Working Capital The Real Estate Podcast

Building Wealth Using Debt with Matt Gouge | EP62

Jul 14, 2021

In This Episode

Matt Gouge has spent 5 years in direct lending before making a switch to Independent Mortgage Broker in 2018. As an Independent Mortgage broker he takes private advising to the wide variety of clients with diverse needs.

  • Matt`s background
  • Entering the Mortgage business
  • Matt’s first investment
  • Business Overview during the 08-09 recession
  • How to grow a real estate business
  • Interest rates and inflation
  • Where Matt is looking for deals
  • Building a team Real estate marketing
  • Investment outlook
  • Mentorship, Resources and Lessons Learned

Useful links:


Jesse (0s): Welcome to the working capital real estate podcast. My name is Jesse Fragale. And on this show, we discuss all things real estate with investors and experts in a variety of industries that impact real estate. Whether you’re looking at your first investment or raising your first fund, join me and let’s build that portfolio one square foot at a time. Ladies and gentlemen, welcome to working capital the real estate podcast. My name is Jesper galley and my special guest today is Matt. Matt has spent five years in direct lending before making the switch to independent mortgage broker in 2018 as an independent mortgage broker. 

He takes pride in advising a wide variety of clients with diverse needs as to which lender and loan product is right for them. So today we’re going to be talking about all things, investing, all things, mortgages, Matt, how’s it going? Oh, it’s going great. How are you doing Jesse? I’m doing great, man. The sun is out. It’s a beautiful day down here. How’s it up in Sacramento, same, same thing. 

Matt (56s): And I get this when I record something on YouTube or court’s on anywhere. They’re like you’re in California where it’s hot and you’re wearing a jacket inside my office freezing cold. So it’s, it’s 66 in my office, but outside it’s, it’s probably mid eighties. That’ll get to see out that often with as busy as mortgage has been these last few years, but I assure you it’s, it’s sunny in California still. 

Jesse (1m 16s): Yeah, well, it’s a pretty topical to be talking mortgages right now. I think over the last few podcasts and just in general, you know, everything has been spotlight on where interest rates are at inflation, you know, the impact of this stimulus. And I’m sure you’re seeing a ton of volume right now just given the fact that there’s so much capital out there, 

Matt (1m 35s): Right? Yeah. There’s so much capital and there’s so much demand for real estate. That’s what people don’t realize is like sure. We have a supply problem where, you know, the supply demand imbalance causes this run-up in real estate. You know, you’ve got viewers that are in Canada, they’re seeing similar stuff, but in the United States, we’ve got price appreciation of 15, 17% sure that, that we need more supply and not enough was built in last 10 years, but nobody’s really talking about the fact that like we’re on pace to have 7 million sales in 2021, which is like a 20% uptick from previous years when the average year sees about five and a half million sales. 

So plenty of demand, I’m surely not lacking in, in business or incoming, you know, loan applications. 

Jesse (2m 15s): Yeah, absolutely. Well, I can’t remember which guests we had on and put said, there’s always that conundrum or that thing in real estate when there’s a lot of capital out there, it’s just seems, seems like deals are harder and harder to find. And when there isn’t, it seems like there’s a value deal everywhere. So I think we’re definitely in the former right now, trying to find good deals is becoming harder and harder to do. But, you know, from your vantage point, maybe we could take a step back and, you know, how did you get into real estate, the mortgage business? Give us a little bit of a, of the background. 


Matt (2m 42s): Sure. I mean, a quick snapshot of, of where, where I’ve been and what I’ve done is is I graduated college in 2005 with international business and finance degree. And so I’ve had a finance background, always been a numbers nerd. Since I was a kid, I used to, you know, tally the groceries as they came into the cart. And if I got it wrong, adding tax, I would cry. And that’s the famous story my mom told. So since, since I’ve been a kid, I’ve been a numbers, nerd got a finance degree, actually went and ran a small business from graduating till about 2013 and then a small stint in 2013, working for the state of California, doing more finance stuff. 


But it just wasn’t my cup of tea had friends and mortgage that said, Matt, you know, you’ve got the numbers, you’ve got the work ethic, you’ve got the, the networking and all the stuff that would make a good mortgage professional. You should come do mortgage. And I did. And the rest is history. And, and so into, you know, my foray into mortgage, like other professions you get to see inside of what other people are doing. You know, you get to see inside finances and you sort of learn a little bit about finance. You get to see inside, wow, this guy has got 14 rental properties. That seems kind of cool. 


This guy’s live in a pretty cool life. And so that I think is what turned me on to, it was just seeing through my mortgage business, what, what investors were doing. And so like so many people, I’m sure you, you, you click onto a bigger pockets podcast, you read a book or two, and you’re just like, wow, this is really, really cool. The, the crazy part is, is when I’m talking to investors now in 2021, I’m trying to get them to avoid what I did is literally like, listen, talk about, get excited about everything, but take action. Right? And it’s because it was like 2017 before I actually started buying property. 


And, and so when I did start buying property and I, and I, and I put together a couple of deals, bought a few fourplexes, a few single families, then it was not just like an idea like, oh, you could get cashflow and you can look at your net worth statement and see the principal pay down and see how things appreciate over time and all the benefits of real estate that, you know, on paper, on a book, in a book, on a podcast, sound great. Then you experienced it in real life for yourself. That I feel like I talk about it different. 


Now, when I talk to clients about the power of real estate and all the benefits of real estate, I can use myself as, as a case study or the hundreds of people that I’ve now worked with that have built wealth one way or another through, through real estate and real estate investing 


Jesse (5m 13s): Right on. That’s pretty cool. And you know, it’s not as a similar story we hear from, and I’m sure you’ve heard from accountants lawyers where they’re like they see a portfolio or a client list where they’re like, there’s a lot of these wealthy people owning real estate or investing in real estate. So Matt, what was the, you mentioned fourplex, single family. What was the first investment that in 2017 that you made? Well, the first 


Matt (5m 33s): One was actually an out-of-state rental and I I’ve got a video on my YouTube. My YouTube is just Matt, the mortgage guy where 


Jesse (5m 41s): Checking that out. I’ve got a lot of traffic up there. Thanks. 


Matt (5m 45s): Yeah, it’s, it’s, it’s been picking up some steam and it’s been over the years, just, I get commonly asked questions and I, I basically make videos answering questions. And, and if, if five or six clients asked me the same question a month, my guess is that, you know, nationwide or worldwide, other people have those same questions. And so I made a video, please try to avoid my mistakes when investing at a state. And so like other stories I’ve heard my first investing experience, wasn’t that good. I bought something out of state because in my mind, and being a numbers guy, I thought to myself, you know, this low price point, this, you know, rent per month, this thing’s going to be 22% return, 23% return. 


What could go wrong? Well, when you’re buying stuff, that’s in a war zone, you’re going to have bad tenants. You’re going to have repairs. You’re going to have all the nasty stuff, which I’ve, I’ve learned. I don’t want to deal with not saying that out-of-state real estate real estate doesn’t work. Cause I know tons of people that have done it successfully. They’ve just done it differently than me. If they’ve done their due diligence, which was mistake. Number one on my part, they’ve got boots on the ground and professionals that they like and trust in the area they’re investing in. 


A lot of times they’re doing it at scale. So it’s not just one property. They’ve got eight or 10. And so that was 2017. And then my, my other single family rental from 2017 was another common story. I see. And really how I kind of advise my clients to get into real estate investing. I moved out of my primary and bought a new one and kept my old one. And so my old primary became an investment property, not a home run, but it’s cool to be able to show people, not just, you know, random figures and say, you know, here’s how real estate investing works, but here’s me. 


I moved out of this thing. If you thought about it, it’s going to rent for 2200. Here’s the mortgage. It doesn’t sound that attractive. But if I show him a 10 year, 15, 20 year horizon and they’re working for the state, they’re grinding away for, what’s going to be, you know, their retirement 30 years from now, I show them like, look at how cool this is. I’m going to get paid a couple hundred dollars a month on this investment. That’s an increase in value. You know, even if we only see 3% appreciation on average, which is really conservative for California, you know, this, thing’s going to add a half, a million, three quarters of a million to my net worth and then be cashflow positive $2,000 a month. 


Once it’s paid off. And I’m just doing tax and insurance, like that’s cool stuff to show somebody who doesn’t know anything about real estate. And it’s an easy way to say, could you save up 5% to buy a new primary and have this old one, be your first investment property and then get that, you know, where different parts of the country are different than if I talked about, you know, a half, a million or 700. 


Speaker 2 (8m 31s): Yeah. That was in and in equity. People are just like, not here in, in Ohio where I’m at, but 


Matt (8m 38s): You know, it’s, it’s, it’s going to be different, different places, but that stuff, it’s not rocket science. I don’t feel like it’s something that’s, you know, a super complicated formula other people can follow. And that was my first one. Yeah. And for a lot of people, if you did nothing else, but that, and then maybe buy another or two every Wednesday, I’m on a one rental at a time, a buddy of mine who, who his book that he wrote. And his whole thing is like, try to get to four rentals and four rentals will change your life. 


And so a lot of people I talked to that’s, that’s at least a start, right? Not everybody wants to own 150 units. Not everybody wants to build this humongous empire, but you know, if you, if you have a few rental properties, imagine the folks that just grind their life away for 40 years and then get 36, 24 a month for the rest of their life. You know? 


Jesse (9m 33s): Yeah. I think ultimately, you know, even at one or two rental properties, like you said, not everybody wants to own hundreds or thousands of units passive, you know, you’re in this game long enough, passive income is not so passive there. There’s still, you know, you, you make a decision at a certain point, are you going to start a real estate business? Or are you going to try to make it as hands-off as possible? But one or two properties for a lot of people would rival their 401ks, their retirement savings plans, whatever they have there. Because like you said, you’re, you know, you have that appreciation and then you can get into the forced depreciation, depending if you’re going commercial, residential. 


And on that note, so you got oh five to 2017 and 20 2005 is when you graduated. Did you get into the business? Were you in, were you in the business during 8 0 9 and not like during the recession and deal with, with hap what was happening during that time? Well, I had bought 


Matt (10m 24s): My primary in oh six and the small business I was running was a poker room. And so I got to do a ton of great networking right through the poker room. And I had plenty of buddies who, you know, like me were in their mid twenties, starting off, everybody’s doing something different. I had plenty of clients, plenty of friends, plenty of family that were all into mortgage and just having a finance background, you know, it interests me. And so I had talked to them. I wasn’t actively involved with writing mortgage or anything like that, but I definitely saw a lot of it. 


A funny story that I don’t tell that often is when I came back, I went and studied abroad in Mexico in oh three and oh four. When I came back, I interviewed at a mortgage company and this was, you know, subprime and AmeriQuest and just injuries. Yeah. Crazy stuff going on. And this company, I went there and I’m like super excited. I’m 24 years old. I’m about to graduate from college. I feel like I’ve got a good handle on business and, and marketing. And, you know, I’ve always had good work ethic. 


They asked me if I would be willing to like forge documents or they asked me if I’d be like, would I be willing to do, to, to make a deal close? And basically none of it, I said, you know, I’m bilingual. And I live in California, I work hard and I’ve got some, some business sense. I think that without cheating, I would do fine. And they basically told me I wasn’t for them. Right. So no surprise a company like that went out of business, but looking, I think it’s cool because I never was involved in writing any of these mortgages that people, you know, look back on and talk about like how terrible of a product, some of these, you know, two 20 eights and interest only arms and whatnot were. 


And, and so, you know, having not wrote a alone until 2013, I’ve only wrote the vast majority 30 year fixed no prepayment penalties and, and really clean loans. Like we’ve seen since all of a sudden destruction 


Jesse (12m 26s): Since the recession. Yeah. So I mean, crazy time, obviously, you know, they’ve made movies about it. They’ve people have gone gotten sued, gone to jail now after this time. So why don’t we go on to that 30 year fixed, but Canadians will be like, w what the hell is this? This is not a product we have five years is our max for residential in terms of actually fixing rates. But why don’t we talk about, we break it up into residential and commercial. So you’re looking for single family property. 


Why don’t we start with that? People that are listening and maybe they have one, a rental property, maybe they’re buying their first rental property. It, it is on the single-family side. What do they do once they, you know, they spot a pro property that they like and they’re underwriting it. Sure. 


Matt (13m 15s): I mean, for most people to, like you said, if, if they’re buying their first rental property, they’ll reach out to me and say, how do I qualify for rental property? Is it different? It’s fairly similar to how you qualify for your primary residence. It’s going to be a debt to income ratio thing. So it’s, so it’s all math on the income side, you vet your income and then debt side, you’ve got your current mortgage, you’ve got the new mortgage, you’ve got whatever car payments, student loans on that. And you just have to have the debt to income ratio work where your income versus all the debts, you know, 45% is probably a good, you know, rough figure. 


Some programs go a little higher. Some might even be a little bit stricter depending on your credit score. You may or may not get approved higher or lower, but, but that’s the basics of it is that, you know, you’re going to have to have verifiable income, unfortunately, through COVID folks that are self-employed are having a little bit harder time. A lot of them that I’ve seen, you know, business declined in 2020. And that’s, that’s something that I would love to have a better mortgage products available for self-employed borrowers. 


Unfortunately in the, you know, Fannie Freddie, conventional world, there’s just not, and it’s, and it’s something that lenders look at as, you know, variable or uncertain. And so you really have to have a track record as, as a, as a self-employed borrower, because the lenders don’t know any other way to look at, like, what, what do I think your future income is going to be? Well, what you made in 19 and 20, and then your year to date P and L and 21. That’s the only thing we go off we’ll those 30 months and divide them by 30. And that’s what we think you’re going to make in the future. 




Jesse (14m 56s): I think, you know, to that point, and like you said, it’s, if you’re in a different area, different banks, you know, we call it the, the total debt service or the, the, you know, the gross debt service, your TDS and GDS racials. But like you said, 45%. I know in my area, 35%, we’re pretty conservative up here is, is fairly standard. May be pushed to 40. But yeah, I think on the self-employed side, it’s so funny, you mentioned that because I was just talking to a colleague in the industry, it does commercial mortgages. And he was saying that basically, they’re almost creating a product or adjusting, basically making an adjustment for 2020 income. 


You know, especially if you’re self-employed for a long enough time, they see, you know, a steady increase or, or, you know, stasis, and then 2020, you know, came back and then 2020 started picking up again. So it’s like, well, if we lose, if we use your last two, it’s not really a good picture of what, of what you’re, you’re really making out there. Exactly. 


Matt (15m 50s): Yeah. And I’ve been telling self-employed borrowers that like stay tuned because mortgage guidelines change. Unfortunately they don’t change fast enough sometimes for you, but in, you know, in an ideal world, it would be, make sense where, like you said, I could look back at the track record, you had a blip and you were out of work for three months, maybe your state shut down or whatever it was. And now you’re back, you know, full bore. But you know, the guidelines that are in place right now are, are to be completely honest, fairly restrictive for self-employed borrowers. You can just got to have a business that has weather the storm and can show that on paper. 


Right. Because that’s, that’s another part about being self-employed is that you could have a business that has a $2 million top line. If your bottom line is 24 grand, you’re not going to be able to buy a half a million dollar house. Yeah, 


Jesse (16m 39s): Absolutely. So, okay. On the residential side, what are you seeing in terms of, you know, the average client, you have percentage payment that they’re able to achieve and what, at what point can you not stay within the residential, you know, mortgage product and you have to go into commercial, I assume that’d be a unit count. Right? 


Matt (16m 60s): Exactly. And so that’s, my, my lane is one to four unit residential stuff. Once you get to five units and above it’s going to be commercial. And so literally all the business I write is going to be a single family, a duplex or triplex or a fourplex. And, you know, even if it looks really similar to a fourplex down the street, if you’ve got a five unit building, I just can’t finance it. And, and so you gotta look for commercial financing and, and the main difference, you’ve probably talked about this in the past, being in commercial is that, you know, when you’re looking at a commercial asset, they’re looking at the building and they’re looking at it’s producing this much income. 


If you’re buying a four unit property, if it rents for a zillion dollars and your mortgage payment is 3000 a month, that isn’t necessarily what the lender is looking at. They’re looking at your ability to repay. And so somebody who’s got $200,000 a year in W2, income is going to qualify no matter what, you know, the building could be a net loser. And so that’s, that’s something important to think about for people that are looking for residential properties. And another reason when I’m coaching investors or I’m talking to investors about qualifying for mortgages, and the fact that you can only do 10 conventional loans, is that if you’ve got a great W2 income and your plan is to, you know, leave that job, but build a rental portfolio, as long as you want to get this cream of the crop financing, where you’re getting, you know, 3% on single family and sub 4% on the multi-family on a 30 year fixed rate term, keep that W2 jobs, you can qualify for those because once you quit that job, it’s, it’s highly unlikely that you’re going to have enough net rental income on your tax return to qualify for those same sweet, sweet, conventional Fannie Freddie loans. 


Jesse (18m 49s): I’m curious the, the 10 property limit. I, you know, I’ve heard that thrown around a bunch of times. Do you know what the actual, first of all, what the logic of that is, or the history is, is it just something that has always been done? 


Matt (19m 3s): You know what, that’s, that’s an awesome question, dude. Like, I’ve never, I’ve never thought about the history or the logic behind that. Besides like, I know that some lenders have implemented stuff in the past where they don’t let you know, some, some lenders aren’t huge. And so they’re smaller. And they’ll say, I don’t want more than four loans from one individual, even though they could do, you know, that person’s ninth and 10th, if they already had eight finance properties. And so maybe it’s something where, you know, a smaller lender or even a bigger lender, doesn’t want to have 77 finance properties from one person. 


If that person goes belly up, you know, it’s, it’s spread the risk for that one. That, that would be my only thought because, you know, if somebody qualifies. Yeah. And I guess in general, it’s probably a higher risk if somebody has 47 finance properties. And so that, that, that could be the only thing is that yeah, that ship crashes, then, then it’s, you know, $14 million worth of mortgages. Versus if they’ve only got a handful, then it’s, it’s less risk to the lender, but that’s, that’s a good one, dude. 


I’m going to even take a note and see if I can find some history of like, when that started. And 


Jesse (20m 15s): Yeah, I’ve always been curious because I’ve heard that before. And then usually I guess it, perhaps one of the reasons it doesn’t get answers by the time you get to approaching 10, a lot of people are switching to commercial product. So it’s almost like, you know, unless single family is literally your bread and butter. So in your lane, one to four units, are your clients, are you able to still have them put the properties into a corporation or LLC, or do being a residential mortgage? 


I assume there’s, it still comes with a personal that, you know, you’re, you’re personally still on the hook for the right, 


Matt (20m 51s): Right. Yeah. Yeah. And that’s the thing too, is a lot of people want to, you know, not like be personally liable for the debt and lenders just aren’t going to lend to you. And, you know, you can, you can slap it into an LLC for liability protection and for a slip and fall at your property. But as far as like closing alone, most all traditional lenders are going to make you close in your personal name. You’re personally liable. You know, they’re pulling your credit, they’re qualifying you as a person. And then I see investor slap at Nelsey just, just for the liability protection. 


There are some like non QM lenders, which has a broker. You know, we broke her out, plenty of that, where we’re doing non-traditional type loans, debt, service, coverage, ratio, loans, bank statement, loans, and those lenders can work outside of, you know, the, the regulations that are put on conventional loans where sometimes they’ll allow you to, to actually fund the loan in, in an LLC. But it’s really not that common. And I get the question quite a bit and I haven’t dove in deep enough to find lenders that, that do that, do that very often. 


Jesse (21m 59s): Yeah. I think on the commercial side, even, even on our side at the beginning, when you’re getting into it, you’re, you’re personally indemnifying until you really build up, you know, actual assets within, within the company in terms of where we’re at today. I mean, like we talked about a little bit the last year and a half has been kind of crazy. There’s a lot of volume in terms of mortgages, what you’re seeing. If we focus kind of macro economically interest rates, how are you advising clients? How is that impacting if at all, the way you’re doing business in, in 2021, 


Matt (22m 33s): As far as far as like where interest rates are headed or what I think about the housing market 


Jesse (22m 37s): Or, well, number one we’re interest rates are headed in. And do you have a strong view about that? I know, like you can have people on completely opposite sides of this, of this conversation that are both really intelligent and informed that have very different views of where they think interest rates are going. But yeah, I would just like to get your perspective on that and obviously, you know, that has a material impact impact on the, on the products that you offer, right? 


Matt (23m 2s): Yeah. I mean, I think like when people ask me, cause that’s a million dollar question for a mortgage broker, like what’s your rate is the question number one, and what are rates doing? Where are they headed as question number two? And I mean, we’ve seen some volatility last week was, was the, the, the fed meeting where, where the fed talked about, you know, the, the future thought of, of moving the fed funds rate. And so people don’t know, like in the U S the fed fund rate, it doesn’t necessarily track the 30 year mortgages in the short term, but over the longterm, it certainly does. 


And so just them talking about talking about the future of moving the fed funds rate saw a tick up in 30 year rates, probably like a quarter percent in, like, I think it, what was last Wednesday was the 16th, 16th, 17th, 18th were all red days for mortgage mortgage bonds. So it was like a quarter worse on those three days. And so I think that anybody who follows mortgage and mortgage rates knows that the fed who’s buying over a hundred billion dollars a month in mortgage backed securities. 


They’re like keeping mortgage rates low in the U S once they start taking their foot off of that gas, or, you know, rates have nowhere to go, but up, I don’t think that they’re going to increase fast. So I wouldn’t tell anybody like, you know, get it now hot. You’ve got to, you know, refinance today are going to miss out. But Morgan now that are really close to 3% on a 30 year fixed for the most well-qualified clients, if those are three and a half or 3.75, by the end of the year, I wouldn’t be surprised if they’re still at the same levels they’re at today. 


I would be surprised cause cause they they’re going to gradually increase is kind of my thought. And like, if, if you look across like national association of realtors, mortgage, professional association, anybody who’s got surveys on where they see mortgage rates by the end of 2021, it’s higher. It’s not a ton higher, but it’s a little bit higher. And so what I’m seeing a ton of on this subject is people that have a bunch of equity because we’ve seen, you know, 30 plus percent appreciation over the last 24 months for a lot of people in a lot of places in the U S is people are grabbing that equity and they want that long-term 30 year fixed money. 


A lot of people think that, you know, inflation isn’t necessarily transitory and some of it is here to stay. So they want to hedge against inflation. They want to pull some of that equity out of their home. And the crazy part for me as an investor and dealing with so many investors is there’s all this money and nowhere to put it, like, there’s just, they’re, they’re looking for you, especially I think in, in residential real estate, because I’m not going to pretend like it’s easy to find cash flowing deals or great deals out there. 


You know, I’m looking, I’m submitting offers, I’ve got dozens of clients that are submitting offers and you know, even the ones that are playing the long-term don’t need humongous returns are, you know, they’re searching for six and 8% before they wouldn’t even look, they wouldn’t even think about that deal. And they can’t even find that in some of the markets they’re looking in. And so that’ll be the interesting thing going forward is where are people going to find a place to park all this money? Because I know with absolute certainty, there’s just so much capital looking for a place to park it, you know, in my little micro world of me and my mortgage clients, I’ve got people in the bay area that had paid off homes that just said, I’m going to pull out the 820 2003 75, park it on the sidelines. 


I mean, clients that have seven 50 already sit in the bank, they’re just doubling up because if something happens, if, if there’s a deal to be had, I want to be ready. 


Jesse (26m 45s): Yeah. Yeah. I think it’s a, I think that’s everywhere. I think people are any appreciation that they’ve built up, you know, and the products where you have, you know, different banks call them different things where you have a line of credit attached to the mortgage and you can actually utilize that when you see an opportunity, speaking of your markets. So you’re in California, you’re an investor. Number one. How do you do that? And where are you looking right now for deals 


Matt (27m 12s): I’m looking, you know, with, with, with the experience I had at a state I’ve, you know, it’s, it’s good to be self-aware and you know, your strengths and weaknesses, the people that I see do it out of state have, you know, a tie to the city that they’re investing in either. It’s, you know, I’ve got family that lives there. I’ve got a real estate buddy who lives there and he helps me find the real estate. He knows the great property managers. He knows the great construction folks. I think my weakness for investing out of state is I just don’t have the boots on the ground that I would want to have to make it a successful operation. 


And so my general investing, I guess, philosophy is I want to be able to drive to it. And there’s some markets that are three hours away, three and a half hours away in California. Some people think that I’m crazy because it’s so tenant friendly in California, but there’s, there’s something about being able to drive, you know, meet a contractor, meet the property manager, look at the building, talk about the building. And so the neighborhoods that I’m looking at, I, I created a video that could send out to real estate agents who are working in the markets where I’m looking and, you know, I don’t want stuff in eight neighborhoods because it’s just, it’s expensive. 


It’s just too expensive. And so, you know, the, the B minus C plus, if I could duplicate what I did in 2019 with the two fourplexes that we bought, I would do it 10 times over because those are, you know, appreciating their cash flowing. And I think when I looked at it last, it was like 16 or 18% cash on cash return after all expenses. And now after 24 months, I feel like I even have like a worst case scenario because obviously there was some tenants that were struggling and in these type of markets, these type of units I have that are mostly one ones, some, two ones and some three twos between those eight units in those two fourplexes, I would imagine expenses and vacancies would only improve in the future and not get worse. 


But even with all that stuff considered, you know, a 14, 15% cash on cash return, now it’s more expensive. And so I’ve adjusted accordingly and, and I’ve looked in other markets like Fresno, California, which is more central. And, you know, similarly it’s, it’s, it’s a C plus B minus and you know, the homes are 50 years old, but I just, as, as a person, who’s going to be continually bullish on real estate. People are always going to need a place to live. 


And as crazy as people think that I’m home, like price appreciation for purchase has gone crazy. You should see some of the numbers for rentals around rental increase is, is gone crazy as well. And, you know, I don’t think I’m ever going to have a thousand units. So if I have, you know, 50 spread across a couple of different California markets with really good property managers in place, I’m not worried about the tenant laws so much because in my experience at least, and it’s maybe it’s only been three to five years. 


I haven’t experienced the worst of the worst. You deal with tenants like they’re human beings and you work with them and you’re kind, I, I just, anything can be worked out. You know, I had some terrible tenants where we just had to say, I don’t want an eviction to go on your record to where, you know, it’s gonna affect you for the next seven years. If you can be out by next Friday, we’ll forgive all the back rent and you won’t have an eviction and then they’re out. And then we clean it up and we move on. And, and that type of stuff I think is just to be expected. 


And you just write it into when you’re thinking about how something’s going to perform. So I guess long-winded way of saying, I’m just looking for cash flowing stuff that, you know, appreciation would be kind of gravy, but thinking about 10, 15, 20 years from now, let’s call it 50 units that are paid off. And when they’re paid off, they’re $500 per door or something like that, then 


Jesse (31m 25s): What kind of mortgage broker says that 


Matt (31m 28s): I know, well, that’s the thing too is, is, is, you know, I’m human like everybody else. And I feel like when I talk to somebody, I try dig into like, what’s where are you at in life? What are you trying to do? Certainly right now, I’m not trying to pay anything off. Yeah. And it’s funny because I made a video talking about like fast ways to pay off your mortgage. And people are just like, okay, you’re an idiot. It’s a 3% mortgage. Why would you ever do that? I’m like, listen, I’ve literally like stopped any additional principal payments on all the stuff I own because I, I see what you see Mr. 




Speaker 2 (32m 3s): Yeah. 


Matt (32m 4s): Not trying to like throw that money at, at this long-term 3% debt, but, but things change. Right. And I think if I talk to a client who’s 57 and you know, they’ve worked their behind off, and they’re like, I’d love to have this stuff paid off at 62. It feels different for me and, and whatnot. Then I’m not going to tell them, don’t do that because you know, the money versus, or the rate versus inflation, it’s getting that money for free. Don’t do that, sir. Like, you know, every everybody’s different, so I’m not, I’m not tied to one belief. And I, and I honestly try to keep an open mind to not just like how I view things, but people in different stages of their life can view things. 


Jesse (32m 42s): Yeah. I think it goes back to what you said before, even before the show, when you’re talking about not everybody wants to have a, a thousand units and in the same breath, not everybody, you know, wants to maximize and be, you know, most efficient with every single dollar. They have, they, some people just rather the peace of mind that that’s paid off, I feel better. You know, even, even if I know I can get a better technically return on equity or, you know, whatever it is. So in terms of, in terms of the actual market that you’re looking at, these micro markets, you know, three hour drive, four hour drive, are you, do you have a team that, where you’re going to look for these properties, because if it’s anything like our market, you know, if you go on the MLS, you can pretty much forget it. 


You’re in there with 10 other people bidding on stuff. Are you seeing the same thing? And if so, how are you finding the deals? And what’s, what’s the marketing like? 


Matt (33m 32s): Yeah. I mean, I don’t have a huge marketing budget or team, right? Because truth be told I’m 95% focused on the mortgage business, serving clients and in a stage where my business is growing, you know, bonkers, but for the areas where I am looking, I tried to duplicate what I did in Sacramento and surrounding where it’s just all network. And as a mortgage broker, I probably know 500 real estate agents. 


And of those 500 real estate agents, 20 are active investors. Try to let them know I’m looking for stuff as well. I, I know through conversation with them, stuff that they’re looking for, some of them are doing just flips. They don’t care about a buy and hold. Something might come across, you know, them, that makes sense to me. And they would never even think about buying it. So getting clear with them about, Hey, here’s what I’m looking for. If you find it, let me know. I probably have between two or three different markets and 40 to 50 different agents, eight or 10 deals coming across every week. 


You know? And if I was trying to build those, trying to get huge, I could probably find a way to 10 X that and get a hundred deals to look at every single week. But I 


Jesse (34m 44s): It’s just not your full-time job. Right. 


Matt (34m 46s): Right. Yeah. And so, so focused on the business and growing that, and then with those deals that I’m seeing, you know, writing one or two offers, but other investors I’ve talked to have had similar story as me where I’ve probably wrote a couple dozen offers with zero getting accepted. It’s like, sure. I’m in the market to buy it. If a deal comes across my desk, I’m, I’m willing, able, and ready and I’ve fired. I just haven’t hit anything yet. 


Jesse (35m 15s): Yeah. And so it’s almost sorry. Sorry to interrupt you there. Go ahead. No, go ahead. Go ahead. Yeah, no, I was going to say it’s almost a, it can be a feature, not a bug where I know friends of mine that are putting offers literally this year on a hundred different properties, not getting many of them, but they have capital that they need to put to work. Whereas you can kind of do your full-time job, put a few offers in, you know, if the right comes along, you’ll jump on it. But that makes you actually a bit more conservative in your underwriting because you don’t have to, there’s no pressure for you to do deals. 


Matt (35m 46s): Right, right. Yeah. There’s no money that needs to be deployed. You know, it’s, it’s, it’s more just me itching, right? 


Speaker 2 (35m 52s): It’s like, gosh, somebody has got to get to work. I 


Matt (35m 56s): Can’t have it in a, in a one half of 1% yield savings or whatever that gets in for too long. Because then I feel like as I look at gas prices, as I look at everything going up in price, this, this, this money is withering away. 


Jesse (36m 12s): Yeah. Right on. Well, before we get to a, we ask every guest like a final four question, bunch of softballs. I just want to get your take on the next few years investing. It sounds like single families, the space you’re going to play in. Is there any interest in branching out to other areas, whether that’s, you know, multi-family retail office, industrial, what what’s on the horizon for you? 


Matt (36m 36s): You know, I’ve looked at some office space and I’ve, I’ve, I’ve gone through like learning how to underwrite deals, which started as I’m going to buy an office in Sacramento. And if I’m gonna buy an office in Sacramento to do mortgage out of, I might as well buy something where I can lease out space to others. And you know, not just my mortgage business, leasing out space, but, but others in there, you know, paying myself. 


And so, so that’s something that, that I’d be interested in. Cause it was cool. I got into some underwriting and talks to people that know a lot more than I do. And it’s cool to think about, oh, you can buy this $900,000 building, you know, put about a hundred thousand in upgrades, get it fully occupied. Now it’s worth 1.5. Like that value add which to be, to be completely honest, as I looked at it, I thought to myself, like everyone I talk to is working from home. Why isn’t commercial real estate on sale more than it is. Right. 


And so that, that might be something, but, but I really, you know, have a strong tie to residential real estate and probably more of an in right where I just know so many people that I can be presented deals and, and be picky and choosy and add good stuff to the portfolio. So that’s, that’s more likely area where I’ll play at. I looked at some apartment deals over the last couple of years and I guess I, I, I put in a few offers on, on a few different, like smaller, like 12 to 15 unit apartments, but nothing stuck. 


So I think I’m open. I think that, you know, the entrepreneur entrepreneurial spirit, you know, lives, whether it’s a commercial building and, and it’s all with the same goal, really, it’s just like freedom, like thinking about being able to take a month and, you know, take the kids and the wife to Europe and have cashflow coming in. I mean, over the last eight years, as I’ve grown this mortgage business, I’ve worked hard. And so, so thinking about, even if it’s fairly passive, you know, like the Marysville stuff is one hour per month talking to the property manager, it’s, it’s, it’s as passive as it gets. 


And so adding more of that, you know, passive fairly passive income is pretty attractive when I think about it. 


Jesse (38m 55s): Yeah, sure. I can definitely agree with you there. And echo just because office is, is my world on the broker agenda and yeah. Prices are sticky. You know, they don’t like to lower their rents long-term leases. You think half of it would be on sale, but we’ll see in the next year or two, see how things go. Obviously retail has taken, taken it on the chin to a certain extent. All right. So four questions we typically ask every guest, I’ll lay them up if you’re ready. Yes, sir. Let’s do it. 


All right, Matt, what’s something, you know, now in your career that you wish you knew when you got started. Oh man. 


Matt (39m 34s): Something I know now that I wish I knew when I got started, I wish I wish I knew what a great deal. What, what, how many great deals were around me? Right. It took me so long to pull the trigger. I wish somebody would have been like, Matt, just take action. Because this is what I tell investors do is I tell them, like, once you take action on the first property, you’re gonna look back and go that wasn’t that hard and you can do it again and again, and again and again. So if I could rewind to 2013 and be like that first couple times, that that, that idea got into your head where you saw a client that had investment real estate and you thought it was a good idea. 


If you would have taken action then, and started that a little bit sooner, w there, we might be a, you know, three X where we are today, as far as real estate holdings. 


Jesse (40m 17s): Yeah, absolutely. Zero to one. All right. Number two. Mentorship for the, for the younger people out there, or just your, your view of mentorship, has it, has it been a, a large part of your journey? 


Matt (40m 29s): Oh, it’s been so, so important. I think it was funny. I was talking to a guy who works for a bay area startup, where they basically do, you know, mentoring and coaching and all kinds of stuff in that space to C level executives. And I talked to him about, you know, personal coaching around real estate, around my mortgage business, around even life and family and whatnot. It’s super vital. And my trick, when I talk to people about mortgage, like how did you go from zero to do on 125 million a year and 300 plus transactions? 


I literally started and I did 27 deals. And I looked around and said, who’s doing deals a year. I want to talk to them. I talked to them, how do you do it? What’s your, you know, what are some best practices that you have? And I implemented some of that. And then when I got to 70 or 80 deals a year, I looked around and said, who’s doing 150 deals a year. And you know, you’d be surprised at how many people who are rungs above you on whatever ladder it is. You’re trying to climb that are happy to share, you know, their story, their structure, how they do things. And I continue to do it. 


Now, I’m trying to find mortgage teams that do a $500 million a year and how the heck they structure that, how they manage their time, their team, their systems, all of that stuff like that, to me is the secret sauce. And so anybody who starting out in mortgage who’s like looking for mentorship or really anything investing or whatever it is, you know, you look to people who are either where you want to be or headed and closer to where you want to be. And you do as much as you can to soak up some of that, get some of those best practices. 


I’ve tried to do that for people who are newer in mortgage, my Monday Q and a on YouTube, I started doing 6:00 PM Pacific standard time, two hour question and answer. And at first I thought I was just speaking directly to consumers who were looking for a good mortgage advice. And we could just do a Q and a, rather than post a comment and wait two days to get a response. Let’s do it live. I found out there was a ton of brand new loan officers. They were like, this is super informational. This is cool. I, I I’m learning so much. And so now I’m starting to invite new loan officers because that’s, that’s how you learn. 


Just talk to somebody who’s been doing it and is a little bit farther along the path that you’re trying to walk down. 


Jesse (42m 46s): Yeah, absolutely. Couldn’t agree more with that. Or what is a, either in the past or now a resource that, that you find vital, you’d like listeners to know about resource that could be podcasts, YouTube channel book. 


Matt (42m 59s): I mean, I think that I love books and I love audible. And so, you know, there might be some listeners that want to do commercial real estate. There might be some listeners that want to do residential real estate. There might be some that, you know, are hanging out and listening to this, but they want to lose 40 pounds, whatever your, your, your passion or your goal is. If, if you’re spending your time listening to information, that’s going to help you with that. It’s so powerful. And I think that over the last few years, like my personal growth, I can attribute to the fact that, you know, I’m letting a lot of the good stuff get in. 


I’m not spending my time. I couldn’t tell you about all the cool Netflix series and stuff, but I can tell you about, you know, what’s the guy’s name that wrote winning Tim Grover, the guy who coached Jordan and Toby, you know, all, all the cool books that are out. I can tell you a lot more about those. And then the Netflix series that are out. And I think that, you know, that’s, that’s something that, you know, it, we live in a great time. In 2021, you could literally go on YouTube and learn anything you want. You could find a podcast on anything you’re interested in. 


You could find an audible book on somebody who’s wrote on a subject that you want to learn more about. Plug yourself into that stuff and watch yourself grow by a half an inch every day in a few years, you’ll be, you know, it’s, it’s crazy how far you can come. Awesome, 


Jesse (44m 24s): Man. I like it. All right. Last one. As listeners know my personal favorite, first car make and model. 


Matt (44m 31s): Oh man. So 1996, my parents gave me their 1989 Oldsmobile Cutlass, 


Speaker 3 (44m 42s): Kalai. Hatless elegant. I don’t know how 


Speaker 2 (44m 47s): It just, it seems so much 


Matt (44m 49s): Older than it was, but the best part about it is, is I think I ended up buying myself a new car after that. But fast forward to 2003, I was going to go down to Mexico and study. And my parents were like, oh, if you want to take that old Cutlass Kelly, you can. So I drove myself from Northern California down to Southern California, across to Texas and down into like the middle of Mexico. Good at the row. It was like a 55 hour drive. And I had that old Cutlass that the top, the roof, like the stuff was falling down the car, must’ve been worth 500 bucks tops. 


But I cruise that thing all over Mexico for 18 months. It was it’s amazing. 


Jesse (45m 26s): I feel like down there, it just be car now because the Cutlass is, they used to just put up that became such a hydraulic, just dubs on it, man. I remember that car he’s at my uncle had one of those. Just, just like a, just a steel rectangle going down the street, but awesome. Sweet dude for listeners out there, aside from a Google search of your name, we’ll put show links below. Where is the best place to, to go out, to reach to 


Matt (45m 53s): You? Yeah. I mean, I think that I’ve hopefully done a pretty good job. A lot of people don’t even know my last name is <inaudible> because I just brand myself as Matt, the mortgage guy. So if you go to Google and type in Matt in the mortgage guy, you’re going to find tons of different stuff. Matt, the mortgage I’m on Instagram as math and mortgage guy CA which is California, not Canada. Sorry. I I’d love to have people check out math, the mortgage guy on YouTube. Cause I think that 450 plus videos, my main it’s crazy. 


My main thing has always been education. So, so ideally somebody who’s looking for mortgage information, you can type in how to escrow accounts, work math, the mortgage guy. Why I get a supplemental tax, bill, math and mortgage guy, all the things that my clients have asked me, you might have a similar question and you type in that question, the math, the mortgage guy, check out the YouTube channel. If there’s something that you don’t see and you think it’s a question that other people might be asking, go ahead and fire off a comment. I’m still it’s getting to that point. I think man, with a hundred thousand views a month or something where I’m having trouble keeping up with answering every comment. 


But I was, I was bragging like two months ago. Every single comment I respond to and every single comment is me personally responding to it. I got to spend like an hour and a half the other 


Speaker 2 (47m 5s): Night. I’m like they just keep coming. That’s crazy. 


Jesse (47m 10s): My guest today has been Matt, the mortgage guy, Matt, thanks for being part of working capital. That was awesome. Thank you so much for listening to working capital the real estate podcast. I’m your host, Jesse for galley. If you liked the episode, head on to iTunes and leave us a five star review and share on social media, it really helps us out. If you have any questions, feel free to reach out to me on Instagram, Jesse F R a G a L E, have a good one. Take care.