The Wisconsin Investor
Each week, we bring you interviews with some of Wisconsin's top real estate investors who share their tips, tricks, and strategies that you can implement right away. This show is dedicated to helping Wisconsin real estate investors elevate their game. Along with interviews, I'll also dive into hot topics in solo episodes and feature experts from various real estate sectors across Wisconsin.
The Wisconsin Investor
Where Is The Puck Going? Economic Forecasting for Strategic Real Estate Investing With Kolten Van Elzen
What does a dead cat in the ductwork have to do with real estate investing success? As it turns out, quite a lot about perseverance and education in the school of hard knocks.
Corey sits down with commercial underwriter Kolten Van Elzen for a fascinating exploration of economic trends and their impact on real estate investment strategy. Their conversation ranges from practical horror stories (like Colton's first flip of a 30-cat hoarder house) to sophisticated economic forecasting techniques that can give investors a competitive edge.
The duo dives deep into what's really happening with interest rates, explaining the critical difference between Fed actions and mortgage rates in clear, accessible terms. They break down why watching unemployment claims might be more important than following Federal Reserve announcements and provide specific resources investors can use to track economic indicators themselves.
Perhaps most reassuringly for investors nervous about current market conditions, Colton shares an eye-opening statistic: real estate prices have only declined twice in the last 40 years. With current inventory levels at just a quarter of what they were during the 2008 housing crisis, the fundamentals simply don't support predictions of a market crash in most regions.
Beyond market analysis, listeners will gain practical insights on building stronger banking relationships, creating a comprehensive "lender folder," and why maintaining multiple lender connections is crucial as bank appetites shift. The episode concludes with both hosts emphasizing that periods of market uncertainty often create the greatest opportunities for prepared investors.
Ready to gain an edge in your real estate investing journey? Subscribe to the Wisconsin Investor Podcast for more strategic insights and practical advice to help you navigate today's complex markets with confidence.
To get in to the data discussed on the episode google CME Fed Watch Group and Redfin Data Center.
Everybody, welcome back to another episode of the Wisconsin Investor Podcast. I am your host, corey Raymond, and I'm excited today because, again, I always try to bring you guys amazing guests, and I have another one lined up for you today. We're going to get into some really juicy stuff today that I nerd out on, and I love talking about this kind of stuff. But I'm going to save that for a second because, as I do usually, I'm going to do a little commercial for Wisconsin Discount Properties, who sponsors the show. I think I talked about this on a different episode, but I'm going to talk about a deal that I picked up, actually from Wisconsin Discount Properties in the Oshkosh area, so this is one that was out to the list. If you're not on the buyer's list, you can get on there by going to wisconsindiscountpropertiescom and putting your information in. We'd sent an email out.
Speaker 1:It's a trailer house in Oshkosh on about a half acre with an attached garage. It's not a normal foundation, so it's not like somebody can come just pick this baby up and move it, but nobody wanted it, nobody offered on it, and so that's usually what happens. If I'm picking up a deal, it's usually because we ran it through our process and nobody wanted it. So now I snatched it up and I'll tell you what this deal end up being. It's going to be a phenomenal deal. We got it for, I believe, 50 or 55,000, um, headed out to the list for a little higher. You know, as the boss, I get a little discount on some of these things, uh, but regardless it would have worked either way. We've got about 5,000 into the into the property and we just signed a lease for 121,295 on this bad boy. So I'm going to be all into it for about $60,000, maybe less, and it's going to rent for almost $1,300 a month.
Speaker 1:Now, not the sexiest property in the world. You look at it from the outside, doesn't look great, but it gets the job done, it's bringing the rent in and it's going to cashflow like crazy. So imagine adding 10 of those to your portfolio, what that could do for you. If you're missing out on these deals, you're not making offers. You can do that again. Go to wisconsindiscountpropertiescom, plug your information in and get added to the buyer's list and start getting deals like this sent to your inbox every Monday morning 6 AM. With that, let's get into today's episode. I got my brother from another mother, colton Van Elzen here, buddy. What's going on, colton?
Speaker 2:What's up? Corey Glad to be here.
Speaker 1:I'm excited to have you. Yes, Colton and I met actually through church years ago and you were still in high school, right?
Speaker 2:That is correct. I was going to wonder if you remember I vividly remember how we met was through the Guatemala Mission Trail. Yes met was through the uh guatemala mission. Yes, oh yeah, I don't know if you care. You remember this, but the reason you guys got to go on there is because there was a little cow that plotted on your uh spot oh yeah, I remember that vividly.
Speaker 1:I tell people about that story all the time. Yep, yep, that was uh, the to give our audience a little background on that. So wisconsin this is one of the things I love about wisconsin. There was a charity, uh fundraiser. I donated 50 to uh, I think it was juvenile arthritis, something or another for somebody in one of my networking groups and, um, I forgot all about it and it was for the big ox plop bingo. So what happens here and some charity fundraisers is they mark off these different squares and then they release these cows. I believe I've never actually seen it, but I this is what I'm told. And if the cow poops in your square, you win what it said prize, right. So for the 50 prize, the winnings were $12,500. And at the time this was 2016,. I think Colton is that when we went, yeah, it's 2016, 2017.
Speaker 1:Yeah, Somewhere in that ballpark. We didn't have. We didn't have a lot of money, and so we had signed up to do this missions trip that Colton and I went on together and that's how we met and we didn't have enough money to go on it. But you know, you tithe, or big believers in tithing, and God shows up and provides in mysterious ways and boom, big plot, ox plot, bingo was one way God was. I was kind of laughing. I'm like you're funny, god, that's it.
Speaker 1:I guess we're going on this trip. Thank you, sir. So we went on the mission trip we had, Uh, so we went on the in this mission trip.
Speaker 2:We had a great time. We got to build some wells in Guatemala together in about 110 degree heat and humidity.
Speaker 1:I think Right. So it sounded about right. Yeah, we uh, we worked our butts off. We sure did. We got not one well, but two wells. We were overachievers, overachievers, and then we brought that work ethic back and today we apply it in real estate investing right. Exactly, yeah, and the we apply it in real estate, investing right, exactly.
Speaker 2:You know, the funny thing is that was when you guys were just getting into wholesaling or like you guys were just starting your business, and I remember we were you know the many van rides where you got hours to just sit and chit chat and you're talking like, yeah, I'm going to call these people and door knock on them, I'm going to sign a contract and I'm just going to sell these contracts. I was like that sounds illegal, it doesn't seem right. Like my parents had a building background. I'm like, no, you do the traditional list with your agent and do all this P's and Q's that you know we're told about and you know you you've done well with it.
Speaker 2:So yeah.
Speaker 1:Yeah, that was crazy. That was, yeah, you're right. That was like right when we were starting up in 2016. So it's been a fun ride since. And let's talk a little bit about you, though, Colton. So you also have some real estate investing that you do but you're also a underwriter for Capital Credit Union on the business, commercial side, correct?
Speaker 2:That is correct. So yeah, a little bit about me. I'm born and raised in green bay, so true wisconsinite, uh slight traitor in me. I went out to the university of minnesota so I studied out there, got my degree at gopher um, and uh loyal viking fan now you know being converted when whoa whoa.
Speaker 1:You might have to end this podcast in the background here, but yeah, wow. That's gotta just be hard to look at every day now, since you're purple people here exactly, uh, get, get the inside information you know, send it back to the.
Speaker 2:That's right now.
Speaker 2:Uh, studied finance accounting, got my degree out there, came back my wife's from here, so we did the traditional house hacking route. That's how we kind of got into real estate and kind of done networking and all that and trying to learn more. Um, did our first flip last year, so you know that was fun, man. Um, a lot of learning lessons. And then, uh, yeah, been in commercial underwriting for the last three years three and a half years so get to see all of the other experienced real estate investors and business owners, kind of come through and see how they do operations and a lot of good learnings from there as well.
Speaker 1:That's awesome, man. That is so cool. We got a lot we can unpack today and I'm excited to talk about it because you presented for the REI Success Club, which is a little club that we host in.
Speaker 1:Green Bay and you brought I mean, you had just like some amazing information is what the feedback was. I was down here in Florida, so unfortunately I wasn't able to attend, but I said, man, I got to get Colton on here because I love talking about the economy and what's happening and I always like to try to figure out where's the puck going. Right, like that's one of the things I want to. I don't want to know where a puck is at today. I want to look ahead and say where is this thing going the next six months or 12 months, and so we're going to get into some of that a little bit. Talk about the flip, though. How did you, how did you guys end up doing on the flip?
Speaker 2:so it was a three bat, two bath ranch in green bay um bought it off another wholesaler.
Speaker 1:Sorry, I know, I know this guy's a trader all around man going out of minnesota.
Speaker 2:He's cheating on me with other wholesalers benedict arnold man oh my goodness but yeah, it was uh one of those hoarder houses. They uh, supposedly, per the neighbor, had 30 cats in this house, 30. It smelled like it. It smelled like it, um, and they were the people that were leaving were so generous, they left us a, a cat.
Speaker 1:Wow, that was really nice of them.
Speaker 2:Yeah, we couldn't find it, but they left it. Oh wow, they said here's some food and let us know if you find it. Here's our number. Uh yeah, and so the great story of it was we found the cat three months later and the duck work.
Speaker 2:No dead not not alive anymore. Yeah, as I say, that's, that's in the middle of summer. So, oh yeah, our house smelled even better. Wow, it was quite in, uh, quite a learning experience there, my goodness. But nothing a little kills can't uh cover and remove the smell from. And we cleaned it up, fixed it up really nice, um, and we uh got it ready.
Speaker 2:And you know one of the things you use when you get these projects you're like, oh, it's going to go boom, boom, boom, we're going to be done in and out of here in two, three months. And you know, six months later we were at the closing table and getting it sold. But we made a small profit. You know, I wrote my parents into it and if it wasn't for them, I don't think we would have profited, because you know my dad's skillset and being able to figure out the problems and not have to pay the higher contractor fees. Uh, we were able to save some money, but the dollar per hour wasn't good. But hopefully the education on the backend for future flips is kind of where the payoff will hopefully be.
Speaker 1:Dude, if you did a hoarder cat house right out of the gates with a dead cat in your duck work buddy, you got your education for sure and you didn't lose on it. I mean, that's a hell of a, that's a win all the way around, right there.
Speaker 2:Exactly. Might've lost on the dollar per hour timeframe, but you know that's. That's just the price you pay sometimes.
Speaker 1:That's it, man. I'll tell you what the first couple. Like my brother I had him on the podcast early on and, yeah, he always talks about his first flip he lost, I think, like 16 or 20,000 bucks or something on the first one. But you know, colton, how much was it to go to UW Minnesota?
Speaker 2:It was about 15, 20 K granted. I joined the national guard, so I'm in the army currently. You know.
Speaker 1:Thanks for your service. But uh, yeah, I mean that was probably a 60 80 000 education. There you go 60 to 80 g's right down the tubes. Now you're making a little income thanks to that now with the old capital credit union there, but to make a few bucks. Could you imagine getting paid a few bucks to go to college and learn a little little thing or two and get out with a heck of an education you know I think it would uh reshape a lot of how people think about money and the economy, and you know where they spend their time.
Speaker 1:So yeah, absolutely my kids, like we, just we they're. I'm so proud of these kids. They they sold some water and seashells on the bike trail behind our house most likely illegally, I think. I don't think you can sell things on the trail, but they did it and I was. I was out there helping, so I've, I'm part of the crime. Yeah, I'm culpable.
Speaker 1:They made about 130 bucks in like four hours out there, which was awesome. Yeah, like people were just giving them like $10, 20 bucks. And then they were like, hey, we should do this for the homeless. And I was like this is awesome. You guys are such good kids Like they could have either way. I was proud of them.
Speaker 1:Like your entrepreneurs may take the money, but then they started advertising to people they were doing for the homeless. I'm like, well, now you got to give it to the homeless. You can't just you can't change your mind after you start saying that, right, so they made these little packs. They went to Walmart. I took them to Walmart. They bought these little packs of like you know, little kits of like grooming kits and some other stuff and Bibles and these other things, and so we're leaving florida tomorrow and yesterday we went to this homeless shelter to just we couldn't find enough homeless people, so we just went to the shelter to give them, to them to distribute, and they kept. The lady up there was so like oh, you guys are great kids, you know all this stuff. She's like where are you gonna go to college? You gotta go to college.
Speaker 1:and I'm like I don't know if you do. I don't think you do. I think you could do a flip and get a couple of cats in your ducks and you could get a heck of an education. If that's the direction you want to go, you don't really need the college degree, but that's a whole nother podcast topic that you and I could get into. Talk about the cat thing, because I want to stay on this for a minute. We have a lot of economy stuff we want to get into, but the cat smell out of there, cause that deters a lot of people animal smells.
Speaker 2:Yeah for sure. So the first thing is, when you have a property right that usually has a smell to it is you got to figure out where's the smell coming from, where is it located Right. And so in this property it was located everywhere, you know. It was located everywhere, you know when you you got 30 cats that they're not missing a spot, you know. So the first thing we did was we tore everything out that you could remove right all the carpet, all the flooring. We had to remove all the cabinetry, a lot of the woodwork that was stained with the p the subfloor yeah, okay, got rid of the subfloor and again, that sounds scary but a lot of it was.
Speaker 2:You're just taking the saw, cutting out the bad spots, putting in the new stuff, laying in the new OSB, and you were fine. And so the stuff that wasn't really visible and you could still smell it we applied what we called kills. There's other stuff like brin primer, so it's like a primer paint that you can buy at your local lowe's home depot. It's about 150 dollars for five gallons and it covers pretty well. And so we basically took rollers and we rolled it over the entire floor and even some of the wall areas. You know the lower wall areas were kind of peek and splash up. Even some of the wall areas, you know the lower wall areas were kind of peak and splash up.
Speaker 2:And we did about one to two coats of that through the entire house and it was time consuming but it was well worth the investment because afterwards it smelled like a brand new you know house in a sense. Right, yeah, you didn't have that odor lingering. We put some air fresheners in and some other stuff you know in the paint to help you know, once we did the painting of it to help get it even fresher smell, but yeah, yeah, I think that's one of the great point on this.
Speaker 1:And one reason I want to talk about this, colton, is I I hear this a lot from buyers. It's like oh, there's a. You know, with our process we try to notate if there's a pet order, cause we don't we don't let people walk through them until prior to closing. Once you're under contract, within three days prior to closing, you can walk through the properties. But we try to tell people, hey, there's a pet smell. Or we have our inspectors note hey, strong pet odor or something. So you can kind of budget for that.
Speaker 1:So if you have a house you're going to the point here that I think that you just made, that I want to emphasize if you get a house, that's a hoarder house and you're going to replace a lot of stuff anyway, the cat stuff is like budget a little bit extra for the kills and you know some subfloor and some other stuff, but it really isn't going to be that much more than what you're going to already do to the house to flip it anyway.
Speaker 1:Now, if you have a strong pet odor and the house is pretty nice, like pretty turnkey, that's where it can become a little bit more expensive. Like we have one right now. We just closed on and, uh, we're gonna just do a light remodel on it and put it on the market. But it has some carpet and there's a little bit of a dog odor in there, so we're gonna get the ductworks clean. We're gonna get the ductwork clean and we're gonna replace the carpet and we might throw some kills underneath the on the subfloor just to make sure we got it all and that's it, you know, and and then we're gonna turn it around.
Speaker 2:So not that big of a deal yeah, and I mean the other thing too, with orders, right, is you just have to remove the source of order too? Right, that's huge. Right, like removing all the cats, having them out of there, right, we still had a cat living there, yeah, p like we were killsing, and there was p on top of the kills no way yeah, because we didn't know where this cat was.
Speaker 2:It was a skittish cat, it was up in the ductwork. Like you can't see it, right, you'd occasionally think you hear something. But you know, when you're working in a property by yourself late at night, you're like, yeah, that's just you know. Sure, the friendly neighborhood ghost you know come to say yeah, it's just one of those things you just don't know until you know. And it's a solvable and, like you said, it's not as expensive as people think. Right, yeah, you could could be looking at $500 in materials and then your labor. If you hire it out, you know a few thousand dollars in paying fees.
Speaker 1:Yeah, not that big of a deal for sure. Well, good, I'm glad you guys made a couple bucks on that. You got a house, you got a flip under your belt. Now the sky's the limit for you guys. What's the goal for you? What are you guys seeing in the next few years as far as what you guys want to do personally in the real estate space?
Speaker 2:That's a great question, you know. I would love to continue to add and acquire. You know, I think most real estate investors see right the power of being able to buy real estate, hold it for a long period of time. You know, the one thing we don't talk about is and we'll get to hit on today but the amazing part of real estate is you can leverage it right.
Speaker 1:You know as an underwriter.
Speaker 2:I'm supposed to hate leverage, right, you know it's the bane of these real estate investors. But when you look at the calculation of a 20-year amortization or 25-year amortization, you know, and only having 20 or 30% down, traditionally right, your minimum return is still like 6% or 7%. That's not even an appreciation, that's just you breaking even, paying that loan back and basically turning that 20% into, you know, having that property free and clear. So the just power of that is to continue to focus there. But I say in the short term, the next one to two years is purely income. Got to focus on raising the income level because the reality is real real estate costs a lot of money. It's not cheap business to run and operate in and so that's kind of the focus is trying to develop some more income.
Speaker 1:So nice You're going to do that through some more flips, yeah, okay.
Speaker 2:Yeah, I said more flips and hopefully maybe I try one or two wholesales. But you know, you know that game's hard. It's a lot of time, a lot of investment there. So there's no free dinner out there.
Speaker 1:No, that's one thing I hope people understand. I get calls a lot from people who are like I'm going to get into real estate, I'm gonna start with wholesaling. I'm like you know you're starting with probably the hardest part of real estate. Like the easiest one to start, in my opinion, is all that stuff which, like you said, you had your dad helping you. But if you didn't have your dad helping you, you got to go find all these people to do all this stuff.
Speaker 1:And that can be a challenge in any market, but especially in the last few years, that's probably one of the bigger challenges is finding people that are reliable, reasonable, to do the work for you. Or you get a property management company. They've got hundreds of properties, they could leverage that workload to get a more affordable pricing for you and they can manage it all. All you got to do is find the deals and find the money you get into flips it's a little more challenging because now you got to build a contractor base, but when you do wholesaling, you got to find, a the property below what any flipper has to buy it at, and then B you got to find the buyers to be able to buy it at, and then B, you got to find the buyers to be able to buy it. So you have like really two businesses that you're starting.
Speaker 1:When you start a wholesale business, you got to find the acquisition side and then you got to also find the disposition or the buyers to sell it to. And people are like, oh, it'll be easy Get a good deal. It's like it's not as easy as you think. Right, everybody's got their little buy box, their little preferences of what they want, little neighborhoods they want. You know it's. It can be a grind.
Speaker 2:So, and given this market right, Northeast Wisconsin is probably one of the most competitive, at least in Wisconsin, because there's not a lot of inventory and there's a lot of sophisticated people that are looking to jump in and make a buck.
Speaker 1:So absolutely Absolutely. Well, let's talk a little bit about the economy. Let's transition now. So, as an underwriter, I'm interested. What are you looking at in your position? So, if I'm coming to you for a loan, how are you involved in the economics of what the bank is doing? Do you get involved in that at all? Or is that at different positions and they just kind of say, hey, Colton, here's what we're looking for as a bank right now. We want you to do this, this or this and underwrite it this way. How does that happen?
Speaker 2:So for most institutions the direction of the commercial portfolio is usually headed by the chief financial officer, chief credit officer, so it kind of it's up to their discretion. So they get a goal from the CEO and that says, hey, we want to grow by X amount, and so they hand that to the chief credit officer and then their goal is to figure out how. And so they hand that to the chief credit officer and then their goal is to figure out how, how they reach that. And so capital credit union. I would say we were really investor friendly to real estate folks two to four years ago and we've transitioned more towards manufacturing and so it's kind of the preference of what that lead person has and kind of their experience.
Speaker 2:So, like a lot of local community banks you know, a lot of the ones that you guys mentioned are great for real estate investors because that's their bread and butter. They get a lot of folks to come through, they can continue to grow their loan portfolio from that. And even the credit unions I mean we do still quite a bit of real estate ourselves, and so the focus is just kind of what is the goal of growth? You know, with rates kind of being higher. The cash flow is a lot tighter and so I would say that's kind of where people may have seen that some of the banks and stuff have kind of walked back a little bit on real estate or it's a little bit tighter on trying to get money on the commercial side.
Speaker 2:But you know there's still money out there if the deal's right. I always tell people you know you can get the best deal if you run your numbers right. You know if your DS, if your property's cash flowing and you have good equity position, like you're going to get a loan and it's going to be approvable, you know where it gets. Tricky is people come in, the property doesn't cashflow, they didn't run their numbers right. They're trying to get a loan. You know max loan to value. You know 80% and it can be difficult when you just don't run those numbers beforehand.
Speaker 1:Yeah, yeah for sure. And I think what I love what you just said there's capitals, you know, switch to manufacturing a little bit more. They want that in their portfolio a little bit more. And this is a point I make to a lot of people too is, you know, it's really important to have a lot of lines in the water with different lenders, because the appetites change.
Speaker 1:Like you said, the goal changes for the bank. You're like, hey, well, buddy, we just did, you know, last three years we were doing this, and they're like, yeah, but our appetite changed now. And then you're like, crap, now I got to go start all of these relationships over again, where you got to go give a lot of the banks the same information. Anyway, when you go try to get pre-approved, you might as well just get pre-approved by a bunch of them and then just maintain that relationship and continually check in on like, hey, how are you guys doing on rates, what's your appetite for real estate right now? And just stay up to breath, like, and then you just kind of use them as chess pieces for each deal and sometimes they you know, I found some banks really like a certain type of deal, so if I bring them a certain asset class within real estate.
Speaker 1:They might be like, oh yeah, we really want this one. We'll give you this rate or this. Or they might be like, ah, your rate's going to be here. You go to another bank, they're a percent less. You're like, oh great, let's go over here. And just maintaining a lot of lines in the water I found has really been helpful for us over the years.
Speaker 2:No, that's huge. And my big piece of advice to people is have a lender folder. So have a PFS, which is a personal financial statement. Have that filled out. So all you got to do is change the date, change a couple of the numbers. You can send that off right away. Have three years of taxes, your business and personal all in this lender folder.
Speaker 2:And then another separator is when you're bringing a deal. Have a proposal, have a fact sheet of what the deal looks like, what you're going to be doing to it, what your end goal of the deal is right. So say, if you bought it from a wholesaler, okay, talk about the price you bought it at. Talk about the condition it was. Talk about the condition it is today.
Speaker 2:Show that level of competency that you're able to operate these deals and you're able to make the numbers work. And then show them hey, this is the goal is to continue to grow. This you know. Show that you have an appetite of wanting to grow and you want to build that relationship with them. That's valuable. And then the other thing that any business is communication. If you can communicate, respond timely to your lenders like they're not asking questions just to make your life hard. They're trying to figure out information so that they feel secure in the transaction. Yeah, remember the lending institutions holding 80 of the money to buy this property. Right, like they have more skin in the game. Right to make deals work, like they don't want to lose money either. You show you're competent. You show them this lender folder. You communicate clearly, like, right there, you're ahead of the game.
Speaker 1:Yeah, my guess is Colton. That's such good nuggets. I hope everybody goes back and listens to that. That's looking, you know, to get lending going from institutions and hard money lenders are going to want the same thing. So like, even though it's more relationship based in the hard money lending and it's kind of there's no real standard there, I guess every hard money lender is a little bit different on what they want, they still want a few things.
Speaker 1:They want communication. All of them do. They want competency. Right, those are like two major things. They want to know you got your crap together and you know what you're doing. That's all there is to it. And if you're brand new and you don't know, find a mentor, somebody who knows and has been there before, and just talk to them about what should I do on this property and then to communicate that to your lenders after talking to your mentor on those types of things. But I think that's really really important communication and competency. Like the bar's pretty low out there right now. Guys, if you can do those couple things and I'm talking not even lenders, just in general you're going to stand out above the crowd and people aren't going to want to do business with you because not many people do those very basic things.
Speaker 2:No, and this is the thing too. It's like everyone thinks it's purely numbers. Right, I would say half of a loan approval decision is literally can we trust this person to repay us? And how do you build that trust? It's stuff I would just mention earlier. Have your documentations ready, have the clear communications, answer the questions before they even have to be asked. You know that's the one thing is. You see, sometimes people trying to hide stuff. You know like, oh, I'm not going to mention this, but we're looking through everything, right, we're that says an underwriter. We're trying to unearth, dig up any pieces of information, get ahead of the curve. You know it's not going to hurt you.
Speaker 1:Yep, yep, for sure, yep. It's always better to just let people know what's going on and be upfront and transparent about it, if you can, before they have to find out and ask you about it. Right, yep, yep, for sure, colton, let's get into the economy a little bit, brother. So what are you seeing right now? I mean right now, as we're recording this, it's mid-April, right, we just had some tariffs go out, big, big tariff. Every time I tie Any problem.
Speaker 1:Now that joke in our family is like why did my kid do that? That's probably tariffs. That's probably why they're acting up. It's probably the tariff. But seriously, like the tariffs went in, then they're paused, except for China, and there's a lot of turbulence going on. I saw the 10-year treasury went from 4.3, 4.4, down into threes, then back to 4.4, which maybe you could talk a little bit about that. I don't know exactly what that means, but I don't imagine that's probably healthy for most things. But what are you seeing overall as far as it relates to the economy? And let's talk a little bit more about Wisconsin and maybe even Northeast Wisconsin, since that's where you're based on what you're seeing on the economic side of things as the underwriter and the lender here.
Speaker 2:For sure. We'll touch on the tariff part real quick. The best meme I've seen for it is if you ever watch Karate Kid. Tariff's on, tariff's off. Tariff's on tar tear us off right.
Speaker 1:Oh, that's awesome. I haven't seen that one yet.
Speaker 2:It's just back and forth, back and forth, you know. So what the terrorists have done and you kind of talked about it is they've created a lot of uncertainty. So you can kind of see that in all of the Fed surveys. The University of Michigan survey that came out last Friday was the lowest in three years, four years, like depths of the COVID pandemic, like level of lack of confidence was from these tariffs. What does that actually mean? Nobody knows. So that's the best part about economics is like there's a lot of forward looking indicators and right now, to be honest, those look horrible. You know the CEO surveys, just not a lot of confidence.
Speaker 2:United Airlines just came out with their earnings on Friday and they said we have guidance for a recession and we have guidance for normal state, but we don't know which way we're going. Wow, so like even major corporations do not know where we're headed. So that level of uncertainty causes the 10 year to go up. Uh, cause interest rates to go up because the bond market they want to be paid a premium for that uncertainty, they want to be. So the tariff front, who knows? We'll see three, six months from now what actually happened. What did the administration strike a deal on and not strike a deal on, and we can kind of pick up the pieces that are left over from that. Hopefully I'm of the mindset hopefully they cut deals and they figure this out quicker than you know, quicker than they haven't you know, and we can move forward. Because the reality is we all want to operate on a certain level playing field. We want to kind of know what the rules of the game are, and when the rules of the game are shifting, it's tough to operate.
Speaker 1:Yeah, I think, uh to to touch on that a little bit, one thing we've seen over the last year and a half or so is everybody just got used to like here's where the rates are and that's the. That's the game we're playing, and so I can effectively run my numbers now based off of what I think I'm going to be able to get an interest rate at. And I think what you just talked about is, when we have uncertainty, it starts to create people to pull back a little bit and they start going, which usually what I've and you tell me if I'm crazy on this Colton but when I see people pull back, typically I run into it. I'm like, ooh, good, more opportunity for me, sweet, and then I'll acquire a bunch of properties and everybody else sits on the sidelines Cause they're like I don't know what you know, and especially like you talked about your goals, you want to buy and hold more assets.
Speaker 1:We all realize the buy and hold game is how you build true wealth in this, in this world, and like these next three to six to 12 months, if there's a lot of uncertainty and I can pick up some deals because of that, because the people are shedding properties a little bit cheaper and I don't know what my interest rate is going to be. But I don't care, because I'll just refinance that sucker when interest rates go down in two years or three years or four years or whatever it is. Any comment on that? Anything you want to touch on there?
Speaker 2:Yeah, I mean A. You got to buy a property, right the interest you're buying the house, not the interest rate, and that's a good realtor term. And the reality is is interest rates fluctuate. They go up and down, and the great part of the country we live in is you can get 30 year fixed rate debt on that right when you know typical one to four, you know multifamily, and so when the time comes when rates are lower, you can refinance that and make that cash flow, you know, just skyrocket and you know one of the things that we can kind of see is rates are expected to go down. So, even with this uncertainty, if the economy were to go in the worst case scenario and this is a good segue to just kind of real estate pricing if we go into a recession, interest rates come down. It's just the Federal Reserve is not going to let the economy flounder, they're not going to let everyone lose their job. They're going to cut rates faster than you can think, right, think of COVID, think of 2008. The Fed will backstop the economy, right, and so that's kind of the term right now. It's labor overinflation is the terminology that they're using the market for cutting interest rates.
Speaker 2:So we had a little bit of data come out today. It's called the initial unemployment claims. Every Thursday at 7.30 am Central Time, these numbers come out. You know, this month was like 219,000 or this week was 219,000. Not a lot. If you see that number climbing above 250 into 300s each week, then you're like oh, we're, we're, we're going into recession. That was what was happening back in September and August of last year and when that's when you saw interest rates at its lowest point in the last four years Okay, Got it. So labor is going to be the primary driver of where we go with the rates. But if rates go lower, you're going to be able to refi, you're gonna be able to get in, get that property refinanced and capital is gonna be better. So it's, you just gotta go in and bite the bullet, underwrite a little more conservative, have a little more reserves. You know, I don't think anyone's gonna go broke if you have that six to 12 months of reserves.
Speaker 1:Right.
Speaker 2:So just having that cushion and you know what, maybe you're not buying 10 properties, but you could buy eight. Right yeah, just don't sit on the sidelines.
Speaker 1:Exactly, dollar cost to average it. That's all there is to it. Yep, now interest rates if the Fed. Correct me if I'm wrong here, cole, but if the interest rates from the Fed drop, that doesn't necessarily mean that we're going to see a drop on our mortgage rates, correct?
Speaker 2:Yep, so there's two separate categories. So the Federal Reserve they control what we call a picture of a yield curve. So a little thing. So the yield curve the Fed controls the short end of the yield curve. The long end of the yield curve is controlled by the market. You know, the bond market and similar things influence both right, inflation, right. When inflation was running high two, three years ago, like you know, eight, 9% both ends of the yield curve were higher because the market and the Fed was raising rates to compensate for the higher inflation.
Speaker 2:So when the Fed cuts the short end of the yield curve, the federal funds rate is what it's called that lowers the three-month, two-year and that will follow. So what that would affect is your prime rate, so your line of credits. You'll see a quarter percent kind of come on there. You'll see auto loans usually followed lower as well with the Fed. But the 30 year mortgage rate that we're talking about, that's purely tied to the 10 year treasury, and so there's a great chart on it.
Speaker 2:If you just Google what makes up my 10-year treasury or my 30-year mortgage, there's the 10-year treasury and then you have basically what the bank or the lending institution needs to make on that. So that's another 1% to 2%. And then you have the market whoever you're selling these loans off. So most loans if people didn't know this on the 30-year side get sold off to the market. So you go to your local bank credit union, you take out your application, you get that loan on your house. The bank will then turn around and sell that out to a bigger, more liquid player, because the bank doesn't want to service that. They don't make their money there, and so that is influenced by a few different factors, but it's primarily the 10-year treasury. And how is that influenced? We can go down that rabbit hole of. It's basically what we were talking about earlier inflation and the labor market.
Speaker 1:So those are the two major things. If I'm like, hey, what's the? What's going to happen with mortgage rates? Yes, I can look at 10 year treasury. But if I want to go a little bit more granular, I'm going to, I'm going to be following that report every Thursday morning on the labor statistics. And so if the labor, if unemployment rises, then we should start to see some drop in the mortgage rate.
Speaker 2:Yeah, you will see a drop in the 10-year right, and so the reason why I go back to the 10-year, because it's more purely correlated to the data right. So if the 10-year drops, the 30-year will follow it. But sometimes it doesn't follow the 10-year perfectly, and that's because what we were talking about earlier is uncertainty. So when there's a higher level of uncertainty in the market, the difference between the 30-year and the 10-year can kind of fluctuate, right. So the 10-year could go down and your 30-year stays a little bit the same, because we don't know what's going on in the economy. Both will come down, but they just might not come down at the same rate.
Speaker 1:Ah, okay, got it. That makes sense. Oh, might have lost you here for a second. So, cole, we just talked about the 30-year fixed rate. Uh, for more people, like, if you're flipping, that's really important for who's going to buy your house, right? What about, like, for me as the investor on the commercial side? How does any of this stuff affect rates on the commercial side of things?
Speaker 2:yep. So you know, as we talked right, the fed, federal funds, right, it's kind of on that shorter end of the yield curve and you know the Fed funds affects everything in the sense that it's just kind of the baseline interest rate that the government's willing to pay on the money. And for the commercial side, what it really ties to each institution is a little bit different, but it ties heavily to the. They call it the five year FHLB. It's similar to the 10 year. It's just another market bond rate, but this is more based on the five-year and that's because most institutions do a three to five-year arm.
Speaker 2:Yeah, they call it right, and so that's why they kind of base it on a little bit of the shorter end of the curve, sure, and the commercial side what they do is they do a spread. So because most institutions they keep the loan in-house right Capital Credit Union gives you a loan, we keep it right. Community First gives you a loan they keep it right on the commercial side of things. They're not turning around and selling it on the back end like they do with the traditional third-year mortgage product and so because of that they have a spread that they need to make on that to be able to stay in business and roughly that's between 250 basis points and 350 basis points.
Speaker 1:Okay.
Speaker 2:Depending on your relationship, it can fluctuate by a good 1%. So for those who in the audience who don't know what a basis point is, it's basically one, one hundredth of a percent, right, so it's. You know. Point zero zero one is you know one basis point or point zero one. So it's basically 100 basis points equals one percent. So one basis point is point zero one percent.
Speaker 1:So when we refer to that, that makes sense and so is that. Is is the five-year. If I watch the, say, the 10-year treasury and I see that going down right, then I'm like, oh cool, 30-year rates are probably gonna come down at some point. To follow that Is that similar Like is the 10-year, then is that an indicator I could watch and say, oh, the five-year is probably going down too. Or what are the factors you mentioned earlier? The labor over inflation is the thing to be watching, is that?
Speaker 2:similar to the five year or are there different things to be watching for that five year? So it's similar. If the economy is going into a recession the short end of the yield curve as they call it the federal funds rate to the two year treasury it'll start to drop. So the numbers came up today earlier. The two year kind of stayed relatively the same because they weren't good, they weren't bad, didn't really change anything. But if the numbers were bad, you would see a 10 basis point drop, which is pretty significant in the low end and that starts to price in kind of what they think the market thinks the fed will do. Yeah and so yeah, it's really just kind of watching what the labor market does and how that, you know, starts to trend. Uh, the market will front run any recession, so they'll know beforehand.
Speaker 2:Um, like, if you see the bond market, right now there's the 10-year and the 2-year. They call it the 10-2 spread. Right now it's 50 basis points. So right now the 2-year treasury is, let's just say it's 3.5% and the 10-year treasury is at 4%. So there's a 50 basis point spread and that usually indicates when you sit at that level there's some bad stuff going on in the economy or there's a recession kind of coming here. That's usually when stuff tips off. But yeah, for the average investor. If you just look at the weekly unemployment claims and you just kind of see the trend right, not one report is going to change anything. It's the trend of the report. So they call it Jobs Friday. It's the first Friday of the month. Typically the jobs report for the prior month comes out. Okay, and same thing. The federal reserve wants to see a trend of these data points before they make any decisions on what they're going to be doing. Okay, and that's what affects, kind of the market rate.
Speaker 1:So one, one bad month isn't going to do anything. One great month isn't going to do anything. It's going to be what's the pattern that we're seeing, and then their Fed's going to do something based off the pattern or hold it based off the pattern.
Speaker 2:Exactly. And that's the same thing with the commercial loan rates, right, you see the five-year could be fluctuating, right, it's not just flatline, it goes up and down. Your commercial lender is not going to just follow that to the T. That's why you see, most people quote around 7% and that's kind of been that way for the last six to seven months or almost even a year. It's been that seven to seven and a half percent. And the reason why it kind of stays there is just because it's hard to fluctuate with the market. You know it's up and down every day. So you want to have some level of consistency and some investors would have saw that pricing was a little bit better, probably back in last August September.
Speaker 2:Timeframe commercial loans If you were getting a quote, you know it can affect the market, especially when you know institutions are trying to grow. They can be more aggressive when the five years lower, but typically they'll try and keep it steady. So like, if the Fed cuts, which is projected in June is the next 25 basis point cut, you know you'll see overall the market come down a little bit, at least 25 basis points. So you know you said of seven you'll be at six and three quarters.
Speaker 1:Okay, okay, very cool, very cool. Well, that is good to know, man. What about just as we kind of get of get to wrap here, colton? What about overall economics? You know, before we got on here you were showing me a pretty cool site and if you want to talk a little bit about that and then how people could use it to do their own research, as time goes on, so if you're listening to this, say, three months from now, everything we're talking about might be irrelevant other than this point right that we're talking about here of how somebody could maybe do some of their own research and stay up to snuff on different market trends in your market, whether that's Northeast Wisconsin, madison, Wausau, whatever the case is, if you want to just touch on a little bit of what this data is and how somebody could really use it to benefit themselves as a real estate investor, For sure.
Speaker 2:So I'm going to plug. One thing is for the if you want to know where the Federal Reserve is going, or at least what the market thinks, it's called the CME FedWatch group. You type that in, or FedWatch. If you type that into your whatever browser Google you should click the first link and you slide over to your screen. There'll be a thing that says probabilities. You click on that. It'll show you for the next 12 to 18 months of where the market anticipates the federal funds rate will be, and that can give you an anticipation of where interest rates will be six to 12 months from now. It changes every day. It changes when the data releases, but right now the market's predicting basically five to six rate cuts over the next year and a half. Wow, so it's about one to one and a half percent. Wow.
Speaker 2:So, that's the first-.
Speaker 1:What was it called CME?
Speaker 2:CME FedWatch Group FedWatch Group. Type that in, I'll put that in the notes.
Speaker 1:I'll put that in the notes. I'll put that in the show notes. Fed watch group.
Speaker 2:Okay, yep, so great, great plug there. Just say, cause people ask the lenders like, hey, where are interest rates going? Right, you know we work in banking. We don't know. Yeah, you know, you pointed this like this is the most accurate. So that's that one. The one that Corey here is talking about. It's called the Redfin Data Center, and so you go to that. You type in Redfin data center, google, you scroll down, you'll see something that kind of comes up called Redfin Weekly Housing Market Data, and there's a whole list of options that we can touch on here. But then, for those of you are in Green Bay, you go to the region name where it'll say all Redfin metros. You type in Green Bay and you'll get your local metro data. So for us it's Green Bay.
Speaker 1:Yeah, and what I struggled when we were on here prior Colton. So for those of you guys listening, you go to the website, you go down, you have to like kind of look to the right side of your page off the right of the graphs, and then it's like the second little dropdown. You'll see a little dropdown thing. You click on that where it says all metros and then you can type in Green Bay, madison, milwaukee, wherever, wherever you're listening to this, and you can get just really a ton you could nerd out for a long time on this website.
Speaker 2:Yeah, it's really cool. It's got like three to four years of prior data so you can kind of see what are the trends in your market, see what's going on. And I think that's the point that you know you're going to go with here is, if you go to Green Bay and you type in right, we're doing this kind of live right now and you type it in, you go, you can do a four week or 12 week average. I personally like the 12 week average. It kind of smooths out the data a little bit, gives you a more clear picture of the trend. And you just go to new listings. Median price and this is what the real estate investors here are going to love to hear and see is prices up, are up 10% year over year. Right, our median listing price in green Bay right now, per Redfin data as of let's see, as of let's see, as of april 13, it's over 340 000. That's the listing median price. Right, a year ago that price was 313 000 so buy and hold investors.
Speaker 1:Your, your assets went up over the last year, right, right, good for you. For those of you flipping, I would say for me that what that tells me as a flipper is like if I can stay around the median for my list price or under, I'm going to have a lot of buyers that can afford that house, right? Is that what you would say from that as a banker, colton?
Speaker 2:I totally concur and you know this is. You know you've talked to realtors in the area that anything over to that three 2330 marker that median number. It's tough out there. It's longer days on the market, you're going to have a little bit less competition, but anything under that it's flying off the shelf. You're still getting multiple offers and that was one of the conversations we had is just if you can get a lower price property and fix it up, you know there's a buyer pool there for you.
Speaker 1:That's amazing. So I love this stuff. Man, I could nerd on this type of stuff all day, so I'll put that in the show notes as well. Guys, the Red Bin Data Center. So you guys could go nerd on that as well If you're into nerding on things like that. But that's just a good indicator. Like in 12 months, look at how much that's changed the median. So if you're buy box, if you're going to use this to help develop your buy box right Of like, hey, where do I? If I'm flipping properties, where do I want to be? I want to be at the median price or below right For my ARV. Well, now that's going to change. So you want to be checking that on a regular basis. Or you're going to be missing out on deals because you're stuck at 313 and your ARV is like ah, this one's at 325. I don't want to go over Boom Now you just missed out on a great opportunity to get one right in the hot price point there.
Speaker 2:Yeah, and the other point too, right, if you want to go to this and kind of see what's going on in your market, is you can track what's the new listings data, right? There's a lot of doomers out there. They call it doom porn or they're just like oh, the housing market's going to crash. The housing market's going to crash. And you look at the new listings, just in green bed we're on track for 2024 numbers Like we're in the same trend. There's nothing abnormal right now that's going on in the market. There's low inventory, there's a lot of demand still, and so those factors haven't changed. And the other thing too is there's another great chart If you just look up year over year real estate prices.
Speaker 2:Just even in the country, there's been two periods, two periods in the last 40 years where real estate prices have gone down. It was 1995 and then 2008 to 2011. That was the only time where real or like nominal housing prices went down. Every other year, prices have gone up in recession or not recession. And that's kind of that point where we were talking about earlier. If interest rates come down during a recession, guess what that does? That opens up your buyer pool, right. That opens up demand, because most people make their purchase based on the monthly payment that they can afford, and when interest rates go down, guess what? That monthly payment opens up your entire aperture what they can pay for a property. And so yeah.
Speaker 1:It's so interesting. People don't buy on price, they buy on payment.
Speaker 2:Yep.
Speaker 1:So yeah, and right now, if prices are still going up over the last three years, when interest rates have gone to the highest they've been, since what? Since the 80s, maybe, or maybe the 2000s, I think mid-.
Speaker 2:Early 2000s Unaffordability of housing is as bad as it was in the 80s, when interest rates are at 20% Wow.
Speaker 1:So if prices are still going up in this, can you imagine what the price of your asset is going to do when the interest rates drop? It's going to go up. So if you're sitting on the sidelines, this is my take on it. Colton, you tell me if I'm crazy on this.
Speaker 2:If you're sitting on the sidelines waiting for interest rates to go down, what you're basically doing is just waiting to pay a higher price for that same property. That's what history goes to show you, and inventory levels are still historically low. There's another great chart of nationally. If you just look up national inventory levels, we're roughly at 1.3 million right now. If you go pre-COVID, you're roughly at 2 million. You go at peak recession 2008,. Great financial crisis, real estate bubble we're at 4 million. So we're at a quarter of what the great financial crisis was. We're at almost half of what we were pre-COVID. So it just goes to show you the current dynamics aren't there for a big housing crash. And the only areas where you see prices going down are Texas and Florida. And that's because the new build construction there is heavy and so it's a supply and demand thing, and every other metro area in Northeast Wisconsin. We're just not building enough and it's just hard, it's expensive to. You know, builders don't want to lose money right in construction.
Speaker 1:I just read something this morning, actually kind of preparing for this and some of the economic stuff I get every day in my inbox, and they were talking about builder confidence is really really low right now because of the uncertainty they don't know where prices are going to be on the materials and all this other stuff, so they're pulling back on building new stuff again, which is just going to create a bigger housing issue, which, again, depending on what side of the fence you're on, the best time to plant the tree was 20 years ago. Second best time is today, and it's not prices, aren't, in my humble opinion. I'm no Robert Kiyosaki here or some other financial gurus, but in my opinion I don't see housing prices coming down for a long, long time, like you said, twice in the last 40 years. Pretty safe bet. I think I did a solo episode a while back with a chart that shows the losses in real estate and I think six out of the last 76 years I think it's something like that We've either had zero growth or loss. So pretty safe bet.
Speaker 2:And four of those years was from 08 to, basically, 2012. That was again a whole different dynamic. You had ninja loans where people could qualify for anything. The builders were building left and right. We don't have those dynamics.
Speaker 1:Lending's tighter, building's a lot less, yeah absolutely Well, cole, we got to wrap here. Buddy, I know you actually have a real job that you have to go do, so we'll let you get to that man. Before we wrap, though, we always ask a little fun question here, and part of the reason we do this is I have people outside of Wisconsin that are like, hey, I might want to invest in Wisconsin. What is Wisconsin all about? About what's your favorite wisconsin tradition or place to visit here in the great state so favorite tradition?
Speaker 2:I was thinking about this. I love a good supper club. I know a good friday fish fry. You go to the supper club. You go to your a nice salad bar, get the salad, you have your double drinks, you know from that five to seven happy hour, and then you get a good fish fry. Uh, it's a little clam chowder.
Speaker 1:Absolutely, man, that's. That's been a real popular one on the on the show the old Friday. You know supper clubs and what's funny is I just grew up thinking everybody has these and it's really like a Wisconsin up maybe Minnesota thing, but outside of that it's not very popular outside of here.
Speaker 2:So very traditional Midwest Wisconsin. And cheese curds, that's another one. Uh, you gotta plug cheese curds in Wisconsin, culver's great Wisconsin brand. I know they're expanded elsewhere but can't beat either of those. As far as the location, I'll answer that second part. I haven't heard this one much, but I love the North woods, minocqua so pretty Um and the Minocqua Tomahawk area, all the lakes up there. It's gorgeous.
Speaker 1:Yeah, I'm a door County in which that comes up once in a while now. Um, but I love, I still prefer being in the North woods, like if I, if our family was like closer that way, I would move up to the North woods of Wisconsin. There's like nothing like it that I travel all over the place and I still love the north woods of wisconsin, so I'm right there with you, buddy.
Speaker 2:That's probably my favorite spot in the state too yeah, door kind of gets a lot of love, so I want to give the northwood some love. You know, it's a lot less traveled, a little bit more rustic yes, yes, absolutely a lot more lakes.
Speaker 1:I like the inland lake. I love, I love, I love living by the bay, but it's so. The water is so dang cold. It's like by maybe mid July I can actually get in there, and then that lasts all of two weeks. Before August, cold nights kick in and then I'm like dang well, that was fun. It lasted, you know exactly. Well, Colt man, this has been awesome. Dude, this is one of my favorite episodes we've recorded so far. I love talking about all this, this kind of economic stuff. I'd love to have you back on. You know, as the year progresses and you know, things start to shake out a little bit. If you're up for that, man, oh for sure.
Speaker 2:Yeah, I love providing data and value. You know, the end of the day is we can all be our own resource. You know, use the Redford Dance Center, use the other links and just stay aware. But, as Corey always says, take action because at the end of the day, that's what's going to get you where you want to go.
Speaker 1:Absolutely, brother. If anybody wants to connect up with you, Colton, what's the best way for them to get in touch with you, man?
Speaker 2:Yeah, facebook, colton Van Elzen, K-O-L-T-E-N-V-A-N-E-L-Z-E-N. If anyone wants to reach out, I'll give out my number, but number, but you know that's 920-639-5884. But I try and post weekly, bi-weekly, some sort of econ update, some sort of just kind of lesson to learn and see what's going on so you can kind of help understand, you know, and make a sense of what's going on out there.
Speaker 1:Beautiful man. Well, thanks for being on, buddy. This has been great, and if you're out there listening to this and you're like, hey guys, I will. I would love to get in the game, but I just I'm not ready to start looking at deals yet. I just have some questions or whatever. You don't have to sign up for the buyers list for us at Wisconsin discount properties. You can just go to the website and fill out the contact us form that's going to be a little bit different and just try to help you answer some questions, connect you to some great people like Colton or whoever else out there you might need as a resource, and try to help you make that first step into getting into this exciting game that we love here called real estate investing. With that, Colton, we're going to wrap buddy. I appreciate you, man, and appreciate you being on, and thank you guys all for listening.
Speaker 1:If you guys got some value out of this episode, please share this thing. It's not necessarily for us to help grow the audience. We love that. We appreciate that. But I go back to the ripple effect right? You guys sharing this show? If there's value here and you think somebody could benefit from this, there's people out there that are stuck working a nine to five, that they hate every single day, and this one episode could be the thing that triggers them to take action to change their life and their kids' lives, and those kids' lives and the futures of that. So please share the show, be a friend, let's get the word out there and then with that, we'll see you guys on the next episode.
