JLM Blog | Episode 3: Overcome Your Fear as a First Time InvestorReal Estate News, Updates, and Tips
Multifamily Real Estate Advisors in San Diego
Listen to the Podcast Here:
Podcast Episode by Jason Lee – Premiered July 22, 2021
What You’ll Learn in the Podcast:
● What to consider if you’re getting into real estate investment for the 1st time.
● A breakdown of how a ‘Pre Pay Penalty’ works and what it is exactly.
● The importance of having a good loan broker on your side.
● From the investor side of things, what Kenny & Krystle look for when investing in a building and what a first time investor should look for.
● The pluses of owning and investing in the San Diego area right now.
● A look into why Kystle & Kenny decided to go into real estate investing (hint it has to do with freedom and cash flow).
Summary and Highlights:
A digital marketing coach, Jason Lee, has created the Podcast and YouTube playlist entitled: The Multifamily Millionaire. He is from real estate San Diego that features different investors and entrepreneurs in every episode to tackle various issues regarding business. In addition, he reaches out to every business starter in every podcast/playlist to be braver in their goals which is quite wholesome.
Much interesting as it may seem, we will narrow down the topic specifically about Episode 3 of Jason Lee’s The Multifamily Millionaire Podcast.
In this episode, Jason Lee introduced the partners Krystle Moore and Kenny Simpson as the guest of the show – both multi-millionaire real estate agency San Diego investors. To start the topic, they have shared with the viewers about their real experiences in loans as real estate investors from the moment that they began to. In addition, they have described the case very well since they have been through the fear of investing.
Still, to comfort starters, they managed to give great advice and motivations by differentiating residential to business loans; debt coverage ratio; the process of prepayment; how to live as a self-employed real estate investor; the power of strategizing; how to converse properly with a client; how to be a good broker; the process of cash flow and more.
After that, Jason had a deep conversation with the guests regarding their experiences and success in his real estate agency in San Diego.
- Sometimes, you have to surrender the possessions you want now to don’t need to offer them later. That includes time, effort, wealth, and sometimes even connections.
- You don’t need to be talented and expert from the start. Allow yourself to make mistakes and learn along the way. The route to success is abundant of obstructions, after all.
- Don’t fear the challenge of real estate. It is truly intimidating and risky, but all you have to do is be braver and bolder.
- There’s always someone who has more wealth on you, is is more successful and has better skills. However, in real estate, you are both doing the same thing.
- Once you get obsessed with investing, you may lose track of time. Seventeen years will seem like bliss. However, the things you learned are permanently sealed.
Here are some special key points that you can obtain from watching or listening to the podcast episode:
1. DON’T WASTE TIME
Investing needs a lot of time, so do it as much as possible if you are a starter. As long as you are firm and prepared to sacrifice your time now, you will have a higher success rate in the future.
2. DON’T FEAR EDUCATION
Terror of the future, obstacles, and even rivalry are all sources of fear. Maybe your anxiety signals that you don’t have adequate knowledge about something. That’s fine; all you must do presently is learn about it. So take that property investment course, do your homework, conduct your due diligence, and make educated decisions.
3. BE OPEN FOR SUPPORT
Nobody ever knows everything about anything most of the time. You may not have to _”act it until you achieve it_,” but you should be willing to take support in any manner. Accept the help of assistants, consult mentors, receive coaching, network, listen, collaborate, and receive the offer provided to you.
Episode 03: Overcome Your Fear as a First Time Investor
Watch the Podcast | Read the Transcript
[Intro] Welcome to the multifamily millionaire podcast. The show that interviews multimillionaire real estate investors and top producers in the real estate industry. If you’re looking to create passive income and achieve financial freedom so that you can do what you want whenever you want, you’re in the right place. Our goal is to simplify and make real estate investing easy for you. For more information, you can find us at www.jlm.realestate.
Jason Lee: All right, everyone. So I have my really good friends, Kenny, and Crystal here. They’re my go-to loan brokers for both multi-family and two to four units, Residential, You name it. To [00:39 inaudible] Kenny and crystal to introduce yourself, tell the audience who you are and what you do.
Crystal Moore: Sure. Awesome. My name is Crystal Moore. I’m the broker and owner of Pacific shore capital. I’ve been doing multifamily and commercial financing for 17 years now. Hard to believe I feel old. But we also do own apartments ourselves. We own some industrial.
We previously owned a property management company. We manage over 1500 units here in San Diego. We sold that in 2017. So we have the experience, not just of the financing, but everything from being an owner to management, rehab, repositioning properties, you name it. We have done it over the last 17 years or so.
Kenny Simpson: My name’s Kenny Simpson. I’m actually Crystal’s husband just with a different last name, but I’ve been doing one to four unit financing for 17 years, crazy. Crystal and I combined have probably done about 2 billion of business, just so you have that kind of perspective.
To add onto that, Yep, We’re just active real estate investors as well. And owner operating and the ones got add on, we do on vacation rental. So if anybody has questions about that, but I think the value we can bring to anybody, especially if they’re experienced or first time buyer, maybe, you know, you’re looking to get in a real estate, whether you’re buying a single family residence or buying two to four unit is we have a lot of experience and we can not only do your loan. We can also advise you in many different ways as well.
Jason Lee: Got it. And you guys specialize in two different types of loans, right? Can you elaborate on that?
Crystal Moore: Yeah. So there is a difference for us, I think most people may have some experience in the residential side, one to four units and then anything that’s five plus units is considered multifamily and the financing is quite different on those, so I talk to people all the time about, you know, that are looking to break into apartments. I think the first thing that they also want to understand is the financing and how that’s going to work, because it’s not as straightforward as, you know, you can get 75% loan of value or 70% loan value, whatever it is on like a two to four unit. So there is a very big difference in the financing for five plus.
Kenny Simpson: Yeah. So one on the four is, it’s kind of more straightforward. It’s you got to qualify, You know, we look at credit income assets. The good news is that if you do buy a property and it didn’t cash flow, Cause the rents are under, we do not lend off of, you know, the cash flow. So if you make enough money, you can actually get 25% down unlike crystal, you could be buying a beach property that’s 40% down or 50%. So that is the difference.
Also the difference about us is most people typically are locking into a 30 or [03:16 inaudible]. We have 30, 15, 20, and so longer term fix. There’s no prepays. And the cost is probably a little bit less because appraisals and things like that are different.
But otherwise I would say just a little bit further into this is that when you are trying to do a cash out refund investment, sometimes the commercial can be better because we might be capped on the cash out and then you kind of get dinged too with rates and stuff when you go cash out. So it is two different perspectives. So if you’re diving in and looking at each, it is good to talk to like, you know, mortgage advisor, like somebody like us. So you can really present a scenario, We can give you back proper feedback and pricing and stuff.
Crystal Moore: There’s pros and cons to both for sure. Just understanding that.
Jason Lee: Got it. And if someone’s looking to just get started and buy their first investment property, do you think it’s better to start in residential or to start in commercial?
Crystal Moore: I think it depends on where you’re at financially. I think one of the, probably the biggest challenge into getting into apartments that I notice with people is that they have a finite item amount of money, right? Like they only have a certain amount to invest. And so that can be tricky when you’re trying to get a loan and you’re looking at different properties and the down payments are larger than you anticipated. So then what happens is they end up having to reduce the amount, the price that they can qualify for what they can buy a property for. And then they end up buying the two to four unit because that they have to start. So I would say by as big of a property as you can to get started, that’s what I would do and what I suggest. But it might end up being still a two to four unit if you don’t have enough cash to put down.
Kenny Simpson: Yeah. And I would just jump on that is that with us, we don’t have it with two to four there is no net worth requirement with crystal there is two on top of that. So just because you know, you might have [05:04 inaudible] got a million down, You want to go buy a bigger building to cover the loan. If you don’t have that net worth, It’s a problem. So with us, there is no net worth requirement. You could just put down the 25%. That’s really the difference. But typically from owning, operating, we are believer, you know, Jason, the more, the better. So if you’re going to buy two to four, I would push you to buy a four rather than a two. If you’re going to buy five plus buy as many as you can.
Crystal Moore: Yeah. I mean, and it’s kind of a general theory. You know, the more units you have, the more tenants you have paying your expenses. So if you have a four unit and one person vacates, then you have 25% vacancy you might break even, or you might be a little bit negative when that person leaves. And then you have turnover costs and more vacancy loss.
Whereas if you own a building with more units, if you own 10 unit building, one person vacates, you only have 10% vacancy. I can almost guarantee you you’re still going to be cash flowing as long as you’re not super under rented, even though one person vacates. And you’ll probably be able to use that cashflow to put back into the unit turnover and get ready to rent again. So that’s really the biggest reason I push everybody to buy the biggest building they can is because we’re all about cash flow when you’re investing. And it doesn’t feel like a good investment when put money into it constantly.
Jason Lee: That’s really good. And how about location? Do your clients care a lot about location when they’re first looking to buy a property?
Crystal Moore: It depends. Yeah, I mean location for me, I say it’s hard because I think a lot of new investors come in and they want to buy a property that they would live in. And that is not the right way to look at it because depending, yeah I mean, depending on where you’re going to buy, like let’s say for example, what I see a lot is let’s say you want to buy a property and like by the beach. Like that sounds great right on, on this beach property and it’s going to be fabulous.
Well now you got to put all this money down. It’s probably not going to cash unless you put a huge down payment down. So it depends on what your strategy is. So if you want cash flow, then you’re going towards sea neighborhoods. If you’re looking for maybe like pride of ownership, then you’re going to go to some of those more expensive neighborhoods. But most of us starting out are doing it for cash flow purposes. So location certainly does matter. And I think once you start your search for properties, you quickly learn the areas that you need to be buying in. And they’re not the sexiest, but I love cash flow, and that’s what we’re all looking for. And the sea neighborhoods are where it’s at.
Kenny Simpson: Yeah. I mean, it’s kind of funny. People come to us and I always have that initial conversation like, oh, I’m looking here, here, and I don’t say anything. And I go, what are you trying to do? What’s the budget. And it’s, I can’t find anything. And I’m like, okay, are you ready to listen? Because you’re looking in all the wrong places, you know? And so I’m like, what about here and here? And next thing you know, they get a deal. And I just think like Crystal said, people are so focused on, I love the street, this building’s perfect. It’d be great long term and this and that. And I’m like, like we always talked about when you’re buying a property too, is whether it’s your first or your fifth is you should have some like, expectation. Like what’s the game plan, you know, are we trying to do here? And you should be advising
Jason or even your loan officer because Crystal’s not going to, crystal says, oh, you’re going to buy this and maybe rehabing to fix it. And you’re going to sell him two, three years. Well, that would determine what kind of debt you put on it.
Do you have a free pair or not? So really, like, I really tell people, your first deal is really about mindset is like, it’s not, don’t be emotional, it’s really hard because the neighborhood you’re going into, maybe it’s not the ideal place, but also is in five years, it might be the ideal place you’re getting there early. So I just think a lot of people are like, I want to be by the beach. I want to be this. But like crystal said, but when you start really becoming a real estate investor and do a few deals, you realize that’s actually not the place I want to be because it doesn’t really make any financial sense. And most people land on that in their own mind. But unfortunately some people learn the hard way.
Crystal Moore: It’s funny. I mean, I love real estate cause it’s all, it all comes down to numbers. Like literally you just do the numbers and then, you know, this is a good deal or this is not a good deal. And the numbers are very different in those two neighborhoods.
Jason Lee: No, for sure. If there’s one big difference I’ve seen between an investor who owns a lot of units, an investor who owns maybe 10 in their whole career is that the person who owns 10 units their whole life has way too strict of criteria. And cares too much about location. And the investor who owns 5,000 units or 500 units just cares about the numbers. They don’t care about locations. So I hundred percent agree with what you’re saying. And it’s crazy because some people just, what crystal says.
They care about a property so much that they have to live in it for to make sense. And if you look only in Pacific beach or [09:36 inaudible], you’re going to have a very hard time cash flowing. But stepping back, Kenny, you mentioned about the prepayment penalty. Can you elaborate for someone who doesn’t know what that is? Cause when I first started, I didn’t know what a prepay was.
Kenny Simpson: Yeah. Crystal can kind of break it down, but so when you buy, like for residential one to four, usually you shouldn’t have to worry about it. There’s very, very, very few lenders that would have it. And if you’re going there, they’d probably mention it and it’s maybe a private bank or something, but typically with crystal to commercial, you’re going to have a prepay. And it’s amazing how some people, they just go to a bank, they buy 10 unit building, they get debt on it.
They focus on it, the interest rate was so good. Nobody walked them through it and they, you know, they get referred to crystal three years later, Hey, I want to refine. She’s like, well, you’re in a five year free pay. They’re like, what, what do you mean? She’s like, yeah, what’s the prepay. Well, it’s $40,000. Are you kidding me? Why didn’t the guy tell me? You didn’t review this? So this is why it’s very important. Like, you know, Jason, you know, just for like you, what broker are you working with? Who’s your mortgage, who’s on your team, right? Are they advisors? Are they just like, here’s the deal, the next deal, the next deal, the next deal. So this is why I said is what is the game plan you’re trying to do. You need to
tell your agent, tell your loan officer. Tell everybody even the property manager, whatever. So they know what is going on. So prepays are, if you pay the loan off early, there’s a prepay, I’ll let crystal elaborate on the different types of prepays.
Crystal Moore: Yeah. So I mean the standard prepay you’re going to see on a lot of these deals is going to be a step down prepay. So for example, you know, sometimes like, let’s say you go on a five year fix, it might be a 3, 2, 1 prepay, or maybe it’s even a 5, 4, 3, 2, 1 prepay. What that means is that for each of those years incrementally. So for example, in a case of a 3, 2, 1, it would be, you know, 3% of the balance at the time of payoff, If you pay off during year one, 2% in year two, and then 1% in year three, and then after that, it drops off. So it’s those numbers, represent percentage of the loan amount by year, for each year until it burns off. So it’s definitely something to consider.
I mean, that’s one of the things I tell people that are so rate sensitive. I mean, if you come from residential and you’re just really rate focused, when you kind of step over to the apartment side, it’s not just about rate, it’s really about prepay, cost, rate. Like it’s really about a lot of different variables because now you have to think about this like five plus units is considered a business. So that is the biggest difference between a residential and four and five plus units. This is considered a business loan. And so these loans are for people who are kind of believed to be more savvy businesspeople. So it’s just a little bit more complex than going the residential route.
Jason Lee: That’s a great answer. I feel like a lot of people who are looking at loans, especially on the commercial side, they’re very one dimensional the cable at the rate and they care about what the loan amount is. But I feel like with commercial versus residential, there’s so many more aspects that matter such as the property pnls, the debt coverage ratio, all that stuff. So that’s why I think it’s really important. And I want the audience to understand how important it’s to have a loan broker on their side, whether it’s Kenny or crystal on residential or commercial. I’ve just seen, I mean, Kenny can give a great example of a client who bought that fourplex on 49th street, Kenny. About how important it’s to have you on the team because I feel like some people want to go the cheap route and go direct to a bank, go to Wells Fargo or chase bank. But number one, they won’t get the best deal.
And number two, you won’t get like the stellar advice that Kenny gave and to push the loan through, cause you did a lot to get that loan through and that transaction was horrifying. But if it wasn’t for you, I mean, if it wasn’t for you, that deal would not have closed. So can you just talk like a little about that just to show people why having a good low broker on your side is so important.
Kenny Simpson: Yeah. And I want to give you guys a story about prepays, not the caveat, but this is a good story. So crystal and I, obviously we have a podcast. I follow a lot of people on podcasts. I fall syndicators. So there’s this guy he’s like the rate guy, right? And so he used to work at secondary markets and all these companies, he has his own company. It’s JP Conlan. What he does is when, like you said, when people are buying 50, 100, 200 million dollar deals, they actually hire this guy as an advisor. So what he does is goes in, should we do a flow rate? Should we do this, That? Because people are, you know, they’re getting a hundred million dollar loan. It could be a big, monumental mistake. It doesn’t matter if that, but even on a small scale, it could be, it could really screw you if you have to sell or refi. So what happened is everybody, these guys went and locked. They went back on this one, client, [14:22 inaudible] they sold 40 deals in 10 years, big syndicator, big.
They went back and did the numbers. They did all 10 year IO, Freddie Mac yield maintenance, prepays. I think the guy paid, the guy was like sick to the stomach. I can’t remember, but I think they paid like 40 plus million dollars in prepays, 50. It’s some crazy number. So what that means is my point is, why do these big guys have advisors? Because they sat down and said, wait a minute, here, the market change, what’s going with rates. Is there anything else we can do? We thought we are going to hold these properties for 10 years like everybody says, I’m never going to sell, but you know what? That’s not the case. Cause another deal comes along. You call Jason, I got this deal. How do I buy it? We got to exchange up. You got to sell. And so these guys held three to four year average. They weren’t even 50 per percent. So they realize we need to start doing, buy out the prepay, shorter prepay, you know, do a float with a cap. So it’s the same thing as that. Or you’re going to crystal, you’re going to need a tough deal. You walk into Wells Fargo, you [15:24 inaudible], nothing wrong with them. They’re really good at banking. But it’s a revolving door of people that work there that are loan officers.
Because happens on just being really transparent is people that work there, the loan officers aren’t paid very well. And it’s just a big assembly line. And it’s like that guy that does your loan, He has to call seven people to get an update. It’s kind of a nightmare. He’s not going to tell you that when you walked in there, but this guy could have started a year ago or six months ago. So then you compare somebody like me. That’s been doing this 17 years. I have a team. I can pick up the phone. I can call an underwriter. I can go through the file. I can even coach an underwriter and say, no, you’re wrong. This is how we need to get it done because I have the experience to do that. So really the difference is, is it’s all about experience. So if the guy at Wells Fargo has 17 years of experience and he’s done a billion dollars of loans, he’s probably really good at his job. But if he’s six months
on the job just came outta college and never seen a file like this. He’s probably going to screw it up. And when the underwriter says it’s denied, he doesn’t have the, he doesn’t have the wherewithal or the knowledge to go back and explain to her and present it, say, wait a minute, here, you didn’t look at this Correctly. And that’s what I do, whether it’s for that client or a lot of other clients. So there’s a lot of times I get a suspense or a denial and the underwriter just doesn’t understand the income cause there’s complicated, you know, tax returns or this. So I’m really good at tax returns. I’m really good at solving point. I’m really good at real estate investors. A lot of it thank to crystal for referring me to her clients, but what’s a tough fly for 95% everybody else isn’t for me, cause me and my team are built for it and we are trained for it. We do it all the time.
Kenny Simpson: Are you going to go through the 49th street? What was the challenge there?
Crystal Moore: No, the challenge was, I mean you have somebody that’s self- employed that has foreign income, that has foreign assets that moved it here, that moved money all around. That really didn’t know that you should to a lot of these things. But what I had to do is just keep going back and explaining, explaining, explaining that and then they decided to audit the file too. So everything you could hit me with is this file, They literally were like, did not want to do the file. But at the end of the day I did on the phone with the head underwriter. And when I walked her through it, she says, it’s not as bad as it was because a junior underwriter got it. Then another underwriter by the time she got, it looked like a pile of rubble. And when I can put the pieces together and present to her and say, Hey look, it’s foreign income. I presented everything. Here’s the other income. Here’s the assets, here’s this. They had a lot of information wrong when I presented to them properly and I explained it to them. It all makes sense. And she goes, okay, this is a doable deal.
Check, Let’s do it. And you know, it didn’t take us months to get there cause the audit took a month. But by the time she got the file went through and talked to me and literally took us three or four days to get the thumbs up and let’s get it done. But I wasted two, three months with the wrong people. So it’s literally, that’s what it is. So it doesn’t matter if you’re self-employed or real estate investment and stuff. A lot of people walk into banks and they’re told, oh, well you can’t get a loan. We can’t help you. This and that. I hear it all the time. I hear it on ads. I hear it on the news. It’s completely incorrect. You know, those people don’t live in our world. They live in why listen to you know, the news. And they said, they’re not giving loans out to self-employed people. I was like, well that’s interesting. Cause I just funded 20 loans last month at self-employed people. So I think just having the right information and data too is important.
Jason Lee: Crystal, you want to elaborate on that?
Crystal Moore: Yeah. I mean, I think too, the biggest thing for us is just presentation is so critical. That a lot of times, if you’re going directly to a banker that you, as the borrower have to present all the information, they just kind of transpose that and submit it. And a lot of times, you know, the problem is that once an underwriter see something, they can’t unsee it. Like that’s the big thing. I mean, you give them something, that’s the wrong piece of information they can’t say, oh, I’m just going to pretend I didn’t see that information. Take it back. I don’t need it. And so that’s the biggest thing for us is that we’re constantly strategizing on some of these files, like, okay, how do we need to present this information in the best light so that they’re going to understand it and it’s not going to look as bad. I mean, the majority of the stuff that we get is just thrown at us and people don’t want to do any paperwork and we kind of put it all together. I kind of prefer to do it anyways because of the presentation.
So that is the biggest thing about getting the deals through. And what Kenny’s saying is just a lot of times with the banks, they get these easy cookie cutter deals. They want the like W2 person who’s like down the house and you know, that’s it. But once it gets complicated, I mean, Kenny just closed a residential loan from my client that has 70 properties, 70. I don’t think the underwriters particularly love that he gets these deals, but for me, like these are the kinds of things that we’re doing because it’s like, nobody else is going to touch your file. In fact, he went directly to a bank and they’re like, oh no, we can’t do that. So I mean, these are the kinds of files that we’re used to seeing. Of course we love getting ones that are not that complicated. But when that happened, we know exactly how to look at it. And we know the guidelines too. I mean, Kenny has on a regular basis, showed underwriters guidelines that they didn’t even know existed to get deals through.
Kenny Simpson: Yeah. And I’ll say this too, to elaborate cause this is really important when you go to a bank, the [20:39 inaudible] he’s really experienced just is going to take your file, put it together and just submit it. And it goes in there and like Crystal said, it was presented wrong and you know, you throw crap against the wall, You’re going to get crap back. So what I do when I have somebody complicated or they’re not sure, look, if somebody comes to me and they’re in a
1031 exchange or if people don’t know what that is, we can talk about and they have a million dollars on the line. That’s a liability for us. You know, you two Jason, if they don’t make that, they’re going to pay some taxes. So it’s my responsibility as an LO that’s how I get to deliver. So if somebody, I’m not sure, what do I do? I get the information I call an underwriter. Maybe I send them stuff. Maybe I go through it. I know what the question are and I get everything worked out. They said, yep, this is how you need to present. This is what we need to see, will be good. Or Hey, this is going to be a problem, you do this. So before I submit it, we’d have that conversation.
And then basically when I get the file and you get it approved, that’s why, because we take the time, effort up front. I just don’t, I don’t want to submit a file for you, me, or your client. That’s going to waste all of our time that’s not going to get done. That’s not good business for anybody. And also it’s frustrating for a client that’s like maybe on their purchase for an investment property. It’s not a good feeling. So I don’t know, I just think it’s very important to who you’re working with. That’s taking the time and effort and really understands what in the hell they’re doing.
Jason Lee: Yeah, no that’s huge. And one big example I want to give out is with crystal, One of my clients, who’s in an exchange, newer client, Haven’t worked with him before. He’s looking to buy his first six unit of property in Golden Hill. And I consulted Crystal and Mitch about it probably within the first day we had it in contract and I told him the seller’s very tough. He’s tough to deal with. His contingency timeframe is 17 days and went to release money nonrefundable a 100K, no matter what, doesn’t care if the loans approved or not, he didn’t care at all.
He was a tough seller. And within the three days, Mitch and Crystal told me like, boom, the supply looks great. He’s a good borrower. The appraisal will come in at value. It’s a good deal. So having a loan broker as a broker myself, or as a client that I’m helping, it helps everyone to have a good advisor like Kenny or Crystal to advise you on the deal. So that’s just what I have to say about that. But do you want to elaborate on that crystal on how that happened?
Crystal Moore: I mean, for us, this is the thing. So that’s another one of those areas in multifamily that can be a little bit scarier for people as they use, really don’t know if your loan’s approved until right before you get loan docs. So like on residential, you get approvals on the front end with conditions and on multifamily you literally get a letter of interest that is not a promise to do anything. It’s basically like, we think we’ll give you these terms and then you give them money and you pay $2,500 or $3,000 or whatever it’s for an appraisal. And then you wait
two or three weeks for that to come in and then they send it to final underwriting and give you their commitment letter, which now says, okay, we’ll do the things we said we will, or we’re going to do this instead of what we told you we would do. And then you get loan docs maybe a week later. So that is the scary part generally. And with your client, especially being his first purchase, you need to get the reassurance as much as humanly possible on the front end.
So what we do is say, Hey, look, I know you can’t give me a commitment letter right now, but I have all of the tax returns. I have the bank statements. I have everything that you need to say, this file is approved, pending the appraisal coming in. So we were able to do that. It’s not something that’s standard course of business, but the other thing is that when you have high volume with lenders, it also gives you more weight to be able to get exceptions on the process and to get things done. So our volume with this particular lender is high enough that he close, you know 10s of loans, you know, 50, 60 loans, whatever with them. They’re like, okay, you’re a good broker for us. You always bring us the good deals. That’s the other thing too. We just got it today. We had a lender email us that we submitted, you know, a deal. And he says, well, I haven’t fully underwritten the deal, but you guys are always on the spot with your numbers. So here’s what we can do. And it’s like, okay, well that’s cool.
You know, I mean, we normally come in right around the appraise value on our analysis, and then even with qualifications, we’ve just gotten to the point where I actually look at the information, we pre-qualify it before we submit it. I don’t submit something that I don’t think can be approved. If it can’t be approved, then we strategize on how to get you there before we submit. So in this case, we were able to do that. And in fact, we were able to get the appraisal done a lot more quickly than it was originally slated for as well. So he was able to get that reassurance before contingencies.
Kenny Simpson: And you have great relationships, Crystal too, like long term great relationships, not just with bankers, but chief credit officers know you, CEOs know you, big, small banks. I mean, we have great relationships. We do loans for some of the people that, they are CEOs of banks. So that’s the thing is that’s the trust, you know, so relationships really important too.
Jason Lee: For sure. And then my next question for you guys is kind of switching from the lending side to more of the investor side. You guys obviously own units yourselves, you own a big building, a national city as an investor. What are some things that you look for personally when you’re looking to buy a property?
Crystal Moore: So for me, it’s funny because I think depending on where you’re at in the market has kind of had us shift our strategy. So early on when we were first getting started, it was all about really kind of flipping to build up enough cash, to buy bigger buildings. We were always looking for value add opportunity. So a lot of times we were buying a property with private money. We would even a lot of times vacate the building, do a whole rehab on the building and Rere it and then maybe hold it for a year or so, and then just sell it. So we’re not true flippers, but we use the kind of like BRRR method.
We use that, you know, buy, renovate, refi, whatever we did all of that. So that was our initial strategy. And then a couple years ago, I started just feeling like, Hey, I’m not a flipper. I’m not like, that’s not my career. So I’m not the person who’s going to like go buy these deals and have like really skinny margins. That’s just not me. I think that a lot of those rehabs were getting a little played out. Like every unit’s looking exactly the same and you know, everything was kind of like just the same. It seemed like it was getting a little saturated. So then we shifted and we said, well, we have a decent amount of cash to go buy a bigger building, I want cashflow now. So now we’re looking at properties for cash flow because I’m not buying 10 unit buildings anymore. Now I bought my 30 unit building.
This is great. You know, the cash flow is getting a little more attractive Now. It’s not like a thousand bucks a month, like 10, 15, you know, somewhere around there. Now it’s about cash. So it really just depends. I always say it’s funny because a lot of people at these big apartment owners and they try to emulate what they’re doing. And for me, I say that wasn’t necessarily their strategy when they first got started, they have the strategy today because they have bigger problems, bigger things that they’re solving for. They have to buy certain amount of properties every year not to pay tax. They need tax write offs. They have to keep going and being active. That’s why maybe start buying more luxury versus see properties and things like that. So for me, I think when you start it’s about building enough equity, unless you just make a ton of money every year and you can keep making money for down payments every year.
But the easier thing is to grow organically, which is buy a property, add to value somehow, maybe refi full cash out, then trade up, maybe sell it, trade up to the next property and keep doing that. And then at that point you’re like, okay, I’ve built up enough equity. Now it’s time for cause this is why we’re doing the thing. You know, we’re doing the thing for equity, building and also cashflow, that’s generally what I’m looking for anyways is cashflow now.
Jason Lee: Kenny, you got anything to say?
Crystal Moore: Yeah. So crystal said that, so I’ll kind of pivot and give a different perspective. So if somebody’s watching this, look, there’s many type of people that are going to buy. Let’s just say you are an attorney, you’re a doctor, you making 510 million a year, right? You got a few problems. Number one is, you’re probably working your ass off. So you don’t have much time. So you need a team around you. Number two, you have another problem, which we thank you for that you’re paying most of the taxes. So you’re just, you haven’t figured out the game and you’re educated that you’re a doctor, but you’re not educated on really how money works and how the game works.
And so your neighbor next door could own 200 units and he is making a million dollars and he’s paying zero taxes. He’s telling you this. You’re like, how in the hell is this possible? Like I went to school, I did this. This is crazy. So really what it is, is I think people need to first understand is, like I said, is back up when you’re investing in real estate, what is the game plan? If let’s just pick I’m a doctor, I own a business. I throw off a good cash. I make a million bucks a year. Let’s just pick that. So first I tell people, okay, how much money can you set aside each year to invest?
Okay, great. How much money do you have? And this is really where I start the conversation with everybody because we always say is you just got to get into the game. Cause once you get into the game, your mindset will change. The conversation you’re literally having to yourself right now about, I want to buy a place once you buy it, as you know, Jason, you buy deals, It starts to change. It becomes maybe an addiction. You’re like, this is great. And the money you’re going to save might all of a sudden just go like, hell, I’m going to save more. And now we’re going to come back more now. And you might because you’re like, I want to build this faster. Cause I don’t want to be a doctor. I don’t want to be attorney for the rest of my life. So number one is what’s the game plan. What’s the mindset. What can you do?
And the second thing is, is that I work with doctors. They don’t want to buy five plus units. They’re not interested. What they’re interested in doing is they want to, 5, 10, 4 units, it’s 40 units. They want 30 year debt. They want 15 year debt. They make a million, 2 million bucks. They don’t care if [30:29 inaudible]. They want to pay ’em off as soon as possible, get them done. And then they’re like, cool. So in 15 years I pay my house off. I pay this off. I have no debt, my 401k, I can put 2 million bucks away, but then I have 40 units free and clear, no house payment. It spins off $25,000, $30,000 a month. Then I got my 401k and I want to go sit on a beach and I don’t want to do anything. That is a person that we deal with all the time. That’s a great strategy. The other strategy is that somebody might go, well, I want to go bigger and I want to go better. I want to be an attorney like I’ve met an attorney one time, he’s worth 80 million. And I was like, how’d you get worth 80 million. He goes, definitely not being an attorney because I paid, you know, 60% tax.
He says basically by buying real estate, he’s like, there’s no way In 30, 40 years, I’ve going to be worth 80 million by just being an attorney and putting money away. So the people have a problem with this putting money in their 401k. They’re saving money. It’s sitting in a checking account and they’re making zero. They’re also like the stock Market’s high. This thing’s crazy. They’re uncomfortable. Look, we all know this. Everybody’s having the same conversation [31:36 inaudible]. So what’s great about like Crystal loves apartments and stuff, It’s just bread and butter. You can feel it. You can touch, you can see it. If you buy today in 20 years, it’s going to be worth more.
There’s a whole list of [31:49 inaudible]. So the other strategies, I think why people go multifamily is because they want to go bigger. They want to buy the [31:56 inaudible], they want to go work with Jason, go cool. Let’s exchange out and buy 20 and then exchange the 30. Next thing you know, 20 years later, they own 200 units. And somebody’s like, how did you do that? I started with a five unit. I think you really, if you want to get into this game and that’s what I call it, is you really want to pick a strategy of what you want to do. Either Strategy’s okay. But I think when you go down different paths, it is a different like strategy, commercial, residential, but don’t think that just cause you got four units, you might wake up one day and be like, I want to go bigger. Cause it happens all the time. People start small. They’re like, Hey I got this, let’s sell this stuff. Let’s go bigger.
Crystal Moore: In my opinion I think whether it’s 10 units or a 100 units, it’s relatively the same. You just have economies of scale at that point. I mean you managed hundred unit buildings and we managed 10 unit buildings. I actually prefer the hundred unit building. You have full time staff on site. You have a fulltime maintenance guy. They take care of problems. They’re right there. You don’t spend all this time driving around and doing things. I think, you know, one of the most important people you can have on your team once you decide to buy is a CPA. Because I would argue that the doctor or the attorney, they just don’t know any better. They don’t know about the tax benefits of owning real estate. So when they come to you and they say like, I already make a ton of money. I don’t need cashflow. I just need write offs. And I want to pay this thing off and whatever cashflow, they don’t understand the tax benefits. They only understand that they make a lot of money and they don’t need more money right now.
They need money in 10, 15 years from now when they want to retire. Well, you can still do that. And I think do it much better with apartments versus one to four unit. And I think the one thing we haven’t talked about just yet, and if you had it on the agenda is that, you know, the valuation of five plus unit multifamily properties is so much better than one to four. We use, you increase the income. You exponentially increase the value. That is not something that you get on the residential side. So that is one of the major benefits aside from tax benefits is you can incrementally increase. I mean, think about it. If you own a 10 unit building and you increase rents a hundred dollars a unit take that by whatever four and a half cap or wherever we’re at today, How much did you really increase the value of your building? Like by hundreds of thousands of dollars, that’s exciting.
Jason Lee: It’s all great stuff. And the reason why San Diego, it’s such a great spot to buy In my opinion, I’m sure you can agree is the rents keep going up, right? There’s always demand. There’s always people trying to come down here to live in San Diego. I mean, I have two friends from San Francisco who since COVID have been remote, they worked at Salesforce and now they’re down in Pacific beach and they said, finding a place here was impossible and rents, just keep going up. It’s not stopping anytime soon. So if you’re an investor and you think the long game and you buy now prices may seem high, but in 10 to 20 years, rents might be double than what they were.
And now you’re sitting pretty and you have a 10 unit or a 20 unit in San Diego where things just keep going up and you’re buying California real estate. So you’re always going to have appreciation. Your rents are going up. You’ll have tax write offs and you’re paying down loan every single year. So it just seems like a no-brainer to me. I mean, can you guys agree on that as well?
Crystal Moore: Yeah. I mean, I would say that I agree with you that San Diego is the best place. I think it’s the best city in California. Not because I’m biased. Well, maybe sort of, but I lived in San Francisco for three years. I understand that market. It went absolutely nuts. And for the longest time, Kenny and I would have these conversations at night, you know, whatever, like holy crap. I mean, San Francisco is on buyer. It is insane that the amount of money that people are paying for properties, San Diego is a steal. Like you come down here and you’re like, what? Like I can live by the beach with sunny and 75, like 360 days out of the year. Like, and I can buy it for this price. So I feel like San Diego’s finally having its day like San Francisco did. We didn’t have that.
Like I cannot remember a time in the last 17 years or even before that, where properties were selling over list with bidding wars that has not happened. And I don’t anticipate it to stop. Even in the next couple of years, I gets really going to keep going for a little while. And every property you buy feels expensive at the time that you buy it. Like, unless you’re talking like for a brief time in 2009 or 2010 or whatever, there was like brief moments where maybe you feel like you’re getting a deal, but you’re paying market price to buy properties today. It always feels is expensive. So you’re never going to buy anything If you always have that mindset.
Kenny Simpson: You know, San Diego is we say it’s surrounded by the four borders. So you’ve got the Mexican border, you’ve got the ocean, you’ve got camp Pendleton and you got the mountains. And so most people want to live. You know, if you’re here, you know where you want to live and you don’t. So a lot of the things that are going on around downtown, little Italy, the beach and all this, there’s just all these little micro communities we call them now, Right? And they’re popping up. But people are moving into these areas because it’s getting expenses. You know, just like crystal said is just take Miami right now. And I always told this to crystal.
I tell people, I go look when the 1% wake up, whether it’s COVID or taxes or something and they go, we want to go buy a home in Miami or Florida, 50 million homes are flying off the shelf Like it’s nothing. And people go, who has this money? And I’m like, there’s a lot of money, a lot. So what else is happening is take California, A lot of people are moving out of Los Angeles and San Francisco. Not that they’re going to go back here, but once you come to San Diego go, it is a good bang for your buck when you compare and you get a taste of the weather and everything, you’re kind of like, man, it’s hard to leave. So I think a lot of people come here for school or come here for something. I mean, a lot of people move here just I came on a business trip. I came on the holidays here for school and they’re like, damn it I’m trying to figure out how to get back here. And you know, the city, it’s the three you’re in California. So it’s a really good spot. And so like crystal said is, you know, you sit down with a large apartment owner and you go ask him like, but it’s expensive. And they’re like, yep, They told me that 20 years ago and 30 years ago and 40 years ago. And like crystal said, there’s ups and downs in the market. It’s probably a good to cost average. So if you bought a bunch of stuff and it is high then the market corrects, you go buy more. But eventually the market’s going to be more expensive because you’re in a place.
We’re not talking about buying in North Dakota or something like that where really nobody wants to go there. 35 million people visit this place a year. That’s a lot of people. So I mean biased or not, I think San Diego not just in California is one of the best places on the globe. I travel around the world. You say you’re from San Diego is like, it’s one of the most favorite spots. I just think for San Diego is, you know, the more businesses and entrepreneurs and things that come here and grow businesses, That’s what’s going on. That’s what you’re seeing.
And COVID, we’re calling it, you know, the great reset or the great migration. You’re seeing it in front of us. I mean, people are fleeing outta California, but also people that are moving from California, a lot of people are moving down here, you know, talk to, like your friends or talk to real estate agents. People come in and overpay or, well, I just sold a place in San Francisco, Oh, overpaid 300,000, Hell I don’t care. I did that up there. What’s the difference, you know? I mean, they’ve been doing it in other cities, in New York. They’ve been doing it in Seattle. They’ve been doing it in Oregon. They’ve been doing it in San Francisco, LA for a long, long time. Like crystal said, this city’s a, it’s just, it’s time. I don’t know how long it will go on, but there’s a lot of opportunity here.
Jason Lee: A hundred percent agree. That’s very well said. I think we’ve given enough reasons on why someone should invest in San Diego. So if I’m listening to this video and I’ve never bought a property, how would I prepare myself to buy my first two to four unit or five unit?
Kenny Simpson: I mean, you know, I will go back to it. It’s literally mindset. I mean, like I said, doesn’t matter, take your income, take your age. It’s just a number. The income’s the number, the age is a number. I don’t care. The mindsets the mindset. We live in a day and age where there’s no more excuses, everything in anything you want, you can Google it. You can YouTube it. You can podcast it. You can read it on a book, you can run down the street and listen to it.
So there’s more data and information at everybody’s fingertips than you know, there’s more coaching and these conversations like we’re having before. 30 years ago, you had to go to seminars, sit down and drive somewhere and eat some crappy food and sit around about of people you don’t know to learn about this. You can be at your house listening to this.
So I think it’s really mindset. And I think you have to make up your idea, just like, if you’re going to start a business, you’re going to get in shape or anything like that is you have to have the mindset. You have to go, am I ready to do this and make the commitment? So investing in real estate, the first things first is if you own a piece of property, then you’ve been through a transaction before if you have a single family. If you’ve never bought any property, no problem.
If you’re renting, you want to buy an investment property. Kudos. Why not? You don’t need to own a home first to buy a rental property. So I think first what you do is you figure out consult with a crystal or Kenny, depending on what you’re doing and figure out what can I qualify for? What does my credit look like? How does this all work? Once you kind of understand a little about the numbers and how this works, then you figure out and go, okay, what asset class I want to buy? Is it a two to four units or five unit? You find out the right broker.
And that’s when you sit down and have a conversation with you and you guys kind of work together and be, they’ve got a half a million bucks and they want to do this [41:12 inaudible] or that. And I think then you start moving forward. I don’t think you should start driving around and looking at a partner buildings and start writing offers, If you haven’t talked to a loan officer and got all your financials together and make sure you really understand, can you qualify. So that’s just my take on it. You know, crystal.
Crystal Moore: Yeah, I agree. I think the mindset’s really big. I that’s the first thing that we kind of tell people to get in about being in that mindset. I think also understanding your, why helps you back into what type of properties you’re looking for? Like, is it cash, do you really think that you just want to have a value add property? How quickly do you want to grow? Like what’s your long term goals? What are your two year goals? What are your five year goals? What are your 10 year goals? I think that that helps you kind of back into what you can do and certainly getting pre-qualified is going to help you identify how you have to start. I mean, really everybody has to start somewhere and you got to know what you qualify for. And then it kind of tells you, well, I can buy 5 properties in this price range.
So if I can only buy a property, you know, if I only qualify to buy a property, that’s like a million dollars, then there’s a very unlikely possibility that you’re going to buy a five unit even in San Diego. So now you’re looking at two to four units. Those are going to tell you, but then you say, what’s my plan when I’m looking at properties, what kinds of things am I looking for in this property so that I can help me get to the goals that I have. So yeah, Mindset, knowing your why, getting prequalified and understanding what kind of property that you can qualify for.
Kenny Simpson: Yeah. Prequalifying this market and being ready to go is, especially on the residentials, you know, you got to close in 30 days, 30 days goes by really fast. And for us, it’s not stressful. We do it every day, but for somebody else, they’ve got kids, they got life, they got work, they got soccer practices, they got this, they got that. And they’re like trying to buy a property. So if you’re ready to go, we got your stuff and you go, let’s go. And you’re ready, It’s a lot different than like jumping into chaos. So just be prepared, be ready. And you can really set yourself apart from others.
Crystal Moore: Yeah. I would say understanding your criteria too, because in this market, especially, you’ve got to move quick. Like I literally do quotes for people considering buying a property and then it’s under contract, but where they even
make a decision and you’re like, sorry, buddy, you’re too late. You got to move quick. Like, this is not for somebody who wants to sit around and analyze a property 12 different ways. I mean, you have to like make that decision that you’re ready to go run your numbers. If they work, you got to go.
Jason Lee: Yeah. It’s a fact. And I wanted to ask you guys, what was your, why on why you first started buying investment property?
Crystal Moore: It’s funny. Cause I think the why changes, right? Like as you hit different levels, but originally, and even still now I would say my biggest goal is freedom. You know, I want to have the freedom to choose if I want to work. If I don’t want to work, if I want to go on a vacation next week, whatever that maybe when our kids are, you know, playing sports and in school, like, do I want to volunteer? Do I want to go to their practices and their games? And those are the things for me that I don’t want to be tied to. You know, I don’t want like the golden handcuffs of my job per se. I want to have the freedom to choose. And that is my biggest thing. And then of course the always overarching thing for us is planning for retirement. You know, teaching our kids and leading them a legacy that they’re going to carry on and continue on and not screw it up like so many people we see that inherit stuff. So I mean, that’s really a big why, but an immediate goal is freedom. And then after that is really legacy and retirement.
Kenny Simpson: Yeah, for me, I think what was interesting is I always wanted to buy real estate, but I didn’t really understand what I was doing. You know, when crystal and I started doing loans for like Crystal’s clients and I would look and I’d be like, this guy owns a lot of property. He’s always like, has time. He’s always traveling. He doesn’t pay taxes. Like what the hell is going on here? This is crazy. So for me, I started and I would call him. I go, you don’t pay taxes. You made a million bucks? Yep. I go, how do you do that? He goes, cause you just got to, you’re not smart.
You got to like learn. So I started realizing that, wow! The lifestyle, this, and that. It’s not that you don’t work or this, but it’s something that they worked on, you know, every little by little by little, yeah, Maybe the guy had a business, maybe had a job, but over 20, 30 years, he’s in his sixties, he wakes up, he goes, I can do what I want today. I got cashflow. I’ve got equity. I got property management, whatever I can buy. And life’s pretty good. It’s not like I’m got to go to work to grind to pay those bills and stuff. So I think the why for me was, wow, you can do this a normal person that just has a normal job. I mean, we know people that were teachers, two teachers that little by little chipped away and they have $10,000, $15,000 of cash. That’s there. Plus they have, you know, their pension and they’re like, if it was just my pension, I couldn’t live in San Diego. [45:59 inaudible] ton of equity [46:00 inaudible] properties. But somebody told them a long time ago, just buy some of this. Some of them just bought one 10 unit building and paid it off. And it’s like, there’s three bedrooms somewhere over here.
And they make, you know, after everything, they make eight grand a month and then they, you know, they have their retirement. So everybody’s wise [46:15 inaudible] at the end of the day, I really like we were talking about from the beginning. It’s really about freedom for everybody. And I really think buying real estate at the end of the day, let’s be on it’s really about the cashflow. Cashflow is really, really attractive.
Crystal Moore: Well, it replaces your income. I mean, you can basically then have the freedom to, you know, drop your income from your job and have cash. So, and then you can go on vacation and your tenants still pay rent. Even when you’re gone on vacation. Even when you’re sleeping, even when you’re at your kid’s soccer game, they still pay the rent. You don’t have to physically work. You don’t have to trade time for dollars.
Jason Lee: What was the first property you guys ever bought?
Crystal Moore: Our house. So we wanted to buy something and originally we wanted to buy like a Four unit, live in one unit, rent out the others, but we had two problems. We didn’t have enough money down for that because then the purchase price was getting bigger for where we wanted to live. It was like over a million dollars. We didn’t have that. And then we just started getting in the car and driving literally every property that was for sale. And then we even started like walking different apartment units that were for rent.
And then we were like, I could do this. Like I could do that. You know? And so anyways, we ended up finding this house and we for, we bought it for 545,000. We got it by accident. I mean, just tell me if that wasn’t like, just meant to happen. So anyways, we accidentally got, cause we did three and a half percent down, FHA financing. It was like $19,000, I think. We did a ton of work. But we lost out to a couple that had like 30% or 40% down and they accidently faxed the signed counteroffer to our agent instead of their agent or something. Literally got it by mistake. And so that was the house. So we said, we’re going to live in it for two years and then we’re going to sell it and we’re going to take the tax free money. Romantic story, We got married at the courthouse right before we sold the house just so it could be half a million dollars tax free versus 250 if you’re not married. So that was what we did. We rehabbed the house, we added a second story onto it. We did all kinds of things. We made almost half a million dollars on that. And that’s how we traded it into our first apartment deal. I did not want to leave the house. I had a four foot tub with farm sinks, with a TV in front of the tub. I used to take my bath, watch Housewives at Beverly Hills or whatever.
Like I’d stay in there. I’d have to fill the bath up again, cause the water got cold. Like it was like my favorite house. I begged Kenny, can we get it a line of credit? Can we just keep the house in mission Hills used a [48:36 inaudible] collapsing doors. Like the whole thing. It was beautiful when we got done with it. We got like a Viking fridge off Craigslist for like some guy, you know, we got all this stuff. We like bootstrapped it. We found, we just like made, we got this house like done as cheaply as we possibly could. I did not want to sell. He made me, but that was our first thing. And honestly it’s allowed us to be where we’re at today. So that’s the other thing. Not a lot of people are willing to make those sacrifices either. So that’s I think critical if you really want to grow a portfolio, I think you got to sacrifice things that you want now so that you don’t have to sacrifice them later.
Kenny Simpson: Pay the price today so you can pay any price tomorrow.
Jason Lee: Ooh, it’s a good line. Well, it looks like we’re running outta time. I want to make sure people know where they can find you when after we leave here, what’s the best place to find your guys’ information, if someone wants to reach out to you.
Crystal Moore: Our website is www.pacificshorecapital.Com for financing course, I’m on Instagram Pacifichore Capital on Instagram, we’re on YouTube channels. Like we’ve got all the things, but I think www.pacificshorecapital.Com would be a good place to start and that will get you connected everywhere.
Kenny Simpson: Yeah. You can probably find me on there.
Crystal Moore: Well, yours is…
Kenny Simpson: www.simpsonmortgage.Com. 49:45
Jason Lee: Got it. 49:46
Kenny Simpson: Thanks for having us. 49:46
Jason Lee: And you guys have a podcast too, right?
Crystal Moore: Yeah. We have the cashflow game. That’s why we have this fancy wall behind us, but we do put out content every week. It’s really real estate focused and we just love like getting to know different people. We talk about different strategies and we’re real estate and whatnot. So we do have a podcast that’s on every podcast platform that you can find. It also is on YouTube. And we have a website called www.getinthecashflowgame.com.
Jason Lee: Got it. Well, Hey, thank you so much for your time Both of you, and this is a lot of fun and a ton of value. I’ll probably talk to you guys tomorrow about our deals that we have going on. So I’ll talk to you guys soon.
Kenny Simpson: Appreciate the time.
[Outro] Thank you for joining us on the multifamily millionaire podcast. The show that interviews, multimillionaire real estate investors and top producers in the real estate industry. We’re here to help you create passive income and achieve financial freedom so that you can do what you want whenever you want. We’ll catch you next time on the multifamily millionaire.
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