How We’re Finding Profitable Apartment Deals at 7%+ Interest Rates

We are live. Let's rock and roll. Hey, good to see everybody here. We are excited to be sharing Today we are answering some questions. Transaction volume in real estate is down by 70% this year and interest rates are higher than they've been in 40 years. But there are still major opportunities to be had in real estate. So today we're asking how do you find those deals, how do you fund those deals, how do you structure those deals and how do you get those deals to the closing table? We're going to be answering that and more. We have our boardroom clients on the zoom right now. They're going to be asking questions. We got Larry and Randy here. They're, we're, we're, we're partners and between us all and our team, We've have over 500 million in assets under management and we are still buying deals this year in 2025. Our team, we just had a guy close just last week, two weeks ago, 48 units. We've had several deals like that. And so just today we want to talk about what does it look like to structure these deals? Where are you going to find them? And so again put your questions in the channel. I'm going to bring up a few that are already in the queue that people are wanting to know. And so let's kick it off. Some people are saying you should freeze and not buy any properties right now with the current market conditions. Some people are saying you should look at the bond market and, and just watch that, wait a couple years. So why don't we start with Randy? What are your thoughts on that and what kind of advice would you give there?

Yeah, I mean I think ultimately, you know, people say hey, just freeze. It's like there's a lack of understanding of where we're at and maybe also a lack of understanding of the structural support meaning the demographic trend of, you know, multifamily and housing needs. So the price first and foremost the bond market, the 10 year treasury is your typical driver that drives real long term fixed rates. Right now it's hovering around 440 earlier probably October pre election it was about 380. A lot of the near term tariff and chaos and stuff like that going on and concerns of inflation have elevated the bond market. And so what that means or what it's a concern for people. It's like you know your Fannie Mae, Freddie Mac, HUD loans which are your typical fixed rate loans that are the agency backed loans. Your you know, greatest call it lower rate and longer term in the multifamily space market are driven by that bond market, not by the federal funds rate. And so, you know, you gotta look at where we're at right now. Is there a reasonable expectation that rates would come down over the next 24 to 36 months? Probably some. Everybody was praying and hoping. There was kind of the story before of stay alive, the 25 kind of thing is what people talked about with interest rates. And again, we'd been saying all along interest rates are going to stay higher for longer. And I think we're ultimately in a higher interest rate environment. That being said, you know, you can still buy a deal today, as you evidenced by some of the REI members that just closed and make money. You just have to find the deal that's supported by it. I mean, you know, we've bought properties in the past when, you know, the rate was, call it just under six, you know, and right now you can probably get an agency loan, right, about six and a quarter depending with buy down or, you know, and you can still make money with it. So now if you wait, say two years with an, with a, with a belief that, hey, rates are gonna come down and when rates come down, I'm gonna buy it, then, well, that means most likely, you know, price could be up if you're talking about a stabilized deal because again, the components are, you know, income, interest rate, those are two huge drivers. So just saying, hey, I'm gonna wait till I see interest rates come down. You're not really factoring in as rates come down. You also probably see that support higher pricing. So if you're able to go in and find a good deal that works in today's interest rate environment and then rates go down, I mean, they're not going to go down to like it was before. I mean, it's, you know, probably a neutral rate of 280 to 3. You're still moving down from where they are today at four and a quarter, four and a half. And that's going to help boost your value of the property in addition to the value add strategy that you're doing. So, you know, I think it, it also, you know, it's a more difficult time right now. And if you're honest, probably more people have a little bit of fear or apprehension.

Right.

And so the easier thing to do if I'm scared is to, you know, I'll just wait and see what happens.

Right.

You know, people, people were saying that in 2016.

Right.

Well, I think, you know, I'm gonna wait and see what happens. And what happened is the market continued to go all the way through 2021, so, you know, lost out on a huge cycle of opportunity.

Yeah. And a very wise person said look at what everybody else is doing and do the opposite. Right. And you can make, make money in every market, any market.

That's right.

Principles are all the same into, in my opinion, you just have a big advantage. There's no doubt a lot of people got messed up by the interest rates rising, right?

Oh, for sure.

But if you're starting today or if you're picking up today, you have a huge advantage because you already know they're high and you're underwriting accordingly. Right.

Well, that's really the key, Larry, just nailed it. Is underwriting accordingly now, you know, some people because of, you know, and again, let's not call it scared, but fear or concern. You know, I'm worried, it's like it's a root of fear. Like I'm scared about what may happen or I'm uncertain about what may happen. But it's like if you're underwriting it properly, you're factoring in the present moment, the present interest rate, you're factoring in what your exit cap rate would be. And then, you know, you're able to look at that and say, look, I can actually buy this deal, renovate the property, drive rents, make money in the current environment. And you know, if rates stay the same, I'm still making money. If rates go down, I'm increasing the value even more. And if rates go up, I'm still making money because I used a fixed rate loan. Right. And so, you know, ultimately, you know, that's the thing. And there's, you know, there's more properties that are no doubt anybody that brought a property and say, call it into 20, 20, 21, 22 with non fixed rate debt, there's pressures on that on some level shape or form. It's just that's the truth because interest rates are up, inflation's up, costs are up, you know, labor's up, insurance is up. You know, those are all truthful things. And then that's also what makes people a bit nervous. But if you're honest also too, one of the things that I would say is a true thesis is that, you know, we're in a at least a 10 and I'd say more like a 20 year channel that you're, you know, the question is, are you going to have more people that need to rent or less people that need affordable rent? What's the real answer?

Right. Yeah, that's so good.

More people.

Yeah, I was just reading someone say, you know, inflations, elections, tariffs, interest rates. There's no such thing as a perfect market. So I keep buying what makes sense off market. Great location, classic value add. You know, nothing shiny or new. I said. I said the market doesn't decide whether I move. It only tells me how.

Mm. Yeah, that's great. That's great.

Yeah.

You know, look, I think a lot of times, a lot of the listeners or people out there, if. If we're. We're honest about things, and we always try to just shoot it straight. It's like, look, you've seen, you know, these wing bam, boom ads on Facebook or Instagram or whatever about, hey, man, you can make money in your sleep. And like, it's like, the truth of the matter is it has its challenges, right?

Yep.

But the challenges pay off with a big economic reward. And, you know, that's the truth. Like, you could go back as far as the twenties in Napoleon Hill and think and grow rich.

Right.

It's like part of the reality of gaining that economic freedom comes with a cost. Part of that cost is you've got to put in the work. And, you know, and this is part of that moment. You've got to put in the work to find a deal that makes sense in this moment.

Yeah, exactly. And number one thing is we need to know how to navigate the market. And by the way, guys, we are live on YouTube and we also have our boardroom members in here. That. And so if you have questions, drop them in the comment section. We are going to answer them live. We are talking about how to navigate the current market, how to buy properties in today's market, how to adjust your underwriting, how to adjust your strategy and your structuring based on the current conditions. And so right now, we're talking about the current conditions and what that looks like. But I want you guys, if you want to get an answer, get a question on something you're working on or a situation you have, we want to answer those. So drop them in the. In the chat. If you're a board member in the. In the Zoom call or YouTube on live. Okay, Randy, you mentioned, you know, we talked about the bond market. And can you. Can you just describe, like, what. Why that's relevant, the bond market to the current state of, you know, investing 100%.

A lot of times people, you know, and especially the media, focuses a lot on the Federal Reserve and, you know, Powell and then the conflict between Trump and Powell and what's the chair going to do. And they didn't move interest rates down. The Federal Reserve really trails the bond market or trails what's happening basically in the open market. The treasury market and the Federal Reserve, when they change interest rates, all it affects is short term variable rates that some loans are driven by your bridge debt loans or credit cards or auto loans that are non fixed or lines of credit for like businesses and manufacturing companies. But the bond market is really the driver for your home mortgages, your 30 year mortgage for buying a home. And it's also your driver for the mortgages on apartment complexes that are 30 year mortgages driven by Fannie Mae, Freddie Mac or 40 year mortgages driven by HUD, housing, urban development. And so that is critical because those are the big lenders, if you will, for stabilized type properties. And ultimately that's where you get your fixed rate long term debt. And so the bond market is not driven by the President or it's not driven by Powell, it's driven by market forces of supply and demand. So as more people plow money into the bond market to buy bonds, the price of the bond goes up and the yield goes down. It's an inverse relationship. And when more people pull their money out of bonds, the price of bonds goes down and the yield or the rate goes up. And that's what we've seen in the near term moment with kind of the scares still of tariff inflation. The other driver of that are there are countries, you know, that huge investors in US Treasuries, the US denominated dollar, is the world currency for trading. And a lot of those countries have pulled back from their treasury holdings. And that's also a, you know, kind of a tit for tat with Trump and all that. So it's important for you as an investor. Most people don't even understand that.

Right.

And if you get an understanding of that, it's going to give you an advantage over other people because you're beginning to able to at least understand, hey, where are we at with interest rates? What is expected to happen? Not just this kind of blind hope or thought like, hey, rates are going to come down. It's like rates aren't probably coming down that quickly right now, right. Because of the economic forces behind it. And so the people that are waiting for rates to come down are going to keep waiting and then miss out on opportunity that other people are going to be able to take advantage of.

Well, let's dive into that because exactly what you said is the burning question, right? We need to know how are you underwriting deals with the current interest rates, how are you structuring deals? What are the plays? Because, you know, we have people really leaning heavy on seller financing. You know, in this situation, they're only looking for sellers willing to carry part of it back. I mean, it just doesn't make sense without it. And that's their one strategy, Right. There's people getting creative, using different types of financing, different types of structures for the deal. And, you know, maybe we can start with this question. If you had to start, and maybe this is a big one, right. If you had to start over today, in today's market, you were dropped in today's market. As a beginner, how would you go about getting back to where you are as fast as possible? Maybe, Larry, you want to take that?

Yeah, yeah, I do the same thing I've been doing since I started.

Yeah.

Just may have to do more of it and do it a lot harder. But, you know, when I first started, I made up for my lack of skills and knowledge by just working really hard right now, hopefully my skills and knowledge are a little further along. So maybe I don't have to work quite as hard, but I'm just going to do the same thing I'm doing. I'm going to talk to as many sellers and potential investors as I possibly can and only focus on solid deals. I mean, that's all we've ever tried to do. Not doing a deal just to do a deal, but doing a solid deal where you're getting pretty much instant equity when you. When you purchase it.

Yeah, yeah, that's good.

You know, the other thing I just throw in to add to that is, you know, I would more quickly be a part of a group like this because, you know, I think for most of us, at least, I know for me, I started off on my own for years, and I had some mentors, but before, I really connected together in a more mastermind format. And there's a lot of value because you're gaining from leveraging other people's experience. And even as Larry just said, you're connecting together with more investors more quickly, more other people that may have advanced knowledge that can benefit you. There's just an acceleration that can take place by doing that. And so I think the faster that you know you can do that, the quicker that you're able to move ahead. Right. By taking advantage of other people's mistakes that you've learned from and their wisdom.

Yeah, exactly. So let's get into that a little more. I mean, what are you looking for in today's market, what, how are you underwriting differently today than you would in years previous, you know, and how are you deciding how to structure the deal? And really the premise behind that is so that we're not over committing but also not staying stagnant. Right. Not just waiting like a lot of people are.

Yeah, well, I think, you know, you've got to define what is the right fit in return for the equity that you're working with, you know, and again, so like, you know, if somebody, you know, has a smaller equity pool and then they're, you know, looking at like you mentioned, the deal, kind of the 27 or 48 unit deal, you know, they're maybe utilizing the concept of the seller finance in conjunction with equity to be able to execute on a, on a deal. We're looking at and you know, incorporating more institutional type focused capital in this moment in time to, you know, focus on properties that we would want to look at acquiring. Now again for us, what we're targeting is, you know, 75 units and beyond, you know, 100 units typically or more. And so that typically has a bit more of an equity component to it. You know, if you're buying it for you know, whatever $10 million, your equity pieces, three and a half million or something like that, or if you're buying it for $20 million, your equity piece is 78 million. You know, it's really looking at that first, what is the, what is the return metrics need to be and so that then that can be matched up. And then secondly, what is the overall deal level return metrics need to be so that as Larry said, it's a good deal or we historically have fashioned, it's like we're going to buy X number of great deals per year. Now it's been harder to do that in the most recent going on two and a half years because of what took place in 22 with the interest rates just accelerating. That being said, you know, we're, we're, we're working with seller direct component, we're working with broker component, we're working with distress component and we're working together with, with different banks as well to really source deals coming in. And you know, so with that we've turned down virtually everything that's come through the door because it's just not good enough, you know.

Right.

And, and Larry said this earlier, it's like, look, I, I got enough pain, I don't need to buy pain. You know what I mean? Like. Right. Like, you know, you don't Do a deal just to do a deal, because you could do that and people did that. People did that in 21 or 22 or even earlier. And then it just instantly became pain. And so, you know, you do a bad deal just to do a deal, well, within two years or no more than three, you're going to have pain. And so, you know, we've also passed on some deals that were, you know, it was a 25 unit deal in the middle of nowhere comparative to where our footprint is. And it didn't make sense for us because, you know, it just didn't have enough meat on the bone for us to dedicate resources to it. Now, somebody that was maybe their first or second deal, it could have been something that was, was good for them, but it didn't have enough on it for us to even just kind of, you know, buy it and flip it. So it just, it was a pass.

You know, I mean, the underwriting principles don't change. You're still looking for a solid deal. You know, interest rates are higher, so your debt's higher, so maybe you're targeting a little bit higher cap rate. But the principles are all the same. And like Randy said, it's tougher to get deals done. A lot of that seller's still stuck in the lower interest rate mentality. Right. They grasp that my value of my property is lower, but they're coming around. And, and we've come close on a lot of deals and close on one right now. And hopefully we'll, you know, we'll get one done. But the, I think a factor of the sellers not being more realistic and us being a little more conservative because you don't have to do a deal, like you said, rewind that to, I've lost everything and I'm starting over. I'm going to be pressing on gas a little bit harder.

Exactly.

Yeah. Yeah. Because there's deals in every market. It's just a matter of where they're at, how to structure them, get them to the closing table. And so realistically, what this means is we've got to increase lead flow, we've got to increase deal sourcing, we got to increase our searching efforts. Right. Because most deals don't make sense and sellers are stuck in that mindset. So we've got to tackle that.

I want to interject here and just say something. And again, I probably shoot too straight for too many people. I don't know. But like, you got to work your way off in any market, right? Like, so I go back to people in 2017, 18, where it's like, market's going like this, man. People are competing to try to get deals. And like it was just like a white hot frenzy almost all the way through to 21. Like some brokers wouldn't even talk to people like, ah, you're a peon and we're not talking to you. You know what I mean? We had to work our butts off to be able to source and get a great deal when other people were just buying any deal under the theory of momentum. So then now in this moment, it's a little bit of the flip of that around. There's not as many deals. And so it's the same principle, though. You've got to work your butt off. Like you just said very clearly. What does that mean? You got to process more leads, you've got to go through more deals. Because as Larry said, there's still more people stuck with. My value is here when interest rates were three and a half, not six and a half.

Right.

And so and I would just say this to everybody, listen, if you're not willing to work your butt off, then you're not deserving of the wealth that comes with it through the pathway we're talking about.

Right.

And now that may seem tough, but it's the truth. Right.

Like, we just lost a couple of people that were on the make money in your sleep.

Yeah, exactly, right. They just said, oh, God, I'm hanging up on this. I'm going to become a, I'm going to come a YouTube influencer megastar and make a million dollars a year. You know, one of those people get that and the other 150,000 that are trying to do that and shooting crap on their phone are getting exactly that crap. They're getting nothing.

Yeah.

You know, so, and I say that a little tongue in cheek because look, I think if you have a burning desire of what something that God's put in you, you've got to give it all you got. And that's the truth. And I could go back to Napoleon Hill, think and grow rich. It's like you're going to, it's going to cost you more than you're willing to pay. It's going to take you longer than it thinks, but the reward is going to be greater than you anticipated.

Wow, that's a quote. That's good. Yeah, well, and I think that, you know, there's, there's still a major window of opportunity when it comes to the size deals that we're typically talking about. I mean, the guy just closed a 48 unit deal the other day, you know, and 27 unit a month ago. I mean, there's, there's deals in that window, 20 to 100 units, that I just think is a, is still a major sweet spot because, you know, seven.