Empowering Young Buyers: Kelly Zitlow on Credit and Home Buying

On this episode, we are breaking down new loan products. A secret Home Depot Lowe's product that might really help your buyers second home financing. And just some things that you're really going to want to know to overcome the obstacles in this current market. And my good friend Kelly Zitlow and my preferred lending partner is joining me on this episode. Let's get into it. Welcome back to the real estate revolution. I'm here with my good friend and our lender partner in our business for many, many years. And she is amazing. If you haven't checked out her YouTube channel and all the information she puts out there for you guys for anything and everything to do with financing in the market right now. And this girl is a rock star. And I just. So amazing. So thanks for coming on and just having the conversation today.

Thank you. Absolutely. I appreciate being here. It's always fun to talk with you. I never know what I'm gonna get with you either. So, like, that's the best part.

Well, like I said before we came on came. Can we just skip the conversation about the market and the bullshit interest rates? Like, there's so many other things we can do. It was funny the other day, somebody got on like, oh, we really need to dig into the buyer broker. I'm like, why? Yeah, why are we making a big deal over this? Nobody knows what's going to happen until August. So you guys are all just pissing in the wind right now. Yeah, but we're so focused on that thing. Like, what about all the other things that are going on in the market that we can be paying attention to rather than this one dumb thing?

And that one thing is, like, taken over the conversation, which is to your point. Right.

So, yeah, it's. It's actually fascinating. I want to dive into the second home market with you. You know, Ben, one of my agents, works the east side of the state show, Low Pinetop, Payson. And then, you know, I work the north side in Sedona and Flagstaff and Muns and Williams in those areas. And a pretty good mixture of second homes or like the client you just referred me to. Jose and his daughter just bought a condo for nau, which was an awesome thing with them. So walk me through. Let's walk through Jose's situation because that's kind of an interesting one. And actually Christian and I have been working on some stuff that I want to talk to you about. Just on the college piece. Right. So his daughter goes to college. Walk me through that investment strategy with them because we went back and forth On a couple of different things between their home being having some equity in it, maybe paying cash. And we went through a lot of different strategies on that one to get where we were.

Yeah, it's not a one stop shop answer. So I think that every scenario and every client's objective is going to drive the outcome and I think that's really important. So it's difficult from a lender standpoint to be like, oh well here's how we did it. And that's always the way you should do it. That's never the answer.

Yeah, it's like real estate. It's not, it shouldn't always be done one way.

Yeah. So I think like let's back up. Just when you're thinking about the second home or vacation market, there has been some major changes when it comes to conventional home financing. Okay. So it used to be kind of prior to maybe two years ago, ish, it used to be that second homes or vacation homes, the interest rates were very similar to primary residence interest rates.

They were usually like maybe a point.

Over, maybe an eighth over in rate, maybe a quarter max. But very, very, very similar. Well, the conventional loan lending guidelines changed. So Fannie Mae and Freddie Mac came out about two years ago and said, you know what, these loans are higher risk. So now instead of essentially pricing them or making the rates closer to primary residence, we're going to move that over to investment properties. So now they're aligning from a cost standpoint to an investment property. Well, that's like a material shift in just that one market.

So break that down for a second. So the cost piece, like the difference between primary residence and second home slash investor, like what are they looking at differentiation wise?

Well, it depends on the down payment, depends on the credit score. So it could be anywhere from, let's say a half a point to a full point in interest rate. So like if today's rates are, you know, whatever, let's say low sevens, it could be low eight for a second home or an investment property. Again, depending on down payment and credit and reserves. Those are all factors. But in Jose's situation, the key here is that the mortgage market always evolves. So what was yesterday? What was yesterday? What? You know, Fannie Mae and Freddie Mac came out and said, hey, yeah, we're going to now require different, what they call llpas. So loan level pricing adjustments. That's essentially what they did to that type of purchase or refinance for that matter. So the rest of the mortgage market, there's a lot of conventional financing out There, Steve, that isn't sold to what we call the agencies. Okay. Which is Fannie mae, Freddie Mac, FHA, VA or USDA. There's this whole other group of investors, or outlets, if you will, that want to buy this product. And this product, this second home product, is good, is a good product. So they're in that lane. So on Jose's, what we were going through is like, you know what the traditional mindset of a loan officer is to be you sell it, you Fannie, or Freddie Conventional. That's just where we go. We're just like, oh, that's just what you do. But we're just not traditional.

It's the easy thing. If it fits in these guidelines, we know where we can sell the product.

Easy, right. So we were kind of getting into it on Jose's. We're like, oh, my gosh, there's this whole other option here. And we ended up saving about 5,8 in rate. That's material. Yeah. Just because of opening your mind.

So break that down like 5, 8 in rate. That's a couple hundred bucks a month in payment, Right?

Exactly. And it impacts qualification. Yeah. And impacts, you know, cash flow. I mean, obviously, kid in college, they're going to rent out a room, maybe daughter's going to stay there, they're going to use it as a second home when they visit. I mean, again, the usage really kind of comes into play to the overall loan strategy, but it's a big deal. Couple hundred bucks a month.

So if you guys just heard all that breakdown, the really important part is your lender is like the very first critical piece in everything that we do, and it seems to always be backwards, where you call the real estate agent, then you talk to the lender. And no offense, but not all lenders are equal. They have different products, they're looking at different things. It's one of the reasons I align so well with Kelly and our business is that we will go outside the box to figure out a solution to the problem rather than yes, you qualify or no, you don't. Okay, so no, you don't qualify this way. In the Fannie and Freddie guidelines, it's what else is optional out there? Which is the same approach that I have, which is, oh, Kelly said no because of this, which I know she exhausted every option. Now we have to pull, go into my bag of tricks and go, okay, how do we make this different? Through a different type of financing to get you there. So it's really important to understand that, you know, when. When I recommend Kelly to you on the second home stuff or in the primary, it's because she's tried proven and sticks to her word and goes through things, you guys that come with these pre quals from the big banks and the big people. No, thank you. I want to talk to the person that's servicing your loan when we have problems. And that is one of the big reasons that, you know, these, these lenders like Kelly that are partners are in a business, because I know they're going to absolutely take care of you. And if she says no, there's probably a reason, right?

Yeah. And you know, I think technology is a good thing, but I think technology also is a bad thing. And from that regard, you know, from a lending standpoint, everything is so automated now, so it kind of takes out that need or that element to really think.

Right.

So for my team, I mean, maybe because I'm old school, maybe because I've been doing this a million years, I don't know, this is how I grew up in the business. It's always with strategy and thought. So if it doesn't work, why doesn't it work?

Right.

What's the guideline saying, Kim? Is there a way that we can move through that? Is there a different approach or strategy? Understanding and being able to dive into guidelines and then navigate the ands and the ors, that's just part of it. But with technology, every day it feels like it's changing more to just the automation of yes or no. Well, as you and I both know, I like to say a scenario, a buyer's scenario, is like a fingerprint.

Yes.

There are no two fingerprints alike.

There's so many variables to everybody, which is the same reason that one loan doesn't fit the consumer. And just like one way we sell a house doesn't fit the consumer on mine side. Right. Because there's too many variables. You got family members, you got all kinds of different things that are moving parts. And we have to, you know, I know that you do a lot of what I do, which is we have to ask a lot of questions to get to what the real crux and the root of the person is, to figure out how to truly help them. And sometimes it's interesting how hard we have to try to break down the wall to help somebody. Like, can you just be open and honest and transparent with me for five minutes so I can help you get into this house?

Yeah, yeah. Or what? People just, you know, also don't understand about just the relationship and the process. So we actually have a client right now. Who wrote an offer on a home that we have experience working with a listing agent and this was a hot property. There were multiple offers and that listing agent had confidence in our ability to close on time, all the things. So the ended up taking this client's offer.

Yep.

And then the client goes through the process and then reaches out to their financial planner to transfer the money. The financial planner's like, hey, you should call this big bank and you know, get a rate quote. Because again, like, and that's nobody's fault. It's okay to do that. But there's other elements of the story that that person doesn't know. So then, you know, reaches out to the big box and their rate was slightly better.

Yep.

I mean, like just tiny, tiny, tiny. Actually it was the same rate. It was just a little difference in cost. But in that case, the client is like, well, I'm going to have to go that direction for X dollars. Okay. Well, the listing agent with the Arizona contract wouldn't allow them to change lenders without extending close of escrow and growing a cost because this investor has hard money on that loan.

Right.

And so it was just interesting. And so again, I think that there's so much goes into the dynamic of it doesn't matter what we buy today, whether we're buying money through a loan, whether we're buying a car, whether we're buying. Your expertise and your contract negotiation experience as a real estate agent, there's an associated value with that. And I think people don't quite understand how our industries work. So it's not just a rate. It's just not like you push a button and then you're like, oh, here's your rate today. Not all lenders have the same rates. Why? You know, it's very confusing for people.

Yes.

You know, not all real estate agents have the same rate. They don't.

Right.

Like, what is the rate? Like, there's no, like what is the rate? It all varies. And I think really just taking a step back and you said it right, and that is making sure we're asking the right questions so we can bring the value. We can help them achieve their objective and do it. I'm not saying, you know, we're not competitive, you're not competitive. We're all in that same space. But you know, you get down to this, this isn't like buying a phone, you know.

Yeah. I mean the reality here's, here's where the reality is, is when we have the front facing conversation, we try to sell all the value that we have and build that rapport and that relationship. What is really hard to do is to sell somebody. You're going to need me when shit hits the fan.

So true.

And they're like, oh, yes, I'm going to save $50 a month by going to this person that's never going to answer my freaking phone call. I can't get any guidance. And then I'm just going to be frustrated all the way through. And you're willing to do that over 50 bucks a month. And I don't know if it's a time in life that you get to. To where I'm more about paying for service, ease and convenience and expertise at all cost than I am saving a buck.

Yeah.

Because there's been too many times in my life where you've gone for the cheaper version. You end up buying two times the cheaper version that you should have just, you know, bought the expensive version in the first place. Right.

Well, that's what happened in the situation. So listing agent and the buyer's agent reached out to the big box, you know, bank, and that person was located in the northeast part of the country. So different time zone. That person did not work after hours of the weekends. They couldn't get a hold of the person. The person would not give them their cell phone, would not have any access, had to call the main number and just had a hard time even connecting with the loan officer. So that gave them. No. No warm and fuzzy. That the whole thing was going to come together. And I think that's exactly what you're saying. You know, it's. We're not all created equal. And hey, there's going to be other people out there that can do things we can't do, things you can't do. That's okay. But like knowing your space, you're pretty good at what you do.

Yeah. And I think for anybody that's, you know, wanting to save money. Yeah. Go get run through the big bank process. Knock yourself out.

Yeah.

If you're okay with that. Aggravation, frustration and not having somebody there to walk you through things, knock yourself out. Right.

Or lack of strategy.

Right.

Because, you know, again, that's a big piece of this is the ability to. I can't tell you how many transactions that get turned down that are doable. 100 by other lenders. And all they're missing is just the strategic part of asking really great questions, looking at the overall picture and then backing into it and not taking the easy kind of linear answer approach. Okay. Well, maybe there's A different way that this would make sense. And being able to present that to a buyer and then, you know, you just see their eyes light up. Like I could do that. You can do that. Like that would work. Yeah, that would work. And that would increase your price point to this amount, you know.

Right.

So we started this conversation by you saying, like, you know, let's not talk about interest rates, let's talk about things that are really happening. And I think just from my seat, we see so much opportunity right now in this market because we have sellers that are willing to, in some cases, not all cases. I mean, there's still parts of this valley where there's multiple offers and, you know.

Yeah. I think the key is, is that what are, you know, when you get a buyer in. Let's just talk about how many buyers are sitting there on the sideline right now.

So many, Steve. So many.

What's, what's the hang up?

Affordability, especially just in payment.

It's a payment, but they have down payments. They can do all those things. Right.

Or they're using. There's so many down payment assistant programs right now. I mean, they're just coming out almost feels like weekly, you know. So I think that the solve for the down payment is being taken care of through the lender lending component, but it's the payment and being comfortable with the payment. And on that regard, I think there's so many strategies that can happen.

Yes.

That can help with that Runway into an ultimate payment. So I'd love to get your insight.

Yeah. I just.

What do you see and what are you doing?

Well, I see the same thing. You get a lot of declines, people not knowing that there's other ways to solve for this. Right. I'm going to go back to one of the stories that we have, which, you know, is really something that works in this market for buyers and sellers if they want to solve for things. And it was. I forget their name, but you remember when you called me, it was that one that was like in Maryvale, like, oh, Yeah, I don't know, 250. The Nice family. They just something screwed up right at the end. Right?

That's right.

It was like, how do we do this? How do we fix this? They need six months to qualify, but they've already done everything. And so, you know, I was able to step in and buy the house for them, let them move in. And then you already had the loan pre qual based on these things. And six months later we redid it. It cost them a little bit money. But they didn't have to give up the house, right. And give up all the things they had gone through to get the perfect house. Because he was a truck driver and needed a place to park a semi. The house was weird, but it was perfect for them. And we were able to solve that by, you know, bringing me into as another agent into the transact and buying the house from the listing agent and selling it back to the buyer's agent. And everybody still got paid, everybody still won. And I think that anytime we get into a market like this where there's an objection, right? So in Covid, the objection was we're getting beat out. So my solution was, cool, I'm going to go get all the cash I can. I'm going to buy houses for you cash and sell them back to you so we can stop being beat out.

Yeah.

And we did that, I don't know, a hundred times for people. It worked out really well, except for one. But now. And that was the reason I brought up the second homes because I was talking to some clients up in muns this weekend and we just got done playing pickleball. We're going through it and I don't think the general public, for those of that those of us that have had a second home for a while and still have 3 and 4% rates, we don't equate what the current second home market looks like and the expendable income that's out there.

Right.

So let me walk you through this for a second. Right? So on a $700,000 home, which is about the average in months right now. Right. That price range is just sitting.

Okay.

It's sitting massive drops, right.

Most motivation wins between2021.

Here's why though. $700,000 house. If somebody's making a couple hundred grand a year, they want to have a second home, you have to have $7,000 a month in expendable income.

Yeah, yeah, yeah.

That you can throw out the door. Because the second home is thrown out the door, there's no tax write offs for it. There's no. The only thing you're getting is appreciation and return on life at the end of the day. So for the normal person, it's like f a bunch of that right now I look at the sellers and I'm like, okay, half these people don't use their homes, right. They're sitting there. If somebody wanted to buy a second home and I'm surprised we don't see this approach more often in this. And it's one of the Things I'm working on. Which is why not take a second home is listed at 700 and lease purchase it.

Sure. Go.

Okay. I'm going to cover my mortgage. I have a locked in price and the minute the rates. Because I would imagine if the rates and go with me for this for a second. If the rates shift by 1%, it's going to be a feeding frenzy.

It's going to be pandemonium and we're.

Going to go back into multiple offers and all the crap.

Yes.

If doing lease options solves a couple problems. Especially anybody that's vacant, they're bleeding money.

Right.

Rather than doing a 10 or $20,000 price drop, why not just lease the house out for what your coverage is with a purchase contract? Here's why it's different than just renting it.

Yeah.

The purchase contract ties a family that wants the house, which means they're going to take care of it. They've been given the opportunity and they get to buy the house the minute the rates come down.

Yeah.

So it's a win for everybody in the situation and the benefit for the buyer is cool. My price is already locked in. My house is locked in and I don't have to deal with you crazies.

Yeah.

So you know, we're going into this point where in the last market everybody waited for the prices to come down. They didn't realize rates were going to quadruple.

Yeah.

And it totally priced them out of the market. They would have been better off buying a bigger. Paying more money for a house back then with a lower interest rate. Right, right. But they missed it.

Yeah.

It doesn't mean we shouldn't go out and buy houses and be homeowners. There's just another way to get there. I think we can all agree that rates aren't going to stay this way forever. Still unknown when they're going to change, but man, I would rather like go into that market and figure out like. And for the first couple of years you're paying interest only anyway. It's not like it's going towards anything. So on a lease option is just a way for. Well, you get to test out a house.

Yeah.

You know, so I'm surprised that more people aren't utilizing, you know, the lease option thing. And I almost wonder if maybe we do a zoom call with a bunch of, you know, your agents that have pre qual sitting on the side and going, what does this look like?

Yeah. Especially in the second home markets. You are so on point there. So let's walk through A lease option. What do people need to know about it? What are the risks?

There's two documents that go to it. Right. Well, you asked about risk. The risk is, you know, you're renting the house. Somebody can certainly do damage to it. In a lease purchase, you're typically getting a down payment from somebody, though.

Okay.

You're getting a non refundable down payment.

All right.

Nice thing. On lease purchases, there's no rules. Right. There's no set standards. It's whatever the buyer and seller can agree to that makes the seller feel comfortable about being a landlord, essentially. And the buyer feeling comfortable that the landlord is going to do what their promises. Right. As far as making the payments.

Yeah.

And they have a down payment. So there's. There's some risk.

Yeah.

Right. When you give somebody a $50,000 down payment and they stop making the mortgage payments could have problems. Right. So you do have to have some of that. The likely of that happening, pretty slim. And I also think that there's a lot of people out there that do the rent to own that are definitely taking advantage of people. Right. It's the hopes that they fail.

Yeah.

And that's one of the things I don't want to do. Like, I want to get rid of the house.

Yeah.

Right. And so when you look at a market, those are, those are the major risks. The major benefits are this. You have a lease and a purchase, they're tied together. So you have a lease contract, which is performance based. They got to pay the lease on time, do all the things, take care of the house, all that stuff. The performance based is you can either lock in a contract or a price, or you can do it on appraised price. I don't like appraised prices because we just never know what it's going to be at the end of the day. And there's also, you know, a buyer can do two things. They can lock in the price with a contract, or they can pay for an option to buy the house when it's time. Right. And then the price is negotiated, all the things. So there's, you know, you can, you can do a lease and you can charge somebody, whatever it is, like $5,000 for an option to, for the first Right option to buy this house.

Sure.

Right. Or you just lock in the price ahead of time. You're like, hey, I'm good with that price if I get it in a year. Awesome. Some sellers be like, oh, I left money on the table. Yeah, but did you? Because you didn't drop at 25 grand back then to get it sold.

So yeah.

So the lease option, when I do it, somebody's usually qualified, but either they're lacking down payment or they're lacking a tax return, something of that nature. Or in your case, there's a bunch of people sitting on the sideline waiting for rates. Yeah, they're perfectly qualified. They're good people, all the things. So the lease option can be one year, two year, but you make it so that it's beneficial the minute the rates change. Freaking buy this thing. The inspection has been done. The only thing we're waiting for is an appraisal closing. That's it.

Yeah.

So if you think about in this market all the reductions that are happening, rather than the agents going to vacant sellers going, hey, I have a buyer, they're qualified, can we do a lease option? Here's what their payment would be. Does that right. Does this suit?

Yeah.

And it doesn't always have to be something like, well, how much of my rent goes towards the property? Yeah, well, do you want to pay a higher rent so that you get some towards the property? You want to pay a lower rent where you're not getting anything towards the property. So in that case, you take something where you have all these houses on the market and you go, cool, I have 20 buyers.

Yeah.

How can I go start calling vacant listings going, hey, would you be willing to do a lease purchase? Right. Here's what I'm thinking. Funny thing is most the other agents on the other side are going to, they're going to sway away from it.

Because they don't know.

They don't know. And they may not even present it to their client. Yeah, but if somebody calls and says, hey, somebody's wanting to do lease purchase, why don't you call and refer or get somebody else involved in it that says, yeah, we can, we can do this because it's a benefit for your seller. But agents are so scared of the creativity piece. And the bigger part, how am I going to get paid on a lease purchase?

Oh, yeah, yeah.

Well, there's a number of different ways to do that. It depends on the down payment from the buyer and depends on what you negotiate. Like, can I negotiate half my commission into this? Right, right. Technically, the listing age is going to say, well, we didn't have a closing, so there is no commission. So it's either working something with your buyer or something that nature. Here's crazy part though. What if you took care of 10 people in the next six months and the rates came down and all of a sudden, one month, you had 10 closings.

Yeah, absolutely.

You are absolutely filling up your pipeline for future and going. Yep. And all it is is calls and showing people how it works. Here's the most amazing story I have on lease purchase. Let's go back to Covid again. Remember when the banks were shutting everything down? Oh yeah, right. Remember my brother?

Uh huh. I do.

That was like the least purchase of a century. At the end of the day it.

Was, oh my gosh.

So like when we do this, nobody understands like the power of bringing everybody together and solving the problem.

Yeah.

So we were day before closing, seller calls. I'm not doing the lease option. So I call my brother and I get to listen to him scream and yell at me in the phone. I can understand the seller side. Right. They're getting ready to give up a three million dollar house for a pretty small down payment and a lease.

Yeah.

They weren't comfortable with it. Along with COVID Yeah. Because when it happened, the city was shut down. Yeah, I remember because we drug all those people in here and the city was shut down. We're like, well, hopefully cops don't come in here. Right. Because we're all sitting here with no masks and doing our thing. That night I called the seller after sitting in the entry crying, going, I don't know what I'm going to tell my brother.

Yeah.

So I called the agent. I'm like, hey, this is weird, but we all need to meet, like all six of us, like you, me, the sellers and the buyers. And we're gonna figure this out to make it comfortable. So we did. We sat in the conference room for six hours and we ironed out that lease purchase on a three and a half million dollar house to get past the banking bullshit.

Yeah.

Because the banks just shut down on, you know, the, the jumbo loans at that time. Everybody's like, done.

Yep.

I'm like, well, we gotta figure this out. And sure enough, we figured it out. They got it refinanced. I mean, it was a pain in the ass, but we did it right. So I just always look at those things and go, there's a no. But no doesn't mean no. It means not right now. Not this way.

Absolutely. I love that you said that. It's not. No doesn't mean no. It just means not right now. And there's generally a journey to get to the yes. Or sometimes yes comes sooner, depending on what the scenario is.

Sure.

Right, sure.

What can we do to differently.

With.

Our clients as agents when we're trying to get through this qualifying piece with them from the beginning. You know, so I said it earlier, we tend to do things backwards, right? The agents call off the sign, then they get a lender.

Yeah.

Why has it never been the other way around? Why do we always ready, fire, aim, and then go the other way?

I think it's starting to change a little bit from a lending perspective. So I think you're seeing more of that, you know, kind of big lending platform go direct to consumers. So I think that door is being opened a little bit more. I don't really care who gets the call first. I think what's most important is what is being said in the initial call. And I think digging deep into the scenario and being able to start that strategic thought within the first few minutes. Because, you know, when I'm talking to somebody, I know the questions to ask. And then we're kind of leading them with, you know, what the next steps are based on, what the objective is, and whether that's you doing that or whether that's me doing that, then the meeting of the minds. So then you and I can sit down and talk and go, hey, you know, it's really important for this family to be in this neighborhood because whatever, right? They have a child that has special needs or whatever. I mean, there's so many different.

I'm talking about you, Christian.

But, you know, like, sharing that, because when we can get to that level of whatever is truly the most important thing, then we can solve for it in our. We have, you know, a CRM, a database that we use, and literally, you know, we would just write mit, like, most important thing. So after having that conversation with Steve or whoever, we can be like, you know, and sometimes there is no, not a most important thing because they can't define it. But the more questions we ask, we can kind of lead to do whatever it is. And so, again, I don't really care who has the initial call. I mean, we'd love to have it from a lending standpoint, because that is where the financing strategy comes. And most people aren't cash buyers, but it really comes down to the communication between the lender and the real estate agent, because then strategically, we can align. And then we're like, okay, so here's what we got. And you're like, okay, here's what we got. Here's the, you know, conversation. And then that's really where the magic is. And that's. That's one reason why we work together for so many years is just because we do have that synergy. And it's becoming a commodity now. And it's less so. I'm sure you've worked with a lot of that one, 800, push a button, get a loan people. And it's just a different relationship. And I've worked with.

If I have to dial a 1, 800 number, I'm pissed. Like tech support, Any of that. And when I see a 1, 800 number come in on my phone, I'm pissed because it's some spam call from some lender back east telling me how great they are. So I have this funny thing that I'm putting together right now. And I'm curious from your standpoint. Funny thing, you know, and we're not going to dive into this. I'm just bringing it up as to why, you know, you think about the whole NAR lawsuit. And my opinion on that lawsuit is that all the things they blame on the real estate industry, the reality is the mirror should be looked back as to how many of those consumers actually asked the questions and hired the right person to do the job.

Yeah.

That they weren't pissed off about. Right. Read the doc. What you read something you signed. I'm curious from your standpoint. Like, I'm going through a questionnaire right now to give to the consumer on questions they should be using to interview a real estate agent for their next time.

Yeah.

I think it's great that we all know 12 real estate agents and 12 lenders and, you know, our financial people, like, I'll talk to this bank.

Right.

Everybody's throwing you everything.

Yeah. So much noise.

And just because you're referred to somebody doesn't mean that they're your person.

Yeah.

Right. Like I said, we all know 12 agents. Well, this agent might be really good at, you know, showing you homes and doing those things. But if you're going to buy real estate investments, are you going back to that same person? Are you looking for somebody that's doing what you're doing?

Yeah.

And just because you have a real estate agent doesn't mean they're good at that thing. Right. I go back and forth with different things I'm really good at. And there's some things I'm just not. And I don't want to do those things.

Right.

Because the reason actually is, like, when I talk about the luxury market, I love luxury homes. I don't have the bandwidth to actually do a good job for a client that has a $5 million home.

Yeah.

It's not. It's not in their best Interest and it's not in mine. Because what's going to happen at the end of the day, I take that on, I look like a schmuck because I didn't do all the things that I could have done.

Right.

Right. Or should have done.

Yeah.

Because it's not my wheelhouse. So if I'm truly going to take care of that client, I'm going to go find somebody that specializes in that neighborhood, I'm going to interview them, I'm going to bring them in and go, this is your guy.

Right.

Right now you have that. What questions could a consumer if they're talking to big box, if they're talking to you, if they're talking, what should their interview process be? What are they looking for?

Gosh, that's a loaded question.

I know.

Well, I think geographic competency is important first and foremost.

Oh, you mean the lenders that do it from New Jersey and they don't follow our state guidelines.

But again, I mean this is my hometown, it's my backyard. You know, there is just something about you and I talking and saying hey, you know, go across 43rd and down to Union Hills and whatever, whatever, just you understand it. So think that that is probably more important for a real estate agent than it is lending component in my opinion. So just tell me how many, you know, transactions listings, you know, buy side have you helped in this general area, you know, over the last year? Couple years, I think getting that insight and then they can be like, oh, you know, sold this house even doing a drive by or you know, doing the testimonial from the buyer, the seller, just really kind of understanding the scope of their knowledge and experience is important. Also I would say how, if I was going to hire somebody to sell my house, I'd be like, how are you going to do that? I think so much more of real estate is evolving to tapping into social media, tapping into that really mad the masses and there's so much bandwidth that goes with that and I just don't see a lot of agents really tapping into that. So I'm going to sell my house. Yeah, it's about your experience, it's about how many out bats, it's about how many families have you served over the years. Like I want to understand that now I'm like, how are you going to get the word out on my house?

So it's important from how many families I've served from an experiential standpoint versus how many transactions I did.

I want to know what I think is that contract Negotiation is so important, and I see it so many times. From my standpoint, we don't get involved in contract negotiation. That's the real estate agent. But I see good agents that are very good at it, and I see agents that aren't very good at it. And ultimately it does impact the buyers.

How hard is that for you?

It's very hard because we're not a party to it. But you can see it and you can see the ramifications. So when I say family served, there is something to having experience and having contract negotiation and conversation. It just is what it is, you know, so Christian's here, he's young, he's brand new in the business. Whatever that is, put him up and put you up, there's going to be something that you're going to think that might take that conversation in a different area or a counter on a negotiation or things like that. And it's nothing about the newbies. We need them, we want them. Our industry is aging, but it's about people like us taking those people and bringing them into our world and helping them evolve and know the right questions and know how to counter this or that that's coming up in the contract.

How often when you see that, like you have an agent that refers you a bunch of business and you see some weird shit in their contracts, they're like biting your lip. Do you ever go back to them afterwards and go, hey, next time you might want to think about this.

Yeah, just kind of guidance. Like, again, we're not party to the contract, but if I can help that real estate agent evolve and kind of like from our seat, we see lots of contracts and they're all written differently. So sometimes agents write things that in the contract that are problem from a lending standpoint, you know. So I think just really educating is where I've built my business over the years, is just educating and coming at it. Not from, like, I don't know everything. I, trust me, I don't. I learn something new every day.

We all do.

But like, how can we work together to really serve the community that we serve? And sometimes that's just sharing information and helping each other. And if they see something that my team and I can do different, that I want to know that, you know, hey, you missed it here. Okay, cool. Like, then we won't do that again and we'll. We'll adjust.

And I think the other important part too, to all of that is you said something about the contract and like the lender guidelines, knowledge and experience. You've done enough transactions and you're talking to your lender on a regular basis, you should know what can and can't be put in there from those standpoints. Right. But I also think it's important that we go back to big Box. And if big box is your lender, how many strategy calls are you having with big Box lender on? Like, hey, you know, I always think about the bins are right. This is always the most complicated thing with repairs that need to be done. The appraisal and the lending guidelines. Yes. And I'm always like, kelly, if I do this, am I doing anything illegal, fraudulent, or anything else? Because I'm just trying to figure out how to move around this obstacle. Right. And there are ways that we figured it out, right. That doesn't violate anything. And it's ways that we've used on the investment side and it's ways we use for our clients. And it's something that is just like, it has to do with experience. And I think that that is a big thing when people get into this.

Is like a strategic thinking. So maybe if you don't have the experience, but you have that skill set of being strategic, so, you know, enough, and then we can have the conversation and then you're thinking, okay, so how can we help all parties involved here? You know, And I think that's just the magic of having that lender, that kind of lender that you can, you know, you can have a free conversation with and, you know, think outside the box and be strategic. The. Absolutely. The inspection, the Benzer, that is where so many of the strategy continues. And this is important because up front, we're having the initial strategy with the buyer. Okay, here's your pre approval, here's everything that's, you know, accommodating your goals. And then you go, they go under contract, contract, and then they go through the inspection and then something else changes, right. Whether that's an additional seller credit, how to use the money, what's most beneficial, whether that's canceling the contract because X or Y. I mean, there's just so many things that happen in that time period that we have to be able to talk. Yeah. And think and think and talk.

Yeah, Think and talk and go. How do we make this a win win rather than a no. Here's. Here's what the end goal is, right? The buyers want a new air conditioning, but the seller can't pay for it right now. And all these different things and it's. How do we work around that? Right. It's just Working through the problems.

On that note. Oh, my gosh. I have not even told you about this program, but the air conditioner just came up. So if you have any, whether I'm the lender or not, just know that this program exists. If you have an appraisal that comes back subject to. It's not the only way this works. But we just rolled out last week a program that allows a buyer to go to Home Depot or Lowe's, get the purchase order, and finance the repair. It has to be done through Home Depot or Lowe's into the loan amount. So think this through. And it's not just on subject to stuff. So maybe you're in that situation. AC goes out, salary, can't pay it. This could solve for that. But let's go back to. We've got property sitting on the market because maybe it is in a great area, but just hasn't gotten any love. Right. Wendy hasn't worked her magic on it, and. But the buyer loves the house, but they can't see past. Right. So this program allows buyers to finance cosmetic renovations into the purchase acquisition. So it's a. Let's say it's a $400,000 purchase price. They can finance up to 10% of the purchase price. So in this case, $40,000. So now the true acquisition price is 440. And now their down payments coming off of 440, allowing them to finance the work has to be done at Home Depot or Lowe's. They have six months to get it done. The house has to appraise with the renovation. So that's important. And that's where, again, con. You know, is. Is important between the agent, the comps, everything else. But in that case, you know, let's say they're doing 5% down, is 5% of 440. So now we just saved them from having to go take out a credit card to cover it. An expensive second mortgage downstream and allows them to buy maybe in the neighborhood that they ultimately want, but maybe they can't afford. And it helps you as a listing agent to move that house and maybe needs a little tlc.

I'm gonna. I'm gonna go one. I love that.

What? What?

I love that. We need to. We need to dive deeper into that because it sounds easier than a 203k.

It's so much easier. It's like the easy version.

What's interesting about it is that's the. The piece that is really fascinating right now is that, you know, we're. We're still acquiring homes. Yeah, they need work. And you know, we're finding, you know, when you put them on the market as is, here's what happens. The flippers come out of the woodwork and they make you a bunch of stupid offers. What kills me is the agents can't go into something and go, oh God, this is priced at 350. It needs about 30 grand worth of work. It's probably worth about 440. It's not enough to flip, but this is a great equity position for my client.

Right.

How do I do this? Yeah, you can't have those conversations with people. Part of it is, no offense, agents, because you're just ignorant on the conversation and the numbers and it's super frustrating. And finally, like we have this one in Mesa right now. It took, I don't know, nine dumpsters to clear it out.

Oh my.

I don't know where they put nine dumpsters of stuff in 1600 square feet. So we finally got the house cleaned out. It's mostly cosmetic stuff. It needs an AC unit. But I'm like, we're gonna put it on at 4, which is $75,000 below market. Of course, we get a dozen offers below 350, even though the tax records show that I paid like 380 for it. So no research there, Just. Just ignorance. And we get into it and somebody does. The agent brings the dad who's buying the house with his daughter and they're going to do the fix up on it. And we went through all the stuff, they're buying about 40 grand worth of equity by the time they do the cosmetics.

Yeah.

So they're so much further ahead because they're willing to do the work. Or they had an agent that was like, hey, if we do this right, you can have this right. Which is a bonus. You not only get a house, but you get some equity and you get to paint it and do the things you want rather than the way the flipper did it.

Yeah.

And then you get to make it yours. And so my question is on the Home Depot thing, is that like getting somebody from Home Depot to come out and bid the stuff? And what does that timing look like? Because this is all, I love all this stuff, but in a 30 day escrow.

Yeah. Well, right now Home Depot is not very busy, so it seems to be working pretty well. But you know, again, it's, it's traditional renovation loans are out there. And the difference is that this is more consumer friendly because most people are accustomed to going to a Lowe's or Home Depot. They can Go in and look at cabinets. You can buy appliances with this program. Maybe the bathroom just needs a new toilet and plumbing or sinks or whatever. And Home Depot or Lowe's can have it bid out. They give this proposal. From there, we take it when we order the appraisal. The house is being appraised with the work as is so very similar to a renovation loan. But at closing the lend, we are cutting the check to Home Depot or Lowe's for the scope of work that was provided. And they get that check three days after closed Bus Grove, take it back to Home Depot or Lowe's and they can start their work. So, you know what I like about the program is that we're taking historically what is a very complex home loan. Construction loans, 2 or 3k loans, right. Gotta have general contractor, you got to build. It's a, it's a longer process. This is kind of one stop shopping. And so it's bringing in your case with your Mesa house is if there wasn't funds for that buyer to be able to do the work, this is the solution. So this again could bring a whole nother scope of opportunity in this market.

Let me do a reverse.

Okay.

What if, because we're going to do this, I have a house in Mesa, needs some work, can I go to Home Depot and get the bid pre?

Sure.

And then go, hey, let's put this on the market at 440 with the home Depot bid. And Kelly has a program that you can buy this house, have the money with this scope of work done the way you want to, then the only.

Other piece of that, which I know you're really good at, but to, you know, people are so visual. So maybe it's like the current house in its current state and then the house with the cabinets, you know, from Home Depot kind of thing. And then maybe there's just, you know, some type of 3D thing that you could show them so then they can see it. And now this gives them the ability to finance it and really bring it to life. And you've already done the legwork because you have the experience doing that.

Right.

You know, now if they don't like the color of the cabinet, they want to do white and versus gray, whatever, not a big deal. You already have the framework.

But if I have the framework and they can just go back to the person and go, I want to change these things, then the time and the energy to find somebody to do it. And my point is, is that if we go through this and we do the work up front, Are we making the sale and the transaction easier to sell somebody? Right. And like, so if you guys didn't listen to that, this is big, go ahead.

And the other thing is that because of your knowledge, you're likely going to pick the improvements that are going to bring value to the appraisal. And this is the one thing that worries me about the program is that, you know, from a consumer standpoint, we don't know that question or we don't know the questions to ask or the what impacts value. But you will know, right? So now you're putting together a bid with Home Depot or Lowe's that really knowing is going to be appraised with that work that will likely bring value to the appraisal because the house has to appraise with the work at that market value.

So, and I've got a, I've got a 10%.

You got 10% of the purchase price.

Right. Which is a lot of money in most cases. In 10%, like in this property, I could easily paint it, redo the kitchens and the two baths and do flooring for 40 grand. Yeah, right.

100, easily. Yeah.

The only difference is, is the consumer gets to go and pick the things they're doing, work with Home Depot and call it a day.

Yeah, I know, it's so exciting. I don't know any other lender right now in the country that's doing this like it's, it's kind of, again, kind of this streamline quasi renovation bringing accessibility to financing a certain amount of renovation into the home loan acquisition. And you can do it as, as low as a 3% down on a 3% down conventional loan, assuming that that loan can go home right now, which is just a certain type of conventional loan. But I mean, if it's not that, think 5%. So 5% even. Just even at interest rates today. Steve. So let's say, Steve. And I don't, I'm not quoting rate because I don't know what rates look like today, but let's just say, you know, rates are low sevens 30 year fixed rate. For you to go and borrow $40,000 as a consumer after you buy that house to go get that work done and you don't have the cash to do it, you're going to use a credit card and that's going to be 20, 25, 30% interest on that $40,000. So this allows you to be able to finance that into that 30 year fixed rate, you know what your payment is and you're financing that into the acquisition. So Again, you're not coming out of pocket with that 40 grand. So, I mean, I think it. It solves so many different scenarios. Is it for everybody? Heck, no. There is no loan program out there that's for everybody. I guarantee it.

No, but there's so many people that I'll take me for an example. Right. As much as I hate to paint. Hate painting, actually, I hate the prep. I can paint. I hate prep. And there's usually paint everywhere when I'm done.

Right.

There's guys out there that are really good at doing the things. And maybe they don't have the money to buy the cabinets and the things, but you can get the hard stuff done and let the buyers do the easy stuff. Right. Like landscaping and things that are not. Not super costly. That is easy, physical or. Some people are really good with tools and handyman and they can go through that and make the repairs and. And bring it up, you know, but to go through just. Yeah, a lot of. A lot of stuff to think about that.

And. And this program allows for landscaping. Wow. So again, sometimes the house is okay, but maybe it's just dirt in the back or it just needs to be, you know, renovated from a landscape.

So it's really anything like in those small budgetary items that we can really look at cosmetic it.

Right. It's, you know, it's not going to get structural. That's a whole different type of approach. This is.

You don't want structural involved in all that.

Easier approach to solving for. How do I pay for it? Yeah. Great neighborhood. Love it. But I can't. I don't know what to do with it. I don't have the cash pay for it. So this brings that wow. And it brings it in a way that most people have shopped at Home Depot or Lowe's. So we understand how to go there, you know?

Yeah.

I mean.

Right. They can go in there and do their thing.

Appliance section, whatever.

That's amazing.

It's not even what we're going to talk about today.

I know. Okay, so I want to go back to on that because there's one last question that I wanted to finish up just on the buyer side when we have. So Christian, I were having conversations, right. He's 21, talking about the goal to buy a house. What does that look like? Where is it that you have the ability without taking a lot of somebody's time to go, hey, I have a client. They're not going to be ready to buy a house for a year. But I want to get Them ready, can you have a consulting call or strategy session with them? Pull their credit, knock their stuff out, make sure that they know where everything is at. What, what does that look like for somebody like Christian? Like, hey, I'm thinking about buying a house or I want to buy a house in a year.

Love it.

Where do I start?

Yeah, we do this all the time. This is what we do, right? So it's not if it's not now, it's when, right? So what we would do is to schedule a short kind of 15, 20 minute initial talk. It's what I call just that kind of. I call it a high trust call. Right. Because my job is to really keep asking the questions. Keep asking questions. Why do you want to do that, Christian? What are you looking for? Are you going to have roommates? You know, what's your budget? What are you comfortable with? How's your credit? Do you have credit? You're 19 years old. Have you ever had credit?

Oh, he's got credit.

But all these questions, I love it. I mean I have a 21 year old and a 26 year old and my 21 year old is at university right now. And he, he's like, mom, should I, you know, buy a house? And, and then you get into. He's a full time student, so he doesn't have a job, but he has been saving. So he has money, works part time over the summers and that kind of stuff. So then you get into, can we co sign for him and. Or co borrow for him? I know your opinion on that, but I'm just saying.

Oh no, we're gonna go into that.

We're gonna go into that. So the answer is yes. And I think this is another thing that a lot of parents don't understand. I mean, I don't know if you have looked at housing in college towns, but it is, it's crazy. The cost that you pay in rent in some of these college towns, you know, it's absurd. So now how can we hack that? You know, he's got two roommates, so now there's three of them. I'm going to pay rent for him with or without roommates, right? So.

Or if you're super fortunate and blessed like some of my clients, they've been given, you know, rooming credits for whatever. Right. That they can apply towards so many different strategies.

But to answer your question, like I would just want to talk about to Christian. Christian, let's just talk, right? What does it look like? And then help kind of guide. All right, so going to need to have your mom or dad, you know, co signer, Both. What does that mean? What does it mean when you co sign? I think that's important.

Yeah. What does it mean?

What is it? Are you a co borrower? Are you a co signer? There's a difference.

Okay, so what is that?

So a co borrower means you're actually on the home loan and you're going to be on the deed, which is going to give you ownership interest in your property. That's what most parents want to do because if the kid flakes out, at least you have ownership in the property. You have some control over it. But there are some situations with parents that for whatever is going on in their financial world, they can't be on the deed or don't want to be on the deed. But the, the child still needs to have some drug dealers co signing. No, but anyway, so then they're co signing for the loan. So they're committing, they're guaranteeing the loan, but they're not on the deed. So they don't have ownership interest in the property. So again, just one of those nuances and those are the things we're going through. So initially we would about talk, talk to Christian. Then we come back and talk to you and Wendy kind of better understand. All right. What's your threshold? What are you guys thinking? Are you going to gift the down payment? Does he have the down payment? All of those things.

Here's the thing that I want to get into because we started to do it with Jose and I think it's a program to be discussed and worked through. So we think about kids that are in a senior high school. They're definitely looking at colleges. Right. And now we're talking to parents. The question is, is how do we get the parents to partner, not co sign? This is a way that both of you are building a portfolio in a college town. Child is learning to run a business and it's a split equity share when it comes down to it. So it's building that portfolio to where, you know, if depending on the child, another variable. Right?

Yeah.

If we can do this every year, we can have three or four homes in this college town. And obviously each year you've brought freshman year, different things. Right. So you're figuring things out on how to make that part of your business and your income while you're there. And a lot of these kids, their parents will co sign on their rents, their leases and all those things. So you're, you're super protected by it. Yeah, the Question is, is, you know, when I look at things like Jose, they were super smart. They, they got in before the frenzy of school started. I mean, they bought it before she graduated high school.

Yes.

I mean, just talking about super smart. And we bought something, believe it or not, for under 3 in flag near NAU.

Crazy, right?

The last, that was, that was a weird one too. I mean the seller died in the middle of escrow, which is unfortunate. And they were in Switzerland.

I know.

We still got it done though.

We did, we did. But one thing, can I just go back? So I think it's really important to make sure that we're talking to our kids about credit, how credit works. And you know, even if they're in high school, they're getting ready to turn 18. What does it mean? How do they get started?

Right.

How do you build credit? Why is credit important whether they don't have a credit score? Can you buy a house without a credit score? The answer is yes. Like, it's just so many different things kind of go into the equation that it really does start when they're in high school and getting that strategy in place. So then the senior year turn 18, they're ready to go. So one thing I like to do is to, if the child has the ability and has the credit profile needed, then they become the primary occupant. Right. So now better terms, lower down payment, you know, so now they're going to occupy it and then mom and dad may, whatever you say, partner, cosign, co borrow or whatever the scenario is. Right. Just from an income standpoint to help. And then, you know, it's three or four bedroom, they're renting out those. And then now you're in a partnership on maintaining the house. What, what's it going to take? You know, how are you guys going to do your monthly reporting or quarterly reporting so you can look at rents in and you know, evaluating tenants. Let's just talk about that. Yeah. Your best friend may not be a great tenant, right?

Yeah, exactly. Yeah, I mean that's, that's the biggest point to this is that normally a parent would go and buy a house in a college town, it's 20% down, it's a higher rate. Rather than using your kid as a partner and going, hey, this is how we're going to do it. Right. And then go through the process of, okay, we could build a four home portfolio by the time you're out of college.

Yeah. So the key is you're, you're going to occupy the property as a primary residence for 12 months. That's in most cases, what the deed is going to require. So then after that, maybe sophomore year, you know, you're buying the next one as a primary residence. So that could work. Just you want to make sure that you're, you know, you're following the rules, following the guidelines.

Funny, I just had this conversation yesterday on a call. Is that your guidelines versus my guidelines? Right. Because what happens is, okay, so Jose and his daughter, they have that condo. We gotta wait 12 months. It doesn't mean at the end of school in May, I'm not looking for the next one that we don't buy with hard money and refinance. Right, right. Which is also the possibility. And this is where people like, well, 12 months. I can do it before 12. We just have to do it a different way.

Yeah, yeah, right.

Because you know, when you do buy it, you are seeing your owner occupy occupied.

Right.

We don't want to get into nine months and be buying another owner occupied. But it doesn't mean that you can't go by with hard money and refinance. And owner occupied. That's where a lot of people miss that piece is like, well, wait, I can use private investor money to secure a property, and then if I bought some equity or whatnot and refinance it based on owner occupant status, which you could have enough equity for the down payment if you bought it that way.

You potentially could, depending on how.

Especially if it's a 5% down. Owner occupied.

Exactly.

So there's just. There's little tricks in this to, like, just think outside the box. And I think that that's where you and I are such a powerhouse. When we get with somebody that's like.

Well, we just get so excited.

This one's just gonna be a challenge. Right. But it's. It's great to work through those pieces.

And before we finish that thought, I know you're moving on, but I really like to help. Help younger people understand how we build wealth through real estate and what equity is and what appreciation is and how that works and not oversell it. So you'll. You know, in my models, I Only use a 4% annual appreciation rate, you know, even though we've had markets that are 10 and 20% and markets that are down. But overall, when you look at real estate over time, and I know you're a big advocate, and that's how you built your wealth is through that, I think, think this is such a huge opportunity to pour into younger people and help them Understand, that's really how most Americans build wealth is through their real estate, is through their homes that they're raising their children in. And, you know, whatever, you know, buying at a college town and acquiring homes during that, that time and having your roommates, whatever the scenario is, it can be done. And I love just empowering the next generation.

And, you know my feelings on it, right? Whenever I sit in front about somebody that, you know is like the couple I sat in front of yesterday, newborn, the house will cash flow all the things. It's at, like, 40th street and Greenway. I'm like, I wouldn't sell this to move the equity. I would keep it, pull the equity, and then go find something else. But this house only increases from that standpoint. And I think that that's, you know, one of the things people really realize when I'm in there. It's like, it's not about me. Like, what, what is it? Because I went through the conversation with him yesterday, I'm like, you should keep it. Number one, if you're going to do the remodel, you're doing, like, at least meet with Wendy and see if you're doing all the right things. And maybe you can stay for this price or we can go look either way. But let's look at all these different strategies and come up with whatever feels the best for you at the end of the day. Thanks, everybody, for joining us. We're going to go into some other stuff here in a minute, but what a great episode with Kelly. And you go through and you really look at the, the things you can apply and think about all the opportunities in this market. And so what I, what I really believe is happening in this market is a lot of the agents are focused on all the negative things. And I'm going to encourage you to stop letting your attention go over there and let it flow into what the opportunities are. And if you don't know what those opportunities are, well, follow Kelly, check out her information. There's so much information on the financial side, new programs like we talked about in this episode. Follow me for more questions. Crazy strategies on how to do things and how to break through obstacles in your business. And let's keep moving through the real estate revolution.