Why Real Estate Investing Got Harder and What Investors Must Do Now | Todd Pigott

Todd Pigott (00:00)
The market is no longer the star. You’ve got to be the star. And if you want to be the star, stop flashing Rolexes and stop sitting on the hood.

of a Rolls Royce on Instagram, set your alarm, get up and exercise, eat fruit and go grind and work hard.

Michelle Kesil (01:46)
Hey everybody. Welcome to the Real Estate Pros podcast. I’m your host, Michelle Kesil. Today I’m joined by someone I’m looking forward to chatting with. Todd Pigott, the principal of Zinc Financial who’s done over a billion loans for investors and over 500 flips, wholesale and rentals. And yeah, really excited to chat with you today, Todd.

Todd Pigott (01:47)
you ⁓

Thank you.

Michelle, thank you for having me on this show. It’s always a delight to be here for your listeners and for you guys to share my value and my exposure to this industry for which I’ve been involved in since 1996, which is a long time. Now I’ve already given out my age to all your listeners, but since 1996, I have been in this business of real estate investing. We’ve done over a billion dollars, a billion of lending and transactions with real estate entrepreneurs and investors. We’ve done over 500 flips.

Michelle Kesil (02:28)
Thanks

Todd Pigott (02:39)
and we do hundreds of wholesale and rental transactions across the country. So wide breadth of knowledge here. And today I’d like to share some of that on housing and real estate investment and housing today and what that’s gonna look like.

Michelle Kesil (02:52)
Amazing, excited to dive into this topic with you. So yeah, first off, for those not familiar with your work yet, can you give a small background on what you’re up to these days?

Todd Pigott (03:07)
Absolutely. As I kind of mentioned, we’ve started in 1996 and 2005, I started Zinc. Z-I-N-C, named after my three kids, Zachary, Nicholas, and Cameron. And I needed a vowel to make a word and zonk didn’t sound too good, neither did Zinc. So I chose I as the vowel to complete a word, Zinc. That’s how I came up with the name. And we are backed by our own mortgage fund. We have about 75 to 100 million in a fund with various debt lines.

And we are a lender. We are a lender to fix and flip operators, wholesale operators and real estate investors. We loan money to investors who buy distressed properties, rehabilitate them to conventional standards, and then resell them on the open market. Our average investor makes 30 to 35 to 50,000 per deal. We track this. We worked with almost 50 investors last month alone, and we also do a fair amount of wholesale and rental and things like that. So today.

Today, great question today. We’re pivoting a little bit. We’re pivoting back to a state that we so fully understand. Today, we are limiting our focus on California. California is the fourth largest economy in the world. We are located in central California, literally about 45 minutes from the epicenter of California, right in the middle. Three hours from LA, three hours from San Francisco. And so we see the whole climate here.

Our valley where we are located is about nine and a half million people in the valley, which we call the zinc community, which is about 11 counties. And we’re being hyper focused here with a shadow presence in the rest of the state. We were in 38 states, but because the market is tipping back to what I call neutrality, the market is tipping back to neutrality. We thought this would be a good time to pivot and come back to an area that we are hyper focused on and honestly experts in.

so that we can limit our risk out there and our exposure out there. I have a lot of analytics. I spend about 25 to $30,000 a year on about four different data sources. We do not get our data from the media or the internet. We get it directly from the source and then we extrapolate that data out. And the data is telling us that we are heading back to a period of neutrality and some markets we’re in full depreciation like Texas and Florida. So for that reason, we decided it’s a good time to pivot back to.

where we know best, which is California. And so that’s what we’re doing today. And we’re very excited to be here, very passionate about being here and very passionate to share my story and housing trends today with your audience.

Michelle Kesil (06:27)
Awesome. And can you explain what the period of neutrality means?

Todd Pigott (06:31)
Yeah, so that’s a loaded question. Let me start with this. You know, back in the early turn of the century, 1905, 1910, you back in that area, most people don’t understand this, but houses were built and houses had to be purchased candidly with cash. And in some instances, you were able to get a loan. Talking early periods, 1920s,

And that loan was only a five-year loan. That’s it. Maybe some seven-year loans. That’s why houses back in the 20s and 30s or even 1910 or 15, you’ll see is very small homes, two bedroom, one bath, very small, 800 square feet, 900 square feet. Why? Well, because that’s all they could afford. And so housing back then appreciated about two and half to 3 % a year. That was the average. Then along comes World War II and the war ended.

And a good chunk of the US population was in directly or indirectly compensated for by the war, almost 20%. So the war ended, we needed something to spur economic activity here. So we have housing back in the 20s and 30s appreciating at two and a half percent a year and you had to buy a five year note or bank cash, very small homes. After the war, the government came out with this great idea and it was a great idea. Let’s expand housing.

and make that our economic epicenter. That’s when the government rolled out, ran out the 30 year mortgage was to spur that activity. And we did that so that more people could afford homes.

Todd Pigott (08:02)
So when the federal government rolled out this 30 year amortization schedule for housing, which had never been heard of before, that expanded housing significantly. That’s why you’ll see in the 40s, 50s and 60s homes expanding to 1,500 square feet. You’ll notice homes in the 20s look like they’re 800 square feet. And then in the 50s, 60s, this ranch style homes started coming out in the 50s, 60s, square feet. They became bigger, three bedroom, two bath and four bedroom, two bath. And that’s why when you see the 50s and 60s houses, they’re bigger.

and they were in the 20s. And so this enabled housing to really explode and really become a magnet for economic activity here in the US with that 30 year mortgage. And again, housing is going at a pace of about two and a half to three and a half percent per year. This is the stabilized natural progression of appreciation in housing. In the late 90s,

Well, before that, in the 80s and 70s, mortgages, including 30-year mortgages, a lot of these mortgages were held by banks. The banks started to fail heavily in the 80s and 90s. And of course, the government took over most mortgages at that time through Fannie, Freddie, FHA, USDA, and et cetera. Banks no longer hold mortgages. 91 % of all mortgages today are backed by the US government through those entities. That was not the intention.

when those entities were set up in the earlier period of time. They were just supposed to be the backstop. But unfortunately, when the banking crisis happened in the 80s, banks got out of mortgages and the government stepped in. And now today what we have is really government-backed mortgages, about 91%. So housing is going along this whole period of two and a half, three and a half, four. Housing expanded during the 50s and 60s when we rolled out the 30-year amortization. In the late 90s, housing, these guys had this great idea.

which sounded like a great idea. Let’s take all these mortgages and we sell stock. We sell stock on the stock market, we sell Coca-Cola, we sell homebrew, everything’s sold on the stock. Why don’t we take these mortgages and we’ll package them up and then we’ll sell them on the stock market? The problem with that is, is the stock market trades at multiples that are sometimes 10, 15, 20 times earnings. Mortgages don’t work like that.

There’s no mortgage that’s worth 20 times earnings on a 6 % mortgage. It’s really not. But these guys were pretty good at this. I happened to have a personal friend that was in this, was part of the whole picture. He’s part of the big short story. And I’ll save that for another podcast, but I know him very, well. And he was part of that whole process. Two friends. So this process called collateralized debt obligations opened up.

packages of mortgages and we sold them on the market. Packaged them up, sold them all over the world. The problem with that is they sold at such a big multiple that it caused hyperinflation of the underlying value of the asset. Because people were snapping those up so quickly on the New York Stock Exchange that we needed more. And we needed more mortgages, more mortgages to fuel that drug habit. As a result, we came up with looser and looser guidelines to get more mortgages to sell on the open market.

Those mortgages were originally selling for a buck a par, a dollar for a mortgage and selling at a dollar, was 101, 103, 104, 105, 106. They’re buying mortgages, every $100,000 mortgage, they’re paying up to 106,000. They were overpaying and they wanted more. What happened during this period is that we loosened standards because the stock market wanted more mortgages. And as a result, we loosened standards, we fueled housing.

And housing started to appreciate substantially at 8, 10, 12, 14 % per year. That is a runaway freight train. I called it back then and said, this cannot continue. That’ll outpace everything. At some point, that musical chair game has got to stop. So here we start in the tens and the 20s and the 30s and the 40s and the 50s and 60s. And now we’ve got this just hyperbola of exceptional growth at 10, 12, 14%. But it wasn’t real. And that caused a bubble.

One in 51 people was a real estate agent. Everybody got a mortgage, including the guy that drove a pizza truck. And these things were packaged and sold all over the world. And housing went up substantially. During this period, a lot of real estate investors made some big money, but they were relying on that appreciation cycle, which is really very, very narrow, very temporary, and not a good cycle to rely on.

for discipline and stabilized growth of your journey. It’s not. You might as go to Vegas and play blackjack and have more fun than trying to bet on housing. So during this period, which I was heavily involved in, I was very speculative as well. That will stop. It has to stop. The average annual appreciation of housing is two and a half to three and a half percent per year, slightly above inflation. That’s the numbers, guys. And so when you see housing at 10 and 11%,

You are basing your investment journey on speculation and not discipline and not hard work and not grind. And sure enough, that thing came to a halt. I know a personal friend that was Morgan Stanley Dean Whittier, 2,000 employees. One day they stopped buying those collateralized debt obligations. It’s buying 500 million a week and it stopped. I know him, I could call him on my cell phone right now. And that was

in fact, the start of the decline because when those CDOs were no longer bought, nobody was longer buying those mortgages. And of course, the whole thing collapsed. So housing collapsed in the 07, 08, and 09, and it was very bad. Listings time on market was somewhere at 18 months. I would drive up and down streets on lending and investment, and there’d be four and five and six foreclosures on a street selling for 90,000, 110,000, at one point sold for 300,000.

And so we had this inflation bubble come to an end. Now what’s happened is something that I also called, and I called this out in front of 605 people at the California Mortgage Association.

We truck along through 08 and 09 and we get the balances back in alignment. You housing’s going along. It’s no longer at 10 and 12%. It’s back to, you know, two, three, one, zero, whatever, slightly above inflation. And here we are many years ago, COVID hits, and the feds decide to lower the fed buying window, which is where banks and facilities buy money, to 25 basis points.

That’s called almost free. It is free. It’s one quarter of 1%. So banks and lending institutions have the ability to go buy capital for free. With that, they’re gonna put that capital to use. And mortgages again started to be very, very lucrative. And boy, you could put those mortgages out at two and a half, 2.75 % and you bought that money for a quarter of 1%.

You’re still making money. But with those cheap mortgages and that cheap cash, which was not a good monetary policy, once again becomes inflation of asset values. And real estate again picks up steam, along with other asset classes on the stock market. And we have again this artificial inflation. Hold on a minute, it gets worse. The inflation of real estate and the inflation of the underlying asset by the monetary policy of the federal government of free money

started to again explode. And it was, believe it or not, more appreciation than even we had back in the 05, 06, 04. I spoke at multiple conferences. I spoke at San Diego. I spoke in LA, 600 to 1,000 people. I said, there’s only two ways out of this. Number one, our currency will start to become denominated, denomitized, which means the world will no longer count on the dollar and it’ll become

potentially worthless at some point. They will no longer put a value on it. So denomination is very scary because we’ll lose the value of the dollar. Number two, the government will have to increase rates very rapidly in order to slow inflation. The number two is what happened. And then, of course, we saw the inflation slow. During this period, it was the number one growth period for housing in almost 70 years. 12 %

14%, 17 % appreciation fueled by this policy of free money from the federal government. During this period, a lot of investors, this went on the highest appreciation, hold on, and the longest cycle of any in US history, of any. It ran 12 years. Low policy by the federal government, low cost of funds.

fueled that growth and it was the largest expansion in US history, lasting almost 12 years and seeing appreciation from 10 to 17 % for eclipsing the previous bubble that went on in the collateralized debt obligation market. I called it at the conferences. I called it. As matter of fact, in front of 600 people, I said, how many of you in this audience have been in this business more than 10 years?

Four hands went up. Everybody else was in their 30s, mid 30s, late 30s, even early 40s. The problem with that is you haven’t seen what I call normalcy. You have not seen that normalcy. You have not seen that equilibrium. The housing, since the beginning of time, has gone up two and a half to three and a half percent a year. This 12, 13, 14 is not real, people. It will end. They didn’t believe me. doesn’t know what he’s talking about.

He’s just an old fart, blah, blah, blah. But the real truth is it did end. And now what we’re seeing today is more equilibrium and more normalcy. Now, for real estate investors, what does this mean to you? What this means to you is this. We’re seeing heavy depreciation in Florida. We’re seeing heavy depreciation in Texas. Some of the other states like Louisiana and Idaho and Vegas has almost tripled the listings that it did previously.

So we have these pockets that are now getting back to normalcy or slight depreciation. In California, we’re averaging about neutrality right now, with the Central Valley up about 2%. That’s one of the reasons we pulled back to California is because the whole state is in neutral and the Central Valley is up about 2.5%. The rest of the nation is probably somewhere at neutrality. What do I mean by that? It’s 0 % appreciation. In some cases, we’re in depreciation. And it’s interesting for me to hear

the younger group out there and their tone on this. ⁓ Todd, know, God, this is terrible. When’s it going to get better? Guys, it’s not terrible and it’s not going to get better. You were used to 12 % appreciation and that is not real. That was the largest expansion in U.S. history and the largest appreciation of underlying assets in U.S. history. We are now back to neutrality.

Housing from 1910 to today is averaged two and a half to 4 % a year. And that’s what you’re gonna continue to see. It’s two and a half, 3%. So what’s this mean for real estate investors? The market is no longer the star. You’ve got to be the star. I’m gonna say that one more time.

The market is no longer the star. You’ve got to be the star. And if you want to be the star, stop flashing Rolexes and stop sitting on the hood.

of a Rolls Royce on Instagram, set your alarm, get up and exercise, eat fruit and go grind and work hard.

I started with $17. I’m now a multimillionaire. We do a billion dollars of lending, 500 flips. But I did it the old fashioned way. Wake up, get some fitness in and I work every day and I work and I eat lunch at my desk because I’m counting on discipline and hard work to be able to navigate the market at neutrality.

I’m not counting on appreciation, artificial appreciation with bad monetary policy or collateralized debt obligations or stolen market. That is not a path that I’m willing to follow to put my family’s wellbeing in harm’s way. So what this means for you is stop whining and stop complaining for those of you out there doing that and waiting for it to get better, because it’s not. You’ll grow up, put your pants on, stop drinking, stop eating crap food.

Get up early, exercise, hit your alarm, and go at it hard because you’re dealing in a market where the appreciation is going to be back to 2.5%, which is where it should be, or 3.5 or 3, depending on geographical location. But your expectations of large appreciation is over. That was fueled by a very, very bad monetary policy by the federal government. And now we’re back into that neutral zone where you’re going to be able to do it, but you’re going to have to work hard and be very, very diligent in what you’re doing. So that’s the market today.

Days on market in central valleys running 29. The average definition of a stable market is an able and willing buyer and an able and willing seller to consummate the transaction in a period of 60 to 90 days. That’s a stable market where all things are at equilibrium. A stable market is not an able and willing buyer and an able willing seller.

moved to consummate the transaction in seven days, which was the average days on market back when the free money cycle was going. Today we’re at 30. I had an employee of mine complain about two weeks ago, how hard business is, how hard this is, how hard that is. And I looked at him and I said, it’s not hard. Your perception of hard is what’s hard. It’s not hard. Days on market’s 30. We’re just getting back to neutrality.

And neutrality means the average days on market should be between 60 and 90. We’re not even there yet. I’m not going to mention his name in case he’s listening, but he just looked at me with this face of doldrum. Like, no, man, you’re not going to sit there and just take orders and make a fortune in real estate. You’re to have to go work. Be first in the office and the last one out. And if you’re looking for the easy ride, it’s over and it’s not there. And you can still make money in this business. I still make money in this business.

But you’re to have to count on yourself, not the market, in order to make that happen. He quit seven days after that. He decided it was too hard. And that’s OK. That is absolutely OK. It could be a restaurant server or go sell used cars or go sell appliances. I don’t know. If you want to make it in this market, you’re going to have to understand one thing. It’s two and a half to three percent appreciation. And you’re going to have to work hard and you’re going to have to get up every day and you’re going to have to feel right, which means eating right and doing the right things. And you can do it.

But anybody under 30 or 35 is going to have an adjustment in their head to understand what real estate is. So I hope that helps you a little bit. That was a long lesson, but I hope that was helpful ⁓ understanding of how the market twists and turns and some of the experiences that I’ve experienced over my lifetime in this business.

Michelle Kesil (25:03)
Yeah, Todd, thank you so much for sharing that perspective. I think it’s going to be helpful for so many.

Todd Pigott (25:09)
What other questions do you have or is that are we running out of time?

Michelle Kesil (25:12)
Yeah, unfortunately we are at time, but for those that want to keep up with you, connect with you, and continue to learn more, where can people find you?

Todd Pigott (25:24)
So I’m Todd Pigott. I’m the principal of Zinc Financial, Z-I-N-C. We’re located here in central California. We are one of the oldest and longest running lenders and investment companies in the state. We’re backed by our own mortgage funds, so we are a balance sheet lender. And what that means is we push our own green button on funding loans. We only do real estate investors. We do a lot of them. We do a lot of them.

And so we fund real estate investors that buy real estate. That’s what we do. We also flip our own properties. We’ve got seven crews and a trailer. And we also are a real estate agent and we’re here to help you. One of our core values is to be a giver first. And that is very important to me. We host meetups. We host REI on taps. We host property tours and giving them the numbers. There’s no secrets here. We’re here to be a giver first. And if we can help somebody in their journey,

of real estate investing, we’re all givers here. We want to help you. Even if you want to choose somebody else to work with, that’s fine. Our website is zincfinancial.com, Z-I-N-C, financial.com. Our phone number here at the office is 559-326-2509. One more time, 559-326-2509. Do you want to reach me independently and ask me a question?

[email protected]. [email protected]. I hope I provided some value to you guys today and taught you a little bit about your expectations in today’s market of neutrality as compared to the last 75 years in housing.

Michelle Kesil (26:58)
Perfect. Well, I appreciate your time and your perspective. Thank you for being here.

Todd Pigott (27:02)
Michelle, thank you for having me. It’s always a joy to meet with you and Investor Fuel and the others on this podcast. I just really hope that I can give some of my journey’s lessons to others that are maybe younger or just starting out and helping them in their path to creating wealth and freedom one property at a time.

Michelle Kesil (27:18)
Amazing. Thank you so much. And for those tuning into the show, if you got value, make sure you have subscribed. We’ve got more conversations with operators like Todd who are building real businesses and we’ll see you on our next episode.