. So you were already in the business. You were buying homes. Credit availability goes away. So first you need to figure out what to do with your assets when your funding goes away. You give them back to the banks.

Banks are like we don't know what to do with these. Hey, noel, can you come help me figure out what to do with these? And then you sort of have like two paths, right? So you have this building. It's got some inherent value and the situation is that you have a mismatch between credit availability and the price. But the building still has value.

And then the longer it sits vacant, the value is going to go down. So the faster you can work it out, the better it is for everyone. So the community banks are saying hey, noel, let's work through this quickly and preserve the value. And then the larger banks are the ones that were FHA backed or government backed. They couldn't move as quickly. Those homes stood vacant. A lot of them went into foreclosure and that was sort of a different process where you have probably you're buying them for a lot less, but there's a lot more work you have to do to get them up to par so that eats. That's complexity, that's more cash out of pocket into rehab and then, once they're up to par, you can take them back to market. Is that sort of?

12:19 - Noel Christopher (Guest)
Yes, and that's not going to change. Except that the banks are much more savvy about this. The bondholders and the holders of those notes are much more savvy and they're not going to let stuff sit there. They'll work it out with the homeowner many times. So it'll be interesting to see when you have, let's say, a homeowner who can't pay their mortgage. The bank says, hey, let's write this down, work it out, keep you paying, keep something going, and then they want to turn around and sell it. So there'll be some creative things going on where people will work that out and then turn around and sell it, and I'm sure the bank will have some covenants in place.

I mean, the other thing is what Biden announced just recently that they were going to waive title insurance on certain types of government-backed loans. I think that's insane and crazy and it's not going to save down the road. Someone's going to pay for that because there's a lot of scammers out there. They're going to start putting their name on title, putting liens on homes to work around that. So that's probably a separate conversation. But again, before you're taking possession of something, that is a a separate conversation, but again, those are you have to, you know, before you're taking possession of something that is a distressed asset, you need to make sure you do all of your homework, especially if title insurance was waived by somebody else. You definitely don't want to waive it.

I would never recommend buying anything without title insurance, because you can get yourself in a lot of issues. You know, municipality loans or liens, I mean, and things like that. But yeah, you hit the nail on the head. I think it's just different this time because people are going to. You know those banks and institutions learn their lessons, and so that's why you're seeing less foreclosures. It's just, you know, besides the fact there's more equity, I think the short sale business could be stronger too. It just depends because banks are more willing to work. They want to get this off their books without it going into foreclosure. So just different tactics, same game.

14:16 - Vikas Gupta (Host)
Yep, so you mentioned one thing, which is always make sure that title is clean or get title insurance, and then you sort of made a general comment on evaluating distressed assets. What are the things that you learned to look for in a distressed scenario that wouldn't be normal? Things that I would look for if I'm just doing a normal transaction?

14:41 - Noel Christopher (Guest)
We were usually looking at, obviously, the condition of the home or the building. So I consider this a fair game. If you're an investor and you're looking at things, a two and three flat building and a single family home are all kind of fair game. It's just location and your tenant type. Who's your end customer when you're going to take this home on? Are you rehabilitating it and then selling it? And then who's the buyer and what level of buyer are they and what do they need in order to buy a home? Or are they a tenant and you're going to rent it? I'm partial to buying something and renting it, holding it as an asset. So you need to understand your end customer. Then you need to understand what condition of home that they require, what kind of finishes, and back your way into that. And then taking that a step further is you know you always want to look at making sure you can cleanly own the home and there's not going to be any encumbrances on it. And that is from title to violations, to future violations. So if you're looking at a place and it was rehabbed and they didn't pull any permits and they did things like a deck or a roof or an addition, well, if it's a distressed situation, that means there may be more homes in that area of distress and the municipality is looking for ways to recoup losses and taxes and fines and things like that. So you need to anticipate that and so we would look at. You know there are four or five aspects to a building or to a unit and we'd look at, okay, you've got floors and kind of the foundation, you've got windows, you have roof, you have plumbing, and then you have like a deck or exterior issues. And if you have to fix all five of those things, walk away. Right, that's too many. So you at least want a couple of things, that you look at it and go, okay, I don't have to totally go rehab this house, especially in today's market, because it's more expensive cost of capital, all these things. So if you have to go in and you're like, okay, we need to replace the plumbing, but someone's recently A lot of times you walk into houses or units and you look at it and goes, oh, it's been rehabbed.

Well, was it a lipstick rehab or was it actual gut rehab? What did they actually do? Are you going to open up the walls and find plumbing that's 50 years old? Another thing that we learned to look at at homes that were built 1960 or older is mainline sewer. So the mainline sewer going from the house to the sewer.

If that is an issue and there's a lot of municipalities now, especially in the Midwest, that require you to scope that I mean you're talking $15,000 to $30,000 cost. $15,000 to $30,000 cost and then if you add in a roof or you add in plumbing, so it ends up being not economical to fix that house because what you don't want to do is over-improve. So this is something that a lot of novice investors get into, because this is about you're buying a foreclosure. What do you look at? A foreclosure? You're buying a house, just any house. You don't want to over improve and this isn't a home you're going to live in.

So the little finer touches. What does that mean? Just because you put an extra 10 grand into it doesn't mean you're going to get extra hundred dollars in rent. What's important Bedrooms, bathrooms, master suite big thing.

If you're looking in the Midwest where you have a little bit older housing stock, where a lot of times they've done the basement or the upper level like an attic or whatever, can you fit a couch up the stairs. A lot of guys fix that up, but they don't change the stairs and make it where you can fit furniture up, so what's the point? Or down, and so there's these little things that you have to look at and you have to understand what are you trying to do? You're trying to maximize rent, you're trying to build something that's durable, and those are the basic things. If you can maximize rent, build something that's durable, you're going to hit your return. You're going to have less deferred maintenance.

So you also have to start looking at okay, the first thing we look at is is there anything that is a violation? Right? So do you have sidewalks in the front that are like this, where there's trip hazards? And then also you're looking in the foundation. Obviously you kind of work your way up around the unit. The looks can be deceiving. A lot of people have done some subpar work to houses and they're trying to just get them sold. And if you're buying it as a foreclosure or distressed or a seller who's just moved out, you need to just look at all these things and really think about what are the issues that you're going to run into in the future.

19:24 - Vikas Gupta (Host)
Really think about what are the issues that you're going to run into in the future. Did you find that they're more likely to be these types of issues in homes, where you're buying them in distress scenarios, versus if you were to just look at something that's just hitting the market?

19:36 - Noel Christopher (Guest)
I think you have to think about anything. I look at the same thing if you're buying a business. If you're buying a business that's in distress, you really need to take a look under the hood a little bit more, because there's probably been some neglect and if somebody hasn't been able to afford to pay their mortgage, they probably haven't been able to afford to maintain the house. And then you see also more situations, especially in areas where there's a little bit older housing stock, where maybe a homeowner bought something that was rehabbed and it really wasn't. I mean, I've seen homes that look like they got rehabbed and then you go, look at the furnace and it's 40 years old. You're like, okay, wait a second, what's going on here? Or the opposite they redo the mechanicals but the plumbing is bad. Or you go into the basement it's popcorn ceilings and it's older than 1979. So now you've got to look at asbestos. There's all these little things that you should look at. But you also want to look at too when you're buying something, and especially for rent. You want to look at okay, so in three years from now and I have to, or a year hopefully you're getting a tenant that you can keep in there for two to three years and then you're going to have to turn that house and there's broken things. So, whether that's cabinets or any work that you're going to have to do, what's the cost of that going to be? So if you have a tenant that's paying $1,500 a month and you have to do $10,000 worth of work on the house, those numbers don't add up. So you need to make sure that you've built it so it's durable but, again, not over-improved.

It's kind of like this situation where if somebody is going to buy a house, they go into it. I don't know what it is now, but it used to be like three times, maybe four times. If someone's going to rent a place, they go into it like once, and so they're looking at the kitchen, they're looking at the bathrooms and they go to the master bedroom and they kind of. You know, those are the focal points, so you want to be able to walk in and that presentation that it's, that it looks good, it's clean, it's. You know, granite always isn't the best. If, if you're going to put granite in, make sure you're doing something. You know you have to replace it. So if you have islands with a big space of granite that breaks more often than other things, so maybe you're saving by doing thinner granite, but that cracks faster. So there's all these little things that you want to be able to replace, and so I know this is getting away from buying foreclosures, but it's getting into the durability of a house.

22:03 - Vikas Gupta (Host)
Yeah, so that's a good segue that you brought in there. Tell me a little bit about the actual buying process. How is that? What do I need to know? That's different from buying just a normal market transaction.

22:13 - Noel Christopher (Guest)
The person you're buying from is not a person. You're buying from an entity. So they're really looking at numbers. You are very rarely going to get any kinds of concessions. There are also the disclosures that typically an owner has to make and saying, hey, I'm aware of defects since they have never lived in the house. They are typically absolved of that. So you'll see that disclosure crossed out and saying they weren't in the house. The current owner has no obligation because. Or the current occupant has no obligation, even if they were owner, to disclose defects because they weren't in the home. So again, it's about that condition.

So you're buying from somebody that's looking at pure numbers and they're literally taking the highest offer. There's very little emotion involved in the transaction. Now, if you're buying as a short sale, it's the same thing. I mean there's going to be very little emotion. They still have to disclose defects that they know about, but you're still dealing with the end Decision maker is really a bank.

And then you think about title insurance. If you're the, you know sometimes they'll say, okay, we'll use our title, but they're going to be doing the minimal amount of work in the middle. You know the cost is going to be less in perception, but it's better. I look at this. If I'm the buyer, I want to put my own title insurance because it's insuring me. You're not insuring the seller and even if it's custom that the seller does the title insurance and all these things, that's really about money. So I would be more comfortable making sure you have your attorney and their recommended title company that's looking at your best interest and they're taking the time to look for municipal liens such as water liens, gas liens. The gas and electric liens are one thing, because those can be wiped out, but the water anything, water trash, waste removal, any of those things that are through the city those can be sticky and violations. So you really want to look deep into that and understand what happens.

When you buy this. Are they going to all of a sudden do an inspection and look through the entire house? Maybe you ask for that inspection to be done before you buy and that is where you have negotiating power that, hey, this is a dirty deal, I need money taken off. And the banks are like, yeah, we realize that and they want to push that away because they're not your advocate, they're not on your side. This is a two-sided transaction and you need to make sure you have representation. This is obviously a hot topic. Whether you have a real estate broker representing you, that's a personal decision. I think the protection there is just if you have somebody that has experience working with investors and they are just another set of eyes looking at it for you. But again, if they are involved in the transaction and profiting from the transaction. Take their assessment of the income of that house with a grain of salt.

Have somebody else that is not involved in the transaction giving you advice on what the house will rent for or sell for, because it's just human nature. They want to get it sold. They're trying to make their commission things like that. They want to get it sold. They're trying to make their commission things like that. So have your trusted team legal title. Who's going to be managing this home on the back end, even if it's somebody that maybe you decide you're new and you want to be hands-on in managing it.

Get advice from somebody about what it's going to rent for that isn't the person who sold you the house or that is representing you as a buyer or seller. And take a grain of salt If you're selling a house, if you're buying an investment property, even out of foreclosure, it's got a tenant in it. Do your own research always. So that's the thing, but really the municipality, what's going to happen there? Those are the things you need to talk about in the transaction. Otherwise, it's a normal transaction Buyer-seller. If you're getting a loan, that's great, if not, that's great. All those things are capable within the transaction.

26:34 - Vikas Gupta (Host)
Got it and in these transactions, because it's a bank seller, are you having to waive all contingencies or are you allowed to negotiate those contingencies?

26:43 - Noel Christopher (Guest)
You can always negotiate. If we're in a situation where there's a lot of distress, there may be less contingencies and you just need they'll be looking for cash buyers. Yeah, so you can, as long as you're up front and you're saying, hey, I'm getting a loan, there's a mortgage contingency, but that mortgage contingency is, you know, I look at different contingencies and it depends on the state that you have a attorney review. I always put attorney review in there. You have a title contingency, so attorney review is a review the contract and review the deal initially. Then you have title. These all can be concurrent.

You have title contingency and you have a financing contingency and then you also have an inspection contingency and that inspection is usually 10 to 15 days, maybe 10 business days, right, 10, 15 calendar days, where you need to get a home inspector in there that is looking at the house more than just a home buyer would look at it. And then you have time to get your contractor in there, and that's where you need to have a good real estate broker or attorney that knows how to work that system, because you can't go in and say, well, we inspected the house and it needs more work than we thought they go. No, that's not it. The inspection contingency needs to find defects. That prevents you from buying the home, but you can massage that process properly in that initial period.

And then title contingency is what it is. There needs to be title defects to be able to cancel the deal then. And then also financing contingency. You need to make sure that you're getting your lender in line and some of these guys they may not even accept it unless you have an actual, not conditional approval, but like a real approval ready to buy. Conditional approval, but like a real approval ready to buy, because you know rates and and and all of these things are affecting how people can buy, buy homes right now no-transcript.

Uh, you know, it depends on the bank and or on the buyer or seller. I mean, sometimes they're going to want a thousand dollars, right, an FHA type deal. Sometimes they're going to want 5%, sometimes 1%. It just all depends, um depending on the state that you're into. So if you're in a state that requires release of um money to be, of money to be, by both seller and buyer, you're a little more protected there because they can't take your earnest money unless you release it. You can't take it unless they release it and there's some things put in place that kind of pushes you to release that money.

But money's put in escrow with the title company making sure you understand what the rules and laws are in your state and county, and you need to be willing to put money up and earnest money does make a difference.

Even if it really doesn't make a difference, it does make a difference in perception.

So if you're willing to put up a little bit more earnest money, you can throw a little weight around. And if you're willing to waive any contingencies, I like to throw in all of the contingencies. So I have something to take away in any kind of a negotiation and some banks will say you use our contract, you use our contingencies and they need to make sure you have an attorney that reviews that very closely so you understand all everything in the contract to make sure that you're not getting yourself into some kind of issue where all of a sudden you have a performance issue and banks, sellers, buyers everybody is not afraid to. If you just cancel a deal for no reason, they're not afraid to come after you for specific performance and push you to buy or whatever. So when you are killing a deal, it's not just. I always say that you can always find a reason and you can get out of a deal, but you need to make sure you're doing it the right way so that people aren't coming back after you later on.

30:27 - Vikas Gupta (Host)
And then you go into your rehab and then you're putting it back on the market in that process that you were talking about. So tell us a little bit about you had your hot sheets, you had your hard money loans. Tell us what little bit about you had your hot sheets, you had your hard money loans. Tell us what you were working through back then to then offload those deals.

30:41 - Noel Christopher (Guest)
So we partnered with a good hard money lender that would help us take down the home. We'd have a hard money loan on there. We would then, typically we already had an investor lined up, whether that was an investor that was partners with us or an investor we were performing a service for. And the hard money lenders it fluctuates whether they're hard money or they're not. I think when rates were so low the hard money lending numbers were actually what prime rates are now, and so they're just above that and they provide a service because those hard money lenders can close quickly, especially if you've shown some experience in buying and either selling or holding and rehabbing and taking them out. If you have a little bit of experience with that, they can close very quickly. You're going to pay a higher rate, but they serve a great, great purpose because they're going to move much faster than a traditional bank and many times they'll have some hard money to permanent loan options, especially if you're going to keep it as an investment property. And then there's also Fannie Mae investment loans, freddie Mac investment loans, where the problem with those is that you have to show your PITI six months for each loan. So it starts to add up a little bit. But if you can get into that agency financing I mean those are the best rates. But yeah, so you'd have a hard money lender that you're very comfortable with that would close quickly and then also loan you the money for the rehab. Most of them will say you need to fund the first draw and then we'll reimburse you. So you'll fund the first draw rehab let's say it's a $10,000 going through the house, they'll come in and do an inspection that you pay for and then they'll fund that and keep funding it through and they will always protect their interest. So they're going to be keeping themselves in that 65% loan to value, maybe go up to 85% loan to cost, but they'll always be in a position that they can get out of that deal and then sell it to another one of their investors who will take it over and bring it to fruition. If you're not able to perform, again, they're there to help you and it's a service, but they're also going to protect their interests. So, yeah, there's those types of construction loans and things you can do and there's plenty of people out there doing it.

And what's really interesting, people talk about the drop-off of investment buyers. It's really the institutional buyers that have dropped off. If you look at the institutional buyers, that made up maybe 20%, 25% of the whole entire investment market of buying. They dropped off but we still have a good volume of investors because if you look in sub-markets or any market, there is a need for housing and there's always homes that are cycling through.

Our country does not, the government doesn't fund the rehabilitation. I mean when I say the government doesn't take on the rehabilitation of old housing stock. It's required of the private investors to do this. So there's always housing stock that's getting old, that needs to be rehabilitated, put back into the mix of things, and there's a need for houses always, especially if you can find houses that you can sell for under $400,000. There is no shortage of buyers.

The problem is there's a shortage of sellers and so if you can find you know it's funny because I'm not a big big on wholesaling but that market is still alive and well right now because there are always people who don't want to sell, who get a divorce, somebody dies, all these different things happen and they want to just sell the house and they don't want to deal with it. Those aren't going to always hit the market and a lot of homes still trade before they hit the MLS, and who knows what's going to be happening with MLS going in the future. So you always want and that's where a experienced broker within a market makes a huge difference because they're going to show you deals you haven't seen. They're going to show you deals that make sense, that you've got a distressed seller that maybe isn't distressed to the point that it's a foreclosure or they're tied into some of these funds that are buying these pools of notes and then they're out there slowly selling things off and moving through their portfolio, figuring out what lenders they can rehabilitate.

The other thing that you want to look at also is if you're ever buying a home that is occupied by a former owner or a tenant, take extra, extra, extra, extra care with that. Do not take for what anybody says, that somebody's paying on time. Many tenants use the opportunity of a sale to just dig their heels in and not want to get out of the house if you want to get them out. So be very cautious.

If you're buying a portfolio of homes and you're buying a, you know that is a performing portfolio. It's got tenants in there and you get all the data and information and you know. But when you're buying a distressed home, be very cautious with a homeowner or tenant in there, because the tenant landlord laws in a lot of places, especially places that might have distressed, are not in your favor. So you need to understand not only the state or the city but the sub market. So if you're in a, you know like, if you're in Chicago and you're in a suburb of Chicago, you need to understand what those laws are, because you don't want to be stuck with somebody who won't move out.

36:04 - Vikas Gupta (Host)
When you were buying those two, three, four unit properties, were you buying them with tenants in place?

36:10 - Noel Christopher (Guest)
Sometimes we had some different tactics to get people out, probably things that you can't do today. So you know we tried to avoid having people in, especially if it's a city of Chicago, it was practically impossible. Most of the time they were fully foreclosed. You know, vacant been sitting there for a while and we were going to gut the building out.

You know same with Section 8. Section 8 is great if you make sure you know how to work the system and you understand the motivations of the Section 8 employees. And are they on? Is it a flat government contract or fee? Because most of them have government contracts and they're private companies that manage the Section 8 program. There's a lot of people that do really well with Section 8 and it's great and it works really well. And you need to also understand what the rules within the city. Because they are in the state, you can, because they are in the state, you can't not rent a Section 8 tenants and so you need to make sure you're understanding all of those things.

But this day and time I'd be very careful about occupants, especially when you're talking about a lot of the news that's finally making it in the news about squatters. You get somebody in that won't move out. Now you own this house and you look at the laws that have these pro-squatter laws. It means that you have to upkeep the house, you have to pay for the utilities, you have to pay for all these different things. So you need to make sure that you understand and that's why when I talk about that team, even if you're buying your first house, you're not paying this team out of your pocket to just be there for you. It's what they do. So good attorney, good property manager, good broker agent, good person that's going to about rehabbing the house and that has experience rehabbing this type of home that matches the kind of level that the tenant needs. They're really important, and whether you're doing one, five, 10, 50, a hundred, it doesn't matter. You want to make sure you have that in place and get that advice.

38:04 - Vikas Gupta (Host)
Got it, got it. I want to go back. I think you answered it, but I want to make sure that I got it right. So you were talking about one of the keys is having the right I mean, you talk about the team, but on this point specifically, having the right seasoned broker agent, and one of the things they can do is help you get access to deal flow, and that was going to be that question is sort of like all right, I'm interested in getting into this market. How do I get into this market? I'm assuming a lot of this stuff isn't hitting the MLS. So it sounds like the key is just having that broker in that specific market or sub-market who just knows what's going on.

38:42 - Noel Christopher (Guest)
Yeah. So there's that and 150% for sure. I firmly believe and this isn't the listing agent who sold you the house. Usually, or is selling the house, it's somebody that works in the investment market. And the other avenue that you can find homes are and this is growing are those who are doing that want to do a sell lease back.

Sell lease backs are okay and there's some companies like Stay Frank and the other. There's several out there that are going out there. They're finding people that want to stay in the home and so these sell leasebacks there's a couple of different comes. There's some that you assume the mortgage in a sense and you lease it back. There's some which are a little more complicated and you need to make sure you understand what you're getting into. And then there's just straight sell leasebacks. They want to sell the home. They'll take. They may have a lot of equity in that house and they're just trying to get that equity out, but they can't find another house to buy. So for whatever reason, they want to get out of the loan. It's really important. A lot of the sell lease back will say, hey, we'll put a year or two of rent in escrow for this person and then you'll get that rent. So you need to look at two things. One is what's the market rate rent for that house? How much over are they paying for that? Because many times they'll pay over and there's numbers that you need to hit and they'll match it. But then what happens when they move out? Just because they're signed a two-year lease doesn't mean they're going to stay there for two years. They might jet after a few months. So it's okay. You just need to make sure you're looking at that house on its own if you're going to buy it without that tenant in place, and then also do a little bit of due diligence on the tenant Credit score.

It doesn't matter as much. In my mind, credit score is like anybody who's had a. I have a great credit score. If I all of a sudden got into trouble in the short term, my credit score would go down to really bad and and you know, maybe I have a great job, maybe, you know you just have different situations. Especially people have gone through divorce, their credit scores get crushed. It doesn't mean that they're a bad tenant. It's really about job and understanding who they are and, you know, kind of getting to know them a little bit, making sure that they're there. I always look at a tenant's going to be your partner in the deal, so and they're your customer, so you need to make sure that you're doing all the right things for that person and you're, you know, at scale you can't get to know your tenants, but as a small investor you can, you know, but again you want to have a layer in between. Got Um, but again you want to have a layer in between.

41:16 - Vikas Gupta (Host)
Got it Cool. We're almost coming up on time, noel and I. It goes by quick, you've. Yeah, this has been fantastic. I feel like we could just keep this going and you'll have just never ending stream of wisdom. Um, but before before I let you go, I mean, is there any final advice or insight for the audience around this specific topic?

41:36 - Noel Christopher (Guest)
I guess just don't assume that the market is going to crash. The house price market. I deal with this a lot. Understand the difference between median house price and house value. So you see a lot of data coming out. The median house price has gone down. Well, you have to look at that's just the price of a median house and with little small transactions it could be that it's just you have a median house and with little small transactions it could be that it's just you have a less data point. So median house price when there's not very many transactions it doesn't matter. But what's the value? So if you're waiting around for a big market crash, you're probably going to miss out on deals that you could have done. So just picture where the market was a year ago and picture where the market is today.

Most people would say just gone ahead and bought a house a year ago and make sure you're not overpaying, obviously, and make sure that you're doing your due diligence on the local market, on what the tenant pool is and what's your competition. Is your competition other houses or is your competition apartments? Because there's apartments is a lot more softening than there is in single family rentals Usually. Typically there's not a competition, because you have a family that lives in a house and you have up and coming families and people that were living in apartments. So just you know there's plenty of good, good opportunities now and there always has been, and I've been doing podcasts for a long time and I've been saying the same thing over and over If it's a good opportunity, it's a good opportunity today. If it works on today's numbers, it's typically going to continue to work, because there's not this risk that single family rental rents, for example, are just going to crash. The only way that happens is mass foreclosures and that's the only way right now that we're going to see house prices going down, because there just isn't enough. The normal natural market is not going to all of a sudden drive prices down. There's going to have to be a lot of foreclosures happening.

And then you have to look at, okay, where is and this is all available data in your local market? What's the average equity in a home? What are you kind of dealing with there? And you'll kind of start to see that there's a lot of room for people to sell below and match where the market is, and maybe the market's adjusting and it's flattened and these types of things. But there's just so many people coming in that need places to live that if you can find a good market, they can buy rental homes. There is a good amount of people that want to rent them. But if you're planning on 5% to 10% rental increases every year or 5% to 10% in value increases every year in the near future, that's not going to happen. I like to go up at the fundamentals and say 3% appreciation and 3% rent increase over time over a period of time. Maybe you won't hit that every year, but it's kind of where we are, and so the market's pretty stable there, Got it?

44:24 - Vikas Gupta (Host)
Well, thank you so much, Noel.

44:25 - Noel Christopher (Guest)
Yeah, absolutely, I appreciate it.

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