This is a YouTube video titled "Why I Love The Flooring & Home Remodeling Business" created in April 2025. The content is a detailed monologue discussing the profitability and business dynamics of the flooring and home remodeling industry, particularly in the context of current high interest rates and their impact on homeowner behavior. The speaker explains financial strategies involving mortgage refinancing and home equity lines of credit to invest in home improvements, emphasizing the niche's strong gross margins and short sales cycles. The video is a single-speaker presentation focused on real estate investment and home service business insights.
Flooring, epoxy flooring. These two go together. This is a 60% gross margin business. You know, after your product costs and all the things. 60% gross margins. I just love this business. It's easy to compete. Epoxy, flooring, it is specialized, it is niche. It is. These are short conversion cycles. I had a really good conversation with Shia Dess and he was telling me, he was telling me how, you know, I look for things when we go door to door, Kyle. I look for things that are, I can quote today and I can, I can sell the product today and I can fulfill by the end of the week. I'm looking for a 7 day, 10 day cash conversion cycle. Because when I walk up to a house, I can clearly see that it needs paint. I can clearly see that needs a roof job. I, I can clearly see it needs doors and windows. You know, I'm suspecting it needs pest control services. I could see the driveways beat the heck. I could see it needs landscaping services. Cause it's all disheveled, right? They're very visible, clear things. But all of these services, all the five things I just named are all on this list. Now why is that? Let's talk about the macro here. You know, why are all of these home services so potentially lucrative now? And for the next five years, I believe interest rates are gonna remain high. I think that it took us 40 years to get to where the interest rates went down to 2% and it took us 18 months to get them above 7. If you look at the 30 year mortgage right now, which is dictated by the 10 year and the bond markets, the 10 year is indicating that the rates are going to hold right where they're at. FOMC just said that they're not going to cut rates anytime soon. So if we're going to hold right where we're at, interest rates are going to be high. 75% of America has less than 4% mortgage rates on their homes. Who, and you guys have heard me beat on this a number of times, who in their right mind, it's simple math is going to come off of a 1.75 mortgage rate or a 2.25 or a 2.75 or a 3, right? To move into a home at 7% like your income needs to be double what it was last year to even consider something like that, right? You're the trade out from a 3% mortgage to a 7% mortgage has to make so much sense financially. Like you're stealing the house or you're assuming somebody Else's rate. Therefore, people are gonna be like, you know what? Forget it. I'm gonna take the time and I'm gonna invest more money back into the house. Honey, let's get the kitchen and the baths done. Honey, let's get the pool done. Let's, let's swap out this, you know, this grass that looks like hell and put some, put, put some better sprinkler systems in here and make this backyard look amazing. Let's put a gate in the front. Let's put a new roof on the house because we might as well get comfortable. We're going to be here for a while. Let's at least redo these floors and countertops. Let's consider new cabinets. All of the things that I'm naming in this category here are all going to do well because of where interest rates are at. I just think people are going to be in their homes longer, taking care of what they got longer also for a recession comes and there's an 80% chance that it will this year. You know, people are going to be staying put and any equity that they had in their home that they thought even if they could sell and get all the equity out of the house, where are they going to go with it? They're going to move into a. They're going to trade a high market for a high market at a higher rate. That doesn't make any sense. Yeah, you might be able to, you know, get some of the capital out, but where are you going to go? You got, you got to live somewhere. Right? So at the end of the day, you know, people are going to, if they're smart, they're going to refi and they're going to pull the cash out of their house. They're going to keep the asset, they're going to pay more in debt, but they're going to redeploy this money that the house has generated. So think about this. You got half a million dollars in equity in your house and your mortgage rate. Let's just do this quickly so you can see Mortgage calculator usa. Let's say that the home has got. It's a million bucks, and you've got a half a million dollars in equity, 5%. And your loan is at 2.25%. 30 years. Property taxes are 3,000 bucks. No PMI. Homeowners insurance, 2,000. I don't want to compare. I just want to calculate. Okay. Right now, the payments would be 2155, right. With PMI. I don't know why this 80,000 I'll get rid of this percentage. Zero. Okay, let's try that. Okay, 2494, $500,000 home at 2.25%. If that was at 7.25%. See, 2494, this comes out to 39 94. That's a difference of $1,500 a month. $1500 times 12. You know who is going to make that trade? Who would, who would come off of. And you're not going to do a lateral trade. You're not going to sell the house for a million bucks to get your $500,000 and then move into a $500,000 house. You're likely gonna wanna upgrade. You're probably at the point where your 40s, 50s, 60s, 70s, you wanna upgrade. You don't wanna downsize, right? And so we're all on the upswing here. And so what would make more sense would be to refi this property and get the $250,000 out, right? $750,000 if you had a, or you get a home equity line of credit. If you had to refi this, if you weren't so rate sensitive, you could get, you're at 5,803, at 750 for $250,000 in capital. That's your cost of capital to make that happen. So who's gonna come off of, who's gonna come off of the 2.25 interest rate when the cost of capital is 7.25? We have to find a secondary alternative to get the capital out of the house. Because now that's tax free money that we can redeploy somewhere else. Let's say that it was this 7.25. Your payment goes up to 5,803, but you're redeploying $250,000. $250,000 at a 20% return on that money is $50,000. It would likely offset. And, and you, you know, you have 7% cost of capital and your return is 20. The delta there is 13. But my point to the overall thesis is that would be, the better way to do it is, is get a secondary line against that house. Keep the first in first position at 2.25. Get a loan for the 250 at, you know, the 250 here would be at 7.25, would be 2184 and not now you can arbitrage that 2184 into 20. So 2184 times 12, let's call that 24K. If that money's invested at 50 at 20% returns, you're making 50K on the same 250. Does that make sense? $250,000. 7.25. I pull a line of credit against it. I keep my first position at 500,000. Right? At the 2.25. I'm sorry, the 2.25, which is the 2494. So 2500 bucks, and your line of credit would be 2181. So now your total exposure here is 5,45, $4,600. But what you're doing is you're gonna arbitrage the $250,000 if you buy a business, right? You're gonna make 100% return on that 250 if you invest in something and make a 20% return. Now we're talking about making 50 on something that costs us 24. So we're making a $26,000 delta on the loan money. Oh, and good news. That 250,000 that you borrowed, it's not income. It's. It's refi proceeds from your house, which means it's not taxable. Right? Your investment might be taxable, but the cash out is not taxable income. So think about that. That's the better way to play that from a money moves perspective. Subordinate the first and then refi or get the home equity line of credit. But my point is, like, all of this stuff makes sense because people are going to be reinvesting back into their home because of the interest rates and what's happening. Okay? And so I love this. You can arbitrage this a number of different ways, but I believe that with interest rates where they're at right now, they're going to continue to stay high and people are going to be investing back in the house.
