How Instant Gratification Affects The State Of The Market With Suzanne Andresen
Most real estate investors find it difficult to source their assets for their portfolios and forget to make sure they do the appropriate due diligence. In this episode, Suzanne Andresen shares some advice for the investors and explains how important conducting your due diligence is. She also talks about your lifestyle choice and how it affects your property to be under equity. Listen to this episode and hear what tips Suzanne provides for investors. Plus, she explains what the REI Referral Network is all about!
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How Instant Gratification Affects the State of the Market with Suzanne Andresen
I’m here with my good friend Suzanne Andresen. Suzanne, Thanks for stopping by.
Thanks for having me.
I’m glad you are here and in the interest of time, why don’t you go ahead and tell everybody a little bit about yourself.
I have been in real estate for many years, selling real estate from my dorm room at the University of South Carolina in 1986 as a Hall Adviser. For whatever reason, I kept going forward with that and worked at several publications in the space but certainly am happy to be part of the ownership at REI INK Magazine. We love the publication we have.
It’s been around for several years. It’s a well-respected messaging platform for the real estate investor space. We have also developed our referral network REI Referral Network, which is an opportunity for investors to connect with real estate professionals to help source acquisition and disposition strategies for their portfolio solutions.
From there, we launched our Highest-and-Best acquisition platform, which is a way for investors to connect with assets that are off the market. It’s designed to premiere the assets on Tuesdays and go on contract by noon on Friday Eastern. Truthfully, it goes to the highest and best offer that’s been submitted. It’s been very successful and it’s a great way for investors to source some of the assets that are difficult to find and we found a way to make it successful for them.
I’m a big fan of REI INK and the publication. You and Bob are doing an amazing job. Having been a real estate investor for many years, I get a lot of things in the mail. I enjoy getting it in the mail, looking at and reading it. I find a lot of value in it so kudos to you. What I like to do is start with what I call the Bottom Line Up Front, the BLUF.
When I was in the Marine Corps as an intelligence guy, I would brief generals. The first thing you have to learn is you never buried the lead because you could get mortar fire or the general could have something more important to do. He may have to get up and leave. You need him to know the most important thing that you had to tell. Suzanne, try to cover the most important trends that you see in real estate, things that you see that maybe investors should be doing or if there’s anything you see or hear that investors shouldn’t be doing.
My best advice to give investors is as they are finding it very difficult for them to source assets for their portfolios, make sure they do the appropriate due diligence. There are so many assets coming out of forbearance and foreclosure properties that they can miss overlooking important elements that can negatively affect the profitability. Some of the things that we do in our newsletter every Monday and Thursday are to feature stories and assets somewhere in the country.
We share how it’s performing on the local MLS, both from a listing and selling perspective. You get good local market metrics for the information but we also then show what the rental rates are. This helps give some of the buy and hold investors, the opportunity to evaluate what they are using for their rental analysis and what they are charging for it.
A lot of times, it gives investors an idea that they are probably undercharging. You can’t automatically go up $200 a month but you can start preparing to increase your rent for your tenants and get them to what the market rates should be. We also share some of the foreclosure and REO asset analysis through that area. Perhaps you like the market but not the asset that we are sharing.
We are teaching you to source an asset and work with an asset management company. We have got great connections for that. It gives you the ability to buy your assets properly. It’s okay if there’s a municipal lien against it, you want to know that up front. Knowing that there are two years of delinquent real estate taxes, that’s not a big deal. You put that into your evaluation and how you are going to make your bid. That’s part of going about it with the correct due diligence.
We are in a market where valuation is off the map that has to stabilize over time. We can’t maintain a 20% overvalued asset. In the 2014 market, we saw the real estate mortgage debacle and all of these issues coming out of it caused by bad lending practices. The term that came out of that was underwater. All these assets were under water. We are now facing a new term in this market. It’s Under Equity.
I’m guessing it’s going to happen between the March and May 2023 timeframe. We are going to transition the underwater market to under equity, which is unfortunate for all of the investors or homeowners in this market because they have purchased these assets at a higher percentage rate and not going to be able to afford that when they sell. What it leads to for the investor market is a need for more rental properties and that’s how we need to make sure we go about our due diligence.
What do you mean under equity? Do they have too much equity?
The under equity is when you owe more than the house is worth. These homeowners have purchased at a premium. They may be faced with selling not in the next 2 or 3 years but within 4 years. If they have to move, relocate for whatever reason or transition to a different home, they are at risk of being under equity. They will have lost perhaps their 20% down payment because they bought when the valuation was higher than it should have been, and it became almost a feeding frenzy for acquisitions. If they have to transition out of that home for whatever reason, they are going to be under equity.
For them to be under equity in your example, that’s calling for a correction.
There is going to be valuation corrections. I believe that 100%. It’s going to happen sooner than later. Everyone’s like, “It’s far enough away.” I don’t think so. I’m going to say by next May of 2023 we’ll see a substantial correction.
Substantial, you keep using these words. What do you mean, 20%, 50%, 100%?
More than 10%. If you put a 20% down payment when you bought your house, it takes us a long time for someone to save up cash down payment. If you turn around and lose that because you need to transition somewhere else for whatever reason, you are at risk of losing that hard-earned money you used as your down payment. That’s your under equity.
Are you seeing a 10% reduction across the board? Are you thinking of San Diego?
Certain markets are going to be higher than 10% and certain markers are going to be lower. It’s an average reduction of 10%. I live in Maine and we have seen a huge influx of people coming into Maine and buying well over 10% and 20% in value. It has to correct. It can’t maintain this valuation.
One of the problems I see with the “valuation math” is we have what I believe to be a permanent increase in replacement costs. The only way wages and prices go back down would be stagflation or a wage-price spiral. I don’t think our politicians are disciplined enough to allow that.
I’m not going to go down a political path.
It’s not politics. It’s American society. To me, we have become impatient and not loyal at all. If someone’s unhappy about gas prices and years ago, they voted one way, they will change the way they voted because they want to save some money at the gas tank. We are in this instant gratification society. We should force a 10% reduction.
With your instant gratification mentality, I agree with that. That’s what fed this frenzy to buy, which then buoyed the valuation. That’s beyond where the actual house is worth. The banks aren’t going to be at risk. Any funding behind that is not at risk. The people who are at risk are who bought the house at that price.
Due diligence should be a key component of how you purchase your assets. Click To TweetI want to say selfishly for the investor space, this is not a negative outcome. A place to call home is the nearest and dear component of your lifestyle. If you are a homeowner that has to transition, you are going to have to rent. This feeds selfishly into the investor market where the buy and hold and rent folks are going to do quite well with that.
I love that I disagree with you because we are going to argue. Does Amazon call in the 20,000 people they hired and say, “April fools. It’s not $18 an hour anymore. It’s $12 again?”
I don’t think you are going to be able to have that quick impact on wages. We have seen through the past two years and coming out of a pandemic that 85% of the population has been able to prove their ability to still be very effective working from home. That’s where a lot of these folks have transitioned and where they are choosing to live.
There are pros and cons and I have been working from home since 2003. I love it. It works well for me. At the end of the day, I’m able to get all of my lifestyle needs in place, which includes work and family. What’s at risk for that is office camaraderie. What you gain is a lifestyle choice and that’s going to provide the desire for people to be able to move more frequently to where they want to go. If they can’t afford it, they are going to have to rent.
That’s why I mean won’t have a correction. You make things, articles and business plans but you don’t print that newspaper in Maine or New York magazine. You don’t print the magazine in Maine. I agree. People can make whatever they want and work wherever they want if they have a skill or a business. The biggest thing driving the underlying inflation is the delivery people that have to get you your stuff in Maine and the people that make the vehicles.
You can’t make a Ford truck from home. You got to go to the factory. They can probably print that automatically but someone’s got to put it on a truck. Someone’s got to drive the truck. When I look at where the wage growth has been, it’s been a lot in the service sector because we had to pay people to come back to work.
The wage growth is playing into part of what’s going on economically in the country. We are forced to provide a higher income for folks to get them to pay for the higher gas that they are paying and some of those folks may or may not choose to move forward in that transaction. It’s either going to work for them or not work for them. Then maybe working from home becomes a more suitable solution for them at a lower rate but they still get the lifestyle choice that they want.
It’s going to be interesting the way it plays out because as I look at history, not just where we are at but where we have been before, in 1982 or the early-’80s, when everybody said that we are beating those inflation records, values kept going up for years and that’s with 18% interest rates. I’m going to stick by this and we are going to have to redo another one of these. Replacement cost is the new low comp. For most of these houses, you still can’t build them for less than people are buying them for and that’s going to keep values up.
Maybe it’s part of the replacement cost. Let’s say someone moved to Maine because we have had quite a few people who moved into Maine. They fell in love with the Shangri-La that they thought they had and they are facing their second winter. We had a very light winter and all of the Northeast had a light winter last year. Anyone who came maybe from California to New England has experienced a mild winter.
Let’s say we have a substantial winter and they didn’t realize they needed a snowplow guy, a generator or things to keep their house functioning the way they want it. They are like, “I can’t do this again.” They list their house. Those are the folks that are under equity. It’s not necessarily in the value but a lifestyle choice. You’ve got to decide what way you want to play it.
Working from home, some of the things that we are losing in that engagement is the office camaraderie. My partner Bob and I, when we developed the magazine, everyone was like, “Print is not here to stay.” We are named REI INK, “INK” as in PRINT is here to stay. In this home office when we have lost that in-person touch, print media is on the rise. We have seen the open rates in our newsletter go up substantially. We broadcast to 95,000 investors who receive our newsletter and our open rates are as high as 22%. That’s unheard of in any publication but even more so with trade publications and a click-through rate of 13%. Those are substantial numbers.
We are getting feedback about the publication that people are enjoying and learning from it. You are watching a whole transition to working from home and that’s going to play into the cost of living where people will accept a lower rate to maintain a job in an area of the country they selected to live. If they are working from home, the gas price doesn’t necessarily immediately affect them because they are not driving to and from work every day.
There are certain elements that we are facing financially that can be leveled off a little but I do think that the frenzy moves from the past years have caused this hiccup. They may or may not have made the right decision for themselves and their family. They are going to find that they have to choose another location. When that happens, that’s where we are going to start to see the under equity.
If I lived in Maine and it was winter, I would move. We had a mild summer here in Texas. People are starting to learn what it’s like because it was 105 degrees for several days. It didn’t bother me though. I was in California. We are going to move on, check back in twelve months and see if we have the summer disaster of 2023. Let’s talk about your Referral Network mainly because one of the things I like to harp on in this show is the value of one’s network. I subscribed to your publication. I paid to be a member of the Referral Network. Talk about what the Referral Network is, please.
Years ago, we developed the Referral Network. I will take one step back. We saw the opportunity to connect real estate investors with real estate professionals as a paramount need. Through that, we developed the opportunity to help source acquisition and dispositions in local markets. Many times, investors have to step outside their comfort zone or where they are buying and develop a new location.
To do that, you need to be able to find someone in that potential new market that you are considering. We have a network of real estate agents and brokers across the country that are fully versed in the investment space. They come in by state and county. We give them a limitation to the number of markets the represent. It’s designed to make sure you are the expert in that local market. Don’t put someplace down that you aren’t that fluent in because it’ll come out pretty quickly that you are unable to service what the investor needs.
What’s the difference between a real estate investor and a real estate professional?
Professionals are service providers. Nearly every real estate professional is an agent or a REALTOR through NAR but not everyone is. We maintain it as real estate professionals allowing investors to participate as well. It’s also through that portal that you upload an asset that becomes our lead story in the Monday and Thursday newsletter. It’s also a way if an investor wants to dispose of an asset, they can come in through the REI Referral Network portal and list the asset for sale. That’s the term for a real estate professional. You don’t have to be licensed to be in the network but nearly every person is.
If I have a house I want to sell, I can throw it on the website.
You upload it through the portal. We get notified. We then do all of the due diligence and share it in the newsletter.. This takes us back to the importance of maintaining your due diligence.
Are you running comps in your house in Maine?
The company does it. We pulled due diligence on the asset that we select for distribution in the newsletter.
I get it all the time. I will get an email acquisition opportunity. You’ve already vetted that out.
There are two different things that we have got. The REI Referral Network is a network to connect real estate professionals with investors, whether it’s acquisition or disposition. We encourage the real estate agents to connect with the investors. Most importantly on the fix and flip, if you find them the asset that meets their acquisition strategy on a buy and then they refurbish it and you’ve done right by them, you are going to get that asset back again to sell on the open MLS. You get to double-dip with a relationship. That’s why it’s so important for them to build that strategy with the investors.
If you are an agent reading this, you need to reread this because a lot of people don’t know what it is like to be in a position in real estate where you have to hustle for business. There are a lot of people that have only been at this a couple of years when the rocket ship is going far up to the left and they don’t know about the business development side of real estate sales. That’s a good one.
If you could teach a real estate agent to view it, it’s the life cycle of the asset. You’ve got 123 Main Street and the Jones family owned it. For whatever reason, the lifestyle changed for the Jones family and they had to sell the house or it goes into foreclosure. That asset is at a “Y” in the road. Is it a buy and hold or a fix and flip?
Don't jump off a cliff unprepared. That's going to get you into trouble. Click To TweetThat’s where if you look at it from the performance and the life cycle of the asset. If those assets are refurbished and put back on the MLS, that’s the fix and flip side. Is it purchased by a buy-and-hold-and-rent investor? You may still source a tenant for that as a renter but it’s the lifecycle of the asset. Does 123 Main Street go back out on the MLS that the Smith family owns and live there happily ever after?
Even with interest rates happening the way they are, we are so massively undersupplied in inventory in this country. It’s another part of my theory on why we don’t go down but we’ll have a slowdown for sure. I was talking with this young investor at a mastermind. I said, “If it doesn’t sell in 21 days, that’s the trigger to take a look at your Pricing, Product and Presentation, the three Ps.” He goes, “What’s that?” I realized he’s never had a house on the market longer than 21 days.
I remember when the average days on the market on FHA properties in Dallas was 90. You would put the house on the market and wait for 21 days. That way you survive three weekends and then you do look at the pricing, product and presentation, change 1 of the 3, wait for another 21 days and then look at the Ps. Check how many showings, offers, counter offers or feedback. There are a lot of people that have not even contemplated that discipline in this industry that may need to learn it.
We are going to get to the rest of what you have to say but first, it’s time for the Money Minute. I ask my guests to imagine there’s an investor on the other end of this program that will only get 60 seconds of advice all month long. This is the only 60 seconds of advice, mentorship and guidance they are going to get. I want you to think about it. We got to do the Money Minute. You have 60 seconds.
The biggest advice I could give any investor is to stay focused on your acquisition strategies. Make sure that you are doing the due diligence. Connect with your data providers, if you have them to make sure that you are seeing how the asset changes in value over time. Use them to help set the standard in the base for your rental. I see more often than not and prominently with the mom-and-pop investors that have less than 25 assets across the country, they don’t have the correct rental rate that they should be charging. You can’t automatically jump $400 a month to get you there.
If you can make sure that you study the data, partner with your local real estate agents and make sure that you understand how many days on the market is at vacancy at $1,200 if you took it down to $1,100 or went to $1,400. Understand what that’s going to do but you also have to make sure that your acquisition fits within your buy box. Don’t jump off a cliff unprepared. It’s going to get you into trouble. Pay attention to what’s happening in the valuation. Valuation is going to change. I believe it’s on a shorter term than most but we are going to see itself correct. The best thing I could teach you is to walk away with due diligence as a plan.
Due diligence is one of those things we were talking about in a mastermind. It’s easy to make money when you can wait 3 months and the house is worth 10% more. It’s hard to make money when things meet in the middle. We’ll say they are flat. Let’s say prices aren’t going up for values, wages and rehab costs. Everything’s the same. It still takes more discipline than it took when it was going like that. We are into what I like to call rapid-fire. Please keep your answers short. Bubble or not?
I don’t believe it’s a bubble.
Is it a rent bubble?
It is more of a rent bubble. The rental rates are probably going to go up more so than the rest of the valuation percentage-wise.
Where do you think the 30-year homeowner interest rate ends up peaking?
Eight percent.
Do you think we get the 30-year purchase money at 8%?
It’ll hit that.
Interest rates go to 8% and people find out they are under equity. Don’t they stop selling their houses?
It depends on the reason you were considering that in the first place. Do you have a new job? Do you need to move closer to your parents? What’s the driving factor behind that? Do you not like living in the Northeast because the winters are too hard. You’ve got to decide what’s right for your family and situation.
I’m trying to figure out and when I look back to the ’80s, which is the only comparable time in history where inflation and interest rates were both through the roof and into the clouds, volume dropped significantly. I believe that’s what kept prices up. Knowing all the investors that REI INK knows, if there’s even less inventory than there is now, where do you find a deal?
That’s one of the reasons we developed the Highest-and-Best.com platform. We have relationships with many assets management companies across the country, as well as investors. We have got people that have purchased assets that are looking to have us help them sell. What we have done is developed the platform that sells an asset at a minimum rate, potentially getting it into a bidding war – hence Highest-and-Best.
If you see an asset and you like it, you can put an offer in, it will sell at that rate or more, whatever the highest and best price is. It’s a way for investors to source assets, whether you are a mom-and-pop or a REIT. Everyone’s going to be buying at the same rate. For those that look at it, evaluate it and respond quickly, it’s a three-and-a-half-day timeframe, where you are prepared to move forward. We can help you get that asset.
Are you hearing from asset managers that they are expecting more inventory or less inventory from the default side?
It’s a very limited inventory. They are waiting to see financially where we head. That’s a tough prediction to state. We are going to start to see them trickle in. We are going to see more foreclosure and REO hit the market when we look at what’s happening like higher gas prices, people out of work or not being able to maintain their living conditions.
Any parting thoughts or shots?
I believe that we have developed some strategies that level the playing field for some of the smaller investors. That’s the predominant force behind this industry. It’s 93% or more of the mom-and-pops. Teaching them to do their due diligence gives them a little bit rounder perspective on how to stabilize their portfolio and make the right decisions. We are here to help them get there.
If someone’s reading, how do they connect with you?
Reach out to me. My email address is Suzanne@REI-INK.com.
REI-INK.com. They can get all the information on the highest and best platform, the preferred vendor platform and the Referral Network platform. Subscribe to the magazine and make good friends.
Connect with us. We have got a great product, a knowledge base that we’d like to share and good partners we have with you at RCN Capital.
Your publication is fantastic. I enjoy it. I have enjoyed having the relationship I have with you and Bob for many years across many different companies. I look forward to continuing to do business with you. Thanks for being here.
Thanks for having us.
Thank you for joining us again in this episode. Remember, your network is your net worth and you’ve been growing both. We’ll see you in the next episode.
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The following podcast program is furnished by RCN Capital LLC. The information provided is for general educational purposes only and does not constitute any legal, tax, financial, investment or other professional advice. The views, thoughts, and opinions expressed of any speaker are the speaker’s own opinion and do not represent the views, thoughts, and opinions of RCN Capital LLC. No information contained in this episode should be construed as financial, investment or legal advice from RCN or any individual, author, host or guest. You should always consult a financial advisor before investing.
