On the show today we talk… Get Set Up for Success: Deep Dive on Exit Strategies – Augustus Bukowski!
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Show notes: Get Set Up for Success: Deep Dive on Exit Strategies – Augustus Bukowski!
What’s going on?!!!
We are stoked to have Auggie Bukowski on the podcast!!
Where is the Hawaiian shirt?
Augie grew up in Seattle and has grown his business to the point to help his Dad retire.
You can set your kids up from day one to have a great start at their financial life. You want your kids to have choices.
They have 2 kids under 5, and are probably going to have one more. Kids under 5 are a handful, and Augie is looking forward to having kids over 5 years old.
Kids keep you humble! And that’s part of Augie’s goal.
We should table the kids and stability topic to come back to another time for people that are getting started.
Reverse engineering and runway with exits
The mortgage market exploded a bit yesterday.
When Augie got started he was refinancing people and then the market changed fast and the Fed lowered interest rates. This was during the housing crisis.
Then in 2018 they started raising the interest rates again.
We’ve had 15 years of low interest rates.
Most people in their 30’s don’t realized that 6% was a normalized interest rate.
Until we see risk free bonds go down we won’t see much change. The Fed is fighting against inflation. Inflation isn’t good for anyone.
What do you think about wages
Augie has several businesses that are all real estate based. There are a lot of jobs available and the unemployment rate is low. Augie doesn’t believe that wages are going to grow that much.
Consumers buy homes for the monthly mortgage rates. It’s like the car loan industry.
Assumable loans
These are available on the MLS.
Augie thinks we are going to see more creative real estate because of the mortgage rates.
Everyone is running around scared
But 2007 was scary too, and it created one of the best buying environments of our life.
What do you think about BRRRR’s
You have to remember that a lot of real estate pro’s have just gotten here in the last 3 years. We need to remind people that this is a different market, of what does the seller want.
The spread on cash flow is going to be very low right now. Augie says if there is no cash flow… you don’t buy it.
What is good cash flow
You want to look at what you can afford to lose every month and and still afford to live. So, no overleveraging.
We would like to see a minimum of $500 net cash flow per property. He believes that rates won’t be 7% in two years.
We are hoping that the cash flow that is better will take care of the lower cash flowing houses. And that in a few years we will get a bump in cash flow when rates come down.
So, things are looking tough for BRRRR.
We don’t have stability or predictability
You could have properties around you sell for less than what you expected when you bought. You have to look at rate and appraised value.
How many properties does it take to tell a story on comps?
When rates went up we thought inventory would flood the market, but we haven’t seen that.
The home that do hit the market… have to sell.
You have to be very careful right now.
Using a 70% or 75% rule in WA doesn’t really work except for the best investors.
You need to have a conversation with the sellers about that they need.
Are lenders allowing 2nd position?
They’ve done some bridge products and some hard money products. There is no zero down. But they will allow a 2nd position.
What about a wrap
A wrap is a mortgage on a property. Julie buys a property from Augie, and Augie keeps the mortgage and essentially becomes Julie’s lender.
The biggest reason for people selling is relocation.
Terms are very important because humans have needs.
The gold on this subject matter
If someone makes that loan for 12 months… then they can go to the lender and show that they’ve made the payments.
The hard thing is that if the mortgage doesn’t get paid then the mortgage is still in the originally owners name.
If you are going into an investment you want to talk to a lender that does investing specifically, so you can do take out financing. NOT A FRIEND.
Also, what might have worked 6 months ago, might not work now.
Taking on partners is risky
Well, if you are a partner you still own the property. The lenders have to count it against you.
What if your partner with cash didn’t have a great credit score… Don’t make assumptions.
The key to all investing…
Make sure that take out financing is taken care of. So you have an alternative to loss. This is the worst case scenario.
You must think forward about what is going on in your life.
Real estate is highly leveraged, and based debt. If you go buy more stuff (car, houses, etc.), you might not be qualified for the next purchase.
We can have discomfort today for comfort in the future, or comfort now for discomfort in the future.
When Julie was in high school she was working for Safeway and making more money than all her friends. She could have made so much more money making $27/hour while her friends went to college, but when her friends got done… they would make $150k more than Julie could have ever made.
Life doesn’t get easier unless you do the hard things now.
We should make an investors life check list
Understand what the choices are that you need to make to have the future that you want.
Lease options to BRRRR with improvements to house
Augie thinks you are mitigating risk with this idea. It’s important that you have lots of backup.
You need to make sure that the underlying seller pays the mortgage.
It’s important to have a servicer pay the mortgage so you aren’t giving the seller the money.
Make sure that when you are structuring with the seller you know what their needs and wants are.
These things really aren’t that complicated. You just need to have the checklist.
YOU NEED TO MAKE SURE THAT YOU ARE CASH FLOWING – Build in things that will protect you when doing lease options.
Now is the time for creative real estate
Before, sellers could throw the houses on the market and get their rates. Now you have more power.
With seller financing the seller must offer a 5 year loan term. Call up Julie and correct her if this is incorrect.
This is a consideration if you are going to do seller financing or a lease option.
You need to figure out when the seller needs their money.
If the buyer fails…
With seller financing you have to foreclose, but the lease option is separated and you can evict them.
This isn’t that complicated. It can be deployed right now. All sellers are willing to listen. They don’t have any other choices. It’s the best time possible right now. Boom it up!
Figure out everything upfront to make sure you have options.
Multi family
Start looking early because they are taking a long time to do a deal. The rates are still good on 10+ unit apt building.
Augie is building out multi family instead of spec homes, but commercial lenders are scared, so they are doing float.
You don’t want to get stuck with a fixed rate that is higher than will cash flow.
You should also have a forecasting model for renovation. You will know of trigger point for refinancing in the future. And if you’ll make it or not.
For investors right now, just understand that the most important thing you can do is stay up to date month to month. You are going to want to remain liquid.
Best case scenario everything gets better. But you are ready if things don’t.
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