Mon, 26 August 2024
In this episode Keith shares the survey results on what the highest rising cost for landlords is and what to do about it. He challenges the conventional wisdom that all debts should be paid off. He talks about how the rising costs of homeowners insurance and property taxes are the most significant expenses for single family landlords 76% of single-family landlords plan to raise rents over the next 12 months, with 35% expecting increases over 4%. Learn about the concept of debt as leverage and its role in wealth building. The importance of liquidity, interest rate arbitrage, and the ability to outsource debt payments. How inflation impacts debt. Understand the benefits of debt in real estate investment, including the ability to own more properties and create arbitrage opportunities. Show Notes: For access to properties or free help with a GRE Investment Coach, start here: Get mortgage loans for investment property: RidgeLendingGroup.com or call 855-74-RIDGE or e-mail: info@RidgeLendingGroup.com Invest with Freedom Family Investments. You get paid first: Text FAMILY to 66866 For advertising inquiries, visit: Will you please leave a review for the show? I’d be grateful. Search “how to leave an Apple Podcasts review” GRE Free Investment Coaching: Best Financial Education: Get our wealth-building newsletter free— text ‘GRE’ to 66866 Our YouTube Channel: www.youtube.com/c/GetRichEducation Follow us on Instagram:
Complete episode transcript:
Automatically Transcribed With Otter.ai
Keith Weinhold 00:00 Welcome to GRE. I'm your host. Keith Weinhold. The economy is affecting real estate in some interesting ways. Now, vital trends revealed from a survey of single family landlords. Then the heart of today's show is every debt that you have worth paying off. The answer is no, with some surprising reasons all 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. Oh, had 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 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 Daydream letter and it wires your mind for wealth. Make sure you read it. Text GRE to 66866, text GRE to 66866.
Corey Coates 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 01:51 Welcome to GRE you are listening to the voice of real estate investing since 2014 I'm your host, Keith Weinhold back to help you build your wealth for another week. This is Get Rich Education. That's just one of many things that makes this show different from other shows, or just consuming news stories. Here, you stay updated on important real estate investing trends, but you learn specific strategies to actionably build your wealth. That's the difference, and it's with the most generationally proven medium of real estate, all without you having to be a flipper and often not a landlord either. Now, presidential candidates make lots of promises during their campaigns, that includes with real estate here recently, even if you're listening 10 years from now, I'll tell you how to put something like this into perspective. Kamala Harris unveiled her plan to spur the construction of 3 million more housing units. That's a good thing. America needs more housing. She also wants to give federal assistance, and by the way, that means your money. She wants to give federal assistance in the form of a $25,000 down payment help for first time home buyers. I see that as a bad thing, and see there's no partisan bias here at GRE a lot of media outlets, they will filter something like this is all good or all bad, because they get better ratings when they rile people up, and that results in a divided America. But the problem is that the 25k of down payment help that can be delivered faster than new homes can be built, and that risks pushing up home prices faster, sooner, which arose the very affordability that's trying to be helped here now a presidential candidate, be it Kamala Harris or anyone when they have this enthusiasm to also limit price gouging at grocery stores here, like this candidate does. I mean, that's the beginning of price controls, and when there are price controls, no farmer is going to want to produce cherry tomatoes or Fisher is going to want to produce wild caught salmon if they have a significant price ceiling limiting the supply of those things. Therefore, I mean, when we had price controls in the high inflation 70s, that created shortages. And it's important to keep in mind that presidential campaign promises, they often don't become policies that are enacted even if that person is elected president, and even if they are, much of this still requires congressional approval, and we still have a divided Congress, and any tax changes require the approval of Congress. So really, this stuff is just a presidential wish list, giving you some perspective here. Now on the topic of shortages, there still is not enough available supply of US homes, active listings, those seeking a starter home often get more worn out than your grandpa after two games of checkers. But inventory levels are not as bad as they used to be, we still got a ways to go to claw back close to a more normal, balanced pre pandemic housing supply level nationally, we are still 29% lower. There are now still 29% fewer active listings than there were in pre pandemic times and most individual states still have inventory levels lower than that, too, compared to five years ago, when we break it down by state, some have a more paltry supply than others, though, places with the scarcest inventory, they seem To be those states where maple syrup gets produced, as it turns out, and I sure hope that this doesn't mean people need to sleep in the sugar shack. Connecticut is down 75% that means they have 75% less inventory than five years ago, pre pandemic, Illinois down 66%, New Jersey down 57%, Virginia down 53%, Pennsylvania, Massachusetts and Michigan all with 51% less inventory than they had pre pandemic. Ohio down 43%, California and Missouri each down 31%. The main problem here is that the Northeast and Midwest have not had enough home building in order to keep up with housing demand. I guess what? There were too many snow days in the Northeast and Midwest, or were builders constantly distracted by potholes and cicadas? Conversely, there are three popular investor states where for sale inventory is just a tad higher now than it was five years ago. Texas is up 6%, Florida up 5%, Tennessee up 2% and this doesn't mean that these states are oversupplied with housing, it just means that they have a touch more than they did in 2019 so they're closer to balance. The important overall thing to remember here is, of course, that nationally, buyers still outnumber sellers. So between the lower mortgage rates that we've had in the past year and the low supply, this keeps the environment ripe. There will be more offers and more potential for home prices to increase faster than its current rate of 4.1%. That 4.1% year over year, as per the NAR, it's important for you to understand that there's virtually no way that prices can revert to their pre pandemic levels. Home prices are not going back to where they used to be five years ago. In fact, there is more pressure on them to rise from here not fall, and there are a few reasons why prices cannot go back to where they were. The rate of inflation has slowed. You've seen the price of lumber come down, but wider inflation has been indelibly baked into the pricing cake. Homes now have higher, permanently embedded costs of labor, materials and land that all have more stick-to-itiveness to them than Simone Biles on the balance beam. Prices are not coming down anytime in the near future. You might remember that right here on this show in in our newsletter, back in late December, eight months ago, I forecast that national home prices would rise 4% this year, and I still really like how that looks. I'll get back to the investment side here shortly, but real quick, in light of the new rules about how real estate agents are compensated if you're about to buy a primary residence, you may not have any experience negotiating with a broker. In last week's newsletter, I sent you a template you can use and that can help you simplify the process as a buyer and help you avoid being taken advantage of. I sent you that template last Thursday. Back here on the real estate investor side, after a high tide of inflation, you know, you and I, we have all surely enjoyed the splash of both higher property prices and rents. That looks to continue. But what about your higher property expenses, too? Let's talk about what you've got to do to avoid getting crunched by expenses. A survey of single family landlords was recently conducted by lending one in resi club, and they asked this question, what is your expense that increased the most the past 12 months? The number one answer is fast rising insurance premiums, with half of respondents citing that as their biggest expense increase item. And that's hardly a new development, not surprising. The next biggest expense was property tax, 27% of respondents cited that. That's mostly a reflection of higher property values and their consequent tax assessments. 235 single family landlords completed this survey, by the way. So they were the proportion of landlords that answered about what was their fastest increasing expense. Half of them said insurance, easily the most well, the rate of increase in homeowners insurance costs was roughly 10 to 12% nationally last year. That's according to the Insurance Information Institute, and the top two reasons for this are more severe storms and higher replacement costs. The good news is that further rate increases are cooling off, though, all right, but still, what are you to do as a rental property owner that's stuck with a higher property insurance bill? I've got a great answer for you, and it's so incredibly simple. You pass the expense along to your tenant with a rent increase, and then others can deal with what happens downstream from there. And I'll tell you how to go about doing this shortly, which is also so incredibly simple. But if you're reluctant to pass along the increased insurance expense to your tenant, understand that you and your tenant are just like two ports along a river. As this wave of inflation flows along, it flows from the reinsurer to the insurer, to you, the property owner, to the increased rent, to the hike in the tenant wage, to the employer, and then the employer hikes prices on the consumer. That's how the river flows. No watered down returns for you. Now, of course, this River's headwaters are sourced with the government, because that's where inflation comes from. Inflation means an expansion of the money supply. You and your tenant are really two ports along the river. Don't let the expense water dam up and flood you, and the written reason that you give your tenant for the rent increase is drum roll here, higher insurance costs. Yeah, that's it. It's super simple. There's no need to be inventive here. Honesty is therefore the best river raft. Hey, come on now this remorseless geography degree holder has got to let loose with something like river references from time to time. So that's the greatest expense increase item, what to do about it and how you should go about doing it. Now this same survey of single family landlords, they showed that 76% expect to reach high watermarks and raise the rent over the next 12 months, including 35% of landlords who say the rent increase will be over 4% and planned rent increases of one to 7% are most common. That's the planned rent increase range one to 7%. Look, you didn't get into real estate to subsidize others living expenses. There is nothing unethical about adjusting to market level rent. Rent hikes are like a lock lifting your ship through the Panama Canal. All right, so what do we make of this. I mean, gaging, overall investor sentiment is we head later into the 2020s, decade. What is the landlord temperature? As I see it, expenses are up. Higher. Rents follow. And last quarter, home values increased in almost 90% of us, Metro markets, yes, property values are up in 89% of Metro markets. But how do single family landlords in this same survey feel? Well, 60% of them say they will buy at least one investment property over the next 12 months. So most single family landlords they want to buy more. And when that's broken down by region, the most single family real estate investor optimism is in the Midwest, Northeast and South. And really single family landlords are optimistic in every region except the West. And this makes sense. Cash Flows are less lucrative in the West because prices have long outpaced rents there, the survey really shows that most aren't wildly bullish or excessively bearish on the real estate market. They expect it to stay balanced. Many plan to buy properties raise rents, and the survey shows that they, too, expect a 4% home price appreciation rate. That's what it showed, and they anticipate falling interest rates. Now, personally, I often disagree with what the masses think. I mean, contrarians to the mainstream, they are often the profiteers. But in this case, I guess I'm more agreeable with the survey respondents than a perfectly brewed cup of coffee in the morning. And well, maybe that's because single family landlords, the very people that were surveyed are not mainstream. The housing market is actually pretty normal in most every significant way, except, of course, the ongoing lack of housing inventory and affordability challenges for first time homebuyers. And if you're a newer GRE listener, even normal times can be thrilling for a real estate investor when you achieve a 40% plus total rate of return from how real estate pays you five ways. Yes, if you're new here, I know that sounds like an unachievable return, but 40% plus is actually realistic without high risk when you understand your five simultaneous profit sources with income producing property. In fact, when someone asks why you invest in real estate, you can just hold up five fingers. The broader economy shows a lot of signs of normalcy as well, GDP, growth, consumer spending, unemployment, the inflation rate, but the sad exception here is this widening gap between the wealthy and the poor, so I guess that more people charter yachts and yet others increasingly pour mountain dew on their fruit loops in the morning for breakfast. Now, complete uncertainty never disappears, but after disruptions from covid, high inflation and new wars, a lot of people see calmer times ahead. Elections matter, but some people seem more concerned about who the next President will be than the parent of a Sephora obsessed teen. Presidential elections aren't known to rock the real estate market, and actually, history shows that the more sensitive stock market is only temporarily affected by an election. Sometimes I just ponder and quietly think to myself, hmm, when the liquid death drink brand thrives from Hawking wildly overpriced water in a can, I posit just how bad can the economy really be? The bottom line is that most single family investors are meeting higher insurance expenses with rent increases and they want to buy more income property over the next 12 months. Hey, if you like this show here, and you get value from it every week, I love it when you just simply tell a friend about the show, it's as easy as having them download our dedicated Get Rich Education mobile app for both iOS and Android. If you think you have any friends that would benefit from the vital episode here, I'd be grateful if you shared the show with them, use the Share button on your podcaster, or even take a screenshot and post it to your social. Straight ahead is any debt worth paying off? I'm Keith Weinhold. You're listening to Get Rich Education. Hey, you can get your mortgage loans at the same place where I get mine, at Ridge Lending Group NMLS, 42056, they provided our listeners with more loans than any provider in the entire nation, because they specialize in income properties, they help you build a long term plan for growing your real estate empire with leverage. You can start your pre qualification and chat with President Caeli Ridge personally. Start now while it's on your mind at Ridgelendinggroup.com that's Ridgelendinggroup.com.
Keith Weinhold 19:47 Your bank is getting rich off of you. The national average bank account pays less than 1% on your savings. If your money isn't making 4% you're losing your hard earned cash to inflation. Let the liquidity fund help you put your money to work with minimum risk, your cash generates up to an 8% return with compound interest, year in and year out. Instead of earning less than 1% sitting in your bank account, the minimum investment is just 25k, you keep getting paid until you decide you want your money back. Their decade plus track record proves they've always paid their investors 100% in full and on time. And I would know, because I'm an investor too, earn 8% hundreds of others are text FAMILY to 66866, learn more about Freedom Family Investments, Liquidity Fund, on your journey to financial freedom through passive income. Text, FAMILY to 66866.
Dani-Lynn Robison 20:49 This is Freedom Family Investments Co-founder, Dani-Lynn Robison, listen to Get Rich Education with Keith Weinhold, and Don't Quit Your Daydream.
Keith Weinhold 20:57 Welcome back to Get Rich Education. I'm your host, Keith Weinhold, you're listening to Episode 516 is every debt that you have worth paying off? The short answer is no. I have held millions of dollars in debt from a young age, and I just keep holding on to more and more. Look what happens to your net worth when you pay down one of your debts, absolutely nothing happens to your net worth. It stays the same. All right. Say that the total value of all of your assets gives you a sum of one and a half million dollars. That's the combined value of any of your real estate, cars, retirement accounts, gold, Bitcoin, all of it, anything of value one and a half million and totaling up all of your debts equals just a half million. That's your mortgages, automobile debt, credit card debt, everything. All right, so you've got one and a half million in assets and 500k in debt. So you've got a million dollar net worth, okay, well, next, say that you decide to pay down 100k of your debt. All right. Well, what's the result? You've got only $1.4 million in assets and just 400k in debt. Well, the result is that your net worth is still a million bucks. You've now got fewer assets and less debt, so you just broke even. But it could be worse than just a break even, because what if, one month after you made this debt pay down. You now need that 100k back for living expenses, but you can no longer get it returned to you because you lost your job, so no one will qualify you for a loan again, or you still have your job. But lending standards have tightened and changed now your 100k is on the other side of a wall that you can't access. So debt pay down isn't just a question of net worth, it's liquidity. And there are some more layers here that we're going to get into paying down mortgage debt. It also builds home equity. Well, that is usually a bad thing, because, as I'm known for saying, home equity is unsafe, illiquid, and its rate of return is always zero. Do you know the crowd that sometimes forgets this and really gets penalized? It is seniors, retirees. All right, what happens when a person is older and they've had a paid off home for a while. People get a reverse mortgage. They need funds for living expenses. Well, reverse mortgages, they have high fees, and also you can't get nearly all of your equity out. You'll often only get up to 60 to 65% loan to value, meaning that 35 to 40% of that hard earned equity that you worked decades for. First it became trapped with no return, and now it's essentially gone. Poof. For all those years, your home is paid off, even if it began as early as your 30s, like it does for some people all that time your equity wasn't earning any rate of return. And the earlier in life you learned that the ROI from home equity is always zero, the better. You didn't see any bill for this loss. You just never saw the gain that you should have had. And that's part of the reason why this myth that home equity is such a great thing perpetuates and carries on for generations. All right, well, we are just getting warmed up here at a key financial question in your life. That question is, is every debt that you have worth paying off?
24:58 Did you know millions of Americans live with debt they cannot control. That's why I developed this unique new program for managing your debt. It's called Don't buy stuff you cannot afford. Let me see that. If you don't have any money, you should not buy anything. hmm sounds interesting, sounds confusing.
Keith Weinhold 25:24 Well, there's a little something to be said for that. But what about interest rate? If that 100k that you paid down was for credit card debt? All right? Well, that was probably a good thing. 44% of American credit card holders carry debt month to month. Now I'm going to guess for you the GRE listener, it's even less likely than that that you carry debt month per month, where you would be subject to credit card finance charges. The average credit card interest rate in America is about 25% today, and it is unsecured debt, meaning that it's a debt type that's not backed by collateral. Now, yes, you can beat a 25% return if you're leveraged in real estate, but your liquid cash flow drain is drastic on credit cards. The other problem with credit cards is that you have to pay your own debt. Later, I'll talk about when others pay your debt for you. And if you have decided that you have some debts worth paying down because its interest rate is too high for goodness sake, pay the one with the highest interest rate first. I know there's a school of thought that says, pay the debt with the lowest balance. First, that is nonsense. Now, sometimes, if you know specifically what you're doing with credit cards, you can play some little games with them. I mean, personally, after I finished college, I kept transferring credit card balances with 0% APR, Intro offers, introductory offers that were for a limited time at 0% and then I kept track of that so that intro rate didn't expire. But this isn't any sort of long term wealth building strategy. Higher balance transfer fees have made that strategy less lucrative. Now too, banks have tightened that up. When it comes to interest rates, it's about that arbitrage. Ask yourself really two questions when it comes to arbitrage, which is just a fancy sounding way of making a profit or a spread. First, you need to ask yourself, how good of an investor Are you? What percent return can you reliably earn from your investments? Say you think it's 15% then if you're plus 15 but the interest rate on your debt is 8, well, then you've got 7 points of arbitrage or profit. So keep the 8% debt. And then secondly on arbitrage plays. Ask yourself, can I afford the cash flow if I keep this debt around? Because if you're 15% return, just say that it's all tied up in the appreciation of a property. Well, that's not very liquid, so you're going to need to have the free cash to make the payments on your 8% interest rate loan. Let's talk about other times not to pay down the debt. Say you're trying to build up an emergency fund of at least three months, or you want to contribute to your employer match in your company's retirement plan, you may very well want to fund those things before you pay down debt too. Now some say, hey, you know something. Just forget about all these numbers like rates of return and interest rates. You know, debt just makes me feel anxiety and feel stress and sleeplessness. There is emotion here, so let me just get it paid off. Or I'm afraid that if I've got some money and I don't pay off my debt, that I'll just lose all of the money to sports gambling, and to that, I say, come on, be an adult. Set some boundaries. Dog ears, some cash for entertainment, and have a firm line. Learn how to use that to your advantage. Debt is like fire. It can burn you if you don't know how to use it, and it can heat your home if you do know how to use it. And if debt gives you sleeplessness. Here, this will help you sleep your debts, principal balance is being debased for you as you sleep, every single one of your debts is being eroded by inflation. Right now, as you listen to me, your principal balance is quietly, debasing and passively, eroding with your say 500k of total debt. We have 10% inflation over a couple years. Well, that erodes its weight down to 450k all without you having to get involved and make any pay downs at all. As wages go higher, and so do prices and rents and salaries, as they all spiral higher, it gets easier to pay back those principal balances. And debt is the most powerful wealth building force that I know of, because debt is leverage. Compound interest is weak. Leverage is powerful. Debt allows you to own and control five times as many properties as you could if they were all paid off. And if you don't understand this, or if your jaw hit the floor, what I just said a minute ago, that compound interest is weak. I just discussed this for you in clear detail nine weeks ago, on Get Rich Education podcast episode 507. So go and check that out. One attribute of real estate debt is that as you get properties where the rent income meets or exceeds the expenses, congratulations, you have reliably outsourced all of your debt payments to tenants. See, most of my debt, personally, virtually all of it, it isn't really going to be paid back by me. It's my tenants, and that is another reason to keep debt in place and only make the minimum payment. Let's talk about another reason to pay down your debt when a payoff or pay down actually does make sense, even if it's at a low interest rate, it's when an outside force kind of makes you pay down your debt. And here's what I'm talking about. Say you're trying to buy a property, whether that's a primary residence or rental, and that you've got say, Oh, just $11,000 left to pay on your car loan at a 5% interest rate, even though you can't outsource the payments. That's a pretty nice low 5% interest rate, you're confident that you can beat that and earn more elsewhere, so you'd rather enjoy the positive arbitrage instead of paying that off. And I'd feel the same way. But here's the twist, your mortgage loan officer says you've got to pay the $11,000 down to zero because your debt to income ratio is too high. So if you want the mortgage, the big loan amount, you've got to pay off the car loan, the little loan amount. Well, that's a case when it makes sense to pay off that automobile loan debt then, and also, when it comes to your credit score, you might need to improve it to qualify for another loan so you can get a low interest rate and 30% of your FICO score is made up of your amounts owed. I'm answering a vital question for you today, and that is, is every one of your debts worth paying off? I'm sharing information, perspective and experience with you here, and this experience was built, just like all experiences, and I didn't always have the experience, of course. Now my parents and I split my college loan costs, 5050, I still had student loan debts for a few years after graduating, and you know, I can't remember what my student loan interest rates were maybe 6% blended because I had a few different student loans, some of which I did transfer onto those 0% intro, APR credit cards, by the way. But after my student loans were paid off, and I started investing in real estate and understanding terms like leverage and arbitrage, you know, I started to wonder if it would be desirable to have those student loans back rather than paying them off so fast I could have owned another property or two sooner, and I'll never know the opportunity cost of not benefiting from the returns on owning more Property sooner. And of course, student loan debt is one of the few debt types that cannot be written off in bankruptcy that tilts back a little toward paying them off sooner than later. What you just heard me talk about here for the last 15 or so minutes is a message that hundreds of millions of people need to hear it's that not every debt is worth paying off or even paying down. So to help give you a summary answer to our question, is every debt worth paying off? The answer is no, and the key considerations are liquidity, interest rate arbitrage inyour ability to outsource the debt. Debt is good when it helps you buy a cash flowing asset or create arbitrage. Debt is probably even good when it helps you buy a home for your family and have a sense of permanency and a mantle to place baseballs and hang Christmas stockings from and build memories. And now this is all because every single one of us either uses debt or we forego the opportunity to use debt. Well, when we forego using debt, we are now subject to a resultant opportunity cost, and this is why a central and enduring mantra here at GRE is that financially free beats debt free. Financially free means that you have enough residual income streams to meet all of your expenses and live just how you want to live. Debt Free means that you don't owe anyone anything, but if you put debt free before financially free, you are going to grind and live below your means and eat dirt and miss opportunities for decades. And speaking of leveraging your way to financial freedom with assets, the way that we actionably help you here is by recommending income producing providers and properties for you. And you probably noticed over time that GRE marketplace properties here are less expensive than elsewhere. And you might wonder why exactly is this? Well, there's a few reasons. Investor advantage markets have low prices. Also, there is no agent you get to buy directly. Thirdly, providers provide homes in bulk, keeping your costs down. And then finally, there are no owner occupied emotions involved here with buying and owning rental properties, so you don't have sellers that are making unreasonable requests. So this helps answer why GRE marketplace properties are often good deals. Now it seems like states with the best cash flow in real estate are the same ones where people are more likely to wear bib overalls. That's just how it is. In fact. Hey, case in point, I just learned about some brand new, new build single family rentals in southwest Missouri at GRE marketplace. They're available for you to own regardless of where you live. They make ideal rentals, and they come with free property management for the first year. And because they're freshly built. Expect the likelihood of a quality tenant, light maintenance and low repair costs for years. Let me just quickly mention two of them to give you a feel. The first one is in Carthage, Missouri. The single family rental is three bed, two bath. Rent 1550 the price is 206k it's 1200 square feet, built this year. You get a $1,200 rent credit with it. So it's going to take a 51k down payment, and it produces cash flow. The second one is in Carl Junction, Missouri, four bed two bath in this single family rental. The rents $1,875 the price $250,500 1683 square feet built this year. 62k down and produces cash flow. And like I said, both come with free property management for the first year, and we can help set up an entire real estate investment plan for you, whether it's with these properties or others in multiple states, where we help you make it easy on yourself and contact a GRE investment coach. It is truly free always. There aren't going to be any hidden coaching bills that pop up in the mail. We don't have some paid coaching program. We're trying to upsell you. We don't have anything to sell, and our coaches are like advisors, consultants, super connectors and like silent partners on your deals, and they get zero equity in the deal. And our coaches don't wear Bib Overalls either. So they keep it really relatable for you, make it actionable and make a real difference in your life, start at gremarketplace.com. That's where you can contact a GRE investment coach, and we'll see how we can help you out from gremarketplace.com just click on the free investment coaching button. Until next week, I'm your host, Keith Weinhold, and I'll be back to help you build your wealth, Don't Quit Your Daydream.
39:46 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 or investment strategies have the potential for profit or loss. The host is operating on behalf of get rich Education LLC, exclusively.
Keith Weinhold 40:06 The preceding program was brought to you by your home for wealth building. GetRichEducation.com. |
Mon, 19 August 2024
Independent documentary filmmaker and policy analyst at Reason Foundation, Jen Sidorova, joins us to discuss how rent control impacts tenants, landlords and the housing market. Her latest short film project, “Shabbification: The Story of Rent Control”, reflects how rent control has a direct effect on housing quality. Almost half of rentals in NYC are rent-stabilized. We highlight the challenges faced by small property owners and the potential consequences of these regulations on the housing market. Learn about the history of rent control and stabilization laws in New York. Resources mentioned: Show Notes: You can follow Jen on Instagram @jen_sidorova or check out her writing at reason.org For access to properties or free help with a GRE Investment Coach, start here: Get mortgage loans for investment property: RidgeLendingGroup.com or call 855-74-RIDGE or e-mail: info@RidgeLendingGroup.com Invest with Freedom Family Investments. You get paid first: Text FAMILY to 66866 For advertising inquiries, visit: Will you please leave a review for the show? I’d be grateful. Search “how to leave an Apple Podcasts review” GRE Free Investment Coaching: Best Financial Education: Get our wealth-building newsletter free— text ‘GRE’ to 66866 Our YouTube Channel: www.youtube.com/c/GetRichEducation Follow us on Instagram:
Complete episode transcript:
Automatically Transcribed With Otter.ai
Keith Weinhold 0:01 Welcome to GRE. I discuss the effect that now lower mortgage rates can have how to get a strong return with private lending. Then, for this week's guest, she is a public policy expert with reason.com maker of a new film called Shabbification that spotlights the perils and even horrors of rent control in New York City, and she's a young Russian immigrant that lives in one unit of a Buffalo fourPlex and rents out the other three 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. Oh, 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 Daydream letter, and it wires your mind for wealth. Make sure you read it. Text GRE to 66866, text GRE to 66866.
Corey Coates 1:40 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 1:56 Welcome to GRE from Ankara,Turkey to Anchorage, Alaska and across 488 nations worldwide. I'm Keith Weinhold, and you're listening to Get Rich Education. Today's guest was one of four panelists at a conference that I attended recently. The panel was named innovative solutions to the housing crisis, and her story struck me as interesting, so I invited her to be on the show today, we'll learn that with rent control in New York City, when landlords cannot go inside their own properties and aren't allowed to sell their own properties, seven states have price ceilings on rents, and I'll tell you here At GRE we avoid investing in these places. Listen closely, California, New York, New Jersey, Maryland, Maine, Oregon, Minnesota and then DC too. Now sometimes rent control isn't too restrictive. For example, you can raise the rent no more than the rate of inflation plus 3% per year, or the rate of inflation plus 5% per year. And also, it's not all parts of those states where it applies. In fact, you typically do not find the policies statewide in those states that I mentioned, although you do in Oregon, it's statewide in Oregon, and there you can still raise the rent 7% plus the rate of inflation each year. And the good news is that 37 states actually have laws against rent control, specifically saying that you cannot enact it. So not only do 37 states not have it, they just wouldn't even allow a law for it. And there is a strong consensus, like I mentioned here on the show before, among economists that rent control, it reduces the quantity and quality of housing. Today, we'll focus on just how dilapidated rental units become under rent stabilization, which is a lot like rent control in New York City. And we'll discuss New York State and Buffalo. And by the way, I find something amazing. I mean, just say you would ask a question of any citizen of the world, no matter where they live, from Indonesia to Japan, to Bangladesh, to Nigeria to the United States. If you would just ask any citizen of the world, what is the capital of the world? I think that the best answer that you could come up with is New York City. I'm in the United States, and there are people right here in this country that have such little understanding of New York City, and what goes on there, and where it even is, it just amazes me. Maybe it's my own bias, because I'm a geography guy, but now, for example, to get from New York City out to Buffalo, that's an almost seven hour drive to the northwest two different parts of New York State. These are two very different places. We'll get into that shortly. But first in the wider real estate world, I did a little research since first mentioning this to you last week here, where mortgage rates have fallen fully one and a half points from the recent high. All right. Well, with every half point drop in mortgage rates, like I learned from First American, that's my source. With every half point drop in mortgage rates, about 1.1 million additional American households can qualify to buy an entry level home that's defined as the bottom 25% priced here. That's the number, and I checked their math. So with a full point drop in mortgage rates, then 2.2 million more American households can qualify to buy an entry level home. So we could very well have more buyers here soon, but yeah, when all these homeowners are still locked into three and 4% mortgage rates, I don't know that you're gonna have that many more sellers. So with demand exceeding supply, look for more upward pressure on home prices, especially higher values for those entry level homes that make the best rentals. Now, I'm talking about borrowing right there. And what happens when rates go down for mortgages, when they go down for borrowing? Well, rates on savings accounts, they typically fall as well. And this is a scenario that a lot of people expect. Now, most of my real estate activity is a borrower. I'm always here touting the virtues of how leverage builds wealth, and I know that I don't want to be a saver. So for my more liquid funds, I am a lender, and I'm reliably paid a stable 8% interest rate. And I think I've told you before that for years now, I make loans to real estate companies, and they use my funds to rehab properties and for other operations. Yes, an 8% return that I'm getting, and it's almost like getting an 8% yield on a savings account, and it's not expected to fall when interest rates fall. Well, the primary difference is that I often have to wait a few months if I want my full principal return, but not years. So it's not as rigid as a bank CD, but it's not as liquid as an old fashioned bank savings account. So the private real estate company that I've long made loans to works pretty diligently to maintain asset value and assure optimal returns. They'll tell you that they've never missed making a payment for their private money lending programs. And I did a little research, and I found that their fund utilization is 99.6% that really means that they deploy almost all of the capital if you want, you can potentially get a high yield at the same place I do. Sometimes you can get more than 8% or less than an 8% return, depending on what liquidity terms you want and what other terms you like. The company is Freedom Family Investments. They are real estate centric. If you want, go right ahead and learn more. You can do that by texting FAMILY to 66866. Remember, you're the lender, they're the borrower. And again, for most investment types, I want to be the borrower, but for liquid funds, and the fact that the rate of inflation is now down, an 8% return has a higher real yield now than it did two years ago and one year ago. And again, I'm happy to share it with you. It's Freedom Family Investments. If you want to learn more, do it now while it's on your mind and text FAMILY to 66866.
This week, our guest is a public policy expert that's also involved with a film called Shabbification, the story of rent control. Hey, welcome to GRE Jen Sidorova.
Jen Sidorova 9:16 Good to be here. Thank you for having me.
Keith Weinhold 9:18 Yeah and congrats. Shabbification screening in a lot of places, like the Anthem Film Festival at Freedom Fest last month and this month in New York City, tell us about the film.
Jen Sidorova 9:31 Yeah, so in Shabbification, I follow small property owners like myself who are subject to regulation, and most of them are owners of rent stabilized properties in the city of New York. Right, I follow three specific landlords. I They take me to their homes, they take me to their properties, and they show me around, and you can visually see what regulation has done to their property. Yeah, one of these properties was occupied by a tenant. From 1969 up until 2021 wow. And the landlord was never allowed to be in the property, so obviously no repairs were made. And you could see visually that the apartment was like from the 60s. It's like a museum, but not in a good way, because it's really falling apart, right? So it's like, almost like a Tenement Museum, or, you know, another museum New York City, where we they actually preserve those dates. But in this case, a private landlord actually owns that space, and they're having a difficult time. And so what my specific Shabbification With my film is about is a very specific regulation in New York City that happened in 2019 that applied to rent stabilized properties. What it did that is that it won't allow landlords to put them properties on the market even if they rent stabilized tenant vacates them. They're no longer allowed to put their properties on the market at all. And more than that, they are also not allowed to raise rent, even if they do repairs. So sometimes the cost of repairs in New York City for one bedroom unit can be 200,000 and they're only allowed to raise the rent by like roughly $90 a month, and only for 15 years. So it will take them, like, 200 years to recoup their investment. And obviously that doesn't make any sense, so stories like that is what my short film is about. I myself am a small property owner, so it was very special for me to go and kind of tell the story of people like me.
Keith Weinhold 11:36 That's amazing. So rent stabilization something that New York City has a history of. I sort of think of that as a genteel term or rent control. And a lot of times when your rent can't be raised above a certain amount, you get these long term tenants, in some cases, for decades, and in this case, over 50 years, with this particular tenant in New York City and landlords don't have much of any incentive to improve property when rent control is in place, because they know they cannot get a commensurate bump in rent.
Speaker 1 12:11 rent control and rent stabilization are a form of government enforced limit on the rents. And in New York we have two laws that govern that we have more but the most prominent ones are the rent control law of 1969 and the Rent Stabilization Act of 1974 so back in the day, there were issues with availability of affordable housing, and the government was trying to fix it, and that fix was supposed to be temporary. It was supposed to eventually run out once the tenants who were currently in place at the time in late 60s and 70s, once they move out, landlords were able to put those properties back on the market. And eventually, that's kind of what was going on up until 2019 when housing stability and Tenant Protection Act made it so that the landlords could no longer put their rent stabilized properties on the market anymore. So essentially, all rent stabilization became permanent in the state of New York, and actually, in the just a couple of weeks after my film, in April of 2024 we had another law. It's called Good Cause Eviction, and that one regulates every landlord or enterprise who owns more than 11 units. So once you own 11 units or more, you're subject to regulation. You can no longer evict your tenant without a good cause. And there's a bunch of other rules that apply, including the limit on how much rent you can raise year to year. So yeah, that's certainly what's going on. That's roughly the landscape all regulation in New York.
Keith Weinhold 13:44 Yeah, some of this is really punitive, because if rent control comes into a market, that's one thing sometimes that landlords want to do. They want to sell their property, and in some cases, there's a roadblock against that. You know, Jen, I looked up the definition of Shabbification. I just simply googled the term. Urban Dictionary had one of the first hits, and fortunately, it was a G rated definition there in urban dictionary, it was defined as the opposite of gentrification. So therefore with Shabbification, it's where a neighborhood goes through deterioration and despair. So tell us about some more of those bad cases of deterioration, in despair, in Shabbification. Just how bad does it get?
Speaker 1 14:30 Well, one of the properties that we went to was basically from 1910 it was in Chinatown, and we saw was that the bathtub was in the kitchen in that property, oh my gosh. And I believe that was a way for them to do renovations fast and cheap, like 100 years ago. And because that property falls under rent stabilization, and there's obviously limits on how much rent you can charge. So. Landlords of those properties never really make renovations. Sometimes you could see cases like the director of photography, who was in the film, he lives in a rent sabilized property, and in his case, he has a shower unit in his kitchen as well. Instead of a tub, he has a shower unit. And it kind of is, as he described as one of those telephone booths, like, you know, red telephone booths from London, and then kind of just sits in the kitchen, and you obviously cannot really have company or friends visiting or dinner or anything if you have something like that. But those are the setups that we frequently see. Also a lot of things like uneven floors or just, you know, the property, if it's not being taken care of, there might be, like, a hole in the wall, a hole in the ceiling, or the ceiling is falling out. And those are really graphic images. And we do, we do capture them on camera a lot in Shabbification, and that comes from, kind of, my attraction to urban decay. I do enjoy, you know, touring older buildings, or maybe buildings that are preserved as a ruin, maybe like an old prison and or like an old mental asylum. I do do that a lot. It's just a hobby when I travel. So I was always attracted to that esthetic, and that does show in my film as well. I think I love studying the tragedy because I love studying how the hope died, because it's fascinating to me. It's very specific to usually a town or a city, and then just is so telling, and it's such a teaching moment for us as a society to kind of revisit those stories and figure out why did that hope die. And you can see a lot of that in the film.
Keith Weinhold 16:41 it's a great way to scratch one's itch for I suppose, seeing real life haunted houses, if you will, in Jen's film Shabbification here. Well, Jen, we've been talking about the conditions of the tenants. Why don't we talk more about how the landlord is portrayed in Shabbification.
Speaker 1 17:00 since this is the story, primary of the landlords, not so much on the tenant. You know, normally in this sort of films and these sort of documentaries, the story falls in tenant, because the tenant is the one who is seen as likable and sympathetic person, and that's how, and that's usually a more preferable framing angle. But in my story, my story is a story of a merchant class, or like a more, like a war on the merchant class, the war on landlords. Because in the state of New York, no matter how small or large of a landlord you are, whether you own one unit or 1000 by a lot of people in New York State Legislature as a landlord, you're seen as evil. They think you've done something wrong and you have to be punished. So that's the attitude to a lot of landlords, and although they're not that many small property owners, and sometimes we're not seen as a sympathetic I think this is the story that we need to tell, because some of them are like me. I am an immigrant to this country. Once I got an opportunity, I got my first rental property in Buffalo, New York, and right away, I've been renting out three units and lived in one, and I still do own it. Five years later, I live alongside with my tenants. When I go on vacations, they feed my cat, and when they go travel for work, I do take care of their properties. I water their plants, do things like that. So we do live as a small community, and this is something that a lot of people do in Buffalo, because it's a working class city. It's very hard to be able to afford a single family home. Right away, what you can do is acquire one of these properties, either a two unit, three or four unit, because when you're four units less, then you can do an FHA loan, which I did, and you can put minimum amount down, which I did, and then day one, right away, the income from the tenants was paying off my mortgage, right? That's kind of how I can build generational wealth. But not only that, that's how I can start my journey of home ownership and hopefully building generational wealth in the future, as I've said. And I also have my own passion for buildings, and we did a lot of renovations with my family on that property. So there's a lot of heart and soul in that space. And laws like rent control and Good Cause Eviction, they put a cap on people like me and how much we can grow. Because, as I've mentioned, the Good Cause Eviction in New York, it puts a cap on how far and how big people like me can grow. Because once you have 11 units, that's my cap. Once I have 11 units, I have subject to regulation, and somebody like me cannot afford having a tenant who would just never move out. So yeah, I think these laws, they intended to protect the needy. They intended to protect the families, but they do just the opposite. They. Just limit how much we can grow, and they also just make an environment within our properties very toxic, because tenants now basically have more rights than we do.
Keith Weinhold 20:09 Yeah, well, you're really humanizing the plight of the landlord here, Jen with your four Plex over there. For those that aren't familiar with the geography in western New York in Buffalo, sort of the opposite end of the state where New York City is. And, yeah, I mean, landlords are usually portrayed in media is these people that are sort of greedy and bumbling and they won't fix the broken air conditioner. And, you know, it's, it's unusual to me, Jen, that a lot of people tend to resent landlords, whom are often small business owners, but yet they champion other small business owners. And talk about how, you know, small business ownership is the very heart of America. I'm trying to figure out why that is, you know, maybe some tenants that just don't really understand how things work. Just think, well, why should I have to pay this landlord. All I'm doing is sort of renting air or renting space. But you know, one group of tenants that does not seem to resent landlords, Jen, in my experience, that is people that were previously homeowners and are now tenants. They don't seem to resent landlords, and that's probably because that tenant that has experience being a homeowner. They've seen bills for property tax and property insurance and mortgage principal and mortgage interest and maintenance and repairs. I think that's what makes the difference.
Jen Sidorova 21:33 Yeah, definitely. It's almost like, you know, when I lived with my parents, I didn't pay attention to the bills, like election bills or water bills or anything. But once you start living on your own, you now see how it gets deducted from your account, and then it changes you, adds you towards consumption, changes right? You now turn off the light when you leave and do just small things like that. And that's a similar psychology that works with people who previously owned their own homes. I think what the dynamic that's happening here with tenants is there's always going to be more tenants than landlords, so tenants have a lot more political power, and we see a lot of that in New York. We have a lot of tenant groups, tenant unions, who are very hold a little, a lot of political power. And it's one side of it, another side of it is that a lot of these policies do benefit large landlords, in a sense that once the small property owner is no longer able to keep up the property and they just foreclose on it, a larger landlord can always pick it up. And for large landlords, these costs of litigating with the tenant, or the cost of fixing a unit, or even the cost of having somebody live without paying for a few months, these are just the costs of running business, whereas for somebody like me, it's a significant chunk of my income, right? So at the moment, I think it's like 25% of my income is coming from the rentals, so it's significant. So I guess what I'm trying to say is, on the other side of political power, I just legislators who do not want to see private rentals. You know, small property owners having rentals and Damn, motivations are something else. It's almost like, if there's one conspiracy theory that I believe in, is that one you know, is that there is a war on the merchant class among some legislators, especially in the state of New York, who really just do not want to see small property owners providing housing to the community, and they would rather see it in in the hands of larger developers, and that's just the nature of how political process works, sometimes.
Keith Weinhold 23:45 in the broad business world, large institutional corporations, they're often pro regulation for just the reason you talked about it helps put smaller operators out of business that can't bear the expense of dealing with the regulation. But yeah, your film Shabbification, it helps underscore the fact that rent control, it stifles the free market in the process of price discovery. I mean really that price discoveries, that is the process of supply versus demand, with the referee being the price and finding that right rent amount, and amidst this low housing supply we have, it's just really bad timing for any jurisdiction to enact rent control. Existing landlords stop improving property. Builders stop building new property, and it can make landlords want to sell, like we touched on earlier. But also I'd like to talk about making the other case, the case for rent control. When we come back, we're talking with public policy expert Jan siderova, the maker of a film called shabbatation, where we come back. I'm your host. Keith Weinhold, hey, you can get your mortgage loans at the same place where I get mine at. Ridge lending group NMLS, 42056, they provided our listeners with more loans than any provider in the entire nation because they specialize in income properties, they help you build a long term plan for growing your real estate empire with leverage. You can start your pre qualification and chat with President changley Ridge personally. Start now, while it's on your mind at Ridge lendinggroup.com that's Ridge lendinggroup.com.
Your bank is getting rich off of you. The national average bank account pays less than 1% on your savings if your money isn't making 4% you're losing your hard earned cash to inflation. Let the liquidity fund help you put your money to work. With minimum risk, your cash generates up to an 8% return with compound interest, year in and year out. Instead of earning less than 1% sitting in your bank account, the minimum investment is just 25k you keep getting paid until you decide you want your money back. Their decade plus track record proves they've always paid their investors 100% in full and on time. And I would know, because I'm an investor too, earn 8% hundreds of others are text family, 266, 866, learn more about freedom. Family investments, liquidity fund on your journey to financial freedom through passive income. Text, family 266, 866,
Caeli Ridge 26:32 This is Ridge Lending Group's president, Caeli Ridge. Listen to get rich education with Keith Weinhold, and remember, don't quit your Daydream.
Keith Weinhold 26:52 Welcome back to Get Rich Education. We're talking with a really interesting guest, Jen Sidorova. She's the maker of a new film called Shabbification. This centers on rent control and dilapidated housing conditions. And Jen, you know, I've talked about here on both this episode and another episode a few weeks ago about the deleterious downstream consequences of rent control. It benefits a small group of people in the short term and ends up with deteriorated neighborhoods in a lot of municipalities, but I like to look at things from the other side. What is the case for rent control?
Jen Sidorova 27:27 So I think the the original story behind the rent control in New York City was that in the 70s, it was just really dire situation, kind of what we're going through right now. Right now in New York we have the housing crisis that's the worst in the last 50 years, so basically right around the 70s again. So the current vacancy rate is like 2% and at the same time, we have between 20 to 60,000 rent stabilized rent control units that are vacant because landlords just do not want to put them in more on the market, because talking just in New York City here, yeah, just New York City. And New York City has roughly 1 million of rent stabilized or rent control properties altogether. But yeah, so what is the case for rent control, right? So in my opinion, what is the most problematic saying about rent control or rent stabilization right now, the way the current laws are in New York City is that the property itself is being stabilized or controlled. It's not the person. It doesn't matter how much money you're making. If you're making half a million dollars, you can still live in an apartment that's like 500 $600 a month, right?
Keith Weinhold 28:38 You can have your second lavish vacation home out in the Hamptons, and it doesn't matter.
Jen Sidorova 28:42 Yeah, you can live in Texas for like, nine months out of a year, and come back to New York City for the summer, and then people do that. That's like, not, I'm not making it up. It's a real thing. People are basically hoarding these rent stabilized rent control units, and they just never let them go. And that definitely pushes out young people out of the city. It pushes immigrants out of the city, because people, yeah, all the newcomers. So that's what's going on. So instead of having a property itself being controlled, what could be done? Maybe like a voucher program, maybe like a housing voucher program, but we can only do this if we let the rent control and rent stabilization laws sunset. So once the current tenants move out, that has to be put back on the market, right? So what we could do is the housing voucher program maybe, so that we will always have people in the society that need a little bit of help, but it shouldn't be in such a way that they it's the landlord who is paying for it, right? So if there's a housing voucher, they can live wherever and however that program works in the sense that whoever picks up the rest of the bill, as long as it's not a landlord directly. Yeah, so that's how I see it. And I think just other things that can be done is better zoning regulation that allow more buildings to be built a lot of New York City. Is like a museum, right? We have a lot of historic buildings, a lot of preservation of all the buildings, but we have to reevaluate that, because we don't necessarily have to have the East Village look like a museum if we don't have enough housing, right? So we have to reassess of how much of those policies we still want to hold on to, and then maybe also building codes. Sometimes it's really hard to expand or have more units within the same building. If I have a four unit property and I want to convert it into five units, I am subject to whole different regulation and a whole different bunch of coding, whereas my square footage remains the same. So I think we have to revisit that, because a lot of these new materials that we work with when building are safe right now. So maybe we could let people do more with their properties, and that way we provide more house.
Keith Weinhold 30:50 Yeah. Well, some of this comes down to, how do you get politicians to say no to rent control, which I believe is part of the motivation of your film?
Jen Sidorova 31:01 Right, So the motivation behind myself was that I bought my property in 2019 I went under contract in 2019 and I fully acquired the rights in March of 2020 and between the August of 2019 and 2020 we had a new law passed that was housing stability and Tenant Protection Act 2019 in New York State, and that kind of put a cap on how much I can raise the rent if the tenant remains the same. And at the time when I found that out, I was like, well, that's kind of quirky, but whatever, what can I do? But then a year from that, like in 2021 we had a new mayoral candidate who was a socialist, openly socialist person, and they were advocating for rent control. And at the time, I had an opportunity to go to do a film workshop, and I was thinking, so what is that I really wanted to write film about? And I was this, definitely rent control, because it's relevant for me. It's the story of my people among small property owners, and that's how I did it. And I really want policy action. The idea behind this film, the goal is policy change, right? But this short film is only the beginning of my project, which is exploration of the topic prevent control in the state of New York and everywhere else in the country, and we keep interviewing more people, more experts, and to convert into a larger film, and then hopefully, like a full feature documentary, in order to educate both policymakers and the public about what rent control can do. And eventually, we do hope for policy change in New York, and hopefully, with this film, no more new rent control can happen, or at least when politicians start those bills, they take a look and talk to me and make some changes.
Keith Weinhold 32:52 Well, you're really doing some good work there. I appreciate that. I mean, rent control is analogous to price controls, and we see what happens when there's price controls per se foods like you've seen in other nations in previous decades, and that's how you end up with bread lines, because producers don't want to produce bread when they would have to take a loss and they can't profit on selling that bread. You see a shortage of housing come up just the same, like you do with bread. Well, tell us some more about Buffalo and its market. You had touched on it previously. I think they have lots of older two to four unit buildings there. It sounds like you found one of the four plexes where you could do the owner occupied thing. FHA, three and a half percent down 12 month owner occupancy period. Minimum credit score only needs to be 580 at last check, which is the same way I began with the four Plex building. But yeah, let's learn more about the buffalo housing market. Just a little bit there with rental properties and then the rising tide against Airbnb, like you touched on last month when we met in person.
Jen Sidorova 33:56 Right, so a lot of those properties, a lot of those older homes, were built around the late 1800s beginning or 1900 and that's how they used to build back in the day. Because what would happen is that a large Victorian home with two primarily stories, with two large floors and then maybe an attic and a basement, but one family would live on one floor and another on the second floor. So they were originally built for two homes, but at that time, both families would own that space, right? So there would be co owned by two families. Mine was also an originally a two family home that was converted into a four unit because the previous owners made an addition a lot of young families, that's how they start when they cannot afford a single family home. That's how they start with home ownership and the money that they make for with the rentals. That's how they pay mortgage partially, or maybe that's how they pay the taxes, depending on where you live in the city, sometimes tax burden can alone be very high. So as I've mentioned, we had some mayoral candidates talking about rent control, but recently we started having Airbnbs being regulated in Buffalo. And so there's a few districts in the city where Airbnb is regulated, and my district does not fall into that, and I actually am on four of my units. One is occupied by me. Two are long term tenants, and one which is the newest and the nicest one. I decided to make Airbnb interesting because I did not want to risk, you know, giving it to a long term tenant, because it's just such a nice unit. It's a lot of investment that went in there, so I didn't want it to be provided by somebody who would never leave, because the, you know, environment is just so toxic. You just don't want to take chances, unless you like, really believe in the time. But I don't know people are out here. So I decided to keep it Airbnb. And so because some of the other parts of the city are regulated, and mine is not. I am the beneficiary of that regulation because I get a lot, all of those clients, right, all those Airbnb client so in that sense, funny enough, I am benefiting from some parts of the city being regulated because my my part is not. So all the clients go to me. I do have an Airbnb right now, but we're definitely at the risk of all of the city being regulated. And I think a lot of people complain, right? People who lived in the city for a long time, allegedly, they started complaining to the city council about not recognizing their neighborhood because of Airbnb. But I think what legislators need to understand is that my generation, millennials and Gen Z. That's how we live our lives. We share our assets, right? It's like a big millennial and Gen Z thing that the Airbnb itself is a millennial thing, that this is just will be recognized, that assets like cars and houses, they can be shared, you don't have to have that many of them, even from the unit in the unit that I live in. When I I went out on a trip to Long Island last week, and I airbnbied my own unit. And so that's just how it is. That's just a little lifestyle. And when I see new people who stay in Airbnb on my street, it doesn't bother me. I kind of enjoy a little bit of a variety. But, you know, sometimes it's almost like a culture clash or a generational shift when it comes to thinking about properties and housing ownership. Yeah, that's just my experience.
Keith Weinhold 37:33 Younger generations embrace the sharing economy, and that is quite the mixed use building that you have there with your four Plex in Buffalo, you've got one unit that's a primary residence, a second unit that's a short term rental, and then two long term rental units. There's some diversification of income and utility, for sure. Well, Jen, tell us more about how our audience can connect with you, and especially how they can watch Shabbification.
Jen Sidorova 38:00 So Shabbification, right now is in the film festival circuit, so it's not available to watch yet. Although, if anyone reaches out directly to me through Instagram, my handle is @Jen_Sidorova, which is my first underscore, my last name, anyone can just reach out directly to me and I will send them a screener, and they can watch the full film. And also on my Instagram page, I do put a lot of like other content about buildings, and a lot of like videos so and some, you know, B roll footage that we haven't used in the film, but you can watch it in my Instagram. So yeah, definitely check it out. I also do write for Reason Foundation, and you can find it on my profile, my policy writing work. You can find it at reason.com and it's just under my name, pretty much Instagram and reason website.
Keith Weinhold 38:51 Jen, thanks so much for your Shabbification project. I really think it's going to help people see an important part of American society in a different light. It's been great having you here on the show.
Jen Sidorova 39:02 Thank you so much.
Keith Weinhold 39:09 I talked to Jen some more outside of our interview. Her buffalo four Plex has a high flying 1.04% rent to price ratio. I crunched it out that is super strong for a four unit building, but it is older, and like she said in the interview, she did make some substantial renovation to it, yeah, rent control is a bad plan. You know, on an episode a few weeks ago, I mentioned to you about last month's White House proposal for a sort of rent control light, that was such a bad plan. I told you that it only applies to property owners of 50 plus units, and rent increases were capped at 5% a year. Well, I dug into that release from the White House briefing room, and it's almost like they know it won't work, because. Oh my gosh, this is almost humorous. Economists and any long term thinkers will tell you that rent control doesn't work because you won't get any new builds. Well, the White House release Wood said it won't apply to new builds. It's almost like someone told them, like, hey, this won't work for that reason. So then they wrote that sentence in there, which just undermines so much of it. And economists will also tell you that what doesn't work because owners don't want to improve property well, yet, the White House release actually said it would not apply to substantially renovated property. I mean, my gosh, with these carve outs and all the other caveats that are in it that I described a few weeks ago, this White House rent control planet has no shot of going anywhere. It is lip service virtue signaling, and also would not get past a divided Congress. Really bad plan. In fact, how doomed to failure is wide scale rent control. Well, don't worry, the federal government hasn't regulated rent on private buildings since World War Two. Yeah, it's been 80 years, and it took World War Two scale conditions to bring it. Thanks again to today's guest, Jen Sidorova, with reason.com. Again, like I mentioned earlier, if you want to deploy some of your more liquid funds for a potential 8% return at the same place where I've been getting an 8% return for years, you can make a loan to a long standing real estate company for their property rehabs and other operations. This might really help you out. You can learn more by texting FAMILY to 66866, lots of great shows coming up here at GRE to actionably build your Real Estate Wealth until next week, I'm your host. Keith Weinhold, don't quit your daydream.
Unknown Speaker 41:53 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 42:21 The preceding program was brought to you by your home for wealth building, GetRichEducation.com
|
Mon, 12 August 2024
Research Director for California YIMBY, professional city planner and author of Arbitrary Lines, Nolan Gray, joins us to discuss how zoning impacts our communities, affordability of retail and commercial real estate. Zoning laws contributing to the affordable housing crisis and what we can do about it. Shifting from NIMBY to YIMBY mindset requires understanding benefits of growth. How zoning laws prevent new development, causing housing shortages and limiting entrepreneurship. California's statewide legalization of accessory dwelling units can be seen as a successful zoning reform example. We discuss how cities like Austin and Minneapolis have seen price stabilization by allowing for more mid-rise multi-family housing near transit and job-rich areas. Learn how to connect with local policymakers and planners to advocate for policy changes that encourage more housing supply. Resources mentioned: Show Notes: You can follow Nolan on X @mnolangray For access to properties or free help with a GRE Investment Coach, start here: Get mortgage loans for investment property: RidgeLendingGroup.com or call 855-74-RIDGE or e-mail: info@RidgeLendingGroup.com Invest with Freedom Family Investments. You get paid first: Text FAMILY to 66866 For advertising inquiries, visit: Will you please leave a review for the show? I’d be grateful. Search “how to leave an Apple Podcasts review” GRE Free Investment Coaching: Best Financial Education: Get our wealth-building newsletter free— text ‘GRE’ to 66866 Our YouTube Channel: www.youtube.com/c/GetRichEducation Follow us on Instagram:
Complete episode transcript:
Automatically Transcribed With Otter.ai
Keith Weinhold 00:00 Welcome to GRE. I'm your host. Keith Weinhold, if you don't take the right action, inflation will make you poorer. Then the affordable housing crisis keeps your tenant as your tenant is zoning. What's ruining American cities in keeping starter homes unaffordable or just plain extinct in some areas, how do we get more apartments and more density built 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. Ugh. 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 Daydream Letter, and it wires your mind for wealth. Make sure you read it. Text GRE to 66866, text GRE to 66866.
Corey Coates 01:38 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 01:54 Welcome to GRE from Calgary, Alberta to Tirana Albania and across 188 nations worldwide. I'm Keith Weinhold, and you are listening to get rich education. When most investors think about inflation, they get it mostly wrong. Their strategy is inflation hedging. And you know, even if you successfully hedge inflation, you are really missing out. You've really got to get fired up about beating inflation. When did you get your first job? Like your first real job in your life? Let's say you did that when you were age 18. Well, that work that you did when you were 18, that created value for somebody else. And you could have done anything with your valuable youth, but instead, you chose to provide value by focusing your time and your energy to sweep floors or enter data into a spreadsheet for somebody else. You were paid for that work that you did. You were paid in dollars, well, if you just tried to store your finite energy that you expended for that employer into dollars, you will lose. Your value will be coerced away from you by your government that just incessantly and relentlessly debases the dollar that you earned at age 18, because they just keep printing more of them. Well, that money printer, which creates the inflation is then an extraction of your resources. Yeah, they extracted your resources, of your time, energy and ingenuity away from you when you were 18, and even the work that you do today, its value will get extracted away from you too. If you say, store dollars under your mattress, if you instead invest it so that its growth rate keeps up with inflation, well, then all you've done is hedge inflation. My point is, get upset about how the system extracts resources from you. And my other point is, don't hedge. Hedge just means that you're treading water. Position yourself to win instead, because you can when you buy income producing property with a loan, you don't just hedge against the inflation. You win three ways at the same time. You probably know that's called the inflation Triple Crown, a concept that I coined. You can watch the three part video series on net, free. It's now easier than ever to access, learn how to actually profit from inflation, not just hedge yourself against it. You can watch that, and it's friction free. There's no email address to leave or anything. Simply watch learn and maybe even be amazed at how you can do this. Those three videos are available. At getricheducation.com/inflationtriplecrown, that's sort of long, so you can also get there with getricheducation.com/itc. Again, that's getricheducation.com/itc. Before we talk with our guests about how zoning is making the affordable housing crisis, even worse, housing values and rents are really looking stable in today's environment. CoreLogic tells us that single family rents are up 3.2% annually. That's the highest rate in a year. And when it comes to prices, the NAR tells us that existing single family home prices hit a record high of $426,900 and that is an all time high. And note that that's existing homes, not new. So median existing homes are basically 427k now. And what does that really mean? Well, that is up 4.1% year over year, the real estate market continues to be it's sort of this tale of the equity rich versus the affordability challenged. Are you equity rich or are you affordability challenged? Well, the more property that you own, the more equity rich you are feeling, that you're going to feel, and oftentimes you're renting out property to the affordably challenged. Of course, the big buzz and a potential really turning point in the economy here or not, it really began about 10 days ago. That's when America reported weak jobs numbers, and that set the unemployment rate from 4.1% up to 4.3%. Citigroup and JP Morgan are now predicting half point Fed rate cuts in both September and November, not just quarter point cuts anymore. I mean, gosh, if there's one thing that we really know, it's that nobody really knows anything. Starting about two years ago, everyone thought a recession was eminent. Bloomberg even said there was a 100% chance that we'd have one by last year. Wrong, wrong, wrong. Everyone thought there would be six or seven Fed rate cuts this year. Wrong, wrong, wrong. You can't even completely count out of rate cut at the next meeting. I mean, sheesh, before that time, we still have two new CPI reports to come out and another jobs report. So, you know, over the long term, this is just how people act. They tend to get ahead of themselves and overreact, and that's really more of a stock market investor sort of thing. And yeah, despite the volatility, you know, us real estate investors are here more chill than Snoop Dogg was at the Olympics. All this fear, what it does is it pushes money into bonds. And when money goes into bonds, it makes mortgage rates go down, and they recently hit 16 month lows near 6.4% and if rates stay low, millions of additional Americans will be able to qualify to buy property that couldn't before, and that could really put more upward pressure on property prices, more than this 4.1% year over year appreciation that we're currently seeing. We know that lots of investors are buying properties like you, getting equity rich and serving the affordability challenge. In fact, 60% of Home Builders indicated that they sold homes to investors from February through April, while 40% reported that they didn't sell to investors. And investors now represent wholly 25% of both new and resale residential transactions and among builders that sold to investors in the past 90 days, 69% of them sold to mom and pop investors. Mom and pop investors, they're loosely defined as those that own one to 10 rental units. They may very well be you. Institutional investors, those that own 10 plus investment properties in this home builders definition here. Well, those institutional investors, they accounted for just 4% of investor sales nationally. So again, more home builders are selling to small real estate investors, those that own one to 10 units. Well, now in almost 10 years of doing the show here, we've never had a full discussion about zoning, and really this is the time. Okay, this ends today because we describe how it's contributing to the affordable housing crisis and what we can do about it. I mean, anymore you really can't find a brand new build 250k starter home anymore, unless maybe it's a tiny home, which then really isn't a full home, and you sacrifice your lifestyle. Well, zoning is a big reason why the Supreme Court decision that deemed zoning constitutional that occurred in 1926. Yes, that's going to turn 100 in the year 2026 that Supreme Court decision that infamously referred to apartments as parasites. Wow. But yet is some zoning good? I mean, say that you and your family have your nice, quiet, single family home on an idyllic half acre lot. Well, if that's the case, should it be allowed that Bitcoin mining facility with its loud cooling fans is built right next to you I'll ask our guest expert about that, and what about say less offensive transgressions, like a condo board that says that you can't rent your unit out. How much zoning is too much or too little? I mean, is someone just being overly sensitive if a duplex is built next to their single family home and they complain about that? So we'll get into all of that. And it really comes down to limiting this McMansionization risk type of nimbyism, not in my backyardism. That's what it is. Again, you can watch the three free videos on how you can substantially and actionably profit from inflation, not hedge, but profit from inflation. It's the inflation triple crown. Be sure to check out those three videos at getricheducation.com/itc. I learned about this week's guest through reason.com we met in person at last month's Freedom Fest in Las Vegas. He is the research director for California Yimby, yes. Yimby, not NIMBY, that is yes in my backyard. And he's a professional city planner. He's the author of the book Arbitrary Lines, how zoning broke the American city and how to fix it. Welcome to GRE. Nolan Gray,
Nolan Gray 12:24 thanks so much, Keith. It's a pleasure to be with you, Nolan,
Keith Weinhold 12:26 you wrote one article for reason.com with such an interesting title, five words, Abolish Zoning-All of it, you're pretty emphatic there at what you'd like to have happen before we discuss that, why don't you tell us in your words what zoning is?
Nolan Gray 12:44 So for the past 100 years, America's cities have been running a grand experiment and how they're governed. Essentially, what we've done, beginning in the 1920s is we said for every single parcel in the city, we're going to assign an allowed use. So most people, if you've played Sim City, you know this might be residential, commercial, industrial, but it goes into so much more detail than that. Different types of residential might be allowed in different parts of the city, commercial, etc, and the vast majority of most American cities, the only form of residential that's allowed is a detached, single family home, right? So that's one half of it, the second half of what zoning is doing, it's placing arbitrary density limits. So the amount of actual housing or amount of floor area that you can build on any particular lot. And it's important to distinguish this from other forms of land use regulation, because in many cases, these rules aren't actually based on any health or safety concerns, but instead a sort of social project of engineering what a correct city should look like. And as I argue in the book and we can discuss over the course of this conversation, is I argue that these rules have actually had incredible harms for our cities and are at the root of our current housing affordability crisis.
Keith Weinhold 13:45 I think zoning initially, it began in New York City about 100 years ago.
Nolan Gray 13:50 Yeah, so New York City adopted one of the first modern zoning ordinances in 1916 a handful of other cities did so as well. So I'm coming to you from California, Berkeley, California also adopted zoning in this year. And essentially, what happened after New York City adopted it was the federal government put together what's called the standard zoning Enabling Act. They mailed that out to every single state in the country and started putting a lot of pressure on states to adopt zoning and allow local governments to adopt zoning. And then, with the rise of the Federal financial system, as part of the New Deal, housing programs. In many cases, local governments were required or strongly, strongly incentivized to adopt the zoning codes to be eligible for certain federal benefits.
Keith Weinhold 14:29 You know, maybe philosophically, one might think, Nolan, well, America stands for freedom, and I should get to do what I want with my plot of land. But if everyone can do whatever they want with their plot of land. I mean, does that mean that my neighbor then could start a sloppy hog farm, or the neighbor on the other side of me could start a battery factory with smoke stacks? So do those sort of things help make the case for zoning?
Nolan Gray 14:57 Yeah, that's a great question, you know. So before the rise of zoning. And we actually had a lot of rules for these classic nuisances, these classic externalities, things like smoke, smells, noise, or even just lots and lots of traffic generation. We had rules to say, Hey, if you want to operate certain types of uses, you need to be in a certain designated area where we're going to tolerate a much higher level of externalities. Zoning does that, but it also does so much more. And it's those other aspects that I think are ill conceived. So for example, of course, we don't want a slaughterhouse next to a single family home, but zoning might also say, Oh, by the way, you're not allowed to have a duplex next to a single family home. You're not allowed to start a home based business. You're not allowed to operate certain commercial uses out of certain strip malls in certain parts of the city. You're not allowed to build anything unless you have a certain amount of number of off street number of off street parking spaces, which can make adaptive reuse of historic properties very difficult. So I think absolutely there's a core of land use regulation that makes sense, that's focused on neighbors, not imposing costs on each other, but our current system goes so much further than that, in many ways, imposes new and unconceived costs, including increasing housing prices, limiting housing options in many of our neighborhoods, making it harder to start a business or to have neighborhoods serving retail in many of our neighborhoods.
Keith Weinhold 16:09 So perhaps zoning has just simply gone too far, and you touched on it earlier. It seems to me that about three quarters of the area of most cities have zoning restricted only to single family home building, for example, and they ban apartments completely. So maybe, as we try to find the right balance of how much zoning is right, tell us more about really the thesis of your book and why we should ban zoning completely.
Nolan Gray 16:38 Of course, we need certain regulations for externalities and nuisances, and to certain extent that can be resolved through litigation, but ideally you look for it and you say, okay, look, there are certain areas where we're going to tolerate certain nuisances and other places where we will not. But beyond that, I think so much of what our land use regulations do is actually causing harm. It's preventing property owners from using their property in ways that are not in any meaningful sense, harmful to their neighbors. It's created this context where now if you want to build just about anything in the typical American city, you have to go through multiple public hearings, you have to do an environmental report in some states, you have to get the permission of local elected officials, you have to undertake all these actions that heavily politicize every new development. And so what we get is so many of our neighborhoods and so many of our cities are locked in amber. And this is partly why, over the last few years, where we've seen a huge amount of demand flow into housing, we've simply had these extreme shortages because markets could not respond with the supply that many of our communities needed. So for example, a starter home in many US cities today might be a townhouse, it might be a two bedroom condo, it might be a single family home on a 2500 square foot lot, but those are precisely the forms of housing that in many cases, our zoning codes make illegal to build. So we're essentially saying if you can't afford at least a certain level of housing, you're not allowed to live in many parts of the community, if in the community altogether, or the same with businesses, if you want to start a small business that might not necessarily have any impact on your neighbors, you might require a special permit. You might require a hearing. You might require to attend a hearing where your competitors are going to show up and oppose your project, purely on a cynical basis. So what it's done is it's created this incredibly disruptive system that's prevented our cities from being entrepreneurial and adaptive, and I think this is the root of a lot of the problems that we're facing today.
Keith Weinhold 18:17 Oh, you really surface some good points there Nolan, when I think of over zoning, and we talk about how a lot of times you can't build anything more than a single family home, that certainly creates a lot of problems. Gentrification is sort of a bad word, kind of sprucing up community so much, raising the value so much, that one problem is that familial bonds decay when children that grew up in, say, Southern California, can no longer afford to live there, so they have to move to lower cost Las Vegas, a four to five hour drive away. Excessive gentrification. You touch that, it also harms mobility. If you want to move from Atlanta to Boston for a tech job but you can't find housing, you're not going to move there, so therefore, talent doesn't get matched up with opportunity.
Nolan Gray 19:07 That's exactly right. I mean, this is a at the national scale. This is an important piece of the puzzle, which is we've made it hardest to actually move to some of our most productive places. So as you mentioned, places like Los Angeles, San Francisco, Boston, New York City, for all their problems, these are incredibly productive places where folks can move to and get high paying jobs and other good educational opportunities, but in many cases, these are the most expensive cities in our country, and it's in no small part because of the many rules and regulations that make it so hard to build housing in those contexts. So you're exactly right. Folks actually turn down higher paying jobs or better opportunities and move to places simply because the housing is more affordable, and you pick up on a really important piece of this, which is in many cases, this is breaking apart families. So a lot of folks who are born and raised in a place like California, their parents might have been able to buy their home in the 70s or 80s or 90s, but they can't afford a home. They have no long term path to actually staying in the community. And so what you're actually seeing is neighborhoods and communities being ripped apart. If the situation in places like California has actually got to be so bad that many of the people who are in a certain sense, beneficiaries of the status quo, maybe they own their home and they're seeing the value go up and up and up. They're also saying, Oh, my children can't afford to live near me. I don't ever get to see my grandkids. The person who serves me at the hospital or at the supermarket can't afford to live here, and we're having trouble keeping folks on. The crisis got to be so bad in certain places like California that we're starting to see tremors of reform. But one of the things I like to say is, if you want to fall into a California style housing crisis, most parts of the country don't need to do anything the rules you have on the books have you moving in that trajectory, right? But if you want to remain a place where we can build more housing, where folks can buy their own home or buy small apartment buildings and start to build wealth, you have to allow for more supply to come online.
Keith Weinhold 20:42 Sure, zoning so that you can't build anything other than single family homes compounds the affordability crisis. There really just isn't any such thing as a 250k starter home anymore, anywhere. You represent California, yimby and you live there in the state where people think of ground zero for excessive regulation and taxation and zoning too. I do read more about some zoning being relaxed in California, allowing for the building of an adu on a property, for example, to help build the density. But before you talk about some of the cracks that are actually starting to help break this down. Can you give any bad examples that are especially problematic there in your home state, Nolan?
Nolan Gray 21:27 For the past 50 or 60 years, California, has been stuck under a NIMBY paradigm, not in my backyard, right? Every single new project is politically contentious, has to undertake an environmental report, has to undergo multiple public reviews, it takes years and years to get a permit, and that's if the housing is legal to build at all. As you know, in so many parts of California, there's very little to no new construction happening, and that's because of the rules on the books that make it so hard to build. To the extent that we allow new housing to be built, we have a whole bunch of mandates that force the housing to be a lot more expensive, and even if all that pencils again, it can take two years to get fully entitled in a permit. And so of course, the only housing that actually ends up getting built is quite expensive. And some folks say, Well, if we allow new housing to be built in California, it's all expensive. Well, yes, if you only allow a trickle of new housing in a very expensive context, of course the new housing is going to be expensive. But if you look to places like Texas and Florida, for example, that build lots and lots of new housing and don't have all of these costly mandates, they actually can build a lot of new housing, and actually can keep prices relatively under control and create that new supply of what we call missing middle, low rise housing. So as you mentioned, the tide, I think, is turning in California. The silver lining of things getting so bad is that the culture is shifting. And what we've seen is the emergence of this new yimby movement, or yes, in my backyard. And these are folks are saying, hey, not only is not building more, not this horrible threat to my community, but it's actually this enriching opportunity. It's good to have a growing, healthy, affordable community where folks are building, folks are able to move to high opportunity jobs, and folks are able to have choice in the neighborhood they live in.
Keith Weinhold 22:55 We're talking about zoning and how that's made the affordable housing crisis worse in the United States with California, yimbys, Nolan, gray Nolan. Tell us more about just the exact sorts of codes that are problematic. We touched on apartment building bans, but I think we're also looking at things like off street parking requirements. You need to have so many off street parking spaces before you can build. Otherwise you can't build. You need to have a minimum lot size of a half acre or a quarter acre in order to build here. So can you talk more specifically about just some of those exact problems on the tactical level that are compounding here?
Nolan Gray 23:34 Yeah, that's exactly right. So where are the housings illegal to build altogether. In many cases, there are a whole bunch of rules that increase the price of that housing. So in urban context, for example, where you might want to be building apartments, many cases, you might have parking requirements that say, Well, you have to have two parking spaces per unit or one parking space per bedroom. In many cases, that's what consumers might demand, and you would have to build that to lease out those units or to sell those condos. But if you're building in a context where you might be near a transit line, or you might be near a university campus, or you might be near a major job center, many of your renters might say, hey, actually, I would prefer to have a more affordable rental or a more affordable condo, because we know that there's no such thing as free parking. You know, if it requires a structure or excavation work, parking can easily add $50,000 to the price of a new unit, and so some consumers might want to pay for that, eat that cost, have a parking space. But many consumers, when we relax these rules and say, Hey, developers, you have the incentives and the local knowledge needed to decide how much parking to build. In many cases, we find that they share parking with other uses, so commercial during the day and residential at night, or they allow renters to opt into parking and to pay for parking, but what you get for many households is a cheaper unit. Now another rule that you mentioned, which is very important, is minimum loss size rules. This is certainly a lot more relevant. More relevant and suburban and rural context. But what we say is, if you want to be able to have a single family home, you have to be able to afford at least a certain amount of land. Now, when if you have a context where you don't have water and sewer installed, and you're operating on septic and well water, you do need larger lots as a matter of public health, but in most suburban context, these rules essentially serve no function except to increase the price of housing and the ability to determine what type of housing can be built where is the ability to determine who gets to live where. So if we say, well, you're not allowed to live in this neighborhood unless you can afford a 10,000 square foot lot or a 20,000 square foot lot, what we're essentially doing in 2024 where land is a major factor in affordability, is we're saying that a whole bunch of middle working class households are not allowed to live in these neighborhoods, or they're not allowed to ever become homeowners and start building wealth in the same way that past generations did. And you look at places like Houston, for example, where they don't have zoning, but they have a lot of zoning-like rules. In 1998 they reduced their minimum lot sizes from 5000 square feet citywide to 1400 square feet citywide. And what this did was this kicked off a townhouse and small lot single family home building boom that has helped to keep cities like Houston affordable a whole new supply of starter homes that again, offered that first step on the ladder of home ownership and wealth building.
Keith Weinhold 25:52 Over the decades, home prices have outpaced incomes. There are a few reasons for that. One of them is inflation, with wages not keeping up with the real rate of inflation, but the other are barriers to development. We're talking more about that with Nolan gray. When we come back, you're listening to Get Rich Education. I'm your host, Keith Weinhold. Hey, you can get your mortgage loans at the same place where I get mine at Ridge Lending Group NMLS, 42056, they provided our listeners with more loans than any provider in the entire nation because they specialize in income properties. They help you build a long term plan for growing your real estate empire with leverage. You can start your pre qualification and chat with President Chaley Ridge personally. Start Now while it's on your mind at ridgelendinggroup.com. That's RidgeLendingGroup.com. Your bank is getting rich off of you. The national average bank account pays less than 1% on your savings. If your money isn't making 4% you're losing your hard earned cash to inflation, let the Liquidity Fund help you put your money to work with minimum risk, your cash generates up to an 8% return with compound interest, year in and year out. Instead of earning less than 1% sitting in your bank account. The minimum investment is just 25k you keep getting paid until you decide you want your money back. Their decade plus track record proves they've always paid their investors 100% in full and on time. And I would know, because I'm an investor too. Earn 8% hundreds of others are text FAMILY to 66866, learn more about Freedom Family Investments, Liquidity Fund, on your journey to financial freedom through passive income. Text, FAMILY to 66866.
Robert Kiyosaki 27:50 This is our Rich Dad, Poor Dad author, Robert Kiyosaki. Listen to Get Rich Education with Keith Weinhold, and the reason I respect Keith, he's a very strong, smart, bright young man.
Keith Weinhold 28:14 Welcome back to Get Rich Education . We're talking with California, yimbys Nolan gray about zoning and how these barriers to development are compounding the affordable housing crisis, and there sure are a number of barriers to multi family production. I really think that's what wild it comes down to. You touched on it earlier, and it's something that I spoke about with our audience a month or two ago. Nolan, and that is, mmm, multi families, missing middle these two to four unit properties, duplexes to fourplexes, where they're only constructing about 40% as many of those here in recent years than they did 20 to 30 years ago. The way I think of it is when you lift barriers to multifamily production, of course, you incentivize builders. If a developer buys an acre of land for, say, $90,000 and they had planned to build one unit on that All right? Well, there's one set of inputs in income that a developer can look at. But instead, if you allow them to go from building one unit on this plot of land to two units on it, it increases their profit potential, and it incentivizes developers from that side as well.
Nolan Gray 29:23 Yeah, absolutely. I mean, so there's been some great work by some friends over at the American Enterprise Institute. What they've done is they've created a nationwide map of mcmassionization risk. So when we have these conversations, we say, hey, let's allow for a range of housing typologies in more neighborhoods, duplexes, triplexes, small, low rise, multi family buildings, townhouses, the types of things that were commonly built in a range of neighborhoods before the rise of zoning. Every city in America has a neighborhood like this. That's a mixture of housing typologies. It would be illegal to build that today, but in many cases, we subject it to preservation requirements because we value it so much that we want to keep it. In any case, what happens when you don't allow that type of gradual incremental infill that keeps our communities affordable. What you get instead is the existing single family homes are converted into much larger, much more expensive single family homes. Now, again, there's nothing wrong with that. Many people might want to buy a smaller 19 fizzies bungalow and turn it into a much larger, 2500 square foot single family home, and God bless them if they want to do it. But what we have is rules on the books that say housing can only get more expensive, it can never get more affordable, or you can never unlock the wealth that's tied up in your land by building an adu or by building a duplex, or by creating more housing options for a range of households. And so that's really, really key. You know, the choice is not between, do we want our communities to change or not? The question is, do we want our communities to remain affordable and maybe change and have some more buildings built and more growth and more development. Or do we want our communities to change in the sense of they become more expensive? Folks retire and they move away, the neighborhood gradually becomes significantly more exclusionary, and young folks who moved grew up in the community can no longer afford to stay. That's the option facing many of our communities. And I think the yimby response to this is more housing construction is good and it's healthy and it's part of a thriving community.
Keith Weinhold 31:02 Yeah, Nolan, when we come at this from the familial perspective, like I brought up earlier, it seems like the more zoning there is, the more it benefits seniors and incumbents, the more it benefits the silent generation, the baby boomer generation, and maybe Gen Xers, and it disadvantages millennials and Gen Zers that really don't have their place yet.
Nolan Gray 31:24 Yeah, you know, it's tough. I would say it even hurts seniors, right? I mean, if they want their young adult children to be able to live near them, or, many cases, seniors like the option to be able to build an accessory dwelling unit in their backyard and maybe rent that out to friends or family, or maybe even you move into the adu and allow young adult children to move into the primary residence, or even just rent it out and have an additional source of income to supplement fixed incomes. There's reasons why folks, I think, at all different stages of their life, benefit for more flexibility in the rules that govern what can be built.
Keith Weinhold 31:52 Psychologically, how do we turn one's mindset from a NIMBY mindset to a yimby mindset? I mean, if someone's got their single family ranch home that they want to live in in their senior years, and they want to see its value appreciate, so they don't want duplexes and fourplexes built next to them, rather than them saying no to turn them into saying yes. I mean, how do you get those people to understand that? Well, like this is the way for the next generation, for you to be able to live near your children and grandchildren?
Nolan Gray 32:21 Yeah, that's a great point. You know, I think when you go to these public hearings around projects, you hear relentlessly about the cost of new development, right? Folks speculating about traffic and runoff and other factors parking. We get that perspective. We get bombarded with that perspective. But what we don't get is the alternative perspective of the benefits of a community, remaining relatively affordable, remaining a place where teachers and nurses and firefighters can still afford to be able to own a home and live places, allowing for the kids who grew up in a neighborhood or a city to remain there. And in fact, even just the selfish appeal to the homeowner, there's not actually any evidence that new development happening around you necessarily reduces the price of your single family home, and in some cases, it could actually signal to the market, hey, there's actually development potential on this so when you do decide to maybe sell and move on, your land is potentially going to be more valuable because it has more development potential than it might under a strict exclusionary zoning scenario. So you know, of course, you try to make the altruistic case to people. Hey, think about future generations. Think about folks who maybe want to move to this community or stay in this community, but aren't going to be able to if we don't build housing. But even so, I think there's selfish reasons. If you want to have somebody who's going to check you out at the supermarket or serve you at a restaurant or be a home care nurse, eventually you got to have housing for folks like that. In many cases, new development happening around you is going to increase your land value. Now I would just try the rage of appeals and work people through it. And in many cases, you know, I think people will understand, yeah, okay, I understand we got to have some growth. They might have a perspective on what it should look like, and that's okay. But as long as we can get some consensus that we got to have some growth to accommodate demand the form it takes, we can have a healthy discussion over.
Keith Weinhold 33:57 Yeah, real community is the integration of all different types of people, and not school teachers living an hour away where they need to make a two hour round trip drive every day. Well, Nolan, as we're winding down here, can you give us any more successful zoning reform examples that maybe other communities can look to you touched on the success stories in Houston a bit. Are there some other ones?
Nolan Gray 34:21 Absolutely. Yeah. So one of the most successful things we've done in California has been statewide legalization of accessory dwelling units. Yeah, that's been key. That started in 2017 and that took a lot of legislation to get us to a place where we are today, but that's resulted in something like 80,00 ADU's permitted, since 2017. That's powerful stuff, right? That's 80,000 households that might have a home, or might be able to rent out a unit to young adult child or an aging parent. Really, really powerful. So I would suggest that folks look into that. That's the lowest of the low hanging fruit. Empower homeowners to add additional units to their properties, and by the way, we also allow you use to be added to multifamily properties, and we're seeing a lot of that happen as well. At other contexts, many cities, dozens of cities across the country. Have removed their minimum parking requirements, acknowledging that, hey, this is a huge cost that we're imposing on projects, developers who are close to consumers, who have, they have the incentives and local knowledge to get this question right. Let them decide. So that's been, I think, a big success. You know, certain cities like Austin and Minneapolis, for example, they've actually sort of kept their markets back under control amid all the chaos of the pandemic real estate market fluctuations by allowing for a lot more mid rise multi family on their commercial corridors and in Job rich areas and in places near transit, that's where we have a huge shortage, is these studios and one bedrooms. So young professionals who, if they can't find that unit, they're going to go bid up the price of a two or three bedroom unit, they're going to roommate up and be living in potentially overcrowded conditions. So Austin, Minneapolis, we, relative to peers, they built a lot of housing and have seen prices stabilize as a result. So there's a lot of different success stories, you know, I would say, if you're at all interested in this, talk to your neighbors about this issue. See what sorts of solutions might make sense for your community. You know, in a suburban or a rural community, ADUs or minimum loss size reform might make sense. And an urban community, removing your parking mandates, allowing for more multifamily, allowing for missing middle, make more sense.
Keith Weinhold 36:06 There sure are some encouraging signs. There was there any last thing that a person should know, especially a real estate investor type audience that's interested in buying a property and renting it out to a tenant for the production of income? Is there anything that our group really ought to know about zoning and the direction that things are moving, what to look for and what to be careful of?
Nolan Gray 36:28 Well, as your audience probably knows, you know that first essential step for your mom and pop local real estate investor is often a duplex, a triplex, a four Plex, historically, that was an absolutely essential source of middle class wealth building. Yeah, right. And you can see these in so many historic neighborhoods. And to the extent that we've made those exact typologies so incredibly hard to build, we've cut off this very valuable source of democratic, decentralized wealth building that we need to actually encourage as real estate investors and professionals, in many cases, you're an authority figure with your local policymakers and your local planners, and you can say to them, Hey, here's my perspective on what's happening in the market. You know, we have a shortage of a certain type of small scale multifamily or making this case. You know, I talked to a lot of elected officials, and when I say starter home, I think they still think of the bungalow on the 5000 square foot lot with the two car garage. But a starter home in 2024 might be a townhouse, two bedroom condo, a small lot, single family home. These are the types of stories that real estate investors and professionals are trusted advocates on, and you can make that case and explain to local policymakers. Hey, here's the change that we need or explaining. Hey, I wanted to add an additional unit to a property that I own, or I wanted to redevelop a property I own to add a lot more housing. And these were the barriers that I faced that's incredibly valuable information for your local policymakers and planners. And I would say, you know, look around many US, cities and states now have very active yimby or, Yes, in my backyard groups. Go connect up with them. You could be a valuable, trusted expert for them, somebody that they can learn more about the situation with real estate markets, and they can be more effective advocates for policy that I think a lot of us would like to see.
Keith Weinhold 37:58 And when it comes to changing NIMBY people to yimby people, and we look at esthetics and adu in the back, that really doesn't change aesthetics on the street front. And I've seen very smart, careful designs of duplexes, triplexes and fourplexes that really look just like single family homes from the Street View level. So there really are some ways around this. You've given us some really good ideas today. Nolan, hey, well, someone wants to learn more about you and your work and zoning. What's the best way for them to do that?
Nolan Gray 38:30 Well, I'm on the platform formerly known as Twitter. I'm @mnolangray, M, N, O, L, E, N, G, R, A, y, so feel free to find me there and reach out. And I have a book Arbitrary Lines, how zoning broke the American city and how to fix it. Check that out. If you're at all interested in this, always reach out. Love to hear from folks. Thanks so much for having me, by the way.
Keith Weinhold 38:50 All right, well, I hope our audience didn't zone out. It's been great. Chat with you. Nolan, thanks so much for coming on to the show. Yeah, a thought provoking discussion with California yimbys Nolan Gray there it's essentially illegal to build affordable housing in a lot of areas with the way that these zoning laws are written, allowing for more dense building that can limit this ugly urban sprawl, and this makes me think about an Instagram account that I follow. It's called how cars ruined our cities, or some names similar to that. It shows, for example, a picture of how a highway interchange in sprawling Houston has an area so large that you could fit an entire Italian town inside of it. And these sprawl problems compound when a lot size must be, say, at least a quarter acre or a half acre. The tide is turning toward allowing more dense building in some places like we touched on, but it's too bad that it took a. Visible housing crisis to make this happen. I mean, visible like more homeless people out on the street. It took that almost for municipalities to start doing something about all of this. Our guest has quite a following on X. Again, you can find his handle there @mnolangray on X and the image on his account cover it shows someone holding up a sign that reads, zoning kills dreams. Hmm, big thanks to the terrific Nolan gray today until next Monday, when I'll be back here to help you actionably build your Real Estate Wealth. I'm Keith Weinhold. Don't quit your Daydream.
Unknown Speaker 40:44 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 41:12 The preceding program was brought to you by your home for wealth building, GetRichEducation.com.
|
Mon, 5 August 2024
The King of Commercial Real Estate joins us to discuss office, hotels, apartments, retail, industrial and warehouse real estate. Many office building values are down 80%+. Is it headed straight to purgatory? According to Moody’s, the national office vacancy rate is 20%. Offices have the double-whammy of higher interest rates and lower demand. Learn how feasible office to residential conversions are. For two years now, momentum has swung from Airbnbs to hotels. More apartment syndications will blow up from forthcoming interest rate resets. Commercial real estate often has higher prices than residential. Learn from our guest, Dolf de Roos, on creative ways to make low down payments. Learn how to vet commercial tenants. We discuss adding carports to residential RE. Rich people are often vilified. They’re called “filthy rich” or “stinking rich”. Resources mentioned: Attend Dolf’s free live training: For access to properties or free help with a GRE Investment Coach, start here: Get mortgage loans for investment property: RidgeLendingGroup.com or call 855-74-RIDGE or e-mail: info@RidgeLendingGroup.com Invest with Freedom Family Investments. You get paid first: Text FAMILY to 66866 For advertising inquiries, visit: Will you please leave a review for the show? I’d be grateful. Search “how to leave an Apple Podcasts review” GRE Free Investment Coaching: Best Financial Education: Get our wealth-building newsletter free— text ‘GRE’ to 66866 Our YouTube Channel: www.youtube.com/c/GetRichEducation Follow us on Instagram:
Complete episode transcript:
Automatically Transcribed With Podsqueeze
Keith Weinhold 00:00:01 Welcome to GRE! I'm your host, Keith Weinhold. There are many commercial real estate sectors. Large apartments, office, hotel, hospitality, retail, warehouse, industrial. Well, what's thriving? What's been beaten up so bad and is never coming back? And what's in a dip that's ripe for opportunity? Also creative deal structuring if you don't have a lot of money. It's the debut of the King of Commercial real estate here today and 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.
Keith Weinhold 00:01:13 Text gray 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 Daydream letter and it wires your mind for wealth. Make sure you read it. Text gray to 66866. Text gray 266866.
Corey Coates 00:01:41 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 00:01:58 What does your read? From Tuscarora, Pennsylvania, to Tuscaloosa, Alabama, and across 188 nations worldwide. I'm Keith Whitehill, and you're listening to get Rich education. Today's guest, the king of commercial real estate, is talented, dynamic, global, articulate, has both a wide range of knowledge and an expansive palette of creative strategies in both commercial and residential, where you can buy with little out of pocket. And he's going to share that with us today. That's coming up here shortly. Now, when we think about residential real estate, of course, that is a really wide world in itself.
Keith Weinhold 00:02:38 From condos to single family homes to tiny studio apartments. You could also divide it into short term and mid-term and long term rentals. And then you could also parse it by all of the geographic markets. Well, of course, the commercial real estate world has a ton of segments too, one of which is office, which I want to talk about because it's probably been the most downtrodden and beleaguered since 2020. But there are still some things that are misunderstood within office and even dividing things up that much. Let's take care not to broad brush stroke office real estate itself some smaller segments of office might be in decent shape today. Other office segments are in real trouble. Like we're talking about tall concrete and glass, office towers and a lot of business parks, too. Yeah, business park, sort of a campus like areas, like maybe what the comedy The Office had. He had Dunder Mifflin was in a business park.
Steve Carell 00:03:43 I'm just helping you invest in your future, my friend.
Oscar Nunez 00:03:46 It sounds like a get rich quick scheme.
Steve Carell 00:03:48 Yes. Thank you. You will get rich quick. We all will.
Keith Weinhold 00:03:52 yeah. I guess that's what Steve Carell's character. What Michael Scott from The Office says about prudent investing. Let's talk about office real estate and how that intersects with the housing market. And really a lot of this comes down to the office vacancy rate. Moody's tells us that 1 in 5 office spaces in this economy are empty. And that is the highest ever. And a lot of people think that it's going to go higher right now. Dayton, Ohio is the highest in the nation at 28%. These are office vacancy rates. Charleston, West Virginia's 27. Tulsa, Oklahoma 26. And Houston, Dallas and Austin are all in the top ten for the worst office vacancy rates. Now, a lot of city officials, they want to turn that into housing, and they want government funding in order to make that transition happen from office to residential. This is most attractive to cities if you can partially convert a building to have housing on upper floors, and then you just maintain some offices on lower floors and see that mix right there, that makes for a vibrant, lively downtown community, because that way you don't have downtowns that go quiet at 5:00.
Keith Weinhold 00:05:10 But a lot of these renovations, they just aren't that feasible. They call them ritzy conversions. That's kind of what this is known as. So office to residential. I mean that means you often got to deal with huge floor plates, overhaul mechanical systems, and you've even got to consider things like the fact that windows don't open in office buildings. And they've often got to for resin conversions. Well, with this prolonged high vacancy in offices. Well, where do these people that would have been in offices spend their time instead? Well, of course at home in their residential real estate. And oftentimes it is a one for one. You have one less person occupying an office for lots of that waking day, and that means one more person occupying their home. Well, that's one reason that people are increasingly willing to spend and pay more for homes because they're spending more time than ever there. And ever since the work from home movement and zoom from home movement, if you will, since that became commonplace for urban workers coming off the pandemic, you soon saw the hashtag auto.
Keith Weinhold 00:06:27 The return to office movement that began is where you've got to come into the office 2 to 3 days a week, and then a lot of companies try to ramp it up to 4 to 5 days per week. Some companies even said, yeah, come on in here. You've got to in order to be eligible for promotions. Well, a lot of people don't want to come into the office. We found that out now, especially younger workers. In fact. Did you ever hear of the term coffee bagging? Yes. Some workers are trying to game the system. Coffee bagging. That is the art of returning to the office to a quick hit. Just have a quick hit. You only badge in, get coffee, chat and peace out of there. Well, more people are doing this or they're staying at home than what you're often led to believe. So despite the RTL movement that you hear about the share of employed persons that work their average day from home, last year it rose to 35%, up from 34%, and that's per the BLS.
Keith Weinhold 00:07:31 Well, that's a little interesting to know, but it all comes down to that office vacancy rate, which is, like I said, a stubbornly high all time record 20% nationally, and it could go higher. If you're going to invest in office real estate today, I mean, you've really got to have some insider knowledge and invest smart.
Donald Trump 00:07:55 Did you use the word smart? so you said you went to Delaware State, but you forgot the name of your college. You didn't go to Delaware State. You graduated either the lowest or almost the lowest in your class. Don't ever use the word smart with me. Don't ever use that word. Oh, give me a break. Because you know what? There's nothing smart about you, Joe.
Keith Weinhold 00:08:16 oh, dear. Oh, one of those two men is our current president, and the other could be our next president. Oh, well, love him or hate him, I guess the Trump. Hey, he is the Art of the deal author. And when you think about the Trump name, you should think about seeing those letters on tall office buildings in hotels coming up on the show here in future weeks.
Keith Weinhold 00:08:39 We are stacked with great guests an NFL All-Pro, the president of the Mississippi Institute, the return of the tax free wealth author Tom Wheelwright, and also the incomparable financial firepower of Garrett Gunderson. That's all coming up here in future shows. Let's talk to the king of commercial real estate. This week's guest is a former high tech engineer turned real estate mogul and New York Times best selling author of the book Real Estate Riches. He is globally renowned for his ginormous real estate ventures and his mentorship. But his approach to real estate isn't just transactional, it's about strategic creativity and leveraging property investment for financial independence. Known as the King of commercial real estate. Hey, welcome here for your great debut. Joining us from Malta today. It stopped the roost.
Dolf de Roos 00:09:38 Thank you very much. It's my absolute pleasure to be here.
Keith Weinhold 00:09:41 Oh it's great to finally speak here on the show. And I know that a good segment of our international audience has been anticipating this episode. And often we think about commercial real estate today. Problems come to mind immediately, like the large apartment space with interest rates blowing things up over there, and then the office sector, which just seems to be dying and never coming back.
Keith Weinhold 00:10:03 So first of all, why don't you give us an overview on how various commercial sectors are doing today?
Dolf de Roos 00:10:09 There's always the things that you see on the surface, what you read in the newspapers and what you lead yourself to believe just on the sheer balance of probability. And then there's the reality of what is truly going on. And I'm always amused at the chasm between them. There's a big difference. And in fact, your ability to do well in real estate is largely dependent on the arbitrage between the markets perception of where things are at and the reality. Now, if we all follow the trends, you know, real estate doesn't go up linearly as mathematicians would say. It goes up in fits and starts with each peak a bit higher than the previous peak and each trough a bit higher than the previous trough. But in addition to that, real estate markets always overshoot so that when things are going well, when the public perception is that things are going well, Interest rates are low. There's good capital growth.
Dolf de Roos 00:10:59 People think it's going to go on forever. It will never end and they pay way too much for properties. We have the greater fool theory where no matter how big a fool you are to pay too much for a property, it doesn't matter, because next year they'll be an even bigger fool to pay even more for it. So everyone jumps into the market, overshoots, and then there's a strong correction. A bit like the 2008 GFC. It was on the cards. It was. The writing was on the wall, as they say, and then it corrects. But instead of correcting back to where it should be, it overshoots on the downside as well. And in Phoenix, where I'm based, at one stage we had 90,000 homes into foreclosure simultaneously, and they were selling them on the courthouse steps at the rate of one every 56 seconds for initially 20,020 5000, and people thought, why are these fools buying these properties? The market's crashed. It will never recover. And yet when you live long enough, which unfortunately I have to say, I've done now like I've been around a while, I've seen a few cycles.
Dolf de Roos 00:11:59 No, I'm serious though, Keith, because when you experience your first downturn, you think it's the end of the world. But when you've been through three and you've seen that despite all the bad press and saying it's doomsday to never recover, it not only recovers, but it actually far exceeds where it was before it crashed last time, then you know that the time to take action is when everyone else is panicking. You have to be countercyclical when everyone else is jumping on the bandwagon and paying too much for properties. That's when you should get on a plane and read some good books on a beach somewhere, preferably in a foreign location. Why a foreign location and being disloyal to the home country? Note just explore something. Expand your mind. And you know, I know I'm waving around a bit from topic to topic, but one of the great things about reading books on foreign beaches is that you get to see different ideas of real estate that you can bring back home. So when you bring back these ideas that can help correct the market, then you almost you don't wish for a crash, but you think when it happens, well, there's got to be some good aspect to this and you can actually find some stunning deals from people who are too scared to think it might recover well.
Keith Weinhold 00:13:05 So those places where you might find stunning deals are in some of those commercial real estate sectors that are suffering today. Tell us a bit more about some of those sectors in their health. We're talking about five plus in the department's office, hotel, hospitality, retail, warehouse, industrial. Let us know what's going on with some of those sectors.
Dolf de Roos 00:13:27 In a state of flux. And it's a very good question. Let's talk about hotels for a moment. When the pandemic set in, we were all told to do this thing called to be socially distant. We've almost blissfully forgotten that expression. But social distancing was the thing. So hotels fell out of favor because you're in a foyer with a concierge and a reception area and hundreds of other hotel guests checking in and checking out. So Airbnbs became very popular and the value of hotels plummeted. Many couldn't meet their mortgage obligations because their revenue from room sales did not cover their own loan commitments, so they were being sold off at ridiculously cheap prices. I know of one hotel in the Atlanta area, admittedly a very old hotel.
Dolf de Roos 00:14:09 It was converted into a storage facility. When you think about it, hotels are all compartmentalized and have good little cubicles for story. Yeah, and Airbnbs took off. And we all know people, and people wrote books about it and had courses on it. I know in Phoenix, one statistic in a 12 month period from July 22nd to July 23rd, the availability of Airbnb's went up by 23% and all would have been good and well if demand had kept on escalating. But as the pandemic sort of wound down and people realized they did need to be socially distant anymore. And what's more, when you went to an Airbnb, what you found is that there was a long laundry list of items you had to do, but the sheets through the washing machine no more than one bed at a time. Well, four beds worth of sheets is going to take you three hours and do this and do that. People thought hotels are much easier, so there was a massive swing by tenants of rooms back to hotels, and the value of hotels went back up.
Dolf de Roos 00:15:04 And in the meantime, the value of houses used as Airbnb's, it sort of peaked a bit and it's going down rapidly. How far it will go down? I'm not so sure. So my point is, with hotels in a very short period of time, like three years, the values plummeted and then they came back up again. Office space is suffering a bit of a longer cycle downturn. It's fair to say, I think, that offices are in a very dire straits. Something like $785 billion of mortgages secured against commercial office space that is coming up for renewal, and there's not enough revenue to cover them. There is a pair of hotels on Union Square in San Francisco, for instance, the park Renaissance and the Renaissance itself. They had $745 million of mortgage funding, and the operators of those hotels handed the keys back to the bank and said, we can't make this cash flow. There's a lot of commercial space that is being sold off a ridiculously cheap prices. So there are two ways of looking at this, Keith.
Dolf de Roos 00:16:02 One is if you happen to own office space right now, unless it's boutique space, I've got quite a bit of office space, but it's a very much a boutique classification, and they'll always be demand for boutique office space from unique operators like interior decorators and people like that. But for the general concrete and glass office towers, demand for that has plummeted. The values have gone down and I know of one building in Chicago. It's sold for 315 million. It's on the market at 60 and dropping, and there's not a buyer in sight. And you might say, well, it's got to be a bargain. But no. Here's the challenge. With commercial real estate. Unlike residential, residential is valued on the basis of comps. We all know that if you have a four bedroom, three bathroom home, certain age, certain size, certain condition in a certain suburb, then and if it's sold for, say, $480,000, then a similar sized and aged house up the road, down the street around the corner is going to sell for about the same amount.
Dolf de Roos 00:17:02 Whether it's tenanted or not, that doesn't even matter. But when it comes to commercial real estate, the value of a commercial property is literally a multiple of its rental income. Technically, is the rental income divided by the cap rate? Which cap rate is short for capitalization rate? It literally means the rate at which you capitalize the rental to arrive at the value. So if we can figure out a way of doubling the rental, then we've doubled the value. And by the same token, of course, if you lose the tenant and you have your rental, then you have the value. And that's why the value of so many of these commercial office buildings has plummeted, because there are no tenants for them.
Keith Weinhold 00:17:40 Yeah, well, there's a lot there. And back to the Airbnb thing. Yeah. About two years ago, there seemed to be this well well-documented Airbnb bust. And my gosh, I personally had awful Airbnb experiences recently, including checking into an Airbnb where it hadn't been turned over, it hadn't been cleaned yet, and that I can never unsee what I saw.
Keith Weinhold 00:18:00 Then I had to stay there. That was really rough. I think what you're getting at here is once you hit a bottom, that's where the opportunity is. So there are going to be some of those opportunities somewhere in the commercial real estate sector, commercial real estate syndicators, many of them imploded from high rates. So when we talk about finding the bottom link with these large apartment buildings, how many more apartment syndicator implosions do we expect from the higher mortgage rates?
Dolf de Roos 00:18:27 Many. I'm indifferent to it. I'm not saying I don't have sympathy for the people who own them, and I'm not gleeful for those who buy a bargain. But here's why I'm indifferent. I think it's fair to say that I've made most of my money in real estate by finding either vacant or semi vacant buildings, and that goes against the grain. Most people think they need to look for a building with a good tenant, because it's the tenant that pays the rent, and that's not incorrect. That's accurate. And then if you've got a building that you buy and say 8% return and your mortgage interest is 7%, hopefully that 1% margin covers your property taxes and your insurance and your maintenance.
Dolf de Roos 00:19:05 And then you just wait for time to do this thing where slowly, over time, the rents creep up and the property value creeps up. I don't have the luxury of waiting that long, and I never had the cash to buy properties like that, so I literally sought out semi vacant or even vacant buildings. Now, I didn't buy them because if I bought a vacant building, I still have to pay property tax and insurance. But what I would do before buying it is see if I can find a tenant, and I can give you a specific example. I came across a vacant building that was a funeral parlor, and most people don't like to think of what goes on in a funeral parlor. But they have these stainless steel trays where they put the product of their business on, and they insert these hollow stainless steel tubes and suck up the blood and replace it with formaldehyde and all kinds of things we don't want to think about.
Keith Weinhold 00:19:52 That's even worse than my Airbnb experience.
Dolf de Roos 00:19:55 No one knew what to do with it.
Dolf de Roos 00:19:57 So I found it. And it was being sold for a song because it was vacant. And what I did is I employed someone at the then going hourly rate of $8 an hour to phone every funeral director, going further and further from this place until she found someone who said, oh my gosh, I've always wanted to operate there. And I was just open and honest. And I said, well, there's a funeral parlour premise for sale. Go and check it out if you want to buy it, buy it. Why would I offer it to him, Keith, when I really wanted to buy it? Because the last thing I want is a tenant to be gracious. The fact that the only reason he's paying me rent is that I'd beat him to it. But I knew that in all probability, he didn't want to buy real estate. That's not his gig. And he said, no, I don't have the money or the inclination he had to look at. He said, listen, I love it.
Dolf de Roos 00:20:40 I want to operate there. What would it take? And I said, well, if you're willing to sign up a heads of agreement, an alloy, we're subject to me buying it. You will become the tenant, then I'll have a crack at buying it. And his response was, were not so fast, I need you. I'll only do it if you give me a long term lease. Well, that's exactly what I want. So I'd found a tenant by adding the tenant to this otherwise vacant building. The value of it doubled. And when I went to the bank to apply for a mortgage, they said, well, we're only going to give you 50%. Well, guess what? 50% of double the value was the purchase price. They lent me all but the last $10,000 to buy that property. So the magic sauce here is finding the tenant. Could anyone else have gone through at the time? This is before the internet, the Yellow pages and phoned every funeral director going for. Of course they could, but no one thought of doing it.
Dolf de Roos 00:21:33 And that comes to part of what you had in your title, that this is all about creative real estate. The thing I love about real estate is it's about the only investment vehicle where you can actually use your creativity. I mean, if you're a really creative person and you buy a portfolio of stock, IBM stock and Microsoft and biotech, what.
Keith Weinhold 00:21:53 Can you do to improve it?
Dolf de Roos 00:21:54 Can you deploy your creativity? How can you deploy what you've seen in your travels to make your stock portfolio worth more? Zero. Absolutely nothing. Not with stocks, not with bonds, not with futures. Options, certificates of deposit, Treasury bills, nothing. But with real estate, the sky's the limit, I love that.
Keith Weinhold 00:22:13 Well, you talked about getting into commercial real estate sectors with little or none of your own money. That's part of the creativity. A lot of our audience is interested in investing in residential property, a single family home. You might still be able to get one for 150 K now, 20 to 25% down payment on that 30 K plus.
Keith Weinhold 00:22:34 I mean, that's still pretty manageable for a lot of people, but many are somewhat intimidated by commercial real estate. I think one of the first things they think about is how do I come up with the money? So we talk about creativity in funding that down payment. Tell us more about some good strategies for doing that, and kind of overcoming that daunting feeling of higher commercial real estate prices.
Dolf de Roos 00:22:52 You're absolutely right. Most people think commercial real estate is more expensive, where you might be able to buy a home in a cheaper market, a cheaper price point at one 20,000, say the commercial property is going to be half a million, or if homes are $1 million and a fancy suburb and the commercial properties at 3 million. That's true, but not all properties are like that. My smallest commercial building was a little corner shop. It was a wet fish supply shop, so they sold fish but not cooked fish. And it was a horrible looking thing. But I paid all of $79,000 for it and it's been rented on a full commercial lease from the day I bought it, so it needn't be liked.
Dolf de Roos 00:23:31 In fact, we tend to only notice the big ones for the For Sale sign. You're in the downtown of some city and you see a big one of the big firms, CB Richard Ellis or Jones Lang LaSalle or something for lease or for sale sign, that's for sure. And you don't tend to notice the small ones. The trick in finding good value real estate. Be it commercial or residential, again, has to do with the fact that it's not an automated market like the stock market. You buy stocks through computers on a share market. Everyone pays the same price. But when it comes to real estate, the seller may choose to go through a real estate agency. It might be a national one, and then it's vetted by many agents. But we have a thing known as fizzbuzz or for sale by owner. And why would a seller choose to circumvent a real estate agent? Well, probably because he's hoping to save on the 6% commission. By the way, that's the highest in the world.
Dolf de Roos 00:24:21 And the rest of the orders? 2 or 1 and a half or 3%, it soon to be lowered in the States. But even so, they want to save on that commission and more sinisterly. Perhaps some of them think, why should I entrust my property, the sale of my property to some snooty, nosed 22 year old kid just out of school who doesn't even live in the suburb. I have lived here for 59 years or whatever, he says. And I know what it's worth. And in pricing it, he's either way too high or way too low. Now, if he's way too high, you and I aren't going to buy it because it's just way too high. We know that. But what if it's 100,000 below market value? It happens every day of the week, and if we stumble across one of those, then we might just make 100,000 that day. Not in terms of cash, not in terms of folding hard cash, but in terms of equity. And we could sell it the next day for a hundred thousand more.
Dolf de Roos 00:25:08 But we don't because we want to invest in it. And these things are real key. These happen. That's why I encourage people don't take the same route home from work every day. If you've finished work, get in your car, take a different route, keep your eyes peeled, look for visible signs of a sale by owner, or look for abandoned properties, ones where the grass is a bit high in this litter blown up against the fence and the windows are a bit grimy, and then do some research to find out who owns it.
Keith Weinhold 00:25:34 Sometimes the greater the crisis, the greater the opportunity. But often we talk about, say, if one has overcome the money in the down payment thing, you know, in effect, when we go ahead and get a loan, whatever sector we're investing in, the bank underwrites either us or the bank underwrites the property. But in a sense, us as the investor is we're sort of underwriting the tenant that's in there. Now, when we buy a residential building, you know, we can look at the tennis credit scores and their work history.
Keith Weinhold 00:26:00 You know, we know that the residential tenant is going to pay us to live there. We have a good sense of faith about that. But when it comes to commercial real estate investing, say, I want to buy a plaza with eight businesses in it. I think a lot of investors feel overwhelmed because they're like, oh my gosh, like, how do I study the validity of these eight businesses? And how do I know that they're going to be solvent and sustainable going forward? And do I need to understand all this, or can you speak to that and help break that down for us a bit? Basically the investor underwriting the tenant.
Dolf de Roos 00:26:31 That's all true. And yet there isn't that much to learn. Because if we take your imaginary shopping plaza with eight tenants. Yeah, I think we'd all agree that if one of those tenants was a Gloria Bean coffee and tea or whatever it's called, or Seattle's Best or Peet's Coffee, not to mention Starbucks, that's a global change, but one of those lesser brands.
Dolf de Roos 00:26:51 I think we would be pretty comfortable that they can pay the rent every month. And similarly, the bank underwriting that loan was like, well, a Peet's Coffee or Gloria, that they're a good tenant And, you know, just to name others at random rosters for less, that's a nationwide chain store. I think if we had them as a tenant, that would all go well. And you might get a couple of independents, but they would have a track record. They've leased those same premises for the previous eight years, and they moved there from other premises, which ended up being too small for them. That means they're expanding where they were for 12 years, things like that. Give a picture to any novice in this game to say, wow, they're probably going to be here for the long haul. And beyond that, what happens when you develop the skills to attract new tenants? You don't worry about that even because you know that when you lose a tenant, it's easy to get one lesson.
Dolf de Roos 00:27:42 I've got 101 ways of getting tenants for buildings, and I'm blown away that people don't deploy even one of them. And I'll give you an example from last week. I was with a client in the UK in Bournemouth, which is way in the south of the country, and we were looking at a commercial office building there and it had been vacant for 18 months. And I said to the agent what seems to be the trouble with getting a tenant? And he shrugged his shoulders and said, well, I don't know. It's been on the market for 18 months. And I said, has it ever occurred to you to put a sign outside the property? A big canvas sign hanging on the side of the building signs, and the grass verge saying, this building is for lease. Enquire within or go to this website. And he was stupefied by that thought. He said, what an amazingly good idea. You have to let people know. They think that they're going to go to their office because they're looking for office space.
Dolf de Roos 00:28:34 So now, would they be guaranteed to get a tenant within a week by putting a canvas sign on the building? Of course not. But I know we won't reduce the chances. And that's why if I can find a tenant before committing to buy the building, I'm pretty confident we'll get there. And I've got all these other techniques, Keith, of doing it like one that I really love is, let's say you've got a vacant warehouse and it's an ugly, horrible warehouse in a sea of similarly ugly and vacant warehouses. If you and I bought that, I would hesitate to suggest that we would have a tenant within a month. And here's how we'd do it. We would spend no more than $10,000, and we would go to the manager's office, because ultimately, the person who decides whether to lease our warehouse as opposed to another one, is not the CEO and the head office in New York or LA or wherever. It's not the cleaning lady or man who's going to sweep the floor. It's going to be the manager is going to manage it.
Dolf de Roos 00:29:28 So I get rid of the linoleum and I put in commercial grade carpet. I put in triple glazed or dual glazed windows. Keeps the noise out and the warmth in. I replace the fluorescent tubes with LED lights and replace the locks with electronic locks so he can never forget his keys. I put on an 80 inch LCD screen and tell him it's good for corporate training videos. We know he's never going to watch corporate training videos on it, but those TVs you can buy for $500 now, I put on a little coffee machine and make sure it's brewing when it looks, and have a fridge for end of week drinks, celebrations, and our unsuspecting manager, who's looked at seven ugly warehouses so far that day when he comes to our ugly warehouse and he opens that door to the manager's office subconsciously, or maybe consciously, he thinks, oh my gosh, if I lease this one, this is where I'm going to be packed for 40 hours a week for Lord knows how many years. He says I'll take it.
Dolf de Roos 00:30:17 And he hasn't even asked the rental. You might say that's bribery and corruption, but I think it's just offering a better product than the competition. No one else does this.
Keith Weinhold 00:30:27 Oh well. This is another brilliant example of using creativity in real estate investing. We're talking with the king of commercial real estate, Dolph Thomas More. We come back including some of his psychology and insights from the rich. This is general education. I'm your host, Keith Whitehall. Hey, you can get your mortgage loans at the same place where I get mine at Ridge Lending Group Nmls 42056. They provided our listeners with more loans than any provider in the entire nation. Because they specialize in income properties, they help you build a long term plan for growing your real estate empire. With leverage, you can start your prequalification and chat with President Ridge personally. Start now while it's on your mind at Ridge Lending group.com. That's Ridge Lending group.com. And your bank is getting rich off of you. The national average bank account pays less than 1% on your savings.
Keith Weinhold 00:31:31 If your money isn't making 4%, you're losing your hard earned cash to inflation. Let the liquidity fund help you put your money to work with minimum risk. Your cash generates up to an 8% return with compound interest year in and year out. Instead of earning less than 1% sitting in your bank account, the minimum investment is just $25. You keep getting paid until you decide you want your money back there. Decade plus track record proves they've always paid their investors 100% in full and on time. And I would know, because I'm an investor, to earn 8%. Hundreds of others are. Text. Family 266866. Learn more about Freedom Family Investments Liquidity Fund. On your journey to financial freedom through passive income. Text family to 66866. What's up everyone? This is HGTV Star Kombucha. Listen to get Rich education with Keith Wine hold and don't quit your day dream. Welcome back to Get Syndication. You're listening to episode 513 of the show that's created more passive income for busy people just like you than nearly any show in the world.
Keith Weinhold 00:32:55 I'm your host, Keith Whitehall. We're at the king of commercial real estate, Dolph Durst. Just like he has a lot of creative, proven types of things that you can do to improve commercial real estate. He also has a lot of those ideas for residential because he's been around the game for so long. So tell us about some more of those creative ways to add value to residential real estate.
Dolf de Roos 00:33:17 Well, probably. Like most people who end up focusing on commercial real estate, I got started in residential and that's where I first deployed some of my creativity. And I noticed, for instance, that I'd have a rental property that had no garage and no carport. And when you think about it, a tenant's biggest asset because it's not their home, it tends to be their car. One could argue that because they waste money on expensive cars every two years, that's why they can't afford to buy a home. But we won't go there. So if it's their car, if there's no carport and no garage, that means their biggest asset is in the rain.
Dolf de Roos 00:33:49 The sleet, the sun, the shine, the hail, you name it. So by building a carport, we can protect their biggest asset and it's worth a lot more to them by any means. If you have a carport on a house, that house will rent for about $80 a month extra. An 80 a month times 12 is 960. Call it $1,000 extra, a rent in a year. And Keith, I can build a carport for $1,000 easily. It's simply for one in each corner and then a roof with a bit of a slope. Why the slope? Well, if it rains, the rain falls off. If you're really cheap, you can get away with three posts. It still stands, you know. But no. And I'm being silly, but we sometimes make them with two posts and cantilever them. They're a bit more expensive, but then there are no posts out front so I can build a carport for $1,000, and then I get $1,000 extra a year coming in. And when you think about it again, which other investment can you think of that once you've consummated the deal, once you own it, you can spend an extra thousand dollars and then get 100% return on that money.
Dolf de Roos 00:34:49 And as they say in the infomercials. But wait, it gets even better. Because think about it. Let's say we have that carport built, but we haven't paid for it yet. And so we've got our thousand dollars a year extra of rental coming in. We go back to the appraiser and say, we want a new appraisal With an extra $1,000 coming in, he's likely to appraise it at $10,000 more. With that increased appraisal of 10,000, we go back to the bank and say, Mr. Bank manager, remember I got a 70 or 80% more. I've got now got an appraisal for 10,000 more. Will you give me a modest 70% loan on that? Well, banks are in the game of lending money and making a profit. So they say yes. So you get 7000 from the bank. Let's use 1000 of that 7000 to pay for the carport. It's now paid for. That leaves us with $6,000 cash. And the question is, is it earned income? And the answer is no, it's not earned income.
Dolf de Roos 00:35:42 There's no income tax on it. Is that the sale of something? Nope. Didn't sell it. No sales tax, no capital gains. It's tax free money. And you might say but hang on, you've now borrowed $7,000 that you have to be interested. Even at a ridiculously high 10%, that would only cost 700 a year. But we're collecting an extra thousand a year. So when you build this carport, you have two choices. One is pay cash for it and get 100% return on your money. Or the second one is don't pay any money for it, but $6,000 of tax free money in your pocket and get $300 a year surplus cash flow index for inflation for the rest of your life. Like, why would you not do that?
Keith Weinhold 00:36:25 Well, and it's a terrific example of how to accidentally improve the property. And it's so interesting that you bring this up, Dolph, because just a few weeks ago here on the show, I talked about garage real estate. I mentioned how adding a carport can often be more cost effective for a landlord from an ROI standpoint, than constructing a garage.
Keith Weinhold 00:36:43 I also talked about the future with autonomous cars. If people are going to need garages as much as they will, but that's into the future, and that's another subject in itself. All for one really important thing. I know that probably even more important than the actual investing is getting people in the right mindset to do this in the first place. You've studied this in really unexpected psychology behind wealth creation. I think a lot of it is counterintuitive, but it kind of makes sense because if you come from a scarcity and conventional mindset and you just do mediocre stuff, you're only going to get a mediocre outcome. So why don't you talk to us more about breaking down that psychology that most Americans and most residents of everywhere in the world really struggle with?
Dolf de Roos 00:37:28 Well, my pleasure. I had been teaching real estate for about 15 years and I decided why? I don't know, but I decided to run a survey to find out how many of my students became a millionaire within 18 months. That was my expected time frame of reasonableness.
Keith Weinhold 00:37:43 Is that I was actually wealthy.
Dolf de Roos 00:37:45 Right? And I was pretty confident. But when the results came in, I was devastated because it was fewer than 4%. And in my mind, 4% wasn't even statistically significant. Meaning if you take a thousand people, a random 4% are going to become millionaires. One's going to marry into money, one's going to win the lottery, one's going to win at a casino, and the fourth one's going to fall over a paper bag and looks inside. And we just believe that there's a million bucks there. So I vowed to stop teaching until I'd cracked the nut, because my dilemma was, how is it that when you give people all the tools you think they need to become fabulously wealthy, they still don't do it right? And what I found is that it had nothing to do with my rate of speech or my accent. Not that I have one, of course, or the content of my information or the sequencing of it. It had everything to do with the subconscious mind of the student, the fear.
Dolf de Roos 00:38:38 And he has that stance. You're a young kid and you say, hey, mom or dad, I want a bicycle. And they say, well, what do you think, kiddo? That money grows on trees and I know where the parents coming from. Hey, money's not that easy to come by. Temper your expectations of what you'll get for your bet. But this kid is. Our money doesn't grow on trees. Meaning money's hard to come by. And how often have we been told money can't buy you happiness. And money is the root of all evil. And when I say that, someone always points out no, the full saying in the Bible is for the love of money is the root of all evil. There's a big difference. And I'll say, yes, there is a big difference. But to the subconscious mind, it's still here's money and evil in the same sentence, and it's unconsciously makes that association. And the religious even say that it is easier to get a camel through the eye of a needle than for a rich man to get to heaven.
Dolf de Roos 00:39:24 In other words, if you're rich, you're condemned to hell. And that's a nice, strong belief system to take on board, even subconsciously. And by the way, most people don't know what the eye of the needle is. The eye of the needle was the entrance to East Jerusalem and even camels. And I've been there. I've said the camel said to get down on their knees as a sign of respect before they could enter. So there's a reason behind all these things, but the subconscious mind takes aboard. Money can buy you happiness. Money's hard to come by if you work hard for it. You don't deserve that money's root of lever. You won't get to heaven. You condemned to hell. And how do we describe the rich kids? We say they are so rich. That filthy rich. They're so rich. That stinking rich we associate being rich with filth and stench. So that is why in the United States and every Western nation, when someone wins the lottery and we no longer win 10 or $20,000, it's 300 million or 800 million or 1.2 billion when people win the lottery within five years of winning, 80% of the winners are back to where they were before they won.
Dolf de Roos 00:40:25 Right? And why is that? I discovered that it's because subconsciously, even though they're happy they won it and they going to tell their boss they're going to quit and they're going to buy their parents a nice home and they're going to get a new car. But subconsciously they feel they don't deserve it because they haven't worked hard for it. They're not going to be happy. They're now evil people. They're not going to go to heaven, and they're filthy and they stink. And the only way to overcome that is to get rid of the source of the problem, which is the money. And you'll see it happen again and again and again. So what we do is we dissolve what's in the subconscious mind, all these things that we've been saying without realizing it over and over and over again and replace them with more empowering beliefs. And the great thing about the subconscious mind is, initially, you don't even have to believe the thing that you're going to say over and over again to replace those old ones, but it could be something as simple as money is good or a bit more sophisticated.
Dolf de Roos 00:41:18 My poverty helps no one, but my wealth can help a lot of people.
Keith Weinhold 00:41:22 The more you have, the more you can give.
Dolf de Roos 00:41:24 Exactly as the reverend says, I'm a magnet for money. And so when we get into this mode of thinking differently, then all of a sudden people find that the money starts flowing and we give people specific exercises to do. And it's you think by how is that going to make difference? But it does. And so what I found when I introduced these concepts into my real estate teaching, the success went from under 4% to over 80%. And if that's not evidence enough that this works, I don't know what is.
Keith Weinhold 00:41:56 Yes, it really takes changing that mindset to break down these old stereotypes and have the confidence to say and act upon things like financially free beats debt free. But if you raise to think that money is a scarce resource, you think that retiring debt is a good thing, or don't focus on getting your money to work for you. Focus on getting other people's money to work for you.
Keith Weinhold 00:42:17 A lot of people don't even know what that means. But yeah, it takes breaking down some of these simple things that we all began to learn when we were age five or something like that. Golf is we're winding down here. You operate globally. You play globally. That intimidates a lot of people. They don't really know how to do that. But it's giving you this wherewithal to say that real estate is the only profession that can truly be played globally. Tell us about that.
Dolf de Roos 00:42:44 Well, when you think about it, if you study to become, say, an attorney, you can't just up and leave the US and go to Germany or Peru or Kuala Lumpur, Malaysia to practice, you've got to study their local laws and set the bar exam. If you're a physician, you can't just go to another country and conduct frontal lobotomies on patients. You've got to study and hit the bar exam. I had a friend who was a dermatologist, a skin doctor from Austria. He moved to Australia after eight years of study to get his qualifications.
Dolf de Roos 00:43:13 They wouldn't accept them here to start all over again. And he said that's ridiculous. And he became a farmer and was very happy doing that. But when you think about it, not only our real estate investors welcomed all over the world, but they think that you're going to bring money with you. You don't have to, of course. In fact, if you're going to invest as a US citizen in another country, I would not recommend bringing U.S. dollars with you. I'd recommend borrowing locally, because if you bring U.S. dollars with you, then you're subject to exchange rate fluctuations. So just borrow locally and then you've got no risk from that at all. But despite the fact that the other countries, the host countries think that you're an investor, you're going to bring money. So they welcome you with open arms. I think it's the only profession where you are never discriminated against. Your welcomed. You're made to feel welcome. They want more of you. They encourage you to come with delegations of other investors.
Dolf de Roos 00:44:05 It's kind of good gig to be on.
Keith Weinhold 00:44:08 Make the World Yours. The UN recognizes 193 world nations. Get out and see them and invest outside your own home country if you have the ability to. Well, Duff, you've got this interesting combination of commercial real estate focus, a great grasp of the mindset and how to help people with the wealth mindset. And then thirdly, you also operate globally. So it's been really interesting to speak with you. You help people in so many ways with a lot of your teaching resources. So why don't you let our audience know how they can engage with that?
Dolf de Roos 00:44:41 We have a lot of programs that we run from time to time. I mentioned I saw a client in the UK. He was an example of someone we did a fly out for. I'd spend three days just with that one client to help him with his portfolio. But the thing I've got coming up is a live training and people can get a free seat to attend and learn more at my website called Dolf Live.
Dolf de Roos 00:45:03 So Dorfman and Dolf and then live Live.com golf Dolph Live.com. You can see what we've got coming up there. It's entirely free to attend. And then, you know, once that event's gone, I'm sure we'll post other things there, but that's the best way of staying informed with what I've got going. Part of my passion, Keith, is sharing it. You know, it's pretty boring doing it on your own. And one of the biggest thrills I get is when you get feedback by email or however, from someone who said, well, when I heard this or saw that or read this, I wasn't even sure if it would work and I certainly wasn't sure if it would work for me. But look at what I've done since then, and that gives you a feeling that you can't describe in words. That's pretty cool. You change someone's life and you don't even really know who they are, then that's kind of that's fun stuff.
Keith Weinhold 00:45:48 The ruse has been helpful to me in our audience today. The King of Commercial Real Estate, thanks so much for coming on to the show.
Dolf de Roos 00:45:55 Hey, thank you so much for the opportunity. I really enjoyed it.
Keith Weinhold 00:46:04 Check out Dolph Live.com. It looks like he's got a live event coming up this Thursday night, and if you missed that more afterward, like I was saying earlier, a ton of great episodes coming up here on the get Rich education podcast, just stacked. As always, you'll get lessons from me when I'm going to break down. Is any debt worth paying off? Which debts are which are not and why? That's going to help you know what to do with every debt for the rest of your life. And that's besides what I mentioned earlier, both new guests and very popular returning guests. I hope that you learned something today. I'll run it back next week when we meet again. Until then, I'm your host, Keith Weintraub. Don't quit your daydream.
Speaker 8 00:46:54 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.
Speaker 8 00:47:05 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 00:47:22 The preceding program was brought to you by your home for wealth building. Get Rich education.com. |