A Game Plan for Rising Interest Rates – Episode #334

As inflation increasingly becomes reality, learn what borrowing strategies you can use as rising interest rates continue to affect loans and mortgages. On this episode of the Dentist Money™ Show, Ryan interviews lending specialist Drake Bloebaum. If you are considering buying a practice, a building, or a home—or looking to refi to consolidate debt—Drake offers advice for you.

Show Notes
www.drakebloebaum.com

 

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Podcast Transcript

Ryan Isaac:
Hey everybody. Welcome back to another episode of the glorious Dentist Money Show brought to you by, you guessed it Dentist Advisors, a no commission, fiduciary comprehensive financial advisor, just for dentists like you all over the country. Check us out@dentistadvisors.com. Today on the show, I have a longtime friend of Dentist Advisors, his name is Drake Bloebaum. He is a national mortgage lender, mostly just for doctors and dentists all over the country. And Drake is also a very seasoned real estate investor himself in all kinds of real estate projects. So today on the show, we’re just talking about kind of the crazy environment that we’re in with housing and prices and rates and the changes in the economy and everything going on. And he has some really good advice for new home buyers, for this market, for how to consider your loans and refinancing and what rates are doing and just some super good advice. So my many thanks to Drake for lending us his time and his expertise in being with us today. And thanks to everyone listening, we really appreciate you being here. And if you have any questions for us you can always go to dentistadvisor.com, click the book free consultation button, schedule a chat with us. We’d love to talk to you. Thanks for being here. Enjoy the show.

Announcer:
This is Dentist Money. Now here’s your host, Ryan Isaac.

Ryan Isaac:
Welcome to the Dentist Money Show where we help dentists make smart financial decisions. I’m your host, Ryan Isaac, and I’m here with a longtime friend, Drake Bloebaum from Neo Home Loans. Drake is a lot of things. He’s a smart guy. He is a real estate investor, and he’s been in the lending business for doctors and dentists for how long now, how long has it…

Drake Bloebaum:
Fifteen years.

Ryan Isaac:
Fifteen years. It’s been a long time. I’ll let you do more of an intro than that, but Drake, thanks for joining me on the show today, thanks for being here, man. Appreciate it.

Drake Bloebaum:
My pleasure. It’s an interesting time to [laughter] be talking about finances.

Ryan Isaac:
Oh, it is. Before we jump in, like there’s just some news and changes and things. I mean, we’re recording this for anyone listening later. What is this, March, 2022? Interesting times, rates and inflation and home prices and wages and the economy, but real quick, just give us a quick background. How did you get involved in the lending business? How did you get involved? You’re a real estate investor. You’ve been an investor for a long time, too. You have a lot of properties and you’re very actively involved in that stuff. Just give us some background. How did you begin all this stuff?

Drake Bloebaum:
Yeah, so I got into the business about 2005, some friends helped me. I wasn’t sure what I was doing with my life and some friends pointed me to some other friends and said, “Hey, you should chat with these guys. They’re doing well in the mortgage space.” And I chatted with them and they helped me get started. And very shortly thereafter purchased my first rental property, that was in 2005, late 2005. So they probably rang the bell the day that I bought my investment property as to, this is the top.

Ryan Isaac:
Yep.

Drake Bloebaum:
At that time, anyway.

Ryan Isaac:
We bought our first house ever me, and my wife, in ’05 as well. So I can kind of relate to what that felt like, the excitement, but how quickly that faded a couple years later.

Drake Bloebaum:
Definitely. So yeah, it was an interesting time ’cause when we first started out or when I first started out, no one had to document anything, right? It was, how much do you make? How much do you have in the bank? Cool. Here’s a house.

Ryan Isaac:
Yeah. How much do you think you’re gonna make?

Drake Bloebaum:
Exactly.

Ryan Isaac:
Yeah.

Drake Bloebaum:
That’s good enough. So yeah, that my first couple years in the business, I didn’t really learn that much other than how to jump through the hoops that were there at the time. We were getting loans done, but most of them were stated income, some verified assets. Like my fourplex, I was able to buy with zero down, stated income and verified. I happened to have six payments in the bank and that was…

Ryan Isaac:
That was it. That was our first house too. Yeah.

Drake Bloebaum:
So yeah, that money party ended in 2007 and it became very quickly, very scary. Yeah. I mean I purchased my property and it very quickly depreciated probably 20 or 30%.

Ryan Isaac:
What was your plan? Just like thinking back, what was your plan when you got that first place in ’05? What did you think you were gonna do with it? Was it a long term hold or it was like a flip situation, or what did you think of it?

Drake Bloebaum:
It was a fourplex, it was a hold, but my plan was like I’m gonna make 100 grand on it in like two years and then I’ll sell it.

Ryan Isaac:
Well, you probably did from ’05 to ’06.

Drake Bloebaum:
Oh man. I was so late on ’05. Not…

Ryan Isaac:
Okay.

Drake Bloebaum:
Anyway. Yeah. Maybe, it made some there, but then it quickly depreciated and yeah, during that time of ’07,’08,’09, you know, so many people were letting their properties go and they were so far underwater. It was the question was, is it ever gonna come back? And what I learned during that time, luckily I purchased wisely in that I bought with a little bit of cash flow. So the property rents covered the mortgage by just a little bit.

Ryan Isaac:
Okay.

Drake Bloebaum:
But I didn’t have to come out of pocket for it. Right? So my thinking was, well, why would I let this go? It’s being paid for, I don’t have to come out of pocket.

Ryan Isaac:
Yeah.

Drake Bloebaum:
So we just held onto it and then time… In real estate, time heals all. Probably just like the stock market too.

Ryan Isaac:
I like that. Yeah. And it’s true. It does. Especially when it’s a time-tested asset class that’s been around forever. You know what it does over long periods of time, time heals all. It’s a good way to put it. I like that.

Drake Bloebaum:
Yeah. And other people are paying it off for you in real estate.

Ryan Isaac:
Yeah.

Drake Bloebaum:
So it was definitely a lot of stress, like some sleepless nights from ’07 to 2010 or so.

Ryan Isaac:
Were you in mortgages at that time too?

Drake Bloebaum:
I was. And yeah. I mean there was…

Ryan Isaac:
|Oh yeah.

Drake Bloebaum:
You know, I went on my… I’ll never forget we did a river trip for our honeymoon and we were pushing off to go into the wilderness. Like October of… Or September… Middle September of ’08. And that’s the day I went in to get a cup of coffee at a coffee shop before we left on the river trip. And I read across the news headline,”Lehman brothers fails.”

Ryan Isaac:
You’re like, “What?”

Drake Bloebaum:
And I was… Yeah. I was sending a lot of my loans to a company that was a subsidiary of Lehman brothers. They were just gone that day. Stock market drops 500 points, which was a lot at that point.

Ryan Isaac:
Uh-huh. Yep.

Drake Bloebaum:
And I’m like, okay, well I’m going into the wilderness for seven days. I might come back and not have a job or anything. [laughter]

Ryan Isaac:
Yeah. Did you enjoy it? Was it a good trip?

Drake Bloebaum:
Oh, the trip was awesome.

Ryan Isaac:
Okay, cool. Well, good.

Drake Bloebaum:
Yep.

Ryan Isaac:
Yeah, you did it right then.

Drake Bloebaum:
I just said, “Hey, you know, I’m going. I’m not gonna stress it.” I was gone, so…

Ryan Isaac:
Good for you.

Drake Bloebaum:
But yeah, it was a very intense from all of those late ’07 all the way through ’08 until 2009, that’s when the Fed and Treasury started… They decided to start buying mortgage-backed securities. Right? And that’s when the rates dropped and that’s when people started refinancing and they introduced The HEART Program and that helped bail a lot of people out.

Ryan Isaac:
But now we fast forward to today. Right when we got on the call here, you were just tell… What were you just telling me news that just came out and what was the news? And for us lay people who don’t know this stuff, what does it mean to us consumers?

Drake Bloebaum:
So as of today, we’ve had one of the most precipitous declines in the price of mortgage-backed securities. Mortgage-backed securities are the bonds that control mortgage rates. They’re traded on the open market just like stocks, and as the price goes down, the rate or yield of the bond goes up. And so prices on those have been dropping really, really fast since what? January? February, let’s say. February of ’22, because of inflation.

Ryan Isaac:
Yeah.

Drake Bloebaum:
And so inflation is the arch enemy of bonds because they have a fixed return and that fixed return is worth less over time. And so, as inflation goes higher, the bond price has to go lower to effect a higher yield and therefore make that investment more interesting to investors.

Ryan Isaac:
Yeah.

Drake Bloebaum:
So today, in and of itself, the mortgage bond… Mortgage-backed securities lost 84 basis points, which is…

Ryan Isaac:
Which… Give us some context. That’s a big, big drop.

Drake Bloebaum:
That’s a big drop. An average day in the mortgage bond market is about… You’ll see it fluctuate maybe 12 basis points.

Ryan Isaac:
Okay.

Drake Bloebaum:
On a sort of non-major news day kind of thing.

Ryan Isaac:
Okay. Yeah.

Drake Bloebaum:
And so 84 is massive and that’s on the heels of a 40 point drop and a 50 point drop the last couple days. Like it’s truly falling off a cliff. The reason for that is, there was a lot of news made by Fed members today, even, that we’re saying, “Look, inflation is getting outta control. We need to get it under control.” Or, I think Citibank and Bank of America, both postulated that they’re gonna now be expecting four 50 basis point rate hikes over the next year in the federal funds rate in order to tamp down inflation.

Ryan Isaac:
Which is all things that need to happen? Right? They’re trying to do their job and it affects… It’s like a, you get a teeter-totter, you get one side that’s, “Oh, that’s great.” And then this other side that affects us. So you’ve seen mortgages swing from… What were lows that you were seeing most recently on like a 30 year fixed mortgage, probably just last year.

Drake Bloebaum:
Yeah, it got as low as 2/7, 2/6.

Ryan Isaac:
Yeah, I think I had a 2/6 before we moved. Which I’m like, “Damn.”

Drake Bloebaum:
Yeah, you know what? I tell people not to get hung up on those.

Ryan Isaac:
Sure.

Drake Bloebaum:
Like obsess about their rates. You just have to make sure it’s… What you’re doing is in harmony with your overall strategy.

Ryan Isaac:
Yeah, totally. And then, so today you’ll see some of these moves in bond markets affect rates to the tune of, it’s gonna put us where…

Drake Bloebaum:
We’re probably hovering very high fours and low fives at this point.

Ryan Isaac:
Yeah.

Drake Bloebaum:
Yeah.

Ryan Isaac:
Which historically, right, I mean, I remember the time when a 5%… Five and a quarter rate back in that, I don’t know, ’08, ’09 time was a good rate comparatively. Yeah, I remember dentists refinancing their business loans, their practice loans in the sixes and low sevens, and that was a good rate, comparatively. So historically, we’re still talking about cheap money.

Drake Bloebaum:
Yeah. And you know the one adage that we have in the mortgage world is, “The cure for higher rates is higher rates.” So the Fed raising the federal funds rate is to… The goal there is to tamp down inflation. If inflation in fact gets tamped down, and they will do it. It’ll happen.

Ryan Isaac:
Yeah. It’ll happen.

Drake Bloebaum:
That’s gonna lead mortgage bonds to be more valuable again, if there’s no inflation and the prices will come back up, and the [0:12:01.4] ____ rate will come back down.

Ryan Isaac:
Come back up and rates go down. Yeah. For everyone listening, yeah, that’s the way the bond works. The prices and the rates are inverse always. Yeah, I mean just think about like what a machine, what a giant mechanism that is, where this huge world economy that we are and the inflation that we’ve been experiencing from all kinds of reasons gets counteracted with raising federal rates, but that’s counteracted in bond markets for mortgages. And that changes prices, which changes rates, which makes people go buy more houses again or refinance a lot again, and kind of a wild time. How does this all… I was sharing this with you too, an article I had read earlier this week about…

Ryan Isaac:
Which is kind of, I’ll just preface this by saying articles sometimes get a little, it’s a little clickbait-y. Because it’s like, of course this is what’s supposed to happen over periods of time, assets grow in value, so this makes sense. But it’s still a thing, just makes you consider it. It was just that a record number of homes in the country are worth more than a million dollars than there ever have been. Which again, there are assets that are supposed to grow over long periods of time. At some point it’s like saying there’s more homes over 500 grand than there are. It’s like, yeah, of course there is. Yeah, it’s supposed to be that way, but how does this all… You’re in this world doing loans, you own a lot of real estate yourself. How does this world of prices and rates and fluctuations and inflation, any trends that you’re seeing, any mistakes people are making? What should people keep in mind when they’re trying to navigate all these moving pieces?

Drake Bloebaum:
Yeah. So people come to us generally and kind of what they know to ask and the way that they sort of approach looking for a mortgage and buying real estate is how do I minimize the amount of interest I’m gonna pay over time? That’s the lens at which they look for a mortgage under. But what I try to educate people and open their mind towards is, look, it’s great to pay less interest, for sure.

Ryan Isaac:
Yeah.

Drake Bloebaum:
But what’s really more important to you in your life is how do we get you to financial freedom the fastest.

Ryan Isaac:
Right.

Drake Bloebaum:
Right? So when you’re analyzing your mortgage, a lot of people just come in with the idea that I need to put 20% down. I need to get the absolute, most low interest rate that I can brag to my friends about and that’s my only goal. But the problem with that is that they’re missing out on opportunity costs, potentially in other places, especially folks like dentists. Your clients, as you know, there are loans for dentists out there where they can put zero money down.

Ryan Isaac:
Yep.

Drake Bloebaum:
In fact, we can do that up to a million dollars, with zero down and no BMI. And so what I try to help talk them through is okay, what’s going on with your student loan debts? How much do you have? Are you in public service loan forgiveness? Are those gonna disappear? What’s your strategy with those? Is it better to put more money down and save $100 on your mortgage? Or should we attack those student loans? It could be at 6% or 7%.

Ryan Isaac:
Right.

Drake Bloebaum:
Right? Or should we be putting less money down and giving that to your financial advisor? Because what’s the historical rate of return on the S&P 500? About 10%?

Ryan Isaac:
Yeah, double digits. Right.

Drake Bloebaum:
Double digits. So why are we…

Ryan Isaac:
Still more than a mortgage. Yeah.

Drake Bloebaum:
Right. So why are we trying to accelerate and put extra towards this tax deductible mortgage at, say, even 5%?

Ryan Isaac:
Yeah.

Drake Bloebaum:
When we could give it to Ryan and he can go earn 10% on it.

Ryan Isaac:
Allegedly.

Drake Bloebaum:
Allegedly. Well, you’re right. Over long periods of time.

Ryan Isaac:
Yeah, right.

Drake Bloebaum:
Right. And the other benefit is that it’s liquid. When you have it, it’s liquid, when it’s in the house, it’s truly dead money. You have to pay to get it again in the form of a refinance or something. So we just really try to educate clients that, look, let’s just look at the whole picture here. Not just, how do we drive your mortgage rate down? Right? Like people obsessed over that and it’s, they’re missing the point. They’re missing an opportunity in my mind.

Ryan Isaac:
Yeah. There’s other things in the bigger picture. I like that you said that. You can be financially free with a 5% mortgage, just like we tell people you can retire while you still have debt on the balance sheet.

Drake Bloebaum:
Absolutely.

Ryan Isaac:
Those are not the most relevant pieces of information, whether or not you achieve the goals you wanted to achieve. So that’s, yeah. That’s really good to know. You bring up a point about using equity in a house. It’s certainly there. It’s, you can get it if you wanted the equity in your house one day. There are people who use the equity in their house in retirement. I try to picture myself later in life, and if I’m sitting on hundreds of thousands of dollars in a house and I need the money, I’m gonna get it. [laughter] I’m not gonna just be like, I’m gonna live really crappy so my kids can have my house free and clear. Like no way, man, I’m taking it.

Drake Bloebaum:
Right.

Ryan Isaac:
Do you have any insight to that? Were people actually using that? How common is it people tapping equity? Is it usually through a reverse mortgage? Is it cash-out refinances or home equity lines? What’s common?

Drake Bloebaum:
Any of those. Reverse mortgages, people have a… There are some negative connotations about those things, but they are pretty magic, man.

Ryan Isaac:
Yeah.

Drake Bloebaum:
I will be using one the day I turn 62.

Ryan Isaac:
Yeah. Right?

Drake Bloebaum:
Sequencing of returns, you can access it for that. There’s some amazing tax benefits that you can do. And the thing is with real estate from a tax perspective, the best thing you can do with your real estate is die and give it to your kids.

Ryan Isaac:
Yeah, right. From a tax perspective. Yeah.

Drake Bloebaum:
From a tax perspective.

Ryan Isaac:
Especially if you’re in a place like where I live where the tax base… Yeah. It always, yeah. I guess that’s probably anywhere. It always stays the same from what it was. You kind of get grandfathered into local state tax laws or property tax laws I mean, yeah.

Drake Bloebaum:
So, I have this total cost analysis that I I’ll have to show you sometime, but.

Ryan Isaac:
Yeah.

Drake Bloebaum:
This is actually for a physician that we have served a couple of months ago and it relates to your home equity point.

Ryan Isaac:
Okay.

Drake Bloebaum:
So these folks bought maybe five years ago, and of course, everybody that bought at least two years ago has probably 30%, 35%. [0:18:52.9] ____ equity at this point. And these folks came to me saying, “Hey, we’re at 4 1/4, we wanna get to 2.875.” And I said, “Cool, let’s take a look.” So we took a look and I interviewed them and we got more information about the situation. It turns out they had like an $80,000 installment loan, like a personal loan that they had taken out to build a pool, and then the physician had bought into his practice. So he had, I think that was about 100 grand. So we just try to look at it globally more than in a silo, right? Like I said, they came to me looking to get that, they were trying to peg down that super low rate.

Drake Bloebaum:
We said, “Well look, you’ve got a 7.5% installment loan out there that you did for your pool, and your practice loan is at like five and a half, 6%, why don’t we… And you’re not contributing what you wanna be contributing to your retirement. So we said instead of doing a rate and term refinance to lower your rate to the absolute bottom, let’s take 90 grand out, pay off the pool loan entirely, then let’s take what you were paying towards the pool loan, put that against the practice loan, that’s gonna pay off your practice loan six months early and save you $20,000. Then, now you’ve eliminated $5000 a month in outgoing debt. We sent them back to their financial advisor and said, “Okay, we just agreed to five grand a month, and then we showed them how if that… They put five grand a month away for 30 years, the next 30 years at a 6% rate of return, $4 million. It’s almost $5 million.

Drake Bloebaum:
So, like I said, equity is dead money in your house, especially right now. If you have other high interest rate debt, student loans can be a great way to get rid of… Use home equity for that. Buying other rental properties, if you wanna buy investment properties… The tax benefits, and especially for the clients that you serve, they’re in the higher… They’re all in the highest tax bracket, half their income is going to taxes, and real estate really is one of the places that you can move the needle on saving taxes, which is the largest expense in your life, and it’s… Real estate is one of the best hedges against inflation. So there are ways, a lot of different ways to put your home equity to work. I don’t recommend taking it out and buying your new fifth wheel and your 28 flat screen TVs, right?

Ryan Isaac:
Yeah, let’s not buy a bunch of stuff, a bunch of toys with it, yeah, go do something with it. It’s a funny… Home equity is like, a funny emotional mental bucket of money, because mathematically, if we’re just being robotic about it, we would look and go, “Alright, I’ve got money sitting in a house, it’s dead money,” like you’re saying it’s a great phrase, “and I’m paying a low single-digit mortgage on this thing, there’s a lot of opportunities I could take money out and get a lot better return than what my mortgage is gonna do, or the appreciation of my house is likely gonna do, but it’s funny how people just don’t wanna touch it though, is it’s just something sacred about the house being free and clear or having equity, and it’s just something that just feels different than… Any other asset, you’d be like, “Oh, there’s money in that thing? Yeah. Rip it outta there. Let’s go do some with it.” It’s interesting.

Drake Bloebaum:
Yeah, I think it’s that our grandparents went through the depression.

Ryan Isaac:
It’s true.

Drake Bloebaum:
And at that time, the bank would just come and take your house. Right? And so now, you just gotta realize that if you have zero equity… If you put zero down on a house, the home is still gonna appreciate or depreciate regardless of where your loan is, right? So just like me on my [0:23:04.6] ____ FortlAX, when I bought it in 2005, I was down 20%, but I waited and Now I’m up 200%. So just like a stock, you buy it on Monday, price drops. It happens all the time.

Ryan Isaac:
Like, “Crap, that sucks. But let’s just wait.” Wat did you say in the beginning? Time…

Drake Bloebaum:
Time heals all.

Ryan Isaac:
Time heals all. It is really true.

Matt Mulcock:
Hey Ryan, tell me what happens during a consultation?

Ryan Isaac:
It’s a great question, Matt. The first thing we like to do is just get to know more about you and your practice. What are your career goals, what are you doing in your practice, in your business, what kind of big decisions are you making in your personal financial life? Then we talk about how hiring a comprehensive fiduciary dental-specific financial advisor can help you make better financial decisions in your future, help you grow your net worth, get more organized and get more peace of mind around your financial situation.

Matt Mulcock:
I mean, so you’re telling me it’s that easy and painless?

Ryan Isaac:
I am telling you it is that easy and totally painless. Exactly, Matt. Just go to dentistadvisors.com, click the book, free consultation button. Do it right now. And talk to a friendly advisor today. Shifting a little bit, you were talking about this earlier, the process of getting a loan these days, especially for a business owner, we have tons of clients who, they come out of school and they might be maybe a 1099 or W-2 associate for a practice, which is a little bit, maybe easier to show income, but really they end up buying the real estate usually by the time when they’re owning a practice. So I’ll throw a few questions out. Number one, if they have on their plate to buy a practice, a building and a house, do you have any recommended order just to make the credit, the cash flow, showing liquidity, like the easiest priority? Would you order those in a certain priority?

Drake Bloebaum:
So I can speak from the home buying side in that I would say you wanna buy a house first.

Ryan Isaac:
Okay.

Drake Bloebaum:
Because from our perspective, when you buy a practice, you’re self-employed, newly self-employed.

Ryan Isaac:
Resets the clock.

Drake Bloebaum:
You’re two years, two full tax returns before you can buy a house again.

Ryan Isaac:
I was gonna ask that too. So that’s the rule now is it’s in just about every loan program that you gotta… You’re looking at a two year window.

Drake Bloebaum:
There are ways and we have ways to do it faster. Like I helped a client in Vegas who is a one year physician or a one year owner of a practice buy, but the terms aren’t as great, your options aren’t as… You don’t have many options, right? So in an ideal world, we can help 1099 dentists, newly 10, like if they’re associates and they have a guaranteed income, a lot of lenders can’t touch that, but we can.

Ryan Isaac:
Okay.

Drake Bloebaum:
So buy a house and then, you know, usually the practice and the commercial building are kind of the same package, right, ’cause it helps with commercial lending to buy the property as well.

Ryan Isaac:
Okay.

Drake Bloebaum:
But really you do want to buy the house before you take on a practice, for sure.

Ryan Isaac:
Yeah. Just to throw like another thought out there, a lot of people will say, do the practice first because the lender for a practice purchase wants to see your liquidity, but won’t require it because they’re usually 100% financing loans for dental loans most of the time. And then you can use the, and you still have your liquidity, you got to use it for your loan, they just had to see it. Then you got to still use your liquidity for the down payment of the house, but you’re bringing up the good point of you got two years.

Drake Bloebaum:
Yeah.

Ryan Isaac:
You got two years to wait.

Drake Bloebaum:
And our loans are, you know, physician loans don’t require down payments.

Ryan Isaac:
Okay. So yeah. Physician loans would be in the same boat then.

Drake Bloebaum:
Yeah.

Ryan Isaac:
Yeah. And then you do. Yeah. And then you get the thing out of the way that doesn’t require… That’s the funny thing about, [laughter] the cool thing about being a dentist is you just go to a bank and be like, I need $1 million for my new startup next Friday, and they’re like, “All right, here you go. [laughter] It’s gonna work. Here’s the money.”

Drake Bloebaum:
Yeah. You put in your time at school and you got a valuable skill.

Ryan Isaac:
They know it’ll it’ll work out. Yeah. That’s really interesting, man. What about, I feel like we can talk forever, but we can just do this in different parts other times too, what about… Are there, common mistakes you see people make with loans, or like approaching, getting into real estate or, I’d be curious on your take on like the timing of like pushing, a young person coming out of medical, dental, school, dental in our audience’s case and speeding up or pushing too fast to get a house or any of that kind of stuff that feels like a mistake on the lending and buying side of things.

Drake Bloebaum:
I would say a common mistake that causes a lot of stress is not doing a very thorough, pre-underwritten approval before you start shopping for homes. Because we get an unfortunate amount of our business from folks that go down the path with one lender or another, they’ve gone to big bank X and got a preapproval letter that they printed off in five minutes after putting like 10 pieces of information in and went and wrote it off on a house. And that wasn’t a real preapproval letter, especially in the case of dentists where, you know, high student loan debts potential 1099 jobs and maybe they just bought a practice. They’re, dentists, I love working with dentists, but they are definitely some of the most challenging folks in finance because of all the acrobatics they do with taxes.

Ryan Isaac:
Yeah.

Drake Bloebaum:
And their practices and whatnot. So that ’causes, I see that ’cause a lot of stress with people, they go down the path thinking they’re preapproved and they’re not.

Ryan Isaac:
Whoa.

Drake Bloebaum:
And they have earnest money on the line that’s…

Ryan Isaac:
What would make them think they’re preapproved when they’re not? What’s the false sense of…

Drake Bloebaum:
Well, a lot of banks just don’t do enough due diligence.

Ryan Isaac:
Oh, okay.

Drake Bloebaum:
Right? So they ask the client to submit a loan application. The client says, “Oh yeah, I bring in $30,000 a month.” They take that at face value. They don’t take the time to really dig into the client’s taxes and show, “Well, yeah, your gross, and probably what you take outta your bank account is 30 grand a month, but your taxes show that you lost 200 grand in your practice last year, [laughter] because of the way that you depreciated things or just the way that you set up your taxes, especially like new practice owners, right?

Ryan Isaac:
Yeah. And the way that lenders, when they finally dig in, is gonna look at that P and L and be like, “This wasn’t 30, this was like 12.”

Drake Bloebaum:
Exactly. That’s what it is. Right? And the dentist really may be bringing in 30, may be transferred 30 grand a month from his business account to his personal, but…

Drake Bloebaum:
[0:30:00.9] ____ got taxes. And if it’s not, that’s, if that’s not, if that due diligence isn’t done, I see clients get… Paint themselves into a corner because lenders will give preapproval letters without doing that, unfortunately.

Ryan Isaac:
Yeah that’s interesting. So unfortunate too. And especially in a home environment like today where houses just, they’re going so fast, man. There’s so many buyers out there and there’s so little inventory, that could be really devastating, especially if it’s like, ? Well, we had one shot in this entire area and now, you know, yeah. It didn’t work out.”

Drake Bloebaum:
And people are putting down large amounts of earnest money that are…

Ryan Isaac:
I know, man.

Drake Bloebaum:
They’re in jeopardy. So I hate seeing people in that really stressful situation.

Ryan Isaac:
Yeah. And there’s literally, no, I don’t think there’s a financial decision that is as emotional as the house we live in, I just don’t… Businesses, investment. I just don’t think anything’s as emotional as the houses we live in.

Drake Bloebaum:
It’s the roof over your kids’ head.

Ryan Isaac:
Yeah. It’s, everything. It’s the memories. It’s the, it’s the dream. It’s all of it, man. What about, you know, a lot of people are asking these days and I think you’re a perfect person to ask being on the lending and on the investing side for so long with prices being where they are and seeming to just like always climb and climb so fast, everyone feels so, I feel for them, people feel like really a lot of pressure and they feel like they’re gonna miss out and they’re not gonna, you know, I gotta hurry and I gotta rush and we gotta stretch. And if it’s not now, then it’s not ever. Or some people are like, I’m just gonna wait for it to just crash. And then I’ll buy real estate. Both of those scenarios feel like kind of desperate and stressful. What do you think about that?

Drake Bloebaum:
Yeah, I’m with you. I feel, I really feel for first time buyers right now…

Ryan Isaac:
Gosh, man. I know.

Drake Bloebaum:
It’s hard. It’s really hard because there’s just not that much out there. So I guess one thing you said that I would… Let’s start there, is waiting for prices to drop is a bad strategy…

Ryan Isaac:
Yeah.

Drake Bloebaum:
Unfortunately. We’re shy about 4 million homes of what we need to be in this country. And that’s not…

Ryan Isaac:
What do you mean by… Just so people, when they hear that, what does that mean?

Drake Bloebaum:
So there’s 4 million too few houses compared to the people that want to get into houses.

Ryan Isaac:
For it to even be a normal market, for prices to even go… Okay. There’s an equal amount of buyers and sellers for this market to stabilize. We’re still 4 million short. And historically just for context, is that a lot?

Drake Bloebaum:
That’s a lot.

Ryan Isaac:
Okay.

Drake Bloebaum:
I mean, yeah, for builders to build 4 million homes, like they just don’t, there’s not enough labor, there’s not enough wood.

Ryan Isaac:
Yeah, yeah, yeah. Materials. Yeah. Not even Possible.

Drake Bloebaum:
So from just a simple supply demand standpoint, prices aren’t gonna drop.

Ryan Isaac:
Because of that?

Drake Bloebaum:
Because Of that, because there’s just not enough supply of homes and there’s not going to be for 10 years. Right? So…

Ryan Isaac:
Everyone listening, just like, they’re just… Their hearts drop, but maybe that’s just an encouragement, like go… Hey, go figure something out then, go find a spot that might work that you can get into you and start moving up in.

Drake Bloebaum:
Don’t rush, buy when the time is right for you. Right?

Ryan Isaac:
Yeah.

Drake Bloebaum:
Make sure that you’re working with financial advisor and a great lending team that will help guide you and help you analyze, like what’s the best option. And yeah, buy a home that you’re gonna stay in for five plus years and just get started. Homes are still more affordable now than they were 10 years ago, relative to prices rates, payments, everything.

Ryan Isaac:
Okay, cool.

Drake Bloebaum:
And related to income, ’cause incomes have gone up too.

Ryan Isaac:
Okay.

Drake Bloebaum:
And so I know it probably doesn’t feel that way and the numbers are big now.

Ryan Isaac:
Yeah. It never does. Yeah, it never does.

Drake Bloebaum:
Right? Exactly. When you bought your first house, I’m sure you were super scared of…

Ryan Isaac:
Every house.

Drake Bloebaum:
That mortgage payment, right?

Ryan Isaac:
Because what do we do when we buy houses? I mean, 99% of us, we go to the edge of our budgets every time, all of us do, so…

Drake Bloebaum:
And now if you could go back to the payment that you had on your first house.

Ryan Isaac:
You’re talking about $1100. That payment?

Drake Bloebaum:
Yeah, exactly. That’s [0:34:16.0] ____.

Ryan Isaac:
Yeah, yeah.

Drake Bloebaum:
And yeah. And at that time that seemed really scary…

Ryan Isaac:
It was insane. It was so scary to me. Yeah. Because we were renting an apartment for $400.

Drake Bloebaum:
Right.

Ryan Isaac:
I mean, we tripled our housing costs. I remember that. I mean like that… That took years off my life.

Drake Bloebaum:
Yeah. And that’s… It’s just gonna, it’s… That’s how it is always is. And it’s how it’s always going to continue to be.

Ryan Isaac:
Yeah.

Drake Bloebaum:
So just buy a house that’s gonna fit your family with a payment that you can afford. And that’s the thing about the lending standards right now. You’re not gonna… We’re not gonna lend you on a house that you can’t afford.

Ryan Isaac:
Yeah. It’s not like it was. And I guess you wanna, I mean, it’s just such a good point. We all… If we’re old enough, have really bad memories of ’07. And we always think that there’s an impending crash because, well, look how housing is expensive again and loans, everyone’s getting a house again, so this must be like ’07, but fundamentally there’s just like nothing like it. I mean, it’s nothing…

Drake Bloebaum:
The loans that we’ve been writing for the last 14, 15 years ever since that, are the best loans ever written.

Ryan Isaac:
Ever, highest quality. Most strict standards.

Drake Bloebaum:
We make you send in a kidney. I mean…

Ryan Isaac:
Yeah. It’s a very personal experience, very humbling to go through the loan process. It really is. Yeah. We’ll just stop there, but I think this is just something we should do more frequently because this is… This is the most emotional decision people ever go through is buying their house and things are constantly changing. A year from now, it’ll be different, six months from now, it’ll be different. How do people get in touch with you? And I mean, there’s tens of thousands of downloads per month. If you want to tread lightly with how you would like people to communicate, if they would like to reach out to you or your team.

Drake Bloebaum:
You can reach me at drakebloebaum.com. That’s probably the easiest that has all my contact information.

Ryan Isaac:
Spell your… Oh, it’ll be in the title, but just in case.

Drake Bloebaum:
Yeah. It’s B-L-O-E-B-A-U-M.

Ryan Isaac:
Drakebloebaum.com. You got like the baum.com thing in there. That’s really cool. [laughter]

Drake Bloebaum:
Yeah.

Ryan Isaac:
You’re the baum.com.

Drake Bloebaum:
Yeah, so I agree. I think that, there’s, we could take microcosms of this, right?

Ryan Isaac:
Yeah.

Drake Bloebaum:
Dive deep on different things.

Ryan Isaac:
Yeah. Maybe we’ll do like a webinar where we can actually show some like visual data too, sometime. That’d be pretty cool.

Drake Bloebaum:
That does help. Yeah.

Ryan Isaac:
Okay. Well, drakebloebaum.com. Drake thanks doing this, man. I appreciate it. Drake for, I mean, any music fans up there, Drake’s in a band. And you guys got any gigs coming up anytime soon?

Drake Bloebaum:
Well, we’re playing the closing ceremonies of Alta Ski Resort here in a couple weeks. We’re pretty excited for that.

Ryan Isaac:
That’s bittersweet for you as a mountain snow person too, right. That it closes down and…

Drake Bloebaum:
Yeah.

Ryan Isaac:
To play it…

Drake Bloebaum:
I like swimming…

Ryan Isaac:
Good season.

Drake Bloebaum:
Swimming and rafting and sunshine and mountain.

Ryan Isaac:
Okay. Yeah. So it’s all good, man. Thanks for taking time. We really appreciate the wisdom that you’ve got and sharing it with us. It’s a big decision, a big deal for people. So thanks, Drake. Appreciate you being here, man.

Drake Bloebaum:
My pleasure. Happy Friday. Have a good weekend.

Ryan Isaac:
Yeah. Thanks. Thanks everybody for listening and I’ll catch you next time. Another episode of the Dentist Money Show. Take care now. Bye-bye.

Debt & Financing