What Happens Behind the Scenes During a Housing Market Correction?

First, the housing market isn’t going to crash with no one knowing what to do this time.

You aren’t going to see your neighbor’s home boarded up with a foreclosure sign in the window.  The reason you’re not going to see this is because the banking industry and our government are prepared for this upcoming cycle.  In fact, the Federal Reserve is attempting to bring the current boom cycle to an end, but we’ll talk more about that in a minute.

It’s not good for anyone to have a vacant foreclosure on their street.  It lowers everyone’s property value and it also invites crime. 

Therefore, in response to the mortgage crisis, over the last 10 years a network of downline services and institutional investors have emerged to quickly dispatch non-performing loans provided by the Federal Housing Administration (FHA), banks, and private sellers.  In this new market, both non-performing and performing loans are actively traded and discounted from the institutional investor down to the individual investor.

This network allows foreclosures, or the shadow inventory, to be managed behind the scenes.  The government and big banks don’t want to be a landlord or to have anything to do with fixing and flipping properties.  However, smaller companies and individuals are more flexible because they have the local grass roots knowledge and, most importantly, the time to do it right.

In my opinion, you will not see the opportunities you saw last time.  Before the process was slow and involved – having the bank secure the property and foreclose on individuals, which takes time and money.  It wasn’t uncommon to see a homeowner go two to three years without making a home payment.  Then the property would sit vacant while the bank figured out how to market it for sale on the MLS.

Banks have figured out that it’s easier to sell their distressed loans early, sometimes only after three to six missed payments.  They sell these loans for several reasons, however, the two most important reasons are time and money.  The longer a borrower remains delinquent with their missed payments, the less the loan is worth to an investor. 

It takes time and money to service a non-performing mortgage.  They need to hire outside consultants to value the property and help with outreach effort.  All of this costs money.  Meanwhile, the borrower isn’t making any payments so there is no cash flow.  The bank capital is wrapped up in the mortgage and the only fast way to get some of the capital back is to sell the loan at a discount.  They sell the loan at a discount because in most cases, no savvy investor would want to pay to be in the exact same position as the bank without an incentive.  

The size of the discount you want to offer is where it becomes an art form.  It depends on how quickly you can regain control of the property.  States like New York can take three to four years in some cases.  It depends on the condition of the property and the financial condition of the borrower.  It also depends on the type of loan.

Long story short, there are several factors and if you don’t have the experience you will be taught an expensive lesson. 

One lesson I will not repeat is only purchasing one loan at a time.  The issue is that many opportunities that are available in the one-off purchase are from hedge funds.  The hedge fund buys a large pool of loans.  Since they are purchased in bulk, they receive a significant discount.  They then cherry pick the best deals out of the pool and then sell the rest they don’t want to rookies. 

I had one hedge fund out of New York tell me I wasn’t his target market after I grilled him on his evaluation of a property.  It wasn’t because I was under-qualified – it was because I was overqualified.  We ended the conversation with him saying he prefers to work with newbies since he likes teaching others.  I guess the tuition costs were baked into the sales price.

There’s safety in numbers.  If I buy one loan and it goes bad, I’m out of luck.  If I buy five loans and one under-performs, I’m OK.  The more loans I buy at once, the bigger the discount.  But, there’s not only safety in numbers, there’s efficiency.  I must work with my team of lawyers, title companies, and loan servicing companies whether it’s one deal or one hundred.  If the loans are purchased in the same area, then I can receive a larger discount on the rehab costs, etc.

Our group has created a stable platform to invest in this new market.  We have been steadily purchasing performing mortgages and land contracts at a significant discount to create a foundation for this fund.  These foundation investments are secured by a 1st position lien on properties that have substantial equity and serve to provide an immediate return to our investors.  Additionally, we purchase pre-foreclosures (non-performing loans) from banks directly.   

Our strategy is to continue to create this reliable mix of real estate loans from 2019-2021.  The performing loans create instant cash flow, while the non-performing loans create a pipeline of future high returns.  After re-positioning non-performing loans into either performing loans or selling them, we can capture the equity that was created. 

Kind regards,
Kyle Zimpleman, Managing Member

Real Estate Bio

We identify opportunities to acquire pre-foreclosure, bank owned, and performing loans at pennies on the dollar from our network of banks and hedge funds.  This fund provides a vehicle for investors to participate in off-market real estate long before its available to the public.  This translates into above average returns to our investors and provides peace of mind that their investments are secured by equity in real estate.

Riding the Real Estate Waves or Crashing into the Shore Naked?

(Picture above of my Granddad and I in the summer of 1991, surveying the ocean waves for the first time)

First, I’m not a surfer since I live in Michigan...

However, I do remember the first time I saw real waves in Ventura, California.  I was 13 years old and visiting my wealthy cousins for the first time at their beach house on the Pacific Ocean.  The waves would come in one by one in almost perfect rolls.  The smell of warm salty sea water was in the air and the sun was shining bright. 

I was eager to ride some waves, so I grabbed the only remaining boogie board and jumped into the white foamy and very salty water.  I found out just how salty the water was when I tried to get to where the surfers were hanging out. 

I would start to paddle out, but as soon as a wave came I tried to go over it and instead it broke right in front of me.  The wave caused me to tumble around in the wake while swallowing salt water for the first time.  Unfortunately, this repeated itself until I drank so much salt water that I became physically ill. 

Sitting at the shore feeling rejected and embarrassed, I watched the privileged surfers navigate the waters.  After a while I started to see the answer to my first major mistake.  The surfers would lay as flat as possible and as soon as an oncoming wave approached, they simply ducked down under the crest before it hit.  This concept is illustrated below in “How to Duck Dive.”

I was now dry, beaten, and hot from the midday sun.  But I knew I couldn’t leave California without riding a wave.  It took a few times of ducking at the exact right time to wade out to the cool surfer dudes.  I figured the next part would be easy… 

(Danny McBride from Eastbound & Down)

After a while of awkward silence and glares from the surfers, the time came.  I watched the surfers start to get into position for the big wave that was starting to grow behind me.  I decided to paddle like a mad man toward the shore.  I felt the wave start to suck me back into its crest, but instead of riding the wave, its full force broke right on top of me. 

I remember thinking how surreal it was being pushed down to the rocks and asking myself, “Is this how I’m going to die?” 

But as fast as the white water had churned me over and over, it was done.  My shoulder had a small scratch, but that was it.  As I looked to the shore my brother and cousins were laughing and pointing at me.  Now I can’t go back… I must try this again!

At this point the surfers had moved to a different location...  (Probably because my goofy tall frame on a small boogie board was cramping their style.)  After a few more attempts on much smaller waves, I was officially a boogie boarder. 

So, why am I telling this story and how does it relate to real estate and investing? 

Because everything in this world follows a cycle.  From our weather having seasons to our lives - they all have a cycle.  The below business cycle chart resembles waves in a somewhat predictable pattern of 7 to 10 year cycles.  What goes up also goes down. 

If you’re interested in a great explanation of this, you can check out "How The Economic Machine Works -Ray Dalio video. * Ray Dalio is an American billionaire investor, hedge fund manager, and philanthropist.  Dalio is the founder of the investment firm Bridgewater Associates, one of the world's largest hedge funds. -Wikipedia

The waves, in the below picture, are the cycles of the market, and we are trying to get to where the surfers hang out.  There, the surfers (Smart Investors) are in position to see the market and are ready to capitalize on the next big wave.  However, getting to this position is the struggle. 

First, as you can see from the unfortunate boogie boarder in the above picture, not ducking down in time is costly.  Ducking down is akin to selling investments at their peak and going into cash before the wave crashes and drags you to the shore naked! 

Second, you need to paddle out to the smart investors and wade in the ocean waiting for the next perfect wave.  If your timing is off, you end up paddling too early or too late.  If you paddle too early you run the risk of being crushed by the wave.  If you paddle too late you miss the wave completely and end up watching your competition ride like a surf pro to riches.   

I started in real estate in late 1999, right out of college.  I didn’t even know there were waves and that I was playing in the ocean.  From 1999 to 2006, I was aggressively paddling to get to the cool surfers.  I was buying any house, duplex, or apartment that I could rent to college kids. 

All I knew at the time was that the path to financial freedom was real estate.  I didn’t know that a once in a life time tsunami wave was barreling toward me soon…

Long story short, like almost all real estate investors at the time, we were dragged naked by the wave and crashed onto the shore.  But I didn’t drown... 

Instead, I jumped right back into the water I tried to learn everything I could about market cycles and real estate.  At this point, everything I had done was by myself and with my money.  All of that changed when I formed Expand Capital Group, LLC in 2010.

The best decision I made was creating investment partnerships and sharing what I learned during those tough times.

Kind regards,
Kyle Zimpleman, Managing Member

Real Estate Bio

I don’t want the $43,797 Check…

 Lincoln St, Cincinnati Ohio

Would you have invested $32,089 to receive $44,872 four months later?

I hope you would say YES...but I would also expect you to be very cautious.  The above before and after photos were from an investment I made in Cincinnati. I purchased the performing mortgage in February 2018, when I was testing the waters before creating an investment fund around this concept.  The borrower had never missed a payment and the location was promising.

Protecting the downside is the name of the game in real estate. Below are the three main steps I take every time to reduce the risk of the investment through proper due diligence.  

(1) The first thing I look at is the value of the property and Loan to Value

The only picture I could find was the the image on the left, which obviously needed work on the exterior.  It's usually safe to say if the exterior looks bad then inside is going to look similar or much worse.  In this case, even in poor condition, comparable sales were around $70,000 which is approximately a 45% loan to value.  

*This is important because if the borrower stops making payments, I need to have equity after I receive the property back from foreclosure.

*Additionally, you want the borrower to be vested in the property.  Meaning that they would be walking away from equity/money if they stopped making payments.

(2) Review the pay history and supporting loan paperwork

The borrower had never missed a payment since they purchased the home in 2012.  Additionally, after having my attorney review the paperwork, everything was in order. 

*This is important because the better the pay history, the more valuable the loan. 

*We always have an experienced legal firm review documents because if we are missing a document or if it wasn't done correctly, we could have a difficult time selling the loan or foreclosing if necessary.

(3)Have a Realtor drive by the location. 

I was pleasantly surprised when my Realtor sent me the photo on the right and comparable sales in the $100K+ range.  Now I have a great investment that is protected with almost $70,000 worth of equity and annual returns are expected to be over 15%. All signs pointed to this being a great deal so I purchased it in February  of 2018.

Everything was doing great until I received a call from loan servicing company asking what I wanted to do with a $43,797 check that arrived in the mail.  The borrower had refinanced the loan.  When this happens, or if they sell the property, we receive the full amount owed on the mortgage.  

I can't get upset with making over $12K in four months on a $32K investment.  However, now I have to find another place for the money.  The best part of real estate is the "Do it once philosophy".  If you find a great investment don't sell but instead manage the cash flow for years to come.   Otherwise you will always have to find another investment that may never come. 

However,  locking in a 39% return in four months is great trade off.  

Here is how it looks when we add in interest payments received.

Not every investment is a home run like the one above.  However, our odds of success increase when we perform our proper due diligence and stay within our purchasing criteria. 

If you are tired of the ups and downs of the stock market. Then investing in mortgage notes provides a great way to protect and grow your money for years to come.

Are you curious of how this works with real life examples? I can email you a copy of our plan for 2019.  We show you what happened behind the scenes during the last housing bubble and how you can be prepared for what is to come. 

We are starting our second capital raise for $1M. If you are an accredited investor you can join with as low as $25,000. We plan to be ready to deploy this capital in the first quarter of 2019.  Call or email me to learn more.

Email me at kyle@expandcap.com to learn more about how this works.  I guarantee after you see the potential of this type of investment,  you won't want to go back to the risky stock market again.

Kind regards,
Kyle Zimpleman, Managing Member

Real Estate Bio

How to prepare for a mid-cycle slow down…

Its happening again! The roaring 2010’s doesn’t sound as cool as the roaring 20’s from the past, but our stock and real estate markets are definitely roaring…  What’s incredible is the S&P has gained over 300% from its 2009 lows.

It is my opinion that we aren’t going to repeat history in the same way as the Great Depression of the 1930’s or the Great Recession of 2007-2010.  According to market experts, those depression cycles happen every 70 years or so.   

However, we may be experiencing the start of a mid-cycle.  They occur in seven- to ten-year cycles and usually last only one to two years.  The graph below tracks new home sales and recessions (indicated in light blue) since the 1960’s.

There are several factors that bring on a mid-level correction, however, interest rates are the biggest factor of all.  When the Federal Reserve raises interest rates, they are trying to curb inflation.  When they lower interest rates, they are trying to create inflation.  The problem is that there is no way to get it right. 

The cycle is going to happen either way…  However, manipulating interest rates can usher in a recession quicker or it can cause a delay.  As you can see from the below graph, the late 1970’s was a turbulent time for real estate.  As inflation grew, the Fed raised rates to compensate.  This brought on a mid-cycle slowdown in the early 1980’s.  (See the graph above)

Below is a quick video what we do and how we are going to take advantage of the upcoming market correction...

What I'm doing about it

What happens to housing when interest rates rise?

Homeowners experience the crunch in several ways.  If they have been using their home equity lines and now they can’t pay it back or refinance, then they suddenly are unable to afford their home.  Many of the first-time buyers that purchased toward the end of the sellers’ market are unable to sell since they have no equity and the rates have increased, reducing their purchase power.  

If a borrower currently has a 6% mortgage at $100,000 they can afford to move up to a $200,000 home at a lower rate of 4%, and they can use the equity from the first home for a down payment.  The problems start when you have a 4% mortgage and you want to buy a new home and interest rates are at 6%.  Now you’re stuck, and you can’t take that high paying job offer in a different city without taking a big financial haircut.  Or your wife might be pregnant with your second child and you only have a two-bedroom 750sqft condo.      

It only takes a short period of time after interest rates rise to see this start to happen.  Once the pattern starts it begins to feed off itself fueled by the media.  That old primordial emotion takes hold of the herd…FEAR.  This signals a sell off and recession.  The Fed then lowers the rates to compensate and eventually fear turns to greed, and we are back on an upward cycle.

If we think this going to happen…  What do we do about it?

The above illustration shows the typical 18-year real estate cycle.  The part I found most interesting is that there isn’t a massive crash every seven to ten years, but there is a mid-cycle slowdown.  I believe 2019-2021 will be such a correction.  It will most likely be similar to what occurred in 1961, 1981, and 2001 where the correction was only one to two years followed by another three to seven years where the market increased in value.Full Article

Investment Property Highlight:  Toronto, Ohio $34K invested

Our firm recently purchased this pre-foreclosure in late August for $34,000.  We finished the foreclosure and it's currently under contract with cash buyer for $58,000.  Approximate return of $15,000 to our fund.   Call/email me for addresses and other examples of how we are doing this today...

Kind regards,
Kyle Zimpleman, Managing Member

Real Estate Bio

We identify opportunities to acquire pre-foreclosure, bank owned, and performing loans at pennies on the dollar from our network of banks and hedge funds.  This fund provides a vehicle for investors to participate in off-market real estate long before its available to the public.  This translates into above average returns to our investors and provides peace of mind that their investments are secured by equity in real estate.

*Looking for more information on how to protect your investments in 2019? Call/email me today and I'll send you our 2019 Investors Kit.

Where to Hide Your Money?

As an investor- I’m frustrated and confused of what is going on in the real estate market.  As a seller, I couldn’t be happier.  Inexperienced buyers are out bidding each other with the expectation of appreciation and riches.

In early 2017, I started to get nervous about the market.  I didn’t want to repeat the same mistakes I made in the past, like being over leveraged right before the market crash of 2008. Therefore, I convinced my investors to sell all our properties and take the tax hit.  Now we have a new problem.

What to do with the money we made?

In my opinion, we had a great market to invest in real estate from 2009-2016.  Unfortunately, that ship has sailed.  If your Realtor or financial planner tells you to buy now, it’s probably because they have commission breath on their lips.

So where do you hide your money in a crowded real estate and stock market? 

The answer is to move up the food chain and look in a completely different direction. This is where I stumbled upon mortgage note investing in early 2017 and I wish I had learned about it sooner.  In this type of investing, banks sell their loans that are backed by real estate when the borrower starts to miss payments. This is also known as a non-performing mortgage. They sell these loans for 20-50% of what the property is worth. Why?

Banks are in the lending business, not the landlord or foreclosure business.  It’s easier for them to write off the bad debts, than to spend the time figuring how to make it right.

The 2019 outlook points to this being a breakout year for investing in this asset class as mortgage defaults and foreclosures are on the rise again.  California is not only the place to look for fashion trends but real estate trends as well.  Currently, Southern California is in a recession with homeowners scrambling to sell before the panic spreads.   Link for article.

I have spent almost 20 years trying to find the right investment. The sweet spot between risk and reward.  I believe that investing in mortgage notes provides the best risk reduction and the best return on my money.  Our fund targets investments that can provide 12-18% returns and its not uncommon to reach much higher.  

My plan since entering the workforce was financial freedom. I hate that nagging stressful feeling that I have to make a living every morning. I want to be working each day on replacing my income with investments that create cash flow. Investments that are not dependent on the volatile swings of the stock market.   

I personally have heard enough news about China and Trump. I can't make soybeans go up in value, but I can help a family in Middle America save their home.

What attracted me to mortgage note investing is the ability to protect the downside. Protecting the downside is one of the first rules of investing and one that I neglected back in 2008.

I’m a visual learner, this example below helped me understand what I was doing and why buying mortgages is better than buying the real estate directly.

100% Fair Market Value (FMV)

Before I learned about this side of the business, I was always paying close to the Fair Market Value (FMV).  As the top arrow shows, it’s where you find properties on the Multiple Listing Service (MLS) and fight the competition for the deal. It is what I did from 2001-2006, which was extremely risky since I was also heavily leveraged. 

80% Loan to Value (borrower/homeowner)

We want the borrowers to be 80% or less of the loan to value (LTV).  Therefore, we target loans where the borrower also has equity.  This way the borrower/homeowners are vested in the property and are more willing to cooperate with creating a solution.

I don’t know anyone that wants to kick families out of their home. The best-case scenario is being able to provide a solution that helps families stay and provides a return to our investors.  When we are able to receive a discount on the loan, we are more flexible than the bank.  For example, we can approve a short sale in a day where it could take months.

Even with our firm’s flexibility compared to a traditional bank, some homeowners are unwilling to discuss solutions. If the only situation available is foreclosure than our network of experienced lawyers, loan services, Realtors, and loss mitigation team are prepared to act.  In the case of foreclosure, our risk is reduced since we now have unlocked the total equity of the property.

Total Investment of Less than 60% of After Repair Value (ARV)

If I have to foreclose, then I expect that the property will need to be updated before placing on the market.   We budget approximately 20-30% of the value back into the property for rehab expenses.  This leaves us with a large equity position that allow us to either sell for profit or create another mortgage with the property. 

If property values in the area experience a downturn, we have a large cushion of equity to protect our investment.  

Mortgage loan pool acquisition (20-40%)

After selling our rentals for top dollar, we needed a place to safely invest our money.  My investors and myself, have found this to be the best way to hedge against the risks in the open market.  If I am able to acquire loans at 20-40% of the value, I’m about as safe as I can get in real estate.  This is why my money is in this fund as well.

Most investors ask "How does one find these opportunities?"  Banks and hedge funds want to sell in volume.  This is the reason for my investment fund.  We need to be able to buy in bulk and by pooling our resources together with like-minded investors we can accomplish this goal.  

Stocks and real estate markets are poised for a correction.  The smart money is pulling billions out of the stock market. 

If you are concerned about how to protect your money in 2019, then email me today.  We have a plan that doesn't require risky speculation, appreciation, or leverage to provide an above average return on your investment.

Are you curious of how this works with real life examples? I can email you a copy of our plan for 2019.  We show you what happened behind the scenes during the last housing bubble and how you can be prepared for what is to come. 

We are opening our second capital raise for $1M. If you are an accredited investor you can join with as low as $25,000. We plan to be ready to deploy this capital in the first quarter of 2019.  Call or email me to learn more.

Email me today at Kyle@expandcap.com or call me at 248-955-8222.

Featured Investment:

Kind regards,
Kyle Zimpleman, Managing Member

Real Estate Bio

We identify opportunities to acquire pre-foreclosure, bank owned, and performing loans at pennies on the dollar from our network of banks and hedge funds.  This fund provides a vehicle for investors to participate in off-market real estate long before its available to the public.  This translates into above average returns to our investors and provides peace of mind that their investments are secured by equity in real estate.

Will this Housing Market Crash?

This question seems to be on everyone’s mind these days...

Now I don’t have a crystal ball, but I do have a personal history involving the subject.   

Here is what I do know…

Real estate has a market cycle that is driven not only by supply and demand, but also by human emotion.

If you have been an investor for some time you have experienced these ranges of emotions.  Whether it’s the stock market or any market, our emotions are what ultimately drive our decisions. 

In my case, I’m in the “Thrill” phase this time around.  As of September 2018, I have sold all the rental properties that I purchased during the down market for a hefty profit.  My investors have been patting me on the back telling me I’m brilliant.  However, I don’t have to look too far into the past to see I am not…

I started my real estate career in 1999.  I purchased my first home in 2000 and brought two of my college roommates with me.  I purchased the home for $82,000 and had my roommates cover the mortgage at only $350 a month rent each.  I covered everything else but food and beer.  Two years later I sold the home for $110,000.  I was hooked. 

For the next six years, I did anything I could to buy four to five-bedroom homes in Grand Rapids, so I could rent them to college students.  At that time financing was easy and FHA allowed up to ten mortgages.  I quickly surpassed that number by fixing up properties, renting them to college students, and then refinancing.  The rent payments were used to offset my debt to income ratios and Fulton Management Company was born. 

The first part of my brilliant strategy (or tragedy might be more appropriate) was to buy properties fast with cash in order to beat out the competition.  To be able to do that you need cash, which I didn’t have...  The plan was to use short term, one year or less financing with hard money lenders.  They charged 4% of the loan amount in upfront costs and then interest rate at 12% for one year.  I know… really dumb.  But at the time all I had seen was properties going up and everyone was on the same bandwagon.  This was the Excitement phase of the real estate cycle.

I thought I was smart because all I was looking at was my cash on cash return.  If I didn’t put up any money other than a little rehab cost it came out to a 200-1000% profit when I sold it.  I’m brilliant…right?

The second part of my purchasing strategy was a loan called an 80/20.  Because I didn’t have any real money, I would do an 80% first mortgage and a 20% second.  The plan was to refinance out to a lower interest rate, which worked for a while.  However, eventually I was stuck with several high interest loans.  These loans were to the tune of about a 11.5% second mortgage and a 6.5% first mortgage.

Then something I didn’t account for happened.  From 2007-2009, rents went down, property values plummeted, and financing dried up.  Now I’ve gone from thinking I’m brilliant to the Panic and Desperation phase.  To compound the problem, I moved two hours away to Metro Detroit to be closer to my fiance' about a year before.  On top of that, I purchased a 975sqft bungalow for $205K - the smallest property I owned.  At 6’7” tall I couldn’t even do laundry in the basement without hitting my head constantly.  

Can’t get worse… right?  Then I received a call from my mom and pop property manager that she quit and was sending me the remaining leases.  If you have ever tried renting to college students in August, it’s probably too late.  I scrambled to get bodies in the properties before winter came.  Otherwise I would be paying to heat vacant homes and a mortgage with no rent.

I was 29 years old with $3.7M dollars in debt secured by property that was worth maybe $2M.  It was the middle of 2009, and at this point I had been holding on somehow for over two years and paying the difference from the rents and repairs.  I was making a meager living working for a company as a multi-family broker.  However, the apartment market was hit so severely that what sales that did take place were a fraction of what they were selling only a year before.  Meanwhile, every news article was saying that the world was ending, and we should all just dig a hole and bury ourselves.

It put an emotional toll on me.  I went three days without sleep once.  That final night I did fall asleep and in the middle of the night I jumped over my wife in bed and ran out of the house during a sleepwalk night terror.  I woke up outside of my house standing at a stop sign near my home.  That’s when I realized the situation wasn’t getting better, and I needed to do something.

You might think I lost it all and filed for bankruptcy, but I didn't.  I did lose my life’s savings and I did do a short sale on the 975sqft home and the one I lived in before in Grand Rapids.  Additionally, I had seven properties that I purchased on land contract that I gave back to the owner.  Even though I never missed a payment, he was still happy to do it.  I had rehabbed all the homes and put in new carpet and refinished the hardwood floors.  From the time I purchased them I increased rent by 25% and now he had a property manager.  Remember the mom and pop property manager I trained and taught the business?  Well that is where she went, to help him.  His income from the properties doubled and we went our separate ways.  I heard from my Realtor in Grand Rapids that he just sold in 2018 those properties for more than double what I was into them.  Always great to hear.

What about the hard money lenders?  It took me three years to sell those properties and I made every payment.  I was so good about making the payments that they offered me more money to do more deals during the downturn.  This saved me and allowed me to partner with my doctor friend.  Together he and his father helped me rebuild my rental business while we came out of the Depression phase and entered the Hope and Optimism phase.  Today we are all a lot richer.  And I am a lot wiser…  I don’t over leverage and in fact my current distressed mortgage investing business uses no leverage. 

I am telling you this story because emotions can get the best of us.  Investing is 50% managing your emotions and 50% knowing what you’re doing.  After 20 years in real estate I know what I’m doing, and I know the end of boom cycle is coming. 

In my opinion, it’s hard not to see that we are starting to leave the Euphoria phase and starting to see Anxiety in the market.   Its time to build the war chest and I know exactly what to do this time around.

We are prepared to capitalize on the next downturn and I want as many qualified investors I can find to join me.   If you missed the opportunities during the last recession, now is the time to position yourself for what is to come.

Kind regards,
Kyle Zimpleman, Managing Member

Real Estate Bio

We have a serious problem and it’s global…

(Chart below curtesy of usdebtclock.org) Watch in real time if you want to get sick to your stomach.

The global debt is up 50% since the financial crisis (Great Depression).  As of July 2019, the current global debit is over $247 trillionand growing by the millions every day.  What is even more alarming is how none of this debt is being paid down.  This is after the U.S has had the longest run of expansion in history.  

But that isn’t the scary part.  The scary part is most of the world is already experiencing a market slow down and all signs point to a market correction in the U.S. We already have more debt than our total Gross Domestic Product.  This doesn’t even begin to account for all the unfunded programs like Medicare and Social Security.

What will happen this time when governments like the U.S can’t spend their way out of the next financial crisis? What can we do to protect the wealth we created?

Bonds? Unfortunately, bonds are riskier than you think.  Over $14 trillion now have negative yield.  Meaning your money really isn’t safe. Especially when you invest in governments that can't pay down their own current obligations.  bloomberg/the black hole engulfing the worlds bond market

Stocks? Some stocks will do well but most tumble during a recession. If you are hand picking your stocks you may end up with a winner, but most Americans believe in diversified mutual funds.  Therefore, most portfolios will decrease during a recession.  Leaving investors with the stay and pray method to investing.

Real Estate? Some sectors may do well, however, most are tied to highly leveraged debt(mortgages) with overvalued properties. This can be a big problem when tenants & borrowers can no longer afford to pay exorbitant rent or mortgage payments. cnbc/home sale point to recession

By being your own bank you can not only do well when things are good but you can do even better when they are not. How? 

By doing the opposite of how banks lend. Instead of overextending, you only lend a small amount relative to the true value of a property. This one of the best way to protect and grow your wealth. 

During the last recession, nothing really affected this group. The property didn't suddenly burst into flames.  The borrowers still had to live somewhere and the payments were affordable.  For the few borrowers that did default, the lender wasn't affected since they still had equity in the home to protect their investment.

In fact, private lenders made a killing during the last recession. They were able to purchase properties for pennies on the dollar and then sell the property with seller financing (like land contracts) for much more. 

This is where we come in at Expand Capital Group.

Our plan is simple.  Currently, during the peak real estate boom cycle, we find existing loan opportunities to purchase.  These loans include private lender loans and land contracts that were created during the last recession.  

What we do differently is we acquire the loan secured by properties that have already appreciated, by focusing on loans that began in 2010 to 2014. The balance of these loans is very low compared to the properties current value.

The below graph demonstrates our plan.

These loans can be the safest investment during uncertain times since they have the largest amount of equity.   In mortgage terms we are talking about the Loan to Value (LTV).  Currently, the loans we have purchased for our fund on average are below 50% (LTV).

As the below illustration demonstrates, the lower the loan amount compared to the value the less risk to the lender and more value to the borrower.

Our plan doesn't require leverage and speculation.  We aren't affected by Wall Street or government trade wars.  There is a better way to retire early and wealthy by being the bank.   

Learn more "Top 10 Reasons to Invest with Us"

Check out our new website for great info and case studies: expandcap.com 

Email me today at kyle@expandcap.com or call me at 248-955-8222 to learn more about these opportunities.  

This type of investment may be for you if:

  • You're looking for a simplified investment that only uses cash. No leverage.
  • You're concerned about your IRA/401K or other retirement savings lasting another recession.
  • You want to take back control of your money and protect it from Wall Street's next bail out.

*Build a strong retirement that is immune to Wall Street.  If you're rich, you put your money in the bank.  If you're wealthy, you are the bank!

Kind regards,
Kyle Zimpleman, Managing Member

Real Estate Bio

We identify opportunities to acquire pre-foreclosure, bank owned, and performing loans at pennies on the dollar from our network of banks and hedge funds.  This fund provides a vehicle for investors to participate in off-market real estate long before its available to the public. 

The real estate market is at its peak. Here’s why and what to do about it.

There seems to be a consensus that the real estate market has reached its peak.  However, in a normal market cycle it takes oversupply to drive down prices.  But we currently have very few homes for sale compared to the demand.  Why? 

Two driving forces - baby boomers and new construction.

Baby boomers aren’t moving.  They are sitting on tons of equity and a big ranch home with a finished basement that is only used for the occasional holiday celebration.  Previous generations, when they reached the retirement age or mid 60’s, sold their family homes and downsized to a condo or much smaller home. 

Now they just shut the vents in the bedrooms they aren’t using and say, “Bite me housing market.”  www.cbsnews.com Click on article.

This creates a supply gap since first-time buyers or move-up buyers can’t find a home without outbidding each other.  Most of the buyers in this class are priced out of new constructed homes.  Over the last few decades, less and less affordable new homes have been built because builders found out they can make more money with the high end and McMansion homes. 

In my opinion, the canary in the coal mine is the high-end condo market.  For example, Miami has a four- to seven-year backlog of overbuilt luxury condos.  If that seems familiar, it should.  This is exactly what happened before in the last real estate crash.  

Compare this article below from 2007 to a recent 2018 article echoing from the past.  

Interest rates have the power to drastically alter this high-end condo and housing market.  Not just because it’s harder to afford these homes, but because it’s harder for builders to hold these homes as well.  Builders and businesses rely on credit lines to provide them with time to sell their products.  When it costs more to hold, you need to reduce the price in order to sell faster.

“Sorry neighbor trying to sell your home, but the new subdivision next door just dropped their pants.  Why should I buy your four-year-old home when I can buy brand new for less?”- New Buyer

This can create a ripple effect.  Now that neighbor can’t sell without lowering their price and they can’t buy another home either.  

So… what do we do about it? 

I can't speak to what is best for you.  However,  I’m completely out traditional real estate and stocks.  Instead I'm in cash or deeply discounted mortgage investments. 

What I mean by discounted mortgages is that I’m the bank.  In the simplest form it looks like the following example...

Homeowner owes $80,000 at a higher than average interest rate mortgage on a home that is currently worth $100,000.  In this case, I would buy the mortgage from a bank or hedge fund at around $60,000 or below depending on the situation. 

As an investor, I’m protected from most of the issues that a market correction will throw at you.  Since I bought at a discount and it’s a high interest loan, I make anywhere from 13.5% to 25% on my money every year depending on the situation.

If the market goes down 20%, the borrower still isn’t overpaying for a home.  If the financial markets collapse and it goes down 40%, then I’m still OK.  Even if this market drops 50% I would still be OK.  Why?  I own the investment free and clear and can offer whatever terms I want (depending on Dodd Frank and other consumer protection laws).

Let’s look at the worst-case scenario – the market drops 50% and I’m left with the property I paid $60,000 for that is now worth $50,000.  I’m going to have some rehab costs and legal fees, but let’s stick with the $50,000 example. 

Warren Buffet once said, “Price is what you pay, value is what you get.”  I would rather have the $50,000 left in real estate than to have it wiped out if it were stocks or other investments.  Why?

Because I have a brick and mortar investment I can work with.  If my stocks go down I can’t call Apple and offer my advice on how to get it to go back up.  But I can take this property I own and put in a new kitchen, which would receive higher rent or make it sell for more.  Moreover,  I can do a combination of things, such as offer mortgage terms that are attractive and raise the purchase price to compensate for any loss.  I could also just rent the home and create cash flow.

The options are almost endless…  Or I can buy stocks and pay, pray, and stay. 

Unfortunately, we have been programmed since birth to listen to financial advisers who receive a commission of 1-3% whether your investments go up or down.

No investment is risk free, but protecting your downside is what it’s all about.  I have created this fund around the principle of protecting the downside.  It offers a level of security and protection I can’t find in other investments.

However, I can’t do this well without having like-minded investors. 

I have spent the last year designing a business that will be able to capitalize on a market downturn and now we are knocking on the door.  Actually, I’m knocking on your door.  Not because I have to, but because I want us to win big.  The last market cycle caught me and everyone by surprise.  I want retribution!

Below is a 1 min video that illustrates what happens when you don't have investors. In this case, it didn't pay for me to sell.  But the new owners had a windfall of over $250K eight months later!

Are you curious of how this works with real life examples? I can email you a copy of our plans.  We show you what happened behind the scenes during the last housing bubble and how you can be prepared for what is to come. 

Email me today at Kyle@expandcap.com or call me at 248-955-8222. 

Local to Michigan? Check out our Facebook Page "Michigan Note Investors"

Kind regards,
Kyle Zimpleman, Managing Member

Real Estate Bio

We identify opportunities to acquire pre-foreclosure, bank owned, and performing loans at pennies on the dollar from our network of banks and hedge funds.  This fund provides a vehicle for investors to participate in off-market real estate long before its available to the public.  This translates into above average returns to our investors and provides peace of mind that their investments are secured by equity in real estate.