HIGHER Mortgage Rates EQUAL BETTER DEALS!!

SPEAKER_1 (0:01)

Glimmer, the new eau de parfum by Estee Lauder. An amber floral fragrance with a gourmand twist, with notes of macaroon rose accord, amber embrace accord, and shimmering patchouli.

A glimmer is a small, unexpected moment of joy that shifts your energy and how you feel. A scent to be felt, remembered, and shared. Discover more at esteelauder.com. What makes you Glimmer?

Michael Zuber (0:29)

I'm Mike Huston, and I'm here to talk about mortgage rates. We're already over seven, likely going to seven and a half, and eight is certainly possible. I'm actually hearing more and more folks talk about 10% mortgage rates possibly being on the agenda next year if the Fed enters a rate hiking cycle. Instead of talking about what if mortgage rates are 10%, I want to learn about small business lending. Because as I understand it today, small business loans, rough and tough, are right around 9% when mortgages are 7%.

So if mortgage rates go to 10%, what would that mean for small business loans? Would that just jump to 12 or 12 and a half? And if that is the case, what happens to small business lending? Do people turn to seller financing? Does transactions crater? What the heck happens? Bo, welcome to the channel. I know we've got a lot of folks talking about higher and higher rates, 40 trillion in debt, inflation is running away.

But what say you? What happens if mortgage rates hit 10 percent to the small business arena?

Bo (1:36)

Great question. I think right now, what I'm seeing the most of is unrealistic sellers who are pricing their business.

Like, for example, I had a gentleman who I was speaking with, and he was telling me about a business he's been trying to purchase for like two years, knows the seller really well, seller is 81 years old. Seller wants 1.7 million. We did a cash flow analysis, the most we can do on a loan is 800,000. Oh, wow. And that's been happening often. So I think just like real estate, you have the wish pricing of these sellers, and they're not getting it. At some point, it breaks, and the fear kind of kicks in, and then I think people start selling, right? Like that always seems to be happening.

Michael Zuber (2:18)

I love that. I just love how experienced you are in this, because we learned the other day, I think it was Convoy last week, talking about sellers' kind of blood in the streets, again, in some of their markets, where they just have to sell because they're upside down.

But it makes total sense to me that small business would be kind of the same arena, right? Today, you may have wish pricing, you may be fixated on an environment where debt costs 3%, but if we go to a debt picture where debt's 12%, you're absolutely right. They're going to run into the side of a mountain and realize that, you know, that one point whatever is simply not there. Wish pricing exists in small businesses. That's good to know.

Bo (2:55)

I think it all comes down to being in a position to take action when ready, when it's right. Like, if you look at the history of people that grow and are able to take advantage, for example, I made a $1,000 investment on WeFunder in 2022, and that company just got acquired by Superhuman. So I invested in Fathom.Video, which does transcription inside Zoom calls and so forth. I use it all the time, so I saw it on WeFunder, and I have maybe 10 or 12 different investments like that. I put a couple hundred bucks or a thousand bucks in on this platform, so I put $1,000, and I was just trying to calculate, because when I invested, and it was kind of confusing. I won't know for a couple weeks, but the thesis I came up with is that my $1,000 turned into $8,000 or $9,000. So pretty good investments in 2022, right? I don't know what that return is. It's a couple hundred percent, though, right? Sure, yeah. And then annualize it.

But I was just thinking, imagine if I was in the position where $100,000 would have been the same thing as $1,000 to me, right? And you can see how the wealthy just keep creating wealth.

Michael Zuber (4:08)

They play the other game, yeah.

Bo (4:09)

Yeah, so what do we do? The average Joe's out there is, I think we always have to be in a position to strike when there's opportunities. So when I was flipping houses, and I had to bring an investor partner in, for example, give him or her 30 percent of the deal because they put up all the money, I didn't complain because it was fine. When I had to pay a hard money lender 12 percent and three points back in the day, when money was more expensive, I didn't complain. You know why? Because if I did my job right, I was still going to make 40 or 50 grand on that flip. I think if we look at deals and look at the market for whatever it is, if the deal pencils out, the deal pencils out.