Jacob Davis
00:00
Jake T Davis here a Woodbridge real estate with Jared Evanson here.
Jarod Evenson
00:05
And this is your Cougar, Cougar real estate podcast. We just came up with that, man, that’s good, yeah.
Jacob Davis
00:15
So, we’re going to be talking about real estate financing. Cougar sports.
Jarod Evenson
00:23
Yeah, you know what we should talk about to get started, though, is that new old crimson lager beer. I’m excited to try that out.
Jacob Davis
00:33
How do we get some of that old crimson
Jarod Evenson
00:35
I think, I think we’re going to start seeing it on in bars and shelves around here pretty soon. But I heard it’s pretty good, and I just read an article today saying that it’s supposed to bring in, like, up to $20,000 a month in n i l money for WSU athletics, which is pretty sweet. We could use that.
Jacob Davis
00:54
Yeah, that’s I, I, I’m kind of interested how that works out. Yeah, that seems pretty cool. So, Jared, you know that I’m so I’m a real estate agent. I also am interested in real estate investing, so I thought today we would talk about real estate investing and financing. So, I guess my first question of the day is, so if I am a new if I want to get into real estate investing, I own a home, how can I get started?
Jarod Evenson
01:36
Gosh, so this is a, this is a big topic, and it’s something that’s come up a lot lately, because people are wanting to find ways to diversify their portfolio, and they’re finding that real estate is one of the best ways to do that. There’s lot of things that you you know we can get into, what you need to think about before doing that. But how can you get into it? So, lot of people are using Have you heard the term you well, you have heard the term house hacking, though so many people the best way to get started in the real estate investing, one is to own a home already, right? Your current primary house and either a, you know, let’s say you bought four years ago, five years ago or more, and you’ve got some good equity in that house, you know, using the equity in your existing house as a vehicle to help you buy the next house, whether that next house is a house you’re going to move into and live in as your primary residence, and you’ll be converting your existing house into an investment property, or staying in your current house, using that equity and taking that money from that equity, kind of like a big ATM to put as a down payment on your next house. If you don’t have, you know, anything else saved up, because that’s, that’s the big thing. Is down payment is most people’s biggest obstacle, right?
Jacob Davis
03:08
So, so, okay, so I own, let’s say I own a home, and I want to buy a $250,000 duplex in Pullman.
Jarod Evenson
03:22
Well, I don’t have to time travel back to 19, let’s say Colfax
Jacob Davis
03:26
Anyway, so duplex, I don’t have a whole lot of cash, but I you know there’s a really good deal on the duplex. How do I, how do I pull equity out to use that for a down payment?
Jarod Evenson
03:46
Yeah, that’s great. So, pulling equity like I do, I can do home equity loans, but I usually, what I tell most people to do is finding like that local credit union in town. You know, you’re, I’m not going to name any of them here, but typically, your credit unions are going to give you the best deals on like a home equity line of credit or a home equity loan. And the way those work is, basically, they’ll take your existing house that you have, and we’ll find out how much equity you have in that house. So, if, if you own a house for let’s just say your house is worth $500,000 you bought it, you know, three and a half four years ago, for 400 grand, and today it’s worth $500,000 and let’s say maybe you owe $350,000 on the house. You’ve got $150,000 in equity sitting there and and you can tap into that and get a loan against that. That’ll give you cash, and that cash you can use to then turn around and put it as a down payment onto another house. Now you’re paying, you know, a lot of people, they don’t want to mess with their first mortgage right now, if they got it in the you know, 2000 22,021 either you bought your house during that. Time or you refinance to a lower rate, but they’re in, you know, interest rates that starts with twos and threes. You don’t have to get rid of that loan. You can keep that loan and add a second loan on top of it, and that second loan, yeah, it’s going to have a higher rate, you know, 678, 9% depending on a whole bunch of different factors. But that’s also it’s a smaller loan. It’s a smaller chunk of money that you’re just using to get a down payment to help put you into an investment property. And, you know, factor, you know, figure, do the figure? Run the figures, get the get the numbers at the end of the day. For most people, it just comes down to payment. You know, the interest rates, what it is. But if it makes sense for you to get this second mortgage to help you buy you want a duplex, and the rents in that duplex are going to be enough to make you feel good about using this vehicle to get you into that house and do it all day long. It’s it’s a great tool. It’s how a lot of investors get into the investment market.
Jacob Davis
06:00
How much do I need for so if I’m not going to live in the duplex, how much do I need for the down payment? What’s the percentage
Jarod Evenson
06:07
so, so you can get away with 20% down, I tell people, you’re going to want to try to do 25% down. So, it just makes such a huge impact on your payment, your interest rate. But on top of that, that’s about where you start seeing the cash flow break even with the expenses. So, your rents coming in, breaking even with, you know, what your housing costs are there. So, when it comes to investors, a lot of its cash flow, right, right? You, you, you own some investment property, some rental properties. And there’s two things to look at. You might not have a positive cash flow, like 100% positive cash flow. You know, you’re not going to go buy a house with the minimum down payment as an investment property and make money Positive Money on it right away, if you’re doing, you know, long term rentals, but you’re building equity, you know, as you’re doing this, and so it just depends on what your expectations are, your long, long term goals for that investment property, rents are going to eventually go up, right? Your equity is going to continue to grow. Interest rates on mortgages are going to go down. So, we’ll be refinancing to lower payments eventually to where now those those rents are going to positive cash flow. So ideally, in a perfect world, you come up with 25% but you can get away with a little bit less.
Jacob Davis
07:31
And if I’m going to move into this duplex, say this duplex, one of the units, my down payment is less and I get better interest rates if I’m better,
Jarod Evenson
07:44
yeah, everything’s better all the way around. So that’s the other way people do it too, is they will depart their existing and even if the duplex is your first home too. You know, buying a duplex as a first house is a great way to get into one, real estate ownership, owning a home, but two, investing as well. And we can talk about that a little bit, but if you’re, you know, departing another house, yeah, you do as little as 5% if you’re going to live in it. So, lot easier when it’s a primary residence.
Jacob Davis
08:19
My first property was a duplex, and I rented we rented out. So, I bought my first duplex back in the day for think it was 189 in Pullman, and then we rented out the bottom unit, and then we also rented out one of the bench in our unit, and so I was living for free. I was like, making pretty much the whole payment. And I don’t understand why more people don’t do that. I explain it to them, and it seems like it’s too much of a risk for people, but in my mind right now, especially, I would think that’s a good option for buyers. Are you seeing more people buying duplexes now than they totally want to?
Jarod Evenson
09:05
Yeah. Do you still have that duplex? I do. Yes, there you go. Great investment. So, people are, it’s, it’s especially when you’re looking at home affordability, like, of course, everybody wants, you know, white picket fence with a house on the, you know, acre and a big, huge yard and ya yada yada, but, but what they don’t realize is, most people don’t start with that house. They start with something like a duplex or a starter home and and they use that house that’s your vehicle to get you into your, you know, closer to your dream home and and whatnot, or or your, you know, financial goals, and I’m seeing a lot of you know, with FHA loans, especially, you can do by a duplex with three and a half percent down. You. And in some cases, you can even do that with down payment assistance too. So, you get nothing and and that’s exactly what it is. You might end up with a 2020 220 $400 payment on that duplex, but if the person on the other half is paying you $1,500 a month, now you’re just paying $900 a month. And some folks, they will get a roommate that’s going to pay him $600 for one of the rooms. Now you’re paying, you know, only $300 and you own the house. You’re getting the equity and and all those benefits there it, it’s not used enough, you know, because everybody wants to jump straight to the dream house. It’s like, take steps to get there.
Jacob Davis
10:38
Yeah, I, I didn’t. I was more interested in buying rental properties, as I guess, like, instead of buying a nice house, I was more interested in buying investment properties to start. So, I’m always, I’m always like, why don’t you buy a duplex? And I guess a lot of people don’t think the way I do, but to me, it makes sense you buy a duplex, you live in one side, run out the other, have that for a couple years, and then, you know, and then maybe buy a nicer place, you know, or buy another duplex is there. So, jumping from that first investment property to the next to buying another investment property, is there anything people should know when they’re looking at financing that second investment property?
Jarod Evenson
11:31
Yeah, and that’s, that’s the big key too, is the the lot of people get stuck after that first investment property, like, Alright, I got one house. Now I got another. And then they get stuck because they don’t know how to advance to to that third investment property. And at that point, it’s now you’ve got, you know, where am I going to get my down payment? I already tapped into my primary residence on the last investment property. So where is that coming from? In and there’s, there’s tools for that, and that’s where, you know, maybe you bought that. That first investment property was 300 $250,000 and you put, you know, you had to put 20, 25% down on it. Where am I come up with another 50 grand. So, there’s, there’s a, there’s some ways that you can tap into equity. Again, you know there’s, there’s ways to do that, if it’s there, but, but let’s just say, let’s just say you do come up with that down payment, money. It, it gets a little trickier now, because you have to have reserves as well. So, the more properties you own, the more reserves you need in the bank. We you need to they’re going to scrutinize and normal lending standards. They’re going to scrutinize your income a little bit like, okay, has he? You know how much there’s this you’ve got your regular house payment, you got any other loans, you have you got your mortgage payment, you’ve got this rent coming in, you’ve got your job, you know, how’s the cash flow looking? Are you going to qualify for this third house? Well, now we’re counting income from the rental property you have. So, depending on how that looks, there’s there’s that. But the more houses you get, the harder it becomes to qualify for traditional financing and and so there is what we call, like nontraditional type loans that you can get to help grow your rental portfolio and, and that’s what I think is also really under-utilized by most people, because most loan officers, they Don’t know how to sell it. They don’t know the ins and outs of the products and and who might qualify for it. So, you know, if I took, if I took a client right now, that had five investment properties, and all of them had loans on them, and let’s just say each one of those investment properties had a $2,000 payment. I would need to have roughly $60,000 in the bank in reserves. So that’s on top of their down payment and things like, if I did traditional financing form, but if I did some non-traditional financing types. One, I can get away with slightly less down payment, and we’ll talk about what those loan types are. But and two, I don’t need all those reserves anymore. I just need maybe $8,000 in reserves, or $10,000 in reserves, and those can be like a retirement account I can count for reserves. And so, some of you might be getting lost, but I’m talking about this. But you know, for example, there are loans that you can qualify for Jacob that are just strictly, and you know this, but strictly based off of how much rent property is going to bring in where I don’t have to look at anything else. I don’t have to look at the other three rental properties you own. I don’t have to look at the payment on your primary residence. I don’t have to look at your car payments, credit card payments, anything like that. I strictly can qualify someone based off of how much rent the house. They’re buying brings in, which I think is amazing, right? Because what do you call those loans? We call them DSCR loans, debt service coverage ratio. So basically, you’ve got a payment of $2,000 but you have rent coming in of $2,001 you qualify for the loan and and in some cases, you actually qualify with negative rents. So, let’s just say your your rents are 1500 but your payments 2000 we can still qualify someone to buy a house with that in that case, because, because they know it’s a appreciating property. You’re you’re still, you know, it’s a vehicle that’s bringing you wealth by owning it. And rents are going to eventually go up. So, it’s pretty slick. There’s, there’s a lot of tools out there, and I never sold the products until this year, like I started, you know, we’ve done five or six of them in the last, you know, four or five months, and it’s really helped investors that I work with get the next house, because they’re stuck getting the next house.
Jacob Davis
16:01
Uh, interest rates are a little bit higher on vscr loans, little bit sometimes,
Jarod Evenson
16:07
actually, so, so sometimes they’re, you know, here, there’s a few tricks to it, and they’re definitely for investors only, but for people who are going to be long, but they they can be a little bit higher in less, like you take a prepayment penalty. So, you know, if we throw a three year prepayment penalty on it. So these are these loans are meant to buy and hold. It’s not meant to buy and flip, because they they have prepayment penalties to get you into the best pricing. But I did one a cash someone owned an investment property, free and clear, they needed 100 or they end up getting $150,000 and we got them a at like, 7.5% 7.375% and we put a two-year prepayment penalty on it, so she can’t refinance with me for two years. But it was still 7.3 so five she was using it to, like, buy a bar the building that her bar was in, which was pretty cool deal, but, and they’re usually Adjustable-Rate Mortgages too. So, you guys get, you know, the typical buyer gets scared when they hear adjustable rate mortgages. We put them usually on, like, a five-year adjustable-rate mortgage. So, depending on what the market does in that five years, you can, I mean, we’re, we’re kind of at the top of interest rates right now. Its May 2024 interest rates are in the low sevens for, you know, good buyers. So, yeah, you know, if we, if we get to a position five years from now and you’re still in that loan, you just simply refinance it again, in another DSCR loan, or you’re selling it at that point to go buy two more. Do you ever like see people Jacob where, I mean, I’ve seen positions where someone wanted to grow their investment portfolio and they would sell one house to buy two, because they could take so much equity out of it by doing that, and now you have enough money to go buy two houses, because, you know, you just get a loan on both of them. Or, I had one guy who did that, and he bought a, he sold one single family residence to turn around and buy a four Plex. And that four Plex was just raking in the rents. It was pretty sweet.
Jacob Davis
18:18
Yeah. I mean, I think, like, you know, a lot of people have these pretty nice homes, and they’re, you know, they have all this equity sitting there, just not doing anything. My investment, mine says they should sell that nice property and reinvest it into multi-family properties be heck of a lot better usage of all that equity than it just sitting in a house that’s not doing anything. But you know, it’s also nice to have a nice home So, but, yeah, I like, you know, I’ve been working with investor client that has a property he’s looking to sell and and then do a 1031, exchange into multiple, into a larger complex, but it’s just trying to put that deal together is challenging. You gotta have a a good investment property to buy, which it seems like, at least around here, it’s hard to find a large investment property that cash flows, at least in the Pullman Moscow area. It seems like the cap rates are pretty low. And so, yeah, so that’s, I don’t know if I answered your question, but yeah,
Jarod Evenson
19:42
so how do you, how do you identify, how would you identify a good investment property for someone,
Jacob Davis
19:50
I would say, I mean, typically cap rates, kind of, how do you look at it? You know, you look at the gross rents. Mine. As expenses divided by the purchase price, and that’s how you get the cap rate in. I mean, typically you want your cap rate, say, like a cap rate historically in Pullman, like a six-cap rate was good. But when interest rates are seven, doesn’t nothing pencils out right now, you kind of want to be over your interest rate for a cap rate, um, unless you know you’re convinced that interest rates going to drop, you can refinance that property, which, you know, I maybe that will happen, but most investors aren’t going to buy something if the cap rate isn’t good enough to buy right now,
Jarod Evenson
20:44
cuz, like, Pullman Moscow for investment properties, typically pretty good, like, good place to be an investor or have investment properties, and for the most part,
Jacob Davis
20:54
yeah, it is, if you can get A property that you know where the seller is selling it at low enough price that you can buy it and rents can cover, you know, all your expenses and mortgage payment. But right now, just there’s not much on the market that kind of fits that bill, at least in Pullman Moscow. So, someone wants to sell a property that, you know, makes sense for investor clients, that would be awesome to see. But, you know, in college towns, its sellers typically get pretty high rents, so they’re not super motivated to sell,
Jarod Evenson
21:41
yeah, yeah. That’s kind of and then heck, a lot of the times there’s nobody in the house for a couple months out of the year because the kids are going home. They rent the house.
Jacob Davis
21:52
So, you leave 12 months and it’s only huge for like nine or 10.
Jarod Evenson
21:59
Yeah, that’s kind of cool. No, that that’s crazy. Yeah, I’ve been seeing a lot of younger people, though, and I love seeing it like when they’re inquiring about their first house, investing’s on their mind the next they’re already thinking about the next one. And I think that’s the best mentality for someone who who wants to do that. Me, personally, I don’t, I don’t want to be a landlord at this point in my life, but I should be. I mean, it’s the only asset.
Jacob Davis
22:28
So why don’t you want to be a landlord? You know? I, I don’t know. So I okay. So maybe you don’t have to be the landlord, but don’t, wouldn’t you want to own an investment property if you could have someone else manage it?
Jarod Evenson
22:44
Yeah, there is that’s crossed my mind, and so and I recently faced that dilemma, because I sold a house that had an interest rate that was 2.625% and I’m never gonna get that interest rate back? Ever like I’m never going to get it back and and that house would have cash flowed extremely well. I mean, I bought it in a when the prices were low, you know, in 2019 in a brand-new community, and the prices just kept going up after I bought it. And rents would have far outweighed my mortgage payment because that rate was so low and and I just, I don’t know, I didn’t,
Jacob Davis
23:35
is it too much of a risk for for you as a buyer? Is it too much of a risk, or is it just out of your comfort zone?
Jarod Evenson
23:44
You know, for me, so for me, it came down to, I wanted to take advantage of every single dollar of equity I gained in that house when I sold it. You hear that clapping anyway, I wanted to take advantage of all the equity I had to help put towards us building a house. So, I kind of, I kind of needed to for the way it was going to shake out for me. I needed that money now, and i i for, like, debt ratio purposes and stuff like that, because it was going to take the house. I wasn’t gonna be able to count rents on my departing residence while I was having my home built. So, there was some funky things going on there. In a perfect world, I would have loved to have been able to hold that until my new house was done and then convert it, though I I would have highly considered it because it would have, it would have rented, well,
Jacob Davis
24:45
yeah, yeah.
Jarod Evenson
24:48
And I had, you know, in worst part is I, I’d actually used that equity to buy a different piece of land, so I didn’t have equity to go turn around and put into my construction loans. I have this other piece of dirt here. So however, though buying real estate, I’ve, I’ve bought three pieces of real estate in the last six years, and they all have appreciate like it’s that’s all been better than any other cash investment I had for it’ll call it your 401, K, or your any investments annuities you have, because there was that period during COVID where all that lost money. I don’t know what that clapping is,
Jacob Davis
25:27
so, I didn’t know we had a crowd. So, so what I guess? I guess to kind of in this video. Let’s talk about, I guess. Let’s wrap it up with, maybe I get nothing part out. What should we talk about? We’ve talked about a lot, yeah, what should we talk about the in the video?
Jarod Evenson
26:09
So, so let’s, let’s end with this. So, Jacob T Davis, I’m calling you, and I I want to, I want to buy. I want to buy my first house, and I want it to I know I only want to stay in it for a couple years so that I can go buy my next house. I’m handy. I can fix things myself, right? What are we looking for? What? How do we how do we know what the perfect house is?
Jacob Davis
26:47
Well, I look at homes a little differently. I think most buyers, first of all, you know, I think if the home has a good foundation, you know, I think you want to buy a home that’s structurally sound. If homes like kind of ugly, usually there’s an opportunity there, you know, like flooring is beat up, paints beat up, maybe it needs a new roof. I mean, I know people don’t want to put a new roof on a house. But, I mean, usually where there’s problems, you know, there’s an opportunity, and so paint super easy. You know, of the if the color on a house is ugly, I mean, that’s like, there’s just, I look at it as money. It’s like, you know, I could, if I didn’t know how to paint a house, I could show a person how to rent a sprayer and paint that house in a couple days. You know, it’s going to be couple long days. But I just rented, I just let one of my buddies borrow Heather’s Heather’s husband, they just painted their house.
Jarod Evenson
28:07
Salter, I heard about that the neighbors were complaining. But, yeah, I heard her neighbors were complaining about that.
Jacob Davis
28:13
So, so anyways, you know, they painted their house in a couple days. And it’s like, you know, when a house is ugly, when the roof looks like it’s bad. I mean, those are the kind of properties in my mind that are like gorgeous, because there’s so much opportunity when I am showing a house and it’s totally dialed in. You know, I know that, like when I go, when I take a buyer through these cream puff homes, they’re just going to get so excited, you know? And it’s like, my investment mind says, like, you’re going to get taken because somebody did the work. And it’s like, I just want to, you know, it’s like the opportunity exists in these ugly houses that people can go and fix them up and then build 100,000 equity, like overnight. It just blows my mind that people can’t see the opportunity.
Jarod Evenson
29:14
Yeah, so you’re saying, so find someone good bones that could use a little lipstick and
Jacob Davis
29:19
yeah. So, yeah. So maybe we should redo that. So, ask your question again, because I’m going to cut that whole. I kind of went on a tangent.
Jarod Evenson
29:31
Oh, alright. So, alright. So, So, to wrap this up, Jacob then, so I’m a first-time buyer. I know I want to buy a house, but I know I want to buy another one in COVID. I want to become an investor. What? What kind of house are you going to show me? What are we looking for? What’s the investment opportunity?
Jacob Davis
29:49
So, first of all, I would ask you, like, how much work you’re willing to put in, because if you’re so, if you’re looking for an opportunity. If you’re looking to build sweat equity, I think location is huge. You know, it’s all about location. So, if you can find the smallest or the ugliest home in the best location, generally, that’s going to be how you’re going to build a build the most equity fastest. I would say you want something that’s structurally sound, hopefully it’s got a decent roof on it, if it’s just cosmetic, where it needs new paint, new flooring, maybe some new fixtures. Then, I mean, that’s usually a home run. So, but yeah, I think location is huge, and then so you want to look for a great neighborhood, ugliest house in a great neighborhood. That’s usually a pretty winning formula.
Jarod Evenson
30:50
Yeah, that makes sense. Now that that really makes sense, though, so man, I like it, and I think that helps people understand what makes a good investment property. And I like how you said, how hard are you? I know, how much work are you willing to do? That’s a big because if you’re hiring everything out, that’s cutting into your profit, right? But the more you can do on your own or kind of GC yourselves. I mean, you got to hire some stuff out.
Jacob Davis
31:20
But yeah, I would say, yeah, don’t hire contractors unless you absolutely have to. Because, I mean, if you’re looking to build equity and grow and work in investment portfolio, you need to learn skills. I think that skills are the are the best way to I think, grow your wealth like the more you work on these properties. You learn how to paint, you learn how to do flooring, framing, roofing, maybe then you can just build your equity.
Jarod Evenson
31:54
Nice, yeah, good, alright. Well, I’m looking forward to hearing someone that watched this, who’s ready to get the process started so they can start investing and whatnot. So, we covered a lot of good stuff, and then they could always, someone could always just call you right they want to. They had quite they watch this, they got ideas. They want things they want to do. They can call Jacob. You guys call me if you want to figure out the money side of things. We’re we do a lot of, I think we both work with a lot of investors, and you’ve invested a lot in yourself. I’ve bought and sold stuff a lot. I haven’t been a landlord,
Jacob Davis
32:29
but, you know, give us a shout. How did they find you? I mean, I can’t see like, I can’t figure it out. It’s like, is it behind you? Is it on your background? Is that how people get a hold of you? You know that I needed to put something back there?
Jarod Evenson
32:45
Yeah, that’s, that’s my my website. Je, lending.com or 509-701-0558, my phone number, pretty easy, yeah, call, text, email, you name it, just look up Jared Evanson, you’ll find me.
Jacob Davis
33:06
Noise, and you can always find me by just Googling Jacob T Davis or Yeah, Woodbridge, real com. That’s our Woodbridge website. So anyways, Jared, thanks for joining on another Cougar real estate podcast.
Jarod Evenson
33:27
Yeah, brand new name. I love it sounds good.
Jacob Davis
33:30
Does sound it just it, just it just goes. It just works, flows. Alright, alright. Man, Alright, brother, alright. Next time take you there you see it?
