Is Now the Time to Buy Real Estate? Why Patrick Langhans Says Investors Have the Advantage

Patrick Langhans (00:00)

Well, with any investment, you never want to buy at the peak, right? You want to buy kind of on the dip if you want to make money in the long run. And I think we’re on a little bit of a dip in the real estate market, especially in my area, and then I’m sure there’s other areas across the country that are seeing a little bit of a dip. So we’re seeing a lot less people buying a home to move in and build a family, so properties are sitting for a while,

which means investors have an opportunity to get in there, get a reduced price, get concessions. I see it as a total right time to buy if you’re an investor.

Cody Crabb (02:06)

Welcome back to the Real Estate Pros podcast by Investor Fuel. I’m your host, Cody Crabb, and today I’m joined by Patrick Langhans. Patrick is an originating branch manager with CrossCountry Mortgage in the Denver area, and he’s been in the mortgage industry since 2002. Patrick, welcome to the show. Thanks so much for joining us today.

Patrick Langhans (02:24)

Thanks, yeah, Cody.

Cody Crabb (02:25)

Or as my son would say, you’re—you’ve been in the mortgage industry almost since the nineteen hundreds, which I hate when people say it that way because I feel ancient when they do that. But I think—

Patrick Langhans (02:34)

That’s pretty cool, actually.

Cody Crabb (02:35)

That’s probably a better way to look at it, like we’re vintage. Yeah.

Patrick Langhans (02:39)

I like that.

Cody Crabb (02:40)

So just to kind of start out here, you told me before we started talking on the podcast here that you think it’s an investor’s market right now, especially as kind of things slow and some prices are kind of going down. Tell us a little bit about why you think that, because I think that there’s a general consensus people feel like the market is not good.

So I’d love to get your perspective on this.

Patrick Langhans (03:01)

Well, with any investment, you never want to buy at the peak, right? You want to buy kind of on the dip if you want to make money in the long run. And I think we’re on a little bit of a dip in the real estate market, especially in my area, and then I’m sure there’s other areas across the country that are seeing a little bit of a dip. So we’re seeing a lot less people buying a home to move in and build a family, so properties are sitting for a while,

which means investors have an opportunity to get in there, get a reduced price, get concessions. I see it as a total right time to buy if you’re an investor.

Cody Crabb (03:35)

Interesting. Yeah, people think it’s a bad market right now, kind of in general?

Patrick Langhans (03:38)

Yeah, if you are buying a home to live in, it’s a little tougher, right? Interest rates even yesterday—it’s September third, so yesterday interest rates hit almost a two-year high. So yeah, so affordability is an issue for someone who’s gonna buy a home to live in it. Prices have been elevated, insurance costs are higher, so we’re seeing a lot less

homeowners go buy, which means properties are just available, and that’s when it’s time to swoop in if you’re an investor.

Cody Crabb (04:09)

Interesting. Okay, so if affordability’s getting worse and rates are this high, like just kind of in layman’s terms, why does that make numbers work more for an investor’s favor?

Patrick Langhans (04:19)

So, more negotiation power. So just because less people are buy—there’s less demand, right? So the whole supply and demand Economics 101: if less people are buying homes because affordability is tough, that means prices come down and your negotiation power goes up. If it’s just you making an offer on a home, ball’s in your court, you have the power. If it’s you and five other people trying to buy the same home,

you kind of lose a lot of that negotiation power. So right now, home buyers kind of have the advantage in most cases.

Cody Crabb (04:50)

Yeah, I think that’s a great way to look at things. So as a mortgage professional, obviously our—the people listening to this podcast, a lot of them are still trying to purchase property through a regular financing arrangement with a mortgage. When somebody is going to come to you,

what are some things that stand out to you as maybe like some red flags and some green flags? Things that you spot right away that are gonna be like, “You gotta fix that or else this isn’t gonna work” type stuff.

Patrick Langhans (06:06)

The biggest thing is credit score. You kinda need a 620 credit score or higher.

Cody Crabb (06:10)

That’s lower than I would have thought actually, that’s interesting.

Patrick Langhans (06:12)

Technically, if you have down payment, you can go lower than that even, but in general 620 is a good target. If you’re buying investment properties, it’s nice to have at least 10% in down payment. If you’re buying a home to live in, you don’t necessarily even need a down payment. There’s low down payment options or down payment assistance programs out there. I would say credit scores… Basically we look at three things: We look at credit score, your income, and your assets. It’s basically just those three things. We dive deep into those things, but credit score 620 is a great target. Don’t necessarily need to have it, but it helps. Income, it helps to have a job

and some income. Yeah. Yeah, we’d like to verify a little bit of income, but you’d be surprised, there’s programs where we don’t need to verify income. And then money:

Do you have a down payment? So basically the better any of those things are, the more opportunities you’re gonna have.

Cody Crabb (07:06)

Yeah, you mentioned before we started that there’s starting to be newer financing products that kind of make it easier for investors to get some deals done. What are some of these options that investors may not realize are actually available to them?

Patrick Langhans (07:19)

Yeah, so the most popular right now, and this contradicts everything I just said, it’s called a DSCR loan. Debt Service Coverage Ratio is what it stands for, don’t worry about what that means. But DSCR loans are for investors only, and they don’t require an income verification. So yes, I just contradicted everything I said. That’s it.

Yeah, so there’s no pay stubs, there’s no W-2s, there’s no tax returns required. We do need to verify something like, how are you going to make your mortgage payment? And what we use to verify that you can make your mortgage payment is the projected rental income on that property that you’re gonna buy or refinance. So the only income we’re verifying is the rent. And as long as the rent will cover the mortgage payment, we can do the loan. But we don’t need

your tax returns, your pay stubs, your W-2s, we don’t need all the information on all the other properties you own. It’s literally verify the rents make sense and verify you have enough money for the down payment. So that’s a super popular one. I think we have seven—yeah, I think we have seven in process right now.

Cody Crabb (08:22)

Wow. Yeah, that makes total sense. Obviously, a lot of our listeners are very familiar with this process, but for those that aren’t, who is a DSCR loan the best fit for? Like, is this mainly for experienced investors? Could somebody buy their first rental realistically with one of these?

Patrick Langhans (08:37)

I think it’s for people that are probably more experienced investors and have complicated tax returns and income situations that are hard to verify. So yeah, so I think it’s better for people who already own properties, or maybe you don’t own investment properties yet, but you own a couple businesses and your tax returns are just super complicated. And you also got to keep in mind, when

people are doing tax returns, their goal is to make their income look as low as possible, especially self-employed people, right? Well, that kind of goes against what I’m trying to do, which is make your income look as high as possible so you can qualify for the loan.

Cody Crabb (09:11)

Makes sense, yeah.

Patrick Langhans (09:12)

So DSCR eliminates that. You can file your taxes however you want, because I’m not going to look at them. But to answer your question, yes, I think it’d be probably for more established investors with complicated

incomes, complicated tax returns, lots of businesses, or just lots of properties.

Cody Crabb (09:29)

It makes sense why that came along, cause I can just see so many people being like, “Obviously I have the money. Yeah, that’s—that’s not the issue.” The other thing that you brought up before we started was tax benefits. When you own real estate, there are many tax benefits, especially for someone who’s in, for example, a W-2 situation.

Why can owning investment real estate be so valuable from a tax perspective when somebody’s kind of already doing the W-2 thing? Maybe they’re like a high—like a software engineer or a doctor or something like that, where they’ve already got this really high W-2 income.

Patrick Langhans (09:59)

Yeah, so I’m actually a W-2 employee, and so that’s why I buy investment properties. If you’re W-2, you get your paycheck, but you get your—what goes into your checking account each month is what’s left over after you pay taxes. So you’re paying all your taxes upfront, and then at the end of the year you’ll file your tax returns and hope you get a refund.

When you file your tax returns, the thing is if you’re W-2’d, there’s very few write-offs to get a bigger tax refund. So for me, for instance, I’m in a sales position, but I’m W-2’d. So if I go out to lunch with a business partner, if I host a charity golf tournament, if I host a big event and pay a bunch of money on it, I actually can’t write that stuff off on my tax returns. Used to be able to,

they changed some of the tax laws, and basically there’s nothing for me to write off. So if your write-offs are very limited if you’re W-2’d, so we all pay a very high tax rate. The caveat is if you own investment properties. And I’ll try not to go too deep into how it all works, but essentially

you have to be involved in the management of the investment properties and your real estate business. And if you are, there’s ways for deductions, losses, interest, depreciation—all these write-offs that you get from real estate come off of your W-2 income or your taxable income. Okay.

There are some requirements to make sure you can do that. And if you meet those requirements, the losses you take on real estate, so the paper losses, depreciation, and all that fun stuff, those paper losses are considered active losses to your income, so you get to deduct it. Now, if I was to go buy real estate and hire out a bunch of management companies and never be involved,

I would still get to take some losses, but it would be passive losses because I’m not involved in the business, and that does not come off my W-2 income. Okay. So there are some rules, but if you follow those rules and you’re involved in the management of those investment properties, I’ve seen people reduce their tax rate 10, 20%.

Cody Crabb (12:11)

So for someone that’s listening that’s been sitting on the sidelines because they think rates are high or they think they missed an opportunity, what’s something that you’d want them to understand right now about investing in today’s market?

Patrick Langhans (12:22)

So it depends on what their motive is as far as why they want to invest. For that high-income W-2 earner that’s looking to maybe save some money on their taxes and get some deductions, I would first talk to a CPA or accountant who’s familiar with all the rules and make sure you can meet those rules. Okay, make sure that you can comply with the IRS requirements to get those deductions. And then the next step would be to talk

to someone like me to go over financing options, payments, price points, strategy. There’s so many different ways to structure the financing, like literally thousands of different ways we can do it, which is nice because we can tailor it to each individual and what their goals are. But the next step would be to talk to someone like me. If you’re getting into real estate investing because

you want to do long-term holds and you want to build a bunch of equity and maybe it’s your first one, then maybe you can come direct to me. You may not need the CPA first, but really the first step—my job is really to show people what they can afford and a strategy to achieve that. And so the first step is really give us a call, or give a mortgage professional a call.

Cody Crabb (13:32)

And if someone’s hearing what you’re saying and they’re liking what you’re putting down, where do they need to live to work with you, first of all, and how can they get in touch?

Patrick Langhans (14:20)

We’re all fifty states. So if you just Google search me, Patrick Langhans CrossCountry Mortgage, you’ll find me. Yeah, we’re—

Cody Crabb (14:28)

Awesome. Yeah, well, I can’t thank you enough for this episode. Sometimes you got to get down to the basics, and there’s nothing better than getting an expert in here to do that. So thank you so much for that, and thank you, listeners, for giving us some of your time, too. If you liked what you heard today, make sure you give us a like and subscribe and all those things, and don’t miss the next episode. Patrick, it’s been a pleasure. Thank you so much.

Patrick Langhans (14:48)

Yeah, thanks, Cody.