In this episode of Work Like A Mother, host Marina sits down with Rylan Maddox, a seasoned mortgage expert with over a decade of experience. Rylan shares valuable insights into the ever-changing landscape of the lending industry, especially focusing on multifamily properties and the recent developments that will impact potential buyers. He discusses the opportunities for first-time home buyers and investors in the multifamily market, delving into the changes in lending requirements, tax benefits, and strategies for new investors. Additionally, Rylan provides advice on navigating the real estate market and shares his personal tips and go-to resources. Join Marina and Rylan as they explore the intricacies of multifamily property investment and gain knowledge from Rylan's wealth of experience in the mortgage industry.

Mentioned in Episode:

1984, George Orwell

Rylan Maddox

https://rylanmaddox.com/

IG: @maddox.mortgage

Marina Tolentino

https://www.marinatolentino.com/

IG: @marinattolentino_

YT: @marinatolentino

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Transcript:

All right, so today we have the one and only Rylan Maddox here today and I'm so excited to talk and just get a little bit nitty gritty on the lending side because as we know, as agents, things are always changing. But really, Rylan, I would love for you to give a quick intro of who you are, what it is you do. Talk to us about your family life a little bit. I know you're a dad to two littles. So who are you?

Yeah. So my name is Rylan Maddox. I've been in the mortgage world a little over a decade now. Got in in 2012, so I haven't been in since the housing crash and gone through all that. But we've seen our peaks and valleys for sure in the past ten years. And most recently it's been a very interesting market as well. I specialize in VA loans and also first time home buyer loans, even those that aren't veterans. So conventional FHA down payment assistance type stuff.

I really like the education part of mortgages and the problem solving piece. Everyone's situation is different, so being able to take each individual situation and figure out how to make it fit within those banking guidelines that are oh, so fun is the part of the job that I really enjoy. And so, yeah, as you mentioned, I have two daughters. My daughter is Cameron. She's twelve and lives in Tennessee with her mom. And my stepdaughter Kaylee lives with Kira and I. Kira is my wife here in Colorado and we go back and forth between Colorado and Hawaii a bit, but most of our time is in Colorado nowadays. And, yeah, when I'm not doing loans or educating first time home buyers and such, pick up games of soccer, I'm a little bit of a nerd.

I play pc gaming and, yeah, just like to get outdoors, hike and that sort of stuff.

Yeah, absolutely. And so you're no stranger to, I mean, the hustle and bustle of being an entrepreneur. Kira, your wife is a badass and just, you see exactly the stresses that she goes to, too. So even though you're not a woman, it's great to have you on the show just to share that perspective too, of what it's like to be a high producer in this industry for more than the last three years. So, people, if you don't know, I've only been in for three, Rylan's in. Been for ten. But I'm happy to say you're one of my top three lenders that I love to refer business to. You really are a matchmaker when it comes to helping find these solutions, because that's ultimately what we're doing, is we have this client, okay, now we've got another one off.

How do we figure this out? And you're really good at doing that. So thank you. But today I wanted this to be super tactical of. There's been some changes when it comes to multifamily, and I think it's a market that not a lot of people tap into because we think investors only, or we think like 1031 exchange cash only buyers. We don't really think of a first time buyer or someone that's in their first three properties to get into multifamily. But I wanted you to just share that update. Like, what has changed? How is there opportunity now in this new market and kind of some of the differences?

Yeah, for sure. So the best way to kind of talk about what changed and why it's so impactful is to start with what exists as is in the three main products that someone might target, I think, for what we'll call traditional financing for multi unit properties. So, first off, some real easy definitions. Residential property is typically anything that is four units or less. So think your single family homes, your duplexes, triplexes and quadplexes, and anything more than that. Five units or more is typically a commercial type loan. So it's not residential, it's not someone buying it to live in, typically. So within those, a VA loan can go up to four units and even a fifth unit that's used for business purposes.

A lot of people don't know that. And VA loans have zero down in all the things that VA loans have. But not everyone's a veteran or is served. So the other two loan products that you would potentially be looking at is conventional and FHA loans. Now, conventional is what we're going to be talking about today. So we're going to save that for last. FHA allows you to buy a two unit property with as little as 10% down, or three, and four unit properties with between 15 and or, sorry, with that 10% down. But it has the FHA 75 rule, which basically says that the rental income of the other units has to make up 75% of the mortgage payment, is just one more added rule that a property might not pass.

Plus you have FHA loan limits, which are usually lower than conventional, conforming limits that line between jumbo portfolio loans and just conventional loans. So what has basically changed conventional loans, you used to be required to put down ten to 15% on a two unit and upwards of 25% on a three to four unit, multi unit property. Even if you were going to live in one of them, the change that is going, that's going to start on November 18. So this isn't live yet. We just know it's coming is from Fannie Mae specifically. And Fannie Mae is one of the two main conventional mortgage backed securities. So Freddie will probably follow what Fannie Mae has said, that starting November 18, for two, three and four unit properties, you only need to put down 5%, the same as you would on a single family home. So specifically, to the mothers out there that are entrepreneurs and running their own business, this is huge.

And it's not just huge for them, but it's definitely going to be impactful. And for all buyers that just need that extra little bit help, that rental income, in this case, that's going to allow you to get into a property that's not just going to fit your needs, but also help you grow that generational wealth. Add that income and so 5% down and being able to utilize that rental income piece on the multi unit side all the way up to a quadplex, which is huge, you could have three rentals. It's going to both help borrowers qualify for more, and it's also going to just improve their overall quality of life through additional income, potentially.

Yeah, no, that's huge. And the biggest thing that comes to mind is, like, opportunity. Hello, the door is open now because for so many people to get 20% down on a million dollar home is a significant amount of change. That is not chump change. So it could take you 510 years of savings to actually get there, which just I feel like is not realistic, especially with the appreciation that we have here in Hawaii, even nationwide, obviously in the mainland, there's a lot more opportunity for multifamily, I feel like. And there's not as many here in Hawaii, but we see a lot now in Hawaii where it's the Adu or the illegal unit downstairs and stuff. So I just think it's super exciting to know that this is coming. And by the time this goes live, it'll be January.

So it'll actually be up and running for a couple of weeks, which will be awesome. But I think. Go ahead.

The other thing, just while we're on the topic of utilizing those extra spaces to help your buyers qualify, it's certainly also not we don't want to pass over. So FHA does allow those AdU rental income where conventional would not. So those adus that aren't true. 2nd, third and fourth units. FHA has rules that would allow rental income on those. Okay, so there's still give and take. Conventional is not king overall now, but it certainly is much stronger.

Okay, so obviously we have expedited appreciation, right. You're able to get into a much larger purchase price, which means as this property appreciates, you're getting to capitalize on that bigger appreciation, which is awesome. Let's kind of roll into tax benefits. So a big thing with high earners, like if we're making multiple six figures, we need to start to get really strategic with our income, our write offs. Right. So we're not paying the government 50% of our income. How does this affect us if we get into multifamily?

Yeah, absolutely. So the multifamily aspect, especially if you're in the real estate industry, or if you're going to property manage and definitely check with your local and state laws regarding property management. But in that multifamily aspect, it opens up the possibility to have that active participation in the property management, which is going to check with your CPA. But if you're spending a majority of the year or a decent amount of time of the year, whatever that test is, it allows you to actually create that LLC or that business as a management company. And the biggest difference, and again, check with your CPA. But the biggest difference is on your schedule e, which is your schedule of real estate owned property as an individual, after you cross over a certain income threshold, your losses on your properties are no longer, you cannot discount your normal taxable income. It's just a carryover loss on your properties year after year. However, if you qualify as that active participant, you hold a real estate license or you're doing property management yourself, which theoretically you would want to do and save money on your own multi unit, you're there anyways.

It allows you to write that off against your net taxable income overall because it's business losses, not real estate losses. So there's just even more strategy that you can dive deeper into with your CPA or your tax professional that just a normal single family home or a condo would not have even as a possibility.

Yeah, no, super smart. And then I'm just thinking about this now. It's like, could you. I mean, you totally could, depending on the zoning laws, but you could buy a multifamily and make all those units, airbnbs or short term rentals, depending on the zoning, like I said. So you could make it like a mini complex if you wanted so much potential, I think, especially on the mainland for that. All excited for ideas but I think, do you see yourself and more people leaning towards that because of this new rule? What do you kind of predict for multifamily in 2024?

So I think the biggest thing that's going to be right out of the gates as the most impactful is that is simply the qualifying aspect. Right now we are seeing the highest rates we've seen in almost 16 years. We also have some of the highest home values, which aside from the mortgage rates, we still have inventory shortages in many markets across the country. So home prices are not anticipated to go down by any large measure anyways, anytime soon. And I think that's going to be the same general trend we've seen in real estate year after year is those long term holdings almost always appreciate. Right. And so there's no hiding it. It's more difficult to qualify for homes now than it has been, especially in the recent three or four years.

This change is going to allow that first time home buyer with 5% down, or just that home buyer who had the minimum down payment. Now they're going to be able to look at properties with that multi unit feature and utilizing that rental income to just give themselves more options. Where before this you had to have at least 10% down. And it doesn't seem like a big number when you say five and ten, but when you talk about the difference being 20 or 40 or 40 and 80,000 is down payment, it's a significant difference. And I think it's just going to allow that many more people the opportunity that they didn't have before.

Yeah. And you got to keep in mind because it's so low of a down payment, you are going to have that PMI still, right?

You are still going to have PMI?

Yeah. On a multifamily, what would that look like, do we think?

To be completely honest, and by the time we see this video, we'll include some information, probably in text. But that is the thing that as mortgage professionals, we are waiting to see. So there's two things that we're going to see. Fanny has not announced yet, but will impact these loans. So the mortgage insurance, we call it the mortgage insurance factor or what that monthly amount based on the loan amount is going to be calculated as. So right now, a first time home buyer might see a mortgage factor of 0.5 or zero point 35, depending on the loan amount and the credit score. And on a $500,000 house with good credit, you might get mortgage insurance around $100 a month, $90 a month. With lower credit, you might see that same monthly payment, around $200 a month.

Right. So seeing what Fannie releases, that as that mortgage insurance factor is going to be very important. The other thing is going to be what we call llpas, loan level pricing adjustments. So these are going to be adjusters to the interest rate based on a uniqueness of the loan. In this case, it's a 5% down multi unit. We don't know what those adjusters are yet. So depending on how aggressive Fannie wants to be with this product, it could be very similar to just a single family or condo adjuster. But that's the thing that we're hoping.

This isn't something that sounds better than it is, and then they release pricing that's not usable. So we're hoping that Fanny has kind of had the forethought in that, but we won't know until after November 18.

Sure. Okay, so definitely we'll include an update in the description below just so that you guys have the nitty gritty by January. I guess one thing that is coming to mind too, is this is going to open the door to a lot of new investors who don't have experience, don't know what they're doing, and to bite off of multifamily as your first one is a little bit risky. Instead of just starting with one unit, what advice do you have for someone who's going into multifamily for the first time? And they haven't even had a rental yet.

So it's very likely also that maybe if Fannie doesn't, banks will still want if it's your very first investment, and I would recommend this as well, hire that property manager. Look for properties that factor in your cash flow with the property management fee because you don't want to do it on your own your very first time. But if you're a brand new investor and after you make friends with your property manager, ask them questions. Work with someone who's willing to not necessarily spend all their time teaching you, but ask to kind of follow along with them and get used to it your first year or two. But the biggest advice is just start. Don't let being a first time investor or a new investor or a new homeowner scare you away. We were all first time at one time, right? The only way to get more comfortable with it is to just do it and work with trusted professionals like yourself to get that guidance and to kind of hear the best practices and the minefields to avoid work with trusted professionals for sure. But don't be afraid.

Yeah, absolutely. And that's just the reminder, too, to link up with professionals who have some skin in the game. They've done this before. So you are one of those. You've had multiple units, bought, sold, continued to rent long term, and I think have seen just tendencies and learned along the way. Like, I just had this experience. I don't think I've even told you yet. We had our tenants move in last week, and this condo has been vacant for two months.

Didn't even think to run the water, right. So they move in. Guess what happens? Smells like a rotten egg. It's horrible. So she wanted me to hire a plumber out there, and I was so apologetic, but I was, like, responsive within 30 seconds. Hey, we're going to get someone ASAP. I'm so, so sorry. Keep running the water.

Long story short, ended up doing, like, dishwasher cycles and laundry, and within 24 hours, it cleared up. But then she said, oh, by the way, we found cockroaches, too. And I'm like, what? Are you kidding me? We never had roaches the whole time we lived there. How could this happen? And so had to have the orchid man come out, and it's just, you think you got it and then you don't. And this is how we live and we learn. And now I know, hey, I'm going to be really proactive and not just let my condo sit vacant for two months and think everything's dandy, but definitely it's like building your a team, right? So with anything, just like a business investing is a new hat we have to put on, but it's a significant way to increase your wealth very quickly, to get into multifamily, to have those tenants, like, slowly increasing rent as you make improvements. Absolutely. So I think that's definitely something to look forward to in 2024 is how do we continue to market this to clients who might have been on the edge or the down payment was the one thing holding them back.

And I think also, just on the first time home buyer, getting that mentality of house hacking, like, okay, I'm in this to make money, but let's do it strategically. Or maybe it's not enough to get me into a single family home, but I can house hack it with an ADU or a second unit and utilize even the VA loan with a zero down payment plan is a huge way to do it and then get that long term appreciation. So lots and lots of ideas, I think, just to wrap it up. Obviously, you've been in the industry for ten years, you've experienced a couple of slower markets. What are some big pieces of advice or like the major Aha's you've seen over the years that just keep even a slower market keeps an agent's business consistent, what would you say?

It's really the fallback to what I try and keep as the foundation of my business and it's that education, just constantly putting out good information, good content, even if it doesn't mean you're getting a deal back in. Right now, I'm not the most social person. I'm not the golfer or anything like that. I don't get my business that way. But what I've tried to do over the years is become a subject matter expert. And whether that's for my referral partners like yourself or for my buyers, it's just being a source of information and studying that information so that people come and ask me questions and deals will come out of that. So if you're someone who's not, if you're social and you love the information side too, great. But if you're not entirely social, this is a very networking type industry.

A lot of our business comes word of mouth and just who we know, right? And so if you're not great at that networking piece or you're not quite comfortable doing that yet, just dive into the guidelines, dive into the rules, dive into the tax structures, dive into the house hacking and know this stuff better than anybody else and then talk about it. That is, you got to be a little social. People have to know you know it, but that'll be a consistent source of business. If you're seen as a subject matter expert, pick a niche, pick something to specialize in and just go deep and really study it. And that would be my advice for someone who maybe doesn't know where to start right now.

Yeah, that's awesome. Content is king and there's just so much new articles that I feel like come out every week that seems like another slap to the face about something. And so just creating a reaction video of like, hey, I read this article, green screen feature. We'll make it work. But people want to know your opinion. That's most importantly. You can reshare articles all day, but they want to hear it from your voice. So that's a great one.

Okay. Something I do at the end of every episode is just a quick rapid fire. So just give me your first instinct response on these. What is your Starbucks order?

Nitro cold brew with the caramel vanilla cream. Sorry, nitro cold brew, vanilla cream.

I'll have to try it. What do you make for dinner at the last minute? If you're at a bind and you're like, shoot, I need to make something. What's your go to?

I keep some steaks in the freezer. So quick defrost and just salt, pepper and grill.

Yeah. Perfect. This is more of a female probably related question, but what's your fave? Go to department of target. And your favorite designer there.

Yeah, definitely. I'd have to say the gaming section. If I go into target, I'm either going into household goods and buying something I need to make the wife happy in the house or. Yeah, the electronic section.

That's funny. Okay. And do you have a favorite designer?

Right now I'm really loving Travis Matthews, which. Yeah, just not. I don't think you can get it at Target, but really good fit for men's polos. If the ladies out there have any husbands or boyfriends. Travis Matthews. Really good hats and shirts.

There we go. Valentine's Day is coming up. Okay. Name a book or a podcast you recommend to our audience.

Book or podcast? I'm going to say 1984, just because I think it's got a really interesting plot and story, which you may or may not find similar to some things we're seeing nowadays.

I've never even heard of it. It's a book.

Yeah. George Orwell, 1984.

Okay, I'll look it up. Cool. TikTok or Instagram?

Instagram.

Cool. And then where can people find you? Where do you live? On the online space. How do they reach out to you?

Yeah. So you can Google Rylamatics. Rylamatics.com. My website's my name. And then also I co manage or run high five team loans. We have Instagram as well as Facebook on that as well. High five is H-I-F-I-V-E. Yep.

And then you are licensed in how many states? What states are you in?

Picked up. I just picked up my fifth. So we're in Hawaii, California, Colorado, Texas, Florida.

Awesome. And I highly recommend reaching out to Rylan. Just again, have him at the seat of the table. He can be one of your advisors, give some advice. He's definitely one for me. There's no stupid questions. And he's just a really great resource. So thank you for your time.

I'm excited for the people to hear your message and just keep sharing more about multifamily because I don't think it's going away, and it's just another way to get started and build wealth. All right. Yes.

Thank you for having me.