Exploring Debt Products and Rate Caps

Greg Lyons (00:00):

All right. Podcast number 99, take two.

Tim Lyons (00:04):

Well, the good thing is I’m uploading at 99% today.

Greg Lyons (00:06):

Look at you.

Tim Lyons (00:08):

Apparently my internet is working. Nice.

Greg Lyons (00:21):

Welcome to the Passive Income Brothers podcast.

Tim Lyons (00:24):

Here we take the fear out of real estate investing using real life stories of everyday successful investors. Let’s go. Welcome to another episode of the Passive Income Brothers podcast. My name is Tim Lyons and today I’m joined by none other than my brother. Greg, how you doing today, buddy?

Greg Lyons (00:41):

Tim, I’m doing great. And I think today we are in for a dose of real estate, real talk as we get down and start talking about what exactly is going on with different deals out there and what investors are feeling.

Tim Lyons (00:56):

That’s right. In the good times, Greg, say 18 months ago, 24, 36 months ago, deals are moving. There’s a lot of investment opportunities and people are making money in real estate and the stock market’s booming and everybody feels great, and one could argue that we’re maybe towards the top of the market at that point. Why is it in investor psychology, Greg, that people jump into the market at the top because it feels good, right? People are winning. Then you get in and you realize that maybe just maybe now that we have 2020 hindsight, that maybe some of that was at the height of the market or our investor psychology suggests that when people are winning, we want to win too.

Greg Lyons (01:41):

Yeah, it’s funny. I think a lot of people look at headlines and the housing market was hot apartment market hot, and people don’t want to be left behind. But what’s interesting is the real time to make money is when you purchase and when you make money in real estate, you make money when you purchase the assets. So right now, while it’s not sexy, it’s not cool, it’s not hip. To be investing in real estate now is about the time in a different part of the market cycle that you may start looking at real estate again.

Tim Lyons (02:19):

And that’s exactly it, Greg. And it’s kind of why we started Cityside Capital. We wanted to align ourselves with best in class type of operators that were doing the thing that we wanted to do, that we wanted to be a part of, but we wanted somebody with experience. We wanted to know that we could rely on them in the good times, right? It’s easy to make money in the good times and also the bad times as well. So Greg recently talking to investors like we do every single week, whether they’re our own or their potential investors or somebody else’s investors, they want to know about paused distributions, whether they’re in a project with us or somebody else. And the operator has decided to pause their monthly distributions or their quarterly distributions. And we kind of touched on this, I think two or three episodes ago when we were celebrating that refinance as limited partners with that retail project that we invested in during COVID, the height of COVID, right?

Greg Lyons (03:16):

Yes.

Tim Lyons (03:18):

And how those got restarted this quarter and how we had to refinance and stuff like that. But I really wanted to maybe spend some time today kind of going over Greg, what does it mean when an operator, whether it’s multifamily, self-storage, mobile home parks, whatever it might be, what does it mean when they pause distributions?

Greg Lyons (03:38):

Yeah, I think that’s a really relevant topic right now because across the real estate landscape, people are, like we said, pausing distributions, but why are they doing it? And I think that’s why we’re here today is kind of go, Hey, they’re pausing distributions. Is everything going to hell in a hand basket? Not necessarily. A lot of it’s a defensive move, but Tim, why don’t you start taking the listener through and you invested in a real estate syndication and you were getting either monthly or quarterly distributions and then not kind of all of a sudden, but all of a sudden the distribution stop. What are some of the top two or three reasons why a distribution would be paused at the moment?

Tim Lyons (04:22):

Yeah, great question. So this is the top of mind stuff for people that if you are in a project right now that has a pause distribution, you need to listen, get the notebook cap sharpen those pencils. So the hardest part of being an LP or a limited partner or a passive investor, all those are synonymous, is we always say the hardest part for you is upfront vetting the operator, vetting the deal, looking over the projections and the underwriting and what does it all mean? But a big piece of that, Greg, is understanding the debt that the operator is going to use when purchasing this property. And there’s a couple of things there. Are you using fixed rate debt, which means in commercial real estate, at least a five or a seven or even a 10 year note with a 30 or a 35 year amortization, maybe some interest only period and maybe non recourse, maybe it’s a fanny or Freddie product, which is just Fannie and Freddie are just two of these government-sponsored entities that do a lot of lending in the multifamily space.

(05:27):

And it’s attractive because it’s fixed rate debt. It’s with non-recourse, which means that the people buying the property are not responsible for the debt. It sounds crazy, but if you buy your own home, that’s recourse. You sign away, your firstborn, your firstborn most. So that’s really attractive debt. The problem with debt, Greg, is called dfe or a prepayment penalty. The bank is going to make their money either way, whether you pay for the property for the 7, 5, 7 or 10 years, or if you want to refinance out of it or sell early, they’re going to get their interest and it’s going to be something called defiance or prepayment penalty.

Greg Lyons (06:10):

And I think, Tim, I think that’s really important because I know a lot of investors are like, how come they’re not doing fixed rate debt? Why didn’t we get into a fixed rate loan? And the reason is you don’t have as much flexibility in what you can do with the property if the market conditions are right, you want to sell in two years, well, you have three, four or five years worth of interest payments to make up, and that’s where that DFE comes in.

Tim Lyons (06:39):

And that will kill investor returns. You might be writing a check for several million dollars at the

Greg Lyons (06:44):

No flexibility

Tim Lyons (06:44):

Closing. No flexibility. So Greg, I mean those types of deals that people want to put fixed rate debt in from the get-go are more stabilized. It may not be a heavy value add or even a moderate value add deal. It might be something that you’re just do in touchup paint and it’s probably at a way newer vintage 2010s or 20 fifteens and newer something, you don’t have to put a lot of money into it to either reposition or renovate and stuff like that. So those are types of deals like class A multifamily is probably a classic deal where you might be able to put fixed rate debt on and just kind of hold it and cashflow it.

Greg Lyons (07:19):

And Tim, what other kind of debt is there? So the fixed rate, pretty safe, maybe not a value add project, but there’s other kind of debt you can get when purchasing a multifamily or self-storage property. What else is out there?

Tim Lyons (07:33):

So where people are getting caught right now is what’s called bridge debt. So if you want to do a heavy value add or a moderate value add, meaning that you’re, your goal is to increase the net operating income of the property by doing renovations of units, by doing deferred maintenance projects, like maybe painting the outside new vinyl siding, redoing the roofs, repaving the parking lots, replacing the laundry room with a game room or a gym facility and putting washers and dryers and units. Those are all value add type of projects and they cost money. And the idea is if you can increase the net operating incomes, say over three years, well, let’s say a 200 unit apartment building, Greg, if say they’re a hundred percent classic units, so you have a hundred percent of the units to renovate and do all these value add projects too, you’re going to need some time, right?

(08:29):

You’re going to need some time to create vacancy, you’re going to need some time to do the renovations. You’re going to need some time to get some new renters in there paying the more premium rents. So the kind of rule of thumb is maybe around three years to stabilization. Well, at that three year mark, you’re going to want to buy this with bridge debt, which is variable rate debt, and you’re going to want to refinance at that three year mark and maybe put permanent debt on it, or maybe you want to sell it, right? Maybe it’s a good time to sell, but you can because there’s no prepayment penalty or very small pre-negotiated prepayment penalty. And that’s the value of using variable rate bridge debt. The problem, Greg, is that in 2020, well obviously the late 20 teens and to say 2020, this was high time on the town, people are using bridge debt, they’re refinancing after maybe 18 months, they’re hitting home runs, everybody’s making money, but the pandemic hits.

(09:28):

And when the pandemic hits, everything slows down, and there was that whole piece to it, and then the inflation started. And is the inflation caused by the supply shock or is the inflation caused by the helicopter money? I mean, there’s a lot of schools of thought on that doesn’t matter to us. The problem is that there’s inflation, and it was transitory at first. Transitory is all we heard from j Powell and the Fed, all of a sudden it wasn’t transitory. So at the time, people were still buying these deals. Greg, during this quote transitory period when j Powell’s telling everybody that, I’m not even thinking about thinking about raising interest rates, that this is a transitory period, it’s a supply shock, whatever, until it wasn’t. And all of a sudden now the Fed has raised what the federal funds rate from zero to 0.25 basis points all the way up to 525 basis points, the fastest rate increase in history and the highest it’s been in 40 years.

(10:30):

So when you were an operator making money hand over fist in the late 20 teens, early 2020 using this type of bridge debt variable debt product. Now you still said, all right, well, the fed’s saying he’s not even thinking about raising rates. Why don’t we go do another project? And so they’re going, so let’s to take an example, Greg, on a couple of deals that we did say in 2021, we went in at say a three year bridge debt product with two one-year extensions. So for the first three years, we had what’s called the rate cap, right? So we went in with say a 3.5% interest rate for the first three years, but we bought an insurance policy with our operator for say, 200 basis points or 2% above the initial going in rate, which is called the strike price. So if we went in at three point a half, Greg, and we have our insurance policy that says our rate can’t go above 5.5%, right?

(11:30):

We bought a 2% strike price rate cap. Now we are solid, right? Because even though the Fed has increased the federal funds rate 525 basis points, we our alone only went up by 200 basis points or 2% and then it was stopped. And that rate cap means the insurance company has to cover whatever’s above that period. We only are responsible for the first five and a half percent. Now, if you got into a project as an lp, and you understood that debt product, right? You understood the risks and you understood what the rate cap was doing for you, you also have to make sure that the operator that you’re investing with was doing proper underwriting saying, look, are you doing a rosy unicorn scenario where there is no rate increases? Or

(12:21):

Are we looking at a higher interest rate? So higher debt payments, are we looking at maybe a lower premium rent being captured? Right? In Phoenix, Greg, we were doing deals where there was 15, 18, 20% year over year rent growth, but we were underwriting to 2% rent growth because you can’t. So you have to have these assumptions. You have to do it on the debt side, the income side, what can you get done with organic rent? What can you get done with renovated rents or what’s called premium rents? What can you capture? And the third thing is what can you do from loss to lease? Which is, say market rents are 1300 per month, but you’re only paying nine 50. Well, that’s a delta of $350. That delta of three 50 is called a loss to lease. So these are all income drivers, but you have to look at that debt side. So Greg, when we do projects and we have the rate cap, we are protected. However, there are a lot of operators that did not purchase this rate cap, and those are the ones that are in severe trouble right now.

Greg Lyons (13:30):

Yeah, there’s no doubt. So it’s good to kind see what kind of debt products are out there. How do I finance or how does the operator Finance a multifamily self storage asset?

(13:44):

So we learned a little bit about the debt, and now the interest rate has really shot up, but we learned about rate caps, right? So that’s good, but now all of a sudden we have the cap in place, but we look at saying, our operators saying, Hey, we’re going to pause distributions right now. So there may be something with the DSCR, right? So you start hearing all these terms, pause distributions, raised interest rates, DSCR, debt service coverage ratio, and as you as an LP go, what’s going on here? Why were the distributions paused?

Tim Lyons (14:24):

Yeah, and that’s exactly it. So A-D-S-E-R debt service coverage ratio. So when you’re doing a value add project, you really want to see DSER. Maybe in the beginning it might dip below one, right? Because you’re forcing vacancy and we’re trying to do some renovations, but really, I mean, you want to have A-D-S-C-R certainly over one, but banks look for 1.2 and 1.25. What that means is that if you have A-D-S-E-R of one, it means that the income from the property can service all the bills, basically all the expenses, right? So A-D-S-E-R of 1.2, which a underwriting bank looks for in a deal, means that you have a 20% cushion 0.2, 1.2, you a 20% Cushing on income above and beyond what you’re paying through expenses. So Sig Greg say a deal was bought in 2021 and they’re going in interest rate was still say three and a half percent.

(15:28):

They’re like, man, this is great. High time of the town, the fed’s not even thinking about raising interest rates. And at the time people were saying, well, you know what? The government can’t even sustain rates at 2%. There’s too much debt out there. That was the going kind of ethos out there. Well, guess what? We’re at five and a quarter, we’re still rocking and rolling, and we’re recording this in mid-October. And last month alone, the federal government just spent 600 billion in monetized debt. So we’re still there and we’re still rocking and rolling apparently. So, alright, so now they go in, they have a three point a 5%, they don’t buy a rate cap. Well guess what? Their Mortgage interest rate is probably somewhere in the ballpark of say 8% now, or eight and a half or even nine depending on a lot of different factors. That is unsustainable. I don’t care how much reserves you had going into the project, you are now bleeding cash month over month. I don’t care if you’re capturing premium rents and burning off lost to lease, you simply cannot pay your expenses and that triple in debt costs and still be profitable. So what has to happen? They have to refinance. But how do they refinance if they haven’t been able to spend money on their renovations, if they haven’t been able to spend money on their CapEx, on their deferred maintenance, on beautifying the property, on doing all these things that they told investors they were going to do, they’re just using all their money to service the debt and try to live another day. That is a recipe for disaster.

Greg Lyons (16:58):

Yeah, I think it is basically the death spiral, Right?

(17:03):

You’re taking in rent from the renters, but you’re not even able to pay your bills because your mortgage payments are so high now and there’s no way for the rainy day, there’s no way the underwriter wrote underwritten at 8% loan interest rate. I mean, there’s no way that happens. So what are the options? So you pause distributions, limited partners aren’t getting any monthly income or quarterly income. And I think you hit it. You said you have to refinance, right? But how do you refinance? And I think a lot of times operators pause distributions so they can conserve cash. So in a lot of the deals we’re in there, three year interest rate caps, which protect you from the interest rate going high, but then you have to purchase another interest rate cap. So I think that’s where pausing distributions, hoarding cash for when that time comes. And either you can refinance or buy another rate cap.

Tim Lyons (18:08):

That’s exactly it, right, Greg? So some of the deals that we’re in this is happening. Look, it’s happening to us, it’s happening to a lot of folks, but luckily we work with operators that buy Ray caps and they were buying them back in 2020 and 2021 when rate caps might’ve cost. I don’t a 20 million, $20 million deal. I’m just going to throw out a number, Greg. It might cost $60,000, maybe $80,000 for a rate cap today. Those rate caps are going for a million or so. So you can see that it is high demand has high prices. So what we’re doing is we are pausing distributions and we’re conserving the cash on the property level balance sheet so that when we do go to refinance or to elect to do another one year extension with another rate cap that the money from the property is generating, that the money that the property is generating is going to be enough to service that refinance or that extension.

(19:06):

Because the last thing you really want to do, Greg, in this business have a capital call and a capital call for those who aren’t familiar is when a property does not maybe pause distributions. They don’t have property level cash reserves, but they need to refinance or they need money in, they need more equity. And they go to their investors and they say, you know what? I know you just invested 50 or a hundred thousand dollars, but we’re going to need another 10, 15, $20,000 from you just to keep the property alive. And that’s not the kind of news you want to get as an investor because number one, that might scream that there’s problems. Number two, maybe you don’t have the capital at the moment to do it or you don’t want to. And number three, if you don’t do it, it’s going to dilute your shares of the properties that’s going to dilute your share of the property ownership that you had in the beginning. So there’s a lot of issues with capital calls and there’s no magic boat say that that’s even going to cure the problem.

Greg Lyons (20:11):

And so a lot of the operators we work with have chosen to keep

Tim Lyons (20:18):

Renovating units, right?

Greg Lyons (20:19):

Because their main goal was to drive up the net operating income. If you make your property more valuable, you have refinance options. If you chose to just kind of stay where you were, not raise rent, just try to keep the place full. When it comes time to refinance, your property is going to be worth the same amount it was when you bought it two or three years ago. But when you keep renovating units, keep pushing, rents nicer units, command to higher rent, your net operating income grows. So you’re able to, when you go to refinance, your property’s worth more. Sometimes you’re going to hear another term called mezzanine debt. And that’s when some people, their Eyes go back in the back of their head go, I have no idea what anyone’s talking about Anymore. But when you go to refinance, sometimes there’s a delta between how much the bank’s willing to loan and how much your property’s worth. So there may be something called mezzanine debt introduced to the property. So Tim, what in the world is mezzanine debt?

Tim Lyons (21:26):

Mezzanine debt? Oh man, one of my favorite topics to talk about. Just kidding. Definitely not. So listen, when you go to refinance and the bank’s willing these days to give me maybe 50% LTV loan to value or 60% LTV max loan to value, whereas 2020 2019 18, they’re willing to give you 75 or 80% loan to value, which means if you have an 80% loan to value deal, that means the bank is bringing 80% of the capital to the deal in the form of debt, and we’re bringing 20, right? That’s riskier, right? Then say 50% loan to value, where the bank is saying, we’ll give you 50% of the value of the property and you got to bring 50% equity. Well, when you go to refinance and the bank says, we’re only going to give you 50% LTV and say you only have 40% equity in the property, there’s a delta of 10%, right?

(22:19):

50% from the debt, you only have 40 on your books. Well, you need another 10%. So what are you going to do you going to do a capital call to your investors? I don’t think I want to do that. Maybe there’s something called rescue capital these days, or rescue equity or it’s also called mezzanine debt. There’s different products out there, but’s banks, non-bank entities, there’s hedge funds, there’s all these different sources of capital. They’ll say, look, I will lend you that 10% into that capital stack, but I want to be right below the senior debt, number one, and number two, I want 9% coupon and with a two year guarantee or something like that. So now you got to underwrite that into your deal. Yes, it’s a refinance. Yes, you didn’t do a capital call. Yes, you’re still going to live another day and now you have, your deal is still intact. But there’s different ways to construct this and this might impact LP and GP

Greg Lyons (23:17):

Returns,

Tim Lyons (23:18):

Returns going forward. So there’s a lot of different ways that this can be kind of rescued. Deals can still live another day. There’s a saying out there, Greg, survive till 25, 20 25. But alright, so Greg, let’s go back to the limited partner that had or her distributions paused while the operator is either number one in the process of a refinance. Number two, building his balance sheet, their balance sheet for the property level of cash flows so that when it comes time to either extend the loan or to do a refinance, they have the capital in the bank ready to go, no capital call, whatever.

Greg Lyons (23:58):

And all this is going on in the background. That’s why it’s so important when you are investing, you have to invest in the jockey, not so much the horse. The horse is the property, those are the apartment buildings, but the jockey that is commanding the horse, directing the horse and all those different things, these are the people that are doing the work behind the scenes, sourcing new debt, sourcing equity, all these different things while you are sitting at home going, Hey, I wonder what’s going on, right? What’s happening to my distribution? So let’s say we had distributions pause six months ago, what happens to your return? So you go back to the investment deck and say, oh, I’m supposed to be getting a 7% preferred return, but now I’m getting zero. What happens to that preferred return? What happens to your investment, say In another six Months? Tim,

Tim Lyons (24:57):

That’s a great question. And that’s really literally, Greg. If everybody just fell asleep during the first 25 minutes of this podcast,

Greg Lyons (25:04):

which I could say,

Tim Lyons (25:05):

I Could totally understand,

Greg Lyons (25:06):

Absolutely,

Tim Lyons (25:07):

This is what they want to know. What’s in it for me? How does this affect me and my returns and my capital, and am I going to be okay? Right? So say, yeah, say the deal is it was underwritten and sold to you as a 7% preferred return, but you’re not getting 7% every month. Well, it accrues, right? And this is where you need to go back to your PPM and your subscription documents and your deal deck and say, how does my deal work? How is it given to me? What did we agree upon? Yeah,

Greg Lyons (25:38):

How is this structured? Yeah,

Tim Lyons (25:40):

How is it structured? That’s a better word, Greg. Thank you for helping me out there

(25:46):

 

(25:46):

Alright, so set preferred return and you’re not getting anything. Well, it accrues, right? And in certain cases it accrues and compounds, right? So month one you don’t get anything. Well, now you’re owed 7% for that month. Month two, same thing, month three. It could be a year, it could be two years, who knows, right? But when there’s a capital event, it’s called right? When there’s a refinance, when there’s a sale, a capital event, what has to happen is the deal gets unwounded, right? Let’s just, Greg, let’s do it both ways.

Greg Lyons (26:15):

I can feel some public math coming.

Tim Lyons (26:18):

Let’s do it both ways, right?

Greg Lyons (26:20):

Please use round numbers,

Tim Lyons (26:21):

Please use round numbers. So say for six months you didn’t get a distribution, right? And it was a 7% preferred return on, I don’t know, let’s Greg, let’s call it a hundred thousand dollars, right?

Greg Lyons (26:32):

Thank goodness. Yes.

Tim Lyons (26:34):

So what is that? That’s $7,000

Greg Lyons (26:39):

Annually.

Tim Lyons (26:40):

So Greg, for the listeners, we can’t see Greg, he’s actually has his eyes rolling in the back of his head. So listen, so 7,000 for the year, that’s 5 83 a month. So now we do a refinance. We’re six months in, you haven’t gotten anything. There’s a 7% pre, right? So now we do a refinance. We’d have to catch you up on that 5 83 33 a month times that six months, which is $3,500. So you as a LP would get a newsletter saying, Hey, we refinanced, we did this, we did that. Here’s our new debt terms. And oh, by the way, we are now going to catch you up on your preferred return structure. We missed you for 30 for say six months, and here’s your 3,500 bucks and we’re going to resume distributions, right? That’s an ideal thing. If we or the operator, whoever does this deal, this hypothetical deal, they sell the property right now, they sell the property, whatever, good time to sell deal.

(27:41):

They couldn’t refuse. Here’s how it gets unwound. We go to the closing table, the money changes hands. The way it gets unwound is that the investors have to be caught up on their pref. So that’s six months of no distributions or or previous payments that weren’t up to 7%. Maybe they were 4%, maybe they were 5%. Well, they weren’t seven. So we had to catch you up on all your preferred returns from the date of closing up until the date of the sale. Then we give you your original capital back. So say you did a hundred thousand dollars investment, we catch you up on the pref. That’s one check. The second one is your return of capital. Here’s your a hundred thousand dollars back. Now, whatever’s left at that property right after the sale, now it gets split 70, 30, 80 20, whatever your documents and the structure says that’s how the remaining piece of the sale gets unwound.

(28:38):

So I hope that makes sense, right? Because right now there’s a lot of uncertainty. Distributions may be paused. People are like, Hey, what’s going on? Am I in trouble? Are we in trouble? Is the deal in trouble? Can we refinance? Can we not refinance? And these are the types of conversations and emails that Greg and I have been helping our own investors as well as other people who don’t invest with us, but they say, Hey, we have a question. How does this work for you guys? Or I’m in a different deal with a different operator and this is what they’re telling me. What do you think? It’s good? And listen, at the end of the day, you have to work with folks that you can hop on the phone call with, hop on a zoom with, get an email answered, get a text message answered, whatever the case may be. Because the worst thing that could happen at this point is for people to go silent. No more monthly statements, no more answering emails, no more answering phone calls. I mean, that is the kiss of death. So highly recommend if you have an issue with your deal. If you’re out there, you’re a limited partner, talk to your sponsor, talk to the issuer, hop on a call. I’m sure a lot of people are doing webinars, they’re doing webinars. So on this exact topic, Hey, we’re going to pause distributions and here’s why.

(29:50):

But there’s a lot to this. This is why you want to work with a reputable group.

Greg Lyons (29:54):

And I think these are deals that Were kind of invested in over the last 2, 3, 4, up to five years. The debt products were different and stuff like that. So as you’re Hearing this going, oh my gosh, I would Never get into Real estate. Now, not so fast now is I said it earlier, but now’s the time to kind of have those eyes open to say this may be the right time, right? I think with some distress in the commercial real estate sector, that’s everything. That’s office, that’s retail, all different things. Multifamily. There is some distress out there. And every Tom, Dick and Harry seemingly was a real Estate Syndicator mover the last few years. So There are going to be some people that get in trouble, unfortunately, but that’s also where deals can be had. So keep in touch, not just in the headlines, keep in touch with people that are in the real estate game to continually learn more about what’s out there and what’s available.

Tim Lyons (30:54):

Greg, the last two deals that we did were distress sellers. They had to sell one had a refinance, one had a capital call. I mean, look, it is what it is. But when you’re on the other side and you’re able to capitalize on those deals, I mean, that’s just It For them. That’s the name of The game. Thanks. It’s The name of the game, right? We’re about to do another deal though with a mom and pop owner that owned the property for a really long time and have not been raising rents and they haven’t been renovating. So we’re getting it at almost a 30% discount, Greg. So what I’m trying to tell you is that there are deals out there, there are operators that are going to be on the winning side of this, right? And that’s where you want to position yourself,

Greg Lyons (31:40):

Hey, listen, opportunities are going to abound. So again, just keep in touch with the people that are in real estate.

Tim Lyons (31:47):

The final thing I want to say, Greg, is you’re going to start seeing people refinancing and holding deals longer potentially. So maybe there was a five-year hold that was kind of portrayed in the beginning, but it’s time to refinance now. And they might do a Fannie Freddie five-year note, which is fixed rate debt, like we talked about, non recourse 30, 35 year am sometimes, and they might just hold the deal for a little bit longer, right? Cashflow it, return some capital to investors cashflow and hold onto it, right? Because the deal is okay, the property’s working, but we’re just in this debt cycle where we have to figure it out and figure out ways to keep on either rolling the debt or to get fixed rate debt. And on top of that, the last thing I’ll leave you with is Fannie and Freddie are GSEs government as entities, and they have a mandate by the US government to lend into the residential market.

(32:47):

This is the only market as far as I’m concerned, or as far as I know, and I’m aware that has to lend certain amount of money each year into the residential space. There’s no GSEs for office, for hotels, for industrial, for self storage, for anything like that, as far as I know. So that’s also part of the thesis when you’re trying to wrap your head around, where do I get involved in real estate? Where is the debt going to be sustainable? Just keep in mind that there is all these things in the background. It’s a big, big educational undertaking. But that’s why you got to just start somewhere, right? Start reading books. Start listening to podcasts, because the journey of a thousand miles begins at one step. So Greg, any parting thoughts before we wrap this week up?

Greg Lyons (33:36):

No. This is the not so exciting part of investing in real estate, right? It’s not all roses And unicorns, As you said a little bit earlier, but this is where the sausage is made a little bit, and this is where you make money. This is where you do your thing.

Tim Lyons (33:52):

I love it. I love it. I love it. Listen, I’m still not going anywhere, right? I’m still investing in these deals. I still am, right? With my thesis the way it was. Obviously I wish that the interest rates would come down like everybody else, but well, that’s to be determined. So I listen, I thank you guys so much for being with us. Our listenership has increased, our five star ratings have increased. I can’t thank you guys enough, Greg and I. This is the labor of love sometimes, but we love doing it. We have some great, great guests that are coming on to the next couple of weeks. So we really just wanted to say thank you for being with us. This is episode 99, by the way. So the next one you hear out of us would be episode 100, which is hard to wrap our heads around.

(34:38):

Greg, we’re coming up on the two year anniversary. So Greg and I would be really grateful if you could just take the time to scroll down to the notes in the podcast player that you’re listening to and our awesome podcast guy, Doug, has made it really easy for you to a one click leave, a rating and review. It means so much to us. It means so much to the podcast visibility and just reach. So that’s going to do it for this week’s addition of the Passive Income Brothers podcast, and we look forward to serving you again Next Week. Thank you for listening to another episode of the Passive Income Brothers podcast. We would be grateful for your support of our podcast by giving our show a five star rating and review and subscribing to our show on your favorite podcast platform. Don’t forget to take inspired action after listening to this show so that you can start building out your passive income streams. Finally, head on over to cityside cap.com to connect with us and find out more information about how to get started passively investing in real estate.