Get Rich Education

Other people study one real estate group’s enormous success. Go behind the scenes to learn how they pulled off “The Memphis Miracle”.

Terry Kerr and Liz Brody from terrific turnkey property provider, Mid South Home Buyers of Memphis, TN, are back on the show. 

Here’s what makes them different: junk in the backyard rather than a dumpster, property addresses viewable on their website, no tenant application fees, no maintenance upcharges, no materials upcharges, no earnest money, investor cancellation allowed, specific kitchen & bath renovation, and tenants bring their own appliances.

Memphis has such a robust renter culture that tenants bring their own appliances.

Hundreds of GRE followers have purchased income property from Mid South Home Buyers.

They’re such a popular provider that there’s an investor waitlist. For GRE followers, you can reserve up to two financed properties or three all-cash properties all at once.

They offer in-person tours to see the properties. Start at

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Mid South Home Buyers' Website:

Liz Brody’s e-mail:

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Complete episode transcript:


Speaker Weinhold** ((00:00:00)) - - Welcome to GRE! I'm your host, Keith Weinhold. Today we're going to visit one of my favorite real estate markets. We'll talk with an operator there that is so successful and different that other companies actually study them. And our listeners have loved them for almost ten years now. Today on get Rich education.


Speaker Syslo** ((00:00:23)) - - Since 2014, the powerful Get Rich Education podcast has created more passive income for people than nearly any other show in the world. This show teaches you how to earn strong returns from passive real estate, investing in the best markets without losing your time being a flipper or landlord. Show host Keith Wine, who writes for both Forbes and Rich Dad Advisors and delivers a new show every week. Since 2014, there's been millions of listeners downloads and 188 world nations. He has A-list show guests include top selling personal finance author Robert Kiyosaki. Get Rich education can be heard on every podcast platform. Plus it has its own dedicated Apple and Android listener. Phone apps build wealth on the go with the get Rich education podcast.


Speaker Syslo** ((00:01:01)) - - Sign up now for the get Rich education podcast or visit get Rich


Speaker Coates** ((00:01:08)) - - 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 Weinhold** ((00:01:24)) - - Welcome to GRE! From Sandy Creek, New York to Walnut Creek, California, and across 188 nations worldwide. I'm Keith Weinhold and this is get rich education. Some call Memphis, Tennessee the best place in the entire United States for income producing homes. And in past shows, we talked about all of those reasons on why that's true the economic, the geographic and the cultural. So all that I will add to that is, did trends like the era of Covid and this nascent sea of I did that change the advantageous Memphis economics over these past? So 3 to 5 years? No, not really, because this distribution hub market, air barge, rail and truck is still really the center of the most powerful nation on Earth when it comes to distribution. If you're moving a package from New York to LA, you're going through Memphis.


Speaker Weinhold** ((00:02:24)) - - The reason that really matters is that those distribution jobs are not transient. It's tough to outsource that activity to Thailand. Lots of things make Memphis well known Memphis barbecue, Beale Street, Graceland Elvis the birthplace of both rock n roll music and blues music. The Mississippi River, the Fedex hub. What we're doing today is going deep inside an enormously successful real estate group there in Memphis. They provide properties to investors. This is going to get rather interesting, because there are just so many things that make them different things they do that no one else that I know of does in the industry. In fact, during our discussion, if you miss any of these differentiators, all summarize them for you at the end. Today, other companies study these people. For example, their properties are totally viewable by the public. You can easily see them physical address, proforma and everything right there on their website. It's just one of a number of things that makes you say, gosh, why don't more people do things the same way that these people do? Now? When I visited Memphis with today's guests, we looked at properties in all different construction stages.


Speaker Weinhold** ((00:03:48)) - - At one, there was a giant pile of junk all over the backyard, and that is exactly according to their plan because we were touring a property mid rehab and they don't put a dumpster out on the street like everyone else does. Why is that? Because renting a dumpster is costly and it makes the neighborhood look blighted for a while. They just put all the refuse in the backyard and come by and have a junk collection day for their properties later. And then, oppositely, I also saw other beautifully finished homes where the real hardwood floors shined so much that I wondered when I could move in myself. Now, when you add a property to your real estate portfolio, you can do things like get a property inspection and check out that property today, and maybe even learn about your tenant before you buy a property. But one thing that you don't know is what kind of tenant could this property attract in five years? Well, in Memphis, as you'll see, it is a complete renter culture there. In fact, with the provider that we're about to talk with today, when I visited Memphis and this was quite a while ago, I was driving around with them and they were showing me their sample properties, and I asked them about appreciation in the areas where they buy.


Speaker Weinhold** ((00:05:12)) - - I asked what about appreciation? And they began talking about rents. They thought that I meant rent appreciation. No, that's not the way that I talk. Appreciation means capital price to me. But that fact right there is just indicative of the renter culture that they have there. Let's learn more about it and take a trip to Memphis. Today. It's like the return of two longtime terrific friends. It's Terry Kerr and Liz Brody from Midsouth homebuyers in Memphis. Welcome in.


Speaker Brody** ((00:05:50)) - - Hi, Keith.


Speaker Weinhold** ((00:05:51)) - - Hey, Keith. Thanks so much for having us again.


Speaker Brody** ((00:05:53)) - - Always love to be here.


Speaker Weinhold** ((00:05:55)) - - Oh, yeah. Now, I've never heard sticks, bricks and mortar talk, but if they could, they would probably sound like you two. And that's because you really are the figurative voice of properties that so many of our followers, probably hundreds, now, have bought over the years. So I just think it's reassuring for us to hear your voice here on great every couple years. And, Terry, this really all began with you 22 years ago.


Speaker Weinhold** ((00:06:20)) - - You found that you simply enjoyed fixing up houses. Then you found that others like your ability to renovate property for them, and then you began doing it at scale, placing tenants, starting your own warehouse, which I was inside when it was new. You brought in property management and more. And now that you lead a team that's done thousands of rehab properties and you've even added new build, we'll get to that later. You're still Memphis based. But six years ago you branched out to little Rock, Arkansas, two hours to the west. But with all that, Terry, back from the start, when you began rehabbing Memphis houses, at what point did you learn the fact that, oh, now you just happened to be from an Investor Advantage City, where you get high rents in proportion to a low purchase price? Like, when did that epiphany occur? I tell you what, I'm the luckiest guy I know.


Speaker Kerr** ((00:07:12)) - - I was born in the right city at the right time, and was able to cultivate an incredible team of pros to help me run this business.


Speaker Kerr** ((00:07:22)) - - Obviously, Liz has been here for 15 years running and gunning with me, but I would say when I realized that we were super fortunate to be in Memphis, Tennessee with all the awesomeness that it provides for cash flow, it was probably right in the middle of the credit crisis when it became real obvious that even though there was, you know, blood in the street, if you will, there was a ton of opportunity. And it came from a buddy of mine who had about ten houses that he had fixed up himself and was managing, and he started buying from us. And I asked him why, and he said, because as the leverage of time, I can buy them from you already fixed up for the same price that I will have in it, if not more, when I'm spending my own time. And that's when really and truly, the idea became crystal clear that passing bargains on to bargain hunters was where we were going to focus.


Speaker Weinhold** ((00:08:20)) - - You surely found your niche, and in being from Memphis and finding that right niche and finding the right properties, most people find in that sense that buying super cheap homes looks attractive on the surface to go fix up, but it often doesn't work because you're in blighted neighborhoods.


Speaker Weinhold** ((00:08:40)) - - And then in the opposite end, you don't want to go to high end because the rents really aren't that good for the higher purchase price. And both Terry and Liz, you can feel free to chime in on this, but let's talk about the formation then of your go zone versus your no go zone. So we're really talking about sweet spot discovery here.


Speaker Brody** ((00:09:01)) - - I always kind of love your origin story a little bit. As far as maybe buying a little bit too low. Right. feeling the pain. Yep. Having to protect the materials you're putting in the renovation. Overcorrecting swinging up to the pretty stuff. That kind of sounds nice at the cocktail party, but shelling out a bunch of money for very little return. It has never made sense. I have a lot that I prefer about working class renters over a class renters, if you will, for so many reasons. They stay longer. It costs money to move a class. Renters are more litigious. They're going to go be homebuyers. It's a lot.


Speaker Brody** ((00:09:36)) - - If you're paying tip top rent, you're going to call on a work order because your door handle is loose. And at the end of the day, the lower your rent is, the more people can afford your property. You want to talk about being recession proof. Being in that working class area really, really helps. So there's a lot to it.


Speaker Kerr** ((00:09:54)) - - There is. And, as of this morning, our, occupancy rate was 99.17. It'll dip down into the mid 90 eights around the holidays. Liz, you hit the nail on the head. I mean, where you want to operate in the zone where you can have the highest occupancy rate. And, although a class properties that may look nice, but folks don't stay long because they're more transient, they end up buying a home for themselves. So in the beginning, we did things the wrong way a lot. And we, you know, scraped our toes and scuffed our knees. And we're just fortunate that we were able to figure it out and then work it to scale.


Speaker Brody** ((00:10:28)) - - And another thing I think that is really neat and powerful about our roots as a company that I always love is so, so Terry, realizing that he wanted to, you know, pass on bargains to bargain hunters, he'd been buying and creating these homes. For himself. You were building your own rental property portfolio, as people do, but there was a doctor that we had sold a number of houses to, but Taylor was not managing them, and they were out at dinner and they were comparing notes, and Terry's properties were outperforming the doctors. And they were identical. They were identical rehabs, identical everything. And the difference was Terry's management doctor said, I'm not going to buy any more houses from you unless you will manage my properties too. And you'd known the day was coming. He'd been thinking about it anyway. But we had a property management company. It just managed Terry's properties and so much about how we manage properties. And that really is feeding into that 99% occupancy rate came because Terry designed his property management company as an owner.


Speaker Brody** ((00:11:30)) - - One thing we've talked on about here before is how we don't charge application fees to renters. That's because when Terry was standing in the front yard of a house that he had spent his life savings, his nights and weekends renovating, he didn't care about $50 an adult head from an application fee. He wanted to get the best human being possible in his home. And to this day, we are the only property management company I know of coast to coast. That is a no application fee at all times. Company not up charging maintenance, not charging materials. There's so much that is unique about how our property management company operates, because if Terry didn't say, I'm going to manage your properties differently than I manage my own, I just think that's a really important foundational forming sort of a factor for how we manage.


Speaker Weinhold** ((00:12:17)) - - You do so many things differently there that you're really interesting to study, and your primary business is renovating homes and selling them to investors like me and our followers that want to hold them with a tenant in it for the long term production of income and leverage and all of that.


Speaker Weinhold** ((00:12:35)) - - The neighborhood. It wouldn't matter to you as much, probably, if you're just doing in and out fix in flips where you don't have any future ongoing relationship with that buyer of your rehabbed property. Therefore, in that case, you would have less neighborhood concern. But now, of course, the neighborhood, it really matters to you because you are managing what you sell.


Speaker Kerr** ((00:12:58)) - - Absolutely. And that's why not only is it the neighborhood that matters in managing what we sell, but it's also why we like to buy the houses that are in the worst condition. Because the worst condition of property is when you buy it, the more things you can replace, right? And so we're proud of the fact that we're taking the ugliest house on a street that was owned by a local investor who maybe bought it 30 or 40 years ago, managed it, his or herself, retired, and is then at a point in their life where they want to sell it. Typically there's tons of deferred maintenance, and we're proud to be able to buy those houses and pay a little more than the market, because we have honed our skills at taking these houses that are in super bad shape and bringing them all the way up to the best house on the street.


Speaker Brody** ((00:13:45)) - - And Keith, you hit the nail on the head. We're not just walking away. Our acquisitions team actually passes on about 25 houses. For every one that we put an offer in. You can actually look at our inventory on our website. And so when you go to the available property section of Midsouth homebuyers, those 50 or 60 houses you're seeing, each one jumped through 50 or 60 hoops to become a Mid-South homebuyers house. One thing I always tell folks is, as you know, Keith, we have a short waitlist for our properties, but my acquisitions team is not out there thinking about me and my waitlist. It is actually a mandate from Terry that we do not pass on a property to an investor that he would not probably own in his own portfolio, and we have no one wants to manage a problem property. Nobody wants to manage a property in a neighborhood that can attract a quality renter. If you get approved with our property management company, that means you would be approved anywhere in town within the limits of your income.


Speaker Brody** ((00:14:43)) - - That's the way of stating, essentially, that our renters have choices and options about where they live. People with choices and options don't put their families in unsafe neighborhoods, let alone environmental factors. Being close to a corner store that gets too much foot traffic, highway noise, just little things like that. And we're built on repeat and referred business. And frankly, our profit margins are really slim per house. So there's just no reason to buy a house that is less than and risk a repeat buyer risk or problem, something that's harder to manage.


Speaker Weinhold** ((00:15:18)) - - Yeah. So we're talking often about rehabbed single family homes here. Your price points seem to be between 95 and 160 K for that. And sometimes you have duplexes and other more expensive properties. And these are good houses in pride of ownership neighborhoods that I have been inside with each of you. So that's what we're talking about here. But you. Another differentiator. There is something that makes you guys different, and that's the fact that you do publicly put your physical addresses out there for anyone just to see easily on your website.


Speaker Weinhold** ((00:15:50)) - - That's something that a lot of companies don't do. Can you tell us why that is? Why do you make this so publicly available and that few others do?


Speaker Kerr** ((00:15:59)) - - So our philosophy has just been we want to be the easy folks to work with. Whether it's our investor partners are bankers, contractors, subcontractors, internal employees, closing attorneys, whatever it is. And and so we also wanted to make it easy for folks to learn about how to shop for a turnkey seller in any market, whether it's us or anywhere in the US. And we want to make it easy for folks to go in and check out our properties, see what we have under contract to sell and use those properties, kind of as a litmus test to kind of get used to what's going to be coming down the pipe for them if they hop on the wait list. So we don't want to make our potential investor partners jump through hoops so we can grab their email address and give them the hard sell. We pride ourselves on being able to communicate what a turnkey seller can do to provide value and operate from an educational standpoint.


Speaker Kerr** ((00:16:54)) - - And and in the same vein, it's the same reason, like Liz was mentioning, that although we do all the same background checks, credit checks, employment verification, we don't charge our residents for that. And it's the same way, like when we sell houses, we do not require earnest money. So someone puts a house under contract with us, we've never required any earnest money and someone can cancel for any time for any reason. Because if life happens to someone during the contract process, we are not going to hold their feet to the fire. And one of the other little example of us really working hard to be easy to work with is property management. Most property management companies, you sign a contract and you're locked in for this period of time. If something happens to someone for some reason and they like, have to put their parents into a nursing home or their kid doesn't gets into a college, it's really expensive and they need to sell or whatever it is. Like there's no oh, you're locked into a contract.


Speaker Kerr** ((00:17:50)) - - So we're just looking to be easy to work with and operate from an educational standpoint.


Speaker Brody** ((00:17:58)) - - I don't want you to be popping champagne at the closing table. Or confetti if you don't drink. If the wind change directions for any reason, if you want to take it to Vegas, we understand one of the fun things about our business model is the house's cash flow for us as well. They really do make money and so we're able to approach it from that. And personally, as I educate folks about us, you know, Mid-South is one of the most formulaic businesses that especially in real estate, where there's such a wide variety of things that I have ever encountered, almost going back to acquisitions and how picky we are on the houses and how they have to jump through so many hoops. One thing I like to tell investors, as many people know, I buy directly from the company. I pay full price. There's no employee discount on a house. I pay 10% management until I got to a portfolio size and so on.


Speaker Brody** ((00:18:47)) - - And what I tell folks is when I get my down payment saved up, I'm ready to buy my next Mid-South house. Keith, I've found that house in 3 to 4 weeks because there's nothing to hold out for. There's nothing to wait and see. There's not that one special deal. And so going back to the houses being all on the website. So there's kind of a two pronged thing there. So our leasing team, we often take a deposit from a renter before we're even done with the rehab. Just like we get a lot of investor referrals, we get a lot of renter referrals. We are the only turnkey that I'm aware of as an example, that does all new kitchen cabinets every single time. Nothing wrong with painted cabinets. I've lived in houses with painted cabinets, but we all know kitchens and baths rent houses and they sell houses. And that's like my leasing team is showing these renters the all new tile shower surround, the all new kitchen. I am able to show investors. Since we do have we're grateful to have more investors and houses, and we do have kind of that short, maybe 90 day wait time before they can get houses.


Speaker Brody** ((00:19:50)) - - I say jump on our website, have a pretend shopping trip, pretend every one of those houses is available today and you're going to write a check today. And the 4 or 5 that you kind of start to identify as ticking your boxes if you're like in 320 Maple Street today, I am going to have 490 Maple Street for you. Same zip code, same cash flow, same price to rent relationship. And that means it makes sense for you to join our short wait list because you're going to see that same thing. And so it's very helpful. And I think most other people's approach and there's nothing wrong with this, but you're going to have our friendly competition. There might be a five year old water heater and a 20 year old roof, and this house has a new water heater, but an even older roof. And the price and the relationships are kind of all over the map. And they'll say, well, it's because of area and this and that. And again, back to me being able to pick out my Mid-South house within about three weeks of having decided I'm going to do it.


Speaker Brody** ((00:20:46)) - - And I know this isn't very scientific. I go on like trying to curb appeal within my price range, because Mid-South has hammered out every other floor and they get so interchangeable. And so the web that having all of our properties, even though they're under contract to investors at the top of the wait list available where everyone can come and see that is so helpful.


Speaker Weinhold** ((00:21:06)) - - Yeah, because of course it's about making the right upgrades when it's going to be a rental property. Words like opulence and extravagance really don't make a lot of sense here. I mean, adding a wine cellar with mahogany finishes and marble floors to might boost the price. 40 K and not only would you over improve the neighborhood, but your target tenant, they might only pay $25 more per month for that. So it's about making those right upgrades like you touched on.


Speaker Brody** ((00:21:34)) - - I always say, every dollar we spend is either to defer maintenance or to attract another dollar in rent. And if it doesn't check those two boxes, it doesn't make sense. So an example would be if you were going to sell something retail to an owner occupant, maybe an eight foot wooden cedar privacy fence might make sense for a rental property over a chain link.


Speaker Brody** ((00:21:56)) - - It does not get you $1 and you're that was going to, you know, rot and so on. And so that's our approach on everything. But there is money you can spend that does attract another dollar in rent. And that's when we spend it.


Speaker Weinhold** ((00:22:08)) - - Now there's something really interesting going on in you guys. Is geography both in Memphis and out in little Rock. When we talk about those physical amenities inside a property, and that is with appliances rental demand in Memphis, and little Rock is so high that tenants bring their own appliances. Tell us about that.


Speaker Brody** ((00:22:27)) - - Actually, little Rock is more like the rest of the country. It's one of the things that we I kind of use that website for. So it's one of the few differences you'll see between our houses is if you're looking at the kitchens and the Memphis houses, there's no appliances. If you're looking at the kitchens in our new construction properties, because it's at a rent point or that kicks in in our little Rock properties, you're going to see brand new black or stainless steel GE whirlpool appliances in there, but about 80% of our inventory is going to be renovated properly.


Speaker Brody** ((00:22:57)) - - In Memphis, where you will not see those appliances and is Terry knows I came to him 15 years ago from a different market and about ten years in property management, and he casually and calmly told me to remind the renters to bring their own appliances. I had come in from the leasing side and I thought, I'm working for a lunatic. I am about to get laughed off the phone. Oh my gosh, am I even? I'd been there a week. I was like, oh man, what are we doing? And literally the first Mrs. Smith, if you will, that I spoke to on the phone, I kind of softly whispered with trepidation for the backlash, don't forget to bring your appliances. And she was like, oh yeah, of course. And she actually paused and said, they're not in there, right? There's nothing in there because she owned her own appliances. Our average renter is coming to us from another single family home. One of our many rules is you have to pay rent yesterday.


Speaker Brody** ((00:23:53)) - - We want a lot of folks will take two years. Landlord history, and it's okay if you've lived with your mom for a year. There's a lot of ways that our criteria is just a little bit more stringent. Our typical renter is coming to us from another single family home. They have a lawnmower. They own their stove, they own their fridge, then they own their washer dryer. And it is just a subtle perk. You don't repair them. You don't replace them.


Speaker Weinhold** ((00:24:14)) - - Yeah. That's interesting. I'm a geographer. I often think about and love maps. Maybe I need to do some research and make a range map of where tenants travel with appliances. Does that happen up in Missouri or out in Oklahoma? Or just where do the limits of that map and you're listening to it versus occasion? We're talking with the voices of Mid-South homebuyers Terry Kerr and Liz Brody. When we come back, I'm your host, Keith Windle. Role under the specific expert with income property, you need Ridge Lending Group and MLS for 256 injury history from beginners to veterans.


Speaker Weinhold** ((00:24:53)) - - They provided our listeners with more mortgages than anyone. It's where I get my own loans for single family rentals up to four Plex's. Start your pre-qualification and chat with President Charlie Ridge personally. They'll even customize a plan tailored to you for growing your portfolio. Start at Ridge Lending Ridge lending 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, or 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 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 66866.


Speaker Weinhold** ((00:26:11)) - - Oh, and this isn't a solicitation. If you want to invest where I do, just go ahead and text family to six, 686, six.


Speaker 6** ((00:26:23)) - - This is Rick Schrager, housing market intelligence analyst. Listen to get rich education with Keith wine old and don't quit your daydream. He.


Speaker Weinhold** ((00:26:42)) - - Welcome back to get Rich. We're talking with Terry Currie and Liz Brodie of Midsouth Homebuyers based in Memphis, Tennessee, because they do so much volume and through their operational efficiencies like they've been describing, you can see why it's attractive to both tenants and investors. If a tenant can pay the same rent or 3% less rent and get a 12% better property, that's why they have such high occupancy. And although your bread and butter, sort of where you started out as doing renovated properties in Memphis, you've joined in and really help give the nation what they need. And that is new build property to help deal with the national housing shortage. So can you tell us more about what you're doing with New Build?


Speaker Kerr** ((00:27:23)) - - We heard from our investors for a long time, and we found out very quickly that residents also like the new construction director for rental and typical fashion, you know, we stuck our toe in, we made sure our foundation was built and we were ready to handle it.


Speaker Kerr** ((00:27:37)) - - And we slowly but surely started doing new construction in little Rock with just small developments, 130 unit development, another 30 unit development with lots of scattered lot. And now in Memphis we're doing the same thing. And we have got what Liz 1215 going right now. new construction going in Memphis. And we are definitely continuing with our bread and butter rehabs, but we're really happy to be able to offer new construction director rental properties that are built specifically for rental with ten year transferable slab warranties, PEX plumbing, hip roofs, the whole nine yards just to make them just darn near maintenance free on the exterior. And they are just flying off the shelf with renters and investors alike.


Speaker Brody** ((00:28:26)) - - It's been just fantastic. You can see them on our website. They have a special new construction label. And the we have a really cool IRR calculation on the website. And we have turned up the appreciation ratio for the new construction. It's the only way any house is calculated any differently than any other house. And I think there's just a really neat value to that in that when that investor is going to go sell that house for a profit in 15, 20 years, though, plenty of folks are leaving them to their kids, and this applies as well.


Speaker Brody** ((00:28:58)) - - You're selling a 15 year old house. That's kind of cool. It's just been really neat and one of the best things. Keith, I know you know, that our wait times had gotten and we are grateful because we were doing over 400 houses a year. But at one point our wait times were over a year.


Speaker Weinhold** ((00:29:13)) - - We're talking about your investor.


Speaker Brody** ((00:29:14)) - - Waitlist investor wait time. Thank you. Yes, the amount of time if someone called me and wanted a house today that they would have to wait as I got houses to everyone ahead of them in line. We now have a faucet and it's the new construction faucet and we can turn it on. And that additional, I believe that we provide an extra 70 houses in the last 12 months from new construction has our wait times down to 90 days or so for a financed investor, and about 45 on a cash buyer side, 45 days. And so we're just thrilled we're able to work with folks doing 1030 ones in a way we never have before. And it's just great to be able to kind of meet some of that demand.


Speaker Weinhold** ((00:29:57)) - - And you really get in there and work closely with investors that have 1031 exchange timelines to meet, and you can more easily do that now with that increased faucet flow with your new build.


Speaker Brody** ((00:30:08)) - - Absolutely, I love it. And so because for so many years, and we've always been so grateful for the demand, but I got calls. I'm selling $1 million property in California, I'm selling a $2 million property in New York. And I was so much fun to disperse with you. And while it is still just one at a time for finance buyers, so I've been doing case by case exceptions for that and for get Rich education listeners. I want to make that as just a permanent exception, that they can do two financed properties at a time. Right. And then cash folks can do three at a time. But then we are now able to have a 1031 program where if you reach out to me and we're going to discuss the date of the sale of your subject property, what your needs are. That way I can make sure my wait times that I'm quoting to other investors are accurate.


Speaker Brody** ((00:30:51)) - - We're going to make sure you're meeting your 45 day timeline. As you might know, you can do you could identify actually before the subject property is sold, which I find some people don't know, we're able to, even with all the demand for our properties, help people avoid those taxes and do the 1030 ones.


Speaker Weinhold** ((00:31:09)) - - The tax deferred exchange for people with all the accumulated equity in the Covid run up. And just real quickly, of course, this is going to change if you're listening to this five years or even one year into the future. But what are the interest rates on the buy downs that you're doing on the new build properties for the investor?


Speaker Brody** ((00:31:27)) - - So that's one of the coolest things. So and I really think Fannie and Freddie that they're doing this right. As you know, Keith, and as you talk about there is a housing shortage. Nobody loves higher interest rates. But they cooled the. Market, I think, in the way that they wanted to, but they're still encouraging new construction. And so we are able to do called a forward commitment, but we pre buy down the rate for the investor.


Speaker Brody** ((00:31:51)) - - And as people deep in real estate may know, the sellers can only contribute 2% of the purchase price to a buyers closing cost. So your average buyer can only buy their rate down X amount. What we're doing is buying it down ahead of time on these new construction properties, and you still have all the range to buy it down more on top of what we've done. So that really is a big difference. And so right now on our new construction properties, folks can get as low as 5.75.


Speaker Weinhold** ((00:32:19)) - - That's really attractive.


Speaker Brody** ((00:32:20)) - - Yeah, it's really great. You walk in the door at 6.3. I see folks out there running their numbers at 8%. And it's really fun to tell them, oh no, no no that past that. So yeah, it's been wonderful.


Speaker Weinhold** ((00:32:32)) - - That's really some of the best news. Well, the two of you have always done things differently. You've been really fairly innovative in a number of ways, in my perspective. In fact, when I visited your office back in 2015, I still remember when you had the electronic status board of your properties up there.


Speaker Weinhold** ((00:32:51)) - - This is at a time when most companies were using a whiteboard and a dry erase marker and all that. So you're always engineering in efficiencies to the things that you do in winding down here at. Tell us a little bit more, including the investor tours that you offer so often because you're so proud of what you've got there.


Speaker Kerr** ((00:33:10)) - - Liz rolls around. Any investor who wants to come visit with us once a month, we have a tour. We've got a sprinter van that we roll around. lately the sprinter van that holds 12 has not been doing it, so we've had to rent another van. But Liz tours folks around, she shows them our facility, introduces them to some of our team members, and then goes and shows them a before a during rehab and a finished rehab so they can see everything during the process and just really rolls out so folks can see a visual of exactly how we do and why we do it.


Speaker Brody** ((00:33:48)) - - Yeah, it's so much fun. So about 95% of our investors have never set foot in Memphis or Little Rock.


Speaker Brody** ((00:33:53)) - - If your goal is to do it from your living room, have no fear. We are set up for you to do everything from your living room, but it will push your confidence through the roof to come out. I can't tell you what a happy, chill vibe our office has. Terry happens to be an amazing guy to work for. We have a lot of long term employees. I've been with him 15 years. But you'll meet Nia. That's been with us for ten years. Matt, our property manager. He's been with us for 12. Nia is kind of the me on the other end of closing, even your renters actually hear a smiling voice within two rings. That's a leasing agent that's been with us for eight, nine years. You're going to get to meet those folks. You're going to get to see the warehouse. I'm no CPA, but for most people, that trip's going to be a tax write off. But we're also going to give you $500 towards your closing cost on your first house as a thank you for coming out, particularly Keith.


Speaker Brody** ((00:34:44)) - - I love it because so many of our investors are from high cost of living areas where you cannot get renovated house in a peaceful neighborhood for $150,000. And I just love, you know, the birds are chirping. There's no foot traffic. No, there's no it's just quiet because that whole neighborhood's at work and there's no trash and there's no graffiti. Not to mention letting folks bang on the cabinets and kick the the tires, so to speak. And so if people are listening to this, when our new website is up, there will be a full tour list for the rest of the year available online. If they're listening to this when it comes out, they can reach out to me for the next dates, but we'd love to sign them up.


Speaker Weinhold** ((00:35:25)) - - If you'd like, you can fly in on a Thursday. The tours are Fridays and I took a look the upcoming tours on May 17th, June 28th and July 12th, but you can see how often they're doing them there. Terry. Liz. Rarely, if ever, have I heard bricks and mortar have so much personality.


Speaker Weinhold** ((00:35:43)) - - Income was such a thing. It's amazing that this happened here. Tell us any last thoughts and then how our listeners can learn more about you.


Speaker Brody** ((00:35:51)) - - For last thoughts. I think what I want to tell people is that if you feel intimidated about investing, if you feel like there is jargon, if lending is confusing to you, please don't hesitate to reach out and jump on the phone with us. We have incredibly experienced investors that own hundreds of apartment buildings, but one of my favorite things is to just help a first time investor get their feet under them. I understand the nerves and the butterflies that can come with it. I know how hard people work to save up these down payments, and we are there for you for the questions, the granular questions, and it's okay if you're really new. I have helped folks in LA and New York that are renters, and this is actually their first. Purchase, because literally buying anything in their local market is 2 million bucks. And so if you have never bought a house before, please don't feel intimidated to email or to call because we've got you and you're going to plug in to man, I've been vetting the best lenders for 15 years, ID title companies, insurance, and the way that we keep our finger on the pulse of who's giving the best service, who's giving the best cost for even just the rest of the team that's going to get you closed.


Speaker Brody** ((00:37:07)) - - Is that and then for how to find us miss South and I am Lisette. Lisette for anyone that wants to give us a shout that way. Quick side note there is a video on the home page of our website and that's true whether you're seeing the one that's out right now or the one we've got coming. But it is a video version of that tour. You can see our warehouse, you can see our offices. You're going to see houses in some different stages. We actually just one of our investors was like, you should put a GoPro helmet on your head for this tour. And that's about what we did. And so for those of you that may not be able to come right now, check out that video. As we mentioned, go look at the houses, go look at the kitchens. Go look at everything and let us know.


Speaker Weinhold** ((00:37:50)) - - Well, this has been amazing to hear a new piece of Terri's origin story. And then I think you, the listener, can feel the passion in the willingness to help in Liz's voice.


Speaker Weinhold** ((00:37:59)) - - It's exactly what she expertly does. Terri and Liz, it's so great having you back on the show.


Speaker Kerr** ((00:38:05)) - - Thanks so much, Keith.


Speaker Brody** ((00:38:06)) - - Thanks, Keith.


Speaker Weinhold** ((00:38:12)) - - Yeah. Such uniqueness. Their elucidation from Terry and Liz. Now, in real estate, you hear the term buyer's market and seller's market will. Memphis is a landlord's market when it comes to tenants traveling with appliances. In talking with Liz Sommer, it's because as this vibrant tenant and renter culture has evolved, landlords really haven't had to compete with each other. That's why that is getting a little anthropogenic here, Here are some of the attributes that make Mid-South different, perhaps even unique. There's no tenant application fee, so they get a greater renter pool. They don't mark up maintenance and materials. They put addresses of their properties on their website. Like we mentioned, they don't require investor earnest money. Investors can cancel for any reason, and tenants bring their own appliances. Those are some differentiators. And there are more. I mean, the tenant has a favorite Maytag dishwasher or whirlpool refrigerator.


Speaker Weinhold** ((00:39:21)) - - Well, a tenant might very well use that in more than one home during their lifetime. We didn't talk numbers much today, but again, you can see the properties on their website. You can come on in with your rate. Currently bought down to 5.75% on their new builds. And that's really kind of about what they will do for you. Now, the gray listener, it used to be that after you made it to the top of the investor wait list, you could buy one property, and then you'd have to go back on the bottom of their wait list in order to get your next one, but no longer for you, the GRE listener. You can reserve two finance properties at a time and three at a time. Cash. You can get started at Midsouth Until next week when I'll be back with episode 500. I'm your host, Keith Wines, a little bit. Don't quit your day. Drink.


Speaker 7** ((00:40:17)) - - 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 7** ((00:40:27)) - - 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 Weinhold** ((00:40:45)) - - The preceding program was brought to you by your home for wealth building. Get rich

Direct download: GREepisode499_.mp3
Category:general -- posted at: 4:00am EDT

If properties are empty from population decline, they’ll lose value and rent. If this happens, then what’s the timeline?

Richard Vague, the PA Governor-appointed Secretary of Banking and Securities from 2020-2023, joins us. 

US and world birth rates keep declining.

As population declines, per capita GDP often increases.

Richard believes that inequality will widen.

Most models show the US population increasing for several decades. A median model is 342M today up to 383M in 2054.

Opposite of what the Fed thinks, Richard believes that lower interest rates can quell today’s persistent inflation.

The US has had 9 instances of high inflation. It’s often spurred by wars, which create shortages.

I tell Richard about GRE’s Inflation Triple Crown and ask his opinion.

Real estate values rise as debt-to-GDP rises.

I point-blank ask Richard if an economic crisis is imminent.

Resources mentioned:

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Complete episode transcript:


Keith Weinhold (00:00:01) - Welcome to GRE! I'm your host, Keith Weinhold. The phenomenon of population decline is spreading throughout the world. Will that come to the US and obliterate real estate then? A bit of a debate on the affliction of inflation and what this all means to real estate today on get rich education. When you want the best real estate and finance info. The modern internet experience limits your free articles access, and it's replete with paywalls. And you've got pop ups and push notifications and cookies. Disclaimers are. At no other time in history has it been more vital to place nice, clean, free content into your hands that actually adds no hype value to your life? See, this is the golden age of quality newsletters, and I write every word of ours myself. It's got a dash of humor and it's to the point to get the letter. It couldn't be more simple. Text GRE to 66866. And when you start the free newsletter, you'll also get my one hour fast real estate course completely free. It's called the Don't Quit Your Day dream letter and it wires your mind for wealth.


Keith Weinhold (00:01:18) - Make sure you read it. Text GRE to 66866. Text GRE to 66866.


Corey Coates (00:01:30) - 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 (00:01:46) - We're going to drive from Lake Winnebago, Wisconsin to Mono Lake, California, and across 188 nations worldwide. I'm Keith Weinhold, and you're listening to get Rich education. Real estate is obviously a strong, proven store of value. Now, what's interesting is that most economists agree that money should be three things a medium of exchange, a unit of account, and a store of value. Well, please don't take offense here. This can sound a little crude, but there's one thing to call those that use dollars as a store of value, and that is poor. How is a dollar a store of value when you've had 20% plus cumulative inflation over the last three years alone, the dollar is a poor store of value. We're going to get into inflation with our other esteemed guest and gubernatorial appointee today. He has some opinions on inflation, and you may very well feel that I poke him on this topic today.


Keith Weinhold (00:02:58) - I'll also get his input on our inflation Triple Crown concept, where real estate helps you win with inflation three ways at the same time. But first, he and I are going to discuss the specter of population decline. And well, it's not always a specter to people because some feel that the world is better off with fewer people, environmentalists and others. Japan's native born population is falling at a rate of almost 100 people per hour. Yeah, you heard that right. Well, is that coming to the United States and how bad would that be for real estate? Before we go on with those discussions about population decline and then inflation, here's something cool. Is your first language Spanish, or do you have any Spanish speaking family or friends? If you do, you're in luck! I'm proud to announce that our real estate Pays five ways video course is now available in Spanish and it is free. Yes, all five course videos leverage depreciation, cash flow, ROA, tax benefits and inflation profiting. All broken down by me in Spanish.


Keith Weinhold (00:04:15) - You can see those five videos. And again they're free at get rich education. Comment espanol tell to familia e amigos. That's all right there on the page at get Rich education. Com slash espanol. And hey, if you're a business owner or decision maker and would like to advertise on our platform, well, we'd like to check you out first and look at this slowly. Oftentimes I use the product or service myself. Get rich. Education is ranked in the top one half of 1% of listened to podcasts globally, per lesson notes on air every single week since 2014. Some say that we were the first show to finally, clearly explain how real estate makes ordinary people wealthy. For advertising information and inquiries, visit get Rich let's get rich education compered. Today it's the return of a terrific guest. This week's guest was with us last year. He's an economic futurist, keynote speaker, and popular author. He's the former secretary of banking and securities for the Great Commonwealth of Pennsylvania. Today, he runs a group that predicts financial crises called Tycho's.


Keith Weinhold (00:05:40) - That's really interesting. Joining us from Philadelphia today. Hey, it's great to welcome back Richard Vague.


Richard Vague (00:05:47) - Thank you so much for having me. It's real privilege.


Keith Weinhold (00:05:50) - Vague is spelled vague u e just like it sounds. If you're listening in the audio only. Richard also has a YouTube channel where, among other things, he discusses topics like population decline and inflation. Two things that we'll get into today. But before that, Richard, how exactly do you get tapped by the governor of Pennsylvania to have been appointed his banking secretary? Anyway? How does that really happen?


Richard Vague (00:06:16) - Well, I served under Governor Thomas Wolf, a superb governor here at Pennsylvania. We kind of were both very familiar with each other, and I had already written a number of books on banking crises, including The Next Economic Disaster and A Brief History of Doom. And he had read those, and so much to my surprise, he showed up in my office one day and asked me if I'd consider it.


Keith Weinhold (00:06:40) - Wow, that is really cool.


Keith Weinhold (00:06:42) - All right. You kind of led with your writing in your books for making that happen. Richard, here's a big question that I have for you. At 8.1 billion people today is Earth's overpopulated or underpopulated?


Richard Vague (00:06:58) - Well, there's a lot of very valid points on both sides of that. You know, there are a number of folks who decry the level of population we have because of its destructive impact on the environment. And there's a lot of folks that note that it's population growth that really has made our economic growth so vibrant. So there's a real contention on that issue. We tend not to take a position, but what we do know is as world population growth is slowing, which it clearly is, that is going to make economic growth much more challenging in a whole lot of places around the world, some of which you're actually starting to see population declines, like China.


Keith Weinhold (00:07:46) - I want to get to that slowing growth in a moment. We talk about overpopulation versus under population. Some in the overpopulation camp thinking the world has too many people they're referred to as Malthusian, was named for Thomas Malthus, who in 1798 he said the world would exceed its agricultural carrying capacity and there was going to be mass starvation.


Keith Weinhold (00:08:09) - Malthus was wrong. He didn't consider technological advancements. So I guess my point is the future can be really difficult to predict.


Richard Vague (00:08:18) - Yeah. Without question. You know, the big innovation came in the early 1900s when we figured out how to synthetically manufacture of things like fertilizer, which allowed arable land area to increase dramatically. It kind of took them out of this equation off the table.


Keith Weinhold (00:08:36) - Yes. With the mechanization of harvesting and the engineering of foods, there sure have been a lot of advancements there to help feed more people. And yeah, Richard, you talk about population decline. Of course, the world population overall is still growing, but its rate of growth is declining. So before we talk about the United States, you mentioned China. Why don't we discuss population decline more in global terms, where even nations like India are already struggling to exceed the replacement birth rate of 2.1?


Richard Vague (00:09:10) - Yeah, I mean, it's a phenomenon that, you know, we haven't faced or perhaps even thought of for a couple hundred years because population growth accelerated so dramatically with the Industrial Revolution.


Richard Vague (00:09:22) - We've really not known anything but rapid growth. And frankly, it's easier to grow businesses. And the economy is old. But now we're seeing places like China, Japan, Germany that are facing population declines in places like India, which, as you said, is comparatively a younger country. Nevertheless, facing this prospect as well, then in 1980, the average age in the US was 30. Today it's 38. In Germany I believe it's 48. So the world is getting old in a way that it had not previously in the industrial revolutionary period.


Keith Weinhold (00:10:03) - I think a lot of people are aware that many parts of Europe, Japan, South Korea are in population decline or they're set up for population decline. But yes, some of these other nations that we think of as newer nations or growing nations, including India, are not forecast to. Grow in, Richard. Are we really down? Of course. There are a number of outliers. Are we down mostly to Africa that still have the high birth rates?


Richard Vague (00:10:29) - As the world has become more urban, the need for more kids has declined.


Richard Vague (00:10:35) - It's in an urban environment, become an expense rather than a benefit. So that alone accounts for the deceleration. And then you have folks that are getting married later, having kids later, and you simply can't have as many kids when those two things are true. So it's a combination of events, and there aren't that many places left that have higher birth rates. And even in Africa it's declining or decelerating. So the world's just moving in that direction.


Keith Weinhold (00:11:06) - Yeah. It's really once we see the urbanization trend in a nation, what lags behind that are slowing birth rates, oftentimes birth rates that don't even meet death rates in some places. It kind of goes back to the Thomas Malthus thing again, if you will. When you don't have a family farm, you don't need nine kids to milk the cows and shuck the corn and everything else like that. You might live in a smaller urban apartment.


Richard Vague (00:11:33) - But we're all just has it been thinking about this issue? And it's upon us now, and it's going to change everything from governments to handling debts to infrastructure to growth itself.


Richard Vague (00:11:48) - So we need to start thinking about this issue much more deeply than we have.


Keith Weinhold (00:11:54) - Is there any way that an economy can grow with a declining population, and how bad will it get?


Richard Vague (00:12:02) - An economy will obviously struggle to grow if the population is declining, but the per capita GDP and increase as population declines. And in fact, we might see that early on in a population decline situation. I think that's actually been true in Japan over the last few years. The population is down, but GDP per capita is actually increasing slightly. So I think it's longer term. When you talk about trying to service the debt that we have amassed with the smaller population, that we're really going to have issues.


Keith Weinhold (00:12:41) - Talk to us more about that. The servicing the debt part of a declining population.


Richard Vague (00:12:48) - The debt doesn't shrink on its own, you know, so it tends to grow because, you know, it's accruing interest.


Keith Weinhold (00:12:54) - It always seems to go one direction.


Richard Vague (00:12:56) - It always pretty much only goes in one direction. So it's pretty simple.


Richard Vague (00:13:00) - If you have growing debt and I'm talking about public debt and private debt, and you have a declining base to service that, you have more people in retirement who are not paying as much in the way of taxes. It's going to increase the challenge, and it may in fact, increase it considerably. As we look at a few decades.


Keith Weinhold (00:13:21) - We need productivity to pay down debt that's more difficult to do in the declining population. We talk about technological advancements, some things that we cannot foresee. Did you sort of lead on to the fact that some of this might help us be more productive, even in a declining population, whether that's machine learning or robotics or AI? What are your thoughts there?


Richard Vague (00:13:45) - That's something that's been predicted for quite some time. You know, if we look back not too far ago, economists were wondering what we were going to do with all of our free time, right? Because, you know, automate. And this goes back to the 20s and 30s and 40s what we do with all our free time.


Richard Vague (00:14:01) - So we again have conversations along those lines. You know, it's not inconceivable that we could all be sitting there, you know, sipping our Mai tais, and the machines could be doing all the work for us. And servicing debt might be easy in that scenario, I doubt it. I don't think that's what's going to happen.


Keith Weinhold (00:14:19) - The more technology advances, the more complex society gets. That continues to create jobs in places where we cannot see them. I mean, case in point here, in the year 2024, we're more technologically advanced than we've ever been in human history, obviously. Yet here in the United States, we have more open jobs than we even do people to fill them.


Richard Vague (00:14:39) - Yeah. And I think one of the things that all of this does is increase the march of inequality. You have folks that master the technology become engineers, software engineers and the like that are going to be the huge beneficiaries of these trends. But folks that don't have the skill sets aren't going to benefit from these trends.


Richard Vague (00:15:01) - And even though in aggregate, we may continue to see per capita GDP increase, our track record over the last few decades would suggest that inequality will increase just as markedly as it has in the past, so we'll have some societal issues to face.


Keith Weinhold (00:15:19) - That's concerning as inflation. Continues to exacerbate inequality simultaneously, which we'll talk about later. But population decline is of concern to us as real estate investors because of course, we need rent paying tenants. So this could be pretty concerning to some. You've probably seen a lot of the same models that I have, Richard, let me know. In the United States, population is projected to increase for several decades by every single model that I've seen, maybe even until or after the year 2100.


Richard Vague (00:15:53) - The projection is by 2050, we'll have about 380 something million people, and today we're at 330 million people. So clearly the population is going to continue. It's just kind of the relative portion of those populations. And what I think we're seeing, and you as real estate investors would know this better than I, is a shift towards the type of real estate out there.


Richard Vague (00:16:19) - Right? So instead of new homeowner development, it's retirement development that I think is going to be the higher growth sector with the real estate industry.


Keith Weinhold (00:16:31) - And we're surely going to see fewer offices be built, something that may never come back. And then when we talk about things like birth rates and population growth rates here in the real estate world, I sort of think of there as being a lag effect. It's really not so much about today's births in the United States, because people often rent their first place in their 20s, and then the average age of a first time homebuyer is an all time record high 36. And all those people are going to need housing into old age as well. So to me, it's sort of about, oh, well, how many people were born from the 1940s to the 1990s?


Richard Vague (00:17:10) - Well, there's a very useful tool that's pretty easily available called the Population Pyramid. You can find that on the CIA World Factbook site for every country and including the United States. And it shows exactly what you're talking about, which is the number of folks, you know, between 0 and 10 years old and into 20 years old and so forth.


Richard Vague (00:17:32) - So you can kind of make reasonable projections about the near term based on the data that the CIA World Factbook is kind enough for by I believe the UN has this data as well, so you can make informed judgments about the very thing you're talking about here, which is how many folks are in their 20s to over the next ten years versus the last ten years.


Keith Weinhold (00:17:54) - Yeah, that's reassuring to real estate investors to know that we expect several decades of population growth in the United States. However, it may be slowing growth. So we talked about births, I mentioned deaths. Well, you tell us a bit more about immigration, something else that can be very difficult to project here in the real estate world that we have a popular analyst called John Byrne's research and Consulting. Their data shows that we had 3.8 million Americans added to our population last year, much of it through immigration. That's a jump of more than 1%, an all time record in our 248 year history in one year alone. So can you tell us, at least in the United States, a bit more about immigration in the calculus for population projections? Richard.


Richard Vague (00:18:42) - Immigration is a huge factor in the demographics of every country in the US, from a pure population growth standpoint as benefited by in-migration, including illegal and migration. That is a positive comparison versus a lot of countries that are either more restrictive art is desirable destinations for immigration and the life. So it has benefited us from a pure population standpoint. But what we clearly see is there are cultural ramifications that are difficult for us to deal with. We have the percent of folks that are in the United States that were born in another country. It's the highest it's been, I think, at least in a century or more and perhaps ever, that is really difficult for the general population to absorb. We see this in the headlines every day. We see it the concern, we see it in the political rhetoric. It's a real issue. So you have a very real conflict between the economic benefits of immigration versus the cultural divisions that that immigration creates. And that's not going to be easy to digest or to resolve. I think we probably end up continuing to compromise, but it continues to be a political lightning rod right into the foreseeable future.


Keith Weinhold (00:20:14) - And there are so many factors here. Where's our future immigrant diaspora? Is it in places in Latin America like Guatemala? In Honduras, in Colombia. And are those people going to come from there? So there are a lot of factors, many of which aren't very predictable, to take a look at our future population growth rate in the United States. We're talking with economic futurist, author and Pennsylvania's former secretary of banking and Securities, Richard Moore, and we come back on the affliction of inflation. This is general education. I'm your host, Keith Weintraub. Role under this specific expert with income property, you need Ridge lending Group and MLS 42056 in grey history, from beginners to veterans. They provided our listeners with more mortgages than anyone. It's where I get my own loans for single family rentals up to four Plex's. Start your pre-qualification and chat with President Charlie Ridge personally. They'll even customize a plan tailored to you for growing your portfolio. Start at Ridge Lending Ridge lending 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, or better than a bank savings account, up to 12%.


Keith Weinhold (00:21:44) - 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 66866. Oh, and this isn't a solicitation. If you want to invest where I do, just go ahead and text family to six, 686, six.


Speaker 4 (00:22:33) - This is author Jim Rickards. Listen to get Rich education with Keith Reinhold and don't quit your day dream.


Keith Weinhold (00:22:49) - Welcome back to get Rich. So we're talking with economic futurist, author and Pennsylvania's former secretary of banking and securities. His name is Richard Vague. And Richard, before the break we talked about how many more people are there going to be on this earth.


Keith Weinhold (00:23:03) - We know for sure that there's also the growth of the number of dollars in this nation. So we're talking about inflation here. You talk an awful lot about the affliction of inflation and the history of inflation. And I think a lot of people when we talk about the history of inflation, maybe we should begin chronologically. They don't realize that inflation wasn't always with us. Since the birth of this nation.


Richard Vague (00:23:30) - We haven't had that many episodes of inflation. We look at it pretty hard. We see nine what we would consider nine instances of high inflation. Most of those have come with war. So we certainly had that. The Revolutionary War right of 1812 and the Civil War and World War one and World War two. But inflation has been brief, contained and rare in the history of Western developed nations. We had our bout in the 1970s that related to OPEC and the constraint of the oil supply. It normally relates to the decimation or constraint of the supplies and the supply chain. We saw it again with Covid.


Richard Vague (00:24:17) - A lot of folks consider it to be a monetary phenomenon. We just don't see that in the data.


Keith Weinhold (00:24:24) - So we talk about what causes these bouts of inflation. You talked about nine of them. Well, he talked to us more about why wars often create inflation. Of course we're trying to create a lot of supplies during wars, but they tend to be only certain types of supplies.


Richard Vague (00:24:40) - World War One is a great example. Probably, you know, two thirds of the farms in Europe were decimated. So for a couple of years, there simply weren't the kind of crops that are needed for nutrition being grown in Europe, we Corps and the like. So the US had to, frankly, export something on the order of 20% of its crops to Europe to prevent starvation. Well, it's pretty easy to see that if the US if the supply has been decimated in Europe, we're having to ship, you know, a huge chunk of our crops to Europe, that the price of wheat and corn would go up.


Richard Vague (00:25:21) - And that's exactly what happened. It's also pretty easy to see that as those farms came back on stream and began growing crops, that the price of wheat and corn would drop. And that's exactly what happened. So you have this relatively short lived period of 2 or 3 years where the decimation of supplies caused inflation, and that's fairly typical.


Keith Weinhold (00:25:45) - Supply falls, demand exceeds supply and prices rise much like what happened with those Covid shortages, as you mentioned, what are the other major causes of inflation other than supply shortages that have caused these nine bouts of inflation?


Richard Vague (00:26:03) - Well, let's talk about major developed countries, which I would include Western Europe, the United States predominantly. That's pretty much the only thing that has brought sustained high inflation is supply constraint. We don't see instances of high government debt growth or money supply growth ever causing inflation. Now when you get to smaller countries where they are borrowing in a foreign currency, where they have a trade deficit and where they yield to the temptation of printing too much money, and I don't mean by printing, we use that term in the United States, and it's absolutely a fictitious term.


Richard Vague (00:26:50) - We don't print money in the United States. We have it printed money since the Civil War. So in a third world country, they can actually go to a printing press and start paying with cash for government supply needs. And you can see it very clearly when it happens and it very quickly leads to high inflation. You know, this is in places like Argentina and the like. So that would be the big issue in these countries. It's they borrow at a foreign currency. They have a trade deficit. They yield to the temptation of actually printing currency. It can get out of control pretty fast.


Keith Weinhold (00:27:26) - It feels immoral. As soon as more currency is printed, it dilutes the purchasing power surreptitiously of all those people that are holding that currency. What about Richard? The government printing. And we can put printing in quote marks, say, $1 trillion to fund a new infrastructure program. A technically that is inflation if we. Go back to the root definition of inflation, inflation being an expansion of the money supply.


Keith Weinhold (00:27:54) - But talk to us about how something like that does or does not dilute the purchasing power to fund, for example, a big infrastructure program.


Richard Vague (00:28:03) - Well, it just never happens in Western developed economies. And one of the reasons it doesn't happen is the government issuance of debt does not increase the money supply by a nickel. If the government issues debt, it actually withdraws or shrinks the money supply because folks like you and me would buy the government security that reduces the number of deposits in the system. The government immediately turns around and spends exactly that amount. So the size of the money supply from government debt projects remains exactly the same. It doesn't increase.


Keith Weinhold (00:28:42) - Does that act, however, increase our total absolute amount of national debt, which is currently $35 trillion?


Richard Vague (00:28:51) - Of course it does. Absolutely. But the increase in our debt is money largely played to the households. So what normally happens is when the government's dead increases, household wealth increases by that amount or a greater amount. So take the pandemic. In a three year period, government debt increased by $8 trillion, which means its net worth declined by $1 trillion.


Richard Vague (00:29:18) - Well, households were the beneficiaries of that household net worth in that three year period increased by $30 trillion. So, you know, net net, of course it increases their debt, but it dollar for dollar typically increases household wealth.


Keith Weinhold (00:29:33) - That wealth effect can feel great for consumers and families in the short term. But doesn't increasing their income substantially in a short period of time drive up prices and create this debase purchasing power of the dollar?


Richard Vague (00:29:46) - If we got our little green eyed shades out and went to try to find examples of that, we got a database of 49 countries that constituted 91% of the world's GDP. We just wouldn't find examples of that. And in the US, it's very easy to measure that. The number you're looking for is GDP. And we don't really see big cuts in GDP. You know, a wild swing in GDP would be 3.5% versus 2.5%. That's not a factor in any observable way. And what happens in inflation.


Keith Weinhold (00:30:19) - Richard, the term that I think about with what's happened the past few years in this Covid wave of inflation is the word noticeable.


Keith Weinhold (00:30:27) - People don't really talk about it. Consumers, families, they don't talk about inflation much when it's near its fed 2% target until it becomes noticeable. And now it's so obvious with what you see at the grocery store. So it's really infiltrated the American psyche in a way that it didn't five years ago.


Richard Vague (00:30:45) - Inflation, even moderate inflation, is a highly consequential thing to the average American consumer. And two things happened to increase our inflation. Covid supply chains decimated supplies and kicked up prices. And then a second thing happened that was even more consequential. And that is Russia invaded Ukraine. And you had two countries that were, if you add them together among the largest providers or suppliers of oil and wheat, and almost instantly the price of oil and wheat and other goods skyrocketed. It was those two things, Covid, plus the invasion of Ukraine that drove our inflation up to 9% in June of 2022. Now, in July, it dropped to 3% and it stayed at 3% ever since. But we had already driven prices up in the prior year or two.


Richard Vague (00:31:49) - And those prices even though the increases have moderated, those prices haven't come down right.


Keith Weinhold (00:31:55) - Nor will.


Richard Vague (00:31:55) - They. Now we have, you know, the threat of war again. So, you know, the price of oil just touch $90. Again, I would argue that, you know, it's going to be hard to see inflation come down. Much for like that 3 to 4 range because of the geopolitical situation. And one other thing that I would suggest is holding up inflation. And that's the Federal Reserve's interest rate. You know, if inflation is a measure of how expensive things are, high interest rates make things more expensive, right?


Keith Weinhold (00:32:27) - It's an irony.


Richard Vague (00:32:28) - It's almost exactly the opposite of what the orthodoxy at the Federal Reserve studies or believed. For whatever reason, if you're at an in an apartment in the apartment owner has leveraged their purchase of the apartments by 50 or 70 or 90% and their interest bill goes up, guess what? They have to. Charge you higher rate. I think some meaningful component of the stubbornness of inflation relates directly to the Federal Reserve's persistent interest rates.


Richard Vague (00:33:00) - I think the best thing they could do would be to pull interest rates down 1 or 200 basis points.


Keith Weinhold (00:33:07) - Well, that's interesting because the fed funds rate is pretty close to their long term average, and we still got inflation higher than their target. So tell us more about what you think is the best way out of this somewhat higher inflationary environment that we're still in Richard.


Richard Vague (00:33:22) - Well two things. I think the geopolitical impact on oil prices is you. And I think the interest rate impact, particularly on real estate prices, is huge. Those are the two things holding up inflation. So if you wanted to improve inflation, you'd lower interest rates and then you'd run around the world trying to calm down these hot spots. And you'd have 2% inflation.


Keith Weinhold (00:33:47) - Coming from some people's point of view, including the Fed's. If you lower interest rates you would feel inflationary pressures. So then go ahead and debunk this because the conventional wisdom is when you lower interest rates. Oh well now for consumers, you don't incentivize them to save as much because they wouldn't be earning much interest.


Keith Weinhold (00:34:06) - And if rates to borrow become lower, then you're incentivizing more people to borrow and spend and run up prices in fuel the economy. So what's wrong with that model?


Richard Vague (00:34:16) - Well, there's no empirical support for it. In 1986, when inflation dropped to 2%, interest rates were in the highest interest rates had been coming down by, you know, almost a thousand basis points over the prior 3 or 4 years. Money supply growth was 9%. So the two things the fed says are most the biggest contributors to rising inflation were both amply present when inflation dropped to 2%. So I just can't find any data to support the Fed's theory. And by the way, that data is not esoteric. That data is really readily available. You and I can go look at it. It's not a complicated equation. But over the last 40 years, in what at the age I call the great debt explosion, aggregate debt and the economy in 1981 was 125% of GDP. Today it's 260% of GDP and almost that entire 40 something year span.


Richard Vague (00:35:21) - Inflation and interest rates went down. Somebody, somewhere is going to have to show me the evidence for me to believe what the fed is canonical, which is almost a sacred balloon.


Keith Weinhold (00:35:33) - Well, that's a good look at history. In fact, something I say on the show often is let's look at history. And what really happens over having a hunch on how we think that things should proceed. You mentioned some inflation figures there. Why don't we wrap up inflation? Richard was talking about today's inflation measures. We've got the producer price index, the PPI, the widely cited CPI, which I recognize what you were stating earlier. And then of course there's the Fed's preferred measure, the core PCE, the core personal consumption expenditures. Richard, it's also funny to me when any measure is called core, it's core when they remove the food and energy inputs because those things are said to be too volatile. And of course, not only is food and energy essential, but what's more core than that? So perhaps the core rate should be called the peripheral rate.


Keith Weinhold (00:36:22) - But in any case, do you have any comments on the measures of inflation that are used today?


Richard Vague (00:36:28) - It's like you say, it's everything you just mentioned and more, because they're not just core inflation. There's something called super core, which I think is probably even more peripheral. Right. And I like your terminology better than the Fed's, but there's a lot of things to look at right now. They're all kind of coalescing around this at a low to mid 3% range. We got a new number coming out. It'll probably, you know here in the next few days. And it'll probably be a little bit higher than the last number, but we're talking about the difference to a 3.3% and 3.5%. And to me there's no difference between those two numbers. We were at 9%, as we just said, in June of 2022. And we're at a moderate level of inflation now after having suffered a rise in prices. It's not going to disappear. It's not fun, it's not comfortable, but it's moderate rabble.


Richard Vague (00:37:22) - It's not a big drought.


Keith Weinhold (00:37:24) - What's the right level of inflation in your opinion?


Richard Vague (00:37:28) - Okay. Anything fundamentally wrong with the the 2% number that the fed saw I think, you know, at 3 to 4% were probably on the high end of, of what might be considered acceptable. But again, it's not the fact that it's 3% that's the problem. It's the fact that it was 6 to 9% for a couple of years. Yeah, that's the problem. It'll get take a while for everything to adjust to that. In the meantime, you know, with all bets are all that you know, there's if these wars get further out of control and we see 90, $200 oil prices again, we're only about we're 50% more efficient users of oil today than were were in the 1970s. We're still a little bit over dependent.


Keith Weinhold (00:38:11) - Here at gray. I espouse how in everyday investor they can do more than merely hedge themselves against inflation, much like a homeowner with no mortgage would merely hedge themselves. But you can actually profit from inflation with a term that I've trademarked as the Inflation Triple Crown.


Keith Weinhold (00:38:27) - I'd like to know what you think about it. The inflation Triple Crown means that you win with inflation three ways at the same time, and all that you need to do in order to make that happen is get a fixed rate mortgage on an income property. The asset price increase is the inflation hedge. The debt debasement on your mortgage loan, that's an inflation profiting center. Is inflation debases that down while the tenant makes the payment. And then thirdly, now rents might only track inflation, but your cash flow is actually a profit center over time too because it outpaces inflation. Since as the investor your biggest monthly expense that principal and interest stays fixed and inflation cannot touch that. That's the inflation triple Crown. It's available to almost anyone. You don't need any degree, your certification or real estate license. What are your thoughts on that? Profiting from inflation the way we do here I think you're absolutely correct.


Richard Vague (00:39:22) - And I think you put it very, very well. And that's not just a trend at the individual property level.


Richard Vague (00:39:28) - We studied macroeconomics and we look at aggregate real estate values. And frankly, real estate values rise as debt to GDP rises. The more money there is, the more my dollars are chasing real estate and the higher real estate prices will go. So it's absolutely been the gin to put it into numbers in 1980 household. Well, this a percent of GDP was about 350%. Today it's almost 600% most household wealth that in the form of just two things real estate and stocks in somewhat equal measure, that's 80 or 90% of also. Well, so if you wanted to make money over the last 40 years and presumably over the next 40 real estate, one of the two places you could go.


Keith Weinhold (00:40:24) - Well, Richard, as we wind down here, you run a group that predicts financial crises. So I'd be remiss to let you go without asking you about it. We've had a prolonged inverted yield curve, and that's been a terrific track record as a recession predictor. Is a financial crisis imminent? Tell us your thoughts.


Richard Vague (00:40:41) - No, it's not. The predictor of financial crises is a rapid rise in private sector debt in ratio to GDP. We saw it skyrocket in the mid 2000 and we got a crisis in zero eight. We saw it skyrocket in the 1980s and we got the crisis in 87. We saw it skyrocket in Japan in the late 1980s. And you got the crisis of the 90s. We saw it skyrocketed in the 1920s and we got the Great Depression. That is the predictor. You know, we've studied that across major economies over 200 years. There really are exceptions to that as it relates to financial crises. Our numbers right now on the private debt side have been very flat, and they've really been very flat since 2008. They actually got a little bit better in that period, and they've been very flat over the last few years. We're not looking at a financial crisis in the United States. Other parts can't say that China is looking at a they're well into a massive real estate crisis there. We see companies there crumbling, declaring bankruptcy.


Richard Vague (00:41:53) - That's because they've had runaway private sector debt in China for the last ten years. And there's a few other countries that are facing that as well.


Keith Weinhold (00:42:02) - A lot of Chinese overbuilding there during that run up to, well, if you, the follower, are into using history over hunches to help you predict the future, Richard Baig really is a terrific resource for that, as you can tell. So, Richard, why don't you let our audience know how they can follow you and learn more?


Richard Vague (00:42:22) - You're so kind to say those words. We hope we provide something of value. You can get our weekly video if you go to join Dot Tycho's and Tycho's is spelled E, ICOs, ICOs group. Or we send out a weekly five minute video because if you're like me, you have a short attention span and brevity is the soul of wit. I also have a book that came out recently called The Paradox of Debt. Yeah. Which, you know, covers a lot of the themes we've talked about here. You know, it'd be an honor to have anyone to pick up either.


Keith Weinhold (00:42:58) - Well, Richard, it's been a terrific discussion on both population decline and inflation. It's been great having you back on the show.


Richard Vague (00:43:05) - You have a great show. It's a privilege to be part of it. Thank you very much.


Keith Weinhold (00:43:15) - Yeah, big thanks to Richard Vague. Today he hits things from a different angle. With population decline perhaps not taking place in the US until the year 2100. Of course, we need to add years to that. Real estate investors might not have falling population growth in that crucial household formation demographic age. Then until the year 2125, well, that would be 100 more years of growth from this point. And yeah, I pushed him on our inflation chart somewhat. Richard isn't the first person, though I have heard others maintain that lower interest rates also lower inflation, where most tend to believe that the opposite is true, including the fed. In any case, wars drive inflation because they create supply shortages. That was true over 100 years ago when World War one and today with Russia, Ukraine.


Keith Weinhold (00:44:17) - I mean, is there any one factor that drives price increases more than supply shortages? The short supply of real estate itself is what keeps driving prices. And Richard asks us to look where some don't. That is that real estate values rise as debt to GDP rises. In his opinion, there is no financial crisis imminent. We need to see a rapid rise in private sector debt in proportion to GDP first. And you know what's remarkable about this economic slowdown or recession that still hasn't come, but it's been erroneously predicted by so many. It's the fact that recessions are often self-fulfilling prophecies. People have called on a recession for the last year or two. And that mere forecast alone that tends to make real estate investors think, well, then I won't buy the property because my tenant might lose their job in a recession. And businesses don't hire when everyone says a recession is coming. That's exactly how a recession becomes self-fulfilling. And despite two years of that, it still hasn't happened. That's what's remarkable. Anyone sitting on the sideline keeps losing out again.


Keith Weinhold (00:45:37) - You can follow Richard. Big Tycho's is spelled Tycho's. Follow a joint Tycho's Richard and I talked some more outside of our interview here, and he had a lot of compliments about the show. In fact, more compliments than any guest has given in a while. He had not heard of our show before last year. I'm in Philadelphia somewhat regularly and I might hit him up the next time I'm there. We'll get lunch or something. Check out Gray in Spanish at Get Rich education comma. Espanyol. Thank you for tuning in today where our episode was Bigger Picture education. Next week's show will be substantially more hands on real estate. I'm Keith Wayne a little bit. Don't quit your day dream.


Speaker 5 (00:46:24) - 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.


Keith Weinhold (00:46:52) - The preceding program was brought to you by your home for wealth building. Get rich

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No one gets wealthy from a high salary. Wealth is acquired by owning things.

But how can you own MANY things without much money? I discuss it.

Learn how to use major banks (Chase, Wells Fargo) to fuel your wealth and retirement when you’re young. 

Debt is like fire. Kids will burn down the house with fire. Adults will use fire (debt) to produce prudent leverage and outsized returns. 

High salaries don’t create wealth due to: lost time, no leverage, few tax benefits, and entrapment due to sunk education costs.

I sat down with a conventional financial advisor. Things got interesting. 

Learn why Western US homes cost more than Eastern US homes. This fact confounds most real estate pros. I break down 8 reasons.

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Complete episode transcript:

Welcome to GRE! I’m your host, Keith Weinhold.

Don’t make this giant wealth mistake - understand why a high salary does NOT create wealth. Learn what does instead. 

See how to get deep pocketed-banks like Chase & Wells Fargo build wealth for YOU. 

I recently sat down with a traditional financial advisor - this got interesting. Then, why do WESTERN US homes cost more than EASTERN us homes? All today, on Get Rich Education.


Welcome to GRE! From Port Jervis, NJ to the Port of Bellingham, WA and across 188 nations worldwide, I’m Keith Weinhold and you’re listening to Get Rich Education. Welcome in!


When I grew up, I thought that people got wealthy from high salaries. I figured that I could get wealthy if I got a high salary too.


And then adulthood has proven to me that… they don’t. 


People don’t get wealthy from high salaries. They get wealthy by OWNING THINGS.


Let’s break this down. 


People DON’T get wealthy from high salaries. 


In fact, have you ever seen THIS happen? I haven’t. I worked as an employee in both the public sector and the private sector, and I’ve been a longtime real estate investor and entrepreneur. 


In fact, how would anyone even GET wealthy from a high salary?


If you’ve got a job… you’re trading your time for dollars and selling your time for money. 


I used to do that too… and I actually think that everyone might get some perspective by having a taste of that. Most get that taste.


And say you’re even entrenched in the game of climbing the corporate ladder, to a higher and higher salary.


Well, first, in my experience, many job promotions get you perhaps 10 to 30% more in salary, but 2x to 4x the responsibility - that’s 200% to 400% more responsibility.  


Even if there’s an edge case here, in your situation, in climbing the corporate ladder - where does that even get you in the end?


Look at your supervisor and their lifestyle. Is that what you want to be?


Look up higher at your supervisor’s supervisor. What’s their life like? Is that the life that you REALLY want? 


Is that what you aspire to be - and expend so much of your most precious resources to get THERE - time, time away from your family, energy, skill, potential. Is that really it? 


The answer is right in front of you!


People don’t get wealthy from high salaries. People get wealthy from OWNING THINGS. We’ll get more on how - if you have average means - on how you can OWN MANY THINGS shortly. 


But first, let me address any more hangups you might have if you still think that high salaries can create wealth. 


We won’t even look at, sort of, common jobs like an IT specialist or a systems analyst or a plumber. 


Let’s take an edge case - a classically, high paid profession - a doctor, a surgeon, a specialist even. Highly compensated - several hundred thousand dollars in salary each year. I know some of them. 


I also know a bunch of RESIDENT doctors too and I talk with them - they’re basically, finished with their formal schooling and are doctors-in-training. 


They are repaying loans deep into the six figures after undergrad pre-med and after a few more years at medical school - often it seems to be $300K to $400K in debt that they have to pay back in the case of these resident doctors.


But that’s besides the point. It’s common for these specialist physicians, once they start working, to work as a doctor for, say, 58 hours a week… or 71-and-a-half hours a week. 


Now I said that high salaries don’t create wealth. How wealthy are you, if after undergrad, med school, and three years of low paid residency, you finally get out, you’re in your 30s or older, and you’re working 60+ hours a week. 


60+ hours a week is not MY idea of wealth and freedom at all. 


You know what else, when you’ve pursued a specialty track like that, which often comes with loads of debt, you are in so deep - you’ve invested so much time & energy & chapters of your life… and DEBT into that field you CAN’T pivot to another career, even if you wanted to. 


You’re trapped. Entrapment is the very opposite of wealth and freedom.  


Understand, I just went out and gave an example of perhaps the highest salary type of person that I can think of… to help prove my point. Where’s that leave you?


And you’ve probably heard… the “end game” trope… about climbing the corporate ladder by now. 


Yep, you spent the best years of your life climbing the corporate ladder… only to find at the end… at the top… that the ladder was leaning up against the wrong wall the whole time.


Because high salaries don’t make people wealthy, then how do people get wealthy from OWNING THINGS?  


There are two main ways:


#1 - You can launch and own a business.

#2 - Real estate.


Now, launching and owning a business takes a ton of entrepreneurial ambition, risk, and you’ve got to have a novel idea - a NEW idea - that creates value for the world.


This can be a worthwhile venture… and successful entrepreneurs create value for the world with their own business. It’s terrific! It’s capitalistic! It’s turning lower use resources into higher use resources.


But unless you have your own money, you’re going to have to be scrappy and resilient for a long time. Because it’s really hard to get loans for a new business.


If you hire anyone to help you, you need to quickly produce enough income to have leftover profit - paying your overhead expenses, software subscriptions, paying your help… and having enough leftover to fuel your own lifestyle.


Household names like Apple and Facebook are one-in-a-million. You don’t have to be an Apple or Facebook. But it’s tough. 


The first way is by owning a business. The second way is by owning real estate. 


New businesses are unproven. Real estate is proven. Like I say, wealthy people’s money either starts out in RE or ends up in RE.


But how do you OWN much real estate? Because RE is expensive, and wealth is created by OWNING things.


With prudent loans. Because RE is proven, banks will GIVE you loans. Lots of them. Have good credit, be credit worthy.


And… being credit worthy should be an innate trait in any virtuous human being. Because it shows that you repay the debts that you owe. 


I think that when it comes to debt, debt is like fire. Don’t let a little kid play with fire. They’ll burn down the house. 


Leave fire to adults. They’ll use it to HEAT the house. 


Leave debt to the adults. Use debt to fuel your lifestyle, fuel your ambitions, and fuel your opportunities. To the scarcity mindset of “all debt is bad”, here at GRE we say, you’re an adult. Grow up. 


Learn… that debt is Leverage… and your debt isn’t paid back by you at all. Tenants and inflation both RELENTLESSLY and INCESSANTLY pay it down for you, until they pay it OFF for you… if you want.  


So then, who’s really funding your wealth, enabling you to own things? 


Who really funded my wealth from nothing, enabling me to own things? 


Who funded my retirement? Leverage… from Chase Bank, Wells Fargo, Bank of America, and other banks. They all give you the opportunity to let THEM fund your wealth for you. 


Now, I’m going to explain a core GRE principle here. But so that this isn’t repetitive for the longtime listener, I’ll use a NEW analogy for you, here.


Look, let’s say that you’re a kid. You don’t know how to responsibly use fire or debt. In fact, you’re still just 4’ tall. 


But learning about leverage is like… seeing the light.


Now, with the sunlight, a 4’ tall kid can now cast a 20’ tall shadow. You look like a giant now.


5-to-1 leverage made you, not just grow up, but grow into a giant. You suddenly wield the power of a financial giant thanks to the banks. 


Because with your 20% down payment, you're only putting up one-fifth of the property price.


How then, do these big banks make you a giant?


Let’s say that’s your $40K down - on a $200K income property, when the property appreciates only 4% - like RE did last year per the NAR number - you just got a 20% return. 


How? Because you got a 4% return on both your $40K down… and you got a 4% return on your $160K borrowed. 


Yep, the return from that $160K of borrowed bank money didn’t go to Wells Fargo, it won’t go to Chase Bank, it won’t go to Bank of America.


It ALL goes to you - because you leveraged them. That’s how you beat the banks. That’s how you build wealth.


Two years ago, when property appreciated 10% that year, you got a 50% leveraged return.


And it gets better than that. You can make income property down payments even lower than 20%, like I did when I began.


A 4’ tall kid then, that sees the light, can cast an even taller shadow than 20 feet at 5:1 leverage. A bigger giant.  


Any GRE devotee knows that leveraged appreciation is one of just 5 ways you’re paid. We’re only talking about ONE here.


Sounds amazing. Some think, “There’s gotta be a catch.” There is, but it’s manageable. Leverage amplifies losses, just like gains.


Though it doesn’t happen often, RE can go down in value. 


Even in a downturn, look at what happens. Between any ten-year period, nominally, you won’t find any loss of RE value in modern history… and you must manage cash flows.


So, no. This is not a 6-month plan. It’s to build wealth durably with a reliable vehicle in more like five to ten years. 


It gets better. As your equity grows, harvesting it out through a cash-out refi maintains your… magnification into a financial giant, to stick with the analogy.


And every cash-out refinance that you do… is a tax-free event. Not tax-deferred. Tax-free.


You can make tax-free cash grabs, separating it out from your properties along the way, since the IRS doesn’t classify debt windfalls as taxable income, and you have a pro PM handling all the day-to-day for you, if you prefer.


Now you really know WHY, wealth is not created from high salaries. It’s created from owning things.  


And you need to be more than creditworthy. You need to be strategic in building your portfolio with the right properties in the right markets. 


Set up a time with one of our GRE Investment Coaches… and they help you do exactly that for free.


Either that or you can just keep believing that high SALARIES create wealth. Ha! 


Now, a few weeks ago here on the show, I told you that I’ve had a sit-down meeting coming up with a conventional financial advisor - a retirement planner type of guy. 


I’ve been getting their e-mails and dismissing them, for 8 or 10 years, but I always stayed subscribed.


This is from when I used to work at a State DOT - Department of Transportation. 


So I finally responded & we set up a 1-hour sit-down. We did it virtually on web conferencing. 


I prepared by having some things ready for him that he asked for - like my monthly cash flow statement, net worth worksheet, and he also asked I have my Soc. Sec. statement pulled up, so I had that ready.


Now, this is not the forum for espousing GRE’s proven wealth-building formula to him. No PROS-il-uh-tie-zing. proselytizing. 


And, he told me that… I’m in really good shape.


He didn’t dig in with questions on my backstory, like, how were you able to retire at such a young age… or how did you amass all this?


And yes, I could retire now. I could have a while ago. I think you know that. 


He was interested in knowing what the cash flow from the rental properties was. In fact, that was his first question about them. Good first question. 


Interestingly, he really wanted to know how long I have to pay on my rentals. Like, when would the 30-year mortgages be paid off? 


Well, gosh, they all have 20-some years to go. Most of them are clustered around 27 years to go. 


He could see that I COULD pay many of them off quickly, now, if I wanted to. But he didn’t tell me that I should. Of course, I wouldn’t want to lose the leverage.


You know the most interesting question that this conventional financial advisor asked about these properties that I have all over the place, in different states and even nations?


He asked, “Do you plan to LIVE in any of these areas?” 

No, I don’t plan to live in those properties or even in those areas. I pick investor-advantaged areas for investments, and live where I want to live.


Now, he encouraged me to import my financial info into their retirement portal. When I say, they, he works for a private company that administers the DOT’s retirement plan.


You know, I had previously been reluctant to do that and share all my financials with another party. 


But, I’ve got to say, I’ve reconsidered and MIGHT enter it in there. It does some pretty impressive modeling and scenarios. 


For the properties, you enter the address and they use Zillow estimated values. 


It looks at how the graphs change when you get to the age of where any pensions and soc sec & all that enters your life. 


All-in-all, maybe you thought I’d bust this guy's chops for being scarcity-minded or not about passive cash flow. But he was pretty good. It was an hour of my time well-spent, I would even say. 


And again, the reason that I was able to be positioned this way comes down to… relying on compound LEVERAGE, not compound interest - casting the shadow of a 20-foot tall giant compared to when you’re a 4-foot tall child.


BTW, I do NOT consider myself retired. I remote “asset manage” my REIs and I produce this show, produce videos for our YouTube channel, write our newsletter, and write for Forbes and more… on material that is interesting to me and helps others.


Coming up straight ahead, why do homes in Western US states cost more than homes in the East?


This fact makes zero sense to most people, because areas east of the Mississippi River are more densely populated. 


In fact, nearly 2/3rds live on just over 1/3rd of the land, suggesting the East should clearly be pricier. 


Then how could it be opposite? It might seem weird. That’s coming up shortly.


You’re listening to Get Rich Education podcast Episode 497. That means we’re just three weeks away from a special, milestone, Episode 500.


I’ll tell ya. I sure know how to put the performance pressure on myself, don’t I? Ha! 


Something here that we don’t often talk about or offer the opportunity for…


… if you’re a business owner or decision maker and would like to advertise on our platform, well, we’d like to check you out first. 


Often, I use the product or service myself first.  


Get Rich Education is ranked in the Top one-half of 1% of listened-to podcasts globally, per Listen Notes. 


On air EVERY single week since 2014, some say that we were the first show to finally CLEARLY explain how RE makes ordinary people wealthy. 


For advertising information and inquiries, visit, That’s


More next. I’m KW. You’re listening to Get Rich Education. 


A little tribute and melodic swan song to Russell Gray there.


Welcome back to Get Rich Education. I’m your host, KW. 


Before returning to real estate, let’s do a quick first quarter asset class review.


It’s coming a little later than usual here. But it’s good to see what the rest of the world is doing. 


Almost everywhere you look, asset prices are up, up, up.


In real estate, as housing intelligence analyst Rick Sharga & I discussed in detail here in each of the last two weeks, prices & sales volume are both up.


The S&P had its best start to a year since 2019, up 11%


The yield on the 10-yr T-note was up 26 basis points. Remember that mortgage rates move closely along with that. 


Gold was up 8% to an ATH over $2,200. And gold even touched $2,300 here in Q2.


In the first quarter, oil was up 15% to $83.


Bitcoin was up 68% to $70K


And the biggest beneficiary of AI hype, Nvidia was up 88% in just the first quarter.


And this is even wilder - a little wild card for you here - for the first time ever, cocoa prices briefly surpassed $10,000 per metric ton, making the confectionary commodity more valuable than copper.


That’s what’s goin’ in the TOTAL investment world.


Why do homes out West cost more than homes in Eastern states?


This fact makes zero sense to most people, because the East is more densely populated. 


According to the US Census Bureau, 64.4% of Americans live east of the Mississippi River. That’s on land that's barely more than one-third of the US - because the Mississippi doesn’t run right down the center, it’s a little to the east of center in the contiguous states.


So this means that nearly 2/3rds of people live on just over 1/3rd of the land, suggesting the East has GOT be pricier. 


Well, it’s strange to many that it is, in fact, just the opposite. The West is pricier.


Now that pandemic migration and RE prices have settled, we’ve taken a fresh look at prices and this trend - which is curious to many - continues.


Let me demystify it for you. 


And you saw a beautiful, colorful map that brilliantly demonstrates this. I sent it to you a few weeks ago if you’re a DQYD Letter subscriber. 


Now, there are some notable exceptions to "the West is pricier", like New England and south Florida. Housing is expensive in densely populated northeastern cities.


New Mexico is an outlier as a cheap western state.


No, the West is not pricier because The Kardashians' lavish $200M total portfolio of California real estate skews the entire nation.


Here's my more, I suppose, scholarly breakdown. 


Yes, one of my degrees was in Geography before I became a real estate investor.


The first reason is - NEW: The west has more new-build homes.


Higher costs of land and labor, then, had to be priced in. Eastern homes are older because it's closer to Europe's (die-A-spruh) diaspora, where the US' early immigration was heaviest.


Then there’s the factor of - the FEDS: No, not Jerome Powell’s Fed. 


It’s that over 90% of federal land is located out West. No building is typically allowed here, and that makes developable land more scarce.


This helps explain why when you see huge swaths of undeveloped land when you fly over the West and think there’s boundless room for growth and sprawl, often times, there… is… not.


3-D: Maps are 2-D. The world is 3-D. Western housing is expensive because you have scenarios like port cities surrounded by mountains and high desert. 


So developable land is more scarce than it seems, making demand exceed supply in more places out West than what one might think. 


San Fran is confined by the bay and hills. Seattle is confined to an isthmus. Salt Lake City is next to the Wasatch Range. Alaska looks enormous, but nearly half it’s state’s population lives in the biggest city of Anchorage, which is sandwiched between water, mountains, and that aforementioned federal land.


The fourth reason, is CALIFORNIA DREAMIN'. Despite recent domestic OUT migration and The Kardashians aside, California REALLY DOES help tilt the balance. 


People are attracted to SoCal's Mediterranean climate such that nearly 1-in-8 Americans are still coolin' in Cali, with a median home price of $737,700. That climate desirability drives up prices.


Much of CA also has… these layers - just myriad - codes and limits and regulations like, for example, solar panels on new construction that can add $25K to a home's cost alone.


The next reason western homes cost more than Eastern home is, what I’ll call…




[Play insert]


Ha! Famous classic comedy sketch there, with the late Chris Farley. 


The East has the Great Lakes and more rivers. 


It costs 1/12th as much to transport goods and housing materials over water than land. 


That is a fact that has been stated on this show previously. It was first brought up a few years ago when we had geopolitical strategist Peter Zeihan here to discuss the “geography of real estate” with me. 


A river city like Memphis is a GIGANTIC transportation hub, for example. This keeps down the costs for all kinds of consumer goods and building materials, making for a lower cost of living and, in turn, property prices. 


QUAKIN': There's more seismicity out West. It costs more to BUILD to those construction standards. 


For example, CA and WA are 20%+ more expensive to build than many Southeastern states. There are more fires in the Western US, tornadoes in the middle, and hurricanes in the East.


JOBS: It takes more high-paying jobs to attract new residents and get them to uproot and move to the faster-growing West. Higher incomes buy pricier homes. 


The East has tons of jobs going for it too. In fact, the northeast might be the world’s most productive region - NYC, Boston, Philly, DC. 


But out in Appalachia and elsewhere, there are some waning business sectors like various heavy industries and coal. But most of the ones that were going to move out, already HAVE moved out, decades go. Much of that downdrain is overwith.


The last reason is…


I CAN SEE CLEARLY NOW: The West has mountain and desert VIEWS. These can be seen from farther away than Eastern… forest and flatter areas and piedmont landscapes. The East has a lot of lake and river view properties though… and… 


There they are—8 reasons why Western homes cost more than Eastern homes.


Now you know why West Virginia has million dollar homes so big that you can get lost indoors. 


And in coastal Cali, it seems like a million bucks gets you little more than a ramshackled pool house.


Of course, at times, I've had to make gross generalizations about such a vast nation of 340 million people and so many variables. 


Otherwise, this episode could be a few hours long. As I discussed those, you sure could think to yourself at times, “I believe there’s an EXCEPTION to that criterion.”


I want to tell you why this all MATTERS TO YOU shortly. 


Yes, there is some irony here though. The western US has lands that are arid, inhospitable, and what some describe as wastelands, like four deserts.


Well, the invention of the air conditioner made those places more livable. 


The West also has the most beautiful national parks, and hey, some find places in the East INhospitable, like Michigan’s Upper Peninsula in March.


Now, I like a change in seasons, coming from Pennsylvania like I do, but some don’t. You’ve got to serve real estate to where people want to own and rent. 


Florida has not been thought of as a mosquito-infested swamp since last century. Today, it’s livable and desirable to many. 


Now, there are some other factors in addition to the main 8 reasons I’ve mentioned, on why Western US homes cost more than Eastern US homes, from a slavery legacy to unionization and more. I’ve been hitting the big ones here.


Real estate has made more ordinary people wealthy than anything else. 


When you're on our website, GRE Marketplace, and hover over the blue "INVEST" button, you'll notice that most long-term rental investor markets are in the East.


There's a reason.


Rents are strong relative to this LOW PURCHASE PRICE that I’ve discussed here.


And now you know more of the “whys” behind the Eastern US’ lower property prices. And maybe, today, I hope it's the BEST understanding you’ve ever had for why that’s the case. 


We buy in strategically chosen GROWTH areas that tend to be more East than West. 


And, that’s really part of the progression of this show. We began in 2014 with this podcast and other real estate investor education. We still lead with that.


But next, listeners wanted to know where they could FIND PROPERTIES conducive to our wealth-building strategy, and we added that at GRE Marketplace. 


Yet, that still wasn’t enough because I noticed that some of you that wanted to build your wealth with real estate, needed to make it easier to have your questions answered, or find a lender, or insurer, or find just the right property in the right market that fits your goals.


So starting more than two years ago, we added Investment Coaching - it’s still free like everything else that we do here. 


Our coaches are real people and real, direct, real estate investors just like you are… and just like I am. Our coaches simply have more EXPERIENCE doing it than most people do.


Because knowledge is not power, but knowledge plus action is power, I often like to leave you with something actionable… that’s really going to help you at the close of the show. 


If you didn’t already know, you can find properties and a coach, at


Until next week, I’m your host, KW. DQYD!


Direct download: GREepisode497_.mp3
Category:general -- posted at: 4:00am EDT

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Apartment construction is falling. It’s not because banks are pulling back from lending. Projects aren’t feasible for builders.

Housing market intelligence analyst Rick Sharga returns to discuss the real estate market. 

We discuss: real estate price movement, affordability concerns, expected mortgage rate changes, migration, price reductions, new homes vs. existing homes.

Can anyone even find a new-build $225K detached SFH today? They’re nearly extinct.

Homebuilders are still buying down mortgage rates for you into the 4%s and 5%s at

America needs more SFHs, especially at the entry-level. 

Apartment rents have declined a little. SFH rents are up about 3% year-over-year. 

Delinquency and foreclosure activity remains low. These have a strong correlation with unemployment rates.

The volume of homes sales should increase this year, but only by perhaps 10%.

A recession is still quite possible later this year and expected to be mild.

Every region of the nation is currently experiencing residential RE price growth. 

When mortgage rates fall, more new buyers than sellers are expected, pushing up property prices.

Resources mentioned:

Show Page:

Inquire about business with Rick:

Rick Sharga on X:



Rick Sharga

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or e-mail:

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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” 

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Complete episode transcript:


Keith Weinhold (00:00:00) - Welcome to GRE. I'm your host, Keith Weinhold. Tons of new apartments were built last year, but that's abruptly going to change going forward. You'll learn why. Then a housing market intelligence analyst and I break down what's happening in the real estate market and the future direction of rents, prices, foreclosures, interest rates, and a lot more today on get Rich education. When you want the best real estate and finance info. The modern internet experience limits your free articles access, and it's replete with paywalls. And you've got pop ups and push notifications and cookies. Disclaimers are at no other time in history has it been more vital to place nice, clean, free content into your hands that actually adds no hype value to your life? See, this is the golden age of quality newsletters, and I write every word of ours myself. It's got a dash of humor and it's to the point to get the letter. It couldn't be more simple. Text GRE to 66866. And when you start the free newsletter, you'll also get my one hour fast real estate course completely free.


Keith Weinhold (00:01:16) - It's called the Don't Quit Your Day Dream letter and it wires your mind for wealth. Make sure you read it. Text GRE to 66866. Text GRE 266866.


Corey Coates (00:01:34) - 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 (00:01:50) - Welcome to grow from Alexandria, Egypt, to Alexandria, Virginia, and across 188 nations worldwide. I'm Keith Weinhold, holding your inside get rich education. I'm grateful to have you here. A few weeks ago, I discussed all the apartment buildings that were constructed last year. One thing that you'll often hear out there today is that apartment construction is now falling because banks are pulling back on construction lending. But no, it's really not quite that simple. In fact, that's not even the top reason for construction delays now and going forward with apartments. The number one reason for the delays today is that the project is not economically feasible at this time. That's what the NMC tells us. All right. So what does that really mean? Well, it means that projects aren't penciling out.


Keith Weinhold (00:02:44) - In other words, apartment developers, they can't generate the returns that they need to justify the project to their capital partners, those that are funding the building. And this is, by the way, not about greedy developers, because contrary to some of the noise, it's the fact that developers do not self-fund their projects. They get the money from others. So yeah, it's the developer's job to convince investors and lenders to inject that capital. And that is just harder to do right now. Despite developer's best efforts and higher rates are obviously still contributing to the problem. It's not so much that the construction financing is not available, because for residential, it's often there. It's available. The thing is, is that apartment mortgage terms and rates are way less favorable than they were a couple of years ago, as we all know. So developers, I mean, they're paying a higher interest rate then. And you therefore need higher rent to cover that higher interest rate unless you can cut a lot of costs elsewhere and in apartments, you're also getting a lower loan to value ratio.


Keith Weinhold (00:03:55) - So that means developers, they therefore need to raise even more equity in order to cover that gap. And what's happened is a lot of the equity that's shifted away from brand new ground up apartment development, and instead it's gone over into chasing potential lease up distressed deals, properties that are already out there and are having some problems. So that's where the apartment money is moving right now. Not so much to new developers and builders also aren't building many apartments this year because construction costs remain a problem. Some materials got cheaper, others didn't. One bright spot is that construction labor that is getting easier to find. But yet the actual labor cost that really hasn't dropped. Property insurance is higher too, so these rising expenses, that means apartment projects are not penciling out for builders and then apartment rents. They're just not rising that much. That doesn't help. So it's hard for it to rise, since so many were built last year and the year before. They're in the apartment world. But obviously the long term demand is for just about all residential housing.


Keith Weinhold (00:05:11) - That demand. Is there loads of long term demand for apartments, condos, single family homes, co-ops, modular homes, mobile homes, duplexes, triplexes, fourplex container homes, row houses, farmhouses, penthouses, outhouses. I think you get the idea. The demand is there. Residential is the resilient spot, and it's all about where you want to get in. And speaking of homebuilders and finding a smart place to get in, it's important to share with you the good news that homebuilders are still buying down your interest. Right for you. Now the third year rate, it hit 8% last year. And Non-owner occupied property costs a little more. So it was nearly 9% on income property. It's come down off that as we know it's been around seven lately. But see here at GREwe work with builders that are still buying down your interest rate into the fives and sometimes still into the fours on new construction, single family homes, up to four plex and sometimes larger in Florida, Alabama and elsewhere. I mean, that is just the best deal going for you today to have an income producing new build property in the path of growth at 4 to 1, leverage to 5 to 1 leverage and.


Keith Weinhold (00:06:46) - Your mortgage in the fives or less, and we'll help you find the real deals within that. To connect with a great investment coach at great I think you'll be glad you did. Now, today, if somehow I could use a time machine to write a letter back to my 2020 self and inform myself about what's going to happen in the housing market for the next 4 or 5 years? And I had to keep this note to myself short. I would have written that everything is going to shoot way up, rents up, prices up, interest rates up, expenses up, inflation up. Well, now that nearly all of those run ups have settled into place, we can draw a clearer picture of where we think the real estate market is going to be positioned in the future. Our guest has just freshened things up and he's got the latest in the property market all updated for us. I do two with my own research. You'll like this. It's our housing intelligence analyst guests and I. Straight ahead.


Keith Weinhold (00:07:55) - I'm Keith Weinhold. You're listening to get Rich education. 


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, or 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 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 66866. Oh, and this isn't a solicitation. If you want to invest where I do, just go ahead and text family to 66866. Role under the specific expert with income property, you need Ridge Lending Group and MLS for 256 injury history from beginners to veterans.


Keith Weinhold (00:09:15) - They provided our listeners with more mortgages than anyone. It's where I get my own loans for single family rentals up to four Plex's. Start your pre-qualification and chat with President Caeli Ridge. Personally, they'll even customize a plan tailored to you for growing your portfolio. Start at Ridge Lending Ridge lending


Kristin Tate (00:09:42) - This is author Kristin Tate. Listen to get Rich education with Keith Weinhold. Don't quit your day dream.


Keith Weinhold (00:09:59) - Hey what has not been a very long goodbye. Just like last week when we discussed the economy this week we have the return of the C.J. Patrick Company's Rick Sharga, an extraordinary housing intelligence analyst, as we more specifically cover the real estate market. And if you're on video, you'll have the benefit of seeing some charts as well. Rick. Welcome back. Good to be back, Keith. Long time no see. Yeah, it hasn't been so long. What are your overall thoughts with the housing market? Last week we largely talked about a resilient economy potentially with some headwinds. Yeah we did.


Keith Weinhold (00:10:32) - And I think we're one of the things we left off on was the impact that the Federal Reserve had had on the mortgage market and the housing market. We probably start there. When you look at what's gone on, and just to show you how random all of this can feel sometimes this is a snapshot of mortgage rates from March 12th. And mortgage rates were trading at about 6.92% for a 30 year fixed rate loan.


Rick Sharga (00:10:56) - The most recent number I saw was about 7.1%. And as I mentioned to you and your listeners last time, I expect until the Federal Reserve makes its first fed funds rate cut, we're going to see mortgages trade right around 7% between 6.75 and 7.25%. This has made a big difference in the market because it has limited affordability for literally millions of prospective home buyers. That's makes for a difficult situation for people looking to buy or sell homes, but it also presents millions of rental property opportunities because these people need to live somewhere and they've voted themselves off the island temporarily. They just can't afford to buy a house.


Rick Sharga (00:11:41) - And you see that in terms of the reduction in number of mortgage applications that are being made. So if the Mortgage Bankers Association tracks the number of people that apply for loans, if you went back to December when mortgage rates dipped just a little bit, we saw a run up of loan applications, and as soon as they went back up to seven, we saw that number fall off. It's a very, very rate sensitive market. We'll talk a little bit about some of the implications of that as we move ahead, Keith. But the weak affordability, the higher interest rates, the continuing high home prices led to a very, very weak year in 2023. In terms of overall home sales, we ended the year with about 3.9 million existing homes sold. That's the lowest number of homes sold in a year in a quarter century. Yeah, even lower than we saw in the Great Recession. And December was the 28th consecutive month where we sold fewer properties than we sold the year before.


Keith Weinhold (00:12:39) - So a contraction in the number of sales, although prices appreciated last year.


Rick Sharga (00:12:44) - Yeah, we'll talk about that this year. I'd been hopeful that we'd be a little bit of a better start. January and February were both up in terms of home sales on a month over month basis, but continued this trend of lower sales on a year over year basis. We're looking at 30 consecutive months where we sold fewer properties than we sold the prior year. As a result of this.


Keith Weinhold (00:13:05) - Supply crash, that really began about four years ago.


Rick Sharga (00:13:08) - It's partly supplied as partly costs, that affordability. We really can't overestimate the impact that affordability has had. But you're right in terms of inventory and in fact, a good segue, it's almost like you'd seen this before, Keith. Inventory is up significantly from last year, about 24% higher than it was a year ago, according to some data from Altos Research. But it's still only running about half of 2019 levels. So in a normal market, we would have about a six month supply of homes available for sale in our market today, we're looking at somewhere between two and a half and three months supply.


Rick Sharga (00:13:44) - That lack of supply with some pent up demand is one of the reasons we have seen prices continue to be very healthy, and we haven't seen the the price crash that all the snake oil salesmen on YouTube comments. As of mid-March, about 513,000 homes available for sale, again, about 24% higher. Than last year when the numbers were just dismal. We normally do see more inventory coming to market this time of year. We'll not get anywhere near where we were back in, you know, years like 2019, 2020. But it wouldn't be a surprise to see a little bit more inventory coming to market.


Keith Weinhold (00:14:21) - Now, Rick, for existing properties, we have the very well documented interest rate lock in effect. I think a lot of people understand that. But as far as bringing more supply onto the market, do you see anything from the builder side? You know, costs are up for builders and builders feel this lack of affordability from the buyer market as well. So therefore that motivates them to build somewhat less.


Keith Weinhold (00:14:43) - And they're also building smaller properties, some shrinkflation with new construction property to try to help out with that affordability. So what are your thoughts with builder motivations this year and next year?


Rick Sharga (00:14:54) - All that thought is we're going to get to new homes in just a couple of minutes. So keep that right forefront in mind. But let's just kind of wrap up on existing sales. I do want to point out to your listeners that the inventory growth is actually outpacing the number of new listings. So new listings are only up about 14% year over year, whereas overall inventory is up 24%. The reason for that is it's taking longer to sell homes once they get to market. So once those properties are listed, they're staying in the inventory numbers a little bit longer than they were last year or even a few months ago. So that's one of the reasons the inventory numbers look a little bit better than they did. You talked about the rate lock effect. It's still very real. About two thirds of everybody with a mortgage has a mortgage rate of 4% or less.


Rick Sharga (00:15:43) - And this is not home sellers being picky or having a psychological problem. This is math. If you sell a property today and buy a new one for exactly the same price as the one you just sold, you've now doubled your monthly mortgage payment and most people simply can't afford to do that. So the properties being listed or by by people who feel like they need to sell, there's a death in the family or a birth in the family. There's a divorce or there's a marriage. There's a job loss or job that requires a transfer, maybe some financial difficulties where the borrowers in distress so they feel like they have to sell the home, or somebody's been retired for a long time, has a lot of equity, and just says, oh the heck with it. It's time for me to downsize. But the people who would normally be making a decision that maybe I'd like to sell, maybe I'd like to look at a move up opportunity. Those people are sitting on the sidelines and rather than seeing a price crash, which is what people are breathlessly trying to sell you on YouTube, the most likely scenario, something we've seen play out in the 80s and 90s and is likely to play out again in the 2020s, which is several years of kind of lackluster sales volume and modest price growth.


Rick Sharga (00:16:54) - And it takes a few years to reset the levels so that all those people with the Sub4 mortgages gradually, slowly work their way out of inventory and are replaced by people with mortgages that are closer to today's rates. And we've seen that happen, like I said, in the 80s and 90s, and it's a very normal occurrence when you have a sudden shift in either mortgage rates or home prices, that's much more likely to happen than a 2030 40% drop in home prices to make things affordable. And I would just ask anybody who's skeptical, if somebody approached you tomorrow and you didn't have to sell, but they said, hey, sell me your house for 40% less than market value. How interested would you be in having that conversation?


Keith Weinhold (00:17:36) - Wouldn't last long.


Rick Sharga (00:17:37) - No. And then home prices are up in every region. You mentioned this, Keith. Across the country I'm sharing for people that can see it. I'm sharing data from the Fhfa, which is the entity that controls Fannie Mae and Freddie Mac. So all of those 30 year fixed rate conventional loans and a year over year basis, we saw prices go up 6.3%.


Rick Sharga (00:17:56) - They were up in every region of the country. And that's a little different than the prior year when the Pacific region was actually down. But every region of the country is seeing price growth right now. And whichever price index you look at Case-Shiller,, Freddie Mac, the Fhfa index, National Association of Realtors, everybody showed similar numbers were every region was up. But importantly for your listeners and I emphasize this enough, local results are very different than national results. So even within markets where we're seeing prices go up, there are going to be neighborhoods where prices are going down and vice versa. So it's much more important for you to understand what's going on in your local market than to listen to a lot of these national trends. I will tell you that some of the markets that overheated during the pandemic, as people were moving out of high priced, high tax or highly congested areas, are seeing a bit of a clawback. So places like Boise, Idaho and Saint George's, Utah and Austin and Phoenix and Las Vegas, we're seeing those markets with the prices clawing back a little bit, a lot of price growth continuing the southeast.


Rick Sharga (00:19:04) - So and surprisingly now in the Midwest as well. So we are still seeing a bit of a migration from high price, high tax areas into lower priced markets. I tell folks, Keith, I have two adult kids living at home. My son's getting married in September. He's a teacher. His fiance is a lawyer, and they took me aside recently and said, hey, you follow this stuff. What states should we be looking at outside of California to move so that we can own a house?


Keith Weinhold (00:19:31) - Wow, that is really, really interesting that that would dictate their decision on where they live, if they have that much of a preference to own rather than rent. Recently, a lot of us in the industry learned that the average age of the first time homebuyer is now 36, older than ever.


Rick Sharga (00:19:48) - Yep. And these are two kids with good heads on their shoulders. They know there are benefits to homeownership, and they also know that the median price of a home sold in California last month was almost $800,000, and the First National Bank of dad ain't financing that acquisition.


Rick Sharga (00:20:02) - So I'm sure these conversations are happening in New York, in Chicago, in Miami and in San Francisco, and it's just the reality of today's marketplace. We talked about prices going up. We are seeing slightly more homes having a price reduction before they're sold. That always happens somewhere along the lines of 30 to 35% of homes listed wind up with a price reduction before they're sold. We're up to about 31% now, so we're still in the normal range, but we're a little higher than we've been in recent months.


Keith Weinhold (00:20:35) - This is interesting, a statistic we don't talk about very much, the percent of homes experiencing list price reductions.


Rick Sharga (00:20:42) - And it peaked in 2022. The highest number we've seen in quite a while was over 40%. And that was right after interest rates doubled. And so it's probably not a huge surprise. People were anticipating they were pricing based on the prior market. And I think we're seeing more rational pricing today. But again, that combination of prices just being as high as they are and interest rates being as high as they are, are creating some affordability issues.


Rick Sharga (00:21:05) - And for people that have to sell, they're taking price reductions. Now, keep in mind these price reductions are often very, very minimal. In California, for example, the average price reduction is less than a percent. So it's not a huge reduction, but it's still a reduction from what the list price was. You asked about new homes. So now I'm going to make you happy. We'll talk about new homes. New home inventory levels are increasing. We normally want to see about a six month supply of existing homes for sale. The new home inventory is usually between 7 and 8 months. And we're back to that number right now. Some of those homes available for sale are still under construction, but they are nonetheless available for sale. And we've seen that inventory improve over the last year as supply chain disruptions have minimized as builders are now more able to find laborers for construction. Those are two huge holdups they had over the last couple of years, and we've seen new home sales increase. And one of the reasons for that is they're available.


Rick Sharga (00:22:05) - So if you're a builder and you put a home in the market at the right price, you're going to sell it because there just aren't that many existing homes available for sale. And to your other point, Keith, new home prices are actually down 15% from peak. Existing home prices are up, new home prices are down. And in fact, if you look at the most recent new home pricing data put up by the Census Bureau recently, new home prices are at the lowest level since June of 2021. So they've really come down pretty significantly and are not that far away from existing home prices in many markets. So that median price of an existing home and the median price of a new home for sale are closer than they've been in years, partly because the builders are building smaller homes, partly because you're using less expensive fixtures. And the other thing that the builders have been doing, and this price is a lot of people, but it's brilliant on their part, is they're coming to closing with thousands of dollars and they're paying down mortgage rates.


Rick Sharga (00:23:01) - They're buying points and dropping the mortgage rate for their buyers. I spoke to a group in Denver recently where there was a local builder advertising mortgage rates of 4.99%. So think about that.


Keith Weinhold (00:23:13) - We have providers we work with here that are doing similar things. We're still seeing the rate buy downs happening, and that's why I've often told people, Rick, like, this is potentially a good time in the cycle when you're adding more rental property to really look at new builds or build to rent while these rate buy downs last. Now, I talked to a builder in Houston yesterday, and I learned a few interesting things. You talked about the smaller square footages. They could confirm that often times this builder offers either a bedroom or a study. You can get an extra bedroom or a study like a little office space. And more and more people are opting for the study. So they're starting to build homes more with the study in mind because more people are working from home and one less bedroom because people are having fewer children.


Rick Sharga (00:23:57) - Exactly right. It's the combination of both of those two things, either having fewer children or having them later. And many more people working from home than they were prior to the pandemic. And those studies become very, very useful., rooms to have in the house. Rick, what.


Keith Weinhold (00:24:12) - Is the lowest cost, new build, single family home that you see? I mean, is anyone even building in any parts of the nation, like a 225 K new build home? I haven't seen one.


Rick Sharga (00:24:26) - I haven't seen one. But I wouldn't be surprised if you're in a market in a state like Alabama or Mississippi and some of the more outlying areas, maybe some markets in the Midwest where home prices aren't as astronomical as they are elsewhere. But look, the builders are building judiciously. They're not overbuilding., we had a cycle in 2008 where we had a 13 month supply of homes available for sale and building Irish building. They got caught with overstock. But what they are building, they tend to build as move up homes because they're more profitable.


Rick Sharga (00:24:58) - So you're just not seeing an awful lot of entry level homes being built. And the hope is that as they build that first move up level home, some of the people with entry level homes will opt to sell and bring some of that inventory back to market. We are seeing more construction. We are seeing building permits,, going up on a year over year basis., most recent numbers are around 1.5 million permits. So the builders are bullish on the future. And housing starts were up in both January and February. Most importantly they're up most strongly in single family owner occupied homes. We're seeing housing starts to decline dramatically in terms of multifamily starts, right. But that's because there's about a million new apartment units coming online between last year and this year. And we don't need a whole lot more apartments., we need,, more single family homes. So if your listeners are seeing headlines talking about housing starts being lower, it's really because we're seeing fewer multifamily starts.


Keith Weinhold (00:25:54) - Last year was a big year for multifamily construction.


Rick Sharga (00:25:57) - All time high in terms of multifamily units under construction. And a lot of those are still coming to market this year. There are going to be some markets that are actually still oversupplied. So again, you have to be paying very close attention. When we talk a little bit about the rental market in the apartment category, we have seen apartment rents decline year over year in pretty much all categories. Whether you're looking at studio apartments, one bedroom apartments, two better apartments on a year over year basis, rents are actually in negative territory, according to and according to some data I've recently seen from RealPage. If you're looking at the actual price of rent and I know that's a little different than percentage increases or decreases, you're still seeing that rents about it's below peak. It's about 1.6% below the peak we hit in 2022,, when vacancy rates were just about nothing. But we are still below peak, and the median rent is ranging,, somewhere in the neighborhood of $1,700 a year for apartments, single family homes, which I suspect more of your listeners are actually,, renting out than apartments.


Rick Sharga (00:27:03) - Yes. Are doing better. We're seeing year over year rents continue to grow. They're growing modestly. They have not gone into negative territory, and they haven't,, during this boom and bust cycle that we've seen in the housing market. And if you're looking at,, price gains, according to some recent data from CoreLogic, if you're at the higher end of the single family rental market, prices are up about 3% year over year. At the low end, they're up about 2.9%. So very little difference depending on your price tier and also very little difference depending on whether you're looking at an attached single family residence or,, detached family single family residence. All those are up right around 3% year over year. And that's a good sign. Again, you're dealing with a as your your listeners know, you're dealing with a slightly different tenant in a single family home than you are in a, an apartment. And a lot of these people who would have been buyers or opting to rent stands to reason that,, they'd rather rent a house, particularly if it's in a good school district or in a good neighborhood than an apartment, because they have needs.


Keith Weinhold (00:28:06) - Rents are extremely stable historically. They just sort of plod up slowly. What happened about two years ago, three years ago, with that 15% plus rent increase, that's an aberration.


Rick Sharga (00:28:19) - Yeah, that's a good point, Keith. If we're looking at 3% rental growth year over year right now in the single family rental market that tracks with historic normals, usually you're somewhere between 1 and 5% a year. So threes, you know, smack dab in the middle of all that. And the growth rates also vary wildly by markets., just kind of give you a range if you're looking at a single family rental property in Honolulu, in the city, year over year, you're up about 6%. If you're looking at a unit in Miami, Florida, you're down about 2.5%.


Keith Weinhold (00:28:50) - So rental growth rates.


Rick Sharga (00:28:52) - Rental growth rates. So really just depends on where you are. That's pretty much your range from a couple points down to I think Honolulu actually had the largest,, increase in the CoreLogic study. A lot of your listeners are probably interested in buying foreclosure properties.


Rick Sharga (00:29:07) - We're not seeing a lot of foreclosure activity. Still, we are starting to see a little weakness in consumers. When we met last week, we talked a little bit about the strength of consumer spending, but we also talked about increasing amounts of spending on credit cards. And we're seeing consumer delinquency rates increase in pretty much every aspect of consumer lending, whether it's a loan, whether it's a credit card debt, whether it's an auto loan, whether it's a home equity line of credit, whether it's a mortgage, a mortgage, delinquencies are up a little bit. The only category we're not seeing an increase in delinquencies right now is student loans. And my theory on that is that people have only recently had to start making payments again on student loans, and we don't have any data to show that they're going delinquent yet. But the delinquency numbers we need to take with a grain of salt, because many of them are most of them are early stage delinquency. So somebody missed a payment, but then they catch up before they get 60 or 90 days delinquent.


Rick Sharga (00:30:02) - But we are seeing trends that suggest more delinquencies. And if you have more delinquencies, that leads to more foreclosures. Mortgage delinquency rates, according to the Mortgage Bankers Association, went up to about 3.8% in the fourth quarter, the historic average going back to the 1970s, which is as far back as the NBA goes, is about 5.25%. So we're still way below normal levels of delinquencies. As I mentioned, most of those are early stage delinquencies, and they're being resolved before they get more serious. Because of that, we don't have a lot of foreclosure activity. So this is no longer Keith government intervention. It's no longer government forbearance programs and foreclosure moratoriums. It's the fact that the economy's been so strong. Unemployment rates have a very strong correlation to mortgage delinquency rates. We got together last time I mentioned the unemployment rate was at 3.9%. I just told you that word delinquencies are at 3.8. Can't get much closer than that. And because of that, foreclosure activity is still down almost 30% from where we were in 2019 prior to the pandemic.


Rick Sharga (00:31:07) - And I should point out, the 2019 wasn't a particularly big year for foreclosures either. So I don't see us getting back to pre-pandemic levels of foreclosure activity until sometime next year. And what's important for people in this space to understand is that even though we're seeing roughly the same number of delinquencies that we saw back in 2019, fewer of those delinquent loans are going into foreclosure. Fewer of those foreclosures are getting as far as the auction, and even fewer of those are going back to the banks as REO properties or bank owned properties.


Keith Weinhold (00:31:40) - Delinquency occurs before foreclosure. We have low levels of both, and I would imagine that one substantial reason for that are these low fixed rate payments that so many people have. Minutes ago, you showed us that 90% of those with a mortgage have a rate in the fives or less. And then oftentimes when we talk about these sorts of things, we don't even consider the fact that more than 4 in 10 homeowners are free and clear. They don't have any mortgage at all. So it's difficult for people to get in trouble.


Rick Sharga (00:32:10) - Yeah. And when they do get in trouble, what's really a saving grace for a lot of these people? And I believe the reason we're seeing fewer foreclosure auctions and bank repossessions is that there's $31 trillion in homeowner equity in the market, and 90% of borrowers in foreclosure have positive equity. A huge percentage of those have at least 20% equity. So what's happening interesting is that many, many of these borrowers are protecting their equity by selling their home before the foreclosure sale. If they get to foreclosure sale, they run the risk of losing all their equity, or at least the overwhelming majority of their equity.


Keith Weinhold (00:32:48) - That's a great point with how this really works.


Rick Sharga (00:32:50) - And so if you're looking to buy a distressed property, if you're looking to buy a foreclosure property, you really need to be working directly with the homeowner in the earliest stages of foreclosure rather than waiting for the auction. And certainly rather than waiting for the bank to repossess the home and resell it. And some recent data from a friend of tracking some numbers from Adam Data.


Rick Sharga (00:33:15) - 55% of the distressed properties that were sold through from June through to September of last year were sold in that pre foreclosure period prior to the foreclosure auction. That's wildly different than we've been in in years past. So really important for anybody looking to buy distressed property, to consider moving upstream and working directly with that homeowner. And it's a win win. You can help that homeowner protect their equity, have some cash to make a fresh start with and, and typically buy a home in pretty good condition and a home that you need to be part of your rental portfolio. So just kind of recapping some of the stuff we talked about, Keith, both today and last week, I still think that from an economic standpoint, there's still at least a good possibility we might have a short, mild recession sometime later this year. I don't see unemployment going much higher than 5%. Even if we do have a recession, if we don't have a recession, we'll only see the economy slowed down a bit. It might be hard to tell the difference.


Rick Sharga (00:34:10) - I'm expecting the volume of home sales to go up. I think we bottomed out in 2023, but not by a lot. Maybe we see a 10% lift over last year, which would take us to roughly 4.4 million existing homes. I wouldn't be surprised to see 700,000 new homes sold, really just depends on how quickly builders bring inventory to market. But if I'm right and mortgage rates go down slowly over the second half of this year, we'll see more home buyers come to market more quickly than sellers. We don't see a lot of sellers come to market until we get interest rates down to about 5.5% or lower, which probably won't happen until 2025. So more buyers coming to market than sellers means the prices will continue to go up. We continue to see investors account for 25 to 30% of all residential purchases. So I think we'll continue to see a higher rate, partly because investors are active, partly because a lot of consumers are waiting for market conditions to improve, but that limited affordability in today's market conditions, I really do think means more demand for rental units.


Rick Sharga (00:35:14) - And I think foreclosure activity stays below normal levels for the rest of this year, and REO inventory bank repossessions are going to remain even lower for even longer. I don't think we see REO activity come back to more normal levels for at least a couple of years, so anybody looking to buy these properties really does need to be moving upstream in order to make those purchases.


Keith Weinhold (00:35:34) - Yeah, with low affordability, hence more demand for rentals. I've already noticed that the homeownership rate, which is somewhat of a trailing number here, has already fallen from 66% to 65.7%. And with low affordability, it seems that that homeownership rate could fall even more, meaning the rate of renters would be higher.


Rick Sharga (00:35:54) - A friend of mine always complains that the government's somehow beside behind all of these trends, one way or the other, and and wonders why, with all the government programs aimed at increasing homeownership, we haven't seen that homeownership rate increase much. And I think sometimes things said to the natural level and our homeownership rate, really for the last 30 years, has been somewhere between 64% and 66%.


Rick Sharga (00:36:19) - And that might just be what the natural level for homeownership is in the United States. Will it dip a little bit as people can't afford to buy a house? Probably. Probably will. When market conditions improve for buyers, will it go up a little bit? Probably. But we hit 70% homeownership back in 2006. And it turned out that was the bad number and that not everybody's ready financially for the kind of commitment that homeownership requires. And so I've always said that the key isn't getting everybody into a home. It's the sustainability of homeownership for people that that we do get into that house. One of the best days of your life is when you get the key to that house, and it has to be one of the worst days if you have to give it back. So I hope we all keep that in mind as we move forward.


Keith Weinhold (00:37:03) - That's right. Government incentives is in the past saying there's a $10,000 first time homebuyer tax credit. Oh, we're not in an era where we need help. On the demand side, all you're doing is driving up prices.


Keith Weinhold (00:37:14) - And I don't know that you're helping out anybody in that case. But I think with really overall, one big takeaway here, Rick, is that if you the listener, if you're waiting for prices to drop substantially sometime or for interest rates to drop substantially sometime, that might not be worth the wait. You could be waiting a long time.


Rick Sharga (00:37:32) - I do expect mortgage rates will decline. I don't really go back to the sub for rates we saw a few years ago, but they're going to decline slowly and they may not decline enough to offset rising home prices. I mean, you have to get your calculator out and and figure out how that math works for you. But you're absolutely right, Keith. And I tell people today, even with mortgage rates being where they are, if you find a house you love or you find a house that's a good investment and you pencil it out and the numbers work, don't wait because the opportunity costs can be severe and you could wind up missing out on a property that could either be a good cash flow unit for you on rental, or it could be a property that you wind up living in for the next 30 years.


Rick Sharga (00:38:13) - So don't be afraid of today's market. Just be very prudent and judicious in the way you approach it.


Keith Weinhold (00:38:19) - Well, Rick, get resuscitation of followers and the nation have been a beneficiary of your housing market intelligence expertise for quite a while now. If someone wants to engage with you in the CJ Patrick Company, who are those types of people and how could you help?


Rick Sharga (00:38:36) - I appreciate the opportunity. Most of the companies I work with or companies that provide services to lenders, anybody who has a business that's in the real estate or financial services markets, who would benefit from my coming in to share with them industry data, or has data themselves that they would like to get out into the marketplace? Anything data related really, I tend to specialize in. So market updates and market overviews and market. Analysis or things that I do on a pretty much daily basis for companies.


Keith Weinhold (00:39:07) - How can they engage with you?


Rick Sharga (00:39:08) - They can find our website, which is C.J. They can find me on Twitter. I hide there under my name, Rick, or reach out to me on LinkedIn.


Rick Sharga (00:39:17) - And if you reach out to me on on a social media channel, make sure that you mention you know me through Keith, and you're not some crazy Russian bot trying to hack into my personal information.


Keith Weinhold (00:39:27) - Well, then, Rick, it's been great having you back on the show.


Rick Sharga (00:39:30) - I'm sure we'll do it again sometime soon. Thanks for having me.


Keith Weinhold (00:39:39) - Yeah, terrific Intel there. In this episode, Rick said that to still expect a lower amount of sales going forward and expect modest property price appreciation. Every region of the nation is seeing price growth now. And by the way, you remember that late last year, I unveiled Gray's home price appreciation forecast for this year, stating that prices should rise 4% and here in Q2, I still like how that looks. There is not much distress with current homeowners, but if you're looking to scoop up a foreclosed property cheap, you better get aggressive and work directly with the homeowner in the earliest stages of foreclosure. Don't wait for that property to go to auction. Rick also said more demand for rental units is coming, and I encourage you to engage with Rick.


Keith Weinhold (00:40:30) - Let him know you heard about him through me. If you want to go deeper and engage with some of the services that he offers, perhaps you work for a real estate company or a demographic company. You can do that at C.J. But most of you, the listener is an individual investor. So check him out on X where his handle is Rick Sharga. He is Rick Sharga on LinkedIn. Big thanks to Rick Sharga today. Until next week I'm your host, Keith Wild. Don't quit your daydream.


Speaker 5 (00:41:04) - 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.


Keith Weinhold (00:41:32) - The preceding program was brought to you by your home for wealth building. Get rich

Direct download: GREepisode496_.mp3
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Our core formula here at GRE is simple, buy-and-hold real estate. Then where does your profit come from? I explain.

Where will your next tenant come from? Essentially, market intelligence analyst Rick Sharga & I answer this today.

We explore job growth, wage growth, and the condition of today’s consumer / tenant. 

Rick Sharga doesn’t believe that mortgage rates will fall substantially until the Fed Funds Rate does. This isn’t likely to happen until at least June.

Consumers are exhibiting some distress signals. Credit card debt has swelled. We break it down.

Many economic indicators still show that they’ll still be an economic slowdown. 

In most recessions, home sales and home prices both rise.

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Complete episode transcript:


Keith Weinhold (00:00:00) - Welcome to gray. I'm your host, Keith Weinhold. We aren't fooling around on April Fool's Day. How can you be assured of having rent paying tenants in the future? That's dictated by the economy, job growth and real wage growth above inflation. Well, how exactly does all that relate to the housing market? We break it down today with an expert guest on Get Rich Education. When you want the best real estate and finance info, the modern internet experience limits your free articles access, and it's replete with paywalls. And you've got pop ups and push notifications and cookies. Disclaimers are. At no other time in history has it been more vital to place nice, clean, free content into your hands that actually adds no hype value to your life? See, this is the golden age of quality newsletters, and I write every word of ours myself. It's got a dash of humor and it's to the point to get the letter. It couldn't be more simple. Text GRE to 66866. And when you start the free newsletter, you'll also get my one hour fast real estate course completely free.


Keith Weinhold (00:01:16) - It's called the Don't Quit Your Daydream letter and it wires your mind for wealth. Make sure you read it. Text GRE to 66866. Text GRE to 66866.


Corey Coates (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.


Keith Weinhold (00:01:49) - What category? You're listening to one of America's longest running in most listened to shows on real estate investing, the Voice of Real Estate since 2014. This is get rich education. I'm your host. My name is Keith Weinhold, and you probably know that by now. But what we never truly know is the direction of the economy and how it shapes the housing market. Well, an expert and I are putting our heads together for you today to give you the best indication that we possibly can. I'll be with us shortly. And he is coming, armed with all of his best indicators and statistics. Last week here on the show, I got somewhat philosophical with you at times when I posited the question, do you want to retire? And I helped answer the question, what is retirement today anyway? I had a lot of good feedback on that show, but today we're talking about more concrete indicators with some numbers.


Keith Weinhold (00:02:50) - For example, historically in a recession, what really happens to real estate prices? We're going to answer that and more questions like it today. Now, I like to say that wealthy people's money either starts out in real estate or ends up in real estate, but there are so many ways to do it, so many ways to do real estate right? Hence so many ways to do it wrong as well. Our formula that we use here at GRE more than any other, is something we use because it is so simple that I think some people overlook it. It is buy and hold. Yeah, mostly long term buy and hold residential rentals. Now, we sure talk about some other things too, but that's really a cheap formula, something that we focused on since day one here. Now there surely can be some other good strategies as long as you execute, right? Flipping, wholesaling, Oreos, the birth strategy, self-storage units, RV parks and a lot more. But with buy and hold, I think some people know the real estate.


Keith Weinhold (00:03:58) - They might then ask, well, well where's your margin on that? Where does your profit come from if you just buy and hold? Or they might even think that that strategy is really slow and a 40 year game plan. Well, then they learn about the five ways and that changes that. It's largely about buying strategically and then managing your manager. I think most people dream of a life where they can just spend their time remotely managing their investments here and there. Now, for me, most months, I don't have anything to do with managing a property manager in a certain market. I just get the cash flow and then I do browse the monthly property statement. Some months had only been do that because from the amount of cash flow received, I can often see that nothing really went wrong for the month because from the amount of cash flow received, I can often see that nothing really went wrong for the month. Tax benefits as one of the five ways you're paid. That takes some management to and you know this tax time of year with my bookkeeper.


Keith Weinhold (00:05:11) - At times she emails me and asks me for this and that scrap of information. The mindset that helped me manage all the generous tax benefits of real estate is not taking my bookkeepers questions as an occasional annoyance, but rather taking the mindset of tax benefits or something that you can manage throughout the year. And that way when my bookkeeper goes an entire month without asking me for something, it can feel like a short break. Sort of like something was turned off for a month. And hey, first world problems, right? Downloading a document and emailing it to your bookkeeper ten minutes a month., today is also talking about where your next tenant is coming from, which really, at the end of the day, is what a real estate economics discussion is about. Well, it's also about giving tenants the housing that they want, meeting their desired lifestyle and the set of amenities that are both going to attract your renter in the first place and then retain your renter over the long term every year. Building,, the property management software company, they ask thousands of renters which amenities and property layouts would motivate them to choose one rental property over another.


Keith Weinhold (00:06:33) - That's what they're asking tenants. And what you imagine that renters might want could be different from the reality. For years now, renters are prioritizing their neighborhood quality. In the amenities that are actually inside the rental unit. Those things are more important than they are the shared community amenities like a pool, lobby, clubhouse or gym. Renters are gravitating toward neighborhoods that are safe and quiet, but yet are still convenient to stores and restaurants. And that led to half of the renters surveyed to rental properties that are located in the suburbs. Now, when it comes to the amenities within their rental unit that they're prioritizing, renters want a space with kind of all those comforts of home air conditioning and a washer and dryer to the option to own a pet. And these are the feature types of single family rentals, although some newer apartments can meet that too. And some condos community amenities. Then like a fitness center or a pool. I mean, they still hold some appeal to residents in these surveys, but lately they're seen more merely as perks instead of necessities for today's cost conscious renters.


Keith Weinhold (00:07:55) - So the bottom line here with this survey is that it's what's actually inside the unit that's become more important. And maybe that's a little too bad as people tend to get less social. They're using community areas less, they're prioritizing them less. And hey, maybe they just want to lie on the sofa and scroll their phone in a nice, comfortable place. Hey, you've got a suit and fit the world as it is, not as the way that you wanted to be, at least when you're providing others with housing. Hey, coming up here both on the show and on our YouTube channel, why do Western US homes cost more than eastern US homes on average? This seems geographically paradoxical. It feels backwards to a lot of people, because almost two thirds of the United States lives east of the Mississippi River, and yet that area comprises just over one third of all the land. You've got almost two thirds of people living on just over one third of all the land in the East. So to some more people on less area, oh, that would have to mean that eastern home prices are more costly.


Keith Weinhold (00:09:09) - No, it is exactly the opposite. In fact, coming up on a future show, I'll share eight plus reasons why. This is why Western US homes cost more than eastern ones. And this is also why many of the best cash flow markets, they tend to be in the eastern half of the US. They have those lower purchase prices also coming up in the future. I'm about to have a talk. This talk isn't going to be on the show here, but a talk with a conventional financial advisor about my own personal retirement. I've got an appointment with this person and this ought to be interesting. We'll see what he says about my situation. I'll try not to lecture him on how financially free beats debt free or anything like that. We'll see if I can hold off doing that. And if that meeting produces some interesting takeaways or just humorous ones, I'm going to share that with you in the future. And if you want to be sure to hear those upcoming episodes on subjects like that, I invite you to follow the show here on your favorite podcast.


Keith Weinhold (00:10:17) - And that way you won't miss any upcoming episodes. I only met today's guest about two years ago. We enjoyed that conversation and now we collaborate regularly. He helps provide crucial market updates that straight ahead. I'm Keith Reinhold, you're listening to episode 495 of get Rich education. 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, or 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 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 66866.


Keith Weinhold (00:11:31) - Oh, and this isn't a solicitation. If you want to invest where I do, just go ahead and text family to six, 686, six. Role under the specific expert with income property you need. Ridge lending Group Nmls 42056. In gray history from beginners to veterans, they provided our listeners with more mortgages than anyone. It's where I get my own loans for single family rentals up to four Plex's. Start your pre-qualification and chat with President Charlie Ridge personally. They'll even customize a plan tailored to you for growing your portfolio. Start at Ridge Lending Ridge lending This is Rich dad advisor Tom Wheelwright. Listen to get Rich education with Keith Reinhold and don't quit your daydream. You are going to get a fantastic real estate market update today, and you'll also learn lessons if you're consuming this 5 or 10 years from now. Our expert guest has been the executive VP of markets. Some of America's leading housing intelligence firms named it national lists of most influential real estate leaders. He's frequently quoted on real estate, mortgage and foreclosure markets, too.


Keith Weinhold (00:12:59) - He runs the real estate market intelligence firm, the C.J. Patrick Company. Hey, welcome back to Great Rick Saga. Always a pleasure to spend some time with you, Keith. Thank you for having me. Oh, same here, because, Rick, you've been with us here every six months for about two years now. You and I discussed the condition of the overall economy as well as the real estate market. I think of both of those as resilient today. Now, back when I was a new real estate investor, Rick, I didn't know to look at the broad economy at all. I was more concerned with if, say, on a vacant unit that I had, I had the drywall texture just right to try to attract a new tenant ASAP. Now that surely matters. But time gave me the perspective to know that what matters more is to have a local stable of tenants that are capable of paying the rent, and that's what matters more. So with that in mind, where would you like to begin? That's great counsel.


Keith Weinhold (00:14:03) - And it's really important for investors or even somebody looking to buy a house, understand what's going on economically, both across the country and in their region. So why don't we start by taking a look at what's going on in the economy? There's been a lot of conversation about potential recession. We can talk a bit about that, but if you're good to go, we'll start by just sharing some information about the US economy and some of the trends that we're seeing. Yeah, let's go ahead and do that. And yes, that dreaded our word may very well come up. That thing that we've all been waiting for but has never happened. Don't count your chickens just yet. But let's see what's going on. Because on average, recessions do happen every five years. It's just a normal part of the business cycle. Yeah, that's important to keep in context. I'm glad you brought that up. Recessions are a normal part of the business cycle and the economic cycle. We may be slightly overdue to have one at this point, although the last one that we had took very, very long to recover from, the Great Recession that started back in 2008 took a full decade to recover from, which is also very unusual.


Keith Weinhold (00:15:05) - So we'll take a look at some of these cycles and see where we are today. Keith, the basic metric that most economists look at when they're trying to figure out the strength of the US economy is is something called the gross domestic product, the GDP.


Rick Sharga (00:15:18) - We track that to see if it's growing, if it's declining. The technical definition of a recession is two consecutive quarters of negative GDP growth. And there's been a lot of talk about the GDP slowing down in the US. But really it's been mostly talk. In fact, if you look at the last quarter, we have data four, which was the fourth quarter of last year. You can see that the GDP grew by 3.2 3.3%, which was a much higher number than what most economists had forecast.


Keith Weinhold (00:15:47) - That resilient economy with a low unemployment rate, jobs being added and productive growth in the GDP.


Rick Sharga (00:15:54) - Yeah, we're going to get to all of that. And it's a great point. If you look at what makes up the GDP, about two thirds of it is comprised of consumer spending, right.


Rick Sharga (00:16:04) - So typically when you see strong GDP numbers, you're consumer is doing pretty well. And a lot of this probably has to do with consumers still having money to spend from the enormous amount of stimulus that the federal government poured into the economy to help prevent a recession or depression during Covid. About $15 trillion in all of the stimulus that was sent out to consumers and businesses alike. And that's probably helped us weather the storm of what normally might have been a slowdown in the economy. We are, however, Keith, in a globally interconnected economy, and it's important to note that not all of our peers are doing quite as well. Canada may already be in a recession. The UK is almost certainly in a recession. The eurozone barely escaped going into recessionary numbers in the last quarter, and even markets like China aren't doing as well as as expected. And I'm not saying that to gloat about how well the US is doing. I'm saying that is sort of a warning that if we do get into a situation where it looks like there's a global recession going on, it's very unlikely the US will come out of that untainted at all.


Rick Sharga (00:17:09) - So it's something to keep an eye on as we move forward.


Keith Weinhold (00:17:11) - Right. 100%.


Rick Sharga (00:17:13) - You mentioned unemployment a couple of minutes ago, Keith, and that's one of the other economic metrics we check. Unemployment went all the way up. And I say that facetiously. The 3.9% in the numbers, full employment is considered to be anywhere at 5% unemployment or lower. And we haven't been at 5% unemployment. Probably since about 2016, with the exception of the blip we had during the Covid pandemic, when the government shut things down and we had a huge increase in unemployment temporarily. But we are continuing to see very, very strong job numbers, both in terms of these low levels of unemployment and in terms of job growth. The January and February numbers again caught the economists who come up with these consensus forecasts by surprise. In January, about 350,000 jobs created. In February, about 250,000 jobs created. I should put an asterisk on some of these numbers. When you hear politicians talking about all the jobs they've created over the last few years.


Rick Sharga (00:18:15) - Keep in mind that during the Covid pandemic, we wiped out about 22 million jobs virtually overnight. A lot of the millions of jobs that have been created over the last few years were really those old jobs being refilled. We filled most of those within about two years, and we have continued to create jobs since then. We have more jobs than we have people looking for work. They're about 8.5 million jobs open, about 6 to 6.5 million people looking for work.


Keith Weinhold (00:18:43) - You can almost think that this is an over employed condition.


Rick Sharga (00:18:46) - And it almost is in most cases, not all cases, but in most cases, somebody who doesn't have a job right now just isn't looking for a job right now. And these are not all service level jobs. That's the other pushback I get when I'm out talking to groups sometimes. Oh yeah, but not everybody wants to work at Starbucks. Well, first of all, you get pretty good benefits of Starbucks free coffee healthcare. But let's not do a Starbucks commercial. These are government jobs.


Rick Sharga (00:19:10) - They're manufacturing jobs. They're construction jobs. They are some type of service level jobs. But these are jobs across the board. And because there are more jobs available than people are looking for work, we're seeing wages go up. The average hourly wage across the country last month was over $29 an hour, which is the highest it's ever been. And if you look at wage growth on a year over year basis, it's running at about 5%. And really, Keith, this is the first time in a number of years that we can say with certainty that wage growth is actually running at a higher pace than the rate of inflation, right.


Keith Weinhold (00:19:44) - And that really matters. That really helps pay the rent. One thing that detractors say with the unemployment rate, you talked about them not necessarily being consolidated in the low paid service sector area, is that a lot of people lament, well, aren't many of these part time jobs? Where are your thoughts there?


Rick Sharga (00:20:01) - There are a probably historically large number of part time jobs, but we also have an awful lot of people who have opted out of full time work for a variety of reasons, and are thrilled to be able to pick up some money working in the gig economy.


Rick Sharga (00:20:16) - So whether they're driving for Uber or Lyft, they're doing DoorDash or something else that's a part time job that they're doing just to either, in some cases, kill time or to make a little bit of extra money. This isn't an economy where the majority of part time workers are in part time jobs, because they can't find a full time job. That's simply not the case, and the data doesn't support that.


Keith Weinhold (00:20:41) - Now, if you, the listener and viewer here are wondering, well, this stuff doesn't apply directly to me. I'm good. I'm secure in my job. Maybe I don't even need a job. Keep in mind that we're talking about the financial condition of your tenant today.


Rick Sharga (00:20:57) - Yeah. When I'm talking to to real estate investors in general, I know that you were talking about drywall earlier, and sometimes you really can't see the forest for the trees. You're kind of overwhelmed or you're not sure where you should actually be looking. I tell them in many cases, to pay less attention to home prices and rental rates and more attention to some of the underlying fundamental economic conditions.


Rick Sharga (00:21:20) - Are you in a market where population is growing or declining? Are you in a market where there's job growth? Are you in a market where there's wage growth? If you're at a market where the population, jobs and wages are all growing, you're going to be in a pretty healthy market for real estate, whether it's owner occupied properties or its rental properties. On the other hand, if jobs are leaving your market, if wages are going down, if population is declining, those are warning signs. And it might be an indication that that's not a good market to start investing more in. So everything we're talking about really does get connected back to the housing market, whether it's rental housing or owner occupied housing. And it's important to see these trends for what they are.


Keith Weinhold (00:22:04) - And of course, we're talking about these factors on a national level. As we know, our real estate is local, and our audience is often interested in studying a metro market before they decide to invest there. So on that more regional level, Rick, or local level, do you have any favorite resources or websites or apps that you think are important for prospective investors to look at first within a certain region or MSA? Well, you.


Rick Sharga (00:22:33) - Can. Find a lot of local market data on some of the free housing sites that are out there. The Zillow's, the is the homes dot coms of the world. If you go beyond the basic home search, or if you dig deep into some of the information that they provide on local markets, within that home search, you'll find a lot of information there. There are third party companies. There's a company I'm familiar with it that works mostly with realtors, but has a lot of data that investors would probably be interested in. It's called keeping current matters. Yeah, they do an awful lot of reporting on this. But if you really want to do your own research and you don't mind doing a little bit of digging, I find that the Department of Labor and the Census Bureau and the Bureau of Labor Statistics, all government entities, have just copious amounts of local market information. You can find, you know, down to what does the local Pipefitter earn on an hourly basis in Peoria? There's all of that data out there for free on these government sites.


Rick Sharga (00:23:34) - You just have to be willing to do a little bit of research and dig through those sites.


Keith Weinhold (00:23:39) - Right. And sometimes the government websites don't exactly present their information in a beautiful, graphically rich way. But this is part of your research. Some people don't realize that, Fred, the Federal Reserve economic data has an awful lot of regional and local information, not just national information as well. Well, thanks for sharing some of those resources, Rick, and where you like to go and look, that can really help our audience. What else should a real estate investor know about today's overall economy?


Rick Sharga (00:24:08) - So we talked about consumer spending and the reliance our economy does have on consumer spending. And one of the things that I'm watching fairly carefully right now is an apparent disconnect between consumer confidence and consumer spending. So if you go back to when the pandemic hit and the lockdown occurred, consumer spending obviously fell off a cliff. There was just nothing to buy. And consumer confidence took a major hit with the announcement of the pandemic.


Rick Sharga (00:24:34) - Consumer spending as soon as the lockdown was over started to come back strongly and has never slowed down. It's hit an all time high today. Consumer confidence, on the other hand, was battered a little bit by subsequent waves of Covid, by threatened government shutdown in Washington, by the war in Ukraine, by the more recent war in the Middle East. And so the concern here is that if consumer confidence doesn't come back, we might see spending revert to the mean. And actually, as economists would say, and come back down, which would cause, at the very least an economic slowdown and at the worst, probably a recession. So it is something we're keeping an eye on. Consumer confidence has been improving a little bit lately, but historically it's gone hand in hand with consumer spending. And that simply hasn't been the case in recent months. So it is something we're keeping an eye on.


Keith Weinhold (00:25:25) - Now, one might wonder how do you measure confidence? Well, there are various surveys out there. And Rick, the way I think of it with consumers is that consumer confidence is more of a leading indicator, and then the actual consumption is more of a trailing indicator.


Rick Sharga (00:25:42) - I completely agree with you. The sentiment index that I follow most closely is one that's put out by the University of Michigan. Yeah, and it's been out there for decades. So there's an awful lot of history that goes with it. And generally speaking, on any index, you're looking for a number that's around or above 100 because that usually is your baseline. And some of the more recent months we've seen numbers down in the 50s and 60s. Now they've been trending up, as I said, in recent months. But that's something that's reported on very widely by the press. We were talking about sourcing things for investors. And I have to tell you, the just doing a basic Google search for something like, what's consumer confidence like today? You'd be surprised. The rich information that you can pull just from Google, that you can start to find some of these sources online. But that is one thing that we're watching. And, Keith, I think it's important to break out a little bit in more detail how consumers are spending or what they're spending with.


Rick Sharga (00:26:44) - And these are potential red flags for the economy, consumer credit card use. The amount of debt on credit cards surpassed $1 trillion in the third quarter of last year for the first time ever, and it got close to 1.2 trillion in the fourth quarter. That's an awful lot of credit card spending. Regardless of what you want to talk to me about, with inflation adjusted dollars, it's still $1 trillion. And that happened at a time when credit card interest rates had soared because of what the Federal Reserve was doing. So you're talking about people spending 1 to $1.2 trillion on their credit cards, when the average interest rate on a new credit card issued was between 25 and 30%. Gosh. Which, by the way, is a high enough number that it used to get you arrested for usury. And apparently now it's the new. Normal and it's okay. But this is concern. And one of the big concerns is because the cost of living has become so high and it's so difficult for so many families. The worry is that people might be starting to use their credit cards to make ends meet, to buy basic necessities, and that historically has not been a story with a happy ending.


Rick Sharga (00:27:52) - So we are watching credit card use. We're also watching personal savings rates. When the government stimulus came out, we saw a savings rates at all time highs. We then saw savings declined rapidly to all time low levels. They've recovered a little bit, but they're still on the low end of things, historically speaking. So the same worry here, Keith, which is that we're worried that families might be dipping into personal savings in order to make ends meet. And that combination, there's some research that suggests that, on average, the US household has more credit card debt than they have savings, and that's just not a healthy ratio for anybody to have.


Keith Weinhold (00:28:30) - Yeah, America has very much so they live for today mindset I think. So therefore it was a pretty predictable that after the Covid stimulus payments that savings levels probably would drop.


Rick Sharga (00:28:42) - Yeah. It's just that they drop further than what we had hoped they would. We're going to talk about inflation in the second. I have a bit of skepticism about some of the inflation numbers that we see reported from the government because of what they include or exclude, or some of the data is trailing by a long time.


Rick Sharga (00:28:56) - So I out of frustration, I created my own CPI. It's not the consumer price index, it's the Costco price index. And I look at one of my leading indicators is salmon because I buy my salmon at Costco. And a year ago that salmon cost 999 a pound. Today shopping a Costco, that salmon costs 1299 £1.30 percent. That's a 30% lift for all the talk we hear out of the administration about gas prices going down, I can tell you that where I buy my gas at Costco, it's a couple dollars more a gallon than it was just a few years ago. And I say this with a little bit of a chuckle, and I say this knowing that it's a nuisance for me. But I've been blessed. And it's not a life or death decision for me. But there are families out there who are deciding whether or not they can buy salmon this week. And I would submit that on average, your rental family's income is lower than your owner occupied houses, families, income. And so for all of your listeners who are landlords, this is something to be paying very close attention to, despite the fact that inflation is coming down.


Rick Sharga (00:30:02) - Keep in mind that these inflation rates are on top of very high prices that we have as a result of the previous cycle of inflation. So it's going to take a while, even with wages going up for those households to catch up here. And the hope is that wage growth will continue to outpace inflation growth long enough that they'll be able to do that.


Keith Weinhold (00:30:23) - Yes, that's a positive trend. Yeah. Rick, as long is in your Costco price index, Costco doesn't try to skimp, inflate and replace your wild elastic salmon with Atlantic farmed salmon. I'm sure you're going to be paying attention to that as well as you fill your own shopping basket and come up with what's really happening with inflation. Because for those that believe the CPI, it's been reported in the low threes lately and CPI peaked at 9.1% almost two years ago in June of 2022.


Rick Sharga (00:30:55) - And what the Federal Reserve has done is unprecedented. We've only ever seen rates go this high this quickly, once in the last 50 or 60 years. That was back in the 1980s, when inflation was really in runaway mode and out of control.


Rick Sharga (00:31:10) - And normally what the Federal Reserve does is very methodical, very thoughtful. They'll raise the fed funds rate a quarter of a point. They'll sit back and wait to see what happens. They'll raise another quarter point and give it some time to take effect and so forth and so on until they feel like inflation is under control. And then they'll then they'll drop that fed funds rate. In this case, they've admitted a few things that probably took a lot for them to say out loud. They admitted that they underestimated how high inflation would get. They admitted that they underestimated how quickly it would rise. And they also admitted that they underestimated how difficult it was going to be to get it under control. So what it did peak at about 9.1% a couple of years ago. They took unprecedented steps in terms of the size of of rate hikes and the rapidity with which they raised the fed funds rate. And now they're in a position where inflation is trending more or less in the right direction. It's in the low threes, as you said, it has not come down as much in the last couple reports as they would like.


Rick Sharga (00:32:10) - And that's probably going to result in them holding the fed funds rate at its current level for at least the first half of this year before they start doing rate cuts, because the last thing they want to do is cut too soon and see inflation start to come back up.


Keith Weinhold (00:32:25) - About one month ago, I did an episode titled Why the Fed should not lower rates. Rates are. Normal and the economy doesn't need the help. So if we do have this dreaded R-word, this recession, the most convenient tool for the fed to use is to cut rates. We don't want to use up that ammo while we're still in a good position like we are today.


Rick Sharga (00:32:47) - Yeah, I don't disagree with you. And there were some economists and mostly Wall Street, who had been predicting a fed rate cut as early as March and over the course of the year. And I thought they were all crazy great. And I've been saying at the earliest, May now I think it's probably not until June. The rates are a little higher than historic averages.


Rick Sharga (00:33:05) - I could see maybe three rate cuts this year, maybe four if the economy slows down significantly. We're not we're certainly not going back to the zero rates that we had for a few years. I think the fed will be very cautious and reserved in its approach to scaling back the fed funds rate. One of the the side effects of what they did is they cast a lot of uncertainty and doubt into the financial markets, which have caused mortgage rates to skyrocket, which have caused private lending rates to skyrocket. For your listeners who borrow from private lenders. And I don't think we see those rates start to come down significantly until after the fed does its first fed funds rate cut, I suspect, and so far I've been right, that until we see that rate cut, we're going to see mortgage rates on a 30 year fixed rate loan kind of bounce back and forth in a very narrow band between about 6.75 and 7.25% for the next few months. And that's really where they've been since January. And I think that will continue to be the case until we see that first rate cut, at which point the market will probably say, okay, they're serious now we can have that sigh of relief, and then we'll see a slow and gradual reduction in mortgage rates.


Rick Sharga (00:34:21) - I did want to touch on two things related to the fed actions and the current economic issues. Keith, because I often get the question about likelihood of a recession. If you go back in history all the way back to World War two, not counting this cycle, the Federal Reserve has raised the fed funds rates 11 times in order to get inflation under control. Eight of those 11 times, they've wound up over correcting as they raise the rates right. And that steered us into a recession. The three times that didn't happen, the three times they executed a soft landing, not a recession. All three of those cycles had something in common, and that was that the fed didn't have to overcorrect because they started early. They acted proactively when it looked like inflation was getting started, and they were able to keep inflation under control without a drastic increase in the fed funds rate this cycle. They've already admitted that they waited too long and inflation got higher than they expected. And because of that, they've had to raise the rates more quickly and more dramatically again than anything we've seen in the last 40 or 50 years.


Rick Sharga (00:35:25) - So historically speaking, it would seem more likely than not that we'd see at least a mild recession. The people who say, well, if we would have seen one through this cycle, we would have already seen it often overlooked the fact that it can take 24 months after the Fed's rate hikes are done, to see the full effect on the economy.


Keith Weinhold (00:35:45) - Economies are complex and cycles move slowly. They do so, historically speaking.


Rick Sharga (00:35:50) - That's one thing. I look at the other and without getting to Inside Baseball for your listeners, is something called a yield curve inversion. Yeah. And that's when when the bonds markets sense a disruption in the force and think that Darth Vader may be hitting the economy, but basically it's when the the yields on longer term investments like ten year Treasury bonds switch places with the yields on shorter term investments like two year Treasury bonds. So the yield on a two year investment is actually higher than the yield on a ten year investment. And when you have that inversion, that's what they call a yield curve inversion.


Rick Sharga (00:36:23) - And the last eight times that's happened we've had a recession follow not always a long drawn out recession, but there's always been a recession. And this particular yield curve inversion cycle is one of the deepest and longest ones we've had in a long time. And again, using history as a precedent. That doesn't seem to be really good reason for this cycle to behave differently than the last eight half. Having said all that, we may get lucky. The fed may pull a rabbit out of its hat and actually execute that rare soft landing instead of a recession. If they do, we'll still feel the economy slowdown that's almost a given. And if they don't, if we do have a recession, every economist I speak with tells me the same thing that it's likely to be a very short, very mild recession because all of the economic fundamentals underneath are still very, very strong. And, you know, employment, wages, productivity and so forth and so on. So likely to see some sort of slowdown this year, Keith, whether it turns into an actual recession or is just very, very slow growth, that's the most likely scenario for the rest of 2024.


Keith Weinhold (00:37:30) - Well, Rick, as we wind down here, the. Last thing I'd like to ask you about is in a recession, what typically happens to real estate, because you and I both study history and something that I often say here on the show is oftentimes you need to look at history over hunches, for example, I think it's easy to have a hunch that when mortgage rates rise while home prices are definitely going to fall. No, actually, if you look at history, when mortgage rates rise, home prices typically rise because rising rates typically mean the economy strong. And another one is when home prices are up. Well, a lot of people think that others want to then jump into the housing market and buy when they see that prices are up. So then when home prices are up, well, that means rents must fall since everyone's buying. But no, these two things typically move together home prices and rents. It's about history over hunches. So with that in mind, talk to us with your historical research on in recessions, what typically happens to the real estate market?


Rick Sharga (00:38:28) - Typically, home sales go up from the beginning of recession to the end of a recession.


Rick Sharga (00:38:33) - And in fact, with the notable exception of the last recession, the Great Recession, housing is very often helped the economy recuperate from a recession and recover. And that's particularly true in the new homes market. Home prices also typically go up from the beginning of recession to the end of a recession. So you could have some short term disruption. You could see home sales volume or home prices dip slightly at the beginning of a recession. But historically speaking, in every recession except the Great Recession, we've actually seen both home sales and home prices go up. And to your point, higher mortgage rates do not historically equate to lower home prices. What they do equate to is home prices going up at a slower rate. And this last cycle has been very unusual because historically, we've never seen mortgage rates double in a single calendar year until 2022. And in fact, that year rates didn't double in a calendar year. They doubled in a couple of months.


Keith Weinhold (00:39:33) - And tripled overall.


Rick Sharga (00:39:34) - And they tripled overall. So if you look at that, we did see home prices actually decline in some markets, although nationally the number never went negative.


Rick Sharga (00:39:44) - And we saw home price appreciation drop off pretty dramatically but still stay positive on a year over year basis. So it's been kind of interesting. This has been a very unusual cycle for a lot of reasons, but historically speaking, your spot on a recession does not spell doom and gloom for the housing market. Whether you're talking about owner occupied homes or rental properties.


Keith Weinhold (00:40:06) - Rick and I talked about the general economy today. Next week, Rick is going to join us again, and we're going to focus squarely on the real estate market. So no long goodbyes, Rick. We'll see you next week.


Rick Sharga (00:40:18) - See you soon, Keith.


Keith Weinhold (00:40:25) - Yeah. Strong insights from Rick, as usual. To help sum it up, recession or not, expect some sort of economic slowdown later this year. It's expected to be mild. That's what Rick shared with us. And if that happens, expect less rent growth. Then in a recession, home prices tend to go up. That's what really happens. Wage growth keeps outpacing inflation. Now the longer that trend continues, expect more rent growth in the future.


Keith Weinhold (00:40:57) - But of course the real rate of inflation is slippery to measure. I think you could still make the case that wage growth isn't really higher than inflation. So to me, that part's actually not that bullish. Rick believes mortgage rates will stay near 7% until the fed makes their first rate cut. We discussed monetary policy today. And you surely know that's what the fed does. They control the flow of money and interest rate policy. We did not discuss fiscal policy. We're not going to next week either. Fiscal policy is something that Tom Wheelwright and I often do together. And what is the difference? Well, fiscal policy is the tax and spend side. When you think of fiscal think tax and spend, and it's often congressional committees and elected officials that make those fiscal policy decisions, not the fed. They're making the monetary policy. That's the difference. This is get rich education. So after all, we do often have these learning moments. There's more of Rick Saga next week as we pivot from talking about the broader economy this week.


Keith Weinhold (00:42:05) - And then next week, we'll really drill down on the housing market, including more on property price growth prospects, which regions are growing or shrinking, rent growth prospects, and any warning signs that investors should take notice of today. Hey, what? I'd like to think that I don't ask much of you, the listener. I'd like to ask you if you can help me out with one fairly quick thing today. I'd really appreciate it if you get value from the show here. Whether that was, say, last week's episode on what is retirement anyway or from, say, a few weeks ago, why inflation is actually an immoral force, or the latest trends like the content of today's and next week's show, or my upcoming breakdown of why Western US homes cost more than eastern US homes and other content like that that you just aren't going to find anywhere else. I'm simply asking you for your feedback. This takes the show from one way communication to some two way communication. Please consider leaving me a podcast rating and review, whether that's on Apple Podcasts, Spotify, or wherever you listen to the show.


Keith Weinhold (00:43:17) - Just do a search for, for example, how to leave an Apple Podcasts review so you can see how to do it. And then I'd be grateful for that. Rating and review more next week on the future direction of the housing market I'm Keith Weinhold. Don't quit your day dream.


Speaker 4 (00:43:37) - 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.


Keith Weinhold (00:44:05) - The preceding program was brought to you by your home for wealth building. Get rich

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