House of Wolves - A Power Couple's Playbook

Understanding Real Estate: A Candid Conversation with Victor Ayala

November 27, 2023 Randy & Mary Vasquez Episode 8
House of Wolves - A Power Couple's Playbook
Understanding Real Estate: A Candid Conversation with Victor Ayala
Show Notes Transcript Chapter Markers

Ever dreamt of investing in real estate but feel held back by financial constraints or lack of knowledge? This episode is designed to dispel your fears as we chart the journey of two friends, myself and Victor Ayala, into the world of real estate. With a glass of wine in hand, we reflect on our early aspirations and the hurdles we faced due to insufficient education and resources. Victor's knowledge of mortgages, coupled with our shared experiences navigating the real estate market, provides a unique backdrop for our enlightening discourse.

We shatter the myth that real estate investing requires a sizeable initial investment and discuss how we managed to enter the market with minimal funds. As we explore the nuances between the roles of a loan officer and a real estate agent, we emphasize the importance of understanding numbers and financial literacy. Regardless of where you are in your investment journey, our conversation offers insights that could be the game-changer you need. To top it all off, we delve into the challenges millennials face in the competitive real estate market and how rising interest rates impact the decision to buy now or wait. 

Victor, our mortgage expert, addresses concerns about rising interest rates and the cost of waiting, providing invaluable insights for potential homeowners and investors. The roles of real estate agents, loan officers, and "money men" in the home buying process are further discussed, emphasizing the need to understand how they impact your journey to homeownership. As the episode progresses, you'll become more equipped to navigate the property market and feel empowered to make informed decisions. Here's to breaking down the complex world of real estate and making it accessible to everyone!

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Speaker 1:

I can get a house with 3% down. And then I started doing the math what's 3% down of at that time? A condo, 200,000, 180,000. I was like, oh, I need $6,000, that's it. So we're back for another episode House of Wolves podcast. I'm joined today by Victor Ayala, near and dear to me, my brother. I'm doing a little bit different. As I said, my wife's not joining me today, so we're just gonna kick the shit today and talk a little bit. And the nice thing about this one is that Victor is in mortgages. I like to call him intimately my money man, because he's the one that makes shit happen for me as an investor. So we're just gonna talk a little bit about the market today and talk a little shit. But we got a little wine going because you want bourbon, because you were kind of being the fucking baby about it for a second interview so talk to me, man, let's you know what's the interesting part that I want to make sure that I mentioned here with this one that special to me is. We're gonna be talking about real estate, we're gonna be talking about mortgages, but how long have you and I been talking about it, man?

Speaker 2:

I at least, if I want to put a number on it, I don't know. 15 years, 15 years at least, probably. I'm counting the years that we've lived here yeah, it's been over five, yeah, and back in Jersey since, like right out of high school, yeah, so it's been a minute.

Speaker 1:

It's been a minute. So Victor and I have known each other probably all our lives and since we were in our early 20s, right yeah, we've been talking about real estate and wanting to get into real estate, but back then we were broke, we had no idea how to do it. We were uneducated, right Cause we had no idea. We're just like, yeah, we need to buy houses and have a couple of them, but how are we gonna do that? We're broke, we have no money, we had no idea what the hell and how even to get into the market, right?

Speaker 2:

I think, now that I think about it, we weren't broke financially, we were broke education Okay. So you know you hear all these gurus talking about you don't need money to invest in real estate, all that. There's some truth to that. I mean, if I wanted to narrow it down to not needing money, I think you could just call yourself a wholesaler, okay. But if you have the education and you find an opportunity I mean a smart investor if you do your homework and you present that to a smart investor, there's no reason why they would pass it up. And yeah, they'll get you involved somehow and hit you off a little something afterwards. And then at that point you know it's up to you whether you wanna decide to keep that capital, put it in a safe spot, to then use it to invest yourself. But that was the biggest lack of opportunity or the biggest disadvantage that we had back then. That you know, we spoke about it, but we didn't know where to look for to find the research and the information that we needed to invest.

Speaker 1:

Yeah, and it's so crazy. You mentioned that, right, because I tell people when they ask me about like my story into real estate and how I got started, I'm like, listen, I eventually got to a point where it was like my mid twenties and I was like I could. I found out like the simplest, easiest information out there that wasn't available to us. It was available, we didn't know how to get it. Was I can get a house with 3% down? And then I started doing the math what's 3% down of at that time? A condo, $200,000, $180,000? I was like, oh, I need $6,000, that's it. Meanwhile, we're spending $300 at a club every single night.

Speaker 2:

Somehow we're still trying to figure that out.

Speaker 1:

Figure out how we were doing that. But we were spending all this crazy money on just stupid shit, right, but meanwhile when I found that I was like that's it, that's all. I needed $6,000. And then, you know, things took off from there. But it was like that little piece of education, like you're saying that I feel like we just didn't have right, we were uneducated to be able to kind of jump into it, and I think a lot of people are in that same boat.

Speaker 2:

Yeah, man, I don't think we made enough mistakes either. Okay, you know we spoke and then we just didn't know how to speak to the right people. Yep, we weren't necessarily surrounded by entrepreneurs or, you know, business savvy people. We've kind of had to build ourselves into that. But I think that we had the opportunity to just get in, get our hands dirty, and sooner we probably would have been at a little further scale, right? But again, you know, everything happens at the right moment. You know it takes one decision to get yourself into a level that you didn't think was possible, right, not too long ago. If you want to do it slowly, you know, everything has to be done organically. You can't force the issue. Yeah, so you know, we mentioned this before. Like in the Spanish culture, they say, like one door opens the other, and that literally applies to real estate. Because if you, you know, thinking back how you started, just looking at a bird's eye view, you got yourself into that first property and that first property was the first domino, right, you know, and you took that round, you've leveraged it right. So for me, for example, like the snowball has started to build up a little slower, you know, if we were to compare apples to oranges, because I took a different route right. But putting myself in the business and having the financial background that I have has definitely been a huge advantage for me as a loan officer, because understanding the numbers is key. Right, you can find a good property that you want to invest in, but if you don't understand the numbers, you don't understand anything.

Speaker 1:

Yeah, and so let's take a step back, because you jumped into it and I love it. So I tell this to a lot of people and we'll get into. It is like there's so many different parts of real estate, right, that people don't know. As soon as I tell people I'm in real estate, they say, oh, you're a real estate agent. I've said that a million times, right? And I'm like, no, I'm not, I don't do that at all. And then the same thing with you, right? I imagine that when you tell people that you're in real estate, the first thing they think is that you're a real estate agent, right, but that's the complete opposite, right? So let's talk about that. What is it that you do, right? You said loan officer. What the hell does that mean? I said that you're my money man. What does it mean? What do you do and how do you get into it?

Speaker 2:

I mean, in all reality. It happens to me a lot with the first time home buyer. Yeah, they don't know the difference between the realtor and the loan officer. They think it's the same person. Okay, but the business, the consumer, has gotten used to hearing oh, if I want to buy a house, I got to speak to a real estate agent. In truth, you know that is the case. But what you really want to know is how much you can actually afford. Yeah, and that's when you need to speak to someone like myself. First, because we're going to verify your credentials. You know your income, your assets, your credit is very important. And then I have basically my number one focus is to determine that the bar has a certain cap that they can, that they can afford to pay for mortgage. What do I mean by that? Down here you have people paying. I'll give you, I'll keep the numbers around $2,500 for rent, okay, and they assume that they can afford a $2,500 mortgage. It's not the case. You know the way that Assel's lenders qualify bars is completely different. Renters, again, a little bit more savvy in narrowing down how much a renter can afford, right, but for the most part, as a lender, what I do is I sell money Right, so for that money no, she's not here, she's downstairs, baby. So, so, yeah. So for me, selling money means that, hey, this is what the market has to offer you today, based on your credentials. There's an overall rate that people pay to buy in the market, the rates. They don't come from the bank, they come from the secondary market, aka the investors that buy these loans. So, as a lender, once I qualify you, all I'm doing is I'm fronting you the loan amount that you need to finance that home. After you decide, you know, after we determine whether or not what's the best on payment 3%, 3.5, 5, 10, 15, 20. Right, and then at that point, when I lend you that money, I have to make sure that you qualify under the guy that is necessary for me to sell it to back to that investor, so he can give it back my capital and I can lend it to someone else. Yeah, yeah, right. So essentially I'm the middleman, right, right? I have to make sure that you have the credit worthiness to be able to show capacity to pay for that mortgage and then I have to give it this nice, beautiful package to the investor so he can give me back my capital and I can lend it again.

Speaker 1:

Like a lot of people don't know that and a lot of people don't know it. And it's crazy that you break it down that way, because it took me. I was investing in real estate and it took me years to figure that out. Like my first property, I bought it and then it was a couple of weeks later. I get a notice from Bank of America that they bought my loan. I'm like what? And I was like, okay, bank of America brought it and I didn't pay attention to it, right, and then I kept going. Next property, same thing happened. Another bank bought it. And then I'm like, why did it be? And then I started to do my research, why? And then I figured those that piece out. But how many people don't know that? Right, that that's the case. And another point that you mentioned right is also the what I want to make sure that I hit on. Every time that I speak to somebody about real estate, especially those first time home buyers are trying to get into it, that's the first thing that they tell me. They say to me well, I'm saving money so that I could get approved. I'm saving money so that I can, and in my mind I'm like you can save all the money you want, but you might not be able to qualify for it because, one, you don't have the credit. Right, you might not be able to qualify for it because to your DTI, right, the money that you make on a month. So there's so many other factors and variables than just having money right, then just having 10% down or 15% down, and I think that that's why it's so important right To, like you said, make sure that the first call that you make is not a real estate agent, it's a loan officer, right. So tell you, hey, what can you actually afford and what factors will make you more of a good borrower? Right that opportunity for you to get the home that you want.

Speaker 2:

Yeah, so I'm gonna touch on two things. So the first thing is when you have Bank of America telling you oh, you're pay us now. So when you receive a mortgage statement from Bank of America, for example, they don't actually own that loan. What they're part at that point is to play what's called a servicer. So, basically, bank of America becomes a servicer and they bought the rights to service your loan. In other words, you're gonna pay them. You're $2,500 a month. They're gonna take a cut of that and then they're gonna pay again the secondary market, right. Whatever needs to be paid. But Bank of America, they see that you're a great borrower, that you have amazing credentials, so they feel it's a safe bet to service your loan, believe it or not, bank of America pays a certain amount to service that loan, but they don't break even until you've paid your mortgage for at least the first three years. Yeah, yeah. So now what's going on now in the market is that, relative to where we were the last two years, the rates on a traditional conventional loan are above 7.5%, and the reason why that's the case is because inflation is too high, right? So inflation is the enemy of mortgage rates, right? So now these servicers are saying, okay, we're gonna finance these loans right now, but we know, in EBITDAB, in six months, when the government has enough of a hold on inflation and we see that the inflation numbers are low, the interest rates for mortgages will go back down also and then people are gonna wanna refinance. Right? So if I bought the rights to service your loan today, I'm gonna ask you to pay points on that rate. Okay, because points is essentially interest that the borrower pays in advance, okay, okay. So if I ask you, randy, you have great credentials, but I know that the market is gonna stabilize and the rates will be lower, the rate that I can offer you today is only reflective of what's happening in the market, right? So I'm gonna give you a 7.5% rate, but I'm also gonna ask you to pay me two points at an event, because I don't break even on these loans again until you've paid me at least three years, and I know you're not gonna hold that mortgage for three years?

Speaker 1:

Right, because the minute they go down.

Speaker 2:

I'm gonna refinance, you're gonna exactly, absolutely. So that's what's happening in the market right now. Rates are high, investors are cautious. We're lending the money and the only way that they can make up for that is by charging a higher rate and by collecting interest in advance.

Speaker 1:

So you just said it rates are high, are they high?

Speaker 2:

Rates. Okay. So, and this is all public information so, if you look at historically since they started recording rates, right, only twice had they've ever been below 4%. Have rates ever averaged below 4%. Right, and that's during during major crisis. I believe that that the the first time, if I'm not mistaken, was during the financial crisis that they went below 4%, and the last time was obviously during COVID. Right, we're not going to see 2.7. I, for disclosure, I have a 2.75% rate and I didn't get it because I worked for the bank. I got it because that was the rate that was offered at the market, right, so I'm not going to see that rate again. We're not going to see that, right. So, for for only twice has the rates been below 4% in in over a hundred years 70%, those two, those two outliers aside, 70% of the of the rest of the time have rates been below 7%. Right, so right now we're about 7%. Yes, it's, it's, it's high, but if you compare it to the 88, 80s and early 90s, where rates were literally 18.5%, we're still low. If we have a single digit as an interest rate, you're still historically low based on the average Right, right. So so the reason why, again, we got. It's human nature, we got used to the good stuff really quick. So the rates, you know, at 7.5% right now people are nervous about it because we got used to those low rates, but they, they will be back around the fives. I mean based on the charts and again, this is all public information, nothing is made up here. Based on all the charts that are out there, you're you're going to see rates around five and a quarter, probably by August of 2023.

Speaker 1:

Okay, so so I like that Right. So I mean, I, we all know that, right. What goes up has to come down and go down has to go up, right. That's the what in anything. It doesn't matter if it's it's mortgages or real estate, whatever. So we all know that it's eventually going to go back down. It could go back up, it can go up a little bit higher, go back down, right. Is it a safe bet to not buy a house now and wait for that? Absolutely not. Why?

Speaker 2:

is that Because there's a cost to waiting. Okay, and this is what I always tell my buyers you know you want to wait for rates to go down, you want to raise for for the housing crisis. That's not going to happen to happen, and the reason why I'm so confident in that is because builders stop building after the financial crisis, so we have a deficit on on inventory Right. There's there the National Association of Realtors again public information. They threw out an article probably like six or eight months ago and and they were just throwing a ballpark number out there and they were talking about how for you to meet the current demand in this in this country, you would, between builders and the government they would have to build a hundred units a month for the next seven years in order to to the break even yeah. Because households continue to grow Right Right. So the issue that us millennials are having Shit we're millennials, we're millennials, still, we're still millennials.

Speaker 1:

Well, the older millennials, but we're still millennials.

Speaker 2:

The issue that that that we're having is that the smallest generation in this country owns the biggest amount of real estate in this country, and those are the boomers Right. So we're fighting against, in some instances, our, our parents or our grandparents for for real estate. And why aren't boomers getting rid of their real estate is because if, if you look at their portfolio, the most valuable asset that they have in that portfolio is real estate. Real estate, so they don't want to dump those properties because, of course, of all the tax incentives that they get for having those properties in their, in their portfolio, but then we don't have the opportunity to buy more properties because there's there's less inventory. Okay, then, aside from that, people are again scared about the rates. Well, again, there's tons of numbers, of some of the math that I can draw you. But if, if, if you, if you I'll give you a basic example If you are so sure, so confident, that you're going to get today the market's off you are seven and a half, but you're confident that you can get a seven, you are, you want to wait for that seven. Let's just say six months go by and you're right, you get the seven. If you look at it from a monthly payment perspective, the difference that you're saving by by wait, by holding off and waiting for that, that seven percent, by the time you break even, you would have to have hold that mortgage for at least five months, five years, I'm sorry, right, right. So you waited six months to to be right and get half of a point, but not a half of a point. A half a percentage rate cost you five years of paying your mortgage for you to break even on the savings that you wanted to wait for Right and the and the fact that those six months you're probably paying right and the six, the expenses that you were taking, and, and and I've you heard this a thousand times and I even hate saying it, but it's it's worth saying like rent is a hundred percent interest.

Speaker 1:

Yeah.

Speaker 2:

Right, that's a good way to put it. That's a good way to put it Rent is a hundred percent interest, right, and? And? There's a lot of sayings out there and whatever the case is, I think in terms of money, it's important for me to reiterate that I spent so many years in accounting and finance before I became a loan officer. So I think, in terms of number, what is the cost, what is the opportunity cost of you not buying a house today and waiting to buy a house later, and that has a big price, more than likely you probably won't be able to calculate because it's just too broad of a number, too complicated of a number for people to calculate, but the point is there is a cost of waiting. So if you can secure a property today, regardless of what the rate is, if you can afford it, if the loan officer tells you, hey, you're good to go right, this is your part, first of all, I would give the least amount of down payment possible for you to qualify.

Speaker 1:

Well, you always want to keep as much cash as you can. You always want to keep as much cash.

Speaker 2:

I tell all my investors, keep as much cash as your pocket is possible, but the market is the market. If the market is often asking you to pay interest in advance, unfortunately that's just part of the cost of buying that house. Okay, but the asset itself, especially here in Florida. Florida is quickly becoming an outlier in the whole country. There's a lot of capital coming to the state and people are buying and they're dumping it in real estate, right? So the house that you bought today, or that you would have bought today, but you wanted to wait, right? Number one chances are very high. You're probably not going to be able to secure that same property. So chances are very high that you're probably not going to be able to secure that same property in six months. And on top of that, you're going to end up settling. And then are you going to be happy with yourself for settling on a property that you passed up on because you were worried about the rate. You know just if you can afford it. The loan officer tells you to get it. Grab it, secure the property, worry about the rate later.

Speaker 1:

Yeah, yeah, well, that's what you always tell me and I appreciate that every time that I call you right and I'm like, hey, this is happening, that's happening, you're always telling me secure the asset, to secure the asset. Then we go from there right there. After that, right, so we're going to keep it short here, we'll be back. This will probably be the first out of many that we do, like I said, look, victor just dropped some knowledge on everybody. This is why it's good to build that network of people who know what's going on, know what's happening out there. For me, yes, I read articles, I look at videos, I read books right, I follow the market, I follow what's happening because I want to be educated myself. But it's easy to have people on my network, like Victor, where I can just pick up and be like, hey, dude, what the fuck's going on, what's out there, what's happening? This is what I'm hearing. Is this true? Is that true? Where's this trending? Where's it not? You give me your perspective, your opinion, because you're in it every single day and that helps me, right? So this is why it's important to have people on your network that can give you the information that you need, can help guide you to the positive spot. So stay tuned, there's more coming. I hope you found this valuable. Again, there's a difference between a real estate agent and a loan officer, and there's also a difference between the money man, like I always say, and somebody that can get to the house, versus somebody that's just gonna show you the house. So again, thank you for joining us. More to come, and cheers, bro. Thank you, salut.

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