Mon, 31 July 2023
In this podcast episode, Keith Weinhold and Kirk Chisholm discuss the differences between real estate and stock investing.
Kirk Chisholm is the Principal of Innovative Advisory Group. He provides his perspective as a wealth manager, emphasizing the control and lower risk offered by alternative assets like real estate.
Learn the difference between risk and volatility.
We discuss risk-adjusted returns, liquidity, and the importance of understanding and managing risk. The conversation also covers cash flow, dividends, big tech stocks, and private mortgages.
Interest rates and inflation—we discuss their future. Kirk believes rates will stay at this higher rate for a long time.
The Paradigm Shift in Interest Rates and Inflation [00:00:01]
Discussion on the new paradigm of interest rates and inflation and how it affects real estate and stock investors.
The Impact of Front Porches on Society [00:01:35]
Exploration of the impact of the disappearance of front porches on neighborhoods and communities.
The Definition and Management of Risk in Investments [00:05:50]
Explanation of how risk is defined and managed in different types of investments, including stocks, real estate, and alternative assets.
The difference between volatility and risk [00:10:21]
Explanation of the temporary price movements (volatility) and permanent impairment of capital (risk) in different investment assets.
The illiquidity of real estate and non-traded REITs [00:13:11]
Discussion on the illiquidity of real estate compared to publicly traded markets and the example of non-traded REITs during the 2008 financial crisis.
Importance of cash flow and dividends in stock investments [00:15:26]
Exploration of the two camps in stock investing: cash flow-driven investors and appreciation-driven investors, and the significance of dividends and cash flow in stock investments.
Dividend Stocks and Value Stocks [00:20:17]
Explanation of the difference between growth stocks and value stocks, with a focus on dividend-paying stocks.
Private Mortgages and Cash Flow [00:21:12]
Discussion on the benefits of investing in private mortgages and how it provides a passive income stream.
Default Rates on Hard Money Loans [00:25:48]
Exploration of the default rates on hard money loans and the industry's approach to mitigating risks for both borrowers and lenders.
The new paradigm of interest rates and inflation [00:31:32]
Kirk Chisholm discusses the shift in the economic paradigm from low interest rates and inflation to higher rates and a shrinking economy.
The impact of higher rates on mortgages and real estate [00:35:39]
Kirk explains how higher interest rates affect mortgage payments and housing affordability, leading to a decline in house prices.
The consequences of higher rates on corporate America [00:37:48]
Kirk discusses how higher rates can impact corporations, particularly those with short-term debt, potentially leading to bankruptcies and market clean-up.
Higher rates and recession correlation [00:39:55]
Discussion on the correlation between recessions and lowering of interest rates, and why it may not happen in the future due to high inflation.
Fed's focus on stable prices [00:42:48]
The Federal Reserve's prioritization of stable prices over high employment, within their dual mandate.
Interest rates and the economy [00:44:10]
The potential impact of higher interest rates on the economy, with a discussion on when the next recession may occur.
Innovative Advisory Group:
Get mortgage loans for investment property:
RidgeLendingGroup.com or call 855-74-RIDGE
or e-mail: info@RidgeLendingGroup.com
Find cash-flowing Jacksonville property at:
Invest with Freedom Family Investments. You get paid first: Text ‘FAMILY’ to 66866
Will you please leave a review for the show? I’d be grateful. Search “how to leave an Apple Podcasts review”
Top Properties & Providers:
GRE Free Investment Coaching:
Best Financial Education:
Get our wealth-building newsletter free—
text ‘GRE’ to 66866
Our YouTube Channel:
Follow us on Instagram:
Keith’s personal Instagram:
Complete episode transcript:
Keith Weinhold (00:00:01) - Welcome to. I'm your host, Keith White. As a real estate investor, you are highly cognizant of your cash flows to stock investors. Even think about that and how we've now entered a completely new paradigm of interest rates and inflation and how to respond today on Get Rich Education with real estate capital Jacksonville. Real estate has outperformed the stock market by 44% over the last 20 years. It's proven to be a more stable asset, especially during recessions. Their vertically integrated strategy has led to 79% more home price appreciation compared to the average Jacksonville investor since 2013. GPB is ready to help your money make money and to make it easy for everyday investors. Get started at GWB Real estate. Agree that's GWB Real estate. Agree.
Speaker 2 (00:00:59) - You're listening to the show that has created more financial freedom than nearly any show in the world. This is Get rich education.
Keith Weinhold (00:01:22) - What category? From Bogota, Colombia, to Wichita, Kansas, and across 188 nations worldwide. You are back in that abundantly minded place where financially free beats debt free.
Keith Weinhold (00:01:35) - And by now you might have already won the inflation Triple Crown. I'm your host, Keith Wild. Hey, Noah, is this a real estate problem? Philip Gulley, the author of Porch Talk. He said, I believe all that is wrong with the world can be attributed to the shortage of front porches and the talks we had on them. Somewhere around 1950, builders left off the front porch to save money, and we've had nothing but problems ever since. That's just the sort of thing that I think about now as you and I are enjoying the dog days of summer, as I trust that you are, you know, neighborhoods, property, it all used to be more wide open. The Pennsylvania house that I grew up in and that my parents still live in, it has a real front porch. And no one I mean, nobody has fences around their yard either. It is a real lemonade sipping chat with the neighbors vibe there that, well, seems to be more and more of a remnant of yesteryear.
Keith Weinhold (00:02:44) - I mean, gosh, from what I can see, there are more and more gated communities. Uh, people tend to get more concerned about security and that often means that they trade away freedom. Hey, well, our guest on the show today, he hits differently. And you're going to feel that because he's the principal of a firm that helps investors with stocks, bonds and mutual funds, as well as real estate investing. And it's not just REITs, real estate investment trusts, but more than that. And, you know, whenever he and I talk, we tend to get each other thinking in different ways, in shape, each other's opinions somewhat, as you'll probably see again today. He and I disagree on some things and we agree on others. I'm going to ask him about whether or not stock investors even care about cash flow. We'll be sure to get his insights on the direction of interest rates and inflation and more. Well, I'd like to welcome in our guest today he runs innovative wealth.com he's the principle and a wealth manager there at innovative advisory group.
Keith Weinhold (00:03:54) - They're based in Massachusetts but they advise well beyond any state borders. Hey it's been a few years. It's great to have you back. Kirk Chisholm Thanks for inviting me back. Keith. I was a little worried there didn't appear well in your show, but thanks for having me back. Yeah, well, it's been absolutely too long, and I really appreciate your perspective because they're with what you do. You're principal of a company that helps people invest in a big, wide palette of things, from stocks to private mortgages and some things with real estate and elsewhere. So you have this really broad view. So tell us what percentage of your business is is stocks, bonds and their derivative products like ETFs and mutual funds versus everything else? It's interesting because my industry is primarily focused on stocks, bonds and mutual funds. It always has been, probably always will be, in large part because they're easy to sell, They're publicly available information and everyone is can simply just click a button and get it done. So my industry tends to work towards lazy solutions or simple solutions.
Keith Weinhold (00:05:00) - Nothing wrong with that. You just have to know with what you're getting. It's funny, when we started our firm in 2008, we were doing a lot of private mortgages and we talked to the regulators at the time and they said, Oh, well, what percentage of your accounts in alternatives? Because we told them we did alternatives like what percentage of your accounts? And we said, Yeah, somewhere like 40 to 50%. You know, it probably ranges between 40 and 60. You could hear a pin drop in that room. I did pick the lady's mouth off the floor like she couldn't believe that. How quote unquote, risky that is. And she said the first question, she's like, are you serious? Isn't that really risky? And I started laughing and I said, risky? You mean like Worldcom, Enron, AIG, Tyco, You know, like Lehman Brothers, Bear Stearns? They just kept going on and on. She's like, all right, I get the point. And we had to define the concept of risk.
Keith Weinhold (00:05:50) - This is the part that your audience will appreciate, right? If you're investing in a company, it's been screened by the SEC. It's passed certain muster. It's SEC doesn't endorse it, but it's passed certain muster. You say, all right, I feel comfortable that this company's met the minimum criteria. That's not always the case. Right. Companies go bankrupt all the time. And we actually have a spike in bankruptcies most recently because of the economy. But if you look at piece of real estate, I can go walk up and touch it. I can go to the Registry of Deeds and see that I own it. I can talk to the maintenance guy or the property manager and see what's going on and have influence on it. I would say if you know what you're doing, there's a lot less risk. And I would say if you own a piece of gold, what's your risk? I could lose it. Somebody could steal it. The government confiscates it. That's pretty much it, right? It's not going to zero.
Keith Weinhold (00:06:37) - It's not going to the moon. It's just a rock. The way you define risk is really something that a lot of people don't spend time with is managing that risk. So a lot of what we've done is we've looked at it from a different perspective. What is the best investment given the criteria that we have, the markets we're in and the risk available? You know, what is going to do the best considering the risk as an example, Bitcoin or Ethereum or any sort of cryptocurrency, the risk is it could go to zero, right? It's not going to go below zero risk as you lose all your money or you might make 10 or 20 times your money, right? That is also possible. Both scenarios are probably on the extreme ends of probable, but either way, like you have to account for both scenarios and say is it worth it going to zero for me to make X amount of return? If the answer is yes, then it makes sense. If the answer is no, then don't invest in it or invest in a lot less of it.
Keith Weinhold (00:07:31) - So that's kind of how we look at risk and that's why we look across the board for alternative assets. We're very agnostic about the assets because it really just comes down to, is it a good investment or not? That's really the criteria we look at. Risk is what goes beyond the edge of your understanding. Think that's what applies to that conversation that you had that you brought up there earlier. Right. It's largely about one's risk adjusted return. You talk about with real estate how you have more control over an investment because you can get in there and understand it and change the operations of it in order to drive a return. And then stocks have this very efficient market where it's quick and easy to get in and out and things are more liquid. This very efficient market with real estate, there really isn't any app you can go on and be like, Oh, okay, well my duplex was up 3/10 of 1% this past week. That doesn't happen. That's part of the inherent inefficiencies with direct ownership of real estate, of course.
Keith Weinhold (00:08:32) - I would argue the point of efficient markets, the stock market is is not efficient, despite what the academics will tell you. It is more liquid. I would argue that real estate is illiquid, which is good and bad, right? If you need to sell, it's bad. If you're looking to buy and you don't need to buy, it could be really good. Stock market is very different in that it's claimed to be efficiently priced with all the known information at the given time. And the price is the price. And what I would argue is that's an interesting philosophical standpoint, but it's inaccurate, right? Because if all the information was known, then we wouldn't have volatility. But we do have volatility and the stock market is a forward pricing discount mechanism, right? So you look out six months and say, what's the market going to do? That's where the stock prices are six months from now, not today, six months from now. So whatever the market thinks is happening, they think it's going to happen then.
Keith Weinhold (00:09:26) - So if you look at interest rates, which I'm sure we'll get to, they're looking out six months and for the last two years I've noticed on the expectation of the yield curve, it's that, oh, rates are going to drop in the next 3 to 6 months and in 3 to 6 months it's going to drop in 3 to 6 months. Over and over, it keeps pricing out well, another 3 or 6 months. And I think that the market doesn't really look beyond that because it's really hard to predict. First of all, you can't predict the future anyway, but if you're probabilistically, going to try beyond six months is really hard because there's so many things that got to happen that changed the dynamics significantly. Talk about efficiency with stocks. I'm talking about how stocks are efficient and easy to liquidate. It's pretty easy to sell. And then over here in real estate investing, there is no panic selling because it takes quite a while to buy into sell. Therefore, that's some of the inefficiency of real estate compared to stocks.
Keith Weinhold (00:10:21) - We look at that through a liquidity perspective, right? So liquidity can be a good thing or a bad thing because when there's panic, selling, liquidity can lead to greater volatility like we see in stock. Yeah. And I want to point out two things here. So first is there's a difference between volatility and risk. And I think it's really important for people to understand the difference. So volatility is temporary price movements. It's how much the price fluctuates in any given day. Real estate investors don't see this right, But stock investors, Microsoft is up 5% yesterday. Nvidia's up like whatever, 70% of the day or whatever it was, 30 some odd percent in a day. That's volatility, right? You look at stock prices drop 30 plus percent in a short period of time. Technically, that should have been risk because the whole global economy shut down. But it turned into volatility because it went down and it came back up, actually exceeded the price of the start of Covid by the end of the year, which is insane to think about.
Keith Weinhold (00:11:20) - The whole world shut down. People are locked in their houses and yet the stock market is up. That is what I would consider volatility. Now, risk is what I would call a permanent impairment of capital. Now what that means is you buy a Beanie Baby at $100 because you think it's going to be worth a lot more. And then all of a sudden the Beanie Baby bubble crashes and never recovers and it turns into a $100 Beanie Baby into like a dollar. That's a permanent impairment of capital. That is a risk that you're not going to ever get your money back. You buy a I hate to swear on your show, but a beep coin that make up most of the cryptocurrency coins out there. They could all go to zero. I mean, you look at drawing a blank on the one with that. Elon Musk supports the dog dogecoin. Yeah, they claim this zero. It's a socially supported currency, but it doesn't have any value and they all admit it doesn't have any value. It's virtually worthless except for what people are willing to pay for it.
Keith Weinhold (00:12:15) - That has the potential to have risk in it because it could go to zero. But if I'm investing in GE, Microsoft, Apple, Johnson, Johnson, whatever, these companies that produce cash flow, they're solid companies with a long, long track record, they could certainly go to zero, no question. But typically the movements in price are volatility. Risk is when the chairman goes off, steals all the money and moves off to some island and people are left holding the bag saying, what's going on? You know, you look at AIG, Lehman Brothers, Bear Stearns, all those companies that basically made bad decisions, that is risk. That is not volatility. So it's important to understand the differences between the two, because if you don't, most people think of I am managing risk, I'm diversifying. No, you're managing volatility. Managing risk is completely different and you have to use different tools for that. Most people don't manage risk, they manage volatility. The other point I want to make is you mentioned the illiquidity of real estate.
Keith Weinhold (00:13:11) - And I want to point out an example which is kind of bordering the owning your own real estate versus, let's say, a REIT. I remember back in 2008, nine and ten when people were jumping out of the windows because they couldn't get rid of their illiquid non traded REITs. And I'm not a supporter of that of non-trade REITs or people jumping out of Windows. But in general, the non traded REITs market was interesting because technically they said you'd have quarterly liquidity, you could get a quarterly and normal times. That was true. They would just cash you out if you need money. However, when everyone's running for the door at the same time, they can't cash everybody out because they can't sell the property. So what do they do? They lock the doors, locked everybody in to burn alive. Well, the price went from, let's say, hypothetically, $100 down to $10 and people wanted out at any price. It didn't matter. They needed out. They need liquidity. Whatever it was, there were actually markets around.
Keith Weinhold (00:14:03) - You could buy people's shares of these non traded reach for like $0.10 in the dollar and people were willing to pay to discount 90% of the investment where you could have just walked in and purchased it and waited another five, seven years and you could have made 100 cents in the dollar. It's crazy. But that's one of the nice parts about real estate. And I'm using a security as an example because you can do that in real estate. But when you have the publicly traded markets, that doesn't necessarily happen, but it can happen in certain periods of time when the markets are completely irrational and everybody thinks the world is ending. Sure, that's a be greedy when other people are fearful, sort of seeing their I know their IT innovative advisory group. Since you do have this wide palette of offerings, you kind of have this broader view of things. I'm wondering, Kirk, a lot of people in that stock world, many of them concerned with cash flow or it might be dividend there, or are they even as interested in cash flow there with the kind of stock and mutual fund investments as they are over here in the real estate world where we're quite interested in cash flow? And then do they even take the dividends or do they just reinvest them, which is called a drip program dividend reinvestment program? How important is that to investors on the stock side? It's a good question.
Keith Weinhold (00:15:26) - So what tends to happen is people kind of fall into two camps, much like the real estate camp. Some people fall into the. Cash flow camp. Which is your camp? Which is my opinion. I think that's the best way to invest is cash flow appreciation. You're just taking a guess. But there are good amount of people that are appreciation driven. They don't look at cash, so they're happy to make zero cash flow for the expectation They're going to make lots of money and appreciation and look at them like, What are you thinking? Like, what if the cash flow declines? You're going to support the negative cash. Why do you own it? It's silly, but some people think that way. They think, Let's go for the appreciation. Let's roll the dice. Let's go. No whammies, you know? And what ends up happening is these people make mistakes because the real estate market, this usually happens at closer to the tops and people make bad decisions and they realize, oh, crap, I can't make this work.
Keith Weinhold (00:16:16) - I was trying to Airbnb this with a two cap, this not working. So now I need to sell this thing or I'm going to lose my shirt. I had these conversations all the time. So using that as an example, because that's where your audience will understand dividend investors the same. So a lot of people, when they're investing in stocks, they're looking at stocks as a way to make money. Most people want total growth, which really means in their mind, appreciation. What are the stock market do this week? What did it do this quarter? That's all people want to know. Well, what about the dividends? Well, actually, there was a time 40, 50 years ago when dividends mattered, you could get six, seven, eight, 9% dividends. Now, that's absurd to think about that. The only stocks that pay dividends of that nature are stocks that are highly speculative or the dividend is highly speculative. Market typically looks at dividends and if they don't trust the dividend will continue to get paid.
Keith Weinhold (00:17:08) - They'll actually discount the stock, which will make the dividend look real attractive. It'll suck people in to buy it and then they'll slash the dividend back to a rate that's normal. So people looking at dividend stocks, be careful because we're not in that environment where dividend stocks are all that attractive. If I can get a 5% close to zero risk US Treasury bond and I can compare that to a 2% dividend stock, I'll take the Treasury all day because it's close to guaranteed dividend stock. Maybe it goes up, maybe it goes down, who knows? But, you know, ultimately you're trying to solve a problem. The big challenge we have now, is any of this sustainable? Are the cash flows sustainable? Good value? Investors should be looking at cash flows. They should be looking at metrics and trying to find stocks that are at a good price that will pay them a handsome return over time. And the problem is, is we don't live in that environment much like the real estate market. It gets overheated because too many people are chasing too few properties and virtually everyone was putting all their money into 5 to 7 stocks on the Fantastic Seven or the Faang stocks or whatever you want to call it These days.
Keith Weinhold (00:18:18) - That name changes all the time. But the point is, you've got big tech that's driving most of the return this year. Think big tech made up 2,530% of the S&P 500 500 stocks. You have five stocks making up 25 to 30% of the index by size. And by return, it made up think the S&P was up 15%. And these 5 or 7 stocks made up 13% of that 15. Really crazy, crazy to think about. Right. But that's what people look at is the index. And the index is not necessarily accurate, but that's what people look at. So you have to gauge it by that. Most of the marketplace is chasing these appreciation returns. And like you have with real estate, you get the good with the bad, you chase appreciation. You can win or lose. I don't know where the future is going to be, but I know that if I'm chasing cash flow, I'm pretty certain I know where that's going. But if I'm investing in a tech stock that has negative cash flow, I have no idea where that's going.
Keith Weinhold (00:19:19) - Right. Could go up, could go down, who knows? But I look for stocks with good cash flow. I think if you're going to invest well, you want to find a legacy stock that you feel comfortable owning forever. Now, when it comes back to the Fang acronym, I tend to think Nvidia should be replacing Netflix in the Fang acronym about this time. But dropping back earlier when we were talking about dividends, I don't track this very closely, but last I checked, probably last year it seemed like the average dividend paying stock in the S&P 500 was something like 2%. Is that still about right? I think it's actually a little bit lower. I haven't looked at it in the last few weeks because it's gotten so low, it's almost not even worth looking at. I think last year was 1.77. As of right now, it's 1.47 on the S&P 500, 1.5%, which is insanely low for real estate investors. I think of the dividend yield in stocks as being synonymous with the cash on cash return in real estate.
Keith Weinhold (00:20:17) - But you said something earlier about dividends, Kirk, that I actually thought was the opposite way. I thought that dividend paying stocks tended to be kind of those older, stodgy or staid, like a utility company rather than a younger tech. Company. Yes, that is accurate. Yes, Most of the dividend stocks are what we would consider value stocks. So the terms growth, stock and value stock are actually don't mean anything. They're what everyone wants it to mean. What they tend to mean is growth Stocks tend to be stocks that are focused on appreciation. Value stocks are typically focused on cash flows or their stocks that are discounted, and you can buy them for good cash flow. But if you look at a stock like Microsoft, I mean, you got the dividend yield is about 75 basis points, 76 basis points as of today. So you're getting less than 1%. But Microsoft's one of the the Fang stocks, right, or Fang, whatever they're calling it now, they come up with a new acronym.
Keith Weinhold (00:21:12) - But some of these big tech Apple's fang of dividend so some of the big tech actually are paying dividends. Now what we're talking about, the production of cash flow or income from both stocks and real estate here. And one thing that I know you do in there and that you help investors with is private mortgages in producing an income stream that way. Can you tell us more about that? Is that where you have clients where you connect them with ways to make hard money, loans to real estate investors, for example? As we talk about here, I'm a big fan of cash flows and I have a few favorite asset classes and they're not the stock market, right? I love real estate. I love tax liens. Tax lien is by far my favorite. If you can get them the right way and the right price, which you can't, but if you could, that's one of my favorites for many reasons, but one of the ones that we do a lot of are hard money loans or private mortgages.
Keith Weinhold (00:22:05) - The reason I love it is because they're simple. If you're investing in real estate, it's not passive income. It's a business. You have to manage the business. You have a property manager, you've got tenants, you've got expenses, you've got taxes. All this stuff you have to deal with, which is fine. There's nothing wrong with that. But when people invest passively, it's not passive, right? It's active. It just happens to be a different business than one that you're selling widgets out of the corner store. If you're investing in private mortgages, you have to do your due diligence up front. But once you invest in it, you're done until you get paid back. It's like any sort of fixed income. It's a bond. It's fixed income is how I look at it now. For the past ten plus years, you couldn't get any rates on bonds, your fixed income, part of your portfolio, your treasuries, your corporate bonds, whatever you're buying, you're getting close to zero.
Keith Weinhold (00:22:54) - And there was a lot of risk. So we substituted these for our fixed income and you're getting 10 to 15% over the last ten years where the common rates and I like them because you're getting access to real estate. So real estate is backing the note. So it's a mortgage, right? So you're lending somebody else money at, let's say, 12% and they're going to pay you that 12% and give your money back at the end. And if they don't, you get their property. Now, personally, I don't want their property is too much headache because when I got to do foreclosure and go through all that, that's not the point. Some people do. Some people invest in hard money with the assumption they're going to own that property. And it's a great acquisition strategy. If you're so inclined. It's not you know, I have clients. I can't have that kind of business model. It's just too much of a headache for everybody. So we want people that are going to pay and pay on time and people are going to continually come back and I can work with versus having the lender investor that actually helps the borrower default so that they can get the property correct, which like I said, is a great investment strategy.
Keith Weinhold (00:23:55) - It's just not our investment strategy. And I think just like real estate, you can buy foreclosures, you can buy off MLS, you can build. There's so many different things you can do. Same thing with notes with paper. Paper is a great asset class if you know what you're doing. The challenge with private mortgages, hard money now is because everything is so expensive that these investors, these fixed and flippers investors would have. You can't make money. And I know there are people out there that are doing it. So it's not that it's not happening, but anybody I know that's really good at fixing flip or rehabs or things like that in my area, not speaking for every part of the country in Miami, in the Boston area, they're not doing deals because they can't make money. There's no margin of error. If they were to compete and win the deal and they make a mistake, they're going to lose money. They don't want to lose money. So they need to have a big enough margin cushion so that they make a mistake.
Keith Weinhold (00:24:49) - They're still making money. So these people we work with, they're not doing deals because there are no deals to find. So that means there are fewer mortgages times like 2008, nine and ten, we didn't have enough client cash to put to work. Like we had so many notes coming at us we didn't have enough cash to find. Now it's the reverse. There's plenty of cash chasing them and there's not enough notes out there. And a lot of the notes are poor quality because the risk is too high. We want easy. We want somebody paying on time, we want our money back and then go on and do it again. So I love them for cash flow. It's simple and easy and it solves a lot of problems. So this is interesting. If you as a real estate investor have ever taken a hard money loan, you might wonder who the lender is on the other side of that. And that might be someone like Kirk's clients in there where he is. Kirk. Can you tell us more about the default rates on the hard money loans lately? How often do they not get paid back and do they go into default? Yeah, that's a good question.
Keith Weinhold (00:25:48) - So I don't know the industry rates. So we work with a handful of people and that's all we work with, so we know the rates for them. I'll tell you about ours and I'll tell you about the industry a little bit more. So for us, we've done hundreds and hundreds of these things and I would say less than 1% of them have had issue. So we are truly not looking for rates of default. A tornado tore through the neighborhood and tore off the roof. That's an issue. That's not something I can deal with. Right. Guy you're working with dies. It's an issue you got to deal with, right? Like this isn't somebody making a bad deal or run away with the money. This is stuff that you can't predict and is inevitably going to happen in one way, shape or form. So we mitigate the risk as much as possible, but our rates of default or I would say not even default, but just having issue with the loan because most of the stuff it's, you know, maybe discount if you have a something like that, maybe it's your discounting the interest instead of getting the full interest, maybe get partial interest or even no interest, get your money back.
Keith Weinhold (00:26:44) - Like for us, it's like, how do you handle a default is really important because the borrower, there's some risk there, but then there's the lender, there's some risk there. So you have to find a balance that makes everybody happy so that, you know, the borrower is not taking it on the chin because then they're not going to come back. But it's not all in the lender either. So you have to find a balance and work with people. Much like with real estate, you know, you get a bad tenant, so you try to work with them so you still get paid. It's the same kind of thing. But if you look at the industry, the industry is interesting. So I interview a lot of hard money lenders on my show over the years and fascinated to hear what they say and some of the people who do the most or they're in charge of marketplaces of these notes. What they've been telling me for the last few years is think about this way. A lot of these things come from developers or fixing flippers.
Keith Weinhold (00:27:31) - They get their properties out of foreclosure, they get it out of sheriff's sale, they get out of fire or estate sales like these things where they're highly discounted. So during Covid, the courts were shut down for a year and a half. You couldn't get these properties if you were foreclosed on, you couldn't get foreclosed on for two years because the courts weren't open. And when they did open, there was such a backlog of other stuff that was more important than that. They were dealing with like murderers and whatever, rapists, people that actually need to go to jail. And they're not dealing with foreclosures to the same extent. So the courts are backed up for a long period of time. And so when they finally opened up, you start to see a trickle through. You're starting to see more now. But that was a big challenge to the market. So what I've been hearing for the people who are really deep in this market and they see everybody across the board, across the country is they've all said that there's a tidal wave coming.
Keith Weinhold (00:28:24) - And a lot of the problem is, is there are a lot of bad notes out there. So there are people who basically created these notes, right? So they underwrote the notes. They they lent money to somebody with bad terms or is a bad loan like the person should have borrowed or whatever it is, they're still paying. But you see, the quality of the paper is really bad. And what's going to happen is if you see a hiccup in the real estate market, then you're going to see this paper flush through the system because all of a sudden this deal that was marginal is now a bad deal and it flushes through either people default or they sell or whatever. And that stuff has to flush through the system until it does, the market's not going to be efficient. Everyone is waiting around saying, I know there's bad paper out there. I'm trying to find good stuff and it's harder to find, but it's not from a lack of paper, it's from a lack of quality paper. And this happens every real estate cycle.
Keith Weinhold (00:29:19) - Having 2008, nine, ten flushes out the bad people, buy the paper at a discount. You're listening to Get Rejection. We're talking with innovative welcomes Principal Kirk Chisholm when we come back, including his take on where we're going with interest rates and inflation. I'm your host, Keith Lindholm. You know, I'll just tell you, for the most passive part of my real estate investing personally, I put my own dollars with Freedom family Investments because their funds pay me a stream of regular cash flow in. Returns are better than a bank savings account up to 12%. Their minimums are as low as 25 K. You don't even need to be accredited. For some of them. It's all backed by real estate. And I kind of love how the tax benefit of doing this can offset capital gains in your W-2, jobs, income. And they've always given me exactly their stated return paid on time. So it's steady income, no surprises while I'm sleeping or just doing the things I love. For a little insider tip, I've invested in their power fund to get going on that text family to 668660.
Keith Weinhold (00:30:30) - And this isn't a solicitation If you want to invest where I do, just go ahead and text family to six six, 866. Jerry listeners can't stop talking about their service from Ridge Lending Group and MLS 42056. They've provided our tribe with more loans than anyone. They're truly a top lender for beginners and veterans. It's where I go to get my own loans for single family rental property up to four Plex's So start your prequalification and you can chat with President Charlie Ridge personally, though, even deliver your custom plan for growing your real estate portfolio. Start at Ridge Lending Group.
Speaker 3 (00:31:16) - This is author Jim Rickards. Listen to Get Rich Education with Keith Reinhold and Don't Quit Your Day Dream.
Keith Weinhold (00:31:32) - Welcome back to Get Rich. We're talking with Kirk Chisholm. He is the principal and a wealth manager at Innovative Advisory Group. And I like to chat with Kirk and some of these people that have this bigger picture view where they offer clients stock options, real estate options and more. In Kirk, I know you like to say that we're sort of living in a new paradigm and that people are only just now starting to realize this new paradigm, which has to do with interest rates and inflation.
Keith Weinhold (00:32:01) - So tell us about this new paradigm. Let's take us back a few years. So if you think about what's happened in history, I'm a student of history, much like you are, Keith, You look back in history, it's instructive as to how the future may act, right? It's never going to mirror that because it doesn't happen that way, as I think it was. Mark Twain has said that history never repeats, but it rhymes. I'm not sure if that's actually attributed to him, even though people say it is. But point being is if you look back in history for the pretty much starting in like the 70s, we had a period of time and I'm going to come back to the 70s, but we had a period of time where things were volatile, we had high interest rates and we peaked at 20% rates depending on which rate we're talking about. The 30 year treasuries, I think it hit 15%. Fed funds rate hit 20%. So we had some pretty high numbers. And so the subsequent 40 years, interest rates declined for 40 years.
Keith Weinhold (00:32:56) - If you had bought a 15%, 30 year Treasury in 1980, 1981 and held on for the whole 30 years, you would have made 15% for that whole time. And it bottomed out a few years ago. So think about the 70s. Like, here's the economy, right? I got my hands together. Here's the economy. This is what it looks like, right? It's this size Now. If you start injecting leverage, you get a mortgage on your real estate. That's leverage. The company borrows money. That's leverage. Right? So you're borrowing money. So your borrowing future cash flows to use today. So let's say I own a home outright and I decide, hey, I want to borrow money to go buy a motorcycle, whatever. Okay. Well, I just increased the economy size because I borrowed money, right? So I've increased the amount of money in circulation from 1983 81 until pretty much a few years ago, the interest rates went from a high amount of 20% down to close to zero.
Keith Weinhold (00:33:51) - Now, the lower the interest rates, the more you can borrow. So if you think about the economy, it kept increasing as rates drop because you can borrow more and more money. Now, how much money can you borrow? A 0%. Keith An infinite amount, in theory, yes. As much as they'll give you. And how much? If it's negative, I don't know. I'm going to borrow a bunch of people and borrow their money like and we get into this crazy period we had a few years ago where there actually negative rates in Japan still does. But the point is, is the lower the rate, the bigger the economy can be because you're allowed to leverage more and it means you can borrow more money and use that money for other things. And now that's a problem because you're borrowing future cash flows to use today. So at some point you got to pay that back one way, shape or form or another. The thing is, is that is increased the size of the economy over this time.
Keith Weinhold (00:34:37) - So the paradigm from the early 80s until a few years ago was one of leverage and growth. And there's a lot of things went into that globalization, outsourcing to China and Asia, technology, all these things influence this growth of the economy. But then in 2021, we hit the lowest rates. We hit mortgage rates at 2.5%. Fed funds rates were low, Treasuries were low, and they started raising rates in 2022. So the economy now started to shrink because you can borrow less. Now, it didn't actually shrink, but I'm using this for illustrative purposes. So if I'm looking at this big, huge balloon and think of it as a balloon, right? You start as there's no air in it, you blow it up with air, you get this huge balloon. Well, as rates go up, you start to let air out of the balloon because you can't sustain high interest rates because it comes down to cash flow. So what ends up happening is as rates go up, the economy effectively starts to shrink over time because if low rates help it expand, higher rates will contract it.
Keith Weinhold (00:35:39) - But it doesn't happen today or tomorrow. It happens over years, as the economy did in the last 40 years. So the paradigm we had changed two years ago and now we have high interest rates and the economy is shrinking to acclimate to this new higher rate environment. So you could have bought mortgage for 2.5% for 30 years on the house. You bought a $500,000 house, 2.5%. You probably would have paid, I think, $3,700 a month rate. You're paying $3,700 a month. That's where you can afford. And most people were doing that, so they bought as much as they could afford. However, now mortgage rates are seven and a quarter at seven and a half. That $3,700 a month mortgage is now doubled. So now you're looking at about a $7,400 a month mortgage. I can't afford $7,400 a month, so I can't buy that same price house. Now, the house price to accommodate that has to decline. And I'm using real Estate Illustrated because it also I'll tell you in a minute so the house price has declined to accommodate that higher payments because people can only buy what they can afford.
Keith Weinhold (00:36:43) - Now take that illustration and overlay that into corporate America, because companies do the same thing. They borrow as much as they can get away with. As you say, with mortgages, it's fixed. It doesn't affect me because it's fixed. And same thing with corporations doesn't affect me. It's fixed. That's correct. Which is why it doesn't impact the economy immediately. But it does impact it over time because with the 30 year mortgage, you never have to move. But if you do have to move, you're in trouble. If you own commercial property, you don't have 30 years, you might have a five or a ten year mortgage, which is going to roll at some point in time and hopefully rates are lower. But if they're not now, you've got some explaining to do, right? In corporate America, there's a lot of companies that get, you know, short term debt that's going to roll over at a higher rate. How are they going to afford it? Johnson, Johnson, Apple, Microsoft, they can afford it, but can borderline junk bonds, companies that are low quality, that are just making it, barely making it buy in cash flow because they can borrow money? What about them? Well, they're going to be forced to make hard decisions or go into bankruptcy.
Keith Weinhold (00:37:48) - So what higher rates do? It basically cleans up the economy by taking out the inefficient players and forcing some into bankruptcy, foreclosures, whatever it may be, it effectively will clean up the market, but it also caused the economy to shrink. So it destroys capital. And if we have rates that are higher for longer than, let's say a few more months, if they're higher for 5 or 10 years, it's going to be a problem. And I think we're going to have higher rates a lot longer than most people think. The market is predicting another six months they're going to drop rates. They've been saying that for the last year. So I don't think they're accurate. I think it's going to be at least a year, maybe two, and then we'll see what happens. Hard to see that far out, but people need to be become acclimated to these higher rates for a while because if you look at historically, these aren't that high. Their average rates. Yeah, they're right in the mean like we're not high historically.
Keith Weinhold (00:38:43) - If you look at bond yields I mean you look at late 90s, you've got up to 6%. I think you've got to 6 or 7% and depending on what you're investing in. So we are not high and default rates are not high. Default rates for high yield bonds historically are 7%. I think we're like 1% like last 15 years. So the numbers that we saw were extreme examples of the economy. And we're going to find a happy balance somewhere. And I don't know where that is, but this new paradigm is about reassessing the assumptions you're making about your investments, about the economy and any assumption what are interest rates going to be? What's inflation going to be? These are things that people never even thought of. They just assumed, Oh, inflation is going to be 3%, I'll just use that. Or interest rates, they're going to be similar. You can't make those assumptions anymore. You have to have broader. Lateral testing of whether this is going to work or not. You've done a great job of breaking down that new paradigm where basically that 40 year period from 1981 to 2021, we had gradually declining interest rates and something in 2021, that's where things changed and we entered into a new paradigm of increasing interest rates.
Keith Weinhold (00:39:55) - So as we're winding down here, you stated you think that we will have persistently higher rates for quite a while. So many people have been saying a recession is just around the corner for so long. It's sort of annoying to really think about it. But as we know, with the recession, that generally correlates with a lowering of interest rates. But you don't see that happening by next year, say, with a lowering of interest rates that corresponds with a recession. What you said is recessions typically correlate with lower rates. You're correct. But what if they don't? I'll give you some examples here of why things are different and why it matters. So if the last 20 plus years, if we had a recession or even a sniff of a recession, the Fed would drop rates, print money, they would boost the markets back up. Everything would be fine. Right. Problems solved. Right? The world's going to end. Don't worry. Here comes the Fed to the rescue. They did that for 20 years.
Keith Weinhold (00:40:49) - But now we have high inflation. So with high inflation, they can't do that because if they do that, it causes inflation to spike, much like the 70s. Now they're not oblivious to the 70s. They know full well what happened and they don't want to repeat it. What they're saying has been pretty clear. We're going to make sure we kill inflation. We don't want it coming back. It is very probable that we have inflation dipped down into two even 0% this year. There's the probability is low, but it's probability we could hit 0% inflation by the end of the year. However, I don't think it's going to stay there because we tend to get a bullwhip effect, which we've seen in many commodity prices, lumber in particular, where the prices go up and then too many people, they make too much lumber to sell and then there's a glut and then it goes lower and then it goes higher because, you know, so you get this bullwhip effect, which is a problem which caused and it's the same thing with inflation, right? You get this bullwhip effect because the changes have been too drastic that people can't adjust, so they over adjust, are under adjust, and that causes this big change.
Keith Weinhold (00:41:50) - So I think we're going to have a dip back to inflation, probably not 8%. But when that happens, they're going to have to come back and raise rates. So what they're trying to do is they're trying to keep rates higher, longer to make sure inflation doesn't come back. We're really in this back and forth of where are we going to go, where's the Fed going to take us? And if it tends to be five years of high rates, that's going to really impact the economy and eventually we will hit a recession. But I think the probability is showing very low probability of recession anytime soon because it's not playing out in the data. Some data is showing yes, some data is showing no. But when I start to see that, it means it just doesn't matter. It's not going to show up. Well, that's some good perspective, Kirk. CPI inflation peaked at.
Speaker 3 (00:42:36) - 9.1%.
Keith Weinhold (00:42:37) - A little over a year ago. It's at 3% now. But yeah, one place where I agree with you, Kirk, is, yeah, the Fed sure does not want to see that pop back up again.
Keith Weinhold (00:42:48) - And within the Fed's dual mandate of high employment and stable prices, it seems like they're prioritizing stable prices over keeping employment high, that's for sure. Well, yeah, there's been a great wide ranging chat.
Speaker 3 (00:43:01) - With interest.
Keith Weinhold (00:43:02) - Rates.
Speaker 3 (00:43:03) - Inflation stocks, real estate and producing income from both of them. Kirk If our audience wants to reach out to you or learn more about what you do, they're at Innovative Advisory Group. How can they do that?
Keith Weinhold (00:43:15) - Thanks, Keith. So yeah, the best way people can find me, I'm really easy to find. They can go to my podcast, Money Tree. Podcast. Com. We have two shows a week. One show we interview really intelligent investors like Keith, for example. We have the second episode is really more of a timely what's going on the markets this week, what's new, what's changed? Just so we can kind of keep people up to date with what's going on and if people are really looking to find out more about me and my services, you can go to Innovative Wealth and I've written all the blog posts there, but our company provides wealth management services for people, whether it's financial planning or portfolio management.
Keith Weinhold (00:43:52) - That's a lot of what we do. So like I said, I'm easy to find and I'm pretty easygoing guys. So if you're interested, you can find me there.
Speaker 3 (00:43:58) - Kirk Chisholm, Innovative Wealth. It's been great having you here. Thanks so much for coming on to the show.
Keith Weinhold (00:44:04) - Thanks for having me, Keith.
Speaker 3 (00:44:10) - Yeah. Well, Kirk Chisholm, he thinks that higher interest rates will linger longer. And he told us why. Now, Historically, it takes 3 to 5 quarters for interest rate hikes to hit the economy. Rate increases begin in March of 2022, but Americans are sitting on lots of cash. So many think that this recession that's perpetually just around the corner won't begin until at least next year. One benefit of a recession coming is that people will stop spreading undue concern.
Keith Weinhold (00:44:45) - About.
Speaker 3 (00:44:45) - A recession Coming Coming up here on the show, lots of great real estate investing strategy sessions forthcoming, not just big picture impacts like the direction of rents, home prices and interest rates, but also how to improve your operational efficiencies, like how to tamp down on higher property insurance premiums and more including what today's market for new build for plex's like investing in America's intermountain West and more.
Speaker 3 (00:45:14) - Until next week. I'm your host, Keith White. Don't quit your daydream.
Speaker 4 (00:45:21) - Nothing on this show should be considered specific, personal or professional advice. Please consult an appropriate tax, legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of Get Rich Education LLC exclusively.
Speaker 3 (00:45:50) - The preceding program was brought to you by your home for wealth building. Get rich education.
Mon, 24 July 2023
Watch the video of today's podcast intro here.
Are starter homes a thing of the past? Did the Fed just win? I provide commentary and perspective on both.
Hear clips from: Donald Trump, Jamie Dimon, and Jerome Powell.
Then, I answer four listener questions:
Should I make my first real estate investment a new development from raw land?
Does it make sense to sell some rental properties, pay off others, and make my life easier?
My returns are down because my property repair bills are higher than expected. What should I do?
Since the government has high debt, won’t they keep printing dollars?
If you have a listener question, ask it here: GetRichEducation.com/Contact
The state of the real estate economy [00:00:01]
Home prices and housing supply [00:01:33]
Analysis of home prices reaching new highs, the decrease in new listings, and the impact on housing supply.
Mortgage rates and the future of interest rates [00:03:54]
Insights on the direction of mortgage rates, the unlikelihood of rates returning to the 3% range, and the opinions of Lawrence Yun, the chief economist at the NAR.
The Fed's Soft Landing [00:10:31]
Discussion on the Federal Reserve's efforts to control inflation and maintain economic stability.
Building Development as a First Investment [00:12:49]
Advice on whether it is a good idea for beginners to invest in land development and the challenges involved.
Acquiring More Property or Paying Down Debt [00:19:02]
Advice on whether to continue acquiring properties or pay off existing debt and downsize for a more enjoyable life.
The philosophy of debt [00:21:11]
Debt can be beneficial and indicate wealth, as seen in examples of successful individuals with high levels of debt.
Managing repair costs for rental properties [00:24:18]
Charging tenants for the first portion of repair bills can incentivize them to make minor repairs themselves and reduce long-term repair costs.
Inflation and government debt [00:30:12]
Inflation can debase government debt, reducing its value, similar to how it affects personal debt. The US government's ability to print money allows for easier repayment of debt.
The housing supply and marketplace [00:31:30]
Discussion on the historically low US housing supply and the importance of staying up to date with the inventory and other elements in the real estate market.
Get mortgage loans for investment property:
RidgeLendingGroup.com or call 855-74-RIDGE
or e-mail: info@RidgeLendingGroup.com
Find cash-flowing Jacksonville property at:
Invest with Freedom Family Investments. You get paid first: Text ‘FAMILY’ to 66866
Will you please leave a review for the show? I’d be grateful. Search “how to leave an Apple Podcasts review”
Top Properties & Providers:
GRE Free Investment Coaching:
Best Financial Education:
Get our wealth-building newsletter free—
text ‘GRE’ to 66866
Our YouTube Channel:
Follow us on Instagram:
Keith’s personal Instagram:
Complete episode transcript:
Speaker 1 (00:00:01) - Welcome to GRE. I'm your host, Keith Weinhold. First, I'll discuss the surprising state of the real estate economy. Then I answer your listener question Should I develop and build property myself? How do I keep my rental properties repair bill down? And two questions about real estate debt all today on Get Rich Education with real estate capital Jacksonville. Real estate has outperformed the stock market by 44% over the last 20 years. It's proven to be a more stable asset, especially during recessions. Their vertically integrated strategy has led to 79% more home price appreciation compared to the average Jacksonville investor since 2013. JTB is ready to help your money make money and to make it easy for everyday investors. Get started at JWB Real Estate.
Speaker 2 (00:01:01) - You're listening to the show that has created more financial freedom than nearly any show in the world. This is get rich education.
Speaker 1 (00:01:24) - Welcome to the area from Warsaw, Poland, to Warsaw, Indiana, and across 188 nations worldwide. And Keith Weinhold in your listening to Get Rich Education.
Speaker 1 (00:01:33) - Earlier this month, CNBC reported that home prices have hit new highs again, another up just slightly year over year, though the popular sentiment is that by now people have gotten used to paying 7% or even more than 7% mortgage rates and higher rates. That puts the squeeze on housing supply. I mean, gosh, within this era of already paltry supply, I mean, we're talking about direly few homes in some markets here. Nationally, new listings are down 25% from a year ago. All right. Now, that's all national stuff. But look now, just over half of the nation's 50 largest housing markets and they're mostly in the Midwest and Northeast. They have either returned to their prior price peaks or they have set new all time highs. Annual home prices are still weaker out west, but even some of the Western markets has slumped. They're now seeing month over month gains. Yes, we're talking about gains now even in San Jose, San Diego, Los Angeles, San Francisco and Seattle. Now, look, our starter homes, a thing of the past.
Speaker 1 (00:02:47) - Some now think so with these higher prices. Just listen to this from an NAR survey, 40% of millennials who bought homes last year, they plan to stay in them 16 years or more. And for Gen Z, that number jumps up to 48%. Now, who knows if they'll really stay in those homes at that long. But see, what's going on here is just affirmation that so many buyers don't plan to trade in their starter home for a move up home. They got their starter homes when rates were low, though starter homes are not coming onto the market, potential sellers have ghosted the market, making for fewer listings and those fewer listings. That's what's fueling the price growth. So yes, starter homes could largely be a thing of the past, but of course not completely. Now, just two weeks ago here on the show, Jim Rogers told us why long term, he thinks interest rates will go much higher and opinions can be all over the place. So I don't want to get too bogged down in that.
Speaker 1 (00:03:54) - But shorter term, one prominent commentator, he is now emphatic that mortgage rates have hit their top, like, for example, hit their top for perhaps this year and next year. Lawrence Yun, chief economist at the NAR on the direction of mortgage rates. He says, quote, This is the top. It will begin to move down. But you can also says if you're a US home buyer waiting for a return to super low mortgage rates, don't hold your breath. The short lived era of 3% interest rates for 30 year fixed mortgages, that is over, and they are unlikely to return anytime soon, perhaps for decades. He goes on to say that one can never truly predict the future but don't see mortgage rates returning back to the 3% range in the remainder of my lifetime. That is all of what Yun said. Okay. The remainder of Lawrence Hoon's lifetime, he looks pretty healthy and that might be 40 years, 40 plus years. Did we see rates that low again, according to him? Now, did you see this? We posted this in our Instagram stories as our curious article of the week last week.
Speaker 1 (00:05:07) - The Washington Post get a hold of this title. They published an article and it was titled The Housing Market Recession is Already Ending. My preeminent thought is the housing market recession is already ending. That's a curious headline. What housing market recession? I don't get it. And the subtitle doesn't help. It's subtitled Last year's downturn in the housing market didn't last even with higher interest rates. Now prices are stabilizing. Is supply chains have eased up. All right. Well, even with actually reading the complete article, I don't know what they mean by a housing market recession last year. I guess that national home prices stopped appreciating last year and they just stabilized. But I don't know how the heck you get a recession out of that. Maybe with low housing supply, there were fewer transactions and that was being considered a recession. Now, look, I'm going to posit something really unpopular here in today's climate, but I think that this is a question that you really need to ask yourself today, and that is, did Jerome Powell just win? I told you it was unpopular.
Speaker 1 (00:06:20) - He's not a very well liked. Person in a lot of circles. But with CPI inflation at 9% last year and 3% now. Yet throughout this spin, we had a few banks that broke but no recession. Is it possible that Jerome Powell has engineered a soft landing? I've got more on that in a moment. But the actual person of one, Donald, John Trump, made some quick remarks about the economy this month. Let's listen in.
Speaker 3 (00:06:52) - We've never had an economy like we had just three years ago. It was unbelievable. And frankly, this economy is not doing well. But the reason it's doing okay is it's running on the fumes of what we built. But those fumes are running out and they're running out fast. And it's not going to be a pretty picture.
Speaker 1 (00:07:11) - Yeah, I don't know about that. When we look at the broader US economy, let's get something more substantive. And speaking of people that aren't well liked, Jamie Dimon had some great perspective. I think you know that he's the billionaire business exec and the banker that's led JPMorgan Chase since 2005.
Speaker 1 (00:07:30) - To put it another way. This man runs the largest bank in America.
Speaker 4 (00:07:36) - It's the other way around. America has the best hand ever dealt of any country on this planet today ever. Okay. And Americans don't fully appreciate what I'm about to say. We have peaceful, wonderful neighbors in Canada and Mexico. We've got the biggest military barriers ever built called the Atlantic and the Pacific. We have all the food, water and energy we will ever need. Okay. We have the best military on the planet, and we will for as long as we have the best economy. And if you're a liberal, listen closely to me in that one, okay? Because the Chinese would love to have our economy. We have the best universities on the planet. There are great ones elsewhere. But these are the best. We still educate most most of the kids who start businesses around the world. We have a rule of law which is exceptional. If you don't believe me and we talk about Britain, Brazil, Russia, India, Venezuela, Argentina, China, India, believe me, it's not quite there.
Speaker 4 (00:08:29) - We have a magnificent work ethic. We have innovation from the core of our bones. You can ask anyone in this room what you can do to be more productive. Ask your assistants, factory floors, redo it. It's not just the Steve Jobs. It's this broad death with the wires and deepest financial markets the world's ever seen. Okay. And if you. I just made a list of these things and maybe I miss something. It's extraordinary. It's extraordinary. And we have it today. Yes, we have problems. But, you know, when I hear people down, if you travel around the world, I mean, get an airplane, travel around the world and go to all these other countries and tell me what you think.
Speaker 1 (00:09:02) - Yeah, Jamie Dimon really bringing up a lot of those geographic advantages like Peterson and I discuss in depth here Diamond's remarks. They're not new remarks. Those weren't recent ones. And by the way, I don't really care for him calling out liberals, just like labeling people conservatives.
Speaker 1 (00:09:20) - That's counterproductive. I like the quality of ideas as soon as we start labeling things left or right, that quickly becomes more divisive than it does unifying. Don't do left right politics. I do. Up, down, up is integrity. The quality of your ideas concepts means for getting things done and track record. That's what matters. But anyway, coming off Jamie Dimon waxing poetic with American optimism and exceptionalism. Yeah, it is time to ask if the Fed is winning. And first, let's understand something fundamental The fact that high inflation occurred for two years that is irreparable. Let's not overlook that. I mean, you're Trader Joe's grocery store prices. They're not coming back down even if the rate of inflation has slowed. I mean, that is a big fat L, That is a loss. It came from printing all those dollars to paper over the pandemic, which created the high inflation with everything from the paycheck protection program to Stemi checks to the Cares Act. And yes, the executive branch created some of that too.
Speaker 1 (00:10:31) - But my point is, make the irresponsible people that don't have any savings feel some pain once in a while. If you just make money fall from the sky every time there's a crisis, then people are going to learn to not have any reserves or any cash flowing investments during the next crisis. Yes, supply chain constraints are part of the problem too. But since you tried to paper over the pain, see then creating that inflation that results, that makes everyone feel the pain that's middle class or below. All right. But after that understanding, is Jerome Powell now winning by landing the inflation softly without crashing the economy and keeping GDP rising a little in keeping unemployment low in see even the producers price index that's forward looking that measures this change. In selling prices of goods and services producers. That's falling out, right? That leading indicator for consumer price inflation. And that's why inflation expectations are finally dropping. And that doesn't mean that I like the Fed or the system at all. But by now you've at least got to begin to wonder if the Fed can get their soft landing.
Speaker 1 (00:11:47) - They've dropped down from 30,000 foot cruising altitude. There's no turbulence, and they're below, call it, 10,000ft. Now, for the first time in two years, wages are finally rising faster than prices.
Speaker 4 (00:12:01) - We at the Fed remain squarely focused on.
Speaker 1 (00:12:04) - Our dual mandate.
Speaker 4 (00:12:05) - To promote.
Speaker 1 (00:12:05) - Maximum employment and stable.
Speaker 4 (00:12:06) - Prices for the American people.
Speaker 1 (00:12:08) - Yes, sir. That is your job after all. Well, I want to turn to your listener questions here for the remainder of the show. And if you've got a question for me, you can always reach out at Get Rich education, slash contact. The first question comes from Tina in Monroe, Louisiana. She says, Keith, I love your show. Just started listening last month. Tina asks Keith, I have the idea of buying land and I want to know if this is a good idea to build new rentals on. Like for Plex's, I've already formed an LLC and hope to open a business line of credit, but this would be my first ever real estate investment.
Speaker 1 (00:12:49) - Okay, Tina, thanks for finding the show here. Welcome in. I expect that you'll have years of profitable listening ahead to start a new development from digging raw dirt all the way through to procuring your certificates of occupancy and have that be your very first investment for almost anyone. I have got to say no because there is just so much to development. Development is going to rely on your experience and your ability to build a team. You're going to need general contractors and subcontractors and vendors, suppliers and experience dealing with regulators and a municipality and bankers and perhaps investors. And legal development is risky for beginners. You're purchasing something that doesn't yet exist. You've got to be sure that you're buying the right land in the right place. And that means studying everything from geotechnical reports and Perc tests to understanding the demographics, whether you plan to buy that land there in Monroe, Louisiana, or wherever else it is, and then your exit strategy. And while it might not actually be to exit, but it's going to be either to sell your completed development or for you to hold it for rental income, you have really got to know what you're doing.
Speaker 1 (00:14:13) - I am not a developer, but I talked to a lot of them, especially build to rent developers. Now, the reason that I say that the answer is no for development as your first real estate investment for almost anyone. Well, I say almost because if you have a remarkable mentor, someone that's going to go out in the field with you almost every day, then it's a possibility. And even then that mentor should have a proven track record. You need approvals and subdivision and plans drawn and bringing in drainage and utilities and entitlement mean instead of all that for a beginner and really even for most veteran investors, it is substantially easier to buy something that's already built, that has a history of rental occupancy and income. And then the team that you have to build a so much smaller with that primary long term team member as your property manager. But thank you for the question, Tina, because I think a lot of real estate investors wonder about building themselves from raw land. And it seems that even more investors right in here wondering about, you know, just building one individual single family rental home or duplex or fourplex.
Speaker 1 (00:15:25) - And even then, if it's successfully done, it usually takes longer than you think. And then once you're done, the property is vacant and you need to find tenants. So it might be a few more months before it even cash flows. So buy property that's already built, learn investing that way. And what you've done is you've outsourced all of the development unknowns to someone else and they bring you the known and completed development project that is better for more than 99% of people. And then look into being a developer yourself when you've got sufficient experience. If that remains interesting to you, a great mentor with a proven track record or both, if you'd like to ask a question and potentially have me answer it on air here again, go ahead and reach out through get ratification smash contact because that's where you can either leave a voice message or a written one. I am just. Getting started with listener questions. I'm back with more of them. Straight ahead. I'm Keith Reinhold in You're listening to episode 459 of Get Rich Education.
Speaker 1 (00:16:30) - If you want some really passive income, listen to this. You know, I'll just tell you, for the most passive part of my real estate investing personally, I put my own dollars with freedom family investments because their funds pay me a stream of regular cash flow in. Returns are better than a bank savings account up to 12%. Their minimums are as low as 25. K. You don't even need to be accredited. For some of them. It's all backed by real estate and I kind of love how the tax benefit of doing this can offset capital gains in your W-2, jobs, income. And they've always given me exactly their stated return paid on time. So it's steady income, no surprises while I'm sleeping or just doing the things I love. For a little insider tip, I've invested in their power fund to get going on that text family to 668660, and this isn't a solicitation If you want to invest where I do, just go ahead and text family to six six, 866. Jerry listeners can't stop talking about their service from Ridge Lending Group and MLS 42056.
Speaker 1 (00:17:43) - They've provided our tribe with more loans than anyone. They're truly a top lender for beginners and veterans. It's where I go to get my own loans for single family rental property up to four Plex's. So start your pre-qualification and you can chat with President Charlie Ridge personally, though, even deliver your custom plan for growing your real estate portfolio. Start at Ridge Lending Group.
Speaker 5 (00:18:12) - This is Jerry Operations lead Andrea Newburn. Listen to Get Rich Education with Keith Reinhold and don't put your daydream.
Speaker 1 (00:18:29) - You're listening to the show. It's created more financial freedom for busy people just like you than nearly any show in the world. This is guitarist Education. I'm your host, Keith Reinhold. The next question comes from Adam. He is a real estate agent in Seattle. And Adam asks this. Hi, Keith. I've been an avid listener and follower of yours for years now. Like you, the Little Purple Book changed my life early on and I was able to semi retire at age 35. The book that he's talking about, by the way, is that Poor Dad, I am 42 now and back working as a realtor because I love it.
Speaker 1 (00:19:02) - And then after he wrote I Love It in parentheses, he put well, sorta. So I don't know that he loves it too much and I am at a crossroad in my life. Do I keep acquiring more property and more debt or do I start paying down the properties I do have? I have seven properties now and with a mindset of less is more as I want to enjoy my life a bit more and I'm honestly getting tired of managing my three in state properties. Therefore I've been thinking about selling one to pay off the loan of two other properties and really start to downsize and truly be debt free. Life is too short and I want to enjoy the rest of my life. Do you have any advice or opinions for me? Thank you in advance. Okay. Adam. Well, since you've listened for years, you probably already understand that I don't pay off any of my properties, though I could. I don't want to. I'd lose leverage in all that. You probably understand that I don't self manage.
Speaker 1 (00:20:01) - You said that you self-manage three of your seven properties there in Washington state. So since you probably already understand all that, yes, I would acquire more property, more debt and outsource the property management. That way you can enjoy life if the property is in your home state, don't have high rents in proportion to their values. In a lot of places around Seattle, they don't have a high ratio there. Well then it's probably worth 1030 running into out of state property. Or if you really like those Washington properties, then find a property manager there in state and to find a suitable 1031 exchange facilitator with a proven track record, check the resources tab at GRI marketplace.com. That same website will help you find out-of-state properties if you like. You can also contact our coaches to help walk you through that at marketplace.com/coach. That is a free coaching service by the way. Now as far as keeping the instate Washington properties, if you decide that you do want to do that, the bigger Pockets forums can help you vet a qualified property manager there.
Speaker 1 (00:21:11) - Now, Adam, you did say something about the possibility of downsizing and becoming truly debt free, as you put it. But my question is, what's the problem with debt if someone else reliably pays it all for you? Of course your tenant pays a principal and interest and hopefully a little on top of that called cash flow. All right. In that case, all of that debt is outsourced. Now, let me get a little philosophical for a minute. I don't know the name of the person that's the biggest debtor in the entire world. But you know what? He is probably really wealthy or she all circle back to why in a second. Here's a fun way to understand this. The quarterback threw the most interceptions of all time. Oh, you must think that guy is a total loser. Well, you know what? The quarterback that's thrown the most interceptions all time by far is in fact, a Hall of Famer Brett Farve. Oh, well, how can that be? Well, it's because he got so many chances to play.
Speaker 1 (00:22:17) - He must have been a pretty good quarterback for the coach to put him on the field. Then often year after year, the baseball pitcher that lost the most ever games for his team all time, he is named Cy Young. Well, Cy Young also won the most games all time in Major League Baseball. He was one of the very first inductees into the Hall of Fame. And there's even an award given each year. Still, the most outstanding Major League Baseball player called the Cy Young Award. Yet he lost the most games and say, did you meet a guy on the street there where you live and you learn that he has $20 million in debt? I don't even need to know anything else right there. That tells me that he's probably a financial winner to have that much debt because, see, he would need to be highly credit worthy to even get all that debt in the first place. See, you're only looking at the $20 million debt side of his balance sheet. His asset side might be $50 million.
Speaker 1 (00:23:16) - Hey, that's a $30 million net worth. Even with high inflation, $30 million is fairly wealthy today and mad as Mark Zuckerberg is one of the wealthiest people in the world, he has a net worth. North of $100 billion. And the Zuckerbergs, they took a loan for their home even though they could pay cash for it many times over. And yet when Zuckerberg and his wife bought their home, they took out a loan for the leverage and the arbitrage. The wealthiest people in the world have the most debt AI model that you can model that I personally look to increase my debt as time goes on. And then simultaneously, I expect the asset side to increase faster than the debt side. The asset side increases faster because I've got the debt, hence the leverage. So this is why I have an aversion to being debt free. I hope there's both some helpful resources and a philosophical component for you to chew on there as well. Adam The next listener question comes from Heiko in Utica, New York. Sorry if I mispronounce your name.
Speaker 1 (00:24:18) - It's spelled at Jaakko. Maybe it's Jocko, but I'm going to go with Jocko. He asks. I've held my first ever purchase of a rental single family home for a little over a year. It's located in Holladay, Florida, though my property was projected to provide a cash on cash return of 6%, it only produced 3% because repairs cost more than expected On this 1978 built property. I use a local property manager that's been pretty communicative. I always anticipate reading my monthly email statement from him, just wondering how to manage costs over time. Signed Jocko. Okay. Jocko And by the way, I own rental single family homes myself, just about five miles from Holladay, Florida. And these areas are just north of Tampa. Well, Co only getting 3% rather than a projected 6%. It's actually not a terrible miss. Now, it would be if that were your only revenue source or your only return from an investment. But of course, this 3% cash on cash return is one of your five profit sources from income property.
Speaker 1 (00:25:28) - But suffice to say, one great long term strategy to keep myriad repair costs down over time. And it's something that Ken McElroy told me about, and that is charge the tenant for the first $50 in repairs or maybe charge the tenant for the first $100 of repairs. That way they're going to think twice before bugging you or bugging your manager. Now, this can have the desired effect of keeping your long term repair bill down in a few different ways, but yet ensure that you're still serving the tenant. All right. First of all, the first 50 or $100 a repair bill, it's really not that burdensome to most tenants, but yet they will think twice before calling you or it's calling your manager, in this case, Jocko, before calling about something ticky tacky and minor like the kitchen cabinet doors got a little loose on their hinges again. Now you want to provide clean, safe, affordable, functional housing. That is a core concept in mission here. At first, this might incentivize the tenant to make a 10 or 15 minute repair themselves so that you never even hear from them.
Speaker 1 (00:26:43) - And that also prevents, say, a $75 service call from being made in the first place. Now, if it's a repair that's beyond the tenants expertise or expectations to take care of themselves, say it's something like a kitchen faucet that just leaks a little, well, okay, you want to see that that's taken care of for them. But if they have to pay the first small portion of repairs themselves, then that incentivizes the tenant to report a number of small things in one batch. All right. Well, now, that makes it more efficient for you or for your property managers handyman. That makes for fewer service calls, fewer runs to Home Depot and a real reduction in your repair cost. See? Hello. The work from home movement. That's being good for us as residential real estate investors. But there is one downside to that. A few more tenants spend all day at home and there are more components that can wear out sooner. Or there's this more time that tenants spend at home to notice little things that are amiss.
Speaker 1 (00:27:47) - So that's why the time in the real estate market is right to charge the first portion of repair bills to the tenant. That's why this makes sense now. Now, there are a couple caveats around this. Hello. When the tenant first moves in, I'll go ahead and give them a week to bring you any findings and then those things should be taken care of without charging the tenant anything at all. Right? I mean, the tenant shouldn't have to inherit any problems. And the other caveat is that your tenant has to be communicative about items in disrepair that could create long term damage, like a leaky drain, because you don't want that to ruin your subfloor over. Time. So the short answer on how to lower your long term repair bills, especially in a work from home world, is to have it in the lease that the tenant pays for, say, the first $50 to $100 of repairs. Also, you may have heard it just ten episodes ago on episode 449, I discussed 12 ways that you can raise the red in add value to your property.
Speaker 1 (00:28:52) - There's a good bit of related content there to help you keep profitable and get your cash on cash return up. Now, plenty of properties. In fact, probably most properties have exceeded their return projections over the last three years, and that is primarily due to rapid appreciation. But see, you don't get the lessons from the winds, you get the lessons from the underperformers. And that's why I wanted to answer your question for everyone's benefit today. Taco Tacos question was microeconomics. Let's flip it to macroeconomics with this. Next question from Dave in Atlanta, Georgia. Davis This one a while ago. First, here's the remarkable part on the listener question form in the how did you hear about a section, Dave? You simply wrote, I've been listening to you from the very beginning. Gosh, Dave, this is so supremely appreciated. I know we've got a lot of great devotees and I'm incredibly grateful for it. Dave asks With the US government, 30 trillion in debt and there's some rounding there and if inflation is say 10% over a few years, doesn't inflation debase the government's debt just like it does ours, taking it from 30 trillion down to $27 trillion in this case? Yeah, that stays.
Speaker 1 (00:30:12) - Question That's right, Dave. You've 100% got it. I've talked about this in some prior episodes. Since we get to borrow our mortgage loans in the currency that's denominated in the units of the biggest detonation in the history of the world, the dollar in the USA, then they want to print Dave, just like you. If you had $1 million in debt but you couldn't pay it back right now and you had the ability to print dollars ad infinitum, then sure, the easiest way for you to pay back your debt is to print your own dollars, just like America is doing. And that is just another benefit of you keeping high debt on your properties. In fact, the true definition of inflation is an expansion of the money supply. It's not the result, which is a decline in purchasing power. Technically, if the same Chipotle burrito costs $10 last year at $11 this year, that's not inflation. That's the result of inflation. So the USA wants inflation for this reason and other reasons. I've said it before, the surest been investing is that the dollar is going to continue to decline in purchasing power and that's exactly why we are debtors rather than savers.
Speaker 1 (00:31:30) - Take the sure thing. Thanks for the listenership and thanks for the question, Dave. That's all for listener questions. I encourage you to help yourself out. No one's looking out for you more than you amiss. Historically low US housing supply. Gerri Marketplace is where the inventory actually is, and it's the right inventory. The properties that make the best rentals. Real estate pays five ways style. And the selection changes, of course, based on inventory and other elements. So stay up to date. And if you haven't lately, go ahead and log in. There are free coaching service is becoming popular as well in why not it's like your own concierge personal one on one if you want that it is all there for you at gray marketplace.com. I'll be here with you to run it back next week. I'm your host Keith Wayne a little bit. Don't quit your day dream.
Speaker 6 (00:32:35) - Nothing on this show should be considered specific, personal or professional advice. Please consult an appropriate tax, legal, real estate, financial or business professional for individualized advice.
Speaker 6 (00:32:45) - Opinions of guests are their own information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of Get Rich Education LLC exclusively.
Speaker 1 (00:33:03) - The preceding program was brought to you by your home for wealth building. Get rich education.
Mon, 17 July 2023
Get our newsletter free here or text “GRE” to 66866.
In this podcast episode, host Keith Weinhold introduces Scott Saunders, a successful real estate investor who shares his insights and experiences in building a portfolio of 64 single-family rental properties.
They discuss the advantages of investing in cash-flowing rental properties, the importance of focusing on cash flow in the early stages, and the benefits of single-family rentals compared to multifamily properties.
Scott also discusses his analysis of different markets for real estate investment and his approach to financing and leveraging his investments.
They emphasize the importance of seeking professional advice and using resources like GREmarketplace.com for wealth building.
The advantages of single family rentals [00:06:22]
Scott discusses the advantages of investing in single family rentals, including better cap rates, long-term fixed-rate financing, and the inherent demand for single family homes.
Greater liquidity with single family rentals [00:08:31]
Scott and Keith talk about the liquidity component of single family rentals, highlighting that even in a recession, people will still need a place to live and therefore be buyers of single family homes.
Longer tenancy duration in single family rentals [00:09:34]
The discussion focuses on how tenants tend to stay longer in single family homes and duplexes compared to larger apartment buildings, often due to factors such as larger square footage and the desire to be in a specific school district.
The importance of cash flow at the beginning [00:11:34]
Starting with cash flow-centric properties and gradually moving towards appreciation as the portfolio grows.
Scaling up the portfolio with short-term targets [00:14:55]
Setting 90-day targets to buy a specific number of properties, leading to significant progress in a year.
Factors in selecting the next market to buy in [00:18:24]
Considerations include having a communicative property manager and existing opportunities in a market rather than solely focusing on a good deal.
The importance of relationships in real estate investing [00:19:18]
Scott discusses the significance of having a good relationship with property managers and asset providers in different markets.
Factors to consider when choosing a real estate market [00:20:18]
Scott talks about the importance of factors such as job growth, a diversified economy, and an influx of people when selecting a market to invest in.
Using inflation as a tailwind in real estate investing [00:23:54]
Scott explains how he leverages inflation to his advantage by locking in assets today and using inflation to propel his investing forward.
The importance of 30-year fixed rate financing [00:28:12]
Scott discusses the benefits of locking in a 30-year fixed rate for financing and shares his experience during the COVID-19 pandemic.
Using paid-off assets as collateral for future financing [00:29:11]
Scott explains his strategy of paying off some properties to use them as collateral for obtaining loans for future investments.
Managing properties and involving family in real estate business [00:31:19]
Scott talks about using Excel to track his rental income and involving his daughter in managing the financials of his real estate business.
The goal of acquiring lifestyle assets [00:36:34]
Scott Saunders discusses his long-term goal of purchasing properties in Tuscany, Italy, Steamboat Springs, Colorado, and other locations for both enjoyment and return on investment.
The importance of return on attention [00:38:01]
Scott explains the concept of return on attention, which focuses on having the freedom to enjoy life without being constantly distracted by financial concerns.
The impact of purchasing single-family rentals [00:40:07]
Scott emphasizes the benefits of purchasing 5 to 10 single-family rental properties, which can provide economic freedom and significantly improve one's financial situation.
The disclaimer [00:46:07]
The speaker provides a disclaimer stating that the show does not provide specific advice and encourages listeners to seek professional advice.
The speaker introduces the show and mentions the website getricheducation.com as the home for wealth building.
Scott Saunders’ resources:
Get mortgage loans for investment property:
RidgeLendingGroup.com or call 855-74-RIDGE
or e-mail: info@RidgeLendingGroup.com
Find cash-flowing Jacksonville property at:
Invest with Freedom Family Investments. You get paid first: Text ‘FAMILY’ to 66866
Will you please leave a review for the show? I’d be grateful. Search “how to leave an Apple Podcasts review”
Top Properties & Providers:
Best Financial Education:
Get our wealth-building newsletter free—
text ‘GRE’ to 66866
Our YouTube Channel:
Follow us on Instagram:
Keith’s personal Instagram:
Complete episode transcript:
Speaker 1 (00:00:00) - Welcome to. I'm your host, Keith Weinhold. A follower has built a multi-state portfolio of 64 single family rental properties. He'll tell us how he's doing it, how he finances them all, his management technique and his guiding success principles today on Get Rich education. With real estate capital Jacksonville. Real estate has outperformed the stock market by 44% over the last 20 years. It's proven to be a more stable asset, especially during recessions. Their vertically integrated strategy has led to 79% more home price appreciation compared to the average Jacksonville investor since 2013. GWB is ready to help your money make money and to make it easy for everyday investors. Get started at GWB Real estate agree that's GWB real estate.com slash.
Speaker 2 (00:01:00) - You're listening to the show that has created more financial freedom than nearly any show in the world. This is Get rich education.
Speaker 1 (00:01:23) - Hey, welcome to GRE. From the tropical currents in the Gulf of Mexico to the icy waters of Hudson Bay across the Americas in 188 world nations, this is get rich education where we just reach the 5 million listener download.
Speaker 1 (00:01:37) - Mark, I am grateful to you for that. I'm your host, Keith Weinhold. Hey, a little context before we chat with our listener guests about the architecture of how he's building this robust 64 single family homes portfolio in growing across nine US states Once in a while. I like to drop things back for just a minute in case perhaps you're new here and you wonder how do people buy so many rental homes like adding ten every year? How am I supposed to do that? Well, of course, your speed of growth is going to be predicated on your income and some other things. But the best long term single-family rental homes, they're not 500 homes. They tend to be more like 200,000 homes in areas that are not upscale but yet safe, where you use a 20 to 25% down payment. And if you're new here and you have an aversion to debt, you know, I think that the simplest, most reassuring thing that I can tell a newcomer about real estate debt in just one sentence is that in a cash flowing rental, the tenant pays all of the debt for you, the principal, the interest, no matter what the interest rate is, all the operating expenses.
Speaker 1 (00:02:51) - And then a little on top of that called cash flow. Now, really, when you add the first few income properties to your life and you think about protecting your time, think about how that is a surrogate, a substitute to adding a part time job that can be a rather circuitous way of going about life, because what you really want is the income, not the job or not the lost time. So therefore add properties, not jobs. Most people think of financial improvement is cutting expenses. It is not. It is adding income. Then those the triadic income, many times they look to add a part time job. But I brazenly posit that income producing property is the way. And what do they call Ryan Seacrest the hardest working guy in show business? I guess if you wanted to, you could have as many part time jobs as Ryan Seacrest. Prepare yourself for drama on this stage.
Speaker 2 (00:03:54) - This is American Idol.
Speaker 1 (00:04:00) - Yeah, Ryan Seacrest. He will also become the Wheel of Fortune host starting next year along with the daytime talk show and being a producer and whatever else he does.
Speaker 1 (00:04:10) - I'm not really up on the latest. But yes, you want to have fewer jobs than Ryan Seacrest now speaking to your ROI, your return on time invested. You could get 64 single family rental homes like our guest today, and yet do it the wrong way. The wrong way might be say you live in a certain metro area and you buy all the properties just in your home metro so that the properties are spread, say one hour apart. That way you rationalize that you could self-manage, well, gosh, you'd be running all over the place. You'd have scores of tenants that could tax you. You'd almost be living at Home Depot, and after all that, you would still not be diversified because you'd only be in one metro market. Plus, how would you really ever get away on, say, a vacation? So that's probably not what you'd want either. Let's talk to our listener guest Scott, today and learn about how he does it. Here with me today is a great listener. Don't quit your day dream letter reader to discuss growing his Single-family rental portfolio.
Speaker 1 (00:05:22) - He's based in Colorado and he specializes in real estate in tax law. In fact, he often teaches real estate law to attorneys. He's a single family real estate investor that owns 64 single family rentals and four duplexes. So therefore, he owns 72 doors, 64 of which are single family rentals. And he owns those properties across nine different states Tennessee, Florida, Indiana, Missouri, Ohio, New Mexico, Colorado, Kansas and Arkansas. Higher mortgage rates aren't slowing him down as he's added six of those single family rentals this year. He's also a member of a Washington, D.C. based public policy organization that represents real estate interests. So he's really involved. He advocates for investor friendly tax policies with Congress. He's got a lot going on in his life. Hey, it's great to welcome on to Scott Saunders. Hey, Keith, Great to be with you. I'm a longtime follower and you have so many great nuggets of wisdom that you share, and it's just great. To visit with you for a few minutes.
Speaker 1 (00:06:22) - So thanks a lot. I appreciate that so much, Scott. Now, in the real estate world, there are pros and cons between single family rentals and larger apartments. Apartments have a certain economies of scale advantage, but single family rentals have advantages that some people overlook. So talk to us about why you like single family rentals so much. Happy to do that. I think single family rentals are, first of all, a great entryway to get into investment real estate. But some people kind of springboard. They get into single family and then they want to go into duplexes, four Plex apartments, Single family is an asset class. You know, if you just look at it, it has so many advantages. The cap rate on a single family is typically better than a lot of commercial buildings right now. You can lock in long term fixed rate financing. So even if the rate's a tad higher, you go into an apartment building or commercial, you've got to refinance. And as we all know right now in the marketplace, there are some commercial properties that are facing some significant distress because they're having to refinance at higher rates.
Speaker 1 (00:07:29) - Single family, you lock it in for 30 years and fix that. You've got buyer.
Speaker 3 (00:07:34) - Pool. I can sell a single family to an investor or a homeowner. So there just are a lot of advantages and maybe even just at the most basic level, we all need to live somewhere, right? And so a choice of an apartment or a single family. So many people like the freedom, the room, the convenience, the yard, the garage that comes with a single family. So I just think there's a lot of inherent demand where people want to be in that type of property, either as a renter or a homeowner. So I'm a big fan of buying a single family home, buy another one, you know, and just continue scaling in that niche. I call it Get Rich in a niche, right? And that's the single family rental niche.
Speaker 1 (00:08:16) - Sure. I had some apartment buildings that I sold recently that had balloon loans that were about to expire. And you mentioned the liquidity component where you have greater liquidity with single family rentals regardless of when it is in the cycle.
Speaker 1 (00:08:31) - Even if it were a recession, borderline depression, people will be a buyer because they need a place to live. But a person doesn't always need to invest in an apartment building regardless of where we're at in the economic cycle.
Speaker 3 (00:08:45) - Absolutely. Well, smart timing on your part to kind of see where those loans are going. And I think that there's a good time to maybe redeploy that capital somewhere else. So I like single family, and I think you can really grow and scale a portfolio. I mean, think of it this way, Keith. What if I needed to raise some cash? What if I had a medical need? I could unload a single family home or two right away. Now, I know from listening to your teaching, you'd say, don't sell it, refinance it. Right, harvest that equity. And that would be my first bet. But if I needed to generate cash, it's not that hard to unload some smaller single family rentals. And within a matter of a few months I could liquidate that and get the cash.
Speaker 3 (00:09:26) - Some apartment buildings, you know, in some markets it could take a long time to find the right buyer in some places.
Speaker 1 (00:09:34) - Now, during that whole time on a single family rental, you mentioned the cap rates. Oftentimes single family rentals are more profitable than what an investor projects. And one reason is that greater tenancy duration tenants tend to stay in single family homes and duplexes longer than they do a larger apartment building. Oftentimes it's because it feels like their own single family homes just tend to have more square footage, which lends to having larger families. We have a larger family. It just tends toward people wanting to stay longer and not uproot, and they get invested in things like buying to be in a certain school district, for example, where more single family homes tend to be than apartment buildings.
Speaker 3 (00:10:18) - Absolutely. You know, you bring that up. My very first investment years ago was a fourplex, kind of a C class neighborhood. And when I bought it, I naively write. I look back at it now, I thought, well, if this is fully occupied, look at what the money will make.
Speaker 3 (00:10:33) - The reality was there was a lot of turnover at that particular area. People came and went. It wasn't the top of the line. It wasn't a top tier neighborhood. And so I found that I was always chasing people and it was never in my case, fully occupied. And that tenant turn, that's expensive, as you well know. When you turn tenants, you have lost rent. You got to fix it up. So a single family home. I've had properties that my longest one I had attended stay in one for 15 years. I don't think you're going to find that in a multifamily property.
Speaker 1 (00:11:06) - Yeah, that really is rather unlikely. I know in that first fourplex you bought, you tended to do some things where later you learned that those were mistakes, like doing some excessive landscaping and spending a lot on fencing and. For a nice driveway so that you get a better quality tenant. But sometimes you learn you can only attract a certain quality tenant based on the neighborhood that you're already in. That's why oftentimes it's better to buy a lesser property in a better neighborhood.
Speaker 1 (00:11:34) - For example. Looking back and we'll get into your journey in a bit about how you've added all these properties, but one takeaway that you've had is that it's better to focus on cash flow at the beginning, more so that appreciation. So therefore getting a Class B or C property, which you probably don't want to stoop too low, or you also might have a bad experience at the beginning. So talk to us about the importance of for many people think they want to start with cash flow centric properties at the beginning and then maybe new build appreciation ones later.
Speaker 3 (00:12:03) - I agree. I think when you go into an asset that produces a cash flow, it kind of gives you the fuel to start growing, right? You get some positive reinforcement, but it also gives you the capital to go out and buy more assets. So I think that. BK and maybe call it B to C plus starting there, you know, getting 250 to 300 an asset in cash flow, you get one of those, you get three, you're talking about $1,000, you've got six.
Speaker 3 (00:12:29) - Now you're 2000. And at that point, when you get to maybe 6 to 10 properties, the cash flow is now helping to contribute your down payment to go out and buy another asset. So I personally think you kind of start with that maybe as your gateway for your first 5 or 10, get some momentum and then maybe later. So we all know an A-class property in a great neighborhood with great schools. It might appreciate better long term. And so I lean towards building the cash flow on the front end and then moving over into more appreciation as the portfolio grows. So there are merits on both sides. There's not a right or wrong way to do it, but that I think gets your average investor with some momentum. You know, you want to create momentum, you want to start buying assets. And so the cash flow allows you to buy assets faster than waiting for appreciation to kind of carry you up. That rising tide lifts all boats saying that'll happen over time, but get the momentum with the cash flow to help augment and help you buy more assets quickly.
Speaker 3 (00:13:33) - I tend to lean towards that approach. Again, no right or wrong, Keith, I'll tell you, I've done it wrong. I started out buying some A-class, about five new homes, and now those have produced good appreciation, but I didn't have much cash flow off them, so I had a little modest cash flow. I do things differently looking back, but I'm still moving forward. Real estate corrects, right? It's like a bad haircut and not that I would really know, but you can get a bad haircut and give it a 4 or 6 weeks and it'll grow out in a way you go and it covers over any mistakes that Barber made.
Speaker 1 (00:14:07) - Yeah, real estate's very forgiving over the long term. I kind of think of real estate as a game of attrition as long as you buy, right? Even if there is a bit of a mistake or a stumble, when you have five simultaneous ways that you're paid, you're going to feel that sooner than later. Scott You've really done a great job of scaling up your portfolio.
Speaker 1 (00:14:30) - Last I checked, you were in nine different markets. I mentioned the nine states that you were in earlier and you have 18 different property managers now. Can you talk to us more about how you scaled that? You talk to us about how it might be best to get that snowball rolling sooner with cash flow, but how do you scale up and ramp up to where you're at today with 72 doors, 64 of them single family rentals?
Speaker 3 (00:14:55) - Oh, what I'll do, Keith, I'll share what I did to kind of get there. And I want to be candid with you and listeners of that. I probably made a mistake doing that. I don't think everybody has to be in that many markets, that many managers. So what I did, quite frankly, it sounds so simple. I said a 90 day target. So I would say I'm going to buy X number of properties. That was a do or die goal. It wasn't an annual goal. If I wanted to buy three in that 90 day period, I would make sure no matter what, I bought three assets.
Speaker 3 (00:15:26) - So what happened was I maybe bought in different states to get the job done. I had to buy quickly, right? I was focused on adding my numbers. So for me, having that short term target that I looked at every day in the morning and the night that gave me the focus. So I wasn't looking over three years. I was like, What do I need to do in the next three months? And I really applied everything to doing that. And so you figure if you do a three month period, you pick up three, but you do that every quarter, that's 12 new assets in a year. That's big progress in just annual time frame. So that's what I did. 90 day targets were the game changer for me. Now, you shared kind of the downside of that and that I'm probably over diversified, I would say probably in my level being in three, four states, half the states and maybe two thirds less property managers would be more. Just from a relationship standpoint. So that was a mistake.
Speaker 3 (00:16:25) - And, you know, I can correct for it Over time. I'll probably do 1030 ones out of some of the states and consolidate in areas that I like. But that was how I did it is I just identified a lot of Midwest type markets that are good cash flow markets. And when I saw an opportunity, I grabbed it a few of them. Keith I buy one and then the next door, somebody was doing a renovation next door. And there are a few streets, right? Three houses right next to one another as a result of that. So that's kind of been interesting. And then I also find is word got out that I was buying. I had people approach me and say, Look, I've got a package of properties. Would you like the whole package or part of the package? And so that helped me a little bit. So instead of doing one loan on three different properties three times, I do one larger loan purchase, three properties at once. And so it gave me a little bit of efficiency.
Speaker 3 (00:17:19) - Now that didn't happen on all of them, but over time I've been doing more of that. My last one this year I bought four assets in Tennessee from one seller as a package deal, and that makes it a little bit easier.
Speaker 1 (00:17:32) - Yeah, I want to get into that financing piece shortly, but I think the important thing is you acted, you jumped in and once you do that, more opportunities begin to present themselves. And not everyone does everything the right way. If you've got 18 property managers you're dealing with, which would be a lot. I mean, if you get one monthly email statement from property manager that's getting one a little bit more than every other day, if one would happen to do it that way. I've often talked about how three, 4 or 5 markets to be in that number probably is a good number where you have adequate diversification, yet it hasn't overcomplicated your life administratively at the same time. But with that in mind, Scott, as you're growing your portfolio, what makes you decide what market to buy in next? Oftentimes it's not the sort of thing that you think it will be, just like you had an opportunity to present itself.
Speaker 1 (00:18:24) - For example, if you buy in a market and you find that you have a really communicative property manager that you really like in that market, you might buy in that market where you know you've already got a good manager, for example, rather than just what appears to be a good deal on the surface. So what are some of the factors that go into what make you decide which market to select next?
Speaker 3 (00:18:43) - Scott I've done a lot of analysis and there are a lot of good markets. You know, one thing, there's no perfect market. You and I probably know 20, 30, 40 good markets where people can make money that have good growing economies, populations growing. There's pressure on rents and appreciation. So I've identified some that I like. Would you just alluded to is really one of the factors now, which is more of a relationship, right? I've consolidated over, so I have a good property manager in Memphis, Tennessee. I've got a great working relationship with them and then also a provider of assets.
Speaker 3 (00:19:18) - And so for me, I'm finding having that relationship makes things a little smoother. There's a trust factor when you manage remotely. I haven't seen most of my assets and I do very little in my own home state. So for me, it's really important that I can trust who I'm working with out of state. And so I find having that relationship makes me more likely to purchase more properties in that particular market because I've got that. So Saint Louis, Missouri is one market. Memphis, Tennessee is another. Those are some markets that I like. Now, some of them have great fundamentals. You know, Memphis, number one airport in the entire country, you've got a waterway, you've got a lot of highways that converge there. You've got a lot of industrial Nike's there, Amazon. So there are, you know, kind of a multitude of factors. You know, right now in Memphis, you've got the blue oval development, which is the Ford. They're going to build battery trucks. And I think it's a $10 billion plant they're putting in.
Speaker 3 (00:20:18) - Well, that's going to be a huge draw for jobs. So I tend to look for jobs, a diversified economy. I like to see an influx of people coming into the market. So that's the big macro. When I look at my investment, I try to get fairly close to that 1% rule if I can. You know, I don't have to hit it perfectly, but that's kind of a decent benchmark on an asset. I like to get fairly close.
Speaker 1 (00:20:44) - You're listening to Get Rich Education. We're talking with super real estate investor on Single-family turnkey Homes, Scott Saunders. When we come back, including how did he do it with the financing and what does he do to manage all this? You're listening to Get Resuscitation. I'm your host, Keith Weinhold. You know, I'll just tell you, for the most passive part of my real estate investing personally, I put my own dollars with Freedom family investments because their funds pay me a stream of regular cash flow in. Returns are better than a bank savings account up to 12%.
Speaker 1 (00:21:18) - Their minimums are as low as 25 K. You don't even need to be accredited. For some of them, it's all backed by real estate and that kind of love. How the tax benefit of doing this can offset capital gains and your W-2 jobs income. And they've always given me exactly their stated return paid on time. So it's steady income, no surprises while I'm sleeping or just doing the things I love. For a little insider tip, I've invested in their power fund to get going on that text family to 668660, and this isn't a solicitation If you want to invest where I do, just go ahead and text family to six six, 866. Jerry listeners can't stop talking about their service from Ridge Lending Group and MLS 42056. They've provided our tribe with more loans than anyone. They're truly a top lender for beginners and veterans. It's where I go to get my own loans for single family rental property up to four plex. So start your prequalification and you can chat with President Charlie Ridge personally, though even deliver your custom plan for growing your real estate portfolio.
Speaker 1 (00:22:30) - Start at Ridge Lending Group. This is real estate investment coach Naresh Vissa. Don't live below your means.
Speaker 2 (00:22:45) - Grow your needs.
Speaker 1 (00:22:46) - Listen to Get Rich Education with Keith Weinhold. Welcome back to Get Rich Education we're talking with Scott Saunders get rich education listener owner of 64 single family rental properties. He really loves single family and he's still buying now. But Scott, some people have slowed down their buying with higher mortgage rates. They're not adding properties nearly as quickly. But still, really the question I asked myself is where could I invest better dollar today than in rental property? Of course, inflation debases that debt for us, and then when inflation and interest rates drop, I can refinance. And you've added just about 60 properties in the last four and a half years. So tell us about that.
Speaker 3 (00:23:39) - I have added a lot of them recently and it started again with setting those goals and I'm keeping up the momentum now. You know, I realized the rates have changed. This is still a good time to be a buyer If you're in certain markets.
Speaker 3 (00:23:54) - There are good purchases out there. So I'm able to negotiate a little better with sellers, maybe get a little concession where they'll give a couple points towards my rate or the closing cost. I couldn't get that and the go go days, people are doing that. And the way I look at it is I'm really making an investment now in an asset, right? What is a single family home? It's just a bunch of commodities glass, bricks, wood. And with inflation, we know commodities are going to go up. So I'm locking in that today and I'm going to really use inflation as a tailwind to propel my investing forward, whether that's with rents and appreciation, whether it's debasing my good business debt, I'm using that as a tailwind. And I'll tell you my personal opinion, Keith, I'll go on record on this. People are going to kick themselves a few years down the road when rates go down, whenever that is for not purchasing now, because when rates go down, it's going to create more demand.
Speaker 3 (00:24:54) - And I think you're going to lock in today's pricing now and somewhere rates will change. I don't know when, but nobody has that crystal ball. When they do, prices are going to pop up, I think, at that time. And so people are like, oh, I should have bought back in 2023. I don't want to do the woulda, coulda, shoulda. I'd rather make smart baby steps now. Just keep buying chunking along slow and steady and locking in assets today that I know five, ten years from now, my future self is going to be glad that I took action today.
Speaker 1 (00:25:30) - Now, I know that you, the listener, must be thinking, yes, I do want to buy more property here. But how to Scott add so many properties so fast and that really guides us into the financing. What do you do for the financing of these properties? Because of course for single people, those golden ticket Fannie Freddie loans run out at ten.
Speaker 3 (00:25:52) - One of the biggest things is getting over that hurdle of those lower rates.
Speaker 3 (00:25:57) - So I do what's called non QM or what they're also called DSR financing, where the load is made based upon the asset and the cash flow the asset produces. So these are going to be a little bit higher rate, a touch higher. But once you get into them and you get comfortable, you realize this is what all the big players do. People that buy commercial properties, that's how they buy them. So I'm using a rate that's a touch higher, but now I've got a great working relationship. I have one particular lender. I've done 40 loans with them directly, not with the broker. I go direct to the lender, save some money, and I'll literally email over to that lender at night. I'm buying just one of their contract on two more assets, and it's really easy to do the loan. So I find what's called non QM, which stands for Non-qualifying Mortgage, that type of financing. I actually prefer it. It's easier. I don't have to provide every financial statement, you know, updated within the last 30 days.
Speaker 3 (00:26:58) - I actually find it's an easier approach. And as long as you look at the numbers and you still have positive cash flow. So today maybe I'm positive $200 where a year and a half ago I might have been positive 3 or 350. So it takes me five assets to get another thousand in cash flow today where I could have done that and maybe three or so a little while back. Okay, I'm just buying more assets, right? I win with that because I'm still locking in more of those commodities in those assets. And so I just that inflation raised that up over time and I just get the benefit of it. So now instead of fighting against inflation, I'm using inflation to move me forward.
Speaker 1 (00:27:41) - About dcr loans, debt service coverage ratio loans which are used more commonly in the five plus apartment space area. That is one option for one after they run out of their ten golden ticket Fannie Freddie loans that are at the best rates in terms. Can you tell us more about those terms of the hours? Are you getting a longer term fixed rate? Do you need to put a greater percent down for those?
Speaker 3 (00:28:08) - Most of mine are relatively close to a conventional loan.
Speaker 3 (00:28:12) - You can get those with 20% down. I have chosen in some cases to put down maybe 25%, but I'm getting in almost all situations 30 year fixed rate financing. To me, I want to fix that debt service and have it locked in. So that's really important. So I'm a big believer in 30 year fixed rate. I did have during Covid right at the beginning and I had some assets under contract. You couldn't get a loan. It was very difficult. March, April, May and I had deals closing. Then I had lender that I had to get the lender that they required me to put down 40%. So I had to put a bigger down payment to get it done. At the time, Keith, I was like, Oh, I'm not getting as much leverage. My money's not working quite as hard. Now, that was several years ago, and a few of those because they were smaller assets. I've got little small loans on them where and I want to be careful because I know your view on debt.
Speaker 3 (00:29:11) - I'm going to be paying some of them off, not to have them free and clear, but to use those as a resource as collateral. So I can go to a bank and say, Look, I'm going to pledge this collateral. Let's say ten homes that are free and clear, you give me a loan and now I'll use that loan to do some other things, probably like hard money, loans, private lending. So I'm going to use those paid off assets as a tool for me to do some financing, some creative financing deals in the future. So it's a means to an end. It's a stepping stone to go a little bit deeper and use the banks money for me to make more money in the future. So that's kind of what I'll be doing there.
Speaker 1 (00:29:51) - All right. It sounds like you still want to keep most of them leverage. Are you talking about the advantages of having a few of them paid off and therefore really so that you can borrow against the value of those paid off properties? So really, you're just paying them off to effectively use leverage again in a different way?
Speaker 3 (00:30:08) - Precisely.
Speaker 3 (00:30:09) - That's exactly what I'm going to do is bundle those together and those become collateral. So exactly. I'm going to relieve them maybe in a different fashion. So I am a huge fan of good business debt. It's one of those things is concepts. So you got to wrap your head around it at the beginning because we're beat into our brains that, you know, debt is bad, but good business debt is not only good, it's great. It allows you to multiply your efforts faster than you could with your own capital. So to take the bank's capital and use that to get ahead, that to me is is a smart move 100%.
Speaker 1 (00:30:50) - So you've got this robust portfolio spread across several different states. You've even admitted probably dealing currently with more managers than you even want to. And it makes one wonder, is there any particular type of management software that you use? Now, of course, each one of your individual property managers, 18 of them, they have their own management software. But how does that work? How do you manage all this? Do you really get 18 monthly statement emails from 18 property managers each month?
Speaker 3 (00:31:19) - I do actually get 18 different emails and statements a month.
Speaker 3 (00:31:23) - I'll tell you what I've done, Keith. I'm very low tech. I'll be honest. I use Excel to track things and what I've done, which is kind of a fun thing for me. My youngest daughter, who, believe it or not, actually owns. She bought her first single family home at age 16. She's been watching me. She actually helps me now track my rental income and work with the financials. So I've hired her in my real estate business. She now gets all the statements she puts in, puts everything into my spreadsheet and then runs the reports for me. So it's been kind of neat in that I get the data I need, but I'm also training my kid about real estate. And not only that, I actually include her on my emails, so she has a real estate specific email. When I reply to my property manager about an issue, I'll copy her so she sees my thinking how I do it. So I'm trying to be strategic, realizing I'm not going to be around forever.
Speaker 3 (00:32:21) - Someday my kids are going to get a pile of real estate and I want them to know what to do with it when they get it, that they walk into it and they're like, okay, I kind of know what to do versus selling it all off and then giving the money to Wall Street, which is I would hate to have that happen. So I'm. Try to bring them along.
Speaker 1 (00:32:41) - Despite the fact you use Excel. You talk about how you're relatively low tech. I'm, in fact, impressed with that because it demonstrates to me that, you know, the proper formulas to use in Excel and which numbers actually matter to drive your current and future investment decisions. So that actually tells me a lot that you really understand what's going on behind the scenes and you don't have it too automated. Also, when you're involved like this, which is a sense that you just cannot get being a stock investor where your profits are really coming from and where they're really not coming from. Having one of your children involved that is huge at building this legacy wealth piece like we talked about on the show last month and helping ensure that there is generational wealth in your family, like with your daughter.
Speaker 1 (00:33:26) - Now, she understands where it comes from and what it takes. So I absolutely love that piece. Scott We talk about what drives investment decisions. We talk about how you've acquired and you've held some properties. What about the time to sell? For example, I like to buy turnkey investments that already have the renovation done, or they're just brand new and oftentimes like to just hold them 7 to 10 years because in 7 to 10 years, in the last three years, it's been as short as three years, those properties have gone up in value enough where the leverage ratio was cut such that I either want to do a cash out refinance or a 1031 exchange, not get too emotional about properties, only hold them seven years, rarely if ever, more than ten years. What are your thoughts with the whole time and the duration?
Speaker 3 (00:34:09) - I'm fairly similar to you on that. I do. My preference is turnkey. That's what most of my portfolio is. So I'm buying stuff that's already been renovated after, you know, 10 to 15 years.
Speaker 3 (00:34:21) - And that window, that's when you're going to start to see roof issues, the furnace, the AC. So my plan would then be to do a 1031 roll out and get more turnkey. So let's say I take one single family home that might allow me to go out and buy 2 or 3 more single family homes, probably ten years max would be what I would be doing. And I did that. I rolled out A1A couple of years ago. I had one single family in Arizona exchanged out of it, and I bought four in Saint Louis, one in Memphis. I got a much better return on my investment. So to think of if you take my portfolio today, right in the 60s, if I can roll out of that and go up to, let's say 120 or 130, that's going to give me some significant scale and benefits. So that would be my plan. I'll never sell and pay the taxes. I always do it 1031 or I'll refinance to harvest equity.
Speaker 1 (00:35:17) - If you're a brand new listener and you don't know what a 1031 tax deferred exchange is, the short story on that is it basically allows you to roll your profits from appreciation into another property, either multiple properties or a larger property is what it usually is with you being able to 100% defer the tax.
Speaker 1 (00:35:37) - And there's no limit to the number of times you can do that. Therefore, it should become a tax free event. You can defer that tax your entire life by trading up with that. 1031 also called a 1031 like kind exchange. As you go along, I know that you've got some great philosophy, Scott. I mean, first of all, you're a goal driven guy, so you have these longer term goals. And you mentioned you also have these shorter term milestones, like a 90 day goal on your way to those longer term goals. For one that hasn't heard the acronym before, Goals should be smart, that is specific, measurable, achievable, relevant and time bound. That's what differentiates a goal from a wish. So tell us about your goals and how that drives this. Scott.
Speaker 3 (00:36:22) - My duals. I do every three months. I do have a short term goal and I've got some For this year. I'll probably pick up 15 properties. I think I'm halfway through the year. I'm on track, so I'll do that.
Speaker 3 (00:36:34) - I've got some long term goals. One of them just before I left on vacation a couple of weeks ago, I'm under contract on a property in Tuscany, Italy, so I can have what I call a lifestyle asset. So one of my goals would be to get a few lifestyle assets. I want to buy a place in Steamboat Springs, Colorado, enjoyed some of the year, rent it out other times. So one goal would be picking up a few of these. That would be something that I can enjoy and my kids can enjoy, but it also produced a return. So it's a twofer. I gave money on it and I get to enjoy it. That's a big long term goal of doing that. So Tuscany, I like to do a place in Sardinia, Italy, which is the most beautiful beaches, gorgeous. The mountains may be a place in Florida, so I like to pick up over the next few years, maybe a property a year in that category. That's just something that's fun.
Speaker 3 (00:37:25) - It doesn't make any sense to work really hard and save if you can't enjoy life, right? I mean, that's the whole goal is to get free where you can enjoy your time and enjoy spending time with the ones you care about. So I want to transition that way into Tastic.
Speaker 1 (00:37:42) - Yeah, spending time in Tuscany was part of perhaps the best week of my life personally, part of your philosophies. It's not just having tangible goals, it's you call something rather than an ROI in ROA, and it's that the return on a realisation that I talk about.
Speaker 3 (00:38:01) - Yeah, what that is, you know, so many people have heard of ROI, which is a return on investment and we kind of get bottlenecked around that, right? Looking at our return, you know, 7%, 8%, 1619 And there's a lot of focus. What I tend to do, and this actually came through a good friend of mine, Rick ROA, is return on attention. Yeah. Looking at our life from a time standpoint.
Speaker 3 (00:38:25) - So when we look at ROI, we're looking at money dollars return on attention. We're now measuring things in time, right? What do we have the free time to enjoy without having to be distracted with following the stock market every day? And is it up or down? Or what's the Fed doing? So return on attention to me is actually more important than the ROI. And I know we're on a podcast talking about real estate, so surely making wise investment decisions is important. But if I look at where I am in life, more important to me is my return on attention than my return on my investment. So I want to have my attention free that I can enjoy what's around me while I'm young enough and vibrant enough to enjoy it. So I just got back from travel and Saint Lucia had a wonderful time out there. I love to travel. I typically do an international trip probably every quarter or so. I'm taking my son to Morocco, did an African safari. We did Iceland swam with whale sharks last year.
Speaker 3 (00:39:30) - Portugal. I want to spend time with the people I care about and travel is a part of that and having my attention freed up so I can do that. That actually is a big principle. It's a big objective is having my time freed up and my attention freed up.
Speaker 1 (00:39:47) - Wealth is measured in time, not dollars. You and I sure do agree there. Scott is we're about to wrap up here. I know you often talk to people about the importance of taking action and just sort of getting those base hits and how do you think that people would have more economic freedom if they just purchased 5 to 10 single family rentals?
Speaker 3 (00:40:07) - Absolutely. And it's not that hard, right? You get over the first one's the hardest and then you get a little momentum after that, Right. The first one hard, the second one, you've just doubled the size of your real estate portfolio. You go to four, you quadrupled your first one. And I think the magic number to hit is get to five and add five assets.
Speaker 3 (00:40:28) - You typically have enough rental income coming in that it's pretty close to being self-sustaining. So if you have one vacancy, you're going to typically have pretty much enough rental income to do it. So getting to five and then pushing on to 10 or 15, that can change so many people's lives. Just that small thing for the average American. If you had ten single family rental homes, you'd be light years ahead of the people that are doing all the 401. And Wall Street racket stuff.
Speaker 1 (00:40:59) - That's so on point. Yeah, you are really doing the things. Scott, before I ask you how our audience can learn more about you, do you have any last thoughts? Anything else you'd like to discuss maybe that did not come up with scaling up this terrific Single-family rental portfolio and how that's enhancing your life.
Speaker 3 (00:41:18) - I'll give two quick tidbits to kind of wrap things up here. Keith, it's been great visiting with you. I've been a longtime follower and just love all the information you bring out and the resources, so it's great to visit with you in person.
Speaker 3 (00:41:30) - Two things. One, I would say use the tax code, use guys like Tom Lehrer write, read those books, figure out how to master the tax code. A lot of people don't do that. They're intimidated by taxes and the IRS go after that and it'll give you more capital to grow your portfolio. The other one, I would say, and I think you alluded to it, is don't be paralyzed by inaction. Don't do that analysis paralysis thing of is this good or not? My whole philosophy is I never try to hit a home run. I don't need the best performing investment. I just need a good investment. And you know, in a portfolio, I've some that have been stellar and I've had 1 or 2 dogs like anybody would. When you get a bunch of them, my feedback would be, if you're not in the game of real estate, put all your focus on to getting that first one and then jump to your second translated into action rather than overanalyzing. So on your show, you've got a lot of great resources of turnkey providers.
Speaker 3 (00:42:29) - In many of the markets that I'm in pick market, take action and jump in. You'll be so much farther ahead by taking action than by studying and running formulas and spreadsheets. Get into the game, buy the first property, buy the second push with some short term goals, and then all of a sudden you're using all of these economic forces to get ahead in life and they're not fighting against you. And I think what that does is now you're swimming downstream, so to speak, rather than fighting upstream. That's what all these inflationary forces that you talk about all the time do. So get in, start swimming downstream, join it. I want to see more people in America that have freedom and have some independence and are benefiting from the economic forces rather than getting crushed by those same economic forces.
Speaker 1 (00:43:21) - And it starts with just getting your first base hit. Well, this has been terrific, Scott. How can our audience learn more about you?
Speaker 3 (00:43:29) - I've got a website up. It's my name, so it's Scott R Saunders.
Speaker 3 (00:43:35) - Sanders And that's got a little more background. And I've got for people that are interested, I put together a course of how to kind of get into single family and scale it and grow it. So for those that is appropriate, I'm happy to be a resource in that department there at that website.
Speaker 1 (00:43:54) - Scott has been such a great chat. Our audience is going to benefit from it. Thanks so much for coming on to the show.
Speaker 3 (00:44:00) - It's been a blast. Thanks, Keith.
Speaker 1 (00:44:07) - Yeah, great stuff from Scott. We do a lot of things the same way as far as having remote managers in multiple markets. I've also never seen most of my properties in person, nor do I need to. We often buy multiple properties at once. I like to buy at least two single family rentals at a time to make things more efficient. But big picture, we are not postponing life and are traveling to great places. As I'm fond of saying, some delayed gratification is good, but the risk of too much delayed gratification is denied gratification, which is the road of the 401 plan, which is also known as a life deferral plan.
Speaker 1 (00:44:49) - Scott is currently meeting with our provider of Chattanooga Properties on Marketplace. It is rare to see Crest buying properties in Jerry Marketplace. I guess I'm actually not sure we might have to turn him onto it so that he can quit one of those part time jobs. He's got pretty cool part time jobs, though. He's not breaking his back like a longshoreman. Yeah. Jerry Marketplace. That is where you find the right properties that really are just never going to make it out onto the open market at all. And they're the ones that are conducive to this strategy. Lower cost properties that have a high ratio of rent income to a low purchase price, they're typically fully renovated with a tenant from day one where an experienced manager also manages it for you from day one, if you so choose. And it's free. Just creating one log in one time like thousands of others have, gives you access to nationwide providers. We've even got free coaching for you there if you so choose. Knowledge really isn't power in itself. Knowledge plus action is what's powerful.
Speaker 1 (00:45:56) - Get started at GRC marketplace.com until next week I'm your host Keith Winfield. Don't quit your day dream.
Speaker 4 (00:46:07) - Nothing on this show should be considered specific, personal or professional advice. Please consult an appropriate tax, legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of Get Rich Education LLC exclusively.
Speaker 1 (00:46:35) - The preceding program was brought to you by your home for wealth building get rich education. Com.
Mon, 10 July 2023
Get our newsletter free here or text “GRE” to 66866.
Higher interest rates are cracking the economy—failing banks and failing commercial RE loans. With many expecting rates to go much higher, what else will break?
Keith Weinhold, the host of the Get Rich Education podcast, discusses the current state of interest rates and their potential future trajectory.
Jim Rogers, legendary investor with an estimated $300M net worth, returns. He shares his insights on interest rates and inflation.
We discuss the impact of inflation on various asset classes, including real estate, and the potential for higher interest rates in the future.
The conversation also touches on topics such as agricultural real estate, the oil market, central bank digital currencies, and the role of gold and bitcoin as alternative forms of wealth storage.
Overall, the episode provides valuable insights into the current economic landscape and its implications for investors.
Introduction and overview of the current state of interest rates and market distortions.
Discussion on the unpredictability of interest rate predictions and the acknowledgment of inflation by Jerome Powell.
Explanation of the historical trend of interest rates, the recent rise in rates, and predictions for future rate movements.
Jim Rogers on Borrowing Money and Interest Rates
Discussion on the benefits of borrowing money at low interest rates and the prediction of interest rates going higher.
Jerome Powell and the Possibility of a Soft Landing
Questioning whether Jerome Powell can raise interest rates enough to control inflation without causing an economic crash.
Inflation, Interest Rates, and Real Estate
Exploring the impact of inflation and interest rates on real estate investments and the potential risks for property owners.
Topic 1: Agricultural Real Estate [00:22:21]
Discussion on the opportunities in agricultural real estate due to erratic weather patterns and reduced yields in various crops.
Topic 2: Oil Market [00:24:16]
Conversation about the current state of the oil market, the decline in known reserves, and the potential for higher energy prices.
Topic 3: Central Bank Digital Currencies (CBDCs) [00:26:04]
Exploration of the proliferation of CBDCs and the implications of a digital currency controlled by central authorities, including potential restrictions on spending and increased government control.
History of Money and Gold Standard
Discussion on the different forms of money throughout history and the transition from silver to gold as the basis for the US currency.
The Diminishing Value of the Dollar
The prediction that the value of the dollar will continue to diminish over time and the suggestion to invest in real estate instead of saving in dollars.
Invest in What You Know
Advice for investors to only invest in what they know about and not rely on advice from others, emphasizing the importance of knowledge and understanding in investment decisions.
Get mortgage loans for investment property:
RidgeLendingGroup.com or call 855-74-RIDGE
or e-mail: info@RidgeLendingGroup.com
Find cash-flowing Jacksonville property at:
Invest with Freedom Family Investments. You get paid first: Text ‘FAMILY’ to 66866
Top Properties & Providers:
Best Financial Education:
Get our wealth-building newsletter free—
text ‘GRE’ to 66866
Our YouTube Channel:
Follow us on Instagram:
Keith’s personal Instagram:
Complete episode transcript:
Speaker 1 (00:00:01) - Welcome to GRE. I'm your host, Keith Weinhold. Interest rates rose fast last year, but a lot of experts think that they're going to go substantially higher from today's level, including our guest today, who is a legendary investor. How much higher will rates go and what's driving them higher today on get rich education.
Taxes are your biggest expense. The best way to reduce your burden is real estate. Increase your income with amazing returns and reduce your taxable income with real estate write offs. As an employee with a high salary, you're devastated by taxes. Lighten your tax burden. With real estate incentives, you can offset your income from a W-2 job and from capital gains freedom. Family Investments is the experience partner you've been looking for. The Real Estate Insider Fund is that vehicle. This fund invests in real estate projects that make an impact, and you can join with as little as $50,000. Insiders get preferred returns of 10 to 12%. This means you get paid first. Insiders enjoy cash flow on a quarterly basis, and the tax benefits are life changing.
Speaker 1 (00:01:10) - Join the Freedom Family and become a real estate insider. Start on your path to financial freedom through passive income. Text Family to 66866. This is not a solicitation and is for accredited investors only. Please text family to 66866 for complete details.
Speaker 2 (00:01:33) - You're listening to the show that has created more financial freedom than nearly any show in the world. This is Get rich education.
Speaker 1 (00:01:56) - Welcome to GRE! From Mount Washington, New Hampshire to Mount Whitney, California, and across 188 nations worldwide. I'm Keith Whitefield and you are listening to Get Rich Education. Hey, it's great to have you back. Interest rates are not high today. They're just moderate by historic standards. But of course, the rapid rate of increases last year was faster than it's ever been in our lives. And that's what introduces market distortions. Today's guest is going to talk about that with us later. That's the legendary Jim Rogers. And it's public information that he has an estimated $300 million net worth. When Jim talks, people listen. When he was here with us in 2019, he was emphatic that interest rates were going to go much higher.
Speaker 1 (00:02:43) - He was completely correct. And few others were saying that then. In fact, when he's with us here shortly, all recite the interest rate quote that he stated here on this show back then and get his forecast from this point on as well before discussing interest rates a quarter recently ended. So let's whip around the asset classes as we do here at times, because you need to be able to compare real estate with other investments. The first half of this year, the S&P 500 was up a fat 17%. I'm just running to the nearest whole percent here. The tech heavy Nasdaq index had its best first half of the year in four decades. Gold was up 6%. Oil was down 34%. Bitcoin up an astounding 84% the first six months of the year. And that's partly because it really bottomed out near the beginning of this year per Freddie Mac. The 30 year fixed mortgage began the year at 6.5%, and now it's up to 6.7 for real estate. Since it lags, we've got a realtor.com year over year figure.
Speaker 1 (00:03:48) - The median listing price was up 1% to 440 K financial institutions aced their Fed stress test that they call it that measures how banks are holding up during a downturn. Q1 GDP was revised way higher than they previously calculated, so the economy is doing even better than many thought. And the number of Americans that are filing for new unemployment claims that fell the most in 20 months. So therefore, the economy is still hot by a lot of measures. Well, that puts more upward pressure on interest rates. Well, an interest rate that can be thought of as your cost of money, and they can even affect factors beyond the economic world. For example, in demographics, I mean, historically high interest rates, they've actually been a mild impediment to people's very migration and mobility. Understand the Fed's interest rate predictions and really all of their predictions have been awful, just awful. A long line of them. Fed Chair Jerome Powell's inflation is transitory. I mean, this is the latest notable one. He said that in 2021.
Speaker 1 (00:05:03) - I mean, though, look on your phones weather app, you don't trust the weather forecast ten days into the future. So I don't know why we would listen so intently, even reverentially to what the Fed economists predict for the next month or the next year. I mean, the economy can have as many or more variables than the weather. I'm going to assume. And these people know nothing Volcker, Greenspan, Bernanke, Yellen, Powell. They know nothing but see, they act like they know. So I just sort of wish they'd say we don't know more often. And by the way, this is why I do not predict interest rates like virtually everyone else. I know nothing on that. I joke around and I say I will let someone else be wrong and go ahead and predict interest rates. It's really hard to do now. A little credit to Jerome Powell later on, though, he did acknowledge that they ought to stop calling inflation transitory. So I think the word transitory has different meanings to different people.
Speaker 1 (00:06:08) - To many, it carries.
Speaker 3 (00:06:09) - A time, a sense of of short lived. We tend to to to use it to mean that that it won't leave a permanent mark in the form of higher inflation. I think it's it's probably a good time to retire that that word and try to explain more clearly what we mean.
Speaker 1 (00:06:26) - Another credit to Powell in today's Fed is that they'll tell you what interest rate decisions they plan to make at upcoming meetings, which is certainly a welcome departure from the opaque Alan Greenspan where you needed to try to translate his Fed speak. So if the Fed rate goes higher, then you can generally expect other rates to go higher. The prime rate mortgage rates, credit card interest rates, automobile loans and more. Jim Grant. Who's been running the interest rate observer since 1983. He recently said that we are embarking into a long era of higher interest rates. He says that that's due to inflation and asset price speculation and of course rates wouldn't move up in some sort of straight line from here. During recessions, interest rates fall.
Speaker 1 (00:07:14) - Well, in that case, if you had recessions during a longer term up spell, where you'd have is higher interest rate lows in a recession. Now, starting in 1958, something strange happened in America. In a recession, prices did not fall into many. This marked the beginning of the age of inflation. That was 65 years ago. So you're pretty used to that. If there is a recession, prices don't fall. All right. Well, after that period, rates went up, up, up until they peaked in 1981. And then they went down. Rates fell from 1981 until 2021, and now they have begun to rise again. Well, because artificially low rates that were set to deal with Covid, because they're still recent, I mean, many people have this sort of muscle memory of zero zero interest rate policy. Maybe you do, too. And it was an all you can eat buffet table of credit. And that buffet table was open for business for ten years. Well, now that we've hiked up the Fed funds rate from 0 to 5%.
Speaker 1 (00:08:28) - All right. Well, back on June 28th, Powell said that more restrictive policy is still the COB because they're continuing to fight inflation. And that includes the likelihood of quarter point interest rate hikes at consecutive meetings and two or more increases by the end of this year. Now, our frequent macro economist contributor here on the show, Richard Duncan. He says there is an unusual divergence between weak credit growth and solid economic growth. And that was probably brought about by the surge in savings from people's government checks during the pandemic. Well, if that divergence persists, then the Fed might have to raise rates even more than the half percent plus that they suggested is necessary by the end of this year. And Duncan says that the stock market is not prepared for the Fed rate to go from 5% today up to 6%. And if it does, the stock market could be in for a painful correction in the months ahead. Now, to my point about interest rates being hard to predict, some economists think that rates will generally fall after this year as well.
Speaker 1 (00:09:34) - So some people see it that way, but I think there are more now predicting that they will rise rather than fall. As the legendary investor that predicted that interest rates were going to go way higher when he was back here with us in 2019 is he joins us soon. We could have some challenging audio quality on this remote to Singapore, but people really hang on what Jim has to say. That's next. I'm Keith Wild. You're listening to episode 457 of Get Rich Education. With real estate capital Jacksonville. Real estate has outperformed the stock market by 44% over the last 20 years. It's proven to be a more stable asset, especially during recessions. Their vertically integrated strategy has led to 79% more home price appreciation compared to the average Jacksonville investor since 2013. Genevieve is ready to help your money make money and to make it easy for everyday investors. Get started at GWB real Estate. Agree that's GWB Real estate agree Jerry Listeners can't stop talking about their service from Ridge Lending Group and MLS 42056. They've provided our tribe with more loans than anyone.
Speaker 1 (00:10:49) - They're truly a top lender for beginners and veterans. It's where I go to get my own loans for single family rental property up to four plex. So start your pre-qualification and you can chat with President Charlie Ridge personally, though, even deliver your custom plan for growing your real estate portfolio. Start at Ridge Lending Group. Hi, this is Russell Gray, co-host of the Real Estate Guys radio show. And you're listening to Get Rich Education with Keith Reinhold. Don't Quit Your Day Dreams. Today's guest is one of the most esteemed celebrated and legendary business moguls, investors and financial commentators of our time. He co-founded the Quantum Fund, one of the world's first truly global funds. He's created his own commodities index, his own ETF, and he is a popular author of a great many books. Welcome back. For your third appearance on Jim Rogers case. There's no reason to go into all that. I'm just a simple Earth. That's why people like listening to you, because you rather plain spoken on what some people deem to be some pretty complex concepts.
Speaker 1 (00:12:09) - So it's good to have you here joining remotely from where you live in Singapore. You were here with us in both 2019 and 2021 and in 2019 here on the show you said and I've got the quote right here, if you can borrow a lot of money for a long period of time at low interest rates, rush out and do it right now, That's what you said. That was prescient. And also in 2019 here on the show, you said, and I quote again, interest rates are going to go much, much, much higher over the next few decades and it is going to ruin a lot of people. And here we are today. So what are your thoughts with regard to interest rates and inflation here? Jim.
Speaker 4 (00:12:52) - You make many mistake. Please. It's made many, many mistakes and I'm sure hope I live long enough to make many, many more mistakes. Yes, interest rates are up. They're up substantially. It sent them, but it is not over yet. Interest rates will go much, much higher because we have friend, not just we, but central banks everywhere have printed huge amounts of money.
Speaker 4 (00:13:17) - And whenever you print lots of money, inflation, college interest rates go higher and the usual amount of money inflation gets very high. And that always leads to central banks having to raise interest rates too high level because they don't know what else to do. In 1980, before you were born, interest rates on central US government Treasury bills, 90 day Treasury bills, interest rates were over 21%. Gosh, that's not a typo. 21% because inflation was out of control and we had to take drastic measures, which meant you have to do something like that again.
Speaker 1 (00:13:58) - That would be interesting. So to bring us up to where we are right now, the federal funds rate is basically gone from 0 to 5% since last year. Mortgage rates rose from 3% to 7% just last year alone. And a lot of nations are jacking up interest rates. Turkey just decided that they are going to raise interest rates 6.5% all at once. And some people don't think that is enough. So here we are. I mean, you talked about what happened about 40 years ago.
Speaker 1 (00:14:27) - Can Jerome Powell engineer a soft landing? Does he have any chance of doing that where he can raise rates enough to quell inflation but yet not crash the economy?
Speaker 4 (00:14:37) - No, of course not. First of all, in 1980, America was still a creditor nation. Now with the largest detonation in the history of the world. Yeah, that's staggering. And they go up every week, and the amount of money that's been printed is beyond comprehension. I don't know how they can solve this problem without really getting drastic and taking interest rates to very high levels back in 1980. The Federal Reserve had the support of the president. The president told him to do whatever you have to do because the head of the central bank was all over. It was a smart man. He knew what he had to do, but he made sure he had political support before he did it. Now, the president did not get reelected because Volcker did what had to be done. We don't have as smart a central bank head now as we did then.
Speaker 4 (00:15:31) - And the amount of money that's been printed is overwhelming. And America's debt with the largest detonation in the history of the world and we were a creditor then. So there are things that are different. So he would be worried if I were you. In fact, I am worried, so I'll leave it to you. But I'm more.
Speaker 1 (00:15:50) - Well, that's right. Carter was a one term president. We'll see if Jerome Powell ends up breaking too many things. If Biden only ends up being a one term president, then as well, whether it's his fault or not, oftentimes the onus could fall on him. You bring up all this debt, the greatest detonation in the history of the world. And maybe the first time you and I spoke back in 2019, I don't know what our debt was then. Maybe it was 25 trillion. Now it's more than $32 trillion. Maybe just as concerning. More our debt to GDP ratio is about 121%. So I guess really what I'm getting at, Jim, is how will we know that things break and things are already breaking in a world of higher interest rates with failing banks and more stress in the commercial real estate market.
Speaker 1 (00:16:37) - So what else is going to break?
Speaker 4 (00:16:40) - Jimmy Carter did say to go do whatever you have to do and I will go you. I doubt Biden would say to the central bank, do whatever you have to do without or you. And I doubt if the central bank Powell, the head of the central bank, now really comprehend what he's gotten us into. You know, he kept saying all along, oh, don't worry, everything is under control. The secretary of the Treasury, Janet Yellen, he's got Ivy League degrees, also kept saying, don't worry, everything is under control. We know what we're doing. We do have different people this time, not many Paul Volcker's that comes along in history. To me, the indications are going to get worse. They will not solve the problem until we have a very, very serious problem. I'm not optimistic. Having said that, if I'm not selling short or anything else at the moment, I'm worried about the markets in a year or two. But at the moment, since nobody seems to understand what they're doing at the Reserve or in the presidency, we can have okay times for a while, but the ultimate problem gets worse and worse and worse unless you deal with it.
Speaker 1 (00:17:56) - I don't know whether the economy has been slowed down enough yet or not. So in the midst of higher interest rates, we continue to create an awful lot of jobs. But there's a greater body of work that shows a lot of these jobs are just jobs that have recovered, that were lost in the pandemic.
Speaker 4 (00:18:13) - The economy is not bad in the US, economy is still strong. You mentioned office. You'll have a lot of jobs. ET cetera. Yes, we have inflation, but inflation is not as bad as it was in the 70s. And you look out the window and everything seems okay. At the moment. I'm just worried about what's coming down the road because I know that some throughout history, if you print a huge amount of money, you create big problems.
Speaker 1 (00:18:41) - We are avid real estate investors here directly investing in real estate. And as we have this chat about inflation and interest rates is real estate investors, ideally we would have low interest rates and high inflation. However, those two are positively correlated.
Speaker 1 (00:18:57) - You typically have both high interest rates and high inflation or low interest rates in low inflation. That positive correlation.
Speaker 4 (00:19:05) - Inflation always in the history has led to higher interest rates for a variety of reasons, which I'm sure you understand. If history is any guide, interest rates are going to go much, much higher eventually. And then you know very well I interest rates are not good for property, not good for real estate investors. They never have that. Even if you don't have any big debt and you don't have that problem or mortgage problems or anything, maybe your neighbors do. And if your neighbors have problems, that means their property prices will go down and that's going to affect you because you're nearby and everybody will say, oh, that property is collapsing. What about teeth? And teeth can say, Oh, no, don't worry about me. I don't have any debt. They'll say, okay, you don't have any debt, but we can buy property in your neighborhood. Very cheap because your neighbors have problems.
Speaker 4 (00:20:06) - That gives you a problem.
Speaker 1 (00:20:08) - That's right. Fortunately, Americans have plenty of protective equity in their properties despite these higher rates. You know, residential real estate here in the second half of 2023 is still doing just fine, probably because there's still a scarce supply of residential real estate. You've got more people working from home driving demand for residential real estate. But of course, office real estate has probably been hit the worst, crunched by high interest rates and the work from home trend both. So really that's where we've seen so many of the cracks in the real estate world, especially around the office space. Where else might we see cracks as interest rates continue to go higher like you think they will?
Speaker 4 (00:20:46) - Well, again, throughout history, when interest rates go higher and it attracts investors and money and people take their money out of property or stocks or whatever with their money and say yielding is you can buy the Treasury bills at 21%. That's attractive to a lot of people. And that's, you know, risk free and it's very high return.
Speaker 4 (00:21:12) - So as interest rates go higher in attracts money from other investment classes in other areas, it's very simple. People are not that dumb. We know that if we can get high interest rates safe, they will do it. And we have to take a risk and the stock market or something else for that spike to do.
Speaker 1 (00:21:33) - Sure. Higher rates just incentivize a few more people to be savers as they can now safely get above 4% in these online bank accounts today, where they are getting pretty close to 0% just a couple years ago. We talk about real estate investment. Oftentimes here we talk about improved property on a piece of land. But of course, the more traditional use of real estate is growing crops on a piece of land. And I know you've been a long time agricultural investing enthusiast and a thought leader in agricultural real estate investing. What are your thoughts about agricultural real estate, since in these past few years really we've seen more of these erratic weather patterns that have resulted in things like reduced peach yields in Georgia and reduced ores yields in Florida.
Speaker 1 (00:22:21) - Something else, Jim, we've seen reduced coffee yield in Panama, that last one, that's sort of a fractional ownership investment that we featured on the show here. Fractional ownership investment in coffee farm parcels in Panama. That's created some problems with their yield. Of course, you can see that reflected in the low levels of the Panama Canal as well that looks to threaten the economy. But what are your thoughts about agricultural real estate in this erratic weather that we've had? Perhaps that's an opportunity if that's reflected in lower agricultural real estate prices?
Speaker 4 (00:22:52) - I'm optimistic about agricultural land prices because, you know, for a long time, nobody wants to be a farmer. The average age of farmers in America is 58. The average age in Japan is 66. Mean, I can go on and on. Although the highest rate of bankruptcy in the UK is in agriculture. So agricultural disaster worldwide for a long time and disaster usually leads to great opportunities. If you know how to drive a tractor, if you should go buy yourself some farmland and become a farmer, if you like getting hot and sweaty every day, it can be a very exciting way to live.
Speaker 4 (00:23:38) - I just see I know from history when something gets very bad for a long time, it usually leads to a great opportunity.
Speaker 1 (00:23:48) - Well, you are so experienced in commodities trading in the number one, the most traded commodity in the world is oil. And it seems that the oil price really isn't very high now, especially when you adjust that for all the inflation that we've had the past few years and of course the oil market and the oil price drives the prices of so many other downstream products. So what are your thoughts with regard to the oil market and where we're headed there? Jim.
Speaker 4 (00:24:16) - I know that known reserves of oil have peaked and are in decline just about worldwide. Does it mean it has to continue going up? But unless somebody finds a lot of oil quickly in accessible areas, the price of energy undoubtedly will go higher. The price of energy is going to stay high. Oil and natural gas, whether we like it or not, and I know we don't like it, but unless you wave a magic wand and you know, in Washington, they keep doing things that they don't help the supply of energy, they they damage it because they put restrictions and controls on energy.
Speaker 4 (00:24:55) - So unless something happens somewhere in the world pretty quickly, energy is not going to be cheap.
Speaker 1 (00:25:01) - Renewables like solar and wind may be the future, but oil has a high degree of energy density that a lot of those renewables still don't. We're talking with legendary investor Jim Rogers. He's joining us from Singapore. You talked about all this dollar printing, which has created inflation. And in order for central governments and central banks to get more control over people, discussion with Cbdcs central bank digital currencies has really percolated quite a bit in the past few years here. And with your international perspective, your world view. I'd like to know what your thoughts are on Cbdcs, whether you see a proliferation of it, where you see it starting for those that aren't aware of it. Central bank, digital currencies. That gives a government central control where all money is digital issued by the central authority, where your money can be stored digitally on your phone so that a central authority like a bank or a government can have control over you.
Speaker 1 (00:26:04) - For example, if your local economy is sagging, well, the government could tell you through your cbdc, your central bank, digital currency, for example, that you need to spend 30% of your income within a ten mile radius or else your money expires. Or this would give central authorities power to do something like say, you know, there's a curfew so you can't spend any of your money after 9 p.m. or this is where they could push ESG, environmental, social and governance agendas through targeting your spending or targeting your spending through diversity, equity and inclusion and getting more control that way through Cbdc. So what are your thoughts with the proliferation potentially of Cbdcs, Jim?
Speaker 4 (00:26:44) - We're all going to have digital money in the future, whether we like it or not. It already happened and China's way ahead of it. You can't take a tax in China with money. You have to have your digital money. Your own money. Yeah. And the ice cream in China with money. So it is happening. And nearly every country is working on computer money.
Speaker 4 (00:27:06) - Let's call it whatever you want to put your money. And governments love computer money is cheaper. It's easier. They don't have to transport it all they love. But mainly they love it because they've complete control over all of us. As you point out, they know everything you do. They'll call you up one day and say, Keith, you've had too much coffee this month. Stop drinking so much. Whatever it is, they love control and they love knowledge. I don't, but they do. So this is the world we're coming to. None of us will have money in our pockets except on our own. And yes, that's the new world. It's not far away in 2023. Okay. Anything that's not good for the citizen, Washington will catch up very fast if it's good for them. So no money is coming.
Speaker 1 (00:28:00) - Yeah. Let's hope the cbdcs don't turn up the coffee for anybody. This might make one wonder, you know, what can they do about it is you see more cbdc sentiment building in other nations with them potentially doing something like this.
Speaker 1 (00:28:15) - Is it a smart thing then for someone rather than store dollars, to instead borrow dollars by having loans on real estate? Or is it better to just completely be out of the government system of currency issuance or at least park more of your prosperity outside of the government system of dollars and euros and pesos and riyals and yen, and instead into a non governmental alternative like gold or Bitcoin. Would that be a better path? What are your thoughts there?
Speaker 4 (00:28:44) - When the government says, okay, now this is money, they're not going to say, okay, but if you want to use that money over there, use their money. We don't care. Governments love control and they love Monopoly, especially when it comes to money. So there may be competing types of money that you dollars now anyway. I guess you and I could swap gold coins or seashells or something if we wanted to. Most of the people in the US use government money and that's the way it's going to be. Whether we like it or not, the government has the monopoly.
Speaker 4 (00:29:22) - They have the guns. And if you can say, All right, I'm not going to use government money, I'll say, okay, but you're not going to be able to pay your taxes, then you're money. You're not going to be able to buy a driver's license or pay your other fees with other money. You're going to have to use government approved money.
Speaker 1 (00:29:42) - Well, the government tried to shut down ownership of gold like they did previously or Bitcoin, which would be unprecedented. I'm talking about the United States government, especially in this case or other developed economies.
Speaker 4 (00:29:54) - But when the US took away the right to go in 30s, that was gold was the basis for. Monetary system. It is much, much, much more important to the world economy. Then gold is not that important in the world's economy now. It's important, but so is right. So a lot of stuff. So I doubt if they will take gold away again. I don't see them outlawing digital money currency unless it becomes very successful and competitive to the government.
Speaker 4 (00:30:30) - Then they'll do. They always have.
Speaker 1 (00:30:33) - Bitcoin's market cap is still under $1 trillion, but increasingly you do have more and more politicians that own Bitcoin and there are a few advocates for Bitcoin there in Congress. So if that's the change you want to see, maybe you want to vote in people that are promoting the holding of prosperity outside of US dollars really by being Bitcoin advocates in Congress there. That's one thing that you can possibly do. But we talk about gold and silver. You know, I really like the fact that it is scarce. Just like Bitcoin has scarcity. There will never be more than 21 million Bitcoin. And of course gold and silver have a finite supply.
Speaker 4 (00:31:14) - Well, but first of all, please remember many digital currencies, not Bitcoin, but many have already disappeared and gone to zero.
Speaker 1 (00:31:23) - And there are some Bitcoin critics out there that say something like, well, there have been more than 20,000 cryptocurrencies. So what makes Bitcoin any better? Well, I think the fact that a lot of these cryptocurrencies that have little or no utility or mean coins, so if they come by and then they die, I don't think that should diminish Bitcoin in its utility in any way.
Speaker 1 (00:31:42) - Just like there have been over 20,000 stocks in history. And if a new stock comes by that doesn't have any value or any fundamentals and it fails, it doesn't diminish the market cap leader Apple one bit at all. So I don't think it's a valid comparison to say that just because a new cryptocurrency comes and goes that shouldn't diminish or knock Bitcoin at all, just like it shouldn't Apple, if a flashy new stock comes by and dies?
Speaker 4 (00:32:06) - Well, throughout history, money has come and gone. People use seashells, people use cows, People use lots of things, glass beads all over the world. You know, the US was founded on a silver standard at 1792. Silver was the basis for the US currency that later changed to gold.
Speaker 1 (00:32:27) - What's so interesting, Jim, written in our United States Constitution, it stated that gold and silver shall be money, but of course it's not. In Nixon completely departed the last vestige of that in 1971. Yet there was no amendment written to the Constitution to supersede it.
Speaker 1 (00:32:47) - Gold and silver shall be money when it comes to currency and how one measures the prosperity in the United States. It is the dollar. We know it's going to continue to be the dollar for some period of time yet, and you can't get too many certainties in investing. And really the second near certainty we can get is that the dollar is going to continue to diminish in value. So that's why rather than save it, we borrow for real estate. Jim, wrap it up here. In this world of higher inflation, though, it's come down in higher interest rates where you tend to think they will keep going higher. What should one do, maybe especially a younger person today, You know, any direction that you would have for a younger person, a younger investor, or maybe that's even investing in themselves and developing skills themselves. So what are your thoughts?
Speaker 4 (00:33:33) - They're all investors. Young, old, whatever should invest only in what they themselves know a lot about. If you want to be successful, don't listen to somebody on the TV or in the magazine or even on the Internet.
Speaker 4 (00:33:48) - You know your program. They should invest only in what they know about you. Listen to somebody and she said, Buy X and you buy x and x goes up. You don't know what to do because you don't know why you bought it. Right? X goes down, you don't know what to do because you don't know why you bought it. So if you want to be successful, just stay with what you yourself know a lot about. You might say that's boring. Be boring If you want to be successful, be boring. You know, invest in what you know. And I cannot tell you how important that is for all investors, young or old.
Speaker 1 (00:34:31) - Yeah, well, to sum it up on rates, Jim Rogers said that governments have debt, therefore governments will keep printing. So then governments will raise rates to keep inflation in check. Remember, just last year, a lot of people didn't think that Powell would have the guts to raise rates so high. Well, he sure did. Who else did I ask about how high interest rates will go? Will, I asked you on our get Recession Instagram poll, the majority of you think.
Speaker 1 (00:35:01) - That the Fed rate will exceed 6%. And again, it's about 5% now. All right. Well, then with mortgage rates around six and three quarters now, perhaps they'd go up to about 8%. But of course, mortgage rates don't track the Fed rate in lockstep. They more closely follow the yield on the ten year note. Now, this is really interesting for real estate investors when inflation is low. So interest rates, well, in those environments, real estate people seem to love that. But you know what? Those two things pretty much cancel out. Well, since we're big borrowers as real estate investors, you get less benefit from low inflation and more benefit from low interest rates, just like high inflation and high interest rates cancel out because now you've got your debt being debase faster and a greater interest expense to pay. So really it's a wash either way. If for some reason real estate investors seem to be more concerned about high interest than they are thinking about the benefits of the high inflation and in fact, real estate investors, hey, we can totally have our cake and eat it too, because when inflation goes high, well, you can stay fixed on your low interest rates.
Speaker 1 (00:36:16) - And then when inflation and rates go low, you can refinance. So savvy real estate investors then in fact benefit from the inflation and interest rate dance. This kind of tango that they do where they stay together. If you enjoy the show here each week, do you mind doing something as a give back that takes less than two minutes of your time? Leave a podcast rating and review. The fastest way to do this is just perform a search. Either search how to leave in Apple Podcasts Review, or how to leave a Spotify podcast review. I'd be grateful that helps others find the show. And we've got a bunch of terrific episodes coming up for you here on Gray, providing you with free content and reliably showing up for you every week. I would greatly appreciate your podcast rating in review. Again, it's easiest to simply search how to leave an Apple Podcasts Review or how to leave a Spotify podcast review until next week. I'm your host, Keith Weintraub. Don't quit, dude. Adrian.
Speaker 5 (00:37:24) - Nothing on this show should be considered specific, personal or professional advice.
Speaker 5 (00:37:28) - Please consult an appropriate tax, legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of Get Rich Education LLC exclusively.
Speaker 1 (00:37:52) - The preceding program was brought to you by your home for wealth building Get rich education.com.
Mon, 3 July 2023
Get our newsletter free here or text “GRE” to 66866.
Are you curious about the direction of rents and property prices?
In this episode of Get Rich Education, host Keith Weinhold dives into the absolute 100% certainty of a housing crash and how mortgage rates affect home prices.
Keith is interviewed by Ken McElroy.
He also shares the importance of real estate in reducing taxes and increasing income.
Keith discusses the attractive pricing and inflation in Ohio, and the benefits of investing in new build properties.
He even touches on the increasing gold purchases by central banks and the potential impact on personal finances.
Don't miss out on these valuable insights and learn about the prospects for a housing crash. Tune in now!
Advertisement for Freedom Family Investments
An advertisement for Freedom Family Investments and the benefits of investing in real estate.
Introduction to Get Rich Education
Keith White introduces the podcast episode and talks about the longevity and popularity of the show.
Real Estate Price Gains Since the Start of the Pandemic
Keith White discusses the cumulative home price appreciation in different regions since February 2020.
Discussion on the attractiveness of real estate pricing and the impact on renters.
Keith's personal experience of starting with a fourplex and the concept of house hacking.
Exploring the house hack model as a solution to affordability issues and leveraging other people's money for real estate investment.
Investing Out of State
The speaker discusses the benefits of investing in real estate out of state and the importance of choosing the right market and team.
Importance of Prioritizing Market and Team
The speaker emphasizes the importance of prioritizing the market and team before considering the property in real estate investing.
Supply Crash vs Price Crash
The speaker explains the significance of the housing supply crash that occurred in April 2020 and how it affects property prices and homelessness.
Inflation Measurement Challenges
Discussion on the difficulty of accurately measuring inflation due to various factors such as personal preferences and hedonic adjustments.
Housing's Impact on Inflation and Interest Rates
Exploration of the significant contribution of housing to the Consumer Price Index (CPI) and its implications for future interest rate changes.
Paradox of Rising Mortgage Rates and Home Prices
Explanation of the counterintuitive relationship between rising mortgage rates and increasing home prices, with historical data supporting this trend.
Advantages of Investing in New Build Properties
Discussion on why it makes more sense now to look at new build properties than in the recent past.
Feasibility of Building vs Buying in Different Markets
Comparison of the cost per unit for acquiring existing properties versus building new ones in different markets.
Turnkey Rental Properties and Scarcity as an Investment Theme
Exploration of the concept of turnkey rental properties and the importance of investing in scarce assets like real estate, gold, and bitcoin.
Topic 1: Central banks buying gold [00:51:38]
Discussion on how central banks are buying gold as a way to store value and hedge against the inflation and debasement of the US dollar.
Topic 2: Increasing geopolitical uncertainty and gold [00:52:36]
Exploration of how geopolitical events, such as trade agreements and conflicts, have led to increased uncertainty and a rise in the price of gold.
Topic 3: Reasons why home prices won't crash [00:56:46]
Explanation of several reasons why home prices are unlikely to crash, including a shortage of homes, strict lending guidelines, government intervention to prevent foreclosures, and the slowing of new home construction due to higher interest rates.
Get mortgage loans for investment property:
RidgeLendingGroup.com or call 855-74-RIDGE
or e-mail: info@RidgeLendingGroup.com
Find cash-flowing Jacksonville property at:
Invest with Freedom Family Investments. You get paid first: Text ‘FAMILY’ to 66866
Top Properties & Providers:
Best Financial Education:
Get our wealth-building newsletter free—
text ‘GRE’ to 66866
Our YouTube Channel:
Follow us on Instagram:
Keith’s personal Instagram:
Complete episode transcript:
Speaker 1 (00:00:01) - Welcome to Get Rich Education. I'm your host, Keith Weinhold, with a crucial update on the direction of rents and property prices. Then a discussion between Ken McElroy and I where I posit to his audience about why a housing crash is 100% certain and why what mortgage rates do to home prices is exactly the opposite of what everyone thinks. And more today on Get Rich Education. Taxes are your biggest expense. The best way to reduce your burden is real estate. Increase your income with amazing returns and reduce your taxable income with real estate write offs. As an employee with a high salary, you're devastated by taxes. Lighten your tax burden. With real estate incentives, you can offset your income from a W-2 job and from capital gains freedom. Family Investments is the experience partner you've been looking for. The Real Estate Insider Fund is that vehicle. This fund invests in real estate projects that make an impact, and you can join with as little as $50,000. Insiders get preferred returns of 10 to 12%. This means you get paid first.
Speaker 1 (00:01:08) - Insiders enjoy cash flow on a quarterly basis, and the tax benefits are life changing. Join the Freedom Family and become a real estate insider. Start on your path to financial freedom through passive income. Text Family to 66866. This is not a solicitation and is for accredited investors only. Please text family to 66866 for complete details.
Speaker 2 (00:01:37) - You're listening to the show that has created more financial freedom than nearly any show in the world.
Speaker UU (00:01:44) - This is Get rich education.
Speaker 1 (00:02:00) - Working from Hot Springs, Arkansas, to Palm Springs, California, and across 188 nations worldwide. You're listening to one of America's longest-running and most listened to shows on real estate. This is Get Rich Education. I'm your host and my name is Keith Weinhold. And with 456 weekly episodes, you probably know that by now. Hey, I'm really grateful that you're here. Carefully chosen buy and hold Real estate is not day trading. Rather it is decade trading. Yeah. I'm a decade trader. Perhaps you're one two. You just haven't thought of it that way before.
Speaker 1 (00:02:41) - When I was recently with Ken McElroy in person in his studio in Scottsdale, Arizona, we produced a terrific media interview and conversation together that I'm going to share with you later today. But first, you know, it's not just you're out of control. Trader Joe's grocery bill. The entire world seems to be losing its battle with inflation. U.S inflation is still double where the powers that be want it. The UK recently stunned markets will need jacked up interest rates a half point to the highest level in 15 years. The ECB, Australia, Canada, Switzerland and Norway. They have all announced recent rate hikes. But Turkey Turkey is raising rates and astounding. 6.5%. Yeah, you heard that right. 6.5% all in one fell swoop. That's how much interest rates are going up there. Yet many say that it's not enough for them to get on top of their wildly out of control inflation. Now, let's get into a few real estate numbers here before my fantastic chat with real estate influencer in Great Guy Ken McElroy.
Speaker 1 (00:03:54) - Now here's a great set of real estate numbers since inflation has hit real estate too. Okay, we'll talk about rents in a moment, but let's talk price first with credit to John Burns, Real Estate Consulting. Let's look at American real estate price gains since the start of the pandemic. Okay. So this is not annual. This is cumulative starting in February of 2020 up to today. Here we go. There is a national home price appreciation figure and then it's broken into ten regions. And I think this regional breakup is kind of quirky, and I'll tell you why in a moment. But nationally, since the start of the pandemic, national real estate is up 36%. But let's stop and think about what that means for a moment. Well, since that time, February 2020, which is when these figures are all tracked back to, has the real rate of inflation also been 36%? I'll just say that the answer is yes. Well, then real estate has no inflation adjusted gain in all that time.
Speaker 1 (00:05:03) - Well, here are the ten regions cumulative gain since that time. Okay. Going from lowest to highest, Northern California is up 27%. The Northeast up 29%. The northwest is up 32%. Southern California up 33% cumulatively since that time, about three and a half years here. The Midwest is also up 33%. The Southwest up 38%. Texas up 40%. The Southeast up 46%. North Florida up 50%. A lot of castle markets there in north Florida, too. And the top appreciating region, according to this stat set since February of 2020 with 56% cumulative home price appreciation is South Florida. Yeah, up 56%. And now some of those regions mentioned like in the West, they were actually up more than this a few months ago and they've given back a little bit of their gain. But that is a great stat set. The only thing that seems quirky about the methodology to me is that you've got Florida and California, each with two stat sets, yet the entire Northeast is lumped in together without, say, breaking out New England.
Speaker 1 (00:06:26) - But I don't know, There might be a reason for the odd amalgamations there. I might look into that. Maybe that's just some regional bias or some concern there. Since I am a Northeastern guy, I think that by now, any long time listener knows that I'm from Pennsylvania and have lived most of my life there. I'm in Pennsylvania every year and I like to avoid hot summers, so I spend my summertime and more time in Anchorage. AK So fantastic home price appreciation in the past three and a half years, partially demand driven. Partially inflation driven, you know, three plus years ago, a lot of people, but never me, a lot of people, including real estate influencers, they said that the pandemic would be awful for both real estate and stocks because people would lose their jobs and lose their homes and businesses would shut down. Oh, no. We talked here about agree with it or not, the government's safety net is on its way and it came with the PPE and the Cares Act and everything else.
Speaker 1 (00:07:29) - I mean, Biden won't let people lose their homes. That's what was going on back then. And then in late 2021, I stated Jerry's National Home Appreciation forecast that home prices would rise between 9 and 10% in 2022. They ended up rising 10.2%. And then you remember that late last year I forecast that there really wouldn't be much of any national home price movement this year. Okay, 0%. I am on record right here on the show saying that then and here we are near the year's midpoint. And I like how that forecast is looking. And it was interesting. Late last year, Realtor.com, they predicted 5.4% national home price appreciation for this year. Well, just last week they revised it down to a drop of 6/10 of 1%. Okay. So basically they've gone to 0% as well, much like I forecast late last year. But of course in our core investor areas of the inland in the south, home prices, they are rising just a little this year. What about rents? That's something you might care about more.
Speaker 1 (00:08:42) - CoreLogic They tell us that rents for both single family homes and apartments are up 4% year over year, and that's really unremarkable. That's just the historic long term norm. And it's really been interesting how the rent growth rate for single family homes and apartments has just been remarkably similar, like shadowing each other. But the real story is that rent growth has really decelerated because national rent growth, it peaked at about 14% a year and a half ago. And now among Single-family rental homes, what you'd expect in inflation is happening. High end property rents are up just 2% because they're the least affordable. And then the more affordable low end rents are up 6%. And like anatomy, there are so many ways to parse real estate. There are so many ways to dissect the frog here. So let's look at rental growth by region. And it's from that chart that I shared with you in last week's Don't Quit Your Daydream Letter. Rents are down 2% in the West. They are up 1%. In the South. They're up 5% in the Midwest and they're up 5% in the Northeast as well.
Speaker 1 (00:10:02) - And what's been persistently steadiest is the Midwest price growth in rent growth. I mean, they're in the Midwest. That is like as stable as the clover honey that's in your pantry right now. And also, did you know that honey is the only food that doesn't spoil? Did you know that? Yes. Yeah. It's also stable, so it doesn't need mixing either. Stable like Midwestern real estate. And that's the reason that's had that best ratio of high rents to a low purchase price, which is really that key metric that you care about as a real estate investor. Now, for example, let's take a look at this specific property in Exact Street address from Marketplace. I mean, this is a great example. This is 224 Baltimore Street in Middletown, Ohio. Middletown is between Cincinnati and Dayton. Okay. This duplex here has a monthly rent income of $1,400 total from both sides. The price is $139,900. And this duplex is substantially rehabbed. And the $1,400 rent that's broken down by $800 comes from the two bed one bath side and $600 from the one bed, one bath side.
Speaker 1 (00:11:26) - The duplex is 1680 eight square feet. It's in a classy neighborhood and the rental status is that both sides are already leased. Okay, So when you have an existing property like this, sometimes you have that as the advantage. It's leased and on a duplex when you have both sides leased, you know what questions I would want to know before I buy a duplex like this? What is the rent payment history of those tenants on each side of the duplex and where are they employed? I mean, one might have been paying the rent. But if they're employed at the malls, pop up, stand for 4th of July fireworks or something, Well, I would want to know that. Or if their employment is more stable than something like that. So this 140 duplex is something you could buy with a 25% down payment. So even with closing costs, you're in there for under 50 K. So yes, they're in America's seventh most populous state of Ohio and might take on a property like this. Is that this duplex that's for you? If you're more interested in cash flow than you are appreciation.
Speaker 1 (00:12:33) - I mean, my gosh does pricing like this almost make you feel like inflation missed Ohio? That's how it feels in hey, that's what attracts renters as well. And you can find their property in more like them, including an increasing proportion of new build property nationwide from Florida to Indiana to Texas to firstname.lastname@example.org. Coming up in this interview with Ken, where I was a guest on his show, you're going to hear me say some things that you might have heard me say before, but I sort of say them in a different way when someone else sees interviewing me and I talk about including why there is a 100% certainty of a housing crash in a few other surprising things. And then at the end I discuss some new things that I have not discussed previously, including what I personally champion and invest in myself outside of real estate. We don't run with the herd on the mainland, but you know, here in Jerry, we are not an island to ourselves either because the dust from the herd affects us. Our investing philosophy is on a profitable, I suppose, peninsula, if you will.
Speaker 1 (00:13:48) - That's why I definitely say things that you don't expect to hear in this interview. And you know what? If someone only says what you expected to hear, that would probably be a disappointment and a waste of your time and you wouldn't learn anything. A critical real estate conversation between Ken McElroy and I, straight ahead. I'm Keith Reinhold. You're listening to Get Rich Education. With real estate capital Jacksonville. Real estate has outperformed the stock market by 44% over the last 20 years. It's proven to be a more stable asset, especially during recessions. Their vertically integrated strategy has led to 79% more home price appreciation compared to the average Jacksonville investor since 2013. Genevieve is ready to help your money make money and to make it easy for everyday investors. Get started at GWB Real estate. Agree That's GWB Real estate. Agree. Jerry listeners can't stop talking about their service from Ridge Lending Group and MLS 42056. They've provided our tribe with more loans than anyone. They're truly a top lender for beginners and veterans. It's where I go to get my own loans for single family rental property up to four plex.
Speaker 1 (00:15:08) - So start your prequalification and you can chat with President Charlie Ridge personally, though even deliver your custom plan for growing your real estate portfolio. Start at Ridge Lending Group. This is Richard Duncan, publisher and Macro Watch. Listen to get rich education with cheap wine and don't quit your day drinks. Hey, everybody. I'm here with Keith Reinhold. Welcome back. Hey, it's so good to be here. It's interesting. I was last here in January of 2021. And remember, Ken, that's when we talked about how you can profit from inflation. Inflation was only 1.5% back then. So for all the viewers and listeners, had they watched that, they really were profited from that surge of inflation, we should go back and check that one out again, you know, because I remember that discussion was fabulous. And now now that's kind of the hot topic, the hot topic for sure. So Keith has a great company. It's called Get Rich Education. Before we go down that road, let's talk about how you started, because most people, you know, they struggle with just getting started.
Speaker 1 (00:16:22) - And I know you started with a fourplex. Yes. And you know, this is something very actionable for you, the listener, the viewer there. You can start off like I did. I didn't have a lot of money when I started out. I think that's a common investor's story. So how could I do more with less? And, you know, I was in Anchorage, Alaska, at the time when I was about to buy my first fourplex building, and I didn't have the inclination to know how to remodel places or be a landlord or anything like that. And, you know, Ken, it's a quote we've all heard, but it bears repeating the circle of friends I had fallen in with Harkins, the Jim Rohn quote, You are the average of the five people that you spend the most time with. Take your five closest friends income level. Take their educational attainment level, take the way they dress your five closest friends. If you want to change yourself, change your five. In two of my five in Anchorage, what I call pretty aspirational guys and two of my friends, they had made their first ever property a fourplex building with just a 3.5% down payment.
Speaker 1 (00:17:25) - So I learned how to do this from them. And you can still do this today. All you have to do is live in one of the units at least 12 months and just have a minimum credit score of 580. You can do that with a single family home, duplex, triplex or fourplex. That's how you can start with a bang and a small down payment. Yeah, we call that house hacking. Yeah, yeah, yeah. We talk a lot about this and I don't think people really realize, you know, and if you move into one side of a duplex and you buy a duplex with with this low money down and the lower credit score, you're basically you might not have a lot of cash flow if you live on the other side. But what you are is you're eliminating that huge expense that might have been for rent or something else, right? That's right, 100%. You know, everybody has their wacky landlord story. So I bought my first property living in one unit of the fourplex, renting out the other three.
Speaker 1 (00:18:16) - And like a duplex, like you said, where you might live. Did you tell me you were the owner? I because that's always thing. Yeah. You know, after a while after I got the new tenants in there, actually after I had moved offsite to another place, I didn't really want to admit I'm the owner. They ask all kinds of crazy things, but, you know, everything didn't go perfectly. For example, you know, shortly after I moved in, it was time for a tenant to pay the rent. It was the first that was due. They said they pay it the fifth. I was like, Oh, yeah, sure. Okay, whatever. Well, of course they didn't. I had to replace them. And you know how I qualified my next tenant in that vacant unit? What the qualifications were. Three females applied. They were attractive. So I let him move into the unit next to me based primarily on the fact that they were attractive. Well, that didn't work out very well.
Speaker 1 (00:19:00) - They had parties and they did not invite their landlord to the party. So everyone's got their wacky landlord story that's mine, but that's how you can start big. It is a good way to do it. And I think I don't think a lot of people realize that they can do that. So a lot of people I know are struggling with these affordability issues. So, you know, we've seen since our last podcast, you and I did, we've seen massive inflation, massive rent growth, obviously massive interest rate growth, which has driven people's mortgages up and doubling people, the mortgage payments up, plus we have all the inflationary components that I just mentioned. This is the best time to look at that house hack model because, you know, why wouldn't you grow.
Speaker 3 (00:19:38) - With inflation if you can do it with a with a two unit or four unit? Right now, there are some restrictions for for units and underwriters there something where if you go over that, it's a different kind of loan.
Speaker 1 (00:19:50) - That's right.
Speaker 1 (00:19:51) - Four units is the most you can do with that FHA loan in 3.5% down. So it's single family home, duplex, triplex or fourplex. And if you have VA Veterans Administration benefits, you can use that same plan with zero down. Believe it or not. It's a great way to start with the bank. Yeah.
Speaker 3 (00:20:07) - So you guys really need to look into this. If you could replace your living expenses large of the largest one, which is obviously typically rent and utilities and all that, then why wouldn't you?
Speaker 1 (00:20:20) - Yeah. And you know, here's the thing. Here's the takeaway. And I didn't understand this until I had owned that first fourplex for a couple of years. I think we've all learned we've all been influenced by the mantra that you don't want to invest with your money. You can build wealth profoundly by ethically employing other people's money. We're talking about doing it ethically. Providing people with housing that's clean, safe, affordable and functional. With that fourplex like I just described, I was using other people's money three ways at the same time.
Speaker 1 (00:20:50) - And you can do it too, because I use the bank's money for the loan and leverage. I use the tenant's money for the income that you were just talking about to offset all the building expenses and the mortgage payments. And then thirdly, I was using the government's money for very generous tax incentives, use other people's money three ways at the same time with the loan for income property, that's really going to accelerate your wealth building.
Speaker 3 (00:21:15) - That's right. That's right. And can you with that also do it with the down payment? That might be a fourth way.
Speaker 1 (00:21:21) - There are creative ways. For example, I know with FHA, sometimes you can get a gift. So that's a very astute question.
Speaker 3 (00:21:27) - Yeah. So that's another thing that a lot of people don't think about is, you know, I know with the FHA program, they're going to be looking at you. But there are there are ways to get gifts.
Speaker 1 (00:21:38) - That's right. And really use other people's money for the entire thing with keep using other people's money all that you can.
Speaker 3 (00:21:45) - The point is, guys, all can be OPM or other people's money. And that is the point. And so if you can't look into that, then it's now just an excuse. So let's talk about like you've done a very successful job of going out of state, out of the network and, and buying real estate. How have you done that? Because a lot of people are freaking out around, you know, how do I do I stay local? Do I go out of state? There's a lot of things to consider.
Speaker 1 (00:22:12) - I don't invest in my own local market. In fact, can I sell my last local meaning local to Anchorage, Alaska? I sold my last local apartment building last year. It's the first time in 20 years since I bought that first fourplex building. I don't own any local properties. I do all my investing out of state in investor advantage markets in the Midwest and South. And I know to some people it's scary to go out of state for the first time. You know, for some reason with stocks, people feel quite comfortable with, you know, buying stock for a company.
Speaker 1 (00:22:41) - They don't even know where that company's headquartered. But with real estate and something called turnkey real estate investing, that's one way to go across state lines. But really, here's my mindset in getting comfortable without estate investing, this is how I think of it. Can The property is only the fourth most important thing in real estate investing, and if you're thinking about investing, you often start by thinking about, okay, what would my next property be? It's important. But there are three things more important. Number one is you. What do you want real estate to do for you? This is what I like to share with people. Can Secondly is what market are you in? Thirdly, what's the team of professionals, especially your property manager, that you choose to surround yourself with? And then fourthly and only fourthly is the property. So let's go through that. It starts with you. What do you want real estate to do for you? Or are you looking for cash flow, which is common, or appreciation or tax advantages or a lifestyle benefit? Like maybe you want to live in it yourself.
Speaker 1 (00:23:37) - Once you've got that figured out what you want real estate to do for you, the market is the next most important thing. There is more risk with being in a little ho dunk market of 6000 people where half the employment is tied to the zinc mine than you think. So I like to be in larger metros have a diversification of economic sectors, something that you really excel in. Can So the market's at second thing because you need to have a place that's going to be filled with tenants. And when you buy your property, you need to have a reasonable expectation that 18 months down the road you're going to have another tenant that's going to be able to come in and fill that property. And then the third most important thing is the manager, your team. I mean, a bad property manager would drive a good property into the ground because you want this to be relatively passive. And fourthly and only fourthly is that property. And you know what happens. Can I see this happen? So often people get a 100% backwards.
Speaker 1 (00:24:30) - They go for three, two, one. First, they get all excited about a property and buy it because it has pretty blue shutters. Then they try to figure out if there's a good manager in the market because they don't like to get texts from tenants. And then secondly, they try to figure out the market that they bought in and it's too late. And then they go back to number one, which you're just so far out of line. And this is why a lot of people say that real estate doesn't work. So, again, the property is only the fourth most important thing. It starts with you market and team first. Yeah, I.
Speaker 3 (00:24:58) - Find that key. They do go for three, two, one all the time. Right? It drives me nuts because, you know, as you know and most professionals go one, two, three, four. And I think what happens is if when they get to one, they're they're figuring it out. You know, they need you to start there because it certainly clears up the vision, right?
Speaker 1 (00:25:18) - Yeah, 100%.
Speaker 1 (00:25:19) - And, you know, you intrinsically know this, but you just haven't thought it through before. Like, for example, you already know that the market is more important than the property. A giant mansion in a swamp outside Charleston, West Virginia, is not worth much, but yet a tiny 400 square foot efficiency apartment in the Tribeca neighborhood of Manhattan. Can be worth an awful lot. It's just reinforces the fact that the market's more important than the property and a lot of people get it wrong and always.
Speaker 3 (00:25:46) - Has been and always will be because you can you can screw up a purchase in a market that's going like this and you'll still look like a star.
Speaker 1 (00:25:55) - Yeah. And this will be true a decade and maybe even a century know. Yeah.
Speaker 3 (00:25:59) - So that's why the market is so important. So let's talk about the most controversial thing here, which is why there is 100% certainty, 100% of a housing crash. This is a I heard you talk about this and we talked a little bit about it for the podcast.
Speaker 3 (00:26:16) - I said, let's just wait, wait, wait, Let's talk about it on the podcast.
Speaker 1 (00:26:20) - There is a 100% certainty of a housing crash. And one might be wondering, first of all, how could you say that no one has complete clairvoyance to know the future? And the reason there is a 100% certainty of a housing crash in this era is because it already occurred. It happened in April of 2020, More than three years ago. It was a housing supply crash, not a price crash. In fact, the fact that we have had a supply crash really hedges against any sort of price crash. So using Freddie Mac data and I shared the chart with you before I came over to this video here so that you could see the backup. There are so many ways to go ahead and measure the available supply of homes, but about 1.5 million is what you'll see, Fred. The Federal Reserve economic data, about 1.5 million has historically been the amount of available homes going back to 2016. It began to fall after that with what happened in the health crisis.
Speaker 1 (00:27:19) - It plummeted in April of 2020 to 600,000 units and it still hasn't rebounded and it's continued to fall. So it's a 60% supply crash, 1.5 million down to less than 600,000 now. And that's what hedges against a price crash. That's why prices are continuing to stay buoyant at whatever demand level. The supply is really low, and that helps keep a bid on property. And really, I'd like to share with you the profundity of the fact that we've had a supply crash, not a price crash. I mean, think about this. We're the most powerful nation in the world, by so many measures, were the most powerful nation as far as political positioning and our military and our currency and our brand, the most powerful nation in the world. And we have trouble housing our own people. I mean, we're talking about food, shelter, safety, Maslow's hierarchy of needs, base level stuff here. So it's actually a bigger deal then a price crash. If you think about it, you may very well see more more homeless people in your in your hometown, for example.
Speaker 1 (00:28:25) - So the crash already occurred. A supply crash, not a price crash. Yeah. Yeah.
Speaker 3 (00:28:29) - It's important distinction, I think. I think people really need back up from this a little bit and understand where things are headed. You know, we have affordability problems. We definitely have homelessness issues creeping up. And so what really, really challenged everybody were these federal funds, increases in interest rates that went up. So all of a sudden, you know, we've also had the largest delta between rents and the the average mortgage price. So you got mortgages here. So rents and mortgages were kind of trending along at a pretty, you know, pretty equal amount. But now because of the whole prices that went up and the interest rates went up, there's a big, big gap between rents, even though rents have gone up. So that's also keeping people in their houses because they've got the 6%, let's say five, 6% interest rates, but they bought them at three. So they have this trapped equity, right? So so if you own a home that's 500 grand and you you have 3% on it, you're not going to move.
Speaker 1 (00:29:39) - Right? No, it's the mortgage interest rate lock in. Yeah, And that's a really astute point, Ken, because this plays in to the national dearth of supply on Iraq, 1.5 million available units down to 600,000. I talked to just lay people in everyday homeowners that have become landlords because they say, I don't want to sell my home. And it's 3.25% interest rate. So when I move out of it, I just want to hold on to that loan and rent it out. In the United States, you can't move your mortgage along with your property like that. So it's that interest rate lock in effect, that property, rather than coming up for sale, which would increase supply, doesn't it stays put. And almost two thirds of mortgage borrowers in the United States have a mortgage rate of 4% or.
Speaker 3 (00:30:24) - Less, a staggering number. It is. So I always tell people, Keith, you know, when I was growing up, cash was an asset, right? That was a liability. But now it's the opposite.
Speaker 3 (00:30:35) - Cash is now a liability because inflation. If you're if you have it in the bank is running faster and harder than what you're getting in interest. And now that debt at 3%, let's say, is an asset, you would actually be selling the property and you'll be getting rid of that asset. You can't borrow at 3% today because that is OPM or other people's money like we talked about.
Speaker 1 (00:31:00) - Right, Right. And if I borrow from a bank, say I'm a borrower and I want to take a loan from you. Well, of course, if I can do that at an interest rate, that's less than the rate of inflation. I want to do that because it's profitable. And how the mechanics of that work actually is when I repay Ken the bank in this case, every month that dollar debases on him faster than his interest can accrue on me. That's profitable for you if you can find that it's getting a little harder to find. But you can in some situations, still get interest rates lower than inflation.
Speaker 1 (00:31:33) - And inflation is such a fluffy number. We know that the CPI is manipulated with substitution and weighting and things, but if you can borrow at less than real inflation, that's exactly the transaction you're profiting from.
Speaker 3 (00:31:43) - What do you think real inflation is? Because I, I'm all over the Internet trying to figure this out, you know, and I go to all the shadow stats and all the things.
Speaker 1 (00:31:51) - Yeah, that's good that you're in shadow stats. There isn't really a good accurate way to measure inflation. I mean Ken and I a for next door neighbors were going to pay different rates of inflation. Say one of us is a vegetarian and the other eats beat then inflation in the price of steak affects one of us, but not the other. So if he commutes more than I do, gasoline prices affect him more than me. It's very difficult to pin down what the real rate of inflation is. There are hedonic reasons as well. Hedonic means pleasure seeking. So, for example, if home values go up 10% in a year, but now it's more common for homes to have quartz countertops in them a year later and they didn't have that in the homes of yesteryear.
Speaker 1 (00:32:33) - How do you adjust inflation for that? Because you're getting a better standard of living with quartz countertops. So this is why can and anyone has such a hard time pinning it down to what's the real inflation number. It's really nebulous.
Speaker 3 (00:32:45) - And I do know it's more.
Speaker 1 (00:32:48) - We do know it's more than what the CPI is reporting. How much more? No.
Speaker 3 (00:32:52) - One. I know it's true. It's all over the map. But I got to tell you, man, things are creeping up. You know, we were you know, my wife and I were you know, we just go to dinner and it's 100 bucks now. I mean, there's all these things that are there a lot more. But one thing is for sure, guys, if you can have an interest rate less than inflation, you're beating the market. That's the important thing to understand. And that's why, you know, go go the way back to Rich dad, poor dad with Kiyosaki. He was way ahead of his time when he said cash is trash.
Speaker 3 (00:33:27) - And, you know, savers are losers. And he doesn't mean that you are a loser. What he means is savers are losing money as compared with inflation. Back then, it was 2%. So now it's obviously more. Right?
Speaker 1 (00:33:41) - Yeah. And you know, really with inflation, I think the word is noticeable. No one talked about it when it was about 2% these past few years when it was right around the Fed target. It isn't until it became noticeable that it really became a thing. And you know, what do they say? What's Walmart greater say? They no longer say hello at the door. Instead, they just apologized for what's about to happen to you in there. It's noticeable.
Speaker 3 (00:34:05) - I noticed I was digging into the CPI or the Consumer Price Index recently for a video I was doing and I saw that housing was 44% of that number.
Speaker 1 (00:34:14) - Yeah. Between rent and owners equivalent rent, those two measures contribute to the CPI.
Speaker 3 (00:34:19) - So that's a lot. So think about that because I know, you know, what does that mean To me? That means that the Fed is not done increasing rates because, you know, I guess now they're reporting it at five.
Speaker 3 (00:34:33) - But if 44% of that 5% is housing in theory, then it looks to me like they're going to they're going to clip away at more of these federal funds rates. Right. What do you think?
Speaker 1 (00:34:46) - That's right. A lot of people think the Fed pivot will come later this year. The Fed pivot means when they stop hiking, which is increasing rates and begin to lower rates. I've got something really almost pretty trippy, really on interest rates to share with your audience here, Ken, because I think this is a real paradox that's going to blow some people away. What is it? So we know that mortgage interest rates have been up so much lately. And you know what happens with rising mortgage rates, right? When mortgage rates rise, home prices. You thought I was going to say fall, didn't you know? When mortgage rates rise, expect home prices to rise. And you might say what? That turns my whole world upside down. I mean, wouldn't one know that when mortgage rates rise.
Speaker 1 (00:35:38) - Well, that to. Creases affordability so one would afford less in prices would need to come down. And you know, the lens I like to look through a lot of times. Can we talk about applying economics to real estate? It's what I call history over hunches. I think it's really easy to have a hunch that when mortgage rates rise, well, obviously prices would have to come down due to impeded affordability. So maybe you're still wondering, well, what kind of upside down world would that happen? It's the world that you've been living in these past two years. What happened in 2021 and 2022? Home prices rose at a torrid pace, about 20% in 2021 and the following year last year, another 10% way beyond historic norms. And what happened with interest rates during that same time, they got doubled. I mean, they climbed a cliff. So that actually usually happens that when rates rise, prices rise. In fact, in the history over hunches, vane Winston Churchill is the one that said, the further you look into the past, the further you can see into the future.
Speaker 1 (00:36:44) - So let's open this up and look at the past, talk about why this happens, and then think about some lessons that you can learn from it. So in about the last 30 years, since 1994, mortgage rates have increased substantially nine times. That's defined as a mortgage rate increase of 1% or more. And during those nine times that mortgage rates rose, home prices rose seven of those nine times. This typically happens. And, you know, when I share this with real estate, people can a lot of them are blown away. They don't understand how they really don't even believe it. And I shared the data with you right before I came down here. You have the studio and maybe you can even put that chart up there to show people that I.
Speaker 3 (00:37:25) - Will do that.
Speaker 1 (00:37:25) - Jerry Yeah, but you know what? When I talk with doctors of economics, like the ones that I interview on my show, some of them aren't aware of it, but they all say, Oh yeah, I can believe it.
Speaker 1 (00:37:33) - I can understand how that would happen. All right. So what's going on here? Why does this happen? Why wouldn't mortgage rates rise? Would home prices rise? And, you know, there are for a couple of reasons. You know, can you and Donnell talk so eloquently about lag effects in the economy? Yeah, So that's one reason. But this can't completely be explained by lag effects because we have to think about what makes a person buy a home. Okay. We'll come back to that in a moment. But let's think about what happens when rates rise. Okay. Generally, the Fed is saying that the economy's hot, people are employed right now. There are some high profile tech layoffs for sure, but there are still more open job positions than there even are people to fill them. And this makes inflationary pressures heat up. So that's why they raise rates. When everyone has a job and you have an option if you get laid off to go to a second job and employers are competing for employees, what happens? You feel pretty secure in your job and what do you do when you feel secure in your job? You're likely to buy a home.
Speaker 1 (00:38:37) - So your situation, your income, your job security is an even more important factor than what mortgage rates are. So this is why, completely counter-intuitively and paradoxically, when mortgage rates rise, expect home prices to rise as well. And in fact, can. The only two times in the last nine that rates rose, that prices didn't rise as well. You know, they were they were 2007 and 2008 when there are really wacky aberrations going on in the market leading up to the global financial crisis. So, again, when rates rise, prices typically do two completely opposite of what most think.
Speaker 3 (00:39:12) - Yeah. And don't forget that part of the reason rates rise is because of the scarcity. So when you go from 1.4 million to 600,000, yeah, you have less just basic demand and supply. Less supply.
Speaker 1 (00:39:27) - That's right. And I think importantly, one needs to remember that there's less supply of both homes to buy and homes to rent. And even when one does want to buy and they continue to get shut out of the market with higher rates and higher prices than that obviously puts more people back in the renter pool, which is pretty good for guys like you.
Speaker 1 (00:39:45) - And I can know a lot of income priced right?
Speaker 3 (00:39:47) - That's why I did that video Renter Nation because it's not good by the way this you know housing is supposed to be balanced. So as somebody who owns a lot of rentals, we lose people. We lose people to single family home buying. That is the way it's supposed to be. Right? And then there are some people that when they're when they're done with the single family side, they want to come to rentals for convenience, for flexibility, for all kinds of things. So it's a natural stop. And so when one's out of whack or the other is out of whack, it's not necessarily good.
Speaker 1 (00:40:21) - No, it's not good. I mean, that impedes the upward mobility in really part of the American dream. Of course, you never want to lose a tenant from one of your apartments, but at least you can say, hey, congratulations, you moved up a rung or whatever. So this is the cost of any entry level. Housing is really high.
Speaker 1 (00:40:40) - In fact, when you parse the amount of available homes by the entry level type of, say, single family homes and duplexes, which tend to be the ones that make the best rentals, yeah, they're even more scarce.
Speaker 3 (00:40:51) - It's it's gotten worse. You know, I don't know that as a builder as you know, we built we can build entry level you know the.
Speaker 1 (00:41:00) - Most can't make it feasible.
Speaker 3 (00:41:01) - Cost the cost to build a house today is expensive.
Speaker 1 (00:41:05) - Yeah it really is. And you know, if you are looking to be a real estate investor in the 1 to 4 unit space, which is really an area where I specialize, if you can find a builder that builds entry level homes, I do know of a number of them in the Midwest and South, this could be a time for you to get a new build rental property more so than a renovated one. You know, that's really opposite of ten years ago. Ten years ago, we were still coming off the global financial crisis. Crazy.
Speaker 1 (00:41:32) - That was when the cost of property was even less than the replacement cost no one was going to build. Now you do have people building and, you know, can I know a number of these builders because mortgage rates are higher, that they're helping the investor, the individual investor down there. People like me, yeah, they're buying down the rates. So it's quite common for, oh, say on a $350,000 property for the builder to give you 2% of that 350 K purchase price. What is that, $7,000 at the closing table for you to buy down your mortgage rate? You also have turnkey newbuild companies that are giving 1 to 2 years of free property management. So new build typically costs more than renovated, which is why in the past a lot of investors like to buy a renovated property. But with the new builds and incentives like that and the fact that you're probably going to have lower insurance rates with new builds versus renovated, I think this really tilts toward you as the investors looking at property to your portfolio.
Speaker 1 (00:42:28) - It makes more sense now to look at new build than it has at any time in the recent past.
Speaker 3 (00:42:33) - Yeah, I know that like when we look at those big projects for for acquisition, you know, we're looking at what is it, what is the cost per unit for, let's say an acquisition in Phoenix versus building one? And in the last three years it was building all day long because the cost was 100,000 more per unit to buy crazy, crazy how existing product can get pushed up that high. And so all of a sudden that makes the building more affordable. Yeah, actually. And when you when you build the one next to the other, people are going to want the newer product all day long.
Speaker 1 (00:43:12) - Ken And maybe I can ask you a little something about being a builder. You know, I have learned from some builders that in a way some things are nice because they're not getting as much competition from resales on the market. We talked about why there aren't resales on the market. People want to hold on to their low mortgage rates so builders don't have the competition that way.
Speaker 1 (00:43:31) - But maybe you could let me know. Of course, it's going to vary by region and we've been talking very much nationally so far in the conversation here. But really, what's the lowest price point where it's still feasible as a builder to build where you have enough margin? Like what's the lowest price point on maybe a single family home? And then a larger. Yeah.
Speaker 3 (00:43:49) - So for me, it's mostly just apartments. So, you know, we'll go into a market. I'll give you a great example. We can buy in Austin, Texas, mid-nineties product, vaulted ceilings, nine foot ceilings, beautiful garages for $180,000 a door. Really nice. There's no way we can build that there for that price. Not even close. However, you take that exact project and you move it to Phoenix, it's 350 now. The rents are different, the expenses are different, the insurance is different, the property taxes are different. I understand the math. Is that the same? But, but on a per foot basis and a per unit basis, that's how different it is.
Speaker 3 (00:44:33) - So because of that, we're building in Arizona and buying in Texas. So now that can change. And also, you know that Austin could get really hot, those prices can go up and then we know that then it would change that dynamic. And so to your point, you always have to take a look at the difference between the deliverable. You know, do you buy The one thing I do like about buying is that it's immediate. You know, you could step into something immediate, make change immediate, whereas there's a bigger lag with the construction. So you do have some interest rate risk because you can't get a fixed rate loan on something that doesn't exist. It's land, it's air, and then it's built until it's in service, they call it. Then you can put fixed debt on it, but that's it. Up to that point, you're subject to a little bit of the whim of the fluctuations of the Fed and all the other things that that determine interest rates. So so you do have those things.
Speaker 3 (00:45:36) - We do love the new property. And so do our tenets. So when you build something new, people want to be there and they move out of that ten year or 15 year old product into something new. So there is that, plus you get a little bit more rent and, you know, all of those things. So there's positives and negatives for both.
Speaker 1 (00:45:55) - And so it's really, I'd say in the last ten years when you've seen the advent and proliferation of these build to rent companies, they're turnkey companies that build a finished product for you. That's the first thing that they do. And then the second thing they do is they place a tenant in it for you. And then thirdly, they hold it under management for you, the investor, if you so choose. Basically, it's those three things that define what a turnkey rental property is. So it's making more and more sense to do that with new build properties.
Speaker 3 (00:46:28) - Yeah, it certainly can and it's market by market. But you're right, you have to look at it each and every time.
Speaker 3 (00:46:34) - So before we wrap up, I'd like to talk about, you know, you always say invest in what's scarce, which I completely agree with. You know, And the other thing I like to say is invest the things that you can't print. So, you know, you could print dollars. You know, you can you can create a stock or ETF out of gold and all kinds of things, but you can't print gold, you can't print oil, you can't print trees. You can't print real estate. So let's talk about what's invest in what's scarce. So what do you mean by that?
Speaker 1 (00:47:05) - Oh, I love that. And we're so aligned on that. If I have any one investing theme, it comes down to one word scarcity. Yeah, I like to invest in what's scarce, not what's abundant and can be printed. You know, you don't even have to print anymore. It's just a few keystrokes and things like dollars and additional stock shares, abundant things, they can just be conjured into existence.
Speaker 1 (00:47:27) - So I avoid what's abundant like dollars in stocks and I focus on investing in what's scarce and is difficult to produce more of and take, yeah, real world resources to produce which is for me, it's real estate, gold and bitcoin that rounds out my scarcity theme. Why Real estate? It's a wealth builder really. Gold and bitcoin are not proven wealth builders. I think gold and bitcoin are maybe good places to move some capital once you've built it. Gold and bitcoin can be good stores of value gold really the classic store of value and bitcoin the real risk. But you know real world resources to produce. They're all scarce. Like we talked about the low supply of real estate. It has utility meaning usefulness. And yeah, when you buy a piece of real estate, a lot of people don't think about it this way, but break down all the commodities that you're buying when you buy a piece of real estate from drywall to gypsum, the copper wire to glass and all those sorts of things, it takes real world resources to produce that real estate.
Speaker 1 (00:48:27) - Real estate gives you advantages that gold and bitcoin don't like a reliable income stream and the ability to use leverage and terrific tax advantages. So that's why I'm a real estate guy. That scares gold, has a scarcity. What's really special about gold is it's one of the few things that's had enduring value for millennia, about 5000 years. You can say that about exceedingly few things. I guess you could make jokes about. It's intrinsic value. It's really not used that much industrially, but people have always flocked and gravitated toward that during times of uncertainty. And there's low supply inflation on gold that is very difficult to mine 2% more gold than it was the previous year. There were just challenges from exploration to mining and creating much more of this gold. And then thirdly, Bitcoin. You might not be that familiar with Bitcoin, but it takes real world resources, hardware, software and electricity to bring more Bitcoin into existence. There will never be more than 21 million bitcoins, so it has a fixed supply. You can't quite even say that about real estate and gold.
Speaker 1 (00:49:37) - A hard cap of fixed supply. More than 19 million bitcoin have already been mined. It's truly scarce and Bitcoin does have a role. It has some downfalls too, in case the government cracks down on it. I think that's the big risk with Bitcoin. But gold and dollars each have their downfall is difficult to transport gold across space due to its weight in its volume and security problems and then dollars. You can't transmit dollars across time due to inflation. Bitcoin is that one store of value. It's still volatile, it's still got some problems there, but it's the one store of value that you can transport across both space and time. You can't say that about dollars or gold. I'm a real estate guy. Real estate, you know, I think of it Ken is real estate is old and slow and analog and Bitcoin is young and fast and digital, so it is kind of a counterpoint. To the real estate with the Bitcoin. But yeah, if you need to build wealth and you don't have it yet, it's really difficult to invest in an asset class outside of real estate.
Speaker 1 (00:50:47) - Wealthy people's money either starts out in real estate or it ends up in real estate.
Speaker 3 (00:50:52) - Yeah, that's true. Yeah. I personally, I'm a big gold guy. I, I love being able to just throw a couple coins in my pocket and fly to wherever I want and pull them out and they're like, I got 4 or 5 grand.
Speaker 1 (00:51:04) - It's something tangible. You could actually look at it.
Speaker 3 (00:51:06) - It's nice. It's kind of nice to have that, you know, I don't particularly look at it as an investment, right? I look at it more as a hedge, an insurance policy, maybe a hedge against the dollar.
Speaker 1 (00:51:17) - Yeah, it's sort of like money insurance. I agree. And really a lot like an insurance policy. You hope you never have to use it, just like you hope you would never have to sell your goal. It's good money insurance. It's not a wealth builder. In my experience. It really just generally tracks inflation over time.
Speaker 3 (00:51:35) - Which is a good thing, by the way, especially now.
Speaker 3 (00:51:38) - I think what's interesting is have you had a chance to look at how much gold the central banks have been buying? I really have. So this is a really interesting point before we wrap up. So as you guys might know, central banks are in charge of printing money, basically. Well, other things, but one of those, that's one of them. So and they're kind of upset at the US dollar right now. Yeah. Because, you know, the world trades in US dollars and they're sitting on US dollars. And as we inflate and print US dollars, it looks like that a lot of them are buying gold, Right. And I would if, if they're they're trying to store their value in something that dollars so something other than dollars. I read an article the other day that said that we've been weaponizing the dollar against the rest of the world. Right.
Speaker 1 (00:52:28) - Right. So many foreign central banks, China, Russia and many more, they've really been loading up on gold these past few years.
Speaker 1 (00:52:36) - You see more and more international trade agreements, like you alluded to, cutting out the dollar and going through the yuan. You had the war in Ukraine, all these things increased geopolitical uncertainty. And that's why gold was on a tear and went over $2,000 recently.
Speaker 3 (00:52:49) - And then BRICs, BRICs is showing up. You know, that's the Brazil, Russia, India, China and South America. Right. And South Africa. Right. And I think there's a 30, 40 countries now. I've joined something like that.
Speaker 1 (00:53:04) - Yep. There's more and more. And they're not they're not pals of the United States.
Speaker 3 (00:53:07) - No, no. I don't know if you guys are watching this stuff, but it's something you have to watch. I mean, because your hard earned, your hard earned money is yours. And so you have to be a steward of it. You have to look at this stuff. It's not conspiracy theory stuff. You need to go out and Google this stuff and you'll see it's the dollar doomed. I don't know the answer, but I do know that you have to keep your eye on all this stuff.
Speaker 3 (00:53:30) - Right.
Speaker 1 (00:53:31) - Well, I'm glad you bring this up because one can speculate, one can make projections. But one of the few things that we do know and this is central to every investment that you make is that the dollar is going to continue to be debased. At what rate? We just don't know. But there are a few guarantees in life, but that's one thing that's virtually guaranteed. And really everything that we're talking about here hedges you against that. Again, dollars in stocks can easily be printed. Want to stay out of those sorts of checks?
Speaker 3 (00:53:59) - And if you could fix your rate while the government debases your dollar, you're winning.
Speaker 1 (00:54:05) - That's a winning formula for every million dollars in debt you have with just 5% inflation, you know the bank back 950 K after one year because wages and prices and everything, salaries are all higher. And with real estate, it's wow, your tenant pays all the interest for you while you're enjoying that debasement benefit. It's definitely counterintuitive. Get more debt. That's one of my favorite four letter words.
Speaker 3 (00:54:31) - Ha ha ha. Well, good. Keith, this has been awesome. So what's the best way people can reach you? I know I listen to your stuff, but I'm not sure everyone knows the.
Speaker 1 (00:54:40) - Get Rich Education podcast and get rich education YouTube channel. Real estate pays you five ways at the same time. Just regular buy and hold real estate. And it's actually okay that we didn't get into that because I made a free course with five videos, one on each of the five ways, just regular everyday buy and hold real estate pays and we're giving that away free right now at Get Rich education slash course. So it's a gift certificate and podcast and YouTube channel and again that free course real estate pays five ways which really reinforces why real estate is that generational wealth builder is a get rich education slash course. Awesome.
Speaker 3 (00:55:21) - All right, buddy, always great to see you.
Speaker 1 (00:55:23) - Love catching up, kids. Yeah. I hope that you enjoyed that vibrant conversation and a lot of original thoughts between Ken and I there.
Speaker 1 (00:55:36) - Ken is one of the more giving guys in the real estate industry. I like to hang around with the givers and reciprocate myself. One thing that I cannot take credit for as original is my part of the discussion where I was speaking about how the property is only the fourth most important thing in real estate investing. I learned at least some version of that from the real estate guys Robert Helms and Russell Gray. Now, when it comes to the prospect of a housing price crash, I think that a lot of the gloom and doom was that were completely wrong about that. Since 2020, you know, a lot of them have just dissipated or have gone away. Economic uncertainty that could not make home prices fall in any meaningful way like we've experienced the last three plus years and then last year a doubling of interest rates. Well, that couldn't really touch home prices either. Looking into the future, the rest of this year and into next year, I've got a good eight or so reasons here that home prices won't crash, although there could always be a black swan event, I suppose, from a pandemic to a direct hit by a meteor into the center of the United States.
Speaker 1 (00:56:46) - You are listening to someone that successfully invested through two recessions here. Home prices won't crash anytime soon because there aren't currently enough homes to house Americans. There are billions of dollars sitting on the sidelines right now just waiting for people to jump into the market. Lending guidelines have been strict for a decade plus, and that means those that own homes now can afford to make the payments. Home equity is also near record levels, so those that do have trouble making their payments, they wouldn't have to make a highly distressed fire sale. The government will do everything that they can to stop foreclosures, and on average, it takes 900 days to complete one. The population keeps increasing, although slowly US housing is still some of the most affordable in the world. And what higher interest rates do is that they also slow homebuilding. They slow that rate of new supply. This is all why housing prices cannot crash any time soon. We've got a fantastic show coming up here next week for you. If you're newer to this show or you just haven't seen my free real estate pays five Ways video course yet.
Speaker 1 (00:58:00) - Like I was telling Ken's audience about there, this is fundamental to you building the kind of life that you've always wanted for yourself. The course is truly free. I don't try to upsell you from that to some paid course. Perhaps the best thing that you can do for your financial future is to watch and understand all of the ways that you are paid. You can do that now at Get Rich Education slash course Happy independence Day. I'm Keith Winfield. Don't quit it.
Speaker 4 (00:58:35) - Nothing on this show should be considered specific, personal or professional advice. Please consult an appropriate tax, legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of Get Rich Education LLC exclusively.
Speaker 1 (00:59:03) - The preceding program was brought to you by your home for wealth building get rich education. Com.