Exploring Real Estate and Mortgage Insights with Garrett Knox on the Saint Louis Property Management Podcast

In this episode of the Saint Louis Property Management Podcast, Greg Abel sits down with Garrett Knox from Knox Mortgage to dive deep into the world of mortgages, real estate investing, and the ever-changing market dynamics in the Saint Louis area. Whether you're a seasoned real estate investor or a first-time home buyer, this conversation is packed with valuable insights about navigating the complexities of real estate financing and investment.

Mortgage Beginnings: From Direct Sales to a Thriving Mortgage Business

Garrett’s journey into the mortgage industry started over 23 years ago in a surprising way. Initially in the direct sales business, Garrett made a major shift when a friend approached him for office space. That simple conversation sparked the idea of launching a mortgage company, which led to the formation of Mid America Mortgage Consultants. What began as a small operation in Valley Park, Missouri, soon evolved into a full-time career.

Garrett’s ability to adapt and grow within the industry is one of the key takeaways from the podcast. He highlights how important it is to remain flexible and ready to pivot when opportunities arise—a lesson many real estate professionals can appreciate.

Navigating the Mortgage Landscape: Mortgage Brokers, Bankers, and Beyond

One of the main topics in the conversation is the distinction between different roles in the mortgage industry: mortgage brokers, mortgage lenders, and mortgage bankers. Garrett explains how the 2008 financial crisis changed the perception of mortgage brokers, and for a time, the term "broker" carried negative connotations. However, today, Garrett has returned to the mortgage broker model, which he believes is advantageous for both him and his clients.

By being a broker, Garrett can offer competitive rates from various lenders. This flexibility allows him to work with a wider range of clients, particularly those looking for the best mortgage deals. For investors and home buyers alike, this means better pricing and a more tailored approach.

"The benefit of being a broker is you have access to multiple lenders, and owning the company allows me to control my pricing and offer better rates than big companies."

The Importance of Understanding How Rates Work

A common challenge home buyers and investors face is understanding how mortgage rates work. Garrett demystifies the rate-setting process, explaining how different lenders may mark up their rates by varying percentages. As a broker, Garrett can offer more favorable rates by keeping his margins thin, ensuring his clients get better deals than they might from large, corporate lenders.

This section of the podcast provides a behind-the-scenes look at the inner workings of mortgage rate setting, offering a transparent view of how brokers like Garrett can help clients navigate the often-confusing world of home loans.

Real Estate Investing: Flips, Rentals, and Long-Term Strategy

Garrett’s experience isn’t limited to mortgage lending—he’s also an avid real estate investor. He shares the story of his first real estate flip, which turned out to be a "home run" that hooked him on property investment. Since then, Garrett has completed over 80 property flips, as well as rentals, giving him a unique perspective on the local real estate market.

The conversation turns to how the current market conditions—particularly high interest rates—are affecting real estate investors. Garrett explains that, while it’s more difficult to cash flow properties in today’s market, there are still opportunities for long-term investors who are willing to wait. He mentions his strategy of refinancing properties over time to improve cash flow and highlights the importance of taking advantage of appreciation and tax benefits through strategies like cost segregation studies.

"Right now, you’re not going to cash flow at all, but you’ll get the appreciation and tax write-offs. The long-term play is refinancing when rates drop, which is when you’ll start to see better cash flow."

Holding vs. Flipping: A Changing Investment Strategy

Over the years, Garrett’s approach to real estate investing has evolved. While he once focused heavily on flipping properties, he’s now shifting toward holding rentals for long-term gains. His goal is to acquire 20 rental properties in West County, targeting ranch homes in good school districts.

This shift reflects a growing trend among real estate investors who are opting to hold onto properties for appreciation rather than quick profits from flipping. As Garrett notes, the long-term value of owning a rental property often outweighs the short-term gains of flipping, especially in today’s market where interest rates and carrying costs make quick flips more challenging.

Advice for New Investors: Overcoming the Cash Flow Hurdle

One of the most valuable parts of the podcast is Garrett’s advice for new investors looking to break into the market. He explains that many first-time investors are intimidated by the initial cash requirements, such as the typical 20-25% down payment needed for investment properties. However, Garrett’s ability to offer competitive rates and lower fees helps ease this burden for his clients.

He also touches on the importance of qualifying for investment property loans and the role rental income plays in the approval process. For example, lenders often use 75% of the rental income from a property to help offset the mortgage payment, making it easier for investors to qualify for financing.

"Once it’s on your tax return for a year, or if you have a signed lease, we can count 75% of the lease income to help offset the mortgage."

Understanding Debt Service Coverage Ratio (DSR) Loans

Garrett introduces the concept of Debt Service Coverage Ratio (DSR) loans, which are growing in popularity among real estate investors. These loans are based on the rental income a property can generate rather than the borrower’s personal finances. Garrett explains how DSR loans are ideal for investors looking to qualify based on the property’s cash flow potential.

"If the rental income is 1.25 times the mortgage payment, you can qualify for a DSR loan. This type of loan is a great tool for investors, and it’s growing in popularity."

Market Reflections: The Challenges of Today’s Real Estate Environment

The podcast closes with a reflection on the broader real estate market, particularly the challenges of financing properties in today’s high-rate environment. Garrett emphasizes the need for patience and long-term thinking, as many investors are now facing higher rates that eat into cash flow. However, with proper planning and refinancing opportunities on the horizon, there are still ways to make smart real estate investments.

"Right now, rates are in the high sevens to mid-eights, but refinancing down the line could improve cash flow."

Final Thoughts: A Wealth of Knowledge for Real Estate Enthusiasts

This episode of the Saint Louis Property Management Podcast provides a wealth of knowledge for anyone interested in real estate, from seasoned investors to first-time home buyers. Garrett Knox’s expertise in both mortgages and property investing offers listeners practical tips and a deeper understanding of the local market dynamics in Saint Louis.

Whether you're looking to secure your next mortgage, make your first investment, or grow your portfolio, this podcast is a must-listen. With Garrett’s insider insights and Greg’s experienced hosting, you’ll come away with actionable information and a better grasp of what it takes to succeed in real estate.

00:00:01 – 00:00:20:
Introduction to the Saint Louis Property Management Podcast hosted by Greg Abel. Today’s guest is Garrett Knox from Knox Mortgage. The conversation will focus on real estate, mortgages, and investing, keeping the discussion local to the St. Louis area.

00:00:21 – 00:02:30:
Garrett shares how he transitioned into the mortgage business 23 years ago. He started a mortgage company after his previous business wasn’t fulfilling, and opened his first office in Valley Park, Missouri.

00:02:31 – 00:04:00:
Discussion about Garrett’s first mortgage company, Mid America Mortgage Consultants, and how business names evolve over time. Garrett shares his background, growing up in St. Louis, moving to California, and eventually returning to Missouri for family.

00:04:01 – 00:06:10:
Greg and Garrett discuss the St. Louis real estate market, including why people move back to the area, often due to family or work. They touch on the extremes of the St. Louis weather and how some clients only stay temporarily.

00:06:11 – 00:08:45:
Conversation shifts to understanding mortgages—terms like "mortgage banker," "mortgage broker," and the impact of the 2008 mortgage meltdown. Garrett explains how becoming a broker allowed him to offer more competitive rates and control his pricing.

00:08:46 – 00:12:30:
Greg asks about how mortgage rates work for clients. Garrett explains the rate calculation process and how different lenders mark up rates. As a broker, Garrett can offer lower rates, which benefits clients looking for better deals.

00:12:31 – 00:15:30:
Garrett shares how he became interested in real estate investing and did his first flip back in 2005 after reading various real estate books. His first successful investment fueled his passion for property flips and investments.

00:15:31 – 00:18:15:
The conversation addresses the current real estate market and how interest rates are affecting cash flow for investors. Garrett explains how he continues to invest in rentals, despite knowing he won’t cash flow immediately but expects long-term appreciation.

00:18:16 – 00:21:45:
They discuss strategies such as cost segregation studies to accelerate depreciation, which can benefit property owners. Many investors are now holding onto properties for appreciation rather than immediate cash flow.

00:21:46 – 00:25:10:
Garrett shares his investment goals, including aiming to acquire 20 rental properties in the West County area. His focus is on ranch-style homes in good school districts.

00:25:11 – 00:28:00:
For new investors, Garrett explains the process of getting financing for an investment property. He outlines the typical down payment (20-25%) and how he offers competitive rates. Garrett also discusses the importance of qualifying based on rental income and how it can offset mortgage payments.

00:28:01 – 00:31:30:
Greg and Garrett discuss the challenges for young investors trying to break into the market, particularly due to cash requirements. They compare the long-term benefits of real estate investment to other financial markets, emphasizing the value of leveraging real estate appreciation.

00:31:31 – 00:34:30:
Garrett introduces the DSR (Debt Service Coverage Ratio) loan, a growing tool among investors. This loan allows qualification based on rental income rather than personal income. The conversation touches on loan specifics, such as minimum down payments and interest rates.

00:34:31 – 00:37:00:
They talk about how hard it is to secure mortgages for low-value properties, given the points and fees that make smaller loans difficult. Garrett explains that properties under $80,000 are less common in the current market due to rising home prices.

00:37:01 – 00:39:00:
The podcast wraps up with Greg and Garrett agreeing to check in weekly for market updates, humorously suggesting they rename the podcast "Two Old Guys on Social Media." Garrett shares how personal branding with his name, Knox Mortgage, has helped him grow his business.