\n<\/p>\n
In this month\u2019s BiggerNews<\/strong>, the mortgage rate<\/strong><\/a> rollercoaster <\/strong>continues, ChatGPT <\/strong>tries to take your job, Facebook tells investors to get lost<\/strong>, and David <\/strong>discusses his love-hate relationship with Jack in the Box<\/strong>. That\u2019s right, we\u2019ve crammed in all the most important news for real estate investors, including AI realtors, dangerous fast food options, and why buyers and sellers keep pushing down hard on both pedals. David Greene<\/strong> and Dave Meyer<\/strong> will go down the real estate rabbit hole, discussing the most important headlines<\/strong> affecting today\u2019s housing market.<\/p>\n Welcome back to BiggerNews, where we touch on the facts, data, and everything else affecting real estate investing<\/strong>. This time, the Dave duo hits on why mortgage rates <\/strong>shot down earlier this year and what\u2019s causing them to rise again<\/strong>, plus what this will do to buyers and sellers who are waiting to get into the market. Then, we\u2019ll hear how the <\/strong>BRRRR method<\/strong><\/a> could be in danger<\/strong> as new mortgage rules make a cash-out refinance far harder than before. Ever thought, \u201cWe need more artificially conscious investors.\u201d If so, you\u2019re in luck! We\u2019ll touch on how ChatGPT <\/strong>could allow an influx of sub-par investors <\/strong>to enter the market.<\/p>\n And if you\u2019ve been waiting for a revival of Craigslist<\/strong>, stick around. New rules that Meta (Facebook) announced recently may deal a blow to real estate sellers on the popular platform. Finally, David and Dave will give their take on Biden\u2019s new \u201cRenters Bill of Rights,\u201d<\/strong><\/a> which could create more protections for renters but with the side effect of rent control<\/strong><\/a> for landlords. All these stories could have SERIOUS impacts on the housing market. Whether you\u2019re an investor, realtor, renter, or homeowner, this is news you need to know about!<\/p>\n David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: \u00a0<\/p>\n<\/div>\n Help us reach new listeners on iTunes by leaving us a rating and review! It takes just 30 seconds and instructions can be found here<\/a>. Thanks! We really appreciate it!<\/p>\n Interested in learning more about today\u2019s sponsors or becoming a BiggerPockets partner yourself? Check out our\u00a0<\/em>sponsor page<\/em><\/a>!<\/em><\/p>\n Note By BiggerPockets:<\/b> These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.<\/p>\n
This is the Bigger Pockets Podcast show 736. Fannie Mae came up with a guideline and said, \u201cHey, we\u2019re not going to let you refinance anything if you\u2019re pulling cash out unless it\u2019s been seasoned for 12 months.\u201d It used to be six months. This is where that six month rule that everybody looks into that has to do with the Burr method and, well, I can\u2019t refinance for six months. It\u2019s because of a Fannie Mae guideline. Now they\u2019ve bumped it up to 12 months. I don\u2019t believe they\u2019ve said why they\u2019re doing it. My suspicions would be they\u2019re trying to make it harder for investors to buy deals because they want home prices to come down without having to raise rates even more. What\u2019s going on everyone? This is David Greene, your host of the Bigger Pockets podcast here today with my co-host Dave Meyer, doing a special edition of Bigger News.
As you\u2019ve noticed, we are in a beautiful scenic place. We\u2019re here in Denver, Colorado bringing you one of the bigger news episodes where we\u2019re going to be covering what is going on in the world of real estate, what is going on in the headlines and what you need to know about them. We\u2019re going to be trying something new for Bigger News. Dave and I are going to be reviewing the top headlines in the real estate investing space and talking, commenting and diving into how they can affect the real estate market and our position as investors. Dave, nice to see you.<\/p>\n
Yes, man, this is a lot of fun. First time we\u2019re doing this in person.<\/p>\n
And you\u2019re even more handsome in person than you were on camera. I didn\u2019t think that it could happen.<\/p>\n
Wow. It\u2019s all this fancy equipment they have surrounding us.<\/p>\n
It doesn\u2019t hurt. This is how hard they got to work to make me look good, but hey, I\u2019ll take it.<\/p>\n
I feel like we\u2019re going to break something. It\u2019s a lot of expensive stuff.<\/p>\n
Yes, that\u2019s true. When you\u2019re walking through, you have that same feeling like you\u2019re at grandma\u2019s house and you\u2019re in the living room where no one\u2019s supposed to go.<\/p>\n
Yes, exactly. And we look like real newscasters. We\u2019ve got our sheets of paper. We need one of those little ear things that they put in.<\/p>\n
Yes. I\u2019ll be Will Ferrell and you could be Christina Applegate.<\/p>\n
Thank you.<\/p>\n
All right, well, why don\u2019t we start with the first headline, what you got?<\/p>\n
All right, so our first headline, we need to talk about mortgage rates. I know this is something we talk about a lot, but they\u2019ve been really volatile and just for some history here, obviously we all know mortgage rates went up a lot last year. For a while, it seemed like they had peaked at about 7.4% back in November, and they had fallen down to almost 6%. Now they\u2019re back up to almost 6.8%, and a lot of this seems to be because of recent economic data. There\u2019s just been a lot of things, two things really. One, a really strong labor report back in January and inflation data that was pretty ugly and disappointing, and this to me at least seems like this is a green light for the Fed to just keep raising interest rates. What do you think about that?<\/p>\n
That\u2019s what it looks like right now. They\u2019re showing fearlessness when it comes to just being willing to continue raising rates, and we know the reason that they\u2019re doing that is they believe this is going to stop inflation. That\u2019s debatable whether it\u2019s going to stop inflation, delay inflation, it definitely has an impact on the economy in many ways. We can\u2019t predict here, we don\u2019t know, but I would expect rates to continue raising and every time that there\u2019s anything less than optimal in the economy in general, and they think that prices are going to get too high or unemployment is too low, we\u2019re going to raise rates to try to turn that around, which obviously affects our position as real estate investors.
I think this is something that\u2019s very difficult is we typically base our decisions off of a comparable price for a home, and when rates bounce around like this, the value of homes bounce around like this too, it makes it very difficult to just not have a moving target where you can drill in and say well, this is what a house is worth. Have you seen within the bigger pockets community frustration or maybe some hesitancy of people to move forward and pull the trigger where before they may have done it when they felt more stability?<\/p>\n
I hadn\u2019t really thought about that point, about the calming aspect of this, but it does seem like for a while in January and February, I think we talked about this recently, that people were starting to get back into the market a little bit. And people were starting to feel like inflation was on a positive trend, mortgage rates were trending downwards, but now that it\u2019s reversed, I do think there\u2019s a risk that there might be some demand pulling back out of the market at least for the next couple of months, but I don\u2019t know yet.
I think it\u2019s just going to be really hard for people who are new to this to jump in with all of this volatility because it\u2019s up, it\u2019s down. It\u2019s really hard to get a beat on it, and unless you\u2019re an experienced investor who has been through something like this or just knows your numbers so cold that you\u2019re can be confident whether your mortgage is six and a half or 7% that your deal is going to work out. I do think there\u2019s a chance that people take a step back and pause at least till there\u2019s some more stability.<\/p>\n
We were talking before we recorded about what you call the pump and glide method of driving where my Uber driver was making me sick because they hit the gas and then they take their foot off the gas and the car slows down.<\/p>\n
If you drive like that, please stop for all of our sakes. Just don\u2019t drive like that.<\/p>\n
Well, it made me think that\u2019s what the market\u2019s doing. Is you\u2019re seeing, we just had, on the David Greene team, a really good February because rates had just come down, so it was like we\u2019re moving forward, and then the rates come up and everything slows, and then it\u2019s moving this back and forth, and investors are having a very hard time getting a grip. So what I would expect for maybe at least the near future in 2023 is you\u2019re going to continue to see buyers jumping in as a group and buyers withdrawing as a group, and you\u2019re sort of playing this game where you\u2019re trying to catch the wave. Maybe you can think of kinking a hose, letting it out, kinking a hose, letting it out, and as long as interest rates keep doing this, we probably just have to get used to the fact that this is how the market\u2019s going to operate.<\/p>\n
Totally, and I think inventory is going to be kind of the same way, right?<\/p>\n
Yes.<\/p>\n
We\u2019re starting to see more people start to list their property.<\/p>\n
Because the rates went down. They think they can sell for more.<\/p>\n
Exactly. So there\u2019s just going to be, like you said, the pumping glide effect, and unfortunately it just doesn\u2019t seem like there\u2019s a good line of sight on economic stability. Inflation was looking good, took a step back. We\u2019re hearing a lot of layoffs in the job market and tech market. Tech makes up 2% of the labor market, and now we\u2019re seeing that the January labor numbers were actually pretty strong, surprisingly strong, and it just shows that no one really knows what\u2019s going to happen right now, and we all just have to admit that and expect some of this volatility. It doesn\u2019t mean you can\u2019t find deals, but you should not expect things to be clear I think for the next, at least three, maybe six months, and then hopefully by then we\u2019ll at least know some direction, whether good or bad, which way things are heading because it\u2019s just so murky right now.<\/p>\n
Now, the good news if you\u2019re looking to buy in this market is that sellers are feeling that same thing. They\u2019re putting their house on the market, then they\u2019re hearing the labor report come out, they\u2019re seeing interest rates go up. They\u2019re also going from greed to fear and they\u2019re cycling. So if you are in the market to be buying a house, whether you just want to live somewhere or you\u2019re looking to invest, you\u2019ve got your eye on a property, you\u2019re waiting on the right time. I always watch the news and I wait for the doom and gloom, and then I go, right, more aggressive offers, and that\u2019s worked for me several times where a seller saw the same news and we\u2019re like, Jerome Powell just said they\u2019re taking this thing to the moon. I need to sell now before there\u2019s blood in the streets. And then three months later, rates came right back down again.<\/p>\n
That\u2019s very good advice. All right, well, maybe one day we\u2019ll stop talking about mortgage rates, but that\u2019s not today.<\/p>\n
It\u2019s given quite a bit of fodder to get into, right?<\/p>\n
Yes.<\/p>\n
There\u2019s always some new dramas. Mortgage rates are the Kardashians of the real estate market now.<\/p>\n
Yes, exactly. They are. Everyone wants to know. But there are other good headlines for us to talk about. The second one today is about refinancing and really will impact one of your favorite strategies. The Burr method. What happened was on February 1st, Fannie Mae, which is a giant mortgage lender, government backed entity, updated its eligibility policy for cash out refinance transactions to require that any existing first mortgage be paid off through the transaction, be at least 12 months old as of measured from the note date of the existing loan to the note date of the new loan. So first and foremost, can you just explain what that means to everyone?<\/p>\n
Yes, so Fannie Mae. You\u2019ve often heard the name Freddie Max, another one. This isn\u2019t going to be perfectly accurate, but in general, they are the enterprise that will buy the loans from whoever your mortgage broker is when you\u2019re getting conventional financing. So because they say, \u201cWell, if we\u2019re going to buy a loan, it has to meet these guidelines.\u201d Now all the mortgage brokers and the lenders go conform to what those guidelines are so that they can sell to Fannie Mae.
This is keeps what we call liquidity in the market. So if I lend you my money and you just kept it for 30 years on that property, I can\u2019t go lend to somebody else. So by lending you the money and then you go sell it to somebody else and Fannie Mae ends up pushing money back in thumb when they buy these notes, the government is able to keep rates lower than they would normally be. Even though rates are higher right now than they\u2019ve been traditionally, they\u2019re still lower than what they\u2019d be if we didn\u2019t have Fannie Mae.<\/p>\n
That\u2019s right.<\/p>\n
Well, Fannie Mae came up with a guideline that said, \u201cHey, we\u2019re not going to let you refinance anything if you\u2019re pulling cash out unless it\u2019s been seasoned for 12 months.\u201d Now that used to be six months. This is where that six month rule that everybody looks into that has to do with the Burr method and well, I can\u2019t refinance for six months. It\u2019s because of a Fannie Mae guideline. Now they\u2019ve bumped it up to 12 months. I don\u2019t believe they\u2019ve said why they\u2019re doing it. My suspicions would be they\u2019re trying to make it harder for investors to buy deals because they want home prices to come down without having to raise rates even more. And so this gives an advantage to people that are just a primary residence person who\u2019s going to be going in to buy, and there\u2019s also probably going to be an element of risk reduction for them, because when rates fluctuate like this, it causes a little bit of anxiety in us buyers, but it causes massive anxiety in the lending industry.
So they\u2019re going to take this loan and they\u2019re going to sell this to a pool of people who are going to buy it as a mortgage backed security. Those people don\u2019t want to go invest all their money into interest rates at 7% if they think they\u2019re going to be at 10% later or if rates are going to be going down, they\u2019re going to want to buy more when they\u2019re at 7%. So the pricing of these loans bounces around every time that the rates bounce around. All the people that are making loans right now, they typically have about two and a half years before they break even.
So if I give a mortgage to somebody, the costs that are included in doing that, I usually don\u2019t get my money back for about two and a half years. So they don\u2019t like it when cash out refinances or rate and term refinances happen frequently. They want to slow that down. So this is another way that lenders who are actually putting money into the market to sponsor these loans can protect themselves by not letting someone go in, get a mortgage and then refinance six months later when rates are down by a point and a half.<\/p>\n
That\u2019s a really important note because at first my thought was yes, they\u2019re sort of taking aim at flippers and perhaps Burr, but it also really matters that this is their business model and that they need to make money as well, and so they\u2019re probably doing it, I would imagine some combination of it. So what do you think? Is this going to impact Burr?<\/p>\n
Yes, I think this is going to impact Burr. People who are already struggling with Burr because rates were going up and values weren\u2019t increasing as fast as they were. So one of the common mistakes I think people make with the Burr method is they assume they got to get 100% of their money out of the deal and that they have to do it in a six-month timeframe, that\u2019s like a grand slam if you can do that. When you compare it to the traditional method where you put 20 or 25%, then you dumped another five to 10% of the property value, and on a rehab, you\u2019re looking at somewhere between 30 and 45% of the property\u2019s value is invested and stuck in it. So if you do a bird and you leave 10% of your money in there, that is still a clear win over leaving 35%.
It doesn\u2019t have to be 100%, but this does make it a little bit trickier there. There\u2019s no doubt about that, that these lending fluctuations are like an earthquake and then the ripples go out all throughout the industry, but we\u2019re having earthquakes every single time the Fed announces something new. It\u2019s like it\u2019s going this way, then it\u2019s going that way. So there\u2019s all these changes that are happening. It does affect probably more Burr than flipping because it\u2019s only is for cash out refinances. This is if you\u2019re looking to take more money out of the deal than what you put in. So a flipper, they\u2019re just going to be selling the note.
They don\u2019t have to worry about a cash-out refinance, but it also makes it even more important to pay attention to what\u2019s going on in the fit. I\u2019ve been saying this is the time in real estate where education information matters more than it ever has before. For a long time, real estate was just the same thing for years, for decades, it didn\u2019t really change a whole lot, and now as we see these changes that are being made at a high level are having massive, massive impact on the way that we\u2019re doing business and what we expect home values to do.<\/p>\n
So what do you think people should do? Is there a way to mitigate this or something that you can do to continue to do the birth strategy despite these new regulations?<\/p>\n
I think it makes it harder to do buy a house, cash out, refinance, get all your money back, at six months buy another one. That was a supercharged method that people were, I was doing this too, growing your portfolio very, very quickly with the same capital recycling it. These principles work, but you\u2019re not going to be able to execute it at the same speed. What this really does is it benefits people that have a larger portfolio of properties that were accumulated over a longer period of time. So if you bought real estate consistently for the last four or five years, you can still cash out, refinance the stuff you bought four years ago, get that capital, put that back into new properties, and then refinance the stuff you bought three years ago. It makes it harder for the person who\u2019s trying to get started.
So the advice that I\u2019m continually giving is one will keep house hacking because if you could put three and a half percent or 5% down, you don\u2019t need to do the Burr method. There\u2019s not a whole lot of money you\u2019re having to take out of it. That\u2019s one way you can get your portfolio started picking up steam. And the other one is just to decrease your expectations that real estate should never be a sprint. It is a marathon all the time. So it doesn\u2019t really matter what\u2019s happening right now because you\u2019re building wealth over the next 10, 20, 30, 40 years, and as you pick up that steam, you\u2019ll be able to do a cash-out refinance, building, use any of the tools that we talk about without these regulations changing. They\u2019re always tools that affect the short term, and if you can get out of the short term model and into a long-term model, you can operate independently of this stuff.<\/p>\n
Yes, and that\u2019s excellent advice. I think for the last couple of years, this low inventory where people have to buy quickly and sell, and there\u2019s just so much going on frenzy and you had to move quickly, at least on the acquisition side. People get ramped up and they feel like they need to do everything really quickly and it\u2019s not necessary. The other thing you can do too is if you want to refinance something quickly, you can look into portfolio loans, as David was explaining, conventional loans, conforming loans get sold and repurchased to people like Fannie Mae and Freddie Mac. Portfolio loans are when the bank hold onto the loan, so maybe they\u2019ll be-<\/p>\n
That was a great-<\/p>\n
\u2026 Emergence of portfolio lenders who\u2019ll be willing to do cash out refis for investors.<\/p>\n
That\u2019s a great point. Portfolio loans, you avoid the whole Fannie Mae situation. The other one that I forgot to mention is DSCR Loans. We do a lot of those at the one brokerage, and when you get that loan, it\u2019s not being sold to a conventional lender. It\u2019s being sold in a private markets basically. So some of those DSCR lenders are going to follow the Fannie Mae guidelines because they\u2019re the big dog in charge. What they do, everyone else falls in line, but other ones won\u2019t. So asking a mortgage broker or asking a lender, do you have a DSCR lender that will do this without making me wait 12 months? That\u2019s another workaround also. It\u2019s pretty much just applies to people that want the very best rate and the very best terms they could get.<\/p>\n
Absolutely. But I feel like when these regulations happen in a capitalist system, someone fills the void. And there\u2019s going to be a lender, there\u2019s going to be someone who sees that investors still want this type of product and probably will create something like that. It\u2019ll probably take a little while, but.<\/p>\n
That\u2019s literally how DSCR loans came to be.<\/p>\n
Oh, really?<\/p>\n
Yes. Someone like me that has more than 10 properties, I just couldn\u2019t get another loan. I can\u2019t get a conventional loan. So there was enough people that wanted them, and they were like, well, we can\u2019t use Fannie Mae guidelines for this person. What can we do? We can use commercial underwriting standards where we just look at the cash flow of a property we\u2019ll qualify it based on that, and that\u2019s literally what happened. Is this new thing stepped into where there was a need in the market. So don\u2019t panic. Don\u2019t eat panic in Anikins.<\/p>\n
Cleaning around.<\/p>\n
Wait, and there will be a solution that will come to fruition.<\/p>\n
Awesome. All right. Well, that is very good advice and something we\u2019ll definitely be keeping an eye on. For our third point, we got to talk about Chat GPT.<\/p>\n
Are people talking about that now?<\/p>\n
I don\u2019t know if we\u2019re even a news show. If you don\u2019t mention it, you have to talk about it. Have you used it yet?<\/p>\n
No, but everyone else has.<\/p>\n
I have.<\/p>\n
I\u2019m a little scared to use it. Is that weird?<\/p>\n
You should be because you\u2019re going to like it.<\/p>\n
That\u2019s what I\u2019m afraid of.<\/p>\n
So Chat GPT, if you haven\u2019t heard of it, is called a generative AI platform. Basically what it is you can go on and text, you can ask it questions and a computer program, which has studied 1,000s of textbooks and websites and books. Will use the information from that studying to form unique and novel answers for you so you can have a real conversation with it. Honestly, it\u2019s pretty remarkable to use, and stuff like this has existed before. But I think what\u2019s unique about the recent advances is how conversational it feels, it sort of feels like you\u2019re talking to another human being and it\u2019s not as generic as it used to be. And this is clearly just the beginning and the pace of acceleration here in Chat GPT, and it\u2019s not just Chat GPT. Bing also has a new program. Google is working on one called Bard. So I think it\u2019s likely that these types of interactive AI systems are just going to keep growing and growing and growing from here.<\/p>\n
Do you think they\u2019re going to get along with each other, or do you think we\u2019re going to have a rivalry?<\/p>\n
Yes, see, everyone always talks about AI versus humankind as the battle that might happen. The matrix. Maybe it\u2019s going to AIs versus each other, and we\u2019re [inaudible 00:17:24].<\/p>\n
[inaudible 00:17:24] relevant.<\/p>\n
Yes, exactly. It\u2019s like Transformers.<\/p>\n
It\u2019s like Transformers versus human, deceptive cons versus auto bots here. Who\u2019s going to win?<\/p>\n
Yes, but we\u2019re still going to be the collateral damage.<\/p>\n
Yes, that\u2019s true.<\/p>\n
It\u2019s kind of fun. And as a data science background person, I really enjoyed playing around with it. It\u2019s pretty fun.<\/p>\n
What are some of the things you\u2019ve done with it so far?<\/p>\n
Oh, I was asking it real estate questions, honestly. I started asking it data questions which is not very good at yet, like interpreting data. So my job is safe for at least six more months, but it does do a really good job of it\u2026 It is what\u2019s called generative AI, so it can have a conversation with you, which is remarkable. And I was curious what your feelings about this and how it\u2019s going to impact the real estate industry.<\/p>\n
I am a bit of a contrarian in a lot of ways in general. I think people ask the wrong questions sometimes. When people say, \u201cHow do I buy real estate so I can quit my job in two years and never work again?\u201d Wrong question. You\u2019re probably going to get into the wrong deals if that\u2019s what you\u2019re trying to do. Real estate works better over a long period of time, buying in the right locations, letting an asset stabilize naturally over time than it does if you just rush in and try to buy a bunch of $40,000 properties in some turnkey market that end up causing you headaches. One of the wrong questions people ask is, \u201cHow do I make this easy? How do I automate this thing so I don\u2019t have to do the work?\u201d And the problem with that approach is once it\u2019s made easy, it can be replicated and amplified at a big scale as someone with more capital resources than you can come in and do it very easily.<\/p>\n
Hey, you need a barrier to entry.<\/p>\n
Those are so crucial.<\/p>\n
Yes, absolutely.<\/p>\n
Yes. Imagine if you\u2019re trying to get people across a body of water and you\u2019re the guy that is hired because you know where the rocks are, you know where the sharks are, you know where the areas that you could get shipwrecked are going to be, you know the area very well. You will always have a job. The minute that you remove all those and you just have a big deep water, nice channel, some huge boat can come in and load up way more people than you ever could and take them across and you\u2019re out of work. This is the problem with us always looking for an easy answer. The minute real estate investing became something that could be done at scaled from all the software, the systems, the ways that we were able to do it easily. BlackRock comes in and they buy all the houses.
So I\u2019m worried about AI doing the job of copywriting, doing the job of making your pictures of your property look better, looking at what short-term rental listings are doing well, copying it, and then just blasting it across everybody because then you\u2019re not winning doing the job of what the best people did. You\u2019re just leveling the playing field and now your property will not have an advantage over somebody else\u2019s because you pay more attention to it. That\u2019s my concern for how this could work with real estate investing is if you were a short-term rental operator and you were paying attention to the market and your competition was lazy and they weren\u2019t, you were following the algorithm that Airbnb or VRBO had, you were changing your description, you were getting new pictures taken, you were adding amenities as you saw what was happening in the market, you were the person on that little raft navigating these dangerous waters to help people.
The minute that AI can come in and do that for you, the person who\u2019s not paying any attention to their property gets all the benefits of what the good operator was doing. So one of the ways that I\u2019m looking at, I\u2019m expecting that\u2019s going to happen. I\u2019m trying to figure out what properties can I get into, what asset classes could I buy, what approach could I take that could not easily be replicated? The hacks that we\u2019re always looking for, do you remember when Craigslist was brand new when you would list your Toyota Camry for sale, and then people learned if they put Honda Accord in the description, that it would trigger the search engine of people that were looking for Honda Accords?<\/p>\n
Yes. Or everyone would put $1. So everything, no matter what your price actually was, it would just show up.<\/p>\n
Yes, it was a way of getting traffic to your page you wouldn\u2019t normally have got. That, I think is just going to happen everywhere, that type of thing. And so I don\u2019t know what the answer\u2019s going to be yet, but when I look at AI affecting real estate investing, it means the masses will be able to do this. So you\u2019re going to have to be extra picky about the property you take. So when I\u2019m looking to buy, let\u2019s say a cabin in the mountains as a short-term rental, I need to that cabin to have something that other people cannot replicate because AI is going to be able to replicate any advantage I might have had in other areas. So AI can\u2019t replicate a view that other cabins don\u2019t have or a location that\u2019s going to be better. These fundamentals are the things we talk about all the time will become more important when technology improves to the point that everybody loses their advantage. What do you think?<\/p>\n
Yes, that\u2019s a great point. I totally think so, and I think copywriting is definitely one of them. Anything where content creation I think is going to be really interesting. People who are marketing for properties, for example, sending out mailers, that\u2019s something AI could do really easily and probably write a pretty compelling letter to someone. I think as an agent, it will be really interesting. I read some article about how agents are already using it to write their descriptions of listings that they\u2019re putting up, which doesn\u2019t seem that hard. I don\u2019t know, but put a lot of big adjectives and big fancy words in there, but I\u2019m sure there is some art to it.<\/p>\n
I\u2019m sure that\u2019s what they\u2019re doing, and they think that it makes their job better. The problem is every listing\u2019s going to read the same way, so it\u2019s not going to stand out anymore.<\/p>\n
Yes, totally. So I think it\u2019s going to be really interesting. I was saying I was asking it data questions, and it doesn\u2019t really do that yet, but I do think that is an inevitability. Eventually you\u2019re going to be able to say, what\u2019s the best cash flow market or something, and it will tell you, and then everyone\u2019s going to go to that, like your point. And so I think there\u2019s going to have to be this contrarian view where there\u2019s going to be have to be some sort of genuine thought leadership where people actually are doing something different than everyone else, and you can\u2019t just follow the herd of what the AI is telling you to do, but you\u2019re actually going to have to be doing the analysis for yourself and doing the hard work, like you said.<\/p>\n
It\u2019s a very good point. If you think about how most people make decisions, they watch social media, they watch a podcast, they go on a blog, they hear what everyone else is doing, then they go do it, and for a while, that has been a pretty good, solid strategy. The problem is AI\u2019s going to make this happen so quickly that by the time you hear about what everyone\u2019s doing, it might already be done.<\/p>\n
It\u2019s just like Jim Kramer, no offense to Jim Kramer, but these guys who talk about stocks on CNBC. By the time it\u2019s on CNBC, it\u2019s already too late. And I think there\u2019s going to be some element of that in predicting real estate markets, where to buy neighborhoods, that kind of stuff. Maybe I\u2019m just saying that because I do that a lot with my time and I think I can do it better, but I do think they\u2019re at least going to attempt to start doing that.<\/p>\n
The other thing to be concerned about or just pay attention to with AI is the version of it we\u2019re talking about now is radically different than what it\u2019s going to be in six months.<\/p>\n
Of course. Yes, absolutely.<\/p>\n
So us thinking that we can use AI to strategize what we\u2019re going to do, it\u2019s very possible by the time the person listening to this hears it, it\u2019s already evolved way past what\u2019s going to happen. So-<\/p>\n
It\u2019s already in the matrix, by the way.<\/p>\n
Yes. If there\u2019s someone using AI to build their business an incredible way, how long before AI figures that you can ask it, well, help me do what Grant Cardone [inaudible 00:24:30]. He goes, \u201cBoom, here\u2019s the game plan right here. Go do the same thing.\u201d How do I grow my followers from this to this? And it can just do that for you. So I really think this is going to make real estate more valuable because business I think is just going to be leveled out. The playing field is going to become very, very plain for so many people that are getting into it, but real estate is something that people are always going to watch. One reason why I\u2019m more interested in investing in real estate when I see all the technological advances.<\/p>\n
That\u2019s a really good point. Hard physical assets will not be as-<\/p>\n
AI can manipulate cryptocurrencies. They\u2019ll build it and manipulate NFTs. I can\u2019t control anything that\u2019s happening. It will not be able to, at least I hope, build another property in the same place where mine is where people want to visit.<\/p>\n
Absolutely. All right. So our next headline is about Facebook or their parent company Meta, which will no longer support the ability for sellers, people who want to sell real estate as a business anymore. So you basically have to use your individual personal account. So for example, if you were a car dealer in the past, you could list all of your cars, even though that you\u2019re a business on Facebook now, only an individual who wants to sell a car or real estate in our industry are going to be able to do that. So this brings up a lot of questions. I\u2019m first curious, do you think this is going to impact people who are wholesaling or trying to sell businesses or even looking for tenants?<\/p>\n
I think it will, but I think this is a positive change for us in real estate. I don\u2019t want some huge house flipping business or BlackRock to come in and say, \u201cHey, here\u2019s 400 houses that you could buy in the same forum where somebody\u2019s trying to do a for sale by owner on a property.\u201d So if we\u2019re the investor, we\u2019re looking for the deal, you want to be person to person. I want to be talking to another human that\u2019s not experienced in this, that is not a business that knows more than I do. I want to buy a car from a regular Joe. I don\u2019t want to buy a car from the dealership that has skills and experience, what gives them an advantage. That\u2019s why you go to Facebook marketplace is to avoid getting taken advantage of by the people that know more than you. So I like Facebook getting rid of the professionals out of the mom and pop type of a group, which is cool because we don\u2019t see much of that in real estate. We\u2019re losing the mom and pop feel as institutional money kind of comes into our industry.<\/p>\n
Totally. Yes. I think it allows Facebook to almost specialize a little bit more. It\u2019s like if you want to see all the deals that a agent has, go on the MLS, the MLS is [inaudible 00:26:57]. If you want to find tenants, you can market that on dozens of different aggregator websites. It is actually nice for Meta to be able to do this and allow people to sell individual properties or to just be able to amplify their personal businesses and listings in a way that they\u2019re not competing with major businesses. But I\u2019m just curious, do you think this has any risk? It sounds like some of the feedback about this is that if you\u2019re a seller and you have to use your own name, that there might be a security risk there.<\/p>\n
Yes, I suppose. But that\u2019s always been the case. If you\u2019re going to use Facebook marketplace, I believe it\u2019s linked to your Facebook profile anyway, so people can find out who you are.<\/p>\n
And that\u2019s true.<\/p>\n
I don\u2019t think it\u2019s going to be additional risk that wasn\u2019t there before. I\u2019d like to see Airbnb do the same thing. I don\u2019t like when I\u2019m looking for a Airbnb to stay at, and then some big hotel has their stuff on Air. I think most people see that and they\u2019re like, I\u2019m trying to avoid the big expensive hotel and I\u2019m trying to look for a local person to support or more value a bigger space or less money, whatever it would be. When you let the people that are professionals at doing this come in, they just bully everybody else out. They have resources, they have marketing, they have skills, they have experience. We\u2019re trying to create almost a barrier to that, like a barrier entry like we were saying before. So I\u2019m happy to see Facebook making this move. I would love it if VVRBO and Airbnb would take a similar step. I don\u2019t want to see a Hilton listing when I\u2019m looking for a short-term rental stay at in some city I\u2019m going to be visiting.<\/p>\n
Yes, absolutely. That makes sense. Do you think this is going to be the resurgence of Craigslist? All of a sudden it\u2019s going to rise to the top?<\/p>\n
Yes. That\u2019s what our producer Kaylin said is this going to be the rise of Superman Craigslist going to come right back again. I think Craigslist has so many bugs, it\u2019d be very difficult. That\u2019s why people moved into Facebook marketplace. They got tired of.<\/p>\n
But it\u2019ll always be there. It\u2019s like Craigslist, every other technology can move light years ahead and Craigslist will still be there being the exact same website it\u2019s always been.<\/p>\n
Yes, it\u2019s Jack in the Box. 2:30 in the morning, Jack in the Box is always there for you. Is it the best experience you\u2019re going to have? No. Are you going to regret it in the morning? Yes.<\/p>\n
Yes.<\/p>\n
But it is there.<\/p>\n
All right. I\u2019ve actually never been to Jack in the Box.<\/p>\n
In your whole life?<\/p>\n
Never. If they didn\u2019t really have it on the East Coast where I grew up. It\u2019s like a West Coast thing, but.<\/p>\n
I had no idea. I just figured it was everywhere.<\/p>\n
I\u2019ve never had it.<\/p>\n
So do you have a 24-hour place that you guys can go to on the East Coast?<\/p>\n
Not-<\/p>\n
You\u2019re just going to be hungry.<\/p>\n
\u2026 Think of.<\/p>\n
The 7-Eleven.<\/p>\n
They\u2019d have McDonald\u2019s that was like 20-<\/p>\n
24 hour.<\/p>\n
I grew up in the suburbs, so not there. All right.<\/p>\n
Probably a good thing.<\/p>\n
Yes. Next time I come to California, we\u2019ll go. So for our last one, we have one more headline, which is the Biden administration released a framework for rental protections. And so you\u2019ve heard of this, I assume.<\/p>\n
Oh, yes.<\/p>\n
And my take on this, just so everyone knows this, there\u2019s a lot of intention here, stuff that they\u2019re planning to do, but there\u2019s not a lot of meat. There\u2019s not a lot to sink your teeth into form an opinion on. But do you have some thoughts on what has been released so far?<\/p>\n
Well, there\u2019s a couple components to it. One of them has to do with my understanding, it\u2019s limiting background investigations that can be done on your tenant. So they\u2019re already starting this in certain places in California where they\u2019re making it illegal for landlords to run a criminal search on any potential tenant that\u2019s going to be coming in. And they\u2019re claiming that it\u2019s unfair to people who have a criminal history that they don\u2019t have the same access to housing that other people do. So it\u2019s slipping into the fair housing ethos for certain jurisdictions, which obviously, it\u2019s just like every political change, it benefits some people and it hurts other people, or it benefits some strategies and it hurts other strategies. There\u2019s always a give and a take. So if you\u2019re somebody who\u2019s coming from that place, you\u2019ve had a hard time getting housing, this sounds like a positive change for you.
If you\u2019re a landlord who has been relying on criminal backgrounds and help make decisions for tenants, it\u2019s going to change probably where you\u2019re going to invest. I would assume in the cities that do enact these policies, you\u2019re going to see less investor demand. It doesn\u2019t mean houses aren\u2019t going to sell, but you\u2019re not going to have as many investors going there. And if this does become a thing that becomes a sweeping regulation, that this is something where landlords have less authority or control or autonomy, I should say, over the decisions that are made. The location you buy in will become extra important and maybe the price point.
So I don\u2019t know exactly how that works out, but this might affect areas where rent is $400 a month more than it would affect an area where it\u2019s $4,000 a month. So it\u2019s another thing to be thinking about if this does pass, location is going to become different. And then probably some other things like Section eight I think would gain some traction. Because if you\u2019re getting paid from the government for your tenant, you\u2019re not as worried about what the individual tenant is going to be up to considering their ability to repay.<\/p>\n
That\u2019s really interesting. That is one of them. I\u2019m interested to see what they actually recommend. And the reason I was saying before, what the Biden administration has announced so far is like they\u2019re going to direct the FTC to look into this or the Consumer Financial Protection Bureau to look into this. So we don\u2019t know these specific suggestions, but it does sound like they\u2019re following the lead of California, and that might be one of the examples that they look into. One of the other ones is the FHFA, which is the Federal Housing Finance Agency announce it will launch a new public process to examine proposed actions including renter protections and limits on egregious rent increases. This would only be for federally backed housing, but curious what you think about that.<\/p>\n
Well, this is a form of rent control. It\u2019s not like it\u2019s a new thing. We\u2019ve had this for a long time in certain areas, rent control is bigger than others. Again, I\u2019m in California, so Los Angeles has significant rent control. San Francisco has significant rent control. Investors still do very well in those areas, but in certain situations it can become problematic over time. So every once in a while we\u2019ll find a San Francisco listing where the landlord is not able to increase the rent past a certain point. So you\u2019ll get somewhere where fair market rent might be $5,500 a month, and there\u2019s a tenant paying $1,200 a month, that will affect the value of the real estate significant. They want to sell this property, this triplex and two of the units are occupied at $1,200 a month. You can\u2019t get a investor that\u2019s going to go buy that property.
But also, this bleeds into house hacking because it\u2019s not all pure investors. There\u2019s people in San Francisco that just have regular W2 blue collar workers that could not afford to live there if they weren\u2019t house hacking. And now you have two of your units that are not available that can\u2019t be rented out because they\u2019re occupied by below market rents. So I think long-term, if you\u2019re looking at how this could affect if this stuff does pass, this would actually make, because traditionally real estate has done better, the longer that you own it, this can turn the odds against you in some of those cases. So maybe short-term rentals will become more popular.
There\u2019s going to be less long-term rentals which ironically would reduce the amount of housing available, make it worse for renters as there\u2019s less housing available, there\u2019s less supply. So now landlords can charge more because the demand versus supply is all whacked out. So this type of stuff, when it happens, there\u2019s winners and there\u2019s losers in every category. You can\u2019t just blindly follow a mold. This makes the person who\u2019s paying attention to these things, it gives them a big advantage over the person who bought a property 20 years ago and just doesn\u2019t pay attention to the market anymore.<\/p>\n
Yes, absolutely. You\u2019re going to have to be pretty nimble and to pay attention to this.<\/p>\n
Yes.<\/p>\n
I do think this one is really interesting because what the Biden administration said was they were basically looking at public backed properties, which isn\u2019t a huge amount. I think it\u2019s like 28% of the market, but there was also a letter sent to the Biden administration from some members of Congress encouraging a more broad look at rent control. And I do think there\u2019s a lot of studies, I\u2019ve looked into this, there\u2019s a great Freakonomics podcast episode if anyone wants to listen to it, about the pros and cons of rent control. And it just seems like it doesn\u2019t actually work, even for the intended effect, which is like even if you wanted to help provide fair and affordable housing for people, it actually really helps the incumbents, like the people who are already in property.<\/p>\n
That\u2019s exactly right.<\/p>\n
But for people who are moving to that city-<\/p>\n
There\u2019s less-<\/p>\n
\u2026 Moving into that apartment-<\/p>\n
[inaudible 00:35:14] To get into.<\/p>\n
It actually goes higher.<\/p>\n
Yes.<\/p>\n
Because landlords need to compensate for those, the people who stay in their apartments for a long time. So they actually charge more for people who are moving in. And there are some studies in California actually, and I think in Portland also, that goes up. So I understand that there is an issue with affordable housing. I just hope that whatever comes out of this is a evidence backed solution that helps both sides.<\/p>\n
Well, my subjective opinion, again, I don\u2019t know this is going to happen. I\u2019m not speaking for anyone but myself, is that these changes make real estate investing less passive than what it used to be. So the idea of passive income buy a couple properties, live off the rent, never work. That\u2019s getting harder and harder and harder to do as we\u2019re talking about, you have to stay on top of the changes that are being made. If Chat GPT comes in and makes sweeping regulations to the short-term rental market, guys like me, we buy short-term rentals. We hire a property manager. We\u2019re like, you do it, I don\u2019t want to hear about it. Next thing you know, revenue\u2019s down by 60% because my proper manager can\u2019t get it booked because everybody\u2019s using the strategies that they used to have an advantage in as a professional.
Well, now there are no professionals because Chat GPT can do it for everyone. Or like we were talking about with rent control. So that makes the people that are investing in real estate have to pay attention to what\u2019s going on with their property. It\u2019s turning it more into you\u2019re a business operator. You\u2019re more of an entrepreneur as you\u2019ve always been an entrepreneur, but it requires more out of you to manage properties than what it did before, which gives people listening to podcasts and reading the news and getting informed and advantage over the people that aren\u2019t paying attention.<\/p>\n
Absolutely. Yes. The operational load is-<\/p>\n
It\u2019s a great way to inspire.<\/p>\n
Yes. It\u2019s just like you have to run a business, but hopefully you already knew that. If you\u2019re going to get into real estate investing, it\u2019s not buying a bond. It\u2019s not buying stuff.<\/p>\n
Yes. And the people listening to us right now, they\u2019re fine. Those people shouldn\u2019t be worried. It\u2019s people that don\u2019t know about podcasts, don\u2019t know about YouTube, don\u2019t read books, don\u2019t follow what\u2019s going on. The ones that aren\u2019t hearing this message, that are actually going to be the ones that are at the disadvantage.<\/p>\n
Yes. Absolutely. All right. Well, those are all the headlines I got for you. I thought you did a great job putting these together.<\/p>\n
Thank you. The production team.<\/p>\n
Well, yes. This was all Kalin and Eric, but I thank you. It was really helpful hearing your opinions on all this, and hopefully everyone listening to this got a lot out of it. We\u2019d love to hear your feedback on it. If you like this, please give us a five star review, or you can hit up either David or me on Instagram or wherever to give us feedback. I am at the Data Deli.<\/p>\n
I am at David Greene 24.<\/p>\n
All right. Well, thanks a lot, man.<\/p>\n
Yes, thank you. And if you guys like this show, leave us a comment on YouTube. Tell us what you liked about it. Maybe we missed a headline that you want to hear about. Put that in there. We will look at that, and we will add that in the next show. We really do look at your feedback, we look at your comments, and we incorporate that into the shows we\u2019re doing to make them as good as possible. So thanks for joining me, Dave. I\u2019ll see you on the next one.<\/p>\n
All right. Great.<\/p>\n