146. Self-Employed Financing for Real Estate with Alejandro Szita

Hey, welcome back to the Average Joe Finances podcast. I'm your host, Mike Cavaggioni, and today's guest is Alejandro Szita. So Alejandro, super excited for you to take this time today to have a chat with me. Welcome!

Thank you, Mike. And thank you very much for giving me an a voice to your audience.

Yeah, absolutely. Off the bat, the first question I want to ask you, and you can go as far into this as you want or tell, share as little as you want, but we wanna know more about you. So if you could share your story. Who is Alejandro?

Alejandro has become the finance guy. I come from Chile. And then, Unbeknownst to me, and this is what I've noticed, sometimes other people look at you and they know what is your niche. They know what you should do, but sometimes you are the last person to find out. So since the age of seven, I was the finance guy. I was lending money to my brother. I was lending money to my friends. I was writing those long, full scope, legal size contracts on my grandmother's typewriter. When my mom found them, she said, you cannot do. This is Usury, how can you treat your friends like that? Or your brother, he's your brother, you can't do this, blah, blah, blah. So that was my first opposition of my say so. And then through life, even though I've done a lot of things, I was always inclined to the business field. Not because I was gifted, not because I was good at it, it's because I knew that I would need it in life. But I was weak at it. I was fortunate that my grandfather was a wealthy person. He had his chain of stores, like the men's warehouse in Chile. And I remember one day, I was on my teams, I was talking to one of the salespeople and I always try to be sociable. I like people, so I always talk to people. And up to that point, I was probably 18 or 19 up to that point. From everything that I've heard from the other sales people that work at those stores, I had the impression that sales and business with something that if you are born with it, you are successful. If you're not born with it, you are not. And there was no consensus as to what was a good salesperson, what was a bad salesperson. But I happened to meet a salesperson and I met him on paper first. I was looking at some, you used, I used to work for my dad, so I was working at these reports and I noticed that the worst store was doing well. The worst store, that the small, cramped, in a corridor downtown Santiago, where I'm from, a store that traditionally was an underperformer that suddenly was doing well. So I ask, why is this store doing well? And they say, oh, because so and so is in there. Who so and oh, and so is a salesman. He was in another store, blah, blah, blah. So to make a long story short, I want to see him and talking to him, I realized that he had a system. It was not luck, it was not chance. He had a systematic, developed, tried system, so no matter where he went to work. He pushed the statistics up and then I found out that in finance it was the same thing because I went to the university. I took a lot of finance courses, accounting courses and so on. And I can tell you this, there are so many ideas about finance, so many ideas about what you should do and what you shouldn't do, and it's perplexing because some of those ideas are encounter positioned to the others. It's not like building a bridge. If you go to engineering, , it's very set. This is the coefficient of resistance. These are the formulas. You build a bridge, you can see if you're successful because cars are not falling down. If you're unsuccessful, the thing cracks and boom, it goes. And there are not two opinions about it. Either you did it or you didn't. But when you come to economics, when you come to finances, Everything contradicts everything else. And there is a seal of books. There is a seal of gurus. Somebody says, no, you need to buy the real estate. No, buy gold, no, do this, do that. You please. If you try to follow each one of these things, you'll go crazy. So my quest, my personal quest, not because I wanted to sell it, not because I wanted to work in it just for my own, I wanted to know what is the bottom of this thing, among all these. Which are the ones that will work for most people and why? And that's why I became the finance guy, just to find the answer for myself. So I have worked in real estate, I have worked in all aspects of real estate. I've been a listing agent, a buyer's agent. I've raised money for syndications, but the lending side, It's the side that attracted me the most. I've been in marketing, I've done infomercials, I've sold it in the home shopping network. But of all of those things that I've done, financial and in particular, lending is what caught me because it's one of the fields where I saw that the contradictions were the biggest.

Okay. Yeah, that's.

I don't know if that answers your question.

No, it does because it's a lot to unpack, right? So I was taking notes as we were. Just right off the bat though, from the age of seven, here you are like writing up contracts to friends and family members on a typewriter. That's that's very interesting thought process for someone at such a young age to already start thinking like that. So you said that, you were always business inclined, not because it was something you were born with, but because you found it as a necessity, right? Yes. And I think that's a big thing because. There was something else that you mentioned too. It was that it's not about having luck when you were talking about the salesman, right? It's not that he went in there and he was lucky, but he had a system that he put in place to make that happen. So I think, you were able to learn all this stuff, very young, like even as a young man when you were learning from that salesman. And take that, into the future business that you now do now, right? Before that, you were doing real estate, right? You said you were a sales agent, right? So you understood you needed to have a system in place to make that work.

Yes.

And now as working on the lending side you get to see that side of the house and throughout the entire time you're seeing all these contradictions in finance. And you are absolutely right cause you could sit here and listen to my podcast one day where I'm telling you, A, B, C, or D and then you go and listen to Dave Ramsey another day and he's saying, don't take out a mortgage. Don't take it out to any debt or anything like that, and then you go listen to Robert Kiyosaki another day. And so another, it's one extreme to another, right?

Yes.

Where do you find that happy medium? Where do you find that middle ground that actually works for you? And I think that's been your quest is this, is the vibe that I'm picking up just from talking to you that.

Yes.

That's what your quest has been, is like where do I find this middle ground where I could bring people together. Bring them in and show them that there is a way to have the best of both worlds.

You understood it 100%. It's been my personal quest.

There you go

Not because I wanna write a book, not because I wanna be famous or anything. It's only cause I wanna answer that question for myself.

Yeah, so if you're asking if I understood what you meant, yes, you definitely understood what you meant a hundred percent. Okay, cool. So now so we've got that down. We, now we know who Alejandro is. So now I wanna talk to you about just some of the things that you see like now in your day to day, job as a lender. So what are some of the challenges cause I know a lot of people that listen to this show have reached the point where they're self-employed, right? They are now Either in real estate full time or they've reached financial independence and now they're quote unquote retired. And trying to make things work now as it is. But a lot of times people run into issues. Challenges with that. So what are some of the challenges that you see like self-employed borrowers running into when it comes to real estate financing?

I see a disconnect between the self-employed borrower and the system of finance. A complete disconnect and a they basically, we speak different languages and when I say we, I include myself in the bag, the self-employed person. Believes that because he has a business, because he has a business model, because he's making money and because he's paying his debts, he believes he's credit worthy. And who wouldn't? If you're making money, and I'm not saying that you have to be a millionaire or anything, you're making money, you're making good money, you're making above average, and you're paying your bills. You have a good business model. It took you a while to get there because there are, like I remember listening to this radio program once. They were interviewing this author who was an overnight success and he said yes, after 40 years I became an overnight success. So you have to pay your dues. I had to pay my dues. And you are there as a self-employed, as an entrepreneur. Then now you go to a lending institution. You know that you can afford the payment, you have the down payment, whatever that may be. Your credit might not be stellar, but it's not bad. And then you get denied for the most absurd and ridiculous reasons. And you try your mind to make sense of it, but the more you listen to the loan officer, the less sense it makes. So there is a complete disconnect between the business owner, even if I'm doing a loan now for an entrepreneur. His company says 20 million. His income is close to a million dollars a year. Net income to him, even him. Has a difficult life trying to get a loan, and it's because the system is built for the W-2 employee. That is the standard that it was decided upon somewhere in the nineties, and computers made this possible. So on the one hand, if you are a W-2 employee, if you make less than a business owner, And you have a better chance of being able to be qualified right away and buy your home than if you are a successful entrepreneur. It sounds crazy. And then there is something else. Most human beings, we are good people. When I say good people in the main, we try to assume that the other party thinks like us. But in the finance world, nothing could be further from the truth. And I'll give you one example. For instance. We tend to think that the credit score is a measure of how successful you are. It's a measure of how good you've been paying your bills. It's a measure of how, in a way, moral in the sense that you fulfill your obligations. You are. And would you believe that? It has nothing to do with any of the things that have said. The credit score was designed by very rich people to spot who are the people who manage their debt that will make them the most money. So remember, it was not designed to detect the people that were responsible. It was designed to detect the people, know that if they lend the money to them, they are going to make the most money. It's a debt, it's a score that manages, that measures your ability to manage debt, but according to a very specific and arbitrary standard from a very small group of people. So it's not even that you're managing debt well. You have to manage debt according to their criteria. That's what the credit score really is. So we are not a credit repair agency. We don't claim to be that and we don't charge for that. But of course to make people qualify, we have to assist them on the credit repair side. And people are always amazed when I said to them, we need to bring bank down the balance, and the business owner having cash flow. He says, okay, I'm gonna pay it off. I said, Nope. Don't pay it off. Leave the balance that this number precisely, don't go a dollar up or a dollar down. And they go but shouldn't I pay? Wouldn't that be better? And they don't understand that it's not better because they are not looking at you paying. They are looking at you managing debt within a very narrow criteria. I just bring the credit score because it's the one that people are more familiar with. But this issue happens at all levels. Happens at the level of the down payment happens. Happens at the level of income. I'll give you another quick story. I did a quote for a gentleman a week ago. He makes hundreds of thousands of dollars. He has over a million dollars saved. He cannot even buy a home. He doesn't qualify under any program. We found a program where he can qualify. Why is that? Because until March of this year, he was employed. For the same company for 20 years now. He decided to go on a contract basis, same company, same job, but he switched from a W-2 employee to a 10-99 contractor, and now immediately he's not qualified at all. Why? Because he's not an employee, so therefore he has to qualify as a self employed. But as a self employed, you need two years. But he hasn't two years cause he just began. So even though he makes all of this money, he's been 24 years in the same profession. He's still working for the same company. You look at his bank account and I wish I had the kind of balances that he has. He doesn't qualify for anything. However, there is a program, which is a community program he qualifies for. It's only because, I just turned every stone and I found it. But he got a rejection from everyone.

That's mind boggling when you think about it that way. And, I never looked at credit scores the way that you just described them, right? I always looked at it like, Hey, how much risk is the lender willing to take when they're looking at this credit score? It's if you're below that certain threshold but realistically they know the lower your credit score is. There's that little area. Where it's okay, we know we can charge a higher interest rate and that they're gonna be able to pay it because they're in this zone. So I feel like I can see that side, right? If it's extremely low, then it's bad for everybody. If it's extremely high, then they're like, oh, this person, we're not gonna make that much money off of 'them cause we got to give them the best interest rate. And then you find that where most people are, that middle ground area, that's where you can see, like most return on their investment, which is you, the person, right? They're investing in you knowing that you're gonna pay them back with interest. So again, I never looked at a credit score that way. So that's a good way and a different way to look at it.

Yes. And even what you said, they called that the risk based scenario. Think about that for a moment. If you think that person is risky, that you need to charge him a really high rate let's assume that is true. Let's assume that he's really risky. Why are you gonna lend him any money? And if he's that risky and you really charge him a high rate, what are your chances of the whole transaction being even more risky? Because now you're placing him in a bind, and if he's risky to begin with and you're putting him in a bind, guess what is going to happen? So that model doesn't make sense. However, that is the model that everybody's judged on.

Yeah, that's insane. I wanna bring this back to the self-employed people, right? The business owners, the small business owners, because like you said where the one client you were working with went from having that W-2 job to becoming self-employed. Now they don't have that two years of self-employment, 10-99 income. So now when they go to go qualify for a mortgage, they don't have the quote unquote proof. That they have a stable income. Cause that's what they're looking for, right? They're looking that you have income stability. I don't care that you have a million dollars in the bank. I care that you're gonna be able to make your monthly payments on time and whatever, even though you can go tap into that million dollars if you needed to. Which is another thing is If they've got like that much capital stored away, that you know that if worst case scenario they could pull from that to make the payments. How much of a risk is this person really?

Yeah. And there are loan programs that allow us to use the million dollars, but in his case, because it's not even been a year as a W-2 as well 10-99 employee, we cannot even do that.

Yeah. That's again, mind boggling. Okay so what are some of the things that business owners can do to secure the mortgage that they need despite these challenges?

This is one thing that I would recommend for a business owner or an artist. We also have successful artists, even though you as the business owner, you qualify, you make good money, you have the down payment and your credit score is not bad. Spend a couple of months of preparation. I say a couple of months because most of our customers, when they come to us, It takes about two months to prepare them. When to prepare them, I'm not talking about their money. I'm talking about making sure that they will be able to fill the boxes that the lender wants them to fill. And I'll give you an example. Most creative people or entrepreneurs have issues on their credit score. Why? Because as an entrepreneur, you work on cash flow, you get a big amount of cash flow, you use it, then you get a throw. Then you don't use it that much. I'll give you an example. You get a credit card, they give you $10,000. As an entrepreneur, you go I have $10,000 of capital. I'm gonna do this and this and this. You use the 10 Gs maybe. 30 days go by, you can pay, but you go I don't mind. I know they're gonna charge me your penalty fee, but that's okay. I'll pay it 50 bucks penalty fee. I get another use of my money. I can make another 2,000. What is 50 bucks? When I can make 2,000? I'll pay it next month and I'll pay it off completely. And for the individual entrepreneur, that's fine. They did their job. They pay their bill, they are fine. Now from the. Bond holder. I call them bond holders because these are people that have substantial cash. All they want is to return on investment. They don't care about you. From the bond holder's perspective, this is how they look at it. We gave you the guy $10,000. He dare use it all. Not only he dare use at all, he didn't pay us on time. Yes, he pays that on the second. He didn't do it on the first. So to them you are bad. And why? Because from this arbitrary point of view, if they give you 10,000, they don't want you to use more than a thousand. They consider that is good. They consider that is responsible, and that is their opinion. That is their personal opinion. By the way, that doesn't mean that it is. That's what they think. Now, some of them will allow you to go to 50%. Occasionally, they lend you 10,000, you use five. Okay. Sometimes that could be okay. So you can imagine if you reach about 50, now you're at 75, you can think what they think of you, and that is reflected on the credit score. So the first thing that we do with entrepreneurs, we look at the credit score and we try to smooth out all of those things. To prepare them on the credit score side. Then on the income side, an entrepreneur or a business owner has many times multiple sources of income. They have multiple different accounts, and to the lender, all of that is confusing. Underwriters are not used to that. So what we do is we look at all that. We narrow down what we need to use. We don't show at all. We only show what we need. And we only show it in a way that is packaged in such a way that is baby food for the underwriter. Now it sounds simple, but to do all of that takes about a couple of months on average. So then when we go to the lender, we go very specifically with a certain score and we package the loan in such a way that shows what the lender wants to see in the boxes that a lender wants see. Does that make sense?

Yeah, no, that, that makes sense because, it's less that they have to look for or look through to figure out if this person qualifies for the loan, right?

Yes.

So you basically package it all together for them. And make here is your picture. This is what this the person requesting this loan. Okay? This is what our client, here's the checks in the block that they meet, right? For the criteria that you require for this specific loan, who cares about all the other stuff? This is what you guys say you wanna see here it is, right? So you don't have to look and you don't have to ask for additional documentation. It's all right.

Yes. The less they have to think the better. When you invite thinking, you invite problems. Unfortunately it's a sad state of affairs. It shouldn't be that way. It should be the reverse, but that's the world we live in right now.

Yeah, that's, that's a great point. Like when you look at this, especially as a business owner it makes you think about when is it that you actually need a mortgage broker instead of trying to go out there and doing it on your own.

That's a great question, and this is something that I see frequently. I see the business owner coming to me as the last resort. They never come to us as the first resort. They always go back to the bank because they believe that because of their sales volume, because of their longevity or the track record, they believe the bank will give them a loan. No questions. The case, I give you one case, there are many, but this is the most extreme case that I've ever seen. This is a gentleman whose company sells in the tens of millions of dollars. He's been with this major bank in LA for 22 years. He goes to this bank and he says he wants to buy a house. This is not even a mansion. This is just a regular run of the meal. Average home in Los Angeles. The bank says, no problem. You've been with us. I see how much money you have. We'll give it to you right away. He goes home, everything is fine. Then he gets a call and they say, I'm sorry, we can't. And he says, why? And there is this little insignificant thing on the credit report. Insignificant to me, insignificant to him, but big enough for them to not give him any loan. Now you would think that I'm such a good client. I handle such a big volume. I'm sure he's going to fix it or tell me how to fix it, and he's gonna give me another chance. The answer is no. No, we're not gonna give it to you and we don't give you any solution and we don't care. It's up to you. That is the treatment. Unless you are a really high net worth individual, $10 million plus liquid and much more net worth. And you have a private banking relationship. Now, this private banking relationship is also a term that big banks use, but you're not really a private bank. They say that you are, but you're not. And the way that you find out is when you ask for a loan. We used to have that in the seventies, in the eighties when I was growing up in Chile, even though I didn't have that kind of volume, I did have an account executive, and I did have a private relationship with him. I could go to him, he would look at my bank account. He knew where I live. He knew what I did for a living, and on the spot he could just give me a credit, a line of credit or loan. I could just sign on a piece of paper and I walked out and I was done. Those days are gone except for the really high net worth individual, and you would be surprised, How many successful entrepreneurs making a lot of money are not at that level.

Yeah, I, it's not even something that you think about too much, right? You think, oh, if somebody's, out there and they're super successful as an entrepreneur, that, people are just throwing money at them, and that's their perception that you get when in reality. They try to go get a loan, but because, their income is, so fluid and not stable. It's much harder or their credit score is not as high as you would expect it to be.

I'll tell you in the case of a family member, very successful. Simply because the underwriter could not understand his company structure. He had 60 companies, very successful person. So he manages his business in various entities, and no one at the bank. This is a major bank, by the way. This is not a little credit union in any town. This is a major bank. No one at the bank could understand the business structure. There was only one guy who could, and that's the guy that saved the loan. But he came almost at the very end when they were about to deny him.

Yeah, I mean I and they had one person one person that understood the way that this person has their business structure. cause that, that's a very good point too, cause like when you look at it a lot of successful business owners structure, their business under an LLC, or it might be an umbrella LLC that's under another LLC. And when you try to show this proof of funds that you have the capital. , but it's tied up under these different entities. The lender doesn't look at it like it's your money, right? They look at it, no, that LLC owns that, not you. And you're like I own the LCC and they're like, yeah, we don't care. So that's a very good point.

Yes.

Now this is a personal question for me too, because I'm a real estate agent, right? So what can real estate agents do if they're running into problems? High income self-employed buyers who somehow can't get qualified well?

Besides calling us, you need to, as a real estate agent, you need to get more involved on the loan side. Don't assume that because he's a high net worth individual and his situation is somewhat complex, don't assume that he's out of your reach. This is how I began. I didn't know anything at the beginning. Be curious, ask questions so once you start to see the early warning signs, you can recognize them. What I mean by early warning signs is you're in the transaction, you're the realtor, you have a high net worth buyer. You know he has the money, but you know that because of everything that we've been talking about. He might or he might not be accepted. Then in one day you get a pre-printed letter from a mortgage broker, which is not even signed. This is the guy is approved. All, if I was a realtor, all my alarm bells would start to hit because it would take about a week for any mortgage broker to just understand what the guy. It's coming from, let alone issue, approve approval letter. And I would make sure that the approval letter is signed by an individual and not just preprinted by a computer. And I would call the mortgage broker guy and say, Hey, did you talk to this guy? Cause they might not even have spoken to him, believe it or not. Did you see his credit report? Did you look at his income? Do you know what loan problem you're gonna put him? Do you know what rate he's gonna pay? Do you know he's going to qualify? Do, can you tell me some of the problems that you foresee would happen? By the way, all these questions I've been asked all those questions when I'm involved in a big transaction, I usually get the listing agent calling me and drilling me to make sure that I'm, first of all, that I'm real. To make sure that I really talked to the guy to make sure that I really looked at his finances, to make sure that I looked at his credit, that have a blown program for him, and what are the chances of him being approved. So even if you are as a realtor, don't understand the whole thing, be curious and just pull the string all the way. And then you're gonna find out if you need to look, don't wait a week or two. Then you're gonna find out in one day if you need to look for another mortgage broker or not.

Yeah, That's a great point. It actually brings me back to a transaction that I did recently as a listing agent. It was a larger transaction. And it was great because the lender actually reached out to me before I even reached out to them and said, Hey, I've personally done blah, blah, blah, blah, blah. I've looked at blah, blah, blah. And I'm like, oh, this is fantastic. I was like, I didn't even have to ask this guy this, these questions. And he's, reassured me that, this client that, that was in this transaction with my seller that this was pretty much a sure thing, and it's a good thing when you're talking to a lender that. Understands, like really understands what. The qualification process looks like instead of just a yeah we've got them pre-approved. Don't worry, here's the letter, blah, blah, blah. One of the things I like about the, a lot of the letters that I've seen is, Hey, here's the interest rate that he's pre-approved for he or she are approved for. Here's the The amount, and here's the amount of down payment that they have to put down, and here's some liquid capital funds that they have. So I was just like, whoa, this is in depth. This is really good. And it answers a lot of my questions right off the bat. And then it has a physical signature on it, right? So it's not just like a, Hey, best regards, so and so's name, and it's printed out and here you go. Because you do see a lot of that generic stuff. And sometimes you could just. To to the lender to get these pre-approval letters without, and then turn around and, 30 days later when you get into the closing table saying, yeah, your loan's not approved because we found A, B, C, or D or, sure we pre-approved you, but, there was these other factors that were using to deny your loan. So asking those questions up front can save everybody involved. A lot of time, headache, and money.

Yes.

Yeah.

Awesome.

All right. Okay. This is a question that I'm excited to ask you because I have my own feelings about this especially now working as a buyer's agent with clients that I'm helping out here. I get this one a lot. With the way inflation's going right now and interest rates increasing is it still a good idea, to buy real estate right now?

When I began on this business back in 2005, 2006, I remember my first loan was to this girl, and after a lot of looking at a lot of work, I found out a program where she could only pay seven and a half percent. And I was so excited. I called her, Hey, this is amazing. I can give you seven and a half. That's one thing when I began, I remember I read an article in the LA Times about a couple that was had second thoughts about buying a property because the property had been previously sold for 300 and now it was worth 350. And the market, at that time started to go up like a real rocket. And they were wondering should they time the market, should they wait? Should they rent and not buy and wait till the bubble is off. And then that house today is worth over 1.5 million. I remember when I was on the East coast, we went to Boston with my wife and we visited the home of one of the founding fathers, and I was so excited. And then I started to ask the guy tour, Hey, do you know how much he paid for the house? And he told me, I don't know how many. He says he didn't buy cash. He got a mortgage. And I said, do you know how much the mortgage was? And oddly enough, I started to calculate the ratios and basically he got an 80% loan with a 20% down. Wow. And I started to convert the pounds of the 18 hundreds of the 17 hundreds to today. And I saw that the ratios were all the same, even though hundreds of years had gone by the 20% down, 80% loan. All the ratios were the same, meaning the proportions of what versus the other. So this is what I can tell you if you have, and real estate also. Besides that, remember that real estate is very local. When there was the big recession in 2014, 2012, I was in LA I lived in LA for many years. On the west side, the Venice, Santa Monica area went down 10 to 15 percent, home values. The Valley, which is a much bigger area where a lot of people live, also in Los Angeles went down 50%. So real estate is very local. It's like a tree. It cannot move. It depends on where it is planted. You can't say it's bad everywhere because it's not bad the same way everywhere. So what I would say is don't be discouraged by inflation or the rates or this or that. People were buying houses when the rates were 16% or more. People were buying houses when the rate was 2%. Just a few months ago, people were buying homes when in the valley houses were 50% over-value. Or in Venice when houses were 15%, down valued. What I would say is that if you can look and if you're a buyer, you need to see many. If you can find a home that, number one, you can afford at the present rate environment that you can afford based on your income, and you can afford comfortably for the next five years. I say five years because you mentioned inflation. In any environment, in any time, whether in the seventies, in the eighties, in the nineteens, in two days after five years, inflation is gonna make that payment more and more irrelevant. Even though in numbers, it's never going to change. So if you can find a home that works for you, if you can afford it in a sustainable way for at least five years. Don't worry so much about inflation, about the rate, about the environment. Focus on your goal. Achieving your goal is way more important than focusing on the rate. Unfortunately the media and the regulators. Have us focused on the wrong thing on the transaction. They have us focused on the rate. Let's say you find the house of your dreams that really works for you, or you work from home, and then it's good for you, for your wife, for your family. You can afford it, it's sustainable, but they say the rate is 5 and you wanna pay 4.5, and you don't buy it because you think, I should get 4.575. That, in my opinion, would be the biggest mistake that you could do . . Average Joe Finances: Yeah. Focus on your goal and if you find something that satisfy your goal and you can afford it, then do it.

Yeah, that's Alejandro. That is huge because one of the things I tell the clients that I'm working with now is, cause they're afraid of these rising interest rates. And when I bought my first property back in 2007, my interest rate was like six point. I don't even remember what the point was. I just remember it was over six and when I bought my property out here in Hawaii four and a half years ago, I got 4.65 and I thought that was amazing. I refinanced it. Back when everything dropped at 2.25. Which is insane compared to the rest of that. And when I look at it, I'm like, I looked at this as an opportunity that I could save money on the interest, right? And save money. I'm now taking this debt out on yesterday's dollars at a much lower interest rate, but at the same time, even at 4.65. I was good. I was okay. And the fact that I was able to make it work then, and that I had this opportunity to refinance, this is what I tell people. If you're buying now and you're scared of these 5%, 6% interest rates, right? Think about what happens if you buy it now. Let's say five years from now, like you said, looking at that five year period, interest rates drop back down into the threes or even if it happens next year, right? cause again, it can happen next year. It drops back down into the three's. I don't know if we'll ever see two's again in our lifetime. I don't know. I don't have a crystal ball if I did. I try to help everybody with it, but I don't have that. But what I do have is past experience, right? And with that past experience, I've found that, with these higher interest rates and higher price points of the homes, Your competition has lowered extremely.

Yes.

Because now that these interest rates have gone up a lot of people that were going after the homes that you wanted to go after are backing out and they're saying, Hey, oh man, this isn't for me. . But if you have a real estate agent like me who says, Hey, this is your time to go get it and you can refinance it in the future, your competition is gone, you're gonna be able to go get that house that you wanted and a couple, maybe next year, a couple years refinance it or whatever. You have that house that will continue to go up in value.

Exactly.

And we might see some dips. We might not, but I'm telling you right now, the market that I'm in on Oahu consistently goes up, And even in 2008 when the market crashed everywhere else it, it barely put a dent in Hawaiian. By the very next year, it was back to where it was the year before, by the very next year. So that is, Like you said, if you're looking at this at five year increments, you're gonna be putting yourself in a good place. And I always say, don't bank on appreciation. If you're buying an investment property, focus on the cash flow. cause if it cash flows at 6% interest, it's gonna cash flow even more when you refinance it at four and a half.

Do I have time to tell you a little story? Sure. I'm gonna go in the other direction. I'm gonna go in the direction that the shit hits the fan.

Let's go.

In the direction

that let's that shit spread everywhere.

Exactly. Because everything you said is realistic. But I know that some people are afraid that with everything that is happening in the country, maybe it's not the time to buy. Because what happens if, and there is all this list of this litany of ifs, I'm not gonna go into, but many big if. Let's go there. My first transaction was a Mexican, a person from Mexico. He told me his story in Mexico in the eighties. He bought a house for 50,000 pesos that at that time, that seemed an unrealistic, unbearable amount. He could barely make the payment. Mexico went through amazing upheavals. The Mexico devalued the currency. If you're talking about shit hitting the fan, it happened. So this is what he said. He said, after everything was said and done, I still owe the same 50,000 Pesos. However, those 50,000 Pesos were greatly reduced now. I went to work and with two months of salary, I paid off my mortgage. Now people may say that happens in Mexico. Mexico is in underdeveloped country. What happened in Chile? I was eight years of age, and I saw that. I saw how a thousand of the currency became one. I saw how people that owed a lot of money now didn't owe that much. And they may say but you come from Chile. Chile is a third world country. But guess what? This has happened on every single European country. I'm not talking about Bulgaria, I'm not talking about, Romania with a lot of respect, it has happened to Britain, France, Germany, Spain, Denmark, Holland. These are major European countries. It has happened to every single country in Asia now. It has never happened in the US yet, but if it were to happen, which is the fear that lot of people have. Just take the experience from the rest of the world, you'll still be better off having bought a house than if you hadn't, because if you're renting, guess what? The landlord is not gonna worry if you were paying 300 before, and now that 300 is one, he's gonna charge you three, and the three are just gonna be as painful as the 300 if you own that house. All of all, that debt, that seemed horrible. Now it's gonna be very little in comparison. So that could happen on the other side of the picture.

That's, yeah, and that is a very good point. And that's why I'm talking about when you take out this mortgage, you're borrowing it on yesterday's dollars. If you have a loan, a 30 year loan, and over a 20 year period, you've been paying it down, and you think to yourself I got 10 years left on my mortgage I might as well just pay it off, right? This is how much I owe left. I might as well just pay it off. But if you look. What you borrowed that money for back 20 years earlier that you're paying in current present day. It's not even worth paying off at that point because you're paying pennies on the dollar for what? It was on yesterday's dollars, right? Yes. I even look at my own property. I'll be fully transparent here. When I, my mortgage payment when I first bought this house was 4,400. When I refinanced it, I got it down to 3,200 and change, right? That is a huge savings. And but I look at it and I'm like, I was able to afford it at this price and now I've shaved a thousand dollars a month off of it and I can still afford it and it's way under what the market rent would be. If I was to rent this house out, it would cash flow significantly. And the house has gone up in value 40% since I bought it four and a half years. That is bonkers. You're not gonna see returns like that anywhere else but real estate, unless, you got really lucky and you got into doge coins super early or something. But hopefully you sold it before, before it crashed. But the thing about real estate and what I love about it is it's a tangible, real assets that will always be here. People will always need a place to live. Owning a piece of stock in a company is great. And I invest in the stock market as well, just not as heavily as I do into real estate because. Companies can go out to business. One bad CEO can get in there and make a bunch of mistakes and before you know it, a company's filing bankruptcy. And that piece of paper that you have that says you own that much it means nothing now. So it's it's a matter of where your comfort level is. And I'm comfortable with real estate. You look at history and it's just always there and it's always even example that you gave, right? When you're looking at one of the founding father's homes and you're looking, you're crunching these numbers and finding that these principles worked couple hundred years ago and they still worked today.

Even if you go down to the Roman Empire, many of the Roman families made their money in apartment buildings in Rome. The only problem they had at the time is that sometimes those buildings. Crumbled because the engineering was not there yet, but they had two, three story, four story apartment buildings and that's how the rent from those buildings, that's how they made their money.

Yeah, that and it's insane when you think about it like that. That's why the Richest man in Babylon is one of my favorite personal finance books as well. cause it's just these principles. And the book was written in 1926. But it provides so many good nuggets and just a good foundation and financial literacy. That you can carry with you for the rest of your life no matter how old you are. It's just one of those classics to me, but Okay. Alejandro I do have to transition this into something that we call the final round.

Yes, no problem. Go ahead.

I'm gonna ask you four questions that we ask everybody that comes on the show. So if you're ready to go, we'll get that party started.

I'm ready.

Let's do it. Alejandro you've run the gamut, right? Done like all facets of real estate, so you have a really good understanding about it. So that's, this is where I'm gonna keep this. We could also say finances too, but so I'll say, what's the biggest mistake you've ever made in either finances or real estate?

Not following my mentor's advice. My mentor always said, Sometimes your first offer is your best offer. I came into lending early on back in 2005, 2006 and even earlier, but I did not recognize that as a career path. So I just went around and did a bunch of other things like listing agent, commercial real estate, buyers agent. And I'm not saying that those things are bad, but for me, they were not my. This is my niche, and it took me many years to like own up to it. So my biggest, the thing that I would've changed is I would've stayed with it and not going to, it's all other places.

All right, fantastic. That's great. You found your strength and you were able to stick with it and so sometimes you have to make those mistakes in life where you know that, that open up those doors that you realize, hey, I should really be here. So I appreciate your transparency with that. Okay. Next question kind of ties into this, but what is something that you've learned that you wish you knew when you first got started?

That everything has a technology. Everything has a system. For instance, if you see a listing agent consistently selling a buyer's agent, consistently doing a salesperson in all of these fields that are non-scientific, like they're human fields, it's not luck. There is a system. You just need to find a person that really got it and learn from him and have a mentor. There is nothing that cannot be done. Every system has already been invented. Unless you are a scientist working in the cutting edge discovery of something, everything else has already been invented and discovered sometimes hundreds of years ago. All you have to do ideally. It's recognized that it's not luck. You have to find who's done it. Ideally, get someone who's doing it and successful at it to be your mentor and just learn and copy. That's the first thing you need to just copy it until you become good at it, and then you can start doing your thing slightly different. But if you don't copy it from a mentor, then you're not gonna suceed.

Yeah, those are some very good points, right? First, get a mentor for sure, so you can learn from them and learn from other people's mistakes. If you know somebody that's very successful in life or in business they've probably made plenty of mistakes in their lifetime. So having them as a mentor to help guide you along so you don't make the same mistakes they make, it's one of the reasons why, I have a podcast like this is to share these stories for you, to listen to other people that have made these mistakes so you don't make them yourself. This will save you some time, energy, and money in the long run. But that's the importance of it. And sometimes you have to learn those hard lessons yourself. There's sometimes there's no getting around that, you have a bad deal in real estate or anything like that. You know what we call that? We call that an education, right? Yes. failure is education.

Yeah. And as Robert Kiyosaki says on his book, if you have to fail faster so you learn faster. Don't be afraid of failure. Just carry on.

Yep. That's a great point. And actually that ties into the next question. So do you have any tips or tricks that you would recommend to someone that is just getting started today?

You mean real estate?

Yes.

Yes. If you are gonna be on the real estate side, on the residential side, the only person that I've seen that has the technology, meaning the steps that you have to follow is Gary Keller. Get any of the Gary Keller books and read them cause he tells you how to do it. Real estate is not a chance business. It has a specific set of steps and the books by Gary Keller, he has many, like five or six. In my opinion, are the only ones that really tell you what to do.

All right. That's a great point. And actually again, this goes into my next question. That is, Do you have a favorite business investing or real estate related book or podcast or both?

Yes, I have many. One of my favorite ones, but it's about the economy. I've always been interested in how this thing works. His name is Martin Armstrong, and by the way, I have no connection or affiliation with him, but he has a fantastic blog. www.armstrongeconomics.com and you will learn so much from that. It's unbelievable. I have many books that I love. There is another book that I love called The 5,000 Years of Debt. I don't remember the name of the author, but he went 5,000 years into the past. To find out what was the average interest rate that humanity has been paying and also different sorts of money that people have used over time. It's a fascinating book. He talks about the nature of money. He talks about the nature of credit, and it's done in a non-technical way so you don't have to be a Harvard graduate to understand it. You just regular person can understand it. And I have many more, but those are the ones that come to mind.

See, those are the books I like because for me I'm always like, explain it to me like a fifth grader. cause I feel like that's the best way to understand anything. And that's why I try to explain things like a fifth grader because I wanna make sure that when people are listening, they're receptive and they're understanding what we're talking about. So a lot of times when I have people on and they're giving terms or acronyms and stuff, I spell them out or say, this is what this is. And I do that for a reason. So I wanna make sure that this is a podcast that people can listen to, to actually come here and learn, not come here and listen to it and be like, I have to go look up what this means. You know what I'm saying? Yeah. And you still have to do that sometimes, but I think it's those are the type of books that really resonate with people because it's just, it's easily digestible,

I agree. And I do the same thing when I'm explaining things to a customer. I never use an acronym, and if I do, I define it right away.

Yeah. No I appreciate that. So thank you very much. Alejandro this has been awesome. I have one more question for you, and it's the most important question of all cause those people that are listening to this episode right now are like, man, this is really good. Got a lot of great info out of this, lot of golden nuggets of wisdom. But I wanna know more about Alejandro and what he's doing. I wanna learn more about his company. So if you could share, where can people find you? Do you have a website, social media, anything like that?

Yeah. You can go to www.prosperitylending.us. Prosperity, like something prosperous. So www.prosperitylending.us. That's my website. You can always send me an email at info@prosperitylending.us. And I will answer it that one thing that I discover about these very successful people that had the actual privilege of working with is that successful people always answer their communication. So info@prosperitylending.us I always answer it. And I'm also LinkedIn by my name. You just type Alejandro Szita mortgage broker. I should come up there right away. I'm not in any other type of social media because I've tried it. Doesn't work for me.

Hey, that works. That's fine. So I'll make sure we have those links in the show notes. You made me feel a little bit bad. I got to go answer some emails now. , cause I do I sometimes I get a little overwhelmed when it comes to my emails. I get a lot of emails. So I try to get back to everybody as, as much as I can. So I definitely need to get better at that, making sure I respond to everybody at least in a timely fashion. But yeah I usually do get back to everybody. It's just it could be a little while after they've reached out. No, definitely appreciate that. We're gonna make it easy. Like I said, links will be in the show notes. So hey, everybody, go check out Alejandro's website. Go check him out on LinkedIn and see what he is all about. Alejandro, again, thank you so much for joining me today. This was a blast. It really was.

Mike, thank you so much. It was a pleasure to meet you, and again, thank you so much for giving me a voice to your audience.

Absolutely. And hey, to my listeners, thank you so much for joining me and our special guest, Alejandro Szita, on the Average Joe Finances Podcast. Go leave us a five star review and tell us what you liked about today's specific episode with Alejandro. Aloha from Hawaii and have a great rest of your day.