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If you've tried to buy real estate recently, you know you have to move quickly. But you may also be wondering how other investors are dealing with this crazy real estate market. In this episode, you'll hear from a RealWealth investor who's now working for us as an investment counselor. She's seen how the market has changed over the last few years, and knows what it's like to buy investment property in today's market. Leah Collich started building her portfolio in 2010 when it was a very different market. Demand was low, supply was high, and prices were cheap. In 2017, she became a RealWealth member and expanded her portfolio into five new markets while living overseas. She now owns over a dozen properties in Texas, Florida, Ohio and Alabama. When we invited her to share her experience on an investor panel, we were so impressed that we offered her a job. And she shares some of her inside knowledge in this interview. If you'd like to talk to Leah or one of our other investment counselors about available investment properties, you can do so for free, as a member. It's also free to join our network by clicking here to join. Links: https://www.RealWealthShow.com https://tinyurl.com/joinrealwealth Audio Transcript: [00:00:00] [music] Speaker 1: You're listening to The Real Wealth Show with Kathy Fettke, the real estate investor's resource. Kathy Fettke: What are experienced investors doing in this crazy wild real estate market? I'm Kathy Fettke and welcome to The Real Wealth Show. Who better to ask than one of RealWealth network's own investment counselors. Leah Collich began investing in real estate in 2010 when it was a very different market. Demand was low, supply was high and prices were cheap. In 2017, she became a RealWealth member and expanded her portfolio into five new markets while living overseas. She owns a dozen properties in Texas, Florida, Ohio, and Alabama. Several years ago, we invited her to be on an investor panel to share with other RealWealth members what she's doing. We were so impressed that we were lucky enough to be able to hire her as an investment counselor helping others today. She knows a lot about what's going on out there and is going to share it with us here on The Real Wealth Show. Leah, welcome back. Leah Collich: Thanks for having me. I was just saying, we either need to do this more often or I need to move less. I'm on the Eve of another relocation here very soon. [chuckles] Kathy: Oh my goodness. That's because your husband is in the military. Leah: Right. They keep us moving. We were in Boston for a quick bit and now we're headed to Texas which is our home state. Kathy: Before that in Columbia. Leah: Right. Bogota, Columbia, before that, California, we've been all over. Kathy: It sounds like maybe a good time to not be in Columbia. Sounds like a tough time there right now. Leah: Yes, it's been hard to watch. Kathy: Thank you for taking this time when you're trying to move. I know you're probably a real pro at it now. Let's just talk about that process. You are a real estate investor. You are an investment counselor at RealWealth and you just tried to buy a house in San Antonio for a primary residence since you're now going to be there. [00:02:00] He's being positioned. What would you call it, transitioned? There's a word for it. Leah: Assigned. Kathy: Assigned, yes. He's being assigned to San Antonio for about three years. What was the process like to try to buy your primary residence in San Antonio today? Leah: I have a lot more practice buying investment properties than primary. I was in a really bad way for a while because I'm so pragmatic about purchases and looking at the numbers and being very logical through things. Unfortunately, the market in San Antonio is like many places in the country, there's no room for that. [chuckles] It was stressful. I think we made offers on six different homes, all above asking all the day they came on the market waving appraisal contingencies. We were one of a dozen offers. What we eventually started looking at to make it more numerical, we started looking at what is the average annual appreciation? Let's look at every quarter in these areas, homes are going up 4%. You start looking at if we wait until the fall or the winter months when things slow down, if they slow down, if there's fewer buyers in the space, we will probably be at 4%, at least maybe 8% higher prices. We might as well come in strong with those offers now. That's what we did and we got one and feel really good about it. It was counter to so many of the rules that we do when we're buying investment property. Kathy: It's different when it's your primary but I am curious how do you know how much more to offer over asking price and what to let go of? No contingencies is really scary too. Leah: I know. I think that is the delicate dance and I think I'm a little bit messed up too because everyone talks about you can bring a California bias into these other [00:04:00] markets and everything looks cheap. You can just throw money that you don't think about. We haven't lived in Texas for over a decade. During that decade, home values have clearly gone up in Texas. We've lived in California, we're living in Boston. We've had some of that influence I think of like how high housing prices can get. I think it was trying to tamper that. It was really just after losing out on a couple of offers that we thought were strong offers to begin with that we just started getting progressively and progressively more aggressive. The irony though is that the house appraised after it. Kathy: That's amazing in itself because that's been an issue too where people do get the winning bid but then they can't get the appraisal. Did you also do no contingency on inspection or did you--? Leah: No. Kathy: No. Oh, good. Leah: We did do an inspection contingency. That was what's crazy because we gave them an offer that I felt like was incredible and nervous about for a sick to my stomach about how much we'd offered on this home. They came back to the offer with a counteroffer wanting us to adjust our terms even so it said to us that our offer wasn't that much better than the other offers. Kathy: Wow. Leah: It was nuts but I'm thrilled to know that we have a landing place on the other end. We'll move right in when we get there. Kathy: Oh, that's great. I'm glad you get to settle in for a bit. Let's talk about what you're hearing at RealWealth. I know you're talking to investors every day about what they're trying to buy. What are you hearing from them? How hard is trying to close on a property for an investor these days? Leah: It's competitive. Deals are moving so fast that it's completely opposite than it was when I joined the network back in 2016. When I joined, every team would maybe have 10 or 12 deals available at a time, [00:06:00] you could think about the deals, you could get on a phone call and talk about it. You had time. [chuckles] Kathy: Time, yes. [chuckles] Leah: Now, we did a property showcase webinar with our Indianapolis team last week and they featured four or five properties. I heard from the team about a half-hour after the webinar, they had 50 email inquiries and 20 requests for contracts. From our members only. Kathy: For what five properties? Leah: Right. Kathy: Oh, wow. Leah: It's intense. What I've been telling everybody is you've got to get yourself positioned where you understand what you're looking for, your financing needs to be like, ready to go. Don't put an offer on a property or even talk about putting an offer on a property before you've talked with the lender to make sure that this is even possible for you. It's really just in the preparation. Then I think also managing expectations, that's been a lot of my conversations is just helping everybody understand that you might need to be a little bit patient. If you have one market that you really want to be in, you can get it. It will happen eventually but you might have to just be the squeaky wheel for a little while to get the deal that meets your criteria. Kathy: What's the case for new builds? Is it the same? Is there a waitlist for those? Leah: Some markets do have waitlists for new builds but I think there's still tremendous opportunity with the new builds because you have the ability to get something under contract today. Anybody that I talked to who wants to get something under contract, we have markets who have contracts ready to ready to sign. They're not to be delivered for another six to sometimes eight months. Kathy: Or longer maybe. Who knows, right? Leah: Or longer, yes. People who want to close on something really quick, [00:08:00] we do have a couple of teams that have partnered with regional level builders and those larger regional builders that are building for owner-occupants, they're tending not to market their inventory for sale until it's already a house, until it's got walls and maybe it's got a roof on and there may be 30 to 90 days from closing. We do have some teams that have that pretty frequently but it's competitive. You just got to be ready to move quickly. I have also noticed, I think a real sense of urgency with the investors that I'm speaking with. This has been quite a year or two years, going on two years now. I think real estate is in every headline news article out there, what's happening. I think there's a lot of people wanting to now get into the space. There's this sense of urgency. Like, "I need to get into this now before the market changes." It's an exciting place to be, that's for sure. Kathy: For all the people who bought properties for the past 18 years that RealWealth network's been around, I hope you all held onto your properties because they're worth gold today. It's amazing. I guess the question is how much longer is this going to last? We do know that, I should say in the past, it was exciting to get in contract on a new build in a rising market because chances were that the property would be worth more by the time you close on it. There's also a chance it could be worth less. That was one of the concerns I had with you when you bought that fourplex several years ago. I thought, "Well, that's kind of expensive for Florida. I wonder if you're paying too much and what if it doesn't appraise?" and our cash flow. That turned out to really work in your favor, right? I think you've just [00:10:00] closed on that in March. Leah: Yes, we contracted that property in August of 2018. It was a long time ago and then we just closed this past March and you're right. It scares me that that made you nervous back then. Maybe you should have warned me or maybe not by how it ended. [laughs] Kathy: Well, it was just an uncertain time. It was the end of 2018, the real estate was slowing down a little bit because rates were going up. Typically, in the past, the federal reserve raises rates when they want to slow down a booming economy and typically they've done that too fast. I don't know if you remember but during the Trump administration, there was a big argument between the fed and President Trump and he was like, "No, no, stop raising and lower rates," and they did. That stopped what would have been a slowdown in real estate and then the opposite happened, it happened even further with lower rates that has further fueled real estate. It really is rate-dependent. Leah: Oh, yes. I went back and reviewed our very first fee sheet on that deal just so I could refresh what lens I was looking through at that time and our lender had projected a rate of 5.625. The deal made sense fundamentally and I think that's why-- We are fundamental investors. I'm not chasing appreciation. I like it just as much as everybody else but for a deal to work, I want to see sustainability and I plan to hold it for a very long time. What the property values were doing, that wasn't the trigger to go for a deal like this. Then of course having no knowledge of what would happen over the next two years-- When we contracted that property, we knew that it was going to be a longer delivery [00:12:00] time, just the nature of that project. It's a quad development so it's got I think 30 something other quads all next to it. Someone who's driving by might think it was an apartment complex. [unintelligible 00:12:11] quad is owned by a separate investor. We knew it was going to be a long time horizon and we talked a lot about everything that could happen in that period of time. Never once did we think pandemic- Kathy: Right. Leah: -but we did play through some scenarios. There was mutual risk taken on behalf of the builder. The builder doesn't know what the market's going to do and I think- Kathy: That's right. Leah: -today is a perfect example of that. Construction costs going sky high and they've got contracts on 36 quads at one price. They could leave a lot of money on the table or they could be losing money in developments like this. Kathy: That's right. Leah: Fortunately, in the end, everything worked out in our favor. Rents were higher than they were, interest rates were lower than they were by over two percentage points. Kathy: That ended up being an incredible deal. What was their purchase price? Leah: It was mid-five, about 530. Kathy: That was the only reason I was like, well that's a big purchase. Leah: It was. Kathy: It's a four-plex. It's great but it's not our typical $100,000 or $150,000 house. That's all. I didn't think it was particularly risky, it just was bigger than some of the other things that we've done. I'm just really glad it worked in your favor. Now, what we're seeing is builders struggling to get and get appliances, to get lumber, to get roofing even. I think on our Reno project, our builder couldn't even get the tiles. They wanted the tiles for the roofs. This is unprecedented. A lot of builders are having to reprice and investors are having to pay more [00:14:00] because many of the contracts that were written allow for that, a clawback if prices are unusually-- I should say the cost of materials is really- if there's a big variance from what was originally expected. Builders do have the right to raise prices because they can't finish the project if they can't afford to complete it. Investors are finding out that they're paying more for the finished products than they thought. What are you seeing? Are people okay with it? [chuckles] I know it's a surprise. Leah: I think it's come as a surprise to many. Though I don't feel like anybody wasn't aware of what construction was experiencing right now. Everybody is hearing about the surge in the cost of lumber and other materials. I think people understand it and that's what I love about the investors that we work with. I feel like we work with very pragmatic people who understand that we're not pitching some get-rich-quick scheme. This is about a free market, that's what makes this work. Our builders are subject to the free market just like we are as investors. I think most people seem to be very understanding of the fact that I can't ask a builder to take a loss on a property. This is the irony is that while some of our builders were having trouble making money on these deals as these costs have gone up, they were closing these properties and the investors were getting appraisals back with $40,000 of instant equity. I don't want to say that's not fair but it really is problematic. Builders will go out of business doing that and we as investors, we need the inventory. Kathy: We need builders to be building, that's right. Leah: I think most people have been really able to look at the bigger picture. The good news is that rents have also gone up, a lot of them still are closing with some equity, and most of the builders who did have to come back and adjust pricing, they were willing to split the difference with the investor. They know, [00:16:00] "Hey, on the retail market, I could sell this for way more. I'll split the difference with you so that this is fair, so there's still some potentially some meat on the bone for you." By and large, no one likes to hear that they're going to have to cough up a little bit more money but I think the fundamentals are still there and it still makes sense. Kathy: Rents are going up as well, right? The cash flows aren't necessarily much worse or worse at all. Leah: I have noticed the cash flows are a little thinner just in looking enterprise-level all the performance. The cash flow is a little bit thinner now, certainly than it was two years ago but that's always the case especially in these growth markets. What makes it a growth market is why there's a lot of new construction there. There's a housing shortage. Kathy: It takes a long time to get the properties up and running and when you've got an area growing so quickly and not enough supply and builders struggling to even get the materials that they need, you're going to see prices go up, and then, of course, cash flows tend to go down. We're seeing more and more people flocking to real estate because of the fear that that's going to continue. If you listen to my last interview, Logan was pretty sure it's going to continue for a while. This is not over yet. Leah: Yes, he said like a 4 million house deficit that our nation has. My situation being a perfect example, it took two and a half years to build that quadplex. The supply isn't created overnight and I was thinking about-- I love macroeconomics and that's why I love real estate but I was thinking about just the construction cost. If we didn't have this surging demand that we do, think about how many builders-- That is ultimately what's creating this hike in the prices, but there's also some supply chain issues. [00:18:00] Under different circumstances, there would be nobody building to help offset this challenge that we have. We just don't have enough housing in this country. Kathy: Even though we didn't have as many births, I thought there'd be a baby boom this past year. It turns out I think people were maybe afraid to have babies with so much uncertainty. There was less than expected but our population is still growing. Again, it's not as easy as people think to get new supply online. It can take-- For example, in Little Lane, in Carson City Nevada, we bought land a couple of years ago, and then COVID hit. Our team literally couldn't even get an appointment with the city planners because the offices were shut down. That delayed that project by about nine months and it's an area that's in desperate need of housing. On the one hand, the area really needs it but the builders can't build it. They literally could not even get the appointment, get the approvals to go. Leah: We've seen that in Florida too. The city offices are backlogged with permitting, they're all working from home so they're slower to respond. I have another new build under contract in southwest Florida and it was getting delayed, delayed, delayed, and we were going, what is the reason? Help us just understand where it's at and the builder came back to us and said that the subcontractors that they used to clear the lots were so backlogged for just clearing that they were on a three-month waitlist to have guys to come and knock down trees so that they could even start [chuckles] to build. At every turn, it seems like. Kathy: That's right. All right. What advice are you giving to investors and what are you seeing? Are you seeing mostly first-time real estate investors that call or is it repeat buyers? Leah: I'm glad you mentioned that because I was just thinking about that in my last response. [00:20:00] I have noticed a lot of 1031 buyers because it's such a great time to sell property. [chuckles] Clearly, hearing my story about selling or buying a primary, you have buyers who are lining up to waive contingencies and give you cash. It's a great time to sell and so the number of 1031 exchange buyers exchanging out of California, getting top dollar, and offers same day, I have noticed that increase significantly. Those are hard investors to help too because they don't just need one property. They're not just trying to get into the game, they're selling a $1.5 million home and in LA and they need a portfolio of homes. They need four or five homes or six homes. That is definitely exciting and I shared a success story with some of our colleagues last week that we had a 1031 exchange buyer this exact scenario. She sold a $1.4 million home in Southern California. Through our network and through our providers, she bought eight homes in Florida and even new construction in Charlotte, rehabs in Florida. She took her cash flow. That $1.4 million home in LA, cash flow for her about $800 a month, she had some small loans on it. Now, this portfolio of eight homes cash flows $6400 a month for her. Kathy: Wow. Leah: She really got to experience the power of want a great seller's market in California but then this repositioning in these more stable markets still high growth arguably but where there's fundamentals and where there's really great cash flow. Kathy: That's incredible. I'm so proud of you and our teams for being able to complete that exchange because it's not that easy to find the replacement property. I'd be kind of scared to sell something today and hope I can find something [00:22:00] in 45 days but you're seeing that our teams are able to get it done still? Leah: Yes. No, they are. I think her success is due in part-- I mean a lot to her grit. She was just very persistent in her approach but we also started having this conversation about her exchange well in advance of her putting the property in California on the market. It was a scary time to be prolonging a sale. We were in an election year, there was a lot of uncertainty at the end of 2020, and kind of preparing for this. She was wondering, "Am I making a mistake by waiting to list this property until I have this 1031 plan at least lightly ironed out?" but I think that is what is contributing to a lot of people's success is just knowing that the market is raging to sell. Let's work over here on the after scenario, on the replacement properties, and try to get that plan and at least those relationships with the teams really well established so that it's feasible. It is. We've seen lots of people be able to successfully do it. Kathy: Yes, we've got-- I don't know if it would appeal to a lot of people but we do have lots in our Park City project. I think we've got five of them that can be sold to 1031 buyers but they don't cash flow. I think they're going to see some pretty incredible appreciation because you could barely get anything permitted in Park City. Have you come across anybody who just needs an exchange to get something soon, we do have lots available. I believe what people can do is they can 1031 into the lot, finish the exchange, and then get a construction loan on that lot and build and create a rental which is another thing that we didn't really see coming. A lot of people who own homes and in vacation areas, they maybe have a second home or investment property [00:24:00] in a vacation area. They moved there during 2020 because all of a sudden they could. They could leave the big cities and go live in Park City. They found out that it wasn't just a great place to ski, there's also beautiful summers and beautiful springs and there's fishing and there's biking and hiking and stuff in the summer. Many of those rentals are now owner-occupied in these vacation areas. The demand for rentals is enormous. It is an opportunity for somebody who doesn't necessarily need the cash flow right now, they've got an exchange, they need to buy something right now, we do have those lots available. Leah: Yes, every time you mention that Park City's project, Kathy, my phone rings with people interested to know about it. I do appreciate that and that has been another I think key to being really successful and honestly, a great plug for the network and just being connected to where the flow of these opportunities is passing through. We've had several situations where we learn about a particular opportunity that could work last minute. Two weeks ago, I had a- in an internal meeting, I learned about a brand new construction duplex that was going to work with an exchange timeline. I immediately went, "I know the perfect buyer." Got on the phone, called them and he contracted it the same day. It's being connected to kind of where these opportunities pass through is I think extremely-- It's the way that it works now. [chuckles] Kathy: That's great, Leah, that you're able to connect the dots there. That's- Leah: It's fun. Kathy: -awesome. I had said to Nick, I don't know if he told you this but I said we need to- for people who are in that situation, we need to get a text system going. [chuckles] It's like if you know you're in the middle of an exchange and we know there's some property available, we can text you right away. Again, it sells so fast, I think so quickly. All right. Well, is there any last advice that you would give to our [00:26:00] listeners? Leah: Yes. My biggest advice for people is always like you can analyze this thing to death. The idea of real estate and what market and what property, you can analyze it to death and many people do. I myself I'm guilty of it, but I think the sense of urgency, you should not hastily buy things but really realize like what these fundamentals are and why they work. Then look at the demographic shift, look at what's happening in the market and see that there's opportunity and the opportunities now. I think the tendency for a lot of people is to kind of wonder, are we about to come up to a cliff and it's going to drop off and property values are just going to plummet and everything about the timing is wrong? As you know and as so many of your guests have said on the show, that's not what we think is happening. It's a good time to be doing this. I think the action part of your process, the emphasis should definitely be there. Kathy: That's great. Love that. How close are you to your goals and what are your goals? What's your endgame? [chuckles] Leah: You and Rich would be mad at me for saying this, but I feel like our goalposts are moving a little bit just because you enjoy this. [laughs] Kathy: That the way it goes, they're always moving. Leah: We got into it with this idea of financial freedom. Okay, let's focus first on my income and get the cash flow to a place where it can replace your income. Then we'll start working on my husband's income so that it aligns with his military retirement but now we're just having so much fun. This was clearly before I came to join the RealWealth team too. Our goal right now, I think in the short term is to max out those Fannie-Freddie loans. We're getting close [00:28:00] to that. I've kind of been in the penalty box if you will with getting loans because I did have a career shift and changing industries. I've had two years of timeout. [chuckles] Kathy: Right. Leah: Meanwhile, we've been focusing on my husband's loan slots and getting those maxed out. He's almost there. Then I'm in the go spot again so now, it's just max out my 10. Our goal is to have tapped Fannie Freddie for all it's worth by the end of our time in Texas. Three years, that's the short-term goal. [chuckles] Kathy: I love it. I love that it's clear. Wonderful. Well, I have no doubt you'll get there. Leah: Yes. [chuckles] Kathy: All right, Leah, thank you so much for coming back on The Real Wealth Show. Thank you for all you do for our many many members at RealWealth and all that great investment counseling that you give them. [chuckles] Leah: You bet, we'll talk soon. Kathy: Thank you for joining me here on The Real Wealth Show. If you'd like to find out about the markets today where you can still get cash flow, where you can still find properties, where there's a great potential for appreciation, just go to realwealthshow.com and click on the invest tab. You'll see a whole dropdown of I think 15 different cities and all the data on those cities along with teams in those areas that can help you find that property. Again, that's realwealthshow.com. [music] Speaker 1: The views and opinions expressed in this podcast are provided for informational purposes only and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. For more information, go to realwealthshow.com. [00:29:48] [END OF AUDIO]