Investing In Real Estate With Lex Levinrad

Sellers Are Capitulating Hosted by Lex Levinrad

Hey everyone, and welcome to the Investing in Real Estate Show. I'm your host, Lex Levinrad, and on today's episode, I want to talk about what's happening right now in the real estate market — because things are changing very rapidly. For the first time in a while, we're beginning to see signs of capitulation.

Now, capitulation is a term that comes from the stock market. It describes the point when investors give up — when stocks have been falling and people finally throw in the towel and start selling. We're starting to see that same kind of behavior in certain areas of the real estate market today, and I expect we'll see even more of it in the months ahead.

Year-over-year, foreclosures are up 17%, bank-owned properties are up 34%, and there's a noticeable increase in short sales, pre-foreclosures, and REO listings on the MLS. Many of my students are now finding deals on auction sites like Auction.com and Hubzu.com, and I believe that trend will continue throughout the next year or two.

So, the big question is: Where are we in the cycle, and where might the market bottom out?

Historically, the real estate cycle runs about 18 years — roughly 13 to 14 years up, followed by 4 to 5 years down. If we peaked around July 2022, then that would suggest a bottom sometime between mid-2026 and mid-2027.

Now, real estate is hyper-local. Condos behave differently from single-family homes, and markets like South Florida don't move the same as the Midwest. Condos in South Florida, for example, have been hit hard — partly due to the unresolved Surfside law, with only about half of buildings having completed inspections.

That's why, in our training programs, we focus primarily on single-family homes.

It's also important to understand that not all single-family markets are the same. The $350,000–$400,000 "median" home that a typical family buys is a completely different product from a $150,000 starter home — and both are worlds apart from the $5 million waterfront properties here in Deerfield Beach. The luxury market remains relatively resilient because those homes are scarce, and many are purchased with cash by wealthy buyers.

But that's not the market I teach or invest in. My focus is middle America — the average family earning $70,000–$80,000 a year, buying a modest 3-bedroom, 2-bath home. For that family, affordability is the key issue.

At today's prices and rates, that household can typically afford around $2,000 to $2,100 per month, including taxes and insurance. The challenge is that, with 11 rate hikes since 2022, those numbers often don't make sense for buyers — it's often cheaper to rent than to buy.

For affordability to return, home prices and interest rates both need to drop by about 20%.

Now, the economy itself is in a strange place — a mix of stagnation and inflation. We've got gold, silver, and stocks rising while more Americans are falling behind on car payments, credit cards, and mortgages. It's a divided economy — the haves and the have-nots.

The wealthier segment owns assets like real estate, stocks, and Bitcoin. But 75–80% of Americans fall into the lower or middle-income bracket, and they're feeling the squeeze: higher rents, higher food prices, higher everything — without matching wage growth.

We're also seeing record levels of credit card and auto loan defaults, and foreclosures are climbing. Many people are struggling to keep up with mortgage payments, and businesses — including trucking companies — are shutting down at record rates.

Given that, I believe the Federal Reserve will have little choice but to cut rates soon, even if inflation remains a concern.

Now, let's talk about what this means for real estate investors.

Some markets — particularly in the Midwest — remain relatively steady. They don't see huge gains, but they also don't experience massive losses. In contrast, "boom and bust" states like Florida and Texas swing more dramatically in both directions.

For example, in markets like Austin, Texas or Phoenix, Arizona, we've seen homes that sold for $420,000 just three years ago now selling for around $240,000 — nearly half the price. In parts of Florida, such as Cape Coral, prices and rents have both fallen, while insurance and property taxes have risen — squeezing investor returns.

So, what works right now?

The answer is simple: focus on affordability. Forget the luxury market, forget high-priced areas, and concentrate on properties with an ARV (After Repair Value) of $300,000 or less.

If you can buy at 60 cents on the dollar, that means targeting homes you can purchase for around $180,000 that are worth about $300,000 fixed up. That's where my students are finding success.

For example, one of my students recently bought a home for $105,000 in a market where comps were $220,000, and another paid $107,000 in that same market.

We're not seeing deals like that materialize yet in hot markets such as Miami, but they exist within an hour or two of Miami. If you want to be successful, focus on affordability.

When evaluating deals, I always tell my students to run the numbers carefully — use a mortgage calculator like the one on Bankrate.com and compare monthly payments including taxes and insurance versus what it would cost to rent that same home. Also, for rentals, check Section 8 fair market rents on HUD's website to estimate cash flow.

Right now, the Buy, Repair, Rent, Refinance strategy works extremely well. You can buy deeply discounted properties, fix them up, rent them out, and hold them as rentals with positive cash flow. Then you can refinance to pull your cash back out, and do it again!

We'll be covering this in depth at our upcoming Inner Circle Coaching event this weekend, where I am teaching my students both long-term rentals and short-term Airbnbs.

Now, some of you may be wondering: where are these deeply discounted properties? How are you finding properties at such low prices?

The answer is motivated sellers. Our deals come from distressed sellers — people behind on property taxes or in foreclosure, or owners who inherited homes they can't maintain. Some properties are in terrible condition — drug houses, hoarder homes, or abandoned rentals. They need full rehab, which scares off many other buyers, but that's exactly where the opportunity lies for us as investors.

We're also seeing a rise in short sales, where homeowners owe more than their house is worth. When they realize they can't sell for what they owe, and that they will not get anything from the sale of their house they often walk away — and that's where investors can negotiate with banks for big discounts.

As an investor, your job is to identify affordable, high-demand rental markets — typically where ARVs are under $300,000 — and where you can buy at 50–60 cents on the dollar.

In South Florida, that usually means driving an hour or two north or west from Miami Dade and Broward County to find the right price points where houses are more affordable.

We're seeing the early stages of capitulation — landlords giving up, foreclosures rising, and more motivated sellers entering the market. Over the next 12–18 months, I expect those opportunities to grow significantly. There will be many opportunities to make money.

If you're new to investing, now is the time to educate yourself, get trained, and learn how to identify, evaluate, and buy the right properties. This window of opportunity will not be open forever and you need to take advantage of it.

In my training programs, we teach students how to calculate ARV, estimate repairs, calculate their offer price, calculate cash flow, and use private lenders and hard money to fund deals.

Our strategy which is the Buy Repair Rent Refinance Strategy is simple:

✅ Buy below market value at 50 to 60 cents on the dollar ✅ Repair the property using money from private lenders ✅ Rent the property to a tenant for positive cash flow ✅ Refinance and pay off the private lender - and then do it again

The Goal is Financial freedom.

Ten rentals owned free and clear within 15 years means you'll never need to work again. Ten rentals at $5,000 per month in rent can provide you with a $50,000 monthly cash flow for life. And this is indexed for inflation meaning every year you can raise rents, and over time your properties increase in value.

This is one of the easiest ways that I know to create wealth. I've seen countless students of mine become millionaires by following this plan. Many of my students now earn six and seven figures annually from their rental portfolios.

So, if you're ready to change your financial future, I invite you to join me at one of my upcoming real estate training events (boot camps). Learn how to buy bank-owned properties, how to buy foreclosures and short sales and how to bid on online auction sites and buy properties for 50 cents on the dollar. Learn how to use private lenders to fund your deals and how to use other people's money to build wealth through real estate.

You can download a free copy of my book, Wholesaling Bank-Owned Properties, at lexlevinrad.com/getyourcopy.

I hope to see you soon at one of my live real estate training events.

TRANSCRIPT

Hi everyone, welcome to the Investing in Real Estate Show. This is your host, Lex Levinrad. On today's episode, I want to talk to you about the opportunities in today's market with rental properties. We have a very unique set of circumstances that have led us to where we are now.

The first thing we saw was the absolutely crazy increase in prices that happened after COVID, from 2020 to 2022. There was a huge jump—most areas increased at least 50%. In some areas, prices went up as much as 70%, 80%, even 100%.

With this huge price increase, it became nearly impossible to find cash flow. It just didn't exist. But there was another thing that happened after COVID—a direct result of COVID—and that was the inflation effect.

The government pumped a lot of money into the economy with EIDL loans and PPP loans, and people were flush with cash. This is one of the reasons prices went up so much. And it wasn't just real estate—everything went up. Even the prices of Rolex watches increased. There was simply too much money floating around in the system.

The net result of that was inflation, which we were all aware of. Suddenly, rents were going up, along with the price of food, gas, and everything else. The concept of rents going up is very important. Regular market rents increased quite a bit.

Looking at my own rentals, for example, a property that rented for $1,300 went to $1,475, then the following year to $1,550, and the next year to $1,675. That's a significant increase.

On today's podcast episode I talk about how to make more money.

I talk to some students at my real estate training events who are looking for ways to increase their income. Not everyone is interested in waiting years to build wealth and equity with rental properties. Some people are looking to make more money now. And that is what today's podcast episode is about.

Many new real estate investors are attracted to real estate investing and specifically wholesaling and flipping houses, because they are looking for an easy way to make more money. But I have noticed that these people who are looking to make more money usually have either a spending issue or an income issue.

People that are looking for more income usually have a few things in common. They have too much credit card debt, may have student loans, have too many expenses, and not enough income to cover all of those expenses. The net result is a struggle to pay the bills every month. What we call the "rat race". How do you get out of that struggle of living paycheck to paycheck?

For some it's a spending issue where they simply spend too much money relative to their income. For other's it's an income issue where they simply need to learn how to make more money. For most people it's a combination of both too much spending and not enough income.

And what is surprising is that I see this even with people who have relatively high incomes of $150,000 or more. People tend to increase their expenses as they increase their income. And that is what keeps them stuck in the rat race. Keeping up with the Joneses, buying new cars and nicer houses to impress your neighbors is a poverty cycle that will keep you broke forever.

So how does one learn how to make more money? Is the answer to get a better job? Or is it to switch jobs or even get a second job?

The answer lies with none of these. Instead what is needed in order to make more income is to gain specialized knowledge. A person working at a fast food restaurant does not have specialized knowledge and that is why they make $13 an hour. Anyone could do their job. Few want to. They have no specialized knowledge.

The more specialized knowledge you have, the more money you will make. You need to learn specialized skills. A good example of a specialized skill is learning how to be a property scout or deal locator. We call these people "real estate bird dogs" in the industry. If I paid you $5,000 or $10,000 for every house that you found for me, then how many houses would you need to find per month to exceed the income from your job? The answer is not many at all. If you knew how to find houses you would have a specialized skill that could make you a lot more money than what you are currently making.

On today's podcast episode I talk about the Buy, Repair, Rent and Refinance strategy commonly referred to as the BRRR Method. This is one of my favorite real estate strategies and one of the easiest ways that I know to create long term wealth with real estate.

The Buy, Repair, Rent and Refinance Strategy was the method that I used to make my first million dollars in real estate. It has helped me, and many of my students become multi millionaires.

Ironically, out of all the real estate investing strategies that there are, it's the easiest strategy to employ for a beginner and requires the least amount of effort.

The BRRR Method consists of four components

• BUY
• REPAIR
• RENT
• REFINANCE

BUY

The first step is to find a rental property that would work using the BRRR Method. Your goal is to find a property that you can buy, repair, rent and refinance where all of the costs of the purchase and renovation of the property are covered. Once you locate a property, you purchase it using a loan from a private lender. I teach my students how to get private lender loans at my real estate training events.

REPAIR

The second step is to repair and renovate the property. We call this stage the "rehab" stage. Before you can rent the house to a tenant, you will need to make the property rent ready. How much work is required to make the property rent ready depends on the property. Some houses only need a new coat of paint and fresh carpets. Others require more renovation like updating the flooring, the kitchen, and the bathrooms. Some houses require major renovation like new roofs, central air conditioning, plumbing or electrical work.

In some cases you may be able to buy a property that is already rented (with a tenant in place). In this scenario you can skip the repairs because the house is already rented and does not need to be repaired. However, usually, for the BRRR Method to work, you would need to buy the property at a substantial discount to market value. And that means that most of the time the property would require repairs.

RENT

The third step is to rent the property. You will need to have a tenant in place in order to be able to refinance your mortgage. The bank will want to see the amount of rent that the tenant is paying, and will want to verify this by getting a copy of the lease, and also by confirming that the rent is being deposited into your bank account. You would typically collect the first month's rent, last month's rent and a security deposit from the tenant when renting out the house.

REFINANCE

The fourth step is to refinance the mortgage to a lower interest rate fixed mortgage. In order to refinance the mortgage the bank will require an appraisal. For investment properties, banks will typically lend 75% of the appraisal value. A house that appraises for $200,000 would be able to get a mortgage for $150,000. The goal with the refinance is to get enough money from the bank in the refinance to pay off the private lender and to cover the purchase price and the repairs plus all closing costs and other fees like points, interest, and insurance. Done correctly, (like in the example I used in this podcast episode) you can buy a house with no money down using the BRRR Method.

EXAMPLE

On the podcast episode I spoke about a house that could be purchased for a purchase Price $80,000. Assume you could get a private lender loan from someone like me for $70,000. If this property required repairs of $30,000 and fees and points and closings costs were $10,000 then your total cost to purchase and repair this property would be $120,000.

After the house was repaired, let's say you rented it to a tenant for $2,000 which is the going market rate. Now that the house is rented, your goal would be to refinance the mortgage so your mortgage broker orders and appraisal and the house appraises for $200,000. The bank is willing to lend you 75% of the appraisal amount which is $150,000. I recommend the 15 year fixed rate mortgage so that your house is paid off in 15 years (or less if you pay a little extra each month).

You have to pay back the private lender loan of $70,000. You also want to pay yourself back the cost of the repairs ($30,000) plus the cost of the fees and points and closing costs from when you purchased the house ($10,000). In some cases you may have used Home Depot cards to pay for materials and you may have paid your contractor with a credit card.

HERE IS THE BREAKDOWN

Purchase Price $80,000

Private Lender Loan $70,000

Fees and Points $10,000

Total Cost $90,000

Repairs $30,000

Total Cost Including Repairs $120,000

Your Cash Out of Pocket (or credit cards used or a combination of both) would be the $10,000 down payment, plus $10,000 in closing costs, points, fees and insurance plus the $30,000 in repairs. The total cash out of pocket would be $50,000. This could be borrowed from a relative or friend or it could be a combination of credit cards, savings and Home Depot cards.

APPRAISAL

Appraisal $200,000

Bank Loan: $150,000

Pay off Private Lender $70,000 (you are left with $80,000)

Pay yourself back the $10,000 down payment

Pay yourself back for the repairs $30,000 (or pay off the Home Depot Card)

Pay yourself back for the fees, points, closing costs and insurance $10,000

Refinance Fees $5,000

Cash left over $25,000

EQUITY

At this point you would have a house that is appraised at $200,000 with a mortgage of $150,000. Your equity would be $50,000. You also have the cash left over from the refinance which is $25,000. You would have increased your net worth by $75,000 by buying this property.

HOLD THE PROPERTY UNTIL THE MORTGAGE IS PAID OFF

Assuming that the value of the house doubles in 15 years, and the rent doubles in 15 years then you would own a $400,000 house free and clear (with no mortgage) and you would have $4,000 per month in rent coming in (in 15 years). This is how you become wealthy. If your goal was to have $20,000 per month coming in, then all you would need to have is 5 of these houses.

What makes this such a powerful strategy is that you are not limited and can buy as many houses as you want. As long as they fit the formula, you can buy unlimited real estate. So in the example above if you borrowed the $50k from a combination of your savings, a relative and credit cards then when you refinance you would have that money back and would be able to do it again and again and again. And if you get 15 year mortgages, then no matter what happens in those 15 years, your mortgage will get paid off and you will own the property free and clear. And if you pay a few hundred dollars extra each month you can have your mortgage paid off in as little as 10 years.

CREATING WEALTH AND FINANCIAL FREEDOM

The BRR Method is the easiest way to create wealth and financial freedom. This is the easy way to get wealthy but it does require patience. And it works, as so many of my students can tell you!

If you want to learn how to get started with the BRRR Method I encourage you to attend the Buying Rentals and Building Wealth Boot Camp where I teach the BRRR Method.