In this episode of the Moneyball Real Estate Show, Kevin Clayson and Steve Earl discuss the current state of the real estate market, focusing on interest rates, midterm rentals, and DSCR loans. They emphasize the importance of understanding the interest rate environment and its impact on investment opportunities. The hosts introduce midterm rentals as a lucrative option for investors and explain the benefits of DSCR loans, which allow for easier qualification based on property income rather than personal credit. The conversation highlights the need for investors to act quickly in the current market to capitalize on opportunities.
Takeaways:
Sound Bites
"We're buying like crazy right now."
"Move quick, decide quickly."
"This is a killer opportunity."
Chapters
00:00 Introduction and Overview of the Show
02:57 Current Interest Rate Environment
05:51 The Impact of Interest Rates on Real Estate Investment
08:59 Exploring Midterm Rentals
17:46 Understanding DSCR Loans
33:41 Conclusion and Key Takeaways
Kevin Clayson (00:01.413)
Well, welcome to the Moneyball Real Estate Show with Kevin and good buddy. Welcome back to the United States of America.
Steve Earl (00:05.39)
Steve, how's it going, Kev? How's your weekend?
Steve Earl (00:11.212)
Yes, it's great to be home.
Kevin Clayson (00:13.277)
How was the trip? Canada was good? Good.
Steve Earl (00:16.664)
Yeah, it was good. was, it's always enjoyable to go up there, get on the farm, do a little bit of work, be with family and, reconnect with some old friends, that kind of a thing. but it was a great trip, very relaxing, but at the same time, as you know, it was kind of a working trip for me.
Kevin Clayson (00:32.561)
Yeah, yeah, I know you're working. Question, how many moose burgers did you have and are moose burgers a common occurrence in Canada? I'm just curious. I feel like they should be.
Steve Earl (00:42.447)
They probably should be, but they are not. Unfortunately, you would think that they would, but they just aren't.
Kevin Clayson (00:46.277)
Okay, all right. All right, well, maybe there's a business opportunity. Maybe they need the in and out of Mooseburgers in Canada.
Steve Earl (00:55.532)
Yeah, I don't know if I ever told you a story. won't tell it now, but I almost hit a moose on my motorcycle. Thankfully I didn't because I would have been a Steve burger. Those things are huge, huge.
Kevin Clayson (01:04.189)
Yeah
They're huge. Yeah. I think I've maybe shared this. I don't remember if I shared on the podcast. I almost hit a moose in my car and I would have felt much the same. was driving. I was actually speaking for you. You had a youth group and I was coming up to a camp where you were with the youth and I was on my way up. And as I was driving across, you know, wherever I was, this massive horse comes galloping down the hill towards the road. And I'm looking, I'm like, wow, that is a big horse because I'm going, you know,
I don't know, 80 miles an hour, this thing is cruising. I did not realize until I got close that two things, number one, it was a moose. And number two, it was on a collision course for me and I felt like it was divine intervention because it all of a sudden stopped in its tracks and then turn and ran elsewhere. And I'm like, I don't know what I would have done. I was a big bad boy. man. So, okay. Well.
Steve Earl (01:59.446)
Yeah, they're big. They're scary.
Kevin Clayson (02:00.195)
Mooseburgers, it's coming. Well, today we're not going to talk about Mooseburgers, but we are going to talk about real estate because that's what we do on the Moneyball Real Estate Show. And thank you, everybody, for tuning in last week. We feel so good to be back at it and recording regularly. We're going to be coming to you weekly. And the other thing, just a reminder, if you haven't been checking your inbox, we released this podcast with both our newsletter and like a featured property of the week.
and we've got all kinds of cool stuff that we are coming out with every single week. So make sure you're watching your inbox, make sure that you're marking my email address, kevinatdfy-realestate.com. Make sure you're marking that as a safe sender. And then that way we make sure that we get delivered to your inbox and you get all kinds of good real estate stuff every single week, whether you're a client of ours or thinking about becoming a client or just somebody that likes to watch this podcast and make fun of me for being bald, whatever it is, we just want you here. So thanks so much for being here.
It's gonna be with you. So Steve, as we were contemplating a little bit of what we wanted to talk about today, there's really three segments in the show today and three main topics that we wanna address. And all of them are very, very relevant. And if you're watching right now, if you're listening right now and you are not actively investing in real estate, my guess is these are three things that you have not considered or that you've not heard about, or maybe one of them you've considered, but you don't know the actual environment.
and we wanna kinda give you some updates on what we're seeing. And so the three things we're gonna talk about today, we're gonna talk about interest rates. What's the current interest rate environment? What do we need to be aware of? Is there concerns there? What do we think is gonna happen? Are interest rates gonna come down? What impact is that having on deals and on a deal analysis? That's the first thing. The second thing we're gonna talk about is a brand new, well, it's not too brand new now, but it's new from the standpoint, if it's a real estate product we have now opened up to everybody.
both on the front end and existing clients. It's something that we've kept really exclusive in the past, but it is a phenomenal product. We've got over a hundred of these under our belt now, and these are excellent, excellent properties that we're gonna talk about, something we call midterm rentals. And we're gonna finish by, in this episode, talking a little bit about something that you may or may not have heard of, casually or colloquially, we call it a DSCR loan, which stands for a debt service cover ratio loan.
Kevin Clayson (04:26.341)
And these are new loans that are really just kind of coming on the scene and getting popularized and something that makes it really, it's a competitive loan that allows you to not have to put loans on your credit in a traditional way. And it would allow you to surpass the loan limit that sometimes you're allotted if you're doing conventional mortgages. So we're gonna talk about all of those, but we wanna start with interest rates. What is the current interest rate environment?
And what are we seeing? Last week, Dustin, every week he sends out kind of an update and says, hey, here's what rates are looking like. Last week on a 25 % down purchase on a 30 year fixed loan, the type of real estate that we're doing, money ball real estate purchases, the par rate was sitting at around 6.75%, somewhere in that ballpark. Now, Steve, you and I know,
that 6.75 % is not a bad rate, it is not a high rate. It is really, frankly, a pretty dang normal rate. When we started this company, I don't know how many years ago now, Steve, that was a low rate. Then we rolled into COVID and that sounds like a really high rate. And if you look at where we're at now, I think that we are not too far from where I believe interest rates will likely settle for investment properties. I think they might come down some.
But I know there are so many people in the country sidelining, waiting for interest rates to get back down to, you know, 3%, 4%. Steve, I don't know what your take is and the reading and research you do. My opinion is that is not a realistic expectation. And every day that we sit and wait for interest rates to come down to where we hope they're going to get to, we are missing on thousands and thousands of dollars of potential growth in our personal financial lives and in our real estate portfolios.
Steve Earl (06:21.388)
Yeah, there's a pretty huge opportunity cost for sitting on the sidelines and just waiting. But we get it, right? We get, you know, we experienced something that was an anomaly in kind of the history of interest rates where they dropped to just absolute historic, you know, to historic levels, which is pretty awesome. And lots of people took advantage of them and hopefully,
Kevin Clayson (06:41.181)
It was great.
Steve Earl (06:44.662)
If you're listening to this at the very least, you your own personal mortgage, you got a lower rate, you're able to refinance and take advantage of that. You know, I know personally, I think my, my, you my, my loan on my home is like 2. something percent. And so
Kevin Clayson (06:58.897)
Yeah, that's where I'm at. think I'm 285, I think is what I am on mine.
Steve Earl (07:02.7)
Yeah, which has caused all kinds of craziness in the market in and of itself. People are not wanting to give up those low interest rates and so they're not selling, they're not upgrading, they're not downgrading because that interest rate in and of itself is an asset. But sometimes it's kind of blown out of proportion in terms of what it's actually doing for you. In terms of cost savings, it might be a few hundred dollars, which can be significant. It's not necessarily life-changing, but it is significant.
Now, in terms of, you know, where we're at today, where we think things might be going, I mean, you laid it out pretty good as far as where we are at today. From a political standpoint, President Trump is working really hard. He's trying, he's doing the Trump thing to try and, you know, mandate, if you'd like to call it that, or just really push, push hard to try and lower the Fed or have the Fed lowered their rate.
Kevin Clayson (07:49.981)
Thank you.
Steve Earl (08:01.152)
which can affect mortgage interest rates. There are multiple things that affect the long-term fixed, 30-year fixed mortgage rate, and the Fed lowering their rate is one of those factors. And so he's shooting for that. So I mean, we could anticipate. My understanding, Kev, is that at this point, there's been kind of, call it tentatively announced, like that there's gonna be three more rate drops before the end of the year. We don't know what those will be or exactly how.
that will affect things. But what's interesting about that is that as soon as it is kind of sort of, you know, like announced in a way where it's expected, the market instantly starts baking that into the long term fixed 30 year, you know, mortgage rates. And so, you know, before it's even announced, it's already baked in. So you don't necessarily see a drop on the day that it's dropped, that the Fed has dropped. But I'm kind of excited about this, Kev, that
we're anticipating the Fed to lower their rate a few times before the end of the year. And I do think that that will help interest rates drop, hopefully even slightly. Because even just a little bit more, I think that that's going to help investors and people just be a little bit more energized, a little bit more confident in moving forward and getting off the sidelines. And if that's what it takes, then that's great. I think that maybe
this small adjustment that we're hoping to anticipate is going to help, you know, kind of create some freedom and allow people to feel that confidence and comfortable to kind of jump back in and not be missing out on so many opportunities. And it is a little bit of a double-edged sword as we know, because the moment people start jumping back in, that will help stabilize and start pushing home prices up again.
I don't think we're going to see the craziness that we saw during COVID when rates dropped so low and everybody was trying to buy property. But from my perspective, I think it will because of what we've seen with just minor small little blips in the interest rate over the last year, like on the day that the Fed lowered their rate the last time, you know, eight months ago or whatever, whatever that was nine, 10 months ago. And the rate actually didn't drop Kev, but
Steve Earl (10:26.24)
under contract spike by like 16 or 17%.
Kevin Clayson (10:27.089)
Yeah, because everybody thought, yeah, right. So we forget, I think sometimes we forget that so much of the market is dictated by the feelings and emotions of humans. It's a big thing. We just think that it's kind of this massive wheel that just turns on its own, but there are real people making real decisions and making real projections and.
that really does affect people's confidence in this, that or the other. And that has this kind of latent effect. And I think one of the things I find as I'm talking to clients all the time is we always hear about the Fed, you know, lowering interest rates. And somehow we make this correlation that if the Fed lowers interest rates, we don't even know what that means. But I think a lot of people have associated the fact
that if the Fed lowers interest rates, mortgage rates are going to go down. So the Fed must control mortgage rates. That is not the case. And so I wanted to just take a second and kind of share with everybody what is that correlation. So when Donald Trump or the administration or pundits or whatever talk about the Fed lowering interest rates, this is the, know, I have a simple brain, right? I'm not the smartest guy on the block and so not the sharpest tool in the shed. And so this is the simple way that I understand it. So Jerome Powell,
If he feels that inflation is under control, he will lower the interest rate because what the interest rate is, it's the federal funds rate. It's the overnight interest rate, the overnight lending rate that the Fed charges banks. So the banks go and get money so that they can use that for, you know, short term, shorter term loans, credit cards, you know, maybe even HELOCs, you know, car loans, something like that. if.
Jerome Powell says, we think inflation is good. So inflation is good, it's under control, we're gonna lower the interest rates. Now the banks go, cool, we can borrow more money and we can lend it out at a lower interest rate. But they're not necessarily making mortgage loans yet, right? They're just saying, I can borrow money, I'm the bank, I could borrow money from the Fed at a lower interest rate, which means I could charge my customers a little less interest, which means I can attract more people.
Kevin Clayson (12:43.383)
and hopefully I'll be able to do more business. So all we're talking about, interest rates come down by the Fed, there should be an influx of capital into the market because banks are borrowing more, banks are lending more, borrowers, you and me, people, normal humans, are borrowing more and they're spending more because they feel an increased sense of confidence with lower interest rates. And what that does is it injects capital into the market. All of a sudden we've got a little bit more liquidity, everybody's feeling a little bit better about themselves.
And really it's tied to inflation or the perception of inflation. Now, mortgage interest rates are loosely tied to this behavior, but not directly tied. So mortgage interest rates are tied to the 10 year US treasury yield. if the, you know, I'll put it this way. If the yield is indicating that they believe inflation is also under control,
they are gonna change what their treasury yield is, which is gonna have an impact on mortgage interest rates, okay? Because that's really the government lending Americans money or effectively, right? The government saying, buy bonds, buy treasury notes, and you're lending us money, and we're gonna repay that in the future. And the higher the interest rates are in the bond market, the more that we as investors say, I'm gonna buy treasury, I'm gonna buy bonds, because I'm gonna make more money over time.
So we're effectively lending the government more money. And what that's doing is now the government's bringing more money in and now the mortgage backed securities that are tied to the treasury bond yield are going, inflation's under control. The government seems to, they've raised what they're, the bond rates. And so we're gonna lower mortgage interest rates. So the entire thing is designed to either inject capital or
a constrict capital. all of it is largely tied to inflation. And that may have been really confusing the way that I described it, but this is effectively the way I look at it. If the Fed lowers interest rates, that's because they feel that inflation is doing better. The economy is on shore footing. That means there's more money that's going to be in the economy, which means that banks are going to look to make more loans. And if they're going to do that, they're going to want to have
Kevin Clayson (15:06.585)
lower interest rates so that there's more money being injected into the economy. The double-edged sword is as soon as that happens and there's more money flowing into the economy, what happens to inflation again? Inflation can rise. So it's always this delicate balance. That's why I think with my far from brilliant mind that we're not, even if there is some Fed rate drops, I don't think that it's gonna be so drastic that we're ever gonna see mortgage interest rates unless there's something.
major that happens like COVID again. I don't think that we're ever going to see mortgage interest rates go anywhere near where they were. I think that we're close to where they'll probably land. They may come down within a percent of where they are now, but not something that is so major and so drastic that people should be sitting on the sidelines and just waiting for rates to become massively better. Is my analysis, does that make sense or am I crazy?
Steve Earl (16:00.514)
Yeah, I that was I thought you did actually a really masterful job explaining that and keeping it fairly straightforward and pretty simple. Now with all of that, so, you know, just to kind of put a, you know, a cap on that, you know, we probably can anticipate slightly lower rates, you know, sometime in the next probably, you know, six to 12 months. In my estimation,
I think that that's a good thing. I also think that it's not something that should stop you from investing today because the opportunity cost of missing out on lower priced homes and better homes because you're not competing against other investors and other people just wanting to buy those homes far outweighs a slightly lower interest rate that might drop your payment $50, know, maybe $100, you know, match.
Kevin Clayson (16:49.767)
Yeah. We've talked about it before. The opportunity cost of waiting is tens of thousands of dollars while the actual cost of waiting may be hundreds of dollars, right? It's like, I'm saving a hundred bucks a month. I'm getting a little bit more cashflow each month. So you said it before, Steve, a lot of times when it comes to interest rates, we're stepping over nickels to pick up pennies. Is that what you say or something like that, right?
Steve Earl (17:18.712)
Yeah. Something of a dollar to pick up pennies. Yeah. Probably like in my estimation, like the bigger thing is that, you know, higher prices have affected people's inability to buy more so than, than slightly higher interest rates. And, and the fact that rents have not increased or they haven't kept quite kept up with the increase in prices. And so
Kevin Clayson (17:19.133)
That's that are stepping over. stepping over dollars. Yeah, you're out. Yeah, that's
Steve Earl (17:46.574)
that's really driven down ongoing cashflow for new properties. And the nice thing about a slightly lower interest rate is that, know, even an extra $50, $75 a month with a lower interest rate, that may help somebody feel, you know, confident enough that they can move forward because there's a cost to holding real estate, you long-term. And it's nice to have that extra cashflow to cover some of those ongoing expenses. But again, when you really do the analysis, because we've really,
taking a deep dive and it's why we're just buying like crazy right now individually and continuing to promote it is because the dollars that we can pick up while stepping over the pennies, maybe reverse that is definitely the right way to be doing it. Now, having said that, that's all great. So one of the things that we did, Kev, over the last three years, knowing that cash flows were a little bit lower, we wanted to find a solution.
to overcome that barrier, that barrier of wanting to sit on the sidelines and kind of wait so that you could capture the extra $100. We wanted to find a way to increase cash flow in this current market. And so it's interesting that necessity is the mother of all invention. And as an organization, our goal, our need is to want to help our clients.
take advantage of real estate as one of the best investment vehicles out there. And so we wanted to kind of overcome that kind of that, I'll call it the opposition to investing, you know, because of the lower cash flows. So we started doing some research, right? We thought, man, maybe we like short-term rentals where there's, you know, greater cash flow and people can make more money. So we really dove in.
Kevin Clayson (19:36.7)
Yeah.
Steve Earl (19:43.843)
We actually took some trips as well. We met with some individuals and toured some different types of properties across the country. And ultimately we came to the conclusion that for us, for the types of clients that we attract to us and for us individually, short-term rentals were maybe just a little bit too risky. The upside was definitely, there was some definite good upside.
but the downside was equally daunting, kind of the equal and opposite concept. And we've always been very conservative by nature in how we approach real estate and the philosophy that we have. And what's interesting, what was really great is during that research, coming across a different product that we hadn't heard of, I certainly hadn't come across it.
yet in it's this concept of midterm rentals where you take a property, a very similar property, three bed, two bath or three bed or four bed, three bath, but in just middle income neighborhoods, maybe just slightly nicer, maybe just a little bit newer. And we rent these properties to corporations, mainly insurance companies. The idea is that there's always disasters going on, whether it's fires or floods or you know.
windstorms, hail, whatever, and people need a place to live while the construction crews come in and repair the home. And it may take anywhere from two months to six months. And so we're doing like these shorter term contracts. This is we call it midterm. Short term is like nightly, midterm is one to six months, and then long term is 12 to two years on the rental contracts. And so we connected with an amazing property management company.
who was very, very tiny, but very, very well put together. We loved their model and we'd been working with them for three, over three years now. Yeah. Well, and it was, it was, it was one of those things where we're literally getting, you know,
Kevin Clayson (21:47.579)
have been that long. That's so crazy to me.
Steve Earl (21:56.59)
Double the rent, know, two, two and a half times the rent, for these properties. And so we're, we're kind of like, is this really real or is this kind of like, you know, one off where sometimes you get double the rent or whatever. So we started out very, very small, like I did one. and then it was like, wow, this is pretty cool. It seems like it's real. Did that for about six months and then I did another one and then I did another one and then another one.
And then Kevin and I partnered on a few together and decided that like, hmm, this is pretty legit, but we don't have enough data yet. Let's go to some of our clients who have been working with us a long time. They know us, they trust us. We trust them. We'll share all the, you know, the ins and outs of it. The, you know, the risks, that kind of a thing. We jumped in and over the last three years we've done, you know, over a hundred now. And this is the real deal, Kev. It's pretty amazing.
Kevin Clayson (22:53.501)
Yeah, it's the real deal. Yeah.
Steve Earl (22:55.094)
And the company that we're working with, they have scaled with us. They have gone from just being in Oklahoma City. We helped them expand into Tulsa. Then we helped them expand into the Dallas Fort Worth market. And just this year, I think it was in April or May, we opened this up in Indianapolis. And we anticipate expanding this into all of our markets eventually as needed. But it's a fantastic program, a fantastic opportunity.
There's still a little bit of a double-edged sword of this as well because.
Kevin Clayson (23:28.219)
And real quick, before you say that, you said double-edged sword. I wanna say, we talk on this show about real estate singles. For me, MTRs are real estate doubles, okay? They're not super, they're not a lot more risky, but they are a little more risky. They're a little more expensive. There's a little bit more, I don't even wanna say, I don't think uncertainty is the word, and you're gonna go into this, Steve, but there's some aspects to it that you have to consider. It is gonna cost more upfront.
there are some considerations. So we're not trying to hit it out of the park. This is still not a home run. This is the Moneyball real estate show. And on this show we hit singles and now we hit doubles. So I just wanted to kind of throw that in there so that everybody understands where it fits for me inside of the analogy that we love to use on the show and in Dunfue real estate. And with that, I'll turn it back over to you.
Steve Earl (24:18.478)
Yeah, love it. Love that way to frame it. So why is it a little bit more money? One is just it's a slightly nicer, maybe newer home, just a slightly nicer neighborhood, call it. And so it's anywhere from call it 20 to $50,000 more in terms of price point. And sometimes it's equivalent.
Sometimes we do find that needle in a haystack, but we're not searching for needles in a haystack. That's why the slightly higher price point. The next reason why it costs a little bit more is because we're furnishing these properties and decorating them. Like these homes, you guys, like they are so nice. Once they get decorated, it's like, wow, like this is like a parade home in Utah. They do the parade of homes and they're just beautiful decorated. It's kind of like that.
Kevin Clayson (25:06.737)
Right, right. They're gorgeous. Yeah.
Steve Earl (25:10.478)
And so there's some additional costs there. So our average TOP total out of pocket to get into a long-term rental these days is 85,000 to 100,000. For the midterm rental, it's 95,000 to 140,000, maybe even 145,000 on the high side. And there've been a few that have been even higher than that, depending on the market. Dallas-Fort Worth is a little bit, you're gonna be a little bit more than that even.
but having said that, the cashflow is significantly increased. And what's also nice, what I, one of the other things I love about them, Kev, is that because they are short-term rentals, the property manager is in the home every one to six months, typically. And so, you know, things are repaired more quickly. Things don't get out of hand. and they're, they're just up kept.
maybe a little bit, you know, a little bit more frequently. And so they just, they stay like pristine the whole time. There's, there's, you know, people aren't necessarily like living in them because they live just a few, you know, a few miles away. And so they're there for the short term. And so it's a little bit different on the wear and tear as well. So it's, it's, it's, it's different from that standpoint.
So they've worked out very well and we've developed a whole new PA, property analysis for these types of properties and our clients have been loving them, picking them up. They've kind of like hotcakes. That's probably the best way to describe it. And there is some limitation because it's not like long-term rentals. We are super careful not to oversaturate an area and to make sure that.
Kevin Clayson (26:50.354)
Loving it.
Steve Earl (27:05.422)
we're growing very, very responsibly with the company that we utilize. Any additional thoughts on that, Kev?
Kevin Clayson (27:11.761)
Yeah, I mean, just, you know, so these are beautiful homes that end up being furnished, designed and move in ready. And the tenants that are occupying them, Steve mentioned a lot of times we're renting these to insurance companies. Why? Somebody has something happen at a home, a disaster, you know, like there's a home around the corner from me where I live. And I don't know, a few months ago, probably about five, six months ago, there was a gas leak explosion and it caught on fire. We heard a big boom. It's just a tiny house.
They just barely got the house rebuilt, but they haven't even moved in yet. So where has this family been for the last four five months? Well, the insurance company has needed to find a furnished rental for them to occupy. That's the kind of families that are in these midterm rental homes, okay? It may also be corporate placement or something like that. So the idea here is the tenants are not necessarily the ones that are paying the rent, right? That's why we're able to command
a higher rent. It's an entirely different market sector. And the other thing that's kind of cool is you're buying the home, but then all of the furniture and everything that's going into the home, that's yours as well. All of that effectively belongs to you. You're purchasing that. It's more money out of pocket. That furnishing, that design, it takes place after you close on the home, but then that all becomes something that you own. It's a part of what you've invested in. Now, the thing with that,
is if you look at the one big beautiful bill and you look at some of the tax implications of the expense of furnishing these homes, there are some additional tax benefits. You're likely, check with your CPA, we're not an accountant. My understanding is you're likely able to depreciate all of that right up front, right? That's additional tax benefits. So even though it's more money out of pocket, there's additional tax benefits. So it could make a lot of, it could make a lot of sense for you to look at one of these. The other thing that I would say is,
You know, if you look at a property analysis of a midterm rental versus a longterm rental, if you look at a 10 year outlook, even though the cash flow is significantly higher on a midterm rental, you do have to take into consideration that a tenant may be there for, you know, one to six months. And let's say, you know, maybe it's unoccupied for a month or two, and then there's another tenant that comes in for, you know, three to six months.
Kevin Clayson (29:35.644)
when the tenant is occupying the home, you're gonna be getting a higher than market rent. The home may sit totally vacant in between, or it may get more short-term rented out, right? There may be like the management company is really good about balancing like VRBO, Airbnb type rentals of these that are a little bit shorter term. Now you usually don't make as much money on those, but it's all something to take into consideration. You should be looking at the midterm rental on an annual basis, not just a month to month basis.
And the other aspect of that is if you look at a 10 year timeframe and the total return on your dollars, it is not that much different than it is on a long term rental. The difference is you're spending more out of pocket. You are getting more cashflow along the way, but there's additional expenses or investments that you're sinking into the home upfront like the furnishings, like the design. And that's not money that's getting sunk into the equity of the home. And so as such, you know, when you look at eventually selling the home,
You know, you have money sitting outside of the equity of the home and money sitting in the equity of the home. So it is a little bit different. So your long-term total return on investment is similar or maybe slightly higher because the cash flow is so much higher on midterm rentals. But I just wanted to make sure that everybody knows. It's not like it's drastically different. It's not like every time you get a midterm rental, your total return on investment is gonna be, you know, twice as much as it's gonna be on a long-term. That is not the case. Your cash flow...
is probably gonna be two or three times potentially what it is on a long-term rental. But your overall long-term outlook on an investment is still fairly similar. That's why we still consider it Moneyball Real Estate. That's the only thing I wanted to add.
Steve Earl (31:13.548)
Yeah. And that's why I think your analogy of it being a double is super, you know, spot on, you know, the other thing. I guess the big announcement today is that, for the first time, like we have opened this up to all of our clients. This is the first time that we have, I think opened this up and just said to all of our clients or to even like brand new clients coming in for the first time. yeah, prior to this, it was only for existing clients. We, we, we,
Kevin Clayson (31:33.073)
Yeah, come one, come all.
Steve Earl (31:40.75)
We didn't advertise this on our website. We didn't talk about it outside of our clients, mainly because we just wanted to vet it and we wanted to give the first opportunities to our clients. And now we have opened it up. I'm not sure if you've put it on the website yet. It's that new of an offering or of an opportunity. so, if you're...
listening to us and you're not an existing client, haven't heard of this before, you may or may not see it on our website, but give us a call and let us know if you'd like to learn a little bit more.
Kevin Clayson (32:12.487)
Yeah, I don't have it much on the website just because we like to stick with single family rentals as the main calling card. But then as soon as we start to talk to our new clients and introduce what's available to them, we are able to introduce midterm rentals and say, is another option that's available. Now, I will say this too, because I just think it's important to, so I'm working with clients right now that are looking to buy midterm rentals. These are beautiful properties. If you are considering,
a midterm rental, I have one main word of advice for you. And that word of advice is quick, move quick, decide quickly that you wanna do an MTR and decide quickly that you're willing to put one under contract and do whatever it takes. We're shopping with a client of ours right now, two homes that were awesome. The property analysis was fantastic. These were both in Indianapolis. Before we could even fully submit an offer, they went pending, okay? And so now,
That means that there's not a ton of people out there buying real estate, but the ones that are buying are savvy, okay? Now let me tell you why I say that, because if we are competing with savvy investors, there's still product available, but it means that whether on the long-term or the mid-term side, this is not a time for casual investors to casually meander their way into the investment realm. This is a...
You understand that this is a killer opportunity and this is something you are going to want to do and take advantage of quickly. So listen, the newsletter this week that comes out with this podcast, I'm gonna introduce.
midterm rentals in this newsletter. I'm going to show you a property analysis of what one of these looks like. If you are listening, if you read the newsletter, if there is any piece of you that wants to know more about that, you better email me right away. Kevin at dfy-realestate.com. This is still a more limited opportunity than long-term rentals because there's so much more that goes into finding, vetting and qualifying these properties, but they are fantastic. And so I just want to say, if you move, you got to move quick. But I think that means that you're
Kevin Clayson (34:15.399)
taking advantage of a really good opportunity. Now look, we're at about 35 minutes. I wanted to cover one other thing before we wrap this episode because it's another thing that is brand new or that feels relatively new that has made its way onto the market. So we already talked about interest rates and the environment. We already talked about midterm rentals and kind of made the announcement that they're available to everybody. The other thing that I want everybody listening to understand is there is a new loan in town, okay? Now we are still mostly doing 30 year fixed mortgages.
but there is such a loan as something called a debt service cover ratio loan. A lot of times we just say a DSCR. So D as in dog, S as in Sam, C as in cat, R as in real estate. A DSCR loan, okay? I never know what the proper terms are like, know, the Foxtrot, whatever. And so let me tell you what these are.
These are loans that are based not on your individual credit worthiness, but on the property's ability to pay for itself, to pay for the loan. Okay, so most of these DSCR loans are looking for a one-to-one ratio, meaning they wanna see that total rent collected is gonna be equal to or greater than the payment on the DSCR loan. Now, it does mean that you are gonna have to be a guarantor of the loan, okay?
But it's not necessarily going to show up on credit. It's not like a 30 year fixed mortgage. And so this is really cool for a couple people. If you've maxed out your conventional loan limits, right? If you're just trying to scale your portfolio more quickly, like Steve, you've done a ton of real estate. You've got a ton of real estate on your credit. You just recently closed a couple of these DSCR loans. So you could speak with more authority than I can. I've yet to close one. I think we'll probably be doing one here relatively soon.
This is, also, let's say you're a business owner. It's really hard to verify income because you write everything off on taxes, even though if you listen to this podcast, we'll tell ya, be careful. But, maybe that's what you do, and so this could be good for you. so, now with these loans, the rates are pretty competitive with what we're seeing on 30 year fixed loans. But there are some things like a prepayment penalty, right?
Kevin Clayson (36:40.733)
they don't want you to pay off this loan real quickly. Typically, you're not gonna pay off this loan for five to 10 years, that's what we do. But if you were to pay off the loan earlier than that, I think a lot of these have what? See, the ones used to close, were they a two-year prepayment or what were they? Two or three-year prepayment. Meaning, if you try to pay off the loan within two to three years, you'll get hit with some additional amount of money that you're gonna have to bring in when you close on that loan. And so now I will say this too, we didn't mention this with interest rates, but I'll mention it here, because it's applicable.
Steve Earl (36:52.824)
Two or three year, yep.
Kevin Clayson (37:10.407)
for DSCR and interest rates. Even though interest rates may be at like 675, because of the environment that we're seeing right now, more often than not, we are getting deals under contract with seller concessions, meaning the seller is willing to contribute money to your closing costs. That money could be contributed back to the lender to buy down the interest rate, which increases your potential cashflow. So you could do that on DSCR loans.
and on normal mortgages. So even though interest rates are a little bit higher than you may want them to be, there's still ways to bring those down. Those are applicable on both the DSCR side and the conventional side. I said a lot of things. I'm gonna shush it for a minute. Steve, talk a little bit about your experience with DSCR loans. We can wrap the episode and everybody can go back to their day.
Steve Earl (37:54.83)
Yeah, and I won't take too much time. I'll just share my experience. What's been great about these loans is the lesser amount, if that's the right way to say it, of documentation that I have to provide. So they're not asking for my tax returns and my W-2 and all the different things, right? They do look at your credit. They do look at a couple things, your bank statements. They want to verify that you have the funds to close, that kind of a thing. But that's, you
It's kind of it. There's not a lot. It's something that you come in, you still have to go through the pre-qualification process, but the pre-qualification process is significantly quicker and easier and less painful. And that's what I love about it. Because for me and many of our clients, the hardest part about investing in real estate is the lending side of things. It's kind of arduous and it's kind of like, what, you're asking for what again? It's like, and it's a little bit, you can even leave the process feeling
not just annoyed, but kind of like, man, they were really invasive. And the DSCR loan is not that. I mean, like I say, I don't wanna oversimplify it, but it's significantly easier from the borrower standpoint. So I'll leave it at that where it's like, I love these loans. They work fantastic. They have so many of the same qualities as a fixed 30 year mortgage that for an investor, they're fantastic.
Kevin Clayson (39:24.157)
Yep, so there we go guys. We talked about interest rates, we talked about midterm rentals, and we talked about DSCR loans. If you have any questions, reach out to me, kevin at dfy-realestate.com. Happy to jump on a call or a Zoom and answer anything I can for you. Look out for the newsletter, look out for this podcast that we'll announce in the newsletter. Thank you everybody for listening. We appreciate you and we will see ya next week right here on the Moneyball Real Estate Show. See you soon.
Steve Earl (39:51.832)
Thanks for listening. Thanks, Kev.
Kevin Clayson (39:54.94)
But let me see.