0:00:02 - Speaker 1
Hey everyone, you're listening to On the House with Spartan, an ad-free podcast brought to you by a full-service turnkey company. I'm your host, lindsay Davis, ceo and co-founder of Spartan Invest. On this show, we talk about all things real estate, from market patterns, industry insight, construction, property management and other investment avenues. We hope you'll join as we dive into today's episode of On the House with Spartan. Welcome back to another episode of On the House with Spartan Invest. I am joined today by Danny Cole and he is here to talk about an exciting offering that Spartan Invest is offering clients who are purchasing real estate. Currently we're recording this. October 26th should release in the next few days and this is a promotion and really a great opportunity for those wanting to jump in and maybe interest rates are kind of holding you back. We're providing a forward commitment and he's going to dive into the details with that. Thank you so much, danny, for joining us. 

0:01:07 - Speaker 2
Yeah, glad to be here again, Lindsay. I'm excited to talk about this because, in all actuality, this is a game changer. 

0:01:14 - Speaker 1
Absolutely. We have seen that this will be the second forward commitment and we'll talk a little bit more about that, but this will be the second forward commitment that Spartan Invest has done. The first one snatched up really quickly. All of the amount was gone within a few weeks. So we want to get some information out there as soon as possible so that those interested can go ahead and get pre-approved and take advantage. First off, just break down. I know most of our listeners probably already know what's been going on with the interest rates, but just talk about over the last 12 months. What will we be seeing? Where are we now and why investors are skeptical about utilizing interest rates or are jumping into real estate investing because of interest rates. 

0:02:06 - Speaker 2
Yeah, so interest rates over the last couple of years have just steadily been ticking up as part of that. In the more recent rate or a look at the more recent rates 20% down. We're looking at around a best case scenario of about 8%. But the downsides it cost you a few points to get that, probably three points to get a 20% down and that's probably more in line with the $150K price point. As price points get bigger, as duplexes or anything else, there's a lot of variant in the pricing when it comes to interest rates. So that is somewhat of a best case scenario. As interest rates increase, naturally it increases the cost of that loan. So when people are looking at that and they're saying, hey, can I buy this property at $150K? It rents for X. Now my cost is a little bit higher and so that squeezes that cash flow for that investor quite a bit. Now if they're paying cash, naturally that just doesn't matter. It doesn't play into it and that would be considered the cap rate and we're looking at cash on cash in these scenarios. 

But yeah the rates have steadily been increasing, and a lot of that's due to the mortgage-backed securities and the volatility of the market and going back to the federated increases as well. 

0:03:26 - Speaker 1
Now, on this podcast, we've talked excessively about not necessarily focusing on interest rates, because you know, in the grand scheme of things, when interest rates were really really low due to COVID, you know the prices got pushed up. People were gobbling up real late, whether the numbers made sense or not. So we've always preached that if the numbers work, who cares what the interest rate is, if the interest rate's 15%? But you know, the numbers are still fantastic. If you've got a double-digit rate of return, what do you care? You know, and I still very firmly believe, that in my personal portfolio I've got an array of interest rates and the properties perform differently, and so I see that firsthand on how it doesn't necessarily dictate the performance. Now, however, with real estate still very high, interest rate just becomes a little bit more important because all of the prices have been pushed inventory shortage, all things we've discussed in excess on this podcast. So tell us a little bit about what the forward commitment is, and you know, hey, has it been around? What does that look like? What are we talking about? 

0:04:44 - Speaker 2
Yes, the forward commitment options weren't available to turnkey operations in the past. It was only and I don't know the exact dates that opened up to builders so new construction but it was available to some larger builders in order to buy the rate down in-house on the front end from the organization that was selling the property. So what a forward commitment is is we'll buy down the rate on a block of loans, let's just say a million dollars, for instance. So you're buying that rate down on the million dollars and you have a 30-day or a 60-day. All that's dependent. A lot of that goes into the pricing and the structure of the buy-down. But you'll buy that rate down to a certain amount and within that 60 days, let's say, you can offer a 6%, like our next run. That's kind of what our goal is and what we're looking for. So 6% you get that. You can lock it in as many until you complete that million dollar and a million dollars in loans, I should say. And what that offers the customer is instead of going through the regular system. So again, the rates right now 8%, 3 points. You would need to buy down 3 points to get that. 

So let's use an example $175,000 house. That $175,000 house would cost you $5,200 roughly in points. Plus you're going to have a $35,000 cost in the down payment. With this scenario you would have no points. It's already built in, everything's purchased down. The rate is the rate. So at 6% you would get that even in a scenario like in our situation. For example, we've, across the board, increased the prices on the properties $7,000. But going back to our first forward commitment rate, the cost on that is double on our end. So we built that in as a promotion. 

We've shared that cost and the reality of it is is that same scenario of $175,000, it's $182,000 house, which, again I want to add, we had zero appraisal issues with our renovated homes that all came in at appraisal and actually some of them came in with instant equity of over $10,000, which was amazing. So, number one, you got an amazing rate that's completely atypical of the market and you got equity and you didn't have to come out of pocket for points. So when I say it's a game changer, it truly is. So, $182,000 with no points, you're looking at a $36,400 out-of-pocket expense. So you save roughly $4,000 in that scenario with the better rate. 

So what it allows us to do again is to offer a flat rate. Let's just use 6%. You get that, not a two-year buy-down, not an adjustable rate mortgage, not a balloon in five years. Those are the questions I get most often. Okay, danny, I get it, that's cool, you know 6%, but how long do I keep the 6%? What kind of promotion is it? And in this scenario, it's not a promotion, it's a 30-year fixed rate, which is incredible. 

0:08:00 - Speaker 1
Absolutely. You know that's good in any scenario. Any I don't know how many of my personal rental properties that I've got above 6% interest rates, you know, and they're great. And just to clarify this, is Spartan purchasing a bulk buy-down. So we essentially say we feel confident we're going to sell this much in this loan amount, this loan value of these properties, and so we have to pledge a certain amount and then pay the bulk buy-down. So we're paying everything upfront and then investors are able to put properties under contract and close and take advantage under that committed loan amount that Spartan has already paid for. 

And I think that that distinction because if you were to come to Spartan and say you know what, I don't want the 7K increase, I just want you to buy down some points Well, if it was an individual purchase and we didn't do a bulk purchase down, we would only be allowed to buy down two points and that's really nothing that would get you what to 7.75. But this way, doing it in bulk, it allows us to purchase it way further down so you're able to lock in and, like I said, our first forward commitment, our investors were able to lock in at 5.375. And that closed. I mean we've seen rates go up and the Fed says, hey, they're not going to continue to increase as of right now. That could change, but they are going to keep them higher for longer. 

So those wanting to go ahead and take advantage of the real estate market and the demand of rental properties and see that return and see that cash flow, you still have the option to get that rate of return. So Danny, really quick, say those numbers again. So if you had the 8% at the regular price, what would you come out of pocket versus if you had the 7K increase and took advantage of the lower interest rate, what are your out of pocket? Say those again. 

0:10:14 - Speaker 2
Yeah again. So it's 175K for the. If you didn't use any buy down or forward commitment, so it would be 175,000 on a purchase price. 

If you put 20% down, you're looking at 35,000. But the reality of today is that you're gonna buy that down anyway with three points. That's what's required in that loan for, I'd say, best case scenario. That's gonna cost you another $5,250. So over 40,000, just over 40K. If you're doing the forward commitment, yes, you are including that price into the loan of the property or into the property. So the price increases by 7K. That goes in, and 182,000, 20% of that's gonna be 36,400. So your true out of pocket expense is less with the forward commitment, with the increased price. And it just makes more sense that way Because, again, not only are you getting a 2% lower rate I can't stress this enough you're getting a 30 year fixed rate. 

And the big thing for me is a lot of people and it's a reality I don't think rates are gonna stay high forever. I'm also not in the camp that, oh, like I hear a lot of lenders and a lot of realtors say, oh, next year, early 2024, rates are gonna drop again. I do not believe that and in any shape size reform. I just think the way everything is set up, with quantitative easing and tightening and what is required to keep inflation down currently, inflation is just not where they want it to be right now, so I do believe rates are gonna stay at a higher level for at least a couple of years. 

Now. The other option is to use some of our other promotions a $200 ledger credit or something of that nature and you can use that for a period of time to give you time to refinance. And some people may want to use that, especially if they're in a camp of like, hey, I want to pay cash, but that would be the exception to the rule, because leverage, honestly, is just a beautiful tool when it comes to real estate, but when you look at this, this avoids the need for refinance in two years. Yeah, that's huge. 

Yeah, I think I'm being very conservative when I say probably an additional 5K there and for the same property. So if you avoid that 5K, refinance in the next couple of two, three years. 

that's a huge benefit as well. And then, lastly, a lot of people are still in the camp of oh. Rates are going to go back to the 4% rate. I just don't believe that. I just don't believe that we shouldn't have been there to begin with, and some of the surge in pricing and the chaos that came along with that was due to those extremely low rates. So if we get back into the mid-fives somewhere in that maybe low-fives I think that will be kind of the bottom floor. 

0:13:13 - Speaker 1
Yeah, we should not have been that low for that long. I could get on a soapbox. I know me and you have gotten on soapboxes just talking about the frustration just because there wasn't a need and so much of the appreciation and all the home value surges were because of that and what it's done and how it's negatively affecting the real estate market today. So we don't have to soapbox that. But I completely agree, the possibility of it getting that low again is almost non-existent. We're not future tellers, Like you always say. You don't have a crystal ball, but I think that that's a pretty safe assumption. So just tell us about the other promos. So let's say that an investor wants to, before the end of the year, they wanna go ahead and invest in some real estate and you take advantage of the tax benefits before the fiscal year's over and they don't want the forward commitment or they don't necessarily want to have the 7K with a six or below six interest rate. So tell us what those promos might look like for the investors. 

0:14:29 - Speaker 2
Yeah, and definitely. I'm working with some cash buyers now and of course, that's no benefit to them as far as the lower rate that is. In those cases, in my opinion, our go-to promotion would be the $200 ledger credit. So, basically, because we are a full service term key company, we buy, renovate and sell the properties to investors. But for the long-term relationship, we manage these properties. 

So we'll add $200 to your management ledger so you can use that to offset maintenance, any kind of fees that you may incur, really whatever you wish. It'll just sit in an account. It does not expire in a year or two years or any time for that matter. So that $200 ledger credit is important because we can add that to your account for two full years and that could give you some time if you wanted to say, hey, I want to refinance, or, instead of paying cash, or I pay cash up front, now I'm going to do a cash out, refinance and use those funds differently. The point is it gives you a bit of time to do that as well. With the $200 ledger credit it's really nice because it truly offsets the cost of the increased interest rate and, again, for the period of time, that makes an actual difference. 

0:15:55 - Speaker 1
Right, and that's $200 per month. 

0:15:58 - Speaker 2
Yes, I'm sorry, that's $200 per month. So, yeah, $200 wouldn't do a whole lot for anybody. Yeah, $200 per month for two years. And a lot of times people say, well, just buy points for me, can you buy points? And in that case I could use those funds to buy the rate down with. Like you said before, the most we can buy down is two points in that scenario. But it's just not beneficial because in two years, if you decide to refinance, then you've wasted that discount point that you purchased on the front end, whereas if you use the $200 ledger credit and you refinance, you can use the $200 ledger credit in five years if you want, but you can still refinance at any time and not waste those funds. 

0:16:45 - Speaker 1
Yeah, and we've had investors take full advantage of that and utilize it in different ways. Like some of them said, you know what I'll take $100 each month and additional cash flow and then leave $100 on my ledger. So if I do have a tenant that's in eviction or if I do happen to have any maintenance in the future, I already have that cushion. So we've seen investors take full advantage of that promotion in various different ways and I think that that's a great promotion and, of course, that's all Spartan paid as well and it equals out. We're definitely paying for these promotions and this forward commitment to help alleviate some of this pain for our investors. 

0:17:32 - Speaker 2
Yeah, and I would like to add too that some of these markets out there and I won't pinpoint certain markets, but when you look at certain key overinflated markets that aren't as linear, they're seeing some volatility, they're seeing some price reductions, they're seeing some rent reductions, and so that makes it very difficult to make the numbers work as it is. But also when you look at the forward commitment option with appraisals etc. That makes that very difficult in some of those other markets. Our market, it didn't grow as much but we're also maintaining very well from a stability factor standpoint. 

0:18:12 - Speaker 1
Absolutely. 

0:18:13 - Speaker 2
And that's helped a lot with our appraisals and everything across the board. 

0:18:17 - Speaker 1
Well, and that's huge and, like you said, the first time we did the forward commitment, we purchased down almost $2 million in loan amount to get down to that 5.375. And for our renovated properties, with the increase we did not have any low appraisals. So yeah, it would be really hard pressed to find another market that has appreciated 40%, 50% in the last two years, to be able to push that price right now and to get that low interest rate and not have an appraisal issue. I think would be rather difficult. 

0:18:52 - Speaker 2
Yeah, the volatility is definitely there in some other markets and again, I use the term sexy. It's not quite as sexy in Birmingham but it's a good long term buy and hold market that's still growing, that's still adding new jobs and the barrier of entry for those jobs, that's a big, big deal. The affordability and barrier of entry are lack thereof in the Birmingham market or Alabama market, has been a key, the key to our success and the growth going forward. I think it'll continue to be. 

0:19:25 - Speaker 1
Absolutely, 100%, all right. So why aren't more people doing the forward commitment? 

0:19:32 - Speaker 2
Well, I mean again, as you mentioned, some of it is you have to commit to that up front. It's a 30 day, it's a 60 day. It's a risk for our company, for any company, to say, hey, we're going to put our best foot forward and we're going to purchase this amount down. For instance, if customers didn't respond, we'll say that was advocate and that's lost funds. You have 60 days to show up and that's that. 

I would say that's a barrier of entry for some companies and with our organization too, because we're a one stop shop, because we're very metric driven, we understand the numbers that are out there, we understand our appraisals, we have checks and balances when it comes to acquisitions. So it's not like we're buying things at a 30,000 feet view and we're just throwing stuff to the wind and oh, maybe it'll stick, maybe it'll work. It's not an accident that these numbers came in. It's a process and as we've grown, as we've gone through the years with management, with buying, acquisitions, etc. We've learned from our mistakes over the years and that makes a big difference on what we can offer and actually leaning on the numbers that we put out there. 

0:20:53 - Speaker 1
Yeah, absolutely so, if they want to go ahead and get pre-approved, or what are the next steps for those that are interested in taking advantage of this great deal? 

0:21:02 - Speaker 2
So yeah, Aaron Chapman, you would need to get pre-approved with Aaron and reach out to any of us. His information is definitely on our website. And but yeah, get that pre-approval started. It's the same as any other pre-approval. There are no hoops to jump through. Again, I know I've said this already this is not a two year buy down. This is not an adjustable rate. This is not a balloon period of any kind. This is a 30 year fix long. It's a huge deal and it is a game changer. So if you've kind of been sitting on the sidelines and I've talked with a lot of people over the years, you know there's like, hey, I'm just waiting for rates to kind of soften up. This is an opportunity to look at real estate. 

0:21:44 - Speaker 1
Yeah, 100%. This is no longer an excuse, because this is an offering that meets that criteria. So if you are serious about getting in the game, this 100% would be beneficial, and it's not something that hey, okay, well, when rates go to 6%, we could just buy this down Again. We'll know that doesn't necessarily make sense at that point either. So this is getting to a 30 year fixed rate that you will not have to worry about refinancing 100%, and all of our available inventory is. You have the option of taking advantage of that interest rate with all of our inventory on our website at spartaninvestcom. If you want to talk to a sales rep, if you do not currently have a sales rep, you can fill out a contract as form on our website. Or, if you are already speaking with Danny or Maureen, please reach out and they'll be happy to set up a time to talk further about it, or you can contact Aaron Chapman. All right, danny, thank you so much for joining us today and talking more about this forward commitment. 

0:22:54 - Speaker 2
Glad to be here. Thanks a lot, Lindsay. 

0:22:56 - Speaker 1
All right, that's On the House with Spartan Invest. Thank you, guys, for listening today. If you enjoyed this episode, be sure to rate, review and subscribe. If you want to learn more, check us out online at spartaninvestcom. Until next time. This is On the House with Spartan.