- Matthew Tortoriello started building his real estate portfolio in the 2008 crash.
- He started to recycle the BRRRR method: buy, rehabilitate, rent, refinance and repeat.
- Now, he is preparing to buy the deals that come from the housing correction this year.
Slow and steady wins the race. But also a great time and good business.
In 2008, Matthew Tortoriello invested in a property with two of his friends. At the time he had little money, so each chipped in $5,000 to meet a $15,000 deposit and then turned to a hard money lender for the rest.
Once they were able to rehabilitate and rent the property, a traditional bank agreed to refinance it at $160,000. They then plowed their profits into the next project. It is a process popularly known as the The BRRRR method: buy, rehab, rent, refinance and repeat.
Tortoriello continued to gradually repeat these steps over the next few years, taking advantage of the housing crash.
Tortoriello and his business partner now own about 742 rental units, according to property records seen by Insider. They own additional properties with other investors.
And it’s not slowing down anytime soon. He told Insider that they are in the process of closing another 21 single-family homes and an 83-unit apartment building in Massachusetts.
Starting with bootstrapped shortly after the market crash of 2008 meant finding creative and really good business ways to get ahead. It was a timing factor that he sees making a comeback in the next couple of years.
The increase in the cost of debt has already affected house prices in the country. In November, annual home price growth fell to a two-year low, according to CoreLogic. National home prices have fallen from their June 2022 peak of $308,000 down to $298,000 in October 2022. Tortoriello has already seen a 15% drop in his market and expects another 10% drop while demand continues to slow. Some of the deals he is snacking on are from foreclosures, which are on the rise.
Six months ago, he remembers seeing an average of four to five foreclosures per week. Now, he’s starting to see about 15 foreclosures a week in Massachusetts.
“People are getting more eager to sell and it’s less of a seller’s market and more of a buyer’s market,” Tortoriello said after seeing the competition and buying frenzy of the past two years.
Now, he is able to negotiate deals and better terms. But one thing he wants to be clear is that this correction does not come from the increase in mortgage rates. Many of these defaults began in 2020. Pandemic-era restrictions meant that banks could not evict people from their homes at a time when the economy was shut down. States across the country have implemented foreclosure moratoriums. Now, the banks move on those who settled on their mortgages.
The impact of rising interest rates and the economic slowdown won’t show until the end of 2023, he said. Call the second phase of the correction, one that is not only attached to mortgage rates. As all categories of debt become more expensive, companies that need to refinance or are looking for more debt will be affected. This is expected to cause job losses and hurt other parts of the economy including the housing market.
Tortoriello estimates that the full negative impact on housing will begin to appear in the next 18 months.
Tips for doing business
It’s not all doom. Like 2008, the other end of the negative trend always creates a buying opportunity. For those who are ready to take advantage of the prices in the housing market, many opportunities are coming, he said.
“I’m building lines of credit, raising money. I’m just focusing on properties that cash flow really well. And I’m trying to gobble up as much real estate as I can,” said Tortoriello.
The best types of properties would be affordable, b-rated residential properties, because no matter what happens economically, people still need a place to live, he said. In particular, it is a house that can flow cash with rental income that is accessible to someone who earns from $50,000 to $70,000 a year, he noted.
High interest rates needn’t deter anyone from striking deals through creative financing, he noted. This is a term used for non-traditional methods of financing property without using your own money. When the economy gets tight, it’s easier to negotiate your way into one of these options, he noted.
One method that Tortoriello uses is known as seller financing, which is when the seller lends money to the buyer in lieu of a mortgage. This happens if a seller really wants to get out of a property and can’t find anyone to buy it, he noted.
Tortoriello told Insider that he is in the midst of negotiating a 30-year loan at a 2.5% interest rate from a seller for a $3 million property. That’s something the bank probably won’t touch right now or offer a 7% interest rate, he said. She was able to close a similar deal with a vendor in August. It was a $1 million loan that had an interest rate of 2% for the first five years and then 3% for the following seven years, amortized over 30 years, according to documents seen by Insider.
Another type of deal that he signed is an assumable mortgage. This is when the buyer buys a home by taking over the seller’s mortgage. It’s something anyone can do, he said. It just needs more negotiation. When he is looking for a property, he tries to determine the reason that an owner wants to sell. If they are looking for quick money, it is probably not a good option for the seller. But if it’s because they just want to get out of their mortgage, they can consider it, he said. If the seller is in a bad place, it will help him avoid foreclosure.
“Most sellers don’t think about it. I often have to bring it up to the seller. So that would be something you want to bring up, especially with your agent,” Tortoriello said.
An experienced real estate agent can help negotiate a mortgage deal with the seller and the bank, Tortoriello said. Sometimes you can get these types of deals just by picking up the remaining balance, without having to put any additional money down, he said. So, either times and sell it or rent it.