Assumable Mortgages Explained: The Low-Rate Strategy for Real Estate Investors

Ryan Thomson (00:00)
These deals are for somebody who’s making good money and wants to turn that money into a fantastic return and much better than they could get.

in the stock market or any sort of other alternative passive investments. So a lot of these deals, we have investors putting five to 10 % down because that’s the equity gap, get a rate in the twos or threes and the cashflow is probably zero for the first handful of years. But they’re paying down 15K a principal year.

Michelle Kesil (02:05)
Hey everybody, welcome to the Real Estate Pros podcast. I’m your host, Michelle Kesil and today I’m joined by someone I’m looking forward to chatting with, Ryan Thomson, who is an investor termed real estate agent, helping investors with assumable mortgages throughout Colorado. So excited to have you here today, Ryan.

Ryan Thomson (02:25)
Yeah, thanks. Thanks for having me on. Excited to chat.

Michelle Kesil (02:27)
Yeah, let’s dive in. So first off, those not familiar with you and your work yet, can you share about your main focuses these days?

Ryan Thomson (02:36)
Yeah, the main focus these days is assumable mortgages, getting buyers and investors into single family or fourplex and below properties with rates in the twos or threes instead of at six or six and a half percent today.

Michelle Kesil (02:51)
Yeah. And can you explain more about assumable mortgages and how that can be beneficial for people?

Ryan Thomson (02:59)
Yeah, course. So an assumable mortgage is basically where the buyer steps into the seller’s mortgage. it is unlike subject two, where in subject two, sort of seller stays on the loan and you’re going around the bank’s back and you’re hoping the bank doesn’t find out. The bank is involved the entire process and they actually transfer the entire mortgage from the seller’s name into the buyer’s name.

And so the buyer takes everything over about that mortgage, ⁓ how much is left on it, the monthly payments, the interest rate, all of that transferred to the buyer’s name. And any FHA or VA loan, this works for, it’s written into their loan docs as a benefit to the seller that they can let a future buyer assume the mortgage from them.

Michelle Kesil (03:45)
Awesome. And how does this process benefit investors?

Ryan Thomson (03:51)
Yeah, the biggest benefit to investors right now is the number when rates jumped in 2022, the numbers became a little harder to make work, right? Everybody could could make something work well and rates were two or 3%. And now it’s a little harder to do that with rates being in six, six and a half, 7%. And basically, we’re time traveling. We’re going back to where numbers worked really well in 2020.

2020, 2021, 2022, we’re grabbing those rates, we’re coming back to the future and you’re buying a property today with those numbers. And the huge advantage here too is that most investors have to put 20, 25 % down on a property. For these assumptions, if you’re an investor, the only down payment is the equity gap. And that equity gap is the difference between what the home’s worth and the seller’s loan balance.

So if a seller’s got a $450,000 property, that’s what it’s worth, and their loan at 2.5 % interest rate is 400,000, that’s the remaining loan balance, then my buyer only has to bring $50,000 to the table. So a little more than 10 % in that example, and then they’re getting a 2.5 % interest rate.

So the biggest value is being more leveraged and getting a lower rate, which makes those numbers incredible for investors.

Michelle Kesil (05:58)
Are there any one that this wouldn’t work for?

Ryan Thomson (06:02)
⁓ Well, you’ve got to qualify so the investor that that’s got to have a ⁓ decent W-2 job or their business they’ve had for a little while

this isn’t subject to where it’s not going in their name. They actually have to qualify with the bank for the monthly payments. So it’s got to work that way. As an investor, you’ve got to have the equity gap. So some of these equity gaps are $0. Some of them are two or 300,000. So depending on how much you want to put down, how leveraged you want to be, how much cash you have, that could be another barrier for investors getting into these deals. And then it’s…

It depends on the market, but most of the Colorado homes, there’s not a ton of cash flow in these deals. And so the investor who’s focused on, want a bunch of cash flow and $200 a month means more to me than the fantastic growing my money. These deals aren’t for them either.

These deals are for somebody who’s making good money and wants to turn that money into a fantastic return and much better than they could get.

in the stock market or any sort of other alternative passive investments. So a lot of these deals, we have investors putting five to 10 % down because that’s the equity gap, get a rate in the twos or threes and the cashflow is probably zero for the first handful of years. But they’re paying down 15K a principal year.

home appreciates, let’s say, a 2 or 3 % a year. You got tax benefits. And you’re breaking even on the cash flow. Your return on your investment is easily 20 to 30 % compounded annually.

And so the returns on these, if you’re trying to just grow your money and you’re in it for the long run and you don’t need the cash flow, are incredible. And so that’s really who the type of investor that it works for.

Michelle Kesil (07:54)
Amazing. And do you have experience investing in these types of properties as well?

Ryan Thomson (08:01)
Yeah, these are the properties that I’m buying, that we’re trying to buy. I would buy as many of these as I can. The challenge with it is you’ve got to qualify for all of them on your own income.

and the banks that are doing the assumptions, they don’t love it because they don’t make the new loan origination fees and they keep a low rate loan on their books. So they make the qualifying a little difficult. You actually can’t use rental income on your rental properties until it’s been on three tax returns.

So as soon as you buy a property, the debt counts against you, but the income can’t for a couple years. So ⁓ it’s a little harder to scale. Again, it is for those people that are making great money with their businesses or their W-2 income in order to scale these.

But yeah, we’ve had dozen clients or so buy these last year. We had one guy put 50K down and got a $550,000 property at a 2.5 % interest rate. We had another client put, his goal was I don’t wanna put anything down. I just wanna bank on the loan pay down appreciation. I’m actually willing to have negative cash flow, but I wanna be in it for really low down. And so we found a property that was.

⁓ zero dollars down and He his rate was five percent because it was more of a recently purchased home that didn’t have as much equity one of our best deals was $16,000 down on a four hundred and forty thousand dollar property and they got a two point seven five percent interest rate

They’ll lose a little bit of cash flow every month, but 16K down on a $400,000 property, I that’s 3.5%, 5 % down. And just the loan pay down alone in year one gives them their money back in equity. So we’re doing a lot of these and for the right investor, it’s a really popular strategy.

Michelle Kesil (10:25)
Awesome. And feel have been some of the main keys that have allowed your business to be able to grow and run successfully?

Ryan Thomson (10:34)
Yeah, one of the keys is finding a niche and narrowing in on it and providing value, right? So we’re a real estate team, a team of agents that focus on assumable mortgages. And so we know them in and out and how to get them closed and find them, how to communicate the value to investors, how to communicate the win-win to the seller and to the listing agent.

And that’s been finding those early like 2022 is when we got in on assumable mortgages right when they were becoming popular again ⁓ Because they’ve been irrelevant for 50 years as rates have been falling You could just go originate a new loan to get a lower rate than the seller So there’s no reason to assume someone’s mortgage

So getting in on that really early and focusing on that niche and saying this is what we specialize in has been our biggest advantage.

Michelle Kesil (11:30)
Yeah. And what are you focusing on scaling to next? Like how do you want to scale this business?

Ryan Thomson (11:37)
Yeah, what we’re doing in Colorado works in every market across the country. There’s VA and FHA loans in every market. So what we’re doing, what we’ve developed is plug and play in every market. We just need a good real estate agent in that market, train them on how to do it. And we can find the assumable mortgages there. We can spin up the marketing. We can find the ones that are willing to let investors assume their property. And we can…

That’s our goal, that’s our vision, and that’s what we think is possible. we’re trying to be in 10 new markets by the end of the year and across the country by the end of next year.

Michelle Kesil (12:14)
Awesome. And what do you see as like some of the biggest obstacles ⁓ with the assumable mortgages that maybe people don’t fully understand or would have to deal with in order to like go this route when investing?

Ryan Thomson (12:33)
Yeah, one obstacle is having that down payment. Another obstacle is qualifying. One obstacle we’re facing is like how do we find and get in front of the investors that are less focused on cash flow and more focused on I want a really good return on my money. ⁓ And then, you know, the other thing we’re keeping an eye on is if homes are appreciating at

a year, let’s say just as an assumption, in how many years will that equity gap be so big that the numbers break down? Because if I’m putting 50 % down to get a 3 % interest rate, that may or may not be attractive to very many investors and the numbers start to break down. if there’s a ton of appreciation in a market, ⁓

It becomes a little less valuable and then also these deals they take longer to close because you’re dealing with that bank that doesn’t want to do it and you’ve got to hold their feet to the fire and push it through and so in markets that are hot and multiple offers and days on market are low It’s it’s a little harder to make it work in those markets as well because they’re usually getting other offers that are a little more attractive

Michelle Kesil (13:45)
Yeah, and how do you find the leads or what are some of those strategies that you use?

Ryan Thomson (13:51)
Yeah, to find leads we’re on different investing platforms. We’re posting on social media. We run meta ads. run PPC ads. We’re getting in front of, we host a meetup once a month locally. And so those right now, those are all of our current lead gen and marketing.

Michelle Kesil (14:11)
Yeah, and as an investor yourself, what have been some of the lessons that you’ve learned or success stories that you’ve had?

Ryan Thomson (14:19)
Yeah, for myself, I started as a house hacker and I bought my first house in 2019, rented out the three bedrooms, converted the garage.

and the rental income from the garage and the three bedrooms doubled my mortgage and I lived for free. So I thought that was pretty awesome. So over the next five years, I continued to do that every year and buy a new property each year and house hack it and use it, buy it as a primary and use my primary to generate rental income. So that’s.

That’s been my story of using real estate investing for success. I reached financial freedom after that third property because my expenses were really low. And I quit my job and went full-time real estate agent to help leverage what I had done and help other people succeed and pursue financial freedom through house hacking. Then at the end of that house hacking, as rates tripled in 2022,

it became really hard to scale house hacking because in order to scale that you had to get a lease that covered your mortgage, canceled out that debt and then you go use your job income to buy the next property and it was really hard to get a lease to cover your mortgage when rates tripled and so it’s hard to scale and so I started to think I got to find a solution for my house hack clients that want to scale and want to buy more properties.

And I stumbled on a suitable mortgages right when they’re becoming popular again. And now I thought that’s the solution. And then I realized, this is, this is bigger than, this is bigger than house hacking. This works for investors. This works for primary home buyers. You know, this works for house hackers. And I, I pivoted and rebranded in 2022 to be the Assumable Guy. So I kept talking about Assumable Mortgages so much. people started calling me the Assumable Guy. So I just adapted that name and, and took it on as my own.

Michelle Kesil (16:49)
Amazing. And what are some like misconceptions that people have with investing and using simable mortgages?

Ryan Thomson (17:00)
One misconception is that it’s got to be a primary mortgage in order, it’s got to be a primary home in order to assume it. And that’s just not true. You can assume these as investors, some of them. And there’s some nuances there that we go through with our clients. The other misconception is that the equity gaps, the down payments are all really big. Like I said, there’s sometimes it’s zero dollars down. Sometimes it’s three to 5 % down.

And there’s no percentage, right? It’s just the equity gap, whatever that is. That’s a big misconception. And then some people think you have to be a veteran to assume these loans. that’s also not true. Anyone can assume a VA loan.

Michelle Kesil (17:36)
And does this work for just a regular home buyer who maybe doesn’t consider themself as an investor?

Ryan Thomson (17:42)
Yeah, this, I mean, this works great for the regular home buyer. Yeah, and the appeal for the regular home buyer is, you know, I’m getting a two and a half, three and a half percent interest rate instead of a six and a half percent interest rate. So what does that mean? I’m saving $1,100 a month on my payment. I can afford a $500,000 home now instead of a $300,000 home. I am gonna save $15,000 a year, which will put my kid through college.

⁓ which will mean a great family vacation every year. It’ll save hundreds of thousands of dollars over the remaining 25, 27 years on that loan. It’s life-changing money for the primary homebuyer.

Michelle Kesil (18:22)
Does this work nationwide? It’s not limited to Colorado.

Ryan Thomson (18:25)
Yeah, works wherever there’s FHABA loans, which is nationwide in the US.

Michelle Kesil (18:30)
and does the process work the same in every state?

Ryan Thomson (18:33)
Yeah, it’s the exact same. These lenders are nationwide and the assumption processors that help do it are working in every state. Yep, exact same process.

Michelle Kesil (18:46)
And so do people need to partner with a lender or is that something that you support people in finding?

Ryan Thomson (18:56)
Yeah, so we help walk our clients through the entire process. We hold their hand through the whole process. It’s a complicated process. The bank tries to get you to go away. We hold their feet to the fire and make them do it because they’re legally required to do it. And if they don’t, they’ll lose the ability to service FHA VA loans, which is a huge part of their business, and they’ll be in legal trouble. So they’ll try get you to go away. And we fire back with, we need to escalate this to the FHA and the VA? And you might lose your ability to service these loans.

⁓ So and as far as like we have the assumption processors that we team up with that’ll help push them through they’re on our team and then we as far as like the lenders you don’t get to pick the lender you work with you’re working with whoever is the seller lender

the seller’s lender is going to transfer the mortgage from the seller to the buyer and you’re stuck with working with them unfortunately. Some of them are great, they’ll get it done in 30 days, some of them will get it done in 60 to 90 days.

Michelle Kesil (19:53)
Amazing. Thank you for sharing all of that.

Ryan Thomson (19:56)
Yeah, of course.

Michelle Kesil (19:57)
Well, before we begin to wrap up here, if someone wants to reach out, connect, learn more, where can people find you?

Ryan Thomson (20:04)
Yeah, my website is theassumableguy.com. I am the Assumable Guy. You can look up on Instagram, the Assumable Guy, or any of the socials. But all my contact information is there. If you are interested in buying a property as a primary home or as an investor and getting rates in the twos or threes, we’d love to help you.

Michelle Kesil (20:23)
We’ll appreciate your time and your story. Thank you for being here.

Ryan Thomson (20:27)
Yeah, of course. Thanks so much.

Michelle Kesil (20:29)
And for those tuning into the show, if you got value, make sure you’ve subscribed. We’ve got more conversations with operators like Ryan who are building real businesses and we’ll see you on our next episode.