Ideas for Upside-down Properties with Michael Ponte

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Podcast Transcription

Dave Dubeau [00:00:09] Everybody Dave Dubeau at you with another episode of the Property Profits Real Estate Podcast today. Zooming in, we got Michael Party, who is a very accomplished long term real estate investor. He’s been through cycles. That’s what we’re talking about right now. Today is cycles because Michael runs a group called Savvy Investors. I think Michael, if not, if I’m not mistaken, you got like over 4000 people in your group. You’re seen as a smart guy when it comes to real estate investing. A lot of people are asking you for your input on what’s going on with the markets right now and how to pivot. Because as we were talking about off camera, a lot of people are scared, spineless right now because all they’ve seen in their investing career is go, go, go with double digit appreciation rates, with super low interest rates, with all of this stuff, with massive demand for properties. Now we’re maybe we’re heading into a recession. I don’t know. My crystal ball kind of sucks, but it kind of sounds like it kind of feels like it. A lot of people think we are. You get enough people thinking that it becomes reality. But you and I have both been around the block once or twice. It’s not your first rodeo with a real estate downturn, so why don’t you just kind of tell us what do you think is happening? And more importantly, what can people do or what should people consider if they’re thinking about, how can I take advantage? How can I cover my butt with what I really got? And how can I take advantage of any opportunities that might be coming down the road?

Michael Ponte [00:01:52] Yeah, very good questions. First and foremost. Thanks, Dave, for having me on here and congratulations on the launch of the podcast. Great content. Love it so far. It’s awesome. So thanks for letting me be part of this. So yeah, some interesting things coming in the horizon for a lot of people and I talk to people constantly. It’s just like, Mike, what do I do? This is the first rodeo. Oh my God.

Dave Dubeau [00:02:12] And yeah, so what kind of things are these folks typically invested in that they’re really nervous about under the current situation? I know everybody’s doing different stuff, but what’s kind of the norm that you’re seeing?

Michael Ponte [00:02:23] So the standard that we tend to hear is exactly what you said is, you know, prices have gone up drastically in the last over 20 years in specific markets. Right. And, you know, I’m going to I’m going to highlight Fraser Valley, Vancouver, you know, appreciation of ten, 12, 13%. That’s just normal rate, supposedly. That’s normal appreciation. Right. And Ontario’s kind of the seeing same thing for the last 10 to 20 years. And so people bought into some of these properties in the early parts of this year and even in the latter part of last year. And they make the assumption that, hey, as long as I buy in markets that appreciate and there’s this this this terminology I buy in markets that appreciate well, just appreciating right now, it is a very cyclical business. And so that’s really important to understand. So people are now like, wait a minute, real estate prices are going down 15 or 20%. I didn’t read anything about this. I swear to God, I saw Mike for somebody talking about this on social media saying prices don’t go down. Well, that’s not necessarily true. So the panic is there because they have not bought property because of cash flow. And so now the property is not cash flowing. In fact, it’s getting way worse.

Dave Dubeau [00:03:32] It probably wasn’t in the first place.

Michael Ponte [00:03:34] That wasn’t. Yeah, correct. So it’s not in the first place. Secondly, it’s getting worse. We haven’t seen this yet. Yeah, but if turbulence starts to come in the next 3 to 6 months, we may start to see prices starting to go down, inventory is starting to creep up, and then as interest rates continue to go up, then the concern is, can people afford some of this debt, yes or no? I’m not saying we’re in 2008, but it’s got a lot of that similar feeling to it in regards to affordability. And I’ve shared this with a lot of my students. Affordability is going to be the biggest driver over the next six months to a year. And when things become unaffordable, people have to change, they have to pivot, they have to do something differently. And so what most likely my assumption, my crystal ball, I’m not sure if there’s a crack in it or not, but this is what I put some duct tape on it to take a look. But the reality is, if we see some of that inventory starting to creep back up and the only thing that’s going to attract buyers to buy the property is possibly pricing discounts into the property and itself. So is that something people should be paying attention to? The answer is yes, you should, because this can be huge opportunities. And so, like you said, it’s, you know, for us that have been around the block a couple of times, you know, I made a lot of our company success was shortly after 28, 2009 when people were not buying because they didn’t were freaking out and we were getting properties at a real great deals. And so I’m not saying that’s all coming, but if I was an investor, which I am and what I am doing and I’m recommending to people is for those that are looking to get in. As an opportunity, get ready, because I think there will be opportunities regardless of what’s going on with interest rates. If we do see inflation going up, which we are, and we do see a recession starting to kind of come in place, might again maybe cracked crystal ball with duct tape. My feeling is they’re going to have to correct the ship a little bit to fix up that recession. We may see the reversal starting to unfold maybe a year from now or even two years from now. So making sure that you’re buying while buying. Right. Buying in good areas that have got good, strong fundamentals because there are other markets across this country and across North America and across the world. You know, I tell a lot of my students is don’t just get comfortable investing in your backyard, look at other places to go because there’s opportunities everywhere, regardless of what’s going in with interest rates. And, you know, you look at interest rates right now at 4%. This is cheap money still I guess is still you know in Davis appreciate this to right it this is cheap money.

Dave Dubeau [00:06:05] Well, hey, dude, you know what? I lived overseas for a number of years. I remember I got a smoking deal on a mortgage in Costa Rica back in the day. I’m going to say around 1998. Know what my mortgage rate was? It was. What the hell was something? Around 30%.

Michael Ponte [00:06:25] Crazy. Unreal.

Dave Dubeau [00:06:26] And that was like a decent rate. Then from there and that and then my mom back in the eighties, she had a bunch of properties. Mortgage rates in Canada hit 18, 19, 21% kind of thing. So yeah. So we got super spoiled with all this. Wow. That’s another fantastic idea. Hold on to that thought for a sec. We’ll be right back. Now, are you a real estate investor who’s ran out of cash or credit to grow your portfolio? Are you looking to grow your portfolio using other people’s money and raising capital? Well, I want to show you how to raise six figures or more in six weeks or less at my upcoming Investor Attraction workshop. You can get your ticket and find out all about it at Investor Traction Workshop dot com. We’re going to spend a full day taking a deep dove into this roadmap that I’ve used to raise millions from ideas and I’ve helped other people, just like you, cumulatively raise hundreds and hundreds of millions of dollars for their deals as well. So again, you can check that out at Investor Attraction Workshop dot com. And as a loyal listener to the podcast, you’ll get 50% off your ticket when you use the discount code podcast. That’s right. Discount Code podcast at Investor Attraction Workshop dot com. See you at the next workshop. Now, that sounds all good. Somebody listening, they’re say, well, that sounds good. Michael Yeah, there’s going to be opportunities coming down the road. What do I do with these frickin properties I’ve currently got that are already underwater? I’m already negative cash flow. I made the mistake of buying them based on appreciation. What do I do?

Michael Ponte [00:07:55] Not an easy answer. And I think the important part is you really need to the first step, don’t bury your head in the sand. That’s the first step because a lot of people and I’ve heard this before, is think that this is a passive investment. It is not. It is a very active investment. You are owning a business. And so this is where you need to pivot, adjust, adapt and look at options that you can explore. So within these interest rates that are going up right now, one of the things that it is creating is less demand for purchasing of properties, which in turn is increasing the rent rental demand. And so with rental demand going up, we’re seeing that already the rental increases are actually being applied even to ourselves in our portfolio. You know, even with the last rate increase, talking to all our property management companies and went to each and every single unit of our entire portfolio, 100 bucks, 75 bucks. And again, we know there’s some determinate. Every market is very, very different. But you want to make sure you capitalize on every opportunity to try to get that property to cash flow to the best of your abilities. And I’m not here to recommend this. I’m just providing some options for people. And so for myself, I’m a cash flow investor, always have been. I’ve never played the appreciation game. As much as I love appreciation, I always call.

Dave Dubeau [00:09:17] Differentiation.

Michael Ponte [00:09:18] Yeah, it’s the cherry on top of the sun, really. And that’s the way I always treated. And so with that being said, it’s always about trying to find ways to manage the cash flow. Some other things that you can look at, definitely have discussions with your mortgage broker. You might consider maybe further extending your amortization on your mortgages right now to keep some of those payments down. What are some of those other things that you can kind of maybe look at as maybe other income generating opportunities? So, for example, if there’s a garage, can you and has a detached garage, can you rent that? What about storage? What about laundry? What about all these things? So this is the time to again get your head out of the sand and start to look for opportunities to stabilize that property. And again, when I go back to some of the challenges that I had to face during this downturn, downturns that we’ve had, and for me, it was Alberta. And so. We’ve read in the roller coaster ride a couple, two or three times. Right. And exactly what I’m sharing with people is when prices start to go down, you’re trying to find stability within your portfolio that it hopefully in the long term, it will kind of correct itself because it does in a lot of ways. You know, and so the important part is how do you manage through this for the time being now understand you might have to make some very difficult, difficult decisions as well.

Dave Dubeau [00:10:34] Right.

Michael Ponte [00:10:34] And that’s the nature of the beast. And so you’ve got to really be honest with yourself. If this is something that is not sustainable, that’s going to impact your family, you might have to bite the bullet and do something maybe drastic, possibly selling the units. Not that I am encouraging everybody to do so, but are you willing to go bankrupt for it? And that’s the million dollar question. So my recommendation is for those that are buying properties that have been basing it off the appreciation aspect of things, be aware of what’s going on. Unfortunately for some markets, I hate to say this, it’s probably going to be coming a little bit more challenging for the remainder of this year because as interest rates continue to go up, it impacts affordability yet again. And so with this being said, really ask yourself, what can I do if I take into consideration again, look at your crystal ball, use some basis of judgment on your own opinion and think and anticipate maybe what those increases are going to be. Are you able to sustain that? Yes or no? Part of that flip of the coin as well as you do need to have a little bit of a long term approach to this is you do need to kind of look at things almost a year out. What do I anticipate? And this is where economics come in as part of our business, unfortunately. But you have to look at it. We have to look at due diligence and just say, do we anticipate maybe rates going down a year from now? Maybe, you know, if we see recession coming, they’re going to have to change things around. Will that fix that up? You know, the other thing that you and I saw and I’ve shared this a lot with our mortgage brokers is it wasn’t that long ago. I think it was like 2004, 2005. The longest amortization on a mortgage was about 25 years. Then they introduced 30 year amortization, 35 year amortization, and then 40 year amortization. So and again.

Dave Dubeau [00:12:19] You know what mortgage means, right? Exactly. Right. So yeah, right. So they literally the longer we’re living, the longer they want to keep us on the way. I see what you mean. Like it, it does help to lower that payment on these.

Michael Ponte [00:12:35] That’s a problem. I’m not saying that’s happening. I’m just saying there’s got to be a balance that may come from this. And I just don’t know if that’s in the horizon. But I think there is opportunities in the future. I think there are things that as investors, we really just need to look at our business. Sometimes these decisions are really challenging and really difficult, but the important part is, you know, engage, talk to other investors, talk to people that have been around the block a few times. And you know what? Ask for advice, ask for opinions, ask for people that have had some guidance that have been through this. And maybe they can provide you with some insight, because this may be the first time you’ve gone through this where others have gone through this once before.

Dave Dubeau [00:13:13] Well, what one of the things I’ve seen people do under these challenging circumstances is kind of change things up with the property. So if you got a single family home that you got into and, you know, you paid a bit too much for it or you paid full retail price for it, and you’re your negative cash flow in this record is getting worse because you’ve got a variable rate mortgage and all this kind of stuff. You could, in addition to your bright idea, they’re like, Oh, you know, hey, can you rent out that garage separately? I go to a friend of mine, a client of mine. He did this in Edmonton with his properties. You might know him. Rick The guy was brilliant, so he would put suites in the properties. He would rent out the garage separately, he’d rent out the backyard for RV storage, he’d put it a chain link, fix it all. So he was always looking for ways that other ideas might be, Hey, can you furnish that property? And instead of renting it out as a normal rental an if it’s legal possible Airbnb that’s a great way be if that’s not possible or not realistic long term furnished rental would go a long way there as well. Back in the day when I was doing the creative type of stuff, one of my mentors said, You know, the easier you make it to buy something, the easier it is to sell something. So right now, so many people are having a challenge. Well, the demand has gone down to buy properties, but part of that’s because it’s gotten so much difficult, more difficult to qualify for financing to buy property. So if you’re sitting on a negative cash flow house that you cannot make fly renting out, normally, you might consider doing a lease option on that property as well. And then that way you can rent it out for a above market rent and get that from people. You can lock in a price three or four years. Down the road when hopefully things are turning around a bit. So don’t again. Like you said, Michael, don’t bury your head in the sand. Talk to other people that have experience, like Michael, like myself, that are that have gone through these go to markets and see if some of these other ideas might help you to float that. But I agree with you 100% there, my friend. Worst thing that you could do, which I’ve been guilty of in the past, is stick your head in the sand because it doesn’t get better.

Michael Ponte [00:15:35] It doesn’t go away. You’re going to have to deal with that at one point or the other.

Dave Dubeau [00:15:39] And waiting never tends to improve things. No, that’s fantastic. Michael, this has been great. Hey, people can tell that you’re a sharp guy. You know what the heck you’re talking about. If they want to connect with you, if they want to stay in better touch with you, if they want to learn from you, what’s the best place that people can go to? They really can.

Michael Ponte [00:15:59] Appreciate the opportunity so you know they can always go to our website does savvy investor dot CA so again the savvy investor dot CA our web sites packed with information. So you guys, there’s free tools and resources for you guys. You’re going to get access to our YouTube channel as well, which gives you tons of free content. I also encourage everybody to join our Facebook community savvy investor as well, where there’s also a direct link that goes there. And if you want to reach out to me, you can always set up a discovery call. Always happy to chat with other investors and if I could support you guys in your journey, always happy to have some dialog, so I’ll look forward to hopefully seeing you guys on our Facebook page and then we’ll see you guys, you know?

Dave Dubeau [00:16:36] That sounds good. I’m part of Michael’s Facebook group. He does an awesome job with the engagement, with the education, with the value there. So highly, highly recommend them. Michael, always a pleasure. Thanks, buddy.

Michael Ponte [00:16:46] Thank you, sir. Appreciate it.

Dave Dubeau [00:16:48] All right. All right. Take care. We’ll see you on the next episode. Well, hey there. Thanks for tuning into the Property Profits podcast. If you like this episode, that’s great. Please go ahead and subscribe on iTunes. Give us a good review. That’d be awesome. I appreciate that. And if you’re looking to attract investors and raise capital for your deals, that may invite you to get a complimentary copy of my newest book right back there. There it is the money partner formula. You can get a PDF version at investor attraction book dot com again. Investor attraction book. Dot com. Take care.

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