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545: Eliminating the Property Tax, DC Real Estate Crash, Future Inflation and Interest Rates

Complete episode transcript:

Automatically Transcribed With Otter.ai

Keith Weinhold 0:01

Welcome to GRE, I'm your host. Keith Weinhold, what does the Bible say about money? Is it virtuous to acquire wealth, or are you going to hell for that one Bible verse reads, "it is easier for a camel to go through the eye of a needle than for a rich man to enter the kingdom of God". I asked Pastor John Sanders all about it, as well as what other religions say about money today on get rich education

since 2014 the powerful get rich education podcast has created more passive income for people than nearly any other show in the world. This show teaches you how to earn strong returns from passive real estate investing in the best markets without losing your time being a flipper or landlord. Show Host Keith Weinhold writes for both Forbes and Rich Dad advisors, who delivers a new show every week since 2014 there's been millions of listener downloads of 188 world nations. He has a list show guests and key top selling personal finance author Robert Kiyosaki, get rich education can be heard on every podcast platform, plus it has its own dedicated Apple and Android listener phone apps build wealth on the go with the get rich education podcast. Sign up now for the get rich education podcast or visit get rich education.com

Corey Coates 1:19

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 1:35

Welcome to GRE from Bel Air, Maryland to Bel Air, California and across 188 nations worldwide. I'm Keith Weinhold, and this is get rich education. I hope that your week's off to a good start with 546 weekly episodes. We've approached investing from a lot of angles. Commonly, it's a strategic approach, but there are other wealth building approaches we discussed here, like mindset, what type of vehicle you're going to use, the academic perspective, the protective approach, then there's a mathematical angle. But today, for the first time, it's the theological perspective. Now, even if you're not a Christian or religious at all, what the Bible says about money has import, because the Bible is the number one selling book of all time, so it surely affects the mindset and the approach of those around you. I've got a pretty inflammatory question for you, if money is the root of all evil, then why do they ask for it at church? Now I say that a little jokingly. We're going to debunk that in fact and more as Pastor John joins us shortly, I will hit that verse head on and ask him about it, the verse that says it is easier for a camel to go through the eye of a needle than for a rich man to enter into the kingdom of God. I'm really interested in what he says about that. I mean, in fact, that's actually something I wanted to know about for decades. That's always piqued curiosity inside me, and especially since I'm the 10 plus year host and founder of a platform called get rich education. There's a lot I'd like to ask about that. There is more that I'd like to ask about, if we get time. I'd also like to know what the Bible says about tithing and real estate and gambling and more. Let's meet Pastor John.

With over 20 years in pastoral ministry, this week's guest, also has a passion for using his voice to motivate and inspire ministry leaders. His father was also a pastor. He is non denominational. Hey, welcome to GRE Jon Sanders.

Jon Sanders 4:04

Keith, this is my pleasure to be here. Man, been looking forward to this conversation, so thanks for having me on the show

Keith Weinhold 4:09

me too. We're doing something really different this week. I've been anticipating it, and I sure have some specific things I want to ask you, even some Bible verses later that are somewhat antagonistic to wanting to build wealth. But before we drill down and get into that, just big picture, John, when we talk about what the Bible says about money broadly, what should we keep in mind

Jon Sanders 4:34

with anything when it comes to Scripture? One of the greatest principles to keep in mind is that context matters, because without context, you can make the Bible say about anything you want it to say. And that's probably what we're going to dig into a little bit, is that if you just read a verse in one little snippet and divorce it from not only its context, but the rest of Scripture, you can come away with a pretty skewed view, as many people in the world. Have, as well as many people in the church, many Christians have a skewed view about money and about wealth because of some, you know, certain verses that I'm sure we'll get to today, I would say just an overarching principle, context matters, and hopefully we can show a little bit of that context in our conversation and just see that maybe what you thought the Bible says about money is not, in fact, what the Bible says about money. We'll see where this goes.

Keith Weinhold 5:24

Context matters and mindset matters. You know that we're a real estate investing show, but episode number one of the get rich education podcast from 2014 is titled, your abundance mindset. Do Christians worship a God of abundance, where he would want you to use your God given talents to flourish and produce and make more in this world. Or do you not see it that way?

Jon Sanders 5:53

I 100% see it that way. And what's interesting to me is that as believers, we would say, many of us would agree with things like we believe in this limitless God who spoke the universe into existence by nothing more than the power of his spoken word and just the abundant world in which we live like we believe in that God who can do all kinds of miraculous things. And yet, then, when it comes to the subject of money, so often, we live out something very different than that. With such scarcity, we act as though there's such limited resources at our disposal, and our thinking is so enmeshed in poverty thinking and scarcity thinking. And I think as God's people, we ought to be some of the most abundant thinking people there is because we are supposedly tapped into the most abundant source the world has ever known. So there is a discrepancy there, but I'm 100% with where you are on that we serve an abundant God, and we would do well to think in abundant terms, because I think we're gonna find that his resources never run out.

Keith Weinhold 6:57

Right? We're here to think abundantly in flourish. One thing I like to say is, don't live below your means. Grow your means. Christians should when I'm asking you as a pastor, I would think they would believe that God was an abundant creator. He created the earth that we live on a gigantic piece of real estate.

Jon Sanders 7:17

Yeah, and so much more. And like I said, it never runs out. Whether we're talking about his physical resources or we're talking about the more intangible resources that we can't necessarily hold in our hands. There is always more than enough with the God that we serve. And yet, how then do we come to such places of scarcity and limitation? I would contend this Keith that if someone is actually reading the Bible, applying the principles to their life, they will inevitably, more and more grow in their wealth and in their abundance and in their ability to manage well the resources that God has put into their hand. Now that's not the same as what some might put into the category of what they'd call the prosperity gospel, where God wants everyone to be rich and never to have any sickness or financial difficulties like those are not the same messages. We're not all promised the same exact outcomes, but I believe if we follow the timeless principles, the laws that have been established by the Creator that he's shared with us through His word, I think we can expect to flourish and thrive and prosper and do well and continually grow whatever resources he's put into our hands. As a matter of fact, I would point to a parable that Jesus told, many of the parables that Jesus told in the Gospel accounts of Matthew, Mark, Luke and John, many of them deal with money. Now, all of Jesus's parables got to a deeper, like more Kingdom spiritual lesson. But in many of them, he used something that all of us can relate to, and that is money. Because scripture has a lot to say about money. And then, specifically, in one of those parables in Matthew 25 I believe Jesus told a story of the master who represents God in the story how he gave differing talents or financial amounts to three different servants based upon their own abilities. And right in there, there's some truth that we can learn and apply, that we don't all have the same abilities, but God allows us, He gives us certain things that are in our capability to handle, and then with that comes an expectation that we manage that well, because it doesn't actually belong to us. That's a big principle of money in Scripture is that none of it actually belongs to us. All of it belongs to the Lord, but we are stewards. That's kind of a Bible word. We are the managers of the resources He's given us. And even from that parable I mentioned in Matthew 25 there is an expectation that we take what has been entrusted to us and we multiply it. And if we fail to do that, the words of the master that Jesus. In that parable, were you wicked and lazy servants? The words of the master to the one servant who basically squandered what had been entrusted to him, he was called a wicked and lazy servant. So there's an expectation that we are not wicked and lazy servants, but that instead, we take whatever resources have been entrusted to us and multiply them for the good of God's kingdom and for His glory. So that's just one. I mean, there's countless stories that Jesus told that we can learn principles like that from.

Keith Weinhold 10:30

I think building prosperity is being the opposite of laziness or sloth. Is it bad to be wealthy?

Jon Sanders 10:39

I would say, according to the Bible, 100% No, it is not wrong or immoral or sinful to be wealthy. We can point to many heroes of our faith who were men and women of great wealth. We can also point in Scripture to wicked people who also were men and women of great wealth. So the question is not whether or not someone has money. That's not what sets them apart as righteous or wicked. It's what they do with that money. It's how they live. It's their character that really is what we measure that by. And so here's what I would contend without money, it's really hard to do good things in the world. You're very limited when you put money in the hands of good people, those people can use those resources for all kinds of good purposes and to help a lot of people. I mean, that's just common sense, and so it's not a bad thing for righteous people to multiply their wealth and to grow in their wealth in order to be in a position to help even more people.

Keith Weinhold 11:39

The way I think about it, is that producers and entrepreneurs, they need to give first before they can create any prosperity for themselves. And what's foundational in our mission here at GRE is to do good in the world, provide housing that's clean, safe, affordable and functional. You're giving you're qualifying for a loan, you're buying property, you're taking on risk before anything can possibly come back to you and John here, I've often touted, hey, we provide housing that's clean, safe, affordable and functional. We can maybe abolish the term slumlord, for example. So that's what I'm talking about with doing good in creating prosperity for ourselves as a result of that.

Jon Sanders 12:24

Yeah, and I'll point out another biblical principle that you just outlined, whether you realize it or not, and that is the law of sowing and reaping. It's the law of the harvest. You don't have to believe in God for this to be true. If you go plant something, you will get more of the thing you planted, if you tend to the soil well, and if the conditions are right, and you mentioned it, that is risk. Like there's risk involved. Every time a farmer goes and sows seed into the soil, like there's no guarantee that I'm going to get that back, things can happen. It's a believable risk. It's a relatively manageable risk. It's a risk, nonetheless, to take a great amount of seed and put it into the soil in faith. And I want to point that word out. There's faith when we as entrepreneurs go out, we're acting in faith when we take that risk. And again, it's something that we have to kind of weigh it out, is this a wise risk to take? But at the end of the day, there still is no guarantee. But there is that law of sowing and reaping and the law of the harvest. And I think God honors that, I know he honors that I believe he is honored by our faith. It literally can be an act of worship done to him was we go start businesses, as we invest in real estate, as we buy properties like that, actually can be part of our worship, and us fulfilling the very purpose for which God put us here, to manage what he's given us, to multiply it, and then to do good with it, as you're describing. I agree totally.

Keith Weinhold 13:48

that's a good point. It really is an act of faith to provide an income property, faith that you're going to have a rent paying tenant, faith that you're going to be able to maintain the place, faith that you're buying a property in a market where you have a good expectation that you're going to be able to have future rent paying tenants. Yeah, it really is an act of faith. Well, John, there are some specific verses in the Bible that are really well known and deal with money. One is the often misquoted verse that everyone is familiar with. And what's misquoted is that people say that money is the root of all evil. But as we know, that verse from the book of Timothy is misquoted. It is for the love of money that is the root of all evil. Can you tell us more about that, why it's misunderstood, and actually, just what that really means for the love of money is the root of all evil,

Jon Sanders 14:42

by the way, just stepping back a second in the conversation to your question, is it wrong to be rich? Here's another supporting text where the answer is no, because the verse you're speaking of the apostle Paul wrote this in a letter to Timothy. He's telling Timothy again, in the context, he's telling Timothy. To address the rich people in the church and say some things to them, teach the rich people some things, and he didn't tell them, you know, shame them for having wealth and for being rich. Instead, he's teaching them how to be rich, how to be a good rich person. And it's in that context where that line is found, that the love of money is the root of all evil. Fast forward to modern times. We've kind of thrown the word love out of it, and we just said, There it is. Money is the root of all evil, and we say it with a sense of self righteousness. As I'm sitting here, broke, living paycheck to paycheck, I don't want to be one of those evil rich people. That's not what it says at all. It's saying the love of money is the root of all evil, and we do need to step into this for just a moment. There are warnings in Scripture about money, because if we don't realize and recognize the power of wealth and the power of money, I believe probably one of the reasons God's word says more about money than it does so many other topics is because the danger that money has to compete with God himself. I often say I don't think it's God and the devil that are in competition with each other. In many ways, it's God and money, because Jesus even said you can't serve both. You can't have two masters. You'll either love the one or despise the other. That doesn't mean you can't worship God and have money. It says you can't worship them both, because your allegiance is going to go one way or the other, and the more wealthy we become. There is a danger in that, or maybe even before the wealth shows up. If there is this just burning desire to be rich above all else, it can pull us off course. It can pull our focus away from the Lord. So there is a warning in that that we should heed and listen to. Apparently, according to Scripture, money is powerful, and it's powerful for good and it's powerful for evil. And so if we're going to have some of it, and if we're going to grow the amount that we have, it sounds like it's a pretty powerful tool that we ought to know how to use and how to use properly, no different than when you throw the keys to the car to your teenage driver, like we just put a very powerful tool in their hands, and we pray and trust that they're going to use it wisely and not drive it off the cliff, you know, or kill someone in the process. And money's very much the same way. So the warning is good, but what's not good is to take it out of context and build this paradigm of somehow, the less money I have, the more righteous I am. And in the platform that I'm building, we have a online community. We call it entree pastors, that specifically helps pastors do better financially through entrepreneurial business man, we combat this mindset all the time, because we're dealing not only with people who've been in the church most of their life, but people who have led in the church, and there is so much scarcity thinking around money that we have to address so many of these themes that you and I are unpacking right now. So yeah, often I have found myself taking people to this Scripture and having them read it again and again until they hear themselves say that the love of money is the root of all evil, not having money that is not the root of all evil, it's the love of it. So hopefully that helps shine some light on that confusion

Keith Weinhold 18:15

yes, so one can take it too far if it becomes the love of money? Well, there is a verse in the Bible. In fact, I think it occurs in more than one place. That verse is it is easier for a camel to go through the eye of a needle than for a rich man to enter the kingdom of God. How does someone that's building wealth for themselves square that up. We're going to talk about that more when we come back. I'm talking with Pastor John Sanders about what the Bible has to say about money. I'm your host. Keith Weinhold,

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Chris Martenson 20:40

this is peak prosperity. Chris Martinson, listen to get rich education with Keith Weinhold, and don't quit your Daydream.

Keith Weinhold 20:56

Welcome back to get rich education. We've got a pretty special episode today. Our discussion is what the Bible has to say about money, and we're talking with Pastor John Sanders. He's breaking it down for us. John, this is the one thing I thought about more than any other before chatting with you today. It is that well known verse about the camel going through the eye of a needle. And John, I first remember my mom telling me about this verse. Perhaps I was as young as age 12, and that verse is, it is easier for a camel to go through the eye of a needle than for a rich man to enter the kingdom of God. Here I am a 10 plus year host of a show called get rich education, helping people build wealth ethically through real estate investing. But how do we square up that verse if we're looking to make more of ourselves financially?

Jon Sanders 21:53

Yeah, and like we said at the beginning of the show, if that's all it said, and if that's the only thing you knew, you would come away from that pretty convinced that Jesus thinks it's impossible to love God and also be rich, like there's just no way a rich person can enter the kingdom of heaven. But as we said, context matters. So if we kind of zoom out a little bit and look at the greater context of what's happening in that passage of Scripture, you will recall, and maybe some are hearing this for the first time. But there was a rich man who approached Jesus, and he basically was kind of wanting to justify himself, and so he asked the question, you know, what good things must I do to inherit eternal life and inherit the kingdom of God? And Jesus starts by saying, follow the commandments. And this rich guy basically says, I'm paraphrasing all of this. You can go read it for yourself, but he's saying I've done all those things which, by the way, side note, No, he hasn't. None of us have followed all of God's 10 Commandments and more, like we just I've broken every single one of them. We're all sinners. Probably you have too Exactly. So he's already off base, this rich guy. So then Jesus hits him where he knows it's gonna hurt, and he says, Okay, here's the one thing you're still lacking. Go sell everything you have and give it to the poor, and then come and follow Me. And what it says is that the rich man turned away very sad, because he had great wealth, and see Jesus exposed what this man really worshiped in that I don't believe that that is a commandment from Jesus to all of us to go, sell everything we have, give to the poor and come follow him. That was a specific statement spoken to this specific man, and it did exactly what it was meant to do. It kind of smoked out the real heart issue that was happening here. So then Jesus turns to his disciples after this man walks away sad because he was not willing to pay that price. And that's where Jesus makes this statement that is so classic, where we all know, you know, it's easier for a camel to pass through the eye of a needle than for a rich man to enter into the kingdom of heaven. If you keep reading a few verses later, Jesus goes on to say, with man, this is impossible. But with God, all things are possible. So it is possible for a rich man to enter the kingdom of God. It may be more difficult. It may be more challenging because, as we said a minute ago, when we do have great wealth, that wealth competes in many ways with our heart for the place that God wants to hold in our heart. It is easy when we have margin and we don't need God as much, or we don't think we need God as much. We don't necessarily have to humble ourselves as much when I have all these resources. But that's not impossible. It is possible for godly people to have great wealth and to bow in humility before King Jesus, and to worship Him, and ultimately, to inherit the kingdom of heaven and be better for it, and not, you know, worse off. So again, I hopefully that explains that a little bit or gives some more light to that, because if you just take that little snippet, you're essentially taking it out of the greater context and missing the point, and you're. Making the point something that Jesus never intended, which was to say, rich people can't get to heaven. That's a mishandling of that text

Keith Weinhold 25:08

yeah? Because I think it states that, or something close to it three times in the Bible, in the Quran, the Muslim holy book, also has something similar in it, yeah.

Jon Sanders 25:19

And again, I know in in the New Testament, where it's mentioned multiple times, it's probably because it's found in those Gospel accounts that basically tell the same story just from four different authors. So that's sometimes where you see that repetition in the New Testament is because it's the same story being told just from a slightly different vantage point a different author. But the principle is there, to try to say that scripture forbids people from being wealthy or from pursuing wealth, would be a complete misstatement. It's simply not true. You know, to read scripture in its entirety, you can walk away from it with this understanding that God, not only is he not opposed to wealth, but God is the source, because he owns it all. It all belongs to him, and he actually the more I walk in faithfulness with what he's given to me and what he's entrusted to me, the more I can actually expect will be given to me, because I will see the fruits of those labors multiplied. That's the path I'm on right now, unashamedly, unapologetically, I am working on growing wealth, not only for my family in this generation, but scripture says a righteous man leaves an inheritance to his children's children and man, what if we started telling that story more than trumpeting these verses that make it sound like God is really upset with people who have Money? What if we actually encourage God's people to go build wealth and create more of it? Yeah, because

Keith Weinhold 26:46

I've heard a few different takes on that verse, John, about a rich man not being able to enter the kingdom of God. You know, some have joked, Oh, does the church just want you to put everything in the offering plate and not have anything for yourselves? Another take on it, I guess. If I read the verse closely about how a rich man cannot enter the kingdom of God, well, don't die rich. You be wealthy and then bequeath everything to your heirs upon your death. So technically, you're not dying rich. There are a lot of takes upon that verse. Really appreciate getting your perspective and your interpretation on that context piece being really important, John, when we think about what the Bible says about money, in the intersection of both money and the Bible, oftentimes we think about tithing, which I think of that is giving a 10% of your income to the church. So do you have any thoughts about tithing, or just some of the other general things that the Bible says about money.

Jon Sanders 27:41

I certainly have some thoughts, but more importantly, Scripture says some things. So it really doesn't matter what John thinks about it, but tithing is a controversial subject, so let me start with maybe something that's not so controversial, and we can jump into the tithing. Here's something that is not controversial from Scripture. The more we give, the more of a blessing it is for us. The more that we can give, the more God blesses us. God blesses generosity. So hopefully we can all agree upon that For God so loved the world John 316 that He gave His one and only son. So there's a direct correlation between loving and giving. And the more that I give, the more God seems to bless my life. And I know it sounds cliche, if you grew up in the church, we always heard statements like, you cannot out give God. The more I give, the more God gives back. And again, I'm careful to say that because I don't want to treat God like a cosmic slot machine where I put in $1 and pull the lever and hope to get 100 it is, again, it's just one of those laws that God has established that he blesses generosity. So then the question just becomes, what does our giving look like? What does our generosity look like when we look to Scripture, Old Testament? Bottom line tithing was, I mean, it was commanded. It was part of the overall giving that God required of his people. And a tithe is a 10% of the first fruits 10% off the top. And it's like when people argue that, or they say, Well, I'm tithing 2% that's like saying you ran a three mile marathon. My marathon is not three miles, right? Yeah, tithing is 10% the question is, is tithing for modern day believers? Are we supposed to be doing that? I will share my quick thoughts with you. I believe we are under grace. We are no longer under law. So I don't think that this is a matter of salvation. It's not at that level. But I will say this, I believe Jesus commended tithing, and I'll tell you where it took place, and you can go look at this on your own if you want. I think it's in Matthew 23 again, the context is not really about tithing. The context is Jesus is dealing with the religious establishment. The people he had the harshest words forever were the religious leaders, and he's taken them to task. And he says in there, like you guys tithe off of your mint and your dill, like you're tithing off of everything, like the illegal. Stick level, and yet you're ignoring the greater elements. You know, mercy, love, sacrifice. And then he goes on to say, You should do the first without ignoring the second. And I'm paraphrasing again, so go read it for yourself. What many people look at that passage and they say, here it is, Jesus commended tithing. He basically said, No tithing is good. You should do that. One other case I would make for New Testament, tithing is simply this. When Jesus stepped onto the scene in the New Testament, He never lowered the bar that was set in the Old Testament law. He actually elevated it. I'll give an example. Jesus said something like you have heard it said, You shall not murder. But I tell you, if you hate your brother, you're worse than a murderer. So he elevates it from just the physical act of killing to the heart condition of hating that leads to the killing. He did the same thing with adultery. You have heard it said, Thou shalt not commit adultery, but I tell you, if you look at a woman with lust, you've already committed adultery in your heart. So he raises the bar, not lowers it. So my question has always been, when it comes to tithing, would we believe Jesus to lower that bar and say, Ah, it's not important. Don't do it. You don't need to do it. Or would we expect him to raise the bar? I actually think the bar has been raised. He commended the poor widow that gave everything she had, and it wasn't much, but it was 100% sacrifice, and Jesus praised her. Now I don't think he's that's prescriptive of all of us to go drain our bank accounts, but I think what God is celebrating in the New Testament is sacrificial giving. For me personally, my personal opinion is that tithing is just kind of a good starting place for biblical giving. But I don't hold it up as a legalistic rule that says Thou shalt tithe based on what we see in the Old Testament and how we see it transition over into the New Testament. That tithing is not a bad idea, but if you're a modern day Christian that says I don't believe in tithing, I don't think I need to tithe. Okay, cool. I'm not mad about it. My challenge to you then would simply be this, what does generosity look like to you, and are we lowering the bar? Are you pushing back on tithing because you desire to give less? And if so, maybe there's a heart condition. There of you wanting to cling to something instead of being open handed. It's not my place to sit and look over your shoulder and go. You need to give more of your income. I mean, the Holy Spirit does a better job of being the Holy Spirit than than I do. So really, that's between you and the Lord. But my question and my challenge to modern Christians would be, what does generosity look like for you. You know, what is your discipline or your habit, your system around giving? If there is none, I personally think that's a problem. I think there ought to be some level of generosity happening in your life, because you'll be blessed, and God will use you to bless others. And that's a pretty cool thing, when God gets to channel his resources through you to someone else. So I don't believe everything that God allows us to have in our hands is 100% for us to hold for ourself. I think some of it is he's using us as a channel or a conduit to flow those resources in other directions. So those are just a few kind of high level thoughts of not only what Scripture says about tithing, for sure, but also maybe how we might look at it in a New Testament context,

Keith Weinhold 33:23

there's some good questions for you, the listener, to ask yourself when it comes to the framing and the importance of your giving and your tithing. John, what does the Bible say about real estate or property?

Jon Sanders 33:35

There are places I can't tell you you know exact location in Scripture off the top of my head, but I know there are places in Scripture that talk about going and purchasing land, or somebody owning land, and so I believe scripture upholds the idea of personal private property, and private property ownership, obviously, under the context of what we said earlier, that all of it ultimately belongs to the Lord. But I think it's a good thing. I certainly will tell you this. It's not condemned in Scripture. I know of nowhere in Scripture where we are forbidden from pursuing real estate or pursuing land. Is it like I say on the flip side, I could find examples where people bought and sold land. I'll give you one. Just popped into my head. In the early church, Ananias and Sapphira, they actually were put to death. And it's a really deep story. The issue, the reason they were judged instantly is because they lied about it. But they had land, they went and sold it, and they did not give all of it to the church leaders. And that was not the issue. The issue was they lied about the fact that they were giving all so they wanted to look a certain way, and that's the sin that God was kind of rooting out of the early church. But right in there, I think it's in like Acts chapter four, maybe or five, right in that area, it says directly, was not the land yours before you sold it and after you sold it, was not the land the money yours to keep. Why have you done this wicked thing? And the thing, again, that they were being judged for was lying to the Holy Spirit. And it was kind of like in that moment in the early church, the Lord was saying, we're not doing this like we're not going to live this fake, hypocritical life. And he judged it instantly, kind of grateful that God doesn't still deal with us in that way. It's not to say that he could not. That's a quick story that popped into my head as an example of buying and selling land. So if you do buy and sell land, just don't lie to the Lord about about how much you sold it for, because he knows it was his in the first place. He knows how much you sold it for. So just be honest in your dealings. There you go.

Keith Weinhold 35:39

Well, I'm grateful that the Bible doesn't say you have a limit of five rental properties. That's really good to hear. Right? Well, John, as we're winding down here, we've talked about Christianity and what the Bible says about money. Are there any non Christian religions that, just if you could spotlight one, that have a really interesting approach to money, whether that's Muslims avoiding debt, or anything, Hindus or Buddhists believe just any one thing. That's particularly noteworthy with non Christian religions approach to money.

Jon Sanders 36:09

I'm going to acknowledge a lot of my ignorance when it comes to other world religions. I can speak of one thing very locally to where I live, I don't know. It's kind of a religious thing. It's kind of a cultural thing. So where I live in South Dakota, I'm surrounded by, you know, an Indian reservation not too far from me. And the Native American culture is very prevalent here. And one thing that's been interesting to me to learn over the years is that, as I understand it, the Native American culture does not believe that you can own property. So they don't own land. They don't believe in owning land, at least historically, traditionally. So again, is that a religious thing? Is that a cultural thing? Not exactly sure. I don't share that belief, but it's an interesting take on things. So I'm sure there's so much more that a different guest could give you in terms of insight on other world religions when it comes to, you know, their view on certain deaths and philosophies around finances and things like that. For me, I really have studied one very deeply, and that's Christian faith. So I don't really feel like I'm much of an expert to speak from those other perspectives.

Keith Weinhold 37:18

Well, John, this has been enlightening to me. I've learned some things, and I sure might now know how to explain my way out of the whole camel in the eye of a needle. Verse there, if someone wants to learn more about you, tell them how

Jon Sanders 37:34

you can look me up online. I have a website called entrepastors.com me and my partner, les Hughes, as I said earlier, we help pastors provide better for their families through entrepreneurial business. If you want to connect with me, if you just go to entrepasters.com all of the links to connect with my social media and everything else are right there, and I'd be happy to jump on a call or serve you in any way that I can. So I would welcome you reaching out.

Keith Weinhold 38:01

Oh, thanks a lot for offering that to our audience. It's been a pleasure hosting you.

Jon Sanders 38:05

Thanks, Keith. Been a fun conversation. I appreciate you having me.

Keith Weinhold 38:15

Oh, yeah, good stuff from Pastor John today. I did not know that Pastor John would agree with me this much. I guess I'm frankly, a little relieved I learned some things too. Check out his platform again. It's called entre pastors. This was definitely an anticipated episode here today. The good news is we've got more anticipated episodes amidst an expected economic slowdown in potential recession. What actually happens to real estate in a recession? I will cover that and then with a lot of political turmoil and policy change coming from the White House that promises to massively swing the economy. I would like to have someone that's inside the White House and advising President Trump himself on his economic policy to come here on the show so that I can go ahead and ask them about it. Well, that's hard to do while they're in office and the administration is in full swing like this. So speaking of anticipated shows coming up here on the GRE podcast in future weeks, we have the financial advisor, the budget director of a past president that advised that president in the White House. He will be our guest here on the show. You'll learn what you can expect from him for the next nearly four years. And you know, something that might be even better to have that past president's White House Advisor here on the show, because he will feel emboldened to be more critical. Perhaps. Stay tuned for that big thanks to the terrifically knowledgeable John Sanders today in. Till next week, I'm your host, Keith Weinhold, don't quit your Daydream.

Dolf Deroos 40:07

Nothing on this show should be considered specific, personal or professional advice. Please consult an appropriate tax, legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own. Information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of get rich Education LLC exclusively.

Keith Weinhold 40:31

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Mon, 17 March 2025

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Keith discusses the potential elimination of property tax, highlighting its impact on home affordability, rent stability, population influx, and retiree financial relief. Florida Governor Ron DeSantis supports a constitutional amendment requiring 60% voter approval to abolish property tax.

Hear about the broader economic implications, including the potential for increased sales tax and widened wealth inequality.

GRE Coach, Naresh, analyzes the impact of federal layoffs on the DC housing market, predicting a decline in home values and increased private sector job opportunities. Both emphasize the importance of the BRRRR strategy for real estate investors.

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544: Stunningly High Returns with this Niche Real Estate Strategy

Complete episode transcript:

Automatically Transcribed With Otter.ai

Keith Weinhold 0:01

Welcome to GRE. I'm your host. Keith Weinhold, there's a proposal to eliminate the property tax. Is a Washington DC real estate crash upon us, then a terrific guest and I are talking about the future of interest rates in inflation. And finally, an event you won't want to miss all today on get rich education.

Speaker 1 0:23

Since 2014 the powerful get rich education podcast has created more passive income for people than nearly any other show in the world. This show teaches you how to earn strong returns from passive real estate investing in the best markets without losing your time being a flipper or landlord. Show Host Keith Weinhold writes for both Forbes and Rich Dad advisors and delivers a new show every week since 2014 there's been millions of listener downloads of 188 world nations. He has a list show guests and key top selling personal finance author Robert Kiyosaki, get rich education can be heard on every podcast platform, plus it has its own dedicated Apple and Android listener phone apps build wealth on the go with get rich education podcast, sign up now for the get rich education podcast, or visit get rich education.com

Corey Coates 1:09

You're listening to the show that has created more financial freedom than nearly any show in the world. This is get rich education. You Keith,

Keith Weinhold 1:25

welcome to GRE from Fort Carson, Colorado to Carson City, Nevada and across 188 nations worldwide. I'm Keith Weinhold, and you are in for another wealth building week at get rich education. I don't like to predict interest rates, because it's really hard to do. But it does get interesting today, because our guest says that he will with his tight read on the economy, this is a unique time, perhaps in my entire life, where we have more new policies shaping the economy and real estate. Then, anytime I can remember, policies are made by politicians, but we don't get into the politics here, rather the policies and how it affects you and her. Any of these policies spicier than this one from earlier this month. Be mindful that this voice is from a person that made his name as a real estate investor.

Donald Trump 2:29

I also have a message tonight for the incredible people of Greenland. We strongly support your right to determine your own future, and if you choose, we welcome you into the United States of America. We need Greenland for national security and even international security, and we're working with everybody involved to try and get it. But we need it really for international world security. And I think we're going to get it one way or the other. We're going to get it. We will keep you safe. We will make you rich, and together, we will take Greenland to heights like you have never thought possible before. It's a very small population, but very, very large piece of land and very, very important.

Keith Weinhold 3:17

Yes, the long time New York City Real Estate Investor there has gone well beyond Gotham now with plans to expand America's real estate empire, if you will.

Is this imperialism or America First policy? Or is it abject comedy? I guess that it could be all three. I'll let you decide. Well, the federal policy shakeups like that, also what they seem to be doing are emboldening others, including at the state level, where Florida, interestingly, recently proposed eliminating the property tax, taking it to zero. What is property tax free? Real Estate coming to you as well. Let's look at the prospects for this and what the effects would be of eliminating the Property Tax with some things that you probably never thought about before, and yes, your mind might shoot ahead. You might anticipate saving 1000s in lost tax dollars every year, even saving over 10,000 bucks a year per single family home in high tax areas. And you know, property taxes, sharpest critics, they say you have got to get rid of this thing, because you basically just endlessly rent your house from the government, and the rent goes up every year, and so therefore it's like forever rent that you have to pay. What's even worse is that the. Amount of property tax you pay is based on your homes or your apartment buildings market value. Well, because the government prints so much money and creates inflation that pumps up all the housing values, many of which are fake, inflated gains, and then your property tax goes up based on this phantom gain. And we've really seen that over the last five years, both real gains and Phantom gains. And then, plus, of course, each full dollar that you earn from your work right now is already taxed, say, down to just 70 cents, is what you've got left over. Well, then your 70 cents is further whittled down by property tax and all the other taxes that you have to pay out of that currently, all 50 states have a property tax every one of them, and you might already know that property taxes, they're basically highest in really two main places. When we look at property tax as a percent of your income. Those places are Texas and the Northeast, where they're upwards of 4% even 5% in fact, it's more than 5% of your income every year that goes to property tax in the state of Maine, but it's 4% or more in a number of states. And of course, if you don't pay them every single year until you die, the government will repossess your home from you. And almost 5 million Americans lose their home every year, many of them to this tax foreclosure. And in the US, the property owner pays the property tax, of course, but effectively, renters do too, because as landlords, we pass it along to tenants. It's embedded in that market rent amount, all right. Well, can we end the property tax? Well, former presidential candidates like Ron Paul and Herman Cain have proposed it. They didn't get elected. Texas has discussed it a lot, but yeah, it's Florida that has newly and boldly proposed eliminating the property tax. And like falling dominoes, if this gets abolished in one state, it increases the chances that more will follow. And Florida is a big state, the third largest in population. Well, Florida Governor Ron DeSantis came out and said this, taxing land and property is the more oppressive and ineffective form of taxation. That's what he said. Now let me tell you why he says that before we look at the chances that property tax will be eliminated, DeSantis says it's oppressive, because look see, you can personally dodge your income tax by making your paycheck smaller, although that might not be desirable, you sure could, and you can certainly avoid sales tax by consuming less, but see there is no escape from property tax. That's the oppression that's being referred to here. Let me tell you where we're at with eliminating the property tax, and then what the absolutely Titanic impacts of this would be DeSantis goes on to say, property taxes are local, not state. So we'd need to do a constitutional amendment which requires 60% of voters to approve it, to eliminate them, which DeSantis supports, even to reform or lower them. Right? But he goes on to say this, and here we go. We should put the boldest amendment on the ballot that has a chance of getting that 60% that's the end of the quote. Okay, so that's what it's going to take to eliminate property tax in Florida, where, if it happens, it could be a model for other states to follow, like we're seeing a little bit with the zero income tax states. All right, here's what I think would happen if they were eliminated. First home affordability would massively improve, skyrocketing property values. So many more people could afford the lowered monthly payment without property tax making prices soar, especially the values of lower price to median priced homes. They could really bring those into the affordability range, and they are the exact ones that make the best rental properties. What about rents? If property taxes went to zero, rents would stay stable. Landlords would do little or nothing to drop them. That's just how it works when people are already used to paying a certain price. Also population influx to the affected area. I mean that population influx that already works for states in attracting residents. That have zero state income tax, it would with property tax too. I mean that would clearly be desirable for people to own property tax free homes, especially in the beginning, before this settles in and those home prices soar. Also, retiree financial relief would take place. Those people on fixed incomes would really be helped. But you know what would not happen with governments slashed property tax revenue. They couldn't reduce their spending proportionally. I have no faith that they could. They would have to get their income from elsewhere and see shifting away from property tax over to beefing up your sales tax, that would hurt poor people the most. For example, in Florida's case, it's been studied, and they discovered they would have to increase their sales tax from the current 6% up to 12% to maintain the same services. Can you imagine 12% sales tax, and another effect of abolished property tax is that wealth inequality would widen because the property owners are the ones that benefit the most. So those are the big effects. But look, there are more problems eliminating property tax, that means the areas would need to find another way to pay for schools and roads and parks and local services like police and emergency responders. Maybe some of that stuff could be privatized. But if the tax, if that were just shifted away from local government and that went toward state and federal government, well, then local control would be lost. So that is a really undesirable side effect. But as a real estate investor, come on. The prospect of an abolished property tax that has got to excite you. I wouldn't count on it happening anytime soon, but now you know more about the prospects for it happening and what the impact would be with an elimination of property tax.

coming up soon. Here on the GRE podcast, what the Bible says about money when Pastor John joins us, it's going to be a show unlike any we've ever done before, and maybe will ever do again. You might not be a Christian or religious at all, but this is still relevant to you, because the Bible is the top selling book in the history of the world, and it has an indelible influence on the people around you. The book the Bible, says some things that make you wonder if wealth accumulation is even virtuous. We're gonna face those verses head on and get pastor John's insights there. That's a really anticipated show. I'm also gonna ask him what other religions have to say about money. Also some well known guests down the road here on the show, including the get rich education debut of Laurel Langemeier and more. LAUREL she was known as the millionaire maker since back in the days when a million dollars was actually a lot of money. To be sure that you don't miss these upcoming episodes on your pie catching device, hit the Follow button right now while it's on your mind and you'll be all set. Let's meet with this week's guest.

This week's guest is a familiar one, because he's on Team GRE, yeah, it's an in house chat with our super helpful investment coach. What he does is he helps you devise your big picture real estate strategy all the way down to connecting you with the exact right property addresses. He does that free at GRE marketplace business speaker Jim Rohn said, formal education will make you a living. Self education will make you a fortune. He's got both with an MBA from Duke. Then he worked at both banks and financial publishing companies before landing here at GRE in 2021 but importantly, for years now, he's been an active real estate investor, just like you and I are. Hey, a big welcome back to the show. Naresh Vista,

Naresh Vissa 14:13

hey, thanks for that wonderful, wow, amazing introduction, and thanks for having me back on. It's been a few months.

Keith Weinhold 14:20

Yeah, we haven't heard from you since October here. So what's going on in the real estate and economics world? From your vantage point, everyone's got a different slant on it based on what they see.

Naresh Vissa 14:32

There's a lot happening. As you know, Keith and our listeners, I'm not sure if they're following, but we're seeing tremendous, tremendous changes in the financial markets in general, and the financial markets include the real estate markets, and the impact is going to be widespread for better or for worse, I think, for better over the long haul. So what I'm talking about right now is, for example, interest rates, mortgage rates, home value. Use inflation, those are all very important parts of the economy. And we have this new government department called Doge, the Department of government efficiency. And Doge has gone in. And I loved your newsletter where you talked about Doge a little bit, and the walk that I took, as you called it, the awkward walk with a box full of your stuff or something like that. The sure, because I've been fired before. Yep, yep, it's happened to me once too. I took the awkward walk with the box of of random stuff. Yeah, lots and lots of of layoffs are happening within the government. The private sector continues to lay off people as well, like it usually does, and this is a big deal. The reason why it's a big deal is because aggregate demand. I don't want to say it will be killed, but we're already seeing an impact on home values in places that are very dependent on government workers, places like Washington, DC, Virginia, Maryland, there's actually a 10% year on year decline in home values in those areas. I don't know if you knew about that, Keith, but that's been the impact, and that's based off of the February statistics, the February numbers. So we've seen a decline, and that decline will likely spread to other areas that are dependent on federal workers, or where federal workers make up a good chunk of the local economy. I bring this up because we have providers in Maryland who we work with, who GRE has worked with for three or four years now, and they're seeing somewhat of a decline in the area as well. Because just you don't have to work in DC to be a federal worker. You can work in a major city like Baltimore or in a suburb in between Baltimore and BC. So we're seeing somewhat of a decline in our investors have all of a sudden gotten interested in investment property in the Maryland area because they knew, hey, we know GRE works in the Baltimore operates in the Baltimore area, and just want to scope out some homes. So previously, two years ago, three years ago, when list price was not negotiable. Now all of a sudden, the sellers are open to offers when there was no budging on offers three years ago. So I bring this up because the Department of government efficiency, I believe, to my knowledge, we're up to six figures. More than 100,000 workers have either been laid off or taken the buyout package, so we're somewhere in the six figures of people who got that now, they do have eight months severance. But with that being said, you would think that most humans, they'll immediately start looking for the next job. They're not gonna just enjoy for eight months and then scramble to find that next job. So this is having a widespread impact on housing, home values on it's going to have an impact on interest rates. We're seeing that interest rates are coming down, and if there's any sign, which I don't think there is, but if there's any sign of a recession, if there's any sign of bleeding, then the Fed is going to start cutting interest rates again. So I think we saw peak interest rates a few months ago, those interest rate values, those mortgage rates, aren't going to be going back up anytime soon. We know that almost it's almost a fact that we know that, because the Fed is not going to be raising rates, the most punishing thing they can do is just keep rates steady for a long period of time. But I didn't anticipate that later this year, they're going to start cutting again because of these widespread mass layoffs.

Keith Weinhold 18:32

And of course, Washington, DC is essentially ground zero for these federal layoffs. Federal jobs account for about 25% of DC jobs. You the listener, probably find it to be no surprise that that is the highest in the nation. But of course, this can also affect private companies, those private companies that have federal government contracts as well, and Naresh, before we open it up to the nation, we just think about DC. Do we have any idea of what properties are going to be hurt the most? A lot of times you might think of that in the case of what is the income range of these federal employees that are being laid off now, a lot of them are probationary employees, meaning that they're in their first year of employment.

Naresh Vissa 19:19

Well, it's a huge mix keep. That's a really good question, because I think a broker, like a real estate broker who's trying to sell will try to beef up the price and say, Oh, this doesn't affect us, and this only affects very high income folks. Well, that's the fact of the matter. Is there, if you work for the federal government, you're not necessarily ultra high income or ultra high net worth, you get the perks, and you get perks of working a government civil servant Job while taking somewhat of a lower pay. So it's actually a mix, because you have people in the first two years of employment. So the youngsters. Now, those aren't your homeowners, though, the 2223 24 those. Just say the people in their mid 20s, they're not the homeowners, they're the renters. So you can expect them to leave. They'll probably if they can't find a job, which it's going to be much harder to find a job in that DC area, they may move to Philadelphia or New York or California or wherever they can find a job. They'll just get up and move and move, and that's one of the benefits. I did that when I was in my early and mid 20s, many times where I just packed up and moved. I was more than happy to do it. So they're not your homeowners, but the homeowners are going to be the people who are getting laid off. So there are mass layoffs happening right now, and those people are homeowners, and then the people who are taking the buyout packages very likely, because they're either approaching or at retirement age, and it remains to be seen whether those people it's like a retirement gift, like, Hey, this is a great party. You know, getting eight months of free pay. Like, that's pretty amazing and happy retirement. Or maybe folks were like, they didn't say for retirement all that much, and they were planning to work another 10 years. Those are the people who could be sellers. Bottom line is, when you have this amount of mass layoffs, and we're seeing it in the data, there are more homes for sale today in that DMV area. I By the way, I used to live there. I used to live in in Maryland, great. More homes for sale today than I believe in the lab, definitely over the last five years. And it could be even over the last 15 years, to my knowledge.

Keith Weinhold 21:29

And for those that don't know DMV, that means Delaware, Maryland, Virginia, that area, yep. So

Naresh Vissa 21:34

there are more homes for sale, and the home values actually are now. This is a crazy thing. The home values in on average are back at 2020 levels. So basically, the peak of 2020, is what the home values are at today. And just my prediction. I don't think it takes a genius to predict this, but the layoffs are just getting started. They're just scratching the surface, and they're going to continue, because this Doge is a an 18 month program or an 18 month project. It's supposed to, it was called the Manhattan Project of our time. So they're just scratching the surface. And I'd expect home values in those areas to continue to fall. And you're gonna see it's not immediate. It's not like there are mass layoffs one day and then home values fall the next month. A lot of these effects, we won't start seeing them where the DC area won't start seeing them. 678, months down the road,

Keith Weinhold 22:27

Doge is more than just a meme coin. Now our own in house investment coach, Naresh Vissa and I are talking about the state of real estate today. More we come back, including nuracious thoughts on the future direction of inflation. This is Get Rich Education. I'm your host. Keith Weinhold

you know what's crazy? Your bank is getting rich off of you. The average savings account pays less than 1% it's like laughable. Meanwhile, if your money isn't making at least 4% you're losing to inflation. That's why I started putting my own money into the FFI liquidity fund. It's super simple. Your cash can pull in up to 8% returns, and it compounds. It's not some high risk gamble like digital or AI stock trading. It's pretty low risk because they've got a 10 plus year track record of paying investors on time in full every time. I mean, I wouldn't be talking about it if I wasn't invested myself. You can invest as little as 25k and you keep earning until you decide you want your money back, no weird lock ups or anything like that. So if you're like me and tired of your liquid funds just sitting there doing nothing. Check it out. Text family to 66866, to learn about freedom family investments, liquidity fund again. Text family to 6686

Jim Rickards 24:34

this is author Jim Rickards. Listen to get rich education with Keith Weinhold, and don't quit your Daydream.

Keith Weinhold 24:49

welcome back to get recidiation. I'm your host. Keith Weinhold, it's an in house chat with our own GRE investment coach, Naresh Vissa. He's been talking about the fallout on DC area. Jobs with the regime shakeup that we had in the White House starting earlier this year. And Naresh, I know that you have some thoughts about what this can do to the future direction of inflation. Tell us about it.

Naresh Vissa 25:12

Well, the first thing Keith is, if you look throughout history, or even your lifetime, what we saw from 2021 until today, really, because inflation is going up. I don't want to say it's going back up, but it is going up. We've seen an inflationary cycle that I've never seen in my lifetime. It's worse than any short term inflation cycle that this country has faced, at least in my lifetime. And I was born in the late 80s, let's just say 1990 and moving forward. So I bring that up because this is some pretty bad inflation that the world and that the United States has seen, and we don't need to get into all the details about how it happened or the mistakes that were made at the time when the Fed should have started raising rates, when the government should have stopped spending. That's all history. Moving forward, I'm actually very optimistic now that we've actually reached peak inflation. And when I say peak inflation, I mean during this micro cycle where inflation has gone back up from a 2.4% rate to a 3% rate. I think that's the highest we're going to get during this micro cycle. It did reach some I believe it was above 9% in 2022 yes, we're definitely not going to going to reach that. But 3% is still too high for the Federal Reserve. It's still too high for Americans. It's a major reason why Americans went to the voting boots and or the ballot boxes and made the decisions that they made because of inflation. It's the most important issue on most Americans minds. And I bring this up because I'm very optimistic that we've seen this 3% peak and that we're going to be going down moving forward because of the first half of this interview, the fact that all of a sudden, it is a sudden thing, because a lot of people weren't expecting this, I was, but a lot of people weren't expecting these mass government layoffs. And these mass government layoffs, they hit corporations. They hit private businesses. Anyone with a government contract is going to be hit anyone who was profiting off of waste, fraud, abuse, which you'll be surprised how many private and many times this is legal, like it's legal waste, it's legal abuse, and all of a sudden those checks are going to stop coming in, or the way of doing those business practices are going to stop because the government is clamping down on it. Why? Because it's taxpayer money, and taxpayers are upset. So the pullback or the elimination of waste, fraud, abuse, is definitely a good thing, but also the mass layoffs, we're going to see a decrease in aggregate demand. And when we see a decrease, I'll just say demand. I mean, that's more common, so we'll see a decline in demand. So when there's a decline in demand, what happens? Prices go down, and we're already seeing it. There's already proof of it. I already I brought up the housing market in the DMV area, and I can also tell you oil prices, for example, which is one of the main drivers of inflation, oil and gas energy prices one of the top three drivers, along with government spending. So you got mass layoffs, which will kill a lot of that aggregate demand, you have the oil, gas and energy, and then the reduction in government spending. So all that combined is going to lower inflation, going back to the energy prices, oil is down for really since the inauguration. That trend should continue, given the policy change, and that drives it drives inflation, it drives deflation, it drives pricing, because any good that you need, it's probably going to be transported with the use of energy the microphone you're using, Keith, how was it shipped? Maybe in a truck, and the truck is powered by fuel, or maybe something was sent in an airplane or in an actual ship. All that requires energy and fuel. So if you can lower energy costs, then we're going to see a continued decline in inflation, and energy costs continue to fall, continue to plummet. So I think this is good for inflation. Yes, it is. There is pain. We talked the first entire half of this episode on layoffs. Layoffs are they're painful. Taking that Walk of Shame is painful. There is going to be pain. But at the same time, remember, there are more than 10 million available private sector jobs, and we already have more than a million jobs that are opening up as a result of investment within the United States since January, 20 of this year. We have companies like Apple. We have Taiwan, semiconductor, Eli Lilly, the list goes on and on and on, of major corporations, big corporations, mid sized companies, who are opening up more operations within the United States. So the private sector jobs, which are really the innovative, long lasting jobs, they are growing there is just a tremendous. To opportunity, especially for young people. If I was young again, I wouldn't want to work for the government. I'd want to go work for one of these companies, where they're essentially going to be recruiting and begging youngsters to come work for them

Keith Weinhold 30:12

to corroborate nourishes lower inflation expectations. Since the beginning of the year, we've had a fairly sharp decrease in bond yields now. GRE listeners know by now that mortgage rates somewhat move with Jerome Powell's federal funds rate, but they're more closely tied to bond yields, specifically the yield on the 10 year T note. Okay, so then what makes the 10 year go lower? Hence, mortgage rates along with them, that is lower inflation expectations in a slowing economy. And another reason that bond yields and hence mortgage rates with them, fall, is when people sell stocks and make a flight to safety into bonds, that pushes up bond prices and lowers bond yields. So again, those are two factors that move bond yields and, resultantly, mortgage rates. And that's what has been happening.

Naresh Vissa 31:08

absolutely. And the important thing to remember something you touched on and what I talked about earlier, which is, yes, there is going to be a reduction in federal government and federal government jobs, and I think this is going to pass on to states as well. I think many states, in fact, I know that many states, even blue states, are taking a look at their books and saying, hey, you know what? We should be making cuts too. Because states, they operate on much tighter budgets, whereas the federal government, they basically have access to a printing press. State governments do not so the point that I'm making here is that, yes, it's painful. We're going through some pain right now. The DMV area is going through some pain. The stock market has gone through some pain. The Crypto markets have gone through some pain. Everyone's gone through some pain, but they say no pain, no gain, and the jobs are being transferred, as I brought up earlier, from the government sector to the private sector, and the private sector is where we can see tremendous, tremendous growth. Look at GRE for example, we're a private company, and we've seen tremendous growth, right? Tremendous growth in just innovation and and our services and our offerings. Now, imagine a bigger company that, and how much growth they can have. I think overall, I'm very optimistic and about inflation coming down, hitting that 2% target by the end of this year. In fact, I think it'll hit that 2% target a few months before the end of the year. And once we hit that target, then the Fed is going to start cutting rates again, and there's a chance that they may even start cutting rates before we hit that 2% target. I don't think they should. I thought they made a mistake doing that last year when they started cutting, when inflation hit 2.4% I think or two and a half percent, they started cutting again. I think the inflation rate has to hit actually 2% across the board, and then they can start with their gradual cutting. So if somebody asked today, hey, narration, which many do as, hey, how low do you think interest rates are going to go this year? My answer is not very low. This here, you'd have to have a cataclysmic Black Swan event, which it's called Black Swan because none of us can predict it, none of us can see it. So you'd have to have an event like that for the Fed to just basically slash rates overnight, which I don't see anytime soon. The other most popular question I've gotten this week is, are we going to go into a recession? You know, it seems like the world is falling apart and world war three and and stocks are tanking, and crypto is tanking, and this is tanking and that's tanking. This is when people told me a few weeks ago, actually. And my answer is, No, I don't think we're going to see a recession unless there's a black swan event. But I don't think so. And the reason is because of the tool that the Fed has. The Fed can cut, cut, cut. That's one of the Ben now, if we were at low interest rates, if we were at, let's say, historic low interest rates, and we were in this situation today, I would be very pessimistic and say it's not looking good. But any sign of a recession, the Fed is going to act at their next meeting. They won't even need to call an emergency meeting. They'll act at their next meeting, whenever that may be, they'll act and start cutting rates, and that's going to quickly stimulate the economy and get investors like our folks, because that's going to affect the bond yields, that's going to affect the mortgage rates, and investors are going to jump in to buy real estate, and people are going to jump in to buy discounts in the stock market, et cetera, et cetera.

Keith Weinhold 34:44

To your point, thank goodness the Fed has some ammo. Since the federal funds rate is about 4% they do have some ammo, and they can cut that rate down. You can imagine if the Fed funds rate was zero, like it was a few years ago, and they couldn't make cuts because they don't want to. Make it negative. So Naresh and I here talking about a number of forces that are largely outside your control. So these are the sort of things you can keep your eye on. However, there is something you can do that's very much in your control, and it happens this Thursday, where you can join Naresh and a co host on our upcoming live event. Tell us about it, Naresh.

Naresh Vissa 35:22

well, like you said, it's this Thursday, we're going to be talking about the BRRRR strategy, which has become the most popular real estate investment strategy. GRE has seen in its existence. Our investors are almost hooked onto this burst strategy. We're going to talk more about it on the webinar. Burr stands for buy, rehab, rent, refinance, repeat, and we'll get into all that in the webinar. It's a great way to build equity in a property very quickly, and to use that equity towards your down payment, so that you're not paying that standard, traditional 20 to 25% down. Some of our investors have done BRRRR's in markets like Tennessee, where they put zero down, or where they even made money on the if you want to call it the flip, so we're going to be talking about them. It's specifically geared towards we've done a burr event before on the Memphis, Tennessee market. This is a burr online event that covers the Cleveland, Ohio market, and that's a market that we have not touched on much here at get rich education, we've promoted some properties here and there. It's a really popular market, and it's a state that is growing and looking if someone were to ask me, Hey, Naresh what's the one state that you think can become the next Florida. And we've covered Florida here before. I live in Florida. Politics aside, Florida has boomed Since 2020. Or so. The number of how you can judge a state's growth is by its GDP numbers. And most importantly, are people moving there? That's the key. Are people moving there? And I would say Ohio is that next state where I think many people in the Midwest are going to say, hey, you know what, I want to go move there, because they're looking to make a lot of changes that are pro growth, that are pro real estate, including potentially eliminating the property tax, school choice programs there. That's huge for kids, universal school choice, and, most importantly, potentially eliminating the income tax now, these are all long term plans. It's not happening anytime soon, but those are the visions and the goals for Ohio, and I think they're going to happen by 2030 I would expect many of these plans and policies to happen. And what that means for real estate is it's going to boom because people are going to move to Ohio because of that, there aren't a lot of states that offer no income tax. So those are my thoughts on Ohio, and we're going to talk a little bit more about that on the webinar.

Keith Weinhold 37:50

Many expect Vivek Ramaswami to be the next governor of Ohio. If that comes true, Vivek has a lot of the same pro business policies that Ron DeSantis does in Florida, for example, Ohio has a high population, a stable population, America's seventh largest population, and a slow growing one with a great diversity of industry there in Ohio and Cleveland.

Naresh Vissa 38:15

So Keith, we have we're approaching record numbers of registrations for this event. We still have room for several more people. So I highly recommend people go to GRE webinars.com. That's GRE webinars.com. You can register for the event. It's going to be fun. All of our webinars recently have been a ton of fun. We've gotten great feedback, a lot of engagement. I think you'll learn a lot for sure. So I'm looking forward to seeing everybody there.

Keith Weinhold 38:42

Your co host, Phil, was on last week's show with us, both you and Phil, we'll be talking about this burr live event in Cleveland. I really suggest you, the listener, attend live. You might get a better Property selection that way, and you'll surely be able to ask questions, and sometimes with the other participants, they ask a really good question that you had not even thought of previously. It's our live burr event for Cleveland cash flow properties. You the listener probably remember when Phil was here last week, we gave an example of where you can get eight to one leverage and up to $500 cash flow on a single family home in Cleveland. I really recommend that you attend, and you'll be hearing more from the race, then you can sign up at GRE webinars.com We'll see if we break that record of, I think, 538 registrants last webinar that we had late last year. Do you have any last thoughts about the event? Naresh,

Naresh Vissa 39:41

like I said, before our events have it's free to attend. That's the first thing. You don't need to pay us anything. But we sell out these events. So I highly recommend that people go once again to GRE webinars.com. We can only hold a certain number of people. It's a few 100 people. So we want to sell out again. We hope you can. Join us and you will not regret I think you're gonna really like the Cleveland market. We're gonna talk more about that, the Ohio market in general. And I think folks are really, really gonna like this strategy. I know a lot of you have invested in Burt, in other markets, or have been researching Burr and you really like what you hear this is the market. I think that you should pay really, really close attention to our team is really strong there. Phil's team, really strong, very honest. They're quick, they're reliable. So if you've had a bad experience doing a burr elsewhere, I think you'll have a better experience with our team over here.

Keith Weinhold 40:35

We'd call it a sellout crowd, but you don't have to pay anything. We'd call it a standing room only crowd, but you don't have to stand up. You can sit down and enjoy it from the comfort of your own home this Thursday at 8pm eastern at GRE webinars.com. Thanks for coming on to the show. Naresh,

Naresh Vissa 40:51

thanks a lot, Keith.

Keith Weinhold 40:57

Yeah, strong insights from our own new race today, inflation expectations cut back and forth like a knife with big policy decisions on layoffs and tariffs and more tariffs on lumber and gypsum board. I mean, they are two of the major inputs that can increase the cost of homes. Gypsum board just means drywall tariffs, slow trade, less fuel is used to ship things like we touched on. And a lot of people ask, well, doesn't an economic slowdown mean lower prices, but yet don't tariffs raise prices? Well, you got to take on that from Naresh today. Now, sometimes I am asked, where is the real opportunity in today's real estate market? I've been a guest on other business shows lately, and I've been asked that question, where's the opportunity in today's real estate market? And I've got two answers. If you have more money and less time. Go with new build properties, because builders are still awarding you with massive rate buy downs, often to near a 5% mortgage rate. They are buying it down for you, but instead, if you have less money and more time, because you have to wait a few months for a rehab, then go with the burr strategy. That is the other opportunity. It's going to give you a higher return than new build in most cases, because what you get is in improbably high leverage along with strong cash flow. And those are two notions that typically don't go together. Well, on Thursday, we're bringing that to you with our live event. I mean, is there a more seasoned pro with the burr strategy in the entire nation than one co host for the event? Phil and then the mind spring of knowledge and ideas from Naresh as the other co host, and they're both active investors themselves, bringing you the opportunity in Cleveland in just a few days. And of the hundreds of registrants, not all of them attend live, but do attend live. If you can give yourself an advantage, you can be connected with available properties conducive to the burr strategy. If you're interested, or maybe you're just more interested in how it all works one last time it is GRE 's live event for Cleveland's amazing cash flow opportunities this coming Thursday, the 20th at 8pm Eastern, 5pm Pacific, healthy real world monthly rents that are more than 1% of the purchase price single family properties, many for under 100k in investor sweet spots. It's free to attend. It's from the comfort of your own home. Registration is still open at GRE webinars.com until next week. I'm your host. Keith Weinhold, don't quit your Daydream.

Speaker 2 44:04

Nothing on this show should be considered specific, personal or professional advice. Please consult an appropriate tax, legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own. Information is not guaranteed. All investment strategies have the potential for profit or loss. The host, is operating on behalf of get rich Education LLC exclusively.

Keith Weinhold 44:28

You know, whenever you want the best written real estate and finance info, oh, geez, today's experience limits your free articles access, and it's got paywalls and pop ups and push notifications and cookies disclaimers, it's not so great. So then it's vital to place nice, clean, free content into your hands that adds no hype value to your life. That's why 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 because even the word abbreviation is too long, my letter usually takes less than three minutes to read, and when you start the letter, you also get my one hour fast real estate video. Course, it's all completely free. It's called the Don't quit your Daydream. Letter, it wires your mind for wealth, and it couldn't be easier for you to get it right now. Just text GRE to 66866, while it's on your mind, take a moment to do it right now. Text GRE to 668666.

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Direct download: GREepisode545_.mp3
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Mon, 10 March 2025

Register here for the live online event to learn about ‘Cleveland’s Amazing Cash Flow Opportunities on Thursday, 3/20.

Keith discusses the current state of the real estate market, highlighting that single-family rents have risen 41% since pre-pandemic times, while multi-family rents have increased by 26%. Single-family rents have been rising faster than prices for nine months, benefiting investors.

Austin, Texas, is an example of how increased supply can lower rents, as seen in their drop in rents after the city relaxed building regulations.

Real estate strategy expert, Phil, joins us and explains how this niche method can offer high leverage and cash flow.

Show Notes:

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543: The Danger of Losing Your Job, How to Use AI for Real Estate

Complete episode transcript:

Automatically Transcribed With Otter.ai

Keith Weinhold 0:01

Welcome to GRE I'm your host. Keith Weinhold, build it and rents will fall. I discuss the direction of rents and prices. Then a real estate strategy for all time that can generate 8x leverage with investor cash flow and the exact city that could be the most advantageous for it today on get rich education.

since 2014 the powerful get rich education podcast has created more passive income for people than nearly any other show in the world. This show teaches you how to earn strong returns from passive real estate investing in the best markets without losing your time being a flipper or landlord. Show Host Keith Weinhold writes for both Forbes and Rich Dad advisors and delivers a new show every week since 2014 there's been millions of listener downloads of 188 world nations. He has a list show, guess who? Top Selling personal finance author Robert Kiyosaki, get rich education can be heard on every podcast platform, plus it has its own dedicated Apple and Android listener phone apps build wealth on the go with the get rich education podcast. Sign up now for the get rich education podcast, or visit get rich education.com

Corey Coates 1:13

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 1:29

Welcome to GRE from elizabeth new jersey to Elizabeth, Colorado and across 188 nations worldwide. I'm Keith Weinhold, get rich education, founder, Forbes real estate council member, Best Selling Author and long time real estate investor, you are inside, get rich education. What's that all really mean? Ah, I'm just another slack jod and snaggletooth podcaster.nationally, rents for single family homes are growing faster than for multi family apartments. Okay, that you might have already known, because for a few years, we've been in this era where available single family rentals are scarce and apartments are closer to being adequately supplied across the nation. We're now at the point where median single family home rents are up 41% since those blissful and Halcyon pre pandemic days, and yet, multifam rents are up just 26% since that time. So it's 41 versus 26 and that's all according to a new report from Zillow. Now you probably listen to this show every week, so although that might be a helpful update, you probably don't find those facts surprising at all. But here's a more nascent trend that could surprise you. Every single month for the past nine months now, single family rents have risen faster than single family prices. Yeah, the John Burns home value index is up 3.3% annually, and the rent index shows that those rents are up 3.6% so 3.6 versus 3.3 really not a big gap there, but single family rents rising faster than prices for nine months. You know that's exactly what swings things into your favor as a real estate investor, it increases your ratio of rent income to purchase price. This has been happening because for someone that needs housing out there, paying rent has looked more affordable than buying a home. So then those things have to soon come back into balance. Now you remember that five months ago, I visited Austin, Texas, walked the streets and with all of the new building of apartment towers there, I called it America's oversupply, ground zero for apartments. Well, I'm not sure if you've noticed, but here, a few months later, major media sources are now reporting on the same thing that I was telling you about on the ground five months ago, and this is really insightful for real estate investors in a real world case study that will be on every intro to economics syllabus this fall, rents in Austin, Texas plunged. They fell 22% from their peak a couple years ago after the city accelerated permitting processes and scaled back the rules on building height, and this is exactly what created Austin's apartment supply surplus and therefore lower prices for renters. Bloomberg was the one recently reporting on this. So Austin's, if you build it, rents will fall mantra that created about 50,000 new units over just the past two years, a 14% increase. I mean, that is the biggest spike in supply of any US city. Over that time, just tons of cranes in the air. And by the way, the median asking rent in Austin, Texas is now $1,400 remarkably, though, that is down a full 400 bucks from the height of the pandemic. I mean, that is such an aberration That is so weird and rare. Yeah, Austin rents dropped from $1,800 down to $1,400 in in fact, that is so weird, and they've fallen so much that notoriously pricey Austin is no longer the most expensive city in Texas. It's now DFW. And you know, this is astounding on a few levels, because typically rents are even more stable than home prices. Gosh, but now to take off our investor hat for just a minute. Don't worry, we'll put it right back on. This is what society needs. I mean, how in the world are we the nation that put a man on the moon in 1969 yet we can't house our own people today. It's what I've discussed before. We need to build more. If you build it, rents will fall. If you build it, home, prices will become affordable. Again, we're not doing enough of that. Not enough places are following Austin's model. Up zoning, as I've told you before, up zoning. That's the name for allowing taller building heights. And you know what? That's something that both developers and environmentalists often like. Both types developers get what they want, and environmentalists know that housing and the economics of that are more efficient. There's less energy use in everything when we build up and we build apartments rather than single family homes, Austin relaxed regulations and they got it done. So congrats to them. I mean, that is a model for what we can do to address not only housing affordability, but the swelling homelessness problem like I enjoy talking about as well. So yeah, congrats, Austin, though you might have gotten too far ahead of your growth for the short term. America really needs the housing so thank you.

Now here's some ominous news for society and the economy. I wouldn't make too much of it yet, but the Atlanta Fed tracker has plunged. They're now forecasting a shrinking economy this quarter, minus one and a half percent. GDP is a projection which that gets us going down into recession territory, and part of the reason for that is this recent drag in consumption. But news like that can come and go, and we all know how frightfully just laughably bad recession predictions have been for years. We haven't had one in five years. So I want you to get the longer term lesson here, because things pop up like this over time. What usually happens to real estate in a recession? Because we know that there's going to be one. No one knows when. What happens is that unemployment rises. That is bad, home prices go up. Yes, home prices typically rise modestly in a recession. Just remember, since World War Two, home prices only fell significantly in one period, and it was a bad one in those years around 2008 what happens to interest rates? Interest rates of all kinds. In a recession, they fall. Interest rates fall. The Fed make sure that happens, and the reason for that is rates fall because the economy needs the help to review what you've learned so far today, single family rents are rising faster than apartment rents. Single Family rents are rising faster than single family home prices, although not by much. And Austin is proof that if you build it, prices will fall. And during recessions, residential real estate is a good place to be. Then let's say it's a widespread job loss recession as we pivot into the core content of today's show, you're probably quite familiar with the turnkey real estate investing model, where ideally on day one of your property ownership, your income property is either new or renovated. There's a tenant in it. It's under management, and you might even get a little trickle of tenant rent at the closing table. All right, but instead, what if you had six months of patience you own the property for those months through the renovation, and what's your reward for doing that? It is both high leverage and high cash. Flow, potentially, and usually those notions are antagonistic. High leverage means low cash flow and vice versa, but not with what we're talking about today, my expert guest and I discuss how you can have both the cash flow, which is like your spending money, and the leverage that constitutes your long term wealth growth, and he has bought, renovated and sold more than 2000 properties. And my guest and I go back more than 10 years before I go to break where you hear who sponsored the show this week, I have a trivia question for you, and you'll see what this has to do with our episode soon enough, Ohio has six cities with a population of 100,000 or more. Name them. Name those six Ohio cities. I'll give you your answer later. I'm Keith Weinhold. You're listening to get rich education.

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Richard Duncan 12:46

This is Richard Duncan, publisher and macro watch, listen to get rich education with Keith Weinhold, and don't quit your Daydream.

Keith Weinhold 13:02

We were last graced with the presence of this week's guest about two and a half years ago. Since then, we had dinner together in Boston. He is a long time experience expert in the real estate BRRRR strategy will explain, and he knows just the exact few markets where the strategy really works and where it doesn't, and he explains how this can deeply accelerate your ROI and your portfolio growth and get this he's been a real estate investor since he bought his first rental property in 1978 he's been working the burst strategy and mentoring others on it since before there even was a burr acronym, brrr, he has mentored and coached more than 5000 investors. Oh, it's great, Phil, welcome back onto the show.

Phil Alexander 13:54

Keith. Thanks so much. It's such a pleasure to be here. It's always great to see you, and the time really flew from when we were able to break bread together in Boston, which is my hometown. And as I recall, we went to America's oldest restaurant, the union Oyster House, which was a fun experience

Keith Weinhold 14:14

right, where there are lobsters crawling all over the place. Yeah, that was a cool distinction to meet with you in America's oldest restaurant there in Boston. Pretty unforgettable. Phil, though you're from Boston, well, that's not really where the cash flowing numbers work so much you're an expert in the art of the BRRRR the real estate, buy, rehab, rent, refinance and repeat strategy, and then we'll discuss the market that you say is number one in the USA for this so really high level, big picture. For those that don't know, what is the burr strategy? What makes it so compelling?

Phil Alexander 14:55

There are a lot of different ways Keith to discuss the burr. Strategy. It really is nothing more than a turnkey property. However, in the old days, I'll say, you know, I've been in the business for over two decades, we would sell turnkey properties, and a buyer or investor would come to us, and we'd show them a number of properties that were available. They'd pick one, we'd renovate it, and then they would have it inspected, and then we would correct against that ugly inspection report, and then they probably would be using leverage, so there'd be an appraisal, and then we'd put a qualified tenant in place. And after all that had happened, we would close on the property, and they'd be cash flowing from day one. There's nothing wrong with that approach and strategy. It's very conservative, but relative to the burst strategy, Keith The one big element that's missing in the classic turnkey model, there's no built in equity. And what the burst strategy does is it allows the investor to create value through that renovation, and it's nothing more really than a developer himself or herself does when they renovate the property to create value, and in doing so, you then wait a prescribed period of time, often called a seasoning period, and then you do a cash out refi to pull out that built in equity that you created yourself. And the idea then is to recycle that cash and buy into your next property.

Keith Weinhold 16:35

Why don't you give us a real example with some numbers?

Phil Alexander 16:40

Let's say you could find a place. Now, anybody in California is going to listen to this say this doesn't happen because you can't buy houses for this. But trust me, you can't. You buy a house for $60,000 you renovate it for $40,000 that means you have $100,000 invested in that property. However, you bought that house because you knew, once renovated, it was likely to be worth, let's say, conservatively, 120,000 and yet, when you go and do the cash out refi often at six months from the time you acquired the property in the first place, you're going to be able to pull out up to 75% of that appraised value. I'll do the math for you quickly. 75% of that $120,000 is $90,000 you only put 100,000 into the property in the first place. So at a glance, that suggests that you've gotten this property for $10,000 Well, to be fair, you do have closing costs. So let's say the closing costs and the finance fees on that cash out refi loan are about $5,000 so in essence, for $15,000 you now own a property worth 120,000 now an illustration of the value of this BRRRR strategy is if you were to go and buy that very same house, 420,000 renovated, tenanted, cash flowing, it would cost you 20% down, which would be $24,000 plus finance fees and closing costs would push it to or over $30,000 here's the bottom line. Would you rather get it so it's cash flowing from day one after closing, no built in equity and 30 or $32,000 out of pocket? Or would you rather get it where you only have 15,000 out of pocket? And I can do the math on that and tell you that you're more than doubling your cash on cash return with the BRRRR strategy

Keith Weinhold 19:07

yes, and you've also increased your leverage ratio in the example that you gave after waiting six months, much of which includes waiting for that rehab to take place, you have A 120k property. Like you said, you only have 10k into it. Maybe add five more K to that for closing costs and such. So you've got 15k into a 120k property. That is an eight to one leverage ratio,

Phil Alexander 19:33

exactly. And there are numerous other examples, typically speaking, Keith in good investor advantaged markets with the burst strategy. You can expect after leverage, after that, cash out refinance loan to be netted in the range of 200 to $250 per month cash flow. That's the rental property the. Less all of the direct expenses, less your monthly payment on the loan. Your net positive cash flow every month is between 202 150 in most good markets,

Keith Weinhold 20:13

that is really good on a single family home, because typically when you have a higher leverage ratio, when you're borrowing more, that really crunches your cash flow. But in this terrific example that you gave, it does not So Phil to help distinguish the burr strategy from an investor buying a turnkey property. To make that distinction, I think of the turnkey provider is really already doing the first three letters of the BRRRR acronym for you, because the turnkey company, they buy it, they rehab it, and they rent it before selling it to you. They're doing the first three for you here, when you hang around for all five letters of the acronym, you can be the beneficiary of what you just described.

Phil Alexander 20:58

Spot on, Keith, that's exactly right. The bottom line is, I think a game changer for our company of late is that we have found a market where you could earn two to three times the net positive cash flow on a monthly basis with the BRRRR strategy.

Keith Weinhold 21:19

Yes, we're going to get into just where that market is, the number one market in the USA for the burr strategy, in Phil's opinion. But Phil, I think before some people wrap their head around the BRRRR strategy, sometimes they consider the investor doing this themselves. What's intimidating about doing BRRRR by yourself is that first R in the burr strategy, the rehab, it seems like a nightmare, especially across state lines for an investor to find and retain and to manage contractors, but you have a system where this is all integrated.

Phil Alexander 21:57

exactly, you Know, Keith, I consider the two biggest pain points for an early investor is actually that first letter the B. You can buy properties anywhere, but the trick and the key is to buy a property that you know, with proper renovation of a rental standard, in fact, will be worth, generally, 20 to 30% more than your out of pocket cost. The second pain point is the construction component, finding a contractor, managing a contractor, keeping the contractor on the job and productive and not running away with your money.

Keith Weinhold 22:44

We make you lose faith in humanity. Yeah,

Phil Alexander 22:48

yeah. We don't really even need to go into detail more on that, but you're absolutely right, and what we do, which I think has made a significant difference, we have our own crews. We're able to have the projects managed. We have detailed scopes of work, for example, that detail line by line, item by item, the scope of work and the draw schedule to renovate a property and deliver it on time, on budget, without exception,

Keith Weinhold 23:21

tell us about the track record of the team in the contractors. I think most people's bad experience starts with day one, when the contractor shows up 45 minutes late with beer on their breath.

Phil Alexander 23:35

It could be, it could be, I am blessed. Currently, I'm active in three markets, although during my career, I've worked in 19 different markets around the country, not become fickle, but because markets do come and go. But I'm in Baltimore and Philadelphia and Cleveland right now, and the bottom line is that I have cruise boots on the ground in every market, and my one general contractor that oversees all three markets, he's been with me for over 15 years. As you mentioned earlier, I've been in the business for over two decades. We've just been doing this, like you said, since before there was an acronym to what we were doing. It's just a sensible thing to do. We know each other well. We get the scope of work done accordingly. That's something that we, with pride, say is a guaranteed number, which you don't often find in this business. Meaning if we have not gotten it right, if we have screwed it up, if we find something that we missed when we were, you know, reviewing the house and drawing together the scope of work, that's not the client's problem. That's our problem. If we say the rehab is 50,000 the rehab is 50,000 period there is no cost overrun.

Keith Weinhold 24:58

We don't want. Contractors smelling like Michelob Ultra we want contractors smelling like sawdust and WD 40. But Phil, you talked about the specific markets that you work in because they're burr advantage markets, Cleveland, Philadelphia and Baltimore. Tell us about the one that is number one in the nation right now, and why

Phil Alexander 25:21

Cleveland, Ohio. And it's not because my dad was from Cleveland. When we were kids, we all played I haven't met one person who hasn't on a seesaw, if you recall, you know, and now in your mind's eye, imagine the seesaw. One end is home prices and the other end is annual return. When the home prices are high, the returns are low. When the home prices are lower, the returns are higher. That's why, sadly, for virtually everybody on the West Coast, my hometown of Boston, New York, Washington, DC, South Florida. These are amongst, to put it bluntly, the worst markets in the country to try and cash flow positive. What makes Cleveland, however, especially unique. I'm oversimplifying, perhaps, but it is blessed to have both lower home prices than most markets, but very healthy real world rents, and that's a juxtaposition that causes extreme cash flows. I think at the current moment, I might have one property that doesn't cash flow 500 or more dollars per month, net positive cash flow, as we were discussing, 200 to 250 is normal for a good market, even in my other markets of Baltimore and Philadelphia. But you come to a market like Cleveland, and it's absolutely extraordinary. This is a perfect segue, if you'll allow me to the thing that makes us and me different. There's a billionaire car dealer by the name of herb chambers in Boston. In fact, he just sold, I understand his business for $1.58 billion massive car dealer. That's not important. What is important is his whole marketing mantra, Keith, is I don't sell you cars. I help you acquire your next vehicle. I don't just sell investors houses, Keith, I have taken an approach, and I've been doing this for a number of years, where I help investors achieve their goals. I have a very specific process, and I'd be happy to share, if you'll allow me, yeah, I first ask people about their war chest. To me, that's the amount of liquid capital they have to invest when they're ready to pull the trigger. It's not just cash in the bank. It can be equity in a home that they can pull out with a home equity line of credit, a HELOC, maybe they have a retirement account that they're able to borrow against. It's their money, after all, but that amount of cash is your war chest, and frankly, I'm not one of those people who says, You can buy real estate with no money, if you have maybe $30,000 or more, I can get you in the game. The second question I ask is, what's your goal? Because every one of us in this business has a goal. Every one of us, I don't need to know the specific goal. But whether it's to have your partner give up the nine to five job, or you want to give up the 90 to five job yourself, every goal has a cost. So what I seek to find out or learn is, what is your number in terms of a goal, how many 1000s of dollars of passive income every month are you looking to achieve? And then the last question is, time frame? Are you looking to achieve that goal in? What three years, five years, 10 years. And then, simply put, whatever the answers are, I show you how it's going to happen.

Keith Weinhold 29:18

See, these are the types of questions that your everyday realtor just doesn't ask you. I mean, Phil doesn't just sell you houses. He helps you achieve your stated goals for passive income. There's nothing wrong with an everyday realtor, but that's just not the lane that 98% of them are in. And what makes this burr strategy so compelling? I'm just doing calculations, not even on the back of a napkin, but in my head here, if you've got eight to one leverage, like we do in the example here, even if you have 3% annual appreciation on a property, that's a 24% return on the 15k of skin in the game that you have here. And then additionally, if you achieve $500 Dollars of monthly cash flow once your burr property is done, that's $6,000 a year divided by only 15k of skin in the game. That's a 40 or 40% cash on cash return in addition to the leverage depreciation that stepped up. And these are two of only five ways you're paid. This is why people love the burr strategy, if you've got the patience to wait six months,

Phil Alexander 30:25

here's the other thing too. A lot of people say, Is it possible to cash out earlier? And the answer actually is yes, but you have to be prepared to decide what's that worth to you. Meaning, if you wait six months, you can expect 75% of the appraised value. However, I have some lenders that I can introduce that will do a DSCR loan, debt service coverage ratio loan, which is against the cash flow capability of the house rather than the credit worthiness of the borrower, and they'll do it at three months, and yet it'll be at 65% perhaps of the appraised value, a lower loan to value or LTV. But still, it's a cool way to roll plain and simple.

Keith Weinhold 31:18

Yes, so Phil, here, he offers you total solutions. It's not just helping you with the Property selection, it's renovation by his license, then insured crews, introductions to the financing needs that you might have hash out, refinance introductions and that all important professional property management, unless you choose to manage the property yourself. And Phil, I want to ask you more about Cleveland and just the neighborhoods that you're selecting in a moment, but I've got great news here. You get to join Phil live. He and a GRE investment coach are co hosting Cleveland's amazing cash flow opportunity with the burr strategy, and you can join from the comfort of your own home. It is just 10 days from today, Thursday, March 20, at 8pm Eastern. Registration is open now at GRE webinars.com I suggest you register. We had hundreds of registrants for our last BRRRR event, which was last year. But Phil, tell us more about what you'll let us know on that webinar when it comes to Cleveland areas and neighborhoods.

Phil Alexander 32:26

Sure thing Keith, Cleveland's a pretty dynamic and interesting town. Of course, most people know it's the home of the rock and roll, Hall of Cleveland rocks and Exactly. And there are so many things about Cleveland that I think are really kind of cool to get to know. First of all, we talk or you mentioned appreciation, home price appreciation in Cleveland last year, 7% Yeah, crazy, absolutely crazy. The cost of living is well below the national average, it's at 6% below. Now here's the interesting thing, too, the rent to own ratio of people who rent versus own, very strong 59% rent. And of course, if you're a landlord, what does that mean? It means a greater opportunity to have qualified tenants in place with very low vacancy periods regardless. Now the average rent is $1,433 a month, which, again, when you're talking about properties, the average price of which, even with the renovation, is between 100 and 130,000 let's say 14 133 is even ahead of that cool little metric that we sometimes call the 1% rule, where the rent is at or above 1% of the value of The property. It's a small city only about 360,000 people the metro area, of course, a bit larger, at 1.7 million. And there are a number of top employers, and you know, the Cleveland Clinic, obviously well known Progressive Insurance. Love their ads. Sherwin Williams, you think about that the next time you want to go paint, but it's as to where we're investing principally we target Keith. What often are called C and C plus neighborhoods this week, yeah, often on the eastern, southeastern side of the downtown. Of course, to the north, you've got Lake Erie, so you don't want to get wet, so that you stay east, west or south. And yet, there are a number of places, maybe areas, if you're familiar with Cleveland, like Shaker Heights, Maple Heights, Brooklyn Heights, Cleveland. Heights, University Heights, all of these areas are considered suburbs with high taxes, uniquely so we tend to stay away from those, but in close proximity, we're all around them, and we benefit in terms of appreciation by being all around them, but not being in them, because you don't achieve any higher rent in those suburbs, but you do have the higher taxes, and in that respect, we're able to enjoy these outsized returns.

Keith Weinhold 35:37

This is a rare opportunity for you to meet Phil, someone with this wealth of experience. And of course, the benefit of showing up live, if you so choose, is you can ask a question yourself and have it answered. Phil, do you have any last thoughts overall with anything, whether that's the burr strategy or Cleveland itself, or anything else?

Phil Alexander 36:00

First of all, a lot of people ask me, Keith, you know, with rates mortgages and this and that, what do you think I heard? Maybe they're going to go down in the spring or the summer? Should I wait? The answer is no, the best time to invest is yesterday, and you will always be able, in a market like Cleveland, for example, to enjoy strong, positive cash flow. And you know something, as I said before, I've worked in 19 different markets. As soon as Cleveland stops being such a cash cow, I guess I'll have to move on and find the next great thing. But until then, I'm in Cleveland.

Keith Weinhold 36:40

It is supply demand. Our listeners know, as I've shared with them, that the Northeast in the Midwest are under built markets. So you have the opportunity to own an asset that everyone is going to want in the future. It ought to be great. Phil, it should be terrific 10 days from now. Thanks so much for coming on to the show.

Phil Alexander 37:01

It's my extreme pleasure, Keith, I have to say, in all the years that I've known you and known your listeners, they are easily amongst the best educated and most serious investors I have the pleasure to deal with. So it's always a pleasure to come back and thank you for having me.

Keith Weinhold 37:19

That's really kind. Thanks for saying that.

Yeah, excellent. BRRRR. Breakdown from Phil the consummate expert. In fact, when we had dinner at America's oldest restaurant, we sat just across from JFK, his favorite booth. He used to dine there. He was also a Bostonian. Of course, which six Ohio cities have a population of more than 100,000 people? They are Akron, Cincinnati, then, of course, the subject of today's show and our upcoming live event, Cleveland. Also Columbus, Dayton and Toledo of all 50 states, Ohio has tons of industry diversity. They had the nation's seventh largest population, and Ohio's population is slowly growing. A number of GRE buyers, just like you, have already connected with our investment coaching, so therefore you got the introduction to Phil and have already bought BRRRR through Phil, including in Cleveland, but he is sourcing more of them for this event. Phil and I looked at some Cleveland single family rental pro formas together that utilized the burr strategy that cash flow over $600 even two properties that cash flow over $700 but I would say those results are not typical. The ARVs after repair values have been pretty good. What Phil does is he runs comps of properties within a quarter mile before the appraisal. And you know, to give you a little behind the scenes. He bought the same software that lenders use to run valuation reports. So he has it himself. Phil has shown me proformas where you get cash back at closing, and therefore what that means are infinite returns. Though that's not an expectation that you should have, though it's nice when it happens, people are often buying two or three properties at a time. And to give you a little more, behind the scenes, Phil has his own in house wholesale unit for helping source these properties. And for every 100 properties, he buys two to five of them, Cleveland rocks. But even if you're more into rep, it's completely free to sign up for our webinar. You'll learn the nuances of what makes the burr strategy so lucrative, what makes Cleveland advantageous, and have any of your questions answered. It's coming up next week, already, March 20, at 8pm Eastern. I mean, this is the kind of event that can alter the trajectory of your entire investor life. Sign up is open. Save your spot now at GRE webinars.com that's GRE webinars.com until next week. I'm your host. Keith Weinhold, don't quit your Daydream.

Speaker 1 40:20

Keith Weinhold 40:48

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Mon, 3 March 2025

Register here for GRE's live online event to learn about ‘Cleveland’s Amazing Cash Flow Opportunities’ on Thursday, March 20th.

Keith discusses the impact of recent federal job layoffs, emphasizing the importance of diversifying income sources. 40% of Americans experience job loss at least once in their careers, with men more affected. He advocates for real investing in real estate as a safety net.

Seth Williams joins the conversation to discuss the use of AI in everyday life and real estate investing.

Hear a practical example of how AI can help with real estate due diligence, such as reviewing municipal regulations and zoning rules.

Resources:

Check out Seth's resources, including the Pulse Inner Circle community, to learn more about practical applications of AI.

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542: A Home Loan Where No Monthly Payments are Required

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Keith Weinhold 0:01

Welcome to GRE. I'm your host. Keith Weinhold, amidst 10s of 1000s of federal workers recently getting fired. It's not rare, because throughout their working career, layoffs hit 40% of Americans. How do you hedge yourself against the danger of losing your job? Then get a fascinating understanding of how you can use AI to improve your everyday life, and some applications for AI in real estate investing today on Get Rich Education.

Since 2014 the powerful get rich education podcast has created more passive income for people than nearly any other show in the world. This show teaches you how to earn strong returns from passive real estate investing in the best markets without losing your time being a flipper or landlord. Show Host Keith Weinhold writes for both Forbes and Rich Dad advisors, and delivers a new show every week since 2014 there's been millions of listener downloads in 188 world nations. He has a list show guests and key top selling personal finance author Robert Kiyosaki, get rich education can be heard on every podcast platform, plus it has its own dedicated Apple and Android listener phone apps build wealth on the go with get rich education podcast. Sign up now for the get rich education podcast or visit get rich education.com

Corey Coates 1:19

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 1:35

Welcome to GRE from Sunbury, Pennsylvania to Sun Valley, Idaho and across 488 nations worldwide. I'm Keith Weinhold, and I'm grateful to have you with me here for another week. This is get rich education. I'm known as the guy that back in 2015 was the first person to explain how real estate pays you five distinct ways at the same time when mass federal layoffs hit recently, you know you can learn something really important at a time like this. And no, it's not about the Washington, DC real estate market. That's not where I'm going here. That's not the bigger lesson, unless you're perhaps in the DC real estate market, it's shaping up to be 10s of 1000s of federal workers that are getting the boot as the result of the new administration in charge. We'll see where the number lands. But the thing is, is that federal jobs have long been deemed as the most secure, and yet more firings are coming. So if they're the most secure jobs, then what does that say about you and the safety of your job in both your near term future and your long term future, whether you're in the public sector or the private sector. I've worked in both sectors, and yeah, sadly, this is not such a rare occurrence. Many sources cite that roughly 40% of Americans get fired at least once during their working life. Job loss is more likely for a man than a woman, and it's happened to me. Yep, even I've taken that awkward and awful feeling box full of desk stuff, walk. The big lesson here is that you need to grow a second source of income, Experian and fed data. They cite that the average debt per consumer is about $39,000 worth of student loan debt, and another $24,000 worth of auto loan debt and another $6,500 worth of credit card debt. Well, those are not good debt types, like real estate debt is where you can outsource the debt to a tenants. Instead, you are the one that has to pay these type of debts, and that's why a lot of job losers are going to decline into a financial tailspin. They will default on their payments. They will become delinquent, they will descend into bankruptcy, and they will have a destroyed credit score, and the incidence of depression and suicide that even goes up for these people. Now, as we know, most of the so called financial advice out there that targets budgeting, how to cut your expenses. That's okay. You can do a little of that, but if you lose your job, a bundled cell phone plan in ditching your $7 latte is hardly going to help you. See, here's the thing that a lot of people fail around. Lies, even if you get a promotion and a raise at work, it still only pads a dangerous single source. It's still just a sole income source. Instead, what's powerful is, rather than budgeting, it is increasing your income, but it needs to be a source outside of your day job. That's how you get income diversification at the same time. I mean, you could take on a part time job or freelance work and accomplish that, but see the problem there is that you've lost your irreplenishable time. That's a one way street that time is never coming back. Don't live below your means. Grow your means. Owning an income property that can completely solve all of these problems, even a low cost income property of, say, $200,000 and Okay, a property like this, that might start with just 100 to $300 per month of residual cash flow, but that amount tends to rise even faster than inflation, because, as we know, your mortgage payment stays fixed. That's how that happens, and additionally, your 200k property at just 5% annual appreciation that grows to 255k in just five years. And if you only made a 20% down payment of 40k on this well, that property that grows to over 100k of equity in five years because you've got both the appreciation and the tenant made loan pay down. There is more to this. Besides increasing your monthly income, you can often take a chunk of this 100k plus equity with a cash out refinance that is a tax free windfall event, you heard that, right? Tax free, and you still get to hold on to the property. So a simple, low cost 200k property, just one of those, it increases your income now it gives you a second source of income, and it simultaneously gives you a leveraged windfall chunk that you can access in one nice, tax free cash lump. And one thing's for sure, you want to get a loan for income property and get that property now why you have your job? Because when you lose your job again, 40% of the time, no mortgage underwriter will qualify you when you're unemployed, relying on one income source that is kind of like playing Jenga on a wobbly legged table. So really, the bottom line here is that widespread federal job firings, they have really brought to light how many people are vulnerable with just one source of income. Why would anyone do that? Owning investment property solves the problem. Plant that second income seed now you can't have just one income stream that is too close to zero, that is precariously close to zero, and much of your life's thought pathways. They're about expectations, your expectations for the future, the way you think about your future, and if there's even a looming threat of losing your job in the future, you know that might not happen, but just the mere threat of losing your job that can induce stress. So that's why you want to do something about that, and I have a great resource to share with you shortly that me and the team here at GRE are going to help you with in you getting that vital income diversification a second source, but first Tax Day is next month. If you aren't getting an extension, you be pulling your tax documents together Trump tax changes are anticipated any time here, the highest federal income tax rate is expected to stay at 37% the standard deductions are moving up soon, indexed to inflation, $15,000 if you're single, $30,000 if you're married. Basically this means that things like your donation receipts. You know what? They are not worth saving and tracking unless they exceed those standard deduction amounts. And I like easy ways to remember things as you're pulling together documents for your tax preparer, if you are the tax preparer yourself, a w2 form shows. Income from your employer. A 1099 form shows income that's not from an employer, really. That's the distinction and an easy way to remember it. And to my point earlier about having more than just one vulnerable source of income, I hope that your 1099 income not from an employer, like the rents that your property manager collected for you that those 1090 nines are increasing faster than your w2 income, which is from an employer.

America's first car free neighborhood. I sent you more about that in our newsletter recently, and you said that you really liked learning about it. Yes, America's first car free neighborhood. It's had its share of detractors and skeptics and supporters since it broke ground in 2021 these are largely rental apartments in Tempe, Arizona, that is just the east of downtown Phoenix. Residents get around with light rail and E bikes. Studio apartments start around $1,300 a month, and three bedroom units around $2,700you can meet your neighbors more and get to know your community when everyone's not in their car and garage bubbles. So I found this really interesting. One resident of America's first car free neighborhood said We've probably made more connections here in six months than when we lived in the suburbs for 15 years. That was interesting to learn about in our newsletter.

Coming up on the second half of the show today, an expert guest and I are talking AI, think about all the time that this is going to save you. Think about all the brain damage that this is going to save you. Think about how much better informed you're going to be and how much smarter you'll feel. That's coming up shortly. Hey with what I mentioned earlier, I am announcing that coming up in just a couple weeks, here on March 20, it is our live online event for an amazing Cleveland cash flow opportunity. And why Cleveland now? Well, healthy, real world monthly rents are more than 1% of home prices. That is a lucrative ratio. And on top of this, we are layering the BRRRR strategy by rehab, rent, refinance and repeat, where cash flow averages more than $500 per door. This strategy, it allows you to put fewer dollars in the deal, and that's why it's really popular. Be sure to show up and learn more. Our last live online event was last year. It was for BRRRRs, and we had a record 538 registrants. We're going to examine single family properties in C and C plus neighborhoods. Those are the investor sweet spots here. And besides learning about real estate due diligence and the Cleveland market, there will also be a buying opportunity. Yes, the bur strategy allows you to invest with that low equity position, yes, both investor advantage areas, with the BRRRR strategy layered on top of it, it's the right opportunity for you if you need to build that second or third source of income. And besides all that, there's just the simple fact that amidst the well known national undersupply of housing. Entry Level homes, like these ones in Cleveland, they are even fewer. That entry level segment really has the scarce supply. I mean, you're going to own a scarce asset that everyone wants and needs. And this live event is one of course you can join from the comfort of your own home. It has two co hosts. You are going to be joined by one of our terrifically qualified GRE investment coaches and one of our top partners who has helped investors create wealth and grow their portfolios for over 20 years. I know him. I've had dinner with him. You can register now at GREwebinars.com Again, it is March 20. Our last one had 538 registrants. That was a record. Register while you can it is open now at GREwebinars.com more next. I'm Keith Weinhold. You're listening to GRE

you know what's crazy. Your bank is getting rich off of you. The average savings account pays less than 1% it's like laughable. Meanwhile, if your money isn't making at least 4% you're losing to inflation. That's why I saw. Putting my own money into the FFI liquidity fund. It's super simple. Your cash can pull in up to 8% returns, and it compounds. It's not some high risk gamble like digital or AI stock trading. It's pretty low risk because they've got a 10 plus year track record of paying investors on time in full every time. I mean, I wouldn't be talking about it if I wasn't invested myself. You can invest as little as 25k and you keep earning until you decide you want your money back. No weird lockups or anything like that. So if you're like me and tired of your liquid funds just sitting there doing nothing. Check it out. Text family to 66866, to learn about freedom family investments, liquidity fund again. Text family to 66866

Blair Singer 16:35

this is Rich Dad, sales advisor, Blair Singer. Listen to get rich education with Keith Weinhold. And above all, don't quit your Daydream.

Keith Weinhold 16:51

How do you really use AI? Can you believe if you have a question about anything in life, 90% of the time, it already makes more sense to ask chatgpt than a human being. That's what my longtime friend says. He's with us today, and he hosts the terrific R E tipster YouTube channel. Welcome into GRE Seth Williams,

Seth Williams 17:15

hey, Keith, great to be here. Thanks for having me. Seth, you've been interested in AI for years. Tell us how your perspective has evolved over time. A lot of people have pretty big variations in how much they use AI and how much they're even aware of it. Personally, I use it every day, like many, many times a day. Chatgpt is open almost all the time, and I use it for almost anything you can imagine, like when I have a question about almost anything, it makes more sense to ask chatgpt than it does to do a talk to a human, because I can get direct answers. It's armed with pretty much all the information that's publicly available on the world is an incredible resource. And when I talk to people and I ask them, like, Hey, do you use chatgpt? And they either say, What are you talking about, or they say, Yeah, I've used it once. It like, it just hurts me. You know, it's like, seriously, you have a superpower at your disposal here. You're not using it. It's kind of like what the internet was back in 1995 or something, where, like, some people kind of got it, but a lot of people didn't get it yet. It's pretty crazy when you can harness the power of not just chat GPT, but all of this AI stuff that's available now. Like, there's incredible, very powerful leveraging opportunity here.

Keith Weinhold 18:27

I use it about every other day. I bet after talking to you, it's gonna make me want to use it more. But, yeah, the guy that cuts my hair, he's only 25 years old. He doesn't seem very familiar with this. But like you said, it's a lot like Google in 1995 to maybe 1998 like, people just didn't automatically think of Googling something. And it's beginning to get that way, I think with using an AI like chatgpt to answer your questions, why don't you tell us about some of the biggest misconceptions that people have about AI?

Seth Williams 18:54

Well, that's good question. I guess it kind of depends on where they're coming from and what they are even aware of in terms of what is capable of. But I know one thing I hear from time to time is people will say, Well, I'm not a content creator, so I don't really have a use for that, like it makes sense if you're like a blogger or a podcaster. And I guess the good thing is that they at least have some awareness of what it can be used for. But things like chatgpt can be used by pretty much anybody who knows how to type on a computer or even speak to their phone, the chatgpt mobile app, for example, I just love this thing you do have to be a paying Plus member, which is 20 bucks a month. That is a laughably inexpensive price for everything that chatgpt could do for you, especially a mobile app. I can turn this thing on. I can use it as a camera to point to anything and have it give me insights and instructions on how to deal with this thing, whether it's a plumbing problem. I was just using it this morning. I had my phone set up on a tripod on my desk, pointed at Zapier trying to figure out how to make two complex softwares work together, and I just had to speak to it in real time. Time and ask it, this is what I'm trying to do. How do I do this? I don't get it, and it explained exactly what to do. And this was help that I could have paid a consultant money for, but it just came from this app, and all has to do is just look at my screen and it understands all of it. It sees things that I don't see. I know people that use chatgpt as the therapist. I've never done that, but I've know a whole lot of people that do that kind of thing. Yeah, and it gives them legitimate, useful feedback, and it's available 24/7, and it doesn't cost 100 plus dollars per session to talk to them.

Keith Weinhold 20:32

You the listener right now are thinking about all the jobs that this is displacing, surely, but why don't we pull back and think about no Seth. If someone is completely new to AI, what's the first thing that they should try to use it for?

Seth Williams 20:46

If you are a real estate person? Specifically, I don't know if everybody listening to this is necessarily, but as a real estate investor, the first thing I ever used it for was writing property descriptions for me, like when I had a property I was trying to sell. I know there's a great way to explain this thing, but I don't really know how to do it in my own head. Yeah. And you can just feed it basic information about the property and say, Hey, write me a beautiful, compelling property description that will make these things sellable and make people you know, respond with interest and that kind of thing. And just do that, and you'll see what I'm talking about it. It's an incredible writer. It does a great job. What's your question about where do they start with chat GPT? Is that what you're asking? Yeah, if one isn't familiar with it, where should they start? Well, another thing you could do daily use type thing. So something that I've used chat GPT for, I've taken a picture of my closet in the different clothes I have to wear, and I send it to chat gpati and say, Hey, what should I wear today? Like, what different articles of clothing would you recommend that I pair together? You could do this with your cupboard. Say, Hey, here's what I have in my cupboard. Tell me what I can make with this and then give me the recipe to make it. You could do this at the drug store. You'd go take a picture of the shelf and say, Hey, I have a splitting headache. Show me what on this shelf will solve my problem right now and get rid of my headache. I've actually got this problem worse than most people, where I can be looking right at the solution, and I don't see it like it's right there in front of me, but I miss it. But chatgpt doesn't miss anything like, if it's in the picture, or even in the the live vision camera, it's like a live video feed that you can point at anything. Like it will see it, and it will point out stuff that you very likely are missing.

Keith Weinhold 22:24

That's amazing. I haven't used its image capability that way yet, and really that brings up Seth. There are so many AI tools available, like an explosion these past couple years. How is a person supposed to decide which ones are worth using and which ones are not.

Speaker 1 22:41

It's very true, there's a lot of stuff out there. It can be a little overwhelming. I can tell you, I've used chatgpt, I've used Claude, I've used Gemini, I've used grok, bunch of different AI chat bots out there. They can all do some pretty amazing things, but if you just don't know where to start, like I'll see if I can only have one of them, chatgpt is what I would go to. I think part of that is just a level of familiarity, like I've just used it for so long now. It's like a comfortable old shoe, but it really is innovating at an incredible speed, and it's this AI boom has been happening for over two years now, and chatgpt is still arguably at the top. I mean, they've done a really good job of staying on the bleeding edge of what can be done now, and chatgpt is free, but if you pay for the $20 a month version of it, you just unlocks a lot more capability and usability. That's probably what I would do. But there's different Claude. I've seen this myself, and I've heard this from a lot of other people. If you're trying to, like, write a story, for example, Claude is actually a better writer than most things out there. So that's what you're trying to do. Like, go with quad you want, like, a one, all purpose tool that can do pretty much everything reasonably well. That's what chat GPT is, in my opinion,

Keith Weinhold 23:52

those are some great tips. And yeah, I thought it was pretty impactful last year, when even when you do a Google search, at the top of that, there is now an AI summary before you see your conventional Google Search sort of hits, which actually concerned Google advertisers for a little while. How about some of the most driest and esoteric reading that we can think of, and how AI can speed that up and make it more interesting, just say, doing due diligence in real estate, like reviewing municipal regulations or zoning rules and property restrictions. How does AI help you there?

Speaker 1 24:27

I've used it numerous times for that, perfect for that. For example, in the land business, one way that you can make money from land is by subdividing land. And one strategy within the subdividing business is to find properties that are they're called exempt subdivides, which means that you can essentially do the subdivide and not get anybody's permission to do it, like you can just split it up and not ask anyone. And you can do it, but you can only do that if the size of the property is over a certain threshold. In Texas, I think it's 10.01 acres or. Higher. There's certain places Michigan that are similar, but you can figure this out by looking at the county and the municipal guidelines to understand what is that threshold, or does that threshold exist at all? You can find these PDFs from the county or the municipal website. Upload it to something like chatgpt or Claude, and just ask the question like, how big does a property have to be before it's exempt from the subdivision rules? And it'll tell you, if it's in there, it can redo the thing in a matter of seconds and tell you what the answer is and where it found the answer, a very similar thing with like legalese and legal writing that's really hard for the average person to understand, probably by design, it can decode that for you. I've gotten this before. I've gotten really poorly written emails from people like electricians, or even just, I can't believe there's already happened exactly. They explain things using a lot of industry jargon and lingo, and I don't know what they're talking about, right? And I can copy and paste that email into chatgpt and just say, Hey, I got this email from an electrician. I have no idea what this means. Can you explain this to me? Like I'm a five year old, and it does it, and it works every time where it's like, oh, okay, that's what you meant. I can just know that instead of having to respond to them and say, Hey, can you rewrite that for me? I don't understand it, and they reply, and it's bad again. And it goes back to this a lot of questions that a lot of us have every single day. Historically, we've gone to people to ask those questions, and that's fine, but it wastes their time, and it wastes our time, and we still might not get the answers we're looking for, but with things like chatgpt, like you almost certainly will get the answer you're looking for very quickly, and it doesn't waste anybody's time other than the time you have to spend asking the question. So it's a big 8020, lever, you can get a lot more done without relying on the limits of humans to get the job done.

Keith Weinhold 26:50

We're talking about how you can use AI in your overall life and in real estate a little bit too. With Seth Williams, well, you're such a good resource. You're really pretty pioneering in learning AI and helping you with problems and solutions in both your overall life and in real estate investing. So tell us by now, what are some of the most unexpected or just like, totally impressive things that AI has helped you with, and how do you do that stuff?

Seth Williams 27:17

That's a really long list, but the thing that I have been most impressed with as of late is something that both chatgpt and Google Gemini can both do this now, kind of in different ways, but they can look at your computer screen and help you figure out all kinds of complex problems. Talked about this a little bit in part one, but earlier this morning, I had my chat GPT mobile app right here on my phone. I had it on a tripod pointed at my screen, and it was walking me through how to set up a couple new zaps on Zapier using a web hooks, which just right there I probably lost most people. It's just a confusing thing to figure out. I still don't fully understand it, but I was explaining my problem and what I was trying to do, and I could just talk for as long as I want, until I'm done talking. And then chatgpt chimed in, and in about 30 seconds, it solved my problem and told me exactly what to do. And Google has another way of doing this, where it's actually like on your computer, like seeing your entire screen, and it kind of does the same thing where a voice talks back to you. It's amazing, because I know how hard some of these things can be, the type of thing that would either make me give up and just not do what I'm trying to do, or pay somebody a bunch of money to come in fix the problem for me, or stand over my shoulder, either which way is not a great outcome. But with the help of these AI chat bots that can see everything going on, and they have basically all the knowledge in the world about how to solve the problem. They can do it really quickly and easily. And it's amazing. That's one of millions of different things you can do with chatgpt.

Keith Weinhold 28:51

Oh dear. If AI looked at my computer screen, the first thing they would probably tell me is to close half of the tabs that I have open. Oh, yeah, me too, yeah. How are you personally using AI in your real estate investing business today?

Seth Williams 29:07

lots of ways, but one thing that has been particularly useful to me is the use of what's called Custom gpts, which basically just means, right, you are training chat GP T to respond to you in a very specific way based on certain instructions you give it. So every time you start a conversation like it already knows why you're there, what you're looking for, what assumptions you want it to make. One example of a custom GPT I've made is one that can very quickly analyze big commercial projects like whether it's a self storage facility or industrial outdoor storage, I've explained to it how I want it to run the numbers based on certain information. I give it like square footage and pricing and occupancy rates and that kind of thing. So I can basically feed it like six or seven key pieces of information and 20 seconds it can tell. A give me, like a one to 10 rating based on this is a great deal, you should move forward, or this is a terrible deal. Look the other way. And the reason this is a big deal is because the way I used to handle this was I had a giant spreadsheet, and I would go line by line, filling in all these different inputs, and it would take me, at a minimum, like 30 to 45 minutes to get to the same place of understanding, like, Yes, this is good. I should keep going on this. Or no, this is a terrible deal. And it can just, like, look at a lot of stuff, a lot of data, very quickly. And it's not like the final answer necessarily, like, you don't just blindly follow whatever it tells you to do, but it can just get to the bottom of stuff, or, I guess, get further to the bottom of stuff, wasting a whole lot less time. So, you know, the real estate that's super helpful, and people in, like, banking and accounting and all this stuff fields where, like, there are full time analysts that look at this stuff all day long. And it naturally takes humans a lot of time to figure this stuff out, but AI can get there much faster.

Keith Weinhold 31:03

Yeah, that is pretty remarkable, and it sounds like you're finding a pretty high degree of reliability and not getting what we call hallucinations in the AI world.

Seth Williams 31:15

Yeah, that is sort of a developing thing. So hallucinations, it's definitely a real issue where basically we'll just make up stuff that sounds viable, but it's not right, and the only way you would really know that is if you knew better in the first place, which means, why am I even asking the question if I already know the answer? So it was kind of an issue where chatgpt and Claude and Gemini would just make stuff up. One of the ideas with some of the newer models that are coming out with, like, oh one or oh three mini now is what they've got. They use a lot more logic in these models. And the difference is, when you ask it one of these questions, and if it doesn't know the answer, it'll just say, I don't know. That's a great answer. They're hallucinating. Yeah, absolutely. And you know, chatgpt Four, oh, it's kind of like the difference between if you hire a very polite VA in on the other side of the world who's trained to be a yes man or a yes woman, like they want to make you happy, and they're going to tell you what you want to hear, whether it's right or not, whereas, you know, these more advanced logical models are more like your account or it's like, I'm not here to impress you. I'm just going to tell you the facts and how things really are, I think, depending on what you're trying to do, like, there are certain situations where you'd want the more creative four, oh, version of the situations where you'd want the logical ones. So I'm trying to, like, do code or analyze numbers or do something where accuracy is very important. That's where I want to use those logical models. But if I'm like, writing a story or song lyrics or whatever, and creativity is more important, that's what I'd want to do four Oh, so it's not that either one is like better or worse. It just depends on what you're trying to accomplish and what output you want from it.

Keith Weinhold 32:54

Sure, part of this is knowing which tool to apply. There might be a grain of gratefulness, that there are such thing as hallucinations, right? I mean, it still takes you a human being thinking to confirm, does that answer make sense and it's just simply a good idea? Or could that be inaccurate? So the human component sounds like isn't completely displaced yet at this point, starting probably more than 10 years ago, Seth, when people began to look for answers to everyday questions, oftentimes, they would go to YouTube and they would just like to get their answer that way. Why is this faucet leaking or anything else? And watch a YouTube video about that. What's your process though for using AI to take a YouTube video and summarizing it and extracting key insights that way?

Seth Williams 33:39

Well, there is a free chrome extension called glasp, G, L, A, S, P, that I just used it this morning. All the time. I've heard of it. It kind of sits on top of YouTube. So when you're on YouTube and you have this chrome extension there, this little button appears, and you can copy a transcript of the entire video and then take that and paste it into chat, G, P, T, and you can ask it whatever you want about what that video is about. You could say, summarize it in one sentence. Or you could say, Does this video talk about this issue? And if so, where or what does it say about it? You could say, take this video and turn it into a blog post for me, literally, like, whatever you can imagine that could violate come from that video. You could get that information from it. And that alone is is amazing. And it kind of goes back to, like, what is the purpose of this video, or what is my question that I'm trying to get answered? Am I looking for entertainment? You know, for example, I've been watching a lot of videos about guitars and guitar pedals and amps lately. I want to hear what this guitar sounds like. I kind of have to watch a video for that. Like, a transcripts, not really going to help me chat. GPT is not going to help me. Like, I just actually have to watch the video. So this doesn't totally render videos useless. It just depends on why you're watching it and what information you want to get, and how can you get there faster.

Keith Weinhold 34:50

This has been great. Seth, are there any last things that we should know about? Ai, whether that's misconceptions or making sure that we're using the right. AI tools and avoiding the wrong ones. Any last thoughts? Seth, if

Seth Williams 35:04

people are really interested in this stuff, I mean, there's plenty of places you can go online. This is a huge trending topic on YouTube, lots of good information out there. We actually put together a school community intended primarily for real estate investors and business people. It's you can find that at Pulse inner circle.com, P, U, L, S, E, inner circle.com. We're talking about this stuff all the time. My friend Mike balcom and I did a couple different courses on this stuff, like a guided course that was awesome. I mean, we even learned a lot of stuff going through the process. But it is a rapidly advancing area right now, and it has been ever since chatgpt came out, like, every week, there's some huge new thing out there. It's something that's worth paying attention to, because even, like, right now, it's incredible the stuff you can do. And interestingly, like, most people aren't doing it. So if you are up to speed and educated on it, you've got a superpower that most of the people don't know exists or aren't willing to learn.

Keith Weinhold 36:01

That's a great point. If you just learn 1% of this, you're going to be ahead of the general population, and it's really easy to do. Seth, I've done some learning about AI myself. This has been a great chat. Thanks.

Seth Williams 36:14

You bet.

Keith Weinhold 36:21

Check out Seth's resources and his own R E tipster podcast. Always love to chat with my man, Seth Williams, Super Down to Earth guy, and also he does not look like a dork like you might think an AI expert would. Yeah, like I told Seth, the guy that cuts my hair is 25 years old. He's a SoundCloud music artist. He mentioned to me about how he writes his own lyrics for his music. I asked him how the results were when he asked chatgpt to write his lyrics or write him some rhymes, he told me he never even thought of that. I couldn't believe it. So yeah, AI, it's just still not top of mind for people.

The two platforms that I use the most are chatgpt and venice.ai last year I told you about how you can turn any document into an AI podcast with notebook LM, and you'll remember that I also played a minute or two of that AI generated podcast right here on the show for you, you can book your travel with AI as well. Have it put together in itinerary for you. Have you asked AI who you are? I hope that you've tried that by now. When I go to chat GPT and ask it, who is Keith Weinhold, let's see, is it accurate? Well, the answer starts with Keith Weinhold, is a real estate investor, author and the host of the get rich education podcast. Well, then it goes on for a few paragraphs. It goes on to say he founded get rich education, a platform that offers educational content through podcasts, blogs and resources about real estate investing, personal finance and wealth building. His teachings emphasize the benefits of leveraging real estate as a long term wealth building tool while highlighting strategies to maximize cash flow and minimize risks. Okay, yeah, I would say that's accurate. No hallucination there. You can also ask chat, GPT or an AI, of course, about your properties. In fact, I'm going to enter the address of one of my rental properties and ask it how much cash flow it generates. So to skim the answer for you, it's okay. It looks pretty accurate. Here. It says that it is a three bedroom, two bathroom, single family home with 1300 44 square feet of living space. It shows the property was last listed for rent at $1,625 per month in March of 2024 Yep, that sounds right. Zillows rent, Zestimate estimate estimates the current rental value at $1,898 per month, is what it says. Okay, and then here's what it says about the property's cash flow. Because I asked that about the cash flow, it writes to determine the potential rental cash flow, consider the estimated monthly rental income of 1898 subtract operating expenses such as property management fees, maintenance insurance, property taxes and any mortgage payments, the resulting figure will represent the net monthly cash flow. All right, well, then it goes on with more info that's less interesting, okay, so therefore, at least this basic question that I've asked it chat GPT, I mean, it cannot know my cash flow unless they know what my loan amount was and what the mortgage interest rate is and those sorts of things. But maybe another AI knows that, though I am not sure.

Hey, coming up here on future episodes of the get rich education podcast, some well known names that haven't been here on the show. Before and another interesting upcoming episode down the road. Here is when a pastor is going to join me on the show. Here, this pastor is an expert in what the Bible says about money. You might be familiar with the Bible verse that says it is easier for a camel to go through the eye of a needle than for a rich man to enter the kingdom of God, gosh. Well, how does that make me feel about how the pastor and I's conversation is gonna go here on a show that's called get rich education that ought to be super interesting, and I really look forward to that show. Now, even if you're not a Christian or you don't believe in the Bible, this is going to be a significant conversation, because you cannot deny the Bible's influence. It is, in fact, the greatest selling book of all time, and even if it doesn't personally affect you, it does impact other investors around you and just billions of people across the world. What the Bible says about money coming up, which could have, I guess, some uncomfortable moments here in future weeks on the show, along with a lot of other great content. If you want to be sure that you don't miss that on your pod catching app, be sure to hit the Follow button. Also, if you would please, simply tell a friend about the show until next week. I'm your host. Keith Weinhold, don't quit your Daydream.

Speaker 2 41:41

Keith Weinhold 42:09

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Mon, 24 February 2025

Keith Weinhold and Caeli Ridge discuss the benefits of a type of loan that combines mortgage and banking features. This loan allows deposits to reduce principal first, every deposit acts like a payment, minimizing interest accrual. And can be used for cash-out refinancing, providing flexibility and potential tax benefits.

Hear about the importance and the difference between open-ended and closed-ended loans.

If you pay down the loan balance over time, you can have a spread that allows you to access that equity without having to requalify or pay additional closing costs.

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541: Will a Boomer Selloff Make Housing Prices Crash?, This Vice is Destroying Young Men

Complete episode transcript:

Automatically Transcribed With Otter.ai

Keith Weinhold 0:01

Welcome to GRE. I'm your host. Keith Weinhold a discussion about the future mortgage rate direction. Then there's a property loan type where you don't have to make any monthly payments, and if you do make a payment, it all goes toward principal, and nothing is lost to interest. It can save you lots in interest expense over the life of the loan today on get rich education.

since 2014 the powerful get rich education podcast has created more passive income for people than nearly any other show in the world. This show teaches you how to earn strong returns from passive real estate investing in the best markets without losing your time being a flipper or landlord. Show Host Keith Weinhold writes for both Forbes and Rich Dad advisors and delivers a new show every week since 2014 there's been millions of listener downloads in 188 world nations. He has a list show guests include top selling personal finance author Robert Kiyosaki. Get rich education can be heard on every podcast platform, plus it has its own dedicated Apple and Android listener phone apps build wealth on the go with the get rich education podcast. Sign up now for the get rich education podcast, or visit get rich education.com

Corey Coates 1:13

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 1:29

Welcome to GRE from flaccid County, Oregon to Lackawanna County, Pennsylvania and across 188 nations worldwide. I'm Keith Weinhold, and you are back in for another wealth building week here at get rich education, just another shaved mammal with the microphone here, I have a real estate analogy for you. Growing up, my dad told me, whatever you do, do it well. And that was broad guidance for life. I like things that are easy to remember. Our simple home in Appalachian Pennsylvania was headed with a wood fired stove, so we couldn't just turn a dial and feeding the stove with those logs took time and work. It was a family effort. Dad split the firewood. My chore was to regularly move firewood from the wood pile into the home, and then Mom or Dad would start the fire and constantly tend to it and get it up to the right temperature. But you know, when that fire finally roared, it felt like it could have heated five homes. And this is like buying an income producing rental property. You can't just point and click to make income reliably appear. It takes time, and even some of this admin type of work before you feel hot returned the spark that can ignite the fire means first putting your financial house in order. Those are things like getting pre approved for a mortgage loan, and then they're stacking the firewood, which means finding a deal, making an offer, booking a property inspection, scheduling an appraisal, perhaps signing a property management agreement if you're not self managing, and then, of course, placing a tenant. But see when that investment property fire roars after a year or two that can create enough returns for five retail investors, just like our roaring wood fire could have heated five homes, even though you're only one investor getting like 5x returns, and by now, you probably felt, after a year or two of owning it, the profitable warmth of the five ways you're paid that you know so well. Those five ways are leverage, appreciation, cash flow. Tenant made principal pay down a tax benefit basket and the quiet, whispering fire of inflation, profiting on your loan, but you can't get over leveraged, meaning that you can't make the payments, or else you burn the whole house down. This means embracing the right level of debt rather than avoiding debt altogether. So yeah, you know, if you want to be in the top 1% or maybe even top 5% Do you know what that means? It means being misunderstood by the masses. And when you do this right, it's not about getting rich quick, but it's about building wealth. For sure, feel the fire and whatever you do, do it well, just like my dad told me, and oh, by the way, today, my parents still live in that same. House, but they now just turn a dial for heat.

Well, you know, there's been a lot of real estate and financial news lately, just this constant feed of news. And I really need to tell you something about that. I am not a news reporter. If some news just broke an hour ago. A lot of times people are only overreacting to something like that. So here at GRE I infuse the news longer term into our content of the show, because some of it is just too big to ignore. But often let it settle down for a little while and filter out what it really means to you as an investor. I mean, being an educational platform rather than a news platform is what it's about. So I want to make sure you understand the relationships rather than just reporting the news. I mean, for example, what tariffs can do to home prices and rents and inflation. I mean, that really impacts you and your real estate long term. Rather than just doing something like reporting that the tariff on this nation that looked like it was going to be 25% is now only going to be 10% or something like that, that really doesn't affect you so much. So now that you know more about what to expect here, which are the stories that really affect you as an investor? The last inflation report did come in at a hot 3% that startled economists that it was that high. And what that does is that makes bond yields rise, because bond investors need a real return net of inflation, and in turn, that soon makes mortgage rates rise, and also it makes Jerome Powell be in no rush to cut his Fed funds rate after this hot inflation report, either. And here's another long term relationship that can help you learn the Fed's dual mandate is, what do you know? What it is, the two things I've mentioned it to you before, the Fed's dual mandate is maximum employment and stable prices. That right there is inherently volatile, because when employment is maximized, well then employers, they have to compete with higher wages in order to attract workers, and that makes prices go up, destabilizing the prices will stable. Prices is the second part of the dual mandate. So that's why it always seems like there's this lightning rod attention on Jay Powell in the Fed. It is because the dual mandate is inherently volatile. Now, you know what I think about predicting mortgage rates. I don't like to do it because it's an almost impossible task, like the myth of Sisyphus, that Greek myth about rolling a boulder up a hill wells, Fargo says mortgage rates will go down to just six and a half percent by the end of this year, so not much of a drop. And also by the end of next year, almost two years from now, they'll still be just six and a half percent. And other C rates rising from here. So there is broad consensus that there's zero reason to think that artificially low rates are going to return anytime in the near term, perhaps even in the intermediate term, coming up on a future episode of the show here and soon, how to use AI in real estate investing today, let's talk about mortgages and a special loan type.

Today, we are back with the national leader in providing Americans with income property loans. She runs the operation at Ridge lending group. She's been doing this 25 years she's an investor herself. It is their CEO and president, Caeli Ridge,

Caeli Ridge 9:06

Keith, thank you for having me.

Keith Weinhold 9:08

There does seem to be one US president. That makes a lot of news lately, but Caeli is still the most noteworthy mortgage type of President, I suppose. And just like GRE Ridge focuses on education and Caeli mortgage rates. It's the topic that everyone wants to talk about. I don't predict mortgage rates, but I know that you'll Talk That Talk a little. And previously, many expected Jerome Powell and the Fed to drop the rate four times this year, then two and now more and more expect zero rate cuts at all this year, even opening the door for rate increases if inflation persists. So tell us about the propensities of this year's mortgage rate direction.

Caeli Ridge 9:51

I think that I agree with a lot of the volume out there related to interest rates kind of stay in the course. I don't think we're going to see too much of a decline. There's. Certainly, Keith, we talk about this at nauseum. There's all kinds of things that could derail that statement that we can't prepare for, we couldn't predict for, but I think overall rates are going to stay steady. I think that whether you like them or you don't like them, the tariffs tend to come with an inflationary tone. And if that's the case, it's going to put Jerome and his buddies at the Fed in a tough position to do what they had hoped to do with the easing, the monetary easing. So I don't expect to see it, but I'm hopeful who knows. Who knows?

Keith Weinhold 10:29

Now, for you, the listener and viewer here, when you really want to know what moves rates around, Caeli talk to us about this persistently high spread, and what that means is that historic difference between mortgage rates and the yield on the 10 year treasury note.

Caeli Ridge 10:47

I feel like a lot of what that's going to attach itself to is the inflation, and then, more specifically, when we talk about llpas, and I think we've talked about this in the past, loan level price adjustments, mortgage backed securities secondary market, right? This is an investment that is bought and sold on the New York Stock Exchange, right? These are investments that carry value. And while the Treasury is usually the one that people will look at to predict where interest rates are going to go, I feel like in this higher rate environment, the secondary market understands that these mortgage backed securities are going to be paying off in advance of profitability. Now this gets a little bit complicated, but the easy way to explain it is is that if you secure a loan today at, say, seven and a half percent, if the anticipation is that interest rates over the next three years, maybe not in the next year, but two years, even three years, are going to decline. The mortgage that was closed today will likely pay off via a refinance. In that event, it's not reached the maturity date, such that when that initial mortgage backed security was purchased on the secondary market, it will have to pay off before the investor has been made whole or profitable. As a result, the margins it's called on in my world, it's called YSP, yield spread premium will not be met. So they're baking in certain levers, or they're hedging, as another way to say it, so that they're not left with those negative balances when these things do pay off when interest rates come down, because interest rates are not a straight line, they go up, they go down, they go east, they go west. So as a result, they're planning far in advance into the future. So I think that has a lot to do with it.

Keith Weinhold 12:33

Real Estate industries are shrinking, and it's all related to the fact that back in 2021 the number of existing homes sold peaked at almost 7 million, but last year, it was only about 4 million. That is a huge drawdown. The number of US Realtors is dropping since it peaked in 2023 and Caeli, from what I can see, the number of loan officers, even operating has dropped precipitously over the last four years, it's a reminder that the strong survive and in the mortgage industry, top service is what savvy borrowers need. You go with the people that consistently advise you to take your time and look at your long term strategy and make the correct decision, not always the one giving like 1/8 of a percent lower and an interest rate, so any lender can get you the next loan, and few are going to help you with your long term strategy. With this overall lower volume of transactions taking place, what are your thoughts about how it's impacted the mortgage and lending industries?

Caeli Ridge 13:37

It's such a good question. I'm glad that you asked it, and I really do think it speaks to the experts in the space consumers, our borrowers, as we call them, have to be, I believe, a little bit more discerning about who they want to align themselves with and who they want to work with as it relates to the interest rate. We've had this conversation off book. Ridge doesn't sell rate or cost. Now we're competitive, but we're never going to be the lowest possible lender out there. There's always going to be somebody that can undercut for an eighth, like you said, a quarter point, a few 100 bucks here and there. And we just don't get into that, our value adds far exceed an eighth of a point in rate, which, by the way, you probably can predict what I'm going to say next, if you're not doing the math, just as a sidebar listener, the difference in payment, and that's really where the focus should be. The difference in payment on an eighth or a quarter percent in interest rate on $100,000 is all of 5,7,8, bucks a month. Okay, so make sure you're doing the math, but the value adds that come with the education that we provide the 49 states, large footprint and the diversity of loan product, I think, far outweigh any eighth or few $100 difference when you're comparing side by side. I'm not saying that you don't want to get comparisons and you don't want to be a smart, informed consumer, but it really does matter that your lender understands known, owner occupied understands how to. Or take you from point A to point Z today and five and 10 years down the road.

Keith Weinhold 15:05

you've been a mortgage industry leader for a long time with this lower volume. Have you seen mortgage companies implode close shop?

Caeli Ridge 15:15

Absolutely, we have access to those data points and the number of loan officers just the individual in the doing the transaction, not including processors and underwriters and funders and doctors, but just the loan officers. I believe, in 2024 reduced by a margin of 53% gosh, yeah, that's a big number.

Keith Weinhold 15:35

Yes, this is really hit the industry substantially. Are there any other interesting industry trends in this environment where we have persistently higher rates, I make sure not to say high, because historically, mortgage rates are still not high. The long term average being seven and three quarter percent on the 30 year fixed rate mortgage Are there any other trends that this loss in activity has created?

Caeli Ridge 15:58

I feel like the informed investor is still finding ways to profit in real estate. They're finding diversity is key, which I'm a big proponent of as are you. That means single family residence to two to four units, cash flow versus appreciation, the short term rental, the long term rental, the midterm rental, making sure that they have a good, rounded portfolio is key. And there are some which I think we're going to be talking about today. There are some mortgage tools that I really feel like, for an informed investor, are allowing them to continue and propel further, even scale into the 25 and 26 years.

Keith Weinhold 16:36

What's happened to the volume of owner occupied transactions versus investor transactions. I would imagine that investor mortgage transactions really aren't down that much.

Caeli Ridge 16:47

not that much. I'd say there was a small blip, but I feel like we've made those up with some of the burr strategy loans we do, of course, all kinds of mortgage related transactions specifically for investors. And one of those products is a short term bridge loan, which would apply to the BRRRR method by rehab, rent and refinance. So we've been seeing quite a bit of that, where the investor will find a good deal on market or off market, where they can put a little bit of lipstick on it and then refinance it at the ARV or after repair value. So anything that we might have lost in just a traditional 30 year fixed straight purchase transactions, I feel like we made up in the other but it wasn't a big margin.

Keith Weinhold 17:26

What if there was a mortgage product out there that just didn't work like other mortgage loan products do? For example, your deposits or the payments that you make on this special type of mortgage is applied to the principal first and only. There are a lot of other interesting characteristics about this particular mortgage product. We're going to discuss that when we come back. You're listening to get rich education. We've got the CEO and President of ridge lending group back with us, an investor centric lender. I'm your host, Keith Weinhold.

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Rick Sharga 19:48

this is Rich charga, housing market intelligence analyst. Listen to get rich education with Keith Weinhold, and don't quit your Daydream.

Keith Weinhold 20:06

Welcome back to get rich education. We're talking with a steady guest over time, because not only are they an income property centric mortgage loan company that do mortgage loans in 49 of the 50 states, but they're also centered on education and looking out for you, the investor, over the long term. And cheyley, such an interesting product that you offer is called the all in one loan. It's been a long time since you and I have really talked about this. What it is is a first lien HELOC. It's a way for you to use the equity in your existing properties. You can do it with either a primary residence or investment properties. There are just so many reasons why an all in one load just kicks the butt on a conventionally amortizing loan, including that all payments are applied to principal first and only, and a lot of other exciting things. So Caeli, why don't we back up and just describe what the all in one loan is big picture.

Caeli Ridge 21:05

Now there is a lot to unpack, so we're going to take our time. Listener. First of all, let me just explain. Why is it called the all in one it's called that because it doubles as both a mortgage in the form of an open ended revolving HELOC and checking and savings. Both of those two features are combined, hence the all in one as a way of diminishing the amount of interest that can accrue over time. Let me explain so any revolving account, any account, including a credit card, for example, but first lien HELOC, second lien HELOC, whichever doesn't matter, open ended revolving is the key. Any open ended, revolving account will accrue interest daily based on two factors, the first being that day's balance and that months, in this case, interest rate, fully indexed interest rate. I'll come to interest rate later. As a result, you now have control largely over how much interest can accrue. Now let's take that statement and transfer it and look at it against an amortized, closed ended mortgage. You sign up for a 30 year fixed mortgage today. Let's say it's 7% whatever the interest rate is, is really irrelevant. Your principal and interest payment are defined on day one. There is no changing that monthly payment. Now you could certainly accelerate the payoff of that mortgage debt by doing what applying additional extra principal payments, right? But what happens to that extra principal payment when you send it off with your 30 year fixed mortgage payment,

Keith Weinhold 22:34

it drops your loan balance, but your minimum payment amount is the exact same the next month,

Caeli Ridge 22:38

right? And then what happens to all that liquidity that you had prior, it's now illiquid. Right? Exactly that off

Keith Weinhold 22:45

you've just transferred your cash flow into equity. Financial freedom is created by doing the opposite thing and changing equity into cash flow,

Caeli Ridge 22:52

very illiquid, and not the way an investor typically is going to want to run his or her business. So hence the all in one. Now for those of you that have heard the term velocity banking or infinity banking, maybe whole life insurance policy has a similar tone to this. The all in one, I believe, offers even more flexibility for variety of reasons that we're going to get into. But if you've ever heard those terms, that's similar to what this is. So I want to start by I usually like to give an example, okay, and provide some visual aid so that people can connect the dots. Let's start with the 30 year or a fixed rate mortgage. Just because I feel like, especially in the US, this particular loan product, or its concept is widely used in much of the rest of the world, in the US, I feel like we're sort of preconditioned here to really only understand that closed ended, amortized mortgage. So I'm going to start with an example there that actually highlights or leads into the concept of the all in one. So I want you to imagine a 30 year fixed mortgage and a 15 year fixed mortgage. Both of these mortgages originated or started at $400,000 as the balance on day one. The 30 year fixed mortgage locked at an interest rate of 4% and the 15 year fixed mortgage locked at an interest rate of 7% now, when I go through this exercise and I give this example to people, I ask them the question, Well, which one would you choose? And without exception, if they don't understand amortization, they are going to select that 4% 30 year fixed mortgage, because they don't understand that it's about speed. When you run the math and you look at an actual amortization table, you'll see that you'll pay $40,000 more in interest on a 4% 30 year or 360 month, versus a 7% 15 year or 180 month. So the point here, and what I'm illustrating, is it's speed. Now let's segue back over to the all in one. It's all about speed and how much interest we allow to accrue over time. So as you had mentioned, to start the kick this off, Keith, every deposit acts like a payment. Now here's where I struggled with this in learning. And when this was first introduced to me years ago, this part of it really caught me off guard. I had to really dig in and try to focus on what are they talking about? What do they mean? There's no payment due on the all in one. I'm gonna say that again. There's no payment due on the all in one. Think about your 30 year fixed mortgage. If you don't make a payment, what happens?

Keith Weinhold 25:19

You're defaulting, you're in trouble. You become delinquent,

Caeli Ridge 25:23

right? So that is not how this loan is set up. And it's not smoke and mirrors, okay? It's nothing fancy. The deposits that you make from ordinary income from all sources really Okay, so we want to talk about this is really special for investors, because we have access to gross rents, the rental income that's coming in before we send it back out the door, along with our net wages and every other source of income, deposits that we're getting can be utilized to your advantage. One of the ways in which I describe this is, I like to say you've become your own bank, so you have this line of credit, and your gross rents and all of your net wages are going to deposit into your checking account, driving that principal balance down, dollar for dollar, so that the interest accrual is diminished. Because remember what I said a few seconds ago, the interest is calculated on any open ended revolving account based on two factors, the balance for the day and the interest rate, so the more you have in depository income, and you drop it into your checking account, the longer it stays there, the lower the amount of interest is going to accrue within a 30 day billing cycle. Now let me just paint one more picture, and then we can open up to what questions come from this. So I want you to imagine this is I'm going to use easy, round math. I want you to imagine that you have an unpaid principal balance on your mortgage, on your HELOC of $100,000 just for round easy mouth, and that you bring in $10,000 a month in income from all sources. And just to keep it simple, we're going to say that that 10,000 comes in on day one of month one. Okay, so here's our 100 grand sitting there. My $10,000 is deposited into my checking account. Now my balance is $90,000 right? That 10 grand is not going to be touched. You will not touch that $10,000 for 29 days out of a 30 day billing cycle. And I'm giving you optimal tricks. Okay, this is how you want to use it optimally, yeah. Day one, instead of paying interest on $100,000 you're paying interest on paying interest on $90,000 and you're going to pay interest only on $90,000 for 29 days out of a 30 day billing cycle. Well, how am I going to make all my bills? And how am I going to eat? And how am I going to pay my cell phone? And what am I going to do? You're going to use a credit card, or credit cards of your choice, the ones that provide the best points, or whichever you prefer doesn't really matter. To pay all those monthly living expenses now we don't want to pay any interest on our credit cards. Right? 18, 28% whatever it is. No thank you. So now we're going to go to day 30 of that 30 day billing cycle. Right? 29 days that 10 grand has sat in there. Our balance has been 90. Our interest has accrued on that 90. On day 30, the credit card has amassed $9,000 in expenses. You've spent $9,000 for the month on food, gas utilities, car payments, cell phone, everything goes on that card. Day 30, you go into your checking account where your 10 grand has been sitting, and you write a check to pay off the credit card $9,000 so for one day of the month, we went from 90,000 in a balance to 99,000 right. 9000 had to come out of the 10 to pay off the credit card. We had $1,000 left over. Now I want you to fast forward into month to day one our starting balance, because that $1,000 leftover was our residual income, our discretionary our savings, it's what was not spent, but I have full access to it. Should I need it? So day one, month two 99, 000 is my outstanding balance. I drop in my $10,000 of income. 89,000 is what I'm going to be paying interest on for 29 days of a 30 day billing cycle. So this should allow listeners to connect some dots. There are two components of compound interest savings, the first being daily. We've got our income dropping in there. It's just sitting so daily savings, compound interest savings. And then that leftover savings, that residual, that $1,000 is going to be left in there month after month 24/7, access. That's monthly compound interest savings. So those are the two components that make this product profoundly impactful in diminishing that interest accrual over time. Why don't I take a pause

Keith Weinhold 29:30

so with the all in one loan, we're really integrating our consumer accounts with our mortgage. Absolutely right? Is there a way to automate these payments associated with this?

Caeli Ridge 29:43

Yes, I'm glad you asked. So everything that you have become accustomed to today in your checking and savings is going to be exactly the same with the all in one this mortgage is housed by an FDIC insured banking institution. It'll be one of two places depending on which. Which ends up picking up the rights. It'll be North Point or merchants, bank, those are the two that service this loan. Feel free to check them out when you think about the automation of your checking and savings accounts with your B of A, Chase, Wells, Fargo, whomever, credit union, whomever you bank with. Now there will be no difference to that experience and this experience so online bill pay, debit cards, routing numbers, paper checks. Should you still use those mobile apps? If you get a paper check, you take a picture and it uploads to the account. All the same exact automation as you have become used to today will apply with the all in one

Keith Weinhold 30:36

and you described how the all in one loan is an open ended loan versus your plain vanilla 30 or fixed amortizing loan, which is closed ended. For those that don't know, what do those terms open ended and close ended mean?

Caeli Ridge 30:48

So amortized is predetermined over the period of time that you've gotten the mortgage for. So whether it be a 10 year, a 20 year, 2515, 30, whatever it is, it is closed ended, so the interest rate that you secured against the loan amount that you've taken, they have come up with the formula, the calculation that says, This is how much interest you're going to pay over this length of time. And the longer the amount of time that you have selected, let's say a 30 or maybe even a 40 year. Those do exist, in some cases, the longer the amount of time that closed ended amortized mortgages in play, the more interest you're going to pay. Now, it keeps your payment lower for sure, but they're going to make it up in the interest that you'll pay in the long time. Now the open ended revolving just means that it is available to pay down and draw up, and pay down and draw up. It is not closed

Keith Weinhold 31:40

and then with those conventional mortgages, typically, especially when you originate a new loan for years, most of your payment goes to interest, which would not be the case with the all in one loan.

Caeli Ridge 31:53

Exa ctly. Yeah. So anybody that's looked at an amortization table knows the first 10 ish years, we'll just keep using the most common, 30 year fixed first 10 years or so, maybe even a few years past that, 90% of your payment is going to go to the interest. You won't start chunking down any principal until the back end of that mortgage, 180 or complete flip to the all in one every dollar that goes in there drives the principal down first.

Keith Weinhold 32:18

That is huge, even if you pay a higher interest rate on your all in one loan, you can see how you have fewer dollars out of pocket in interest paid, which is what really matters to you,

Caeli Ridge 32:30

exactly, right? So think about a 20% interest rate. If you're paying 20% interest on 50,000 then 7% interest on 500,000 you can see how the math will work in your favor, regardless of the number in the interest rate in comparing side to side. And one of the other things that we haven't touched on, and maybe this is a good segue, Keith, it's not just the daily deposits. We have clients that take out a, you know, a million dollar line of credit, but they have $500,000 sitting idle for whatever it is their business needs. And in the E commerce. It doesn't even matter, but they have this amount of cash that they're simply going to take from this vehicle a regular checking account over here, and drop it in here, and that interest is saved. That $500,000 that was sitting idle doing nothing over here is now saving interest at an incredible rate. So it's not just the daily and monthly deposits. If you just have idle cash, or you know you're going to be getting a bonus or a tax refund, or whatever it is, those monies that would otherwise just sit in a one to 2% maybe interest bearing checking savings account can now be applied over here, driving down that balance further, dollar for dollar saving in that interest.

Keith Weinhold 33:39

So we are opportunistic investors here, when we see an accumulation of equity in a property or cash in an account, we want to get that moving with this all in one loan again, which is like a first lien HELOC, I would imagine that would we get plenty of room to borrow more in there, and there's been plenty of pay down, we might want to draw against it again for another purchase, and let this thing be flexible like an accordion back and forth as you're drawing the balance down and you're extending it out again. So really, the way I see the flexibility with the all in one loan is that you don't have to go through another mortgage loan origination each time you want to buy a property. You can just draw against this account.

Caeli Ridge 34:20

And we're still just scratching the surface in what this thing does exactly right? And I've said this twice now, you've become your own bank. Yeah, okay, if you pay it down over a short period of time, let's say that you had half a million dollars and you were able to reduce that down to 300,000 there's a $200,000 spread there that, at your discretion, do not have to re pre qualify and pay closing costs. Again, you don't have to ask permission or get it approved, for some reason, those are your funds, your equity, your dollars to do what you want, when you want, how you want. The other thing too is probably a good place to point this out, safety net, as long as there is a spread between what you owe and the credit limit. Whatever that is. If something were to happen That was unfortunate, some unfortunate set of circumstance befell the family, whatever, and no income was coming into the household zero. What would happen if you didn't have money to make your 30 year fixed mortgage payment? You're going to ruin your credit and go into default. Well, the reverse is true with the all in one if there is a spread between the balance and the limit and you needed to not make any deposits, the only thing that's going to happen in that case is interest is going to accrue on top of that balance. The only time a payment deposit is mandated with the all in one is when the balance is about to exceed the limit. That's the only time. Now I'm not saying that that's the way people are going to use it, but that's the reality of it. So what if this? Let's take this down the rabbit hole for a second. If you couldn't make a deposit, you're not going to go into default, right? You're simply going to add some interest on top of the existing balance. But what if you needed to draw from it for living expenses for a couple of months? Yeah? What if you needed, you know, $5,000 a month for three months until you got back on your feet, whatever it is you have access to do that. There's your safety net. You just simply draw from it, as long as there's a spread between the balance and the limit, those are your funds to do with what you choose

Keith Weinhold 36:13

if one takes out a HELOC, whether that's in an all in one loan form or not, something that I've advocated with my listeners for years is that now you do have this line that you can draw against to your point Haley, it's effectively another layer of insurance for that borrower or investor. So if you're interested in keeping down your insurance premium, you can get a HELOC or an all in one loan increase your insurance deductible, which can lower your insurance premium and increase your cash flow.

Caeli Ridge 36:43

Good point. You know, I hadn't even thought about that before. That is a new one on me that is actually brilliant. Yes.

Keith Weinhold 36:50

now we had a listener quite a while ago, Mark from Granite Bay, California, right in Mark's a great long time listener. When he found our show, he wanted to go back and re listen to all the old episodes. And he listens to several episodes multiple times. And Mark wrote in because he heard you on the show quite a while ago. And Mark says, I've been using the all in one loans, amazing mortgage balance deduction. But as a GRE listener, I know I can't be lured in by that alone. I also need to utilize its leverage. I just used my all in one loan Mark continues to say, probably, like a lot of others, to buy a duplex for mid south home buyers in all cash and then refinance that loan into a fanniefreda 30 year from my all in one loan simulations, and Caeli has an all in one loan simulation on her website that she'll tell you about. But to finish Mark's question, Mark says, I have gathered in these simulations that as long as properties are cash flowing, the best use of the all in one seems to be to keep repeating what we did on our first duplex purchase, use the all in one loan, to buy properties in all cash, and then later refi it into better debt or leverage, and then continue to repeat the process. Is that a valid way to use it? That's Mark's question.

Caeli Ridge 38:03

Absolutely. Mark, Well done, sir. And there's a few points here that I want to take a minute and peel back, Keith, so one of the first things that I would say that's really great about that philosophy or that strategy is going to be that on a cash out refinance of the property that was paid cash, using the all in one we get to use the appraised value. So under the circumstances, if you paid $100,000 for it, and perhaps it valued at 110, 151, 20, whatever it is, then we as the lender are going to refinance on a cash out refinance using that higher appraised value, so you have a little bit more leverage there, and potentially get more in that loan to value when you're comparing what you're getting back versus what you put in. The other thing, obviously, is that when you're dealing with a turnkey or a seller, an agent, whatever, everybody knows that when you can come to the table with cash, yeah, right, you become the more desirable buyer. There's that obvious piece, and then in terms of that strategy and that simulation. So please, yes, that is absolutely the first thing that I'm going to do with anybody that calls in is I'm going to get on the phone with them, a teams call, and we're going to do the simulator together. But I encourage everybody to get in there and play around with it. If you're not quite sure what data points it's asking for, let us know, or we'll do one together. But that simulator is going to allow you to compare the all in one to either an existing mortgage on a primary rental property or a new traditional mortgage. Let's say you're thinking about buying an investment property with a 30 year fixed and you want to compare that to the all in one, or maybe you want to refinance one of your existing properties, so you can compare it to existing versus new. And then within that simulation, it will allow you to forecast additional spending. That will allow you to say, I want to take out $50,000 in month 22 and it'll reformulate where the simulation of saved interest, payoff time, all of those things will be available to you within that simulator. It's very slick.

Keith Weinhold 40:00

And now that you, the investor, have the ability to pay all cash, not only can you close faster, but a lot of times, sellers are willing to give you a discount, since you can close faster and pay all cash, and then it's up to you down the road to go ahead and refinance that into a conventional product, or however else you want to do it. Caeli, what else should we know about the all in one loan?

Caeli Ridge 40:24

Couple things I would share. First of all, the qualification metric for the all in one is going to be a little bit more restrictive than a traditional 30 year fixed mortgage, so be prepared for a little extra brain damage. I know that getting qualified for mortgages is not everybody's favorite activity. I get it. There's a lot that goes on to it. It's not like the good old days where some remember you could fog a mirror and get a mortgage, but the all in one does take it to another level, even beyond what you're used to now. So debt to income ratio, I'll give you the specifics really quickly, so just be prepared. I like to set that expectation. Debt to income ratio caps at 43% on the all in one versus 50% that we would have from a traditional Fannie Freddie, 30 year fixed. The reserve requirement is calculated based on the line limit. It's dependent on the debt to income ratio. I'll just leave it there. It'll either be 10% or 15% of the line limit. So if the limit was 100 grand, 10,000 or 15,000 is the reserve requirement, and then the minimum credit score requirement. Owner Occupied is 700 non owner occupied is 720 so a little bit higher on the bar for qualification for the all in one.

Keith Weinhold 41:33

Who is this for? And who is it not for?

Caeli Ridge 41:36

It is for anyone generally that has at least 10% discretionary income at the end of the month. Typically, everybody's circumstances are different. I encourage you to play with the simulator. Get on my schedule. Let's do it together. But more often than not, we find that 10% left over at the end of the month is generally enough for it to work for the individual, and for those of you that got 2% interest rates during the pandemic, I just want you to know that I'm running the simulator against those loans day in and day out. And I would say, I'll give you a 65% of the time the all in one is beaten the, you know, what, out of a two and a half percent 30 year fixed mortgage

Keith Weinhold 42:12

that is really interesting. Well, there's a lot of opportunity and flexibility with the all in one loan. Is there any last thing that we should know about it.

Caeli Ridge 42:22

Start doing your due diligence. This does take a minute to unpack. Don't get overwhelmed by all the information. We've talked about some real tangible stuff here, but there's quite a bit that there would be to uncover. So take your time. Call us. We'll walk through it step by step

Keith Weinhold 42:36

and get started on that simulator and really see what it can do for you to make that actionable. Caeli, Where should one start?

Caeli Ridge 42:44

Head to our website, ridgelendinggroup.com you can email us info@ridgelendinggroup.com and obviously we're always a phone call away at 855, 74, Ridge

Keith Weinhold 42:54

and again, you can find that all in one loan simulator, where you can plug in some real numbers and see how it can benefit you. A friendly representative from Ridge can help you. Go ahead and do that there. So there's a lot of excitement about the all in one loan, especially, or an investor that has a GRE mindset philosophy and thinks about the opportunity of dead equity. But now that we've talked about that, tell us just quickly about some of the other products that you offer in there at ridge.

Caeli Ridge 43:23

So I think one of the real value adds for us is that we're not a one size fits all. We have an extremely diverse menu, as I like to call it, of loan programs. The all in one is at the top of a short list of my favorites. For some individuals, you got the fanniefriddies. You've got non QM, which includes DSCR, debt service, coverage ratio, bank statement loans, asset depletion loans. We have ground up construction for those that are interested in that. We have our short term bridge loans that I talked briefly about, where if you need fix and flip fix and hold, potentially, you need shorter term money, commercial loans for commercial products, commercial loans for residential in a cross collateralization way, if that is to your advantage. So as you can see, it's quite diverse.

Keith Weinhold 44:03

It's been valuable as always, and I definitely learned a few extra things that I did not know about the all in one loan myself. JAYLEE Reyes, it's been great having you back on the show, Keith. Thank you.

Now a mortgage company, of course, they have overhead and employees that they have to pay and so on. And you know, from talking with Chaley some more, I learned that they don't even make much profit from all in one loans. We wanted to discuss it together today for your benefit. However, though there are some real fees with the all in one loan, you pay points of three to 4% of the draw in closing costs only, but it's a one time fee, not every time you draw against it. She also let me know that it does not make your taxes substantially. More complicated, if you think that it can help you clear a few minutes, learn more and get hooked up with that all in one loan simulator, where they will help you through it. Big thanks to Caeli Ridge today, they really make themselves available. You can just call 855, 74, Ridge. Or if it's more your style, visit them at Ridge lending group.com Until next week, I'm your host. Keith Weinhold, don't quit your Daydream.

Speaker 1 45:31

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 45:59

The preceding program was brought to you by your home for wealth, building, getricheducation.com.

Direct download: GREepisode542_.mp3
Category:general -- posted at: 4:00am EDT

Mon, 17 February 2025

Keith discusses the impact of baby boomers on the housing market, noting that contrary to popular belief, many boomers are choosing to age in place. He also addresses the negative effects of gambling, particularly sports gambling, on young men, including financial ruin and increased bankruptcies.

54% of baby boomers state that they will never sell their homes.

People aged 55+ own more than half of U.S. homes.

The overall population growth in the US has grown at its fastest rate since 2001, reaching over 340 million.

Millennials and Gen Z, the largest generations, are driving future housing demand.

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540: Investor Insights: Amenities That Drive Big Rental Profits

Complete episode transcript:

Automatically Transcribed With Otter.ai

Keith Weinhold 0:01

Welcome to GRE. I'm your host, Keith Weinhold. All the baby boomers are about to sell off their homes and downsize, unleashing a glut of supply onto the market, and housing prices crash. Is there cogency to that theory or not? I give you a definitive answer, the Trump bump, then later, a pernicious vice is destroying more people's lives today, especially young men and almost no one is talking about this. It's leading to lower credit scores, more bankruptcies and even more suicides today on get rich education

since 2014 the powerful get rich education podcast has created more passive income for people than nearly any other show in the world. This show teaches you how to earn strong returns from passive real estate investing in the best markets without losing your time being a flipper or landlord. Show Host Keith Weinhold writes for both Forbes and Rich Dad advisors and delivers a new show every week since 2014 there's been millions of listener downloads of 188 world nations. He has a list show guests and key top selling personal finance author Robert Kiyosaki, get rich education can be heard on every podcast platform, plus it has its own dedicated Apple and Android listener phone apps build wealth on the go with the get rich education podcast. Sign up now for the get rich education podcast or visit get rich education.com.

Corey Coates 1:25

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 1:41

Welcome to GRE from Hyannis, Massachusetts to Hiram, Utah and across 188 nations worldwide. I'm Keith Weinhold, and you are inside get rich education episode 541 just another slack jawed and snaggletoothed podcaster here now a popular, I suppose, media narrative that's been out there for a long time is this premise that US housing prices are going to crash hard because all the aging baby boomers are going to sell their homes, and Boomers are the biggest generation in all of American history. This is just going to magnify the price collapse. It means far more home sellers than buyers. So soon enough, sellers will have to keep cutting prices. Everyone's going to undercut everybody to compete with all of these for sale homes. So as a result, everybody's property values are going to collapse today. Let's look at how bad it will get. Should you get ahead of this and sell it all now and then? I'll even tell you when this popular narrative will supposedly happen with boomers selling en masse, or won't it happen at all. That's what we're looking at, the term silver tsunami. You've probably heard that thrown around in the real estate world. It actually refers to pent up housing stock that older homeowners will eventually choose to sell, which would have that effect of flooding the market with all this new inventory. All right. Now let's define what we're talking about here. Baby Boomers are the generation born just after World War Two, between 1946 and 64 that makes them between the ages of 61 and 79 this year. Okay, so basically, these people are in their 60s and 70s. That's their age. My parents are baby boomers. President Trump is at the upper age limit for a boomer, but they're not all as old as you think. I mean the youngest baby boomers include Michelle Obama, Sandra Bullock and Rob Lowe. So not all boomers are like super old, but see, it is a big generation of over 76 million people. So whatever they do really moves the economy. And maybe you've heard it been said, My gosh, what if we have more dyers than buyers? But now a more nascent trend is that you hear about more and more boomers and people older than boomers not selling their home instead wanting to age in place. And that just means they want to stay in their home and not go to a nursing home or assisted living. And that was recently quantified in a survey that Housing Wire reported on it found that 54% of baby boomers say that they'll never sell their homes, some of them passing homes along as inheritance and see often that's because their home is paid off and assisted living care costs are through. To the roof, more than half of boomers don't have any mortgage at all. All right, so we've established that boomers aren't as old as most people think, and then a lot of them aren't planning to sell. But still, let's look for trouble here, because boomers are a huge group, and some portion of them are going to sell is they age, even if a lot of them say that they won't. How about the almost half of boomers with a mortgage? You know what? Here's the thing, if they downsized, like older people have traditionally done. I mean, my grandparents downsized long ago. But do you know what would happen if boomers downsized? Today? For most, their monthly mortgage payment would actually go up if they downsized. That's because of today's higher mortgage rates and home prices. And see, that's a financial reality that keeps them in place. They're never going to downsize. All right, so a lot of boomers are just not going to sell. But still, this wave of selling boomers crashing the housing market, this has been a popular narrative for, I don't know, maybe more than a decade. Now there's been a lot of smoke, so then where is the fire. That's another way to think about this. So there's got to be more to this. And there is, in fact, people age 55 plus, own more than half of the homes in the US. Did you know that? All right? Well, if we pull back from boomers, and let's just take a look at all homeowners of every age, people are staying in their homes longer, whether they're age 30 or 50 or 80, Americans now stay in the same home about 12 years. That is twice as long as 2005 Well, what that means is that homes don't come onto the market and people cannot buy what's not for sale. And then, of course, you've got the well documented interest rate lock in effect. That's a contributor here to people of all ages with 4% mortgages, they are reluctant to sell. And now what we're talking about here are demographics. Remember that quote, demography is destiny, the three word quote from 1800s era French philosopher Auguste Comte, and that's because it's completely predictable. If you're 32 years old today, in 10 years, you'll be 42 totally predictable. All right, if demographics could possibly crash housing crisis, let's step back and see what's going on with overall US, population growth. You know what? It just grew at its fastest rate since 2001 about a full 1% growth last year, yeah, we broke the 340 million population mark for the first time ever. And now, what about the portion that our immigrants, and what if a substantial amount of them get deported? I mean, after Trump settled into the White House for his second term, deportations began almost immediately. Is there enough population growth to buy from the boomers that do sell their homes? Well, if mortgage rates come down into the low fives, then maybe more boomers will sell and bring some more resale inventory onto the market. See, you need a good chunk, though, of buyers to come in from somewhere in order to support future housing prices. Well, where are those buyers going to be? Well, some people still don't realize that the largest generation in American history is, in fact, not baby boomers, it's millennials. They became the biggest group more than five years ago. In fact, Statista tells us that Gen Z isn't far behind them either. Yeah, Gen Z is almost as big as millennials as a group coming right behind them. And of course, this varies a little bit. Demographers parse the generations somewhat differently, but here's what the rise of the biggest generation means, millennials. They're aged 29 to 44 now, and there are over 70 million of them, and then almost as big the next group right behind them, Gen Z. They're ages 13 to 28 they alone number about 70 million themselves, even if you just completely leave the surge in immigration out of the picture and all the additional housing demand that immigration brings. So we're mainly just looking at the domestic side alone here. So. What's happened is that there were 4 million plus births per year from 1990 to 2010 providing a tailwind for housing demand through 2035, 2045, or later. Yeah, we had more births during many of those years than we did in the peak of the baby boom, which was 1957 like I've mentioned on the show before, the average age of a first time homebuyer is now a record high of 38 years old, per the NAR it's really taken a long time for some people to stop playing the video games and moving out of their parents basement. Okay, well, the peak birth year for the US was 2007 I just told you it was elevated between 1990 and 2010 but 2007 was that peak, alright? So take that peak and add 38 years to it, and you know what? The first time homebuyer demand is just going to continue to build, build, build, and not even reach its peak. Then until 2045 or so, the peak birth year 2007 plus 38 years, that is where the crush of future demand is coming from because that person born in 2007 on average, they're not even going to buy their first home until well into the 2040s

In fact, the number of Americans turning 35 every single year is High, and it just keeps increasing. It's over 4 million now, already up 25% since 2011 and this number of Americans turning 35 is going to keep rising for another decade or two. In fact, this year, it's going to approach 5 million Americans turning 35 new record territory coming. And I keep bringing this up because 35 is a key age, because by that time, almost everyone has moved out of their parents home, and so that's the time where people either need to rent or own themselves, pushing up both rents and prices, and that's why this wave of demand and pent up demand is just gonna keep coming. And by the way, those stats that I gave you there, they're all sourced from the US Census Bureau. I mean, this is exactly where the housing demand just keeps coming from. It's a big factor about why prices keep going up. The demand just keeps piling on, even though affordability worsened, the demand just keeps coming. And it's just going to keep on coming well in to the 2040s now it could very well ebb substantially by, say, the middle of the 2050s but we'll see, and that is still three decades away. And remember, all of this doesn't even include the additional population growth from immigration and how many non deportees that is going to add to the housing demand on top of this, and then, if that's not enough, there is even more future housing demand expected to come from the declining number of occupants per household. Yes, the reduced household size that Stokes housing demand. I touched on this with you a little before on a prior show. But let me go deeper as we continue to corrode this more dyers than buyers. Theory, as we break this down, people have smaller families today. I think everybody knows that back in 1960 there were 3.3 occupants per household. Today, it's just two and a half. And to give you a simple example of how this itself keeps stoking the housing demand, just say that there's a village of 100 people with three occupants per household, they would need 33 and 1/3 homes over time, when that drops to two occupants per household, that's the direction we're going now that same village needs 50 homes just in order to accommodate the shift in household structure. Well, 50 homes is 50% more than 33 and a third, well, that means 50% more homes are needed, and that's even in a scenario where the population stays the same. Yet it's not staying the same, it's rising, and the population is really rising fast for that key household form. Population age range of 35 to 38 years old. Fewer Americans are living together. I expect the housing market to continue shifting toward smaller household counts. One person households will keep rising. I expect that to be one of the most impactful housing trends of this entire 21st century, and it's also really helping fuel a loneliness epidemic, which is another subject unto itself. Well, the three main drivers of this rise in single person households is that first people are delaying those major life events compared to previous generations. They're attending school longer. They're marrying later. They're buying homes later. They're having children later. And as these events are postponed, the time some young adults spend living alone or without children increases. They're playing video games longer as well. The second driver of these single person households is falling. Birth rates when people have children, many are having fewer than previous generations, reducing the average household size. That's pretty obvious. And then third the population composition is getting older. And older, people tend to live with fewer people. If life expectancy rises, this component of the trend would only intensify. Yes, the whole Brian Johnson thing, he is the health influencer that says we now have alive, the first generation that's going to live forever due to advances in longevity in technology. I mean, my gosh, if he is right, what would that do to housing demand? I mean, and it would also push up our average age even more. Gosh, yet, at the same time that all this demand keeps pushing up. America already has a well publicized overall housing shortage of several million housing units. You already know that story well, construction has picked up a little, but not enough to keep up with demand. In fact, American housing supply is still about 30% below pre pandemic levels. So suffice to say, let me give you a satisfying definitive answer here, when are selling boomers going to crash housing prices? It is highly unlikely that that can even happen at all. In fact, you see fewer stories about this than you used to. More people have come to realize that it is just not happening. And looking at us demographics over the next few cycles, a lot more people will need homes demand continuing to exceed supply. This is why home prices should just keep rising from here. In fact, I have been an active single family rental property investor here myself, single family is where perhaps the greatest shortage is and the greatest demand is at the same time I am owning something that people are definitely going to need more of. Remember, demography is destiny, and they're going to pay more and more for it. When mortgage rates fall, it's probably going to bring in even more buying activity, and now all of this continued upward, long term, future price momentum for housing, of course, that all existed before Donald John Trump step into the White House to start his second term last month. I think the Trump factor, or Trump bump, you know what often gets somewhat exaggerated for what it can do to the economy and housing prices, right? I mean, I've talked to you before, it's about the decisions that you make more so than decisions that a politician makes, but Trump is doing some things on a pretty seismic level these nascent immigrant deportations, that obviously can increase the cost of labor you're exporting away your low cost labor with immigrant deportations. I mean, that is inflation tariffs, though some tariffs have been negotiated away for the time being, that's more inflation. So deportations mean wage increases. That's more inflation. Increased wages mean increased rents. Trump talks lower taxes. Lower taxes can then mean higher rent payments. Proposals to eliminate. Made taxes on tips over time and Social Security, that means that Americans and retirees are gonna have more disposable income. More income means higher rent collections, fewer delinquencies, and potentially rising home prices as affordability improves. That's a lot of the good news. It's not all rosy news. You better look out for high tax states salt adjustments that state and local income tax and a deduction cap could harm their property values. We're talking about places like California, New York and New Jersey, the 2017 Trump tax cuts and Jobs Act that gave real estate investors some really juicy benefits, like 20% pass through deduction for LLCs and bonus depreciation on rental properties and lower corporate tax rates too. Combined this stuff, it all keeps more money in your pocket and allows for bigger deals with better cash flow.

We're talking about Trump bump factors on the real estate market here, other proposals on the table, other things like tax breaks for domestic production that could boost us construction, leading to more badly needed housing supply that could lower building costs and investment opportunities in niche in growth markets. Remember opportunity zones, and then what about targeting wealthy investors? We'll see what happens, but Trump's plan removes tax breaks for hedge funds and billionaire sports owners. But could real estate investors get hurt a little on that side too? Maybe look for changes to the 1031 or depreciation strategies. But you know, the 1031 exchange has been around for over 100 years. I would be surprised if it went away completely, and yes, though they have been postponed, if 25% tariffs on Mexico and Canada do go into place and the countries retaliate, as they've been shown to do, it would add point seven 6% to US inflation and subtract 410 of a percent from US GDP growth. Aren't those two projections Interesting? Yeah, those estimates were compiled by the Yale budget lab. So adding about three quarters of a percentage point to the overall inflation rate with these tariffs. I mean everything we're talking about the price of your housing or your car tires or your tomatoes and romaine lettuce. I mean, that effect could take money out of people's pockets. Yes, we know that Trump wants to bring down interest rates, but I don't know how he's going to do that. I mean, as you know, more inflation correlates with higher rates, not lower ones. See, you just can't get it all. You just can't have it all. And of course, mortgage rates are not historically high. They've simply been normalized after years of being artificially low. Rates are normal. So normalized is really a term that I like to use. So really, to help summarize what I've shared with you here in the first half of the show, a housing price crash induced by a boomer sell off is not a thing. In fact, almost Oppositely, demographics in this pent up demand should raise up future home prices, and to a lesser extent, a Trump bump can as well. Yes, gosh, Trump just has an insatiable fascination for tariffs. It is truly amazing, and it has more stick to itiveness than say, Mark Zuckerberg, recent fascination with masculine energy and gold chains, that's for sure.

Hey, before we get into the pernicious vice that's destroying more people's lives today, especially young men and almost no one is talking about this, it's leading to lower credit scores, more bankruptcies and even more suicides. First, I've got some cool things to tell you. About two weeks ago here on the show event, host Robert Helms of the real estate guys and I invited you to join us on the terrific Investor Summit at sea, that cruise on the Caribbean. Besides the two of us, there are a number of other great faculty members. Robert Kiyosaki recently announced that he's going to be joining us on the faculty as well. So you'll get to meet and learn from Robert Kiyosaki, and if you happen to be a new listener, he is the top selling personal finance author of all time the. Rich Dad, Poor Dad, author, and he's been our guest here on the GRE podcast four times. Now, I hope to meet you, the listener, in person on the summit at sea in the Caribbean this June, starting out of Miami. Gosh, what an outstanding time that is. It's not a low cost event, however, the minimum cabin in interior cabin is $5,900 and they are more expensive from there if you get nicer accommodations. But all the details are there on GRE podcast episode 539 two weeks ago. I really hope you'll join us and then I can meet you in person.

Earlier this month, Trump established a US sovereign wealth fund, and when he did, I congratulated our frequent contributor here, macro economist Richard Duncan, because Richard championed the establishment of that fund for years. He presented to Congress about it, and Richard was the first ever GRE guest with us back here in 2014 on the Panama coffee farm investing that we've discussed here on the show, Villanova University reached out to them, and they're now collaborating together. It's something I find kind of cool, as a Pennsylvania native and one of my tightest best friends is also a Villanova alum, as for future episodes coming up on the show. Here, imagine if you had a property loan, yet you didn't have to make any payments, and if you did make payments on your loan, then every penny of that payment goes to principal, not to interest. Wouldn't that be incredible? Well, such a thing does exist, and it's not new or experimental or avant garde. People just don't know about this vehicle. We're going to discuss that right here on next week's show, along with some other vital mortgage topics. There are three ways to connect with our education at GRE you're listening to one of them right now, our flagship podcast. Also check out our get rich education YouTube channel, because that is different content than this show. That's the second way, and that show is also on other video first, platforms like get rich education on rumble, and finally, you'll have it all, all three when you get our weekly Don't quit your Daydream newsletter if you don't already get it free now, while it's on your mind, simply text GRE 266, 86, more. Next. 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 420056, 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 Ridge lendinggroup.com that's Ridge lendinggroup.com

Oh geez, the initial average bank account pays less than 1% on your savings, so your bank is getting rich off of you. You've got to earn way more, or else 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 a 10% return and compounds year in and year out. Instead of earning less than 1% 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 you know how I'd know, because I'm an investor in this myself, earn 10% like me and GRE listeners are. Text family to 66866, to learn about freedom. Family investments, liquidity fund on your journey to financial freedom through passive income. Text family to 66866.

Robert Kiyosaki 29:31

this is our rich dad Poor Dad. Author Robert Kiyosaki, listen to get rich education with Keith Weinhold and Don't Quit Your Daydream.

Keith Weinhold 29:50

Welcome back to get rich Education. I'm your host. Keith Weinhold, every once in a while, there's an investing adjacent activity that becomes. Is pronounced or become such a trend that it just can't be ignored, and you need to know about it. I recently presented on how gambling is financially derailing so many people today, especially young men and sports gambling and what makes California and Texas special here, the two most populous states, by the way, you'll see, once they legalize this, it's gonna get worse. There are two states where it's not legal yet now investing in gambling. They are two distinctly different activities. Investing is different from gambling. When you invest, you're purchasing a stake in an asset that has value in an effort to generate profit. But gambling doesn't involve taking ownership of anything of value. Instead, betters are predicting the outcome of an event gambling. It's really not a side hustle. I mean, people are constantly losing their families and businesses over this. This will be all new material here on the show as usual, except for a short snippet that includes super CPA Tom Wheelwright. This is about 10 minutes in length. Shout out to the media team here at GRE on the production side. And then after this, I have more to tell you about real estate.

Speaker 1 31:30

America is in the midst of an historic surge in legalized gambling.

Keith Weinhold 31:37

This is the worst thing that people are now doing with their time and money today, it's not losing it to inflation, it's not playing video games. It's being a slack jawed gambling degenerate. We are in the midst of an historic surge in legalized gambling, and the devastation on gamblers, especially young men is a lot worse than you think. I've also got a giant ominous warning for you that seasoned gamblers don't even know about when I bring in my CPA for just a minute here today on the seriously punishing tax implications that should scare anybody out of gambling.

Hi, I'm Keith Weinhold, get rich education, founder, Forbes real estate council member, best selling, author, and long time real estate investor. Almost 60% of 18 to 24 year olds have placed at least one sports bet now that's per the NCAA, and that has surged so fast. I mean, just less than a decade ago, major pro sports leagues shunned gambling, disassociating with it because it was illegal in most places. The big turning point was 2018 that's when the Supreme Court ended a decades long ban on commercialized sports betting. 38 states and DC have now legalized it most with minimum age requirements set at 21 and the two biggest platforms are DraftKings and fam duel. They've got about 70% of the market. But look, you can do this if you're under 21 on platforms like prize picks and flip they offer betting like experiences. They operate under fantasy sports or sweepstakes, and having these apps on your phone that just brings the gambling right to you. It keeps it in your face and addictive. Now it's like you're sitting in a casino when you're on your living room so far, or in your bed or even in the bathroom, there is no escape. Two thirds of Americans live in a state where they can access it on their phones. And look how young some of these gamblers are, what they have to say. And then who's showing up in these gamblers Anonymous meetings

Speaker 1 33:56

today's world is the 16, 1718, year olds, 1921, year olds that get addicted years ago, before, unlike casinos, if we had a person coming in and they're 24 years old, it was rare. All right, now the norm, the real norm, it's kids coming in at 17 years old. That's the norm.

Keith Weinhold 34:16

Well, one big reason why it's such a problem is, look, you can't hide it, so that therefore others can't tell if you're gambling, because you're not, you know, shooting it into your veins, or you're not acting drunk, or you're not smoking anything. See, you can gamble without exhibiting a physical change, so therefore others don't know that you need help. And it is all over the place. I mean, gambling ads air on TV over 60,000 times a year. Celebrities endorse gambling. I mean, some teams put gambling ads right on the field. Brick and mortar sports books are even built inside some stadiums now, Caesars and bet MGM. There are two other big platforms that you might see out there, but I mean, in their commercials, yeah, they can put that one 800 gambler help number on screen and tell you things like, gamble within your limits. But look, here's the thing these platforms, they're not going to cut you off if you continue to lose and they profit. In fact, if you win disproportionately big time after time, and these platforms can kind of tell that you're too smart. You know what they do, like a casino that identifies a card shark in Vegas, they're either gonna curtail your activity or just totally cut you off, alright? So then, by definition, if you have an account in good standing at FanDuel or DraftKings, and you bet a lot, and they keep letting you play well, then you have just signaled to the entire world that you don't know what you're doing, and you are going to lose big, or you already have. I mean, that is baked into the cake. That's how the system works. So therefore these companies are basically mining America to find anyone stupid enough to keep placing these sports bets. Companies are profiting from this, and then states are too. I mean, they've collected billions in tax revenue and FanDuel and DraftKings, see, they're publicly traded companies, so this means that they have shareholders, and those shareholders, they want to see profit and growth. I recently asked decorated CPA and mega popular tax author Tom Wheelwright about tax rates on gambling for just a quick three minutes here. I mean, you won't believe how punishing This is.

Can you tell us about sports gambling taxes and how it's treated

Tom Wheelwright 36:43

yeah. So remember, all income is taxable. So that includes gambling winnings. They are taxable. In fact, you'll get a 1099 just like you would if you rendered services, you know, you'd get a 1099 right? Or you have interest income, you get 1099 you get 1099 from gambling. What you actually have to show is that you actually have gambling losses. So you have to track those gambling losses to show the IRS that you've got gambling losses. But your gambling losses can never be more than your gambling winnings. In other words, you don't you never get to generate a tax loss on gambling. So that means is, is that if you win $10,000 during the year, and you can prove that you lost $8,000 during the year, you're gonna be taxed on $2,000 but if you can't prove the 8000 you're gonna be taxed on 10,000 Yeah,

Keith Weinhold 37:39

so you the gambler have the burden of tracking this, and I guess tracking your losses. I'm not a gambler. How would one track their losses?

Tom Wheelwright 37:47

Oh, I would keep a detailed ledger. Personally, I'd probably have a separate bank account just for gambling. Gosh, that's the way I would do it. I'm not a gambler either. So by the way, it's also a good way to budget your gambling so they, you know, get in trouble, right? So just set up a separate bank account, put whatever money you say, I'm comfortable with this money, I'm going to gamble with this money, put in that bank account, and then you have a ledger that shows the money that went in and the money you lost, the money you won, and don't do anything but gambling in that bank account.

Keith Weinhold 38:18

Hey, that separate account's a great way to hide it from your spouse, not that I'm suggesting.

Tom Wheelwright 38:25

Well, interesting. You went there.

Keith Weinhold 38:29

I'm not a gambler at all. Can't even believe I was thinking that far ahead. What are the gambling tax rates like? They're ordinary

Tom Wheelwright 38:35

income tax rates. So gambling winnings are just ordinary income they're they're the same as your wages. They don't have social security taxes their income, just like any other kind of income, nothing special, okay?

Keith Weinhold 38:47

And this all applies to whether it's sports gambling or general gambling, like lotteries and sweepstakes.

Tom Wheelwright 38:53

Just remember, all incomes taxable unless the government says it isn't all income, okay? And then there's some types of income that are taxed at special rates, like capital gains, but gambling has no special rate, so it's just your ordinary income rates.

Keith Weinhold 39:09

Gosh, to me, it seems like it's, it's hard to break even with gambling over time, and then when you take the tax adjusted earnings that you get from it, you know, over the long term, you know, I just don't think Harris and Bally's Casino is really incentivized to inform gamblers on how punitive this can be with ordinary income tax rates applied to gambling winnings.

Tom Wheelwright 39:30

No, but they will send you your 1090, 9g I guarantee that.

Keith Weinhold 39:34

So can you imagine tracking all that and then paying all that in tax, and this is even if you're on the winning side and then keeping a separate bank account as well. And note that Tom and I were talking federal. There. It gets even worse. Some state laws are punishing, like New York, which has a 51% tax rate on mobile sports wagering bank. Up 28% since states have legalized this and credit scores have dropped now, California and Texas are the two big states, and they still haven't legalized sports gambling. They're the two big ones, and when they do, that's when you'll see more bankruptcy and more people, especially young men in financial ruin. I mean gamblers, Anonymous meetings are filled with people hooked on betting and on stock options trading too, and you know, Worse still, among addiction disorders, gambling has a comparatively high suicide attempt rate. And you know, understand that, while both involve risk, investing in gambling are two different things. When you invest, you're purchasing a stake in an asset that has value in an effort to generate profit. But gambling doesn't involve taking ownership of anything with value. Instead, betters are predicting the outcome of an event. Now, I gambled as a teen on sports, and back then, it was just a friend and I, we would each lay a $20 bill on top of the television at the start of like a Mets versus Phillies baseball game, and then it sure made the game more interesting to watch. There wasn't any sort of app to make it easy, suck me in and make it a recurrent practice. I haven't gambled since. Now that you're aware of the gravity of the problem, the best thing you can do for yourself is to delete those apps off your phone. Because look, I mean every gambler that had their lies flipped over and turned catastrophic at one time, they told themselves, you know, I'm doing this, but it's under control. I mean, everybody once said that the best thing you can do is delete FanDuel DraftKings and any other apps like that off of your phone right now and vow to never do it again. I hope you like that. You know, it's sort of interesting and introspective to me that I would produce a piece of media like this because I am a sports fan. I watched more of the NFL this past season than I have in a while. You know, I'm in a phase of my life, or I'm a pretty productive person, doing research and interviewing guests and producing GRE media. But you know, I justified watching more sports lately because there's room for an entertainment bucket in everyone's life. That's how I feel. And you know, I don't really watch movies. Most movies I watch feel like a waste of my time when I'm done after two hours, because I'm usually disappointed in it. If I ever watch movies, I gotta watch movies on the plane, because even if it was lousy, I got somewhere in the process. So in any case, now, if gambling is controlled, well, then it might be debatable about whether or not it's a vice, like, say you go to Vegas and have your $250 spending limit or whatever.

But just remember, every gambling degenerate once told themselves and everybody that they know that they've got it under control, but yeah, often they didn't around here, we champion owning real estate directly yourself, that is something that is in your control. So we're not talking about REITs, Real Estate Investment Trusts. That's just a publicly owned company and a group of them. It's not real estate tokenization. That means owning digital fractional shares of a property or a real estate investment. I mean direct whole ownership also means it's not a syndication now that might be worth doing, though, that means that you're pooling other investors money. It's not direct whole investing. If you are investing in someone else's syndication, meaning that you're a limited partner and direct real estate investing, it means not being a flipper or a wholesaler. Again, those things might be worth doing, but they're really time consuming, and they're not tax advantaged either. But when you own rental real estate directly yourself, you don't even need to be a landlord. If you choose not to you, then will not be that point of contact for your tenants when others manage it. And yes, because of the five ways that you're paid, you can make the case that real estate has hegemony over other assets, and for the demographic reasons and the inflationary reasons, like the ones that I told you about earlier today, real estate appears poised to continue as the. Hegemon. In fact, recently, so many global hedge funds have dumped every stock that they have, except for the real estate stocks. I shared that article with you in our newsletter recently. That's largely a tariff response. Let me tell you about real properties on GRE marketplace right now that are ripe for owning directly. I mean direct ownership. That's also the easiest to understand. You are paid rent by a tenant that lives there, often through your property manager, and unlike the out of control sports gambler, this is very much in your control. A brand new build single family rental in Columbiana, Alabama, that's just south of Birmingham. Rent is $1,925 the price is $269,900 over 1600 square feet, four, bed, two bath. Now with the new build, expect low maintenance costs. Is currently vacant, get an interest rate of six and three quarters percent with a 25% down payment on this new build, single family rental in Alabama. Then another sample here. This is interesting. The rent on this old build Davenport Iowa duplex is $1,900 which is about the same rent as the Alabama single family rental I just described. But yet the price for this Davenport duplex is just $183,000 Davenport is part of America's Quad Cities with a combined population of about half a million with both duplex sides. It's a combined square footage of almost 2700 square feet, five, bed, two, bath. They're on Brown Street in Davenport, and now, as favorable as those $1,900 combined duplex rents are, since this property is vintage, in fact, it's over 100 years old, you better check closely on the renovations that were made to the property and have plenty set aside for any maintenance and repairs as well, with a 25% down payment, expect an interest rate of just six and one quarter percent. And there are more financing details there. And of course, rates are always changing. The last one I'll mention is this new build, another duplex, this one in Inverness, Florida. This is really interesting too. And now, what do you think when you think of Florida, real estate? Does climate change come to mind? For some people, it does. For some it doesn't, maybe even rising sea levels over the long term. Well, Inverness, Florida is 15 to 20 miles inland, and it's 50 feet above sea level. How about high insurance rates? Does that come to mind with Florida? Well, they're not so high on new build properties, since they're built to today's stringent hurricane standards. Is Florida temporarily over built, even though the nation, in aggregate is under built? Yes, some Florida markets are overbuilt, and that's how you could potentially snag a deal and get this with 25% down, you can get an interest rate as low as four and three quarter percent, yes, and that's showing with zero buyer paid discount points, the combined rent from both sides of this new build Inverness duplex is estimated at $2,830 of course, often you need to estimate a rent range or make an estimate on the projected rent for new builds, because often they're not occupied yet, since they were just built, sales price of just a touch under 420k on the Inverness duplex, and as just one of the five ways you're paid the cash on cash return is projected at 5% yes, your return goes up into the positive cash flow zone when your mortgage rate is as low as four and three quarters percent. I mean, that is really attractive. It also comes with a year of free property management. So there you go, a new build single family rental in Alabama, an old duplex in Davenport, Iowa, and a new build duplex with just killer incentives in Inverness, Florida, and that's just the sampling of real estate pays five ways type of properties. We either help you get started or continue on your path to financial freedom and help you do that. With our completely free investment coaching, we work with you to help you with these properties or others like them or none at all, if it's not in your best interest to invest now at GRE marketplace.com All you need to do to get started from GRE marketplace.com is click on the coaching area and you can get on the calendar for a free strategy session until next week, I'm your host, Keith Weinhold, don't quit your Daydream.

Speaker 2 50:35

Keith Weinhold 51:03

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Direct download: GREepisode541_.mp3
Category:general -- posted at: 4:00am EDT

Mon, 10 February 2025

Keith shares the top amenities tenants want in rental units, based on a survey by GreyStar with over 90,000 responses. He’s joined by long-time friends of the show, Terry and Liz to discuss investment strategies, emphasizing the importance of buying properties in the "sweet spot" and the benefits of allowing pets, which can lead to longer tenant stays.

They also touch on:

Trade-offs Between Buying Multiple Cheap Properties vs. One Expensive Property
Quality of Properties and Tenant Demographics
Screening Tenants and Handling Pets
New Construction vs. Renovated Properties
Investor Life Cycle and Exit Strategies

Resources:

Visit MidSouthHomeBuyers.com and explore their investment opportunities.

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539: Short-Term Rentals, Mid-Term Rentals, and Hotel Investing with Robert Helms

Complete episode transcript:

Automatically Transcribed With Otter.ai

Keith Weinhold 0:01

Welcome to GRE! I'm your host, Keith Weinhold. What are the features that tenants want in their rental units today, and what amenities are most profitable for real estate investors? Bedroom, count, bathroom, count, cover, parking, pet policy and more, what matters what doesn't, and how do you optimize operations to maximize your profit? It's a conversation with me and two terrific real estate pro guests today on get rich education.

Speaker 1 0:31

Since 2014 the powerful get rich education podcast has created more passive income for people than nearly any other show in the world. This show teaches you how to earn strong returns from passive real estate investing in the best markets without losing your time being a flipper or landlord. Show Host Keith Weinhold writes for both Forbes and Rich Dad advisors, who delivers a new show every week since 2014 there's been millions of listener downloads of 188 world nations. He has a list show guests and key top selling personal finance author Robert Kiyosaki, get rich education can be heard on every podcast platform, plus it has its own dedicated Apple and Android listener phone apps build wealth on the go with the get rich education podcast. Sign up now for the get rich education podcast or visit get rich education.com

Corey Coates 1:17

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 1:33

Welcome to GRE from Tacoma, Washington to the took pony Palmyra bridge spanning the Delaware out of Philadelphia and across 188 nations worldwide. I'm Keith Weinhold, and this is get rich education, the voice of real estate investing Since 2014 I'm grateful for your faithful listenership. If you're new around here, join in at GRE we do this one big headline show every week, never more, never fewer, and truly, every single week for more than 10 years now, let's talk about amenities that tenants want in apartments today, before we pivot to discussing properties in general and single family homes in our conversation coming shortly. Now, you might have heard of GrayStar before they are international real estate developers and managers, well, they received more than 90,000 survey responses from apartment tenants on their most preferred features and amenities. So we've got a good sample size here, and Gray star compiled the top 20. Let's just hit the top five. This is important, because your tenant is your customer, and when you serve them, you're not only making them happy, you yourself are positioned to be more profitable long term. Here we go. The number one preferred feature is, do you have any guess what tenants want? It's the walk in closet. 51% of apartment tenants said that they are interested in this feature, and 37% would not rent an apartment without it. On average, they're willing to pay a $75 a month premium, and the survey shows that this is particularly important in Dallas and Miami, where over half said that they would not rent without it. The second most important amenity to apartment tenants is large windows with abundant natural light. 56% that they're interested in this feature. 31% would not rent an apartment without it, and on average, they're willing to pay an $80 a month premium for the large windows. When you think about how more tenants work from home today than five years ago? Well, big windows make more sense. Third most important is fresh air ventilation. 69% said that they're interested in it, and on average, they're willing to pay a $79 per month premium. The highest demand for fresh air ventilation is in Seattle, San Francisco and San Jose. We're talking about the top five amenities that apartment tenants want today in order, the fourth most important one is covered parking or a garage. 52% said that they're interested in this feature. Fully a third would not rent an apartment without it, and on average, they're willing to pay a $75 a month premium, and this is most important in urban areas with a covered parking or garage, where 42% will not rent a unit without it, in those urban areas. And then the fifth one is high efficiency appliances, 71% said they're interested in this feature. On average, they're willing to pay a $79 a month premium, and this, this high efficiency appliance thing, is more important for the high income tenant segment. So there they are, the top five features and amenities that. Apartment tenants want today. So to review, in order, it's a walk in closet, big windows, fresh air, ventilation, covered parking or a garage, and finally, high efficiency appliances. And listen in as I'll have a robust discussion with two season real estate pros. We're going to go beyond apartments about the features that tenants and real estate investors alike want today, and at times, they will talk about their home markets of Memphis, Tennessee and Little Rock, Arkansas, which are some of the most investor advantaged markets anywhere. And you'll have to calibrate some of these numbers to your market, because in these places, the typical single family rental purchase is just 100 to 200k and rent is between$900 and 1600 and at other times, we will talk more nationally and globally.

Hey, well, I'd like to welcome in long time friends of the show, with the emphasis on long time since they were first here with us, more than 10 years ago on episode nine in 2014 those ever steady quality property providers from Memphis, Tennessee, mid south homebuyers, it's the return of their principal, Terry Kerr and investor relations lead, Liz Nalen, Terry and Liz, welcome back.

Terry Kerr 6:25

Thank you, Keith. It's great to be here. Thanks so much, Keith, great to be back.

Keith Weinhold 6:28

Yes, it's beginning to feel like a high school class reunion or something. I anticipate my high school class reunions just like I anticipate our discussion today. Let's talk about your individual takes on investment philosophy, common investor mistakes, and is some investor conventional wisdom true, or is it not? Because there's probably some of that that we have to debunk, I think a common one. And I know you get that question in there from investors and our listeners, you had that conversation it was it better to buy two cheap properties or one expensive property talk to us about some of those trade offs.

Liz Nowlin 7:07

It's such an interesting thing, and there's so many factors you can look at. I broke it down for myself personally. Probably 12 years ago, I was asking myself that question as an investor and I ran 2 $50,000 houses, I'm dating myself against $100,000 house, and even when I manipulated the appreciation for the $100,000 house at the higher rate. And actually, we've been talking about investor conventional wisdom, and that is actually a piece of conventional wisdom I've not seen hold true as much, but that a higher end neighborhood is going to appreciate a more rapid pace than a more blue collar neighborhood. So that, as a side note, is a piece of conventional wisdom that I've seen a bit debunked, but it really ramping up the appreciation on the $100,000 house. I think I put it at reselling at like 180 or 190 down the line, and I put my $50,000 houses at maybe 90. You know, not as aggressive for me. Two houses beat one, every kind of way that I shook it out. And of course, the 50,000s had lower individual cash flows, but still, I think matching or higher than the 100. And the one thing I'm not sure that I put in there is two water heaters versus one water heater, two furnaces versus one, but running the same maintenance in general for them. Terry, what do you think

Terry Kerr 8:32

I started out buying houses a little bit lower than I should and what I mean a little bit lower like and a little bit lower quality neighborhoods, and quickly learned that you can't buy too low, you know, you got to buy them, you know, in the sweet spot. So I bought in the A class areas. I bought in the areas that were a little too low, and then found the sweet spot. And then within the sweet spot, I've got a bunch of houses that are in the mid range where we typically operate, and personally, I've also got a bunch of duplexes. I like duplexes. So whether that's duplexes or a little bit upper or a little bit lower, personally, I like a mix of them. And I'm a buy and hold guy. So the stuff that I buy and hold I'm holding for the extra long time, initially, right out of the gate, you've got to look at things like cost segregation, closing costs and all that kind of deal. So really, everyone kind of needs to run their own numbers, because what might make sense for one person just might not make sense for someone else. And again, I'm kind of all over the board. You factor in how much you're going to spend in closing costs, how long do you intend to hold the property? What's it going to cost to sell the property in 1015, 20 years. But again, the cost segregation and just everyone needs to kind of run their own numbers. I think.

Speaker 2 9:47

closing costs times two versus times one is an interesting point. Paying to mow a yard is paying to mow a yard. But then you get into another rub that I think I put them I don't think I did a square footage variation, but I like smaller Homes. It's less on paint. It's less on vacant utilities. The lower your rent is to a degree, the more people can afford to rent it, and the more recession proof you are, in my opinion. And I wasn't running through that as well, but in my antique valuation from 2012 that $100,000 house is going to be bigger often than the littler guys for the rent. Not you know, you can have a play between neighborhood quality and size of house with rents, which is a determining price. But Keith, what do you think two or one?

Keith Weinhold 10:33

Yeah, the two thing versus one thing has a lot of trade offs. As an investor, I think about the advantages of where one is going to have less management, even though I use a property manager, but with respect to the size of the property, I think a lot of us know, and the new investor doesn't know, say, a 1500 square foot unit versus a 3000 square foot rental unit. Well, with the 3000 you often have twice the maintenance, but you only get a little more in rent income. So depending on the market you're in, typically something more like a 1500 square foot rental unit is going to work out better.

Terry Kerr 11:06

Yep, I agree. And then also, another one of the things that I found out is buying houses a little too far up market going to be renting to folks that are more apt to buy a house, right? And so you might have more turnover and a more expensive house just because it's in, you're renting in an area where folks may just not stay as long. And one of the things that that, of course, we like about Memphis is it's predominantly a rental market, so we're able to kind of have the best of both worlds there. But

Liz Nowlin 11:32

kind of, going back to investor conventional wisdom, I think a common mistake, or maybe a mistake isn't the right word, but I hear investors say that they would not buy a house that they would not live in, and I find that they tend to be very expansive times of their life. They often have young children are possibly planning to do it. And one of the best renters I ever had was a little old lady on Social Security, on a fixed income. She lived in my house for seven years. She paid on time like crazy. She added a garden that my home didn't have, and she would have never paid the extra $25 a month that a second bathroom would have called for from that property. And people forget that you'd people downsize as much as they upsize. There's divorce or just retirement, there's empty nesters. Families shift down as much as they shift up. Because investors are often they're talking to me from their four bedroom, two bath house, and they couldn't conceive of renting a smaller thing long term. They just kind of missed that aspect.

Keith Weinhold 12:38

Right for me, it's definitely not a criterion. Would I live in the property myself? And that makes it eligible to hold as a rental? No, it's just the opposite. Really. I don't think any of my rentals are ones that I would prefer to live in, because it wouldn't upgrade my lifestyle. Yet, it's still doing the clean, safe, affordable, functional housing thing. We're talking about the quality of properties here. Class A, properties are deemed the best class, D, the worst. What are your thoughts? Is B class better than C class? And is a really the best of all? I mean, for example, do you get better renters in a class, or are they finicky and then they have the means to move out and go buy their own place, if they have a 790 credit score and they're living in a class a unit, what are your thoughts here?

Terry Kerr 13:22

I think c plus to b minus is the sweet spot. You get into the a plus. Like you said, there's going to be more turnover, because folks are going to be buying houses, and then you've got expensive appliances that you're going to be responsible for fixing in and a lot of A plus neighborhoods, but the C minus, and I can only really truly speak to Memphis and Little Rock, but the C minus the B plus I feel is the sweet spot that's for the size of the property, as well as the typical length of rentership.

Liz Nowlin 13:52

I managed a class for about a decade before I came to work for Terry in 2009 and we ran a great ship, and we had a great, beautiful high rise, but a year was really the average stay a class renters are more litigious. I was operating a building next to a law school, and I had young lawyers and law students, but that's going to be true in any kind of a class area. When you're paying a rent of that amount you are going to call in a work order because the doorknob is slightly loose, a lot of it. And very interestingly, I think we still had some collection issues, even renting to nurses, lawyers, just a small percentage. It's the dark side of property management. But I saw alcoholism, divorce just in a small percentage. But it doesn't wipe it out the way that you would think it would. I've seen college students going to WashU and Ivy League level stuff leave apartments in terrible, terrible conditions. Think that's another kind of investor myth around that

Terry Kerr 14:52

the blue collar folks that we're renting to here in Memphis and Little Rock, they're not going to call us for the loose doorknob. They're just going to pull out the screwdriver. And fix it, just to kind of piggyback on that. It's another one of the benefits of operating in that space

Speaker 2 15:05

lawn care. It's a little thing, but everything adds up, right? Like our renters are going to mow their own lawns and they expect it, and it's how it was at their last place. You're not pulling that off at the high high end

Keith Weinhold 15:16

when you're screening tenants. Do you have the ability to tell when someone is going to look after the place better, and because a lot of the single family home rentals that you do, I mean the tenants, for example, are even responsible for taking care of their lawn, or are they going to be responsible enough to call in a leak, but not so annoying that they're going to call you to adjust the kitchen cabinet door that's a little bit loose. So how can you help screen tenants to learn some of those things before they even move in.

Speaker 2 15:43

Our typical renter is coming to us from another single family home, and so one of the kind of unique ways that we screen tenants is that you have to have immediate landlord history. It's like with a lot of places, if you go rent somewhere for a couple years, you leave in good standing, you come and live with your mom for a year, everybody else in town would accept that positive rental history from a prior place. But one thing that that I love about working here and then what we do is that being in business for 24 years, we've had a lot of chances to kind of do things the wrong way and figure out how to do it right. And they Terry instituted a system in the early years, where any time a renter fell off the rails, they would look back through that file, was there anything? Was there anything that could have predicted that? And sometimes the answer is no, and it's just the first time somebody's hit hard times. But one of the things they found is, well, hey, this guy hadn't paid rent in a year. He did have good rental history, but he hadn't paid rent in a year, and then that bill, he'd gotten used to not paying so much, and so that just helps.

Terry Kerr 16:47

Absolutely

Keith Weinhold 16:48

yes, getting that reference from their current or previous landlord can give you so much on what the expectations are going to be for the tenancy there in their place. And then, of course, there's a whole thing where, if you're talking to the current landlord and they're trying to move out, you're really trying to get to the bottom of the things and just find out if their current landlord wants them to move out because they can't get pay, or they're doing something nefarious. They're not paying rent, or something like that. That's sort of something that one needs to decipher as well. But of course, the history is going to help project the future better than anything else. And one thing we're talking about the operations of properties, and you sort of touched on it. Liz, where you had that tenant that started her own garden, she's someone that wouldn't care to pay more for a second bathroom. So why don't we talk about some of the pros and cons with the bathroom? Are two bathrooms always better than one, or is it just one more place to have maintenance and repair problems?

Speaker 2 17:40

real quick, just back on the other thing, for all the philosophies that you can bring, the guy that I worked for before, Terry never did any landlord verifications, because the worst renter he ever had was personally dropped off at the property by the prior landlord.

Keith Weinhold 17:56

Oh my gosh, making it easy for him. And he said, I'm done

Speaker 2 17:59

so anyway, but the bathrooms is such a hot spot, there's definitely the second bathroom rules crowd. And then I've seen a seasoned investor that says that's just one more toilet to clog.

Terry Kerr 18:14

Yeah, but I would say that right now, I'm pretty sure that the property that I have on Powell is the longest resident I've ever had. She moved in 11 years ago, is still there. It's the smallest house that I own. It's like 794 square feet. It's tiny, and it's got just one bathroom. But she's single, and when she moved in, she said they're gonna have to carry me out of here. And I hope that's not for a long, long time. But like Liz mentioned, there are a lot of folks that just want one bathroom because they're just going to be living in their solo or even married couple. That is downsizing. So we have a mix, and we like to be able to have something, you know, for everyone. So our two bedroom baths perform very well, just like the three twos

Keith Weinhold 18:58

I once owned three rental properties. They were all built the same way. There was one bathroom in each of them, which would have been okay for one or two people to live there, except the only bathroom in these two story places was on the second floor for all three of them, and that did prevent some people from renting it. They didn't like the fact that the only bathroom was upstairs. Yeah, that sounds terrible.

Speaker 2 19:20

Another analogy that's too great, or something I experienced when people think that two bedrooms must be inherently less desirable than three. Kind of connecting to one versus two bathrooms. When I managed that a class high rise, I had a waiting list for my studio apartments. It was the cheapest way that you could live in that neighborhood, period. And I had a three or four month waiting list for the studio apartments. I had a little more trouble renting the one bedrooms and the most trouble renting the penthouse, frankly. And my point with that is that if you price it right, it will always work. You know, if my studios were the same price as my one bedrooms, and of course. Course, I would not have had a waiting list for them. And you know, we have that super unusual lifetime occupancy guarantee mid south it's that, you know, if your property is ever vacant for more than 90 days, we start paying your rent on the 91st day. And I'm often explaining to people that's not us actually being an insurance policy, though it's real, it's in writing, we will pay you if that happens. But what I'm really telling you is that these rents are real. The rent price is meant to perform, and that that's the point. Anything rents well and stays well rented if you price the rent correctly.

Keith Weinhold 20:33

Well, that's an excellent point. We're talking about conventional investor wisdom and the operations of rental properties for investors, with Terry Kerr and Liz Nowlin from mid south homebuyers more than we come back, including is saying yes to pets worth it. This is Get Rich Education. I'm your host. Keith Weinhold

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John Lee Dumas 22:37

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Keith Weinhold 22:56

Welcome back to get rich education. We're talking about efficient operations for real estate investors and the properties that they choose to put into their portfolio, and some of those trade offs with mid south home buyers Terry Kerr and Liz Nowlin. And one thing that seems to be increasingly popular, it sure isn't waning in the past few decades, is the prevalence of pets and tenants that apply and have a pet on there. So there are a lot of pros and cons here. What are your thoughts about pets? Is it worth it or not?

Terry Kerr 23:28

It's worth it as long as you know what pet is going into the property and you charge a pet fee, amen.

Speaker 2 23:36

I'm a dog lover personally. So I was a renter. I was a good renter with a dog, but you do run into the people I experienced this, where they had the one horror story, and they're like, I never want a pet environmental property again at the end of the day. And that's where you go into what type of pet and a non refundable pet deposit. But what you lose by excluding such a huge percentage of the population from retain your home is going to outweigh the risk of the one off bad pet owner.

Terry Kerr 24:11

I agree.

Keith Weinhold 24:12

We also get into questions of what's legal here. If one does say yes to pets, you mentioned a non refundable pet deposit, why don't you talk to us about the amount of that deposit in relation to the rent, and then can you, or do you also charge more rent monthly in addition to the non refundable pet deposit

Terry Kerr 24:33

we charge a $250 non refundable pet fee, and that it tends to cover any issues with the pet but one of The things that I'll kind of piggyback on, what Liz said, is, not only are you excluding a large portion of the market, but we find that folks with pets, they just tend to stay in the property longer. I don't know why that is. I can look at my portfolio. I've not like examined all the houses that were managed. Thing, but I know that from with my portfolio, folks that get into the property with pets. I don't know why, but they just tend to stay longer.

Liz Nowlin 25:07

I may have just had luck, but I have not had any significant pet damages from any of my renters with pets and and kind of more stable, stable folks sometimes. So I think it's worth it. You always understand the person that had the kind of the one bad story, but I really think you could mitigate it.

Keith Weinhold 25:23

How about hiking up the rent amount for pets?

Terry Kerr 25:23

We have not done that. It's not something that we've ever done before. I guess it's kind of a if it ain't broke, don't fix it, you know. But we want to be able to provide as much value as we can to the resident to have the leases renew. And so everything that we do, from a rehab standpoint and a property management standpoint, is geared towards resident renewal. I'm not saying we couldn't get maybe an extra 25 bucks a month, but at some point you cause yourself a longer vacancy because you're trying to find someone who's wanted to pay more because they have a pet or may not renew the lease, because they can find some place to go where the rent is cheaper and they're not being charged pet rent, if you will.

Liz Nowlin 25:25

We charge pet rent at my a class high rise that I managed for a long time. You know, it's not 100% No, it's people complained bitterly about it. I think a pet deposit. Just they stomach it a little bit better. The theme of the show might be, there's a lot of different ways to skin the cat. I got more pushback about that rent charge working directly with the renties than kind of anything else. So I would say we should up the non refundable before we layer it onto the monthly personally

Keith Weinhold 26:37

yeah, if it's paid one time, it seems to be less of an annoyance over time and forgotten. When we talk about pets and think about the long term, after a tenant with a pet moves out, can the place really be adequately cleaned for the next tenant? We know a lot of people are sensitive with allergies today.

Terry Kerr 26:56

Well, fortunately, we bought our own carpet cleaning van. We know what we're doing in regards to, you know, cleaning carpets, and so absolutely you can clean them. I mean, don't get me wrong, there's always going to be like the one off every once in a blue moon, but definitely, you know, we're not throwing the baby out with the bath water there. And fortunately, we're able to mitigate that smells with the right chemicals and our own carpet cleaning van. It's rare that we have that issue.

Keith Weinhold 27:22

Well, the other thing is, is that you're a turnkey real estate investing company, and for listeners that don't know what that means is you basically fix and flip properties at scale and sell them to investors. So what you do in that case, then, is you're using those resilient finishes that can stand up to pets better than if maybe a person were just doing this small scale on their own accord.

Terry Kerr 27:45

That is true. So I can't really speak to what other property management companies experience or other individuals, but I do know that that's what we've done to mitigate the risk, and again, like I said, increase the likelihood of a lease renewal, that's the name of the game, right?

Keith Weinhold 28:02

Saying yes to pets sure does increase your chances. And Terry and Liz, the three of us, have all been active real estate investors ourselves for quite a long time. And when we became real estate investors, new build properties, especially in the turnkey space, really weren't much of a thing, but today they are. There are build to rent communities and more. And you yourself, there have been more involved in new builds, although renovated properties is sort of your bread and butter business, but now that you've done both for a while, what are your thoughts with how you advise investors? Is the premium on new construction worth it? Are you just paying really upfront for the maintenance that you'd have on an existing property? So what are your thoughts with new versus renovated property?

Liz Nowlin 28:46

I love that. So you know, if anybody goes to our website right now and looks at the available properties, you'll see some really gorgeous houses mixed in with our already pretty houses with a new construction label across the front of that exterior photo, and you're going to see beautifully updated kitchens. Our renovated kitchens are also super nice. But I get that question, you are going to pay a little bit more for a new build than a renovated property? And you know, Terry and I talked about it, there's a really cool, detailed 15 year pro forma that you can look at with every property. And we did turn up the appreciation for a new construction house. And of course, nobody has a crystal ball, but I really think that will hold true for our properties only. We actually didn't change the maintenance metrics solely because our renovated houses have all new roof, all new furnace, all new air condenser, all new water heater, and they're just as new on the renovated properties as the new construction for our renovations. We're replacing all the any galvanized plumbing, you know. We're doing so much new I think maybe we could change it by a half of a percent or something, you know, but we actually didn't change it because. Because of the depth of the renovation on our properties. Now I am planning to have my next purchase from mid south homebuyers be a new construction home. There's the premium on the front end for me, my thought, and again, this gets into individual investor strategies, but my son is three years old. I plan to leave my entire portfolio to him, and my simple thought about it is that, you know, I have wonderful performing properties, the oldest of which was built in 1927 actually, and a lot of my renovated. It's a gorgeous one, by the way, a beautiful neighborhood, and it's been a great property for me. A lot of my inventory was built in the 60s and 70s. But when I think about Rhett, my son, baby, selling a house in 30 years. I have a feeling that 2024, build is going to do him very well. What kind of buy and hold investor Are you? Are you a 15 year or you will leave them to your kids? That's an angle to think about for sure.

Keith Weinhold 30:55

Well, actually, that's a great next thing to talk about the investor life cycle in the life cycle of a property that's in your portfolio. Talk to us more about when the right time is to sell an investment property. I mean, should we just buy and hold forever and leave it to our children, or is there an ideal exit time? So from your perspective, why don't you talk to us some more about that timing?

Terry Kerr 31:18

And again, that's just going to be case by case, we've got folks that'll sell a house to put their kids through college. We have had folks to sell their houses when they need to move their parents into assisted living, folks that'll sell their houses when they're looking at retiring. It's typically, life happens and you've got that equity there, and when the time is right to tap it, it's nice to know it's there

Liz Nowlin 31:44

lot of different ways to look at it. I've actually toured with selling my 1927 house in the next year or two, before that magic 100 year mark. Yes, for people, you know, and is that gonna do things? But really it's been a great little performer for me. I talk to investors so frequently, and I've heard more than one seasoned investor tell me they wish they'd never sold a single house they ever sold. Just wish, they wish they could hit a button and own everything they'd ever owned. And I'm a die hard buying holder, but I don't think there's a magic time in the sense of, you know, a question I get, maybe some from sometimes a newer investor is, when will my house need another renovation like the one you just did? And the answer is never right. We're going to cosmetically bring it back up between every renter every time. And so you're really just left working with the individual lifespans of those big components, right? And those are relatively staggered out, with maybe a water heater at the shortest, at a roof at the longest. And I think for the most part, this might vary per market. And Terry, I'd like to know your thoughts, but I think genuinely, you'll probably get a higher price by spending the money to replace versus selling for less having not replaced that item. You know. Say, trying to say, Okay, I'm going to sell in my roof is 29 years old, is probably better just replace it.

Terry Kerr 33:04

Yep, I agree. Because you know, if I'm a buyer and I'm maybe not a flipper, but a buyer, and I'd rather buy a house and spend 100,000 bucks on a house that has a new roof, than buy a house for $94,000 with an old roof. Because I know that old roof, if it leaks, it can cause a lot more damage than just the cost of replacing the roof. So I agree.

And from an ROI perspective, if I'm a financed investor, which about 80% of our investors are, I'm financing that new roof when I buy it with a mortgage, and I'm a great point pay out of pocket the next year. So that's a rub. And then very specific, of course, to our clientele. Terry, how much does it cost us to put a new roof on 1000 square foot house? 4500 bucks. That's we're putting on 700 new roofs a year. The roofers are paid by us by the hour. We are buying the shingles in bulk. And on top of that, we don't mark up maintenance and materials for our investors. So for that one story, 1000 square foot house, that's what my investor cost for us to put a new roof on for them is going to be but a potential buyer is going to look at that home and think it's a $7,000 roof that was great

Keith Weinhold 34:17

to learn about how you renovate properties for investors between tenancies there, so that properties don't get excessively dated. And we've been talking about a lot of the physical things that go into a property with that investor deciding what their exit strategy is going to be. Another thing that informs me are the numbers. When I get to about 40% equity on a property, I know my leverage ratio has now been cut down to two and a half to one, and that's when I look to do something maybe a 1031, tax deferred exchange. Or alternately, if it's a property that I really like, do the cash out refinance, get a tax free windfall with the cash out refinance, and get to hold on to the property at the same time. So of course, that's another way to approach it From the number side, rather than so much the physical side. But there sure is a lot to consider there. And you brought up heirs as well. This has been a great chat about the operations of a property, and just how you advise investors in there. Is there maybe any other question that comes up from investors a lot of times with how they should approach a property and the pros and cons within

Liz Nowlin 35:22

we've seen a lot of great growth, but when we're newer into a neighborhood that we've just kind of started putting our foot in as we stay we meaning mid south home buyers renovating and escalating those properties. That's where we've seen some of the biggest rent jumps and some of the biggest depreciation jumps, but it was kind of one of the lesser, prettier neighborhoods when we first offered that home to that investor, just kind of wrapping your head around all the different nuances to account for

Terry Kerr 35:49

yep, buying the path of progress. And fortunately, we've been able to create some of that progress in the neighborhoods that we've worked in throughout the years.

Keith Weinhold 35:56

If you're not sure where the path of progress is, and you buy on the line. A lot of times, you are the one that is creating that path of progress, and you've got enough bandwidth and volume in there to have actually done that on a number of occasions. How about something actionable? So many of our listeners have become investors there with mid south homebuyers. I imagine it is over 100 by now. So tell us about what you're doing, where you're active, between Memphis and Little Rock, renovated, new build. Really, where's the opportunity for an investor today?

Liz Nowlin 36:31

I'm pretty proud of us. I'll admit we just closed out 2024 having sold 680 houses. Wow. To investors, many of your listeners, and we're very careful. We've always done a little bit more every year. We don't buy everything we could buy. I always say my acquisitions team is not out there thinking about me and my wait list. One of my favorite sayings of Terry's is, you know, pigs get fat, Hogs get slaughtered. And I love the slow, careful way that we do things, but it was still pretty cool to do 680 we're still about, I'd say 75% Memphis, Tennessee, 25% Little Rock.

Terry Kerr 37:09

Yes, that's about, right? I would say also probably about maybe 15% new construction on 85% rehabs, maybe 20% new construction now, yeah

Liz Nowlin 37:20

And our sweet spot is still, well, still, it's that 100,000 to 200,000 that that window has slowly moved up through the years, very much to the benefit of investors as their investment seasons with time. I think we were 46,000 to 86,000 when I started in 2009 so been awesome to see the growth Memphis and Little Rock has had and so yeah, we're still kind of cash flow first appreciation is the icing on the cupcake. There are cupcakes have had more icing than we ever anticipated. If you go to midsouthhomebuyers.com and click on those available properties, they are under contract to investors at the top of the wait list, but they are identical to the houses I will have for anyone that is listening. We're so formulaic, 365 days a year, the cheapest house I may ever have is on that website. The same for the most expensive. We have just kind of figured out what works, and we hit it hard. And you can see the running theme with the kitchens and everything else.

Keith Weinhold 38:22

Well, congratulations on the total volume that you did last year. That's almost two homes a day, including weekends and holidays and everything else. That's really terrific. Yes, I, for the listeners here, have often, over the years, made these examples using a 100k property, but inflation and appreciation has also made it such that I can't do that anymore, maybe, just maybe in Memphis and Little Rock, I still can for a decent rehabbed property in a pride of ownership neighborhood for as little as 100k and that's one reason why so many investors have made mid south home buyers the place that they go for their First ever Income Property across state lines. They really know how to serve that audience, and you've been doing that for our audience for more than a decade now, and you continue to have this really robust interaction with investors. Liz, you do a lot of phone calls with people. You're really proud about what you do there. So proud that you offer field trips,

Speaker 2 39:19

please. I hope folks come so many folks never do so. If for anyone that prefers to do it from your living room, you are in the 95% norm if you never come to town. But man, it pushes folks confidence through the roof. So many of my investors are from high cost of living areas where you cannot get a parking spot in a war zone for the price that we are selling fully renovated houses, we have a deposit taken for a renter from every house I ever offer that really is cash flow from day one, and folks will really see the neighborhoods and that. I can't stress that enough. In fact, one thing that happens so if folks come up, you can sign up for the tours right on the website. It's on the far right, says, come visit us. This, you'll see a drop down with all the dates we do, monthly tours in Memphis and quarterly tours in Little Rock the day before. So you can come out and hit both. You kind of do a Thursday, Friday tour. You'll tour facilities. You'll see the warehouse and all that kind of stuff that I'll find. You know, our vans, we pull it, throw everybody in vans. We're listening to Memphis music and talking the whole tour, and people will want to pour out of that van right into the house. And I actually back everybody back out. I back them back into the front yard. I want to talk to you there and say, look left, look right. This is $120,000 neighborhood. Y'all. I can send you photos of the inside of the house all day, and you're going to get the same great house whether you buy from your living room. But I love it when people get to see that. I'll go ahead and say we do give gift cards to the best barbecue in town at the end of the tour, in addition to a $500 closing cost credit, just as a thank you for coming out and yeah, I love the tours.

Keith Weinhold 40:53

I really appreciate the two of you. Here we are, the three of us, more than a decade after we started talking about the properties and what you offer investors here, and it's just rare to have continuity like that. You can learn more at midsouthhomebuyers.com Terry and Liz, it's been valuable as always.

Terry Kerr 41:13

Thanks so much, Keith. Always enjoy it

Keith Weinhold 41:15

when we talked about pets, did Liz say something about skinning the cat? That would have to be one of the worst pet policies that I have ever heard of. And yeah, I think that long term, you know, the three bed, two bath style that has been so popular in rentals. But today, there are fewer occupants per household than there was 10 years ago and 20 years ago. Okay, that has long been a national trend. So in a lot of instances, two bedrooms can be better than three and one bathroom can be better than two, especially in that case of a sole occupant. And do you know where your best feedback is gonna come from? From what would most improve your unit's appeal to the market? It is not an online resource at all. It is from a showing where your tenant prospect did not want your unit. They know they are in the market. In fact, they are more aware and in tune with the market than you are, because they might have looked at, say, five units in just the last two days, and they might have done that in person. So they will tell you why they did not want the unit, whether the rents too high, or they don't like the parking situation, or your place needs to be closer to the train station, or your only bathroom is upstairs, something that reduced appeal for some of my own properties in the past. But yeah, this, I'll call it an exit interview of your prospective tenant. I mean, that is valuable, or you can have your manager do it well, the one place that really knows what tenants and investors want is with Terry and Liz there. That's why they have been in business since 2002 with 1000s of investors like you. And it's also why when there is an investor wait list for their properties, and you get to the top of the wait list and close on your property, so many investors just get right back in line on the bottom of their list and work the way up again for their next property. They get lots of repeat business. You can do this too. Get started at midsouthhomebuyers.com Until next week, I'm your host. Keith Weinhold, don't quit your Daydream.

Speaker 3 43:49

Keith Weinhold 44:17

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Mon, 3 February 2025

Professional real estate investor, author and host of “The Real Estate Guys” Radio Show, Robert Helms joins us to discuss the nuances of mid-term, short-term rentals, and hotel real estate investing.

They highlight the impact of interest rates on single-family home affordability and the role of institutional investors.

Mid-term rentals cater to travelers like traveling nurses and digital nomads, offering higher monthly rents. Short-term rentals face challenges due to oversupply, but can be profitable with strategic planning. Hotels offer consistent experiences, with key metrics like occupancy and ADR.

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538: How to Begin in Real Estate, The Insane Canadian Housing Crisis

Complete episode transcript:

Automatically Transcribed With Otter.ai

Keith Weinhold 0:01

welcome to GRE I'm your host, Keith Weinhold, surprising facts about the institutional ownership share of the rental market. Then learn from a great guest tonight about how the midterm and short term rental models work and hotel real estate investing. Then you are invited to join us both on the most special real estate event that I've ever been a part of, and I'm going to return to it today on get rich education.

Since 2014 the powerful get rich education podcast has created more passive income for people than nearly any other show in the world. This show teaches you how to earn strong returns from passive real estate investing in the best markets without losing your time being the flipper or landlord. Show Host Keith Weinhold writes for both Forbes and Rich Dad advisors, and delivers a new show every week since 2014 there's been millions of listener downloads of 188 world nations. He has a list show guests include top selling personal finance author Robert Kiyosaki. Get rich education can be heard on every podcast platform, plus it has its own dedicated Apple and Android listener phone apps build wealth on the go with the get rich education podcast. Sign up now for the get rich education podcast or visit get rich education.com

Corey Coates 1:17

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 1:33

Welcome to GRE from London, UK to London, Ontario and across 188 nations worldwide. I'm Keith weinholden, you are inside this week's episode of Get rich education, where we aren't day trading, we are decade trading with gradual patient wealth accumulation through income properties, yet with a path that lets you live the good life of options and freedom when you're still young enough to enjoy it. Now, the shorter the period of time that your guest or your tenant stays at your place, the more that the word hospitality gets involved. Hospitality, that word has little to do with hospitals. It almost means the opposite. Hospitality means that you're now giving a warm reception to or entertaining guests or tenants. Well, that's something that you rarely do at a long term rental, but you do if you're a hotel real estate investor for sure, or maybe even a little in a short term rental, then you're in hospitality like valet parking, having a restaurant, a pool with a swim up bar, a gym, a concierge desk, or even having a lobby with travel desks of various tour companies. Right there. That's hospitality, and today as we discuss mid term rentals, then short term rentals, then hotel real estate investing, think about how the level of hospitality that you give increases as the duration of a guest or tenant stay decreases. Hospitality is one reason that long term rental rates for durations of, say, a year or more, well, they had the lowest daily rates and the least hospitality. And hotels with, say, a two night stay, have the highest daily rates and the most hospitality.

This week's show is presented by ridge lending group and freedom family investments. I mean Ridge is where I get all of my investment property loans, and where I do all of my refinancings. And perhaps you should, too, because they specialize in working with investor borrowers there, so they know just what you need and what you don't Ridge lending group.com, and then freedom family investments, that's where you can make a private money loan and get a higher yield than you can with a high yield savings account. That's where I invest a share of my own liquid funds for a passive 8% return, 10% return. And now this is new. They've got offerings at 12% or more. You can learn more by texting family to 66866, next, we discuss mid term rentals, short term rentals and hotel real estate investing.

This week, I'd like to welcome in a good long time real estate friend. He's been on the show here with you and I before. Besides being a deeply experienced real estate investor, he also hosts the terrific real estate guys radio show, which was a substantial influence on the launch of GRE more than 10 years ago. I mean, how many times have I suggested to you over the years that you give his show a listen? He also speaks with some of the best pipes in the industry. Hey, it's great to have back on the show this week, the incomparable Robert Helms.

Robert Helms 5:07

Hey, Keith, so good to see you. Thanks for having me back.

Keith Weinhold 5:11

Let me share with you. Robert is on a very short exclusive list of people that I credit for being where I am today, from how to host a professional show to being a Go Giver and Robert before we discuss mid and short term rentals in the long term rental world generally, just what's important to know in today's residential real estate market, you can take that anywhere you like.

Robert Helms 5:38

Well, I think the big picture has been all about the loans and the interest rates, right? We saw rates go up, not only a lot, but quickly, and then kind of come back down a bit. Now they're headed back up, and that just has a big effect on single family homes, primarily to folks who are living in the homes, because they'll make that decision based on the affordability of their mortgage payment and the rest of the costs investors Well, you know, we think a little differently. We're not limited by a specific interest rate will pay? If I can make 9% would I pay 6% sure, if I can make 9% would I pay 7% well, I might, and so on. So I think that that's something to watch this year. For sure. There's lots of reasons to expect that we're not going to see interest rates get back down into the twos and threes and fours like we wish they would stay. Probably shouldn't happen in the first place, but you and I took advantage of it, and lots of your listeners did as well. But I think that's kind of a big picture thing. And then the other part of it is, you know, the inventory. So when people have this locked in effect, which really doesn't have anything to do with their needs or wants, they have a new job or they have another child and they want to move to a couple of notches up in a neighborhood, they don't want to get rid of their 3.12% loan and have to buy another property with 7% so we see less people moving, therefore less inventory, total inventory now somewhere just around 700,000 or below, and that's lower than it's been for the average of the last 10 years. For sure, I think that has an effect, less people are moving because of the interest rates. But at the same time, you know, there are houses that trade every single day. People do have to move. They have life situations and so forth. And then real estate investors, of course, we just look for opportunity. If we can make a spread and we can be in a property long term where the tenant pays down our mortgage and not us, well, then we're interested at almost any interest rate.

Keith Weinhold 7:44

Yes, that interest rate lock in effect will persist another year. That continues to get diluted over time. Of course, though you and I both know that mortgage rates are still below their historic rate, but because of the recency bias, no one's really acting that way. By the way, the first ever rental property I bought had a six in three eights percent mortgage rate 20 years ago, and people were raving about what an incredibly low rate that was back then. But this constrains supply. And another thing that constrains available supply in today's market is more institutional players own rental property today we're talking about outfits like invitation homes and even the California State Teachers Retirement System. But one thing a lot of people don't seem to realize is that institutions like this own less than 1% of single family homes in the United States, and that's all institutions combined. And now if you just isolate that to single family rental properties, they still only own two to 3% so where we have this period of low supply and low affordability, you know, Robert, I think institutions, in a lot of these media headlines, they tend to get scapegoated or being a boogeyman. Oh, all these big players are buying up the homes, and that's why you can't buy one. But really, that's pretty overblown. So can you talk to us more about what the institutional entry into the real estate investing space has been like, which really picked up steam after the GFC about 15 years ago?

Robert Helms 9:16

Yeah, it sure did. I think that folks who were managing big sums of money, and the institutional money comes from all kinds of places, real estate, Investment Trusts, insurance, pensions, funds, and then just big old companies that decide to raise money to go do something, and that money saw opportunity said, hey, you know what? This is a short term anomaly, all these prices that went down after 2008 and 2009 and when a lot of mom and pop investors were very hesitant to touch the third rail of buying more property after what they had just been through, these institutions are like that. Institutional money is not very emotional, right? It's just looking at the numbers at the same time where the nuances of institutional funds is that they also didn't have a ton of real estate experience, and so it was quite common for a couple of years that an institution would come in, and they would typically work through local brokers, and those brokers would know the market a bit. But if you could generalize, you would say that a lot of institutions overpaid. But here's the thing, when you overpay in the moment, you don't really notice that in the long term real estate investment that these guys did, it's interesting. I've been to a couple of conferences I go to almost every year that 10 years ago was mom and pop investors. And today it's a lot of suits, not too many ties. They don't send. Tend to wear ties, but a lot of suits, a lot of folks working for various levels of these funds, and they're looking at real estate as an asset class. Now I'm going to argue their real estate's not an asset class like any other, because every share of stock, every ounce of gold, every barrel of oil that anybody buys, is discretionary. You never have to invest in the stock market, in the bond market and cryptocurrency, but you cannot sit out the real estate market. From an economic perspective, I don't have to own real estate, but I'm going to have to interact financially. And so it really doesn't operate like other quote, unquote, asset classes, but I think the big folks did figure out is that there is stability in real estate. There's not the efficiency they would like, and that's a good thing for us. We like inefficiencies in the real estate market, but more and more we are seeing funds being put together, even today, to acquire property. But to your point, and it's an excellent one, you see the headlines and you see the name calling of these big, faceless, nameless corporations. They're buying up all the inventory. They're not it is a drop in the bucket compared to what mom and pops own and will continue to own

Keith Weinhold 11:53

yes, and of course, I'm talking nationally. When I bring up those one two and 3% institutional share numbers, it's going to be lower in some areas, it tends to be a higher proportion of buying that the institutions do in Texas and also in a lot of southeastern markets, like Atlanta, Jacksonville, Charlotte and Tampa. Robert you have a good bit of knowledge and some involvement in the mid term rental market. We're talking about rentals of one to six months in duration. Here, can you talk to us about trends in the midterm rental market?

Robert Helms 12:25

Yeah, it's a fascinating area. You know, back in the day, these would be referred to as corporate rentals, so a corporation might lease an apartment and furnish it, and then they would have different people stay there over the years, so the corporation would be responsible for the lease. I had some tenants like this many, many years ago, and it wouldn't be up to me. It'd be up to them who had the keys at the time. And a tenant might stay six or seven months. A tenant might make four or five weeks their stay. And so the idea was they needed a place for these contractors who would come in and work for a period of time to stay. But hotels were a lot more expensive. Well today you see even the folks who got involved in short term rentals making a decision to invest in people like traveling nurses who come and stay for four to six weeks, or these clients who will come in and work for two months in this location, two months in this location, two months in another location. And so they will simply stay in a short term rental type of property for a longer term. And you know, the most expensive things when it comes to real estate or turnover in vacancy. So if we can get the tenant to stay longer and pay a bit of a premium, these are often furnished units, and they don't have to worry about much. And we've had a few opportunities where what started out as a three week rental turned into a six month rental, because sometimes when they bring these folks on these companies, don't know exactly how long they're going to stay, and it's been a great kind of marketplace. There's a few folks that specialize in it. But my experience is that a lot of the people that have gravitated towards midterm rentals used to be in the short term rental business, thinking they'd rent for one or two nights, and lo and behold, they get a client that would stay for a month, and they'd say, Hey, this is pretty cool.

Keith Weinhold 14:13

Some conversion rate there from short term rentals to these midterm rentals here, as Robert touched on, you do tend to get more monthly rent for a midterm rental than you do a conventional long term rental. You're going to have some experience for furnishing there. But Robert, you bring up a great point. You mentioned traveling nurses. And of course, here as real estate investors, we're often interested in who we're serving and what that demographic looks like. I also think of midterm rental clients or tenants as students in digital nomads, and oftentimes it's a person relocating where they just want to check out a place for a few months before they consider setting down roots in an area with a long term rental or buying their own place. So can you talk? More about the demographic that we're serving there, because oftentimes you want to follow their trends.

Robert Helms 15:04

Yeah, very much. So, you know, today, I think there's a lot of folks that can work from a variety of locations. They do need some things, they need quiet they need a good internet connection, but they will come and go for weeks at a time. And I also think that you see more and more employers looking to contract labor. They have a job to get done. They're not sure they want to bring on a full time employee with all the cost of benefits and onboarding and all that. So they find somebody in the niche that comes in for six or eight or 12 weeks at a time, and they're the perfect candidate for short term rental. But we also see folks that are between gigs. So I might have a six week gig, and three weeks later I have another six week gig, and the three weeks in the middle, I want to go somewhere that's kind of fun to hang out. And so you do see those kind of rentals as well.

Keith Weinhold 15:55

Are most long term property management companies open to managing midterm rentals?

Robert Helms 16:02

Yeah, good question. There are certainly those that are, but I think we're starting to see a specialty on the aggregator side, folks that are reaching out specifically to the kinds of people who are candidates for midterm rentals from the tenant side and looking to accumulate inventory. So that's been kind of a neat thing to watch. So the focus of most property managers, they're hired by the owner of the property. Well, these groups are really their their salary gets paid for by the tenant, and they're able to negotiate on the behalf of some of these groups, you know, a better rate, better terms. They may negotiate some flexibility and the time for these folks that don't know exactly how long they're going to stay, it's an interesting new area of management, for sure.

Keith Weinhold 16:52

Now, of course, we're concerned about a high occupancy rate in midterm rentals, just like we are any type of rental. What does one look for when it comes to advertising platforms. And this could be, you know, going beyond just a well known website. It might be, hey, if you have inroads with the local hospital system, oh, well, can you then funnel some of the traveling nurses, for example, into your midterm rental?

Robert Helms 17:15

Yeah, most definitely, it is a specialty niche, for sure, if you're after a robust rental solution. You know, many people in midterm rentals, like in short term rentals, the vast majority of short term rental owners are not making a killing. They are. They're liquidating some cost of what they consider their second home. So the average short term rental landlord has just one property, and that's a property they bought, probably not as a rental. They brought it as a second home, and they're discovering that when they're not there, they can lease it out, and that pays for some of the costs. But there are obviously a few folks who have cracked the code and figured out which markets and where the best opportunity is, and what size units it takes to maintain a really healthy occupancy, and it's the same for this midterm rental. It's a different kind of tenant. It's mostly not families, so it's not larger units with lots of bedrooms. It's also mostly not your higher end rentals with views of the water or up near ski resorts, it's in the bigger towns where there is employment, and that employment triggers most of the midterm rental business.

Keith Weinhold 18:29

You, as an investor owner, maybe your cash flow negative on your midterm rental or short term rental, however, you might be using it for a few weeks or months yourself and getting back more of the benefit that way you're listening to get rich education. We're talking with the host of the real estate guys radio show, Robert Helms, more when we come back, we discuss short term rentals, including, is there an air be in bust? 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 Caeli Ridge personally, start now while it's on your mind at Ridge lendinggroup.com That's ridgelendinggroup.com.

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Kristen Tate 20:39

this is author, Kristen Tate, listen to get rich education with Keith Weinhold, and don't quit your Daydream.

Keith Weinhold 20:54

Welcome back to get rich education. We're talking about midterm short term rentals and hotels and hospitality with a long time friend of the show here, Robert Helms and Robert a few years ago, there seemed to be this word airbn bust that was beginning to be associated with Airbnbs. A lot of the difficulty in that market. So tell us, what was that all about, and where are we now with industry trends in the short term rental market?

Speaker 1 21:21

Yeah, great question, Keith. What I think happened is the allure of a short term rental, having a beautiful property that people would pay a premium on a nightly rate, sounded wonderful, and it was, and it worked for a lot of folks. But then what happened is, what happens people got the word, they got excited about it, and a lot of people started holding webinars, teaching classes, doing boot camps, and before you knew it, there was way more supply than there was demand. See, the hospitality industry is amazing. The hospitality industry employs 9% of all people in the world and accounts for nearly 9% of the GDP of our planet. Travel is a gigantic industry, and it's led by smart, big, storied institutions. So for folks to come and figure I'll just compete with them with my little apartment didn't necessarily turn out so well. So there was an airbn bust, and it is still lingering today. If you want to make a profit in short term rentals, you absolutely can, but you need to be super strategic. You need to think long and hard about where and what and why and how, because it's very specific. There are certain markets that short term rentals do very, very well, and there's a lot of markets, the majority of markets, where they don't. So as long as you're willing to study and take a look and be realistic and go kick the dirt a little bit, you certainly can get the upper hand. And the reason it's exciting is the average person who owns a short term rental is not professional in any way. They probably don't have too many other rental properties. It's not a big part of what they're paying attention to in their life. And they're simply trying to liquidate some of the costs of ownership. You know, I might rental here or rental there. And the way you can tell Home Away, VRBO, Airbnb, most of the hosts, the owners, make their calendars public, and so it's easy to tell how busy they are. It's amazing to me. I'll look at a marketplace and look at a property and see that month after month after month they're at a six to 8% occupancy, which I wouldn't be excited about myself, but for someone who's got a second home and they don't mind having people stay there for a few nights, they'll pay a premium for that. They legitimately can carve down a lot of their expenses just by renting six or eight or 10% of the time.

Keith Weinhold 23:58

Of course, the conventional guidance is before you buy a short term rental, you're really helping yourself out. If you have to fall back on turning that into a long term rental, it would cash flow. But of course, now you're really narrowing your criteria in what is going to work there. And Robert, when we talk about that demographic that we're serving, we touched on that in the midterm rentals. Who are we serving in short term rentals? I think conventionally, we think about vacationers and business travelers

Robert Helms 24:24

it's both of those things. I think that originally, people were certainly inspired by the vacation traveler who wanted to have a little more privacy, maybe their own kitchen, maybe a little more space for the dollar. And we still see that for a family, especially a family with small kids, staying at a hotel, ordering room service, eating in the restaurant, all that adds up. And if instead you can go to the grocery store and make breakfast at home, right, you can save the costs. And so there is definitely that clientele, but you also have people in short term rental that are visiting family. They're not really on vacation. In there, just going to an area for a short period of time. We see people that criss cross the country staying in short term rentals, two nights here, three nights there. And so it does have kind of a wide variety. A lot of the markets are very seasonal. Though. There are markets like Branson, Missouri that does really good at some parts of the year and not as well as other parts of the year. Then, of course, there's year round markets. So back to if I'm thinking about it with an investor's hat on, I want to be a little more specific, in particular about what and where I buy. But if I have single family house as my second home, maybe it's in a ski area, maybe it's in a beach area, and it's fairly expensive to maintain. Well, then considering renting it out on a short term basis might help the overall cost of maintaining that property.

Keith Weinhold 25:52

You know, my own personal experiences really started to get bad in short term rentals, when I would go stay in a place. And I think we've all seen those memes out there about, my gosh, I had to wash all the dishes and walk the owner's dog and still play some exorbitant cleaning fee. I think we've all kind of grappled with that at some point, but STRS are still a really viable investment for the majority of the operators. But yeah, Robert, most of my experiences in short term rentals recently, including showing up at a place where they had not done the turn. The cleaning person did not stop by. And, yeah, okay, they came over there properly. But it's like, you cannot unsee the mess that was left there before you were there. So I had a series of experiences lately that have actually steered me into staying in hotels more often. And hotels really fit my lifestyle pretty well. I like to work out at a gym. I like to have a gym on site. It's convenient to have a restaurant on site and so on. And you've been in the hospitality and hotel space serving that for a while. Why don't you talk to us about industry trends in hotels.

Robert Helms 27:03

Yeah. So travelers, to a great degree, love consistency. They want to be able to rely on cleanliness, on amenities, the very things you mentioned for sure. And so hospitality has a wide range, right? There's the lower end airport hotel where nobody stays more than a night, and it doesn't have a lot of amenities, and then there's the beautiful resort properties and everything in between. But what the hotel industry has done a good job of is providing a consistent experience, and that's what people crave more than anything else. You know, we would call a short term rental more of a unique or boutique or co chair kind of experience, and you don't know what you're going to get. You don't have that consistency. Some folks don't mind that, but for the majority, especially of business travelers, they want to know what they're getting. I can remember years ago, my sister wanted to take us on a family vacation to Maui. It sounded like a good idea. And then she was the one tasked with finding us a place, and decided we would stay at the Ritz Carlton and I looked at the Ritz Carlton website and said, Ah, you know, this is not exactly where I would probably stay in a she's a chiropractor. She says, in order for me to take a week off work, I'm losing $10,000 of the business. I'm not staying in some cheap hotel. I want to stay in a luxury hotel. And we did it, and it was fabulous, and I would stay again. So the point is, if you want to be able to work out, if you want to be able to have 24 hour room service, if you want grab and go that you don't have to walk outside in the cold or the heat, then hotels make a lot of sense, and it's not an either or. They're just both elements in hospitality. I would consider a short term rental property, a hospitality property, and I would consider a 1200 room, four and a half star hotel hospitality property as well.

Keith Weinhold 28:58

Sure. Of course, hotels aren't monolithic. There are so many different types. You might have a boutique hotel with a few dozen rooms to a large scale, something like you've been involved in. You've been in a large scale, ground up development for a hotel. And I don't know if you had a hope when you built your large hotel that a big chain like a Hilton or Marriott would buy it from you, or would brand it along with you. But that branding and that consistency of experience can be really important. That's something we especially associate with those larger hotels. So we have some of these things in mind. I mean, where does a new prospective hotel investor begin?

Robert Helms 29:40

Yeah, it's pretty difficult to get started, because the properties are big and expensive and risky upfront. So there's a terminology we use the hotel business, which is stabilization. And stabilization is when a hotel gets to the point where it's doing about the occupancy and rate that you would expect. Respect it too long term, and that might be anywhere from two to four years. Well, in the first year, boy, there's hardly anybody there. We have a 300 plus room hotel, and the first night we were open, we had two guests and 160 employees. So you don't have to be a rocket surgeon to figure out that that math doesn't work very well. Nor did it for the first month or the first year. Today, I'm happy to say it works a lot better, but you have to have patience. Now, there's a couple of ways you can get involved. Certainly, a smaller a boutique hotel. I stayed in a hotel a couple months ago that only had eight rooms. It was marvelous. And I thought, boy, you know, probably an individual owns this, but most of the hotel properties are owned by groups or syndications, and so that's another way to get exposure to hospitality. There's some things to love about hospitality, and to me, one of the same things I love about single families is you can find professional management, like folks that really know what they're doing, and create that guest experience that was perfectly possible for someone to buy a single family home as a rental. Maybe it's in their own town, and they want to manage it themselves. And you know, maybe at first that's a good idea, so you can figure out the game you've chosen, but ultimately, you want to hand that off to a professional, in my opinion. And in hospitality, like in multifamily, you have to, you have to have somebody come in with chops to be able to take care of it. And then there's the nuance of franchise which there are hotels that are just independently owned and operated. And then there's franchise hotels. And just like buying a franchise business, you pay a little more, but you get a lot. You get all the systems and the service and the training and the marks, and many cases, you get a big, dynamic engine that brings leads and fills your heads in your beds, which is what the metric we're interested in, in hospitality. And so when we started with thinking about it might make sense, the market we were in had no branded hotels, and we thought, Well, should we be the first? And after doing a bunch of research, I came to the conclusion that, well, it's going to cost something, and there's going to be a benefit, but I don't see it the benefit outweighing the cost. And we decided not to and then, lo and behold, through a strange set of circumstances, today, we are a branded hotel, and I'm thrilled about it. In hindsight, it was the right thing to do, but do understand that most real estate investors that I know are not going to qualify. It's pretty difficult to get a franchisee agreement with one of these hotel brands. You have to have some wherewithal, some experience. They're going to look at your assets and your balance sheet. They're going to look at more than you can imagine to make sure that you're worth betting on, that they'll put their story name on the outside of your hotel. But it does bring up another point in hospitality, which is there's just multiple streams of income in hospitality. I saw a study last year that showed that in the upper resort markets, the fancier hotels and markets you might go to that the average person whatever they spend on their nightly rate in the hotel, they spend 80 to 85% of that per day on all the other things associated with their stay. Now, some of those are going to be off campus, but the more that you can provide to the guests you've already brought onto the property, the more profitable it can be,

Keith Weinhold 33:25

from resort fees to valets and more. Yes, there certainly is plenty to add on there. Maybe the last thing in hotel investing is, if someone wants to get started, what should they even be looking at, as far as say, understanding some of the metrics, like rev Park. Can you give us a quick walk around that?

Robert Helms 33:45

Yeah, so if you're used to investing in apartment buildings or single family houses, you've probably seen the basic income formula. You know how to calculate for loss to lease and maybe vacancy and those things. Well, there's just a few more intricacies when it comes to hospitality, but it's not that difficult if you just think that you're renting every night instead of every month or every year, and instead of having my turnover be one tenant every two years, it's one tenant every four days. There's just a lot more to pay attention to. And so the most important metrics in the hospitality industry are obviously occupancy, how many nights our rooms are occupied? And then ADR, which is average daily rate, and that is the rate for a particular unit type on average over some period of time, typically a year. And if you were to multiply occupancy times average daily rate, that gives you a revenue per available room or RevPAR. RevPAR can be affected, and it's the primary metric that we drive to in the two ways, you can increase occupancy to increase your RevPAR, but in many cases, you don't need to increase occupancy if. The market will allow you to raise your average daily rent. We've just gone through in the last year that our occupancy is down about 2% for the year, and our average daily rate is up more than 16% so the math works that follow me on this with slightly less wear and tear on the units our owners are making more money. So it is a balance. It's not like I want maximum occupancy. Well, not necessarily. Hardest thing to manage for any hotel is a sold out night. Sounds like a good idea, but you have no wiggle room, whereas when you've got even 3% vacancy and something goes wrong in the middle of the night with somebody's unit, you can get them moved somewhere down the hall, not somewhere across town. So I would say there are some really great resources. If someone's interested in hospitality. There's a big company called the hotel valuation systems, HVs, and they have a lot of great tutorial information available if you're really interested. Go to a conference, a hotel conference, and you'll pick up the lingo pretty quick and meet some of the folks that are in the business. It is, historically, one of the highest return properties, but also a lot of high costs, and again, expect some negative cash flow at the beginning.

Keith Weinhold 36:18

Yeah. Well, it was great. And you brought up something that I had not thought about before, about how 100% occupancy could actually introduce problems in the hotel space. And of course, there are a number of other things to consider, surge pricing, high seasons, low seasons, an awful lot that we don't think about when we're renting out single family homes one year at a time. Well, Robert, that's been a great walk around talking about the institutional space, midterm rentals, short term rentals and hotels, and you and I have a great collaboration coming up together. Why don't you tell our audience about it?

Robert Helms 36:55

Oh my gosh. I am so thrilled that you'll be joining us again for our 23rd annual Investor Summit at sea. This event we do once a year, and by its name, you can probably tell that the majority of it happens on a cruise ship. We spend two days in beautiful Miami at a great hotel, then we jump on a luxury cruise ship for seven days. On the days that we're at sea, it's workshops and seminars and panel discussions and round table lunch discussions and all kinds of fun. And on the sea day, on the land days, we go have a good time together. It's extraordinary. You've been with us before, and I'm super excited to have you back with us on faculty, and excited that we're going to get to brainstorm a little bit with a couple other podcasters. So some of the OGS are going to be on this particular summit.

Keith Weinhold 37:43

Yes, it is June 20 to 29th this year, where we spend the first two days on land in Miami, and then we spend a week cruising to the Bahamas, St Thomas in St Martin. We're doing it on a beautiful ship, the celebrity beyond. So as one of the faculty members, you'll get to see me do a 50 to 60 minute presentation, a couple of lunch, round table discussions. I might be on a panel or two, and also host a table for dinner each night where participants like you rotate around at the tables, and that way you get to chat directly with most or all of the faculty members. That way. Yes, Robert, I was there in 2016 as an attendee. It's great to finally come back as a faculty member. I will be putting the second pepper on the necklace.

Robert Helms 38:29

All right. Well, it's gonna be a ton of fun. And the great thing about it is we have people from all over the world that come and you get in these awesome conversations. You know, you go to a one day or two days seminar, and you get to connect with some people, but boy, and this week, you're going to have a chance to meet all kinds of folks. And the faculty is amazing. Our mutual friend Ken McElroy will be back with us for his 12th year. Peter Schiff's going to be back with us again. We've got the George gammon coming. Brian London, who runs the New Orleans investment conference that you and I usually rub shoulders at, and ton more, just a really great time. And if you're serious about collapsing time frames, you can get more done in nine days on the Investor Summit that you can probably get of two years of just haphazardly going to conferences and watching webinars and listening to podcasts

Keith Weinhold 39:18

you will see what we mean if you attend, about putting a pepper on the necklace and what that is all about. I can tell you from attending in 2016 just one previous appearance there. It is the greatest real estate event that I have ever attended. It's really immersive. It's really fun. Of course, you get off on these ports, and there's a beach component to it as well. It's not a low cost event, but as I like to say, it's not cheap, but neither are you.

Robert Helms 39:50

It is an investment, that's for sure. I think it's important that you approach it that way, right? As investors, we demand a return. On our investment, and you should do that on the summit. Don't just show up and have a party time. That'll be great. It'll be fun. But be strategic about who you want to meet, who you want to hang out with, and who you want to learn from. The faculty is like no other. We'll have at least 15 faculty members. There's a couple more that we're working on, whose names you would know, but we are not ready to announce yet, but it's going to be so much fun. Oftentimes, the best people you meet, you meet at dinner, or you meet at the beach, or you meet out on deck. So we'd love to have you join us and tell you what, if someone is listening to your show, Keith, and they would love to have dinner with you. All they have to do is let us know that when they register say, you know, I want a chance to have meal with Keith, and I think we can make that happen.

Keith Weinhold 40:45

Oh, that's great. And, you know, Robert, it's rare. It's the type of event where, even though it's been nine years since I was there, you developed such a close kinship with the like minded attendees that, you know, I might see a some of it's a Facebook friend now, you know, Steve or Dave or something. And I'll always remember, oh yeah, I met Steve on real estate guys Investor Summit to see it's almost like a relationship you would have with, like, a long ago high school classmate, to be around each other for nine days and all these places. It just kind of brings this different element to it. You can learn more at Investorsummitatsea.com, and get registered there. You can see my smiling face in the faculty section along with the other faculty members. Remember, it's really about all the other people that you meet. You have any last thoughts about the terrific Investor Summit at Sea Robert?

Robert Helms 41:36

I would just say that in life, we tend to regret the things that we don't do a lot more than the things that we do. So get on board. You'll have an amazing time. No matter how great we say it is. It's better than that. It's like summer camp for the affluent, summer camp. As a kid, you didn't want to go, you weren't sure, and by the end, you were lifelong buddies. It's like that. It's investing on steroids. The photo ops are amazing, and you'll meet super cool people, plus you'll get the hangout with Keith and I. So I would say join us for the 23rd annual investors Summit.

Keith Weinhold 42:14

There's wisdom out there that says you should say no to more things in life, and in one tranche, that makes sense, and you also need to say yes to more things in life that fits the category. Here with the Great Investor Summit at Sea I really anticipated. It's one of my biggest events of the year. And Robert, it's been great having you back on the show.

Robert Helms 42:35

Thanks so much, Keith, and appreciate your listeners. Listening in today. Don't quit your Daydream

Keith Weinhold 42:42

Well, said.

Next week on the show, we talk about how to streamline the operations at your rental properties. Is it better to own rental property with, say, two bathrooms rather than one, or is that just another faucet that can leak and shower that can leak and toilet that can clog, and the pros and cons of allowing your tenant to have a pet in your rental unit, it's those sort of operational things and more that we help you improve next week right here on The GRE podcast, it's interesting about investing in a hotel to such a large scale that you can court major franchise branding, like with Hilton, Marriott Wyndham or Hyatt, which Robert has successfully done. And I have visited that property of his with him in person, and it's amazing what he's done there. And you know something, I have rarely met an American, or any global resident that is averse to staying at a branded hotel. I mean, that only seems to be an attractant. Now in the US, some people, they used to dislike franchise restaurants. I even remember people saying, Hey, we don't need another chain restaurant in my town. But I've never seen people scorn chain hotels and today, I mean, in the here and now, people seem to want both franchise restaurants and hotels. I mean today, you're more likely to hear something like hey. When is our town getting a Chick fil A? Why don't we have one yet? And of course, there is plenty of opportunities in these shorter term stay spaces without ever attracting a branding deal, major thanks to the terrific Robert helms today for his keen insight on shorter term rental real estate. This event, June's investor summon at sea is such a good time, and Robert really knows how to host it and make sure you have a good time. After doing it for more than 20 years, it is a rich, immersive experience with people, places, learning and. And relationship building. It's the type of experience that you just can't get from an Instagram reel. It does draw attendees worldwide, although most attendees were from the US when I was there that one previous time. When you register, if you want to make sure that you get dinner with me, let them know, and we'll make it happen, because we know that you haven't heard enough of my voice every single week for more than a decade now, right? In my opinion, it is the crown jewel of world real estate investing events start at Investorsummitatsea.com until next week. I'm your host. Keith Weinhold, don't quit your Daydream.

Speaker 45:46

Keith Weinhold 46:14

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Keith answers listener questions about getting started in real estate investing with limited funds and how to determine the true appreciation of a property against inflation. He also discusses:

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537: How to Increase Your Real Estate ROI with a Cost Segregation

Complete episode transcript:

Automatically Transcribed With Otter.ai

Keith Weinhold 0:01

welcome to GRE. I'm your host. Keith Weinhold, I answer three of your listener questions, then learn why LA area landlords got a bad name during this month's awful Southern California wildfires. Finally, why Canadians cannot buy houses anymore, and what lessons you can learn from Canada's real estate mistakes and the abject lunacy there today on get rich education.

Unknown Speaker 0:30

Since 2014 the powerful get rich education podcast has created more passive income for people than nearly any other show in the world. This show teaches you how to earn strong returns from passive real estate investing in the best markets without losing your time being the flipper or landlord. Show Host Keith Weinhold writes for both Forbes and Rich Dad advisors and delivers a new show every week since 2014 there's been millions of listener downloads of 188 world nations. He has a list show guests and key top selling personal finance author Robert Kiyosaki, get rich education can be heard on every podcast platform, plus it has its own dedicated Apple and Android listener phone apps build wealth on the go with the get rich education podcast. Sign up now for the get rich education podcast or visit get rich education.com

Unknown Speaker 1:16

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 1:32

Welcome to GRE from Gatlinburg, Tennessee to Pittsburgh, Pennsylvania and across 188 nations worldwide. I'm Keith Weinhold, and you are inside this week's installment of the program known as get rich education, I'm grateful that you're here, but you're not here for me. You are here for you. So let's talk about you and some of the listener questions that you wrote into the show about and as usual, whenever I have a batch of listener questions, I answer the beginner level questions first and then move on to more advanced questions. The first one comes from Jeanette in Seaford, Delaware. Jeanette asks, I only have a little money to invest in real estate. How do I get started with just a small amount of money. All right, Jeanette, well, first I would talk to a lender. You have to talk to a mortgage specialist or a loan officer to find out what you qualify for. You're basically getting them to punch holes into your financial picture. And then that way, Jeanette, you will know what holes to go, mend, so your loan officer is essentially giving you a free troubleshooting session. Now, our investment coaches here at GRE help you with some of that, but GRE doesn't originate loans, so you want to get with someone like a ridge lending group for help. And now, what are some of the holes that a mortgage lender might poke into your finances? Jeanette, well, getting your credit score up and they'll help you with that strategy. Or you simply need more dollars in savings, in what your mortgage loan underwriter calls reserves, or you might need to establish a two year job history, or you have to say, Pay off your car loan in order to get your debt to income ratio lower, or whatever it is. And since at GRE marketplace, the least expensive income property is probably about $120,000right now, a number that keeps going up with inflation. But what you would need is 23 to 25% of that between your down payment and closing costs, all right? Jeanette, so then about 28 to 30k that is the minimum lump of cash that you'll need to buy a property that is already fixed up and ready for a tenant, and that is a great way to start in real estate investing if you want to maintain your standard of living, okay, that is therefore the lowest entry point that you can do that. But if you're temporarily willing to let your quality of life slide for a couple years and maybe live communally. You can put as little as 3% down on a primary residence and then rent out the other rooms. Okay, that's the house hacking model, but depending on your setup, you know, maybe you're sharing a kitchen with roommates or suitemates, and therefore that temporary loss in quality of life. Maybe you can even Airbnb at a short term rental, in which case you will be buying the furniture. However, now with a 3% down payment on an owner occupied house, hack like that, you're probably going to have to pay a PMI premium, a private mortgage insurance premium of a few $100 per month. But still, this does get you in with very little money, since that's what you're asking about Jeanette. And finally, the third thing I'll bring up here is that you can get a combination of maintaining your standard of living and putting a small down payment on a property by using an FHA loan and three and a half percent down. And you can do that with a single family home, duplex, triplex or four Plex, living in one unit and renting out the others. So yes, you get both this way, but I will not go into the details on the FHA, because I have described that in detail on other episodes since it's how I started out myself. But there are a number of options right there for you to inquire about Jeanette, all starting with an investment centric mortgage lender like Ridgelendinggroup.com.

The next question comes from Jared in Pocatello, Idaho. Jared asks Keith, in the past year, my duplex in Pocatello went up in value 5% from 400k to 420k. How do I know how much of that 5% is true appreciation, and what portion of the 5% is from inflation? Oh, that is such a devastatingly cool question Jared, and that's exactly what I thought when I saw that question come in. Okay, so basically, Jared is asking, say, in this 5% price increase is 3% from inflation and 2% from appreciation, for example, or like, what is the breakout of those two components of the price change? And a lot of people don't understand the difference, and even know enough to ask a question this good. So props to you there. Jared. One thing you cannot do is just look at CPI inflation over the last year for the US, which is 2.9% and then say, Oh, well, then I guess the other 2.1% must be appreciation. Therefore, no, you can't really do that. There's more to it than that, for a lot of reasons. I mean consumer price inflation, like on a pound of ground beef at the supermarket, that is different from asset price inflation, and there are a lot of other reasons too. Appreciation is distinctly different from inflation, because the value of your property increasing 5% that has to do with the attractiveness of your property to the marketplace. Now there are attributes with appreciation, like proximity to high paying jobs, proximity to highways and shopping in desirable schools, which are basically those axiomatic Location, location, location qualities. Now I'm going to assume that you did not make an improvement or a renovation to the property Jared, because obviously that would hike up the value. Now other appreciation attributes that are distinctly different from inflation are things like population growth and wage growth in your area, what can really pump up appreciation is if the remaining availability of developable land starts shrinking and shriveling up in a desirable location. Contrary to popular belief, mortgage rates have little to do with appreciation. We can leave that out of this discussion. Now, how this is different from inflation is that inflation is not about the intrinsic value. Rather, inflation is the price of the home increasing because the currency is worth less. Now I hope that you find that explanation satisfying Jared, but what is dissatisfying is that it's actually hard to pin down a number and say, was this two and a half percent appreciation and two and a half percent inflation, or any other combination? And that's because inflation itself is practically impossible to accurately measure, and a lot of that has to do with an inflationary basket of goods that is just exceedingly difficult to adjust for attributes like quality and utility and substitution So Jerry did is likely that your duplexes 5% value increase is an amalgamation of both appreciation and inflation, that part I can confirm, but the exact breakdown for each is virtually incalculable, super insightful question there Jared.

The third and final of our three listener questions to get the show started today, and then I'll get into landlords in the LA wildfires and Canada versus us real estate. The final question today is from Jeter in Roseville, California. I know where Roseville is. It's just northeast of Sacramento, and I'm not sure if Jeter j, e t, e r is your first name or your last name, like former Yankees shortstop Derek Jeter, but only one name came in here. Jeter asks, Keith, I am a true believer in GRE principles. I'm looking to pounce on some property this year and get leverage and other people's money working for me, instead of only getting my money to work for me in my company's 401 k. Let me just interject here. You really get it. You really get it. Jeter, um, continuing on with your question, with mortgage rates around 7% I'd love to know where you think interest rates are headed next, and what is going to make rates move. Thanks, Jeter. Well, I've got to tell you, Jeter, not only do I avoid predicting future interest rates, but I don't know of anyone in the world that can predict interest rates with high reliability, especially over the medium to long term. James Grant, He's based in New York City. He puts out a publication called Grant's Interest Rate Observer that might just give you a better than 5050, shot of where they're headed next. He's a well regarded source. In fact, I saw James Grant speak in person a couple months ago, but I wouldn't put too much credence in any interest rate predictor out there. Now, just 11 days ago, I sent our newsletter subscribers a graphic of just how bad. I mean, really awful that recent interest rate predictions have been. I've never seen a chart like this. This chart looked like a centipede. Okay, the Bold Line was the actual federal funds rate that was like the centipedes body and all the hundreds of legs coming off this line were predictions that others had made, all deviating from the true line, the centipede body, which is what the rate really was. I mean, prominent experts rate predictions have a track record that's more abysmal than everyone saying we'd surely have a man on Mars, by now, terrible. Jeter. When you look at interest rate predictions, you're looking at a waste of your time. They're about as reliable as a weather app in a tornado a year ago, the collective brain trusts of all the economic wizards believed with devotion and alacrity that mortgage rates would be sub six now, instead, they are still about seven, which might correspond to a three or three and a half percent federal funds rate. They all thought the federal funds rate would be near three by now, but it's more like four and a half today. And what's hilarious is that, in more recent years, the Fed even tells us what they plan to do next. They even tell us it's little like having the answers to the test, and yet you still fail the test. You've got the cheat sheet and you still aren't doing any better? How can this possibly be? Well, the reason that I don't make interest rate predictions is because it is a surefire way to look foolish. Jeter, to answer the second part of your question, what moves interest rates around? The answer is, well, it's really broad economic forces and political forces, that is why it's tough, and this includes jobs reports, supply and demand of credit, inflation, a pandemic, a surprise new war in the Middle East, tariffs, GDP reports, surprise election outcomes, a massive change in tax policy and more. I mean, it is total entropy. Now, one thing we know is that persistently higher inflation will soon result in higher rates, just like we saw in 2022 I mean, rates rise in a bullish, robust and optimistic economy. And another thing that we do know is that sustained fear causes rates to fall. That's why, when you look at a chart, you see interest rates of all kinds plunge like a cliff diver during the 2001 dot com recession, the 2008 GFC and the 2020 COVID pandemic. The reason that rates fall during fearful times just like those, is because the economy needs the help and a little pro tip for you here, Jeter, when a recession begins, it's more likely than not that rates will fall. But see, it can be hard to predict a recession, as we've all found out recently, we just came off three fed interest rate cuts late last year, and that was a little weird, because the economy does not need the help that is sort of like offering Gatorade to someone that's not even sweating. Okay, and when rates scrape the ocean bottom floor at zero, from 2009 to 2016 and then again from 2020, to 2022,that's unhealthy. Natural market forces would mean that there's a cost to receive a service like borrowing money. Well, with zero rates, it feels like no one wants to save and everyone wants to borrow and spend. Zero rates, it is time to all out. Ball out. My two time GRE podcast guest here on the show, and super smart guy, Dr Chris Martinson, he thinks that rates are generally going to go higher from here. But you don't have to look far. You can find other wise guys that say they're going lower. At the last Fed meeting last year, they disappointed markets by signaling plans to only cut rates twice this year, instead of the four cuts that were previously expected. And now that's even changed since then, a lot of people question if those two cuts are even going to happen this year, given things like a hot jobs report that came flying in and still too high inflation. So this is kind of like expecting a decadent dessert of rate cuts, and instead you get, like, one Biscoff cookie, like they give you an economy on the plane. So Jeter, that's why I don't forecast rates. I don't think anyone can, but now, at least you have a couple resources, and you also know what factors move rates around.

Now if you want a fun, real time pulse on the market. Check out poly market. You might have heard of it by now. It's a site where you can place bets on various outcomes, a lot of non sports bets. You can see people put their money where their mouth is. You don't have to make a wager yourself. You can just see what people are wagering on. There are wagers on fed interest rate decisions. There at Poly market, you can even place a bet on if Jerome Powell says Good afternoon at his next press conference over there on Poly market, I'm not kidding right now, the odds of him saying Good afternoon at his next press conference are 96% so remember this, the market has always felt confident about where rates are headed, and the market has always been wrong. Interest rates don't drive property values. Their intrinsic worth is based on the timeless stuff, location, amenities, income, occupancy, size, density, business case, exit options and operating costs. Those are the things that drive property values. The bottom line with interest rates is that nobody knows the future interest rates direction is a pinball game of black swans and policy pivots. So instead, focus on the big things that you can control, like how many dollars you have, leveraging properties and keeping your operations on those properties efficient. So Jeter waiting to buy property generally harms an investor more than it helps them, because it's dollars on the sidelines that are paying the opportunity cost of not leveraging other people's money. Of course, if you buy your property at whatever interest rate today, and rates soon fall like a knife, well, then you can refinance at the lower rate, all while leverage keeps compounding and building your wealth. Thanks for the question, Jeter.

If you have a listener question or comment or feedback of any type for us, as always, you can visit us at get rich education.com/contactfor either written or voice communication there, like I said earlier, that amazingly interesting centipede like chart of just how dreadful interest rate predictions have really been that was in our recent newsletter. Now it's too late for you to get that issue, but to get more like them, you can get our don't Quit your Daydream. Newsletter, completely free, just text GRE to 66866 that's text GRE to 66866.

now, when it comes to this month's historically bad, devastating LA area wildfires, I heard from a friend in that area last week. She lives just south of LA and her house was spared, fortunately, but she's been busy helping friends in the LA area who have lost their homes and businesses. It is truly tragic. And you know, what she told me, is the biggest, most compelling need right now, and I put some credence in this, since it's an independent on the ground report. This is outside of major media, displaced residents. Number one need is not food, it's not water, it's not clothing, it's not heat, it's not even community with 1000s of families without homes, the urgent need is for housing. You might not find that surprising. That's what she shared with me. I mean, it is a need so dire that even a family of six would consider a small mobile home or an RV rental to help with temporary housing. And a lot of these displaced families were you know, you got to consider the fact that before the fire, they were living in above average homes, even luxury homes. Now, as far as LA area, landlords that have housing to rent out, a lot of those landlords have jacked up the rent price. California's anti price gouging. Laws make it illegal for landlords to raise rent by more than 10% in the first month to six months after a disaster is declared. Now the BBC reported that one resident who lost their home in the historic California wildfires found a rental property that was previously priced at $13,000 per month, they offered $20,000 per month, and the landlord countered with 23k that is a 75% price hike. And it's not the only example. A Bel Air home located in an evacuation warning zone was listed on Zillow recently at 29,500bucks a month. That is an 86% hike from its September of last year price. That's according to the outlet called La est, another realtor raised in Encino, California, listing from 9k per month at the beginning of this month to 11 and a half K after the fires started. That's according to the LA Times. The realtor then backpedaled to abide by the 10% rule, which she said that she did not know about. And for a little context there, yes, those rent prices sound high, and La rent was already high. It averaged $2,820 a month. That's compared to $1,983a month nationally. Those figures are per Zillow. Now I don't know what percentage of La landlords are engaging in. I guess what I'll call extortionate behavior, but even if it's the vast minority of landlords you know that gives them a bad name, to have the word landlord in headlines like this. And is this behavior extortionate? In some cases, it probably is, I suspect, just a guess here that some landlords might think they have a chance of insurance paying some or all of the higher rent for their tenant that was displaced from their original home. But let's keep things in perspective here. What this does to good landlords reputations. You know, that's not the story here. The story and the effort should be in helping the displaced people. And of course, there are so many angles to the devastating la wildfires. One of them is that many believe zoning laws pushed homes out into fire prone areas. I recently shared that reason.com article with you in our free newsletter. So again, to get our Don't quit your Daydream newsletter, completely free, which I write every word of myself. Text GRE to 6866 you can do it now, while it's on your mind, hit pause and text GRE to 66866 the abject lunacy in Canada's real estate market, in what US residents and others can learn from all this, that's next. 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 Ridge lendinggroup.com That's ridgelendinggroup.com.

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Naresh Vissa 26:41

this is GRE real estate investment coach. Naresh Vissa don't live below your means, grow your needs. Listen to get rich education with Keith Weinhold.

Keith Weinhold 26:57

Welcome back to get rich Education. I'm your host. Keith Weinhold, let's discuss the Canadian economy and Canadian real estate. Because even if you live in the US or Central America or Europe or one of the other 187 nations that were heard in outside the US, you know there are lessons here for you, and there are lessons here for me as well. There is some just jaw dropping material that I'm about to share with you, and I won't discuss the politics of it, because that's not GRE 's lane. Instead, it is the policy. Earlier this month, Canada's equivalent of the President, Prime Minister Justin Trudeau announced that he will be resigning soon. And Trudeau has been under a lot of criticism. At last check, his approval rating was a miserable 22% now, most people think that the next and future Prime Minister of Canada will be a man named Pierre Poilievre. In fact, the wagering site poly market has polyev with an over 80% chance of being Canada's next prime minister, and you will hear him speak shortly here. And yes, that is how an Anglophone pronounces his last name, polyev In a recent interview with Dr Jordan Peterson. You'll listen into here shortly. Polyev, Canada's likely next leader here, first, he describes some of the problems with Canada's economy, and then he'll get into their real estate market. Right now, the median home price in the United States is about 450k you might think that Canada's should be lower, because Canada has more land in the US and Canada has just about 1/9 of the US population. So a low population density. I mean, the US is population density is more than 10 times Canada's. But no, due to some of these policies, it's just the opposite, because Canada's average home is over 725k. yeah, that's just for a basic home. I've got to admit, I did not know who polyev was until just a couple months ago. I'm starting to like him the more that I listen to him. He's a clear thinker and a clear speaker. Here is a clip of Canada's likely next leader talking about Canada's problems. This is 10 and a half minutes long. I'm going to listen to this again with you right now, and then I will come back along with you to comment. This is why you can't buy a house in Trudeau, Canada.

Unknown Speaker 29:41

Our productivity is another major problem right now, and that's productivity. Sounds complicated. It's actually extremely simple. You just take the GDP and you divide it by the hours worked in the country. So American GDP is $80 so for every hour an American worker works, on average. He or she produces $80 of GDP in Canada, it 50. So that's every hour. So that means we have to work 60% more just to make the same amount and have the same level of income to buy food and housing. And so that's the Now that sounds like a bunch of wonk speak that should might seem like it only matters to someone staring at a spreadsheet or a graph or a chart, but in fact, that's reflected in the fact that our 2 million people are lined up at food banks because they can't afford food, and 80% of youth can't afford homes, and our quality of life is and the things we can afford to provide our kids have fallen back so much there's a real, real life, Stark and easily comprehensible statistic. And if you work and you produce $80 worth of goods and services in an hour, yeah, compared to working and producing 50, obviously, that's a substantial shortfall. Yeah. So, and is that, is there a starker indicator of the economic disparity between the US and Canada than that? Or do you think that's the primary statistic? I mean, I think housing costs are another one. I mean, right. There was a study out just 10 days ago that has Toronto and Vancouver now by far the most unaffordable housing markets in North America. And so you know, housing costs are 50% higher in Toronto than they are in Chicago, even though Chicago workers make 50% more money. The same is true between Vancouver and Seattle. Seattle workers make way more than Vancouver workers, but housing is 60 or 70% more expensive in Vancouver. So on, all the measures by a lot. Yes, a lot by a lot. Yeah, and we're and we're paying more, more by a lot, right? And most of that's transpired the last 10 years. Yes, and we're paying the difference by accumulating enormous quantities of debt. Our households are by far the most indebted in the g7. when you take you divide total household debt by GDP, we now have a bigger stock of household debt than our entire economy. We are more indebted as households than the Americans were right before the oh eight financial crisis. And so what we have as a model in Canada is we have artificial scarcity imposed by very heavy and restrictive state, confiscatory state, so that suppresses production. But in order to allow for consumption, we print money and borrow money and then flood the economy with that money. Okay, so that's another problem. So that's the inflationary problem. Yes. Now the problem with inflation just many problems with inflation, but one of them is that it particularly punishes people who are thrifty and who save? Yes, right, right? So inflation punishes the people who forego gratification to invest in the future. That's right, right? So that's a very bad idea. It's our inflation is the single most immoral tax for so many reasons. One, it takes from savers and people who are trying to be responsible, thus making it impossible to be responsible, because you will, if you, if you refuse to play the inflation game of borrowing money to buy things you can't afford, someone else inevitably will, and you won't be able to afford anything. So you ultimately have to actor responsibly. It's like Milton Friedman was asked, What would you do with your money in times of inflation? He said, spend it right like the first thing you want to do when inflation is out of control is to make sure you get rid of this thing that's losing its value. The second reason it's immoral is it takes from the poor, because the poorest people cannot put they do not have the ability to buy inflation proof assets like gold and real estate and fancy watches and art collections and wine fancy wines and things that go up with or even exceed inflation. So it's a very big wealth transfer from the have to the from the from the poor and the working class to the very, very wealthy, a very small group of people actually get richer. So the socialist policies that provide goods and services to Canadians, let's say, or denizens of other countries by printing money, actually punish the poor brutally. Oh, absolutely, and consequence of the inflation that they generate. Yes, I mean all the socialist policies in practice take redistribute from the working class to the super wealthy in practice, and I can prove that again and again and again in practice, yeah, in practice. In practice they with the all the redistribution that happens in the so called socialist countries ultimately goes from the working class to the super wealthy. That is the reality. Okay, so, but just one last thing on inflation. The final reason why it's so immoral is nobody votes on it. The basic principle of our parliamentary system is the government can't tax what parliament has not voted the people must no taxation without representation, right? But no one ever votes to have the money printing happen. And so the inflation is adopted secretly, and you blame the grocer because groceries are more expensive, or your local gas station because gas is more or your realtor because house, in fact, it was actually the government that bid up all of those things with money printing, and you didn't even know about it. So it is silent. It's a silent thief that takes from the poor and gives to the richest people and destroys the working class. And that's why I am I want to crush inflation. We need a policy that seeks to just to stop inflation at all, at all costs. Okay, so what would you do to to stop inflation? Well, we stopped the money printing. You know, we need a we need. And the money printing is just a means to fund deficit spending. Governments borrow to define the deficit, yeah, for people. So basically, the deficit is the difference between what the government spends and what it brings in. It's usually calculated on a yearly basis, that's right, yeah, and the debt, but the debt is just the accumulation of the deficits, right? So the deficit right now is $62 billion and I thought it had a ceiling of 41 billion. Yeah, right. Isn't that a ceiling? Yes, not a I guess not. And look, there are very real present day consequences for that. Deficits increase the money supply. Central banks effectively facilitate that increase in the money supply, and that causes inflation. And, you know, it's, it's why our, you know, I have a buddy who's whose family moved here from Italy back in 1973 His father worked paving roads and his mother made sandwiches in a senior's home, they were able to pay off their home 10 minutes from Parliament Hill in seven years. Right, their grandchildren wouldn't be able to save up a down payment for that home in 15 years, and they will be university educated with all the advantages of having been here two decades. That is the consequence of the money supply growing vastly quicker than the stuff that money buys. So we have to do is stop growing the money supply and start growing the stuff money buys. Right? Produce more energy, grow more food, build more homes. We have to unleash the free enterprise system to produce more stuff of value, and this is where we have to remove the artificial scarcity that the government is imposing on the population. Let's incentivize our municipalities to grant the fastest building permits in the world to build homes. You have a plan for that in principle, yes, I mean, I'm going to say to the municipal governments, they either, they either speed up permits, cut Development Charges and free up land, or they will lose their federal infrastructure money, so they will have a powerful carrot and stick incentive to speed up home building and the percentage of a new house price. That's a consequence of government, taxation and regulation. Well, in Vancouver, it's 60% 66 does that include the land and the house? Yes, that includes everything. So I'll tell you how they calculate it, CD, how took the cost of building a compare the cost of building a home to the cost of buying a home, yeah. And he said, what's the gap between those two things? So they added up land, labor, profit for the developer, materials, and they compared that to the sale price, and they found the gap was $1.2 million so that's $1.2 million of extra cost, above and beyond the materials, the labor, the land and the profit for the developer. So where's that going? Well? The answer is, development charges,sales taxes, land transfer taxes, the delays in getting the permit. Time is money, the consultants, lawyers, accountants, lobbyists that the developer has to hire in order to get the approval that so in other words, we're spending twice in Vancouver. We spend twice as much on bureaucrats than we do on all other things combined. To build a home, more money goes to bureaucrats than goes to the carpenters, electricians and plumbers who build the place. And to add insult to injury, those trades people who build homes can't afford to live in them, right? I mean, it is. So what we need to do is slash the bureaucracy. And I'm going to I'm going to say to the mayors, you're not getting federal infrastructure money until you slash your development charges, speed up your permits. I'm going to take. The Federal GST off new homes under a certain limit, and encourage the provinces to do the same. But we've got so much land. We should have the most affordable housing in the world. We have. It should be dirt cheap because we have the most dirt we just need to get the government out of the way.

Keith Weinhold 40:20

Yeah, again, that was Dr Jordan Peterson interviewing Canada's likely next leader, Pierre poilievre, just a few weeks ago now. Polyev, when discussing inflation and investing, you know, he also brought up points that I've surfaced here on the show over the past few years. He even articulates a few things the way I've described them. It's almost weird, like inflation means that it actually makes sense to strategically borrow and spend and not to save. It's almost like polyev is a GRE listener. I love how he said, stop growing the money supply and start growing the things that money buys. We're talking about things like homes and energy and food. That was eloquent. I mean, in Vancouver, the percentage of a new house cost for taxation and regulation is 60% of the cost of the home, fully 60 and then, if that's not surprising enough, due to all these layers of regulation, the cost of building a new home is $1.2 million more than the cost of buying an existing home. Just astounding. This might have even left you either flabbergasted or gobsmacked, which one?So some parallels to the US there in Canada, but back here in the US, the housing market is clearly more affordable and healthier. Polyev really pointed out a direction that the US does not want to fall into. In fact, we've got a pretty good Canadian listening contingent. So let me ask, Do you have a connection to Pierre poilievre, if you do, we would probably like to invite him here on to the show with us. If you do, or you even know someone that knows someone, let us know right into get rich education.com/contact or email us directly at info@get rich education.com and we'll make that happen now. What is happening at GRE marketplace right now is that our listeners are getting brand new build investment property in Florida and some other places at competitive prices and a fixed interest rate of just four and three quarters percent. So yes, that is sub Canadian prices, by far below Canadian prices, and a four and three quarter percent rate. And then on top of that, you get to pay an affordable insurance premium in Florida because it's new build, or similarly, it's that way in other states if you buy new build, but builders overbuilt in some pockets of Florida, like I've mentioned to you before. So at this time, on top of all that, they're offering a free full year of property management. And because when you own a new build property, it's not occupied with tenants on day one, and this means that you don't inherit unknown tenants. And builders are also offering you up to three months in a rent guarantee in case your single family home or duplex or four Plex is not occupied yet, the builder would pay the rent for you. Really amazing incentives, but probably none better than that four and three quarter percent mortgage rate. I mean, it's like you get to roll the clock back to when rates were artificially low, back in 2021, and 2022, and lock it in. Now, our GRE investment coaches connect you with the investment property that's right for you based on your needs and your goals, including those four and three quarter percent rates, if you so choose, it is all free at GRE marketplace. From GRE marketplace.com just click on the coaching area and you can book a time right there until next week. I'm your host. Keith Weinhold, don't quit your Daydream.

Unknown Speaker 44:23

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

Unknown Speaker 44:51

The preceding program was brought to you by your home for wealth building get rich education.com you.

Direct download: GREepisode538_.mp3
Category:general -- posted at: 4:00am EDT

Mon, 20 January 2025

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536: Why the Housing Crisis is Pushing Homelessness to Catastrophic Heights

Complete episode transcript:

Automatically Transcribed With Otter.ai

Keith Weinhold 0:01

Welcome to GRE. I'm your host. Keith Weinhold, when you reduce your taxable income, that's a zero risk return on your investment. You'll learn how to do that today with any rental real estate that you own through what's known as a cost segregation study, even those without a giant portfolio can save 10s or hundreds of 1000s of dollars. An expert guests and I break it down with real life examples, see just how it can help you today. On get rich education

Speaker 1 0:34

since 2014 the powerful get rich education podcast has created more passive income for people than nearly any other show in the world. This show teaches you how to earn strong returns from passive real estate investing in the best markets without losing your time being a flipper or landlord. Show Host Keith Weinhold writes for both Forbes and Rich Dad advisors, and delivers a new show every week since 2014 there's been millions of listener downloads of 188 world nations. He has a list show, guess who? Top Selling personal finance author Robert Kiyosaki, get rich education can be heard on every podcast platform, plus it has its own dedicated Apple and Android listener phone apps build wealth on the go with the get rich education podcast. Sign up now for the get rich education podcast, or visit get rich education.com

Corey Coates 1:19

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 1:35

Welcome to GRE from Berlin, Pennsylvania to Berlin, Germany and across 188 nations worldwide. I'm Keith Weinhold. You're listening to get rich education. And one way that I like to be positioned in real estate is the sense that I own it directly, yet I use a property manager so that I'm shielded from the day to day responsibility. I care, but I can still live my life now you might favor direct ownership like I do, yet choose to self manage your property instead. That's a viable way to do it. Self management is how I started out, but however you handle the management when you own directly, you can alter your effective post tax rate of return on your investment, and that's what we're talking about doing today with a cost segregation what this effectively does is increase your tax depreciation benefit. Though depreciation sounds bad as a word in the real estate world, even without spending any of your own money, it's still classified by the tax code as an expense that you can deduct from your taxable income. You don't want to reduce your income, only the taxable income reducing the portion that the IRS can get a piece of. Now, unless it's a condo, your rental property probably includes both a structure called the improvement and also the land. Now your improvement has components that wear out, and even the IRS knows that the land does not wear out yet. There are items on the land that you can get this accelerated depreciation on through a cost segregation, like fencing and lighting and carports. A lot of people don't know that, so there is therefore a land improvement segregation often on a 15 year schedule, but it's even more lucrative to get cost segregations applied to things inside your building or home that wear out faster, like countertops or flooring, as we'll see today, on shorter schedules, like five or seven years. Said another way what you're doing is that you are shielding more of your taxable income. And I'm going to ask today's Cost Segregation expert guest for an example near the start of our conversation, so he'll give us some numbers. And you want to listen to that part closely, and you might find yourself skipping back to re listen to some parts today as we give real life examples on how a cost seg works. Now, today is a Presidential Inauguration Day, so it's appropriate that we cover this today, because Trump is widely expected to reset 100% bonus depreciation, which, as you'll see, factors into our discussion today. And frequent GRE guest Tom wheelwright thinks that this is going to happen too this 100% bonus depreciation. What that means that, for example, all those land improvements that I mentioned on a 15 year depreciation schedule, where you could front load it and get it all in year one of your ownership and those components indoors. On shorter depreciation schedules, like five to seven years, you can get all those write offs in year one without waiting five to seven years. So that's. The sweetener that 100% bonus depreciation is, if Trump indeed brings that back, and you might say, wait a second, this sounds a little too good to be true. I mean, getting these amounts, you'll see they can be over 100k in tax savings, even for a small investor, that you can reduce your taxable income by Well, you know, it is just a little too good to be true, because when you sell the property down the road, you have to pay back 25% of what you wrote off this way in what's known as a depreciation recapture tax. So it's still worth doing. In a lot of cases, you would keep 75% of your benefit then, unless you do a tax deferred exchange on your sale, and then you could defer that 25% depreciation recapture tax. So yes, today's episode is deeper than most. And you know, being a Presidential Inauguration Day, and knowing that I like to drop a little levity here before we delve into deep topics, what does the outgoing presidential administration have to say about cost? Segregations get hot.

Speaker 2 6:13

I got Lana. I got hairy legs that turn that turnblonde in the sun, and the kids used to come up and reach in the pool and rub my leg down so it was trained, and then watch the hair come back up again.

Keith Weinhold 6:32

I don't know what just happened there. Let me just give him another chance to clear things up. I mean, you really can do a cost segregation,

Speaker 2 6:41

we have this notion that somehow, if you're poor, you cannot do it. Poor kids are just as bright and just as tall as white kids.

Keith Weinhold 6:51

Gosh, oh dear, I don't I don't know where to go with that. And hey, if you're a new listener, you know, over time, we poke a little fun at every president. We do with Trump as well. We do with Jerome Powell. No one is immune around here. Some people, hey, they might find it funny that a former real estate investor President like Trump wants to expand America's real estate portfolio by taking Canada and Greenland in the Panama Canal back too. Politics matter, but this is not a politically partisan platform in any way. What's politically partisan? It's saying that the economy is like absolutely awful, but then as soon as your guy gets sworn in, one hour later, you're willing to call that same economy. Now suddenly, a great economy. No, a national economy does not change in one hour. So free thinking and thinking for yourself beats polarizing political partisanship. That's a way it's been around here from day one. Yeah, a little levity, a good knee slapper now and then knee slapper coming up in future weeks on the show here, the real estate guys radio show host and a friend, Robert Helms, will be here to update us on what's happening in the short term rental market, mid term rental market and more. We'll also announce a big collaboration that he and I are going to do together this year, and you'll be invited to join us today, let's discuss cost segregation.

You can take your tax burden and put a huge dent in it by accelerating your real estate depreciation deduction with a cost segregation This could save you 1000s of dollars every year or more depending on the size of your real estate portfolio. We're talking about how to specifically do this with a cost seg expert. He's been a real estate investor for over 20 years. He builds new rentals to hold, and he and his son do that together. In fact, you're currently building a 24 unit complex now. But the reason he's here is because he started a specific cost segregation company in 2012 and he completes over 100 cost seg studies every year. So he's really the guy to talk to. Steve, welcome on to the show. Thanks for having me. I appreciate it. It's great to have an expert like you here and Steve, I think a lot of real estate investors, they're familiar with tax depreciation. That's where for rental property, with residential, there's a 27 and a half year schedule. And commercial has a 39 year schedule. We take the reciprocal of those numbers, and that means that, for example, in residential, you can write off about 3.6% of the improved property value every year. That's pretty nice on a 500k property that right there is 18k that can be sheltered from taxes annually. But most investors stop right there. So in a lot of cases, they aren't maximizing their tax benefit. You can write off substantially more than that, potentially. With a cost segregation. So tell us about it.

Steve Trussell 10:04

Cost Segregation. As you just mentioned, you have your regular depreciation, which most do take. Believe it or not, I've come across a few people that own property for a few years, and they're not taking it at all, which is, I don't understand that maybe they're doing on accounting, but we get them on track with that. But as you said, 27 and a half and 39 year depreciation, whether it's residential, 27 a half commercial, 39 that's all well and good, but there's a lot of money left on the table, because when you look at the the piece of real estate, there's a probably 22 to 32% of the asset itself, the depreciable asset that's shorter life, for example, cabinets, flooring, light fixtures, uh, outside the landscaping, retaining walls, things like that that are shorter life. So what we do in a cost segregation study, we go in and we rebuild the property through an engineered study, we pull out the five and the 15 year property and reclassified. And so usually you're going to wind up with about 70, 75% of it will stay on the schedule. It was on whether it be 27 and a half or 39 but then that 20 to 30% that we're going to bring forward is a huge number. So for example, I just recently did one. It was a duplex, $510,000 was the purchase 433, was the basis, after land, the depreciable basis. It was kicking out about 16,000 a year in regular depreciation. For the investor, which covered, you know, their cash flow and so forth, so forth. Most people know how that works. We were able to go back and accelerate it and get 131,000 or about 31% of it in 515, year property. So they had $131,000 depreciation amount sitting there. Then they still were able to write off the 302, that was left at 11,000 a year. So they're still getting their normal depreciation, a smaller number, but that 131,000 if they can use it with bonus depreciation, is $131,000 of money sitting there. They could offset $131,000 of income. That's a huge number. If they're not doing that now, they're leaving money on the table.

Keith Weinhold 12:01

Gosh, $131,000 of potential tax sheltering, which is, yeah, a huge number on a 500k duplex, like you described.

Steve Trussell 12:11

It's a substantial number. And if you're not doing cost segregation, then you're leaving a lot of money on the table, like I said. So then it comes down to it. It's a, I guess, cost versus benefits. So the first thing we do is, I get the data from your purchase of your piece of real estate or server, whatever it is, we put together an estimate of benefit to give you an idea of what that would look like for you, like in this example, that's what we produced. Was what we thought we could bring forward for this investor. And then at that point, once we determine that you look at 131,000 the cost of our study is $1,830 so 131 versus 1830 is a pretty good bargain. I believe. I mean, I know I'm selling my product, but that's a pretty good bargain. Yeah. And then the third part of it is, so we've established that it's probably makes sense. But then can you use it? If you're a real estate professional, if you're familiar with what that means, you can write that off against your active and passive income. If you're not, you're a w2 and you're not quite there. Yet it may be that you don't do it now. You do it in a couple of years, but either way, the process is there when you can use it. Probably 80% of my investors are able to use it the year we do it. And if you don't use all of it, you carry it forward. So it's makes sense, typically, to do a cost segregation study, but that's what we help you establish by one, the estimate, and two, discussing with you or with your CPA, does this fit you? Is this something you can use as from a tax standpoint?

Keith Weinhold 13:37

Yes, it was just a few episodes ago. I describe more about what real estate professional status is. The main thing is, typically, real estate needs to be you, the investor's principal activity. So it's not very likely that you're going to be a real estate professional if you still have a full time day job.

Steve Trussell 13:56

There are doctors and lawyers and people like that that have a full time job, and they just could not justify spending the amount of time and being a real estate professional. But sometimes their wife would be the candidate to be that. So their wife becomes or this, or the husband. If the wife is there's the breadwinner, becomes the real estate professional, and then they can take that and write it off against their active income. And I don't want to jump into the CPA side of this. That's more of a CPA question, but that's how I understand it works. And I've seen that happen before, where someone who has a full time job is able to bring their spouse in as their real estate professional, and they're able to use utilize it that way.

Keith Weinhold 14:34

Well, to talk more about this benefit of $131,000 on the duplex example that you gave, if all that is able to be deducted at a 30% income tax rate, that is 40k of savings. 40k is about 30% of this $131,000 number. So that's the money the increase in net income in your pocket.

Steve Trussell 15:00

yeah, which is substantial, and that's where you look at your individual tax break. I'm gonna save 40,000 in taxes, and I'm gonna spend $1,800 for the study. Makes sense to me to do that. It's pretty good return on your money, but it comes down to being able to use it. And so that's the things that we explore when I'm talking to a client.

Keith Weinhold 15:19

Now, Steve, I know in the past, I have talked to cost segregation engineers and their firms on the phone, where they've looked at some properties that I had, and I don't remember whether they charged me for this or not, but what I learned is it wouldn't be worth going ahead with a cost segregation study on and I'm thinking that they didn't charge me anything to tell me that, but really what I'm getting at is, can you tell us more about when it makes sense to do a cost seg on properties, and when it does not?

Steve Trussell 15:46

Well, there's okay if you're going to sell it the next few years, it does because you're going to recapture so you don't want to spend money for a study only to get the benefit for a year and then sell it and have to recapture it. Now, in my personal situation, I have done that because I bought more property and I was able to use the cost segregation to offset my gains versus a 1031 So by and large, it doesn't make sense. If you're going to sell it, that's number one. You may have owned it for eight or nine years, 10 years, maybe you've used a lot of your depreciation already. So that delta between the accelerated depreciation and which you've already taken may not be enough to make sense. It may be a property that's, you know, $80,000 probably doesn't make a lot of sense to spend the money. The mass just doesn't typically work there. I've done some as low as that because they wanted the tax benefit, and I'll do whatever the client wants me to do. But those are the three things that I would say probably would determine whether it makes sense or not. But that's where the estimate comes in. I mean, you bring me a property, and if it's $40,000 I'll tell you before I do anything, probably not worth messing with it. It's you're not gonna get much benefit. But if you bring me a property and it's $125,000 asset, we'll take a look at it. I'll do a quick estimate for you, no charge, and it'll either apply and make sense for you, or it won't. And I'll be the first to tell you, if it doesn't you know your individual tax situation, I'm just talking about the dollars that we create for you versus the cost. If it doesn't make sense, I'll tell you. I don't want you to waste your money doing a cost segregation study if you don't need it or can't use it.

Keith Weinhold 17:14

Okay, So there are a number of factors here, which could include how long the investors own the property, how soon they plan to sell the property. It sounds like there's generally a correlation here, with the larger the property, the more likely it is that it makes sense to do the study as well.

Steve Trussell 17:29

It does. I have a client that I'm working on right now. He has six properties, and I think they were 2021, acquisition. So that was it four years ago, and they're not on a depreciation schedule, he hasn't taken anything. So in this case, it's, you certainly would want to do a cost segregation study, and that you need to have your properties on a depreciation schedule anyway, for whatever reason they weren't there. So in this case, if you came across a client that had a property for 10 years or for some reason it was never on a depreciation schedule, which that's, I don't know how that would happen, but let's assume it did. In that case, you would make sense to do because you're going to catch up all that depreciation from back, from 10 years ago all the way through today, which would even be a larger number. So that happens occasionally, rarely it happens, but it does happen where someone has never depreciated a property.

Keith Weinhold 18:17

We're talking with a man that can greatly reduce your tax burden. I think for one thing, first, he's gonna check to make sure that you're taking the basic tax depreciation. But beyond that, as you can see here, there's a potential to do a lot more with a cost segregation. You're listening to get rich education more when we come back on cost seg studies, I'm your host. Keith Weinhold.

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Robert Helms 20:17

Hey everybody. It's Robert helms with the real estate guys radio program. So glad you found Keith whitehold and get rich education. Don't quit your Daydream.

Keith Weinhold 20:32

Welcome back to get rich education. I love talking about tax savings vehicles, because it's like a no risk instant ROI to you, that's what we're doing today, when we're talking about accelerating your depreciation and reducing your tax burden through a cost segregation. And Steve, in my experience, I know that you can't just ask anyone to go do this study, like your Slack John, uncle with a tape measure and sending him out there. It takes a person with a certain credential in a Cost Segregation engineering analysis. So can you tell us more about what physically needs to take place to have a cost seg done?

Steve Trussell 21:09

Yeah, you're right. People. You could try to do this yourself, but it probably wouldn't pass muster with the IRS if you were to, if they were to question the study. One thing that we do, and most firms like mine would do also, we do back up the study, and we do guarantee that we will defend the study on your behalf. If there's a question, very rarely does it come up, but if there's a question from the IRS, we step in in your place and defend the study and justify how we arrived at these and that's only through a call to an engineered study. So if you have your your uncle, as you mentioned, doing it, it doesn't follow the audit technique guide. Doesn't follow the guides that are required for cost segregation study. You're probably going to find it getting kicked out and wind up owing taxes and penalties. So you want to make sure you're someone who's qualified and they do an engineer study, same thing as a CPA. CPAs aren't qualified to do a cost segregation study because it is an engineered study. We're breaking down the entire property and rebuilding it with our software on commercial buildings. You'd mentioned. What do we do? Commercial building? We do a physical site visit. We actually go to the property. Those are more expensive because we're there at the property and travel time and so forth. That to do that with engineers on residential we have a unique program. We do a virtual site visit where I can do this or my desktop, and that's why I'm able to keep the cost down. But we still do a site visit, because there's so many tools available today to be able to do a virtual site visit, I mean, for anywhere in the United States. So we can do this anywhere in the United States, and I take the tools that we have, the data I get from the client, we can do a virtual site visit and create the study from that

Keith Weinhold 22:43

really what the IRS is doing, whether this probably isn't reality, but you're saying your property wears out completely in 27 and a half years. That means that you can take some portion of that and depreciate it each year, but with some of these components that you mentioned, like the flooring and like the bushes. I think even the landscaping is one of the components that you can do a cost seg on. Basically they're saying that wears out faster.

Steve Trussell 23:11

Correct. Pretty much everything outside the building is 15 year life, sometimes even shorter than that. But that's how it classes 15 year life. Like your driveway, your like I said earlier, your retaining walls, grass, landscaping, fences, things like that, outdoor lighting, stuff like that. The inside the building is the five year property, which is your countertops, your flooring, fixtures. Think of things. I mean, floor is going to wear out before 27 half years, you're going to be replaced. You do it in your own home. Typically, you know? Well, I would never keep it for 27 and a half years. I would I wouldn't thank him in my house, but because they do wear out sooner. Tile is a little different animal. There's some debate about that, but for the most part, it's components like that that we're able to reclass in a five year classification.

Keith Weinhold 23:54

That's pretty generous. Grass wears out in 15 years.

Steve Trussell 23:58

Well, it's a 15 year. Yeah, it dies. You know, things change landscape, things like that. So yeah, you do. Those can be classed at 15 years.

Keith Weinhold 24:08

All right, we've talked about the cost in terms of dollars a bit for what a cost segregation study might cost. How much time does it take from the time one is initiated?

Steve Trussell 24:16

It depends. We could typically work with your schedule. I get a lot of last minute folks that get with me in September and they need their October 15, or even this September 15 depends on what kind of entry Do you have it in. And so we can turn these as quickly as you need it, typically, if I have all the data and all the information, especially if it's a residential where I'm not having to travel, but by and large, I can turn these in less than 30 days back to you, and if you need it sooner, we'll burn the midnight oil and get it done for you. That's during crutch time for between January 1 and April 15. If you file early or on time, if you file in October and you extend your taxes and the automatic extension in April, you've got to have the study done before you file. Your taxes. So if you wanted it for 2024 you need to have a study completed by April 15 of 2025 if you're going to file it April 15, if you're gonna file in October, the automatic extension, you need to have it completed by then. So our busy season is January through April 15, and then probably starting July, August time frame through October 15. That's our busy season. So the point of it, if you're going to do a study and use it for your current tax year, it must be completed no matter when you purchased it, but it must be completed prior to you filing your taxes, so you can use it on that tax return.

Keith Weinhold 25:35

All right, so we're just getting into Steve's busy season. So if you think this can benefit you. You want to initiate that sooner rather than later. But Steve, when we talk more about the benefits, we've had a change in presidential administration. So tell us more about the bonus depreciation benefit.

Steve Trussell 25:53

Your bonus appreciation came out in the previous administration before this last one, Trump's first administration that came out of that. So the anything where you reclass is five, seven and 15, your property, but it's 100% bonus. In other words, if you go back to the 131,000 I mentioned on the duplex, all of that in between September 2017 through December 31 to 2022 you get 100% of that. It's starting in January of 2023 through the end of december 23 it went to 80% and the next year, 60, and in 2025 it's going to be 40. But there's been an extension that was passed last in 2024 in the house to go back to the 100% installed in the Senate. And we think with the new administration, we'll probably in the new tax cuts, we'll probably see this reinstated and go back to the 100% which is substantial. If you're getting, you know, 60% of the 131, what is that? 78,000 bucks, roughly, something like that. And if you're getting 100% that's a big difference. So we're hopeful that we'll see that sometime in the first quarter. And so even if you file your taxes in April and it hasn't passed yet and you've only gotten four, you only get 40% bonus depreciation. You'll get that extra 60 the next year. What's happening now, though, before it, if it without being stated, you're still getting a bigger benefit. Because, as I mentioned before, the 131 comes forward, and you get the percentage of that the 302 is left over. In that example I used earlier, you've got your regular 27 net fear depreciation, but that 131 is still five and 15 year property, so you're depreciating that much faster than you would on a 27 after your schedule. So you're still getting a benefit, just not as good as when you get 100% bonus depreciation.

Keith Weinhold 27:34

Okay. And again, when you're talking about five, seven and 15 year property, you're talking about those component lifespans, correct, where we reclass that bonus depreciation benefit started out at 100% a few years ago. It's been stepping down 20% each year, and that is set to most likely refresh here sometime this year, back to the full 100% bonus depreciation. And if that does indeed happening you the listener. You're going to be hearing about that from your real estate investor friends and your social media feed and everything else, and you're going to maybe be feeling left out of that unless you get on top of it and take part of this. That's exactly what we're talking about doing right now. Steve, why don't you talk to us about some of those other components that are included or excluded from a cost segregation study, whether that's lighting fixtures or parking lot asphalt, tell us more.

Steve Trussell 28:27

Exterior is the 15 year life we talked about, the parking lots, the big residential the driveways, the landscaping, the fencing, retaining walls, bushes, the things that are gonna be outside. Okay, everything outside is 15 years pretty much, yes. And then when you go inside, look at the things that you would typically change out. You're not gonna change your plumbing. It's in your foundation and your walls, unless it breaks. You're not gonna change your roof. Is also, even though you change it out, it's also a permanent part of the structure. The roof is but the inside the house you have your or even outside, you've got your brick on the outside of your siding, that's 27 half for your property inside the cabinets, your countertops, flooring, your decorative light fixtures, the your plumbing fixtures, things like that, glass mirrors, things like that, that are going to be naturally shorter life. And it's pretty easy to look at a piece of property and see what's permanent again, like I use the example, the foundation, the studs in the wall, the brick, the she rock on the wall, those things are permanent fixtures. It's the things that are movable parts, typically, that you could look at, and that makes up 22 to 32% I've had to go higher, but 22 to 32 is a good range of the asset from five year and 15 year.

Keith Weinhold 29:42

All right, so really, the dividing line for Cost Segregation is stated as what is a permanent fixture and what is not permanent.

Steve Trussell 29:50

Yeah, probably in the general sense, yeah, I would say that. Well, are there any

Keith Weinhold 29:53

other things that one should know about a cost segregation study, whether that's myths or misunderstandings that need. To be cleared up, or just anything else at all. One needs to know about a cost segregation study. A couple

Speaker 3 30:05

things. One, the myth is that a lot of people think that it triggers audits that you're changing your accounting or you're getting this big bonus depreciation that's in the tax law, and so you're just taking advantage of the same zero to depreciation. Putting depreciation on your schedule, on your tax return, doesn't trigger audits. I mean, that's just buying property and you're putting it on the return. Accelerated depreciation doesn't either, because you do an engineered study. So part of the myth people think that they're going to call it, it's going to trigger an audit. It doesn't. It's a standard practice that accepted by the IRS and the study. The only thing that might, that might trigger isn't the agent. If they're doing an audit of your taxes, they might look at the study and say, Why did you classify this as this but this amount? Well, we go back through our data and our study through our software, and we could prove out how we came up with that value, and that's what they would ask. Is something like that, but it doesn't trigger an audit necessarily, just because you do a study. Second thing I've said this, I'll save all my clients. I said a couple times here, it's important that you can use it, that you can use the benefit. It does not do any good to go spend money for a study and get $131,000 appreciation, like I mentioned earlier, and it just sits there your w2 income, and you can't use it towards that that's far exceeds what you're making on your property. There's still a point in doing that until you can use it. There are other companies out there. They won't discuss that with you. They'll just tell you, you know, let's do a cost segregation study, because you get all these great benefits, but it doesn't do any good if you can't use it. Like I said that 131 be sitting on your depreciation schedule. That's bonus depreciation, but you're not able to do anything with it. If you're a high earner and you're not a real estate professional, you can't use it. So just be aware of that. If anybody brings a cost segregation study to you, and they don't discuss with you how it benefits you, I just be aware of that it's got to benefit you. What's the point if it doesn't

Keith Weinhold 31:57

that's a really great reminder you want to have this done the right way with someone that knows it can benefit you and more than offset the cost of the study. Maybe I should just bring up one example here of maybe a common turnkey property that a listener might buy that's not very high cost. Say that someone buys a fully rehabilitated, just $180,000 rental single family home built in the 1970s two bed, one bath. I'm sure there are some. It depends factors, but in general, would that be a candidate for a Cost Segregation if that were a new purchase for an investor?

Steve Trussell 32:35

I do it all the time, because it doesn't matter how old the property is. What matters is when you purchases. That's when your start date hits and or when you sell it to start date for the next person as well. So yeah, in that case, you're going to take roughly 15% for land. We go to the county website and see what they're using for land, and if they're using 6% that's what we'll use. But 15% is acceptable by the IRS. So in that case, 15% is what $27,000 so your 147 I think, would be your depreciable amount in it, 25% of that is 25 and almost $40,000 of depreciation versus an $1,800 study. And so if you're in a third step bracket, you're gonna save 12,000 in taxes and spend 1800 to save it. I mean, I would swap 1800 for 12,000 Gosh, any time. So, yeah, it would work. But then that comes down to, you know, you individually. What do you do for a living? What's your income? Like it would what level of income you're at. But can you use the 40,000 and celebrate depreciation? And that can be determined between a conversation with me, you and probably your CPA, so they know your tax situation the best, and then I really like the CPA to be involved. It's up to the client, but I'd prefer them to be involved so they know exactly what we're doing. Some CPAs aren't that familiar with it, so we can help them with getting this on the tax schedule. If they need us to on depreciation schedule, they really want the CPA to be involved if the client is comfortable with it because they know your tax situation the best. I can create the benefit for you. They can help you determine if you can use it.

Keith Weinhold 34:08

That's a good point. I would imagine that there are some tax preparers that have never seen this on one of their clients returns before, so that's a great help. And that was an awesome breakdown of just how things might actually look for someone. It just kind of has that most basic, low cost, 180k turnkey property. Steve, before I ask you if you have any last thoughts or anything else that the listeners should know if you want to connect with Steve, do that in the same way that you learn about our properties and our providers at GRE marketplace.com, click in the coaching area, your investment coach is going to help connect you with Steve all of his resources and adjacent resources that are helpful with you. Steve, is there any last thing that someone ought to know?

Speaker 3 34:50

I just think if you own property at all, it makes sense to get an estimate for cost segregation. It doesn't cost you anything. And then we could decide to. Together Again, like I said, along with your CPA, here's my benefit. Can I use it? And they cost you nothing to do that. Your CPA may charge you some time, I'm not sure, but working with me to get through the estimate phase up to the benefit, what's gonna look like for you that we do that for free, and so if you own any property, it makes sense to take a look at it or just have a phone conversation, because if you call me, you tell me, I make $300,000 a year. I'm a engineer, doctor, whatever it happens to be, and I work full time. My wife works full time. I'm probably gonna tell you, you know, you're probably not a candidate right now, because, like, we'd be a great benefit, but you can't use this great benefit right now. Let's revisit it when maybe you can. So it's just worth a phone conversation and you get me the data that I need, which is pretty simple stuff. I could put together an estimate before you turn it around and you decide, what if it makes sense for you?

Keith Weinhold 35:48

Yeah, if you have that conversation with Steve and worst case scenario, you can't use it, you better believe you're going to come off being pretty well informed in knowing the next time that you can use it, perhaps on your next purchase. Well, this has been supremely helpful, Steve. A lot of people are going to benefit from it. It's been great having you here on the show to talk about cost segregation.

Steve Trussell 36:09

I appreciate you having me. Thank you very much.

Keith Weinhold 36:17

Like Steve said, it's about 22 to 32% of the depreciable assets value, which is that house or building, not the land, can be deducted at an accelerated depreciation rate, faster than the 27 and a half year residential or 39 year Commercial depreciation rate. And Steve told me that before some investors even buy property, they will ask him how it would look with a cost segregation and hold on the numbers, and that way you can use it for your pro forma ROI calculation. Yeah, before you've even purchased a property, like I said, you can't have your Slack John uncle do a cost seg study. Plus your uncle is in slack jawed. Anyway. In fact, I'm the only slack jaw you've ever known. Now, I personally plan to send Steve a copy of my depreciation schedule so he can tell me how things would look for my properties. He can do this for you just the same. There is no charge. It's best to submit everything by mid March at the latest, if you file your taxes in mid April. So we are now in their busy season at GRE marketplace, that's where you do more than connect with our investment coaches and properties. There are also service providers, including Steve. Our coaches are there to help you optimize your ROI. This is a type of thing where if you think it's a good idea, you know you're probably not going to pick this up later if you don't move at the speed of instruction now. So if you think that it can benefit you from GRE marketplace.com, click in the coaching area. Get that set up, and we'll connect you to Steve and help you with anything else that you might need in your real estate portfolio. Until next week, I'm your host, Keith Weinhold, don't quit your Daydream.

Speaker 4 38:13

Keith Weinhold 38:41

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The podcast dives into dramatic global real estate trends, with home prices skyrocketing over 10% in countries like Colombia and the Netherlands.

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535: Single-Family Rentals vs. Apartment Buildings

Complete episode transcript:

Automatically Transcribed With Otter.ai

Keith Weinhold 0:02

Welcome to GRE. I'm your host. Keith Weinhold, we look at global home price change, the asset class rundown, then the homelessness crisis is mega bad. It just reached new, unprecedented levels, and real estate and inflation has a lot to do with the homelessness surge today on get rich education.

Speaker 1 0:28

Since 2014 the powerful get rich education podcast has created more passive income for people than nearly any other show in the world. This show teaches you how to earn strong returns from passive real estate investing in the best markets without losing your time being a flipper or landlord. Show Host Keith Weinhold writes for both Forbes and Rich Dad advisors, who delivers a new show every week since 2014 there's been millions of listener downloads of 188 world nations. He has a list show. Guess who? Top Selling personal finance author Robert Kiyosaki, get rich education can be heard on every podcast platform, plus it has its own dedicated Apple and Android listener phone apps build wealth on the go with the get rich education podcast. Sign up now for the get rich education podcast or visit get rich education.com

Corey Coates 1:13

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 1:29

Welcome to GRE from Kent Washington to Tashkent, Uzbekistan and across 188 nations worldwide. I'm Keith Weinhold, and you are listening to get rich education. One reason for a not just national, but global, rise in real estate prices is that you can't fake it. Real property is not a derivative, yeah, you can't fake it. So this really emphasizes the word real in real estate. It's not a crypto within infinite supply. It's not an NFT. You can't fake construction. You can't fake real materials put into property, from concrete to kitchen cabinets. So in the year recently ended, as we catch up to global home prices and select nations, per Fitch Ratings. Let's do that because it was not just a US centric thing. In the Netherlands, the home price change last year was 13% you had that much appreciation in the Netherlands. Colombia, 10% Mexico up 9.3% Brazil had 8% home price appreciation. Australia, 5.2% Australia has just seen year over year home price appreciation for such a long time. The UK had 5% appreciation. Spain, 5% as well. The USA, 4% just like I predicted at the end of 2023 for 2024 It did indeed come in at 4% Canada also had exactly 4% home price appreciation last year, just like the USA did. Denmark 3% Italy and Japan each at two and a half percent. Germany home prices were up just one and a half percent. And France had home prices that fell 3% China had home prices that fell 7.8% that supply versus demand thing in China, where they massively overbuilt, that's why home prices are down there. And as I unveil the depths of the USS homelessness crisis later here on the show, you will see that, yeah, those appreciated real estate prices, like I just mentioned, they have a lot to do with it. Now you might think of the youngest generation, the generation after Gen Z, as generation alpha, and that is true. However, they are no longer the youngest generation, because the babies born on New Year's Day of this year not only got to be featured in feel good local news stories. You know what? They are, also the first members of generation, beta, yeah, which will include children born from 2025 through 2039 so that is the future and the future demographic that's going to demand housing. But first of all, let's look at a year that was yes for years here on the show, we have our asset class rundown shortly after most quarters end, and certainly after a year ends. And today is no different, and this is because at times you've got to compare real estate with the other investment options that are out there. We now have music to play for our asset class rundown feature each time for today and. Future shows. And I know the GRE sound engineer has got to like this. He's also a DJ dropit, Vedrand. Here is GRE 's asset class rundown for the 12 months of last year, residential real estate values were up 4% per the NARS. Single Family existing home price, like I said earlier, single family rents up about 2% per core logic, apartment rents pretty flat, down six tenths of 1% for the year per apartment list, office buildings were down in value 9% the 30 year fixed rate mortgage. It started last year at 6.6% everyone, I mean, everyone, thought that they would go lower, but nope, they ended at 6.9% a little higher. That's per Freddie Mac survey. The s5&p 100 index was up over 23% topping out at 6100 last year. That is the first time the s&p has been up 20% plus in back to back years since 1998 and the s&p is meant to represent 500 companies, but it has become so concentrated due to the rise of the Magnificent Seven stocks that its effective diversification is less than 60 stocks. Morgan Stanley just announced that they expect the SP500, 100 returns to be flat for the next decade due to lofty valuations. Do you know that since 2000 gold has outperformed the s&p last year, gold shot up from about $2,000 peaked near $2,800 and then ended up about 30% for last year, the yield on the 10 year T note was up 63 basis points last year, basically rising from four up to 4.6% by year end. What that means is that that signals higher inflation expectations. Bitcoin up an astounding 111% to end last year around 95k and it topped out at an all time high of 108k oil up just 2% to 72 bucks and a wild card for you. Through October, Bible sales were up 22% compared to the same period versus the previous year. That is GRE 's asset class rundown. It was.

This is get rich education. Let's drop back and do some learning before I update you on housing and the homelessness crisis. Now, a lot of Americans don't really know history that well, and not very many have a good financial education either. But you know, it is quite possible that even the next person you spot in a Trader Joe's aisle has heard of Adam Smith in his landmark 1776 book The Wealth of Nations. Did you know that Adam Smith is the one credited with actually inventing the very concept of supply and demand? Yeah, Adam Smith, a Scotsman is credited with that. He is known as the father of modern economics. You might have already known that. Well, of course, supply versus demand seems to be a more relevant concept than usual. Here with the housing shortage crisis, Adam Smith, he proposed the idea of what he called an invisible hand, that is the tendency of free markets to regulate themselves using competition, supply and demand and self interest, a Darwinian sort of struggle. Really, did you know that he also created the concept of gross domestic product? Yeah, prior to Adam Smith's work, most people considered a nation's wealth based on the amount of gold and silver reserves that they had stored. But Adam Smith said no, it's more about productivity quantified in this GDP in a lot of his work. It also discusses the evolution of human society from a hunter stage with no property rights and no fixed residences, to nomadic agriculture with shifting residences. And then the next stage after that is a feudal society, where laws and property rights are established to protect privileged classes. And finally, that modern society is characterized by laissez faire or free markets, so a good chunk of Adam Smith's work revolved around real estate. Now, the history of economics like that is a phrase that sounds boring. Maybe it is to some people, but as an investor, the least that you should know about Adam Smith's landmark book The Wealth of Nations from the year 1776 is that to review, he invented the supply demand concept. He created the GDP concept, and he championed free markets. That's something you're going to appreciate knowing in your investor life. And also supply demand, as I discussed that in the homelessness problem shortly.

we are a real estate show, and, you know, I just don't hear other real estate shows talk about, well, the unfortunate, I guess, absence of real estate in an increasing number of people's lives now, even if you have a home, learn about how homelessness is gonna make your life worse, too. In fact, it already has. I'm not sure if you've noticed, I will get into that as well. First listen to these two spots, freedom, family investments for an eight to 10% return on your liquid capital and Ridge lending group, they specialize in income property loans. They can really help you, and I would know, because I use them both my self. I'm Keith Weinhold. This is get rich education. Here you go.

Oh, geez, the national average bank account pays less than 1% on your savings, so your bank is getting rich off of you. You've got to earn way more, or else 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 a 10% return and compounds year in and year out. Instead of earning less than 1% 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 you know how I'd know, because I'm an investor in this myself earn 10% like me and GRE listeners are. Text family to66866, to learn about freedom. Family investments, liquidity fund on your journey to financial freedom through passive income. Text family to 66866

Ken McElroy 12:41

this is Rich Dad advisor, Ken McElroy. Listen to get rich education with Keith Weinhold, and don't quit your Daydream.

Keith Weinhold 12:57

Welcome back. You're listening to get rich education Episode 536, I'm your host. Keith Weinhold, it is bad. America just hit a record high homelessness number, and it is up double digits, over 18% in just one year. It is even worse when we look at family homelessness and the rise in that and gosh, get this unaccompanied youth homeless, meaning like a 15 year old kid homeless and drifting by themselves. And this is all in the most powerful nation in the world. And even if you have a home. Homelessness is gonna make your life worse, too. We'll also look at how Trump wants to address this. It is major. And finally, are there any solutions to the homelessness crisis in America today? Well, there are now over 771,000 homeless in America, that's up from 653k just last year. And yes, the homeless can be hard to count, but as long as the methodology stays the same, I mean, there you go with the 18% increase. And here's the thing from all the years, from 2007 to 2023, all 16 of those years, we only saw a total increase of 19% during that entire span, and now 18% in just one year this latest year. I mean, talk about exponential and accelerating homelessness growth. And before I tell you about why this is happening, let's get a better idea of the gravity of this sad situation here, and this is all from HUD's newly released annual homelessness assessment report to Congress among subgroups families with children saw the biggest increase as. At 39% year over year. You think that's sad, but consider how sad this is. Unaccompanied homeless children, they're up 10% in just a year, and that was only up 3.4% all of the previous 16 years combined. Veterans are the only group to see a decrease, and the number of homeless people over 65 so we're talking seniors here that is expected to almost triple by 2030 that is just five years away, and it is just widespread too. I mean, nearly no US geography is immune from this spike in homelessness, from Florida to Maine to California to Alaska. Now, even if you have a home, the shoes of that are pretty good, if you're listening to me, you know, why does this even make your life worse? Well, of course, first of all, homelessness can make your city blighted. But beyond that, just think about how many ways it's just changing your week in and week out routine. I mean, have you noticed, like, just take, for example, when you or I walk into some grocery stores anymore. I mean, I notice how different things are than they were just say, five years ago. I mean, you've got to notice some of these things now, more often than there was just a few years ago, there's an armed guard when you walk into a store near the entrance. Well, someone is paying for that security, whether it's the store passing the price along to you, or whether it's a government or municipality paying that, well, that's where your tax money goes. And what about when you're shopping the aisles of a supermarket, or, say, CVS? Well, now even kind of moderately priced items like bottles of moisturizer, they are under lock and key behind a Plexiglas case. That's inconvenient while you're shopping if you need to use the bathroom, oh, now you need to go get a key or learn the door code to access the bathrooms. That's inconvenient when you're done and as you walk out of the store now, they are more likely to have an attendant that checks your receipts on the way out, and this is just one example at the supermarket. I mean, so many of your patterns are changing due to poor people getting poorer, and the homelessness crisis, if you're in a rural area, it probably affects you less. But just take a look around and notice the change. We're not talking about the change from your parents era, but just in your own life over the past, say, three to five years, homelessness is not good for an area's crime rate either. I mean, it is not good to have desperate people, hungry people, these people have nothing to lose if you're homeless and you commit a crime and go to jail. Hey, that might be an upgrade for some people now you've got a warm, clean place to stay in jail. So now that you and I understand more about why this even affects you and I let's talk about why is homelessness growing at this alarming rate, well, higher prices for real estate, which really accelerated in 2021 and they are not going to relent. As I've said elsewhere, home prices are not going to go down in a meaningful way anytime soon as just three weeks ago. Here on our forecast episode, I forecast another 5% of national home price appreciation this year. And it's not just higher prices, it's higher rents. Rents really started taking off in 2021 as well. Well. Higher rents, that means more evictions, and an eviction is the start of homelessness for a lot of people. And a third reason for this surge in homelessness is just that overall lack of housing. I have covered that extensively elsewhere. Yes, the housing supply crisis, and as I'm known for saying, the housing crash already occurred. Did you miss it? It was a supply crash that occurred about five years ago, and a lot of agencies think we're under supplied by 3.7 million housing units. Now, when you look at the new HUD supplied map of homelessness by state, you can very much see that it is about housing, because those regions with the highest home prices generally have the most homelessness. We're talking about the Northeast, the West Coast and Hawaii. And the fourth reason for the homelessness surge is that, of course, inflation started accelerating about four years ago, and people just cannot make ends meet anymore. CPI inflation peaked at 9.1% back. In June of 2022 and year over year, prices are still going up 3% today. Prices are not going down. They're just rising at a slower rate. And of course, inflation hurts the poor and actually helps the wealthy, exacerbating the inequality Canyon the wealthy have assets. Those assets float up in value with inflation and the prices at the grocery store are just a tiny part of a wealthy person spending. But the poor don't own assets that float up with the inflation and higher grocery prices and things like electric bills, well, they comprise a big part of a poor person's income. And fifthly, the massive arrival of immigrants pushed up homeless numbers these past, oh, three or so years. And it remains to be seen how many of those people really get deported. And you know, a sixth reason for homelessness. It's not something new, it's what I'll call all of these background reasons that have been there for decades and are not going away, like how a medical emergency can even drain a middle class person's savings and things like ongoing substance abuse. I mean, drug users often cannot stay employed. So there you have it. What was that? Six big reasons that I've identified for surging homelessness now let's see what Donald Trump has to say and understand that, due to last June Supreme Court decision, Trump now has got more power to clear out encampments and make life for the homeless more difficult, opening the door now to be criminally charged for trespassing and illegal camping. I mean, you really don't want to be homeless today as part of what Trump calls his agenda 47 his plan to tackle homelessness. Here is his preamble.

Donald Trump 21:57

Our once great cities have become unlivable, unsanitary nightmares surrendered to the homeless, the drug addicted and the violent and dangerously deranged. We're making many suffer for the whims of a deeply unwell few, and they are unwell. Indeed, the homeless have no right to turn every park and sidewalk into a place for them to squat and do drugs. Americans should not have to step over piles of needles and waste as they walk down a street in a beautiful city, or at least once beautiful city, because they've changed so much over the last 10 years.

Keith Weinhold 22:40

So that's the problem. Here's the solution. I'll boil down the meat of the Trump agenda, 47 homeless statement to just the most salient 40 seconds for you here. Just listen to this, and as you listen in closely, note that this is not a housing first plan for the homeless. Instead, it's treatment first.

Donald Trump 23:03

Under my strategy, working with states, we will ban urban camping wherever possible. Violators of these bans will be arrested, but they will be given the option to accept treatment and services if they're willing to be rehabilitated. Many of them don't want that, but we'll give them the option. We will then open up large parcels of inexpensive land, bring in doctors, psychiatrists, social workers and drug rehab specialists, and create tent cities where the homeless can be relocated and their problems identified. But we'll open up our cities again, make them livable and make them beautiful.

Keith Weinhold 23:43

Okay, it's not housing first, because, see, he wants to ban urban camping, something that parallels the Supreme Court decision. What this is not is that it is not giving the homeless hotels in the city, like some cities have recently done, converting their hotels into homeless shelters. Instead, this is designating large parcels of cheap land for tent cities, but outside the urban core, like in a big grassy lot, and then bringing in social workers and rehab specialists for them, and that way, his solution is that this city is free of homeless people, and really that is the crux of Trump's plan. But what are some other solutions here? And these are now my insights, not Trump's, that is, build more housing. That's really simple. I mean, this will naturally slow down, accelerating home prices and spiking rents, and we've got to relax regulation and zoning. We had a zoning expert, Nolan gray on the show here last year. Some scholars believe that we should just eliminate zoning in America completely. And one. One way to relax regulation is to Gosh, revisit some of these over the top safety concerns. I mean, look, it increases the cost of the most basic entry level housing when every home needs to have all these thick, fire rated doors and smoke detectors all over the place, and carbon monoxide detectors everywhere, and GFCI electrical outlets all over the place. I mean, hey, it sounds kind of funny to say out loud, but all this stuff contributes to making affordable housing impossible. And another solution is that you've got to kill nimbyism in a lot of cases, yes, that not in my backyard. Ism, you know, a person can act like they're all pro development, and like they're all free market, and they want to have their home built just how they want it, where they want it, but you know what, as soon as their home was built, they don't want others moving near them, yeah, somehow the free market's not so great anymore, okay? And they sure don't want apartment buildings nearby. Well, that is what we need, allowing taller structures to be built. That is called up zoning. It doesn't have to be a gigantic apartment building either. We need more, mmm, properties, multi families, missing middle. That means building more two, three and four unit structures in single family neighborhoods, duplexes, triplexes, fourplexes, because a lot of those can be built so that they look like single family homes. But yet it's something affordable and it helps with density. Another solution to deal with homelessness is to, of course, bring down inflation. The government needs to stop printing, say, $1 trillion to pay for a program, whether that's sending aid to foreign nations or whatever that program is. When more dollars are created like that, it debases the currency everyone else is holding on to, including your dollars, and it makes everyone from landlords to grocers have to raise their prices. And you know, here's the funny thing in the last election for president that we had last year, well, that administration got voted out of office, and many say that the number one reason was due to high inflation, but yet, look at what they voted for with the incoming administration. Everyone expects higher inflation. So there's a real paradox there.

On our YouTube channel, you can watch videos of me going out outdoors and interviewing the homeless. In fact, I'm surprised at how many homeless let me into their tents, and they wanted to show me their makeshift shelters and tell me about their life. I mean, that's kind of the good news. They were open. They were friendly people. I think they really wanted that to get exposed, because they were hoping that people would see that to come do something for them. I think that's why they've been so open with me. So that was good on the flip side, oh gosh. One thing that they have in common is that they all seemingly want to blame somebody else for the condition that they're in other than themselves, like the government or including telling me that landlords are greedy. But it really is fascinating to see from our get rich education YouTube channel, which is different content from this show. Just search the word homeless there on the get rich education YouTube channel and you can see it.

Hey, I want to ask you something. What is your on ramp to real estate investing? Like, how did you approach it? Or how did you get into it? I mean, mine was as a disgruntled employee. That's it. I didn't come from a complimentary professional place. I mean, that's how I became an investor, and there was nothing wrong with my job position. Specifically, I worked with good people and everything. In fact, I had an easy and safe job, and it paid a little bit well. But, you know, safe is not the place to be. Safety is the opposite of freedom. As an employee, you know, I could see that 401 K type plans. They were designed so that you don't get income from them until you're old. It's a salary reduction plan all those working years as well. Well, no wonder that your employer encourages participation in them. That way they're going to keep you working as an employee until retirement, because that's when they're designed to generate income. But see my point here, really is that I did not have a complimentary skill set to real estate investing, and if you do, it can be to your advantage. So you know what I mean. Let's take a couple of friends of. The show here, Robert Helms, host of the terrific real estate guys radio show. He came from a real estate agent family. His dad was an agent. Well, that can help you find deals. How about Ken McElroy, another frequent guest on the show here, very successful real estate investor. Well, he was a property manager before he became a real estate investor, totally complementary skill set. And by the way, two months ago in New Orleans, I was invited to participate in a collective inner circle mastermind group session that Robert and Ken help run. That was cool, but getting back to complementary skill sets, Michael Becker, a former guest here on the show, he was a lender, so he got to see the paperwork of all these successful investors. So he became one himself. I mean, as a lender, you keep seeing savvy investors leverage themselves with debt and then do cash out refinances, a tax free windfall event, all while they keep the asset too well. He wanted to get in on some of that. And I also know real estate investors that started out as handymen, okay, a hands on trade that can totally help when you're starting out as a real estate investor. So do you have a complimentary skill set that can help make you a successful real estate investor. If you don't, then don't despair, because you know what? I don't have one myself. I was just a former employee that wanted something else. I don't have a complimentary skill set to real estate investing. No transferable professional skill. Instead of that, I just became a reader, but not a massive reader. Of course, I was a learner before I was a teacher. I enjoyed learning this stuff, and I also got a good grasp on the numbers and how that works. But importantly, my advantage was I take action, I just keep adding property to my portfolio. You just got to keep doing that, regardless of what's happening in the larger economy or what prices are or what interest rates are.

And as you know, last week, I discussed the advantages of owning and building with brand new build rental property today, and you know, new build and these build to rent properties, those are things that that really wasn't even available when I started out investing. Well, it wasn't. I mean, with new build, oh, your maintenance repair costs are going to be low. You tend to attract a high quality tenant that also tends to stay for a while. Insurance costs tend to be lower on new build. And there's a bigger advantage than all of that in the market cycle right now that I'll get into shortly. Well, historically, the long run average. Do you have any idea what proportion of homes for sale are new build homes? Any guess, like, what share of those homes are new? It's only about one in eight. Yeah, the Census Bureau and the NAR tell us that it's 13% historically. Okay, well, what do you think it is today? Well, today, that number is up. Existing homeowners, they're not selling those homes aren't getting on the market as often due to the lock in effect, and we have to add supply. So in order to do that, we are building more new there's just no other way to bring it to market. Well, today, the proportion of new build homes for sale among all homes for sale is fully double that, at 26% although we're still undersupplied of homes in the US by about 30% you know there are pockets where they've overbuilt with new builds, including in Florida and Texas. So the time could really be right to expand your income property portfolio in one of those places, because builders that we work with at GRE marketplace are really willing to give you a deal now you've got them right where you want them if you're looking for a deal. How does a four and three quarter percent interest rate sound? Yes. Rates on non owner occupied property are about eight right now. They're about seven on owner occupied property, but we've got builders willing to buy your rate down to 4.75% and they're also offering one year of free property management and three months of rent guarantee protection in case your property is not occupied right away. The first one is a brand new build duplex in Inverness, Florida, two beds, two baths, each side, price of 420k projected rent from both sides at $2,830 and the size is 2100 square feet. I mean the. That sounds like it could make your cash flow thin, until you consider that 4.75% fixed mortgage rate the property tax is about one and a half percent and insurance get this projected at just $1,155 a year for an entire new build duplex, and now you might ask, what could the rate of return be on this Florida duplex new build? Well, I projected 5% appreciation for this year. New builds tend to appreciate better than existing property, but let's just use 5% if you have a 25% down payment, that's four to one leverage. So you've got a 20% return on your money. And let's just keep it conservative. When we look at monthly cash flow, that results in a 5% cash on cash return. Add that to your 20% leverage appreciation, you're up to a 25% ROI already. Add in the fact that your tenant is paying down your principal for you by $405 every month. That's 4860 annually, divided by your 105k down payment. That means you've got another four and a half percent return here. Let's just call it four. You're up to a 29% total ROI we haven't even added in yet, your tax depreciation benefit, and now you're up to a return in the mid 30s. Finally, your inflation profiting benefit on your fixed amortizing debt, and you are well into the 40s for a percent return on an annual basis. And of course, most of these are only projections. It could disappoint you at 30 or less, still a nice return, or it could over perform at 50% or more. I mean, this right here is how wealth is built. I mean, this is how you do something that disrupts your entire family tree that was the new build duplex. Then I'll share one other one with you. Here from GRE marketplace. Is a single family rental. This one is in Locust Grove, Georgia. Gosh, it looks really good in the photo here with a two car garage and some brick facing, its price is 339k rent is 2350 The size is 2164 square feet, so only a little bigger than the duplex here in this new build, Georgia, single family rental, four beds, two baths, beautiful looking new construction on the inside, open floor plan, stainless steel appliances, I can't tell whether the floor is LVP or wood laminate, but it's got a flooring type that's resilient, that tenants like, and your rate of return is going to be similar to the duplex ROI that I laid out, though probably not quite as high as the duplex. I mean, with these interest rate buy downs, these could very well be the property types where, in just five years time, maybe even as little as two or three years time after owning them, you look back and you consider how opportunistic you work in this part of the market cycle where there are now more new builds that you can choose from, and a builder was willing To make you a deal to keep their product moving, because they build a little too much in some pockets of Florida, for example. So yes, these and more like them are available, and there are more in Florida, Georgia, Alabama and a number of other states. And you know, something I don't think I shared with you earlier, it's convenient. You can get a spot with one of our GRE investment coaches right on their calendars, you can look at their calendar and pick a date and time that's convenient for you. For a free coaching session, they will learn about you. They'll let you know where the real deals are, if they're right for you at all, all you've got to do is visit GRE marketplace.com, and click on the free investment coaching area. There you are with some real opportunities and an actionable resource. Until next week, I'm your host. Keith Weinhold, don't quit your Daydream.

Speaker 2 39:17

Nothing on this show should be considered specific, personal or professional advice, please consult an appropriate tax, legal, real estate, financial or business professional for individualized advice. 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 you

Keith Weinhold 39:45

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Direct download: GREepisode536_.mp3
Category:general -- posted at: 4:00am EDT

Mon, 6 January 2025

Keith discusses the pros and cons of investing in single-family rentals versus apartment buildings.

He highlights that less than 10% of U.S. building materials are imported, reducing the impact of tariffs.

Single-family rentals offer better tenant quality, lower vacancy rates, and higher appreciation potential. They also have lower financing costs and are more divisible.

Conversely, apartment buildings offer economies of scale and lower per-unit maintenance costs.

He emphasizes the importance of owning more property, especially new-builds, which offer lower insurance premiums and attractive financing options

Work with expert investment coaches to find the best off-market deals and maximize your returns.

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534: Rising Prices Lead to Social Decay with Doug Casey

Complete episode transcript:

Automatically Transcribed With Otter.ai

Keith Weinhold 0:01

welcome to GRE. I'm your host. Keith Weinhold, talking about how most home building materials are US sourced and not affected by tariffs, the little understood pros and cons of investing in apartment buildings versus single family rental homes, then what really makes sense to invest in in this particular era and more today on Get Rich Education.

Speaker 1 0:28

since 2014 the powerful get rich education podcast has created more passive income for people than nearly any other show in the world. This show teaches you how to earn strong returns from passive real estate investing in the best markets without losing your time being a flipper or landlord. Show Host Keith Weinhold writes for both Forbes and Rich Dad advisors and delivers a new show every week since 2014 there's been millions of listener downloads of 188 world nations. He has a list show, guess who? Top Selling personal finance author Robert Kiyosaki, get rich education can be heard on every podcast platform, plus it has its own dedicated Apple and Android listener phone apps build wealth on the go with the get rich education podcast. Sign up now for the get rich education podcast or visit get rich education.com

Corey Coates 1:13

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 1:29

Welcome GRE from Tallahassee, Florida to Waxahachie, Texas and across 188 nations worldwide. I'm Keith Weinhold, and you are inside, G, R, E, we are here for you every Monday, without fail, 52 weeks a year, and we have never replayed an old episode either, always original content. Thanks for being here, but you're not here for me. You are here for you as another year dawns before we get into the meaty real estate content of today's show, including single family rentals versus apartments. Take a moment to check in with your own goals. Maybe you think about that is just buying your first investment property, or maybe you own 83 rental units, and you're looking to get to 100 this year. But no matter really real estate is just the fuel for your goal. It's probably not the end goal itself is your goal to have the time freedom to watch all of your kids basketball games this year. What about beyond this year? Are you really dreaming big enough you've got to question yourself on that sometimes, for example, forget flying first class. What if you want to own your own private jet, like Taylor Swift's luxurious Dassault 7x jet for $54 million? how about real estate fueling a dream that's even bigger than that? Yet, last month, the Philadelphia Eagles received the NFL approval for the sale of an 8% interest of the team to two different family investors. Okay, do you find say that interesting owning part of a major pro sports team. And by the way, what would something like that look like for you? I mean, do you even have the headspace to conceive of such a thing? It's good to ask yourself questions like this. Sometimes that sale was based on a valuation of the team of up to $8.3 billion and yet, after all that, the Eagles owner Jeffrey Lurie, he still maintains complete control of the team. Okay, so if each of the two family investors got a 4% interest at this valuation, that is up to a $332 million investment for each family. Maybe that could be a Weinhold the family goal. We'll see about that one. And you know, when it comes to making yourself a bigger you and dreaming a bigger dream, I like to listen to what the doers say. I found it so interesting in a Jeff Bezos interview at the deal book Summit, Bezos said it's human nature to overestimate risk and underestimate opportunity. Bezos also said entrepreneurs would be well advised to try and bias against that piece of human nature, the risks are probably not as big as you perceive, and the opportunities may be bigger than you perceive. That's the end of what bezel said. I really think that that's spot on stuff. now two weeks ago, when I gave GREs national home price appreciation forecast for this year. You might remember that I said that potential Trump tariffs just don't matter as much as people think when it comes to real estate. And understanding more about why I say this, it can help you understand real estate materials and sourcing and home building in the United States, America's overwhelming majority of sourced building materials are not imported, so therefore something like a supply chain bottleneck that's more worth watching, really. It's a huge misunderstanding of the home building market to assume that most building materials come from overseas. They do not, not even 10% of residential construction building materials are imported. The National Association of Home Builders will tell you so. And really, the majority of those few imports that do come from elsewhere, they come from, Canada in the form of timber. You might have heard about that before. Now, there are some things like finishes and fixtures that get sourced from, oh, various other countries, but yeah, the biggest potential tariff expense impacting home builders would come from enacting a cost on Canadian lumber. But I and a lot of economists as well, they're pretty skeptical that the administration would really enact a tariff on a close ally like that, on Canada's raw materials. In fact, Chief Economist Lawrence Yoon of the NAR he conceded that even potential lumber tariffs, they might be given a phasing in period, and that would encourage American timber mills to fill in any production gap. It's also important to you know, remember that doors, windows, cabinets that builders utilize, they are typically produced within us, borders. Windows, doors, cabinets made domestically, unless it's something that relies on raw materials that are imported, they ought to be little affected by tariffs. One example is that kitchen sinks now they largely went from being sourced in China, then Malaysia, then Indonesia, and one main customer is now talking about sourcing them out of Mexico or the Dominican Republic. So there are a few things that less than 10% that's imported. Another imported item is flooring, which moved away from China, went to India for a while, went a little bit back to Brazil, and now more is being sourced by Ecuador. But the important thing to remember is that these are outlier components. Not even 10% of residential construction building materials are imported. That's what you want to remember, concrete, us, rebar, us. So you know, as a real estate investor, you can feel good that as your portfolio grows, each one of your properties was chiefly built with us, labor that you already knew, but it is also built predominantly with us, materials as well. How likely are single family rental investors to say that they want to buy more investment property this year. Well, year ago, 60% of them said that. Today it is up to 76% yes, that many say that they are either likely or very likely to buy single family rental property in the next 12 months, and that same group that was surveyed is also unlikely to sell their property, and they also said that they are more likely to raise the single family rent this year. And all this is according to a joint lending one resi club survey. However, most fall in the range of raising the rent between just 1% and 6% this year, so pretty modest rent increases. In fact, in every region of the US, the majority of single family rental investors describe their rental market as either strong or very strong. But can you guess the weakest region? Okay, this region is the one that still has a majority of landlords that say that their market is strong, but yet the weakest of them all is the South West, and that is largely due to over building and in the survey, what expense increased the most the past 12 months? Well, number one is that 37% of respondents these landlords said it is still insurance premiums. Second place was that 23% say property taxes are increasing the most. And then third was. And 21% say that maintenance and repair costs have increased the most for them. So the top three expenses cited expense increases that is in order, are insurance, property tax, and then maintenance and repairs. And a few weeks ago, I discussed with you, you might remember about how upgrading or remodeling a unit that helps you in at least five different ways simultaneously. Let me talk about this, since I touched on raising the rent and a little comprehension test here. Do you remember what those five ways are? the five ways your help by upgrading or remodeling a unit. And no, these are not the famed real estate pays five ways when you upgrade a vacant unit for rent, or at times, you can even actually upgrade a unit while the tenant is still occupying the property, if it's not a disruptive upgrade type. Okay, I mean, sometimes that tenant can be appreciative that they're getting an upgrade while they live there, but the five ways that upgrading a unit helps you are, first, well, obviously it helps you be able to get more rent in cash flow. Secondly, you tend to attract a higher quality tenant. And then in a five plus unit apartment building, it also increases your noi, therefore a greater overall property value. Fourth is pride of ownership. And then fifth is that higher rents help you offset those erstwhile higher operating expenses.

And here's the thing, when you get free help from one of our GRE investment coaches, like you can do at GRE marketplace.com those properties are either already extensively renovated or they are completely brand new build. So because of that fact, this means that from day one, your rent income is already optimized. You already have the best chance of landing a quality tenant, and you get some sense of having a pride of ownership. And all of those things, they're already optimized for you. You don't have to tinker with anything else, because those GRE marketplace properties, more than 95% of them are either renovated or new build. I would say, using properties conducive to the BRRRR method, they would be the few exceptions there and on GRE marketplace, you can find lower cost renovated single family homes, up to million dollar apartment buildings, either new or renovated. And another pro tip here to help you with something actionable in a premium place to source your growing income property portfolio. You've heard me mention them before, is mid south home buyers, but I'll tell you more about what's going on with them. Yeah, they're an especially good place to add your portfolio if you either haven't invested outside of your home market before, or you don't have as much liquidity right now, because their prices are just 100 to 180k they are still in that range. And yes, that 100 to 180k that is indeed the entire capital price for the asset. So that means down payment and closing costs being about 25% therefore it's just 25k to 45k Yes, you can still get started for that little with a wonderfully renovated property in either Memphis or Little Rock. Those are the two markets where mid south home buyers operates, and they are some of the most investor advantage markets in the entire nation. And then the US is one of the most investor advantage markets in the world. And last month, I met and spoke with a 19 year old guy that lives in Dallas, and he just bought his first ever investment property from mid south home buyers in Memphis. And in fact, it was his goal to have his first income producing property at age 18, and he bought it the day before he turned 19, so he barely met that goal. But yeah, they are total pros at mid south they've been doing it for over two decades. They say that they are the nation's highest rated turnkey property provider. They might even be the first provider in the nation, if you like. They also manage the property for you, and their property managers are really aware that their investors, like you, seek a return on investment, so they often have a line a waiting list. To get their properties. Last I checked the line at mid south had shortened globally attractive cash flows an A plus rating with a better business bureau, and they've now renovated over 5000 houses. And over there, they do a lot of things with their management that you just wish every provider would do, there is zero markup on maintenance. Their average occupancy rate is almost 99% average renter stays more than three and a half years. And you know that three and a half years, that duration of tenancy that could be poised to go even higher now, with the affordability crisis for these want to be first time homebuyers now, most of what mid south has are single family rentals, quite a few duplexes too. Every home has brand new components, a full one year warranty, bumper to bumper, new 30 year roofs. And then the really important part expect a high quality renter that they screen and find in place for you. So let me give you an example of two real properties. And now, if these two aren't under contract already, they probably soon will be, since I'm mentioning them. And of course, duplexes cost more than single family rentals. This duplex is in Jacksonville, Arkansas. It's just northeast of Little Rock. It is 913 and 915 Ruth Ann drive, the combined rent from both sides is $1,775 the all in cost is about 210k 2099, in total, it's 1600 square feet. So 800 square feet each side, it's two bed, one bath each side. The Property taxes are really low, $1,300 a year, really nicely renovated with good quality materials. I mean, I love owning properties like this all day. So that's a duplex in the Little Rock market. Another one from mid south is this, Memphis single family rental. The address is 400 Bonita drive. It is $1,200 rent on a $148,100 purchase price. Gosh, those numbers work. This single family rental is three bed one and a half bath, 1164 square feet. Gosh. Again, low property tax in these regions, just $1,120 annually. All right, so that property tax rate is just three quarters of 1% of the purchase price. So really low on a national basis, a big backyard, eat in kitchen, separate laundry room, walking distance to schools. I mean, this is the type of property a tenant family could live in for five or 10 years, beautifully renovated. And I'm bringing these up because these are all at prices that Metro New Yorkers or coastal Californians can barely believe. So each property has hundreds of dollars of projected positive monthly cash flow. Each one increases your income 2000 to $5,000 per year. And I have personally toured mid south home buyers office in Memphis and their properties in person in Memphis. And I've seen their properties in each stage. I walked a tear down that they were doing, and I saw all the debris in the backyard. And I have seen their hardwood floors shine inside newly renovated property that I walked with both Terry and Liz from over there at Mid South. She is a pretty popular and extremely knowledgeable woman there. Liz, you can ask for her or one of her team members about getting on the list over there. Yes, these are 100k to 180k already renovated. Yes, that's truly the all in price, and they are in decent, working class pride of ownership neighborhoods in Memphis, Tennessee and Little Rock, Arkansas. And a lot of people get their start in investing there, I suspect it's now in the hundreds, with the number of GRE listeners that have bought from them. But even veteran investors, with dozens of units, they scoop up properties from them due to the low prices, some even pay gasp, all cash, yes, no leverage for them. And mid south homebuyers has investor tours monthly, where they load everyone on a bus, and you can check out the properties, because they are really proud of what they offer there coming up next, I'm comparing single family rental investments to apartments. But yeah, right there. That was a pro tip that really ought to help you out. Expect cash flow from day one. A 19 year old is doing it. You can start yourself at mid south homebuyers.com. More next. I'm Keith Weinhold. You're listening to get rich education.

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Kathy Fettke 21:55

you this is the real wealth network's Kathy Fettke, and you are listening to The always valuable get rich education with Keith Weinhold.

Keith Weinhold 22:12

Keith, welcome back for the 535th week in a row you are listening to get rich Education. I'm your host, Keith Weinhold, and I'm really grateful to have you here if you self manage your properties. One software that can really simplify your life is called Hemlane, H, E, M, as in Mary, l, a, n, e, Hemlane. You might have heard about it before. I now know quite a few people that use it. It's been getting some really good reviews. You can manage your properties from anywhere, even through your phone. And Hemlane has got some really good integrations, and now it's more than just investors like you that are using it. Agents and property managers are using Hemlane too, from advertising to tenant screening to maintenance and repair and accounting, and I just learned that they recently got all of the state specific lease agreements integrated on their platform as well. That's why it was on top of mind. If you prefer to self manage and you want to make it easier, what you can do is book a free demo and they show you how it works. Over there, it's just hemlane.com where you can do that if you like. Let them know that I told you about it.

Before I share something else actionable with you, let's do some learning and talk about apartment buildings and single family rental properties, and compare the two, some pros and cons of each. And perhaps the most obvious advantage of apartment buildings is their economies of scale. A 12 unit apartment only has one roof to maintain and one insurance policy to maintain. Another efficiency is that shared common areas and plumbing and HVAC systems that can lower your individual maintenance costs on a per unit basis as well in those apartments. And right now, at this time in the mid 2020s, decade, another advantage of apartments is that this time in the cycle is where values are just about bottoming out. Apartment buildings in a lot of national regions have fallen 20% fallen, 25% or even fallen 30% or more from their highs that were seen two to three years ago, and that's due to those higher interest rates. And the reason that this is an advantage for apartments is that you might be able to buy low, buy the dip, apartment cap rate. Have settled in the mid five range. Now, well located Class A has dropped back into the fours. Long time investors already know about some of the advantages, but you know, even some long time investors, they often overlook some of the advantages that single family rental properties have over apartments. So let me share some of those with you. Now, as you know, I started off with my first two investment properties, both being four Plex buildings, and then after that, I added larger apartment buildings and single family rental properties, and I still do buy and own single family rentals. So let me tell you about why I love them. They might have the best risk adjusted return anywhere even after 2008 great recession. Those that bought single families for cash flow persevered with single families. You get a better quality of tenant than you do in apartments. They take care of the premises. They tend to be in a better neighborhood. Single families tend to appreciate better over time, and are also more likely to be in a better school district. Single families have a retention advantage. Tenants stay longer, and that creates less vacancy and expense, and the reason that they do stay longer are those aforementioned neighborhood and school district characteristics, common areas. You know, single family rentals, they don't have any common areas that you have to clean and maintain. I think I pointed that out to you before, because that's like an overlooked profit drag that I missed when I bought my first larger apartment building. Yeah, apartments have hallways and stairs and laundry rooms and commonal door grounds that a custodian has got to service. Single families have an advantage when it comes to utility payments, because tenants often pay all of the utilities and they even care for the lawn. The larger the apartment building is, the more likely that you are going to be the one paying the utility costs. Then there's divisibility. What if you've got a property that's underperforming out there and it just isn't meeting your expectations? Well, if you had, say, 10 single family rental homes, you can sell off the one or the two that aren't performing, but yet, with a 10 unit apartment building, you've either got to keep them all or sell them all. It is not divisible. What about fire and pestilence, something a lot of people don't talk about? I mean fire and pests. They are more easily controlled in single family rentals, even if you're adequately insured, these conditions often affect multiple units and families. They can spread in an apartment building. Financing is a huge one income single family homes, they have both lower mortgage interest rates than apartments and typically lower down payment requirements than apartments. I think you already know you can secure 10 single family rental loans, single 20 if you're married at the best rates and terms through Fannie Mae and Freddie Mac with just 20% down payments, you can even go less than 20% on non owner occupied in some cases, but apartments rarely, if ever, have 30 year fixed rate terms like single family rentals do, and this right here in particular, that really started bringing down a lot of apartment investors, beginning in 2022 and 2023 when their interest rates reset much higher, doubling, or even more than doubling. How about vacancy rate? It is true that if your single family is vacant, then your vacancy rates 100% if your say four Plex has one vacancy, well then your vacancy rates only 25% but yeah, the same is true if you own four single family rentals and one is vacant. How about management? If you hire professional management, your manager would likely rather deal with higher quality, single family residence. And if you're self managing, this is a demographic of people that you would likely rather handle yourself. Then there's supply and demand, there just absolutely still are not enough low cost, single families that make the best rentals nationally, demand still exceeds supply. That's the opposite condition for apartments, and this is something that's going to continue in the short and the medium term market risk that is an overlooked criterion. You've got to keep your properties filled with rent paying tenants that have jobs. If you think you'll be able to buy 10 rental units in the near future, well, your 10 unit apartment building that's only going to be in one location, and that's going to leave you exposed to just one geography's economic fortunes. But if you have 10 single families, you could have four of them in Central Florida, three of them in Fort Worth Texas, and three of them in Memphis. And you got to think about exit strategy. A lot of people don't think about this. Think about the exit before you even get in, because years down the road, when it's time to sell your income property, hopefully, after you've had years of handsome profits, and real estate pays five ways and all of that, you know what? Down the road, there is going to be a greater buyer pool for your single family rental than your apartment building. In almost every case, more buyers can afford the lower price, and unlike apartments, you even have access to a pool of buyers that might want to occupy the single family rental themselves. It might even be your current tenant that buys it, but the market and the numbers have to make sense for someone to want to buy an apartment building, but if an owner occupant buys it from you, that family doesn't have to have any numbers that make sense. So your single family rental is more liquid on your exit and professional management, that's another reason that single families can make sense. Because see single family rentals, they can be spread all over a metro area diffusely, and if you self manage, that is a lot of little trips that can get to be a hassle. But if you use a pro manager, well, they're the ones that have to manage the scattered sites. And a lot of times, managers don't charge you much more to handle your single families than they do your apartment buildings. So right now, there were a ton of advantages, a good 15 or 20 advantages there that single family rentals have over apartment buildings. And it's important I discuss them, because there are a lot of investors that don't factor all of those in. Even veteran investors tend to overlook some of those things. Again, I really like apartment buildings as well. They could very well be my second favorite investment to single family rentals, and I would like to now, with that understanding, really say something that I probably don't say quite often enough if you want to benefit from all these wealth building forces here that I've talked to on the show for for more than 10 years. You need to own more property, or get started with your first property.

Now I've already given you one great resource for that. And yes, what do they say? The turtle never got ahead until he stuck his neck out. Now the uncertainty, I mean uncertainty. That's just that condition that never completely abates. But in a sense, I think you can say today that the future is already here because we've got substantially more economic certainty and political certainty than we have had in recent years. The presidency was decided peacefully. Recession fears have abated. The Fed after screwing up with high inflation a few years ago, they have now engineered a soft landing, meaning lower inflation with still high employment. So now is a good time. What about real estate prices? I'll tell you something about that all of my investor life, every single property that I've ever bought, without exception, it felt aggressively priced at the time, and then, typically, it always happens when as little as one year or two years goes by, it already looked like a good decision. And I'd like to encourage you to do something else in this era, if you can swing it, buy new build property. That's something that wasn't always true. They do cost more. It's probably going to be 300k plus for a new build rental, single family home, but either way, be sure to own more property, existing or new benefit from what we talk about now. In some parts of the nation, including Florida, builders built a few too many properties, and they are willing to give you a discount for that. They might even cut the price a little and give you a rate discount, buying down discount points for you so that you can get a mortgage loan interest rate in the fives or even in the fours on new build income property right now in a volatile insurance market, new builds also have some super low insurance premiums because the property is built to today's more stringent codes. I mean, a. Just put an example out here. If you say, buy 10 rental, single family homes for $3 million total, 10 properties, 300k each. Okay, it's just 5% appreciation, which is what I projected for this year in our home price appreciation forecast. Two weeks ago, on $3 million worth of property, that's 150k per year, every year growing that you can pull out of the properties completely tax free. But to get that 150k per year tax free, you would have only had to make a 750k down payment and closing costs 25% on this that's not even counting the cash flow that the properties generate, plus your loan, of course, is simultaneously being paid down by tenants. And on top of that, inflation would just relentlessly debase your two and a quarter million dollars of fixed rate debt. Yes, all while the appreciation and the cash flow occurs, inflation debases your debt by another $67,500 every single year, and your tenant pays down some more principal on top of that. And then there are the other tax benefits too. And this is where you are massively getting ahead. All right, that was a $3 million portfolio, but if you can only do 1/10 of that own, just say one more new build, 300k single family rental, then you get 1/10 of those benefits that I mentioned, and either way, a total return on investment of 30% or more annually that is achievable. It's actually even conservative. I mean, just with the 5% appreciation, with four to one leverage, that's a 20% return just on the appreciation component alone.

And our GRE investment coaches can make this real for you. They can talk to you about these properties and others, including those mortgage rate buy downs into the fives and the fours properties in investor advantage markets in Ohio, Indiana, Illinois, Pennsylvania, Georgia, Oklahoma, Texas, Florida, Alabama, Mississippi, Tennessee, Arkansas and some others. In fact, let me give you two examples of what our investment coaches can help you with right now. This is pretty fun, actually, as I talk about these properties, because you might even end up owning the ones that I discuss right here on the show. The first of two is a brand new build, single family in Palma Coast, Florida. Gosh, it's a ranch home. Really good looking. Two car garage, is what I'm looking at here. It's 1200 square feet, three, bed, two, bath. It's called the Bing model, and it's got the type of layout that tenants really want today. I mean, your resident could stay there for a long time. $2,100, in rent for a purchase price of $289,900 I mean those numbers, along with the mortgage rate buy down to four and a half percent, plus new build insurance premiums that are going to be low. That really works today. That is really attractive there in Palm Coast, Florida. And the last one I'll mention is an older single family rental in Canton, Ohio. Yes, that's the home of the Pro Football Hall of Fame. The address is 2422 6th Street, Northwest in Canton. Rent of 1225, and a purchase price of just $135,000 The size is 1036 square feet, and it is four beds, one and a half baths. The renovations really look quite good. As you recall, those benefits of buying property that's already renovated, like I discussed earlier, all for 135k in today's market. So these properties and so many more like them, that's what our investment coaches can help you with. Their service is always completely free, but first what they do is they learn a little about you, and they can then put together an entire investment real estate portfolio for you, if you like. So they'll assess and evaluate what you've got, where you want to go, what property types are conducive to aligning with your strategy, and are there any best geographies for you? And more. So it's really important to stay in touch with your coach. I mean, we might find out, for example, tomorrow, that a home builder that we work with decided to offer some massive mortgage rate buy down incentives for you because, say, they built too much. So I really encourage you to set up that touch point for the first time, or to stay in touch and see what's happening, free coaching off market opportunities, and it's easy to set up a short meeting over the phone or on zoom with an investment coach. You can do that at GRE marketplace. It really can be quite a life changing venture for you from GRE marketplace.com just click on the coaching area until next week. I'm your host. Keith Weinhold, don't quit your Daydream.

Speaker 2 40:49

Keith Weinhold 41:09

The preceding program was brought to you by your home for wealth, building, getricheducation.com.

Direct download: GREepisode535_.mp3
Category:general -- posted at: 4:00am EDT

Mon, 30 December 2024

Discover how inflation is destroying the value of your money and eroding the ethical foundations of society. Legendary author Doug Casey reveals the insidious ways rising prices lead to social decay, unethical behavior, and the breakdown of trust.

Learn how to protect your prosperity by shifting away from the falling dollar and into real assets like gold, real estate, and carefully selected investments.

Don't let inflation rob you - get the insights you need to thrive in this challenging economic environment.

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533: GRE's 2025 Home Price Appreciation Forecast

Complete episode transcript:

Automatically Transcribed With Otter.ai

Keith Weinhold 0:01

Welcome to GRE. I'm your host. Keith Weinhold, inflation does not mean rising prices. Inflation is an expansion of the money supply which results in rising prices, and it leads to wider societal decay and moral breakdowns in ways that you've never thought about before. It misdirects inflation frustration toward people like housing providers and grocers, we explore it today on get rich education.

Mid south home buyers, I mean, they're total pros, with over two decades is the nation's highest rated turnkey provider. Their empathetic property managers use your ROI as their North Star. So it's no wonder that smart investors just keep lining up to get their completely renovated income properties like it's the newest iPhone. They're headquartered in Memphis and have globally attractive cash flows and A plus rating with a better business bureau and now over 5000 houses renovated. There's zero markup on maintenance. Let that sink in, and they average a 98.9% occupancy rate, while their average renter stays more than three and a half years. Every home they offer has brand new components, a bumper to bumper, one year warranty, new 30 year roofs. And wait for it, a high quality renter. Remember that part and in an astounding price range, 100 to 180k. I've personally toured their office and their properties in person in Memphis, get to know Mid South. Enjoy cash flow from day one. Start yourself right now at mid south homebuyers.com that's mid south homebuyers.com

you know, whenever you want the best written real estate and finance info. Oh, geez. Today's experience limits your free articles access, and it's got paywalls and pop ups and push notifications and cookies disclaimers. It's not so great. So then it's vital to place nice, clean, free content into your hands that adds no hype value to your life. That's why 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 because even the word abbreviation is too long, my letter usually takes less than three minutes to read, and when you start the letter, you also get my one hour fast real estate video. Course, it's all completely free. It's called the Don't quit your Daydream letter. It wires your mind for wealth, and it couldn't be easier for you to get it right now. Just text GRE to 66866, while it's on your mind, take a moment to do it right now. Text GRE to 66 866.

Speaker 1 3:12

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 3:28

We are the GRE from Albany, New York to New Albany, Ohio, and across 188 nations worldwide. I'm your host, Keith Weinhold, and this is get rich education. You have probably heard it been said by now that money must have three attributes. It is a store of value, a medium of exchange and a unit of account. The US Dollar does not meet the first one store of value. That's due to inflation. How is the dollar a store of value, it is not so then the dollar is a mere currency, not money. You can make the case that gold is a store of value, maybe that Bitcoin is, although it's got a short track record and it's a volatile ride the S, p5, 100, you could say that's nothing more than a store of value long term. When you understand all the drags on it, you're only treading water long term with the s, p, I've discussed that on shows earlier this year. That leaves real estate as not just a good long term, stable store a value, but when it's done right, it is the vehicle where inflation actually increases your purchasing power. And here's a new way to think about it, money is your time and energy captured in an abstracted form for the government to take out debt. They are borrowing your time and energy. Government debt is the closest thing we've ever seen to time travel.They're borrowing the collective time and energy from your future. How do you achieve time travel? You borrow human time and energy from the future currency debasement steals the time and energy of you and everyone alive today. That's why you've got to protect yourself. And what this does is that it actually increases your time preference. Yeah, the term time preference, that's something that Bitcoin authors like Dr saifedean Amos often use time preference and actually think that it's sort of a confusing term. Time preference, though, it sounds like a good thing, it's actually a bad thing. It means that you would rather consume now and over consume now instead of later. Having a high time preference means that you want to all out, ball out right now, and not consider your future. Well, that's what inflation does whenever you see the term time preference out there. I think the best way for you to remember what that means is think of it instead as a now preference. I think now preference is more intuitive than time preference. Teach me how to Dougie, yes, we've got public figure and mega popular author Doug Casey back with us today to discuss how rising prices lead to social decay and makes humans have a higher time preference resultantly, I guess that is teaching us how to Dougie. Yes, indeed, that is a reference to that, like 15 year old song, teach me how to Dougie, and we would drop some bars of that song right now. Oh, you know that me and the team here, we really want to, but we would probably have some royalty issues with that one here, and I'll tell you that is such a stupid song. Teach me how to Dougie, but at the same time, once you've heard it, the next thing that you want to do is hear it again somehow. But it's pretty likely that Doug Casey and I have some more important things to talk about. So fortunately for you, rather than discuss a 2010, rap song any further, we're going to discuss how rising prices lead to social decay.

Monetary inflation is even worse than you think. This era's rising prices and falling values actually lead to social decay. Villains and unethical actors are getting rewarded and they're stealing from you. We're going to discuss just how the international man himself, a legendary and generationally popular author, is back with us for a sobering look at inflation and social decay today. Hey, welcome back in. Doug Casey.

Doug Casey 8:04

Nice to talk to you, Keith. I'm speaking to you at the moment from my farm in Uruguay, which is one of the, I would say, two, most stable countries in Latin America, and one of the two or three most stable countries in the Western Hemisphere, there's a lot of real estate in the world, other than in the US. And I know that you mostly talk about real estate. I've actually done a lot of real estate too, all around the world, in the Orient and in Europe and South America, and, of course, a lot in the US and Canada. So I'm generally friendly to real estate, and it's been very, very good to me.

Keith Weinhold 8:44

Well, you're truly living up to the International Man moniker again today, joining us from that small South American nation of Uruguay and Doug. Before we talk about the inflation and the social decay, what are property taxes like there in that part of Uruguay. And I know you often spend time in Buenos Aires Argentina as well. If you can talk to us in terms of the percent of the value of the property that you pay in property tax each year, which tends to be one to one and a quarter percent on an average in the United States.

Doug Casey 9:13

that's right. And I think in some states like Illinois, it can go up to about 2% if I'm not mistaken, which means that you really don't own your property. If you don't pay your real estate taxes for for a year or two, you'll find out who really owns it, right? But taxes are high in South America, but generally, not too bad on real estate per se, certainly not on farmland, but farmland everywhere in the world doesn't pay much in the way of real estate taxes, and that's certainly the case here in Uruguay, and the same in Argentina, which might be worth more discussion, because Argentina is doing something that's actually unique in world history right now. And I.hope it's a story that ends well, because they're going in the right direction. But to answer your question, if you buy a condo or a house in a city in Uruguay or Argentina or most of these countries down here, you're going to pay real estate taxes, but it's less than in the US typically, like a half a percent, when they get you in South America is value added taxes, or anything you buy, including labor. In most places, you have to pay the government someplace in between 18 or 20 or 22% depending it's like a huge extra sales tax that's hidden in the cost of the item. And of course, they have income taxes down here, just as what they do in the US, approximately American levels. But on the bright side, not that I know about these things from a firsthand point of view, but these Latin American countries are kind of corrupt and not as completely grasping as the US is they're not as competent in going after you, and don't have a worldwide reach, which the US does.

Keith Weinhold 11:07

Yeah. Oh, well, that's an interesting comparison there. And yeah, Doug, a lot of Latin American nations have had high rates of inflation in both the recent past and now in a piece that you recently wrote is titled, inflation and social decay, rising prices and falling values. And here in the United States, whether it's at the grocery store or the mall or restaurants or airports or anywhere you turn, people really are finding inferior goods and services yet at higher prices. I mean, everyone sees that now. And Doug, I know that you've maintained that living standards have taken a big step, not forward, but backward, and are trending even worse. So tell us about it.

Doug Casey 11:49

Well, the way that you become wealthy is by producing more than you consume and saving the difference. That's the basic formula. Produce more than you consume and save the difference. But when the government inflates the currency, and the government's entirely at fault with it, they have the printing presses. They control the currency. It makes it very, very hard to save, and you can't get ahead. You can't build capital which you need in order to invest and become a capitalist. So inflation is the enemy of the average man, and it's the enemy of society as a whole, but some people do very well because of inflation. Why? Because in the US, it's the people in basically New York and Washington and other big cities that stand very close to the fire hydrant of money that comes out of the government, and they get to drink deeply before something trickles down to the plebs below inflation will destroy a country, and that's why in Latin America in particular, you've got very rich people who are usually connected to the government, who get that money first, and a lot of poor peasants who don't get it, and I'm afraid that the US has been going in that direction for some years.

Keith Weinhold 13:08

Well, I'm so glad Doug that you gave us the reminder that the government is the source of inflation. That's where it all begins, because people often blame the landlord for higher rents, but they blame the grocer for the higher beef prices, but the landlord in the grocer, they're only the messenger, not the source. You're absolutely right. It's a question of very bad economic education throughout the school system, all the way up to college and post grad work the butcher and the baker and the oil maker produce real goods that make your standard of living higher. They're the heroes in this scenario. The government, which prints up money through its deficits that it runs, is the villain in this and I never cease to be amazed and shocked how people look at politicians to be their saviors, right? They're heroes. They're not. They're the villains in this piece. They serve no useful purpose. And the same goes for most of these agencies that they set up, which once again, make things easier for the guys on top, that have capital, that have political connections, that can hire the lawyers, hire the accountants to twist things in their favor, makes it very hard for the little guy who can't jump over the hurdles that are put up by regulation as well as taxes as well as inflation.

Tell us about how inflation erodes ethical standards.

Doug Casey 14:38

Well, that's a problem too, because if you can't trust money, the validity of contracts becomes questionable if you borrow. It's terrible in a country like Argentina, if you borrowed 100 pesos from me and only gave it back to me next year, it'd be worth half as much. But you say, Hey, here's your 100 pesos, but you're subtly cheating the person that you borrowed the money from, right? And it erodes trust. Not only that, but inflation tends to make the banking system unsound for a number of reasons. If you can't trust your bank, you really can't trust any financial institutions. So money is the lifeblood of a society. It represents everything that you want to do and want to provide for other people in the future. And if the government destroys your money, it's destroying your future life. And that erodes trust. It makes people think in terms of, I want it all, and I want it now. I'm not willing to wait, because in the future, I don't know what anything is going to be worth. So it leads to an unstable society. And in an unstable society, you don't trust anything.

Keith Weinhold 15:57

right? Well, first, I love your example of the 100 peso loan. I mean, how would one know how much interest to charge in a runaway inflationary environment? Because some people don't realize that high inflation also means more volatile levels of inflation, and banking and lending really break down. You know, Doug, I've got my own example or two about how inflation introduces unethical behavior when the big wave of inflation started to hit in 2021 and 2022 in the United States, you know my favorite cold brew bottled coffee, which I drank because it had good ingredients in it, rather than raising the price on that with inflation, they replaced their higher quality sweeteners in my cold brew coffee, like stevia and monk fruit extract with a junky sucralose sweetener, they could keep their price the same that way. They sure didn't point out that they substituted a junkier sweetener. And really this is another form of inflation called skimplation That was pretty sneaky behavior here.

Doug Casey 17:00

you're absolutely correct, Keith, and this further breaks down the bonds of trust in society, because you no longer really trust that manufacturer, and that's just your one particular coffee manufacturer, but it's happening across the board with all manufacturers, so no wonder people start saying, Hey, I hate these companies. They're trying to rip me off. Well, they're not trying to rip you off. They're just trying to survive the consequences of the government debasing the currency. So we have to assign blame where it belongs. That's a very good example that you just gave. I think.

Keith Weinhold 17:35

yeah. And I think another way that inflation introduces unethical behavior is say that there are two different manufacturers of wine, and they're selling their bottle of wine for $20 then the currency supply doubles. Okay, well, one manufacturer can go ahead and keep selling their $20 wine with inferior ingredients. Well over here, the honest guy, the other company, they double their price to $40 and they continue to use good quality ingredients. But what do consumers notice? They notice the price more than the ingredients. So therefore the unethical one that waters down their wine ingredients but keeps their price low actually gets rewarded and will get more business.

Doug Casey 18:15

You're right, certainly in the short run, but in the long run, inflation is going to destroy both of them, but for different reasons, inflation really destroys the basis of society itself, because it makes it so much harder to produce and you don't have any savings to consume. So money is the basis of society. When you destroy the money you're destroying the basis of society itself.

Keith Weinhold 18:43

We're talking with Doug Casey about his recent piece that you can find@internationalman.com it'stitled inflation and social decay, rising prices and falling values. He also hosts the eponymous show, Doug Casey's take more with Doug when we come back, including how inflation leads to a more litigious society and actually creates more lawsuits. That's straight ahead. I'm your host. Keith Weinhold.

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Richard Duncan 20:53

this is Richard Duncan, publisher and macro watch, listen to get rich Education with Geek Weinhold, and don't quit your Daydream.

Keith Weinhold 21:11

Welcome back to get rich education. We're talking with legendary author Doug Casey. In fact, his classic book strategic investing broke the record for receiving the largest advance ever paid for a financial book at the time. And Doug, I know, in one of your latest pieces, you talked about how inflation actually leads to a more litigious society as well. Tell us about that.

Doug Casey 21:34

The US is actually the most litigious country in the world, and it's because a company may have a hard time meeting its obligations when the currency that its obligations are denominated in turns into a floating abstraction, and if you can't fulfill your obligation, is the way you would righteously on a handshake. Might you may want to call in your lawyers to help you survive. So it percolates through all areas of society.

Keith Weinhold 22:06

Now, on top of inflation, I think there's a problem that's really in one's face today, America has a tip inflation problem where increasingly you are being asked for tips at places where you weren't beforehand. And I think a lot of that really began with COVID. Places like Subway restaurant began asking for tips even though you're standing up to order your food, and it was a way for you to show appreciation that they showed up during the pandemic. But when the pandemic waned, the tip request didn't go away. In fact, I think they've increased. So we have tip inflation on top of inflation. Doug, I recently attended a conference, and the little convenience stores inside the event site hotel, they stated that they are now cashless. Okay, so you're going to be paying with a card, and when you bring your groceries up to the counter, there's a little screen, and they ask you two to three questions. You have to answer two to three prompts if you don't want to leave a tip. This is just at a convenience store. This holds up the line. It's a little frustrating. It wears me out. They say humans can only make 35,000 decisions a day. I just spent three or four of them saying I don't want to leave a tip for this sandwich that I just brought to the counter. And you know what's funny, Doug, I almost consider if this gets annoying after I deny the ridiculous tip request when they didn't provide any additional service. You know what I think about asking Doug, asking that person, oh, okay, well, you asked me to pay more than we agreed to. Where's my discount? Now let me ask you a few questions about my discount now that you ask that I pay more than what we agreed to. So tenations become a problem.

Doug Casey 23:47

Actually, it's worse than that, because now that the world is going to computer money less cash, they give you some choices. I know at Starbucks, this is the case. You want to leave a 10% or a 15% or a 20% tip, those are the things that you can check to make it easy for yourself. But wait a minute, I just wanted a coffee, and what services this person provided for me, other than just drawing a coffee for me and I'm given a choice of it used to be that tips were this is a long time ago, but it's still the way it is in many countries in the world, the tips were just the excess change that you left there. Or the waiter in many countries in the world, like, well, two I can think of off the top of my hand, or Japan, where tipping is is not accepted. In fact, I remember in one Tokyo restaurant, I left some money on the table, and the waitress ran down the street after me to give me my money back. She thought that I inadvertently left it on the table and it was supposed to be a tip. Other countries, like New Zealand, there's no tipping. Certainly out in the country, it's only in the big cities. So yeah, it's become a rather pernicious habit, but I understand, because the average guy doing manual hourly labor like waiting is having a really hard time making it these days, and that's evidenced by the fact that both Trump and Kamala Harris were talking about making tips exempt from income taxes, because you might have to pay the government, well, forget about it. You have to pay them 15% in Social Security taxes, which are non deductible, and then you have to pay income taxes on top of the Social Security taxes. So I I understand why you'd want to do that, but inflation is just another kind of tax, actually, when we get right down to it, that's what it is. It's a subtle tax. It's a tax that you don't see. It's a tax that you blame on the person providing the service of the good, rather than the government, which if they tax you directly. Yeah, you see that, but you don't see that. Inflation is just another form of tax.

Keith Weinhold 25:59

Sure, an income tax or a property tax is sort of front stage inflation really a backstage tax being surreptitious. To your point, well, if the government is so bad and does such a poor job of issuing currency, Doug, what are your thoughts about the government just getting out of the currency issuance business? Whatever that would look like, a gold standard, a Bitcoin standard. Does the government have to be the one that issues the currency?

Doug Casey 26:27

No, it doesn't actually look and we might want to forget about this concept of currency. You've heard that the BRICS, a bunch of third world countries, Russia, India, China, Brazil, many others who want to get out of using the dollar, they don't want to use the dollar because the dollar is turned into a floating abstraction, and they can't trust the US government, as the Russians found, because all dollars clear through New York. So what are they going to do? They don't trust each other's phony baloney currencies. I think that those countries are going to go to gold, not a gold currency, gold, which was money since day one of human history. Actually, I think that's going to happen in the US. And for many, many years, I've suggested that people do their saving in gold, not in dollars. I've been saving in gold for the last 50 years, starting when gold was in the low 40s. And as you do with savings, you put it aside, you forget about it. And the gold that I first saved at $40 an ounce, it's now at 2700 more or less, has treated me very well. I think that people should be saving with something that's not going to lose value the way the dollar does. If the dollar is in a lot of trouble, it could dry up and blow away, quite frankly. So one reason why you want to own real things, commodities, properties, gold, things of that nature, or stocks, if you choose the company well.

Keith Weinhold 27:59

I've helped people that have been hesitant about putting a little bit of money into gold or Bitcoin with the mindset of, don't think about how you are buying gold or Bitcoin. Think of it rather as how you are shifting a portion of your prosperity from dollars, pesos, yen or euros over into gold or Bitcoin. Really, you're just shifting some of your prosperity there. Is the way that I like to think about it. But Doug, as we've been talking about inflation, in this theme of government really having intervention and distortions into free markets, including things like inflation. You know, I've got something that I'm thinking about, and you might help shape or change my thinking about this. We generally champion free markets around here that's typically a good economic system. However, is a free market with some guardrails on it actually helpful? Or do you think that the guardrails shouldn't be there? You mentioned Donald Trump a little bit earlier? One thing, for example, that he says he wants to do Doug is fire the current FTC chair, Lina Khan now the Federal Trade Commission. What their role has really been in the past few years is they spend a lot of their energy cracking down on fraudsters, but Lina Khan wants to bust up mega corporations. So really, what I'm getting at is, can one of the guardrails that's important be that say the FTC make sure there isn't like a an early 1900 style, John D Rockefeller monopoly. What are your thoughts with the government's role in breaking up monopolies? Is that a valid guardrail on the free market?

Doug Casey 29:30

No, I don't think it is. Look, you've got two kinds of monopolies. You've got market monopolies and legal monopolies. A market monopoly is one where the company provides the good or service so cheaply at such a high quality that nobody can compete with them. It's not worth it. Well, leave it alone. And if they start pricing their product too high, or the quality falls enough in a free market, Competitors will come in. That's one type of monopoly. nothing wrong with that kind of monopoly. The other kind of monopoly is a legal monopoly where the government says you have a franchise to do this, you and only you can do it like, well, like almost anything today, where you have to, you have to get government approval in order to provide the good or service. Like railroads, for instance, you couldn't start a new railroad today if you wanted to. So if it's a legal monopoly, you're fighting the law. If it's a market monopoly, you just have to provide a service or good, cheaper or better. So no, I don't think the FTC or any of these three Leader Letter agencies serve a useful purpose. All they do is add to costs and slow down competition and employ people that stick their nose into your business and tell you what you can or can't do both as a producer and a consumer. Look, the government is force. It's coercion. It should only do three things in a civilized society, we want to limit coercion. That means protect you from coercion outside the country with the military inside the country, with the police force, and allow you to adjudicate disputes peacefully without resorting to coercion through a court system. Everything else can be solved through market processes. Believe it or not, I know that shocks most people to hear they're so used to thinking that big brother is watching over a man is going to save my bank and protect me from bad people out there. I wish there are plenty, but it's not the best way to do it. Frankly.

Keith Weinhold 31:33

you've done a good job of drawing a distinct line as to what you think government should stay out of but what about this monopoly power? What if, even with AI inroads, Google still owns more than 90% of the search markets, so therefore they can charge exorbitant prices. Shouldn't something like Google be broken up in an antitrust lawsuit?

Doug Casey 31:51

No, no, it shouldn't, because there are other companies out there that provide people are just used to using Google. I use it myself, but there are at least a half a dozen, and I'm not a computer jock, so I think there are more than that, other services out there that you can use instead of Google, and believe me, I don't like these big companies. I mean, they act like semi governments onto themselves. No, you don't want the government to step in, because the government is a far greater danger than Google is. Google can't break down your door at three in the morning with cops and haul you off to jail. Google can just charge you more than you'd want and do other things like that. But you have other alternatives to Google. It's not an active over weeding physical danger the way the government does. And I'm not saying I like Google either. I don't. Let's admit it, they provide us a tremendous service at basically zero cost, and if you can find ways to get around them, I think that's great. Like I said, it's wonderful what they do. But that doesn't mean I'm a fan of them because of the way that, like any big organization, sure, they try to take advantage around the edges. Unfortunately, that's a negative part of human nature. But the government is not the solution to the problem.

Keith Weinhold 33:13

And of course, this doesn't mean I'm a pro regulation person. Some states and jurisdictions landlord and tenant act can be overbearing.For example, the FDA is not doing a good job with what is allowed to be put into our food, either. So the size of the regulation probably is too big.

Doug Casey 33:31

My old friend Dirk Pearson, who wrote a book called Life Extension, a practical scientific approach, was a huge bestseller some years ago, and Derek always liked to say the FDA it kills more people every year than the Defense Department does decade. And he's right.

Keith Weinhold 33:51

Yeah, that is a pretty sad indictment on the state of things there. But do you have given us quite a few things to think about with how inflation is actually an unethical source, and some more thoughts about free markets. If our audience wants to connect with you, what's the best way for them to do that?

Doug Casey 34:07

Well, go to internationalman.com I write an article there every week, but every day we have great articles by great people. So go to internationalman.com that's one thing on YouTube. Doug Casey's take, where I have a conversation on these and many, many other subjects with Matt Smith every week. And the last thing is, since you can say some things in the form of fiction that you dare not, or better not say in the form of non fiction, right, I have three novels, speculator, drug lord and assassin that I think are excellent reads, so go on Amazon and pick them up too.

Keith Weinhold 34:47

Yeah, Casey, it's been insightful as usual. Thanks for coming back onto the show today.

Doug Casey 34:52

Appreciate it, Keith, it's been a pleasure.

Keith Weinhold 35:00

Yeah, good insight from Doug. As always, tipflation has become awfully intrusive. I recently made a donation on my nephew's behalf for his soccer team or something like that on the donation platform, okay, they called that donation my pledge. Okay, sure, but before I finaled out my pledge on the site, they next asked me if I would like to leave a tip on top of my pledge. Sheesh. Well, do you blame the donation platform for trying to up charge me after I'm just trying to be giving or instead, after listening to today's episode, do you blame the government for inflation in spending? Is this all just a result of that? And now we have listeners that when they find this show, they want to go back and listen to all currently, 500 plus episodes. Well, if you're listening to this five or 10 years from now, you might find my tipflation stories unusual because the practice could be so common and embedded into society by then. Right now, it's still pretty novel here in the mid 2020s there's a rapid rate of change on the tip flation front. And the next time that you are asked for an out of bounds tip, are you next going to ask the merchant where your discount is and make them answer three questions about it.

And by the way, the cold brew coffee that I mentioned with Doug is not the erstwhile la Columbia brand that I talked about two weeks ago. My favorite and real go tos are the Slate and O, W, Y, N brands. That way you get 20 grams of protein with your coffee and no cheap sweeteners in those two. Now, when it comes to the anti trust stuff, breaking up monopolies and duopolies, see real estate is super fractured with who owns it. I mean, even with more institutional buying of real estate, like we've seen this past decade on a national basis, these huge groups that own 1000 homes or more. All those groups, they only own about 710, of 1%of the US single family housing stock. So real estate investing is free market and it is fractured. It is not at all consolidated.

And now let me give you something outside of real estate, an example from another segment of business, supermarkets. There is no need for you to frantically hoard Annie's mac and cheese. It's not good for you anyway. But two courts rejected the Kroger Albertsons merger earlier this month, and that effectively broke up the deal that would have brought together two of the largest grocery store chains in America, the decision that really gave a sweet victory to FTC chair Lena Khan, like I mentioned there in the interview, but her time at the agency's Helm, that's going to end in a few weeks with the beginning of a new presidential administration. But see, in my opinion, and going after antitrust cases, she was pro free market and pro competition, which I see as a good thing. That way you have more companies vying for your business with better quality and lower prices. But I do like to listen to the other side, because, like I said in the interview, I'm still forming an opinion on this. That's why I wanted Doug Casey's take. And in this case, the two grocery companies, they had argued that creating a larger entity merging them both that would allow it to compete with Walmart and offer higher wages and lower prices. That is their side of it. Now Andrew Ferguson, he is the apparent new FTC chair. He has promised to reverse what he called Khan's anti business agenda, so we're not going to see as much antitrust crackdown from the looks of things. And note that there is also an antitrust division at the DOJ, so their influence weighs in as well. This really hasn't been much of a problem for real estate, one of the most highly fractured major markets around and now you do have though adjacent industry, like the home builder space, where there is a home building giant like Lennar, but even the home builder space isn't nearly as consolidated and anti competitive as say, the online search industry or the airline industry. I would like to wish you a happy new year. As always, we are back next week with more great content coming up on the show. We go in depth on some real estate asset classes and also how you can really, accionably and seriously reduce your tax burden next year with vehicles like bonus depreciation and cost segregation, simplifying those things for you, these are exactly the types of tools about how the rich get ahead by knowing how the tax laws benefit them, and pretty soon you will too.

If you like what you hear here each week, please go ahead and tell a friend about the show. I would really appreciate it. Until then, I'm your host. Keith Weinhold, don't quit your Daydream.

Speaker 2 40:15

Keith Weinhold 40:43

The preceding program was brought to you by your home for wealth, building, get rich, education.com

Direct download: GREepisode534_.mp3
Category:general -- posted at: 4:00am EDT

Mon, 23 December 2024

Keith unveils our 2025 National Home Price Appreciation Forecast. Learn the factors driving the housing market and discover why Keith's predictions have been spot-on for the past 3 years. Gain the insights you need to make strategic real estate moves in the year ahead. Don't miss this must-listen episode packed with actionable real estate insights.

The Fannie Mae home purchase sentiment index rose, indicating growing consumer confidence.

Trump's immigration and tariffs policies and their potential impact on housing demand and labor market disruption.

Hear about the impact of the under supply of housing in the US and the potential impact on home prices.

Will you please leave a review for the show? I’d be grateful. Search “how to leave an Apple Podcasts review” or for Spotify.

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532: Inflation is Your Wealth-Building Friend (Really)

Complete episode transcript:

Automatically Transcribed With Otter.ai

Keith Weinhold 0:00

Welcome to GRE I'm your host. Keith Weinhold, today is the day that I'm giving you our 2025 national home price appreciation forecast. You'll get the exact percent that I expect home prices to rise for Fall next year. Learn the factors that really move prices. Importantly, I follow up and you get the results of previous years forecasts too. Will it be a holly jolly forecast or more Grinch like today on Get Rich Education.

Mid-south home buyers. I mean, they're total pros, with over two decades as the nation's highest rated turnkey provider, their empathetic property managers use your ROI as their North Star. So it's no wonder that smart investors just keep lining up to get their completely renovated income properties like it's the newest iPhone. They're headquartered in Memphis and have globally attractive. Cash Flows, an A plus rating with a better business bureau and now over 5000 houses renovated. There's zero markup on maintenance. Let that sink in, and they average a 98.9% occupancy rate, while their average renter stays more than three and a half years. Every home they offer has brand new components, a bumper to bumper, one year warranty, new 30 year roofs. And wait for it, a high quality renter. Remember that part and in an astounding price range, 100 to 180k I've personally toured their office and their properties in person in Memphis, get to know Mid South. Enjoy cash flow from day one. Start yourself right now at mid southhomebuyers.com that's mid south homebuyers.com

you know, whenever you want the best written real estate and finance info. Oh, geez. Today's experience limits your free articles access, and it's got paywalls and pop ups and push notifications and cookies disclaimers. It's not so great. So then it's vital to place nice, clean, free content into your hands that adds no hype value to your life. That's why 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 because even the word abbreviation is too long, my letter usually takes less than three minutes to read, and when you start the letter, you also get my one hour fast real estate video. Course, it's all completely free. It's called the Don't quit your Daydream letter. It wires your mind for wealth, and it couldn't be easier for you to get it right now just text GRE to 66866, while it's on your mind, take a moment to do it right now. Text GRE to 66866.

Corey Coates 3:12

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 3:28

Welcome to GRE from North port, Florida to North Pole, Alaska and across 188 nations worldwide. I'm Keith Weinhold, and you are listening to get rich education episode 533 Yes, your favorite slack jawed real estate podcaster here is indeed the GRE founder. I'm also an active Forbes real estate council member, best selling author. I write our weekly Don't quit your Daydream newsletter. And perhaps most importantly, I am an active real estate investor, I am here to help you invest well in real estate, and that is because most Americans have enough saved for an absolutely incredible single day of retirement. Look the content that you choose to listen to will shape your behavior, it'll even gradually alter your identity over time and forge your dreams. Middle class financial advice will keep you squarely in the middle class. They get robbed of the fruits of their labor through taxes. Get robbed of their purchasing power through inflation, and they get robbed of their financial future by staying financially illiterate. I mean, if you're grinding hard and sacrificing experiences to be debt free at 36 well then that means you aren't using other people's money. You, it confirms that you've got no leverage. Why celebrate that? Celebrate financial freedom or a great vacation, or, you know, anything else, like with your friends and family to the Canary Islands. I mean, that's stuff that's worth celebrating, that's extraordinary in this one and only life that you got. I love the old African proverb, if you want to go fast, go alone. If you want to go far, go together. You and I are on this journey together. Dream of living the life where you just give a light touch to some of your investments while they are building your wealth, just adjust the sales of your ship a little here and there. Now. We'll get into the big picture real estate forces in my exact percent home price appreciation figure shortly. But doesn't that sound amazing where you can just do this? I mean, that's what I do. I just give a light touch to my investments. For example, at the beginning of this month, I looked at the statements as they came in in emails from my property managers in various real estate markets, like I usually do now when you have a perfect month as a real estate investor, US landlords, or should I say, housing providers, acknowledging last week's show we develop our own vernacular. A perfect month is when you have 100% rental occupancy and no repair items. Once though you have more than about five rental units, it's hard to ever have a perfect month. It's always good to budget something toward long term vacancy and maintenance. But I had a pretty good month last month. For some reason, my properties needed a few new appliances, a replaced fridge. Here, a new microwave. There, a lot of appliances like a fridge, you know, they can still look pretty close to new, even if they're used. That's fine for a rental. This was just a $280 fridge replacement, for example, in this one rental, single family home of mine. So yeah, just that monthly scan of your property manager statement, seeing that income and expenses look kind of reasonable to you, and then going about your day and the rest of your month. Now, it wasn't always that way for me. As I started and grew, I self managed my own properties for the first six or seven years, and sometimes, you know, something will happen where I want to get more proactive and maybe take, say, a 90 minute block of time to shop for lower insurance premiums if I see those rates rising in a certain market or something like that, but that's how it feels to give a light touch to your active direct real estate investments. Keep that going, because this is all happening while you keep other people's money working for you, the banks, the governments and the tenants.

Hey, something that's become newsworthy, an index measuring consumer confidence in the housing market, rose again last month, and that is the latest sign that potential property buyers and sellers are growing more accustomed to today's mortgage rates and prices. The Fannie Mae home purchase sentiment index that has now increased to 75 points. So the index has risen 11 points or more than 16% in the last year. So there is, however, not one shred of evidence, for example, that sub 3% mortgage rates are coming back anytime soon, maybe not even in this decade or in your entire lifetime. Who really knows? I mean, it's soon going to be three years since the Fed began their aggressive rate hiking cycle and the market and consumer expectations are finally adjusting and settling down, and that right there that factors in just the touch to the housing forecast that I'm going to deliver to you today. And before I get into that, since we are get rich education, do you know what the federal funds rate is like, what it really means? Let me explain this to you in a way where I think you'll not only learn, but I'm going to give you an example so that you can actually remember it. And I'm going to over simplify it, the federal funds rate, that thing that Jerome Powell and his committee set, that is the rate that banks pay other banks to borrow from each other. It's a little over 4% right now. Okay, let's just say it's 4% here's why the federal funds rate is typically lower than mortgage rates. Say that Wells Fargo pays bank of America this 4% federal funds rate to borrow so that Wells Fargo can then turn around and lend the funds to you for a real estate mortgage loan. All right. Well now you can see that Wells Fargo had to pay Bank of America 4% that's why, when you go get your real estate loan from Wells Fargo, you can understand and see why they'd have to charge you, say, 7% in order to make a spread. That is why mortgage rates are higher than the federal funds rate. Wells Fargo made the spread of 3% because they borrowed at four, and they lent it to you at seven, and you yourself you borrowed at seven because your tenant pays your interest and principal for you, and you get the leverage and all of the other benefits. So again, the federal funds rate is the rate that banks pay when they borrow from other banks, and since they need to make a spread arbitrage, this is why mortgage rates are higher. Again, that's oversimplified, but I think that's a way where you can really remember what that is and why that is that way. All right.

Well, with that lesson understood, let's talk about the big national home price forecast for next year. And here's what's interesting. Look at the forecasts that my peers have made. All right, I've already got the forecasts from 16 other housing analytics platforms here, and they have all predicted that home prices will rise next year, all 16 of them, but they've all forecast something different. And everything we're discussing today, by the way, is nominal, meaning, not inflation adjusted. All right. Note that the average of all these platforms, all 16 of them, is a 2.8% gain for next year. All right, if you look at all of them the range, the highest is Goldman, Sachs at 4.4% and the lowest is Moody's Analytics at just 310 of 1%

I'll tell you now that my forecast today, it wouldn't even fit on this chart, it is going to be off the chart. And this is something that might ramp up your intrigue. Maybe you think I would look at this and choose something safe, and since I have the benefit of seeing how 16 others have weighed in that, I'll just pick something in the middle of that. Oh, no, not at all. This is an independent forecast. So since our forecast is off the chart, then that means that what I'm going to tell you today either has to be higher than the highest, which is that 4.4% from Goldman Sachs, or lower than the lowest, which is that 310 of 1% from Moody's. Yes, it is outside of those brackets, busting the bookends today. And as I lead up to it, I will detail the reasons why the calculus that went into this forecast. So before we're done, yes, you will get the exact percent number that I expect existing single family home values to increase by or decrease by next year. It is the fourth straight year that I'm doing this. And now a lot of people make whimsical predictions, you know. But today, you're gonna get something that you rarely, if ever get accountability, because I'm also going to show you the results, you'll see how well my forecasts have actually performed each of the past three years. Sheesh, don't you wish everyone followed up on the prediction that they made now, oh gosh, most housing price crash Predictions Fail Faster than your average New Year's resolution. All right, we need first historic context in order to put this future that we're talking about into perspective. Let's look at how bad other predictions have been this is something that Yahoo Finance recently pointed out, the year by year, reasons that people thought housing prices would crash Since 2012 so we're talking about the past 13 years here, starting in 2012 it was shadow inventory. Remember that that never came true. 2013 higher mortgage rates. 2014 in that year. People thought that housing prices could tumble hard because QE was ending in October of that year. That is quantitative easing, which is dollar printing. I mean, basically QE, that's just the Genteel way of saying inflation. In 2015 they thought a manufacturing recession would make home prices crash. In 2016 home prices were back to their pre global financial crisis high. Well, people thought that seemed shaky. In 2017 I don't know what it was. No one had a good reason. But the word crash just gets attention, so some media tried to scare people with that headline. Anyway, in 2018 it was mortgage rates went from 4% up to 5% seriously like that was the top reason. In 2019 it was that home price growth was cooling off in 2020 of course, it was the COVID 19 pandemic in 2021 it was mortgage forbearance in 2022 it was that mortgage rates hit 7% that was the first time we saw those in a while, even though 7% is still below the long term average of seven and three quarters percent in 2023 it was historically low housing demand. People thought that would bring down real estate prices. In 2024 it was sustained higher mortgage rates and an uptick in inventory. And what's it going to be in 2025 I don't know. Clickbait artists will have some other farcical reason why home prices will crash. Just watch, all right, well, with that, look back every year since 2012 of course, real estate prices definitely don't always go up. In fact, when we look at a longer term history, the national home price appreciation rate every year since World War Two. Like I told you on a previous episode, there were only two periods where home prices fell, that's over a period of 80 to 85 years. There was just 1% attrition in 1990 and then the only appreciable loss period, of course, were those years around the 2008 global financial crisis, where you really probably could consider that an all out crash, prices were down more than 20% nationally, more than 40% 50% in some markets, all right. Well, how did that concerning period compare to now? Well, 2008 is when conditions were largely opposite of what they are now that is back 2008 we had an oversupply of homes, and it was all supported by poorly underwritten mortgages, meaning the borrower really couldn't afford the payment. And also that's when people had low or no equity in homes, so they just walked away, so borrowers had no equity to lose, nor any credit score to protect, and it was oversupplied there about 17 years ago. I mean, that era was so bad and also such an anomaly, that home prices actually fell below the replacement cost, if you can believe that, meaning that you could ostensibly buy existing property for less than the cost that it would take to build a property, then all right. Well, all three of those conditions are opposite. Now today, we have an under supply of homes. Secondly, we have carefully underwritten mortgages, and thirdly, we have record high equity positions, about 300k on average. People are not walking away from that unless things got absolutely dire. All right, with that historical context. So here we are building up to my factors for the forecast, and then the big reveal of the percent figure here, before we're done, to be clear, what I'm providing is the projected sales price of existing single family homes per the National Association of Realtors, stat set. All right, so why existing? And not include the new builds into that? Well, first of all, there are way more existing home sales. Then there are new build sales each year. And see, the thing is, though, that tracking new build that really skews the numbers, because what can happen is, one year, you might have a ton of luxury new build homes. Well then that skews the numbers up too much. Or then there's the more nascent trend of what's happening lately, building smaller homes this past year in order to help with affordability and building smaller that can skew the numbers down. So sticking with existing homes that allows us to keep things more same same. Today, you'll learn about what goes into my forecast and the factors that actually don't matter as much as you would think, like the incoming Trump administration. You'll also hear an important clip from Trump in a few minutes for the second week in a row, I'm bringing you the show from a fairly interesting place, Anchorage, Alaska. This city of 300,000 people, is at sea level. The west side is confined by a coast. The east side is confined by mountains. It's a modern US city. There are high rise buildings and convention centers and freeways and a really convenient International Airport. What's interesting about being in America's northernmost city right now? Anchorage is. That Saturday, just a couple of days ago, that was the winter Equinox for half of the globe, the entire northern hemisphere. And here, the sunrise time is about 10:15am, and sunset about 3:45pm, that right there is just five and a half hours of daylight. That's it, but it feels like more than that. It feels closer to perhaps seven plus hours of daylight, because at high latitudes, the sun barely drops below the horizon, so therefore you get more Twilight on either end of sunrise in Sunset. Well, this is a real estate show, so I hope that's not too much of an astronomy lesson for you here. But anchorage can never get 24 hours of daylight or darkness, because it simply is not far enough north. In fact, when I fly from, say, the center of the 48 states out here. I travel more west than North. The thing for you to remember is that the only places on the globe that can get 24 hours of daylight and darkness are inside the Arctic and Antarctic circles. They're at 63 and 1/3 degrees of latitude or greater, and Anchorage is just 61 I've been skiing here, but suffice to say, with a lot of darkness, it's been a good place for me to study research and put my effort into this forecast that I'm sharing with you today, which you'll hear after the break.

This week's episode is supported by ridge lending group. It's the same place where I get my investment property mortgages and refinancings, you can go ahead and originate your loans at the same place I get mine, that is Ridgelendinggroup.com. Also freedom family investments, you can make a loan and get a stable return of 7% 8% or Even 10% yet still have some measure of liquidity. Why park your funds at a bank? You can learn about their private money loans by texting FAMILY to 66866, if you want 8% or more on your money while it's on your mind, just text FAMILY to 66866, and see if it's right for you. I'm your host. Keith Weinhold, more next you're listening to get rich education.

Oh geez, the national average bank account pays less than 1% on your savings, so your bank is getting rich off of you. You've got to earn way more, or else 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 a 10% return and compounds year in and year out. Instead of earning less than 1% 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 you know how I'd know, because I'm an investor in this myself, earn 10% like me and GRE listeners are text FAMILY to 66866, to learn about freedom. Family investments, liquidity fund on your journey to financial freedom through passive income. Text, FAMILY to 66866.

Tom Wheelwright 24:08

This is Rich Dad Advisor Tom Wheelwright. Listen to Get Rich Education with Keith Weinhold, and Don't Quit Your Daydream.

Keith Weinhold 24:24

welcome back to GRE. I'm your host. Keith Weinhold, with the factors that are weighing into my home price appreciation determination for next year. Here now all of these factors matter, but I'm generally going to start with less weighty factors and proceed more toward the weighty factors Trump tariffs. Could Trump tariffs increase materials costs, the cost of materials that go into homes? Well, yes, of course, they could. Could it also increase the labor costs that go into those homes, if, say, businesses decide to onshore. Sure in order to avoid paying the tariffs, yes, and you would have to pay a higher wage to Americans. That's obviously inflationary, but applying tariffs is slow, and it takes a long time to trickle through, okay? But here's the thing, even the threat of tariffs can produce inflation, and we already have the threat that's something real. And now see if you're a consumer and you want to buy a new washer, dryer set or a microwave, well, you're more motivated to do that today, not in a year, because this threat of tariffs might mean that that appliances price will spike. You might want to buy your new car now, if you anticipate the terrace could be coming and it's going to affect that well, the apartment building owner feels the same way before she or he buys 48 washer dryers for their apartment building. Home Builders and remodelers they want to get their materials orders in now, in some cases, whether that's for concrete, drywall, lumber, any component that goes into a home where they think that a tariff could jack up the price, you really need to be paying attention to whether you think this is going to happen or not. So Trump likely means more inflation, and that correlates also with sustained higher interest rates of all kinds, including mortgage rates. And there's no certainty there. There is just that correlation. Now, a lot of real estate investors anticipate that a president with a real estate investor background like Trump Has he is going to return 100% bonus depreciation and extend his tax breaks, okay, all of these things, especially that bonus depreciation, can really enhance your tax situation, but that's not part of the home price appreciation forecast for next year. Okay, we're just looking at next year here. How about mortgage rates? How is that going to factor into home prices for next year? Mortgage rates hardly matter. And the newer listener that you are, the more of a surprise that is, rates are about 7% now, a lot of experts think they're going to go to 6% in a year. But who knows? I mean, a year ago, everyone thought rates would be substantially lower today. But here's the thing, it's not just a who knows. It's almost a who cares about what mortgage rates will be when it comes to prices. Because, like I've shared with you before, since 1994 mortgage rates have risen 1% or more seven different times, and home prices went up all seven times. Long time listeners like you, you already know this, so for the complete backstory on the why, you can listen to earlier episodes, but the short story is that higher rates, you gotta look at what's happening when there are high rates that's a confirmation that the economy is strong, and when the economy is strong and people feel secure in their job, what do they do? They buy a home. So mortgage rates matter, but a person's personal economy matters more when they make a decision to buy a home or not. A sharp fall in rates that correlates with a recession. So higher rates usually lead to higher home prices, something that almost everyone in real estate thinks of oppositely. On weeks with lower rates this year, we did have lower housing inventory, and with higher rates, we had higher inventory. So that did affect that the next factor is more important than tariffs and mortgage rates, and that is Trump and immigration. Okay? Because this affects the supply versus demand component of housing, something supremely important. Well, more immigrants mean more housing demand, pushing up prices and on immigration, who really knows how many of this surge of fresh immigrants are going to be deported? Will it only be the illegals, or will it be others? Or will it be none at all? Or will it be something else, will trump deport everyone? I mean, that is not easy to do, and it's really expensive. Here are Trump's latest public remarks on how he's going to treat recent immigrants to the US. The interviewer is Kristen Welker from NBC, and she's heard shuffling some papers here too. So don't let that throw you off as you listen to Trump.

Speaker 1 29:39

You raised the point that the logistics are complicated. You said yourself, everything's gone. You mean you need 24 times more ICE detention capacity just to deport 1 million people per year, not to mention more agents, more judges, more planes. Is it realistic to deport everyone? First of all, they're costing us a fortune, but we're starting. With the criminals, and we got to do it, and then we're starting with others, and we're going to see how it goes

Keith Weinhold 30:06

well there, before Trump's first day in office for his second term, see he's already saying we'll see how it goes with deporting immigrants. He now realizes how costly that is. If there is mass deportation, housing demand goes down, but we'd also have fewer laborers, which a lot of those immigrants are, to build the new housing that our country needs. So there's somewhat of a canceling out effect there. It could mean higher home prices because it could even mean higher home prices because most fresh immigrants are renters. They aren't occupying homes that they own anyway, and just how many people we're talking about here, the Pew Research Center estimates that 13% of construction workers are undocumented. That disruption to the labor market that can produce higher inflation, because the slowdown in home building means less supply and higher prices. Now let's get to the biggest factor before I provide my track record, and then the big number, and that is more on the housing supply versus demand. So yeah, it's really fundamental economics. That's the core driver of next year's anticipated home price change. All right, let's start with supply. How undersupplied of housing are we still in the US? Well, an update on the Fred active listing count, and this is for single families, condos and townhomes. It's that we are up off the bottom, but we're still a good 40% or so below the equilibrium point where demand meets supply. America grew its available inventory 27% this year, pretty significant, and next year, it might grow another 15 or 20% that's my best guess. All right then, well, let's try to project future supply by what you have to do is look at new housing starts. That means shovels in the ground. That means taking a backhoe and excavating for spread footings, digging that trench that you're going to pour concrete into, starting homes from the ground up. Well, we don't have enough starts either not enough. In fact, we could be digging a deeper hole with the under supply at our current level of building, US housing under supply will grow by over 200,000 homes per year if we continue at this low level of building. And would you consider all housing types, single family homes, apartments, mobile homes, condos, ADUs, everything? Freddie Mac estimates that we are currently under supplied by a whopping 3.7 million housing units. Now, you probably heard figures like that before, but let me put it into perspective. At two persons per home, our shortage is greater than what could house the entire population of Libya. That's what we're talking about here. And some agencies estimate we're even more undersupplied than the 3.7 million homes. Now, of course, I'm making only a national forecast today. There are regional variations in some Texas and Florida sub markets, they have built plenty of new build single family homes now, let me tell you something scary. What if your income dropped by a third, making 1/3 less in the future than you do right now? Like that would be a moment of panic for a lot of people, you and your family, as you hold that thought when it comes to supply, this year had historically low home sales. When I talk about sales, these are not prices. This is different. This is the volume of sales. Next year, there will likely only be a few more sales than this year, and there weren't many this year. Now see for you, as an individual real estate investor and a consumer that goes grocery shopping, you know, you are interested in real estate prices, but the industry, if you work in the industry, like as a builder or as a real estate agent or even a furniture provider, they are more concerned about the number of home sales. This sales volume that I'm talking about, and here's what's going on, normal is about 5 million home sales per year. It was over 6 million during the pandemic, and now we're down at 4 million. So I mean, in a short period of time to go from 6 million down to 4 million, that is a drawdown of transactions by a third. So just imagine if you are a home builder or a real estate agent, or you're in the retail furniture business and your volume is down by a third. I mean, what would happen to you if your income were down by a third? And you're in one of those industries and you don't have a way to pivot, so that is scary stuff for that subset of people. Well, while all of that was happening to sales volume, lower and lower volume. Home prices have just kept ticking up these past few years. All right. Well, that was supply, and there is one last factor to weigh before I reveal the forecast number, and that is demand. There is a long way to go before there is enough housing inventory for the pent up demand in the housing market, pent up demand from these people that can't quite afford a home. Demographics is destiny. You know, it is one of the easiest things to project, because demographics is a known forget immigration here, because I already talked about that just domestically, the US had its own high birth rate years from 1990 to 2010 and most people don't know about this. Many of those years between 1990 and 2010 there were over 4 million births annually, and that peaked in the year 2007 All right, you might be wondering, so what? That's the past? What about the future? Well, in housing prices, that right there is the future, with today's first time homebuyer now being a record 38 years old, like I told you about a few episodes ago. Alright, if you add 38 to the year that they were born, 2007 that home buyer demand won't peak until the year 2045 so that is a big part of where the demand just keeps coming from, and is going to keep coming from this wave of demographic demand that might not slow down much until the 2050s and what could slow prices is if a major recession that included a lot of job losses were eminent, that could slow home price growth. But nobody expects that. you know something, on future demand, What if health and fitness influencer Brian Johnson is right, and Earth now has the first generation not to die. What would that do to real estate prices? Have you ever thought that through that would really expand housing demand, but that wouldn't affect things for a couple decades. All right, well, let's talk track record and understand that it is pretty difficult to predict the future, and I have made all these forecasts at the end of one year, just before the forecast year even starts, just like I'm doing today, and here's how I've done at the end of 2021 for 2022 I forecast 9-10% home price appreciation the year ended, and in 2022 they came in at 10% so I got that one right. For 2023 before that year even began, I forecast 0% just that home prices would stay flat. And by the way, so many people were calling for a housing price decline that year because mortgage rates had risen. But as we know here on the show, when mortgage rates rise, home prices typically do too. And I also said back then was supply so low, I don't really see how home prices could fall. Well, the year ended, and sure enough, they came in at 0% and all of this is published in on record. You can go back and find all this, in fact, for 2024 you can hear the forecast that I made near the end of last year for 2024 and you could do that by going back and listening to Episode 481 this is episode 533 that was 52 weeks ago, and you will hear that my forecast back then for this year's home price appreciation was 4% this year is not quite over, plus housing data lags somewhat, in fact, through October, however, they were 4.1%

we've almost got that November number, not quite, but it's very likely going to end up being 4% this year, just like I had forecast at the end of Last year, but it's still officially to be determined. Before I gave the awaited fresh forecast for next year with what looks to me like really nailing the forecast spot on three years in a row now you might be wondering something, how did I know? How did I have the foresight to know that and nail those. Forecasts. You know, at this point, I have to concede that there's probably a little luck that has come into play, but this is what I do. I study research and even participate in the National residential housing market. What you're getting is my best estimate. It's not any sort of promise or guarantee. I mean, like all other 8.1 billion human beings on earth, I don't have a crystal ball, and a streak like this has gone on for three years, but it cannot go on forever. So this is what I can best surmise. So really, for 2025 The short story is that I expect more buyers than homes, which creates bids and buoyant prices. I also expect continued inflationary pressure. Those are the two chief factors that went into this. We don't ever revise our forecast mid year. This is it. For 2025 I expect home prices to increase by 5%. Yes, there it is 5% projected appreciation for next year. And to be clear, that is the NARS national median existing single family home price, the same stat set that I have cited all four years again, it is nominal, meaning, not inflation adjusted, so at Christmas or New Year's or your next dinner party, when You see your slack jawed brother in law that thinks the housing market is always going to crash, give the dude a hug and a turkey leg and tell him that I expect plus 5% and pass me the wishbone for good luck on our fourth consecutive housing price appreciation forecast, I really hope that this helps with planning your own portfolio moves, whether that's you owning more income property next year or doing a refinancing, or how you think about your own primary residence. And do you like the forecast that I've done here near the end of each year ever since 2021 if you do let us know, write us or leave us voicemail at get rich education.com/contact let me know you can always get a hold of us there year round with any type of feedback or questions.

Hey, if you appreciate this show here, do you think that you could help me out in one small way? Call it my Christmas gift request. There's only one item on my Christmas list, and it should only take a couple minutes of your time and none of your money. Leave a podcast rating and review for the get rich education podcast on Apple podcasts or Spotify, or wherever you listen, the rating is the five star thing. The review is a few short sentences about why you like the show. I would really appreciate the gift from you, and I will read your review myself too. If you don't know how to do it right inside those listener apps, just open up a browser tab and search how to leave an apple podcast review, or Spotify podcast review, or whatever platform you prefer to listen on it would feel like a little Christmas gift to me after all these years, I'd love your feedback given that way. Tell me what you think, and thanks from me and the entire team here at GRE Merry Christmas and Happy Holidays. Until next week, I'm your host. Keith Weinhold, don't quit your day dream.

Speaker 2 43:46

Keith Weinhold 44:06

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Mon, 16 December 2024

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Plus, you'll learn about an innovative financial tool - a Home Equity Investment - that can unlock a lump sum of cash from your properties without any monthly payments.

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531: How to Replace Your Job with Rent Income in Just 3 Years

Complete episode transcript:

Automatically Transcribed With Otter.ai

Keith Weinhold 0:01

Welcome to GRE. I'm your host. Keith Weinhold, talking about the dynamic between rents and prices, how to keep your vacancy rate low and the relationship between landlords and tenants. Learn about how a newer vehicle can give you a big lump of cash from your property without you having to make any payments, then inflation is your wealth building, Friend, yeah? really today on get rich education.

Mid south home buyers, I mean, they're total pros, with over two decades as the nation's highest rated turnkey provider, their empathetic property managers use your ROI as their North Star. So it's no wonder that smart investors just keep lining up to get their completely renovated income properties like it's the newest iPhone. They're headquartered in Memphis and have globally attractive cash flows and A plus rating with a better business bureau, and now over 5000 houses renovated. There's zero markup on maintenance. Let that sink in, and they average a 98.9% occupancy rate, while their average renter stays more than three and a half years. Every home they offer has brand new components, a bumper to bumper, one year warranty, new 30 year roofs. And wait for it, a high quality renter. Remember that part and in an astounding price range, 100 to 180k I've personally toured their office and their properties in person in Memphis, get to know Mid South. Enjoy cash flow from day one. Start yourself right now at mid southhomebuyers.com that's mid south homebuyers.com

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 get 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 in your hands that actually adds no hype value to your life. That's why this is the golden age of quality newsletters. And I write ours myself. It's got a dash of humor, and it is to the point to get it. It couldn't be more simple. Just type up a text message with the letters G, R, E in the body and send it to the phone number, 66866, and when you start the free newsletter, you'll also get my one hour fast real estate course, completely free. Subscribe to my Don't quit your Daydream newsletter, and your mind will be wired for wealth. Text GRE to 66866, text GRE to 66866,

Corey Coates 3:02

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 3:18

Welcome to GRE from Villa Lenovo, Pennsylvania to Villanueva, Columbia, and across 488 nations worldwide. I'm Keith Weinhold in your listening to get rich education. I'm really grateful to have you as always. When you invest, you are buying a day that you don't have to work. That's what we're helping you do here every single week own real estate, and it's going to allow you to buy back big chunks of time for yourself later. And that's a big deal because your very life is made up of chapters of time. It's actually really cool when you own investment properties in a few different places, then you actually own part of, say, Indiana and Tennessee and Georgia. You own parts of those states. That's what we help you do here. And that sounds cool. Sounding cool, though, is not enough. There need to be good fundamental reasons behind the real estate portfolio that you are building. It's kind of interesting. With rental property investing, you're kind of doing the little things in order to hold together the big profitable picture, because there are all these forces that are simultaneously creating wealth for you when you've got income property with a loan. So yeah, you're just sort of trying to hold it together. You say, don't get your vacant property rented as soon as you want. So you might drop the rent 50 bucks and add a nice new kitchen faucet and ta da, just like that. It's rented, and all while you're doing those little things. Things to hold it together. Whether your property is vacant or rented, you are benefiting from leverage and inflation. Profiting on your loan. You're benefiting from some big forces either way. Well, on today's show, first, we're going to be talking about the little things like the one on one relationship between you and your tenant, and then later on the show today, that's when we'll grow and talk about a more macro force, like new ways for you to think about how you're benefiting from inflation when we talk about rents prices and the relationship between a real estate investor like you and your tenant. Recently, on the show here, I talked about how the 4.6% growth in wages like we do have today, that is a harbinger of you getting future rent growth. And this can get rent growth to catch up with the growth that we've had in property prices. And note that this is what happens. You need to remember that the bid format of buying property that allows for more rapid price escalation than the first come first serve at a set price format that you have when you're trying to rent out your property. All right, when you put up a property for sale, or you're the person that's buying one, that's usually not in a first come first serve process that's more of a competitive bid process. And see that is exactly why, in a hot market, real estate prices can run up fast. But because, say, you're renting out a property, and you're doing that, you're usually not accepting offers from prospective tenants and then taking the tenant that has the highest bid. Well, instead with rents, you're just taking the qualified first tenant that agrees to your fixed rent price of, say, $2,000 Okay, your prospective tenant isn't saying, Oh, I really like your rental, single family home, so I'll pay you $2,200 for instead of the 2000 that you're asking. And see that right there is why, in a hot market, property prices run up faster than rents do. But see when prices run up faster than rents, like they did, starting about four years ago, what happens is that begins to make rents, oh, they look like a relative bargain to people that are seeking housing. So that is the time that pivot point when rents catch up with prices, which is the cycle that I hope we are getting into next. Now. Right now, we have to be at a time of year where tenants tend to stay put. There isn't as much turnover as you approach the holidays, but a few months from now, turnover tends to pick up in the springtime. And before we talk about the economics of what you do when you have a vacant unit, understand that despite the national housing shortage, the rental vacancy rate really is not that low nationwide. Do you have any idea what the historically average rental vacancy rate is? You have any guess there? That's about 7% 7.3% to be exact. That's why, when you run your cash flow analysis for a property using one month per year is usually pretty safe, that's about 8% Well, all right, we've established that the long term national rate of vacancy is 7.3% the current vacancy rate is 6.9% and yes, that number is just what it sounds like. It's simply the percentage of rental inventory that's available for rent, and it maxed out at 11% back in 2009 that's when housing was badly overbuilt, and now with the housing shortage, you'll see that today's vacancy rate is only a little below normal, 7.3 versus 6.9 maybe you're wondering, well, why isn't it even lower, like five or 6% Well, one big reason why vacancy rates are just a little lower than the long run average is all of the apartment over building like I discussed with you two weeks on the show and I told you about my walk on rainy street in Austin, Texas last month, where they're building gobs of 500 foot tall apartment towers that aren't going to be occupied for a while, and I called that area America's apartment oversupply ground zero. But as you know, there are so many ways to parse and dissect real estate markets. The vacancy rate for apartment buildings today is 7.8% nationally, but for single family rental homes, it's only 5.4% that's because their supply is more scarce. But since there aren't many new apartment projects just getting started now, they're just completing when they started about two years ago, I would expect the apartment vacancy rate to come down over the next couple of years. And then, of course, each local area is going to have its own vacancy rate too. I mean, there are so many ways to parse, to bifurcate real estate, and all those figures I gave you are per the US Census. Well, I've explained to you before that when you have a vacant unit, that is the time for you to really push it test the market. Start your asking rent up rather high in order to see what you can get for it. And this is what's known in economics, in the free market as price discovery. This is your time for price discovery, but you usually only want to keep the rent way high for just a few days, otherwise you might needlessly increase your vacancy period. But here's the thing, if your unit is vacant after a number of showings, is it better for you to drop the rent, or instead, is it better for you to make some upgrades to the unit and keep that higher asking rent? Well, like seemingly everything in real estate investing, the short answer for you is, it depends right the upside of you dropping the rent is that it's a lot quicker and easier to do than making an upgrade to the unit. I mean, just snap your fingers and it's done. Dropping the rent might only take a few seconds or minutes, but see when you keep the higher asking rent and you make upgrades, you do more than just increase your rent income. You get a better quality tenant, first of all, and secondly, if you get, say, 5% more rent depending on your leverage position, you might get 10% more cash flow, that money that you feel in your pocket every month. A lot of landlords don't even consider those two attributes right there. See, when you get 5% more rent for a unit your tenant, of course, they only have to pay 5% more, yet you yourself as the property provider, you're getting perhaps 8% or 10% or 12% more money in your pocket because of the leverage. And right there, I essentially just described the third crown of get rich. Education's inflation triple crown for you. That third crown is called Cash Flow enhancement. And really there's another, I guess, a third here wealth building attribute that you've accomplished through achieving a higher rent, and that is, if it happens to be a five plus unit apartment building, you also actually just increase the value of the entire property, since they are valued on the net operating income in the cap rate. So we're talking about vacancy, rent and real estate economics here with three distinct elements that I just described about how upgrading and achieving a higher rent gives you a lot of distinct advantages. The downside of it being that it takes more time. And there's another one. What are we up to here? A fourth upside to upgrading and achieving more asking rent, as opposed to doing the minimum for lower rent. And that is, well, it's your pride of ownership. I mean, you're providing good housing now your whole mission is not about altruism alone, but you'll feel like you're on a more fulfilling mission when you are like I often say, providing housing that's clean, safe, still affordable and functional. There's a fifth reason in that is that higher rents help you deal with higher operating expenses. But maybe it's beyond just the way in which you're thinking. And you know, a lot of people really don't understand this or put this together. In fact, I was talking with a real estate investor last month at the New Orleans investment conference. He was talking about rising insurance expenses on his properties, saying that he had one property that just had a insurance premium increase of 10% and he sounded a little disappointed, saying that, well, I can't get 10% more rent, but I've got this 10% higher insurance premium. So you know, he was thinking that he was losing? No, he's not necessarily losing, because in absolute dollar terms, you're charging your tenant multiples more in rent than what you're being charged in insurance. Say that you're charging 2000 bucks in rent on a unit. All right? Well, on a monthly basis, just say that your insurance payment works out to 200 bucks on that unit. All right. Well, with just 5% more rent, that's $2,100 a $100 increase, but if your insurance goes up 10% from 200 to 220 bucks, that's just a $20 increase. So right there in that example, your rent increase is half of your insurance rate increase percentage wise, but in dollar terms, your rent just went up five times as fast as your insurance did, and you are even more cash flow positive than you were previously. So the point is in your monthly profit and loss statement, your cash flow statement, on your property, even your pro forma, keep in mind that your rent amount, that is the biggest monthly number, and being attentive to it can cure so many ills. And when you realize this, this plethora of positives, if you will, it can make a decision to, yeah, do something like replace that old Berber carpet with new vinyl plank flooring, and make that look more attractive to you, and it's gonna look more attractive to your tenant, and you're probably gonna get a higher quality tenant than what you would have placed otherwise. And when you upgrade a unit, not only is your property worth more, but you usually don't pay a higher insurance premium as a result of making that upgrade at all, despite your higher valuation. In fact, sometimes lower rents are subsidized by deferred maintenance, like a leaky faucet or a big crack in a ceiling, all right, now all of these things are sort of hard economic facts when it comes to the relationship between landlord and tenant. Let me then tell you about a, I guess, softer sensibility. Okay, let's get touchy feely for a minute, and that is the words that we use. In fact, those very landlord and tenant words themselves. Back in 2021 there is a first of its kind, legislation that was proposed in Ohio to change references in their state law from the word landlord to housing provider and from the word tenant to resident. Now I think that the word landlord is a rather strange word. I mean, it's kind of weird that we're still using that term today. In fact, in the small town that I grew up in in Appalachia, it was not an affluent area at all, not even close. It was lower middle class. But even as a kid, I knew that my parents owned their home and that all of my friends' parents owned their homes too. It wasn't until I was about age 13 when the Petroski family moved into town, cowdersport, Pennsylvania. They were nice kids. I befriended them, and they soon started using the term landlord. I might have been about 13 until I had even heard the word landlord, and I still remember then that it struck me as a strange sounding term. Now it was all simple, small, single family homes where I grew up, like these 80 year old Victorian homes. No one tried to divide their yard with fences. People didn't lock their doors. It was great. And anyway, the petroskis lived in a single family home that the landlord, Mr. Hosley, had divided up into three separate, walled off units. That's before the term house hacking even existed. But in fact, landlord, it is a futile and perhaps outdated term, and I'd have to agree that, instead of landlord, the term housing provider, you know what better describes you and I's role and the relationship to our tenants or residents. I mean the word landlord that almost sounds like a person is totalitarian or dictatorial, when in fact, most landlords are people like you, smaller and family owned, not land barons. I mean, HUD will tell you that America has 10 to 11 million individual investor landlords, and they manage an average of just two units each. Okay? So hardly dictatorial, not some tyrant that's going around trying to evict everyone. Not despotic. Let me practice a little with you today, is, I'll try to use the term housing provider instead of landlord, as much as I can here see sometimes what happens in society is that the frustration of poverty gets loaded onto housing providers, and that sets up a system of enforcement that assumes that they have an interest in crushing the people that pay them to keep their property businesses running. And the reason that, say, a food provider like a grocer or an entertainment provider like a basketball team owner, you know, they just don't seem to be as unpopular as a housing provider. And one reason for that is because housing is expensive and it's also non discretionary, meaning that everyone has to have housing. So you might consider using the term housing provider more often than landlord, especially around your tenant, if your tenant thinks of you as a housing provider that has to pay. A mortgage and operating expenses every month, rather than a landlord that turns every dollar of rent income into pure profit, which is never true. Well, if they understand that, you're going to be doing better from a tenant relations standpoint, and that's also completely truthful as well. As far as that Ohio State law and changing the word tenant to resident. Yeah, over the years, I know that a lot of people favor that term, including a lot of our turnkey providers at GRE marketplace. I've rode around in cars with them, and they're talking about their market, and they prefer the term resident to tenant. Now, tenant is a feudal term as well. It refers to someone who occupies land from a lord. The more direct term from feudal times is the word vassal. You might remember that from high school, V, A, S, S, a, l, that means a holder of a land that pays allegiance to a lord. Somehow, to me, the word tenant, it just doesn't feel as futile or like it's almost part of a system of oppression, like the word landlord feels. Landlord feels like some king brooding over his serfs. In fact, the word tenant is actually helpful, because if you tell me that a person is a resident, I don't know whether they own or they rent, but if you tell me they're a tenant, I know that they're renting. So tenant helps, because it's more descriptive and tenant does not sound to me like someone is being oppressed, either. But in any case, consider using housing provider rather than landlord. Here in the soft skills department, it can be hard to remember to do that though you're listening to get rich education podcast episode 532 I'm your host, Keith Weinhold, education is in our name, and I've got more learning for you.

Let's discuss something new and learn about what H E i's are that stands for home equity investment, and see if one of them can help you now, HEI's. They're a pretty new way where you can access a chunk of your home's equity without you having to make any ongoing payments. I mean, does that sound amazing, or what? Okay, it does sound amazing. You get a chunk of money out of your property now without making any payments, but there are some downsides to heis, as you might have guessed, all right. Well, first, let's talk about the way that it works. Okay with an hei. What happens is that a portion of your home's equity is given to you in cash, especially given to you by an investment group. Hey, windfall moment sounds amazing, and it gets even better, because you can use the funds however you like. I mean, what could you do with an extra few 10s of 1000s of dollars or hundreds of 1000s of dollars in cash? Further, unlike some of the better known vehicles, like home equity lines of credit and home equity loans, there are truly no payments for you to make with these heis, again, home equity investment, that's what we're talking about here. And better yet, you can access your funds in as little as a few weeks. And, yes, I mean, this sounds amazing, but you have got to be wondering, what is the catch with HEI's, and there are some what is in it for the investor? Is this investment group? Well, when you're ready to settle the investment years down the road, they are going to be paid out their agreed upon share as the percentage of the sale price or the appraised value. All right. So as you balance that and think that through who is an HEI for, then it's good for a borrower like you, in case you don't have great credit, or if you have a high debt to income ratio, is especially great if you are house rich and cash poor. And the reason that I'm talking about heis now is that more people find themselves in that very situation today, house rich and cash poor, and that's because Americans are sitting on all time, record equity levels of more or less 300k today. All right, that is the house rich part and more Americans are cash poor today. That's due to higher inflation. All right. Well, now that you know the basics of what a home equity investment is and what the upsides are, what about the downsides? More downsides of feeling this near term windfall without you having to make any payments? Well, your mortgage company might block you from taking on an HEI because see what you're doing is you're taking on another lien holder. Understand that with. An Hei, you've now got more of a lien than you do a loan, and much like a reverse mortgage, heis can also have high fees, and additionally, down the road, that investor might take a big chunk of the home's appreciation, that stuff should all be laid out in your terms up front. So that's something you ought to be able to see coming. All right. Well, now we're a real estate investing show here, so you're probably wondering, okay, great, and you've been hearing me use the word home, but can you get it on your non owner occupied property? Yes, at times you can get an HEI on rental property, but the terms are probably going to be less advantageous, then they will be on your primary residence. Now you might see he is referred to as a product of financial innovation, which is sort of synonymous with another term, financial engineering. And you know, whenever you see those terms, you typically want to exercise caution. Now that alone doesn't mean that an HEI is wrong for you. And of course, with any investment type, although it's usually not your main decision driver, you're going to want to learn about the tax consequences as well. And you might note that home equity investments are also known as a Home Equity sharing agreement, and although that's a longer term, it is more descriptive, and it makes sense because you and an investor partner are essentially sharing in your home's equity together. Now, as a GRE follower, you're able to understand what an investment like this would mean to you and your financial future. Since the rate of return from home equity is always yes, always zero, with an Hei, now you can separate out some equity, and now you'll have the potential for dollars that can earn a return somewhere, and you're going to enjoy better liquidity as well. But Caveat emptor, buyer beware with heis.

The GRE studio has been mobilized a lot lately, as I am here in Anchorage, Alaska today. And what am I doing here? Well, besides studying the housing market, not any local one, but the national housing market. I have also been skiing this week. Hey, when it comes to subscribing to our newsletter, which I do write myself, you might not have realized something. I don't overwhelm your inbox. When you start subscribing, you'll get a welcome set of emails that send every other day for about 10 days, but that's just in the beginning. After that, my newsletter is only sent about weekly whenever there's something critical in the real estate investing world that you really need to know about. It's also brief. It's important to keep it short because your time is valuable. And have you ever noticed that even the word abbreviation is too long? Our don't with your Daydream newsletter is always less than a five minute read. It's usually less than a three minute read to get the letter just text GRE to 66866, right now, see even opting in to get my crucial letter is brief. Now you can text GRE to 66866, more. Next. I'm Keith Weinhold. You're listening to get rich education.

Oh, geez, the national average bank account pays less than 1% on your savings, so your bank is getting rich off of you. You've got to earn way more, or else 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 a 10% return and compounds year in and year out. Instead of earning less than 1% 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 you know how I'd know, because I'm an investor in this myself, earn 10% like me and giari listeners are. Text FAMILY to 66866, to learn about freedom. Family investments, liquidity fund on your journey to financial freedom through passive income. Text FAMILY to 66866

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 qualified. And chat with President Caeli Ridge personally. Start now while it's on your mind at Ridge lendinggroup.com that's Ridge lendinggroup.com.

Tarek El Moussa 30:17

What's up? Everyone? This is hgtvs Tarek El Moussa. Listen to get rich education with Keith Weinhold, and don't quit your Daydream.

Keith Weinhold 30:34

Welcome back to get rich Education. I'm your host. Keith Weinhold, it's been said that in your life, what you're not changing. You're choosing loads of investors in the 401K or conventional investment plans. They aren't changing the fact that they're only getting their money to work for them. So they're choosing to deny ethically, getting other people's money to work for them, and that's why they have no option other than to work full time until they're old. Well, when you're that savvy borrower now, you're benefiting from both the asset leverage and the inflation profiting, as we know and the way to keep both your leverage high and the inflation profiting on your debt high is to intermittently change the fulcrum on your lever so that you don't have too much equity accumulating in your portfolio. And you also want to be investing in an inflationary environment be a debt DECA millionaire. Remember that term that I introduced to you here a few years ago, if you had ten million in debt at 3% inflation, you're profiting 300k per year just from that alone. Yes, the paradoxically glamorous life of having 10 million in debt, but it's all tied to income properties, so that your tenants make the pay down for you, and inflation pays it down even faster that debt DECA millionaire, he's obviously got to be a pretty creditworthy person in order to get ten million in debt in the first place. Yep, building lasting wealth is not conventional at all. And for the debtor, inflation is therefore your wealth building, friend. It's why, when you see your favorite can of La Columba cold brew coffee, which is a favorite of mine, gosh, it's nice and frothy. If you know, you know, in fact, I'm gonna crack this La Colombe triple draft latte to enjoy after the sh ow there. Did you hear that? No, I don't have any sponsorship with them, but when you see that cold brew price go from $4 to $5 well, that effect makes most people poorer. Some people think that effect makes everyone poor, but it's not making you and I poorer. It's enriching us. When you see consumer price inflation like that, there's a good chance that asset price inflation is occurring as well, and that's why seeing higher prices at grocery stores is probably a subtle signal that you are better off, not worse off. You're better off because you know how to arrange your financial life for inflation rather than being impoverished by it. Congratulations. Let's drink to that with a La Colombe coffee. What you're doing is you are swimming with the river flow, and almost everyone you know is struggling because they chose to swim against the inflationary river flow. See the way that almost everyone that you know goes about earning their income is that they only earn their income once, and they earn it at their job. In an inflationary world, you effectively have to earn your Fiat dollar twice, once when you work for it, and once again, when you invest to beat inflation, otherwise that dollar is just going to evaporate. And that seems so unfair. I mean, why should a surgeon or an athlete, engineer, programmer, accountant, why should those people that are successful in their field and serve society. Why should they have to develop expertise in a second field? Why do they have to do this just to maintain the wealth that they've already built, that they produced out on the free market? Why can't you have a store of value for the future? Inflation is the answer. So they need to develop expertise in a second field, and that's why listening to content just like this is therefore not optional, but it's actually mandatory in this cycle, CPI inflation peaked at 9.1% two and a half years ago, and despite that, has come down quite a bit. It's. A little elevated. It's still not down to the Fed's transparently stated 2% target, and by the way, there is another Fed meeting in two days. If the Fed cuts rates more, bond yields could go higher, which means mortgage rates tend to go higher. Inflation is powerful. A lot of people will tell you that it is the main reason why Jamie Carter wasn't re elected president in 1980 and today they'll tell you why. It's the main reason that it brought down the Biden Harris administration. But see, here's the thing, if you're able to obtain loans in the United States and some other developed countries, understand that you're in a sweet spot, and that sweet spot is a level of inflation that's actually low to moderate by world standards, and not hyper inflationary. All right. Now I know what you might be thinking. You're thinking like, oh, well, hyperinflation would be tremendous for a leveraged real estate investor. Now, why, though, would I say that we don't want hyperinflation? Well, there are countries with a history of hyperinflation, like Turkey, Argentina, Venezuela, Zimbabwe, Iran, they have a history of massive currency devaluation. Let's see what happens then is that financing becomes almost non existent in those places. When that happens, I mean history over hunches. History shows us that in places like that, forget about getting home mortgages, investor loans, a credit card, consumer debt, small business loans, unless maybe a usurious interest rates. If the US had a history of hyperinflation or even sustained bouts of really high inflation, then you know what cooperation between borrowers and lenders becomes nearly impossible. Even those governments of those countries, they have trouble borrowing money, except maybe at maturities of a few months. And you know, I always like to make a borrowing lending example with you and your friend. Okay, you don't want to loan your friend $1,000 for a year in hyperinflation, because if the inflation rate were 1,000% then, after a year, the $1,000 that your friend would pay you back, well, that's only $100 worth of purchasing power. Now, all right, that's why, if the US had one bout of hyperinflation, you know, maybe that would be good, because it would seriously wipe out all of your debts one time. If there became a history of that, though, then you might not get access to loans at all. I mean, who would be crazy enough to finance your growing real estate portfolio in hyperinflation? So the fact that globally, the US has low to moderate inflation levels. I mean, that can be a good thing, that inflation is most of the time, a more surreptitious force. It largely went without notice until the pandemic made it flare up and made that LA Columbia cold brew coffee go up, and made property prices and rents go up all while you're fixed. Mortgage payments stayed the same, totally sheltered from the inflation. All right. Well, if my solution to beat inflation by taking on debt and thinking about it that way, if that's not iconoclastic enough, I've got a different strategy for beating inflation, and I think that I did quickly mention this here about a year ago when Doug Casey was our guest on the show.

But yes, I do have another strategy for beating inflation, and it is controversial. It is almost blasphemy to say this out loud on any finance related show this inflation beating strategy, it's guaranteed to improve your quality of life, okay, no speculation here. A guarantee of improving your quality of life is so simple, anyone can easily do it. In fact, you even have companies competing with other companies to get you to do this, and the answer is to spend your money. Yes, I said it out loud. It guarantees that you'll improve your life. It's simple to do. Various counterparties are competing all over the place with each other. They're falling all over each other every single day to try to get you to do this well, as long as you've invested well first and you have ample liquidity by having a healthy relationship with spending there if that crew. Is to the Spanish Riviera in Majorca, is going to cost you $10,000 this year, but it'll be $11,000 next year. Then spend the money today and beat inflation. Yes, I said it. Spend some of your money if you've been listening to this show and following the guidance here, yes, you can afford to do it. I mean, what is money for anyway? And sadly, some like conventional finance professionals, they are reluctant to tell you to spend your money because they're compensated by the percent of your assets that they hold under management. Inflation makes borrowing and spending, then two irresponsible sounding things, borrowing and spending make complete sense when you do it right, like income properties tied to fixed rate loans.

Hey, why? I've got some cool announcements to share with you now and in future months here on the show, I've got a big collaboration coming up with long time friend of GRE here, Robert Helms of the real estate guys and I together. You'll learn more about that in the future. But first coming up this Saturday, the 21st at 3pm Eastern, over on YouTube, I am going to reveal GRE 's national home price appreciation forecast. So yes, to the nearest percent, I'll tell you exactly how much home price appreciation that you will get, an exact number, how much to expect in the US next year. Or, Hey, maybe I think that home prices will make a rare fall next year, what you're going to get that number, if that's what I forecast, you can go to our get rich education YouTube channel anytime here and make sure that you set a notification so that you are informed again. That's Saturday the 21st at 3pm eastern over on our get rich education YouTube channel, I expect that that information is going to benefit you.

Hey, if you appreciate the show here, do you think that you could help me out in just one small way? Call it my Christmas gift request. There's just one item on my Christmas list with you, and it should only take a couple minutes of your time leave a podcast rating and review for the show on Apple podcasts or Spotify. The rating is the five star thing. The review is a few sentences about what you get out of the show here. I would really appreciate the, I suppose, gift from you, and I will read your review myself too, if you don't know how to do it right inside those listener apps. Just open up a browser tab and search how to leave an apple podcast review or Spotify podcast review, or whatever platform you prefer to listen on. Yeah, it would feel like a little Christmas gift to me after all these months and years of listening, go ahead and provide me with some feedback. Tell me what you think, and thanks so much. Until next week, I'm your host. Keith Weinhold, don't quit your Daydream.

Dolf Deroos 43:10

Keith Weinhold 43:38

The preceding program was brought to you by your home for wealth, building, get rich, education.com

Direct download: GREepisode532_.mp3
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Mon, 9 December 2024

From railroad conductor to becoming a successful real estate investor and replacing his day job in just 3 years. On today’s episode, Keith chats with one of our very own GRE listeners, Grant Francke, about what he did to build his portfolio to quit his steady union job.

Hear about the importance of having a clear "why" for investing and setting specific goals.

We discuss the concept of inflation profiting on debt and how it contributes to wealth building

Leveraging cash-out refinances and 1031 exchanges as a strategy to scale up and diversify.

Resources:

Check out Grant Francke’s book “The Unlikely Investor” here.

Show Notes:

GetRichEducation.com/531

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RidgeLendingGroup.com or call 855-74-RIDGE

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530: Why We Hate Jeff Bezos

Complete episode transcript:

Automatically Transcribed With Otter.ai

Keith Weinhold 0:01

welcome to GRE. I'm your host. Keith Weinhold, it's a highly relatable show today because you're going to meet a fellow GRE listener and real estate investor like you that use the principles of this show to build wealth, and he reached real estate financial freedom even faster than I did today on get rich education.

Mid south home buyers, I mean, they're total pros, with over two decades as the nation's highest rated turnkey provider, their empathetic property managers use your ROI as their North Star. So it's no wonder that smart investors just keep lining up to get their completely renovated income properties like it's the newest iPhone. They're headquartered in Memphis and have globally attractive cash flows, an A plus rating with a better business bureau and now over 5000 houses renovated. There's zero markup on maintenance. Let that sink in, and they average a 98.9% occupancy rate, while their average renter stays more than three and a half years. Every home they offer has brand new components, a bumper to bumper, one year warranty, new 30 year roofs, and wait for it, a high quality renter. Remember that part and in an astounding price range, 100 to 180k I've personally toured their office and their properties in person in Memphis, get to know Mid South. Enjoy cash flow from day one, start yourself right now at mid south homebuyers.com that's mid south homebuyers.com

Keith Weinhold

when you want the best real estate and finance info, the modern Internet experience limits your free articles access, and it's a replete with paywalls, and you get pop ups and push notifications and cookies disclaimers, ugh. And no other time in history has it been more vital to place nice, clean, free content in your hands that actually adds no hype value to your life. That's why this is the golden age of quality newsletters, and I write ours myself. It's got a dash of humor, and it is to the point to get it. It couldn't be more simple. Just type up a text message with the letters G, R, E in the body and send it to the phone number, 66866, and when you start the free newsletter, you'll also get my one hour fast real estate course, completely free. Subscribe to my Don't quit your Daydream newsletter, and your mind will be wired for wealth. Text GRE to 66866, text GRE to 66866.

Corey Coates 2:57

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 3:13

Welcome to GRE from Washington Crossing Pennsylvania to cross City Florida and across one area, nations worldwide, you're listening to one of America's longest running and most listened to real estate shows. I'm Keith Weinhold, and you're listening to get rich education here for you every single Monday, every week, without fail. This is the voice of real estate investing Since 2014 you know, being successful in real estate such that you can quit your job when you're young enough to enjoy it is counter cultural, even kind of Bohemian. I mean, just imagine telling yourself this or saying this to somebody else. First, I had a lot of debt, then my situation got even better, because we had a surge of high inflation, and it's all making me rich. To that, most conventional financial wisdom would reply like, Dude, are you nuts? Maybe. But I'll tell you what, I'm not normal. I wouldn't want to be normal. That's a real pejorative, right there. Normalcy is, like, slanderous. Yep, you gotta get iconoclastic. Well, it's all grounded in fundamentals. Yep, inflation dilutes your debt for you, and it's almost perfectly predictable that that's gonna happen too by following principles just like that aligned with GRE 's inflation triple crown, and that real estate pays five ways. The guest that you'll meet today, yeah, he did reach financial freedom faster than I did. You're gonna hear about how he did it. It's like I've said on the show here before. I am divulging to you the information that I wish I had when I started out, because if I had this when I began, I would have reached financial freedom sooner. You know, after I bought my first ever income property, that fourplex, I didn't buy my next investment property for almost five years. Okay, it was not a fast timeline for me, but after about four years from buying that seminal first property, I started analyzing what it was doing for me, and I well, not only wanted to buy more, but I would soon learn that really the lessons I extracted from that property, I ended up articulating that in ways that no one else that I know of has. Today's listener guest is from a Midwestern MSA of 343,000 people that we haven't discussed on the show before, at least in any detail. And that's also the market that he invests in. Let's meet him.

Keith Weinhold 6:05

From time to time, we like to have a GRE listener on the show to learn about how the show has changed their life, and also discover you know just what you're out there doing as a real estate investor. And this is because other listeners can find these episodes so relatable. Today's listener guest is from Nebraska, and he listened to GRE in the commute to and from his job for years back when he still had one, because he's a success story. Since he has replaced his day job income with rental properties in just three years, which is a remarkably fast timeline, and now he's got more time freedom for his passions or for his family and kids. So we're gonna learn about how he did that. Hey, welcome to the show. GRE listener GrantFrancke, Thanks, Keith. Honored to be here. Frankie is spelled F, R, a, n, C, K, E, and Grant, this is great that you've been on this fast timeline to produce financial freedom. But before we talk about that, let's back up. Tell us about your beginning like your family situation in your now, I guess former job.

Grant Francke 7:09

great question. So I started it out as a conductor for BNSF Railways. So I was a trained conductor. I started out there pretty much right out of high school. It's a great job if you don't have any family or kids because you're gone all the time you work crazy hours. Yeah. So it was great before I was married, but then I got married, I was like, I don't really love this as much. And then once we had our two kids, I was like, I've got to find something else that can get me that time, freedom to spend more time with them. And stumbled on real estate and started going that route.

Keith Weinhold 7:40

Some people don't have that mindset. They justify working overtime because, well, I'm away from my kids, but I'm working for them, but with financial freedom, you really can have both a time for your children when you want it and the income that you desire a railroad conductor. So I believe that's different from a railroad engineer, right? The railroad engineer is the person that kind of drives the train and changes the speed in the conductor. They're the one that's sort of making sure that the staff and the cargo and the passengers are taken care of. Is that what a railroad conductor does?

Grant Francke 8:12

Yep. So we only did cargo freight, so I was in charge of, like, how fast we could go, what was all in the train, talking to the dispatcher and making sure we're going the right directions and and taking the right sightings, and then if anything broke down on the train, we'd have to go back and take care of it. But yes, the engineer is the one who he physically drives a train, and we're kind of like the co pilot.

Keith Weinhold 8:32

You talked about how you were away, and it takes an awful lot of hours. You based there in Nebraska, geographically, what kind of routes Did you run?

Grant Francke 8:41

It's 300 miles from Lincoln. So I was based out of Lincoln Nebraska. So it's about 300 miles, yeah, so we did to Kansas City, cook Nebraska, some places out in Iowa, up north, to Sioux City. And those trips ranged from 36 to 48 hours, round trip for us to be gone and back.

Keith Weinhold 8:58

making the economy run there, but this was, you know, rather time consuming, obviously pretty disruptive to one schedule there when you're working long shifts or away for these long periods of time. So okay, it sounds like you got the idea that you wanted something where you could control your time better. There are so many ways to produce income in an informal sense, there's entrepreneurship, which might be something like you could have launched your own app or started a donut shop. Then there's something more passive when it comes to investing. I mean, most people that are working at a job, they even think, Oh, hey, I have my investing bucket covered because I invest through my employer in 401k and that's good enough. But somehow you must have had this notion in you that this wasn't good enough. So tell us about how and why real estate.

Grant Francke 9:42

I've always been like, somewhat handy. So I was gonna go and just be a GC or a handyman. I was Googling around, and I found a post that said that the best customers for handymen are landlords, because they keep you busy and they always got work. I was like, Oh, that's great idea. So I stumbled upon a podcast. Where it was a handyman who became a landlord, he recommended a book on there called Rich Dad, Poor Dad. So I went and got that book, and then my life was changed after that.

Keith Weinhold 10:11

It's amazing how that little purple book influences so many of us. Okay, so that sort of opened you up to the concept of real estate investing and Rich Dad content is terrific. A lot of times, though, it doesn't really get down into the nuts and bolts too much. So just in your educational journey, where did you progress from the rich dad school of thought?

Grant Francke 10:30

Yeah, so Rich Dad, Poor Dad kind of taught me about that not spending your giving your time for money is creating that loop of the money. So after that, you know, I started off just listening to all the podcasts. You know, I'd listen to your podcast, bigger pockets, Kathy Fettke, I'd listen to all those just on repeat, reading all the books that I could get my hands on. Because I was just once, I started learning about real estate. And it did scratch that entrepreneurial bug that I did have. It kind of gave me the both of the passive income and being able to build a business for myself as well. So I just went through all the education that I possibly could, podcasts, books, you name it. I was obsessed with it.

Keith Weinhold 11:08

Yeah, all right. Well, it's all about doing the right thing before you do things right, like we say here on the show. All right. So it sounds like you were confident that you were doing the right thing. You were in real estate. Tell us about the start, especially buying that first property. What was that like?

Grant Francke 11:25

Yeah, it was nerve wracking, right? It was a small, up down duplex in Lincoln, Nebraska. It's really one of my only properties I've actually gotten that's been on the market on the MLS. Just got an agent went and bought it and it was a good deal, like it cash flowed. Well, I took it down. I was managing it myself, and I still do manage my portfolio myself. I do vividly remember, like sitting in the living room of that doing my showings, and I just did after three or four showings, I couldn't get it rented, and I was listening to one of your podcasts, and you were talking about the different ways that real estate pays you, besides the income, and that really kept me motivated. This is a long term journey. This isn't a short term get rich quick thing. You know, by getting a tenant in there, it might take a month, but then they're going to pay down your note, you're going to get the tax benefits, you're going to get all those different items Flowing into you from real estate. So I remember that vividly from that first deal is listening to Keith in the living room.

Keith Weinhold 12:16

Yeah, being a profiteer in real estate, it's a little, maybe just a little like the iceberg analogy. Maybe only the top 20% of the iceberg is visible in what you see as profit. You're thinking about monthly income, and maybe you're thinking about appreciation. You don't see everything else below the iceberg that's underwater, I should say rather, like the inflation profiting on the debt and the loan amortization in the great basket of tax benefits, you sent me a paper letter earlier this year. One thing you wrote about is how the show influenced you, because you vividly remember sitting on the floor of your first ever vacant rental unit. So presumably it was in this Nebraska duplex, one of those units we're talking about here in this the show kept you motivated. You thought you were failing because you didn't get the unit rented after the first three showings, which I think we know now is sort of funny. That's really normal, even in a good rental market. You know, it could take more showings than three until you get the right match between a tenant that wants the unit and a tenant you'd accept. I mean, the tenant themselves, they have to accept all sorts of things. Uh, maybe they don't like the parking situation. Your unit layout has to be right. In my first ever property, which, as you know, was a four Plex, one problem I had is some tenants just didn't like the fact that the only bathroom in these four Plex units was upstairs. And then it's funny, as soon as you get the showing, say it's the sixth showing that you get it rented out, the problem's over. It's solved. You're back to 100% occupancy. And you wonder why you ever thought you had a problem. That's just sort of how that goes.

Grant Francke 13:43

Yeah, hindsight is always 2020. It's really stressful in the moment, but just keeping in mind that the different ways it pays you the different avenues of income that come from it, and that's even something like it was conceptually, I understood it, but it really didn't take effect for me till it was like five, six years down the road, and you go, look at your loan balance, and you look at what the inflation's done, you're like, well, that's a substantial amount of money that you've made just passively getting your tenants to pay down your debt.

Keith Weinhold 14:09

Yeah, some don't even think about the fact that your tenant is paying down your principal for you, an advantage that homeowners don't have, because homeowners, they just have $1 that goes from their cash pocket over to their equity pocket every month. But in your rental property, your tenant is doing that for you, and then inflation is, in almost all cases, paying down your loan silently, even faster than what that tenant is doing for you.

Grant Francke 14:31

It's amazing concept. Once you can can, can wrap your head around it

Keith Weinhold 14:35

all right, so you started with this duplex in your local area, Nebraska. Is there anything else to say about that first property, or is it more about the growth from there? That's more, yeah, it was

Grant Francke 14:46

the growth from there. That one was just like I said, kind of a base hit, and then we started scaling up after that. So my next purchase was another duplex, and I happened to find it on Craigslist, back when that was a thing, that you could find properties on Craigslist, and it was actually a retired engineer, rare. Order that was selling a duplex. I was like, Oh, this is great. We hit it off really well. Had a great transaction. I closed on time. I did what I said I was going to do, and then I was looking around on the assessor's website, and he had five more single family houses that were clearly rentals. I told him at the closing table. I'm like, Hey, if you ever want to sell those rentals, just let me know. You know, I'd love to scale our portfolio up. He ended up offering to sell or finance me those five properties with a minimum down payment. Well, just because we had just a great relationship, I showed up, I did what I said I was going to do, we ended up getting seven properties from that guy.

Keith Weinhold 15:33

Wow, that is huge, a way to scale up fast. So just with your behavior, your work ethic, the fact that you did what you said you were gonna do, you know, that engendered some sort of interest in the other party to offer you, seller financing. What percent down did you put on that next batch of properties?

Grant Francke 15:50

We did 10% down, great, and we had 5% interest on it, and we had a balloon payment due in, I think it was seven years so funny story about that. He sold all his rental properties. He was going to Florida to retire and just relax and and be a retired guy. He called me about two and a half years later. He's like, Hey, I still have the bug. I found a property I want to buy. Is there any way you could refinance the seller financing and close out my notes so I can use that capital to buy something? I was like, Yeah, Larry, I get it. Yeah. Let me see. I'll talk to the bank and see what I can do. But in those two years, I had done enough improvements in those properties and raised the rents, took care of them. When I went to refinance those five properties, I was able to pay two of them off, so I only had a loan on three and pay him back on the proceeds. So throughout that transaction, I pretty much had two properties free and clear, and then three houses on 30 year notes from Fannie and Freddie.

Keith Weinhold 16:44

How did you come up for the down payments with all this? Was this something you were able to do with income from the job as a railroad conductor?

Grant Francke 16:52

Well, that refinance was more like a burr model, so I was able to do all that with the equity inside that property. So those five single families that are refinanced. Was just all the equity inside those properties. So I didn't have to put any more money out. It was just the equity that was able to pay off the other two. And then I had the three on the notes, from appreciation, from appreciation, and, yeah, forced appreciation. So I was fixing up the units, raising the rents, you know, changing out flooring, redoing bathrooms, doing all that myself while I was still at my w2 job.

Keith Weinhold 17:21

Okay, really getting hands on, because you do have this bent of sort of a GC or a handyman, something that I personally didn't have, maybe this would have accelerated my wealth building faster had I done that. You're realizing that a source, you know, it doesn't have to be your own money from your own job. When you've got leverage, and you had 10 to one leverage on these, I believe it was what five single family homes that you had added seller financing that really multiplies you wealth substantially faster compound leverage, rather than compound interest. But a lot of people just let that equity die in their properties, rather than pulling it out a tax free event through a cash out refinance and moving it along.

Grant Francke 18:03

Yep. So we kept that process on. We buy a duplex that was needs some repairs. Nothing like crazy rundown, but you fix it up over 6,12, months, you do a refinance, and you just keep that ball rolling. And it makes the whole process really easy.

Keith Weinhold 18:15

I know that you are pretty open to discussing your assets, discussing your unit mix. So tell us about more of that expansion. What you brought it up to, and the exciting time when you've replaced your salary because you had enough income from the units.

Grant Francke 18:31

Yeah, so we would just keep that snowball method going of refinancing those two paid off properties we had, we had a line of credit against those as well, if we needed that for a down payment, or if we wanted to pay cash for something, we could use that leverage, that money from the bank and buy the property, do the refinance at the end, and pay it all back. And, you know, be out of pocket with minimal cash out of pocket for us. We just kind of kept that process going. And then once we had about 30 units, I would say so, about three years. So I started buying in 16, and then in September of 2019 is when I resigned from BNSF Railway and went full time.

Keith Weinhold 19:06

That's a great timeline. You mentioned some paid off properties there. And you know how I'm the proponent of leverage in good debt in all of them. But really you talked about despite the fact that you had, I think, two paid off properties, it sounds like single family homes. Early on, you were still able to leverage the fact that they were paid off as collateral for getting more loans. So you are still using those as other people's money despite the fact that they were paid off.

Grant Francke 19:31

Absolutely we still use it to this day. That's if we need a down payment, if we need a chunk of cash. That's where we go to is grab those from that line of credit.

Keith Weinhold 19:39

Talk to us more about sort of the sourcing of the financing. There were you getting together with some local banks in order to get good terms where you can collateralize some of your existing portfolios assets?

Grant Francke 19:52

So we used to use a small community bank here in Nebraska. I started with them, probably 2018 and I've been with them since you just create a really good relation. With them. They trust me. They know what I'm doing. They know if I bring them a deal like I'm not hiding anything, I'm not showing them certain numbers, it looks better like they trust what I'm doing. I trust that they're going to take care of me as well. It's always good to have a few in their back pocket. But if you have a really good relationship with one small community bank, it can take you pretty far.

Keith Weinhold1 20:18

Tell us about how you built that relationship with the community bank. I think a lot of people hear about how to do that. This doesn't mean going bowling with a banker and having to be your buddy for watching the NFL on the weekend. So I guess, how do you demonstrate that you're a capable business person to a local bank in order to get good treatment?

Grant Francke 20:37

That's a great question. So my first couple deals, I created a full deal pitch deck sheet that I brought in in a laminated folder of pictures, timelines, my past history of what I've done. So I started off on the right foot of showing them that I was very professional. And then the same thing, like with Larry, with the seller finance properties, I showed up. I did what I said I was going to do. I didn't close late. I always was on time. I was on time for my meetings. I was on time for my closings, just staying top of mind with them too. So if I didn't have a deal going on, I'd stop in when I was depositing some laundry change and just chat with my banker or chat with the check guy, and just make sure I stay top of mind with them.

Keith Weinhold 21:14

Yeah, it's a little bit like how people classically think about as interviewing for a job. It sort of sounds like you took a page out of that book, and you're sort of interviewing for a loan, if you will, tell us about your portfolio size now, and kind of what that asset mix is like.

Grant Francke 21:30

yeah, so we're up to about 120 units now, all in the Lincoln Nebraska area, all multi family, small, multi family. We saw those single family houses we hold on to. But otherwise it ranges from duplexes, four plexes, some six, eight units are mixed in there as well. So we're still just buying, like, just boring cash flowing deals. That's one thing I always say is, like, I just buy boring real estate. I don't want anything super stressful or super crazy, like, I'm not infilling to build ADUs. I'm just buying boring cash flowing rental properties.

Keith Weinhold 22:02

It really can be pretty boring. Real estate is really slow moving. Yeah, it's almost like the more boring the area of the nation that you invest in, the more likely that it's not a trendy place. And, you know, people are wearing Carhartt rather than Lulu Lemon. It's almost like that's an indicator of what a good market is we're talking with Grant Francke. He's a GRE listener. He's telling us how he built his portfolio from being a railroad conductor to going ahead and doing this on the side and leaving his day job. When we come back, we're going to talk about, was he nervous and like just what level did he have to get to before he had the confidence to quit his job and replace his salary. You're listening. To get rich, education more. We come back. I'm your host. Keith Weinhold.

Keith Weinhold 22:02

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Caeli Ridge 24:35

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 24:55

Welcome back to get rich education. It's one of my favorite types of episodes because we're talking about a GRE listener, much like you, with what you can do, where he started, what the architecture of his portfolio building was, and a big part of that is you don't really want to be debt free in real estate. You want to be financially free. You want to build enough income in order to replace the income from your day job. I want to talk about that part grant replacing your salary. That sounds really good in concept, we know that's what you need to do. When I personally was at that point, I still remember how scared I was to walk out from my cubicle where I was employed at a State Department of Transportation and walk across the hall and tell my boss's boss, Therese, that I'm giving my two weeks notice. I've got to admit, I was still scared. My heart's still racing a little bit just bringing it up and talking about it. So why don't you tell us about at what point you replaced your salary?

Grant Francke 25:55

My wife's an accountant. She's really good at like, Excel spreadsheets, so we made an Excel spreadsheet that factored in the tax benefits of real estate that I would get as a full time real estate investor. What my income was. I went to the lowest paying job at the railroad just to see if we could live off of that paycheck. So once we hit that cash flow number, which was, it wasn't a great big number, it was like 4800 a month or something, once we hit that number, she said, All right, I think we can do it. We're good to go. So I went in, and I only had one of my buddies at the railroad that knew I was going to resign that day. I was going to go in and resign, then clean out my locker. I got there, it was like, well, I'll just clean my locker out first and then make sure this is exactly what I want to do. I got my locker cleaned out. Everything was in my truck, and I walked in, and it was the most terrifying thing that I've ever done, you're walking away from a great union job with a heck of a pension that I've been there for at that time, 13 years, you know. So I had some seniority built up. I just went back to like my family again and thinking about all the times I'm going to spend with my kids, with my wife, the trips we'll be able to take, the memories we're going to be able to make, and the hard work that I put in those first three years of just grinding doing all the work myself, managing all the properties myself, that gave me that push. I was like, No, I can do this. These numbers make sense. The math adds up, and we're going to make it work. That's

Keith Weinhold 27:13

great. And by the way, I also walked away from a union job with the pension guaranteed retirement benefits, and they were guaranteed in the state's constitution because I had a state government job, so that pension wasn't going to go away, and I just went ahead and walked away from all that. Yeah, it certainly is a scary thing. It takes a certain level of confidence in order to go ahead and quit your job. But here's what I think, Confidence comes on the person that you made yourself be to on the side, build this portfolio and become the type of person that can demonstrate to a local bank that you're credit worthy and that you're an ethical operator. That's sort of a skill set that you build, such that if something went wrong and you had to go get a job again, you just sort of have a skill set where you know you could get another job. That's the confidence to quit.

Grant Francke 28:05

Yeah, once I had that confidence, built up and confidence in myself, you're kind of trained as even a man, just to not be proud, you know what I mean. But once I was proud of myself and what I built, it gave you that confidence, that I could walk in and say, No, I can do this on my own. I don't need this job. I'm done with it.

Keith Weinhold 28:20

Right to not need an employer. So not only walking away from a union and pension benefits and a paycheck, you're also walking away from paid vacation days and paid holidays. But yeah, I mean, part of that confidence is like, I know that I can, you know, furnish this myself. I'm not dependent. I don't need someone else. And that's really that feeling of freedom.

Grant Francke 28:42

Yep, absolutely, it's a very freeing feeling.

Keith Weinhold 28:45

On this show, a lot of investors start out with single family homes and part of that scaling process, and I really help encourage, hey, the rate of return from home equity is always zero on doing a cash out refinance, or a 1031 exchange, and at some point, say, maybe your single family homes, you probably have a few that are less desirable than others. Maybe you have a few single family homes in your rental portfolio that have higher interest rates. You just have a few where you just can't seem to keep them occupied very long. They're the ones that are ripe for doing a 1031 exchange or a cash out refinance. Why don't you talk more about sort of those next sets of properties where you might relinquish a couple single family homes and get into some of those properties, a four Plex, a six Plex, an eight Plex, a 10 Plex, and just sort of some of the differences in managing, since you're still self managing, is that right?

Grant Francke 29:37

Yeah, we just actually completed our first 1031 exchange about two months ago. Great. Oh, yeah. So we actually sold two duplexes. So we sold four units and bought 17 in the 1031 exchange. The cash flow is going to be as we buy them right now. We're getting a little bit better cash flow. But you know, the ability to scale that and the management side, for me is much easier. If I would rather manage 117 unit than 17 single families, spread out all the way around. I only have one lawn to work worry about, totally on one roof. I have one sewer system to worry about. It seems scary in the beginning, but now that why I'm at where I'm at, I would much rather take down a 10 Plex than 10 single family houses.

Keith Weinhold 30:19

100%. oftentimes single family homes, you know, they tend to be scattered. They're probably not all going to be in the same development that introduces management difficulties. Of course, I circumvent that because I totally use professional management for all of my properties. So that's really not problem or a hold up for me, where it sure would be with you. Yeah, there really is that mental leap. I've owned a few properties that have been 10 plexes or in that area, and there are just things to do with there that we know we don't need to deal with in single family homes or duplexes, there might be one central communal laundry room that you have to manage. And you know, how are you going to keep that clean? I had one particular eight Plex building while the kids just had their bicycles parked here and there in the front yard, and it looked junky. And my property manager built a screen, just like a fence, where you had to keep your bicycles behind there, and that really increased the curb appeal of the place. If that's a single family home, you don't really care so much about that grant. I once had an 11 unit building. It had four units on the top floor, four units on the middle floor and three units on the bottom floor. There was a laundry room where the fourth would have been. So we had 11 families live there, and there were about 14 parking spots for this 11 Plex building. And figuring out who was going to park where was a real mess. Some people had more than one car. Some people had seniority, so they felt like they should have gotten some of the spots we had the building next door where people tried to park at our 14 spots. That was such a mess. I told my property manager to you, go figure it out. You go assign the spot. So my point is, there are a whole bunch of dynamics when you kind of get into this 10 or so unit area that you just don't have with rental, single family homes.

Grant Francke 31:58

Absolutely. Yeah, I've had to have many conversations with people telling them I manage properties, not parking. I don't just figure it out be adults. I don't want to hear about your parking dilemmas, which I get too. You know, you also have, you have noise complaints, and you want to make sure everybody's being respectful of their neighbors when you get into those bigger buildings. So there are definitely pros and cons. But boy, if I, if I could have a 10 single families on the same street, that would be, you know, ideal management wise, that would be a lot easier, but it's just tough to get everything together.

Keith Weinhold 32:24

Is there any other guidance you can give with scaling up? Because a lot of people just continue to let so much equity accumulate in any one property, and they're not scaling up, you're sort of leaving some meat on the bone. There any other strategic things one can think through?

Grant Francke 32:38

Just take advantage of your cash out refinances when you can, I'm a proponent of leverage, but not over leveraged to where your negative cash flow on it, if you can cash out, refinance, pull your equity out, and still be making some money off of it, that's really going to allow you to scale over time, a lot larger than just holding that one duplex and waiting for it to give you that cash flow, that financial freedom. You really got to take that equity out, spread it out over multiple properties, and then watch them all scale up at the same time.

Keith Weinhold 33:05

There's probably less risk when one does that. People are averse to making that move because they think about how they're taking on more debt. But the more you cash out and scatter it into more properties, you've got more diversification geographically, if you want to. And really, I think the mindset that helps people with this is, when you do a cash out refinance, you didn't lose any equity. You really transferred some of your equity.

Grant Francke 33:30

yep, tax free too, which is something you harp on, like it's tax free money. You get to walk away and not pay taxes on it.

Keith Weinhold 33:38

It's really amazing. All right, well, so you have a substantial portfolio of about 120 units in is it all in and around Lincoln Nebraska?

Grant Francke 33:47

Yep, Lincoln Nebraska and a couple small communities around there, some more college type towns that have industries in them as well. But all the Lincoln Nebraska area.

Keith Weinhold 33:55

we don't talk about Lincoln Nebraska here on the show very often. What kind of personality does the market have? Whether that's, you know, like you mentioned, is there a preponderance of student housing? Are there particular economic sectors that really help float and drive that market? Tell us about Lincoln as a real estate investment market.

Grant Francke 34:13

Like I said, with boring real estate, it's a great boring real estate town. We've got a couple universities in Lincoln. It's a big ag area, obviously, so surrounded by the the ag industry. But it's also got some great tech jobs that are coming in. It's just a very steady it doesn't have a lot of the ups and downs. You know, 2008 was obviously tough with everybody, but there wasn't this massive housing correction here. We're just kind of slow and steady, which is that's kind of my pace.

Keith Weinhold 34:39

typical of what I call a stable market, where, conversely, you tend to have the volatile markets that are on the coast. I'm going to imagine in 2008 it didn't go down in value nearly as much as markets, but in the big housing price run up in 2021, I'm going to guess you got some really nice appreciation, but probably not as much as a lot of the other markets as well.

Grant Francke 34:58

Yeah. Absolutely that depreciation, then that inflation run up, was pretty substantial. But, yeah, it's just a really boring real estate market that just steady. There's some great rentals. There's a lot of people that move into, move into town, from Lincoln, from outside, that go to school or start out here, and then they go somewhere else. So it's great town.

Keith Weinhold 35:16

What about some other things in the character of the market? What are property taxes, like one or 1.2% per year based on the value of the property. That's about a national average. How does Lincoln look that way?

Grant Francke 35:29

Yeah, it's a little bit higher. Right now, there's been some fighting in our legislature about how they're trying to fix that, because we have a really fairly good budget in Nebraska tax wise. So they're fighting to get us some relief now, but it's a little bit, I guess, like 1.3 or 1.4 right now in Nebraska.

Keith Weinhold 35:43

a little higher than the national average. But really, the more important metric, one I talk about a lot, because it's so simple, is approximately, let's say, for a rental, single family home, is what is the ratio of the rent income per month to the purchase price?

Grant Francke 36:00

Yeah, it's tough to find those 1% deals anymore. Those are tougher to come by. I think if you're buying a single family right now, you're probably going to be, at that .75% of the income to the property. If you get into multifamily. We're still finding deals that are decent around that 1%

Keith Weinhold 36:15

so with the 710, of 1% rent to price ratio as an example, on a $200,000 purchase price property, that would be a rent of $1,400 so you can find something like

Grant Francke 36:28

that. It sounds like that's usually about, yeah, for single family, I think that's what we're seeing. But like I said, multi family, we're getting pretty close to that 1% still with with some added rent.

Keith Weinhold 36:37

Do you think about branching into other markets? Like a lot of our investors do, not everyone lives in an investor advantage market like Lincoln, but even those that do say, if they live in a Columbus, Ohio or in Indianapolis, Indiana, they might want to add a couple markets for diversification, maybe Metro in Alabama and another one in Florida. Do you plan to continue to grow right there, since you have these great local relationships with local banks.

Grant Francke 37:03

I mean, it'd be tough. There is a couple of markets we've looked at, like San Antonio, I really like that one. And then Louisville, Kentucky. I've been there a few times, and it's just a great town. And I think there's some really good industry down there too. So those are the two that would be on my list. I haven't taken a massive action on getting down there yet, but if I were, that's probably be where I go.

Keith Weinhold 37:21

Of course, San Antonio is going to have those higher property taxes, but I just visited San Antonio last month. They really look to be the beneficiary of this near shoring movement, with more companies relocating to Mexico, this is great. We talked about how you grew your portfolio. Are there any other strategies overall that you employ any mindsets that you make actionable, either that you learned about on this show, or just anything else that you do in there grant your keys to success, your formula.

Grant Francke 37:49

The big thing for me is like, my why? Like, why did I do this? And why was I doing it that was huge for me in the beginning, and my, why was my wife and kids like? I wanted to spend more time with them. So when you know your why, like, all these tough things that happen, because, like, you know pipes are going to break, tenants are going to be tenants, and things are going to go wrong. So if you know your why and why you're doing that, it makes it so much more easy to get through those difficult times. So it's really a mindset thing, which is kind of odd thing to say, but it's a mindset thing, because things are gonna go wrong, so you gotta have a strong why behind you.

Keith Weinhold 38:22

Did you write down your why?

Grant Francke 38:24

I did? Yes, I'm big in goal setting as well, so I write goals and like, every year and then quarterly as well. So writing down my why and knowing that, it helped me when I was working on those properties and driving back and forth, listening to get rich education, just knowing why I was doing this, it made it a lot easier.

Keith Weinhold 38:42

Yeah, there's something about writing it down. I've even learned that using blue ink on yellow paper, somehow there is something about doing that in particular that really helps create this imprint in your mind. But however you do it, yeah, writing it down is so important, and that way this goal doesn't become a morphous or malleable when you do that.

Grant Francke 39:03

yeah, it sets it in stone. You can look at it. It's actually physically there. It's not something just conjestually in your head. It's actually something that's taken place.

Keith Weinhold 39:10

You have had such success. Gosh, congratulations on that, such that you even created a resource. But before I ask you about that, is there just any last thing that you'd like to talk about in your journey overall, whether that's goal setting and having a good why, or any GRE concepts, or just really anything else that's led to your success, to have 120 units.

Grant Francke 39:32

it really goes back to, like I said, my why, and then the education. So I do want to thank you again, like, for all the podcasts and and all the information you put out. It was uh very, impactful on me as I was learning the reason that why GRE always spoke well to me is like you would talk about conjectural things, about real estate and cash flow and all this, but it was also the larger economic process of how things worked, how things mixed together. So having that in my brain too and in my back pocket really gave. Me the confidence to attack these things when inflation started happening. I'm like, Oh, that was nothing I ever thought about. But I've heard you talk about it for hours and hours on the end. So I'm like, I understand how this works now, and I know how I'm positioned. I can use it to my advantage as well. So a lot of those things helped me out scaling up and just taking all those resources that we got from the show.

Keith Weinhold 40:17

Yeah, we're actually beneficiaries of inflation here, which is certainly pretty counter cultural. With your success, you put together a resource, and I definitely want you to share it with our audience, because this is something I really think they can benefit from, because they can relate to your story. I'm pretty confident.

Grant Francke 40:35

appreciate it. Yeah, so I wrote a book. It's called the unlikely investor. It's available on Amazon, but it's just a book that I took, kind of my story from a w2 employee to scaling up to where I am. Now, some of those tips and tricks in there. I have maybe plagiarized some stuff from Keith's podcast, and we talked about some the different pillars of wealth that you get from real estate. But it really just kind of goes into the mindset part too, of finding your why, goal setting, and then the basics of real estate investing on up through scaling up to a decent sized portfolio.

Keith Weinhold 41:07

Oh, I know, in every instance you credited me in the book.

Grant Francke 41:11

I do. I did, yeah.

Keith Weinhold 41:13

I really don't care. It's more about, you know, people getting the information, rather than me getting any credit for that. That's great. And you know the name The unlikely investor? When I learned that that was a title of your book, for a moment, that threw me off. I'm like, I wonder what that means. But you know what? No, I think I know what that means. You can tell me, but I'm an unlikely investor. I went to college for geography and regional planning. That was my double major. I thought I'd be a geography teacher. It's just really unlikely that I got into real estate, I didn't have this bent in me anywhere within academia. So why do you call it the unlikely investor?

Grant Francke 41:49

That same story, you know, I had a great w2 job, I had a great union, a great pension. There's really no reason that I had to go out and do this. It's very unlikely. You know, if you look at the numbers of our peers that actually do what we've done. It's extremely unlikely that we did it, so it was a great call to action of like, No, you can do this. It may seem unlikely, but it's possible.

Keith Weinhold 42:09

Oh, well, I think that title is 100% appropriate. That was good to talk with you more, and I really want to thank you for coming onto the show, because you're going to help out a lot of people with your story and you the listener. If you find it relatable, check out. Grant's new book just published this year. It's called The Unlikely Investor Grant Francke, it's been great having you here on GRE

Grant Francke 42:33

appreciate it. Keith, it's an honor.

Keith Weinhold 42:40

Grant mentioned the tax breaks when you leave your job quickly, so as not to gloss over that when you're at the point where you're getting close to leaving your job, if that's even a goal of yours, some people want to get in real estate just for some additional income. But like he said, it was at a point where he and his family needed just $4,800 of rent income per month. That was back a few years ago there, and your number will almost surely be higher than that with the inflation that we've had. But you know, figure that in once you quit your job, you're probably going to identify for what's known as the real estate professional designation, as outlined by the IRS, what that is, is the status that gives you some really nice tax breaks. And one way in which you qualify is that real estate needs to be your principal activity, meaning you expand more of your time per week in real estate than you do any other discipline. Now, I'm not a CPA, but frequent guests here, Tom wheelwright and I, we have discussed the real estate professional designation on a prior episode, and every year, there's a form that I quickly fill out myself confirming my ongoing real estate professional designation. Now you're probably not going to be able to qualify for that when you still have a day job, because that's going to be your principal activity, where you spend most of your time each week, and also before you do quit your job, if that's a goal of yours, well, it is a good time to first qualify for loans Fannie and Freddie like the steadiness of a w2 income. So qualify for your last few loans before quitting. There might even be a seasoning period in there as well. Now, when it comes to today's guest grant, when he reached out to the show here, you know there's something about his approach that engenders this willingness to want to collaborate with him. I think I shared with you before that we get 50 times as many requests to be a guest on the show as we have available slots, but Grant, I guess, exudes this professionalism while being humble, and it just makes you want to see him win, and yeah, no wonder his local banks want to make him loans. I gave a formal written endorsement of Grant's new book earlier this year the. Forwarders, written by Brandon Turner, the book titled The unlikely investor. I mean, I might be an even less likely real estate investor than Grant because he's somewhat handy. That's a skill a handle. He's got that I don't have. I am a writer and well then somehow became, I guess, an unlikely podcaster or two in the book. He also writes that if you're unhappy in real estate investing, it means that your system is broken. So if you're seeking an approachable, relatable book, one where you can really, like, put yourself in the author's shoes and tell yourself, you know I can do that and I can be that. Well, then check out grant Frankie's book called The Unlikely Investor. More great shows coming up for you every Monday here. I'm grateful for your listenership. I'm your host. Keith whitehold, don't quit your Daydream.

Speaker 2 46:03

Keith Weinhold 46:23

The preceding program was brought to you by your home for wealth building. Get rich education.com

Direct download: GREepisode531_.mp3
Category:general -- posted at: 4:00am EDT

Mon, 2 December 2024

Keith discusses the paradox of falling home prices and rents in Austin, Texas, despite it being the fastest-growing city. He highlights the over-supply of apartments, with new towers next to old bungalows, and notes that apartment rents are down, while single-family home rents are up.

He also explores societal attitudes towards wealth, noting the double standard of admiring celebrities while vilifying entrepreneurs like Jeff Bezos.

The over-supply of apartments has slowed down rent growth, affecting single-family home rents.

Wage growth has outpaced inflation, potentially boosting rents.

Millennials are increasingly renting due to the inability to afford homes.

Show Notes:

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529: How to Be the Best in the World at Anything

Complete episode transcript:

Automatically Transcribed With Otter.ai

Keith Weinhold 0:01

Welcome to GRE I'm your host. Keith Weinhold, I just walked one of America's most interesting real estate streets. I'll tell you what I saw then what it takes to get rents to increase in the US more real estate investing content, then it's about jealousy and envy. Why we hate Amazon founder Jeff Bezos for his wealth, yet love performers like LeBron James and Taylor Swift for theirs. It's a case study on wealth, entrepreneurship and celebrity today on get rich education.

Speaker 1 0:39

Since 2014 the powerful get rich education podcast has created more passive income for people than nearly any other show in the world. This show teaches you how to earn strong returns from passive real estate investing in the best markets without losing your time being a flipper or landlord. Show Host Keith Weinhold writes for both Forbes and Rich Dad advisors, and delivers a new show every week since 2014 there's been millions of listener downloads of 188 world nations. He has a list show guests include top selling personal finance author Robert Kiyosaki. Get rich education can be heard on every podcast platform, plus it has its own dedicated Apple and Android listener phone apps build wealth on the go with the get rich education podcast. Sign up now for the get rich education podcast or visit getricheducation.com.

Corey Coates 1:25

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 1:41

Welcome to GRE from sinking spring Pennsylvania to Manitou Springs, Colorado and across 488 nations worldwide. I'm Keith Weinhold, and you are inside episode 530 of the GRE podcast. What's the minimum wage? I don't even know. Around here, we don't talk about how to live below your means, but grow your means, and you're gonna learn how to earn maximum wage. Austin, Texas is the fastest growing city in America. I've got some really interesting real estate observations for you, since I walked it two weeks ago and well, touring the Texas State Capitol Building was cool. And then on Austin's Sixth Street, I hadn't seen that much beer pong since college, but you know, rainy street, R A, I N, E Y, just south of the downtown, near the river, that was Austin's interesting Real Estate Street, the fastest growing city in the United States has falling home prices and falling rents. What a paradox that is in the fastest growing city. I mean, how do you balance that weirdness? Yes, the census tells us that Austin is the fastest growing and even as a gentrified hipster Haven with murals on the walls, street corners, there food trucks, coffee shops. You know the coffee shops that make you feel like you're in an indie film. It doesn't matter. They simply built too much there in Austin. So all of that that cannot compete with classic supply versus demand dynamics, old fashioned Milton Friedman stuff. And really, what I saw in both San Antonio and Austin is emblematic of the new apartment supply surge. What's going on on rainy street? I mean, that's what I call America's apartment over supply ground zero. Cranes are in the air all over the place. They're building 500 foot apartment towers right across the street from one story bungalows there on Rainey Street. It's a weird scene. Well, the apartments, they're going to be vacant for a while, and part of the weird scene is that there are outdoor live country music acts on the east side of rainy street, and they're playing out of these old one story bungalows converted to bars. It just feels like they're going to be raised and knocked over anytime and then country music, that's something that you associate with, like cows grazing within a mile of you. But that is not going on here, so these huge, new, shiny glass and steel apartment towers are right across the street from it. So it's this weird cultural mix of both country flare and urbanism in Austin and now there were also some clubs with DJs playing. There something more modern. I mean, like 20 year old R and B songs that everyone knows the words to by artists like Usher and Akon. Remember. Or a con or Ja Rule. Remember Ja Rule? Maybe they were playing Jay Z and ice cube too. But, you know, maybe shabu Z would have made more sense on that scene. In any case, it is an unusual scenario there in Austin. So a lively place, a growing place, but apartment buildings got out ahead of the growth. And yes, it all comes back to supply versus demand. Yep, that age old rivalry between what we've got and what we want now broadly, America has an overall lack of housing supply and the under building that is the most prevalent in northern states. And of course, under building, what that does is it increases the number of buyer bids on the few available properties. Well, in turn, that pushes up their home prices faster than the rest of the nation. Now the states with the most appreciation, they generally have the least new housing inventory being built. And of course, conversely, states with the highest available housing supply have the slowest home price appreciation. Austin is ground zero for that. So with the eclectic rainy street there, it's really representative of how you have some cities that are over built with apartments. You have a lot of apartment completions, but not very many new starts of apartments like I mentioned before. No, in fact, let's zoom out nationally. Here. Apartment list tells us that apartment rents are really flat. In fact, they're down seven tenths of 1% over the past year, available single family homes? Well, they're in more scarce supply than apartments, and the CoreLogic single family rent index tells us that their rents are up 2% annually. All right, something that completely makes sense for a change. The overbuild of apartments has slowed down their rent growth even more. But here's the thing, the overbuilding of apartments that's actually slowed down the rent growth in single family homes somewhat. And you might think that those two things aren't related, apartment rents and single family rents, but they're a little related. Just say a tenant they might ideally want a single family home, but there just aren't many of them out there for rent nationally. So then if a good new apartment is substantially cheaper, well, some proportion are going to accept an apartment as an alternative, and that's one reason that single family rent growth is just a modest 2% rather than a more normal 4% or so that you might see as a historic average. But yeah, I mean, really, the story is all these apartment completions, where a lot of them are going to be vacant for a while in some cities now, long term, apartments are going to be fine. I'm totally confident of that the demographic demand for apartments is going to be there because our population is growing and because there aren't many new apartment starts. So really that means over the next couple years, apartment supply versus demand is going to come more back into balance, while we could keep having this ongoing deficiency, though over for the single family rental homes. Perhaps the best thing that you and I can have happen to increase real estate profitability is to get rents up. So let's take a look at that. Let's look at the prospects for getting rents up in, just say, the next year or two. And there is a real bright spot here for that, and that is the fact that wages have outpaced inflation every single month for almost two years now, yes, wages and incomes are up those higher wages and higher incomes can therefore afford higher rents. And like with a lot of things in economics, it moves slowly, and there is a lag effect. And this is, you know, it's really how it usually works when there is a wave of inflation. What happens is, first, inflation outpaces wage growth, and now that we've come down off the big inflation wave, we're in the era where it has flipped, and now wage growth outstrips inflation. Well, the most recent stats, they tell us that America now has 4.6% wage growth and just 2.6% CPI inflation growth. Now is wage growth higher than the real diminished purchasing power of the dollar, not just the stated CPI inflation, because you got to remember, CPI is only the level that the government is willing to admit to, but in a sense, who cares? Because look, as a real estate investor, while your principal and interest payment stays fixed every month and inflation can't touch it, we know that wage growth is up 4.6% and that's the part that really. Matters. So if that means that you can get a 4.6% rent growth in the near future, after some lag effects settle in, well that might increase the annual cash flow, the money you feel in your pocket, say, 7% or 9% annually. So this wage growth trend, it portends really well for rent growth, ultimately flowing through to your cash flow growth. So we know that home price appreciation is amazing and has been amazing for us, investors, leverage and all of that, but there expects to be more upward pressure on rents, and that is led by robust wage growth. That is really happening now, and workers are demanding the wage growth to cope with higher consumer prices. Now, when it comes to the prospect of more home price growth, let's listen in to Shark Tank shark Barbara Corcoran, she recently talked about what would make home price growth go ballistic, as she puts it. This was her on Fox Business Channel with Neil cabotto. It's about three minutes in length, and then I'll be back to comment.

Speaker 2 11:08

Barbara Corcoran. Now the Corcoran Group founder, Shark Tank aficionado, much, much more brilliant read of real estate too, Barbara, great to have you. A lot I'm throwing at you, Barbara, and you always handle it, definitely. But first off, on the rate environment right now, between all these headlines and everything, rates have been backing up. And, you know, we just saw a 30 year fixed rate mortgage. It's up to 6.84% from 6.78% last week. That was before the market rate run up. So how do you view the environment right now for lending?

Speaker 3 11:43

Well, I think what we're losing right now we desperately need is more first time buyers. Less than 24% of the people buying now are first time buyers at an all time low. So rates have been bouncing around a while. Now, 6 to 7% so people are confused. They don't have big expectations. They're no longer waiting for a tremendous rate drop. If that happens, got it would be incredible for the market. But in the last year, or pardon me, in the last month alone, we have sold three and a half percent more houses despite what's going on in the interest rates. But the first time buyers aren't much a piece of that.

Speaker 2 12:16

You know, I notice as well us existing home sales, like you say, up 3.4% October. It's the first year over year gain I think we've seen in better part of three years. So what was going on there? Because that surprised me.

Speaker 3 12:30

Well, it doesn't surprise me because there's more houses on the market, so there were 25% more choices for the buyer coming out into the market and looking and on top of that, the buyers themselves have gotten accustomed to the rates being what they are, and they just got tired of waiting. But I am wondering if we'll ever see a 5% number, because anything with the 5% in front of it is going to make this market go ballistic. But right now, you're already seeing the signs. In the last month.

Speaker 2 12:59

You know, you've reminded me in the past that sometimes it's psychological. A lot of folks, and a lot of them look at that 7% handle on a fixed rate mortgage get close to or over that it could tax this recovery or whatever you want to recourse call it. But what do you say.

Speaker 3 13:13

well if it went higher? Of course, it would slow down the whole market. Would slow down the whole economy. It would slow down all the support services for the housing market, it would be a terrible thing, but I don't think people are thinking it's going to go much up, if you really listen to the experts. That could happen. But I don't think you're going to see interest rates above 7% again. I'm hoping that it's going to go and hover around six, or even go lower.

Speaker 2 13:36

All right. Well, you have a better track record a lot of those so called experts. I'm going to go with you, Barbara. But you know, the one thing that is out there, the worry is that Donald Trump, say what you will, of him, he has aggressive plans to spur the economy, you know, the tariff thing, the talk that, you know, he is going to pour a lot into tax cuts that could juice the economy so much so that some worry it's going to, you know, get prices going higher. We don't know for how long or how much, but that that that will be the inevitable consequence of what he's offering. Do you agree with that?

Speaker 3 14:06

I do agree with that. I think inflation is on everybody's mind, and I think it's risky, so I think we're going to find out. I guess it's like a horse race. We'll see what happens.

Keith Weinhold 14:15

Yeah, Barbara thinks mortgage rates in the fives. I guess under six then that would make the market go nuts and really push up prices. She reiterated how first time home buying is at an all time low, that proportion of the first time homebuyers are down, down, down, keeping those people as renters. So we've got the Trump bump and still an inflationary bump behind higher and higher real estate prices going into next year, most likely. But I mean, now you've really got to be selective and filter the kind of information that you listen to and put credence in what. We just had a presidential election a month ago, and people love to speculate about the future and what they think say tariffs are going to mean for inflation and then what that's going to do to interest rates. And you know, all that stuff is just notoriously difficult to predict. It is really tough. I mean, look, I've attended two prominent economic and real estate conferences the last few months, and there are some good insights at meetings like that. But here's the thing you've got to keep in mind, everyone has an opinion, and no one knows the future. George Bernard Shaw's got a great quote. He said, If all the economists were laid end to end, they would never reach a conclusion. So I mean, we're still going to talk inflation and interest rates here on the show, because their effect on your economic life is profound, but guessing about where they're going to go, especially interest rates, that is almost an exercise in futility. There are some things that we know will almost surely affect you. I mean, I'm talking about something like demographics that is more predictable, or the benefit of leverage, where, if you have too much equity in your properties, you can do something about that right now, and that way, what you do is you actually create your future, instead of guessing and speculating about what it might be. Or say you can create your future. You can learn about a program like you know when the opportunity Zone program came out a while ago, or a new tax incentive program for real estate investors. These are things you can do. You can sink your teeth into them with what you have right now, the resources, the toolkit that you have right now, and actually do something about and one thing that we do know is that increasingly, millennials cannot afford to buy a house, and you know, it just basically means that their future is poorer. They have to live with other people into their 30s. Instead of forming a family, they don't have kids. The marriage rate takes a hit. I mean, these numbers have collapsed since the 1980s the home ownership rate among them has gone from about 50% down to 30% so millennials and Gen Z ers too, they know that their future is really shaky and it's concerning. So you have this same cohort, people in their 30s doing two jobs, taking on three jobs, some of them balancing four jobs. They don't want to do that. They don't want to work 12 hour days, six days a week, while they're trying to pay down their college loans. They're doing it because they have to. They can't form a down payment for a home. The average millennial is 3637 years old. And their parents, and my parents, they're all baby boomers. And, you know, they Baby Boomers were the richest generation that we've ever seen. So what we've got going on here now is the first generation that will not be as rich as their parents, and that's really strange. We're all used to this sort of human progress. I mean, if your parents were middle class people, and you're less well off than them, or your tenant is well, then what does that mean? Well, it means that you're gonna be renting for a while. See this demographic stuff. This is really happening. There is no speculation here, and it's why I want you to set up your investor life to provide rental property to others. It's a smart place to be positioned. In fact, a lot of media agrees. Yahoo Finance just published an article titled, rental home investors are poised to benefit. It basically details why rental properties are going to be next year's attractive option for would be home buyers. This month, analysts at Raymond James and Associates, they say that they see mortgage rates remaining higher for longer given the outcome of the election, again, no one can really predict mortgage rates. But anyway, they reiterated their outperform ratings. That's the rating that they gave it out perform on these two companies, American homes for rent and invitation homes. And they're these institutional homebuyers, they do the build to rent space, and they noted Raymond James that is noted that we are increasingly confident in the longer term outlook for single family rental fundamentals and the industry's growth prospects. That's the end of their quote. So that's what the analysts of financial planning firm. Raymond James and Associates, had to say. And suffice to say, there is a lot of positive momentum for rental property, especially in the single family space coming up next. Why we hate Jeff Bezos for his wealth, but love performers like Harry Styles, Rihanna, Taylor Swift, Dua Lipa and Olivia Rodrigo, despite their wealth.

Hey, check out all of our real estate investing resources at get rich education.com. It's the home per our podcast, this very show that you're listening to right now. Also videos, blogs, how to get our newsletter. Be sure you're doing that. Connections with our recommended real estate service providers, a way for you to contact us over there, and also how you can connect with our completely free, yes, truly free, real estate investment coaching, all of that and more. Is it get rich education.com. I'm Keith Weinhold. More next you're listening to get rich education.

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Dolf Deroos 22:48

this is the king of commercial real estate, Dolph de Roos. Listen to get rich education with Keith Weinhold, and don't quit your Daydream.

Keith Weinhold 23:08

Welcome back to get rich Education. I'm your host. Keith Weinhold, a Taylor Swift loving friend recently said the weirdest thing to me, I don't buy from Amazon. I hate Jeff Bezos. He doesn't need any more money. Yeah, that's what they said that struck me as so odd. Well, Taylor Swift is a billionaire with a B and a net worth of $1.6 billion and going up. And you know, we're doing this everywhere in society. Why do we vilify wealthy entrepreneurs like Bezos yet glorify wealthy actors and athletes and singers like Taylor Swift? Let's look into this, because I've actually got some answers for why so many people apply this double standard to wealthy celebrities and well known people. And I know I've mentioned to you before that Taylor Swift and I were actually born in the same hometown of Reading, Pennsylvania, West Reading, actually vilifying business people yet glorifying performers. That seems to transcend, you know, any of these celebrity personality or character flaws. So let's put all that stuff aside that's distracting, that devolves and gets us off topic. Let's just focus on the wealth part and the resentment of that wealth, because often it's not that people dislike Bezos for say, the decline of small retail though there is that for any of his personal traits, but specifically they hate his wealth, but by the way, yet they have an Amazon account. Well. As a society, we just love celebrities despite their wealth, if they're stage performers like Rihanna, Taylor Swift, Dua Lipa, Olivia Rodrigo, Harry Styles, LeBron James. I mean, we applaud Stephen Curry's three pointers and show a otani's home runs when Philadelphia Eagles quarterback Jalen Hurts got a $255 million contract extension. We loved it. Fans plastered their walls with his poster, but yet, at the same time, while people are doing that, society often disparages successful entrepreneurs and business owners for their wealth, like Bezos or Barbara Corcoran, who we heard from earlier, or Spanx founder, Sarah Blakely, so I analyze why society does this, so let's see what we can learn from it. And I should add, of course, that like with most anything, you can find some exceptions out there, some outliers. I mean, Warren Buffet's net worth is over 100 billion and yet seems like everyone wants to sit around a campfire and listen to his sage investing wisdom, and some athletes are despised, for sure. And then there's a guy like Ryan Reynolds who kind of spans both worlds and lives his best life in Hollywood and in business, but really our emotional divide. It begins with the primordial human senses of jealousy and envy. And, you know, there's a cartoon floating around out there, and the cartoon has just two frames. In the first frame, it shows a guy standing in front of the room with a crowd of people that he's speaking to, and he asks, Who hates the rich? And everyone in the crowd has their hand up raised high. Everyone hates the rich. And then the second frame of the cartoon shows the same scene, and the guy in the front of the room is saying, Now, who wants to be rich? And yeah, everyone's got their hand raised up again. So let's be realistic. Ask most people that resent the wealthy, all right, what income do you think you'd need to be to be considered rich yourself? Oh, maybe they would answer say, five times as much as I make it now. Oh, yeah. Well, I bet if right after that, you offered them a 5x pay raise for the same job, they would take it, but yet they resent the wealthy, even though 5x would make them wealthy. Now there's a component of optics here, too. You, with your own eyes, get to see Taylor Swift perform at a concert. Her work is visible. It's satisfying. You might be emotionally moved by that. And from all accounts, Taylor does put in a ton of work to perform that well, sing that well, and put in the physical endurance of these three plus hour concerts. That really is amazing. I don't denigrate her for owning a Dassault Falcon private jet like she does. I mean, I don't disparage any wealthy person for wealth alone. I think deep down in your heart, it's where a lot of people want to be. Robert Downey, Jr. He performs his we'll call it his magnum opus, on screen as Iron Man Tony Stark in Marvel movies, and he's been paid up to $600 million for that role across many movies, but yet, you know, we find that satisfying, which is weird. I mean, Taylor Swift, she is herself, but actors like Robert Downey Jr actually pretend to be someone else. So we praise an actor like Robert Downey Jr, and he's best known for pretending to be someone else, but yet we despise say, Apple's leader Tim Cook, for his wealth. Why in the heck would that be I mean, how do you justify that? Well, it's because Tim Cook's performances aren't visible. It's optics. You didn't get to see the process of how Bezos revolutionized Amazon's 24 hour delivery to your doorstep or drone delivery. What bezels is doing on a computer is not exactly a spectator sport. Okay, we don't get to see the work that Apple Steve Jobs did for our iPhone, or what Tim Cook does for our iPhone or iPad or MacBook. So therefore it's less satisfying because it wasn't visible. And yet, Tim Cook's highest endeavor, it's less glamorous than that of an actor. And yet Tim Cook completely acts like himself. For all ways I can tell, unlike an actor and Tim Cook, he really shapes the world that you and I live in today. I mean, he has definitely influenced your life more than some fictitious superhero has. There's also an element of imitation here, and this is really important, because look, you and I really for all intents and purposes, we cannot be like Taylor Swift or LeBron James. But you know what we can be a little like Jeff Bezos or Tim Cook, at some point in your life, you get real and you tell yourself that you cannot be like Lebron James. You cannot sprout to be six foot nine and be the all time leader in NBA point scored, you're not going to be like Taylor Swift. And had the highest grossing musical tour of all time with more than 7 million tickets sold. Now you couldn't sell any tickets to people that would want to see you sing. I sure couldn't. But see, you can be a successful entrepreneur. You just have to do, and when you have to do, and you know you could do those things. See, this means that you and I don't have any cop out. So sometimes we refute an entrepreneur success to try to let ourselves off the hook from actually doing you know, I think it's human nature to sort of protect our ego and tell ourselves, ah, I can't be like them. But that's false, because being wealthy is a choice, something I actually didn't believe when I was younger. If you wanted to you, yes, not some other listener, but you could have a successful business and perhaps even parlay your success into being a yacht owner, you could actually be that now, yacht owner, that's not some goal of mine. But see, instead of resenting a yacht owner, you can be inspired by that success. You don't have to launch a space company and fly people to Mars. You can do something here on earth. You can own a successful e commerce company, or rent out cars to people, or provide what people truly need and righteously serve a lot of people with housing. As a real estate investor, you can do all those things, even if it's just 1% of the level that Bezos does with E commerce, even if it's 1/10 of 1% see, you can get a piece of that. This is similar to how popular culture denigrates landlords and yet over sympathizes with tenants. Sometimes the tenant is right, but the landlord is often not some mega corporation. They're usually a mom and pop investor that took on risk and took out a mortgage loan to provide property for a complete stranger. Now let's say that you achieve what we'll call success, quote, unquote, success as a real estate entrepreneur, because you just added your 20th rental unit, right? You had 19, as soon as you go to 20, then is that the right level at which you're supposed to start being denigrated? But up to that point, it was okay. I mean, see, this can sound a little silly. In fact, just last week, at the New Orleans investment conference, I met a GRE listener and investor, Jenny from Indiana. She actually owns 19 rental units. They're mostly single family rentals. All right. Well, is it okay to own 19? But then she should start being resented once she adds her 20th property and serves that many people, that doesn't make any sense, and neither does resenting Bezos, I mean, he grew up in challenging conditions with a 17 year old mother and An alcoholic father. Bezos worked, innovated, took risks, raised money. His Guiding Light at Amazon has been an ethical three words, serve the customer. That's a good thing. He came from disadvantaged conditions to serve the customer. And the good news here is that you can do this too. You don't need to have a certain body type or an IQ. Serve the tenant, serve the market. I mean, I have seen successful entrepreneurs that are overweight, short, old, young, tall, female, male, even dyslexic, and they have all crushed it in business among the world's 8 billion people. You yourself see life in a way that no one else sees it. So at some point you learn that you really can't sing like Taylor Swift, or jump over a car like LeBron, or be as funny as. Meet bargatsi, but you can be you, and that's enough, but you have to do and, oh yeah, not give up every time things get tough, but nobody's stopping you. An entrepreneur is a crazy person who risks their own money for freedom, rather than exchanging their freedom for money, you took the leap critics stand on the sidelines when they're disparaged only because they're wealthy. It says more about the critic than it says about you, the successful entrepreneur and real estate investor. So instead, you can ask yourself the question, what is stopping me from creating my own version of that success? We misdirect our emotions when we vilify entrepreneurs and glorify stage performers merely based on what's more visible, more emotional and more imitative, rather than the Creator of the products and services that put real value in your life. So don't be ashamed of applying yourself and using your ingenuity in your strategy, in your careful risk taking for earning more income for yourself. We shouldn't disparage Bezos, LeBron, Taylor Swift or Dua Lipa for the wealth, because it is the same kind of success that we all wish that we could have.

coming up in future weeks on the show here we're getting closer to the end of the year where I will reveal get rich education's home price appreciation forecast for next year right here on the show. And I'm gonna give you an exact percentage national home price appreciation number. You're gonna know what to expect. I've done that for you for a few years here now I think this is gonna be the fourth year in a row where I'm doing it. It's sort of becoming a tradition, but coming up before that here on the show, I've shared with you how you know it's usually going to take you five years or more to go from your day job to financial freedom through real estate investing, but we've had some nice appreciation the last few years, and some GRE listeners are doing it faster than five years pretty soon, here, I'm gonna have a conversation with the GRE listener that applied principles that he heard here on the show, and he quit his job for real estate in just three years, he's gonna be here with me and tell you how he did it. Thanks for listening.

Hey, go ahead andtell a friend about the show here, take a screenshot and post it on your social media. I really appreciate you sharing the GRE Podcast with your friends and others until next week, I'm your host. Keith Weinhold, Don't Quit Your Daydream.

Speaker 4 37:56

Keith Weinhold 38:24

The preceding program was brought to you by your home for wealth, building, getricheducation.com.

Direct download: GREepisode530_.mp3
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Mon, 25 November 2024

Former NFL player, Broadway playwright, best-selling author and in-demand public speaker, Bo Eason, joins us to discuss the power of storytelling and achieving greatness. Bo emphasizes the importance of setting high standards, such as aiming to be the best, and seeking out mentors. He shares his upbringing, where his father instilled confidence by telling him he was the best, which influenced his success. Bo highlights the significance of personal, physical, and unapologetic storytelling to build trust and connect with others.

Adopt the mindset of striving to be the best, not just settling for mediocrity.

Make the Gold Medal the standard, not the end goal.

Develop and share your personal, compelling story to build trust and attract opportunities.

Resources:

Text "PERSONALSTORY" to 323-310-5504 to receive a free video course from Bo on uncovering your powerful personal story.

Show Notes:

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528: Real Estate is Up 490% Over the Last 40 Years

Complete episode transcript:

Automatically Transcribed With Otter.ai

Keith Weinhold 0:02

Welcome to GRE. I'm your host. Keith Weinhold, how do you become the best in the world at anything that you want to do in your life? Today's remarkable guest will tell you how so you can become the best version of yourself. He's become the best in more than one endeavor, including playing in the NFL. We'll also learn about the persuasive power of story and how you can find your very best personal story that you do have inside of you. It's a show rated PG for personal growth today on get rich education

Speaker 1 0:41

since 2014 the powerful get rich education podcast has created more passive income for people than nearly any other show in the world. This show teaches you how to earn strong returns from passive real estate investing in the best markets without losing your time being a flipper or landlord. Show Host Keith Weinhold writes for both Forbes and Rich Dad advisors and delivers a new show every week since 2014 there's been millions of listener downloads of 188 world nations. He has a list show guests and key top selling personal finance author Robert Kiyosaki. Get rich education can be heard on every podcast platform, plus it has its own dedicated Apple and Android listener phone apps build wealth on the go with the get rich education podcast. Sign up now for the get rich education podcast, or visit get rich education.com

Corey Coates 1:27

You're listening to the show that has created more financial freedom than nearly any show in the world. This is get rich education. You Keith,

Keith Weinhold 1:43

welcome to GRE from Europe's Iberian peninsula to New Iberia, Louisiana and across 188 nations worldwide. I'm Keith Weinhold. As always, I'm grateful to have you along this week. This is get rich education. Most investing is left brained, but most decision making for your investment, choice is right brain. If you don't know the difference, left brain is about the numbers. It's analytical and logical. So left brain people, they're good at math and critical thinking and language as well. If you're more right brained, then you are more creative and emotional, and you tend to be good at recognizing faces and the attribute of diplomacy that's right brained. And it's a right brained kind of episode. Today you're going to learn how to be a performer and be the best at whatever you want to be. I mean, the best, whether that's as a real estate investor, business person, apartment building syndicator, or a real estate agent that's trying to sell homes, it'll even help you become the best parent, child, best spouse, best at basketball, best at table tennis. And you know, you are part of a really well educated and influential audience that we have here. Maybe you're trying to be the best physician or politician or even social media influencer or the best church minister that you can be. And in fact, as it turns out, people that are trying to raise money end up consulting today's guest quite a bit. And as you'll see, this guest really can tell a story. You'll learn that he has achieved elite success, even best in the world, success in a number of different areas. He's had like, three or four successful people's lives, yet he's the same guy. He's sort of like, in a sense, President Elect Donald Trump. Love him or hate him. Trump found success in real estate and then in media, with his show The Apprentice and then as the 45th and 47th president. Well, those disciplines there for Trump, they're somewhat related. Well, today's guest became the best in areas that aren't even related to each other at all, which is even more amazing. So therefore, maybe today it's really more of an Arnold Schwarzenegger parallel. I mean, Schwarzenegger, he was first the successful bodybuilder, winning Mr. Olympia, then he went on to become a successful actor. He married into the Kennedy family, and he became the California governor. Well, before I introduce you to today's guest, well, we are a wealth building show here, and as we talk about being the best in something, you know, I really want to ask you a question, Are you content with being middle class? You know, despite the way that inflation has ravaged it us, middle class life isn't all that bad. In fact, it's pretty good in a lot of ways, from the iPhone to the luxury of having a gym membership. I mean, that's just middle class stuff. Sheesh. Life is so good that when it's time to reset a password, people treat that as some sort of existential crisis. And you know, this is the time of year that even the middle class indulge in, say, pretty elaborate Christmas decorations. In fact, I increasingly notice that it's more and more common to hire a Christmas decorating contractor to decorate your real estate for you. They'll get ladders and a lift truck to hang lights in your tallest trees. That's something that the middle class does. Here's a new one. There's at least one mainstream, I guess, paper products company that now makes toilet paper with perforations that are wavy instead of being straight across, because it's easier to tear that way. So I think that you could make the case that American middle class life really isn't too bad, but in your life, if you want to be all that you can be, or anywhere close, you're not going to settle for something that's just better than not too bad. You can want more, and you should want more because you're capable of more, if for nothing else create the type of value for the world so that you can have more free time for yourself. I expect to have a terrific time and learn some things here where I am today in New Orleans for the 50th anniversary of the New Orleans Investment Conference, we've got speakers and exhibits covering real estate investing, economics, a lot of gold investing material at this conference Bitcoin and even stocks. And of course, I invited you, the listener here the past couple months, to come to the conference and meet in real life. As this is about to kick off, I wonder if I will find someone to go running with me. I always go running along the Mississippi River. Here in New Orleans, there is a trail paralleling the river right here, close to the event site. Yeah, I think I'm recovered from a mild back injury by now. Gosh, it was so weird. I hurt my back at the gym last month. And here's the thing. Somehow I heard it while doing my warm up exercises, of all things, sheesh. In fact, this is a triumvirate of fitness paradoxes here in doing this. Number one, warm ups are activities that you do before you work out to prevent hurting yourself, but I hurt myself in the warm up. Secondly, I never seem to injure myself while running steep, rocky trails or skiing down slopes outdoors, but indoors where the floor is level, that's the place where I seem to get injured. And then thirdly, the gym is where you go to improve your fitness, not lose fitness. So yes, that is the triumvirate of paradoxes there. Well, our guest, you know, he really knows the power of story, and just listen to him. I bet he'll tell a better story than hurting my back at the gym. Let's meet him.

Today, we have a guy with massive ambitions who I know is going to bring out the best in you during his lifetime, he's chased what it means to be world class, not just in one discipline, but in five different disciplines, and he's achieved a true level of greatness in all of them. He has played in the NFL for four seasons with Houston, then went on to become a San Francisco 49er, next, a super successful Broadway playwright, then an in demand public speaker, most recently, an eight time best selling author, and he has gone on to write screenplays for movie stars, so get ready to hear him talk about the one factor that's been the driving force behind his success in all of these disciplines. Hey, welcome to get rich education. Bo Eason.

Bo Eason 9:13

Keith, thanks for having me.

Keith Weinhold 9:14

Well, it's the first time that we have a former NFL player on the show, and Bo played the same position that my favorite football player of all time did, Ryan Dawkins, that is the safety position. But we're not here to discuss football so much as how you can build the architecture of success like Bo has and Bo your success is astounding, and our listeners hope that some of their virtual proximity to you rubs off on them today, I do too, and it's remarkable because you've reached the pinnacle of success in some of these disciplines that don't even seem to be related to each other at all. So what can you reveal here? Is there one common driver that led to them all?

Bo Eason 9:58

Man, you know what? That's. A great question, going back the way my dad woke us up as kids. So I'm the youngest of six kids, so I grew up on a ranch, on a farm in northern California. My dad was a cattle rancher, and I four older sisters and a brother who's a year older than me, so every morning he woke up all six of us to go do our chores, you know, on this ranch at five in the morning, and he would wake us up by rubbing our backs. He pulled back the covers. He'd rub our backs really hard, like, not easy, not like gentle, like dads of today, like this was a cowboy, you know, with dirty hands and rough hands. And he would rub our back and he would whisper in our ear and tell us that we were the best. And so for the first 18 years of my life, every morning he'd come into me in my brother's room. He'd wake up my brother in the same way he woke me up by rubbing his back and whispering his ear, you're the best. Get up, you're the best. And after you hear that for 18 years, my brother went off to college. I went off to college. My sisters all went off to college. And I always think back to those eight first 18 years, because when I would come home and visit our parents. So my brother got drafted. He was the first round pick of the New England Patriots. He was the quarterback for the New England Patriots took them to their first Super Bowl. So that best term worked out for him. And then I was a second round pick for the Houston Oilers, and got to play with them for several years. And this term, I always thought back to it, like, Why was my dad saying that? Because when we were growing up, when we were playing Little League, and we're playing sports, when we were kids, we actually weren't the best. But he wouldn't say that we were like, I would strike out every time in Little League, I was so bad at baseball, and every time he would yell at me through the chain link fence that I was the best, and my teammates are like, You got to be kidding me, Bo What is your dad even saying You're the worst? And he's telling you you're the best for most of our lives, the first half of our lives, it was a source of embarrassment to me and my brother and I remember going on a date one time, a double date with my brother. In fact, I couldn't even drive my brother could, and we went on a this double date with the thomasini sisters. So we were going, and my dad walks out to the car with us, and we're like, What the heck is my What's dad doing? Why is he coming out to the car with us? He came out there to tell us that we were leaders and that we were the best before a date. And I'm like, Dad, go in the house, right? And then finally, you know me and my brother, we weren't recruited as football players coming out of high school. Not one person, not one college recruited us, but we had these dreams of being pro football players, and at that time, 350 colleges played college football, but no one wrote us a letter. No one recruited us. So my brother went to a junior college, and then he ended up, after that, got a scholarship to the University of Illinois, and then became a first round pick. Well, I went to a school called UC Davis in Northern California, which was division two football and no scholarships. So basically, no one was on scholarship. There. You just walked on and you played football for fun. Well, that's where I went. And then, you know, cut to four years later, my brother's a first round pick. I'm a second round pick, and we always looked back from that point on, deciding, like Dad always embarrassed us, friends in front of our dates, in front of everybody. But then at that point, 21, 22 years old, we looked back, we said, Man, you know what? We just kind of surrendered to, what he saw in us, and we were the best. We were the best at our positions, and the only reason we were is because we had somebody who saw our greatness and pretty much spoke it into existence. Now, when you grow up like that, Keith, you think you assume that every other kid has grown up like that too, right? But that wasn't true, right? We thought it was true. You know, it turns out that the other guys we were playing with, the other guys who are our teammates, they did not grow up like that. So I would say that that principle was huge for me and my brother, just somebody who saw something in us that we couldn't see for ourselves, and he did it up to a point where we began to see it for ourselves. He just was very patient. And, you know, I find myself doing this with my kids. I have three kids, and they're all going to be d1 athletes, two of them are already, wow. Yeah, and it's because that's how I woke him up, too, like so I know that's kind of a simple story, but it really set the foundation for us, and here's how it did, Keith, it told me what was expected of us, even when we weren't the best. He was expecting us to live into what he saw, and we did, and I found my kids to do the same, like I was looking at my kids, and I was like, Man, are they going to be athletes like me and my brother are at that level, because that was their dreams, right? But I didn't know if they had what it took. As I woke them up every morning, I could see them starting to live into their potential or live into their birthright. So I think to start off with Keith, that was a principle that is a mainstay. It taught me not only what was expected of me, but what I could set the standard for other people, and then they would live on into that standard, been able to do that. So those couple of things were huge in my upbringing.

Keith Weinhold 16:02

Well, this is remarkable, and I think you're already giving the parents in our audience quite a few ideas. Bo, this phrase, you're the best kind of got indelibly baked into your being and who you are, your dad even chasing you around on a double date, reinforcing you're the best and you know, Bo, I think that a person can be simultaneously grateful for what they have yet at the same time strive for more, as often say here on the show and adopting an abundance mindset with wealth building. Don't live below your means, grow your means. Now, I was watching an NFL football game just this past weekend, and a commercial came on for the IBEW, the labor union, and Bo it struck me as so odd that a trainee at the IBEW smiled, and they were all gratified that they were part of the IBEW. And they said, this is like now I have my golden ticket to the middle class, which I mean, because being middle class isn't like altogether awful in the United States, but it just sounded like this was the be all and end all, and hey, now I have a guarantee of mediocrity in my life that struck me as so odd. I don't think their father was telling them you're the best like yours did.

Bo Eason 17:21

No, they definitely did not. I'm always shook by that too, where people will sometimes come to me and they go, Bo, I want to push back on being the best. I just want to, you know, be kind of a good player, kind of medium wealth. And I'm like, Well, if you want to push back on me, you should take that up with Mother Nature, because if you just go back to the day that we were conceived, you know, if we want to have a little refresh of course on the day we were conceived, you were going to find out that there was the odds of us even being born were 300 million to one, and we were the champion of that first race that we entered right like 300 million to one odds, you're the champion, and yet here we are, you and me number one. You know, the gold medalists of those odds, and now we're supposed to be born into a world and be mediocre. I don't think Mother Nature set it out like that. I don't think that's how it happened. I think the standard is the gold medal, not the silver medal. You know, it's the gold medal. Now, some people win silver medals. If they lose the gold that's fine, that's great, but the gold medal is the thing. And I think the minute we lower ourselves from that. We're just trying to give ourselves a soft landing, I think, and then we don't ask enough of our potential, which is, if you're following Mother Nature, your potential is 300 million to one odds, and you already won that gold medal. So what are you doing? You know? What are you doing? So, as I progressed, Keith, so I went from football, I played in the lake for five years, and I didn't know what I was going to do, right? So I just started again. I just said, so instead of being the best safety in the world, because that was my first declaration, I just said, I want to be the best safety in the world. That's it. So I was able to achieve that. And then when football was over, I did the same thing for playwriting and performing. I just said, I don't care. I know I don't have any experience in this, but I'm going to declare right now, and I draw it up, that I'm going to be the best stage performer of my time. So that principle has worked every time, but I had to use the term the best. And I don't know why. I guess it was just locked in my brain. But here's the next thing, the next principle that I think is important for the audience. And this goes for wealth building. This goes for whatever you want to build, whether it's your family or, you know, an apartment complex. It doesn't matter we're building stuff. And here's what I did the second. All around I said, I want to be the best stage performer, the best playwright of my time. So I didn't know how to do that. So I moved to New York City because I knew everybody did plays there. They did Broadway, they did off Broadway. And I asked everybody in my class, who's the best at this this was in 1990 who is the best at this stage performance. And every kid in my class, and there were kids I was a little older because I was playing football, I said, Where is the best stage performer of our time? Who is it? And they all said, Al Pacino. And I said, Cool. Where is he? And they said, Well, I don't know where he is. He's on a movie set somewhere, or, you know, rehearsing for a theater show. And I said, I want to know him. I want to meet him, because only the best can tell me how to be the best. Only the best can tell me how to take his mantle of being the best stage performer. Wow, most people don't think that, or say that. You said Brian Dawkins, me too. I'm like, who's the best safety in the world? Let me go talk to that dude, because that dude knows what, like Ronnie. Lott, was that for me? Jack Tatum, Ronnie. Lott, those kind of guys I ended up playing with. Ronnie. Lott, you know you end up playing with these guys. You know the guys you're looking up to? Well, within a week of me asking these kids in my class, where is Al Pacino? I'm having dinner with Al Pacino, in New York City and I go, Dude, what do I do? What do I do? You tell me, I'll do it. And he goes, Okay, Bo, I'll draw it up for you. We'll draw it up. You know what that's going to take, but that's going to take you 15 years, and I go, perfect. That's my kind of timeline. I'm good like that, you know? And he goes, Okay, so he drew it up and I did what he said. He told me who to work with. Basically, he's telling me to put my butt on a stage. More than any other person can put their butt on a stage. So I go, I can control that, that I know how to control, because that's what I did. As far as training to be the best safety. I wasn't the best safety, but as the years went by, guess what? I passed up everybody who was ahead of me. You know, you're the top safety in the league. Well, same thing for being on Broadway, he told me what to do. I did exactly what he told me to do. And 15 years later, I am opening a play in New York City that I wrote that I'm the only guy in and I swear I was so nervous before opening night to run out and look Keith I had played against the biggest and baddest dudes on the planet. You know, I wasn't as scared as going out on a stage to face those dudes. I would rather face refrigerator Perry or Walter Payton than going out on a Broadway stage. And I went out on starting the play, I am having an out of body experience because I'm the only one. I'm talking to the audience. The New York critics are in the house. Everybody's in there. And I make eye contact with a guy right on the row. He's sitting right on the aisle. It's Al Pacino. I had seen him in 15 years. He told me what to do. I did what he said. He's in my play, I wrote, and I'm the only guy, Al Pacino, the best stage performer of all time, is sitting right there on the aisle. That's so cool. And he's nodding his head. He's like, Yeah, I'm doing you did it. And so a you have to have a declaration, and that declaration has to be the best. So the declaration of being the best safety, being the best playwright, being the best stage performer, those things actually come true because you have a declaration which you're living into existence instead of following some to do list, right? I did the same thing for playwriting. I did the same thing with Al Pacino, and that career really set me off because I performed that play 17 years. One play 17 years it immediately gets bought by Castle Rock pictures as a movie. Frank Darabont bought the play as a movie. And I don't know if you know who Frank Darabont is, but he's the guy who wrote and directed the Shawshank Redemption, The Green Mile Saving Private Ryan collateral. He's the guy who his team's TV show he created is The Walking Dead. So this dude was nominated for 12 Academy Awards for writing and directing. He bought my play to produce it for him, and so he hired me, who's never written a screenplay, to write the screenplay for him. This dude has been nominated for 12 Academy Awards for lighting, and he hires me. I go, Dude, don't hire me because I've never written a screenplay. I don't understand it. I don't get it. I'm not a great speller. In fact, I do. Don't even have a computer. And he goes, I don't care about that. I think you can tell the story. Yeah. And I go, okay, so he was hiring me basically based on my guts or my heart, and we did that. So he bought that. I wrote the screenplay for him. Then Leonardi DiCaprio and Toby McGuire come to the play. They come running backstage, they say, Bo, we want you to write a movie for us. And I go, You know what, you guys, I don't write movies. They go, we pay a lot of money for our screenwriters. We think you can do it. And I go, Yeah, based on that money, I think I can do it too. And so the crazy part about this whole thing is it all falls back to this ability to share myself, to tell a story, to tell a story that has physicality to it, that has heart to it, the ability to do that has really given me all these occupations. And then people came to me like business owners from Wall Street. They would come to the play like with their wife, because their wife wanted to go to the theater and they were watching my play. Well, they would come backstage, Keith, and they would say, Hey, man, I want you to bring this to my fortune 500 company. And I'm like, wait, what do you mean? What do you I don't this is a play. I don't take this to Fortune 500 companies. This play, you got to come to the theater. They go, No, we don't want to. I want our sales force. I want our leadership executives to learn to do what you do on stage. I was like, what? I couldn't believe it. Me and my wife, we're like, going, I don't understand what you read. They said it's the funniest thing, because typically, when you're on Broadway, the people who come backstage to see you, they shake your hand, or they get you autograph and they say, Wow, you're a terrific performer. Or what great writing. That's what they usually say, right? Not my play. They come backstage and they don't say, I'm great. This is what they say, Can you teach my people to do what you just did? Yeah, on stage, we're like, of course, because I was taught I could retrace my steps. And I can teach business people, leaders, doesn't matter the business coaches, whatever I can teach them to express themselves in front of other people, which then makes them wealthy, because in the end, I learned Keith that whoever tells the best story wins.

Keith Weinhold 27:33

Yeah, I want to get to the power of story after the break before we do that when one knows that the best that word is out there for them, I think oftentimes they're stricken with fear. Fear is a great obstacle. How do you overcome the fear from listening to you? It seems to me that your mechanism for coping with fear and becoming the best is facing it, getting in there and getting the reps.

Speaker 2 28:00

Yeah, 100% there's a great quote, the world was not created by great men, the world was created by a demanding situation where great men then rose. So we don't know our greatness until we're faced with a demanding situation. So if you're nine, you have no obstacles in your life, you're like, Wow, this is really fun. I'm living on a farm. There's pals, there's horses. What a nice life. And then Bo created his own problem. He created a declaration that said, I want to be the best safety in the world. Well, right then, right when I got creative. Now, Bo's life became a demanding situation where I had to grow strong and I had to eat right, I had to exercise, I had to run faster than anybody else. So I created all these demanding situations for my life. But that's the only way to reveal character. No NFL team is drafting anybody who doesn't have a characteristic that makes you a successful NFL player, and the only way to get those characteristics is to lose is to get your butt kicked, is to face your opposing players that's putting yourself in a demanding situation. So us, you know, as successful guys and successful gals, we kind of get satisfied and so that we forget to keep putting ourselves in demanding situations. That's where the fear comes in. Because once you're in a demanding situation, you get scared. You're like, oh, do I have what it takes to do this? And then you discover by going forward that you actually do. You do have what it takes, and fear is like a made up thing, and you start to realize that you're the creator of your own fear. So look, when I wrote the play in New York, I had never written anything in my life. Like I said, I couldn't spell good. I didn't have a computer, but here's what I did have. I had the ability, because I already did this in my life. I knew how to put myself in a demanding situation and then take a step forward. I knew how to do that based on my football career. I knew it so the principles of being the best safety in the world and being the best playwright in the world are the exact same principles. You have to have the declaration. It has to be at a standard that's way out of your comfort zone that puts you in that demanding situation. Then you have to start running the miles. Then you have to hire an expert coach that sees you clearly, and it is a critical thinker like can see you and go, Bo, stop that. Do that. Stop doing that. And do that just like a nutritionist. Hey, I want to live longer. I want to be there for my daughters when they walk down the aisle. Okay, then you better stop eating this and start eating that. You have to have these experts in your life to fulfill on your birthright of being the best. So now you just break your life down. I just broke my life down like five different times because I enter a new era, like screenplays. How am I going to write a screenplay? I don't know how. I don't understand, but here's what I do. Know how to do. I know how to work. I know how to be the best. Those principles are pretty much the same as safety and playwright. So the guy who buys my play to hire me as a screenplay writer is the greatest screenwriter in Hollywood. So he's the guy paying me, he's the guy coaching me, he's the guy looking over my shoulder going, Bo Don't say that. Say this, say less, do this. Those are just first three principles. We're talking about the best. The standard has to be sky high. Otherwise it's not going to be demanding. It's not going to require enough of your humanity to fulfill on yourself. So it's got to be there. Then you've got to take the time to run the miles to do this thing, and you cut your time in half, or less than a half, by having somebody who is an expert mentor or an expert coach. A guy like Al Pacino, a guy like Frank Darabont who just goes, Bo do this. Don't do that. A guy like Ronnie Lott, both don't do that, do this. And I just do what they say, because, guess what, they're the best in the world at what they do. You guys, those principles, I found I just keep repeating them over and over again. Now a lot of you might be saying, Bo, that's a little much for me, because I don't know Al Pacino or I don't know Ronnie Lott, and I don't know Frank darabonda. You guys, I didn't know him either. I didn't know him either, but I do know this the best in their field, whoever that is, don't say you want to be the wealthiest person on the planet. Well, the wealthiest person on the planet is more available than you think. Guess why? Because everyone thinks they're too busy and they don't ask of their time. You ask of their time. No one's asking of Al Pacino's time. Guess why? Because they don't want what he has. They want to be famous. I wasn't interested in fame. They want to get an agent in Hollywood. I wasn't interested in that. I was interested in what Al Pacino had, which was he was the best stage performer of his time. That they're willing to tell you, because they know if you're asking that question, they want to be involved with you.

Keith Weinhold 33:44

right, because you dared to ask. And they can probably perceive your ambition, and people can sense that, and they love that, and it sure can be scary to say, but fear should be your guide. You should follow your fear. We all know that that's where the growth is. It's like the gap in the game. It's been said that the gap between where we are and where we want to be lies our greatest opportunity for growth. We're talking with former NFL player Bo Eason about being the best. We're going to come back and talk about the power of story. Next. I'm Keith Weinhold. You're listening to get rich education.

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Matt Bowles 36:08

Hey everybody. This is Matt Bowles from Maverick investor group you're listening to get rich education with Keith Weinhold and don't quit your Daydream.

Keith Weinhold 36:27

Welcome back to get rich education. We're on a mindset journey today to help you level up, be a better person and even be the best.Talking with former NFL football player Bo Eason, and Bo, you're such a powerful storyteller, and I think it's a really important time to be a powerful storyteller. Trust in institutions seems to be at an all time low, from the government to the media. This is partly why the rise of influencer culture has become a thing. So tell us about how a powerful personal story can build instant trust and connection in seconds. Even when it seems like trust is at an all time low.

Bo Eason 37:07

it is at an all time low. That's what Gallup does a poll every year on trust. The question they ask is, do you trust your neighbor? And it's at its lowest it's ever been. They started this in 1972 but it's down to single digits. This is your neighbor. This isn't somebody across the street. This is this isn't somebody in the next town or the next state you know, or the next country. This person you share a backyard fence with.

Keith Weinhold 37:34

right? Like you're afraid to ask them to check for packages on your front porch when you're on a vacation or something. Yeah, the trust

Bo Eason 37:41

below. But everybody gets depressed by the statistic. I get excited about it because there is one group of us that can restore trust. It is the storyteller. It's not just the storyteller, you guys, it's the person who can share themselves personal story, not just a story, although stories, you know, work, and they've always worked for 1000s of years, but personal stories move the dial the most. Give you the most Trust, the most credibility. Personal stories like if I say to you a sentence like this, when I was nine years old, I had this dream, so I decided to draw up a 20 year plan to achieve my dream. If I tell you a sentence like that, you and me, even though it's a simple sentence, right? It's personal to me. Well, personal equals universal. Whenever you're telling a personal story, it affects your audience that much more, because your audience locates themselves inside of your story. That is the science of storytelling, and that's why you earn trust by sharing yourself personally. Now most people don't want to do that. They push back, especially business people, especially left brain, analytical type people, they say to me, Bo I'm not going to share myself, because who cares about my story? And I say everybody, you're just telling the wrong story. You have to tell it very personal and very specific to you, and it has to be a pain point. It has to be a low point in your life. That's where you start the story, because if you start at the top, there's no place to go with story. It's like, think of rocky everybody. Sylvester Stallone was a very smart guy. He was an unemployed actor, and he said, I'm going to employ myself for the rest of my life. Guess how he plays the role of Rocky? He writes the role of Rocky. Who does he put in front of him, Apollo Creed, the greatest heavyweight champion in the world, a character named after a god that's called great storytelling. He put Mount Everest in front of him. And if you notice, that's what he's always done every movie he writes. He's given himself a career because he puts himself at the base of Mount Everest every time. Well, that's where I want you to put yourself. What is your story? Where did you get rejected? It's always at a younger age. You know, Michael Jordan's story is the same as Tom Brady's story is the same story that I have, which is, we all were rejected in high school. We all were told we weren't good enough to play a high school sport. So what did we become the best in our fields? That's what always happens. That's always the story of an elite athlete. So I want you guys sharing yourselves with these stories, and these stories are kind of the ones you kind of don't want to tell because they reveal certain things about you that are kind of humiliating. But humility is the best connective tissue that us human beings have. Isn't that weird? Embarrassment is a great connective tissue success. Isn't that connective? Isn't that weird?

Keith Weinhold 40:58

Yeah, I mean, embarrassment is self deprecating. Most people like that, and everyone can relate to failing.

Bo Eason 41:05

Yep, there's three rules I live by when it comes to storytelling. You guys knew. Number one, it's got to be personal. It's got to be personal. The more personal, the richer you are. It's got to be personal. Guys, I've talked you into this, if I haven't already. Number two, you guys, if you're thinking about wealth, I would think about it in those terms right now. Secondly, it's got to be physical. Stories are physical living things, living, breathing, human things. You can't tell a story like a boring people tell stories they Well, when I grew up, I was poor, and then I walked over to the store, they wouldn't let me have a candy bar. It's boring, it's stupid. It is not physical. You have to embody the story with your physicality. You have to become your story, you guys. I know this might sound crazy to you, but the more physical you are in your life. Now, listen to me, the more physical you are in your life, the more money you make. People don't trust what comes out of anybody else's mouth anymore. They don't trust it. They trust your body 100% of the time. I wish you could see my body right now, because it is alive, and you could probably feel it even though I'm you can just hear my voice. You can hear the physicality of the residents of my voice. Now, the more physical you are in your life, the richer you are, and that's across the board. I don't care if you're a ballet dancer, I don't care if your speaker. I don't care what your occupation is. If you are physical and unapologetic about your physicality, then you're going to make a lot of money. But if you're walking around on eggshells, people know it. If you're walking around apologizing for your masculinity or your femininity, and you're like, you know, you're just half stepping everything. You see people like this all the time. What do you do with them? You dismiss them. But when somebody walks in and you turn your head, you know to look. You heard somebody come in behind you, you turn and look, why? Because they have a presence and they're unapologetic. That is a learned trait, or I should say it's relearning human trait. I've been trained by the greatest movement coach in the world, you guys. The only reason I was trained by him 17 years I was trained by him because every time I saw somebody acknowledge when they won the Academy Award an actor, they would acknowledge this guy. And I go, who the hell this guy that everyone keeps acknowledging keeps thanking for their Academy Award for some performance. I want to know what this guy's doing. I want to know what he's doing with these performers. And he told me where I went and met him. He goes, No one has ever won an award for what they said. No one it's what they did physically. That's how you win. And he's the guy who taught me well. So you guys, number one, the story has got to be personal. Number two, the story has got to be physical, unapologetic. It's so attractive when this happens. That's what I train people to do, because that's what I was trained to do. And then when all these CEOs and stuff started coming to the play, that's what they wanted, that now, you guys, they didn't know to ask me that. They just said, Can you teach my people to do what you do on stage? I go, of course, because I was taught the thing they wanted most was they wanted people to trust their sales people or their leadership team. They wanted all their employees, including them, to be physical in the world, because that is powerful. And you're going to watch this. You can watch this in elections. You can watch this in politicians. The reason they hide behind those podiums is their body betrays them. Their body betrays them. If I ever got hired to coach them, which I've always turned them down, I would put them out in the open like an animal so we can see their whole body, because that we can trust but we don't trust somebody standing behind a podium. Very critical.

Keith Weinhold 45:23

Well, there's a lot there. Yes, so much is conveyed through body language. People like decisiveness and commitment. You talk about how to make a story personal. When you had mentioned when you were nine years old, you laid out a 20 year plan for your life. When you said that me as a listener, that just makes me naturally want to lean in and ask a question about that and let you go on, for example. But when you talk about how stories need to be made personal, why don't we wrap up on how does storytelling work in business? Then say that a real estate investor is trying to attract co investors to his apartment building deal. For example, how would you use story there?

Bo Eason 46:07

Oh, yeah, great question. So many of my clients are people that raise money, whether it's for profit or non profit. They are in the business of building a company, and so they're always asking for money. Well, there's a guy used to run a studio in Hollywood, I think it was Warner Brothers, and he did an experiment. He was building a studio. So he needed millions and millions of dollars, so he went to all his rich friends, and he put a contract out in front of them. One contract only had numbers and percentages and columns written on it. Here's how much you'll invest. Tell us how much you'll make after five years all that stuff. The other contract was the same deal, no numbers, no monies, no percentages, only story, a story of belonging, a story of making a difference. He says, 100% choose the story contract, not the numbers, purpose. There's nothing. There's nothing to connect to. Yeah, I work in the finance world a lot. You guys, people, you know, high wealth, they always want to talk about numbers. And I'm like, rich people are all right brain. You know that? So every billionaire, every millionaire in the world, is right brain, not left right their right brain. But the people managing their money or raising their money are left brain. So they want to talk about numbers. And I'm saying, you guys, you can't talk about numbers, because rich people don't know what you're talking about. Rich people want to belong. They want to see themselves inside the business that you're building. So you better have a hell of a story, and that best story wins no matter what, Best Story wins. If you and me are both building a skyscraper in New York City. If I got a better story than you, guess what skyscrapers gonna get built? Mine. That's got nothing to do with money, because money is everywhere. Money's like air. It's more abundant than air and water. There's money everywhere. But what are rich people attracted to story? Why do you think they call it show business? Show, I'm the show, you're the show. You're the storyteller. The Business People bring the money to the show so rich people don't know how to make movies, they don't know how to tell stories, but they want to give you the money so that you can tell yours. Of course, that's how this thing works. That's why show and business always go together. There's a great saying rich men, when they sit down to dinner, they speak of art. When artists sit down to dinner, they speak of money. Artists sit down to dinner, they speak of money. When finance people sit down to dinner, they speak of art. So they're completing one another. You've got to be an artist. You've got to be able to tell your story, because their dreams and their big bank accounts relying on your vision of what you're going to build that makes you an artist, that makes you here go build what you've got to build here. I want to be a part of it.

Keith Weinhold 49:28

Yeah, I've never heard that before that's remarkable in using story to connect with others, something that seems to be bleeding and so badly needed for connectivity today. Well, Bo this has been great, talking about the best, talking about the power of story. You do so many things to help people in their own growth journey and to expand their own mindset. Tell us about your resource for that.

Bo Eason 49:56

You know what? Because the first thing that when I say, look. Got to find your personal story. Most people go, I don't have one. Well, that's just not true. Everybody has a story. I've worked with 1000s of people, and everyone's got a great, dramatic story. They just don't know it. So I'll send you a free story guide. It's a video course. It's going to give you some prompts, and we're going to find your powerful, personal signature story, so you can begin to use it today. So all you got to do is text me. So text PERSONAL STORY, the word PERSONAL STORY, one word personal story. Text that to this number, 323-310-5504. that's text. Personal story. One word, personal story, to 323-310-5504, text me that, and I will automatically send you a story guide. To start to uncover this thing,you'll start to realize, Wow, I do have a cool story that I can begin to tell whether I'm in the Oval Office or whether I'm in front of 1500 people at us in a speech, you can open with your personal story. It works and it attracts people to you. If I was in your guys shoes, you're interested in building wealth. Me too. If I'm building wealth, guess what? I'm beginning with personal story, and then I just get to go right to the top, because people are only interested in other people who have a vision bigger than the people have for themselves. And that's you. That's you. And your personal story, you have a vision that is bigger than the people have for themselves. If you can do that, guess what? People got to buy into that, they got to invest in, that they got to be around that. They got to marry that.

Keith Weinhold 51:47

Oh, you're so right. I really think this is going to help a lot of our listeners. You the listener, you probably have several good stories inside you, and Bo can really help bring them out, who have the benefit of seeing him on video, he's a really powerful speaker. I've had that same benefit of seeing him on video. You've only listened to him so far. Check out his resource if you think you can benefit from it. Bo, he said, It's surely been valuable. Thanks so much for coming on to the show.

Bo Eason 52:15

Keith, thanks for having me.

Keith Weinhold 52:23

Oh, such sharp insights from a motivating guy, Bo Eason, this week. And hey, if you have kids, are you going to wake them up by hard, rubbing their back in the morning and telling them you're the best? Well, it seemed to work for a little review about what you learned. Bo talked about how the standard is the gold medal, not the end goal, but that the gold medal is actually the standard. That's his mindset. So Bo made sure he met Al Pacino. When they got dinner, he found out that Pacino was the best, so he sought out the best and made sure to get around him. And a lot of people are scared to do that or even ask about the best. And, you know, I just can't help but think that that's like my life experience with women. In high school, I was just so shy and deathly afraid to ask anyone out. But in college and beyond, you know, sometimes I would ask out the most attractive woman, and they would usually say no, but, you know, I can't believe some of them actually would say yes. And see, the more that you do this, the more confident you get. And women like confidence, and can feel that coming from you. And then, so therefore your fear dissipates and it becomes easier to overcome. You have a unique fingerprint in this world, and you yourself. You do have an interesting story. I just know that you have it in you, but the chances are you've never even told your highest and best story to one other human being on this earth, not even once, and perhaps I haven't either. Bo said his stories need to be personal, physical and unapologetic, and his video, course, helps you find your personal story. And if you didn't catch that again, you can get it by texting one word PERSONALSTORY to 323-310-5504.

Coming up in future weeks here on the show, it's probably Yeah, more left brain strategic real estate investing content than right brained emotional content like today's show. But one right brain topic coming up on the show that I want to share with you. I want to tell you why, as a society, we hate Amazon founder Jeff Bezos, because he's wealthy. But yet, society does not dislike wealthy singers like Olivia Rodrigo, Taylor Swift and Dua Lipa. We love them even though they're wealthy. We. Don't resent an actor like Robert Downey, Jr for making $600 million as an actor in the Marvel Cinematic Universe. So it's all about why we vilify successful entrepreneurs for their wealth, including landlords, yet somehow we glorify successful actors, athletes and entertainers for being wealthy. It's a case study that I've been working on. I shared some of it with our newsletter readers last week, and I'll have more on that here on the show. Signing off from the Grand New Orleans investment conference, the nation's longest running investing conference. I'm your host. Keith Weinhold, don't quit your Daydream.

Speaker 3 55:43

Keith Weinhold 56:03

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Mon, 18 November 2024

Keith discusses trends in the housing market, including the rising average age of first-time homebuyers and the mix of markets seeing price increases versus declines. He analyzes the potential impact of the incoming presidential administration's policies on real estate, particularly around inflation and interest rates. He is joined by Investor, Co-Founder and CEO of Family Freedom Investments, Dani Lynn Robison to highlight high-yield investment opportunities available, including up to 10% returns.

Home prices have fallen in six US cities.

The average age of a first time homebuyer rose to an astounding 38 years old.

Discover the top 10 states with the highest home price appreciation over the last 40 years.

The Trump Effect.

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527: Countdown to Disaster—Four Threats Facing the U.S. with Richard Duncan

Complete episode transcript:

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Keith Weinhold 0:01

Welcome to GRE I'm your host. Keith Weinhold, home prices have fallen in six US cities. The average age of a first time home buyer soars to an astounding 38 years old. Then we take the long view breaking down how real estate is up a jaw dropping 490% since 1984 the Trump effect on real estate, then how you can earn an eight to 10% cash on cash return, hassle free. All today on Get Rich Education.

Speaker 1 0:36

since 2014 the powerful get rich education podcast has created more passive income for people than nearly any other show in the world. This show teaches you how to earn strong returns from passive real estate investing in the best markets without losing your time being a flipper or landlord. Show Host Keith Weinhold writes for both Forbes and Rich Dad advisors, and delivers a new show every week since 2014 there's been millions of listener downloads of 188 world nations. He has a list show guests include top selling personal finance author Robert Kiyosaki. Get rich education can be heard on every podcast platform, plus it has its own dedicated Apple and Android listener phone apps build wealth on the go with the get rich education podcast. Sign up now for the get rich education podcast or visit get rich education.com

Corey Coates 1:21

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 1:38

Welcome to GRE from St Louis, Missouri, to say Luis, Obispo, California, and across 188 nations worldwide, even Uzbekistan. I'm Keith Weinhold, and you are inside. Get rich education every week. It's the show where I pretend that I'm not wearing pajama pants while here on the microphone. Hey, if you want to get rich, then focus on one thing. If you're already there and want to stay rich, then that's the point in which you want to diversify, because then you're already living your Daydream and you don't want to lose it. We'll talk about President elect Trump later in this week's show, and what it means for the future of the real estate market.

Donald Trump 2:20

Thank you verymuch. So this outfit you know is when they when he called us all garbage. How stupid. What a stupid word. That blows deplorable away. Don't you think.

Keith Weinhold 2:21

well, our content will surely be more substantive than that funny piece I expect to host Donald Trump here on the show for you in the future. After all, let's not forget, before politics, he was most known as a real estate investor, but he's going to be busy for the next four years, so it could be a while until you see him here, before we get to the Trump effect. Last week, the NAR released their annual report. It's called the profile of buyers and sellers. My gosh, what a surprise when it revealed that the average age of a first time homebuyer rose to an astounding 38 years old. 38 I mean, we're not talking about a person that's like, severely underemployed or something. We're talking about the average here. So for many, I mean, they are still a renter into their 40s. That is common now. I mean, at this rate, pretty soon, are Americans going to become homeowners once they hit retirement? I mean, my gosh, is that where we're headed? Or when one looks at their rites of passage, the milestones in their lives, will one achieve grand parenthood before buying a first home? Where are we going here? Not only is 38 years old, the all time high, as you might have expected, but that is up from age 35 just last year, amazing. And like I've discussed before, of course, the major reason that that age is up is due to lower affordability, and that's from higher prices and higher interest rates. The housing shortage is another factor here too. And all right, if that's not enough, the average age of us homebuyers, okay, this is just overall homebuyers, first timers and everyone else. That was 49 last year, and this spiked up to 56 this year. 56 and now back to first time homebuyers, the average income has also hit an all time high, $97,000 that is the average income of a first time homebuyer now. So what's important to keep in mind here is people are going to have to rent longer they're already. Renting longer. And some will choose to rent longer as a preference, and for others, they must rent longer. You can be the one to provide them with this rental housing, not the big hedge funds doing it, not private equity doing it. Invest in real estate. These trends mean higher occupancy rates and upward pressure on the rent amounts that you're going to be able to charge over time. I mean, this is demand, demand, demand for rental housing. They wish that they could buy that $300,000 starter home in the Midwest in southeast, but they have a hard time affording the down payments and qualifying for the loan they're after so you can rent it to them and be a profiteer longer. However, right now, there are six US cities where home prices are falling and now these are pretty mild corrections, but let's see if you can guess what the top reason for this is the number one reason about why these prices are falling among the nation's 50 largest metros. These are the six cities that have seen price corrections. New Orleans leads the way down the most down 4% Austin, Texas is also down almost 4% San Antonio down 2.7%, Tampa, Florida down one half of 1% Jacksonville down three tenths of 1% and then finally, Dallas, Texas, also down three tenths of 1% and in fact, I am visiting three of those six cities during a 10 day stretch that I'm on right here, right now. Over the weekend, I was in San Antonio, Texas. Today, the mobile GRE studio is in effect again, as I'm bringing you today's show from here in Austin, Texas, where I'm spending four days, and then I'll be in New Orleans in two days here. Well, the top reason for these falling home prices is in a word, supply. In fact, it's an oversupply in a lot of these six cities. And again, those six are New Orleans, Austin, San Antonio, Tampa, Jacksonville and Dallas. In fact, here in Austin, they are a, basically a national leader in over supply, they simply overbuilt, and it's going to take some time to absorb all that they've built. In fact, due to overbuilding, you've even got rents falling here in Austin, and I may look at some vacant apartments while I'm here to get the temperature of the market. Now, for some context, understand, though, that I spotlighted six falling markets out of the 50. All right, well, what about the other ones? Yes, that indeed means that 44, of America's 50 largest metros have seen year over year price increases, and one big reason for that is that many metros have housing shortages. Shortages are the norm, and by the way, all these figures are per the Zillow home index. In fact, a number of markets are up over 4% 5% 6% year over year, and the leaders all have seven to 8% year over year. Home price appreciation, they are San Jose, Hartford, New York City and Providence and a lot of the appreciation leaders are, yep, under supply, the opposite of what I'm seeing here in Austin.

Now, before I get to the headline of this week's episode, how national home prices were up a breathtaking 490% over the last 40 years. Let's talk about the Trump effect. It's still two months before Donald John Trump will be sworn in as a 47th president of the United States, and like macroeconomist Richard Duncan and I touched on on last week's show, Trump loves tariffs. Everyone knows that, and a tariff is like a tax on imported goods. Now follow along here. Higher tariffs mean then higher consumer prices, because the company or manufacturer has to pass that cost along to you. Higher prices means inflation. Higher inflation means that the Fed tends to keep interest rates higher longer in order to combat that inflation. So a Trump presidency means higher inflation in interest rates. Again, yes, at least those two things are correlated. And now think this through. Do you sense some cognitive dissonance here, under Trump's first term, back from 2017 to 2021 he wanted lower interest rates, and Trump was like highly vocal about how he wanted Jerome Powell to keep rates low in order to keep the economy healthy so the higher rates that Trump Tariffs are expected to bring then versus the lower rates that Trump wants is dissonant, incongruent, not in harmony. Bitcoin surged on the news of a second Trump presidency, because Trump is pro crypto. No see treasury yields, they also spiked upon the Trump presidency news just two weeks ago, I explained here on the show why higher inflation means higher treasury yields, which means higher mortgage rates. And it turned out that that was quite a timely explanation. The Trump election can mean a lower tax environment. We are hopeful that Trump will extend bonus depreciation, a really nice tax break for real estate investors. We could see some federal lands repurposed for housing construction. Trump said that he wanted to do that in order to add more housing supply. And no, don't worry. I don't think they're going to shut down and pave over Yellowstone and plug Old Faithful Geyser or anything like that. Okay, there's a lot of federal land that's, I guess, less remarkable, land that's being grazed on, and land suitable for more housing. Look for more move to loosen up zoning and regulation, and that's something where you'll find bipartisan agreement we've got to build to address the housing crisis. I mean, Trump has actually called zoning a killer, like he used that phrase you might see Trump extend the opportunity Zone program as well. The result could be more apartment construction in some of these blighted or low income urban areas, no matter what, and no matter who our president would have been. I mean, you're still gonna see housing supplies struggle to keep up with demand, because you just can't build fast enough. And you know something here, you never really know the future. People always want to speculate about the future that can be worth talking about. And you know that makes people think that they have the answer, but they're often wrong about one thing leading to the other, like how tariffs will end up meaning higher mortgage rates. I mean, you just don't know that for sure. Policies can change. Promises might not get followed up on, Black Swans can interject, and interest rates are one thing that are just wildly difficult to predict. And if you ever want to make another person look wrong, like if you desire to do that, here's all you need to do, ask them where interest rates are going to go in the future, and make them put that in writing. Okay, that is a guaranteed way to make somebody wrong. So everyone wants to know the future, but you've got to think through this in terms of probabilities and not certainties.

Now here's something encouraging, California voters, they shot down rent control expansion, though you might live in California, we are not exactly passionate about investing in California property for pretty well documented reasons, but sometimes things that start in New York and California in those particular states, they can expand to the nation. So it's worth paying attention to some of these things, and California voters resoundly rejected what is known as Proposition 33 rent control expansion. Almost 62% voted no on that. So you've got bipartisan alignment on how rent control backfires on renters in this was the third time in six years that California voters shot down rent control expansion. Great. That is great because rent control, it's not good for you, the investor, long term. It's not even good for the tenant, and it's certainly not good for the community either. I mean, they are collectivist state price controls.

Well, let's look at another place where prices are not being controlled for sure, and that is the fact that overall, US home prices have appreciated a whopping 490% since 1984 Yes, 490% over the last 40 years, therefore almost a 5x price increase. Let's break this down, and then I'll tell you what it means for the future too. This is the shift in US home prices from August 1984 to August 2024 so therefore it starts from mid Reagan presidency, when the median home price was $81,000 at that time. Okay, so this is our starting point, 1984 that's the year Ghostbusters hit movie theaters. Kareem Abdul Jabbar broke the all time NBA scoring record. And shows that debuted on television that year were Miami, Vice night, court, punky, Brewster. Are Charles in Charge? Have you heard of these shows? Another TV oh boy, another TV show that debuted in 1984 Well, Chase, are you ready for this? Let me give you a hint, Temple University. And how about jello? Pudding pops? Yes, I'm talking about the Cosby Show, which just feels kind of different to talk about anymore, ever since Bill Cosby's illicit misconduct there. And no, we are not going to play a snippet of the Cosby Show theme music. Please don't play it. You know, we totally do something like that here, but we're not this time. Okay? Well, with home prices surging and astounding 490% since that year, 1984 Okay, let's break down the areas that have appreciated the most and least and see what that means. And you might remember that in our newsletter, I sent you this map that shows the level of each individual state's 40 year price search. Oh, this is great. It's just the best real estate map I've seen in a while. What it shows is that coastal states are where home prices have risen the most. In general, the top 10 in appreciation in order are Washington State up 810% yes, that's more than 8x in the last 40 years. The next highest home appreciation over the last four decades in order is Oregon, Rhode Island, California, and then it's Hawaii, Montana, Massachusetts, Maine, Idaho. And 10th is Utah, all right. Well, why have coastal states had this higher real estate run up over time? Well, it's where building constraints exist that limits the housing supply. That's both geographic constraints, like, for example, the ocean's edge literally limits build space there. Well, the coasts are also where you tend to have more building regulation. Coasts are where incomes have risen the most those residents can afford more for housing. So home prices are then higher. I mean, just look at the leader Washington state. That's where you've got the headquarters for Amazon, Microsoft, Costco, Boeing, Starbucks, Expedia and more. They're all there now, taxes, though, they do tend to be highest in coastal states as well, so you're paying more for property, and you're also paying more in all types of taxes in a lot of cases. And as we know, rental properties usually don't work as well on the coasts, coastal rents haven't risen as much as home prices, and these places, they tend to have those laws and regulations that often favor tenants over landlords. And if you're looking at the map here like I am, you're going to note that some Rocky Mountain states have flexed their appreciation muscles as well. Now, Tennessee and the Texas triangle, they kind of decided to join the appreciation party fashionably late, as you look over 40 years. Yes, Tennessee and Texas, they really only started their big appreciation climb about a decade ago. All right, so those are some of the big winners every year since Punky Brewster debuted on television. Well, with today's rise of remote work and lower home affordability, the nation's interior, that's what looks increasingly desirable for property ownership the Midwest, the Great Plains, parts of the south and parts of the inland northeast. That makes these areas look like comparative deals where prices haven't wildly run up over the decades. And though you hear about return to Office policies, because a few major companies announce these return to Office policies. I mean, remote work is still up fully 15% year over year, and housing preferences are shifting as employees look to suburban Metro outskirts for more affordable homes so they're freed from the need to factor in these lengthy commutes in their lives like they had to previously. Now, among states that don't have strong in migration, one that could really shine is a place like Ohio. Ohio has appreciated less than most states still at 334% over the past four decades. Again, 490% is The National number. Ohio boasts tons of diverse industry, a low cost of living. They've got the seventh highest population in the nation. They have a stable population count for rental property owners. It has strong laws favoring landlords and Ohio. Is just a day's drive from half of North America's population. All right, so a smart listener like you is probably asking yourself a question right now, like, Okay, how does this 40 year stretches 490% rise in national home prices compare to inflation, and how does it compare to incomes? Over this time there's been 201% overall inflation and us, median household incomes have risen 260% and yeah, that 201% inflation number is suspect, just like most any inflation figure is inflation could certainly be higher than that, because most inflation measures likely understate the true diminished purchasing power of your dollar, and see the 490% rise. Although it sounds like a staggering number, and it still kind of is. It's also like, well, of course, it takes almost five times as many dollars to buy a home today, because each dollar's value is way down. What else has changed in the last 40 years? Well, houses are larger now than they were then. The median home size has grown 150% since 1980 and at the same time, the family size is smaller, fewer people live in each home, so everyone has more space. And I discussed those types of things in detail with you before, so I won't get into all of that again. Today's homes have better amenities too. So really, the point is, if you are paying more on an inflation adjusted basis, you are getting more and it's also more likely that two parents are working today rather than one, in order to make those payments more affordable. And that fact right there that is not a great lifestyle outcome. Another way to say it is that it takes two to afford a home today rather than one. But yet, hey, that is society. All right. So with that understanding, let's look at the future. I completely believe that real estate values can soar another 490% over the next 40 years. I mean, even 600 or 700% is not out of the question, and there are a lot of reasons for this. I mean, chiefly, we're starting from a base here of a low housing supply, and we've got strong demographic demand, and we can almost certainly expect more monetary inflation the next four decades. The inflation rate is the one thing that nobody knows. 40 years ago, mortgage rates were 14% today, they're only at about half of that level. And see today's median home price of over 400k like that figure would have seemed unfathomable to people back in 1984 but indeed, the price nearly 5x So similarly, another 490% or about 5x again, means that it is completely fathomable for the median us home to cost $2 million in another 40 years. That's about 5x of today's prices. And although that might sound unrealistic Now, that sounds just as unrealistic as today's price did to anyone from 1984 so really a super interesting way to think about home price appreciation. There, you might even make the case that home values, not prices, home values, they're not up that much at all. I mean, most of that is just that prices have adjusted for inflation, the value is about the same, although I'd still say that the value is up somewhat. So really, that's my thought there, and I duly regret bringing Bill Cosby into this whole thing. I ruined it.

I've been coming to you here from Austin, Texas, where I've been checking out the real estate market. I've got more for you straight ahead. It is a really profitable idea. I'm Keith Weinhold. There will only ever be one episode, 528, of the GRE podcast, and you're listening to it,

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Robert Kiyosaki 26:05

this Rich Dad, Poor Dad. Author Robert Kiyosaki, listen to get rich education with Keith Weinhold,and there is I respect Keith, He's a very strong, smart, bright young man.

Keith Weinhold 26:25

Welcome back to GRE. We are grateful to have on the show today, the co founder and CEO of the whole operation, Freedom family Investments. They are seven, soon to be eight. I just learned real estate centric companies based in Centerville, Ohio. The other co founder is her husband, Flip, whom you've heard on the show before. Hey, it's terrific to have back. Danni-Lynn Robinson,

Dani-Lynn Robison 26:50

thank you so much, Keith. I love talking to you.

Keith Weinhold 26:54

It's the same here. You've been in real estate since 2008 and one of the things that you do is you have this perfect track record of always returning capital to your individual private investors, loans that they make to you, and paying 100% of the returns as promised, even if you yourselves end up losing money on a particular deal. And in fact, you the listener, you probably heard me talk about how I personally participate for a high yield return with them myself, with Danny Lynn's company backing me. You've heard that ad near the middle of GRE episodes, and you yourself can do this too. Individual investors can get a high yielding return, and it's paid to you as cash. So Danny Lynn, tell us about how it works. Generally.

Dani-Lynn Robison 27:40

I love that you started off with that particular statement, because I will tell you that every time I've been on a podcast of yours, the number one thing I hear when people get on the phone was you said on that podcast that even if you lose money, that I still get my return. And I have never heard of that before, so tell me more. So that was a perfect lead in because I think that what we're trying to do is just do a very good job of serving the people who help us build so as you said, we're on company number seven. We're building company number eight. And the reason that we've gotten to the stage that we are today is because we've had private lenders and people who invest in our syndication, our Master notes and our funds program, that investment has allowed us to buy properties, flip properties, buy apartments, flip apartments, and allowed them to get a return at the same time. And I've talked about the fact that we do volume as we've grown, we'll do 10 deals in any given month, and maybe one or two of them are like we find something, you know, in the wall that we didn't expect. Maybe we walk in and the past tenant left it in shambles and caused more damage to the property than we anticipated when we first went in. That's the nature of real estate, and that's the risk you take when you're an active real estate investor. So we knew when we were building our businesses that if we just did volume, that was going to happen, and we weren't going to run away from that fact, or take risk upon us or our investors by not mitigating it, by not doing volume. So you'll see situations where somebody does one flip a month, and that happens to them, and it's catastrophic when you're doing 10, and it happens which it will then you know that the other eight are going to bring the profit in. And so that it is easy for us to say, Thank you, Keith, for investing in us. This particular deal. We didn't lose any money on, but these eight we made a lot of money on, and that ensures that we can always pay you back in full on time, even if we lost money on a deal. And I think when that is explained to people on the phone, they start understanding why we can pay back everything as promised, even if we lose money, because we are still profitable as a company. And so that process of doing volume and having people. People trust us with their funds. As we've grown, has allowed us to get to Company Number eight, because, as we talked about right before we press record, one of the best things for us, Flip says, I love being Santa Claus. And Santa Claus is when you get that email or that check in the bank account that says, I just made money and I didn't have to do anything. I just partnered with Flip, Danny and the freedom team to do what they do already. I provided the money. They did the work. We all won together.

Keith Weinhold 30:29

Why does no real estate rehabber ever find gold bars behind a wallwhen they go in in order to turn over a property? Right? It's usually, you know, evidence of a leak or something bad, usually not something good going on back there. But yes, you do this volume across all these companies. So therefore, when you do find a leak behind a wall, and that particular deal didn't work out for a 100k rehab home, it sure can't bring down the entire operation. Danny Lynn, I've invested with you in your private money lending program for years now, and just been very open with my audience. I've let them know that I've been receiving an 8% return from you paid in cash. But one reason I'm having you back now to help our audience is because you now offer yields up to 10% so even better than when I got in. So tell us about that.

Dani-Lynn Robison 31:24

So we are always having conversations with our investors about what's going on in their investing journey, what are they looking for, and we want to create those win wins. And right now, with everything that's going on in the market, what we learned is liquidity is one of the most important pieces, because there's here, there's some uncertainty, and people want to invest. They don't want their money sitting idle and losing, having an eroding to inflation. They want to put it to work, but they want to have access to it. And so we have been changing and tweaking our programs to meet the needs of our investors, and making sure that we are buying properties that can then have that arbitrage to get us the profit we need to pay back our investors, but while we're still making a profit many times right now in this market, that does mean we're buying multi family properties, because there's so many different advantages to multi family properties, it does take a lot of underwriting to get there, but that's where, for the last, I would say, six to 12 months, we've been really focused in on that in order to increase the returns and have everybody just creating that win win.

Keith Weinhold 32:32

I'm really glad that you talked about multifamily properties, because I've talked with the audience about how the sector is beaten down. In a lot of places, you can get 30% discounts on multifamily apartment buildings, and we know that the long term demand is going to be there for occupancy in apartment buildings. Demographics is destiny, and we talk about this timing of having you on and now you're offering up to 8% discussing this, say, two and a half years ago, I don't think the timing was as good. That's when CPI inflation peaked at 9.1% so you really weren't getting a real yield. You need to subtract inflation from your yield in order to get a real return. And now you're getting a substantial real return. Since inflation is near 2% top online savings accounts, those top interest rates, they are falling with each successive federal funds rate cut, and most expect that those yields are going to continue to fall. People invest in bonds all the time, but the yield on the 10 year T note has been around 4% or quite a while. You don't have to settle for yields like that. And Danny Lynn, I love that you brought up the word arbitrage. This should be an arbitrage play for you the listener. But of course, for Danny Lynn, it needs to be an arbitrage play as well, because if she and her family of companies over there are paying you a yield of up to 10% they need to make arbitrage ontop of that themselves. And if you're a new listener, you might be skeptical of how you could reliably do that in real estate, but when you understand that real estate pays up to five ways at the same time and 30 to 40% total rate of returns without inordinate risk, are not dream land, the reality you can begin to understand the arbitrage. But Danny Lynn, can you tell us a bit more about how you do create that arbitrage to reliably pay a return of up to 10% How do you yourselves beat that in there?

Dani-Lynn Robison 34:26

That's where it comes down to multifamily. For us, the single family market has slowed down a little bit, and so multifamily is enabling us to do bigger things. But on a long term basis, we've built our companies up enough to a point where we are businesses are producing the cash flow that we need so we can pay our investors a higher return using the cash flow of the properties, and our long term wealth as a company is coming from down the line of the appreciation, especially in multifamily, the forced appreciation, and that refinance and that when. Fall. So everything that we structure is preferred returns, meaning we always pay our investors first and we come last when it comes to multifamily, those five ways start to compound over time, and that's what we really win, is because we know we're waiting, but we're waiting for a big return in 3,5,7, years. Sometimes we're waiting 1020, years, and our investors in the meantime are getting a really nice return better than they can in most other places, because we're willing to forfeit our current returns in this scenario, because our other businesses are producing the cash flow that we need.

Keith Weinhold 35:38

That's terrific. Tell us a bit about the program details. Then how is this note? Right? Because the investor, as soon as they make an investment with you, they do hold on to a note. Just tell us about how that's secured before we get into the details.

Dani-Lynn Robison 35:53

So it depends on the investment opportunity. Some investments are going to be secured by a note by the property. Some investments are going to be secured by a note by the business. Some investments are going to be secured by the fund itself. You're an actual owner, like or the syndication, an actual owner of what that fund is participating in. So every piece of security is a little bit different. So when you jump on the phone with us. We're asking a lot of questions, and the number one question that we ask is, what are your goals? Because if you do want liquidity, we know exactly where you're going to go. And some people are wanting liquidity for peace of mind, so that they can earn a higher return, but have access to the cash if they want it. Some investors are saying, Hey, I know there's about to be a lot of opportunities. So I want my money earning for me, but I want to be able to grab it, to be able to invest in these future opportunities that are going to come my way when I want access to the capital for that reason. Then there's other investors that are set it and forget it. Look. I like you guys. I trust you guys. I've vetted you guys. I've done my due diligence on you guys. I want to sit my money in there for three, five years. Some want tax benefits. And so what we do is we have, like, this table of investments with like, little check boxes. And as people tell us their goals, we're like, okay, they're there. They're by the end of the conversation, we're saying, here's the two investment opportunities we think fits what you like and what is going to meet your needs? What do you think? And then we start going with question and answers back and forth so they can fully understand it.

Keith Weinhold 37:27

We're talking about how to get a high yield paid to you regularly in cash with Danny Lynn Robi son, co founder of freedom family investments. Yeah. Danny Lynn, why don't you tell us then about this up to 10% return. But you do have some option based on people's needs for the duration of the investment, which gets into the liquidity and the minimum investment amount and being accredited versus not accredited. So tell us about some of those distinctions, differences and trade offs.

Dani-Lynn Robison 37:55

There's the accredited and non accredited piece, which is really the first piece that you should be talking about when you jump on the phone, because the answer to that question depends on where, like we first check the box of which investment opportunity is going to be right for you. Accredited investors can invest in both. Non accredited investors can only invest in non accredited options. So accredited, I'm sure you've explained many times on the podcast, is a million dollars net worth, minus your primary residence, or earning $200,000 for the last two years, and you expect to earn it again. Or if you're a married couple, earning $300,000 a year for the last two years and you expect to do it again, that would be an accredited investor. So if you qualify there, we've got multiple opportunities. Then if you're wanting liquidity, then, again, that's a checkbox for us that says liquidity fund. That's where you want to be learning more about you want to learn about those interest rates the liquidity fund is seven, eight and 10% based on how long you want to put your money to work. So some people say, hey, one year is good. That gives me exactly the liquidity I need, and that's going to give me a higher rate of return, which is 8% some people think three years is liquid. It's interesting to me, what people perceive as liquid, because anybody who's invested in a syndication knows sometimes that's five, seven and 10 years. So they view a three year investment at 10% Hey, that's liquid to me. I didn't have to lock it up for five, seven and 10 years. And then some people, 90 days is liquid. And so we have the liquidity fund seven, eight and 10% depending on which class you want to go in, 7% is 90 days, 8% is one year. 10% is three years. That's for accredited investors. We have our masternote program, which is for non accredited investors, that is 8% for two years, and 10% I think, for three years, and then we have Lincoln village, and that one is closing soon. I think we're at the final $1 million to raise. That is 12, 13, and 14% but that also includes tax benefits. The end, it is a five or probably seven year timeline, because it's a 48 unit apartment in Columbus, Ohio, if we refinance in three years, yay. Everybody wins. But I always set expectations it could be a longer timeline. And so those are the main opportunities that are available based on accredited, non accredited and your returns.

Keith Weinhold 40:20

Well, the yield on the 10 year T note is 4% but here, the yield on the one year private note is substantially higher. Well, Danny Lynn, do you have any last things to tell us before you let us know how we can learn more?

Dani-Lynn Robison 40:34

I think what's important is a trust. When I'm on the phone, I get three questions. Where do I start? Which path is right for me and who do I trust? And one of my biggest investors says Danny, I think number three question of Who do I trust is the most important one. So I think it's really important to get on the phone to ask questions, to ask, Hey, what didn't I ask that I should have asked? What should I know that I don't know? Because sometimes you don't know the right questions to ask, and so we have this graph of all the things you could be looking for in an investment that people don't even realize might be very important to them. So I think what is most important is just taking the first step of starting the conversation. Once you start the conversation, you start to learn, you start to get educated, you start to understand what your true goals really are, and then you can make an A confident decision, as opposed to what many of us do is, you know, sit on our hands for a little bit because we're just nervous. We're so nervous about losing money or we don't know who to trust, and we're so busy that a year passes by and we just didn't take action. So I just encourage people a 15 minute phone call might change the game for you and allow you to get started

Keith Weinhold 41:45

right indecision really is a decision in itself, a decision to not do anything and have some of your cash be atrophied to inflation. Tell the audience how they can learn more

Dani-Lynn Robison 41:58

They can text the word FAMILY to 66866 and that is going to connect you with our team, and we're going to reach out, hopefully, set up a call and get that conversation started.

Keith Weinhold 42:09

Oh. Danny Lynn, this is going to help a lot of people. Thanks so much for coming back onto the show.

Dani-Lynn Robison 42:13

Thank you, Keith,

Keith Weinhold 42:14

yeah, well, I think you know that I'm more of a borrower than I am lender, but I'm a lender in this case. So for liquid funds, this has been a reliable source for an 8% liquid return without any hassle. I mean, it's about as passive as it gets. Of course, when you store money in a bank. You're giving the bank a loan as well, even though you might not have thought about it that way. Well, if you're looking for something a little less liquid, like a three year investment duration, you are going to get a higher return than 8% here. There are good options here if you're accredited or not accredited, and you don't have to invest in one specific apartment project either, like Lincoln village that Danny Lynn mentioned, and over there at her company, like she said, yeah, those are the three questions you can ask. Where do I start? Which path is right for me, and who do I trust? And on the phone really part of that second question, which path is right for me can be to ask Danny Lynn's team about how to get this highly passive return in the most tax efficient way for you.

There's so much vital content coming up here on the show in the future. Next week, it's the first time we'll have a former NFL player on the show is we'll discuss success principles that you can use in business and life, highly motivational stuff coming there in future weeks. So much more economics and real estate investing. Content is coming, including I've got an analysis of online search results, and you'll see what amenities tenants are really searching for today when they look for rental housing. And of course, as the year gets closer to the end, next month, I am going to reveal GRE 's home price growth forecast for 2025 and just as importantly, I will follow up with last year's prediction too. We'll look back at it and then see how it really turned out for high yield returns on your savings. You don't have to settle for disappointing interest rates where you spin your wheels because you're barely beating inflation. Learn more. Set up a call. Just text FAMILY to 66866 I'm your host. Keith Weinhold, don't quit your Daydream

Speaker 2 44:45

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Keith Weinhold 45:13

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Direct download: GREepisode528_.mp3
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Mon, 11 November 2024

Keith discusses the current state of the US economy, noting that while it is considered strong by conventional measures, there are four major threats on the horizon that the country is not doing enough to address. He’s joined by our guest, macroeconomic expert, Richard Duncan to discuss these topics. Richard proposes a solution that could strengthen the US's competitive position against China.

Shifting from Capitalism to Creditism.

Also, hear about the risks facing the real estate and stock markets in the near-term, such as the historically high wealth-to-income ratio and the ongoing quantitative tightening by the Federal Reserve.

Learn more about Richard’s work through his video newsletter, Macro Watch. Use discount code GRE for 50% off at:

RichardDuncanEconomics.com

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Complete episode transcript:

Automatically Transcribed With Otter.ai

Keith Weinhold 0:01

Keith, welcome to GRE. I'm your host. Keith Weinhold, per conventional measures, today's us. Economy is strong, but there are four vicious threats on the horizon, and we're not doing enough about them. Our macroeconomist guests will discuss that with us today. How alarming is it, and what's the solution to our crises, this week on get rich education,

Speaker 1 0:27

Corey Coates 1:12

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 1:28

Welcome to GRE from Fort Wayne, Indiana to Fort Lee New Jersey and across 188 nations worldwide. I'm Keith Weinhold, and you are back inside get rich education. We've been here for you, every single week since 2014 coming off of an election last week, this spurs more macroeconomic thought, monetary and fiscal policy, and more than that. And you know, one thing that I'm always looking for are signs of inflation versus deflation, because we live in a long term inflationary world. Well, you wouldn't keep a million bucks under a mattress because it would only be worth 300k in a few decades. But in deflation, you would flip your strategy and actually be a saver. You might keep millions out of the mattress, because deflation would actually increase the purchasing power of every single one of your dollars. Now, I've got a pretty unpopular take for you here at some point, probably now you've got to give the Fed credit for a soft landing. And what does a soft landing mean? Exactly. It means bringing down inflation without putting the economy into a recession. Well, inflation is down to about 2% now, unemployment is still low, near 4% and GDP growth for last quarter came in at 2.8% okay, yes, I sure understand that those benefits are distributed unevenly, but at this point, how much more of a soft landing Do you really want? And by the way, this sure doesn't mean that I love the Federal Reserve. I mean, they get no credit from me for not jumping on inflation sooner, when it peaked two and a half years ago, or even before that point, well, those high consumer prices as a result of that are still with us, and that's a problem, and they got that part wrong. We're about to talk with our global macroeconomic expert, really. He is one of the foremost authorities in the entire world today. We're going to talk about four major catastrophes the US economic future faces. One of those four is our ballooning national debt and deficit. And to review that for you, first, the debt is our overall accumulation of debt over the years now at 36 trillion. And when it comes to these awful, dreadful debt and deficit issues, I will ask our guests the question, when is it game over? Where is that tipping point? What would need to happen and the deficit? Okay, that refers to the annual shortfall, the annual thing, that shortfall that our bloated government keeps coming up with at the end of every year, all right, so therefore revenue minus spending equals deficit. Another way to say that is income minus expenses equals a deficit when the expenses are greater than the income. Well, that figure is near $2 trillion we're spending 2 trillion more than we raise in revenue each year. And here's an example. I'll use real world numbers rounded off to the nearest trillion. So if the government's annual revenue is only 5 trillion and you have to subtract out spending, which is 7 trillion, that could. Gives us an annual deficit of 2 trillion, pretty simple stuff, and that more or less gets added onto our overall debt of 36 trillion. Another major problem is this growing competition from China. Yes, I know that people like to discuss their demographic problems, but still, their population is more than four times the US population, and you learn about what other advantages they have over us and what we direly need to do to catch up. In our guests opinion, these issues incur some rather detailed explanations. So I'm really going to let our guest expert takeover for a while today, this weekend, I will be in San Antonio, Texas. San Antonio is an uptrending real estate market because they are really a beneficiary in distribution with their proximity to Mexico in the near shoring movement that's taking place. And then I will be in Austin, Texas, for a few days, Austin is one of the few major US metros that have seen rents substantially decline recently. I'll bring you next week's show from Austin, where I might talk more about that. Then, from the 20th to the 24th of this month, I'll be in New Orleans at the famed New Orleans investment conference, where they're pulling out all the stops at the 50th anniversary of the event, and that is the longest running investment event in America and perhaps the world. I hope to meet some of you there in New Orleans, just like I do each time I'm at the event. Let's talk about the bigger picture economy that your real estate and investments float within next.

This week's guest is the author of four books analyzing the crises that brought the global economy to the brink of collapse in recent decades. One of the books forecast the 2008 global financial crisis with great accuracy. We're going to discuss future crises here today, before we're done, he has worked as an equities and Investment Analyst, and then he went on to hold some rather esteemed roles at the World Bank in DC and as a consultant to the IMF in Asia. He joins us from Thailand today. He now publishes a video newsletter called macro watch, and long time listeners know that today's guest was also this show's very first guest that was back on GRE podcast episode seven, only 10 years ago now, in November 2014, and he's really become quite the friend of the show, and we've looked out for each other ever since. It's terrific to have back global macro economist Richard Duncan

Richard Duncan 7:46

Keith, hey, thank you for having me back. It's great to speak with you again.

Keith Weinhold 7:50

Oh, it's so good to have you here an entire decade of our lives. And as times change, economies are surely dynamic, and you're so good at spotlighting crises and explaining them in a way to people that they can understand. So Richard, why don't you talk to us now about risks facing the nation? Yes, I'm talking about the United States.

Richard Duncan 8:15

A lot of podcasts focus on all the problems the United States is facing, and it is certainly true that the United States is facing very serious risk. So I'd like to start off this conversation telling you what I think the greatest risk facing our country are. There are four main things I'd like to hit on. The first is something you mentioned to me before in our exchange of emails, is that the US government does have a very high level of government debt relative to GDP, and the budget deficits are large. So that's problem number one. Problem number two, in my opinion, looking at this from where I live in Asia, is that the United States is at risk of being conquered by China in the not too distant future. Risk Number Two. Risk Number three, we have very serious domestic political divisions within the United States. Risk Number four is that our post capitalist economic system, which I call creditism, must have credit growth to survive. If credit contracts, then our economy will spiral into a Great Depression that will be probably worse than the one of the 1930s so those are the big four problems that we have, and it doesn't do anyone any good just to talk about our country's problems if you don't offer a solution to them. So in my opinion, all of these problems can be overcome by accelerating economic growth in the United States, while all of these problems would be made very much worse by anything that causes us economic growth to slow down. The way to make the US economy grow much faster is to have the US Government finance a very, very large investment in the industries and technologies of the future over the next 10 years, starting immediately. The alternative austerity would cause the economy to spiral down into deflation. We'd like your listeners to think of austerity when they hear the word austerity. I'd like them to think of the word death. It's austerity is equal to death. Yeah, the US doesn't have to be a declining power. The first American Century doesn't have to be the last. It can be the first of many. The solution for driving the US economy to grow much more rapidly and solving all four of the problems that I mentioned above is a US sovereign wealth fund. Thank heavens. Both parties now support the establishment of a US sovereign wealth fund. On September 5, former President Trump came out in support of establishing a US sovereign wealth fund, and on the following day, the Biden administration said, then working on this for months and had a plan that they were developing. So this is fantastic news for the United States. It offers great hope for solving all of our greatest problems. And I'd like to spend, you know, a few minutes explaining to your listeners what a US sovereign wealth fund is, yes, urgently necessary, and why both parties have now come to understand why this is important to establish.

Keith Weinhold 11:27

Yeah, please tell us why you think the US sovereign wealth fund is so urgently needed, and what it is because for even longer than the 10 years since you were first here, for about 15 years now, you have championed and promoted this US sovereign wealth fund. You discussed it on CNBC Squawk Box and all over the place. Last year, you presented about it in a speech in DC to 15 members of the House, Ways and Means Committee. So tell us about the US sovereign wealth fund and why you think it's urgently needed.

Richard Duncan 11:56

Let's begin with, what is a sovereign wealth fund? Well, effectively, a sovereign wealth fund is where a country invest in individual companies or even in startups. There are sovereign wealth funds all around the world. Norway has the largest, Singapore has two very effective ones called gdic and Temasek, which had been enormously profitable and successful, and it made the people in Singapore much richer. So a sovereign wealth fund in the United States would be an investment bond financed by the United States government with the US. This investment fund would take stakes in existing companies and also in startup companies, hopefully on a very large scale. Now, some people have asked, Why is this framework necessary? Why do we need a sovereign wealth fund to do that when the government is already making investments in the military, for instance, and funding some R and D research? Well, the difference between what the government is doing now and a sovereign wealth fund is with a sovereign wealth fund, the government would actually keep equity stakes in these companies that they invest in, meaning that when these companies they invest in become enormously profitable, the profits would be owned by every American. The Americans would have the equity stakes in all of the investments that this sovereign wealth fund makes. And it would be a situation where the government provides the financing, but the private sector manages the companies. The government just finances these companies in new industries and new technologies, and the government has the ability to invest on a very much larger scale than the private sector does. For example, The United States has a lot of great companies in the private sector that have accomplished really, truly great things in recent years and long past as well. But these private sector companies cannot invest on the same scale that the Chinese government can. The Chinese government is investing on a much larger scale than any of the American companies could ever dream to invest on. And that's explains why China is overtaking us now technologically, and if they continue to invest at a rapid rate that they're doing currently, then before long, there are going to be far ahead of us technologically and therefore economically, and more worryingly, militarily, the US government has the ability to invest truly on a multi trillion dollar scale over the next decade in new industries and technologies, things like artificial intelligence, quantum computing, nanotech, biotech, genetic engineering and developing energy sources like fusion, and it has the ability to do this on such a large scale that it would be certain to succeed. And once these companies start creating cancer vaccines or fusion, for instance, they would be enormously profitable, and they could be listed on. NASDAQ at multi trillion dollar valuations, and the American public would own equity stakes in these companies, and would then would directly reap the rewards of these profits that these companies would generate. That is what a sovereign wealth fund is, why it's desperately needed, is, well, first of all, we should do it, because we can easily afford to do it. And the results, the breakthroughs, the technological breakthroughs and medical miracles that these sorts of companies would produce, would we really have the shot of curing all the diseases and radically extending life expectancy, developing sources of limitless energy that would bring down the cost of energy radically. Just across the board, it would induce a technological revolution that would turbo charge us economic growth, create UNDRIP wealth, and at the same time, shore up US national security in the face of this growing threat from China. So for all of those reasons, it is urgently necessary. In my opinion.

Keith Weinhold 16:04

both Norway and Singapore have had similar models to this. US sovereign wealth fund, and we certainly think of those two nations as prosperous places, tell me more about why it's a success so the government finances it does that incentivize companies to therefore take more risk?

Richard Duncan 16:25

It allows them to invest more. It allows them to invest on a much larger scale than that. Could if they have to rely on their own funding sources. Rather than investing millions of dollars, they could invest billions of dollars or 10s of billions of dollars. For instance, at the moment, the National Cancer Institute in the United States, this annual budget is $6 billion a year. $6 billion a year is not curing cancer. If we look back a few years ago, the Fed was creating $120 billion a month through quantitative easing per month. So with just 5% of one month of QE, you could double the National Cancer Institute's budget. Now that's not what this sovereign wealth fund would do. That just illustrates the scale. How much greater the scale would be that the government could invest on relative to what is currently being invested at the moment by the government and by the private sector combined.

Keith Weinhold 17:28

Do any critics ever ask about Wait? Is this too much government intervention into the free market? Is this a move away from capitalism? What do you say to those sort of critics?

Richard Duncan 17:38

I say to them that capitalism died in World War One. It certainly didn't survive the 20th century. Now the government. In the 19th century, we had capitalism. The government had very little involvement in the economy then and gold was money. But now gold is no longer money. The Fed creates some money. Government spending is something like nearly $7 trillion out of a GDP. That is around just not quite $30 trillion yet. So the government has been directing the economy going back at least since World War Two. This hasn't been capitalism for a very long time. Under capitalism, the private sector made investments, and some businessmen would make profits from their investments, and they would save that profit as capital and reinvest that capital. That's how capitalism grew. That's why they called it capitalism. It was based on capital accumulation and investment. But that's not how our economic system has worked for decades. Our system now is not driven by investment and saving by the private sector. It's driven by credit creation and consumption and more credit creation and more consumption and our economies has now been transformed from capitalism. It has evolved into creditism, with the government playing the directing role. So total credit in the United States, just last quarter blew through $100 trillion for the first time. By what I mean by total credit is the same thing as total debt. Total credit is equal to total debt. So this is all the debt of all sectors of the economy, the government sector, the household sector, the corporate sector, the financial sector, Fannie Mae and Freddie Mac all the sectors of the economy, it just went through $100 trillion and Breda ism has created very rapid growth, especially all around the world, not only in the United States, because it has allowed the US economy to grow so rapidly and to import so much from other countries that this is why The Asian miracle occurred. I've lived through the Asian miracle because the US has been running massively large trade deficits since the early 1980s and all these countries in Asia have been running massively large trade surpluses, and all this spending that the Americans have been doing has been fueled by this rapidly. Radically expansion of credit. Total credit first went through $1 trillion in 1964 now it's $100,000,000,000,000. 60 years later. Now our system is not capitalism. The government is very involved. Anytime there's any problem with the economy, the government steps in. In 2008 the government prevented a new Great Depression when the private sector the households defaulted on their debts and caused all the banks to fail, and Freddie Mac did fail and had to be taken over by the government. So at that time, we narrowly avoided a Great Depression, because the government increased its budget deficits by more than a trillion dollars a year for four years in a row, and the Fed expanded. The Fed created three and a half trillion dollars between the end of 2007 and 2014, expanding its balance sheet by about five times. So that's not capitalism. We don't have capitalism. So people who are worried about us abandoning capitalism. They're behind the times that happened a long time ago. That shouldn't be a concern. They should be aware now that we are competing against players who don't play by the capitalist rules of little government intervention in the markets we're now competing against China, and China is one giant sovereign wealth fund intent on dominating the world by investing very aggressively in new industries and technologies. In the year 2000 the United States invested, I think, 10 times as much in research and development as China did. But now China is actually investing more in research and development and the US is and that explains why China is ahead in so many areas of technology. They had 5g years before we did. They are the leaders in electric vehicles and batteries. We have to put up 100% tariffs to keep out electric vehicles from China because they're so much better than our electric vehicles. They dominate solar panels. And are worse, they have hypersonic missiles and we don't, and I'm sure they have other military advantages that we don't, because they invest much more aggressively in new industries and technologies than our government does. And if we don't rectify this quickly, then we are soon going to be overtaken by China militarily, and our national security is at risk, much more than most Americans understand. But this realization has slowly grown on policymakers in Washington, and now both parties are worried about this, and this is why we have this growing fear of China, and why we have proposals to limit technology transfers to China, and this is why we've done things like the chips and science act, where the government has agreed to finance a $280 billion investment in new industries and technologies a couple of years ago, with 50 billion of that going into setting up manufacturing facilities within the in the US to create semiconductors, rather than relying solely on Taiwan to obtain all of our semiconductors, because China could take Taiwan at any moment, and then then he would end up with all the semiconductor chips that go into powering artificial intelligence. And whoever develops Artificial General Intelligence first is going to rule the world, and therefore it had better be the United States rather than China, because we don't want to live in a world dominated by China, believe me.

Keith Weinhold 23:26

Well, a lot of macro voices agree with you. About two months ago, we had the president of the Mises Institute here, and the way he characterized things are in the United States. 100 years ago, we had islands of socialism in a sea of capitalism, and today we merely have islands of capitalism in a sea of socialism. Do you see the US sovereign wealth fund being able to solve all four of the United States big problems that you outlined, debt and deficit conquering by China, political division and creditism. Can it solve all four of those?

Richard Duncan 24:04

Yes, it can. So as you know, Keith, a couple of years ago, I published my fourth book. It was called the money revolution. Yeah? How to find the book? Sure, yeah. How to finance the next American century. It was a subtitle. Now I argue that it would be very easy for the US to invest on a multi trillion dollar scale, new industries and new technologies over the next decade, and if we do that through a sovereign wealth fund, then would generate so much growth and be so profitable that instead of causing the government debt to increase, it would actually make the economy so much larger and generate so many more tax revenues, and the government would make so many profits from these companies that it has equity stakes in that it would reduce the government debt in absolute terms, and radically reduce the government debt relative to GDP, which would grow far faster than it has been growing in recent decades. This problem, number one, solved the high level of government debt. A high level of debt to GDP just make the GDP grow a lot faster, and the ratio of debt to GDP will go down. Problem number two is the US is at risk of being conquered by China. We can out invest China. We can invest more than China can afford to invest. We still have the best universities and the best entrepreneurs and scientists. So if we invest on a large enough scale, we will win, and China will not conquer us. Third, if the economy is growing at 7% a year instead of 1% a year, that is going to alleviate a lot of the domestic tensions that exist currently, much of the reason there's the origins of this domestic political divide that we're now suffering from in the US is because such a large part of the population has been left behind when all the factories moved overseas, countries like China and Vietnam, we de industrialized, and the people who Used to have good factory jobs, good, unionized, high paying factory jobs. All those people were left out in the cold, and they're not happy about it. And so if our economy were growing much more rapidly, these people would have much better jobs and much higher salaries, and they would be much happier than they are at the moment. And the final one was our post capitalist system of creditism requires credit growth to survive. So if the government is financing these investments on a multi trillion dollar scale, it's going to make credit expand, and that's going to keep the economy expanding. So yes, it would solve all four of those problems.

Keith Weinhold 26:35

One of those four problems is the debt and the deficit. I want to dive into that more with Richard as it becomes more and more problematic in the United States, and just how far we can kick this can down the road. You're listening to get rich education. We're talking with macro economist Richard Duncan. More, we come back. I'm your host. Keith Weinhold.

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Jim Rickards 28:40

this is Author Jim Rickards. Listen to get rich education with Keith Weinhold, and don't quit your Daydream.

Keith Weinhold 28:55

Welcome back to get rich education. We are going big this week, talking about the global economy, although mostly centered on the United States, with macroeconomist Richard Duncan. You can learn more about him at RichardDuncaneconomics.com and Richard I want to talk about the debt in the deficit. The debt is the United States overall debt as it accumulates year after year, and the deficit is just the annual thing, and it's so interesting and concerning. When I look at this, when you look at the line items in the United States government's annual spending, we now see that interest payments are taking the second largest chunk, only to Social Security. Social Security's number one interest is the second biggest expense, even more than defense spending and on Medicare. So I just wonder, as I see the interest payments going up and up and up and projected to be our greatest expense every year. You know, one thing I think about Richard is when our interest payments alone exceed our. Revenue somewhere down the road, is that when it's game over, or is that when we're on the way to game over? So can you talk to us about really, where the concern crops up with the deficit, like I talked about, and with the debt that's now at about $36 trillion

Richard Duncan 30:17

deficit and debt is a real problem. It was the first problem that I mentioned when we kicked off the conversation. There are two components of that. One is the fact that government debt has been increasing very rapidly. At the end of 2007 total government debt was around $9 trillion by 2014 it had doubled to $18 trillion because the government had to respond to the collapse of the private sector in 2008 and prevent us from having a great depression at that time, and then after 2014 it has doubled again, from 18 trillion to $36 trillion now, much of that was due to the need for the government to keep us from having another Great Depression during COVID When government stimulus amounted to about $5 trillion and the Fed created a similar amount over just a two year period. So now we have a much higher level of government debt. But the second component of that is that interest rates are very much higher than they used to be. The federal funds rate went up from 0% a few years back to a high of five and a quarter, actually a range between five and a quarter and five and a half. And recently, the Fed cut the federal funds rate by 50 basis points. But you can still say it is 4.9% let's call it 4.9% so interest rates are far higher than they used to be, but they don't have to remain high. The reason interest rates went up is because the Fed increased the federal funds rate. And the reason the Fed increased the federal funds rate is because we had high rates of inflation. Inflation peaked at 9% or so in 2022 but most recently, the CPI has come back down to 2.4% and the Fed's favorite measure of inflation, that PCE Price Index, has come down to 2.2% and that means that the federal funds rate, which is 4.9% is more than twice as high as the inflation rate is. That shows us that we have very tight monetary policy, and the Fed should be able to reduce interest rates very rapidly going forward. They've told us in their dot plot projections that they expect that interest rates will end this year the federal funds rate at 4.4% and then in next year, at 3.4% and 2026 at 2.9% so that reduction in interest rates will bring down the cost of the total interest expense that you mentioned as being so high currently, the risk, however, is that we get a rebound in inflation. We're inflation to surge again, then interest rates won't come down. In fact, they could go higher. So all of my career, more or less, has been spent in Asia. And the main theme that is run through the global economy, the development of the global economy over the last three and a half decades has been globalization, globalization in the form of us running very large trade deficits with other countries. Literally, the US current account deficit since the early 1980s has been $15 trillion meaning countries with the trade surpluses have had a $15 trillion trade surplus, and that's why they've all been transformed economically as a result of their trade surplus with the US, but what the US got out of this was the ability to buy things made with very low cost labor, and that was extremely disinflationary, that drove down the inflation rate in the US, and that allowed interest rates in the US to come down to very low levels that we've seen during most of this century, Up until the time COVID started. The real danger is now, if we do impose very high trade tariffs on China and our other trading partners, then that will cause a very serious spike in inflation. And it won't just be one off, because, of course, when the tariffs are put in place, that will immediately cause everything to be that much more expensive. The US companies importing goods from abroad would have to pay that tariff, then those US companies would pass those higher expenses on to the consumers, so we'd get an immediate spike in inflation. But that would also mean that the companies abroad it wouldn't be so profitable for them to have their manufacturing facilities abroad, they would try to bring those back home. And given that the unemployment rate in the US is so low already, only 4.1% there's not enough labor to allow these manufacturing facilities to come back to the US and start producing goods in the US. So that would cause an upward spiral. In wages and the wage push inflation spiral of the type that we had in the late 1960s and early 1970s so that is a In other words, tariffs would put an end to globalization, and that would cause a such a severe spike in inflation and interest rates, it would essentially be the death nail for creditism, which requires credit growth to survive. The end of globalization would mean this end of this 30 year global economic boom that the world has enjoyed, and therefore it is a very severe threat, and it would push up the interest expense of the US government, which you let off with, instead of lower interest rates, bringing down the interest expense the government has to pay every year, we would have instead higher interest rates, which would make the amount that the government has to pay on its interest even higher than it is at the moment, and make the budget deficit even larger than it is at the moment, and Make the government debt grow even faster than it's growing at the moment. So let's hope that doesn't happen. Instead, the better approach is to invest, to have the government finance large scale investments in new industries and technologies make the economy grow much more rapidly and we can grow our way out of this debt problem that we're currently in,

Keith Weinhold 36:21

yes more inflation, whether that comes from higher tarrifs or any other sources, will lead to higher interest rates to counteract that higher inflation, which will Yes, pump up the deficit in the debt that much more. And you know, one thing that I like about Richard is, you know, a lot of people complain about things, or say, what are we going to do? Or Things look bad, and Richard is saying some of that, but he offers a way forward with the US sovereign wealth fund, like he talked about before, investing our way out of it. So Richard, if we don't invest in this debt and deficit situation gets worse. It could be a hard question to answer, but I'd like your best guess at how far can we kick the can down the road? When is it game over? How big do our interest payments on the debt and deficit have to get?

Richard Duncan 37:10

the game is never over. No matter how bad things become, humanity will survive and carry on. So even in the Great Depression, people made it through, even through World War Two that resulted, largely as a result of the Great Depression. A lot of people died. 60 million people died, but the game didn't end. So regardless of how bad the economic system system were to become, humanity will survive and there will be a solution. Now, a lot of people put forward that, the idea that they point out that we have this high level of government debt, and their solution is to reduce government spending. The government spends something like $6.8 trillion last year. That was the amount the government spent. The budget deficit last year was 1.8 trillion so in order to eliminate the budget deficit, the government would have to spend $1.8 trillion less. In other words, it would have to cut its spending by 27% but the government cut its spending by 27% they're going to happen. The economy would immediately spiral into a depression. So even that reduction in spending wouldn't balance the budget, because the government revenues would collapse, and they would have even fewer tax revenues, so the deficit would still be there, the economy would collapse, and the unemployment rate would be 20 plus percent, and would just fall further behind China and be at greater risk from a national security perspective, and much more miserable As a society overall. That's why it's always say people should consider think of the words austerity and death at the same time, because austerity would bring about the collapse of our economic system and the Great Depression unless your civilization would survive it. trying to answer your question more directly, how high could this go? Well, governments don't default on their debt when push comes to shove. If the government's having a hard time paying interest on its debt, the Fed will just print more money. And in a case where between 2008 and 2014 when the Fed created three and a half trillion dollars, they printed a lot of money at that short space of time, and they got away with it without having high rates of inflation. The highest rate of inflation we had during that period was 3.8% in 2011 and by the early months of 2015 we had deflation again for a few months. Prices actually fell negative CPI for a few months in 2015 so if we have a global economy, as we do at the moment, full of we have nearly 8 billion people, I would guess 2 billion of them at least live on less than $5 a day. So the US could get away with having a lot of paper money printing without having higher, very high rates of inflation and the government could finance itself that way for quite a long time. Of course, if we have a closed domestic economy brought about by extremely high tariff barriers, then we would end up with hyperinflation in the United States. But even with hyperinflation, it would be very painful for people who have all their cash in the bank or under their mattress, but people with assets, those asset prices would appreciate more or less in line with the inflation, and it would erode the government debt relative to the size of the economy, because the GDP would grow in nominal terms very rapidly because of the hyperinflation, and the debt, which is not inflation adjusted, would be evaporated away by the inflation.

Keith Weinhold 40:43

right? that's why here at GRE we are all invested and aimed toward prudent use of leverage with assets like real estate and we sure have been the beneficiaries of that wave of inflation that followed COVID there. Richard, well, we're talking about the debt and the deficit somewhat, which, interestingly, has actually doubled since the first time you were here on the show. When you were here, 10 years ago, it was at 18 trillion, and today it's at 36 trillion. We talked about, how far can you kick the can down the road back then? Well, here we are, 10 years later, and it's doubled. Talk to us. You know, you talked previously about the greatest risk to the United States economy. Tell us now, as we are investors here on this show, about the greatest risk to the real estate and stock market, I would just say within the next year. What are some of those risks to those particular markets?

Richard Duncan 41:38

We've already discussed the main risk that high tariffs would potentially cause a new spike of inflation and force the Fed to hike interest rates rather than cutting interest rates. But there are some other risk as well. One is the fact that we already have a very high level of wealth relative to income. Let me back up a second. You were talking about debt doubling since we first spoke 10 years ago. Here's another statistic for you. Just in the last four and a half years, the total wealth of the Americans, all of their assets minus all of their liabilities. In other words, household sector net worth. Since the end of 2019 it has increased by $47 trillion in four and a half years. That's about a 40% increase. Now, $47 trillion is enough to pay off the entire US government tip, which we've been worrying about with $11 trillion left over. So not everything is as bleak as it sounds on the surface. We've had a huge explosion of wealth in the last four and a half years that's been driven by property and also by stocks. The problem now is, is that the level of income the asset prices, are very inflated relative to their historic norms. And one of the ratios that I always keep an eye on is called the wealth to income ratio. It takes the household sector net worth. In other words, the wealth that we were just discussing, which, by the way, is now $164 trillion of wealth owned by the Americans. The wealth divided by income, disposable personal income, this wealth to income ratio is now an extraordinarily high level. The ratio is 785% whereas the average of that ratio going back to 1950 has been 550% the previous two peaks were in the year 2000 when it hit 620 during the NASDAQ bubble, and then that bubble popped, and the stock market crashed, and we had a recession, and it went back to 550 and then it surged to a new peak of 680 during the property bubble. And then that bubble popped, and we almost went into a depression, and that a lot of wealth was destroyed. We had a severe recession. The government had to bail us out from and that ratio went back to 550 again. Now it is just off the charts relative to its previous peaks, because people 680 now it's 785 so people used to suggest that higher asset prices were justified because interest rates were near 0% but even after the Fed hiked interest rates from near 0% to about 5% The asset prices have stayed inflated. That does suggest that asset prices are very inflated and therefore very vulnerable to any sort of shock that could occur, whether geopolitical or economic or domestic political problems. So that's a concern. Another concern is quantitative tightening is still occurring. Quantitative tightening is the opposite of quantitative easing. When, with quantitative easing, the Fed creates money and pumps it into the financial markets, and that tends to make asset prices go up, and it also tends to make interest rates on government debt stay low, because if it pushes up bond prices, it pushes down. Bond yields. Well, now the opposite is occurring. Over the last two years, the Fed has destroyed roughly $2 trillion it created $5 trillion from the end of 2019 till about 2022 during the COVID pandemic, and the policy response to that, the Fed created $5 trillion but now it's destroyed 2 trillion of that five that it created, and is still destroying dollars at the rate of about $60 billion a month, or $700 billion a year. And as it does, as it destroys dollars, it takes dollars out of the financial system, which all other things being the same, tends to make financial conditions tighter, putting upward pressure on bond yields and downward pressure on asset prices. So as this continues, this is a concern, because reduce the liquidity in the system by another $700 billion if it continues for another year, having said that there is still an enormous amount of excess liquidity in the system as a result of all of the money that the Fed has created, going back to 2008 I estimate that the excess liquidity is somewhere around three and a half trillion dollars. If you look at bank reserves and the reverse repos at the Fed is about three and a half trillion dollars of excess liquidity, and the Fed actually has to pay interest to the banks on their bank reserves to hold interest rates up. That's how the Fed controls the federal funds rate now. It pays the banks roughly right now, 4.8% interest on all of the banks bank reserves, and so the banks will not lend money to anyone at less than 4.8% interest, because the Fed will pay them 4.8% interest. Why would they lend to anyone else for less if it suddenly stopped paying interest on these bank reserves, these banks would look around and where would they invest their three and a half trillion dollars in? No one's going to pay them 4.8% or even 3.8% or 2.8% interest rates would plunge because of all the excess liquidity that exists. So this excess liquidity has been a thing that's been driving the economy since COVID started, and it's why we've managed to avoid recession, which everyone is expected to arrive any moment now for the last two and a half years. So there are concerns, but there are also, as always, other reasons for optimism.

Keith Weinhold 47:24

Well, that wealth to income ratio that Richard talked about, that's a calculation that you yourself can do. One's net worth is almost eight times their income now, which is at a historic high, which is one concerning point that Richard brought up. Well, Richard, I want you to tell us about your terrific video newsletter, macro watch unless you have any other last thoughts first.

Richard Duncan 47:51

well, just one last word on the US sovereign wealth fund. Thank you very much for giving me a chance to discuss that and to explain why both Democrats and Republicans are now in favor of establishing a US sovereign wealth fund, one of the few issues that has bipartisan support. And this must come as a surprise to many of your listeners and most Americans, in fact, why have both parties agreed on really setting up a US sovereign wealth fund? So I'm glad I've had a chance to explain it and why it's so urgently necessary. I'd just like to emphasize the extraordinary benefits that this delivers to the American people, both individually and at a national level, individually, in terms of medical breakthroughs and better health and much more rapid economic growth for the economy, so much more wealth and much more national security as well. So I hope the Americans will get on board with this idea and give it their full support, because it's exactly what our country needs to solve all the four issues, the major issues that I laid out at the beginning of this conversation. But with that said, if your listeners would like to learn more about my work, Macrowatch. Microwatch is a video newsletter. Every couple of weeks, I upload a new video discussing something important happening in the global economy and how that's likely to affect the stock market, property, currencies and commodities. They can find macro watch on my website, which is RichardDuncanEconomics.com that's RichardDuncanEconomics.com Macro Watch has been going on now for 11 years, they'll find more than 100 hours of videos in the microwatch archives. They can begin watching immediately, and they'll receive a new video every couple of weeks. And I'd like to offer your listeners a subscription discount. If they go to Richard Duncan economics.com and hit the subscribe button, they'll be prompted to put in a discount coupon code, if they put it in G, R, E, they can subscribe to macro watch at a 50% discount. That's great. That's GRE so I hope they'll check that out, and at the very least, they can sign up there for my free blog and follow my work that way.

Keith Weinhold 49:56

And I have benefited from consuming macro watch content myself over the years, allowing me to sort of stretch my thought process and go macro, which we don't always do as real estate investors. Oh, Richard, it's been valuable as always, and you really offered a solution, a way forward here, something that's really refreshing. It's been great as always, having you back on the show.

Richard Duncan 50:18

Yeah. Thank you very much. I look forward to the next time

Keith Weinhold 50:21

me too. when it comes to the term capitalism, if that's truly a system that we're no longer in, you know, it seems to get replaced with the word meritocracy, and that is a word that I like, meritocracy, where producers get rewards for being productive, but even that is under attack, and the government just always seems to be stepping in with a safety net. Seemingly everywhere you look, it won't let banks fail. We saw them jump in early last year with Silicon Valley Bank and other bank failures, the government won't let homeowners fail either. I mean, you don't have to think back very far with mortgage loan forbearance in the COVID era, on issues of the debt and deficit. Even Fed Chair Jerome Powell himself has called it unsustainable. That's the word that he used. Like Richard said today, we won't default. We'll just print more. So when it comes to the inflation versus deflation tug of war, the future keeps looking inflationary, but at what rate of inflation? That's what I don't know, and no one really knows. If you like Richard Duncan's content, and you sort of wished he and I's conversation would go on. Well, he is a regular guest here, so I expect him back. But if you're telling yourself, I want more of his content and I want to make it visual at the same time to help really bring this to life, well, visit RichardDuncanEconomics.com hit the subscribe button and get 50% off. That's five zero, 50% off with the discount code. GRE. Happy Veterans Day. Until next week, I'm your host, Keith Weinhold, don't quit your Daydream.

Speaker 2 52:17

Keith Weinhold 52:46

The preceding program was brought to you by your home for wealth, building, getricheducation.com

Direct download: GREepisode527_.mp3
Category:general -- posted at: 4:00am EDT

Mon, 4 November 2024

Keith discusses the inefficiency of compound interest in wealth building, advocating for compound leverage through real estate investments. He illustrates how a $100,000 investment in a $500,000 property at a 6% annual return can yield much higher returns due to leverage (see the math below).

He also explains how mortgage rates are influenced by long-term bond yields and discusses the benefits of real estate over stocks.

A coaching call with GRE Investment Coach Naresh highlights the process of investing in real estate, including financing considerations and the role of a coach in guiding investors.

Here’s the math on a 5:1 leveraged RE return at a 6% appreciation rate:

Year One: $500,000 x 1.06 = $530,000. Subtract $400K debt = $130,000 equity

Year Two: $530,000 x 1.06 = $561,800. Subtract $400K debt = $161,800 equity

Year Three: $561,800 x 1.06 = $595,508. Subtract $400K debt = $195,508 equity.

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525: Immigration Surge Tightens Housing Demand, How to Avoid Paying State Income Tax

Complete episode transcript:

Automatically Transcribed With Otter.ai

Keith Weinhold 0:00

Keith, welcome to GRE I'm your host. Keith Weinhold, make America rich again in play numbers. You'll get a fresh take today on how compound interest does not build wealth and compound leverage does. Then you'll learn about how bond market moves affect mortgage rates. Finally, you get to listening to a call between one of our investment coaches and a GRE follower today on Get Rich Education.

Speaker 1 0:33

Since 2014 the powerful get rich education podcast has created more passive income for people than nearly any other show in the world. This show teaches you how to earn strong returns from passive real estate investing in the best markets without losing your time being a flipper or landlord. Show Host Keith Weinhold writes for both Forbes and Rich Dad advisors, and delivers a new show every week since 2014 there's been millions of listener downloads of 188 world nations. He has a list show guests and key top selling personal finance author Robert Kiyosaki, get rich education can be heard on every podcast platform, plus it has its own dedicated Apple and Android listener phone apps build wealth on the go with the get rich education podcast. Sign up now for the get rich education podcast or visit get rich education.com

Corey Coates 1:19

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 1:35

Welcome to GRE from Altoona, Pennsylvania to Saskatoon, Saskatchewan, and across 188 nations worldwide. I'm Keith Weinhold, and this is get rich education, the voice of real estate investing Since 2014 you're going to hear some things that you've never heard before today, and some listeners tell us that GRE is unlike any real estate information they've ever heard. And with what I want to tell you today, well, again, it's information that I've never heard anywhere else, either. So what I endeavor to regularly do for you here on this show is to tell you what I wish I had known sooner make America rich again, nope, that is not my presidential campaign platform for my run in the year 2032, or anything like that. It is this, don't get your money to work for you. In fact, if you want real wealth, don't work for money or get your money to work for you. Don't make either of those things the focus anyway, avoid growing your money through compound interest, because that's not the formula either. Now you and I have covered that ground before, if you're new here, and that material makes you say what you might have thought things like that were the holy grail of wealth building, nope, and today, for the first time on the show, in over 500 episodes, I'm gonna put some real numbers to that to show you exactly what I mean. Let me explain to you how to invest to truly win in a way that you've never seen in your life. You're not gonna improve only your life, but generationally, your entire family's life. At your job, you are like a dock worker. You're trying to pull your boat up to the dock so that you can then make a short, easy hop onto the boat and get away. And you'll learn how I did that and how I would begin investing today if I could start all over again. Now, after I had graduated college and had a job, I used to think, Well, yeah, I'll invest through a 401K in mutual funds, because it's easy and it's just deducted right from my paycheck. Well, when you do the easy thing in life, there's usually not much reward. And back then, I thought, Well, why would I invest in real estate anyway? I mean, a stock and mutual fund return on investment is about 10% over time. Real Estate is more like five or 6% plus real estate has all these maintenance hassles, and in the stock market, your 10% return enjoys compound interest. I don't really know how that works over on the real estate side, all right. Well, let's look at some numbers with how this would all work anyway. Here we go with $100,000 invested in stocks at 10% after year one, it's grown to $110,000 in year two, you don't just have 120k you've got more, because the 10% compounds on the 110 10k so now in year two, you've got $121,000 and I bet that you don't see any problem in this yet, right? Hey, things are going great. And after year three, you're up to $133,100 All right, so there we are. You begin with 100k and after three years, you've got then $33,100 in profit, your gain, on top of your 100k All right, that's what compound interest does. Well, let's take a closer look at that. $33,100 first, okay, I could attack it a slew of reasonable ways, if I wanted to, we could subtract out the constant drags on that of inflation, emotion, taxes, fees and volatility. But let's just take one volatility. We smoothed out our 10% return saying that you achieved it every year in that example there, we know that does not happen in the real world. Stocks are volatile, and the more volatile the return, the lower the return. Because instead, if you were up 20% one year and then down 20% the next year, which stocks are known to do you're not even you're down your 100k would instead go up to 120k in year one and down to 96k in year two, a loss, like I've told you before, that right there is the difference between what's called the compounded annual growth rate and the average annual return. But we'll just leave stocks number right there. We'll say that despite all five drags, volatility, of which is just one, the compound interest still somehow gave you this $33,100 gain. That number is about to look really disappointing, and this is about to get really interesting.

Let's compare that to real estate, and we'll say that despite that, it only returns, say, 6% per year here. Well, how do most people buy real estate? They do it with other people's money. OPM, remember earlier that I talked to you about how you don't create wealth from getting only your money to work for you, like you did in the stock example. Yeah, here's how you ethically use other people's money to buy real estate. When you invest 100k in a rental property. That's your 20% down. You get to borrow 80% from the bank, 400k so now you control a $500,000 property. And here's the thing, its entire value appreciates a 6% all 500k not only your 100k invested, yes, so you're now about to get the return on both your 100k and all of the bank's money. 400k that you get to leverage returns from both are about to go to you. Oh, yes, let's run these numbers, instead of compound interest, you're about to get compound leverage, using those borrowed funds to amplify your own return. So with your 100k invested on a 500k property at 6% after year one, you've got 130k after year two, $161,800 and after year three, $195,508 why? Because, again, your 6% return was accumulating on the 500k property. All right, so after year three, with this $195,508 you're gonna subtract out your 100k down payment, and your gain is $95,508 All right, that is compared to your compound interest based stock and mutual fund return of just $33,100 if you'd like to see the math for that leverage. Return that is in the show notes. Look for it there. See, by employing other people's money, it's like when you were a kid and in the evening, your body cast a shadow five times taller than you actually were. That's how leverage allows you to magnify returns and appear to be a bigger, taller investor than you actually are. Yes, your 20% down payment on real estate gave you five to one leverage amplifying your returns. If you listen to the show for a while, you understand that, but you never saw that numeric dollar per dollar comparison like we just did. So after three years, how about 33k profit on stocks and 95k on real estate? Real estate returns almost three times as much. But in reality, it's probably more than a 3x win for real estate because you're 95 Gain over three years in real estate, equity is actually going to be higher, because your tenant is also paying down your principal balance on your 400k loan every single month for 36 months in this three year example, if your property is vacant, 10% of the time they paid it down for you 33 out of 36 months, and as we know, at the same time, inflation pays down your loan even faster than the tenant does. Real Estate is also more tax advantaged than your stock gain, because you never have to pay capital gains tax on your 95k profit with a 1031 tax deferred exchange. And on the downside for real estate, upon owning the property, you will need to pay closing costs of maybe four to 5% of the purchase price. All right now, in this 95k gain for real estate versus 33k gain for stocks, I did some rounding there. Yes, even if your stock return was in a 401 K type fund, well, you would still have to either pay the tax now with a Roth or later with a traditional retirement plan. So you're still paying the tax. The higher real estate return is also more likely because real estate is less volatile than stocks, and I've got more vitally important things to tell you about how you just grew wealth about three times faster with leverage than with compound interest. And yes, this is exactly the kind of stuff I wish I knew when I had just started out. Now if you think you don't have the money for a down payment. I'll get into that. But first, a big review here, and I've woven threads of this review through previous episodes. First, don't focus on getting only your money to work for you. And second, stress compound leverage, not compound interest. Optimize using other people's money. And when you take out a loan for rental property, you get to use other people's money three ways at the same time, three different entities, you're using their money. Number one, it's for the bank's loan, like we discussed. Number two, you're using the government's money for generous tax incentives. I only touched on one of the tax incentives. And then, thirdly, you are using the tenants money to pay down your mortgage loan and pay all of your properties operating expenses, like maintenance repairs, insurance, property taxes and pay your property manager to make this all mostly passive for you. I don't manage any of my own properties. I think you already know that. And on top of that, hopefully you'll have a little residual income after expenses every month, your monthly profit of rent income minus expenses, that is called cash flow. And when I talk about doing this ethically, use an experienced property manager. Never get called a slumlord. Provide housing that's clean, safe, affordable and functional, okay, some really core, enduring, GRE mantras in there. But what if real estate goes down in value? It's not common, but I did have it happen to me around 2008 we won't even talk about what happens when stocks go down in value, but when real estate values went down in 2008 it just didn't matter that my rental property's values were temporarily suppressed because my rents were higher than my expenses, I was still making income each month off the property. That's a good way to own property, if you can. I'm not motivated to sell an asset. I mean, are you motivated to sell an asset that's paying you income every month during a time when it's capital value dip, so probably not. And by the way, there is nothing new or esoteric here. You just haven't had it explained to you in this way before. This 33k from stocks and mutual funds versus 95k from real estate you haven't seen that before. This is simply buying houses with plain vanilla 30 year fixed rate loans, and it's just simply long term buy and hold. This is not flipping, as I like to say. This is not day trading. This is decade trading, as you continue along in your real estate journey, keep stacking more properties, and it's gonna go faster than you think, because you've got this power of compound leverage, and your tenant also pays you income that you can use toward buying the next property, and then as a backup, you have that trapped equity that keeps accumulating in your property. And the reason this goes faster than you think is that you can also release that equity by removing it with a completely tax free event, a cash out refinance, all while you still hold onto the asset and you. Use the untrapped equity to put down payments on more property. Now, what if you think you don't have the money to start or get as big as you want, as fast as you want? Well, I've met a lot of people that when they understand this compound leverage concept, they withdraw their 401 K funds, pay a penalty and pay the taxes, and they put those funds toward real estate. I mean, you would owe taxes on it anyway. Now that part may or may not be ready for you, but you know, once I understood this, what I did is I stopped contributing to my 401K and I instead got into compound leverage. Yeah, this is how to make America rich again. Now, what if you think you don't have 100k to invest in property like we did in our example? Well, there are perfectly good $200,000 properties at GREmarketplace.com where you could make a $40,000 down payment. But you still might be thinking, I'll just say that the real estate market is just really competitive now, and that your small down payment maybe it can't compete with a deep pockets all cash offer, because all cash buyers can close really fast, but no your small down payment can still compete with all cash offers, because Some sellers don't want a quick sale for either tax reasons or myriad lifestyle reasons that they might have, I like to say that using debt is like using fire if it's misallocated, like with 23% credit card debt, that's what the average credit card interest rate is right now, 23% well that can burn down your financial house. But if you know how to use the debt in a controlled manner, like from income property that others paid down for you, oh, that fire is contained in a stove, and that fire or fireplace will heat your home. If I could start all over again with what I know now, it would be to embrace good debt, because tenants pay down this debt for me, so use it as leverage to build a real estate empire. Think of it this way, besides the employer match, every dollar that you lock inside a 401K is $1 that you cannot use to leverage other people's money. Back when I started investing, I should not have contributed to a conventional retirement plan beyond the employer match myself. So I used leverage to pull my boat up to the dock more than three times faster and escape the day job when I was still young enough to enjoy it. And once you know the difference, why would you want to do life any other way? You might have heard that real estate has made more people wealthy than any other investment today.

You've learned how now, sometimes it is hard to stop and turn off a mindset if the same thing has been believed for a long time. I think we've all experienced that. If you believe something for a long time, well then it's hard to change your mind on that, and you might even fight and defend that core belief. That could be the case here with me, denigrating the wealth building capability of compound interest. And if you're still wrestling with that yourself, a great compliment where I discuss this more in depth and in a different way, can be found on an episode that I did earlier this year that is on GRE Podcast, episode 507 episode 507 is called compound interest is weak. I'm here to talk to you about things that are really gonna move the meter in your financial life, like what I've covered with you so far, and what I'm gonna help you learn next. You know, there's just some information out there, even real estate information, it's just not that useful. Say, for example, mortgage purchase applications were down from last week, but yet they were up month over month. Well, that might matter to certain sub industries, but it doesn't move the meter in your life with how you're going to actionably build wealth.

Hey, before we move on, I want to give a major shout out to this show's long time, steady, capable sound engineer, Vedran. He just hit the 10 year mark of filling that important role for us here. Yet 10 years almost since the inception of this show. He's been with us since November of 2014 so since about episode five, and he's edited every single episode since then, and he recently told me that he looks forward to the next 10. Congratulations, Vedran. Also, thanks to you, the listener, the follower. Here, we held three GRE live virtual events this year, webinars. You. You are really taking action. Back in June, we broke a record with 307 registrants for that event. And then our latest event that was held about 10 days ago saw another record broken, 528 of you registering, and I say thanks, because you make me feel good. You're showing that I'm helping make a difference in your life. And now maybe you're thinking these events or this platform, it's getting too well known, and if you show up to a future event that you might not get to ask a question, no, that's not the case. Not everyone that registers shows up for the event live, and then you can ask a lot of your own questions with a personal free coaching call as well. I'll let you listen into a coaching call later on, today's show. In fact, now I've shared with you a few times before that changes to mortgage rates don't follow changes in the federal funds rate that Jerome Powell and the FOMC said. I've also told you that mortgage rates closely track long term bond yields, but let me tell you about what all that really means, and this is going to help you understand and perhaps even predict the future direction of mortgage rates. In fact, it's unusual. You know, the largest market in the world is not the real estate market, it's not the stock market, it's the bond market. And What's unusual is here we are on episode 526, and we've really never discussed the bond market. Well, you're probably aware that a month and a half ago, the Fed dropped interest rates by a half point. Their next decision is in just three days. Now I don't think they should drop rates again, though they could. That's because since the rate cut, GDP and job growth have been strong. That's why I don't think they should do it. I mean, rates usually get cut to help a wounded economy, so why lower them now? I mean, recessions usually see rate cuts. But here's what even fewer people understand when the Fed cut rates a month and a half ago by a half point, why have mortgage rates soared since then? They were about 6.1% and then the Fed made their cut, and mortgage rates recently spiked up to 6.9% well, many still feel that the long term trend for all types of interest rates is lower. But you know for one thing, rates are really hard to predict. The Fed only controls short term rates. Long term rates, like the 30 year and 15 year mortgage are tied most closely to the yield on the 10 year treasury note, and here after I'll just call that the 10 year All right, so what is this and what controls it? Well, don't let that name intimidate you. This is get rich education. So let's break down each word yield on the 10 year treasury note. Yield just means interest rate. 10 years is the period of time that this loan is made for the duration the US Treasury issues them so they receive the loan and a note is an IOU. It was also known as a bond. That is what's held by the person or the entity that loaned the money, the person that loaned this money to the Treasury. It could be you yourself, or it could be a foreign nation. So you hold on to this note because you made the loan to the Treasury. That's the breakdown of every word of the phrase the yield on the 10 year treasury note. Okay, so to say it a different way, if you hold a 10 year treasury note, that is basically your receipt, your proof that you made a 10 year long IOU to our federal government and it is going to pay you an interest rate known as a yield. All right, that is the simplest explanation I can give. Well, a month and a half ago when Jerome Powell cut short term rates, the 10 year was 3.7% at that time, and at the beginning of last week, it was up to 4.2% that's the highest since July. And again, 30 year mortgage rates most closely track the 10 year all right, as you and I sort of hold hands through this together next, let's ask what made them rise. And you know, some think this is harder to understand than trying to understand why YouTube viewers constantly fall for ludicrous housing price crash videos. Okay, but relax. This is easy. When the economy gets hot, all these things tend to rise in value, real estate, stocks and also productivity rises. Employment rises. Is an inflation that tends to rise as well. Because a 10 year investor needs a real return above the rate of inflation, this yield must rise as well. That's it. You got it. You got it. So therefore, when a rosy jobs report comes out, the 10 year tends to go up. When a strong retail sales report comes out, the 10 year yield tends to go up or a high flying CPI is released, the 10 year tends to go up. And therefore, because it rose in the past month, investors have expectations for a strong economy and more persistent inflation. So conversely, expect both the yield on the 10 year treasury note and the 30 year mortgage rate to fall when the economic outlook gets more dim. It's important to understand that, like a lot of things in the stock market, yields on the 10 year they tend to be more of a reflection of future economic expectations than the current economy. And this should be pretty easy for you to remember, because when you think about it, that makes sense. Since you've lent out your money to the federal government for 10 years. I mean, you're really interested in what that 10 year future is going to look like. So yes, though this is somewhat less exciting than watching a motorcycle jump over the Grand Canyon now that you listen closely for the last few minutes. Congratulations. Now you know that the 10 year can tell you both what investors expect to happen in the future, and can tell you the direction of 30 year mortgage rates. And, yeah, I mean, this is just more the type of material that I wish someone had explained to me sooner, in a way, just like that. And you know, are you interested in doing things that at the end, they make you say, You know what, I just got 1% better this week. I mean, think about the kind of person you'll be if you make yourself just 1% better each week. Now you better understand how leverage beats compound interest and what makes mortgage rates move. Go out and vote tomorrow as far as next, listen into one of our GRE investment coaching calls. I'm Keith Weinhold. You're listening to get rich education.

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Zack Lemaster 29:08

this is rent to retirement. Zach Lemaster, listen to get rich education with Keith Weinhold, and don't quit your Daydream.

Keith Weinhold 29:22

Welcome. Back to get rich Education. I'm your host. Keith Weinhold, there will only ever be one GRE podcast episode five under 26 and you're listening to it. Let's let you listen into a coaching call between GRE investment coach Naresh and GRE follower, Brenda, and then I'll be back to wrap it up at the end.

Naresh Vissa 29:41

hey, Brenda, good to Good to see you after emailing back and forth. Thanks for setting up this call.

Brenda 29:47

Yeah, thanks, Naresh, thanks for setting up time to talk to me.

Naresh Vissa 29:49

Yeah. Well, tell me what made you schedule this call, like, Why did you hit that button saying I want to talk to the real estate investment coach?

Brenda 29:59

Yeah, well, I've seen some of the newsletters that come from GRE I'm familiar with some of the podcasts, but then I had gotten into the newsletters, and then I saw that there was an option for a free consultation to talk to you. And I thought, Well, I'm not sure what this really means, or what we talk about, or how you can help me, as far as, like, the vision, or how do I set my goals? Or what is it exactly that I would do with you with GRE, like, what kind of consultation Do you provide?

Naresh Vissa 30:29

Yeah, well, so that's you came to the right place. So let me tell you a little bit about GRE, a little bit about me, who we are, how we operate. So get rich. Education is an education company. As you know, you listen to the podcast, you read the newsletter. It's free. The podcast is free. The newsletter is free. You can go to our website, read our blog, go through past podcasts. You can subscribe to our YouTube channel, subscribe to our social media, Tiktok, Instagram, Facebook, X, you name it. That's all free content available for you, and this service, the real estate investment coaching, is completely free of charge. I know that sounds kind of crazy, but you'll never pay as a dime. I'm here to help you throughout and along your real estate investment journey. Think of me as a super connector, someone who can introduce you to all the right people, whether it's specific markets you want to invest in. Providers. There, wholesalers, flippers, lenders, appraisers, although your lender will take care of the appraiser part, if you need a second lender, financing, CPAs, attorneys, anything at all, just come to me and I can introduce you to the right people, or at least point you in the right direction. I'll try my best to do it 100% of the time. I don't, or I should say, I don't, have answers 100% of the time, but I do have answers most of the time, and I can forward you and refer you, point you in the right direction. So think of me as a super connector. Think of me as your silent partner in deals, because I get any equity in the deals who you don't have to pay anything to think of me as an advisor, a consultant. Again, this is a completely free service. There's you're not going to get like, a bill in the mail saying, Hey, you talked to Naresh five times, so you owe us $1,000 for that. Now, there's none of that. So the most common question I get after telling people this or, like, well, then, I mean, you can't be doing this for free. Like, why are you doing great? Like, like, yeah, what's the catch here? And they also have, I mean, I'm sure you're wondering, how do you make money? Well, if you listen to the podcast, if you go to our website, you'll see advertisements, sponsorships. We are paid marketing fees, advertising fees from partners. So you listen to the podcast, I'm sure you hear many of those commercials. We make our money on the back end, so we can keep services like this and our newsletter and our podcast free on the front note, like I said, GRE is not is an education company. We are not a broker or a wholesaler or a flipper or a builder or an agency or a realtor service or any of that a brokerage, where we're not of that, we're purely education, education based through our educational content or free educational coaching, which I offer too. So that's what you are. Got it .we work with all those other companies. So we can refer you to all those other types of companies that can help you on your real estate investment journey. But we are not any of those. Now me, personally, I am an investor myself. I own eight properties in southeastern United States. I got started in 2017 I bought my first property in a single family home. That was rehab. Back then, rehabs are very hot. That was what you should get in, that what made sense to get into. And I scaled pretty quickly. I went from one to eight in a matter of it's been seven years since I bought that first property, but I actually went from one to eight in a matter of more, like two and a half years, I just kind of went so I bought, like I said, southeastern United States, bought my last property in 2020 I'm saving up for my next property because I personally now only, like new construction, I rehabs have their place, certainly For certain investors. And at the time, I got six rehabs, rehab properties from 2017 to 2019 so I personally, though, am now saving up because new construction is more expensive than than rehab. So I'm saving up for my next real estate property, which is most likely going to be a new construction. So that's a little bit about my investing background. I've been a real estate coach Since 2019 came in 2021 to GRE and have run the coaching side ever since. So that's a little bit about me on the real estate side, on the coaching side. Now, my background is not in real. Real Estate. I like, I said, I got in 2017 before that, and I still do work in tech. So I worked in tech from 2000 really, from 2005 and still do work in tech. So it was through my tech work that I got involved in real estate, because I would do back end tech work for real estate companies. And doing that work, I was like, Oh, I started learning about real estate, and then I said, huh, if this doesn't seem hard or difficult. And I also got an investment coach who helped me, like I said, with that competitor, they also had investment coaches or investment counselors. So I had a coach who helped me a little bit, but that's what the coaches are for there to help investors like me, especially newbie investors, or even veteran investors. They're there to help investors with the networking part, with the who are offering the best deals, special deals, special interest rates, who's honest, who's dishonest? That's what I'm here to do. So that's a little bit about GRE About me, about my background, how our coaching program works. So now, Brenda, it's all about you. I want to hear I'm sure you have tons of questions based on what I just said, but before you ask those questions, I'm just going to start out with, how much cash do you have ready to invest? Because really, I could be of most service if you're looking to invest, otherwise, I can't really be of much service. So how much cash do you have ready to go to invest? And then I'll answer, I'll say something about that, and then I'll let you ask whatever questions you want.

Brenda 36:35

Sounds good. Just a cash ready for deployment is 100,000 but I'm assuming that doesn't all have to go to one property, right? Or depending on the property?

Naresh Vissa 36:46

Yeah, so, so is that lick? So what I should have clarified my question as how much liquid cash do you have on not like a 401, K, or properties that you have to cash out refinance, or it's just if you today, if you were to take a property and and you had cash ready to do so be $100,000 Yeah, correct. Okay, so, so a few things that's very good, because with 100,000 that gives you optionality. You can either go for a rehab property, and we have rehab property right now. Our hottest provider is in Memphis, Tennessee, and you can get a rehab property. Worst case scenario, let's just say the property, the average property, is about $100,000 and so you just put down a 25% down payment. So let's just give or take, let's say $30,000 I tell our investors. I say, Look, if you want to buy your first property, or Yeah, your first rehab property, you need at least $50,000 cash, liquid in the bank, ready to go. That's just because you want that cushion. You don't want to put all your eggs in one basket. So I say, if you want a rehab property, you need 50,000 if you want a new construction, single family 100,000 because the new constructions are going to cost you at least $240,000 at least. So if you take 25% of that, plus closing costs and cushion and everything, just if you want to be a good investor, you have to be disciplined. And you have to be disciplined enough to be able to save the 50,000 or the $100,000 if you want to make it as a real estate investor. So 50,000 for a rehab property, 100,000 for a new construction. If you want a duplex, you need, I say, a new construction duplex, which is probably our hottest new construction asset class right now in Florida, 150,000 for a new construction. Down payment or not. Down Payment task, ready to go for a new construction duplex, because those are selling for about 490,000 give or pay. So it's 50,000 for rehab that you should have in the bank. 100,001 in the bank for a new construction, single family. 150,000 for a duplex. Anything beyond that, then we can talk. You know, later you wanted a squad or something else, but that's generally what I say. And I tell, I tell investors. I say, Look, if you only have $30,000 in the thing, let's connect after you get up, because I don't want you putting all that 30,000 into a rehabbed property, whereas, who knows, maybe the economy might go into a recession and it stays vacant for six months. I don't want you to have to go through that. So let's stick to those numbers. So you said you have 100,000 so you have options. You can you can get either a rehab property or you can get a new construction. So it's completely up to you. It's about your new construction. Single family, it's completely up to you. I personally, I, like I said, I started out with the rehabs, and then I've kind of graduated up to new construction. God, they the lowest risk you can take with 100,000 is by starting with a. Be just a low price rehab where you put in $30,000 and full, you know, down payment burden, costs, everything else you put that, you know, 30 grand, if it first property, you put that 25 to 30 grand in, and you treat that as a learning experience. And you go through the experience, and if everything goes smoothly, then you can buy the second property, and you can decide whether, hey, do I want to continue with this rehab, or I'd still have enough capital for the new construction single payer. But I would start small. If you're new, if you're an advanced veteran investor who has six figure, well into the six figures in the bank, ready to go. I tell those people. I say, hey, let's just go for new construction. Let's go for the new construction. Single family. Let's go for the duplexes. Some of them have 700 $800,000 in some cases, a million dollars plus. I say, hey, let's let's just go for the quad to the construction four Plex. The incentives are great, etc, etc. So in your case, 100,000 you certainly have choices. And what I'll do after this call is, well, first I want to hear, based on what I said, What are your thoughts on anything, whether it's renew, construction versus rehab, and then what I brought up earlier about coaching?

Brenda 41:12

Yeah, I actually thank you, Naresh, I really like what you said about starting small. I have purchased two single family homes in the past, their rentals, but I never went through a coach. I just kind of did it on my own, and luckily, things worked out. But certainly having a coach and starting out small, just to kind of go through the process, it's really helpful. Here's the situation that I think is just a little bit different, and I know that this would probably be something that I talked to like a lender about. But in your experience, I actually just came from an 18 year career. Actually, I was in tech myself, but I'm now transitioned from a corporate w2 into more, but 1099, what's classified as like a independent company, you know, type of income, what has been your experience with other clients that transitioned from that type? Is it easier? Is it harder to obtain loans? Is there going to be different requirements? 25% does that still stand?

Naresh Vissa 42:13

Yeah. So I could give you a full, you know, lecture on this, or something called the housing expense ratio and something called the total obligation ratio. I'm not going to get into those details, because the lenders, I can refer you to lenders, and they can explain all that, and those ratios mean a lot to getting you pre qualified. But what I will say is, unfortunately, if you are 1099, you are at a disadvantage, because it's not steady, consistent income, unless you can show two years of steady, consistent income. I mean, really is the last for your last two years of tax return. So if it's a new 1099, gig, yep, you're gonna have to wait until you have two years of consistent high income. If you've been doing it for a while, then send your last two years. And if it's, you know, if it's looking good, then, then you'll get approved. The other option, and this is, this is not a personal question or anything, but it married couples can go together on one loan. So if this actually helped me out a lot, because my wife is a high income earner, and I have my own business, and my business does pretty well, but if you're 1099 as as you know, there are all sorts of things you can do with your tax return that are completely legal and to where you pay yourself as little as possible, so that you can cut your income tax. So in any case, that's like 1099 workers are a disadvantage for mortgage because all they care about is your pay stub, your you know, how much income did you have? So there were times when I put my wife on the mortgage and she's got a high income, and so you can put a spouse on there, and you can both do it together. Now you're allowed 10 loans per person, so if you want a spouse go on a mortgage that counts, even if it's for one mortgage, one property, that counts as one for each of you. So for two working husband and wife. For a couple where both spouses are working with good income, I say look, you'll want one spouse to do 10 properties and another spouse to do a completely different 10 mortgages. That way you can do 20 combined. Now, if you do it together, then you'll only be able to buy 10 combined because you're older than so 1099, workers. We get that question a lot, and it actually it is a problem, because the standards changed after 2008 so either wait the two years and have your consistent records to show high income, or if you already have it right now, then you can get approved.

Brenda 44:54

Got it. Got it. This would be for just conventional loans. What about other loan products? Like, I think I've heard of the DSCR loan where maybe just the rental property would cover, you know, part of the I'm not sure, like, I guess you're guaranteeing that the property will make enough money to cover the payment of the loan.

Naresh Vissa 45:12

Yeah, DSCR and loans are hard to get approved. Really, what I should do is introduce you to some of our lending partners. If you're interested. DSCR is meant more so for people who have utilized you want to use those 10 loans first, so because if you go you're going to have a higher interest rate if you go with the deal. So those DSCR loans, or Portfolio loans, are meant for people who have used their 10. Their spouse has used their 10. They've got capital low rolling in their ultra high net worth. So they're fine, okay, just get me another loan. I need the tax benefit. I need the tax break. I'm fine paying a 10% interest. So they'll go for a portfolio loan or a vsdr loan. In your case, first property, your first investment property, first turnkey we want to go for a loan.

Brenda 45:58

Got it makes sense. And then another question, so this was about the financing. But another question that I meant to ask earlier is, I know you mentioned, like, you know, I am not like a realtor or anything like that, but how does it work? Like, I'm think about when I'm purchasing a home, personally, I kind of say, hey, I want to three bedrooms, four bedrooms, this many baths. Like, how does that work with you? Like, do I give you criteria of what I'm looking for, or, you know, based on my goals? Do you kind of craft a plan? How does that work?

Naresh Vissa 46:29

Yeah, so I actually sent you an email just right before this call it. I think you got the email, and it includes a link to about 20% of our inventory. It's not all of our inventory. That inventory is just there. To get you started to see the types of properties that we have available. We have some constructions and the markets that we cover, again, it's only about 20% of the inventory. If you go to our GRE marketplace, you can see all of the markets that we cover. Your biggest source will be, I send out emails. So your biggest source will be, if I email you, I'll email you like a property. It'll be, Hey, I just came across this deal. It's like, it's my VIP email list. So you'll get my, you know, VIP emails, and that's going to be your, your best source. You also get Keith white holds newsletter, which promotes properties from time to time and and we only promote the best. We there are hundreds of properties we can promote. We only distill it down to the best of the best. So don't think, oh, like, there might be another property that narration knows about. Now we promote through our social media, through my email list, through Keith's newsletter, through the podcast, through the webinars, the best of the best. So that's the best way to to find out,

Brenda 47:49

got it your inventory or what you currently right,

Naresh Vissa 47:52

and with your permission, I can add you to my VIP email list. If it's okay, yeah, that would be cool. I'll go ahead and add you, and you'll start getting those emails in real time. I only send out an email maybe once every three weeks, so I really only want to send the best of the best. I want to waste people's time.

Brenda 48:07

Great. So what if you do send me an email and I'm like, Yeah, I love it. I think this is fits exactly what I'm looking for. Do I email you back? Do I contact you? Like, how do we stay in contact?

Naresh Vissa 48:18

So email is the best form of communication, because in real estate and business in general, we want documentation of everything. We don't want any miscommunications. So if you see something you like, email me. I'm available. You have my phone number. You can text me, you can call me, you can email me. I'm very accessible, but email is preferred, because that way it's in writing, and I'll know exactly what you want, the address, everything. So let's say you see a property that you like from an email that you get from Keith or from me, and you email me to say, hey, I'm interested. What are next steps? I will get you in touch with the actual like I said, we're just an education company. I'll get you in touch with the actual builder or the broker or the agent on the property, and they'll be able to answer way more questions than I can answer way more and that that's for anything. If your question is about financing, I can get you in touch with several good, low rate lenders, and they can answer all your questions about financing. Your question is CPA Tax stuff. I can get we have, uh, several good contacts who can help you out there as well.

Brenda 49:20

Got it, got it. So then what, what does our communication look like from there? Like, do if I say yes, I want it, then you get me in contact with them, and then I kind of work with whoever it is that has this property. And then hopefully we just close on the property. And that's it, right? Am I understanding that correctly?

Naresh Vissa 49:40

Sure? So, so all correctly? Yeah, I'll refer you over to them, and they will, they will take care of you. Should copy me on all emails that way. Okay, what's going on? Copy, you remember, I'm your coach. I'm here to help you, like it's free, so copy to an email so I know what's going on. If there's a problem, I can jump in. In many cases, I hold a leverage over a lot of these. People, if a problem happens, I can step in and say, Hey, treat her better. Or, you know, you should waive this cost, or whatnot. So copy, because the people who get into trouble are the people who didn't copy me on the emails. And many, many time, time just goes by, and then they come with their problem as they Hey, if you came to me a year ago, I could have actually helped you with this. Now, the statutes expired, and it's, it's a complete mess. So always, even after you're done posing on the property and you have a tenant in there and just copy me on me.

Brenda 50:30

Got it. Okay, So kind of bring you along the journey. Okay, so let's say I'm at the end, like, do these providers help me? I'm assuming in some of these cases, you've mentioned places that are far from where I live. So do they help provide additional resources, like, who's going to manage my property, or who's going to find me a tenant? Like, could they help me with that?

Naresh Vissa 50:51

Absolutely. So the entire point of GRE of this investment coaching program, the entire point is so that you can become what's called a laptop landlord. You can literally live free and have just take a step back and have your properties run on their own. So the idea is not for you to invest down the street and become a property manager and a landlord down the street. It's you can be anywhere in the world. Buy properties anywhere. Like I said, I live in Florida, but by Prop, I've never visited any of my properties. I've never met a tenant. So that's what you want to do, and that's what we help people do. If you want to buy a property across the street and become you can do that yourself. Go through all the loops yourself. We are here to help you invest in Ohio, in Tennessee, in Florida and Texas and all these places that you may not have even visited every other life, but you can still have a very fruitful investment journey. So we set all that up for you, the property management, every all that it's going to be taken care of, so that your hands off. That's why it's called turnkey real estateReal real estate investing.

Brenda 51:56

Got it. Okay, sounds good. And typically, how long does this process take? I mean, I'm sure it's different for everybody, but what can I expect, like from beginning, from when I talk to you, to when hopefully I have a property that I'm signing off on?

Naresh Vissa 52:12

In some cases, it's literally taken two days. In other cases, it's taken there's not even an answer, because people did end up buying Okay, yeah, so, so, yeah, in in the case of, like, our Memphis burr properties, which are rehab properties in Memphis, I recommend that you watch our burr webinar. I can send that to you after this call, if you'd like. But I had people who watched the webinar talk to me. I introduced them that same day to the provider in Memphis. They talk to their provider in Memphis, and then the next day, they pick the property, and the day after that, they sign a contract. Oh, okay, so it's all about the investor. If you're a serious investor, it can be very quick, like me, I was very serious. That's why I scaled. I bought eight and two and a half years, eight properties in two and a half years. Other people, if you want to take your time, it could, you could literally take your time and never buy any and a lot of people are doing that, because in 2019 they said, Oh, you know what, I'm gonna wait. There's gonna be a crash and this and that. And so they waited, they waited, and prices skyrocketed, and now they said, You know what, I'm I'm priced out of the market, so I'm just not gonna invest in real estate anymore.

Brenda 53:16

Yeah, it's that analysis paralysis. I've experienced that. Yeah, yeah, got it. Okay, cool.

Naresh Vissa 53:23

All right. So any other questions?

Brenda 53:25

No, this is really helpful. It's kind of good to know, like, kind of where you step in and kind of where you hand off, and again, the timeline is different for everybody, but it's kind of good to know that I could literally be standing here two days later and have a property if I want. So good.

Naresh Vissa 53:42

Yeah. So as we end this call, next step, so I told you about new construction versus rehab. Are you? Are you interested in both, or leaning towards one or the other? Right now? Just

Brenda 53:54

probably the rehabs, because I think, like what you said, I like the idea of the E step into like, let me see how this process goes first before kind of committing a bigger chunk of capital to something larger. Yeah, I agree.

Naresh Vissa 54:06

Okay, so here's what I'm going to do as next steps. I'm going to send you a link to the webinar we did for our hottest rehab asset class right now, hottest rehab provider out of Memphis. It's the Memphis Burkey webinar. I went ahead and just emailed that to you. So watch that webinar. It will answer like every question imaginable regarding the provider, how they do their process, the properties, everything. So watch that webinar and then shoot me an email after you're done with the webinar on what you're thinking just you can watch webinar today and you want to shoot me an email right after, just let me know what you're thinking, and we can go from there. I think that's would be the next step. Just watch that webinar, and then we'll, we'll reconnect.

Brenda 54:54

Sounds good? Okay, I like that.

Naresh Vissa 54:57

Okay, very good. Well, I sent that link to you, and. And that's about it. If you have no more questions like I said, you can add my phone number to your phone book and feel free to reach out whatever you want.

Brenda 55:07

will do. Thank you so much.

Naresh Vissa 55:09

All right, thank you. It was great.

Keith Weinhold 55:11

Yeah, I hope that you found that helpful in making America rich again. Namely, you. Of course, no two coaching calls are the same. Some GRE followers will perhaps have more questions than Brenda did. There. We are here to learn your situation. We know the mistakes you've got to avoid, and we can connect you with the best income property for you across the nation. We really filter it down to the best of the best, and besides being a truly free coaching call, we don't try to upsell you to a paid course or anything like that, because we don't even have any product to sell really. So even if you wanted to buy something from GRE, I don't know if you could, maybe unless you buy a GRE logo t shirt from our website or something like that. So keep all of your funds for the property down payment. As far as now, you can book a coaching call at GREmarketplace.com and select the free investment coaching area. Until next week, I'm your host. Keith Weinhold, don't quit your Daydream.

Speaker 3 56:21

Keith Weinhold 56:41

The preceding program was brought to you by your home for wealth, building, get rich, education.com

Direct download: GREepisode526_.mp3
Category:general -- posted at: 3:00am EDT

Mon, 28 October 2024

Keith highlights the unprecedented surge in immigration and its impact on housing demand. The conversation also covers state income tax policies, noting that nine states have no income tax, and the impact of international tax laws on US citizens abroad.

Immigrants now make up more than 14% of the US population, the highest proportion since 1910.

The US is facing a significant housing shortage, with an estimated 4.5 million housing units needed.

Housing shortages are expected to continue, with homelessness rates rising by 12% year over year.

Learn about the challenges of being a US citizen living abroad and the potential for double taxation.

Resources:

Connect with Tom's team at WealthAbility for a free consultation on permanently reducing taxes.

Show Notes:

GetRichEducation.com/525

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524: How is Your Tenant Doing? and Creative Deal Structuring with Zero Down Payment

Complete episode transcript:

Automatically Transcribed With Otter.ai

Keith Weinhold 0:01

welcome to GRE I'm your host. Keith Weinhold, both an immigrant surge and a big wave of US born residents is tightening housing demand near unprecedented levels. Then we're joined by show regular Tom terrific again, but it's not Tom Brady on how to legally avoid paying state income tax and the fact that if you're from the US, if you move out, you must still pay tax on your worldwide income, plus more tax strategies that you can benefit from today on Get Rich Education.

Speaker 1 0:34

since 2014 the powerful get rich education podcast has created more passive income for people than nearly any other show in the world. This show teaches you how to earn strong returns from passive real estate investing in the best markets without losing your time being a flipper or landlord. Show Host Keith Weinhold writes for both Forbes and Rich Dad advisors, and delivers a new show every week since 2014 there's been millions of listener downloads of 188 world nations. He has a list show, guess who? Top Selling personal finance author Robert Kiyosaki, get rich education can be heard on every podcast platform, plus it has its own dedicated Apple and Android listener phone apps build wealth on the go with the get rich education podcast. Sign up now for the get rich education podcast, or visit getricheducation.com

Corey Coates 1:20

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 1:36

Welcome to GRE from Athens Georgia to Athens, Greece and across 488 nations worldwide. I'm your host. Keith Weinhold, get rich education. Founder, Forbes real estate council member, best selling. Author, long time real estate investor and holder of a humble bachelor's degree in geography from a college in Pennsylvania that nobody's ever heard of. It's that time of year where you now have Halloween decorations in your front yard competing hard for space with political campaign signs. What's your HOA gonna do now? Welcome in this slack shot operation right here is the get rich education podcast. I think you know that by now it's episode 525

Brace yourself, immigration has absolutely exploded. I've got the latest numbers on that, and there's a chart recently published in The Wall Street Journal that shows it all legal and illegal. We're a real estate platform, so the question I'm asking is, Where in the heck are we going to house all of these people? In addition to soaring immigration, we'll look at our own domestic US born surging population that are forming households now, and that part might have flown under your radar. This is an urgent issue. All of this isn't just coming. It is already here, this explosion of housing demand, it will indelibly shape both broader society and real estate's supply demand component for decades, it is really approaching the unprecedented we look at net immigration to the US since 2000 it's really these past four years where the numbers have shot up like a rocket through 2020 immigration averaged around 1.2 million people per year, but since 2021 it has more than doubled to around two and a half million net immigrants per year. But the number of illegals arriving among them has gone up as much as 10x starting in 2021 and the overall figures they keep rising. Last year, there were over 3 million immigrants, about three times the total number that we averaged in the first 20 years of this century. So a 3x total net inflow, legal and illegal. And these figures in the Wall Street Journal chart, they are sourced by the CBO. Now you might think that the immigrants that did not enter legally could eventually get deported, but some of them that are already living and working here, gained something called Temporary Protected Status that keeps them here. Well, our central question remains, Where in the heck are we going to house all of these immigrants in a nation of almost three 40 million people? Do you have any idea what our foreign born population is up to now, okay, so not the descendants of those people, just the foreign born population here now, out of the 340 million total US population, any guess? Venture a guess. Last year, the US foreign born population reached 47.8 million. And that figure 47 point 8 million, that is five times more than in 19 75x Do you even realize that's almost double the population of the entire continent of Australia, now crammed into the states. That's how many immigrants, 47.8 million is. It's also the same as the population of all of Spain. That's another way of saying it all in the US today. And by the way, that is my geography degree at work, right there. Hey, the geography muscle is one that I just don't get to flex enough. Immigrants now make up more than 14% of the population. That is one in seven Americans. And that proportion, right there is the most since 1910, per Pew Research. Well, where are the immigrants from? Alright? Before I get into that, if we go back about 60 years, immigrant growth accelerated after Congress made changes to US immigration laws in 1965 that was a key year before 1965 the law favored immigrants from Northern and Western Europe, and it mostly barred immigration from Asia, all right, Well, so here in modern times, where are immigrants from? Mexico is the top country in 2022, 10.6, million immigrants living in the US were born there. That is almost a quarter of all immigrants. And then the next largest origin groups in order are those from India, China, the Philippines, and then El Salvador. All right, so there are a lot of new immigrants here, like a demographic shock wave that's going to drive the demand for housing. But there's way more to this housing crunch story. Combine this nascent immigration influx along with America's own high birth rate years. And this is something that you might not be aware of, though, what I just talked about that might have been somewhat informative to you. You probably had some idea that immigration is higher now, because it's been in the news cycle for a few years here, but something that you probably don't know. And yes, fertility rates are down today, but there was a boom of US born residents from the years 1990 to 2010 and then you might say, well, so what 1990 to 2010 that was in the past? But no, actually, it is just the beginning, because when it comes to housing, it has less to do with the birth year. Currently, what you have to do is add perhaps 25 or 35 years to that birth year, because that's the age of when that person tends to start their own household. And the average age of today's first time homebuyer is 35 to 36 years old. Well, the US is peak birth year occurred in 2007 then adds 35 or so to it. And that means that, on average, they will buy their first home in the early 2040s and a lot of them were going to start renting in the 2020s and 2030s So suffice to say, a lot more Americans will need homes. Well, what else will those high birth years from 1990 to 2010 mean now and into the future? Realize that over 13,000 Americans are turning 35 every single day, both now and years in to the future, record highs. Yes, every single day, just another demographic figure that's on the rise, and there are deaths to account for as well. But the population aging into home ownership is projected to exceed the population aging out like with deaths for a long time, this will pump housing demand. The US has about 144 million housing units today, and we are going to need more housing of all types. Well, between all the fresh immigration I discussed and this US born surge, you've indubitably got the recipe for a ridiculous amount of demographic driven housing demand. And you know, maybe over the past few years, at times, you or some of your friends or family, they've wondered why housing prices have risen fast, why rents have risen fast, and why? Even a tripling of mortgage rates couldn't stop it. It could only slow it down. It's because of this demand that is just coming, and it's going to keep on coming from both the US born demographic surge and an immigrant surge. And here's the thing, as we know this is all amidst a still lackluster US housing supply today, so greater demand, yet still a meager supply. Zillow estimates that we're still four and a half million housing units short, and the housing deficit is growing, although other outlets have estimates that, you know, they really are all over the place. These estimates as to how great the shortage is, 3 million is probably closer to a good amalgamation of how severe the housing shortage is, all right. Well, how do we reduce the housing deficit? We need to start more construction, but it had its recent peak in 2022 and it's fallen since then, in single family homes, because builders faced higher interest rates then and new apartment building starts, they have fallen too. And two years ago we had a lot of apartment building starts, actually. And as you drive through major cities today, you might still see cranes in the air. You still see a lot of active apartment building construction, actually, but more of those projects began two years ago. They began to freeze as interest rates rose, and now they've just got to complete what they've already begun. It can be two years from an apartment construction start to a completion. So as some of these complete, there will be some absorption time there on apartments. But the starts are way down on apartments. This year, we should have at least double the number of apartment starts being started than what we have now. So this sets us up for more future shortages, regulation and zoning. We know that that slows down building for most any housing type, single family, homes, apartments, condos, whatever it is. And nimbyism is a condition that's especially pervasive in the construction of new apartment buildings. Neighbors don't perceive new single family homes as a threat in their neighborhood like they do apartments, whether that's warranted or not. That's how people feel. That's the sentiment. That's the type of neighbor that shows up at a public meeting and speaks out against new apartment buildings. So to summarize what you've learned so far, it's really the confluence of four housing factors coming together here, two of them for higher demand and two for lower supply. The two for higher demand are more immigrants and a surge of US born people from 1990 to 2010 that are just starting to get old enough to need their own place. That's the higher demand side. And then the two factors on the paltry supply side are both a lack of current supply and not enough building for the future. Either it is an increasingly dire situation, and it can even be in your face. Actually. How is it in your face? Well, it's one reason that you see more homeless people on the street in your nearest city, although you might see more US born homeless than you do immigrant homeless. HUD tells us that the homelessness rate has jumped 12% year over year. That's the fastest homelessness increase rate they've ever reported. I talked to you about that before, and I'm waiting for HUD to release their new number in December. They released that annually. You know, amidst this demand, supply imbalance, in fact, anymore, let's look at it this way. Let's flip the script. Consider what could possibly stop insatiable US housing demand from exceeding supply for decades. And when you do, when you think about what could stop that, it starts to get absurd a sudden, new construction technology that pumps out homes like a popcorn machine, climate change that roasts us into human popcorn, not the good kind, and AI or VR, so advanced that We're all going to live inside some sort of force field. How about an even worse pandemic, or even a world war that would have to kill at least 10s of millions of people, or something like that, or aliens or asteroids destroying Earth? Or how about a depression level economic contraction. But see all these scenarios that would derail the housing demand trend. They range from the pretty unlikely to the downright ludicrous. Starts to sound like a Sci-fi flick, and amidst a lot of those afflictions, your life's biggest concern wouldn't be your real estate investment portfolio. It would be primordial human survival. Now, before I summarize your big takeaway here, let me tell you immigration, it has near term downsides, like a lack of housing and a demand for public assistance. And yes, I know a huge pack of new immigrants can appear sort of like a Walmart at first glance, huge, chaotic and full of people that seem like they've given up on life.

But that is certainly not always the case. A lot of immigrants are ambitious long term new young people drive an economy. Immigrants have long been a backbone of innovation. A lot of our tech giants were started by immigrants or their children, and also a lot of immigrants find those construction jobs that can help us build our way out of the housing shortage crisis, but that is going to take a long time. The bottom line here is that if you're looking for your own home, waiting probably won't help. As an investor, own more properties now, own lots of rental housing, you're going to have something that everybody needs. Housing demand is expected to exceed supply well into the future. Both this US born surge of people and the immigrants, what they do is they tend to be renters for years before they become buyers, if they ever become buyers, from here today, it's a realistic scenario to expect then soaring real estate prices, higher rents and lofty occupancy rates for years.

Well, Tom terrific is back in the house, and we are talking taxes. Brady's in the gun bulletin to his left. He's got the hoo man on the right wing with Dobson to the right Collie and Tomkins left. Brady throws it to the end zone for kenbrell Tompkins. Leaping. Kenbrell Tompkins, Brady's back.

That's your quarterback. Show ponies, where's the beat? All right, that's enough. Scott zolak, Bob Sochi on the call there 95 the sports hub in Boston. No Tom. Brady is not the Tom terrific that we often have here. Brady simply doesn't know enough about taxes. We've got the tax expert with us, the extraordinary Tom. We're right. What about that spirited play call at the end there? Did he say unicorns show ponies? Where's the beef? I don't really get all that. So getting back to real estate and taxes here, look, here's the thing, when you see what your government spends money on, and you're disgusted by some of these spending programs, doesn't that give you a supreme motivation to want to reduce your taxes? Well, we're going to talk about state income taxes where they're high where they're low. There are currently nine income tax free states. Are more states looking to drop their income tax to zero and join them? Or is it going the other direction, where they're looking to raise them if you live in one state and invest in another. We'll get into how that looks too. Canadian listeners, sorry, we don't plan to have provincial income tax discussion today. Now, I seem to have become here no more for my real estate investing voice than anything else. Last month, I was in Pennsylvania for a while, and I ran into one of my high school teachers. He was the art teacher, but he also taught a class called journalism in publications. That was an elective class, and I took that class as a high school student. I think I was a senior then, well, our job was to lay out the yearbook, writing, positioning and centering this text here in that image over there. Well, I told my old journalism and publications teacher that he's been a substantial influence on me because, as you know, I write our Don't quit your Daydream letter to you about every week. And I just love doing that, I've always thought of myself as more of a writer than a talker, and I myself really enjoy writing and laying out the body and images of our newsletter and sending it to you about weekly on crucial information that you must know About, real estate investing, economics and wealth mindset. It's got a dash of humor, and every single letter can be read in less than five minutes, often less than three minutes. I would love to have you as one of our 1000s of weekly readers, and it is free. You can get it simply by texting GRE to 6866. come along and join us for real estate investing information and fun. Just take a moment and do it right now while it's on your mind. Text, GRE to 6686 lots more. Straight ahead. I'm Keith Weinhold. You're listening to get Rich education.

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Chris Martenson 21:42

this is peak prosperity's Chris Martinson. Listen to get rich education with Keith Weinhold, and don't quit your Daydream.

Keith Weinhold 21:58

This week's guest is, to me, the world's foremost tax pro. He is an international authority on how you can permanently reduce your taxes, and he really makes taxes easy, fun and understandable, like no one else that I've ever met does. He runs a terrific educational platform too. It's called wealth ability. Welcome back to get rich education. Tom, we're right.

Tom Wheelwright 22:21

Thanks, Keith, always good to be here.

Keith Weinhold 22:23

Yeah, it's so good to have you back, because taxes are such a dynamic topic. And one place where I wonder if it's going to be dynamic, Tom, is we have a number of states that don't have any state income tax, which is something that people have to pay on top of their federal income tax. Federal alone can be up to 37% some of the states with the fastest population growth, like Tennessee, Florida and Texas, don't have any state income tax. So what I'm wondering, Tom is, are more states considering abolishing the income tax like those states have done.

Tom Wheelwright 22:59

We've actually seen a lot of states in the last couple of years reduced their income tax rates. So Arizona, where I live, is one of them. We went from over a potential tax rate of like eight and a half percent potential to an actual tax rate of 5% there was actually a proposal passed that would have increased it down to a tax rate of two and a half percent. Our former governor, Doug Ducey, his goal was to abolish the income tax in Arizona, and we did get down to two and a half percent. There are a number of states, typically in the middle of the country. You don't see any states on the coasts doing this, outside of Florida, that are reducing their tax rates. So you do see states doing that. You see other states that are increasing their tax rates. Recently, I was reading about Bill Belichick, and he said, Massachusetts is always hard getting the top earners, the top free agents, into New England. Because he says, This is taxachusetts, because they have a surtax on millionaires. Well, of course, all football players are millionaires. That is an issue. People are leaving states like California, Massachusetts, New York, New Jersey, and they're moving to low tax states such as Arizona, Texas, Florida and, you know, the whole southern belt.

Keith Weinhold 24:15

with Belichick having Tom Brady. It didn't matter if he couldn't bring in the best players, because Tom Brady made stars out of nobodies. It seems like he could complete a pass to any no name wide receiver or tight end for two decades there in New England. But can you tell us more about maybe interesting dynamics with state income tax? For example, I know that California has punitively high state income taxes, and then you have other states that have tax rate tables and some that have flat taxes, like, I think Pennsylvania has about a 3% flat income tax. Colorados is 4.4 so can you tell us more?

Tom Wheelwright 24:51

Yeah, there are, you know, the federal income tax has graduated rates. We go, actually, from a zero rate to currently a 37% rate, which is not really 37% rate. It's really 41% because there's a 4% add on tax that pretty much you're gonna pay. So it's really over 40% California has a graduated tax rate, but it goes up to 13% Minnesota has a high income tax. New York has a high income tax. So Massachusetts, we're seeing high income taxes. The states that provide have big governments and provide lots of services have high tax rates. That's why we see it on the coasts. Interesting enough. Minnesota. Minnesota is the liberal state in the middle of the country, and so they have liberal states tend to have very high tax rates, and conservative states tend to have very low tax rates.

Keith Weinhold 25:45

Now we have a lot of real estate investors here that have learned that the best deals are outside their home state. So that investor might be domiciled in a Minnesota, but investing in, say, Arkansas, tell us about how the state income tax affects them.

Tom Wheelwright 25:59

So it's kind of like being a US citizen, right? You live in the US. You're taxed on your worldwide income. You live in Minnesota. You're taxed on your worldwide income in Minnesota. So by virtue of where your residency is, you are taxed on all of your income. Now you'll get a credit, typically, for taxes paid to another state. Well, let's say that your tax rate in your state is 10% and then you invest in a state with a tax rate of 3% well you're going to get tax credit of 3% so you're still going to pay 7% in your state, plus 3% that state. You're still going to pay your 10% it's just going to be some of that's going to go to another state. Some of it's going to go to your state. But in total, your tax rate is likely to be wherever you live. That's youroverall state tax rate. I'll give you another example. Let's say that you invest in Texas, you live in in Minnesota, you're going to pay Minnesota tax rates on your income, you get no credit because you have no tax in Texas. What's worse is, though, you have property tax in Texas, but you don't get a credit in Minnesota for your property tax paid in Texas. So you have much higher property taxes in Texas than you do in most states. Right? Because every state has to raise revenue, right? In Texas has decided to it largely on sales tax and property tax. So that means that you don't get that offset. Property taxes are pretty serious in Texas. If you're an investor in Texas, you know that property taxes are pretty serious, but you don't get any kind of benefit in Minnesota, but you still pick up the income in Minnesota.

Keith Weinhold 27:38

In some Texas jurisdictions, property taxes can be 3% annually based on the property's value, pretty punitive. There in Texas, Texas is a good example. That's where we have often high property tax rates, but zero state income tax. So with these other states that have zero state income tax, are they subsidizing that with property taxes or sales taxes, or in what other way are they making up that?

Tom Wheelwright 28:03

Of course, for example, we were talking earlier about Tennessee. Tennessee doesn't have a personal income tax, but if you have your real estate owned through a limited liability company, you do have a 6% tax on the income of the LLC. So even though it's a pass through entity for Tennessee purposes, it's taxed. They have all sorts of mechanisms to raise revenue. All states need revenue. Now, some states raise less revenue per capita than other states. Those are the states that people tend to move to. But don't forget those other taxes. I mean, sales taxes. Sales taxes can be very high, right? And you pay sales taxes typically don't pay them on food or prescription drugs, but you typically pay them on pretty much everything else, and including leasing a car, they're going to get their money. It's just how they get their money.

Keith Weinhold 28:50

Well, we've been talking about ways that you could potentially legally escape taxation, depending on what state that you live in. So in a domestic sense, and Tom we pull back and we think about that in an international sense. A lot of Americans don't seem to realize that if they're, I guess, born and raised and get citizenship in the United States when they become an adult and get older and they go abroad, they have to continue to pay US taxes if they move to Norway or Dubai. Can you tell us about that?

Tom Wheelwright 29:21

Yeah, so US citizens are taxed on worldwide income as long as they're a US citizen. Here's what's really interesting in the US let's say you give up your US citizenship, you're still subject to taxes on your worldwide income for 10 years. Wow, after you give up your citizenship so you no one get any of the benefits of being a citizen. You've given that up, and you still have taxes for 10 years. Earlier this year, we did an episode, and we talked a little bit about this unrealized capital gains tax, right? People don't think, well, I'll just leave. Doesn't work that way. You're still going to have the capital gains tax for at least 10 years, and the only way to get rid of it is to give up your citizenship and wait 10 years. It's a pretty restrictive law, because most countries only tax if you live there, if you're a citizen of France, but you move to Belgium, you're taxed in Belgium, you're not taxed in France. Not true with us.

Keith Weinhold 30:19

Yeah, that's remarkable. I didn't know about that 10 year thing. Even if you renounce your citizenship, those taxes will follow you for 10 years regardless of where else in the world you live. Um, I'm just maybe this is a little bit of devil's advocate. I mean, this sounds preposterous when we first think about how Americans are taxed abroad for the rest of their life, but maybe thinking of it philosophically, if it does make sense in any way, which is really hard for me to say, but maybe it's because, okay, well, you were born and raised in the United States, where we have this very mature infrastructure and stable currency and good educational system, so you got to be a beneficiary of that. So when you're 30, you can't move away and never give us any tax money to support that. Again, what are your thoughts with that?

Tom Wheelwright 31:02

different countries have different tax systems? What I will say is, just like the state discussion, you do get a credit for taxes paid to another country. So if you have income taxes, let's say you're living in Portugal and you pay Portuguese income taxes, you're not going to pay taxes twice. You're going to pay the higher of the two rates, either the Portuguese tax rate or the US tax rate, but you should not be paying tax twice. Now, if you're going to do that, you need a really good team of tax professionals. You need a good US tax professional, and you need a good tax professional where you live, and those two tax professionals need to talk to each other on a regular basis, because otherwise you can end up paying double tax, and that is the worst of all worlds. You do not want to end up paying double tax. So make sure that just know that if you're going to invest in another country, or you're going to live in another country, you need double the tax advice.

Keith Weinhold 31:05

I am just going to speculate that there are an awful lot of people that don't consider taxes before they move, whether that's domestic or international, not that that should be the top consideration, but a lot of people probably aren't even thinking about it.

Tom Wheelwright 32:13

A lot of people aren't. That's true. Now, are there ways to reduce your taxes internationally, particularly if you're in business? Yes, there are ways that you can reduce your taxes. So know that there is still tax planning available. But I hear about people saying, I'm going to invest in the Dominican Republican, or I'm going to invest in Dubai, or I'm going to invest somewhere else. Just know that you've got now two sets of laws that you're working with you're working with US laws, and you're working with that country's laws. And so make sure that you've got good advisory on both sides. When we're talking about moving for tax considerations, we should cover Puerto Rico. Tell us about the advantageous tax laws for Puerto Rico, and if they're going to sunset, they're there for the foreseeable future. So Puerto Rico, depending on how you earn your income, you can potentially reduce your income tax rate from the current 37% rate in the US to 4% yeah, that's basically an agreement with Puerto Rico. Puerto Rico is still the US, but it's got special laws that it's almost like a treaty, right? Even though it's a territory of the US. And what happens is, is that if you set it up properly, you got to live there, by the way, you can't just pretend. You got to live there six months in a day out of the year, over six months a year. And if you do, then you get a 4% tax rate on the income you earn while you're in Puerto Rico. If you earn income while you're in the mainland, you're going to pay tax on the mainland, but the income you earn in Puerto Rico, you're going to pay 4% tax. And there are certain types of income that that works for certain types of income, it doesn't just make sure that this is one where you need a Puerto Rican tax advisor as well as your US tax advisor. Capital Gains also have they have a potential tax rate of zero. So there are obviously details you have to follow again, make sure, before you get into that, know that there are huge tax benefits for living in Puerto Rico. No question. You know, it's the Puerto Rican discount. What can I say? We say in Arizona that California has a beach tax and we have a desert discount. The same was true in Puerto Rico. Puerto Rico has a Puerto Rican discount. That's what it is.

Keith Weinhold 34:24

Yeah, you're going to be getting on a plane a lot in order to go anywhere. I know an awful lot of entrepreneurs that have relocated to Puerto Rico. You do too. Tom, you the listener, probably do as well. It's really important to have the right team before you make such considerations. And before we're done today, Tom and I will talk about how you can connect with him and learn more. But Tom, since we last had you here, you updated your terrific book, which I have on my bookshelf called Tax Free Wealth. Tell us about the updates and changes you made to the book.

Tom Wheelwright 34:56

We do a new edition of tax free wealth every time there's a major change in the tax law. So the second edition was the 2017 tax law, because that was a major change. Since 2017 though we've had six major changes to the tax law, we had a bunch of major tax law changes during COVID And so what we did was we actually took the 2017 and all the new ones, werolled them all into a new edition. By far. This is the best edition of tax free wealth by a long shot. I mean, I think tax free wealth, you know, got good bones to it. It's a good book. Got almost 4005 star reviews on Amazon. This is the one I like the best, by far.

Keith Weinhold 35:18

Tax Free wealth, I read the original edition, and it's not like watching motorcycles jump off ramps, but for a tax book, it's actually really a good read there. He really brings life and some good examples to how you can permanently reduce your taxes. Tom, you and your terrific firm wealth ability have been helping people do that for years. If you the listener, want to Tom's team and Tom's referral network to help you permanently reduce your taxes. We have a resource for you atget rich education.com/taxwe can actually set up a free consultation to confirm if indeed they can help you in your situation. And Tom, why don't you talk to us some more about the importance of having the right tax pro on your team, and how they're not actually an expense, but really they're an incentive to you, because the fastest way to get an ROI is actually by reducing your taxes, because it can be done almost instantly.

Tom Wheelwright 35:36

Yeah, for sure. And what's important is that you have a relationship with a tax advisor that does give you tax advice. That's why it's called a tax advisor. They actually give you tax advice, and they willing to give it to you. And they're not waffling. They're not saying, Well, I don't know, or they're not backing off. They're saying, Well, look, if you do this, this is what you get. You have to choose whether you want to make those changes to your situation, but they're going to give you, you know, what changes you can make to your facts in order to reduce your taxes. I think the most important thing, though, is that you have a partnership with your CPA, that this is a true relationship. And we've actually changed the way we work with clients. We used to charge for projects. We used to charge for tax returns. What we want is a relationship, so we basically charge a monthly fee for the relationship. So that's a recent change in our model, you're going to see more and more CPAs go to that model, because it is a much more comfortable model for both the CPA and for the client. But what we want to do is we want to emphasize the relationship. We don't want you to feel like every time you pick up the phone, you're going to get charged. We don't want you to feel like, well, all that tax return fee is just killing me. No, it's not a tax return fee, it's a monthly fee. It's an annual fee, billed monthly, is what it is. And that way you have something come up, you don't have to worry about them and get a bill for it. You have even an IRS audit come up. Once you're a client with us for a year. After the first year, we'll then allow you to pay a small monthly fee so that when you get audited, you won't pay us for handling the audit. We call that an audit defense plan. I talk about that in tax free wealth. To me, we've been operating this way. So my firm, which I worked with people like Robert Kiyosaki, we've been operating this way for several years, and it is the best way to work with a tax advisor, because you always have that relationship, and you never have to worry. I'm not going to get this big tax bill, this big fee, like you do for an attorney, right? You don't call your attorney, because you can get a big fee, right? Every minute it's going to be a big fee. This is a great way to work with a tax advisor and make sure that you can be proactive, and they can be proactive. It's really a great way to help build the relationship over time, which is something that you're going to want to have over time again. If you want to learn more and have that free consultation, you can start at get rich education.com/tax.

Keith Weinhold 38:56

Tom, it's been valuable as always. Thanks so much for coming back onto the show.

Tom Wheelwright 38:59

Thanks, Keith.

Keith Weinhold 39:06

Nine states don't have an earned income tax. Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming. And the way to avoid state income tax is clearly to start by living in one of those states. I don't believe that moving to one just for tax reasons, is a good idea, though, like I was saying earlier, do you agree with how your government is spending your tax dollars? If you don't, then you owe it to yourself to reduce your tax burden, otherwise, you are just helping to fuel reckless spending. And when you lower your tax burden, not only do you stop fueling reckless spending, of course, you increase your own personal return on investment. You know in fact. This paying any more tax than you have to fuel a kleptocracy. I think it's at least worth asking the question then, because this is get rich education, little learning moments, some vocab rehab. Here, you can think of a kleptocracy as being synonymous with a fevocracy. The strict definition of a kleptocracy is a government whose corrupt leaders use political power to expropriate the wealth of the people and land they govern, typically by embezzling or expropriating government funds at the expense of the wider population. All right, well, is that a little too strong for the behavior of our elected leaders or not? I'll let you decide that. But see, most of the 1000s of pages of the US tax code does not outline the taxes that you have to pay. Did you realize that the vast majority of the IRS Code is a guidebook to help you reduce your taxes that are in those tax tables. Well, now my own tax return is hundreds of pages long, and a lot of it outlines how my taxes have been reduced for that tax year. Well, Tom's excellent book called tax free wealth is sort of a digestible way to make the reading more fun than any psycho that would read the entire IRS tax code, but to make it even easier than that, it's really a good opportunity to connect with Tom's team and see exactly how they can help you reduce your tax In your specific situation, and is especially helpful for real estate investors and business owners. You know that I often like to leave you with something actionable. You can book a free consult at getrich education.com/tax that's get richeducation.com/tax.

Until next week, I'm your host. Keith Weinhold, don't quit your Daydream.

Speaker 2 42:06

Keith Weinhold 42:34

The preceding program was brought to you by your home for wealth building. Get rich education.com you

Direct download: GREepisode525_.mp3
Category:general -- posted at: 4:00am EDT

Mon, 21 October 2024

Join our upcoming GRE live event right here! - ‘New Turnkey Properties with ZERO Money Down’ on Thursday 10/24.

Keith discusses the financial health of tenants, noting that 75% of new renters earn over $75,000 annually. He is joined by GRE Investment Coach Naresh Vissa to highlight the incentives offered by new build property providers, including interest rates in the 4's and up to $30,000 in immediate equity.

New build homes now cost only 1% more than resale homes.

Rent-to-income ratios remain stable at 31%, despite wage growth outpacing rent growth.

Current market conditions offer a unique opportunity to build wealth through real estate.

Attend the live online event on Thursday, October 24 at 8pm Eastern to learn more about the new build property incentives.

Show Notes:

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523: How to Vet a Property Manager

Complete episode transcript:

Automatically Transcribed With Otter.ai

Keith Weinhold 0:01

Welcome to GRE. I'm your host. Keith Weinhold, we check in on the health of your tenant. How are they doing financially? Learn why new build homes now cost about the same as existing homes. Then learn about creative financing and how to put zero money down on an income property today on Get Rich Education.

Speaker 1 0:26

Since 2014 the powerful get rich education podcast has created more passive income for people than nearly any other show in the world. This show teaches you how to earn strong returns from passive real estate investing in the best markets without losing your time being a flipper or landlord. Show Host Keith Weinhold, writes for both Forbes and Rich Dad advisors, and delivers a new show every week since 2014 there's been millions of listener downloads of 188 world nations. He has a list show. Guess who keep top selling personal finance author Robert Kiyosaki, get rich education can be heard on every podcast platform, plus it has its own dedicated Apple and Android listener phone apps build wealth on the go with the get rich education podcast. Sign up now for the get rich education podcast, or visit get rich education.com

Corey Coates 1:11

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 1:27

Welcome to GRE from Lewiston, Maine to Lewiston, Idaho and across 488 nations worldwide. I'm Keith Weinhold, and you are listening to get rich education. Don't live below your means. Grow Your means, you need a proven wealth building vehicle that pays you multiple ways, like real estate or a business, because in order to build legacy wealth, otherwise, how many Papa John's coupons are you going to have to collect that's living below your means, something that's not sustainable long term, not where you want to be. And you know something your first million that takes a while for you to reach a net worth of a million dollars, that can take over 30 years, like the first 30 plus years of your life. Let's say then you are age 32 until you reach the million dollar mark. Well, your next million Okay, so a $2 million net worth, that's not going to take you another 32 years, but maybe, if your sole source of income is trading your time for dollars at a job, you won't hit the $2 million net worth Mark until age 40 to 45 but instead, if you've got leveraged rental property, ah, now you've got other people's money working for you, and a 5x multiplier on your skin in the game, and that's something that a 401K is never going to give you. And instead of hitting 2 million at age 40 or 45 like the day job worker, well, you can hit a four or $5 million net worth mark at that age, setting you up for an early retirement, or at least that option to do so your life is going to feel different when working is An option, not an obligation, and all that sure can happen even sooner. If you think you are behind, from what I was just talking about, there, you find yourself behind those net worth figures. Well, the vehicle of real estate pays five ways. Is what's going to allow you to catch up, and you might be simultaneously measuring your wealth in cash flow as much or more than in net worth terms. Anyway, chances are you do, though, have more wealth today than you have ever had in your entire life, and that's because here in late 2024 we're at a time when just about every asset imaginable is at or near all time highs, real estate, stocks, gold, Bitcoin, and perhaps the number one traded commodity in the world, oil, is one of the few substantial outliers where that is not true. Well, now that we've checked in on how your wealth building is progressing. How about the financial health of your tenant? That's important because you want them to have the ability to pay your mortgages and your operating expenses for you. Well, there seems to be a weird narrative that tenants, you know, like they're always these jilted wannabe homeowners, or like they're auditioning for a season of Survivor, barely living above the poverty line, destitute and eating macaroni and cheese three times a day. Now, there are some of those cases, for sure, but 75% of new rent. Have incomes above $75,000 well, then maybe they eat at the Cheesecake Factory monthly. Even the wealthiest Americans are turning into forever renters. We have seen the rise of the millionaire renter. More than 11% of renters have an annual income over $750,000 that is pretty Wall Street Journal. Gosh, I guess that caviar and truffles are in the home. And what are they doing for cheese? Forget Kraft Singles. My guess for them is that only artisanal cheeses are eaten off of little wooden boards. The census itself recently published research declaring this headline, incomes are keeping up with rent increases. Now you might find it really surprising that tenant rent to income ratios haven't materially changed over the last dozen years. Last year, US renters shelled out a 31% share of their income on rent, and that is actually much like they have for a long time. In fact, between 30 and 32% every year since 2011 that's what the figure's been and to be clear, what we're talking about here again is the rent to income ratio. It's simple. It's just the proportion of your tenants income that goes toward rent. 31% or you might think, Well, wait, how can this be? Because there sure are a lot of headlines around rent burdened households. And for a while there previously, we had wage growth lagging rent growth, although wage growth is ahead of CPI now, and it has been for quite a few months. All right. Well, here's what's happening. Really, it's three things, renter incomes are growing faster than homeowner incomes. Secondly, the struggle is real for low income renters. And thirdly, new construction units. In recent years, they tend to be created for middle and upper income households. All right, so let's break this down. The first phenomenon occurring, renter incomes are growing faster than homeowner incomes. Yes, younger Americans, they're more often renters, and they have more income growth than older generations do. Secondly, like I was saying, the struggle really is a thing for low income renters, they tend to rent apartments more often than single family homes, and census stats show the rent burden household growth in those is occurring with those that make under 75k a year. That's where their distress is, and of course, it's especially bad among those making under 50k a year, and many of them don't receive rental assistance, and inflation has affected that group worse. And then the third reason for these stable rent to income ratios are that new construction units in recent years, they tended to be created for middle and upper income households, so we haven't built nearly enough affordable housing driving demand and rent prices, and again, that crushes those lower income households. And hey, I do want to credit terrific rental housing economist Jay Parsons for bringing some of this to light. The bottom line here and what you've learned about the financial health of renters today, actually, you didn't learn anything. All I did was talk about cheese, really, though, the lesson is that Rental Affordability has become more bifurcated. It's worsened for the lowest income households, but overall, rent to income ratios are still steady near 31% I mean, really, who knew that stability could be so predictable? Now there's another sort of misconception, or I guess anomaly really, in today's real estate market, and that is the fact that new build homes don't cost much more than older resale homes. In fact, today, the median new bill home sells for 421k That's not much more than that of an existing home at 417k that's only about a 1% difference. It's really an unusually small disparity, just a 1% premium for a new home today over a resale home. All right. Well, what is going on here? One reason for this is the very well documented interest rate lock in effect existing homeowners aren't giving up their property. Another is that the new build properties are smaller than they were in years past. Helping keep their prices in check. And a third reason for why new build homes cost almost the same as existing homes today, weirdly, is that home builders they are giving buyers incentives to purchase new build homes today because buyers often need down payment and closing cost help in order to get in. And we're going to talk about one especially good new build incentive program for these brand new properties later in the show today, and what you can do with creative financing there. The real lesson here is, if you can, you want to give more consideration to owning more new build income property today than you might have in years past, because they're down to about the same price as resale properties, only costing 1% more, on average, and this is all based on data from the census, HUD and the NAR. So again, just about 421k for new builds and 417k for resale single family homes today, they are the median prices

you can follow get rich education at all the usual places on social, Facebook, Instagram, Tiktok X and YouTube. To highlight one of those, you will find particular value in the get rich education YouTube channel that is me over there, video of me speaking directly to you and showing you things there visually on YouTube that I cannot do here on an audio podcast. Also, if you have a particular thought, comment, question or concern, understand, we can't personally respond to them all, but you can go ahead and write in or leave voice communication at getricheducation.com/contact we do read and listen to them all that's getricheducation.com/contact in order to reach us. And thank you so much for all of the sincere congratulations and wishes that you left over there for us on the GRE podcast, hitting 10 years of contribution to real estate investors, serving you every single week without fail and never playing any repeat episodes, always serving you with a fresh episode. Much more. Next, I'm Keith Weinhold. You're listening to get rich education.

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Robert Helms 13:57

Hey everybody, it's Robert Helms of the real estate guys radio program. So glad you found Keith Weinhold in get rich education. Don't quit your Daydream.

Keith Weinhold 14:19

Well, I'd like to welcome in a GRE investment coach. He's got both the formal credentials, and he's doing the real thing too, holding a master's degree from Duke's business school, and then, before coming to GRE in 2021 he worked at both banks and financial publishing companies, but importantly, for years now, he's been an active real estate investor, just like you and I. Hey, welcome back onto the show. Naresh Vissa.

Naresh Vissa 14:45

Thanks so much for having me back on looking forward to talking real estate. There's a lot going on for sure.

Keith Weinhold 14:51

You know, I always give you an illustrious bio to live up to before you speak, but then you do always live up to it. Well, Naresh. Before we narrow down, let's pull back and take a wide angle view. Give us your take on the direction or trends. What's important in today's market for real estate investors?

Naresh Vissa 15:11

Keith, the market has changed a lot, and it's very much investor friendly right now. The reason is because, and we've talked about this, I think, in my last two or three episodes where we previous saw rising interest rates and stagnant interest rates that were relatively high for let's say a millennial. That's been a hot topic called millennials aren't able to afford home buying what we're seeing now because the Federal Reserve cut interest rates tremendously, significantly and almost unexpected. The First Cut they did was 50 basis points, which I think was a mistake, just like I think it was a mistake for them not to raise rates one more time last year, in 2023 one or two more times to help bring inflation down further, I think they're making a mistake by jumping the gun, and instead of a 25 BPS cut as the first cut, doing a 50 BPS cut. The reason why I bring this up is because mortgage rates are plummeting. They have plummeted, and they continue to plummet. So as a home buyer, where the economy still isn't we're not at peak employment. In fact, the unemployment rate is still in the fours, so the economy isn't the greatest which means home values aren't at peak levels. Per se, some people are making the case that we could see home values could be coming down while interest rates come down. So right now, what that means is, when you have falling interest rates and either stagnant home values or maybe even some declining real estate values in some areas of the country, that markets that we focus on other markets we don't focus on, when you combine all that, this is that inflection point where it's actually a really, really good time to jump in. There is a little bit of political uncertainty in that we don't know who's going to win the election. We don't know who's going to win Congress. What's even more important than who becomes president is Congress. Which party wins the house, which party wins the Senate? Because you've written about it in your newsletter, Keith, the Democrats and the Republicans have very different housing policies, and we could do an entire episode on each party and what their housing policy is. I will keep it simple. Here's the cliff note version. If we have the same party in all the chambers of the government the same political party, then we'll see a tremendous impact in the real estate market. I think if the Democrats sweep then you're going to see real estate home values go back up, inflation go back up. Because Kamala Harris is, she is a main proponent of giving basically a $25,000 off coupon to first time homebuyers. So that's across the board all 50 states. Basically you got $25,000 off. What I've learned with coupons, I'm sure you know this, Keith, most coupons actually are a terrible deal. You get something in the mail that's a coupon. You either spend it or you call the service provider and they jack up the price. So you think you're getting a good deal, but they end up jacking up the price even more than what market value is, and that's what's going to happen to housing where you're going to have so many young like I said, millennials, Gen Zers, who are looking to buy their first home, they think they're getting such a great deal because of this $25,000 off coupon, when, in reality, after about three months of this program, you're going to see we're going to be back to 2021, end of 2021, beginning of 2022, all over again, where homes will enter into bidding wars. Now, if there's a split, President is one party and Congress has split, then there's actually going to be almost no change, which could be a good thing. We're not going to see much change at all. It's just going to be the mostly the status quo. Really the only change is going to be on tariffs, If Trump were to win, or foreign policy, those are going to be the two main issues, regardless of which party wins, if there's a split. So the bottom line is that right now, despite this uncertainty, I've heard from a lot of GRE clients, oh, I don't want to do anything because of this election. I've asked for the logic and like, the election, should it really change? Because right now is still an excellent time, like I said, with stagnant home values with plummeting interest rates, really through the end of the year, and as the Fed keeps cutting rates, which I think they're going to engage in a prolonged rate cut cycle for quite a while, and rates are only going to keep going down. So that's my general view of the current state of mortgage rates, the Federal risk. Reserve the election housing markets?

Keith Weinhold 20:03

Yes, Naresh is talking about a newsletter that I sent to you last month where I basically show that, historically, presidential elections really don't affect the real estate market price appreciation much at all. They might affect stocks in the short term, though, which are more volatile and Naresh, do you want to tell me a bit more about why you seem to be rather bullish this year for real estate investors, of course, things change. Last year you were more bearish. You had more negative sentiment about the investor environment. So are there any other reasons why you see more positivity today, other than lower interest rates?

Naresh Vissa 20:37

Yeah. Well, last year, like I said, where I touched on, we saw peak interest rates. So the Fed stopped raising around the end of last summer. I want to say maybe July of 2023 it was, yes, the interest rates stayed high. There was almost no movement until relatively recently, let's say over the last three months, when it was factored into the market that the Fed was going to begin its rate cutting cycle. So the reason why I don't want to say I was bearish on real estate last year, because we have some providers, for example, partners of ours, who offered really, really good and they still are offering really, really good incentives, which help offset the high interest rates this time around, like I said, with the unemployment situation, we're in the force in more layoffs. Archive, the media isn't talking enough about layoffs, large companies, large tech companies, manufacturing jobs. Layoffs have been rampant for the past two years. This is not a recent phenomena, and it's finally showing up in the unemployment data. And if you look at real unemployment data at a website like shadow stats, it's really more than 4% and the number of people are working multiple jobs. That's not really factored into the unemployed. You know, one person working three jobs, for example, you gotta have a way to factor that in, which government hasn't figured out lately. So the point that I'm making here is that if you have a job right now, if you're making cash flow, if you have a job, then you're going to find this as an opportunity with the lower interest rates, with knowing that home values have somewhat declined recently, this is a good opportunity to jump in and get good cash flowing real estate. Now, I did touch on the previous question about Kamala Harris's real estate plan, $25,000 coupon, which will certainly lead to real estate. You can call it real estate appreciation. You can call it inflation. But one thing that I should talk about the other side, which is if Trump and the Republicans were to sweep, then we're going to see mass deportations of undocumented immigrants, illegal immigrants, and that's going to affect the housing market tremendously. And how is it going to do that? Because it's estimated that at least 8 million people are going to be deported over the four year period. Those 8 million people right now are all renters. Close to 100% of them are renters. I think that would actually be somewhat deflationary, at least in the rental market, maybe not in the housing market per se, because a lot of these people aren't necessarily home buyers, but in the rental market, we could likely see a stagnation of rental growth mixed in that's making the assumption that building picks up, and Trump has already said. Both Trump and Harris have said that they're going to incentivize home builders to build more multifamily, build more apartments, build more. In Trump's case, he did these opportunity zones, which he wants to do more of, build more single family housing. It's definitely a supply side issue more so than a demand issue, but both supply and demand always contribute to the equation as a whole. So what does all this mean? Again? Forget about the election. Forget about November 5, which is election day. Right now is a really good time, because interest rates are plummeting. Home values have remained stagnant. In some cases, home values have come down. And the best part, we work with providers who are still offering really amazing incentives. And on october 24 at 8pm we are hosting a webinar to share what I think is our best incentive program yet. That's Thursday, October 24 where you can get class, a new build of properties with interest rates in the 4's that's with that you're not even buying down the interest rate, the interest with special deals, special incentives, special financing, interest rates in the fours, up to $30,000 in immediate equity because of these incentives. And the best part, we even have an option that's zero money down, zero money down there are incentives that are giving back cash at closing. So it's, you buy a property, you as a buyer, get cash back at closing. There are just too many incentives to name here. I've named, I think, five different ones. And this is not a case of you pick one out of the five. In some cases, you might qualify for all five. So october 24 it's before the election. It's live. I'm going to be on live with a special guest who is a very well known, seasoned real estate investor and licensed real estate broker, one of the most well known real estate personalities in the country. So I highly recommend our file go to GREwebinars.com GREwebinars.com to register for that free special event.

Keith Weinhold 25:46

Now you, as a real estate investor, are probably encouraged by this environment of lower and lower interest rates as well you should be, but sometimes it can help to ask yourself the question, okay, how do lower interest rates affect who I'm purchasing a property from. In this case, with the event narration I are talking about, it's new build properties and home builders. They see more competition now coming from the resale market due to the fact that interest rates have fallen so interest rates are thawing out the locked up resale market thawing out this lock in effect, and that's because existing home sellers, well, they're a little bit more willing to sell because the replacement home no longer has an interest rate that's as high over there in the resale market, and lower rates also, of course, mean that more buyers qualify to buy resale homes. So see new home builders, they now have more competition from the resale market, so consequently they're more willing to give you a strong incentive to buy from them. So take advantage of what Naresh and I are talking about coming up in just three days here on Thursday.

Naresh Vissa 26:53

Yes, and I want to reiterate, GREwebinars.com GREwebinars.com this is a online special event. We've done several of these in the past. I've done, I think this is maybe my fifth online special event. Again, I've never seen incentives like what our provider is going to be sharing on this webinar. And you can only get these incentives by attending the webinar, or registering for the webinar, watching the replay after we're talking the rates in the 4's, they will buy down the rate for you. So it's a great deal to have somebody else buy down your rate. You'll get money back at closing if you opt for that. So that's basically a rebate that you'll be getting as the home buyer. Just really, really good overall incentives being offered. And like I said, we set this up because this is a perfect time. We are in a situation, the first time since 2020 since the pandemic, where we're seeing plummeting interest rates, stagnation of home values, kind of uncertainty, because we're in this time of purgatory, just like we were in 2020 before the election. Just think about how many investors, most real estate investors, say right now, they say, Oh, I wish I bought everything in 2020, right? Well, we're in a similar situation now, where, again, home values, interest rates, and this state of purgatory of what's going to happen. We're in a very similar situation. And just think about that emotion, because I hear it almost every day, or when I tell people, Hey, I own real estate myself, and I bought most of my properties before 2021 the last property I bought was in 2020 and they say, Oh, wow. Like, you're a genius. You're so smart. Like, how did you know to buy man and again, similar environment, even 2009 2010 2011 even 2012 similar environment where interest rates were very low. 2009 was when they were plummeting. And you think back of I was too young back then, but I know, Keith, you were an investor back then, but you bought in 2009 you did even better than buying in 2020

Keith Weinhold 29:00

That's right. And in fact, in all the years that I've been buying real estate, I have never bought a property with incentives as good as what you and your co host are going to be talking about at GRE's live event coming up on Thursday night, just starting with a full 10% of the purchase price in credit back to the buyer, and there's more to it. You'll learn all about it again on GRE 's live event for new build, turnkey income properties with zero money down potentially. It is co hosted by Naresh in the guest that I had here last week, Zach. Again, it is on Thursday, October 24 at 8pm Eastern. You can register now at GREwebinars.com and you will be hearing more from Naresh then. Naresh has been great having you back on the show.

Naresh Vissa 29:49

Thank you, Keith and I'll see everyone on october 24 GRE webinars.com to register. Thanks.

Keith Weinhold 30:01

yes, you'll hear more from Naresh and co host Zach on Thursday's live event each year, homebuyers often take a step back in the fall, this time of year. Understand though, that year over year, they are up about 4% per the NAR as of this time. And when it comes to the political effect on housing. You already know what I think. I don't put much emphasis there. Today, I am better off than I was four years ago, and it has nothing to do with who the President was or was in Congress, and in the preceding four years, I became better off during that time period too, because what happens in my house and what happens in your house is more important than what happens in the White House. As Naresh and I are talking about new build property here, and you're hearing about extremely attractive incentives. Hey, let's not let the point be lost. New build properties can be profitable for you over time due to lower maintenance costs. New builds have lower insurance premiums, and that's on top of how we discussed you could get low interest rates in in southeastern high growth path of progress markets in our upcoming live online event, and at the least, you will learn about creative deal structuring, and you know, when it comes to zero money down like that very concept, there was a time in my life where I thought, yeah, that sounds about as real as athletic brand beer, or about as real as lab grown meat, but all three actually exist. Here's what's exciting, we have partnered with major builders that are sitting on excess new build inventory right now, like Lennar and DR Horton, to help bring you institutional level pricing. Your name does not have to be BlackRock. And this is something we've never done before here at GRE these new build properties in those fast growing areas of the southeast, they're often single family rentals. And yes, you know what I like to say about single family rentals. Stainless steel appliances are great, as long as you or your tenant never touch them. But to be clear, there are two levels of incentives we've been promised. So we've got to have this event now before they vanish. You can potentially use both, first, up to a 10% credit at closing, so yes, on a 250k market value property, as much as a 25k credit and then secondly, a 5% down payment we've paired with credit unions in local markets that make Portfolio loans to investors, and that is up to five properties max. And to get that 5% down, you must qualify, just like you would for most any mortgage loan. And by the way, do you know what a portfolio loan means? That means when the bank or credit union makes the loan, it'll go sell that off to a secondary market and have it packaged into a mortgage backed security. What the bank or the credit union does is they keep that in their own portfolio. A portfolio loan does not mean that the lender makes a loan against your existing properties in your portfolio. That's what I used to think when I was a new investor, but that is a misnomer. That's not what a portfolio loan is. Well, with these incentives, if you get a 10% credit and only spend a 5% down payment plus four to 5% on closing costs, hey, there you are. You are in with zero down payment. It's a chance for you to get your fit together. Yes, what fits you is zero down right for you. I mean, you know that I am a staunch leverage proponent, but if that's not right for you, you can use your 10% cash back discount elsewhere, like buying down your mortgage rate to about 4% maybe even three point something percent. And see right here, this is exactly where the deal structuring gets fun incentives like this don't last. When the inventory is gone, it's gone show up live, and that way you can also have any of your questions answered if you have them, yes, our online event is an even bigger deal in fantasy football. Well, I trust that you learned something useful today on this week's episode of the get rich education podcast, to review, it's how tenant rent to income ratios are actually stable near 31% on why new build properties only cost about 1% more than existing properties today. And all about creative deal structuring, where you can own brand new new build income properties potentially with as little as 5% down and perhaps zero down payment. It's a really good opportunity. We sure have mentioned it before, but one last time, all the action takes place Thursday, October 24 at 8pm eastern at GREwebinars.com. Until next week, I'm your host, Keith weinhold, don't quit with your Daydream

Speaker 2 35:27

Keith Weinhold 35:55

The preceding program was brought to you by your home for wealth building Getricheducation.com.

Direct download: GREepisode524_.mp3
Category:general -- posted at: 4:00am EDT

Mon, 14 October 2024

Join our upcoming GRE live event right here! - ‘New Turnkey Properties with ZERO Money Down’ on Thursday 10/24.

On this week's episode, Keith shares how to vet and onboard a property manager, emphasizing the importance of their role in tenant relations and net operating income. He is also joined by our guest, seasoned investor and turnkey expert, to highlight the benefits of new construction properties with zero money down, leveraging builder incentives and portfolio loans.

Learn the key qualifications to look for in a property manager, typical management fee structures and questions to ask.

Hear about the benefits of new construction homes, including consistent income, quality tenants, and growth potential.

We discuss the potential for 10% builder credits and 5% down portfolio loans.

Show Notes:

GetRichEducation.com/523

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522: A Wealth Mindset in Real Estate Investing with Garrett Gunderson

Complete episode transcript:

Automatically Transcribed With Otter.ai

Keith Weinhold 00:01

Welcome to GRE. I'm your host. Keith Weinhold, how do you vet a property manager and maintain an onboarding relationship with them over time? I just hired one, and I'll tell you how I did it. Then there's a trend to exploit in today's real estate market, with the opportunity to place zero money down on brand new build property today on Get Rich Education.

00:27

Since 2014 the powerful get rich education podcast has created more passive income for people than nearly any other show in the world. This show teaches you how to earn strong returns from passive real estate investing in the best markets without losing your time being a flipper or landlord. Show Host Keith Weinhold writes for both Forbes and Rich Dad advisors, and delivers a new show every week since 2014 there's been millions of listener downloads of 188 world nations. He has a list show, guess who? Top Selling personal finance author Robert Kiyosaki, get rich education can be heard on every podcast platform, plus it has its own dedicated Apple and Android listener phone apps build wealth on the go with the get rich education podcast. Sign up now for the get rich education podcast, or visit get rich education.com

Corey Coates 01:12

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 01:29

Welcome to GRE Yeah. This is get rich education, the voice of real estate investing for more than 10 years now. This is episode 523, and I'm your host, Keith Weinhold, let's talk about how to vet a property manager. After all, they are what make your real estate investment mostly passive. I recently hired a new property manager. Of course, I have one in each geographic area where I own property. Now, instead, you can self manage from a distance, but sooner or later, you probably won't feel that's the highest and best use of your time. As friend of GRE and host of the real estate guys radio show, Robert Helms says, Life is too short for property management. And you know, when it comes to managing your property, still today, you can't just have an AI do that, and to be your property manager is the most important piece of your team, because they're the ones that handle all the tenant relations, collect your rent, and They control your occupancy rate too. I think you can make the case that a property manager is even more important in larger apartment buildings than they are in, say, single family rentals up to fourplexes, and that's for a few reasons. Number one, because managers drive your net operating income your noi in apartments. Okay, so that doesn't just drive your income. That drives the very valuation of the property, since apartments are the NOI divided by the cap rate. And secondly, one bad or noisy tenant can make other apartment tenants miserable. Yet if there's one noisy single family home tenant, well others might not even know about it or hear them. So a manager is more important in large apartments than smaller units. But let's not let the point be missed. They are crucial, just vital either way. And when it comes to qualifying a property manager, you know, before you reach out to that manager, do some research on your own. First, like first, I like to see if I have any friends that use that management company, and I like to get feedback from them. Also like to read reviews and see what current investors that use that property manager say about them in forums. And you know from real world experience, if you've been an investor for any period of time, it's a little sad to say, but getting reviews that are merely adequate or average, that might be good enough. There are many places in life where I accept mediocrity, although property management is probably one of them, because it's just a tough job where that manager has to adjudicate, use their judgment and walk a line between two antagonistic parties, and those parties are you and Your tenants. So adequate is good enough. Management is just one of those industries. It's kind of like airlines always seem to get bad reviews too. If there's a rating system out there for umpires and referees, it would probably be the same users only comment when there's a problem. Well. So when vetting a property manager next, I like to know how long they've been in business. I also like to know how many properties that manager currently manages, how many units they have in their management portfolio. And with this latest manager that I just recently hired, it happened to be 325 properties. That's a good number. And this manager also happens to be one in a network of a nationwide management franchise. So there are some systems and some economies of scale that I'm getting, and there are a lot of mom and pop managers too, and they can often do a good job as well of scaling and automation. A lot of managers, for example, they leverage a software like app folio, where you as an investor, you can log in and see your investor activity and your owner draws there. So this particular new manager that I hire, they have those 325, properties that they manage. But speaking to geography, I learned that their brick and mortar presence, their main office, it's a full 45 minutes away from where I have my properties all clustered. That's not ideal to have my properties far flung from their hub, because you want your properties to get adequate attention. And you can imagine, if your properties are too far for where most of their operations are. Well, then your properties might not get enough attention, but I learned that they already have 20 properties in the immediate area of mine, and that their maintenance man also happens to live near my property, so in this case, 45 minutes from the satellite office. Although it's not ideal, it did work for me. This new manager that I hired has the tenants rent be due on the first of the month, but they have a grace period to pay until the fifth and then the owner draws. They're made around the 10th of the month and the owner draws. That means when the manager makes their payment, to me, the investor, which is after they collected all the rents, minus their management fees and maintenance expenses. All right. Well, all that stuff is pretty typical, and let me tell you now about their management fee structure. And again, this is pretty typical. And by the way, I don't try to negotiate fees with managers in most cases, maybe, unless I have an awful lot of properties with them, they have a monthly management fee of 8% now 10% that's a pretty common fee out there as well, meaning that if rent is $2,000 they take $160 each month in a management fee. That's that 8% and then additionally their leasing fee is one half month, meaning that when they screen and place a new tenant for me, they get $1,000 at that time again, on this example of a $2,000 rent, and I pay a $150 re leasing fee, meaning If they release the unit to that same tenant after, say, their first year or two lease expires, ask your manager if they do markups on maintenance bills. For example, if they subcontract a plumber, and those plumber charges are $500 over to the manager. Does a manager tack on, say, 10% to that charge and then charge you $550 or not? Preferably, the answer is no markups like that can be another profit center for property management companies. However, what this manager does is instead, they have a trip charge of $55 for when their maintenance guy visits the property, and I was okay with that. That's reasonable. Also ask your property manager, if they do regular inspections of your properties, that means that they physically go inside the unit from time to time to confirm that everything is on right, that your tenant is trading a property with respect and that there aren't any deferred maintenance items cropping up, like delaminated flooring or some kind of water leak that needs attention. And this particular manager that I just decided to hire, they charge $75 a year for two of these annual inspections, so they physically go inside the unit every six months for a comprehensive check, which is a really good idea. And I love that they do that. Another tactic that I take when vetting a property manager is to ask them, you know, just a detailed question or two, really feel out their operations. It can be a good idea for you to do something like this. For example, I told this new manager that you know, in the past with other management companies or ones I still use, you know, I've seen managers they try to charge me for clearing a clogged sink drain. Well, I've let managers know I shouldn't. Not be seeing charges like that at all. In almost every instance, clearing clogs that should be charged to the tenant, not me. I mean, obstructions don't float up from water and septic systems. So in most cases, that is what's happening. So you know, the tenant is at fault for getting something clogged in there in almost every case. Now, one exception might be that, I don't know, tree roots encroach on plumbing or something like that. Okay? But the point is, when you ask about something like that, you're showing your property manager that you're savvy and you can't be taken advantage of. Okay? They have got to be the ones that pushes back on the tenant, sometimes not pushing on you every time, just because they feel like you're the one that can afford the expense more than the tenant. So that sets some expectations for the ongoing relationship. Also talk to your property manager about your communication preferences over time. Now, for me personally, I don't want an intrusive text message unless it's something that's pretty urgent. I prefer email communication, and the manager does not need to email me every time they need approval of expenses less than, say, $300 now, when you get more faith in your manager later, you might want to bump that number up to $500 or whatever your number is. Now, at times I do like to call my property manager on the phone. Sometimes you'll just get more information from them. This way, a better feel when I called a different property manager that I currently have, you know, one thing that they mentioned to be on the phone, they were like, oh, Keith, I've been meaning to call you. You've had a vacant unit for weeks, and we should probably lower the asking rent 50 to $100 All right. Well, I agree that we should do that, but I feel like the vacancy would have lingered longer at the higher asking rent had I not called. So really, this is the sort of light touch that you should give your properties over time, and it's the reason that why, even with professional property management, it's not completely passive. Instead, it's a little contact. And I also like to tell my property manager that I have mortgages on my properties. I have every property mortgaged, and always have. You can choose to have your manager pay your mortgage for you, or you can pay it yourself, and that's a bit about vetting and managing your property manager. And I hope some of those ideas go a long way toward helping you, really, they're the frameworks about what's important and establishing expectations with them. Up front this week a great guest and I will discuss trends in today's real estate investment market, and then we'll tell you about an event that you can join and how to specifically exploit an especially promising real estate opportunity that I have never seen before. That's next. 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, 420056, 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. 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 to 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.

Rick Sharga 14:46

this is Rick Sharga, a housing market intelligence analyst. Listen to get rich education with Keith Weinhold and don't quit your Daydream.

Keith Weinhold 15:11

This week, we've got the privilege of hearing from a seasoned real estate investor. He himself is in single family, multifamily and commercial. He's also a licensed optometrist, and he practices on a volunteer basis, giving away his time and expertise there. In fact, he started investing in real estate while working as an optometrist and captain for the US Air Force, and that on the side, real estate investing allowed him to retire early from medicine, and today, he's an industry expert in real estate market analytics and how to use real estate as a means to create the lifestyle that you, the listener, desire for your family. Hey, welcome to GRE Zach Lemaster.

Zack Lemaster 15:54

Thanks so much for having me on again. It's good to be back, and always a pleasure to you know, talk real estate, I learn a lot from you in the content you put out. So I'm a big fan, and I appreciate you having me on.

Keith Weinhold 16:06

Well, thanks for saying that will. I'm sure we're going to learn from you today too. You've got such a great take and feel for the pulse of the residential real estate market. Tell us about your take, whether that's price, direction, rents, occupancy rates, supply, interest rates, demographics, whatever you think is important, tell us about what a real estate investor really needs to know in this era, Zach.

Zack Lemaster 16:30

man, and this could probably be a whole day conversation, Keith, I think you've done an excellent job covering this every time you put out information, so we won't belabor the point. But I guess my general take is that, you know, we're moving into a section in the the market cycle, I believe, where we'll probably start to see a little bit more of a normalization of a real estate market. I mean, it's just been so strange, right, to pull data points over the past two years, and actually, really four or five years of like, there's really some unique things happening, and there's a lot of people that have projections around how housing prices are changing and things like that. The only really thing, I think the big takeaway from the past two years is that home sales have plundered it. People talk about real estate crashes, real estate prices really didn't change that so much. And actually in a lot of the markets, like where we focused on they went up because, you know, supply and demand. These are areas where there's a huge discrepancy and there's an undersupply of housing, and those are kind of the areas you want to be in the path of progress. But one thing that we did see over the past few years is that there's a plummet in home sales, and that's both with less buyers because of the interest rates and less sellers holding on to their low interest rates. People are less likely to move in those scenarios. So I think we're going to see more of that as we start to see interest rates coming down over time, and we'll probably see more inventory hit the market, but also a new influx of buyers. So I don't know if there's going to be much of a change in terms of pricing, but generally speaking, I think there's from the investor side. A lot of what we talk about is retail, but with the investor mindset, which is your audience, I think what we will likely see is that there's probably a lot of people that were sitting on the sidelines that will jump into the market. There's going to be more buyer competition, of course, that drives prices. And one thing we know for a fact that we'll dive in deeper today about Keith, is that there are builders, because a lot of what we do is in the new construction, build to rent industry. And we could talk about why that is, but that's just a solid asset class to maintain consistent income, quality, tenants, growth and potential in both home appreciation and rents. But I think what we're likely to see is that over the past year, there's been a lot of builders giving out these crazy incentives because they've had excess inventory and they've had a slowdown on the retail sales, and it's been a really unique opportunity for investors to come in acquire good assets at with these crazy incentives of below market pricing, which we'll talk about, that is likely going to disappear over time, as they move more into the retail sales, and those channels start to open up more because there's more buyers and so in the niche that we work in, that's kind of the takeaway that I think is developing, really over the next, you know, A few months here.

Keith Weinhold 19:00

yes, this reduction in sales volume that we've had like you touched on which lower interest rates could help thaw. Almost everyone agrees that interest rates are going to fall more slowly than they spiked in rows in 2022 and you know what's funny, Zach, I can be in the front of a room talking about the condition of the economy in the real estate market, and I can say to the audience act, I can say, if you think there's uncertainty right now, a substantial amount of uncertainty, raise your hand. Adversely. Everyone raises their hand. But you know what? They did the same thing two years ago, and they did the same thing five years ago. So my point is, yeah, investors invest through the uncertainty. Because uncertainty always exists. It just shifts around as to where the uncertainty is. The listener might be trying to validate sort of one thing in their mind and get it to balance out right now. Zach, when we talk about this lowering of sales volume, and you mentioned builders that are sitting on some inventory yet we have a lack. Of supply. Can you balance that out for us and tell us how that is that some builders have inventory that they're sitting on that's supply, and yet we have an overall lack of supply.

Zack Lemaster 20:10

yeah, and I think the other key piece into that is lack of affordability, right? And so all those things kind of play together, just to tie up your last point. There's always uncertainty in real estate, but there's also the fundamentals of real estate. Keith, you know, this is a long time investor, investing all across the country, as long as you stay focused on the fundamentals, which, at the end of the day, is really investing in good locations with good teams, where you have positive cash flow, right? And you likely have a positive outlook from an economic standpoint for that market, to keep the house rent in to keep rents going up. Like that's really all there is to this to be successful long term that can exist in any market cycle. So I just encourage people to stay focused on that. But ultimately, your question about inventory supply, we talked about big things of like lack of inventory. I mean, we have a deficit of I think the last stat I saw was seven and a half million houses, you know, deficit or something like that, but that's really on the global economic picture for the US, right when we break it down to the kind of the micro economic scale with each individual regional market, because we work with regional builders as well as national builders, and we're also builder. We also put up our own houses as well to a somewhat small scale, but a lot of those builders started the houses that are now completed, you know, at this point, sometimes six months ago, more likely 12 to 18 months ago. And they had anticipation as the Fed was talking about interest rates lowering, you know, they maybe were planning an X amount of sales for those exact houses. However, from the retail standpoint, there really hasn't been that movement. So we still have a lack of homes that we need, but we also have a lack of people that can buy those houses, because there's a lack of affordability, right? And all these builders also have X amount of houses that they sell to institutional buyers, the blackrocks and some of these buyers that will come in in and we'll talk about why that's relevant to us and how we've pioneered our way into operating like one of those for the individual investor and bringing those same buying incentives to the everyday investor. But there's also been a large decrease on investor activity from an institutional level buying. So just because we have a reduction in inventory and we have a low supply does not necessarily mean that we're just gonna, you know, builders can just sell all their homes because of that. There's a lot that plays into that, and you need to look at each geographic market. But ultimately, if you're looking at the fundamentals of investing in real estate, where you can still be, and we try to be below the meeting house price point, below that $400,000 price point, again, that's where we have the largest demographic big affordability issues right now. I think that's a safe place to be, right? Because you don't see the fluctuations that you do on the more expensive homes, the more expensive markets. I think you have the large, large demographics for both renters and retail buyers, and you also have more runway, right? More runway for prices to go up. So that's kind of our the niche area that we're when I'm talking about excess supply. That's the area that we're really focusing on.

Keith Weinhold 23:03

Oh, that was beautifully explained in how to tie that supply story together there. Zach, of course, there are so many ways to divide up the real estate market, one of those being that price tier. And typically for us as cash flow real estate investors, we look at a single family home. Yeah, it's going to be under 400k in order to generate income, I have an announcement to make here to you the listener on Thursday, October 24 one of our GRE investment coaches, along with Zach here, are co hosting GRE 's live event for new build turnkey income properties with zero money down. Yes, I'm stealing some of your thunder there. Zach, zero money down. Registration is now open at GREwebinars.com and the momentum has been building for this event that you can attend from the comfort of your own home. Tell us about what you'll be covering at our live event. Zach.

Zack Lemaster 23:58

yeah, and I'm very excited to do that. Keith, I appreciate you having me. Han, again, I think all the investors, if you're interested in new construction or just creative finance and some ways to make some unique deals happen, like you have to attend this webinar just to at least learn. First, we'll talk about different markets right now where we see the best opportunity. So if nothing else, you learn about some of the best markets to invest in. But really what we're going to unveil is how someone, regardless of where you live, geographically or your investing experience, how you can make a creative deal happen on a turnkey deal that you can get below market value and possibly buy with zero money down, or at least have a good portion of your down payment cover to really skyrocket your ROI. So this is a scenario, Keith, we really get to have your cake and eat it too, because you get a brand new constructed house. It's turnkey, where everything is done for you in a great market that has appreciation book on rents and prices. But you can also buy it with low to no money down and really be a creative investor. And I know that we're going to talk about all the details with that.

Keith Weinhold 24:58

Yes, let's talk more about. Out the potential for zero money down here. I mean, I think that's the most compelling value proposition with what we're doing next Thursday.

Zack Lemaster 25:08

sure. So we'll just go through a numeric example so people can kind of wrap their head around like what this entails. We already set the stage for you know why builders may have excess inventory. And what we do with our business is we partner with both regional and national builders, some of the largest national builders as well as as I mentioned, we build our own homes as well, but we partner with some of these national builders that have excess inventory in markets that we know are productive investment opportunities. A lot of these happen to be in the southeast, because that's where the population is growing, and we're seeing that's where favorable landlord legislation is and federal taxes and growth potential, all the things right, positive cash flow, but we focus on those areas. And we can go to these national builders, because as a group, you know, we buy hundreds of houses every single year, and we can basically approach them like an institutional buyer and say, we want the same access to those wholesale deals that you would sell to BlackRock, but we want that for ourselves, and we can pass that on to the individual investor. That's kind of the value add. But specifically, what we're talking about is a scenario where some of these builders will offer up to a 10% credit at closing. That is huge. And just to I mean, for someone that is just new, the real estate game is kind of learning about this is I've been investing personally for 15 years now, I've never seen things like this in any market cycle that's through multiple different market cycles, but I've never seen anything this attractive. So this is not normal. I want to say that's to start. But essentially, you can get up to 10% of a credit on a house that you can use however you want to. And so there's a few different ways that you can use this key. So if you're buying a $300,000 turnkey new construction home, you could, in theory, get $30,000 off and buy that at 270 of $30,000 of immediate equity. That might be a good strategy if you're looking to lower the mortgage payment on that or if you're looking to, say, refinance that property or sell it quicker, you have that immediate equity in that house, right? The other thing you could do with that 10% is you could use it to buy your interest rate down we have and that will get you below 4% you could literally buy your rates down into 3% with that much, if you want to put that much money into it, it'll cover your closing costs and buy the rate down significantly. So no matter what the Fed lowers, the rate to you are back actually down to one, 821, rates by buying your way there with that huge credit that obviously causes, you know, cash flow to skyrocket near ROI, to go way up. The third option that you can do is you can actually take that money, just get it back as a credit at closing. So if you're buying a house, say a $300,000 house, you're putting 20% down, which would be $60,000 on that house, you get $30,000 immediately back. That means you're into the house for 10% or half your down payment. That also skyrockets your ROI. So the point is, is there's a lot of creative things that you can do with these type of exciting credits, and they vary between five to 10% based on inventory, but they go up to 10% on some of these new construction inventory options. One last thing here, Keith, and this is hopefully I haven't lost anyone, but this is where things get really creative. As a company, we also work with different lenders throughout the country to bring the best financing options to investors. And we have a group of credit unions. They're all local to that geographic area that have Portfolio loans. Meaning these are not Fannie, Mae, Freddie Mac loans. These are loans they hold in house. These are true investor loans. You still have to qualify for them, but if you qualify, you can put as little as 5% down, meaning the they will finance up to 95% of your property. We have tons of investors doing this consistently, and you can do this on up to five properties, five investment properties, if you qualify. And so that means, in theory, you could buy a brand new construction house with a 5% down loan. You get a 10% credit back at closing that covers your down payment, your closing costs, and likely puts money back in your pocket. So that's not only buying a new construction, turnkey house with no money down it's actually getting paid to do so now there's a lot of economics to understand and cash flow, you know, with a high leverage and things like that, but that's a concept, and it's very exciting.

Keith Weinhold 29:09

Yes, that last option that you mentioned seems to be the most compelling. I know. You've got investors that are learning about this and have already taken advantage of that, and again, that last option is getting the 10% credit that you're getting from the builder, coupling that with a 5% down portfolio loan from a local lender, which effectively would give you 5% cash back at the closing table. However, your closing cost of prepaids might be something like 4% so really, in a best case scenario, not only are you zero money down, you're getting about 1% of the purchase price, or $3,000 in this example back at the closing table. Now, of course that's going to affect your cash flow, but you got to think about what's important to you. So when one thinks about what's important to them, as an investor, with some of those options that you laid out there, Zach, I really highlighted the last one. What are some of the trade offs, the pros and cons of choosing these different incentives that the builders are getting right now?

Zack Lemaster 30:05

I'm so glad you asked this, Keith, because someone could be very excited about the idea of no money down, but that may not actually be the most strategic benefit to them. The nice thing is that there's so much incentive to buy right now with these type of, you know, kickbacks, these these incentives that, like you can structure a deal that's specific to you in your goals. But I would really encourage the audience to understand what is your exit strategy, or what is the next three to five years? Why are you buying this property, and how to strategically apply that? And if you don't know, if you need some guidance through that, let us help you kind of understand the different scenarios, but I want to work backwards first and mention one more thing, the no money down option would be really attractive because cash flow is going to be limited. In that scenario, you still have a loan that's covering 95% of the house, right? You would expect it, and you don't have to only put 5% down, right? You can put six, 7% down. So it's, you know, maybe break even cash flow. It's up to you. But the investors that really like that option, including myself, is the people that want to grow and scale their portfolio and stretch their capital the furthest. They maybe don't care so much about cash flow right now at this moment, they know that cash flow will increase over time. But if you're someone who really takes advantage of the tax benefits of real estate, this is way to, like, honestly, without any money out of your pocket, just taking some action, you can create this huge tax benefit, right? Because if you're buying five properties with virtually no money down, and let's say those are each $200,000 properties, you could essentially buy a million dollars worth of real estate that you own and control 100% of and you get the huge, immense tax benefit. So if you're doing things like Cost Segregation studies, like we do, you can create hundreds of 1000s of dollars of tax deductions without any money out of your pocket, just being strategic this way. But let's talk about some of these other options, because that was a real question. Where would it make sense for people? So again, if you say that 10% on a $300,000 house, that's 30k if you wanted to take that as a price reduction right out of the gates, that would obviously lower your mortgage, that's going to lower the mortgage payment amount to allow you to cash flow more. But I think the real the strategy, or the play there, is that you have built in equity in a house. This means that if your plan is to maybe put a HELOC on the house, do a cash out refinance in a few short years, as that House continues to appreciate again, because it's in a growth market, you're just going to cut that time in half because you have built in equity or if you plan to sell it. I mean, there are some scenarios where you could turn around and almost like, flip this in theory. You could do it. If you really run the economics, they want to be hugely profitable. But theory could be profitable if you sold the house with, you know, even immediately, because these builders are still selling these houses at retail, setting comps at full market value. So if you have 10% and you're paying a realtor 5% commission, they're still closing costs. But you could, you know, net some capital, but better scenarios, probably, if you're holding it for two or three years again, letting it continue to appreciate, your option is to sell it, then you're into capital gains, or again, 1031 exchange it. You know that might be good option to have built in equity. Or if this is going to be a long term hold for you, and you're just like, I love this area where I'm investing, I want to maximize cash flow. I want to have a long term loan that has a really low interest rate, then actually applying the majority of that capital to buy your rate down. That's going to obviously maximize cash flow, and that's also going to lock you in on a 30 year fixed loan at a really low rate, maybe you want to buy the rate down. So that's really the two options. We see most investors either taking the capital back and using the zero money down option, or buying the rate down, because that's going to allow them to really cash flow well, and they're just going to hold that property for a long period of time and let real estate do what it does. Those are kind of the different scenarios. I think that makes sense for different investors and understanding where to apply this incentive. Sure, if you go for a high loan, to value loan at 95% or even 100% you really then pursue the infinite return strategy, have maximum leverage, or complete leverage in the property, have all the inflation profiting benefits magnified because you're borrowing more, but that scenario is going to reduce your cash flow. So it's all about what's important to you as a real estate investor, was that before you go, just tell us a little bit more. I think the listener is going to learn more on next Thursday's webinar, but just give us a bit more on property types, whatever else one might want to know. certainly. So this is mainly in the southeast, okay, so these would be markets like Texas, Alabama, Carolinas, Florida. We have some stuff in Tennessee, but, I mean, this is really the growth markets right where we have landlord friendly legislation, low taxes, we have affordability, but we have huge population trends moving to these areas. Those are the areas we want to be. Those are the areas where builders are building in because supply and demand. Those are areas where we're positioned for strong growth over time. Overall, our average rental increase is 6% year per year, and that's going back on data over the past decade. He's really good then, yeah, usually double national average there. So those are because we're specifically positioning ourselves in areas where. Where there's increase in rental demand and in population and economic growth, average home prices. I mean, we have new construction homes as low as 200,000 by the way. Side caveat, we also have some rehab homes that are in that 131 50 range that you can still use the low money down. Those don't have as high up incentives as the new construction do. But average price for new construction, two to 300,000 give or take. I mean, just buying them, if we're buying them with a conventional loan, with 20% down, you know, you're still looking at eight to 12% cash on cash returns. Let's just talk about the cash flow. So they're really good properties that cash flow well, which is hard to find today, and they're in good locations. I think that's really the main point I want to drive home as we finish up here is, these are single family residencies in good locations. You guys, I've invested, as you mentioned, in the nice century gave me, I mean, real estate allowed my wife and I to retire from our career paths as optometrist through investing. That did not happen overnight, but it did happen over a period of time, and it did take a lifetime, either, though, that's the thing I want to mention, over a short few years of intentional, dedicated investing, we learned that really focusing on growth markets and new construction houses allow for the best quality tenants, the most predictable returns and the best growth and rents and appreciation of the houses over time. To build equity, those are the kind of assets that we want to hold long term and will help you build wealth in a short period of time. So that's kind of been the direction of our business model. Is focusing on quality inventory in good locations with good teams that still have cash, good cash flow. But you mix in some of these incentives, Keith, and it's just like, it's a no brainer. And I do think this is the biggest thing, is sense of urgency here. This is unlimited inventory. This is not something that's normal, as I mentioned, and this buying opportunity that we're so excited about is not going to last forever, as we started this conversation, talking about the market shifting as interest rates continue to come down over time, that will continue to bring more buyers into the market and just less motivation from builders to offer these incentives. So guys, now is the time to take action and make really good investments now that will set you up for success for many years.

Keith Weinhold 37:03

The time is now. This is one of the best deals I've really learned about here in the recent past at all this could be of any benefit to it all. You really want to jump in on this, because, like Zach said, this won't last forever. Well, Zach, before I ask you for your closing thoughts again, for you to listen or be sure to sign up for GRE 's live event. This is for new build, turnkey income properties, potentially with zero money down. It is Thursday, October 24 at 8pm Eastern. Register at GREwebinars.com any last thoughts? Zach

Zack Lemaster 37:03

Keith, I just appreciate all the information you're putting out there, we are all thrilled about real estate as an asset class. It's been an interesting past few years. But again, just going back to the fundamentals, guys invest in good properties and good locations with good teams. And I promise you, if you do that consistently over time, you will reach financial independence or whatever financial goals you are striving to achieve. There's more millionaires or main real estate than the other asset class, and it's the most predictable Path to Wealth. There's no secret about that, but it does take consistency in any market cycle. So Keith, thanks so much again for having me on.

Keith Weinhold 38:12

Oh, those are great parting words, and you the listener, are going to get to talk more with Zach and one of our investment coaches. Next Thursday, it is live at the end, you will have a chance to have your questions answered in real time, in case you want to talk to Zach more. Hey, it's been great having you here. There's something in the market cycle there that we can really take advantage of. Builders have some excess inventory and see the money that they have tied up in them is something that they're paying a fairly high interest rate on to. And we have now partnered with some of the biggest builders, Lennar DR Horton and others, to get you this institutional grade buying power buying at scale for lower prices and better incentives, like Zach and I said, new builds in the southeastern US for purchase prices of 200 to 300k offering you up to a 10% credit at closing. So in a 300k rental single family home, you can then use as much as 30k and choose what you want to do with that. You could buy your interest rate down to 3% that's probably better if you're going to hold it long term or use on your closing costs and have some to use toward your interest rate. Or alternatively, you could just take it as a price reduction. A 300k property is now 270k maybe you can even enjoy the discount and sell it in the next, say, two to three years for a profit. You're likely not going to be immensely profitable that way, but you don't know what the market will do over time. All right, so it'll typically be a five to 10% credit, and that depends on the property that you seek here. All right, so that is the builder credit bucket there. And then, in addition to that, if you qualify, you have some good, say, credit and assets where you can get a financing option through local credit unions, and that is local to the area that your property is in that will extend you a portfolio loan. If you qualify, you'll learn about how to do this. And this means you could put as little as 5% down, and you can do that on up to five investment properties. Okay, so with those buckets, or those two incentives combined, you could then get a 5% down loan with a 10% builder credit so that 5% bank could cover your closing costs and even just put a little money in your pocket. You should sort of think of all of that as a best case scenario. You might be pretty excited about no money down, and you probably should, but, you know, attend the event and weigh the pros and cons and see if that is the right avenue for you. A lot of it comes down to what do you want to optimize your cash flow or your leveraged equity? This is an action taking time for you to get a good chance at being set up for financial success for years. I mean, it is opportunities just like this. I mean, you learn about these concepts on the benefits of real estate investing here on the show. And now here's something really tangible where you can get ahead. I mean, personally, for me as an investor, I've never had an opportunity like what we're talking about here. Before. If you so desire, you can own new build property and learn how to get it tied up at the event. Make sure to sign up and put it on your calendar. That is next Thursday, the 24th from the comfort of your own home, GRE 's live online event for new build properties in growth markets, potentially with zero money down. It is free to register, and as of now, there are spots available at GREwebinars.com Until next week, I'm your host. Keith Weinhold, don't quit your Daydream.

42:10

Keith Weinhold 42:38

The preceding program was brought to you by your home for wealth, building, get richeducation.com.

Direct download: GREepisode523_.mp3
Category:general -- posted at: 4:00am EDT

Mon, 7 October 2024

Firebrand speaker and author of “Killing Sacred Cows”, Garrett Gunderson, joins us to discuss wealth mindset and value creation. Also, Keith touches on the impact of falling interest rates on various loans and the economy noting that lower rates can benefit savers and investors.

Historical data shows that home prices have only fallen 6 times in the last 83 years, signaling the rarity of significant price declines.

Learn about the Rockefeller method, which involves using trusts and whole life insurance to preserve and grow wealth.

Garrett advocates for investing in real estate, businesses, and intellectual property rather than mutual funds or ETFs.

DM Garrett on Instagram to receive a free copy of his book on the Rockefeller method.

Resources:

GarrettGunderson.com or

Alon Instagram @garrettbgunderson

Join our upcoming GRE live event right here! - ‘New Turnkey Properties with ZERO Money Down’ on Thursday 10/24.

Show Notes:

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521: Terrible Predictions, "End the Fed" and Capitalism with Mises Institute President Dr. Thomas DiLorenzo

Complete episode transcript:

Automatically Transcribed With Otter.ai

Keith Weinhold 00:01

Welcome to GRE. I'm your host. Keith Weinhold, talking about what falling interest rates really mean to you. 10 years of the GRE podcast, politics are overrated. How often do home prices fall? The latest in AI generated podcasting and then wealth mindset and wealth preservation all today on get rich education.

00:27

Since 2014 the powerful get rich education podcast has created more passive income for people than nearly any other show in the world. This show teaches you how to earn strong returns from passive real estate investing in the best markets without losing your time being a flipper or landlord. Show Host Keith Weinhold writes for both Forbes and Rich Dad advisors, and delivers a new show every week since 2014 there's been millions of listener downloads of 188 world nations. He has a list show guests and key top selling personal finance author Robert Kiyosaki, get rich education can be heard on every podcast platform, plus it has its own dedicated Apple and Android listener phone apps build wealth on the go with the get rich education podcast. Sign up now for the get rich education podcast, or visit get rich education.com

Corey Coates 01:12

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 01:28

Welcome to GRE from Evansville, Indiana to Victorville, California and across 488 nations worldwide for an entire decade of your life now, this is Get Rich Education. I'm your host. Keith Weinhold, what does it mean that we're in an era of falling interest rates from the recent peaks, rates of all types have fallen. Mortgage rates have fallen. The Fed funds rate has fallen, and that prime rate has fallen too. I mean the prime rate that you pay, that's basically the Fed funds rate plus 3% and why the prime rate matters to you is that can affect credit cards, home equity loans, automobile loans and small business loans, every one of them down, down, down. So to any savvy investor that knows what's going on in the 21st century? This can mean celebration for your wallet, for your finances. And look in old days, lower rates, that would be bad news, not good news. And why is this? Well, in olden days, and some people still have an outdated mindset, lower rates are bad because savings accounts used to make sense back in the day, and lower interest rates means lower rates for savers on their bank, savings accounts. Yeah, those 5% online only savings accounts are going to four and a half with the Fed's half point rate cut last month. Well, 100 years ago, you could be a saver. That made some sense, because their interest rates could reliably beat inflation over time, but not today. Today, since inflation transfers wealth from lenders to borrowers and inflation redistributes wealth from savers to debtors. For those like us that understand this and act accordingly, we are indeed the beneficiaries of lower interest rates. Now, there are other effects out there in the economy. Cheaper loans could lead to more m&a activity, more mergers and acquisitions that can benefit investment banks like your Goldman Sachs that facilitates those transactions. Well, what happens to real estate prices amidst lower interest rates? What happens is that they tend to rise now here on the show, you remember that since 2022 I have discussed what has surprised a lot of people. Amidst rising interest rates, the environment that we used to have, home prices tend to rise. And it has happened again. When mortgage rates tripled, prices kept right on rising. So you might wonder, well, wait a second, which is it or I'm confused, amidst rising interest rates, home prices rise and amidst falling interest rates, home prices rise too. And the answer is yes, look at history over hunches. To our newsletter readers, I recently sent you that great chart, a table, I guess it showed the national home price, rate of appreciation or depreciation for every single year, going back to World War Two and from 1942 until today, those 83 years, how many times do you think that home prices fell over the last 83 years? There were exactly six, six of the last 83 years, only six where home prices fell. Paradoxically, interest rates don't have much to do with home prices, and this is all per Case Shiller statistics. Over the last 83 years, there were only six down years. 72 were up. Five were even. And of those six down years in the last 83 five of the six down years were tied up in a once. I mean, it took a once in several generations confluence, a cataclysm of events to occur during the global financial crisis, 2007 to 2011 all at once. Back then, it was a housing supply, surplus, disgustingly lawless mortgage market, cheap credit and a preponderance of debt in the banking system since World War 2, 83 years ago, there was only one other year when home prices fell, that was 1990 when they fell by 1%. If you're waiting for Home prices to fall substantially, it is super unlikely that that is going to happen. Just look at history, and today's market has more than the housing shortage in loads of protective homeowner equity, which means low delinquency rates, and we have permanently inflated higher prices baked into replacement costs of all kinds, land, architecture, engineering, permitting, regulation, labor, building, equipment, construction materials all over the place, but us, you know, as real estate investors, we might be more interested in rent appreciation than prices just four years ago, you know, just then to pay $2,000 to rent a single family home. I mean, that was quite a nice place in the Midwest and South. And today I have modest single family rentals built 50 years ago that are about 1200 square feet, and now they rent for $2,000 $2,000 a month's rent that is common today, and we are rooting for rents to appreciate faster than home prices. And if you want to get our newsletter, you're probably on that list by now, and reading it, I just send some of the best charts in real estate maps to you. You can sign up free right now. Just do it while it's on your mind. Text GRE to 66866, that's text GRE to 66866, for our Don't quit your Daydream Letter. Political season is heating up. We are at a time where we are one month from a general election, and that means we're electing a new president, vice president, 1/3 of the Senate, the entire house of representatives and various state and local officials. Yes, politics matter. Politics affect real estate. So why don't I discuss this more here on the show. Well, I explained that to you a while ago. It gets divisive, and it rarely affects people as much as they think. And as you know, I avoid even using words like Democrat, Republican, left, right, conservative and liberal. And why do I do that? Because they are divisive terms. The problem isn't so much politics. It's when people get infected with the partisan mind virus. Yes, they put party over country. For example, a partisan political instigator will swear to god that the economy is great now, but as soon as, say, a different party wins an election, even if the economy is the same, although now say that that same economy is awful. In fact, a couple years ago, I quit my job as a writer for a publication that you've heard of before. I no longer contribute to them. They put party before country, in my opinion, I wrote an article for them about two years ago, and my article made it sound like an eminent recession was a question, not a foregone conclusion. Well, the editor let me know that their consensus of writers feels like a recession is eminent and that I need to change my article to reflect that that's because they don't like the administration that's in power, so I quit rather than edit my article. I mean, if you just ask an American the question, this question, do you wish that America were less divided? Well. Any sane person would answer that question, yes. Well, then why would you go attach divisive labels to the other side and attack them? It makes no sense. That's where the division comes from. So really, it ought to be about solutions and ideologies and not political parties. So this is another reason why, during political season, I don't play those games, and we stick to investing the economy and wealth mindset. I mean, virtually no other country in the world drags out their presidential election cycle this long. I mean, it's like a year and a half. Remember all those debates last year and names like Nikki Haley and Vivek Ramaswamy that were in the news all the time. I mean, other countries get this entire process over with in six weeks. Let's take a page from them, and that way we can have more constructive things in our news cycle. Well, I am coming to you from the makeshift mobile GRE studio today, like I do some weeks, because this morning, I woke up in reading Pennsylvania. Reading is, in fact, my birthplace, and besides being the pretzel capital of the United States, one way that you know about reading is from the Reading Railroad property in the board game Monopoly. Yeah, it's one of the properties that you can buy and, I guess, collect rent on. And, you know, here we are a real estate show. So maybe it's appropriate that the namesake of my birthplace is immortalized as a property on America's best known real estate game. And it also might be appropriate that I'm back here because the 10th anniversary of the launch of this show is nigh this coming Thursday, on October 10, 1010, it will be 10 years since episode one of this show. And yes, the math, I suppose, checks out, because there are about 52 weeks in a year, and you are listening to episode 522, right now. Well, listen to this. This could blow your mind. Have you heard an AI generated podcast? And I don't just mean sort of where a robot reads a blog in monotone and then you listen to that audio file that's embedded in the article. No, that's not what I'm talking about. Here's what I mean. A few weeks ago, I learned that macroeconomist Richard Duncan, who was the first ever guest on this show back in 2014 Gosh, all these tie ins to GRE 's origins today? Well, Richard published some PDF charts, and he uploaded them to notebooklm.google.com, that's how you find this. And he clicked generate audio overview, and within three minutes, it had created a podcast with two virtual people having this pretty intelligent, engaging and even humorous conversation about his presentation on interest rates. I mean, wow, just listen to the first minute or minute and a half of this AI generated podcast here. And again, this is from about a month ago. So they're talking about the upcoming Fed rate cut that did indeed happen.

13:23

All right, ready to dive in. Today, we're tackling the big question everyone wants to know, will the Fed actually cut rates on September 18? It's the question on everyone's mind, for sure, and more importantly, for our listeners, what's it going to mean for them to help us unpack this whole thing. We're looking at this report. It's by economist Richard Duncan, called why the Fed will cut September 12, 2024. Duncan always brings unique perspective. He cuts right to the chase, which I appreciate. right! So let's jump right in. Duncan starts by talking about inflation, which, let's face it, we've all been feeling the heat from this past year. Yeah, it's been a wild ride. Inflation hit a pretty brutal 9% last year. I think my grocery bills are still recovering. Oh yeah, tell me about it. But the latest number shows down to 2.5% that's both by the CPI and importantly, the PCE Price Index, right? And that PCE is the one the Fed really keeps their eye on, exactly, which is why I wanted to ask you about that. Why is the PCE like the golden child for the Fed, why not just stick with the CPI? Everyone knows that one. well, It's all about getting the most accurate picture of inflation. Think of it like this. The CPI is like taking a quick glance at prices. You know, just a snapshot in time. Okay with you, but the PCE, that's more like a movie. It captures how our spending habits change as prices change, and that gives the fed a better look at those underlying trends driving inflation. So it's like the CPI with a little bit of a crystal ball. It's trying to anticipate what's going to happen. It's got it okay? So inflation seems to be cooling down, which is good news, right?

Keith Weinhold 14:56

Gosh, that's just really good, a totally realistic sounding AI generated podcast just from some PDF files. The macro economist Richard Duncan uploaded remarkable and you know that the quality of that is only going to get better. That's probably about as bad as it's ever going to be right there. And in fact, in another 10 years, listeners could find it rather cute or quaint that we find this remarkable today. A big thanks to Richard Duncan for allowing us to play that and also expect Richard to be back here with us on the show again before the year ends, and here on the 10th anniversary week of the GRE podcast, you know, it makes me wonder how expendable my job as podcast host is going to be. I hope that I'm here with you in another 10 years, and I completely plan to be. Well episode number one of the get rich education podcast back from 2014 is called your abundance mindset. So it's apropos to visit a mindset topic today I'm going to do that with firebrand Speaker This week's guest, Garrett Gunderson. Here shortly, do you want to live a life that is small and safe and sheltered? I doubt that you really do, but you know, safe decision after safe decision, that's what most people end up doing. Do you want your kids to live a small, safe, sheltered life? I mean, most parents want safety for their children, but they're going to have an outsized impact on others when they study and then take the right risks. We're discussing those types of wealth creation mindsets with Garrett. He's a really talented guy. He was last with us six years ago. He's done some stand up comedy. Many have remarked that Garrett looks like Jesus Christ. He's the author of some popular books, including killing sacred cows. Let's talk to Garrett. This week's guest is a pretty well known author and speaker. He helps you make, keep and grow your money to help you live your best life. He's an especially dynamic speaker, public speaker, and I'm confident that you'll be able to hear that on the show today, because he has a great knowledge base, and he speaks with this conviction on topics that make him so compelling. Hey, it's been a few years. Welcome back to GRE Garrett Gunderson.

Garrett Gunderson 17:38

good to be back. I thought that was a very honest, like, pretty well known, like, I'm not really well known pretty well. That's just enough to annoy my wife. Like, I'll be going through an airport and someone come over and talk to me, and she's like, ah, but I love it, dude. I love conversations with people that I don't know, and I just get to meet because if they engage in my work, it gives us a chance to connect. And sometimes it makes me look cool to my kids, which is always a good thing. You know what I'm saying, like my son will be with me and someone say, hey, love killing sacred cows, or, Hey, are you that guy on YouTube? I'm like, it could be me, or you might be thinking, I'm Jesus. You know what I'm saying. I look familiar, though.

Keith Weinhold 18:14

Yeah. Now you can tell your kids that I said you are pretty well known. And you know, Garrett, you're also a really keen and perceptive person. You can tell if somebody's poor within 60 seconds of what they say. Tell us about that.

Garrett Gunderson 18:31

Oh, man, that video has so much hate. Man. I put that out like it was my son's filming, and I'm just sitting in our kitchen, and I was just thinking about a conversation I had earlier that day, and in the conversation, it was like, more about complaining about the world, saying that they couldn't afford things, saying they didn't have the time, blaming everyone for their situation. And I was like, man, it's pretty easy to tell. And 60 seconds, I mean, I guess maybe is a rash statement, because maybe it takes three minutes or 300 seconds, like five minutes, and get deep enough, but you just find that there's a certain language to poverty, and whether that's just poor in spirit, whether it's poor in mind, or whether it's poor in the bank account, typically it's devoid of personal responsibility. It's leading the levels of inspiration. And this isn't to say that if you're wealthy, that you only speak inspiring conversations. I mean, I complain sometimes that happens. I get frustrated. I get disappointed in myself for not being nicer to a customer service person and like, have to really manage that sometimes. But ultimately, it's this language that is almost like a Marxist type of language, you know, that comes from a place of like, I want this. I'm owed that we deserve this. And I'm like, wait, wait, wait, like, who's going to produce that? And so it's something that's a fairly easy thing to detect with just a few questions. Like, if I'm given one question, I can tell in 60 seconds for sure.

Keith Weinhold 19:57

Yeah. I think a lot of times people start complaining. About something. People find money a scarce resource when they start, you know, complaining about gas prices or something like that, I think that's just really a classic one. It tells me where they're coming from. I mean, it tells me what their mind is occupying.

Garrett Gunderson 20:12

Right. And if we're not excited about our future, if we're not developing our skill sets, if we're not really engaged in the world of value creation, it's easy to get frustrated about tax it's easier to get frustrated about inflation. It's easier to get complaining about interest rates or loan rates and all those kind of things. But what I find is the best way to outpace inflation is through skill set, and if we truly invest in ourselves and invest in other people so that we increase our quality of life and our enjoyment of it along the way, we increase all the skill sets that matter. You've mentioned that I'm a decent public speaker and that I'm articulate. That comes from going through writing courses and hiring speaking coaches and just getting the reps and doing comedy and the things that will help me to become a more effective communicator. And then it's really about becoming a better cash flow investor. I know that you teach people a lot around, you know, real estate and investing, and that's one of the big three assets in my mind, that helps people generate and create cash flow. But most people are trapped in this indoctrination where they set money aside and forget it. They wait for 30 years and hope for the best. They're very one dimensional of just paying off a loan and then hoping the retirement plan is going to get them there. And that's why they end up in this mindset where they're like, oh, I don't feel in control, because the outcome of my income is something that's dictated by the economy and not my own willpower, not my own skill set, not my own value creation. And I think that's why retirement is such a bad and faulty notion. My main statement in life is create the life you don't want to retire from. Now, I get it. In the industrial age, people need to retire because they were being worked to death and they weren't living for very long. It was an immensely valuable concept back then, a blue to collar world back then? Yeah, right. But in today's world, what if people just invested more time in selecting your career that mattered or had enough faith and took a leap on themselves to start becoming a better investor or start a business or be an entrepreneur where they get upside potential, instead of just begging for safety and security, instead of just wanting the entitlement of benefits, instead of just trading time for money, like that's an industrial age concept that we watched, whether it's our parents or grandparents, go through trading time for money, but we're in a world where that's not required any longer, because we do have technology, we do have artificial intelligence, we do have these things that are starting to displace The jobs that no one really wants to do because it beats down the body, and there's a lot of opportunity for those that are willing to grasp it and go for it, but it comes down to one key thing, value creation. And if we're going to be devoid of value creation, it's easy to tell in 60 seconds whether someone's poor because value creation was not part of their concept or their purview.

Keith Weinhold 22:40

And value creation is about expanding that upside. And a lot of poverty mindsets just complain about the downside their expenses. And you can't really do that much about your expenses. You can only lower them so much. Anytime you do, you're probably diminishing your quality of life anyway. And really, I think a lot of this mindset of lack Garrett comes back to the fact that, simply, most believe that money itself is a scarce resource. I probably believe that at one time, when I was younger, maybe you did too. And as I like to say, although I wasn't the first person that said it, the only place that you get money is from other people. So most people, which tend to be employees, think their way to increase their income is only if their employer gives them a raise, or maybe if they find a new employer that pays them maybe 10% more, or something like that. So they're limiting their upside over there because they think money's a scarce resource, because it's got to come from an employer. Somehow they're not thinking about, why don't you really expand your upside and start an Amazon business, or rent cars through Turo or Airbnb rentals, or what we do here at get risk education, help people with long term housing rentals. So it just kind of comes back to the fact that, you know, people's mind is closed off, and they just simply want to believe that money is a scarce resource.

Garrett Gunderson 23:57

They're adding to computer screens as we talk about this, you know, I mean, there's never been more money in the world than there is today. It's the most money there's ever been. We keep adding it. There's, you know, so much of it out there. But even if they stopped printing it, or they stopped adding it to balance sheets, there's an infinite number of times they can exchange hands. So if we use it to buy computers and clothes or food and shelter or entertainment like comedy and concerts, the more times money exchanges hands, the more values created. It's exchange that facilitates and creates wealth in the way that we create exchanges, serving others, solving problems and adding value. And here's the deal, we can have two parties do exchange with one another and both end up wealthier. It doesn't need to be a win, lose transaction. As a matter of fact, when people transact, they agree that what they bought was worth more than their money, or if they sold it, they agree that the money was more than what they sold. Otherwise they would have kept it. We don't do equal exchange. I wouldn't give you $1 for $1 right? There's no reason to exchange. It's unequal, which means, if you can provide something more efficiently than. I can for myself. I can pay you, which frees up my time to do what I most efficiently and effectively can do. I did triathlons because I was an idiot back in the day. Sorry for those triathletes, which is like a lot of work, man. And I don't love swimming, but I remember going to buy a triathlon bike. I just bought, like, a road bike. It was a big upgrade from having a huffy from Walmart, you know, like, oh, this $4,700 this is a while back, but it was carbon fiber. It was, like, amazing. And I thought, you know, I could never build this. So this $4,700 is actually really cheap, because I'm giving him $4,700 to build something that I can then go build something like write a book or do some consulting or do a speech that can inspire someone. And so that exchange was valuable. It's like if you bought killing cigarette cows. For me, you're saying that it was worth more than $20 I'm saying it was worth less because I already have the knowledge in my head, and so we both can end up wealthier. Unequal exchange is what facilitates wealth. What it lets us do is tap into our best abilities and tap into other people's best abilities. And that exchange ends up growing over time, and the more times money circulates because of Good Services and experiences, the more output there is. So look at today. Hundreds of years ago, if you wanted to listen to music, you had to hire a quartet. Now it's free for almost anyone, if you have any device of any sort, if you're willing to listen to a commercial here or there, you can listen to anything that you want. For the most part, you don't even have to pay for it. So think about that advancement. If you want to be anywhere in the world, you could be there in almost 24 hours or less, back in the day, that would have taken, you know, years for that matter. I mean, we have so much more wealth because we keep building upon previous wealth, previous ideas, and those blueprints we continue to grow from with new innovation and ingenuity. Therefore, the quality of life for someone that's middle class today is infinitely more than the middle class of hundreds of years ago, the amount of people that are hungry today versus years ago, even though we have more than 8 billion people on the planet, has gone down as a percentage, not up as a percentage. That's because of velocity and exchange. It's because of this notion that money's not scarce and resources have the way to be replenished, as long as we're stewards. Now, if the bison, if we kill too many of them, then they can't replenish, right? But if we manage that properly, you could actually eat the bison, use the skins, do all that kind of stuff, and still have that exist in the future. These people that don't believe in that believe that there's like a finite pie, that if one thing's gone, it's gone forever, not understanding value exchange, reproduction, apparently, and basic science either. And again, we can overdo those things and damage an ecosystem. So there is a balance.

Keith Weinhold 27:36

Yeah, that's right, when you talk about value creation, then you're really not talking about a person going out and trying to get their piece of the pie. Really more accurately what you're talking about. Here are ideas for expanding the entire pie.

Garrett Gunderson 27:51

Spam the pie. Expand your means you can budget and reduce. You said it eloquently. You said, Hey, there's only so much you can do in reduction of expenses before it just starts infringing and taking away from things that you value in life. There's a finite game there, but the expansion gain through co creation, through collaboration, instead of through competition, is absolutely an infinite pie that continues to grow as we add more value, as we serve more people, as we solve bigger problems, as we more deeply impact the people that we impact as we reach more people, these are things that can lead to more dollars. So I have this thing called the value equation. It's our mental capital, ideas, knowledge, wisdom, insights, strategies and tools multiplied by our relationship capital, people, networks, organizations, communities, friends, family, mentors, equals our financial capital. So financial capital is a byproduct of our stewardship of our mental and relationship capital. And the bridge between mental relationship capital is what we call business, or we call investing. So ultimately, Money Follows value. How do we add more value? Have a better idea. Impact more people. More more deeply. Impact the people you currently serve. Collaborate and offer more like it's an infinite pie and an infinite game. If we play it that way. We're talking with speaker and author Garrett Gunderson, about the mindset of wealth creation. More. We come back with Garrett. I'm your host. Keith Weinhold.

Keith Weinhold 29:01

hey, you can get your mortgage loans at the same place where I get mine at Ridge lending group NMLS, 42056, they've 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. 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% Percent, 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,

Hal Elrod 30:54

this is Hal Elrod author of The Miracle Morning and listen to get it rich. Education with Keith Weinhold, and don't quit your Daydream.

Keith Weinhold 31:10

welcome back to get rich education. We're talking with firebrand speaker and author Garrett Gunderson. You can learn more about him at Garrettgunderson.com. Garrett before the break, we were talking about the mindset in opening up one in order to create more wealth over time. Here, a lot of times, one way we talk about that is, don't just get your money to work for you. Get other people's money to work for you. You could actually use other people's money ethically three ways at the same time, in real estate, using the tenant's money for the income stream the government's money for generous tax incentives, and then the bank's money for the leverage, which is actually a greater wealth building force than compound interest. That's one example of how we do that here. But when one has become successful, oftentimes they want to make sure that that's lasting. They want to build a legacy, something that they can carry on. And I know you articulate that through the Rockefeller method. So do you want to tell us more about that?

Garrett Gunderson 32:05

I wrote this book. What would the Rockefellers do back in 2016 this study between really wealthy families versus their wealth lasted, versus wealthy families that decimated it, and the best study was really the Vanderbilt because they had more money than the US Treasury. One the railroad family, yeah, transportation. And you know what? They destroyed that Cornelius died, and then his eldest son doubled the estate nine years and then he died, and that was the last time their estate grew. It started to decrease after that. And 54 years later, the first Vanderbilt died broke, and so the last Vanderbilt family union didn't have any millionaires at it. I know everybody knows about like Vanderbilt University. They donated like, a million dollars to get that started. But, you know, that was pretty inconsequential compared to their overall net worth. But they didn't have a formula or format to create sustainable wealth. They own 10 mansions in in Manhattan. They don't own those anymore. They own the breakers in Rhode Island. The state of Rhode Island owns that now. So they lost this massive amount of wealth where the Rockefellers are just entering their seventh generation of passing on, well, seven generations, wow. And people that worked for the rock bellers, like the executives, they're still passing on, well, for this generation after generation. And most people don't make it past the third generation. And we could look at, you know, people like Walt Disney. We could look at people like JCPenney. We could look at people, you know, like the the Kennedy family and so many others that have used these two things to really create sustainable wealth. Number one is they use trust. The Rockefellers coined the term own nothing and control everything, whether that's a revocable living trust for people who are just starting out and don't have a substantial amount of wealth, or a domestic asset protection trust for those that have a decent amount of wealth, those are the two main popular ones. There are some offshore trusts. It gets onerous and complicated once you go offshore, but it does protect your assets. The second piece is using whole life insurance, so they have this death benefit that's on the insured, and they put that on their heirs, so that every time an heir dies, it replenishes the trust, and potentially even grows it, because there's these threats to the family wealth, there's taxes, there's inflation, there's interest rate fluctuations or market, you know, economic turmoil. So what they're doing is they're creating that level of stability, and they give them preferred interest rates to borrow from the trust versus a bank. So now your family can actually earn interest instead of paying interest. And yes, if your family is paying interest, they're paying it back to their future generation at Preferred rates. And so you could be one generation away from never needing a bank again and actually being able to capitalize on deals a whole lot faster. Specifically, we use whole life, because it transfers the risk to the insurance company. There's six or seven companies that are participating, mutual companies that have been around for over 150 years, always paid dividends. It protects your cash value from taxes. It protects it from liability and bankruptcy in over 40 states, fully and partially in every state. So what happens is, for an asset allocation decision. You can start moving some of your fixed income portfolio to this and have a better, more robust benefits type of situation, and then actually start to implement this Rockefeller method so that you can create generational wealth.

Keith Weinhold 35:12

All right, so the Rockefeller method using trusts and whole life insurance to preserve and grow your wealth, so as one's building their portfolio, amassing wealth, increasing income streams as they go along in their investor journey. Is there anything that they should keep in mind as they try to integrate some of these things from the Rockefellers?

Garrett Gunderson 35:12

Yeah, a lot of other insurance people try to sell these index universal life policies, but those won't work because they have too many levers of risk, and especially when you're building cash value, you might use that cash value to buy real estate. Then you might use the rental income to put the money back into the policy so you can buy more real estate in the future. So it becomes like a medium storage shed or unit for your cash that's protected, but now it comes with the death benefit, which, here's one example, for a real estate investor, instead of just, you know, rolling it over to the next property and rolling it over to the next property when you eventually sell, you can use a charitable trust. And a charitable trust, you can donate that highly appreciated piece of real estate, get a partial tax deduction, sell it and fund the trust and pay zero tax on your gains. No matter what your basis is, there's no tax on the gains. You're the first beneficiary of the trust, meaning you can take an income between 5% and 50% from the trust while you're alive, depending on the underlying assets, and then when you die, the charity keeps whatever's left over. But if you have a life insurance policy that will replenish what that donation was, therefore giving you 20 30% or more increased cash flow with an asset by making a synergistic allocation. Now, that's a lot of information in a short period of time, but it's more about planting seeds. And don't worry, I'll give everybody a copy of the book at no charge, so they can kind of read it at their own pace, or you can listen to it at their own pace, versus me condensing it into just a couple minutes.

Keith Weinhold 36:56

Oh, thanks. All right, well, we'll learn more about that resource at the end that sounds like that can be really helpful to a lot of people. And I guess Garrett, even though you're not as real estate ish as me, as we wind down here, you know, I think the place that you and I find the most common ground is we often say and help people with the things that sort of fly in the face of conventional guidance. I mean, you really just don't have to think about it that much more than if you just do normal stuff, average, mediocre stuff, you're only going to have a normal, average, mediocre outcome. So can you tell us about any last things that can help get people thinking differently and debunk some of this conventional guidance that really will never help get you much above lower middle class?

Garrett Gunderson 37:40

Yeah, if you're putting your money in mutual funds and ETFs, you're making a bunch of other people money. I mean, the big three is you want to focus on generating cash flow so you can create financial independence. Because if you have enough cash flow from assets to cover your expenses, every active dollar can build more assets. That's an exponential benefit to you. So now that you don't have to be forced to work, you've got a lot more freedom. And the big three for me are real estate businesses or intellectual property, which is kind of, you know, something that is part of business to a degree, but I consider a different asset class. Those are the big three. I have no money in the stock market. I have money in my businesses. I invest in myself. I invest in my vision. I invest in a team, instead of investing in things that I have no control over and I don't get cash flow from and that the economy can change, or that Wall Street's making money on whether I make money or not. So that's just one notion that I think we could probably, you know, agree, flies in the face of what everybody's teaching. That's the masses. But when you look at the wealthiest people, it's how they're implementing and what they're doing.

Keith Weinhold 38:39

And I think another place that conventional guidance really tells people to prioritize is paying down debt or paying off debt. I mean, making your debt free scream at age 34 you know, maybe that's not so bad, but maybe not. I mean, did paying down low to moderate interest rate debt and making that priority sacrifice your lifestyle and your family's lifestyle the entire time while you were doing it, and did it have a steeper opportunity cost, because you were not investing those dollars in things that can earn a greater return than their interest rates were they're using some of the vehicles that you talked about. So, you know, I guess what I'm getting at Garrett philosophically, one way I said it, is that the risk of delayed gratification is denied gratification?

Garrett Gunderson 39:23

Yeah, I mean, if we become sacrifice, how do we ever overcome that habit? I'm I'm scrimping, I'm sacrificing, yeah, I'm deferring. And then one day, what you're supposed to flip the switch be like, Okay, now I'm abundant. I'm gonna enjoy this money that doesn't happen. So that habitual notion of reduce, cut, eliminate, no one shrinks their way to wealth. It's a game of expansion and production. Yes, be efficient, be intelligent, be a steward, but don't become a miser, because misers, no matter how much money they have, never get to feel what it's like to live their richest life. It's always about elimination. Instead of enjoyment and utilization.

Keith Weinhold 40:02

Oh, that is just beautifully stated. I really can't say it any better than that, and that really brings it back full circle as to the best personal finance is probably growing your means rather than practicing living below your means for decades, and then you'll never get that time back. Well, Garrett, you've generated so many good educational resources. Why you've been the successful author and speaker. Tell us more about that.

Garrett Gunderson 40:26

Garrettgunderson.com is where a lot of those resources are. I write a blog like it's 2006 because I love to write and just get information out there. I've created a money persona quiz. So if you go forward slash tools on Garrettgunderson.com you can figure out what's the success or sabotage that happens subconsciously with how you deal with money. It's very informative and useful. I've written 10 books. I offered that if people DM me on Instagram, Garrett B, Gunderson, two R's, two T's, middle initial B and just say, Keith, get rich. Keith get rich. So I know it was on this program, I'll hook you up with the audio and a PDF of the book on me, so that you can hopefully just understand this Rockefeller method and improve your life and start building a legacy right now. Because if you're already doing real estate, that's great, let's make sure to preserve, protect and even perpetuate that wealth with some of the structures that could be integrated.

Keith Weinhold 41:17

Well Garrett, yeah, you have a lot of great resources and just a really wide spectrum of understanding of concepts all across a personal finance field. Is there any last thing you'd like to let our audience know about?

Garrett Gunderson 41:28

Just create the life you don't want to retire from. Design a life that you love. Create enough cash flow from assets to have that economic independence so you have choice and freedom daily of what you do and swing for the fences in that purpose, you know, that's probably the best advice that I could give.

Keith Weinhold 41:43

Why would you want to live your life any other way? Garrett Gunderson, it's been valuable as expected. Thanks so much for coming on to the show.

Garrett Gunderson 41:51

Thanks for having me.

Keith Weinhold 41:58

Yeah, a lot on both mindset and long term wealth preservation with Garrett Gunderson today, now, 15 weeks ago, on episode 507 you'll remember that episode called compound interest is weak, where I made a takedown about how compound Interest actually is not serving people. Leverage does serve people. Garrett also makes a takedown and critiques this myth about how people think compound interest builds wealth. A little review. There some comprehension from 15 weeks ago, compound interest has most people counting on the average annual return when they should be focused on the compound annual growth rate. A little review. Remember the average annual return means if you're up 10% one year and then down 10% next year that you broke even. That's the arithmetic thing. But that is a lie. The reality is in this CAGR, the compound annual growth rate, it reflects, if you're up 10% one year and then down 10% the next year, you're at minus 1% the geometric thing. And that's the reality, and that makes a retirement lifestyles worth of difference, and a retirement ages worth of difference like I thoroughly broke down for you in episode 507 coming up on the show here in future weeks, a familiar name like Tom wheelwright returns, and then new guests, like a former NFL player here on the show, if you want to reach out to Garrett Gunderson on Instagram for his best free resources, even the audio and pdf of his Rockefeller method of generational wealth preservation, again on Instagram, you can DM him at Garrett B Gunderson, he let me know later, all you have to do is send him my first name, Keith, and he will hook you up there. I'm your host, Keith Weinhold, and I am supremely grateful and even in awe of your devoted listenership for an entire decade of your life and mine, here's to another 10 years. Don't quit your Daydream.

44:21

Keith Weinhold 44:49

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Mon, 30 September 2024

President of the Mises Institute and author of “How Capitalism Saved America”, Dr. Thomas DiLorenzo joins us to uncover the current state of capitalism and if it still exists in America.

Earlier in the episode, Keith discusses the inaccuracy of economic predictions, citing examples like the 2023 recession that never happened, the negative impact of misinformed predictions on investment decisions and business growth.

Persistent housing price crash predictions have been consistently wrong despite global pandemics and higher mortgage rates.

Dr. DiLorenzo advocates for #EndTheFed to reduce inflation and restore free market principles.

Learn how voluntary exchange between buyer and seller through market prices communicates information and influences production.

Resources:

Learn more about Austrian economics and Ludwig von Mises through visiting mises.org

Show Notes:

GetRichEducation.com/521

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520: How to Use Other People’s Money for Your Rental Property Loan

Complete episode transcript:

Automatically Transcribed With Otter.ai

Keith Weinhold 00:00

Keith, welcome to GRE. I'm your host. Keith Weinhold, reviewing some terrible economic predictions and why it matters to you. Then the President of the Mises Institute joins us. Does capitalism still exist in the US and what would happen if we ended the Fed, today on get rich education.

00:24

Since 2014 the powerful get rich education podcast has created more passive income for people than nearly any other show in the world. This show teaches you how to earn strong returns from passive real estate investing in the best markets without losing your time being a flipper or landlord. Show Host Keith Weinhold writes for both Forbes and Rich Dad advisors, who delivers a new show every week since 2014 there's been millions of listener downloads of 188 world nations. He has a list show. Guess who? Top Selling personal finance author Robert Kiyosaki, get rich education can be heard on every podcast platform, plus it has its own dedicated Apple and Android listener phone apps build wealth on the go with the get rich education podcast. Sign up now for the get rich education podcast, or visit getricheducation.com

Corey Coates 01:09

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 01:25

welcome to GRE from Syracuse, Sicily to Syracuse, New York, and across 188 nations worldwide, you're listening to one of the longest running and most listened to shows on real estate investing. This is Get Rich Education. I'm your host, Keith Weinhold, now a lot of media companies and pundits and influencers like to make predictions. Listeners like learning about predictions and by engaging just a little of that each of the past few years on one of the last episodes of the year. Here, I forecast the national home price appreciation rate for the following year, many media outlets, pundits and influencers have made terrible, just absolutely terrible, predictions about interest rates and other financial forecasts. Last year, a majority of Pro prognosticators firmly forecast six or eight Fed rate cuts this year, for example, well, we're going to have far fewer, and that's because high inflation kept hanging around. Then there's the 2023 recession that never happened, yet both Bloomberg and the economist actually published some rather ignominious headlines, as it turned out, they published these in the fall of 2022 Bloomberg, big headline was forecast for us, recession within year hits 100% in blow to Biden, well, That was false. That didn't come true. I mean, 100% that doesn't leave you any room for an out. And then also published in the fall of 2022 The Economist ran this headline why a global recession is inevitable in 2023 All right, well, they both believed in a recession, and they believed in it so deeply that it got fossilized. Well, an economic archeologist like me dug it up.

Dr Thomas DiLorenzo 03:31

We are going to die

Keith Weinhold 03:35

well, but I didn't risk my life like Indiana Jones did there. This archeology, it only involves some Google searches. Well, here's the thing. What's remarkable about America staving off a mammoth recession and leaving all the other g7 nations in the economic dust is the fact that merely predicting a recession often makes it come true. Just predicting one often turns a recession into a self fulfilling prophecy. Yeah, recession forecast headlines alone, they can spook employers from making new hires and slow down manufacturing, and it can also disillusion real estate investors from expanding their portfolios. Well, the US economy grew anyway, besides the farcical prognostications about myriad interest rate cuts in a quote, unquote definite 2023 recession that never happened. You know, there's also a third forecast that so many got wrong. And you probably know what I'm gonna say. I've brought it up before, because this hits our world, those erstwhile and well still ever present housing price crash predictions. I mean this facet of the gloom boom really ramped up from 2020 One until today, even a global pandemic, new wars and a triplicate mortgage rates couldn't stop the housing price surge and the rent surge. A lot of doomsdayers just couldn't see, or they didn't even want to see that a housing shortage would keep prices afloat. They didn't want to see it because they get more clicks when they talk about the gloom government stimulus programs also buoyed prices, and deep homeowner equity cushions will still keep prices afloat. Ever since 2021 here on the show, I've used that rationale and more to explain that home prices would keep appreciating, but that the rate of appreciation would slow down, and it has slowed down since 2021 see YouTubers tick tockers. They notoriously use woe begone housing crash headlines, because that gets more clicks and then some of the rationale behind this. The reasoning is just dreadful, like, what goes up must come down, all right? Well, this is like, why does it matter? Who cares about wrong predictions anyway? What's the point? Well, people become misinformed. People waste their time on these things and see no one loses money on dismal economic predictions. But the damage is done, because when investors don't act well, then they didn't get the gain that they should have had. Businesses didn't get the gain that they should have had when they could have made new investment and hired new employees sooner. And of course, a recession is going to happen sometime. They occur, on average, every five to six years. It is just a normal part of the business cycle will collectively these three faulty economic predictions, rate cuts, a recession and a housing price crash. I think if you bundle them all up combined, it could be as bad as one doomsday prediction about worldwide starvation or the Mayan apocalypse. Remember that the wide to K bug, the acid rain, even that the internet is just a fad that ran a buck 30 years ago. World War Three is eminent, robots overtaking humans, or how about running out of crude oil. I mean, we're definitely all supposed to have jet packs in flying cars by now, right? But yet, did anyone have the clairvoyance to predict the stock market crash of 1929 or September 11 terrorist attacks, or Trump's surprise, 2016 presidency or Bitcoin hitting 70k A while back, or the coronavirus. So really, overall, the bottom line here with predictions is that no one knows the future. Control what you can maintain equanimity, add good properties, gradually raise rent, reduce expenses, create leverage and expect inflation truly the best way to predict the future is to create it in just that way. Well is the USA capitalistic nation today. That's what we'll discuss later with this week's guest. When Chuck Todd hosted the show Meet the Press, he interviewed AOC about this. Yes, I'm talking about us. House Rep from New York, Alexandria Ocasio Cortez, what she say? You

08:34

have said you are democratic socialist. Can you be a Democratic socialist and a capitalist? Well, I think it depends on your interpretation. So there are some Democratic socialists that would say, Absolutely not. There are other people that are democratic socialists that would say, I think it's possible. What are you? I think it's possible. I think you say to yourself, I'm a capitalist, but I don't say that. You know, if anything, I would say, I'm I believe in a democratic economy, but.

Keith Weinhold 09:03

okay, well, I'm not sure if that clears it up at all. And I've listened to more of that clip, and it just makes things more confusing. But I think that most people have trouble drawing a line between capitalism and neighboring economic systems. Where exactly do you draw that line? I don't know exactly where to draw it. When I think of capitalism, I think of things though, like removal of interventionist central planning and allowing the free market to run with few guardrails. And then there's an issue like labor unionization. I don't really know about something like that. This is a real estate show. I'm still forming an opinion on a topic like that. In you know, some of this gets political, and that's beyond the scope of get rich education. The Fed was created in 1913 that central planning, its central banking from 1987 to. 2006 Alan Greenspan reigned as Fed chair. Those were his years, and he became even more interventionist. And then his successor, Ben Bernanke, maybe even more so with quantitative easing and such. Let's talk about, should they end the Fed and capitalism with this week's expert guest. You very well may have heard of the late, famed Austrian American economist Ludwig von Mises today, the Mises Institute carries on his legacy, and this week's guest is none other than the President of the Mises Institute. He's also the number one best selling author of how capitalism saved America and his newer book with a title that I love, The Politically Incorrect Guide to Economics. Hey, it's great to have you here. It is. Dr Thomas DiLorenzo.

Dr Thomas DiLorenzo 11:00

pleased to be with you. Thanks for having me.Th

Keith Weinhold 11:02

Well, Dr DiLorenzo, for those that don't know, just tell us a bit in an overview about Austrian economics and what Ludwig von Mises stood for.

Dr Thomas DiLorenzo 11:02

Well, Ludwig von Mises was the preeminent critic of socialism and fascism in Europe, and in his day, he fled the Nazis literally hours before the Gestapo broke into his apartment in Geneva, because he was the preeminent critic of fascism and socialism, and he was also Jewish, and so he had to get out of town. And he miraculously ended up after wandering through Europe with his wife in New York City, and he taught at New York University for many years, until he died in 1973 and but the Austrian School of Economics is a school of thought. It has nothing to do with, necessarily, with the Government of Austria, the country of Austria, just this the founder of a man named Carl Menger happened to be from Austria, but probably the most famous or well known among Americans would be Friedrich Hayek, who won the Nobel Prize in 1970s he was a student of Ludwig von Mises and critics of interventionism, critics of socialism. We teach about free markets, of how markets actually work and how governments don't work. And that's in a nutshell, that's what it's about. And you could check out our website, mises.org, M, I, S, E, S.org, you can get a great economic education. We have a lot of free books to download. Some of them are downloaded 30 or 40,000 times a month. Still, it's even Mises old books like human action, first published in the 1960s and so you can get a great education just by reading our website.

Keith Weinhold 12:42

Well, congratulations, that's proof that you're doing an excellent job of carrying on the Mises legacy into the present day, a lot of which is championing capitalism. Do we have capitalism in the United States today?

Dr Thomas DiLorenzo 12:59

I was an economics professor from 40 years before I got this job as President of the Mises Institute. And I used to say we had islands of socialism in a sea of capitalism at the beginning of my career. But now I'd say it's the opposite, that we have islands of capitalism in a sea of socialism. And socialism, this data is not defined anymore as government ownership. That was, you know, about 100 years ago, the socialism. It's basically government control of industry and in addition to government ownership. So the instruments of the welfare state, the income tax and the regulatory state, is our version of socialism, or central planning, if you will. And it's the Federal Reserve the Fed, which is a government agency that orchestrates the whole thing, really, it's a big, massive central planning industry that controls, regulates basically every aspect of any kind of financial transaction imaginable. They list in their publications over 100 different functions of the Federal Reserve. It's not just monetary policy. It's a big regulatory behemoth, and so that's that's what the Fed is. That's what I think we have today. A friend of mine, Robert Higgs, a well known economic historian, says our system is what he calls participatory fascism. And fascism was a system where private enterprise was permitted, but it was so heavily regulated and regimented by the government that industry had to do what government wanted to do, not what its customers wanted it to do, so much, and a large part of our economic system is just like that, and we get to vote still, so that's where the participatory and comes in, and the pin of Robert Hinz.

Keith Weinhold 14:41

yeah, maybe at best, I can think of today's system as capitalism with guardrails on but the guardrails keep getting taller. And I think of guardrails as being, for example, regulatory agencies like the Fed in FINRA. In the FDA.

Dr Thomas DiLorenzo 15:01

It is the beginning of my career. You know, I studied economics and a PhD in economics, and there was a big literature on what's called regulatory capture. And it was sort of a big secret among US economic academics. There was all this research going on and how the big regulatory agencies created by the federal government in the late 19th, early 20th centuries, were captured by the industries that they were supposed to be regulating. Right? The theory was they would regulate these industries in the public's best interests. But what has happened from the very beginning is they were captured by the industries, and they benefit the industry at the expense of the public. But today, that's caught on thanks to people like Robert Kennedy Jr, frankly, has been a very popular author. He sold a gazillion copies of his book on Anthony Fauci, and in it, he explains in tremendous detail how the Food and Drug Administration was long ago captured by the pharmaceutical companies. And he's not the only one. I think that that is being more and more recognized by people outside of academic economics, like me, and that's a good thing, and that's sort of the worst example of crony capitalism. It's not real capitalism, but crony capitalism making money through government connections, rather than producing better products, cheaper products and so forth.

Keith Weinhold 16:21

I watched RFK Jr speak in person recently, and I was actually disappointed when he effectively dropped out of the upcoming presidential race. And I do want to talk more with you about the Fed shortly, but with all these regulatory agencies and how I liken them to guard rails. You know, I sort of think of it as a watchdog system that's failing. You mentioned the FDA. I know RFK Jr brought them up an awful lot, the Food and Drug Administration that are supposed to help regulate what we put inside our own bodies in our diet. But these systems are failing. We have regulatory agencies in industry, industry in regulatory agencies. I mean, look at the obesity rate. Look at all the ultra processed food that's allowed. Look at all the seed oils that are allowed in food that people actually think are healthy for them. So this system of capitalism with guardrails is failing almost everywhere you look.

Dr Thomas DiLorenzo 16:22

I wouldn't call it capitalism. I wouldn't use the word capitalism at all, other than crony capitalism, people can relate to that. You know, a lot of these regulatory agencies were lobbied for in the first place by industry. That while the very first one was the Interstate Commerce Commission, it was in the 1880s it was meant to regulate the railroad companies. The first president was the president of a Railroad Corporation, the head of the Interstate Commerce Commission. So talk about the fox guarding the hen house. That was from the very beginning. And so in a sense, this word capture theory of regulation, which Kennedy has used, they weren't really captured. They always were created by the government. The same is true of all the so called Public Utilities. It was the corporations, the electric power companies, the water supply companies, that lobbied for governments to give them a monopoly, a legal monopoly, in electricity, water supply and all these things that were called natural monopolies, but there was nothing natural about them. There was vigorous competition in the early 20th century in telephone, electricity, water supply, and that was all set aside by government regulation, creating monopolies. For example, in electric power, there's an economist named Walter primo who wrote a book some years ago showing that always have been several dozen cities in America that never went this way, that always allowed direct competition between electric power companies. And what do you know, better service and lower prices. As a result, they did dozens of statistical studies to demonstrate this in his book.

Keith Weinhold 18:58

Okay, well, that's a great case study. Why don't we talk about what things would look like if we took down one of these agencies? We're a real estate investing in finance show. Sometimes it's a popular meme or hashtag to say, end the Fed. What would it look like if we ended the Fed?

Dr Thomas DiLorenzo 19:18

Well, the Fed was created in 1913 in the same era, with all these other regulatory captured agencies were created, right? And it was created basically to cartelize and create a cartel for the banking industry to make it almost impossible to go bankrupt. They've been bailing out foolish bankers for 111 years. And of course, the biggest example was that as the crash of 08 after they they handed Goldman Sachs and other big investment banks billions of dollars. That was a direct assault on capitalism itself, because capitalism, as you know, is a profit and loss system. It's not a I keep the profits. You pay for my losses system. You're the taxpayer. But that's what happened with that. So the Fed would. Fall into that the Fed is actually the fourth central bank in America. We had three other ones. First one was called Bank of North America. Its currency was so unreliable, nobody trusted it went out of business in a year and a half. And then we created something called the Bank of the United States in 1791 same thing. It created boom and bust cycles, high unemployment, price inflation, corrupted politics. It was defunded after 20 years, and then it was brought back to fund the debt from the war of 1812 and so we had a Second Bank of the United States. It did the same thing, boom and bust cycles, price inflation, corrupted politics. Benefited special interest, but not the general interest, and President Andrew Jackson defunded it, and so we went without a central bank from roughly 1840 until 1913 so we've had experience of that. And what we had been was competing currencies, and that would be sort of a stepping stone. If we got rid of the fed, we wouldn't have to abolish the Fed altogether. We could amend the charter to the Fed to say you're no longer permitted to buy bonds. Can't buy government bonds anymore. That's how they inflate the money supply, right? By buying bonds. That's totally unnecessary. And we could just just that would be a great step forward, and we would sort of whittle away our $80 trillion debt, if you count again upon count the unfunded liabilities of the federal government,

Keith Weinhold 21:26

if we did end the Fed, what would the price of money? Which are interest rates really look like? Would a new market rate be sent by individuals and companies on the free market like Bank of America, with a customer or borrower settling on an interest rate that they both agree to.

Dr Thomas DiLorenzo 21:44

You know, the Fed uses sort of Soviet style economics, price control. The economists and are all getting all over Kamala Harris for recommendations for price controls on rent and other things. Well, the Fed price control. They control the price of money. That's what they do. And so there's a big, kind of a comical thing that here you have all these economists, if they were to teach economics in the week one, they would teach about the bad effects of price controls, and then they get a job at the Fed, and they spend their whole career enforcing price controls on money, and the interest rate would be determined by supply and demand for credit and inflationary expectations. That's what the market does. And you wouldn't have these bureaucrats at the Fed tinkering around with interest rates, creating tremendous arbitrage opportunities for Wall Street investors. With all the movements and interest rates, you'd have much more stable interest rates, and and you wouldn't have this ridiculous system where the Fed says we need to always have forever at least 2% inflation. And of course, they never meet that, and they lie about it. I don't believe for one minute that the price inflation right now is 3% or under 3% that's ridiculous, right? And so things should be getting cheaper. Everything should be getting cheaper because of all the technology we have. My first PC I bought in the early 80s for $4,000 and it was a piece of prehistoric junk compared to my cell phone today, that almost for free. Almost everything should be like that agriculture, but the reason it isn't is the Fed keeps pumping so much money in circulation, that it pumps up the demand for goods and services, and that's what creates price inflation. And by its own admission, that's what it does, even though it's charter, it's original charter said they're supposed to fight inflation. All of a sudden, about 10 years ago or so, they announced, south of blue, we always have to have at least 2% inflation. Congress had nothing to do with that. President had nothing to do with that, and the people of America had nothing to do with that. It was dictators like Alan Greenspan and Ben Bernanke that just make these announcements. And where does that come from when we live under the dictatorship of the Fed? And of course, the people who are hurt the most by the Fed are elderly people are living on relatively fixed incomes and are forced to become Wall Street speculators they want to make any more money other than their fixed income, where, you know, during the days of Greenspan, when they're pursuing zero interest rates, maybe the mortgage industry like that, but the people on retirement income were starving as a result of that. So it's been sort of an economic war on the retired population.

Keith Weinhold 24:24

Things should get faster and cheaper to produce, like you said. However, there's definitely one thing that's not getting faster to produce, that's housing build times. Housing build times have actually gone up, which is sort of another discussion unto itself. But we talk about the Fed and then setting prices. People wouldn't stand for setting the price or having price controls on oil or lumber or bananas, but yet we set the price of money itself. People have just become accustomed to that. Yet it's that money itself that we use to buy oil and lumber and bananas the fed with that dual mandate of stable prices and maximum employment. If we did abolish the Fed, what would happen to the rate of inflation?

Dr Thomas DiLorenzo 25:12

Well, we would have less inflation. It's supposed to what we replace it with. There's some system would be a replacement, but we wouldn't have the boom and bust cycles that we have now. There's been research in the past 100 years or so of the Fed, and what the academic researchers have concluded is that the Fed has made the economy in general more unstable than it was before we had the Fed and price inflation. That's a joke. The dollar is worth maybe three cents of what it was in the year 1913 right when the Fed was created. So it has failed on all accounts. And so if we got rid of it, we would reverse that. The idea would be to start out with a competing money system. And I'll tell you a quick story is, you know the word Dixie from the south, you know land of Dixie that was named after a currency by a New Orleans bank called the Dix D, I x 10 in French, and it was 100% gold reserve. It was backed by something real and valuable, and it was so popular as even used in Minnesota. But that's why the whole south, the states in the South, were using this currency, because it was so reliable. But during the Civil War, the national currency acts imposed taxes on the competing currencies and taxed them out of business and established the greenback dollar, as it was called, as the Monopoly money of the country. We didn't get a central bank during the Civil War, but we got that. And so that's the kind of system that we would have. Friedrich Hayek wrote a whole book about this, about competing currencies, called the denationalization of money. He poses that as a good stepping stone to a freer market in money. And like you said, Money is the most important thing. Is most more important than bananas or shoes or any of these other things that we might have price controls on.

Keith Weinhold 27:01

All right, so we're talking about the case for ending the Fed. What is the counter argument? I mean, other than the government wanting control, is there a valid, or any academic counter argument for keeping the Fed in place?

Dr Thomas DiLorenzo 27:16

The Fed has an army. I call it the Fed's Praetorian Guard of academics. There was a research article published by an economist named Larry White at George Mason University several years ago, and he found that 75% of all the articles in the academic journals regarding money, monetary policy and so forth, are by people who are basically paid by the Fed, one way or the other. Either they're fed economists, or they've been invited to a conference by the Fed, or they're an intern some relationship with the Fed. The late Milton Friedman once said, If you want a career as a monetary economist, it's not a good idea to criticize the biggest employer in your field. So there's a lot of nonsense about that. And so yes, you'll have all sorts of rationales, but it basically comes down to this, that we think we can do central planning better than the Russians did under communism, because the Fed is basically an economic central planning agency, and there's no reason to believe Americans are better at it than the Russians or anybody else. And it basically comes down to that, you know, studying the past 111 years that's showing Well, yeah, they've been trying that for 111 years. They've made the economy more unstable, and they have failed miserably to control inflation. And why should we give them another chance? Why should we continue along this road? We shouldn't So, yeah, there'll be all kind of excuses the late Murray Rothbard, who was one of the founders of the Mises, who once answered this question by saying, It's as though people said, Well, say the government always made shoes. 100 years ago they took over the shoe industry. People would be saying, who will make shoes if the government doesn't make shoes? The government has always made shoes, right? But the government has not always monopolized the money supply. It's only like I said, we abolished three Feds in our history. In American history, they weren't called the Fed, but they were central banks. And the Fed is called a central bank, and we've done that three times. We've abolished more central banks than we have kept in American history.

Keith Weinhold 29:17

We're talking with Dr Thomas D Lorenzo. He is the president of the Mises Institute. About, is there really any capitalism left more when we come back, this is 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 and MLS 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. 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.

Kristen Tate 31:11

This is author Kristen Tate. Listen to Get Rich Education with Keith Weinhold, and Don't quit Your Daydream.

Keith Weinhold 31:27

welcome back to get rich education. We're talking with Dr Thomas DiLorenzo. He is the president of the Mises Institute. You can learn more about them @mises.org and Dr DiLorenzo. Frederick Hayek, an economist that you mentioned very well known and a student of Ludwig von Mises, he believed that prices are a communication mechanism between a buyer and a seller. Say, for example, there's a new style of single family rental home that everyone wants to rent. So therefore the rent price goes up when other builders see that the rent price goes up, that brings in more builder competition, and with more competition, that brings rent prices down, and then the world is filled with abundant housing, rather than a scarcity of housing. So that's how I think of a free market system within capitalism as working, as defined through Hayek.

Dr Thomas DiLorenzo 32:22

You know, the consumer is king. Von Mises once wrote about the same point where he said that people mistakenly believe that it's the bankers and the CEOs and the businesses that control what gets produced and so forth, but it's really the consumer. You build a housing development then people don't want those houses. You'll find out real fast who's in charge. It's not the mortgage brokers. It's not the bankers. It's not you, it's the consumer. That's the free market system, and if you do without it, and not using the free market system, whether it's for money or anything else, is kind of like trying to find your way around a strange city with no street signs, and the prices are the street signs that tell us what to do, exactly like you said, if there's strong demand for a certain type of housing, that'll drive the price up, and that'll tell the home builders, we can make money building more of these. And they will do that. Nobody tells them. The Chairman of the Fed doesn't have to tell them that the President doesn't have to tell them that Congress doesn't have to issue a declaration telling them to do that. That was the Soviet Union where they tried that. And that's the great thing about the market, is that the consumer can tell the richest man in the world like Elon Musk, go play in the traffic. Elon Musk, if they don't like his cars or whatever he's producing, even though he's the richest man in the world. And he understands that he's a pretty successful businessman, I would say, and so so he understands that the consumer is his boss.

Keith Weinhold 33:53

Well, what else do we need to know? You have published a lot of celebrated books, from how capitalism saved America to the politically incorrect guide to economics. What else might a real estate investor or an economic enthusiast need to know today? Oh,

Dr Thomas DiLorenzo 34:10

well, I think everybody needs to be their own economist. You can listen to the talking heads on TV and on podcasts and all that, but educate yourself and become your own economist. Because a lot of the people on TV, as you might see on the news, they have an ax to grind, or they have a sort of a hidden financial interest beyond what they're saying, Be your own economist. And that's why I'm selling my website, which is everything on it, it's for free, mises.org, and there are quite a few others too. You don't have to go to school, you don't have to get a degree. You can get a good economic education, for example, on money. We're in the middle of giving away 100,000 copies of a book called What has government done to our money. I'm Murray rothbar. You go to our website, scroll down to the bottom, and you can fill out a form online, and we'll send you free books and. You can educate yourself that way. And so just in general, I think that's what people need to do. I taught MBA students for many years who are people in their 30s or maybe even early 40s, who didn't have economics degrees, but they were really into it, and for the first time in their careers, they decided maybe I should understand how the economic world that I live in and work in every day operates rather than going through your life and your career without you. Might know all about real estate sales, but it's also useful to know about the economy in general and how things work.

Keith Weinhold 35:35

And when one becomes their own economic student and they take that on, I think it's important for them, like you touched on to not just consume the economic news that's on CNBC or other major media, because that doesn't really tell you how to create wealth. It might inform you, but it doesn't necessarily tell you how to take action. For example, on this show an educational channel, you might learn about a story about rising inflation like we had starting three or four years ago. And here we talk about how, okay, if inflation is going to be a long term economic force, you may or may not like what the Fed is doing, but rather than save money, borrow money, outsource that debt service to the tenant on a cash flowing asset like a single family home or an apartment building. And that inflation that you're learning about on CNBC will actually benefit you and debase your debt with prudent leverage on a property, for example, so not just consuming the news, but learning and educating yourself and acting.

Dr Thomas DiLorenzo 36:34

Oh, sure, well It just so happens that last night, I was talking to a friend of mine who's a real estate professional. They're all talking about, Oh, are we going to have a slight drop in interest rates? And I reminded them that there will be a part of the market if they see it, if we do have a slight drop in interest rates, we'll look at that and say, well, maybe this is a new trend. And so I'll sit back and I'll wait. I'm not going to buy now, because I think the interest rates are going to go down even further in the next six months there were, there would be some segment of the market that thinks that way. And so that's just one little thing. Another thing I would mention is that one of the basic tenets of free market economics is that voluntary trade is mutually beneficial. People buy and sell from each other, because both sides benefit. And that's very important for any business person to keep in mind as you structure business deals, because you know about business deal that is successful is basically, I will give you what you want, and you give me what I want, and we're both happy. And that's that's one of the main tenets of how the market works. Voluntary exchange is mutually beneficial. So think about how to make it mutually beneficial, and you'll succeed in making a deal.

Keith Weinhold 37:45

Well, it's been an excellent discussion on Is there any capitalism left, and how would it look like if we turned the course and created more capitalism here in the United States? It's been great having you on the show.

Dr Thomas DiLorenzo 37:58

Thank you.

Keith Weinhold 38:05

Yeah , again, Learn more @mises.org or look up books by Dr Thomas DiLorenzo. His viewpoint is that there are now merely islands of capitalism in a sea of socialism where those conditions were inverted last century. We've got to end the complex between the government and corporations that these watchdogs are basically powerless when the fox is guarding the henhouse. Dr dilorezzo says we could change the Fed charter so that they couldn't buy bonds, which should reduce inflation. So he does offer a way forward there, a solution. In capitalism, he consumer is king. This is a good thing. You yourself are empowered because you get to vote with your dollars. So therefore what you buy more of society will see and make more of but a prosperous, progressive economy that should be able to produce goods and services that are constantly cheaper because they get more and more efficient to make with innovation, but centrally planned inflation makes them more expensive, at least in dollar denominated terms. So progress should make things cheaper? Well, then everything should take fewer dollars to buy, homes, oil, bananas, grapes, but it doesn't, and it won't anytime soon, like I mentioned in the interview, there single family build times are taking even longer. That's not more efficient, and they're sure not getting cheaper. In fact, the National Association of Home Builders tells us that from permit to completion in 2015 it took 7.2 months to build a single family home. By 2019 it was up to 8.1 months and then. Last year, the time required to build a single family home from permit to completion was 10.1 months. That's not the side of an efficient economy. So basically, therefore, in the last eight, nine years, the time to build a home has gone from 7.2 months up to 10.1 months. That is a drastic increase in a short period of time. Just amazing. And we now have data after covid as well, broken down by region. The longest build time, by the way, is in New England, where it is 13.9 months to build a home from permit to completion. Gosh, such inefficiency. But despite all that stuff that you might find discouraging like that, I want to go out on a good news note here some encouraging sentiment for you, if you champion free markets, then invest in us rental property down the road, there is no centrally controlled ceiling on what you can sell your property for. Most places don't have rent control. In fact, there's been no federal rent control on private property since World War Two. And somewhat ironically, you benefit. You actually benefit from government backed loans at these low fixed rates, and now they're moderate fixed rates. You often get these through Fannie Freddie or the FHA. See you benefit from that particular government backing as a savvy borrower for rental property. And on top of this, you use the GRE inflation triple crown to flip over that not so capitalistic inflationary force. You flip it upside down and use it to your benefit, profiting fantastically from inflation. So you know how to take the situation you're given and use it to your advantage rather than your detriment. Big thanks to Dr Thomas DiLorenzo today, longtime econ professor and current Mises Institute president, more ways to build Real Estate Wealth coming up here for you on the show in future weeks, as always, with the dash of economics and wealth mindset. Until then, I'm your host. Keith Weinhold, Don't Quit Your Daydream.

42:28

Keith Weinhold 42:56

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Mon, 23 September 2024

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519: Threatening New Taxes You Might Need to Pay. Tom Wheelwright Explains.

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Keith Weinhold 00:01

Keith, welcome to GRE. I'm your host. Keith Weinhold, I'll discuss when I was an employee with a scarcity mindset, the real estate shock wave coming that no one's talking about, then, how you can ethically use other people's money to build wealth for yourself before you even own a property today, on get rich education.

00:24

Since 2014 the powerful get rich education podcast has created more passive income for people than nearly any other show in the world. This show teaches you how to earn strong returns from passive real estate investing in the best markets without losing your time being a flipper or landlord. Show Host Keith Weinhold rights for both Forbes and Rich Dad advisors, who delivers a new show every week since 2014 there's been millions of listener downloads of 188 world nations. He has a list show guests include top selling personal finance author Robert Kiyosaki. Get rich education can be heard on every podcast platform, plus it has its own dedicated Apple and Android listener phone apps build wealth on the go with the get rich education podcast. Sign up now for the get rich education podcast, or visit get rich education.com

Corey Coates 01:09

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 01:25

welcome to GRE from Springfield Ohio to Springfield, Missouri and across 188 nations worldwide. I'm Keith Weinhold, and you are listening to get rich education. It's great to have you back for another week, and I genuinely appreciate your listenership, and I am grateful to have such a large audience. I've got to tell you, admittedly, coming out of college and in my first couple full time jobs, I wasn't always a good employee. I guess I had somewhat of an entitlement mentality. I'm not sure where that came from. I don't know that I can blame anyone else on planning it inside me. I don't know where I got this notion. It sure wasn't from my parents, but I kind of felt like somebody owed me a job just because I have a college degree and I'm good at showing up on time, yeah, like, I'm just a good representative for your company. I mean, now I can see that no one owed me a doggone thing. In fact, I owed my employer value. An employer actually takes a big risk on you when they hire you, paying you to train you until you're productive there. I mean, the hiring process itself is even expensive. Well, though I felt like someone owed me a job just out of college, somewhat Oppositely, I never expected any sort of high income at all, and I had quite a modest income in my first couple years out of college, just like a lot of recent college grads do, until it grew into something more. But my humble geography degree, it conditioned me to think lower income. I knew that going to college in Pennsylvania for geography in what interested me, I mean, that's what I went with, what interested me not what I could make money in well, then I couldn't find a job in my geography field at all. No one would really pay me to describe Asia's mountain ranges to them. So what I ended up doing is working under engineers at a construction and engineering firm, a few of them, one engineering firm really liked me and designated me as their new marketing person. Of all things, they wanted me to call prospective clients on the phone and meet them cold in person, because they just thought somehow, when they met me, that I could win new business for the engineering firm, just I guess, based on how I communicated with other people at other engineering companies, even though I couldn't even talk the language of engineering. Well, anyway, these disciplines engineering, and really it was construction inspection that I did for a while. You know, that stuff, even the marketing stuff, it just didn't fill my soul. And you must have felt this way at your job before. If you don't feel it perpetually, you aren't aligned with your purpose on this earth, and you're spending so many of your faculties and so much of your waking conscious life at that job. Well, motivation to escape that is what got me reading about wealth mindset and real estate investing. Since anyone can do it, no degree needed, no certification, zero formal qualification. And now I think I mentioned this to you before, but it's worth bringing up here again, a turning point is when I read one life changing sentence, just one little what is it? A. Five word sentence in a rich dad book, that pivotal paradigm shifting, course correcting sentence was, being wealthy is a choice. And when I first read being wealthy is a choice, I just didn't believe it. I thought that Robert Kiyosaki, the author, was wrong. Well now I know that he was right. I had thought that being rich is unobtainable. You had to be born into it, so unless you won the lottery, you can't achieve more than middle class. Well, I was wrong about that. Now I can't really say something like, oh, well, a college professor said that rich people are bad or, you know, I don't have that story. I can't blame anyone else for growing up with a limited, scarcity mindset, really, other than myself in the context that was created around me. I mean, growing up in Pennsylvania, I just knew that the carts family and the domileskeys, they had more than us. And that's just the way it would always be. It's sort of preordained, and other families had less than us, and these family trajectories were just cast in stone as to how it had to be. But the good news is that it's not, and this is still what makes America great, the fact that it takes zero formal training, zero risk parents, and not even a high salary for you to do something like get a three and a half percent down payment loan for owner occupied FHA fourplex or 20% down for a single family rental that produces income from day one in The Southeast or Midwest, you can plant that seed that get other people's money working for you seed in just that way, even if you're interested in something as unprofitable as geography. Now, a huge reason that people disparage the wealthy is rooted in jealousy and envy, and that is not good. There's no goodness in those emotions, and that is because people don't think it's obtainable for them. It's obtainable for almost anybody. Learning that it is within your reach that completely breaks down your resentment of the rich. Yes, indeed, being wealthy is a choice. Well, people are obtaining wealth in today's real estate market. Here, Redfin reported that through the latest quarter ended real estate investors bought fully one in four of the nation's most affordable homes. That's up 3% year over year. And as Redfin puts it, it's a sign that investor activity is stabilizing, and as homeownership remains out of reach for many Americans, real estate investors are coming out of hibernation to take advantage of robust demand from renters. So investors are buying a greater proportion of affordable homes, some of them through our marketplace, GRE marketplace. Now over the long term, let's think about how US housing is going to be positioned for sustainable demand. Demography is destiny. That's a quote attributed to 19th century philosopher Auguste coon Tay, it means that the size and structure of a population will influence its future. So then all we need to do is track the age of a population over time to sharpen and give clarity to a forecast. It is axiomatic that in 10 years, a 25 year old will be 35 No kidding. Well, what's important about the age of 35 is that is the average age of today's first time homebuyer. It's between 35 and 36 All right. Well, the US is peak birth year occurred in 2007 we know that just look at demographics. Well, then add 35 to it. Add 35 years to 2007 This means that, on average, they will buy their first home in the early 2040s a lot of people are going to be forming their first household, whether it's rent or buy around the year 2040, I mean, the peak in all of American history, a lot more people will need homes. In fact, more than 13,000 Americans are turning age 35 every single day for the foreseeable future for more than a decade. This year is the first year where we've ever had over 13,000 Americans turning 35 every single day. And that is projected to continue to happen every single year through 2035 and that's as late as the Census Bureau projection that I have goes on. On that stat this baked in demographic housing demand. Hey, if we don't get serious about building more housing fast, and it's likely that we won't, this will be analogous to a demographic shock wave that hits the housing market. The population aging into homeownership is projected to exceed the population aging out, as in the death rate for a long time. This will pump housing demand, and that's not all. I've only talked domestically so far. This doesn't even account for additional demand from immigration. And immigrants tend to be younger and are renters for a long duration, or just forever. On top of immigration, the average number of people per household is falling as well. In 1960 3.3, people live per household in 1990 it was down to 2.6 by 2023 it was down to 2.5 this means that more housing is required just in order to shelter the same population. But of course, the population won't stay static. So to keep piling on with the housing demand here, the overall US population is projected to grow as well, from 342 million today to 383 million in 30 years. That's per the CBO. The demographics for senior housing are even more bullish. And of course, when I use the word bullish like this, this bullish sentiment that's from the investor side. If you're looking to buy your first home or find a place to rent, this is all more discouraging than perhaps all of our perpetual struggles to live a balanced life or lose weight. This baked into the cake. Demand is almost perfectly predictable, and it's of seismic importance to the real estate market. And yet, despite that fact, you know, more investors curiously fixate for month after month on something like the Fed's interest rate decision or the next jobs report. I mean, this is both harder to predict and way less significant than the sustainable demographic demand for rental housing that you got right there. So really, to sum up, this segment demographics reveal that housing demand should stay high for decades, long term, then you should expect higher home prices, higher occupancy rates and higher rents. And you can benefit by owning many rental properties. And our guest and I are about to discuss how you can do exactly that own many rental properties, and how to do it efficiently with less cash out of your pocket, including how you can start using other people's money before you even own a property when you're trying to qualify for a loan on a rental property, in some cases, you can Use a portion of the tenant's rent income toward your qualification income. Let's talk with this week's guest. There's one place that's created more financial freedom through real estate than any other lender in the entire nation that's time for a big welcome back to their president, Caeli Ridge.

Caeli Ridge 13:23

Keith Weinhold, my friend, thank you for having me happy to be here, sir.

Keith Weinhold 13:26

Oh, it's so good to have you here. You're a longtime friend of the show and so many of our listeners that you've helped originate investor mortgage loans. Caeli leads Ridge lending group. They're an investor centric lender. She does such a good concise job of explaining specifically what real estate investors need to know in optimizing your loan positions. In fact, on a previous episode, she once broke down every single line of a closing disclosure form for us one by one, detailing each individual closing cost and prepaid item and in there, besides being specific income property loan experts, they're really thorough and helpful that way. Well, Caeli, tell us about the key differences between owner occupied mortgage loans for buying a primary residence and investor mortgage loans for a rental property.

Caeli Ridge 14:17

The key things are that on a rental property, probably the biggest difference is going to be that for a rental property, there's additional incomes that potentially we get to use to help offset that new monthly liability, aka the mortgage payment, p, i, t i, principal, interest, tax and insurance, we have access to income potentially to help offset that. So in the debt to income ratio category, it can be a huge boon or a huge benefit, depending on what the individual's qualifications are. Additionally, in that same theme, we're not just confined to a conventional Fannie Freddie loan for investors. We have things like the DSCR debt service coverage ratio that you would not be able to apply to a primary residence, but also allows for income to help identify whether the property qualifies for financing.

Keith Weinhold 15:04

So for prospective investor borrower is wondering whether we'll have enough income to qualify for that property or not. Is it a certain percentage of the tenants rent income that is used in the investor borrowers qualification income?

Caeli Ridge 15:19

absolutely, so conventional full doc mortgages they are going to receive in the acquisition year formula, because there's two formulas that will be used in underwriting. One is called the acquisition year. The other one is called the Schedule E I'll focus on the acquisition year. This is applicable from the date that they acquire the property and until that tax year's Federal tax return is filed. I needed to find up to in a minute they get up to 75% of the gross rents minus the proposed p, i, t, I, principal, interest, tax and insurance. Now I say up to because it depends on two primary criteria that the borrower must possess in order to get the full 75% so think about it this way. There's three buckets. Okay, the first bucket gets the full 75% of whatever the gross rents are. The easy math example that I give, let's say that the gross rents are $1,000 a month. The PI ti proposed payment is 500 a month. If they're in bucket number one, and they get the full 75% of 1000 they have 750 bucks, right? And from that they're going to subtract out the $500 of mortgage payment. In that example, it would leave them with a gain positive 250 so that individual came to us with a debt to income ratio of x as a result of purchasing this investment property, their DTI is going to go down because they're $250 richer monthly. So 75% is the maximum you can use in the acquisition year. That individual in that bucket has to demonstrate two things. One, they have a primary housing expense, whether that's a mortgage or they rent, either is fine. And then second, they need to be able to demonstrate that they can they've had 12 months of history in owning investment property. So if they have both of those two things, they get the full 75 if they have one or the other, they're in bucket number two, which gives us an offset. They cannot have the full 75% they don't get the full gain, but I can offset. So going back to my example, using $1,000 of income and $500 of mortgage payment, they can't have the 250 gain, but I can give them up to 500 making that a zero, right? It's covered completely the mortgage payment. It's not increased any debt or anything in the example. So DTI would stay exactly the same as where they began, when we started. And then finally, bucket number three would mean that individuals that have neither of those two things, no primary they live rent free, no primary house expense, and they do not have 12 months demonstrated history currently, of being an investor. They get zero of the rental income, so they've got to support the full new payment within their DTI and keep it within that 50% threshold. So that was a long explanation to the question, but I think that that pretty much covers it.

Keith Weinhold 17:56

Now, That's really helpful. Okay, that can help the borrower's debt to income ratio. I guess a lot of cases is going to be helping it out by a small amount. What if, say that investors buying a new build rental property and there is no tenant, hence no rent income there yet.

Caeli Ridge 18:11

I'm so glad you asked. So on a subject property basis, that is the property in which they're purchasing at the moment in time. It's called the subject property. Those properties do not need to be tenant occupied. We can use assumptive rental income from the appraisal on a rental property that will come with some additional forms. It's called a 1007, it's just the number on the page. Those are rental income comps. The appraiser has given us an average of what those rents are going to be, and that's what we're going to use the 75% calculation on.

Keith Weinhold 18:41

Okay, that's really good to know new build or resale rental property, that's going to work the same with either one there. Now I know oftentimes that one wants to qualify. When we look at non order occupied properties, rental properties with conventional conforming loans from Fannie or Freddie, typically, one puts 20% down on those properties we've talked before. I think one can put as little as 15% down, although they would have PMI in that case, or alternatively, rather than putting 20% down, last time I checked, they could put 25% down and get a lower interest rate. So can you talk to us about the interplay of the percent down payment for rental property.

Caeli Ridge 19:21

I'll start by saying, more often than not, when you do the math the capital expenditure, or in this case, the difference between 5% down 80 versus 75% divided by the monthly payment difference, you're going to find that the leverage is going to outperform the higher 80% will outperform the lower 75% but absolutely, to your point, the payment is going to be less for two reasons. At the 75% level, the interest rate will be lower because you've got more skin in the game. The interest rate, loan level, price adjustment for 75% is going to be more attractive than it will be at 20% down. So the rate will be lower. And of course. The loan amount is lower, so both of those combined characteristics are going to create better cash flow, it's true, and a lower monthly payment. However, the math that I always want to promote, that people are doing is looking at it side by side, all you have to do, and it's actually much easier than people, I think, assume. So you figure out the capital expenditure difference. Let's just use 100 grand, okay, because his math is simple. So you've got $5,000 in additional capital that you'd be bringing to the table for the 75% option, right? Versus retaining the five grand, the payment difference is 50 bucks a month. Okay? Whatever the number is, all you're going to do is take the five grand and divide that by the payment difference, and that will give the individual the number of months it takes them to recapture that capital for the savings. Generally, my opinion, per an investment property is that if that number is in excess of 36 months, it's going to take you over 30 or three years to recapture that capital versus the savings. I'd keep my money because I can do one of a few things with it. If I chose to, I could cash flow the 50 bucks myself every month for 100 months, if that was the math. Or I could apply that five grand and use it with some other monies, perhaps, and buy another investment property, or put it in different investment asset class that would provide a return so more often than not, when they do that math, my belief is, when I do it, I'd say even 95% of the time, the higher the leverage is going to be, the better return numbers.

Keith Weinhold 21:27

We're philosophically aligned that way. We're leveraged proponents here, typically the smaller down payment, 20% is going to be better for you long term than 25% even though you'll get a somewhat lower interest rate on a rental property, putting 25% down rather than 20% when we pull back, we look at the interest rate difference between an owner occupied property and a rental property. What is the spread between the interest rate? Of course, you're going to pay higher interest rate on a rental property because it's a lot less likely that the borrower is going to walk away from their own home than they would a rental property.

Caeli Ridge 22:02

exactly and this is a great segue into those LLPAs that I always like that we spend some time talking about. So llpa, loan level, price adjustment. So for the GRE listeners, this is a more complicated concept, so I'm going to try and quickly break it down. Keith loves it when I get so wordy. So llpa is a positive or a negative number that associates with the individual characteristics of the loan transaction. So one of those characteristics, obviously, is occupancy. The loan level price adjustment for a primary residence versus an investment property is quite different, and for the reasons exactly that you described, there's a lot less risk in a primary then there will be in a rental. Because if an individual needs to choose between defaulting on where they live and an investment property, if it came down to that, obviously they're going to maintain, yeah, so they got to choose. So skin in the game, risk, etc, generally speaking. And there's all those other variables too, credit score, loan size, loan to value, property type, purchase versus refi, those are all unique llpas That will have their own unique number. But in general terms, an owner occupied where you live is typically going to price out an interest rate about one percentage point lower than you would find on an investment property, generally, if we're comparing apples to apples.

Keith Weinhold 23:15

talking about that risk difference for the lender, just like in the 20% versus 25% down. Example, there's less risk for the lender when you put 25% skin in the game. Hence the lower interest rate there too. Caeli, tell us about fitting the right mortgage type to the borrower. And of course, there are so many types. There's 30 year versus 15 year, fixed rate mortgages versus Adjustable Rate Mortgages, interest only, DSCR loans like you touched on. So tell us about getting that right fit for that individual borrower.

Caeli Ridge 23:49

This is a bit of a rabbit hole. So what I would start by saying is we do at Ridge take a lot of time on the front end and identifying not only what their needs are, their goals are, but obviously what their qualifications are, and marrying all of those things together and coming up with a roadmap that I like to call it, depending on where the individual is in their journey of real estate investing, as the tax returns may continue to be filed, and how aggressive they want to be with their deductions, maybe some cost segregation. I know I'm getting a little bit technical here, but because we maintain and have all of those products, it's very, very uncommon, or very rare, that we find an investor, potential client, that we do not have some sort of loan product to satisfy what their end game or end goal is. And you know, maybe we continue to graduate them. Let's say that they start in a DSCR because they can't qualify for Fannie Freddie today, but that is their ultimate goal. We're going to provide them with the insight and the background or the feedback that plants the seeds and gets them to that place in six months or a year, or whatever. So I hope I answered the question, depending on their individual needs and goals and qualifications, of course, really will dictate which one of those is going to be applicable.

Keith Weinhold 25:00

We've got a lot more to discuss, including, is it easier to approve w2 incomes from a day job versus 1099 from contract or gig work? And more, we're talking with the nation's foremost expert on income property. She is the president of ridge lending group, Caeli ridge. More, 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 and MLS, 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 Ridge lendinggroup.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 two, 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

Robert Kiyosaki 27:00

This is Rich Dad, Poor Dad Author Robert Kiyosaki, listen to get rich education with Keith Weinhold, Don't Quit Your Daydream.

Keith Weinhold 27:18

Welcome back to get rich education. We're talking with Ridge lending Group President Chaley ridge. These discussions are great, because debt, through leverage, builds wealth even faster than compound interest, as I've discussed, and Caeli is really the linchpin in her company, and help makes that happen with reliable income property loans and Caeli today, there are a lot more people with sharing economy income, gig economy income, or doing contract work, and they're paid with a 1099 form that shows their income for that year, versus a w2 employee wage job. So can you tell us about whether it's easier to approve those that have a w2 income and that versus the 1099

Caeli Ridge 28:03

I don't know that I would classify it as easier as harder. It's just different. So on the 1099 first and foremost, if you don't have a 24 month history of having that kind of income, you're not going to get a conventional loan. And assuming that we're going to kind of keep on that path of Fannie Freddie's. Because remember, guys, if you can't fit into those boxes. We've got 10 others that we can look to to get the financing for. But if we're in the Fannie Freddie, that's really where this is applicable, the 1099 and the w2 I mean, they're really equal in terms of the overall process. The difference would be that with 1099 you must have that 24 month history. The calculation is that we're going to take an average, it gets a little bit convoluted, like anything else that is leverage or financing related, but a 24 month average of 1099 unless we can show that that individual, let's say that they're self employed and maybe a Schedule C, and they've got their 1099 coming in through that way. If they can show five year history of having license or being self employed that way, that instead of having to use a 24 month average, we'll use a 12 month average, and that may be to their advantage. Let's say that the most recent year filed is in a bit of a decline from the prior year. Let's just use 2022 and 23 let's say 23 is a little bit lower than 22 a 24 month average is not going to be as big a number than if I were to just to be able to take the 12 month average of the most recent year. So if that individual can demonstrate they have five years of being or receiving that kind of income, then instead of being a 24 month average, I get to choose and just do the 12 month average. So that would be one thing about the 1099 that I would say otherwise, yeah, they're just different. I don't know that one is harder than the other. As long as the qualifications are there, they're there.

Keith Weinhold 29:43

When I think about this, I guess it does make sense from the lender perspective. If you're paid and shown income there on your 1099 from sharing economy work, gig economy work, or being self employed, that's more volatile work than having a day job. Um, as an employee.

Caeli Ridge 30:01

Sure, absolutely. And if you can demonstrate that you have that history and you've been able to consistently earn and have those numbers, it's okay, yeah, but without the 24 months, you're not going to get a conventional loan. You're gonna have to look at DSCR or something else.

Keith Weinhold 30:15

We're talking about what it takes to qualify for income property loans today with Ridge lending Group President Caeli Ridge, when we talk about that qualification bar that needs to be met. Caeli, you see so many loan applications in there. You have a team. You look at and deal with so many situations when you're free, you even pick up the phone, sometimes yourself, and you will talk to individual borrowers. So what do you see in there as the top reasons for not qualifying for an income property loan.

Caeli Ridge 30:42

The top reasons for not qualifying for a conventional loan probably is debt to income ratio, yeah, more often than not of the three basic criteria, which are assets, enough cash to close or reserves, credit and then DTI, I would say it's the DTI category that more often than not, is the culprit for qualifying or not. And it may be as simple as how they filed their last year's tax return and saying, Okay, before you file 2024 don't do that until you send Ridge a draft, so that we can get ahead of what you may not have known to look for last time. They could be very simple, little easy fixes. And you know, sometimes maybe it's they don't want to pay the extra taxes, which sometimes that might be required. In which case we say, okay, let's pivot over to the DSCR options. In which case, by the way, just as a quick sidebar, I'm finding that gap is starting to narrow a little bit to the point that it's a lot more affordable in terms of the investment property and what cash flow is expected than it used to be. The differences between a Fannie Freddie rate and a DSCR rate is starting to narrow a little bit. So if you have to be DSCR, I would not shy away from that just because you assume I think it's going to be more reasonable for cash flow properties.

Keith Weinhold 31:52

Yeah, I'll tell you, when I was an employee as a day job worker grinding in my eight by 10 cubicle, as it was back in the day, and I was buying income properties. Yeah, the main thing I would get held up on is that my debt to income ratio, my DTI, was too high, and my salary was pretty strong, although not fantastic, not astronomically high, but I felt like I was a guy that was pretty good, pretty prudent with my finances. And yeah, it didn't feel good to be told hey, Keith, to lower your DTI. You need to pay off your 3% automobile loan that's at a nice fixed interest rate. I didn't want to have to do that, but I was willing to do that to retire the small loan in order to qualify for the big loan.

Caeli Ridge 32:36

That makes sense. I might just offer a comment in that regard. What you may have experienced at that time could have been what we call an overlay in the industry. So, yes, like anything, right? Lenders aren't created equal. Because we're so investor friendly and focused, we are going to go by the purest form of those Fannie Freddie guidelines. It's called a seller's guide. And as an example, let's just say that Fannie Freddie gives you 75% of the subject properties, gross rents, whereas B of A or I'm just picking on B of I don't know why, but some other lender may impose an overlay. It's like layers of risk and saying, No, we're not going to give you any rental income credit whatsoever, even though the guideline says that we can do it, our overlay says, No, we can't. So depending on who you're working with, credit unions are a little notorious for that being a little bit more restrictive in their box of guideline. So it may not always be what you think. So if you've had a lender, tell you DTI wise, you don't qualify, but you feel like this is not quite right. You should double check that, because it may be an overlay.

Keith Weinhold 33:34

Everyone is interested in interest rates. It's been so interesting with what's happened the past few years, ever really, since the covid Emergency cut took place in 2020 and the volatility that we've seen in interest rates, then we saw interest rates max out in this cycle at about 8% almost a year ago. What does this declining interest rate environment mean at a mortgage loan company? And what do you see for the future of rates there?

Caeli Ridge 34:02

Well, rates have been coming down. If you guys are watching the headlines, you're seeing those sound bites. We have started to see some more refinance activity than we were seeing before, certainly additional purchases as we start to see interest rates come down, I am of the opinion that we're going to continue to see some improvement in the rate department, dependent on some of the jobs reports that we'll be getting soon, so we'll see. But My money is on that, we'll continue to see some nice tailwind in the rate department throughout the rest of the year, and who knows what's going to happen? I mean, this is our election year, etc. We'll see how the rest of it plays out.

Keith Weinhold 34:33

How does a prospective borrower get their financial house in order themselves before getting a hold of you and your team there, what are some of those checklist items that they should do themselves at home first?

Caeli Ridge 34:47

like I said a bit ago, so you've got those three primary criteria. If you're wanting to qualify for those conventional full doc loans, think about your credit Do you know what that credit score is? Now, depending on some other variables, it doesn't have to be 800 Credit scores to qualify. I mean, we've got clients as low as 650 that are able to get financing conventionally, because they've got compensating factors, similarly for assets on the investment property side, the down payment and the closing costs and the reserves, none of those things can be borrowed or gifted. And that's very different than if it was an owner occupied, gifted and borrowed funds are okay for an owner occupied, for an investment property, they have to be sourced and seasoned, meaning your own funds over the last 60 days. So think about that. What your down payment is going to be an estimate of closing costs and make sure that you have the appropriate amount of capital. And then finally, that debt to income ratio. That's a slippery or one to try and calculate that for yourselves. But if you think about your minimum payments on your credit report. That's really all that goes into it. Minimum payments, not the debt load. The minimum payments on the credit report divided by the monthly income, gross income, you should be able to come up with a number, and 50% is that threshold. So if you can kind of just take that kind of mental back of the napkin of your own, you should have a pretty good gage on whether or not you think you're going to be in this box, or if getting into the game, or continuing to be in the game, is going to require some alternative loan types.

Keith Weinhold 36:05

Inflation has been such a story for the past three or four years, but some people aren't aware that there's actually been credit score inflation. Last time I checked, the average credit score had been slowly rising in the United States. What's the highest credit score that gets one the lowest rate.

Caeli Ridge 36:22

We're staying in the Fannie Freddie department, 760 and above is all the same bucket, if the individual qualifications are identical, if this one has an 850 credit and this one has a 760 credit, exactly the same in the interest rate department.

Keith Weinhold 36:35

And then, once they've engaged with you, what about locking in their interest rate. What duration did they have prior to closing? Tell us about that timeline.

Caeli Ridge 36:45

So an interest rate can be locked on a 15 day lock, a 30 day lock, a 45 day lock, even a 60 or 90 day lock, typically it's a 30 day lock that's the average. The shorter the period of lock, the better the rate and or points that you would pay. And the longer is the adverse right? The higher the rate of the higher the points. I like to look at locking an interest rate, usually when we get the appraisal back, because an appraisal can be the piece that might delay or there may be some issues. So I generally like to see the appraisal first. We've been in such a volatile area with interest rates and what might be happening in the ups and downs, etc. I've broken that rule quite a few times over the last couple of years, I would say today, floating may be to our advantage, just because we feel like rates are on the run and that they may continue to improve. Keeping in mind, once you lock in your interest rate, it is locked. Ridge does have a policy that if interest rates were to fall five, eight of a percentage point or point 625, you would have a one time automatic float down option. It's highly unlikely, and that's why we can kind of put that in there. But if it happened, we would honor that. Otherwise, when you're locked, you're stuck with that rate. You can't expect that if an eight through a quarter point comes off of or rates come down that much, that you're going to get a different rate. The only way to do that would be to let the existing one expire for 30 days and then relock market, which is not advisable.

Keith Weinhold 37:59

Yeah, you the investor, has to think about how important a lock really is to you in this declining interest rate environment, almost everyone expects mortgage rates to fall more slowly than they rose. They spiked up so fast in 2022 Caeli, how does our audience engage with you? Get Started and go on their path to getting investment property loans.

Caeli Ridge 38:24

Three ways to reach us. Obviously, we've got our website. Please check us out there. There's a lot of good information, ridgelendinggroup.com you can email us at info@ridgelendinggroup.com, and then finally, toll free is 855-747-4343 855-74RIDGE is that easy way to remember, and we'll be here on standby. Thanks, Keith.

Keith Weinhold 38:43

Ridge is the same place where I get my income property loans. It's been great having you back on the show. Thank you. Yeah, strong. Well laid out material from cheyley here, as always, let me give us a perspective on creating value by having a good loan rather than not having the debt. Remember that just four weeks ago, here on Episode 516 it was the episode about is every debt worth paying off? And the short answer is no. I got a couple questions from listeners of that episode basically asking the same thing. Well, just say that interest rates are 6% and basically they're asking, well, if I pay all cash for a property or for a car, it doesn't matter what it is, then I avoid paying 6% interest. So right there is my six points of arbitrage. Well, to that, I say, okay, but look what if you think you can achieve a 12% investment return? Borrowing at six to invested 12 is a 6% spread. That's 6% arbitrage as well. But here's the thing, you've got a big advantage of doing this with the loan rather than the paid off condition. This is because. With the loan, you still have the use of your money. You haven't given it away. You still have your money, plus the six points of arbitrage in the paid off condition. You've got six points of arbitrage and you don't have the use of the money any longer. That's the big difference, and that's the value of having a loan, as long as you can service the payments. Getting back to mortgage loans, in today's episode, there are so many loan types for property, conventional, Fannie, Freddie's, dscrs, Portfolio loans, bridge loans, rehab loans, recourse and non recourse loan types, balloon loans, arms and a lot more. Caeli and I didn't discuss their all in one loan, which is like a big, flexible HELOC that you can put on your property. It's such a good product that can help you. You can ask about their all in one loan. When it comes down to what are the factors you need to be most attentive to? They are your assets, reserves, credit, income and debt to income ratio, unless dependent on the loan type that you want. So much attention is paid to interest rates, and some attention is warranted. They surely matter. Be mindful, though, that a quarter of a percent interest rate change on a 30 year loan per 100k borrowed that is just a difference of about $15 in monthly payment, $15 if you go from, say, 6% down to five and three quarters percent, so it takes a rate drop of a full 1% for a savings of about $60 then once you have some of Your finances in order, you can go ahead and do just what I've done for my own properties. For your next income property loan, you can give them a call or start at Ridgelendinggroup.com Until next week, I'm your host. Keith Weinhold, Don't Quit Your Daydream.

41:58

Keith Weinhold 42:18

The preceding program was brought to you by your home for wealth building, getricheducation.com.

Direct download: GREepisode520_.mp3
Category:general -- posted at: 4:00am EDT

Mon, 16 September 2024

Tom Wheelwright is back by popular demand, our most recurring guest in GRE show history. He’s a CPA, an International Authority on Tax, and Best Selling Author of “Tax-Free Wealth” amongst many other titles. We focus on the potential unrealized capital gains tax, which would tax the increase in property value even before sale. Tom explains the implications of this proposal and the broader impact on tax policy.

We cover the Democrats' proposal for capital gains tax at ordinary income rates, capital gains on gifts, and capital gains when you die.

The proposal for a billionaires tax, which would tax unrealized gains at $100 million, could potentially extend to lower net worth individuals over time.

Real estate income can result in a negative tax rate, increasing cash flow after taxes.

Learn about the benefits of working with a knowledgeable tax advisor.

Resources:

GetRichEducation.com/tax

Show Notes:

GetRichEducation.com/519

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

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518: Is Now the Best Time to Buy Real Estate?

Complete episode transcript:

Automatically Transcribed With Otter.ai

Keith Weinhold 00:01

Welcome to GRE. I'm your host. Keith Weinhold, this week we're talking about the value of the raw land that comes along with your property, the importance of an as built survey in real estate. Then it's tax topics with pro Tom wheelwright, the specter of an unrealized capital gains tax, higher capital gains tax rates, how gambling is taxed, and how to permanently reduce your overall tax burden. Today on get rich education,

00:33

since 2014 the powerful get rich education podcast has created more passive income for people than nearly any other show in the world. This show teaches you how to earn strong returns from passive real estate investing in the best markets without losing your time being a flipper or landlord. Show Host Keith Weinhold writes for both Forbes and Rich Dad advisors, and delivers a new show every week since 2014 there's been millions of listener downloads of 188 world nations. He has a list show guests and key top selling personal finance author Robert Kiyosaki, get rich education can be heard on every podcast platform, plus it has its own dedicated Apple and Android listener phone apps build wealth on the go with the get rich education podcast. Sign up now for the get rich education podcast or visit get rich education.com

Corey Coates 01:18

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 01:34

Welcome to GRE from Essex County England to Essex, Massachusetts and across 188 nations worldwide. I'm Keith Weinhold. You're listening to get rich education before we talk taxes, let's talk about the land, the raw land, the lot that comes along with your property. Investors don't spend much time thinking about it. Yet the land is sometimes worth more than the home or structure that's on it, per the FHFA, land constitutes 32.2% of the value of the average US single family property in a metro area. Now the inexpensive land prices nationally, they are predominantly in what I'm classifying it as three US areas, the Midwest, the southeast and Appalachia well, where you have inexpensive land. Oh, that also happens to be where the cash flow for long term rentals resides. Land costs more by the water because people want water activities, water proximity and water view. So the lower costs are inland, and land also costs more by the water, because coasts and shorelines constrain development, sprawl that limits supply and a limited supply of buoys up prices. Consequently, the highest land values are mostly in the Northeast Corridor, from Boston to DC, Miami, coastal California and Honolulu. Yes, Manhattan values are flat out extortionate for raw land now, Seattle, Madison, Wisconsin and Boulder, Colorado. They are three places with really high land values as well. Seattle and Madison are on geographic isthmus. And isthmus is a narrow strip of land with water on both sides. It's interesting how Nashville's nascent population influx made its land values surge inside a cheap sea of southeastern US land values now costly land areas like these ones that I've been talking about on the coasts, they could work well for short term vacation rentals like Airbnb and VRBO, your classic waterfront and beachfront weekly rentals, but they do not work for long term rental cash flow. Texas Land values are sort of low to medium. Land near the Mississippi River and its major tributaries have low costs because rivers are efficient transportation networks, prohibitively high land costs. That's one reason, actually, why alternative building methods just really aren't as cost effective as some people think. I'm talking about things like 3d printed homes, prefabbed homes, tiny homes and shipping container homes, well, all of them have got to sit on land, just like conventionally build homes do. And there is a land cost. Talk to a tear down specialist, and they'll tell you that in some older homes, 100% of the total value is in the l and. And in practicality, it's actually even more lopsided than that. The structure can have negative value because demolition is not free. So for you to get an idea yourself, your property tax bill, it's going to show you your split. That's where you'll see the assessed values broken out for both your structure and the land. So the bottom line here is that cash flowing properties have low land values, typically 25% or less of the total property value. That's generally what you want to look for. And I swear the only thing that's more barren than raw land is the creative naming process for new developments. There is such a lack of creativity in these development names. I'm talking about names like Willow Creek Estates, stone bridge crossing, or what else do they name a new housing development? How about VISTA, view heights? They all have these idyllic sounding names that somehow just all sound like each other. Well, we're talking about raw land when you get in contract to buy a property, the seller side is expected to provide you with an as built, it often still comes in the form of an old fashioned piece of paper and as built survey, what it is is a plan view, a bird's eye or aerial view of your property. It's not a photograph, but a drawing, and it shows you the dimensions and the placement of structures on your property, and it includes things like fences and other features like easements. Now, lenders don't always require an as built before granting a loan, but it's a good idea to ask to see one before you wrap up your next deal. If you want to in your offer, you can even require that a recent as built be done by a surveying company. All right. Well, what exactly do you look for on an as built once you have one in hand, first see that the house or apartment building that you're buying is properly set back from the property lines to meet zoning requirements. If the six foot side setback is only five feet 10 inches, then you'll have to address that before you buy even if it's five feet 11 inches. Now it's possible that the jurisdiction that you're buying in will grant a letter of non conforming status, but if not, the structure is going to have to be adjusted. Another item to look for on an as built are encroachments. This is where part of a neighbor structure protrudes over the lot line and onto your property. And encroachment is really only acceptable if you're willing to grant the neighbor an easement in perpetuity for their encroachment onto your land. But why would you want to do that? The third thing that I want to mention that you should look for an as built is the existence of easements. An easement that just means that another party has a legal right to come over onto your land and use it. Yeah, and easements are actually quite common. It's not as threatening as it might sound. A common one is that as your as built would show, say, a five foot wide by 60 foot long easement. Is there that a utility company has access to. Well, that's something that makes sense. It's for the common good, but just be mindful that an easement cannot have a structure with a permanent foundation built on top of it, alright, because an electric company or a water company might have to excavate there. Most people think of easements on the raw land, but there are also aerial easements, for example, an overhead power line where the roof eaves are not allowed to intrude on that airspace. So to review what you learned so far today, the best cash flow properties typically have low land values, often about 25% or less of the tolerable property value. And an as built survey is an aerial view drawing of your property and its dimensions on an as built look to see that it meets zoning requirements like setbacks and look for encroachments and easements. It is resale properties where it's more important to look at as builts than it is for new construction properties. As we're about to bring in tax pro Tom Wheelwright shortly, business owners and real estate investors really get so many of the best tax breaks in the US Code. But you've got to know. How to find them, or else work then with a CPA that does know how to find them, that really knows how to navigate their way around the tax code, people that make high salaries pay high taxes, as much as 50% you remember I did that episode a few months ago, high salaries don't create wealth. Taxes are one big reason why, say, for example, a chiropractor makes $1.2 million a year in salary. But if that chiropractor becomes an investor by buying and selling other Chiropractic Clinics or investing in real estate, their tax rate will drop by half or more, and that's because capital gains tax rates are about half of ordinary income tax rates. So see, you don't want to be a super earner. You want to earn enough money to invest and become a super owner, but tax policy could change Tom and I will discuss that first. Then we'll talk about reducing the amount of tax that you pay. Today is a new punishing unrealized capital gains tax coming that you will have to pay. What this means is that if you have a $500,000 home, and it rises in value to $550,000 well, you would have to pay tax on your $50,000 of profit, but you haven't sold your home. So this feels so wrong, because you haven't realized any profit at all. This is what unrealized capital gains tax is. And also, where are you going to get the cash to pay the tax on your 50k of profit just because your home rose in value yet you didn't realize it? I mean, might you have to sell your home in order to get the cash to pay the tax. And then what if you though could pay the tax on your unrealized capital gain so you do pay it, but then the following year, the home goes down in value. Well, would you get a refund then? So the unrealized capital gains tax proposal is a mess. Let's learn about it and more. This week's guest is a best selling author, CPA and an international authority on tax. He's brilliant because he actually makes taxes fun, easy and understandable. He's familiar to you because he's the most recurrent guest in show history. Welcome back to GRE Tom Wheelwright.

Tom Wheelwright 12:48

thanks always good to be on your show.

Keith Weinhold 12:50

Tom probably with more than 30 show appearances here now you are 6% of GRE episodes.

Tom Wheelwright 13:00

That's a little scary. But you know, taxes are your single biggest expense, so why not?

Keith Weinhold 13:05

It's appropriate. And yeah, I guess all these appearances are certainly an endorsement of how much you help our audience. It's also a reflection of how tax and legal are not my strong suit. So it really helps to have you here absolutely the all time, assists leader in GRE history then and Tyler. An awful lot of timely tax topics going on that are probably first and foremost in more people's news feeds than they usually are. As we're here during presidential campaign season, the one that it really seems to revolve around the most is this potential tax proposal on unrealized gains. I've been around long enough where I seem to see this proposal come up more often, but it never seems to go anywhere. So first, why don't you tell us what unrealized gains are?

Tom Wheelwright 13:51

it actually goes beyond that. Interestingly enough, what the Democrats are proposing is, first of all, they're proposing capital gains rates at ordinary income rates. So they're proposing doubling the capital gains rate. That's actually as important as anything else. The second thing is, they're proposing capital gains on gifts. So if you give it, if you give your business to your child, you have a capital gains ordinary income rates. They're proposing capital gains when you die. So not only an estate tax, but also a capital gains tax. So then you get taxed twice when you die. So about 80 to 90% of your estate goes to the government when you die. If you're a business owner, as an example, then they're proposing eliminating the 1031 exchange, which would mean that on a trade of real estate, you'd have a capital gains tax at ordinary income rates. Then they're talking about this unrealized capital gains so if you do nothing but build your business or your real estate, the increase in value is subject to capital gains taxes at ordinary income rates. Now you know their proposal is, we have this tax. Tax when you're over $100 million that is not seem to be in the news feeds right now, but that's what it is. They call it the billionaires tax, and they're calling it an alternative minimum tax on billionaires. But clearly, 100 million is not a billion. That's only a 10th of a billion. And the biggest issue, of course, is if you tax unrealized gains at 100 million, soon you're going to tax them at 10 million, then it's going to be 1 million. Because history. That's the history of our tax law. The history of our tax law. Remember, in 1913 when we passed the 16th Amendment, it was passed because it was only a tax on the rich, right? It would never have passed if it was going to be a tax on the average person. And yet it passed. Because great, we're okay taxing somebody else, as long as it's not our tax. We're okay taxing somebody else. That's pretty much what's going on with this unrealized gains tax is, oh, well, it's on somebody else and they have enough money. It's no big deal. Therefore, I'm okay with that, because why shouldn't they pay more tax? That is what this is about. The challenge is, is, as we saw with the income tax, eventually it will reach the average person, or at least the average entrepreneur, real estate investor. Because think also, let's say that you build your wealth in real estate, and then when you retire, you say, Well, look, I don't want to be doing active real estate anymore. I'm going to trade my single family homes or my apartment building. I'm going to trade for a Walgreens a triple net lease, well under their proposal, that would be taxed because, again, no 1031 exchanges over $500,000 so that means that if you accumulate your wealth through business or real estate, you pay a much higher tax rate than if you accumulate your wealth by investing in Wall Street through a 401k because if you invest in Wall Street through a 401K, you only have to pay tax as you pull that out, you're not going to be paying tax on the value. Now that's assuming that they don't tax the increase in value of your 401K, which is also obviously a possibility. Interesting enough people talk a lot about the constitutionality of this. The challenge with that is that we already have taxes unrealized gains. If you're a dealer in stocks, in securities you do mark to market, that is meaning that you're going to pay tax on unrealized gains. And so there is actually precedent for this, and that's the scary thing, is that they could point to that precedent and say, Well, wait a minute, it's just an income tax, it's not a wealth tax, that's what they're going to say. They're going to say it's an income tax, not a wealth tax, because it's on appreciation, and appreciation is income. That's how they're going to go down this road. Will it start at $100 million Absolutely, that's where it will start. Will it then drift down? Who knows? But likely that's the history of our tax system. Yeah. I mean, we've talked before about the phenomenon of the camel getting its nose under the tent. However, in this case, I didn't realize there's already precedent for unrealized gains, in a sense, as potentially, if this is approved for those with $100 million net worth, and in next it's 10 million net worth, $1 million net worth and so on, like you described there, when you talk about capital gains tax rates being stepped up so that they're at ordinary income tax rates. It's actually somewhat of an interesting philosophical discussion, in a way. It sort of makes sense that a person's gains from investment could or should be taxed at the same rate as one's income when they go to their day job. However, why don't we do that by lowering income taxes rather than doubling capital gains? Wait a minute, no, because it's a double tax. Let's say that you're a business owner. Why does your business increase in value? Well, because you're making income, but you're already being taxed on that income. It's called income tax. What we do in this country, which a lot of countries don't do, by the way, is we tax it a second time. We call that a capital gains tax or a dividends tax. We tax it twice now. Now we're going to have that second tax at the same rate of the original tax. So if you think about it, you're being taxed on the same income twice because it's your income that determines your value, so you're being taxed twice. It's really not the same. It's fine if you're invested in the stock market, and that's where your capital gains are. That's a hard one to argue too much, although it does take liquidity out of the market, because the problem with capital gains tax is being taxed over 28% it's about 28% is that you actually lower the contribution to the Treasury because there will be fewer capital gains. There will be so many fewer capital gains that you actually lose money. The Tax Foundation, taxfoundation.org, I'd refer people to, has done lots of studies on this, and it's very clear. Here that high capital gains rates actually reduce the amount of money that comes to the government. So this is purely political. This has nothing to do with let's generate more revenue, one of the challenges so you have to score this, right? So that means that you're scoring what's the revenue that's going to be produced? You have two types of scoring. One is called static scoring. The other is called dynamic scoring. Static scoring means that we're going to look at the capital gains we already have, and we're just going to, if we double the rate, we're going to double the revenue. So that's assuming that we're going to have the same number and amounts of capital gains as we add at the lower rates, right? Dynamic scoring means that we're going to take into account how people behave motivationally when you double the tax rate. Yeah. Well, let me give you an example. So I'm a business owner. My wealth is in my business primarily. Do you think, really, I'm going to sell that business and take the capital gains immediately and be done with it? But if I have a high capital gains rate, I'm going to sell this over 20 years. So I'm actually going to defer my capital gains as long as I can, because I don't want to pay those high capital gains rates. So that means less money to the government. That's what it means. So it actually reduces on a dynamic scoring if you look at truly how people behave and have behaved in the past. So this isn't a new thing, right? We've had high capital gains rates before. It's not like we don't know. It's not like we haven't seen this before. It's that, for whatever reason, politically, they've decided that, wait a minute, the rich are out of favor. We need to tax the rich more. That's a very popular line, and therefore this is a way to do that, even though it by all calculations that are dynamic, it would actually reduce the amount of funds that come to the Treasury.

Keith Weinhold 22:00

That does make sense about the double taxation. Case in point, with an apartment building, if you increase its noi, you have more income than pay tax that if you increase the noi, therefore you've increased the value of the building. Consequently, the capital gains tax that you might have to pay down the road Tom, maybe current capital gains tax are higher than I thought, is the 28% capital gains tax. Number You mentioned, current or proposed. What is that?

Tom Wheelwright 22:24

Well, right now we have a 24% capital gains tax, okay, we have 20% pure capital gains tax, plus we have a 3.8% net investment income tax. Doesn't apply right now if you're a real estate professional, but applies to everybody else under the Harris proposal formally adopted Biden's plan under the Harris proposal, then you would get a actually 39.6% rate, plus 5% net investment income tax, regardless of whether you're your real estate Professional. So that is 44.6% that's the 45% the 28% number I threw out is that's the number the Tax Foundation says is the maximum you can raise it to without losing revenue.

Keith Weinhold 23:11

That puts things into perspective, as real estate investors, for a long time, we've appreciated substantial tax shelters. What are they being the 1031, tax deferred exchange, like you mentioned, that's been around for more than 100 years. Does that have any realistic shot of being shot down? Of course, Trump shot down substantial parts of the 1031 outside of strict real estate investing.

Tom Wheelwright 23:32

He did, and he actually set the precedent for eliminating it. So by doing that, because he eliminated it on everything except real property, right? I mean, actually, and even before that, there was a time, and there's still ways you can do it with paper assets. But it's not a 1031 exchange. So 1031 exchange has it evolved. It's gotten it's shrunk. It keeps shrinking. Even three or four years ago, no realistic possibility of eliminating 1031 exchange. The challenge, of course, is it would have an impact on the liquidity of the market. However, big deals never do 1031 exchange. Ever you don't see big multifamily developments sold in 1031s. The only time you see that happen is when they've used the Delaware statutory trust. And then you've got some of the investors who use it. And some of them who don't, you can do that in the Delaware statutory trust, but the regular developers, I haven't seen a 1031 done by a syndicator in years. So could they eliminate? Yeah, they could.

Keith Weinhold 24:33

yeah, that would be concerning. Are there any other presidential hopeful proposals that have to do with taxes that are germane, and our audience should know about?

Tom Wheelwright 24:41

my heavens. So the Democrats want to raise taxes by $5 trillion they want those taxes to all be on investors. And the reason I say that is because typically, people who make less than $400,000 which is their threshold, are not major investors. Most of their money goes to spending. Money. If you're making under $400,000 you can easily spend $400,000 a year. Oh, yeah, okay, that's not that hard, especially in today's world. It's a transfer from high net worth individuals who invest their money in long term projects like real estate, like energy, like business, and it's going to be a transfer to people who spend the money and they're going to spend it, my prediction is that if the Democrats get their way, we enter into a long term period of stagflation, high unemployment and high inflation. Because if you transfer $5 trillion from people who aren't spending it in the first place to be able who do spend it. You've got $5 trillion of new money going into the marketplace. Now it could depress asset values. So that could be good for investors, okay? Because you don't have as much cash available to the I'll call it the investor class, to go into real estate. If that's the case, then you have $5 trillion less, right? I mean, it's not a huge portion of the market, but it's big enough. If you take $5 trillion out of investment capital, then that would put a downward pressure on asset prices, which would include real estate.

Keith Weinhold 25:29

we're talking about potential changes to the tax code. It's always a germane discussion, because taxes are the biggest expense in your life. We're talking with Tom wheelwright. We come back, we're going to talk about the real estate tax laws as they are now, for example, how your rent income is taxed differently than your job income, and also, what are taxes like on sports, gambling. You're listening to get rich Education. I'm your host. Keith Weinhold.

Keith Weinhold 26:45

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 27:16

you 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.

Blair Singer 28:29

this is Rich Dad, sales advisor, Blair singer. Listen to get rich education with Keith Weinhold. And above all, Don't Quit Your Daydream.

Keith Weinhold 28:48

welcome back to get rich education. We're talking with tax pro Tom wheelwright. He's been talking to us about some of the proposals that presidential candidates have here in a campaign season, and whether these things become true or not. Sometimes it seems like just the fact that they're proposing. They're proposed, or if they get instituted at a small level years down the road, it can blow up into something bigger. So Tom tell us more about some of the proposals that are on the table.

Tom Wheelwright 29:12

So we talked about the democratic proposals, which also include things like a $6,000 tax credit for babies. It also includes an enhanced Child Tax Credit. Also includes some other there's lots of provisions in there, right? So it's a transfer. It's just a transfer of money from one group of people to another group of people. On the Republican side, we haven't talked about that now they want to extend the 2017 act. They've been very clear, that's what they want to do, which is an estimate $4 trillion so the other direction. So basically, you're talking about a $9 trillion swing between the two parties. We've never seen this before, ever in a presidential election. Now, that big of a difference, one major tax increase, one party proposing major. Tax increases, the other proposing major tax decreases in the same election. It's something that I'm glad people are paying attention to, because it's a little overdue in this election cycle. Because really, when you talk about policy, that's probably the biggest policy difference between the two parties.

Keith Weinhold 30:18

Now one thing we've learned over time from talking with you is these presidential wish lists, if you want to call them that. Well, these tax changes are things that require congressional approval, and we have a divided Congress currently. So what do you think the prospects are of really any of these things becoming new law?

Tom Wheelwright 30:36

First of all, remember, most of the 2017 act expires at the end of 2025 so something will have to be done next year. They don't have a choice, either that or is just expires, and then we're back to what we had. We have smaller standard deductions, we have alternative minimum tax again. We get a deduction for state income taxes, right? That comes back the one. We lose our 20% Small Business deduction, the only thing that stays permanent is the corporate income tax rate that was permanent in the original bill. So there is going to be something, you're right, if there is a divided Congress, and I say that if, because if one party sweeps, then, especially on the Democratic side, the Republicans don't seem to be as cohesive as the Democrats are on these things. And if the Democrats sweep, I would say, remember, we don't have Kyrsten Sinema, we don't have Joe Manchin from happening. And so would the Democrats sweep all these through, not all of them, but you're going to see a major tax increase for sure, on the Republican side, would you see the 2017 act extended? You'll probably see it, but you're right that otherwise, if it's a divided Congress, we're going to have something in between. We thought we would get a divided Congress in 2020 though, remember and we didn't. So I would not count on a divided Congress

Keith Weinhold 31:59

erstwhile 2017 Trump tax cuts in JOBS Act brought the highest marginal income tax bracket from 39.6% under Obama down to 37% as I remember it. Some thought Biden would take it back up to 39.6 but he hasn't and it's just stated 37 All right, so if Republicans stayed in power, presumably that 37% would go ahead and carry on. That's what we think about as our w2 income. Tom, why don't we talk about the taxes that actually exist today? I think a lot of real estate investors just don't understand the difference between how your w2 job income is taxed versus your taxes on real estate rent. Can you talk to us about that?

Tom Wheelwright 32:42

The reason it's confusing is because they're both considered ordinary income, right? The difference is, is that one is business income and one is non business income. Your wages are non business income. You don't get deductions against non business income, but you do get deductions against business income. So your rental income is considered business income for purposes of the Internal Revenue Code. What that means is you get deductions for taxes. You get deductions for interest, you get deductions for maintenance, you get deductions for depreciation. That's why, when you have your income from your rentals. Typically taxed much lower than your income from your salary, because you get no deductions against your salary like you do against the rentals.

Keith Weinhold 33:30

Maybe it would help to introduce an example here. I don't know if this will complicate things too much or not. If a real estate investor has, say, a single family rental property with $2,000 of rent, income, $1,000 mortgage, $800 in operating expenses. How is that tax that leaves them with $200 of cash flow?

Tom Wheelwright 33:50

You have $200 of cash flow, but then you probably have depreciation on top of that, which is a non cash deduction. And so let's say your depreciation is $500 that means you actually have a $300 loss that, in many cases, you can use to offset income from your w2 so you actually have a negative tax rate. In other words, you're making money from taxes. So actually, is that an increase to your cash flow? So it's a way to think of it is, I have $200 of cash flow from my tenant, if I have a $300 loss for tax purposes, let's say I'm in a 33% tax bracket. I have $100 of income from the government. So that means my cash flow is really after tax. Cash flow is $300 not $200 whereas if you have the same $200 of income from your wages. Let's say you have just the net, right? Let's start with the net. You have $200 well, you're going to be taxed. And let's say that again, your 33% tax rate, that means you're after tax, right, is going to be roughly $125,000 okay, under $30 so $130 we're. $300 so it's like twice as much. In fact, all of that difference is because of the tax law.

Keith Weinhold 35:06

Gosh, that was a great breakdown. I'm really glad that I introduced that example, $2,000 in rent, minus $1,000 for the mortgage, at $800 in operating expenses, again, leaving you with $200 in cash flow with that example. There's probably more going on here with taxes. Because, of course, with that $1,000 mortgage amount, some is going to be principal, some is going to be interest. In part of that interest can be tax deductible.

Tom Wheelwright 35:31

I'm assuming it's all interest, because if it were not, we'd have a higher taxable income. Remember, your principal payment is not deductible. So in your example, I was assuming that the $1,000 mortgage payment was all interest. If it was only $800 then you'd have $400 of income before depreciation. You don't have $100 loss, because, remember, your principal's not deductible, so therefore you have to add that back into your taxable income.

Keith Weinhold 35:58

Will you talk to us about how to apply depreciation to this income versus expenses. Example, is there anything else you can speak to when it comes to that $800 of operating expenses in this example, and those expenses include things like property insurance, property tax itself, maintenance repairs and utilities.

Tom Wheelwright 36:19

Right but also, for example, you might run your rental real estate business out of a home office in your home so you could have a home office deduction. You might have your use your car for the rental purposes, and then you get a deduction for your car. So there are additional expenses that aren't even in that $800 that you could pick up that would not otherwise you'd never get a deduction, and you're really not spending any more money. You're just using it for business, and therefore getting a business deduction. So it's really all about what do I get to deduct? Remember that if you own a home for yourself, you don't get to really deduct the taxes. You have a limit on how much you can deduct. So taxes are limited in deduction. Mortgage Interest may or may not be limited. Remember also that if you have a mortgage, you're limited to how much a $750,000 mortgage being deductible, whereas if you it's a rental property, it could be a seven and a half million dollar and mortgage, and you still get the deduction, so you're not limited like you are. On top of that, again, it's a business, so let's say that you put solar panels on your personal home, you'd get a 30% tax credit, but you'd get no depreciation deduction. If you put solar panels on your rental house, you get the same 30% tax credit, but now you also get a depreciation deduction of probably another 30 $40,000 in the first year. So there's always more deductions in a business setting than a personal setting.

Keith Weinhold 37:56

Well, real estate has been around a really long time. Often laugh when people talk about non conventional investments and put real estate investing in their real estate's about the most conventional investment that we can possibly think of. It's been around a long time. We think about a newer thing that people do with their money, but I sure don't call it investing. That's sports gambling, and it's something that you and I haven't talked about before. Here Tom in 2018 the Supreme Court opened the way for states to legalize sports gambling, and at last check, 38 states, plus DC and Puerto Rico have legalized at least some form of sports gambling. So now it's a more germane conversation for you and I to have than it was a few years ago. Can you tell us about sports gambling, taxes and how it's treated.

Tom Wheelwright 38:41

So remember, all income is taxable. So that includes gambling winnings. They are taxable. In fact, you'll get a 1099 just like you would if you rendered services, you'd get a 1099 or you have interest income, you get 1099 you get 1099 from gambling. What you actually have to show is that you actually have gambling losses. So you have to track those gambling losses to show the IRS that you got gambling losses. But your gambling losses can never be more than your gambling winnings. You never get to generate a tax loss on gambling. What that means is, is that if you win $10,000 during the year, and you can prove that you lost $8,000 during the year, you're going to be taxed on $2,000 but if you can't prove the 8000 you're going to be taxed on 10,000

Keith Weinhold 39:33

so you the gambler, have the burden of tracking this, and I guess tracking your losses. I'm not a gambler. How would one track their losses?

Tom Wheelwright 39:42

I would keep detail ledger. Personally, I probably have a separate bank account just for gambling. Gosh, I'm not a gambler either, so that's what I would do. I would have a bank account just for gambling, by the way. It's also a good way to budget your gambling so they, you know, get in trouble, right? So just set up a separate bank account. Don't put whatever money you say, I'm comfortable with this money, I'm going to gamble with this money put in that bank account, and then you have a ledger that shows the money that went in and the money you lost, the money you won, and don't do anything but gambling in that bank account.

Keith Weinhold 40:15

Hey, that separate account's a great way to hide it from your spouse, not that I'm suggesting. Not bad.

Tom Wheelwright 40:22

Interesting. You went there.

Keith Weinhold 40:23

I'm not a gambler at all. Can't even believe I was thinking that far ahead. What are the gambling tax rates like?

Tom Wheelwright 40:31

They're ordinary income tax rate. So gambling winnings are just ordinary income. They're the same as your wages. They don't have social security taxes their income, just like any other kind of income, nothing special. And this all applies to whether it's sports gambling or general gambling, like lotteries and sweepstakes? Just remember, all incomes taxable unless the government says it isn't all income, okay? And then there's some types of income that are taxed at special rates, like capital gains, but gambling has no special rates. By the way, gold also has special rate for when you sell gold, it has its own tax rate. Gambling has no special tax rate, so it's just your ordinary income rates.

Keith Weinhold 41:11

To me, it seems like it's hard to break even with gambling over time, and then when you take the tax adjusted earnings that you get from it, you know, over the long term. I just don't think Harris and Bally's Casino is really incentivized to inform gamblers on how punitive this can be with ordinary income tax rates applied to gambling winnings.

Tom Wheelwright 41:30

No, but they will send you your 10909g I guarantee that, that's for sure.

Keith Weinhold 41:34

Well, Tom has helped business owners and real estate investors permanently reduce their taxes. He does it like virtually no one else in the world does by keeping it simple, by helping you find deductions that other CPAs can't do. You can learn more about how Tom and his team can actually help you. You can get a free consultation. You can do that at getricheducation.com/tax. And Tom tell us more about the importance of a business owner or a real estate investor or anybody else really being connected with the right kind of tax professional that can permanently reduce your taxes.

Tom Wheelwright 42:12

So remember that if you want to change your tax, you have to change your facts. It's that simple. What you have to do is you need to know what facts you need to change. That's where a good tax advisor comes in. Is what facts do you need to change in order to change your tax now good news is, wrote tax through wealth. So you got an idea of what that is, but the tax law is very detailed. You must dot your i's cross your t's, so to speak, so that you make sure that you meet all of the rules, such as documentation, for example, for your business expenses. When you do that, you're going to get a better tax result, especially if your tax advisor is also preparing your tax return. Because really, your tax return is just part just how you implement your tax strategy, right? That's how you do it. So we launched, just recently, a franchise of tax advisors, and now we actually have much, really good control, quality control with our tax advisors, and they use our software system. It's very important that you have somebody, if not us, find somebody who you know you can actually give tax free wealth too, and say what cares make sure that we're doing it this way. But if the easy button is really the getricheducation.com/tax.

Keith Weinhold 43:27

Tom Wheelwright, It's been valuable as always. Thanks so much for coming back onto the show.

Tom Wheelwright 43:33

Thanks, Keith.

Keith Weinhold 43:40

Yeah, key insights from Tom as always, taxes are complicated. Tom's Network helps sort it out for you. We've already covered a lot of ground on this week's episode with raw land values as built, proposed tax plans and how to reduce your tax burden within the existing tax system. Tom and I talked, and he will be back yet again with us later this year for more tax wizardry. Now, just recently here, Kamala Harris proposed a smaller capital gains tax hike than Biden. She's starting to put sort of her own policy spin on things, breaking with the President on the size of a proposed increase on the capital gains tax rate that is a 28% top tax rate when investments are sold for those that make a million dollars plus. So that's more than the current 23.8% top rate, but less than the 39.6% rate that Biden had supported all income is taxable. Therefore it is axiomatic that the fastest way to increase your ROI is to work with a tax advisor that can find you all of the biggest deductions right away. You can read Tom's book Tax Free Wealth, get a good system of documentation going and get connected with Tom's team. At the end of an episode at times, I like to leave you with the most actionable resource on the topic that we covered. You can schedule a free call to see how Tom's team can help you out. At getricheducation.com/tax. That's getricheducation.com/tax. Until next week. I'm your host. Keith Weinhold, Don't Quit Your Daydream.

45:33

Keith Weinhold 46:01

The preceding program was brought to you by your home for wealth, building, getricheducation.com.

Direct download: GREepisode519_.mp3
Category:general -- posted at: 4:00am EDT

Mon, 9 September 2024

A prominent Florida Builder and #1 Wall Street Journal Best-Selling Author joins us to discuss the benefits of build-to-rent properties, including affordable housing and attractive mortgage rates.

He has already done all the work for investors, offering new build income properties that are sometimes rented.

We discuss the importance of median value and affordability index in choosing profitable areas for long-term real estate investments.

Learn about new build income properties with rate buydowns as low as 3.75%.

Important market dynamics and investor strategies, including the trade-offs between cash flow and equity growth.

Show Notes:

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517: The Future of Homebuilding with George Gilder

Complete episode transcript:

Automatically Transcribed With Otter.ai

Keith Weinhold 00:01

Welcome to GRE. I'm your host. Keith Weinhold, a great way to forecast the future of the real estate market is to look at the level of new building. I've got a surprise to reveal there then a focus on one of the hottest in migration states. That's popular because it promises cash flow for real estate investors today on Get Rich Education.

00:24

Since 2014 the powerful Get Rich Education podcast has created more passive income for people than nearly any other show in the world. This show teaches you how to earn strong returns from passive real estate investing in the best markets without losing your time being a flipper or landlord. Show Host Keith Weinhold writes for both Forbes and Rich Dad advisors and delivers a new show every week since 2014 there's been millions of listener downloads in 188 world nations. He has a list show guest top selling personal finance author Robert Kiyosaki. Get Rich Education can be heard on every podcast platform, plus it has its own dedicated Apple and Android listener phone apps build wealth on the go with the Get Rich Education podcast. Sign up now for the Get Rich Education podcast, or visit getricheducation.com

Corey Coates 01:09

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 01:25

Welcome to GRE from Plains Georgia to White Plains New York and across 188 nations worldwide, you are listening to Get Rich Education. I'm your host. Keith Weinhold, we are an educational platform. And if you haven't yet, I really suggest that you spend 100 hours learning how to invest in real estate. The average person works 2000 hours a year for 40 years. That's 80,000 hours of working for money. I implore you to spend 100 hours learning how to keep it and grow it and leverage it and create income and tax advantages from it. 80,000 hours of lifetime work, 100 hours learning real estate investing. Now, when someone like a presidential candidate produces, still vague talk about building 3 million starter homes in four years. That actually appears just about impossible. Within the existing structure. We would need 2 million housing starts per year from 2025 to 2028, in order to overcome our existing shortfall. And we haven't exceeded 1.8 million in any year in the moderate era, and that's even when demand was extraordinary and interest rates were low. Just you know, look at the reality of what home builders need to actually do, and this is even if they don't have any excessive not in my backyard. Pushback, builders have to procure land, meaning they need to lay out cash far before building, and then they need to jump through zoning and building hoops in counties and cities, in towns, in communities, and sometimes those hoops can reach preposterous levels with substantial delays. Builders need to secure financing, and for most, interest rates are still in the 9% plus range. And then builders need to acquire a whole local network of contractors and subcontractors, and then they need to keep those contractors and subcontractors busy, or else they're gonna lose those workers. So builders have to work to maintain their teams once they found them. And if that's not enough, this is all amidst a historically bad skilled labor shortage, meaning those workers can be enticed to go work for somebody else. As you know, skilled worker demand far exceeds skilled worker supply. So for builders, it takes years of planning and development. In a lot of cases, they sit on land for many years before the market conditions are right for the actual build. Well, look, at least there is finally acknowledgement among our highest elected officials that we do need to address the core problem, but our elected officials proposals aren't really so good, and our country's housing problem is largely a regulatory issue. Later today, we'll talk to a builder that's already done all of this for you, so it's not preconstruction that has new build income properties complete, available sometimes even rented already, and they help you buy down your mortgage rate to a level that's really low. You'll soon learn about it. But first, let's talk more about adding new housing supply in the larger apartment segment. It's something that can help you see the future here, but it isn't getting enough tension outside of multifamily industry circles, and that is the fact that apartment starts are plummeting to 11 year lows. And this is a real surprise to some people, multifamily completions are outpacing starts by the widest margin since 1975 and I mention this because, you know, you probably keep hearing and reading about how apartment construction is at all time highs, but really, that is a story from two years ago. It takes about two years to go from an apartment construction start to a completion. Well, today we're seeing that huge surge of apartment starts two years ago morph into completions. That's the piece to be aware of here. And to give you some idea about the new apartment building, slow down through July, we have completed 314,000 multifamily units, and we started just 193,000 units. That's all according to census stats that year to date. Start total is the nation's lowest since 2013 when we were just building our way out of the global financial crisis. Also a larger share of apartment supply. In this next cycle, it's likely to be affordable housing, because that's where the tax incentives are in the last wave of apartment construction a few years ago, it was more higher end stuff, and the result is today, apartments are oversupplied in a lot of markets, leading to falling apartment rents, or just somewhat stable and frozen apartment rents in heavily overbuilt places like Austin, Texas and a lot of others. But this slowdown in New Starts of larger apartments is why some have bullishness on the multifamily outlook for 2026 and beyond supply is the biggest headwind for apartment investors today. While it is an enormous tailwind for renters, it's good for them, but those dynamics appear likely to shift again. It took an almost perfect storm of variables to push apartment construction to 50 year highs, and it's difficult to see a scenario where construction could re-accelerate back to those peaks. Today's apartment completion levels could mark a high. It's generational. You may never see it again. So to summarize, in the world of large apartments, supply is still up, even outpacing demand in a lot of markets. It all came from a big building wave that began when interest rates were low two years ago. They're mostly upper end places. Apartment syndicators also got hit with higher rates that reset on them, and you've seen the value of some apartment buildings fall 30%. It is bad. But long term, I expect that apartments are going to be fine. New lease ups are absorbing what's out there. The demographics show that renters will continue occupying apartments. Interest rates have already fallen and they're expected to keep falling, and you don't have very many new apartment starts, it's that last piece that a lot of people aren't aware of. So that's the forecast over the next few years for five plus unit apartments. When it comes to the market dynamics for one to four unit properties. I'm going to discuss this with one of the voices of GRE marketplace today. They are a build to rent provider building new construction, single family homes, duplexes and fourplexes for tenants that they sell to investors. Hey, I'd like to welcome in a home builder and property provider serving Florida, basically statewide, known as North America's leading build to rent property developer, and he believes in what he builds and offers others, because he's been a real estate investor himself for more than two decades. Hey, Jim, welcome back onto the show.

Jim Sheils 09:45

Keith, good to be here. Thanks for having me.

Keith Weinhold 09:47

Jim, we have a lot of exciting things to talk about. What you're doing in Florida. You've really helped out a lot of our investors and followers so far. You have some really interesting things to tell us about. Rate buydowns and just how low those rate buydowns are on some new build properties. And I sure want to get to that. But first, why don't we just pull back big picture, and from the 30,000 foot national view, before we talk about Florida, what are some of the important dynamics you see in the real estate market here in late 2024

Jim Sheils 10:16

Yeah, it's been interesting. The media is always late to the party, as you know, Keith, I've seen some interesting stats. You know, affordability nationwide has gone from 480,000 about eight months ago, and now it's down to about 405, so we've already seen the affordability index come down nationwide, and it's hit really well here in Florida. One of the reasons why is there's definitely been some price adjustments on higher priced property in Maine markets, Miami, Orlando, Tampa, areas that we don't build because the numbers didn't work. So that's been really good to see that affordability also, rates are just starting to drop. But here's an interesting thing. A year ago, Keith, the average mortgage payment for the average person buying a home, was 57% of their total income. Now that has dropped to about 44% of their total income. So I'm always looking at affordability and overall median pricing, and that's been a really, really good thing for us. As I had said, second tier markets where you can get affordability, but also great amenities, great lifestyle is where we've always focused on building, and it seems like that is really continuing to have a solid pulse. I love visiting some of those bigger markets, you know, taking my kids to Disney, but I'm glad we stayed out of there, because it seemed a little more temperamental, and we're glad we're in the more second tier markets.

Keith Weinhold 11:39

You cited an affordability index there earlier. Now, affordability still, historically, is not that good, but it's not as bad as it used to be. Tell us more about that index.

Jim Sheils 11:49

Yeah, I always have looked at, you know, the affordability index. Let's just use an example, Orange County, California. I think the median value of a home there is $1.1 million. In Jacksonville it's 305, and so you get a score for based on what is the average family income per price of the home. And it's kind of like your report card. And there's certain areas that have an A, and there's certain areas that have an F. You know, we have lots of investors come to us with you guys too, from New York or Seattle or Orange County. And this is something I look at, what is the affordability index, and just know how they figure out the score on your affordability index. What's the average price of the home in that area, and what is the average family income for that area? And the correlation of those two numbers shows whether you have a good score or bad score.

Keith Weinhold 12:39

And now that we've looked at the national picture somewhat, you mentioned some of the major metro markets in Florida, some of which you specifically stay out of, and that's simply because the numbers don't work for long term rentals. They don't provide cash flow. Tell us more, just in general, about some of the areas that you've chosen and why is there profitable for long term real estate investors?

Jim Sheils 13:03

Yeah, this median value, this affordability index, is so key when we're able to get into home still, you know, Jacksonville is barely over 300,000 as the media now, we're able to cash flow right off the bat. So like Jacksonville is still as the population growth, the economic growth is occurring. It's desirable coastal community, and supply and demand is in our favor. We don't have enough housing, so that's where we focus all of those factors, not only here, but on a smaller scale, in Palm Coast, in Ocala, where we've done a ton with the GRE community. And then southwest Florida. We don't go to Southeast Florida, too expensive, too overbuilt, too high on insurance, but that Greater Fort Myers area, which did experience the highest growth anywhere in the country during the pandemic, which was interesting to watch, we're still seeing a lot of good fundamentals down there. And again, at that affordable range, it makes a big difference when you're buying at a medium priced home is, let's say 320,000 opposed to 580,000 makes a huge difference to whether it will cash flow off the bat or have a negative cash flow. And as you know, Keith, even though we're doing new construction high growth areas, we want to see app cash flow right away.

Keith Weinhold 14:13

Now, you are a builder, you are adding much needed inventory to the national housing supply, where we've had a shortage of millions of units per years, depending on what source you cite in quote there, a lot of the estimates as to the housing shortage really are all over the place. But many sources state that Florida inventory levels just statewide. Here they are back about to pre pandemic levels. So they have recovered. They are back to about 2019 levels. And I think one important thing for people to remember is, well, 2019 was a pretty good, balanced housing market.

Jim Sheils 14:50

It was a normal market. We liked 2019 you know, that was a good market. There was growth, but it was sustainable, more predictable, steady. So I'm happy to be back in 2019. You know, 2020 21 levels there were, there was less than a month's worth of inventory on the MLS that it was dire. Yeah, it was just such a skewed thing. And you've studied this for a long time. So everyone if you say, Oh well, it went from this to this. I love how you talk about 2019 because by all statistics that was a very normal market here in Florida. So we're happy to get back to that, because you have to have a certain amount of inventory level to balance the playing field. We want to see growth, but I'm more of a long term player, as you know, we don't need to see huge spikes, because that can get a little volatile.

Keith Weinhold 15:36

Now, as a builder, talk to us about builder sentiment since, like we talked about before, we are in a falling interest rate environment, mortgage rates are already down about one and a half percent from the recent highs, and the Fed hasn't even begun lowering rates yet. So talk to us more about what those lower rates do to build their sentiment. And we're not just talking about rates for buyers here, which matter, but it's the rate that builders like you that have to pay the typically factory in here too.

Jim Sheils 16:06

Yeah, it's an interesting market right now, Keith, and here's something I want to give great encouragement from as you know, we do build some for the institutions and the larger groups. The little guy, the small investor, has the guerrilla warfare advantage over them right now, because, as you know, we right now have announced financing. We're able to have this builder forward commitment where we're buying large tranches of money for residential mortgages. That means, you know, individuals like we work with all the time, Keith, that buy a few properties, we can get them this incredible financing right now, at 3.75 we're beating the market. You know, you go into a B of A and try to get a duplex finance, you're probably looking at six and three quarters. And we're able to do that because it's residential real estate. Some of our bigger guys, they would buy all of our inventory. But we can't get a institution qualified for these individual investor loans for residential real estate. They have to go to the commercial world. And as you know right now, Keith, the commercial world is screwy. People aren't lending. The rates are really high, and even these big guys have to sharpen their pencils and do their numbers and they go, Gosh, it's not panning out until rates drop. So that means these bigger groups are on the sidelines. And we all hear the complaints, all the big guys are buying all the properties they own 40% well, they're on the sidelines, and our little troopers and investors are building their portfolios in ways they cannot so it's exciting to see now for us too. What's lucky and unlucky is a lot of good builders out there that we're friends with. They can't get financing. The banks have gotten so stringent. So they might even have a good balance sheet and a good track record, but the banks are getting really stringent where Chris and I are. As you know, we were partially acquired by Sumitomo forestry about a year and a half ago. They're a 331 year old company, and when we decided to team up with them, they said, We love Florida and we love build to rent, go, and so now we have zero bank debt, and they've given us a green light to build out all of our inventory. We have five, over 5000 lots in Florida, and we don't have the bank slowdowns. So to find a good builder, you have to make sure they have financing in place, because they're going to be a great builder out there that just can't get the funding to do the job for you. So that's another thing you want to look for.

Keith Weinhold 18:16

Right. And last time I checked, you've got more than 925 current independent income property investors, many of those whom are GRE listeners. Well, we're going to talk more about just how low those rates are. Who participates in the buy down? I already know that most of it's the builder, and just part of it is you, the investor. You're listening to get residuation. We're talking about Florida, build to rent property more when 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 Caeli 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.

Garrett Sutton 20:28

This is Rich Dad advisor, Garret Sutton, to grow your wealth. Listen to the always valuable. Get Rich Education.

Keith Weinhold 20:45

Welcome back to Get Rich Education we're talking about half of progress real estate investing in high growth Florida, with a renowned build to rent provider there. And I think a lot of this really comes down to trust with the fluctuating interest rate environment that we've had, some people don't trust certain builders or that investor to go ahead and put down a deposit on a vacant lot and wait 12 months or more for it to be built. But we're not talking about pre construction here.

Jim Sheils 21:16

No, no. Since we steamed up with Sumitomo, you know a lot of good builders again, they can't even start the project until they have a a buyer with a deposit down. That's the requirement for the bank to give them the money to start building. We don't have bank requirements, so we're building on our own dime, and so we are having properties completed before you even have to make an offer on them. So these are finished properties, sometimes a tenant already in place. I know just this month, there's been a few GRE people very happily stepping into pre rented homes. So you don't have to wait that period. If you're ready to move your money or have a 1031 exchange, we can fulfill those no problem, and close within 30 days Our in house financing, Keith, which I know we're about to go over, I want to make sure people know this is for not only our single families, but our duplexes and our quads as well.

Keith Weinhold 22:02

Tell us more about that in house financing that's something of great interest to people, and especially with these mortgage rate buyouts.

Jim Sheils 22:09

Yeah, everyone says, Oh, I wish I had locked into a mortgage before June of 2022 right? I mean, for every time we heard that, Keith, well, now you can and what we're able to do since we have the balance sheet we have now, with teaming up with this bigger company, banks will allow us to do what's called a builder forward commitment and buy large tranches of money. We're in the money buying business, I guess, now, and we have to commit to large amounts of money, but by doing that, we're able to pay fees upfront to buy down the mortgages. So right now, our most popular rate is 3.75. You as the buyer, and these are called discount points, which I've heard Keith talk about. You're bringing in a little under two discount points to get the 3.75 rate. And you say, Okay, well, Jim, we're bringing in a little less than two points. What are you bringing in? We're not really supposed to talk about that, but here's what I can tell you, do this test, go to one of your mortgage friends, or your B of A or Wells Fargo, and ask it what it will take for you to pay to buy down a rate for 3.75. Now, first of all, they will not allow you to do that much. We are on a more high volume schedule that will allow us to do that, but let's say, if they would, here's what the feedback we've got. If you were to try to do this on your own, Keith, you or I just walking into our bank, you would have to pay anywhere from 12 to 15 points to make this happen. Gosh, and that was the advantage of working as a collective group like we do together, you and I in our investor community, because now that we're able to do volume, it benefits us

Keith Weinhold 23:39

all. No one really knows where interest rates are going to go. I think it's pretty foolish to try to predict them, but very few people think they're ever going to drop to the levels that we saw during the depths of the pandemic, 3.75% if you get locked in there, it's pretty unlikely that the future market is going to meet that down the road at all and tell us more about that product type, the single family homes, duplexes and fourplexes that this is available on. And of course, they're all new build.

Jim Sheils 24:09

Yeah, we do a combination of new build on all of these. We found, Keith, a lot of build to rent. Companies really only focused on the single family home, but we found, you know, to increase rental yield and overall returns. There was really a lack in the market for duplexes in residential areas and quads, again, and those are close to commercial deals, without the commercial financing, they allow more affordable rent in more residential areas that people can afford and want to be in. And we found through the pandemic, these had a greater calling to them than, let's say, a large apartment complex. You know, people want to be a little more spread out, have their own yard, like in a duplex, and they get that there, but they get it at a fraction of the price that a complete single family home would be at. So we found, as you know, most of our investors, our average client, buys three to eight properties with us, and no surprise, they. Buy a mixture of single family duplex and quads. I know we agree on this. Keith, the single family home has had the best history of all of great equity appreciation, and the duplex might lag behind that a little bit, but it's got a better cash flow. So I will always do little trade offs and combo my own portfolio to make up for two of those. And that's what our counselors usually coach our people. I know yours do as well.

Keith Weinhold 25:23

Yeah, the economies of scale for the real estate investor really can be there long term with duplexes and fourplexes, and you're really helping fill a need. Some months ago, I talked about the mmm multi families, missing middle, about how so few duplexes, triplexes and fourplexes are being built today, as compared to when you had about three times as much construction in those property types that you did in the 1980s a lot of that's really gone away. You're really bringing it back. We talk about some of the areas where these are built. You know, Jim years ago? Well, really about 10 years ago, when I began this show, I was often talking about how I want to be invested in Metro statistical areas that have a population of at least 500,000 to 1 million people, in order to get a diversity of economic situations there, because you do need rent paying tenants. But so much has changed since then, starting four to five years ago, with the work from home movement, I'm more open to more outlying areas than I had been previously. So tell us about some of these areas that you choose to build in. In Florida.

Jim Sheils 26:29

yeah, you know our hub market where we started doing rehabs many, many, many years ago was Jacksonville, Florida. Yeah, and we still are headquartered here, but Jacksonville, again, is the most affordable coastal city, I believe, still on the East Coast, which brings great fundamentals. It hits both of your things, Keith, where it is larger, but it has more of a sprawl and that larger population and the fundamentals look really well again, that overall median price is still very low. And we branch down to Palm Coast, which is a little more of a higher end area, but a bedroom community, to Jacksonville, the silent soldier, the one that really surprised us the most. I think you remember, this was Ocala. In fact, when Christopher said, Do you want to go start building Ocala, and this is about a decade ago, I said, Wow, Ocala, isn't there only, like, some horses out there? Yeah, now he's a horse guy. So he laughed, and he said, Oh, sure enough, I put my foot in my mouth. But Ocala, the amount of growth that we've seen out there has been incredible. And Ocala is really well placed because it's just below Gainesville, where the, you know, there's the medical centers, the university, and it's just north of the villages, which is the second largest retirement community and growing. Not only that, it has its own economic infrastructure, but it's really well placed in the difference of a price of a home for a starter family in Ocala compared to like Northern Tampa. There is no comparison. You're talking half. So we like that. And also with rents, it's got a great lifestyle. And then southwest Florida again, Southwest Florida, Keith, we're very lucky that we took some risk there. A lot of builders would like to be building down there, but as you remember, we took some big risks in 2020 we talked to some of our friends and said, this can be really good or really bad for real estate. We went with the really good and we loaded up on, well, a lot, over $20 million worth of land at the pre jump prices. Now we're into land right down there so we can get them built right for you guys still make a margin for ourselves that other people that they're trying to get land today, they just can't do and Southwest Florida has been a really good market for us. Had that hurricane there a few years ago, and all of our new construction properties did well. In fact, of almost 300 properties that were under construction, we had four that needed insurance claims, and those four, Keith, well, we had just put up the freestanding walls. We hadn't been able to tie the roof on before the winds and the winds knocked the walls over, and that's it. But there was no flooding, and that's why you get an insurance break. And all the markets that we're in, we always hear, Oh, you can't get insurance in Florida. And I kind of giggle and say, on which properties? Because there is a very different treatment for a new construction property built 2004 or newer, compared to a property built 1957 on lower ground.

Keith Weinhold 29:02

Yeah this is such an important thing to bring up. Property insurance premiums have been hiked substantially on Florida, existing, older build properties, not the post 2004 ones like Jim is talking about here and yeah, for those that don't know, Ocala, there in Central Florida is known as an equestrian area for horses and your business partner, Chris, that's his big hobby. So yeah, when you first went there, you were with Chris. You were like, are you just trying to get there because you want to be around horses more and what? But now there's actually a good fundamental reason for this, where it makes sense to build there. Well, Jim, why don't you talk about how you've specifically helped one of our listeners, or the typical buyer there in how that process looks, including an approximate timeline to get them from the time where they submit an offer all the way through to closing.

Jim Sheils 29:52

Yeah. Well, you know, our team and your team work together. We want to make sure we set people's goals and expectations. Up front. What are you looking for? What are you trying to get into? If someone says to me, Look, I'm looking to get into a great starter home with the lowest basis and highest cash flow, I'm gonna say, Okay, let's look at Ocala. They say, Look, we're looking more long term. I'm more of an equity growth player. Yeah, I want cash flow. I'm gonna say, Okay, let's look at Palm Coast, or southwest Florida. Together with our teams and our property counselors, we try to assess what are your needs and where are you wanting to go. Now, all of our vehicles will get through there, but some a little better than others, depending on the plan you want to put together. And so once we do do that, what we like to do is go through properties that seem to match what they're most wanting. We'll go through the performance. We'll look up the site maps, we'll go through the different fundamentals of that direct area, and then, if it seems to make sense, first thing we got to do is get you pre qualified with our in house lender. All is that a go? Well, then we can make an offer, get it in. We have a whole onboarding process. You know that we've done hundreds and hundreds and hundreds of time, and now we're over. I know I laugh because we talked recently and you said, I think you're at a 925. Investors, we're over 1000 now, so we're continuing to grow. But again, we've tried to make it fluid, where our people are part of the process, but never alone. We answer the questions on the financing help get you the directionals on the insurance now, you can use whatever insurance company you want. 99% of them use the company that we recommend. We have no financial affiliation with them. But everyone asked years ago when Chris and I started this, well, who do you use for insurance? Who do you use? So we just gave them who we used, and this person usually undercuts and better coverage than most. So all those pieces Keith with going through that and again, this is about a 30 day process of getting qualified, once you pick the property, submitting the contract with your 10% deposit, doing your onboarding for Property Management and Insurance pieces. And then, obviously you don't have to come here to see us for closing. We do all of our traveling closings for you. And most important thing I like to set up with PM is, where do you want the money wired?

Keith Weinhold 31:59

That's a great question. Well, yeah, I mean, this is a great answer for so many of our listeners, those super attractive rate buy downs. And then the big thing is, is, in many cases, you're not waiting and waiting and waiting months for the build to take place. Well, Jim, before I tell our listeners how they can connect with you over there, do you have any last thoughts overall with anything that we did touch on or did not.

Jim Sheils 32:22

I want to encourage people, if they're not looking to get in the next to real estate in the next two to three years, not a big deal. But if you're looking to get in sometime over the next year, then I would really look at what's happening, things you talk about with the rates and the interest, because I do believe that institutional money within the next six months, it'll be interesting when we reconnect, Keith, that are going to start coming in and buying up more residential real estate. However, their hands are tied right now. They cannot get the financing that the smaller guy can. So whether it's with us or someone else, take advantage. Take advantage. David and Goliath, this is a great opportunity where the big guys cannot keep up with you, because they can't get the financing and insurance rates that you can so take advantage.

Keith Weinhold 33:03

Well, I specifically wanted to have you on today because it is an opportunistic time. They serve Florida with new builds. Learn more about their properties and even get some under contract. If you so wish, you can do so by contacting your GRE investment coach. If you don't have one yet, you can do so at GREmarketplace.com it is free or at GREmarketplace.com/florida. Jim, it's been great having you back on the show.

Jim Sheils 33:32

Thanks having me. Keith, good seeing you.

Keith Weinhold 33:39

Yeah, an excellent update on Florida build to rent properties. A lot of our listeners are asking about these new build properties with 3.75% mortgage interest rates, and you are not the majority participant in the rate buy down either. Next week, who I consider the foremost tax authority in the entire world will be back here with us. Tom Wheelwright is going to discuss presidential candidates, tax plans, whether you should be scared about a tax on unrealized gains and a lot more. Also on a future episode, I'm going to talk about the land that is the vacant land that comes along with your rental property, what to look out for and what to avoid. It's really a little discussed subject that we haven't talked about here before. To learn more about Florida, build to rent property with those attractive rate buydowns, start at GRE marketplace.com Until next week, every host, Keith Weinhold, Don't Quit Your Daydream.

34:45

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. Potential for profit or loss. The host is operating on behalf of Get Rich Education LLC, exclusively.

Keith Weinhold 35:13

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Mon, 2 September 2024

Futurist, Technologist and Author of many titles including the classic “Wealth and Poverty”, George Gilder joins us to discuss supply side economics and the transformative potential of using graphene material in various industries including real estate.

We discuss economic growth measured by time prices, showing that private sector progress is faster than GDP estimates.

Learn about graphene's properties, including its strength and conductivity, and its potential to transform various industries.

Graphene is a single layer of carbon atoms that is 200 times stronger than steel, 1000 times more conductive than copper and the world’s thinnest material.

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516: Is Every Debt Worth Paying Off?

Complete episode transcript:

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Keith Weinhold 00:01

Welcome to GRE. I'm your host. Keith Weinhold. I'm talking about the various economic scare tactics out there, like the BRICS, the FDIC and the housing crash. What lower interest rates mean? How our nation's $35 trillion debt has gone galactic. Then today's guest is a legend. He's a technologist and futurist. It tells us about today's promise of graphene in real estate 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, at no other time in history has it been more vital to place nice, clean, free content in 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 01:40

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 01:56

Welcome to GRE from Dunedin, Florida to Dunedin, New Zealand and across 188 nations worldwide. I'm Keith Weinhold, and you are listening to get rich education, where real estate investing is our major. That's what we're here for, with minors in real estate economics and wealth mindset. You know, as a consumer of this media type as you are, it's remarkable how often you've probably encountered these de facto scare tactics, like the BRICS are uniting and it will take out the dollar and it's just going to be chaos in the United States. You might know that BRICS, B, R, I, C, S is the acronym for Brazil, Russia, India, China and South Africa. Do you know how hard it is to get off the petro dollar and how hard it is for the BRICS, which is basically more than just those five countries, it's dozens of countries. How hard it is for them to agree on anything with things as various as their different economies, and they'll have different customs and currencies. I mean, sheesh, just for you to get yourself and three friends all to agree to meet at the same coffee shop at the same time, takes, like a Herculean effort, plus a stroke of luck, and all full of you are like minded, so I wouldn't hold your breath on the dollar hyper inflating to worthlessness, although it should slowly debase. What about the scare tactic of the FDIC is going to implode, and this could lead to bank closures and widespread societal panic. Well, the FDIC, which stands for Federal Deposit Insurance Corporation, they're the body that backs all of the US bank deposits, including yours, and it's steered by their systemic resolution Advisory Committee. Well, there are $9 trillion in bank deposits, and is backed by only a few 100 billion in FDIC cash, so there aren't nearly enough dollars to back the deposits. So can you trust your money in the bank? That's a prevalence scare tactic, but my gosh, if nothing else, history has shown that the government will step in to backstop almost any crisis, especially a banking related one, where one failure can have a cascading effect and make other institutions fall. I'm not saying that this is right, but time has proven that the government does and will step in, or the common scare tactic in our core of the world that is the eminent housing price crash. And I define a crash as a loss in value of 20% or more. Do you know how difficult this would be to do anytime soon? Housing demand still outstrips supply. Today's homeowners have loads of protective equity, an all time high of about 300k so they're not walking away from their homes. Inflation has baked higher replacement costs into the real estate cake, and now mortgage rates have fallen one and a half percent from this cycle's highs, and they are poised to fall further, so a housing price crash is super unlikely, and a new scare tactic for media attention seems to be this proposal by a future presidential hopeful about a tax on unrealized gains. Now Tom wheelwright is the tax expert. He's returning to the show with us again soon here, so maybe I'll ask him about it. But a tax on unrealized gains is politically pretty unpopular. It would be a mess to impose, and a lot of others have proposed it in the past as well, and it has not gone anywhere. Plus tax changes need congressional approval, and we have a divided Congress, there's a small chance that attacks on unrealized gains could come to fruition, but it would be tough. It's probably in the category of just another media scare tactic, much like the BRICS and the shaky FDIC banking structure had a housing price crash. I like to keep you informed about these things, and at times we do have guests with a disparate opinion from mine on these things. Good to get a diversity of opinions, but it's best not to go too deep into these scare tactics that are really unlikely to happen any time soon. Well, there was a party going on 10 days ago at what all affectionately dub club fed in Jacksonhole Wyoming, I don't know what the club fed cover charge was, but fortunately, we did not have to watch Janet "Grandma" Yellen dance at Club fed and and share. Jerome Powell, yes, he finally caught a rate cut buzz. He announced that the time has come for interest rate cuts, and as usual, he didn't offer specifics. Total rager. what a party. later this month, he's going to render the long awaited decision, which now seems to be, how much will cut rates by a quarter point or a half point? Did you know that it's been four and a half years since the Fed lowered rates? Yeah, that was March of 2020, at the start of the pandemic. And then we know what happened back in 2022 and 2023 they hiked rates so much that they needed trail mix, a sleeping bag and some Mountain House freeze dried meals to go along with their steady hiking cycle. Interest rates now, though have been untouched for over a year, it's been an interesting year for the Fed and rates many erroneously thought there would be six or more rate cuts this year. And what about Maganomics? Trump recently said that if he becomes president, he should be able to weigh in on fed decisions that would depart from a long time tradition of Fed independence from executive influence. Historically, they've been separated.

Donald Trump 08:26

The Federal Reserve's a very interesting thing, and it's sort of gotten it wrong a lot. And he's tending to be a little bit later on things. He gets a little bit too early and a little bit too late. And, you know, that's very largely a it's a gut feeling. I believe it's really a gut feeling. And I used to have it out with him. I had it out with him a couple of times, very strongly. I fought him very hard. And, you know, we get along fine. We get along fine. But I feel that, I feel the president should have at least say in there. Yeah, I feel that strongly. I think that, in my case, I made a lot of money. Iwas very successful, and I think I have a better instinct than in many cases, people that would be on the Federal Reserve or the chairman.

Keith Weinhold 09:10

Those Trump remarks were just a few weeks ago, and then shortly afterward, he seemed to walk those comments back, but he did say that he would not reappoint. DJ J-pal, to the economic turntables. It's a long standing economic argument as well about whether an outside force like the Fed should set interest rates at all, which is the price of money, rather than allowing the rate to float with the free market as lenders and borrowers negotiate with each other. I mean, no one's out there setting the price of oil or refrigerators or grapes, but it is pretty remarkable that the Fed has signaled that rate cuts are eminent when inflation is still 2.9% well above their 2% target. But let's be mindful about the Fed's twofold mission, what they call their dual mandate. It is stable prices and maximum employment. Well, the Fed's concern is that second one, it's that the labor market has slowed and see the way it works is pretty simple. Lower interest rates boost employment because it's cheaper for businesses to borrow money that encourages them to expand and hire, which is exactly how lower interest rates help the labor market. That's how more people get hired, and this matters because you need a tenant that can pay the rent. So the bottom line here is to expect lower interest rates on savings accounts, HELOCs, credit cards and automobile loans. What this means to real estate investors is that lower mortgage rates are eminent, although the change should be slow. Two years ago, mortgage rates rose faster than they're going to fall. Now, one thing that lower interest rates can do is lower America's own debt. Servicing costs and America's public debt is drastic. Now, between 35 and $36 trillion in fact, to put our debt into perspective, it has gone galactic. And I mean that in an almost literal sense, because look, if you line up dollars, dollar bills, which are about six inches long, if you line those up end to end from Earth, how far do you think that they would reach? How about to the moon? Oh, no, if you line up dollars end to end, they would stretch beyond the moon. Okay, let's see how far we can follow them out through the solar system. They would breeze past Mars, which is 140 million miles away, the next planet out Jupiter. Oh, our trail of dollar bills would extend beyond that. Next up is Saturn and its ring. The dollar bills would reach beyond that. We're getting to the outer planets now, Uranus still going. Neptune, okay, Neptune is about $30 trillion bills away, and we would have to go beyond that then. So our 35 to $36 trillion of national debt would almost reach Pluto that's galactic. That's amazing. That's bad, and it probably means we have to print more dollars in order to pay back the debt, which is, of course, long term inflationary. And I don't know what's stopping us from going from $36 trillion up to say, 100 trillion, gosh. next week here on the show, we're talking about real estate investing in one of the long time best and still hottest real estate investor states, and then later on, we've got brilliant tax wizard Tom wheelwright returning, as we know here at GRE real estate pays five ways, and if you have any Spanish speaking family or friends, I've got a great way for them to consume all five video modules. It's an AI converting my voice to Spanish in these videos, we have a Spanish speaker here on staff at Get Rich Education, and she said the dub is pretty good. Well, the entire package, real estate pays five ways in Espanol is condensed into a powerful one hour total, all five videos a course, all in one wealth building hour. It's free to watch. There's no email address to enter or anything you can tell your Spanish speaking family and friends, or maybe your multilingual and your primary language is Spanish. That is it getricheducation.com/espanolricheducation.com/espanol or a shorter way to get to the same pageis getricheducation.com/espricheducation.com/esp, that's getricheducation.com/esp.richeducation.com/esp. This week's guest is one of the first people I ever heard discussing the blockchain and cryptocurrency 15 years ago, and then he was early on AI. What got my attention is his education about a promising construction material for building new real estate, though, I expect that our discussion will delve outside of real estate today as well. Let's meet the incomparable George Gilder. This week's guest is the co founder at the Discovery Institute, discovery.org original pillar of supply side economics, former speechwriter to both Presidents Reagan and Nixon. And he's the author of the classic book on economics called Wealth and Poverty. Today he's at the forefront of technological breakthroughs. He's a Harvard grad. He wears a lot of stripes. I've only mentioned a few. Hey, welcome to GRE George Gilder.

George Gilder 15:09

right there better here.

Keith Weinhold 15:11

It's so good to host you, George, in both your writings and your influences on people like President Reagan, you champion supply side economics. And I think of supply side economics as things like lower taxes, less regulation and free trade. We had someone in the Reagan administration here with us a few months ago, David Stockman. He championed a lot of those same things. But go ahead and tell us more about supply side economics and what that means and how that's put into practice.

George Gilder 15:43

Well, it really begins with human creativity in the image of your Creator, essence of supply side economics now super abundant. I mean supply side economics triumphs. We had the whole information technology revolution ignited during the Reagan years and now dominates the world economy and gives the United States seven out of the top 10 companies in market cap. 70% of global corporate market cap is American companies because of supply side economics amazing, and that's why it's distressing to see supply side economics, with its promise of super abundance and prosperity and opportunity, Give way to narrow nationalistic calculations and four tenths of war. I mean, all these Jews are at the forefront. Today, in time, we're going to see human creativity once again prevail in my books, Life After Capitalism is my latest book, my new paradigm is graphene. Graphene is a single layer of carbon atoms, two dimensional layer of carbon atoms that is 200 times stronger than steel, 1000 times more conductive than copper. It switches and the terahertz trillions of times a second, rather than the billions of times a second that our current silicon chips which and you mix it with concrete, the concrete comes 35% stronger, just parts per million of graphene mixed with concrete yields some material that's 35% stronger than ordinary concrete. You mix a parts per million of graphene with asphalt, the roads don't get potholes in the winter. It's radically Abate, but it conducts signals so accurately. If you go on YouTube, you can find a mouse and said it's spinal cord severed completely, injected with graphene, the spinal signals transmitted so accurately that the you see the mouse doing cartwheels by the end of the YouTube measure. I mean, it's material that's going to transform all industries, from real estate to medicine to surgery to electronics. Electronics been kind of the spearhead of our economy, of the transformation and electronics may be more significant than any other domain.

Keith Weinhold 18:49

Well, this is a terrific overview of all the contributions you're making to both the economic world and the technology world with what you told us about right there. And I do want to ask you some more about the graphene and the technology later. But you know, if we bring it back to the economics, it was in your classic book, Wealth and Poverty, which sold over a million copies, where you espouse a lot of the same things that you still espouse today in your more recent books, that is, capitalism begins with giving, we can often think of it that way. As a real estate investor is where we need to give tenants a clean, safe, affordable, functional property before we profit. Capitalism begins with giving.

George Gilder 19:32

Absolutely. That's a crucial debate I had with Ayn Rand The Fountainhead and Atlas Shrugged and I say, capitalism is subsist on altruism. I'm concerned for the interests of others, imaginative anticipation of the needs of others. It's an altruistic, generous system, and from that generosity. Stems the amazing manifestations of super abundance that which I've been writing about recently. And super abundance shows, measured by time prices, how many hours a typical worker has to spend to earn the goods and services that sustain its life. Yeah, that's where the real cost has time. Yeah, time is money. Money is time, tokenized time, and measured by time, economic growth has been 50 to just enormously faster than is estimated by any of the GDP numbers. However, measured by time government services or ordinary GDP assumes that every dollar of government spending is worth what it costs. Prices both show that progress in the private sector has been four or five times faster than is estimated by GDP well government time, price of government dominated goods, including, increasingly, healthcare and education, is way less valuable than the cost. It's value subtracted, and certainly trillions of dollars for windmills and solar panels, trillions of dollars of subsidies is a net subtraction of value in the world economy. So I am with Gale Pooley and Tupy, both who wrote a book called Superabundance that I wrote the introduction to, and William Nordhaus, the Nobel laureate from Yale, who really conceived and developed time prices and showed that economic growth is 1000s of times greater than has been estimated by ordinary economic data. This is a time of abundance. It's not a time of scarcity. It's not a time of the dismal science. It's the time of super abundance.

Keith Weinhold 22:17

Yes, 100% a lot of that is just the government getting out of the way and really let people be givers, be that go giver and lead with giving, because I have never heard of a society that's taxed its way to prosperity.

George Gilder 22:34

Yeah. Well, that's absolutely the case. And I've been talking previously about graphene, which is the great new material that has been discovered of the last a couple decades. It originated, a lot of the science originated in Jim Tour's laboratory. James Tour of Rice University, and he's had scores of companies have emerged from his laboratory, and 18 of them got started in Israel. Israel is really become a leading force in the world economy. And when Israel is in jeopardy, our economy is in jeopardy. We have 100,000 Israeli citizens working in companies in Silicon Valley, 100,000 all the leading American tech companies have outposts in Israel, and now we face what I call the Israel test, which is how you respond to people who are really superior in creativity and accomplishment and intellect, and the appropriate thing to do is emulate them and learn from them. But too many people in the world see success and they want to tear it down, or they think it was stolen from someone else, or it was part of a zero sum game where the riches of one person necessarily come at the expense of someone else, which is the opposite of the truth, the riches proliferate opportunities for others. That's how the economy grows through the creativity and the image of your Creator.

Keith Weinhold 24:25

And when you bring up Israel, they're one of many nations that's made strong contributions to society and the economy, and we think about other nations that's been an increasingly relevant conversation these past few years, a lot of that centers on immigration. I'm not an expert on how many people we should let into this country or any of those sort of policy sorts of things, but here is a real estate investing show. I often think about where and how we're going to house all these immigrants, whether they come from Central America or South America or Israel or. Anywhere else. And I know oftentimes you've touted immigrations economic benefits, so I think it's pretty easy for one to see how in the short term, immigrants could be of economic detriment, but tell us more about those long term economic benefits of immigrants coming to the United States.

George Gilder 25:17

Immigrants come to the United States and become Americans and contribute American opportunity and wealth. We won the second world war because of immigration of Jewish scientists from Europe to the United States, who led by people like John von Neumann and Oppenheimer who forged the Manhattan Project, and that's really how we won the Second World War, was by accepting brilliant immigrants who wanted to serve America. Now there is a threat today where immigrants come to the United States not to contribute to the United States, but to exploit the United States, or even destroy it, not to go givers. They are givers, and so we want immigrants who are inclined to commit to America and create opportunities for the world, but immigrants who want to tear down America and who believe that America owes them something tend to be less productive and less valuable immigrants and immigrants who really want to destroy western civilization, and the jihadists that we know about are actually a threat to America. So the immigration problem isn't simple, but when we had a system where legal immigrants could apply and enter our country and revitalize it, that was a wonderful system, but having boards of illegal immigrants just pour over the border is not an intelligent way to deal with the desire of people around the world to share an American prosperity.

Keith Weinhold 27:13

We've seen several cases in the past year or two where immigrants are given free housing. There are really great case studies about this in Massachusetts and some other places, how they're giving housing before oftentimes, our own Americans, including sometimes retired veterans, are provided with housing. This all comes down to the housing crunch and already having a low housing supply. So what are some more your thoughts about just how much of a layup or a handout should we give new immigrants?

George Gilder 27:42

Housing technology is going to be transformed by the material science revolution that is epitomized by graphene, this miracle material I was describing. I think part of the problem is real estate enterprise is over regulated, and there are too many obstacles to the building of innovative new forms of housing. In 20 years, it'll be hard to recognize many of the structures that emerge as a result of real revolution in material science that is epitomized by this graphene age that I've been describing, and that also will transform electronics as well, and part housing can become a kind of computer platform as Elon Musk is transforming the auto business by seeing Tesla is really a new form of computer platform. I believe there's going to be an Elon Musk of real estate who is going to re envisage housing as a new form of building a computer platform that makes intelligent houses of the future that will be both cheaper and more commodious for human life.

Keith Weinhold 29:12

Real estate is rather old and slow moving when we think about technology in real estate, maybe what comes to mind are smart thermostats, smart doorbells, or 3d printed homes. When we come back, we're going to learn more about graphene and what it can do in real estate in the nanocosm revolution. Our guest is George Gilder. We talked about economics. We're coming back to talk about technology. I'm your host. Keith Weinhold.

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 less. Ridge 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. 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.

Dolf Deroos 31:19

This is the king of commercial real estate. Dolph de Roos, listen to get rich education with Keith Weinhold, and don't quit your Daydream.

Keith Weinhold 31:32

Welcome back to Get Rich Education. We're joined by an illustrious, legendary guest, George Gilder, among being other things, including a prolific writer. He's also the former speechwriter to presidents Reagan and Nixon. He's got a really illustrious and influential career. George, you've been talking about graphene, something that I don't think our audience is very familiar with, and I'm not either. Tell us about graphene promise in real estate.

George Gilder 31:59

Well, back in Manchester, England, in 2004 graphene was first discovered and formulated. It actually was submerged before then, but the Nobel Prizes were awarded to Geim and Novoselov in2010. So this is a new material that all of us know when we use a lead pencil, a lead is graphite, and graphene is a single layer of graphite. And it turns out, many people imagined if you had a single layer of graphite, it would just break up. It would not be useful.

Keith Weinhold 32:42

We're talking super thin, like an atom.

George Gilder 32:45

Yeah, it's an atom thick, but still, it turns out that it has miraculous properties, that it's 200 times stronger than steel. If you put it in a trampoline, you couldn't see the trampoline, but you could bounce on it without go following through it. It can stop bullets. It means you can have invisible and almost impalpable bulletproof vests, and you mix it with concrete, and the concrete is becomes 35% stronger, even parts per million of graphene can transform the tensile strength of concrete, greatly reduce the amount you need, and enable all sorts of new architectural shapes and capabilities. We really are in the beginning of a new technological age, and all depressionary talk you hear is really going to be eclipsed over coming decades by the emergence of whole an array of new technologies, graphene, for instance, as a perfect film on wafer of silicon carbide and enable what's called terahertz electronics, which is trillions of cycles a second like light rather than billions of cycles a second like or Nvidia or L silicon chips, and it really obviates chips, because you what it allows is what's called wafer scale integration of electronics, and today, it the semiconductor industry, and I've written 10 books on semiconductors over the years, but the semiconductor industry functions by 12 inch wafers that get inscribed with all sorts of complex patterns that are a billionth of a meter in diameter. These big wafers and then the way. First get cut up into 1000s of little pieces that each one gets encapsulated in plastic packages and by some remote Asian islands, and then get implanted on printed circuit boards that arrayed in giant data centers that now can on track to consume half the world's energy over the next 20 years, and these new and all this technology is ultimately going to be displaced by wafer scale integration on The wafer itself. You can have a whole data center on a 12 inch wafer with no chips. It's on the wafer itself. And this has been recently announced in a paper from Georgia Tech by a great scientist named Walter de Heere. And it's thrilling revolution that that render as much as Silicon Valley obsolescent and opens up just huge opportunities in in construction and real estate and architecture and medicine and virtually across the range of contemporary industry.

Keith Weinhold 36:20

You wrote a book about blockchain and how we're moving into the post Google world is what you've called it. So is this graphene technology that you're discussing with us here? Is that part of the next thing, which you're calling the nanocosm revolution?

George Gilder 36:36

The microcosm was an earlier book the quantum revolution and economics and technology. I thought I wrote years ago called microcosm.

Keith Weinhold 36:46

Okay, we're getting smaller than microcosm now in nanocosm.

36:49

that was microns, that was millionths of a meter dimensions of the transistors and devices and silicon chips, the nanocosm is a billionth of the meter. It's 1000 times smaller the features and electronics of the future, and we're moving from the microcosm into the nanocosm. New materials like graphene epitomize this transformation. You know, people think that these giant data centers all around the world, which are amazing structures, but half the energy in these data centers are devoted to removing the heat rather than fueling the computation. And I believe these data centers are represent a kind of IBM mainframe of the current era. When I was coming up, people imagined that a few 100 IBM mainframe computers, each weighing about a ton, would satisfy all the world's needs for computation, and that new artificial minds could be created with these new IBM mainframes. And it's the same thing today, only we're talking about data centers, and I believe that the coming era will allow data centers in your pocket and based on graphene electronics, and wait for scale integration, a whole new paradigm that will make the current data centers look like obsolete, old structures that need to be revitalized.

Keith Weinhold 38:37

Around 2007 Americans and much of the world, they got used to how it feels to have the power of a computer in their pocket with devices like the iPhone. How would it change one's everyday life to have effectively a data center in their pocket?

38:54

This means that we no longer would be governments of a few giant companies hearing a singular model of intelligence. That's what's currently envisaged, that Google Brain or Facebook or these giant data setters would sum up all human intelligence and in a particular definition, but there are now 8 billion human beings on earth, and each of our minds is as densely connected as the entire global internet. And while the global Internet consumes error watts, trillions of watts of power, or brains. Each of these 8 billion human minds functions on 12 to 14 watts, or it's billions of times less than these data center systems. On the internet. I believe that technology works to the extent that it expands human capabilities, not to the extent that it displaces human capabilities. The emergence of distributed databases in all our pockets, distributed knowledge and distributed creativity can revitalize the whole world economy and open new horizons that are hard to imagine today, as long as we don't, all of a sudden decide that we live in a material universe where everything is scarce and successes by one person come at the expense of somebody else, as long as that zero sum model doesn't prevail, right? Human opportunities are really unlimited. Most of economics has been based on a false model of scarcity, the only thing that's really scarce is time. Imagination and creativity are really infinite.

Keith Weinhold 41:10

Yes, well, if someone wants to learn more about graphene in the nanocosm revolution, how can you help them? What should they do?

41:18

They can read my newsletters. I have a company with four newsletters. I write the Gilder Technology Report. Much of the time I write, John Schroeder writes moonshots, which is and I have a Gilder Private Reserve that reaches out with our crowd and Israel, and a lot of those graph gene companies in Israel are part of our Private Reserve. And I do Gilders Guide posts, and those are all available getgilder.com.

Keith Weinhold 41:56

if you'd like to learn more about George and his popular newsletter called the Gilder Technology Report. You can learn more about that at get gilder.com George, it's been an enlightening conversation about economics and where society is moving next. Thanks so much for coming on to the show.

George Gilder 42:16

Thank you, Keith. I really appreciate it.

Keith Weinhold 42:24

yeah, a forward looking discussion with the great George Gilder. Forbes said graphene may be the next multi trillion dollar material. George will tell you that you want to get into graphene now, while the biggest gains are still ahead. If it interests you in at least learning more, check out his video resource. It's free. There's also an opportunity for you to be an investor. You can do all of that and more at getgilder.com again getguilder.com until next week. I'm your host. Keith Weinhold. Don't Quit Your Daydream.

43:04

Keith Weinhold 43:32

The preceding program was brought to you by your home for wealth building. GetRichEducation.com

Direct download: GREepisode517_.mp3
Category:general -- posted at: 4:00am EDT

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:

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515: Unpacking the Myths: How Rent Control Affects Housing Quality and Availability

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.

Direct download: GREepisode516_.mp3
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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.
Bathtub in your kitchen, anyone? Yes, you read that correctly. In some cases maintenance has been deferred for so long that units have not been updated to code.

Learn about the history of rent control and stabilization laws in New York.

Resources mentioned:

Show Notes:

GetRichEducation.com/515

You can follow Jen on Instagram @jen_sidorova or check out her writing at reason.org

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GRE Investment Coach, start here:

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514: Zoning Out: How to Combat the Housing Crisis and Build Wealth

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.

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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

Keith Weinhold 42:21

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Direct download: GREepisode515_.mp3
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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:

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GetRichEducation.com/514

You can follow Nolan on X @mnolangray

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513: Finding Hidden Opportunities in Beaten-Down Commercial Real Estate with Dolf de Roos

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.

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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.

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512: Rent Control is a Bad Plan, Own Land in a New Micronation with Liberland President Vit Jedlicka

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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.

Direct download: GREepisode513_b.mp3
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Mon, 29 July 2024

Wealthy business owners and landlords are vilified. Yet, wealthy actors, athletes, and singers are praised.

This makes zero sense.

Businesses and landlords provide essential services; entertainers don’t.

The White House recently published a “rent control light” plan. It’s a bad idea and has almost zero chance of passing a divided Congress. I critique it.

Hear my in-person sit-down interview the Liberland President, Vit Jedlicka. Liberland is a micronation in Eastern Europe, between Serbia and Croatia.

It calls itself: “The freest sovereign state in the world, powered by the blockchain.”

Learn about Liberland’s: reason for existing, population, infrastructure, real estate, currency, geography, language, culture, problems, and more. You can purchase merits and become a citizen at Liberland.org.

Resources mentioned:

Learn more about the freest nation in the world, Liberland:

Liberland.org

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GRE Investment Coach, start here:

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RidgeLendingGroup.com or call 855-74-RIDGE

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511: Freedom, Liberty, and Real Estate Investing

Complete episode transcript:

Keith Weinhold 00:00:01 Welcome to GRE. I'm your host, Keith Weinhold. Why do people vilify wealthy business owners and landlords but praise wealthy actors and athletes? Rent control plans must be killed where the real opportunity is in today's real estate market. Then my in-person sit down interview with the president of the micro nation of Levelland today and get rich education.

Robert Syslo 00:00:27 Since 2014, the powerful Get Rich education podcast has created more passive income for people than nearly any other show in the world. This show teaches you how to earn strong returns from passive real estate, investing in the best markets without losing your time being a flipper or landlord. Show host Keith Reinhold writes for both Forbes and Rich Dad Advisors, and delivers a new show every week. Since 2014, there's been millions of listeners downloads and 188 world nations. He has A-list show guests include top selling personal finance author Robert Kiyosaki. Get Rich education can be heard on every podcast platform, plus has had its own dedicated Apple and Android listener. Phone apps build wealth on the go with the get Rich education podcast.

Robert Syslo 00:01:05 Sign up now for the get Rich education podcast or visit get Rich education.com.

Corey Coates 00:01:13 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 00:01:29 Welcome to Greece. From Dubrovnik, Croatia, to Dublin, Ohio, and across 188 nations worldwide. I'm Keith Weinhold than you are inside episode 512 of get Rich education. You can set up your life so that you stop using your time to make money. Use the bank's money to make money. People come from scarcity families, just like I did with a scarcity mindset to think all debt is bad. Hang off debt won't make you wealthy. You don't build wealth. So by the time you reach age 62, you think, hey, I just paid off my last debt and now I can retire. It doesn't work that way. Well, why couldn't you retire sooner? Sheesh. So what do people mistakenly do? They end up working their whole life for people that have debt. Successful business owners and real estate investors carry debt.

Keith Weinhold 00:02:29 That's how they can own so much productivity and so many assets. And you know what's interesting here? Business owners and real estate moguls, they're the ones that often seem to be vilified, criticized, ridiculed for obtaining wealth when they took risks, took out loans and provided jobs or housing for others, yet Yet at the same time, somehow actors, athletes and singers are all praised for obtaining wealth as a performing artist. That makes zero sense. Why would you criticize a successful business owner like Amazon founder Jeff Bezos? Bezos probably made your life distinctly better by offering you convenient shopping for anything. Protein bars with a few clicks, free shipping, and pioneering drone delivery. A landlord is often vilified. Most landlords are mom and pop types that aren't even that wealthy. But even if they were, as long as they're not a slumlord, I mean, they took on risk debt, operating expenses, and being on call 24 over seven in order to provide others with housing. So with Bezos types and landlords, we're talking about taking risk to provide society with essentials like food and housing.

Keith Weinhold 00:03:58 And while the business owners get vilified baselessly performing artists like actors, athletes and singers do not. Yet they merely provide entertainment to society. Now I like entertainment and I follow sports to the NFL. Major League Baseball, the NBA. But their services are not essential. Take a movie actor. They get paid well for pretending to be somebody else. Consider how absurd that sounds. And yet they're praised for obtaining wealth from doing that. So this is really backwards. And, you know, I think that a lot of this resentment for business owners is that you can't really see what they do for you. Like, you can a performer that's on the front stage, like Beyonce or Lizzo or Taylor Swift, Business owners, real estate investors, they're on the back stage. And what an entertainer does front stage that is highly visible. I mean, that's my best guess about why this is. And a lot of the time it just comes back to these primordial human emotions like resentment and jealousy and envy. There is no reason to criticize the rich just solely for being wealthy Because deep down, it's all where we want to be.

Keith Weinhold 00:05:21 Anyway, how is Bezos bad and Lizzo good? I don't get it, but it's been that way for a while now. When you look at surveys of institutions that are most trusted over time, and it's been pretty much the same these past few decades, what's at the top of the polls are small businesses. People say that they're trusting of small businesses in your rental property. Business surely counts here. Small businesses trusted more than institutions like the media or politicians. So I encourage you on social media and wherever else to support small businesses. And it's kind of funny how friends they often might not put a like on your small business, though they say that they trust them and that they resent large businesses, you know? Then that friend turns right around and supports Apple, Coca-Cola, and Starbucks. people say they trust small business, but so often then they go patronize large businesses. Nothing wrong with patronizing large businesses, but you're just not doing what you're saying. So my point is, don't resent anyone just for financial success and consider outwardly supporting small businesses.

Keith Weinhold 00:06:40 If you indeed put a lot of trust in them yourself, just like much of America says that they do. Now, is there a movement afoot to disenfranchise big wealthy business owners or big landlords. I mean, we're talking about these very people that are resented. Well, one way is with rent control, that is capping the amount of rent that landlords can charge. Now, since Covid hit in March of 2020. Apartment rents are up 18% and single family rents are up 25%. Okay. Those are cumulative figures over this four plus year stretch. And that's actually not that much. It's about 5% a year. And now sure, political news has been like galactic big this month with the Trump shooting and the Biden drop out and the Kamala Harris endorsement as a Democratic frontrunner. And we rarely talk politics here for a few reasons. Number one, it's divisive. People lose their minds. Secondly, speculation is cheap. So much of politics is speculating on what might happen in the future. Well, there's one known here.

Keith Weinhold 00:08:01 Whether you like it or not, expect six more months of President Biden. And thirdly, politics is overblown. Its importance is inflated. A president rarely changes your life. But the good news in this is that you can your autonomy, your freedom, your decisions. You can change your life. So to put the politics aside, let's stick to a one issue subject. The white House revealed published what I call a rent control lite plan earlier this month. And to give some credit first, this the same plan it also repurposes publicly and to build more affordable housing. I sent you a link to the whole thing in our newsletter last week. Well, this rent control lite thing has almost zero chance of becoming law. VP Kamala Harris endorsed it on ex. President Trump would kill it even if it's revived under the next president. It has no realistic shot of passing a divided Congress. But let's look at this anyway. What was proposed is that if a property owner increases rent more than 5% annually, it would reduce tax incentives for large landlords.

Keith Weinhold 00:09:23 I'll tell you what large landlords are in a moment. Now, you could still increase rent by more than 5%. It would just reduce the federal tax breaks and it would have lasted for only two years. And the reason the white House put this proposal together for just two years is as a bridge to a time when more homes are expected to be built. I mean, that's the real intent here. And importantly, this all would have only applied to owners of 50 plus units. So that's mostly for apartment owners. Single family rental owners would be largely untouched, but consider how apartment owners could have lost their accelerated depreciation benefit, also known as their cost segregation. And note that I'm already talking about this rent control light proposal in the past tense, not the present tense, because this whole thing, it's just a bunch of virtue signaling to try to show that something is being done to rein in housing inflation. Well, this is really odd and awkward since the inflation came from the government in the first place.

Keith Weinhold 00:10:30 I mean, sheesh, this is like shooting someone in the foot and then trying to get praise for bandaging the victim that you just shot. Well, the federal government, they just don't do rent control on this level at all. They haven't. In fact, the feds haven't regulated rents on private buildings since World War two. So this really isn't a thing, but it just brings to light that rent control is a bad idea. It puts a cap on risk. Time after time after time. History shows us that it makes developers stop building. Now, the white House plan did have a carve out for new builds. Also, what this does is that landlords have no incentive to improve property. That's why it reduces housing supply, which is already low, and it creates long term dilapidated living conditions, like I touched on here just a couple episodes ago. But how weird to even make such an ill advised proposal. I mean, look, if government puts a price cap of $2 on a gallon of milk, then dairies will stop producing milk.

Keith Weinhold 00:11:41 Milk shelves are going to be empty. It's like in communist countries. This is why you saw photos of bread lines. When there are price controls, then manufacturers don't produce. And just the same, landlords would stop providing housing. If I didn't put a fine enough point on this yet. President Obama's top economist, Jason Furman. He probably said it best in the Washington Post. Furman says, quote, rent control has been about as disgraced as any economic policy in the toolkit. The idea that we'd be reviving and expanding it will ultimately make our housing supply problems worse, not better. End quote from President Obama's top economist 94% of economists agreed that rent control reduces quality and quantity of housing available. It is the most effective way to destroy a city. Aside from bombing it, what an ill conceived plan to regulate rents. That's rent control, but the most dangerous drinking game of 2024 that is still sipping at every mention of the interest rate lock in effect on a real estate or economics podcast. Though it's been two plus years since they made their dramatic rise.

Keith Weinhold 00:13:05 Many are still transfixed on mortgage rates. They recently hit a five month low below 7%, and a lot of people still expect mortgage rates to fall between today and next year, since inflation has now plunged from a high of 9.1% two years ago, down to 3% now, the Federal Reserve has held rates steady for more than a year now, and most don't expect any change either when they meet in two days. But be ready. Be prepared when mortgage rates fall substantially. Millions more buyers will qualify to buy a home, and this could substantially stoke housing demand and lift housing prices further. Now last week on the show, you heard gray investment coach narration. I discuss Libre land libre, land libre land. Earlier this month, I visited the exhibit hall at an event called FreedomFest. I saw the library and booth and I recognized their name, and I congratulated the people there in the booth. On that, the fact that I have heard of Liberland before, that's somewhat of a compliment to them. It shows me that they're doing something right, liberal, and is a small piece of land between Serbia and Croatia in Eastern Europe, and it apparently hasn't been claimed by any other nation for decades.

Keith Weinhold 00:14:32 The name Liberland, and I think it's easy to remember because it sounds like liberty. So that's how you pronounce it. Well, I got to talking to some of their representatives at the exhibit hall. They're all smart people, but there was no one person that had all the answers I was looking for. So I requested to speak with the president of Liberland. And about two hours later we made that happen. So today, shortly you will hear Liberland President Vit Jedlicka and I together. Now, the United Nations doesn't yet recognize Libya and all. Ask the president if other nations recognize it. Wikipedia calls liberal and a micro nation. It is seven square kilometers. That's almost three square miles. It's mostly forested. I don't believe there are any mountains there that I can see in the photos. It has Danube river frontage and just a few people there. The Danube river frontage is key because it contains an island that belongs to Leon, and also the Danube is key because it also connects to the Black Sea.

Keith Weinhold 00:15:40 And we'll see if it can be a tax free haven, which is apparently the intent. You might be able to see this working when you compare it to micro nations like Monaco and Liechtenstein. Some journalists have been skeptical about libre land. You'll see how I approach it with the president shortly. He champions laissez faire capitalism. Laissez faire means a minimal government. They're also making the new nation's laws transparent on the blockchain and an economy based on cryptocurrency. As for liberalized population, by March of this year, liberalism had 1200 registered citizens who had paid up to $10,000 for labor and passports, but fewer actually living in the nation now, working on it and building it. Neighbouring Croatia has at times been hostile and blocked off access to libre land. These past few years, you will hear some background noise in President Witte and his upcoming interview. So I ask for your attention and patience there and for all. We are in an exhibit hall at a conference. I'll just call him whit in the interview. And what does his day to day look like? He travels globally a lot, often trying to get into international diplomatic and friendship agreements.

Keith Weinhold 00:17:01 But how do you just adopt statehood out of nothing? That's what's interesting here. Now, when he describes libre land to me, you can't see it here in the audio only. But he often points to Liberty Island, an island on the Danube river that's part of Liberty. And does having a free nation mean that you have the freedom to do whatever you want on your land, or they're soon going to be hos there? I'll ask him that very question, literally. President and I coming up here shortly. First, as for more, I suppose, a familiar land here in the US. You can't make any money from the rental property that you don't own. We are here to help get you started being profitable that way. And it's free. Get some of those. Real estate pays five ways properties. Then we have access to a good number of them here at great a good variety, different property types, different geographies. But at times I'm asked where is the real estate opportunity today in this real estate market, with higher prices, higher rents normalize interest rates, higher operating expenses and low housing supply? Really the opportunity is in affordable housing.

Keith Weinhold 00:18:25 If I could just put two words to it. That's the short answer of affordable housing. Like I often say, provide housing that's clean, safe, affordable and functional in today's market really emphasizes the affordable. That's where the sustainable demand is. Since so many want to be first time homebuyers are priced out of the market currently, it's like a dam that's waiting to break once interest rates go lower compared to a year ago, America has a lower proportion of homeowners and more renters, and the renter numbers just look to keep increasing due to that low affordability. And also this surge of immigrants from the past year or so. That is why you want to own affordable rental housing now. Affordable housing really that can mean a few things in a physical form. That could mean mobile home parks, single family homes, duplexes to fourplex or larger apartment buildings, but in any case, an income producing asset. Do you know what that does for you? That's like an employee that's working for you 24 over seven and without the personality problems, and they never call in sick.

Keith Weinhold 00:19:40 And when you're looking for a property, it's easier to screen properties that it is higher in screen employees. We can help set up an entire real estate investment plan for you with properties like a couple properties. I'll detail for you here shortly. And I also sent you these property details in the second section of last week's newsletter. You also got to see a photo of one of them. And by the way, you can get our wealth building newsletter by texting GR 266866. Just do it right now. What's on your mind for our free? Don't quit your daydream letter. Text GR 266866. And what's been in our newsletter lately? I showed you exactly where I think home prices are going to go by the year 2028. I loved writing about that and researching that for you in the Don't quit Your Daydream letter. Also, in recent letters, you got need to know details about our banks in real trouble now. The Wolf of Airbnb sentenced to prison y new homes will keep getting smaller. Why you can't blame investors for pricier housing.

Keith Weinhold 00:20:54 Why prioritizing property is a huge mistake, and the ten cities where you will regret buying property. And if those stories don't interest you, if getting the first crack at profitable income property does not interest you, then you won't want to subscribe. But if it sounds like those details interest you again, you can get the don't quit your day dream letter by texting gray to 266866 available properties we've had at Gray Marketplace lately that our investment coach can help me with are these two brand new single family homes that make great rentals. The first one is in Prairie Grove, Arkansas. These are the places where the numbers work, and Arkansas has been named the most landlord friendly of all 50 states. It is four bed, two bath purchase price of 288 K and a rent of $2,200. Good numbers for a new build there. It's 1500 and 50ft². The second property, also a new build, is in Pinson, Alabama that's just northeast of Birmingham. And this single family rental is three bed, two bath. The purchase price is 303 K, the rent is $2,000, it's 1400 and eight square feet.

Keith Weinhold 00:22:14 And that rent to price ratio that's not as good as the first one in Arkansas. But of course, Alabama's got those ultra low property tax rates that you get to pay. Yet you can own it and reside in any state or nation. We can help set up an entire real estate investment plan for you, whether it's with properties like these or others, with our investment coaching and it is free for you. Yes, it is just this free as sun, fresh air and hugs. If you think you're ready to buy some real estate pays five ways property. Book a time to chat at Gray marketplace.com/coach to help connect you with a marketplace of income properties. That's grey marketplace.com/coach liberal and president what you'd like and I straight ahead 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.

Keith Weinhold 00:23:32 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. 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 K. 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.

Robert Helms 00:24:54 Everybody it's Robert Elms with the Real Estate Guys radio program.

Robert Helms 00:24:57 So glad you found Keith wine old and get rich education. Don't quit your day dream.

Keith Weinhold 00:25:11 Hey. Welcome back to get rich action. We're talking with someone that's going to explain a different subject to us. We're talking about starting up and the potential new nation. I was the president of that nation called Libre, Leon, I was there. President Witt, welcome in. Good to meet you. It's so good to have you here. And, you know, interestingly, we met at an event called Freedom Fest. So this is potentially so parallel with that as you're looking to develop your own nation now at a place like Freedom Fest, I think we have a lot of people that have a certain set of opinions, and a lot of people at a place like Freedom Fest, where you champion ideals, would probably love to tell you how they would like changes to be made in the United States. But I think if you ask that same person, okay, what if you begin with a clean slate? How would you begin a nation anew, but you're actually trying to do that? So tell us about Libber Land.

Keith Weinhold 00:26:04 It's pretty.

Vit Jedlicka 00:26:05 Exciting to.

Robert Helms 00:26:06 Hear Kennedy.

Vit Jedlicka 00:26:07 The candidate for president, talking about his plans to utilize blockchain to make the country transparent and or functioning. Libra is, I would say, at least 5 to 10 years ahead of any other nation states. And utilizing that, we are combining the best technology that is out there with the best ideas, ideology that is out there, which is, of course, libertarianism, making sure that the society as free as possible within some framework of basic rules. So this is exactly what we're doing. And we were looking for a piece of land to manifest that in physical world. And here we go. It's so liberal and it's a beautiful piece of land between Russia and Serbia that was not claimed by any other country for more than 35 years. We came there, we struggled with like we actually took nine years to even get inside of it properly. And now we're building and living there for more than a year.

Keith Weinhold 00:26:58 So this seven square kilometer plot of land between Croatia and Serbia, that is on the Danube floodplain, you've got frontage on the Danube river, even an island and the Danube river here in this Start-Up nation, if you will, of libre land.

Keith Weinhold 00:27:14 Really, as I've come to understand it, one real goal of liberalism is just to have any nation in the world recognize it as its own sovereign nation.

Vit Jedlicka 00:27:25 We actually got a couple countries to write or sign a regular deals, like with other states. We started with Somaliland, which was at the time unrecognized country. It's fully functional. Interesting story. It's actually former Peace of Somalia, which got independence like 25 years ago. And they're fairly finally prosperous and functioning, even without any recognition by any other country in the world. Now, they got recently recognized by Ethiopia. We followed up with Haiti agreement. We were signing a couple more agreements. Right now, I'm actually heading to one of the African countries to sign some friendship agreement. So it's not that the other countries don't recognize us now. We're working hard on diplomacy. You know, we have diplomatic relations with places like El Salvador, where we were on official diplomatic visits. So, of course, traditional form of recognition is one of our priorities.

Vit Jedlicka 00:28:13 But it's not the number one priority, really. Our number one priority is to finish a very close, a whole model of statehood and utilize the 745,000 people that applied for citizenship, for really real building of the country itself and the nation.

Keith Weinhold 00:28:31 Some recognition is coming slowly, but pulling back a bigger picture. Why do this? Why take this on? Why start your own nation?

Vit Jedlicka 00:28:39 Why not? I think leading by a good example is the best way to do things like talking about liberty. I did a lot of educational work on explaining people why liberty works, but it's much better to do things in the practical terms.

Keith Weinhold 00:28:53 Now, what's interesting is, you know, we've talked about freedom and the ideals of freedom earlier. This freedom mean freedom to do whatever you want.

Vit Jedlicka 00:29:03 You know, within some boundaries, of course, as long as you don't breach other people's freedoms and you have to find the right set up. And but right now, the problem with the current society is that there are so many regulations, you don't even know what you're reaching, and you're usually not reaching anybody's property or anybody.

Vit Jedlicka 00:29:20 It's just a bunch of stupid regulations that make your life tough. You cannot do business. You cannot even help your community. It's funny what kind of stuff we are dealing with in Croatia right now. There is a mosquito calamity in the neighborhood around Libre land and the local municipality don't have money to fix it. And they also don't let us to fix it because you have to have special license for fixing it. So everybody is suffering under the mosquito calamity, which is California.

Keith Weinhold 00:29:47 Okay, so that's an example of overregulation, potentially too many laws. You just brought up one of the limits of freedom, potentially. Well, we don't want people to be able to do anything or therefore they might be.

Vit Jedlicka 00:29:57 Able to hurt or to.

Keith Weinhold 00:29:58 Harm another person, but therefore that would be some sort of of law. And then there would be some need to sort of enforce that. So how does a start up country that wants to be a free nation, you know, how do you meet needs like laws and enforcement and perhaps a judicial process.

Vit Jedlicka 00:30:16 Or do you have a standard framework for the country? There is now a newly elected Congress. It's still a test election, but it has been already elected according to all the principles that the blockchain is bringing full transparency, immutability. It happens within the split of second of the very minimal cost. So all these things are actually already happening, and the Congress will now take all the laws that were prepared by the Preparatory Committee. And only if we have the whole framework of the laws necessary to run a state. I have 250 pages of regulations, very simple framework, which already allows a society to function quite well. And I would like to keep it that way. You know, keep the Constitution at the, let's say, the 20 pages and another 230 pages of different laws that define the the ways that the society should work. And anybody basically allowed to read all the regulations in the country within one day. It's not like here, right in the US.

Keith Weinhold 00:31:10 Yes. But its population grows, is the infrastructure grows, is more complicated, needs must be met.

Keith Weinhold 00:31:16 The size of government invariably and inevitably seems to expand with all existing nations in the world. I think the UN recognizes 193 sovereign nations currently. How do you keep the size of government from expanding over the long term in Libya?

Vit Jedlicka 00:31:32 It's a challenge. Of course, but the way we keep it is the way that there is only one institution that can make new laws, and it's kind of a corporate governance of liberalism. But that governance is in check by three other institutions that can get rid of the laws. The first and most important one is public veto. So majority of citizens can veto any law or regulations that they don't like. Second one is the Constitutional Court. So the Constitutional Court looks into the law if it basically is only focused on security and justice or diplomacy, so that the state shouldn't legislate on other things, really let other things to the private sector. So the Constitutional Court strictly looks if it adheres to that. That's another important institution. Then there is something like House of Lords of liberal minded, who can also veto the laws that the corporate governance the Congress actually creates.

Vit Jedlicka 00:32:23 So one institution to make laws and three institutions to get rid of it.

Keith Weinhold 00:32:28 Else about what's there now, the natural resources, the population and the infrastructure.

Vit Jedlicka 00:32:33 Well, that's the beautiful territory with the island next to liberal land. This is part of liberal land. It's called Liberty Island. It's a long, beautiful sandy beach. Right now, the under construction, there is 24, three houses in this area. So it will be one of the third thing will be the tourism. And we need to be able to host the visitors. We are planning two major music festivals and conferences in the summer, which will take place in August and in September. Of course, you're very well invited. We want to promote the tourism in Berlin, but also in the whole region. The biggest resorts. And it's like that with any country that is prosperous around the world. Be it Hong Kong or Singapore, is not the natural resources. It's the capacity of people to freely make, trade and do business.

Keith Weinhold 00:33:20 You're right.

Keith Weinhold 00:33:20 In fact, a place like yes, Hong Kong or Singapore or even Japan itself have been exemplary of that. A place can be prosperous without having many natural resources. It's truly about the ingenuity of the people we talk about. The people tell us more about the population.

Vit Jedlicka 00:33:35 The population. Right now we've got 800,000 people, almost that sign up for citizenship, which is a huge pipeline. I think the reasonable like ideal population of Liberal would be around 140,000. So we cannot even accept everybody to physically live in liberal land because we would be so overpopulated. Right now we've got some thousand citizens and 6500 residents that basically went through the pipeline, and there is a couple dozens of people living on the territory of liberal lands and working and building stuff. So it's kind of fun to see that initial development. very early into the development. There is still a quite a bit of obstacles to really speed up the development of the brand, mainly installed by Croatia, but we're very happy that after all these years we're able to actually be there physically and develop stuff.

Vit Jedlicka 00:34:23 So we're building a small hospital. There are seven construction workers that take care of it. We're also building the Treehouse resort. There is another ten guys working on that, and that there is a bunch of people that came to settle and they're helping with some stuff for the site. And then there is around 150 people that live around Liberal and that are connected and are supporting the movement. Well.

Keith Weinhold 00:34:44 Now we're a real estate platform. We're going to have both public land and privately.

Vit Jedlicka 00:34:50 Every land is private, in a sense. In labor land. The deal is that right now, people can actually come to the land and claim piece of land if they have enough merit. There is are the the shares of liberal land and can actually not even exchange them if they just have them. They have the right to settle things for fun, which is kind of exciting even though there are all these obstacles. But we're helping people to get over them and get the development of the country going as fast as possible.

Keith Weinhold 00:35:16 Can a person purchase merits or purchase land in labor land right now?

Vit Jedlicka 00:35:21 Anybody that donates to Libre land on the website gets the merits.

Keith Weinhold 00:35:26 Are there going to be things like Hoa's in Libre land? Is that something that you foresee? What is actually homeowners associations where you have neighborhoods and boards in those neighborhoods where you know they need to approve of things like, hey, you can only paint your home for different colors, and you need to mow your grass within every two weeks.

Vit Jedlicka 00:35:46 Well, that surely there will be different types of associations and liberal. We're not going to force one or the other type. This property development here on Liberty Island, the three houses and this area will be kind of association of sort. We want to have 24 people that that invest into the tree house, and they would act as a community. They will help each other, but they will also have the place to visitors. To really make sure that we have a good initial settlement for the permanent population. And I would like every single one of these guys to like some nice story behind how they came to live and then why they're building a house there. We want to make a reality TV show out of it as soon as possible as well.

Keith Weinhold 00:36:28 What about currency? The euro is used in the area. But you mentioned blockchain earlier, and I don't think you plan on using the euro in liberally. Tell us about that. We don't do.

Vit Jedlicka 00:36:38 That. We use liberal and dolar. We use liberal and merit. Those are the main currencies that are tied with our blockchain. And the pound dollar was launched on exchanges three months ago, reading quite nicely, steadily at 2 USD per $1 billion. So this is like also demanded currency by our suppliers.

Keith Weinhold 00:36:56 Is it a cryptocurrency? Yes.

Vit Jedlicka 00:36:58 It's just my own currency of our blockchain. Our blockchain is standalone. It's not depending on any other blockchain. Our citizens are the one ones that securely network and run the network. They run the servers. Every single citizen in Lebanon has the right to run the run the network. That's kind of all we know. We're not really being dependent on any other network like Ethereum or Polkadot. We are simply running our own thing with its own main token. The main token is liberal dollar, but the main political token is liberal and varied, and that also comes with the political voting rights.

Keith Weinhold 00:37:32 Do you foresee there being a future rental property market on libre land?

Vit Jedlicka 00:37:39 Oh, of course, of all these, all these three houses are meant to be for rental for bigger events or team building. So this is something that is happening right now, and I wish we could have at least, you know, 50 bedrooms there by the end of summer.

Keith Weinhold 00:37:54 You know, we talked about how society might work on liberally, and why don't we pull back a bit more and talk about that physical geography, because you chose an area that's basically on the Danube floodplain. So it's probably pretty fertile and it's near some other populated nations. But of course, there are some areas of the world that no one else is claiming. Tell us about how you chose this area over. All the others in the.

Vit Jedlicka 00:38:16 Area was in the most reasonable place, I would say, between the two countries that had war, and they learned to sort out things in a peaceful way. And, you know, Antarctica is also on claim, but you don't want to stay there.

Vit Jedlicka 00:38:27 It's for freezing, right? This particular place is heart shaped. It's seven square kilometers. It was a culturally similar environment to where I was born, so I was considering it as a perfect place to start. And you can fit.

Keith Weinhold 00:38:39 You can get all four seasons in Libre land. What else should one know about Libre land that they come approach you with questions about what do people really want to hear about?

Vit Jedlicka 00:38:50 They of course are interested in the sport. They want to see how what kind of utility does it have? They're a bunch of countries where you can use it to get in and out, which is kind of cool. But the main utility for Americans, for example, is that they use it on crypto exchanges, or they use it with different financial institutions as a second passport. If the US passport is not good for that, it's a great membership club, you know, in the country that is just being born. And and it's a great social gathering. Think about this. 35,000 Americans that sign up for citizenship as well.

Vit Jedlicka 00:39:22 We've got a small consulate in every bigger state, or at least a representative person. The branch, for example, here is representing liberals in Washington, D.C. so we've got a nice network of nice guys all around the place, and then a potential big supportive network with all of these people that sign up for citizenship.

Keith Weinhold 00:39:41 Now, how do you get the word out about libertarians so that people can get interested? Of course, we are an example of this right now, as our audience is learning about liberal land and the pros and cons of this concept of a potential condition. How do others learn about it?

Vit Jedlicka 00:39:55 There were articles written in Liberal, and I believe in more than 40,000 different medias actually, so we were pretty heavily covered in past. I believe more than 1 or 2 billion people learned about it through the media outreach, but the word is also spreading from person to person. Like people like it. They get on board their friends, their families. It's kind of exciting to see that.

Keith Weinhold 00:40:18 What about the language in the culture that you see developing here? Will it feel European just based on its geographic proximity? Is that what you foresee, or does it have more to do with where the inhabitants come from?

Vit Jedlicka 00:40:31 The English, of course, is number one language, but we are also developing liberal English out of all the mistakes that we make in English, that makes the language a little bit difficult to learn and understand.

Keith Weinhold 00:40:41 Americans have to learn English.

Vit Jedlicka 00:40:43 We've got a quite nice culture there, which is, of course mixture of the local Slavic culture with this international make sense nowadays, people, a lot of people from Scandinavia that are moving in. I think we've got a very good German group now coming. There is quite a few Americans that are being involved. It's quite difficult, for example, for Americans to stay liberal. And right now we have to improve our relationship with Croatia because Americans are being banned from actually, for some strange reason.

Keith Weinhold 00:41:15 Okay, still some antagonism with your neighbor Croatia. That's kind of.

Vit Jedlicka 00:41:20 The situation.

Keith Weinhold 00:41:20 In Croatia has created some access problems as well. Tell us about that.

Vit Jedlicka 00:41:25 Well, there's been solved. Last year we when we we we came in to liberalize with more than 60 people at the same time. So they had no means of preventing that access. And since that time actually have free entry in an hour of liberalized. We have a small border crossing there with the with the Croatian police and kind of agreement that we can pass in and out, which is nice.

Keith Weinhold 00:41:46 Try to keep things smooth with Croatia there on the one side of Liberal and here this new Start-Up nation. And we're talking with president Vit here of Liberal. And are there any last things that people need to know about liberalism before I ask how they can go to your website and learn more? Are there any just other last things I think we should know?

Vit Jedlicka 00:42:05 It's a great opportunity to visit now with these two festivals. Those are nice social gatherings. It's the floating metal festival in August. That's the way.

Keith Weinhold 00:42:14 Man. Like the Burning Man.

Vit Jedlicka 00:42:15 Yeah, about the float. That's floating, man. Because we're on Danube. And then there is the Liverpool Echo, which is a major international festival that has moved on this year, which is based on an article, a famous Mexican festival that will be a probably the biggest cultural event this year.

Keith Weinhold 00:42:33 Well, literally. And be a success if it is a net exporter rather than a net importer, because it's difficult to have sectors for everything from industry to agriculture in Beyblade.

Vit Jedlicka 00:42:46 Well, our biggest export is freedom. Ideas like it's like Chile spreading like wildfire. think about it. Like for two months we had the biggest immigration in the world. We go to the United States, where there was more people applying for citizenship of liberal. And then there were applicants for green cards in the United States. The idea itself, it's something that the time has come. There is amazing interest in building new countries, building free countries. And right now I can see that we are on the right track when people like Canada are pushing for transparency through blockchain, because we know what they are talking about. We have already done it and we are applying it in the real world.

Keith Weinhold 00:43:24 Well, it's an interesting experiment in this way. You, the listener of the viewer, you can follow it as an experiment, as an example of what to not do or what to do as live land develops. Why don't you let our audience know how they can learn more about it?

Vit Jedlicka 00:43:42 Fairly easy to apply for citizenship.

Vit Jedlicka 00:43:44 You can first become your resident and then come and help some different means. Or you just directly go for the citizenship. It's an investment of $10,000 or donation of $10,000. And you become a member of of our community with the passport and with the right contacts to the right people. That will really help you to get the best out of the community.

Keith Weinhold 00:44:04 Well, I don't have a great chat with a national president every day, but I sure did today. Thanks so much for your time. It's been interesting learning about liberalism. Thank you very much.

Vit Jedlicka 00:44:15 Made me think UK and I hope to see you a liberal one.

Keith Weinhold 00:44:17 Maybe you will. It sounds like a donation of ten K gets you a liberal and passport. Like I said earlier, as of March 1200 people had paid up to that amount for the passport. Music festivals and conferences in Libya. In the next few months, that could be a way to check it out. Now, it's certainly something I'd need to know more about before I could either endorse it or reject it.

Keith Weinhold 00:44:48 Citizenship in Libya planned to get more of the skeptic side. The criticism I would visit the Libyan Wikipedia page and get ready for some dismissal of its diplomatic recognition there. Then you can visit Libre Land Oregon, learn more about citizenship status, the passport actually helping with the construction of the territory and earning libre land merits, which is a cryptocurrency. If you find it interesting, it's a matter for you to do some deep due diligence on next week. The King of Commercial Real Estate will be here with us. Until then, host Keith Wendell. Don't quit your day, Adrian.

Speaker 6 00:45:31 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 yet Rich education LLC exclusively.

Keith Weinhold 00:45:59 The preceding program was brought to you by your home for wealth building. Get rich education.com.

Direct download: GREepisode512_.mp3
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Mon, 22 July 2024

Coming to you from FreedomFest in Las Vegas, I talk with Founder Mark Skousen. He’s been named one of the World’s Top 20 Living Economists.

Also, an event summary with GRE Investment Coach, Naresh.

Learn about the deleterious consequences of rent control. President Joe Biden supports it (somewhat).

If four tenants live in identical fourplex units, it actually makes sense for them to pay different rent amounts. I explain.

We can construct more housing by relaxing zoning requirements in the right way—reduce off-street parking requirements, increase ADUs, no rent control, reduce minimum lawn sizes.

There’s higher homelessness in L.A., San Francisco, and Austin than Houston. Houston has a lower-cost market, few zoning requirements, and less NIMBY mindset.

Politicians run on platforms like immigration, abortion, and inflation. But they don’t run on reducing the debt because they don’t see it as a problem that they created.

At FreedomFest, I attended a presidential debate between the current candidates of the Libertarian Party, Green Party, and Constitution Party. Most or all agreed that the Fed should be abolished.

The common theme at FreedomFest was: “Government, get out of the way.”

Resources mentioned:

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Complete episode transcript:

Keith Weinhold** ((00:00:01)) - - Welcome to GRE. I'm Keith Weinhold. I'm here at the world's largest gathering of free minds. It's a conference called Freedom Fest where I talk to the conference founder. He's been named one of the top 20 living economists in the world today, as well as a talk with one of our great investment coaches to learn what my conference takeaways are and more. Freedom, life, liberty and the pursuit of real estate and investing today. And get rich education.

Robert Syslo** ((00:00:36)) - - Since 2014, the powerful get Rich education podcast has created more passive income for people than nearly any other show in the world. This show teaches you how to earn strong returns from passive real estate, investing in the best markets without losing your time being a flipper or landlord. Show host Keith Weinhold writes for both Forbes and Rich Dad Advisors advisors and delivers a new show every week. Since 2014, there's been millions of listeners downloads and 188 world nations. He has A-list show guests include top selling personal finance author Robert Kiyosaki. Get Rich education can be heard on every podcast platform, plus has had its own dedicated Apple and Android listener.

Robert Syslo** ((00:01:10)) - - Phone apps build wealth on the go with the get Rich education podcast. Sign up now for the get Rich education podcast or visit get Rich education.com.

Corey Coates** ((00:01:21)) - - 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** ((00:01:37)) - - We're gonna go from Oswego, New York to Lake Oswego, Oregon, and across 188 nations worldwide. I'm Keith, while you are inside, get rich education. I'm attending a free office live and in person in Las Vegas today. One key economic freedom and what makes a free market free is that ability for producers and suppliers and landlords to set prices based on what the market will bear, whether that's a high price or a low price. Now, what's wrong with rent control, which is a law that puts a ceiling on the amount of rent that you're allowed to charge? Well, that sounds like a nice thing to do for one set of people in the short term. Well, rent control has the same effect as price controls on consumer goods.

Keith Weinhold** ((00:02:30)) - - If the government thinks that cars are becoming too expensive, and they set up a new law that says that you can't charge more than $20,000 if you want to sell a new car, well, then those manufacturers will stop producing cars and soon enough, you, the consumer, cannot buy a car. You'd no longer have an automobile market at all. And the consumer suffers under no choice and even austerity. Put price controls on beef jerky and companies will stop making beef jerky. Put price controls on rent called rent control, and landlords have zero incentive to provide property, no motivation to improve property. And there is a raft just reams of evidence and studies out there that show that rent control, that is a surefire way to then reduce the supply of functional housing, just like the supply of cars or beef jerky would get cut. That's especially not a good solution in today's real estate supply constrained world. And, you know, here's what's interesting. The government created the inflation in the first place. That led to the high price problem that they think they can cure through rent control.

Keith Weinhold** ((00:03:52)) - - I mean, government keeps trying to solve a problem that they created. Well, just take a new course, a new direction and stop the inflation. In that way, you'll cure the higher prices long term and then near term. What you can do is relax zoning requirements in order to create more housing. I mean, in three cases here, less government cures the problems, no inflation, no rent control, and thirdly, no stringent zoning. Knock down all three of those walls and instead, now what have you done? You've encouraged a bunch of builders to come into a market. You've encouraged competition. And what does competition do? It increases quality and it yeah, lowers prices. So cure the problem by knocking down the walls. You know, you as a landlord, I don't even think that there should be laws that say that you have got to charge every ten at the same rent amount. Yeah, and that is even if each one of your tenants has seemingly an identical unit, say, in a fourplex building.

Keith Weinhold** ((00:05:04)) - - Now I'm on different fourplex buildings and I have most everyone like throughout history, I've had just about every tenant paid different rent amounts in the same building, even though all of the units were built at the same time and had the same square footage. Now a real estate investing newcomer, you know, they might think that that sounds unfair, that these tenants with basically identical units paying different rent amounts. But we all know how it works in practice, in real life. I mean, one of those four tenants might have the front unit with the best views, while the tenant with the best view. Well, of course they're going to be willing to pay more for that unit. Well, that right there, that's free market supply and demand. The fourplex unit with the best view will rent out faster and for more. But instead of that arrangement, if it's mandated, say, by the government that everyone in the building must pay the same rent, say that each of the four units must pay exactly $2,000.

Keith Weinhold** ((00:06:07)) - - Oh, well, then the tenant with the worst view, which then has less benefit to living there, has to subsidize the tenant with the best view that already has the best benefit of living there, because they must all pay exactly $2,000. And then what about things like several months from now? Say you have a vacancy at Christmas. Well, it's hard to get a tenant to move at Christmas to get them in there. So you'll charge a low rent just to get someone in there then. Versus how you charge more now in summertime, because tenants demand units, a lot of them want to get settled in during the summer before the school year starts. What about a tenants living in your fourplex or rental single family home for five years, and their unit hasn't been painted or renovated in a while, and the tenant has seen you already. Well, they're probably going to pay less then a new tenant will in there say freshly painted unit. So my point is that even making every tenant of one individual fourplex building have to pay the same rent amount.

Keith Weinhold** ((00:07:10)) - - Well, that is a form of rent control and that is actually unfair if they all have to pay the same rent amount. The free market is what's fair and enables a system of rent price discovery, instead of being confined and oppressed under rent control. Now here, the Freedom Fest in Las Vegas and we'll discuss the conference more. Today I attended one panel discussion. It was called How the Government Created the Housing Crisis and what we can do to Fix it, And it really gave specific solutions to provide more housing. This includes things like stop mandating a minimum square area for parking spaces. Stop mandating such large lawns. Instead, people can share a public park and relax the requirements that have so many easements out of property. Well, all that stuff is zoning in its stifles development and it leads to higher housing prices. Now, I maintain that not all zoning is bad. I don't think that you want a housing development surrounded by factories with smokestacks. So it's about relaxing zoning in the right way and promoting the right policies, like the benefits of a yimby movement.

Keith Weinhold** ((00:08:27)) - - Yes, in my backyard. Removing off street parking mandates altogether and allowing more ADUs allow Single-Family homes on smaller lot sizes. And we've already seen some of that. We're seeing home builders do more of that. They're building single family homes closer together, smaller lot sizes. But a lot of the wrong strategies exist out there. And once people get the benefits, like the beneficiaries of these wrong strategies, I mean, they don't want to give them up. Like New York's rent stabilization program that gives rent breaks to wealthy New Yorkers that also have a pricey home out in the Hamptons. Well, that's not the right policy. That's not helping the people that need it most. And you know, when the wrong policies infiltrate a market, the reaction can be amazingly rapid. I mean, how rapid? Like, do you think you would see a construction project literally halt mid construction? Yeah. You actually can like construction cranes just stop swinging. In Saint Paul, Minnesota, you saw construction cranes stop mid-air mid construction.

Keith Weinhold** ((00:09:38)) - - When Saint Paul moved toward a rent control of no more than 3% annual rent increases. Well, that's a form of rent control. When that happens, building stops because the developer knows that people don't want to buy those units or invest in those units or rent those units. And I've got more to discuss on housing shortly, but let's bring in the very founder, host and producer of Freedom Fest here. He has been named as one of the top 20 living economists in the world. Doctor Mark Skosan and you will hear some background noise in these conference interviews. We are at a conference at times. We're in the exhibit hall now. Interestingly, here with Mark, I bring up with him how much I dislike these political labels that just divide the nation. I mean, don't you agree that it would be great if the nation were less divided? Yes, we all would. Well, we can do our part by avoiding saying words like red and blue and oh, you know, I can't stand those maps.

Keith Weinhold** ((00:10:44)) - - Then you see, I've mentioned this to you before. You see these maps in political season that show where the red states are and where the blue states are. I mean, how divisive and polarizing that is not unifying in the United States of America. The fact that this conference has a non divisive founder like Mark Skosan is what attracted me here. Sure enough, here you'll hear me tell him how much I appreciate this. This was prescient because the very next day after this interview that you're about to hear, that was the assassination attempt on former President Donald Trump. Hey, it's Keith Reinhold here. I'm at Freedom Fest with Freedom Fest host and founder Mark Scott. And thanks for having us here. Yeah. My pleasure, my pleasure. Thank you for coming. Well, I've got to tell you one reason that attracted me to this conference. I was concerned that it was going to be too politically partisan. And I respect you so much, because I know you have said that in most of all the books you've read, you've avoided these labels like liberal, conservative, left, right, red, blue, yes, progressive, conservative and all that.

Keith Weinhold** ((00:11:58)) - - So that's what I'd like hearing when we talk about this conference championing principles of freedom and liberty. What does an American really need to know about freedom and liberty that's under attack today?

Mark Skousen** ((00:12:09)) - - I think what we've tried to preach is the Adam Smith model, which you call the system of natural liberty. And what that meant was under the rule of law and justice and a robust competitive model. You've maximized the freedom of choice, freedom to choose your own work, your own business, how much salary you're going to charge or wages you're going to pay, whether you can hire or fire people. So within those rules, within those guidelines, you have maximum security. But in today's world, more and more everything, it's either being prohibited or mandated. So we're being squeezed from both sides. The idea of freedom of best to maximize freedom is for us to come together and find out what are the best solutions to improve our lives is the idea. So we talk philosophy, history, science and technology, healthy living, economics, politics.

Mark Skousen** ((00:13:05)) - - It's all part of the program here. But it's not just a political conference.

Keith Weinhold** ((00:13:08)) - - Part of this is lowering the guardrails and promoting free markets. The only thing that we've all seen happen in free markets is inflation, oftentimes ironically, created by some of those forces that put guardrails in place. So what does an investor there are a lot of investors here. Oh yeah. What does an investor need to know with regard to inflation today. How can the everyday person respond.

Mark Skousen** ((00:13:33)) - - So one thing is we have a whole section on financial freedom because without financial freedom you're limited in what you can do and your influence that you can have. So this is very important. We live in an era of permanent inflation. Since World War two we've had permanent inflation. We didn't used to, but now we do because we're off the gold standard. We've adopted Keynesian economics, which means deficit spending all the time. We have adopted the dollar rather than gold. So we've lost that discipline. The fed is the engine of inflation. And they even have a policy of a minimum of at least 2% inflation rate.

Mark Skousen** ((00:14:10)) - - We had a whole session. Actually Steve Forbes wasn't there, but Nathan Lewis is co-author of in the book inflation. We had a big session on what are the best inflation hedges. So we talk about gold and silver. The stock market, Bitcoin rallies, high bonds, real estate. We had all of those discussion. And that was the great thing about Freedom Fest is that you really do get answers and best solutions. At our conference, I attended that particular. Oh you did? Yeah.

Keith Weinhold** ((00:14:38)) - - From Freedom Fest.

Mark Skousen** ((00:14:39)) - - I've really.

Keith Weinhold** ((00:14:40)) - - Enjoyed this.

Mark Skousen** ((00:14:41)) - - So far. We have an exhibit hall.

Keith Weinhold** ((00:14:42)) - - Which happens to be right. Oh yeah, we have breakout sessions that attendees can go to for the sessions that particularly interest. There are then a big general session where I've enjoyed presentations from Robert Kiyosaki to Ice-T. What is the future potential for getting Fest attendees? What would you like to tell them about what this conference entails? What they can.

Mark Skousen** ((00:15:03)) - - Expect in the.

Keith Weinhold** ((00:15:03)) - - Bank that they can.

Mark Skousen** ((00:15:04)) - - Get? Well, one of the things is just the wonderful camaraderie that you feel, the buzz that you feel the meeting of like minded people who are all trying to seek best solutions rather than labels and attacking people.

Mark Skousen** ((00:15:18)) - - And, we have the presidential debate here, for example. Well, we have all the third parties come together libertarians, the Constitution Party, the Green Party. We have RFK coming. The two major parties decided not to come. So, so much for their belief in democracy. But the idea is there's a there's something for everybody here. You want to improve your lifestyle, you want to prove your financial situation. You want to have better clarity on what is the proper role of government. Read about this A conference for you. This is an annual event that we usually have in the summer in Las Vegas and then other cities, and it's only 3 or 4. You know, we live busy lives, so can we come together once a year to learn to network, to socialize and celebrate liberty? I think we can if we plan ahead. When we.

Keith Weinhold** ((00:16:06)) - - Drop these labels, we can get a clear download of sorts, remove filters.

Mark Skousen** ((00:16:11)) - - And think.

Keith Weinhold** ((00:16:12)) - - Clearly. And this is a largest gathering.

Mark Skousen** ((00:16:15)) - - Of.

Keith Weinhold** ((00:16:15)) - - Free minds. So for Mark Skelton I'm Keith Weigel. You heard Mark Skelton mentioned the presidential debate at Freedom Fest. I watched quite a bit of that. More on it later. Gray Investment coach narration is here in person with me at Freedom Fest. Coming up, he and I give you a download of some policy and real estate investing highlights that you can learn from. That's straight ahead. I'm Keith Reinhold, 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 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** ((00:17:28)) - - 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 K. 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 to 66866. Learn more about Freedom Family Investments Liquidity Fund on your journey to financial freedom through passive income. Text family to 66866.

T. Harv Eker** ((00:18:23)) - - This is the millionaire mind trick. You're listening to the powerful get Rich education with Keith Weingarten.

Speaker UU** ((00:18:29)) - - Don't quit your day dream.

Keith Weinhold** ((00:18:39)) - - Hey, we're here talking about Freedom Fest, and I'm doing that alongside gray investment coach. The race. Hey, welcome in the race. Hey, Keith.

Keith Weinhold** ((00:18:47)) - - We are here in real life at Freedom Fest in Las Vegas, Nevada. And what Freedom Fest does is it promotes and champions the ideals of freedom in the United States, and it includes a bunch of guest speakers that have made appearances here that you got to see in person, from Ice-T to Robert Kiyosaki to a bunch of presidential candidates as well, sometimes not championing principles of things like freedom and tolerance and liberty and tyranny. And I think anyone can agree to freedom on a this basis. But when you think it through and where the discussion really begins is, oh, well, if you have freedom, does that mean you should be free to do anything at all that you want? Probably not. And that's quite a discussion or tolerance. That's an ideal. That sounds good, but oh does that mean you should tolerate absolutely anything? No probably not. So that's where a lot of the interesting policy decisions and a lot of the interesting debates come in here in the race. And I attended some of these presentations together and other ones separately.

Keith Weinhold** ((00:19:53)) - - So we have some different perspectives on what we've learned here at Freedom Fest. Grace, why don't you tell us about some of the good takeaways that you had? I had a lot of good takeaways, Keith.

Mark Skousen** ((00:20:03)) - - This is not just about freedom in the United States. It's about freedom around the world. And you even interviewed and I believe we're playing that interview soon. If you haven't already played it yet, you interviewed probably the freest nation in the world. It's a brand new nation and it's called liberalism, like liberty, land libre land in Europe. And it touts itself as the freest nation in the world. So there have been all sorts of topics happening or talked about from business, finance, economics, real estate, crypto, bitcoin, gold to non-business and financial topics, which I actually found more interesting simply because.

Keith Weinhold** ((00:20:46)) - - Most of what I listen to and what.

Mark Skousen** ((00:20:48)) - - Is business finance econ. I wanted something a little bit different, especially as a father of two young boys. There were topics on gender and sexuality.

Keith Weinhold** ((00:21:01)) - - And.

Mark Skousen** ((00:21:02)) - - Vaccinations being the vaccinated versus unvaccinated. Robert F Kennedy was the keynote speaker at this conference, and he's a major presidential candidate.

Keith Weinhold** ((00:21:12)) - - RL Jr RFK.

Mark Skousen** ((00:21:14)) - - Jr. Even though he's not part of a major party, he's probably the most popular third party candidate over the last 30 years, so he's a candidate. There were lectures on healthcare.

Keith Weinhold** ((00:21:28)) - - And.

Mark Skousen** ((00:21:29)) - - How to be a better patient. And hold your doctor and hold the healthcare system accountable. The other aspect of this conference is there are some heavy hitters just walking around freely. Like I met Matt Ridley easily, I met Robert Kiyosaki, just he was dressed in very casual clothing to where people didn't even recognize them. And I did and told him how much I appreciated him. You know, you and the great podcast and huge inspiration for me. Yeah, people like Kiyosaki walking around freely, presidential candidates walking around freely, many third party candidates, not just RFK. He wasn't walking around as freely. He was in and out pretty quickly with really heavy security.

Mark Skousen** ((00:22:09)) - - But you had other third party candidates, like the Libertarian Party candidate and the Green Party candidate walking around freely. I ran into Vivek Ramaswamy, his campaign manager, while getting pizza. We are both standing in line getting pizza. We ended up having about almost a two hour lunch. One day talking finance business Vivek's policies his future. So overall this conference very educational, inside the classroom, very beneficial outside the classroom. We're going to bring some guests on the great podcast. We met at this conference, publicists who we met at this conference who represent good guests, some business development opportunities, maybe some not just good guests, but people who we would recommend their newsletters, maybe even outside of the real estate industry, people, contacts within the real estate industry. So it's not all about what you learn in the classroom. It's also about who you meet, the networking, the business development. Overall, just a really, really successful experience. There were a few.

Keith Weinhold** ((00:23:11)) - - Shows that snagged me as a guest while here as well.

Keith Weinhold** ((00:23:15)) - - I'm talking about American freedom here chiefly. But you did mention Lebanon, a startup nation between Croatia and Serbia. That's seven square kilometers in area. You know, I think there are a lot of people at a conference like this and just anywhere in society where if you ask them, well, hey, if you think you could run the nation better if you were starting it all over again, how would you start a nation from a clean slate and actually got an opportunity to do that? Well, I'll be interviewing the president of Lebanon here, where this country is trying to seek recognition from any nation. They want to start their own country, and they want to do freedom and really begin a country of their rights.

Mark Skousen** ((00:23:55)) - - And see is, is is.

Keith Weinhold** ((00:23:57)) - - Is is.

Mark Skousen** ((00:23:57)) - - Bitcoin I think not just crypto but it's bitcoin. And it's interesting because you hear a lot of times you don't like the country that you live in, go somewhere else. These people took it to a whole new level and said, well, we're just going to start our own country.

Mark Skousen** ((00:24:10)) - - And and it's about three square miles. So it's about the size of the area that I lived in. Tampa, not even Tampa, just almost the neighborhood that I live in, Tampa. So it's not a huge country, but it's interesting talking to them. And as you'll hear in the interview, hearing about what it's like to start a new country and there's a lot that you have to go, you know, there's a lot of fundraising if you want to call it that, that you have to do. It's it's a lot it's bigger than the business.

Keith Weinhold** ((00:24:37)) - - You'll learn more about that on an upcoming episode of the show with the nation of Berlin. I attended a presentation called A Forgotten Solution to the Housing Crunch. Most people think of real estate development is either single family homes or multifamily properties. This espoused the building of light touch density of 2 to 4 unit properties, and how that increases the density. But it maintains character. And they showed an awful lot of photos in the presentation where from a street, a four unit building can actually like a single family home when it has the right design and therefore you don't get this NIMBYism pushback.

Keith Weinhold** ((00:25:16)) - - I saw a number of smart design examples of that. And you know what this does? Will this help keep the cost of housing down in an area? What it allows for in a society is it allows the children who grew up in an area to afford the housing there without being priced out. Also called this multifamily missing middle 2 to 4 unit housing. You don't have the NIMBYism pushback that you do with multifamily housing. There are an awful lot of opinions here about people that want to avoid rent control, about how that's typically the bad policy. And many likened rent control to bombing American cities over time because landlords don't have an incentive to improve anything. So rent control is not a good solution to increasing the housing supply. And a lot of the discussion was how you get politicians to say no to rent control, sharing with them. Cato Institute studies on how the free market really makes for a higher housing supply, because that makes developers want to come into the market. And it was noted in one of the panel discussions about rent control and about providing more affordable housing.

Keith Weinhold** ((00:26:27)) - - But if there's a four unit building of owners of all four units of that building, how that's deemed as less threatening than if there's a four unit building of renters.

Mark Skousen** ((00:26:38)) - - So question for you, the housing panels that you attended were these people, were they private investors or they worked for private equity companies? I think maybe a documentary filmmaker who does real estate documentary, what was their background?

Keith Weinhold** ((00:26:50)) - - Think tanks and yes, a documentary filmmaker of a film called Shabbat Vacation. And I did not get to see the film about the perils and ills of rent control on Shabbat vacation. But I talked with one of the people that worked on the project and basically that movie. It does glorify the landlord that was brought up. And typically in popular culture, you don't glorify the landlord. I mean, the landlord is kind of the beleaguered party in this, and it was critical of rent control there. And so it's helping to spread an awareness of how that really doesn't help the housing supply. Quantity work quality over time. I attended another presentation.

Keith Weinhold** ((00:27:33)) - - It was called Homelessness California versus Texas and Homelessness. Of course, it's a multifaceted problem. There are a number of reasons that it occurs, but they really brought up that it often results from the loss of family connection a lot more often than what some people think. And it really brought to light that Houston has a lower proportion of homelessness in L.A. and San Francisco does. What are the reason this that that is the case. And that is because Houston has a lower proportion of homelessness, because it's a lower cost to build there, and Houston has way fewer zoning requirements, you see, almost like a hodgepodge of building across Houston. You have substantially less NIMBYism in Houston. You just have a culture there that doesn't push back on buildings. So those are really some of the key parallels between why the homelessness crisis is worse in California than it is in Texas. In most places, Austin actually has policies that are so agricultural to the rest of Texas, giving Austin a somewhat higher homelessness rate.

Mark Skousen** ((00:28:38)) - - Wow, that's a lot of real estate content that you got there.

Mark Skousen** ((00:28:42)) - - Anything else? Keith?

Keith Weinhold** ((00:28:44)) - - Another presentation I attended was called Permanent Rising Prices. What are the best inflation hedges? And, you know, for a while they didn't even put real estate up there as one of them. And I was almost foaming at the mouth getting ready to ask a question. But they did bring in real estate at the end. When it comes to inflation. Many of them brought up the fact that we have multi-trillion dollar deficits even when we're in good times. I had never thought of it that way before. If most people would look at the history of the world and what's happening with the nation while they're running multi-trillion dollar deficits, they probably think that they're trending toward poverty and austerity. But that's not the case. This is what's happening in good times. And politicians, they really don't run on a platform of reducing our debt. You notice that none of the politicians do that. Instead, you see politicians run on platforms like immigration or the housing shortage or abortion. But, you know, politicians, they don't run on a platform of reducing our debt.

Keith Weinhold** ((00:29:42)) - - And that's because they all see it as a problem that they didn't create, and they don't really want to work their way out of it either. So that's why it doesn't come up. Also, with the best inflation hedges, they showed the rank of asset performance for the last 200 years of five items stocks, bonds, treasury bills, gold and the dollar. And really it was coming down to two guys debating on whether stocks or gold were better. They both made their case either way. And they didn't bring in real estate until the end. But when they brought in real estate, they broad brushstroke and do what so many do, and they just looked at it as an asset class in what is its capital appreciation over time. Yeah. And you know, they didn't separate out income property as its own class like we would. But some of the panelists, they did not like real estate. They talked about how it's not liquid, about how you have to borrow funds, about how there's a maintenance burden and a repair burden with real estate, and you have tenants and management and some things like that.

Mark Skousen** ((00:30:40)) - - Fair, all fair.

Keith Weinhold** ((00:30:41)) - - All fair points. And one panelist brought up that gold has outperformed the gold mining stocks just historically over time. So those are some of the inflation hedges and some of the other issues with inflation that you don't think about very much as you have policy advocates and politicians addressing.

Mark Skousen** ((00:30:57)) - - Well, I'll say gold mining stocks and most traders will tell you traders by gold mining stocks, not investors. So gold mining stocks are meant to be held over the short term. They are not meant to be held over a long period of time like physical tangible gold is. So for people to say, oh yeah, gold outperforms gold stocks over a 30 year period. That's true. But most people are buying gold stocks Like gold mining, stocks are only holding over a short period of time.

Keith Weinhold** ((00:31:29)) - - Well, housing and inflation were such widespread themes here since it has been such a problem, much of it wrought by the pandemic. As we wind down here summarizing what we've experienced at our first Freedom Fest, for each of us, have any last thoughts with respect to housing and inflation since they were such overarching themes?

Mark Skousen** ((00:31:49)) - - Well, the common theme here at Freedom Fest was government got out of the way because if you let the free market work itself out, if you let people be, people work themselves out.

Mark Skousen** ((00:32:01)) - - But the onus on people to take personal responsibility, that in and of itself solves the inflation problem because you don't have government restrictions, government mandates, and And this was a major topic and that was the lockdowns of 2020. The mandatory vaccine mandates of 2021, those were all inflationary because when you have people fired from their jobs or dropping out, quitting their jobs because they didn't want to take this job, that means prices are higher and lower. Workforce means you have to pay the whoever is there higher wages. And that's what ended up happening. So it's not just about dollars and cents. It's something as simple as getting a job caused inflation. And ultimately when inflation goes up, of course that's going to affect rents, that's going to affect housing. There was a major savings rate, which I'm sure you covered in 2020, where people were saving money, being locked down at home. And once things started opening up, that money was spent and that created inflation. And people, as soon as they could get out of their house said, hey, I want to move to Florida, or I want to move to Texas or Utah or where we are here in Nevada.

Mark Skousen** ((00:33:10)) - - And that's why housing values exploded. So the inflation was caused by government. It wasn't just the government spending. It was actual psychological and physical things that the government or the policies of the government did that created an inflation. The government spending, the low Federal Reserve interest rates are just a piece of the pie, or they're just a couple of pieces to the pie. And so it was interesting to learn that all these other areas, all these other, like I said, policies that the government enacted. And that's what Robert F Kennedy Jr, RFK, talked about in his keynote speech. All of these policies affected the purchasing power of our dollar.

Keith Weinhold** ((00:33:53)) - - We have all had more dollars chasing fewer goods and services, one of those being housing itself. Hey, it's been great to meet up here in real life at Freedom Fest this year in a race. I appreciate you sharing your thoughts. Thank you Keith. I'm great. Yeah. Narration I enjoying freedom Fest here. Oh, there's such a wide variety of vendors and viewpoints all around this concept of free thinking, typically with getting government out of the way.

Keith Weinhold** ((00:34:29)) - - In fact, in the exhibit hall, which is right across from where the speaker discussions are, there are booths for gold, real estate, cryptocurrency stocks, a dating app for unvaccinated people, self-directed IRAs, a program for teaching capitalism to school children. There is even a book that espouses biblical capitalist virtues. And then elsewhere in the exhibit hall, atheist virtues. There was also a promoter of a currency called the Nevada Gold Back, and what it is is 1/1000 of an ounce of 24 karat gold. And it is physical like gold back. It looks sort of like a dollar bill, just much, much more in the exhibit hall. Now, one concept that I did not hear any criticism about was Trump tariffs. Tariffs are not free market. In fact, it's akin to erecting a trade wall. And maybe there is a session about it. But there are many sessions going on concurrently and I can't attend them all. And in other sessions I was asked to be a speaker and was interviewed. Like you heard.

Keith Weinhold** ((00:35:45)) - - Doctor Scholes had mentioned there was a presidential debate here. Now the two major party candidates didn't attend. I watched RFK Jr speak here, an independent candidate, and he was not in the presidential debate, though he spoke separately in the security for RFK Jr was formidable, even though he spoke the day before the Trump shooting. The presidential debate was among three different parties. It was Jill Stein at the Green Party, Randall Terry of the Constitution Party, and Libertarian Party candidate Chase Oliver, who is a particularly bright, articulate guy, and most or all of those candidates, they agree that we should end the Federal Reserve. And the presidential debate, interestingly, was moderated by Congressman Thomas Massie, who has more formally proposed ending the fed outside of the presidential debate. I also attended a different session. It was a Bitcoin debate called Will the Bitcoin bubble ever burst? And you had two guys promoting and talking about the virtues of Bitcoin. And then you had two guys criticizing Bitcoin. And one of the two bitcoin critics was Whole Foods founder John Mackey.

Keith Weinhold** ((00:36:58)) - - So this really got interesting. Now I like a lot of the benefits of Bitcoin personally, but I must say in this particular debate the Bitcoin critics decide that Maggie was on. Oh they won this. The proponents best points were the people back in the day said electricity in the internet word feasible. They weren't going to last, but electricity and the internet won and Bitcoin will to the pro camp also espouses that Bitcoin is the first time we've had absolute digital scarcity. You cannot copy and paste bitcoin, but yeah, the critics did a better job. They said that Bitcoin is always made future promises, but it falls short like its awful acceptance rate as a currency. Still today its price levels are dreadfully volatile, just miserably volatile. You can't count on it then as a store of value. John Mackey said that Bitcoin produces no goods, no services and no cash flow. The Bitcoin critics also asked more than once this question how has Bitcoin made anyone's life simpler, easier or better? There really weren't any good answers to that question, and they even critiqued that with its fixed supply at 21 million will, then it cannot grow with the economy.

Keith Weinhold** ((00:38:21)) - - And then what this can do is create deflation and depression. And I would like to adhere myself that each Bitcoin is already divided into 100 million tiny pieces called satoshis. And it might be able to be divided smaller than that eventually. But yeah, the Bitcoin critics won. It is quite a win for bitcoin, in my opinion, that this nascent digital asset that was only worth a few pennies 15 years ago when it came out, I mean, it was something that only cryptographers and digital geeks understood. Well, today you've got presidents discussing bitcoin. So it's certainly had some success just in branding and name recognition alone. That is just about a wrap from Freedom Fest this year here in Las Vegas, there were record breaking temperatures outside in the Mojave Desert in the middle of summer. Inside, it was a celebration of ideals like life, liberty, prosperity, and of course, freedom. Until next week, I'm your host, Keith Wendel. Don't quit your day, dream.

Speaker 6** ((00:39:35)) - - Nothing on this show should be considered specific, personal or professional advice.

Speaker 6** ((00:39:39)) - - 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 yet Rich education LLC exclusively.

Keith Weinhold** ((00:40:03)) - - The preceding program was brought to you by your home for wealth building. Get rich education.com.

Direct download: GREepisode511_.mp3
Category:general -- posted at: 4:00am EDT

Mon, 15 July 2024

Learn how garages and parking areas add value to property. Find out how to earn more rent for your garage space.

Adding a garage to a rental doesn’t fetch much more rent income. But you will rent your place faster and tenants stay longer.

To get more rent for a detached garage, rent it to an off-site tenant.

The future of parking and garages is positioned to be shaken by autonomous cars. Fewer people will need to own or park cars.

Meet me in-person at the next New Orleans Investment Conference. It’s November 20th - 23rd, 2024. Register here.

Brien Lundin joins us. He is the host of the world’s longest-running investment conference, the New Orleans Investment Conference. He’s also editor of Gold Newsletter.

He & I discuss inflation, interest rates, real estate, and gold.

Gold is up 20%+ annually. This is because foreign nations, like China, are beginning to prefer to own gold rather than US debt.

There’s a case for interest rates to go higher, another case for them to go lower.

Brien tells us why he believes the gold price will keep rising.

Increasingly, asset values are positively correlated—real estate, stocks, gold, crypto, oil, and even collectibles.

Personally, though I don’t see evidence that gold builds wealth, history shows that it’s a good place to store wealth.

Meet me in-person at the next New Orleans Investment Conference. It’s November 20th - 23rd, 2024. Register here.

Resources mentioned:

Meet me in-person at the next New Orleans Investment Conference. It’s November 20th - 23rd, 2024.

Register here.

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

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509: Legendary Investor Jim Rogers' Dire Warning on US Debt

Complete episode transcript:

Keith Weinhold (00:00:01) - Welcome to GRE! I'm your host, Keith Weinhold. Learn about garage real estate, how garages and parking add value to your property, and how to get more rent for the garage. Then we go from micro to macro. As we talk about the enduring value of a real asset that's minted, not printed, and another chance to meet me in person today and Get Rich Education.

Robert Syslo (00:00:27) - Since 2014, the powerful get Rich education podcast has created more passive income for people than nearly any other show in the world. This show teaches you how to earn strong returns from passive real estate, investing in the best markets without losing your time being a flipper or landlord. Show host Keith Weinhold, who writes for both Forbes and Rich Dad Advisors and delivers a new show every week. Since 2014, there's been millions of listeners downloads and 188 world nations. He has A-list show guests include top selling personal finance author Robert Kiyosaki. Get Rich education can be heard on every podcast platform, plus it has its own dedicated Apple and Android listener.

Robert Syslo (00:01:01) - Phone apps build wealth on the go with the get Rich education podcast. Sign up now for the get Rich education podcast or visit get Rich education.com.

Keith Weinhold (00:01:29) - Welcome to GRE! From Saint Augustine, Florida, to Saint Paul, Minnesota, and across 188 nations worldwide. I'm Keith Weinhold, and you're listening to get Rich education as we cover a component of property that's a little talked about, garages and we're a real estate investing show. You learn about ways to optimize the rent income that a garage can produce for you, too. Now, if the home that you currently live in has a garage, it could be the entrance to the home that you use even more often than your own front door. That's how important and useful it's become. And understand that garages on homes, they didn't even exist until about 100 years ago, because that's when cars began to become popular. The emergence of the garage in American real estate is one reason for the downfall of the big front porch. You rarely see big porches on modern homes.

Keith Weinhold (00:02:26) - Interestingly, some of America's most successful companies began in garages, places where you have workbenches and can tinker around with things. Google and Nike were launched in garages, and it's also where people store lots of things, sometimes so many things that they can't even get their car in there anymore. In fact, the word garage comes from the French garage. Spell that g a r e r meaning to store. But yeah, when cars became more popular in the 1920s and 1930s, that's when you begin to see garages. And then as cars got larger, garages got larger. And by the 1960s, as families began to own not just one car but 2 or 3 cars, garages became larger again, and a three car garage is pretty common today in a single family home, though it's rarely that big in a property that you're going to rent out. Now, if you've got a single family home and it does not have a garage and you want to make a garage addition. Well, you can only expect to recoup 65 to 80% of what you've spent.

Keith Weinhold (00:03:40) - So it is a money loser. Then it really doesn't make sense to add one to a rental, perhaps only your primary residence, since you get the benefit of using it yourself that way. And if you add a garage to a rental, you know you just really can't get that much more in rent for it. It's usually not worth it, although the financials can look better for a carport addition instead. Now, if you've got a rental with the garage rather than without one, it actually can help you get your place rented out faster. But a tenants really not going to pay you even as much as 10% more in overall rent in most every case. Yet see, what happens is that a tenant, they tend to fill up the garage with stuff, and therefore they tend to stay longer than if there were no garage. A garage is one reason that single family rentals see longer tenant durations then apartments. Now, if your property though, if it's in a built up area and there's little on street parking, oh well then the addition of a garage that could have more of an impact on the value of your property than it would out in the suburbs.

Keith Weinhold (00:04:53) - The garage does not count toward the square footage of a property because that's considered unfinished space. And your prospective tenant? They might not know that fact about the square footage. So that's something for you to keep in mind when you're advertising a home with a garage for rent. Now, older houses, they're more likely to have a detached garage is its own separate standalone structure that's built near the house. But you would have to walk outdoors in order to get from the house to the detached garage. In fact, the home that I grew up in and that my parents still live in in Pennsylvania has a detached garage. Their home was built around the year 1915, so more than 100 years ago, and my parent's garage also didn't have an automatic garage door opener for most of my life. I remember the big yank up that you'd have to make on the heavy door. So when my mom was about to back out of the garage when she was going to take me somewhere, what I would do is I would stand outdoors until she backed out so that I could open and then close the door by hand and then get in the car.

Keith Weinhold (00:06:06) - Gotta get those legs under it and enjoy one deep squat there, Well, one reason that old houses have garages often detached from the rest of the home is for risk of gasoline explosion. That's because back 100 years ago, gas was stored in the garage because gas stations were yet to be invented. So you've got this trail of detached garages left behind in older neighborhoods, and some people still prefer a detached garage. Now there's a way for you to get more rent income if you're renting out a single family home with a detached garage, and this isn't always going to be feasible based on how the property's set up. But the way to do it is for you to get an off site tenant to rent your garage. Oftentimes, the renter of your single family home, you know, they just don't have as high of an income as someone does that lives in an upper crust neighborhood that might have a lot of toys to store their, be it a boat or an antique car, or even an RV, perhaps.

Keith Weinhold (00:07:13) - Well, that off site renter in the better neighborhood, you know they're going to pay you to store their cars or their other stuff in your detached garage In that case, your rental home and garage would have two separate tenants, and you will enjoy more overall rent income than if one tenant was renting both the home and the detached garage. So what you really want to learn is you do your research though, is what laws cover the renting of a garage or a storage space because they typically fall outside the jurisdiction of landlord and tenant laws. But you need to verify that depending on your state or your area. Sometimes running a garage is the equivalent of renting a warehouse space, and the rules can be different when it comes to payment issues or other problems. And when you realize that some garages can even have dirt floors, you can see how different it is than a living space. Now, even if you're thinking about renting your garage to an offsite tenant. Most of the time making garage upgrades, it's just really not worth it.

Keith Weinhold (00:08:19) - But note that I said most of the time. On the other hand, if you can make it marketable, maybe you need to do something smaller, like add an automatic garage door opener if it doesn't have one, and then you'll have to run the numbers to see if that is worth it. Now, one mistake that I made out of property, it wasn't that first ever seminal fourplex that I owned, but the second fourplex that I owned there in that building, each tenant had a small, simple one car attached garage, and then as each four plex unit went vacant, I went in and painted the inside the walls and ceiling of all four garages with a fresh coat of paint, and I would learn later that was not a good use of my time. It didn't help me get any more in rent. No tenant is really even going to stay longer for fresh garage paint, but frankly, I'm just not a handyman. I don't know how to fix anything. So one of the few ways that I knew how to add value, I thought was rolling a paintbrush over the inside of garage walls like I know how to paint and not much else replacing a faucet.

Keith Weinhold (00:09:29) - Whoa, that right there. We're getting into, like, intimidating territory. Okay for me. In any case, duplexes in fourplex, they can often have garages, especially newer ones. And I think I mentioned to you here on the show before that I once owned an eight plex. It was a little quirky. It had a small single attached garage that was kind of on the end of the building. So eight units and just a one car garage. And actually this is a good example because those tenants, they paid about $1,500 for their unit, so none of them could really swing it. None of them could afford to pay an extra $400 for the garage. So again, the way to solve that is rent to a more affluent off site tenant. That's what I did. And I got 400 bucks. Now, understand something. When you're driving a neighborhood or you're looking on Google Maps, at times it can look like a home has a two car garage because you're only looking at the widths of the garage door.

Keith Weinhold (00:10:29) - But that can really be a three car garage because on one side, the garage bay goes two cars deep, so you can't always tell how many cars a garage can hold just by looking at the width of the garage door. One reason that developers in Hoa's actually like garages that are too deep is that way. The driveway is more narrow. When driveways are more narrow, that means there's less asphalt and more green space in neighborhoods. Now, in some places, it doesn't matter too much if the garage is full of stuff and you have to park in the driveway, but in a cold, snowy place, it really helps to park cars inside the garage. So garages are typically more valuable to residents in areas that have real winters. In an apartment building, it can help to have assigned spaces for tenants. When I bought apartments, I've always loved it to my property manager to figure out the space assignments and rental property. Upgrading and resurfacing parking areas is another money loser. Now, we don't want to be slumlords, but the truth is repaving and re striping a parking lot that might look nice.

Keith Weinhold (00:11:44) - You might do that. but the reality is that it will get you practically zero extra rent. Not a good ROI. Well, that's a take on garage's past and present. What about the future of garages and parking areas when it comes to the future? And this harkens back to episode 13 of this show. Yes, that's when I discussed driverless cars, also known as autonomous cars. Back in January of 2015, nine and a half years ago. Well, when autonomous cars become popular, which many expect will still happen, it's likely that fewer people are going to own cars at all. They will just have a car subscription. The autonomous car will pick you up and drop you off, and more people will convert their garages into living space like another bedroom. If that does indeed eventually happen. But autonomous car adoption has hit roadblocks since episode 13 of this show back in 2015, and that's generally because autonomous cars keep having accidents. Although Waymo is perhaps the one company that's made more headway lately, you're seeing their autonomous taxis in use in some cities right now.

Keith Weinhold (00:13:03) - Currently, a car spends 95% of its life being parked, but garages, parking lots, and parking garages are all poised to be less useful when fewer people own a car. Instead, these autonomous cars are just going to drop you off, pick you up, and then constantly stay moving. Stay out on the road rather than park at all. EVs are a factor here to electric vehicles. They can be thousands of pounds heavier than the average gas powered vehicle, and experts out there are warning that the extra weight from EVs that could cause older parking garages to collapse unless steps are taken to buttress those structures. I mean, that's a problem. If geotechnical and structural engineers didn't design EVs on older parking garages decades and decades ago parking lots, they have definitely fallen out of favor among some, but they are still building lots of them. Critics say that to have to build minimum parking spaces on new projects, well, that hinders new housing construction, and also encourages people to drive rather than take public transit parking lot.

Keith Weinhold (00:14:18) - Critics. They also argue that parking lots and garages, they fill up precious urban real estate with these sort of soulless, concrete eyesores, making cities more sprawling and less convenient. And you tend to see this more in cities west of the Mississippi River. In the east, you have more cities on gridded street patterns that are more dense because they were laid out and developed before cars took over and sprawled so many cities, but with as many changes that autonomous vehicles could bring to the parking world and make things like car ownership less important and car parking less important, I sure would ask a lot of questions before I invested in any sort of parking related real estate. Today we've been talking about real estate in the micro so far today. Garages and parking surely will pivot to the macro as we discuss an asset that's minted not printed. That's next. I'm Keith Weinhold, you're listening to episode 510 of get Rich education. Listen to this. Hey, you can get your mortgage loans at the same place where I get mine at Ridge Lending Group Nmls 42056.

Keith Weinhold (00:15:36) - 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. 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 K. 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%.

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Robert Kiyosaki (00:17:08) - This is our rich dad, poor dad author Robert Kiyosaki. Listen to get Rich education with Keith wine old and there is I respect Kate is a very strong, smart, bright young man.

Keith Weinhold (00:17:26) - It's terrific to welcome into the show a man with decades of investment analysis experience that we can learn from. He's the executive editor of Gold Newsletter, and you might know him as host of America's longest running investment conference, the famed New Orleans Investment Conference. Hey, we haven't shedded in a minute. Welcome in Brien Lundin.

Brien Lundin (00:17:48) - Right? To be able to keep it has been a while too long.

Keith Weinhold (00:17:51) - That's right. And now you and I each span the real asset world. I'm a real estate guy. You spend a lot of your work in teaching over there on the gold side. And we both intersect with the general economy. And, you know, Brian, I think of the general economy is having a number of abnormalities.

Keith Weinhold (00:18:11) - Is it always does, but actually many normality to I mean, I've commented that there's actually relative normalcy in the fed funds rate and even mortgage rate levels. If you look at it historically, also home price appreciation rates, in rent appreciation rates, they're all close to historic norms, although the aberrations are probably more interesting to talk about. What are your thoughts on the economy's general direction?

Brien Lundin (00:18:37) - Yeah, you know, it really is weird. We think about today's interest rates and how high they are. And throughout human history, the natural level of interest rates have hovered around 6%. That's kind of what it's always been for thousands of years. So what we went through over the last 16 years or so was a really abnormal period, and even going back a decade or so before that. So yeah, it looks seems like interest rates are at normal levels. What is at abnormal levels, however, is the level of debt that we have today. And and that's been created after over four decades of ever easier money, ever since Volcker killed off inflation in the 1970s and started lowering rates, we see that whenever there was a recession, the Federal Reserve had the same prescription every time it lowered interest rates, and then it would try to raise them back, but could never get past the midpoint of the previous range before another recession would come back, or the markets would throw some kind of a fit in.

Brien Lundin (00:19:40) - The fed would then start easing again. And if you look over time, if you plot or draw a line at the bottom of every one of those interest cutting cycles, see that those bottoms of the cycles get progressively lower and lower. Till 2008, they hit zero. And then they tried to normalize it got up to 2.5% on the Fed's funds fund rate, and then had to go right back to zero at Covid. So the lesson to me is that things might seem normal if you look at the grand sweep of history, but they're anything but normal right now, and the debt loads that we have are so high they preclude anything resembling a normal interest rate. And in fact, my contention is that interest rates have to be below the rate of inflation. In other words, the currency has to depreciate at a faster rate than you're paying interest on these debts, or the whole house of cards collapses. So that's actually, while not good for the fiscal health of the US or other developed economies, it's actually good for the kind of tangible assets, real assets we are talking about real estate, gold, silver, monetary metals, even commodities.

Brien Lundin (00:20:52) - And, you know, everything across the board as far as tangible assets.

Keith Weinhold (00:20:56) - Yeah, we look at the long term history of interest rates 5 to 6% if If you go back hundreds of years or even thousands of years is a historic norm. The fed funds rate is now at about 5.3%. But yeah, I think what you're talking about is we seem to have a decreasing tolerance for what are really normal rates. Nothing abnormal about the rate. All that was abnormal was the rate of increase. And you know, one thing that I think about with the economy, Brian, that maybe people don't talk about enough. Is this labor shortage that we have? I mean, it is difficult to do get anyone to do my landscaping. Last year I stayed in a hotel where when I checked in, there was no human being at the check in desk. It was automated checking. Then last month, I stayed at a hotel where there was a human at the front desk, but they told me that there was not going to be any housekeeping during my state.

Keith Weinhold (00:21:46) - So the reason that I bring this up is that a chronic labor shortage that spells entrenched upward pressure on inflation, because you have to offer higher wages to lure in workers and higher wages paid mean higher consumer prices, higher rents, more inflation and persistently high rates to combat that.

Brien Lundin (00:22:07) - Yeah, absolutely. And you bring up a whole nother factor that very few people consider as demographics. You know, the fertility rate in the US is below the replacement rate. It's about 1.7 now, and it would have to be like 2.1. And as they say, demographics is destiny. We're not the only ones by any means. Japan went over the demographic cliff long ago. We're following all the other developed nations are as well. And in 20 or 30 years the global population will be falling. That brings about a lot of other pressures and real estate. Obviously you have, you know, the baby boomers are going to be downsizing if they can find something to move into. Besides a retirement home, had a decent mortgage rate.

Brien Lundin (00:22:50) - You know, we have so much overhang in real estate that's sitting out there and locked up by the current interest rate. So yeah, it's an interesting dynamic we're in right now. And personally I think it's all just a result of the Federal Reserve and all these other monetary mavens whose PhDs I want to pull all these levers on the economy. And they have unintended consequences in every one of the policies that they undertake. And we're in one right now.

Keith Weinhold (00:23:20) - We've got both inflation and a scarce supply of property that just keeps floating property values higher despite higher mortgage rates. And one place that the high inflation is often reflected is in the price of gold. Gold is up more than 20% year over year. And one thing I want to ask you about here, with regard to gold and the fact that we have this debt that you brought up earlier, Brian, is a real problem. When we look outside the US, the world's biggest economy is by far China. China has been dumping US treasuries, meaning basically that they're no longer buying our US IOUs so they no longer want our debt.

Keith Weinhold (00:23:59) - And instead, China and other nations are increasingly parking it in gold. Now, is that one of the reasons that gold has surged?

Brien Lundin (00:24:07) - Yeah, it is the primary reason. Or, you know, one of the primary factors why gold has surged this year in particular. And it's a weird mix of buying. This year. We saw the gold price start taking off like the 1st of March. And it was for the first six weeks or so. It was literally a relentless rise, not a down day. Setting new price records every day. And it took us a while to try and figure out or to figure out where the buying was coming from. And as it turns out, it was the result of continued buying by central banks renewed buying to an even greater degree by the people's Bank of China, and also some domestic demand from China. And that's something we had never seen before. We'd never seen Chinese investors and savers buying gold on the way up in a price trend. They usually bought on a price downtrend trying to get a bargain, but now they were following the price up.

Brien Lundin (00:25:06) - So that contributed to everything and the factor that we had expected that did not come about in the first half of the year was a fed pivot. You know, if you look back in December, yeah, the markets are pricing in 5 or 6 fed rate cuts in 2024. And that kept getting postponed. And that was expected. I expected in most of the other analysts expected the beginning of fed rate cuts to really drive the price up higher, but it kept getting postponed. That big factor is still ahead of us. I think the markets are going to start pricing that in in a couple of months. And so what all that central bank buying and Chinese buying is done is while we were waiting for the fed to pivot in that big factor, it went ahead and added $300 to the gold price and got us into a new trading range so that when the fed pivot does hit, we're lifting off from a much higher level. So it's a good time, I think, to be an investor in gold and related assets.

Brien Lundin (00:26:07) - I think it's also a good time to be involved in real estate and a lot of other tangible and real assets, as.

Keith Weinhold (00:26:13) - Well as real estate investors we are interested in that interest rate direction. And, you know, if the US is continually finding themselves in a position where they're wondering, well, hey, if not China and others will, then who in the heck is going to buy our debt? And now you? I think the listener you can ask yourself in the same way, if you're trying to get your friends to give you a loan, How do you entice your friends to give you a loan? You would offer them a higher interest rate in order for them to give you a loan. So with that in mind, Brian, is that what the US has to do in order to entice foreign bondholders in the same way, meaning then debt rates would tend to be held high?

Brien Lundin (00:27:01) - Very interesting point there, Keith, because getting back what I was saying, how these PhD economists are pulling all the levers on the economy, the lever they're about to pull is to start lowering rates again, because they recognize these debt loads, they recognize the possibility of a recession, and that if there is a recession and tax receipts fall, then the debt load is going to accelerate even further.

Brien Lundin (00:27:26) - So they feel that policy right now is very restrictive. And they're going to start lowering rates at some point. They have to. But the debt loads being what they are, however you have on the other hand, the bondholders are, which you would hope would be the buyers of the Treasury securities, and they will look and see the potential economic slowdowns. They had the potential for higher inflation and start demanding higher returns on their yields. So there is a tension there. We saw that develop last October, November timeframe and a few months ago when we saw Treasury yields rise at the same time that the dollar index rose versus other currencies and gold was rising, which was a weird kind of strange bedfellows there that typically gold does not rise when interest rates are rising and the dollar is strengthening. But they were all going up together, and that happened a bit last fall as well. To my mind, that is a reflection of safe haven buying. You know, typically we think Treasury yields fall when they're safe haven buying because everybody's going into treasuries.

Brien Lundin (00:28:36) - To me that was reflective of safe haven buying because the markets were really concerned about the fiscal future for the US and other developed countries. So they were going to the safety of the dollar, the safety of gold and demanding higher yields on treasuries. That would be more commensurate with the kind of inflation rate that they saw ahead. But it's been a weird mix of buying a weird mix of economic developments, and I think it all argues toward big money getting more and more into gold because of the uncertainty that lies ahead, and the really the extraordinary nature of the current economic situation to the world we find ourselves in now.

Keith Weinhold (00:29:21) - I did not realize that there is less sensitivity to higher gold prices until I just learned that from you a few minutes ago. So that's really interesting about potential momentum in the future price of gold. And we talk about the future price of gold. We think of that through a supply and demand lens, much like we think about what's moving real estate prices today. Have we hit peak gold, meaning that there's less and less of it to pull out of the ground?

Brien Lundin (00:29:49) - All of the trends in that respect actually favor gold and that we have reached peak gold production as around 32,300 tonnes a year.

Brien Lundin (00:30:00) - Interestingly, a third of that level is being purchased now by China between the people's Bank of China and Chinese citizens. So a good bit of that is taken off. But I'm not a big proponent for the validity or the impact of supply and demand for gold, because it is monetary demand that really drives the price of gold. It has no utility, virtually no utility and industry. It is purely a monetary metal. So when people are concerned about the future purchasing power of the currency, they buy gold and they drive the price up, and that buying on the margin really sets the price of gold. And I think we're about to enter one of those periods where gold really plays catch up for long sweeps of time. You'll see the gold price doesn't do much until something happens. Things get bad to a certain degree where people really start to worry about their purchasing power, and then gold makes a huge catch up move. Really, in the early stages of that kind of a catch up ketchup move, I believe.

Brien Lundin (00:31:06) - I think we're entering a period that would be akin to the 1970s and the 2000, where the price of gold has historically gone up anywhere between five and a half and eight and a half times over during these kinds of secular bull markets. And I think we're in one of those periods right now.

Keith Weinhold (00:31:25) - Five and a half to eight x.

Brien Lundin (00:31:27) - Yeah. If you look at the fact that there's only been three bull markets in gold since 1971, when it actually became, you know, an investable asset or commodity and not money. So 1970 to 75 was a bull market of 76 to 1980 with a bull market. And really, 2000 to 2011 was another bull market run. And each of those instances, each of those three bull markets, gold went up from 25.6 to 8.2 times from the lows. And this market we're in now, the low is about $1,040. So if the price of gold goes up trading 5.6 and 8.2 times, you're talking about 6 to $8000 gold price at the end of this cycle, wherever and whenever that takes us.

Brien Lundin (00:32:17) - And of course, you know, we're up around 2300 and change right now. So that's a good move ahead. Lots of potential. And it's not just where the price of gold goes, but all the associated assets worth it, like mining stocks and the like are going to do, I think, very well over the next few years.

Keith Weinhold (00:32:36) - Yeah. People know gold is the classic inflation hedge. But to your point, it has a lot to do with catching a wave. If you think the real long term diminished purchasing power of the dollar is 3 or 4% over time. Well, you don't see gold go up gradually at 3 or 4% per year for several years. You tend to see it do little or nothing, and then it has this big catch up phase, like those periods of time that you talked about. When we talk about physically holding on to gold, you know, it's cool. It's one of those type of investments where if you do hold it yourself, there's no login or password to access your goal that is physical, intangible.

Keith Weinhold (00:33:10) - And you know, Brad, one thing that a lot of gold people often talk about is a positive attribute to holding gold is that it has zero counterparty risk when it's yours. No one can take it from you. But does it really have no counterparty risk? Because I think about if a person wants to hold physical gold, well, if they outsource it to a third party vault or a bank safe deposit box, then the counterparty risk is there. But if they hold it onto themselves and store it in their own home, which I don't know if that's a good idea, but if they choose to do so, well then the counterparty risk is the thief. So I think gold is a great way to store wealth, but is there really zero counterparty risk associated with gold?

Brien Lundin (00:33:48) - Well, from that standpoint, there's never a zero risk. There's never a zero risk. When you step out of your door in the morning, either, you know, there's always some risk. You can mitigate the risk. And it reminds me of of what I tell people when they're really new to the sector is there are two reasons to buy gold.

Brien Lundin (00:34:04) - One is as insurance and one is as an investment. And insurance is what you need to worry about right away because you're insuring against something you know is going to happen. If you feel like 3 to 5 years, the dollar's purchasing power, it's going to be much less than it is today. I think we can all agree in most likely is then by buying gold today, you lock in today's value of the dollar because gold will make that up, and perhaps even more so, it will protect you against that depreciation. So you can ensure your wealth by holding some physical metals. And I think that's the most important thing you can do, at least initially, is get silver and gold. Now, as far as storing it, a lot of people can store enough gold in their house to gain a good bit of insurance against whatever their wealth is. And by that, you know you will have to invest in a safe. Don't tell anybody about where it is and a good alarm system. And if you haven't and a location where you have a good police force, then you're talking about 20 minutes that somebody's going to get in your home before the police come and knocking, and hopefully they can't find the safe, much less get into it in that amount of time so you can do it in your house to some degree.

Brien Lundin (00:35:16) - You can store it elsewhere, but there are important considerations there. They're very respected storage facilities and the like. You don't want to store it in a bank because one of the things you're insuring against is a bank holiday, thanks to like you to store it there either, but you can find respected institutions to store it. I recommend people don't put all the eggs in one basket and store it with a number of institutions, or as many as they can practically do. But yeah, it is important to own the metals, you know. Otherwise you're going to lose from here. On the day that you decide not to buy gold and silver to protect your wealth from that day on, you're accepting a rate of purchasing power depreciation that we know is considerably more than what the government says it is, and is historically high to begin with.

Keith Weinhold (00:36:09) - I generally think it's a good idea to own at least a little gold if you have trepidation about buying gold. Think of it this way in a way you're not buying gold, You're transferring some of your prosperity over into gold, which has had lasting value for millennia, across cultures and across generations.

Keith Weinhold (00:36:28) - And for some reason, I think a lot of people my age and younger that they don't own any gold. I would imagine that 90% plus of people, I think the statistics are out there. 97% of Americans don't own any gold. And maybe you feel like you don't understand gold and you don't want to own what you don't understand. But you could purchase this a 10th of an ounce of gold for under $300. And you know, by buying just a little bit, you begin to get a vested interest in this stuff. So with that in mind, Brian, how much do you think one should allocate and in what form should they make their purchase?

Brien Lundin (00:37:02) - It's interesting. There have been studies for many years showing that the highest risk adjusted return you can get in a diversified portfolio with about 5% of your wealth, or your investing portfolio allocated to go to heaven. Those same studies done that are indicating more like 10% or more. It's to the point that you sleep well at night, whatever makes you comfortable.

Brien Lundin (00:37:27) - But you know all of those studies back test it and they look back and see how gold and a portfolio meshes with the six, the classic 6040 mix of stocks and bonds etc.. But what we've seen over the last 12, 14 years is that post the 2008 great financial crisis is that all of these asset classes have become more and more positively correlated because everything's dependent on the Federal Reserve and monetary policy. So all of the correlations have started to trend toward one, where they all rise and fall together in unison. Because everything, again, is just depends on monetary policy and the flow of liquidity from the Federal Reserve and other central banks. So that fact alone argues for even a greater holding in gold, because all of that portends greater and greater inflation, greater monetary accommodation, and the kind of thing that gold insures against. So the way to look at gold as insurance is not quite like home insurance. You know, you buy home insurance, you pay the premium every year in case your house catches on fire.

Brien Lundin (00:38:38) - But you really don't expect your house to catch on fire. With gold. You're buying insurance. You're paying the premium, perhaps just once, and you're insuring against something that you know is going to happen, that the purchasing power of your dollars are going to depreciate. So if you have a significant cash balance in accounts, you might as well put it into precious metals and lock in the current rate before it gets the purchasing power of the dollar depreciates even further.

Keith Weinhold (00:39:06) - That is a good point with gold as money insurance from the standpoint that with your homeowner's insurance and your landlord's insurance policy, you need to pay a premium annually. You potentially only need to pay that once upfront when you purchase your gold, and there's typically a spot price differential to overcome. Well, Brian, you are the host of America's longest running investment conference, which is founded on championing American's right to own gold. The New Orleans Investment Conference. It really feels like there is a touch of prestige when you're there. I can speak to that personally because I've attended it at least three times in the past.

Keith Weinhold (00:39:47) - It's coming up in November. I hope to attend again this year. You've got some illustrious speakers there. Tell us about this year's New Orleans Investment Conference.

Brien Lundin (00:39:58) - Yeah, it is our 50th anniversary. You know, I think it's the oldest investment conference in the world today and longest running. And we do have that legacy, that prestige of being somewhat gold oriented. We're actually covering a good bit more real estate lately, but we really cover a lot of the macro picture macroeconomics. We have some of the leading thinkers come to our vet every year and a great audience as well. Very highly qualified, very successful investors. This year is up 50th. So we have another wonderful roster of speakers. We have Jim Grant coming, George Gammon, James Lavish, Danielle DiMartino Booth, Britt Johnson, Abby Gilbert, Adam Taggart, the list goes on and on. Rick Rule, Peter Boockvar, dozens and dozens of top minds. And, you know, we kind of alluded to it in this talk, but these are really strange and interesting and dangerous, extraordinary times that we're living through right now.

Brien Lundin (00:41:02) - And it is amazing to me, having been in the business for 9 to 40 years now, seeing these kinds of periods come and go. And it seems that when they do happen, we get this kind of underground media that arises, and people who really bring in losses come to the fore to comment on what's going on and provide really valuable insights. And after all the years I've been in this business, I know who really contributes value, who the best thinkers are, and I'm getting them all to come to New Orleans. As I have to say, I'm a big fan of all of our speakers. I think they are absolutely extraordinary, and we are so confident that you will find our event to be worth many times the cost of attending, that we have a money back guarantee. If you don't think it does, if you don't think it's worth many times what you paid for, we'll give you registration feedback. So it's very few events that can offer a guarantee like that. And I think you would agree with me that you have to be there to really experience it.

Brien Lundin (00:42:07) - And it really is just an extraordinary experience.

Keith Weinhold (00:42:11) - Yeah, I can't imagine anyone not getting a multiple on their investment with attending the conference. You know, one thing that you do really well there at the conference, Brian, besides just listening to all those speakers that you just mentioned, you also have panel format discussions where sometimes you can learn more when you're listening to a conversation than you can when you're listening to a presentation. You have both choices there. Then if you prefer you want to break, you can go across the hallway to where the exhibit hall is and do some learning and meeting people over there. And then you also have these breakout sessions where you go upstairs into small rooms and learn from presenters in just the niche that you think most interests you or that you want to learn more about. So there's really good variety there.

Brien Lundin (00:42:54) - Yeah, it's kind of a time tested format. It's different than most conferences you'll find out there, but it's worked well for us for 49 years, and our attendees seem to appreciate the unique format that we have and the ability to learn.

Brien Lundin (00:43:09) - And it really is information almost overload. There's so much of value from these speakers. If you are intellectually curious, if you are a serious investor, if you enjoy an intellectually stimulating environment in a destination location, this is really the place for you. And you know, I can go on over and over again for as long as we have time for and more to say talking about it. But the best advertising we do are people who word of mouth from people who have come. And I would encourage anyone who is considering coming to the New Orleans Investment Conference. Number one, this is our 50th anniversary. It's going to be a very special year. But number two, find somebody who's been before. Talk to them about it. And I think you'll get excited about attending this year.

Keith Weinhold (00:43:56) - Each year it is at an excellent location. It's at the New Orleans, Riverside Hilton and Bryan Terrace, those November dates for the event and then how one can attend.

Brien Lundin (00:44:07) - Yeah, it's November 20th to 23rd this year, so it's the week before us Thanksgiving week.

Brien Lundin (00:44:14) - So it's it doesn't interfere with that holiday. It's kind of a good little slot there. And people can learn more by going to one New Orleans conference.com. Very simply New Orleans conference.com.

Keith Weinhold (00:44:29) - All right. It's been great catching up on the state of the economy, real estate inflation, interest rates, gold. And thank you so much for putting on this terrific conference for the benefit of every interested investor. It's been great having you back on the show.

Brien Lundin (00:44:43) - Wonderful to talk to you again, Keith, as always.

Keith Weinhold (00:44:52) - Oh, yeah. Bright, inarticulate thoughts from Brian, as always, when he and I discussed those related factors of inflation and interest rates. I mean, this is such a germane discussion because, like he brought up, there seems to be this increasing propensity for all asset classes to rise or fall together. Like nearly every asset class is near an all time high right now. I'll need to research the incidence of this some more so that it's not just anecdotal, but the Fed's decisions. They seem to increasingly float up or knock down just about every investment class almost simultaneously.

Keith Weinhold (00:45:35) - Real estate stocks, gold, crypto commodities, collectible toys, even nearly everything. And when you're a real estate investor, you are already investing in commodities and metals, and you have direct ownership of those. Now, not so much precious metals in your real estate, but we're talking about items that are built into it, like aluminum and steel and copper. They probably exist in your properties. Well, their prices go into the replacement cost of your property, and they are a reflection of your real estate portfolio's overall value, too. Coming up here on future episodes of the show, it will be the inaugural appearance of the King of Commercial Real Estate here on the show. Also, there seems to be still a mainstream aversion to all debt types, and I suppose it finds me in the position of being real estate's debt proselytizing. Well, coming up on the show, I am going to ask and answer the question for you is any debt worth paying off? Which debts are good to pay down? Which stitch should be paid off, and which debt types do you want to keep, and which debt types do you actually want to get more of? What are the exact distinctions so that you know right where to draw that line on all the debt types that you hold on to.

Keith Weinhold (00:47:00) - So coming up here on the show, is any debt worth paying off? And I am pleased to tell you that if you would like to meet in person, yes, you're going to have a chance to do that at the special 50th anniversary of the New Orleans Investment Conference. Now, I'm not sure that meeting me in person really brings any benefit to you or the event, but yes, I am attending in person in New Orleans. I haven't been there since 2021 and I want to return. Brian London really knows how to put on an event. There is a lot of macroeconomic talk there and you will hear more about both that and gold than you will about real estate, although I expect plenty of real estate investing information there as usual. Again, it's November 20th to 23rd, four plus months away. And the registration link that you can use for this is in today's show notes. I will also get it into the next newsletter for you. Big thanks to the wise and wonderful Brien Lundin today. Until next week, I'm your host, Keith Weinhold.

Keith Weinhold (00:48:03) - Don't quit your daydream.

Speaker 5 (00:48:09) - Nothing on this show should be considered specific, personal or professional advice. Please consult an appropriate tax, legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own. Information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of get Rich education LLC exclusively.

Keith Weinhold (00:48:37) - The preceding program was brought to you by your home for wealth building. Get Rich education.com.

Direct download: GREepisode510_b.mp3
Category:general -- posted at: 4:00am EDT

Mon, 8 July 2024

Asset prices are near all-time highs for almost everything: real estate, stocks, gold, bitcoin, and more. This is because in a wave of high inflation, investors chase yields.

Legendary investor Jim Rogers joins us.

Jim gives dire warnings about US debt levels.

Meet me and one of our Investment Coaches in-person at FreedomFest in Las Vegas, July 10th to 13th.

I put $1T into perspective. A trillion seconds ago was 31,700 years ago. That’s when neanderthals roamed the plains of Europe.

The dollar is a monopoly. The US government has no competition for their product, the dollar.

Jim Rogers believes that higher inflation and interest rates are here to stay.

He says: “Before this is over, interest rates in the US are going to go much, much higher.”

Resources mentioned:

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

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508: Essential Real Estate Quotes You Must Hear

Complete episode transcript:

Keith Weinhold (00:00:01) - Welcome to GRE. I'm your host, Keith Weinhold. I'll tell you about a chance to meet me in person. Then we're joined by a renowned and legendary investor for his sage like wisdom on how you should respond to record US debt levels for forecast the future direction of inflation and interest rates, plus a taste of the Singapore real estate market today and get rich education.

Robert Syslo (00:00:27) - Since 2014, the powerful Get Rich Education podcast has created more passive income for people than nearly any other show in the world. This show teaches you how to earn strong returns from passive real estate, investing in the best markets without losing your time being a flipper or landlord. Show host Keith Weinhold writes for both Forbes and Rich Dad Advisors, and delivers a new show every week. Since 2014, there's been millions of listeners downloads and 188 world nations. He has A-list show guests include top selling personal finance author Robert Kiyosaki. Get Rich Education can be heard on every podcast platform, plus has had its own dedicated Apple and Android listener. Phone apps.

Robert Syslo (00:01:02) - Build wealth on the go with the Get Rich Education podcast. Sign up now for the get Rich education podcast or visit get Rich education.com.

Corey Coates (00:01:13) - 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 (00:01:29) - Welcome to GRE. From Sydney, Australia, to Sydney, Nova Scotia, Canada, and across 188 nations worldwide. I'm Keith Weinhold and you're listening to Get Rich Education. Why are our values of almost every asset so high? Well, one reason is because we've had that high wave of inflation. When that happens, savvy investors, people just like you, they ensure that money must flow into assets. And that's because you seek a real return above and beyond inflation. If inflation were low, investors wouldn't have to chase yields this way. I've got more on asset values in a moment. But first, on today's guest, legendary investor Jim Rogers, who will hear from as a returning guest here soon in early 2019. So more than five years ago, he told us right here on the show that interest rates are going to go much, much, much higher over the next few decades and that is going to ruin a lot of people.

Keith Weinhold (00:02:32) - In fact, let's listen into that. Here it is. This is from get Rich education podcast episode 224, which you heard here in January 2019. This is Jim Rogers.

Jim Rogers (00:02:43) - And interest rates are going to go go much, much, much higher over the next few decades. And it's going to ruin a lot of people.

Keith Weinhold (00:02:50) - And then from there, he went on to tell us at that time, rising interest rates will set in for a long time. And this was back when the fed funds rate was just half of what it is today in mortgage rates were 4.5% back there in early 2019. So Jim Rogers made that firm prediction even before we knew about Covid. Then. And on that episode, we talked about getting your debt and locking it in. And then two years later in 2021, he was back here on the show to warn us to expect high inflation. Well, we sure got that too. And as you listen to Jim Rogers on today's episode, consider that, you know, he just often speaks with this sort of, I suppose, nonchalance that I think can make it easy to dismiss what he says.

Keith Weinhold (00:03:46) - But don't do that because countless people have benefited from his guidance for decades. Just like I hope that you do today in the real estate world. Now, agencies agree that the national year over year home price appreciation rate is 6%. That's today per the FHFA, the NAR and Case-Shiller 6% home price appreciation. What about rents? Today, Single-Family rents are up 5%. Nationally, multifamily rents up 2.7%. So why are Single-Family rents growing faster than multifamily rents? Well, it's partly because 2023 saw the biggest surge in new apartment supply since 1987. Yes, that's back when Madonna was the hottest music artist and Reagan met with Gorbachev. But there's less apartment construction this year, so expect a lot of that to get absorbed. Available inventory of Single-Family Rentals is going to stay more scarce than apartments for quite some time, but long term they both expect to be in really great shape. Residential rental demand is sustainable now. Back in 2022, available single family home inventory that was an astoundingly paltry one quarter of what was needed.

Keith Weinhold (00:05:20) - Well, now it's up to half. Some inventory has definitely been added. In fact, I was recently on television being asked about that. But this still means that demand handily exceeds supply. There's not nearly enough housing, especially on the single family end. And what about those perpetually just around the corner, always, constantly just around the corner, fed interest rate cuts. They keep getting delayed beyond a lot of people's expectations. Well, per the CME's Fed Watch tool, here is the chance given of when the first rate cut will occur by the end of July. 10% September 60th 4%. November 70th 7% December 90th 3%. You know, personally, I think the chances are lower than all of those currently inflation's at 3.3%. But here's the thing. Even when it hits the Fed's target of 2%, that doesn't mean that rates must be cut. All right. That's a reality that a lot of people seem to forget. Now here on the show, not after every quarter, but sometimes when a quarter ends, just like one did a week ago, we take a quick look at other asset class moves outside of real estate in order to get a relative perspective.

Keith Weinhold (00:06:43) - Some comparison here. If you're listening to this episode ten years from now, this is really going to help mark this era for you to is we do have many listeners that listen to every single episode. The 30 year mortgage rate is near 7%. Now, all these next figures are year to date through the first half of the year. So this is just the performance of the first half. Stocks have soared. The S&P is up 15%. One way that US stocks changed last quarter is the trades are now going to settle faster. Investors will see their purchases and sales finalized in just one day instead of two. Gold is up 13% to over 2300 bucks. Bitcoin up 44%, oil up 16% to $82. And again, that's performance for just the first half of this year. The world's three largest companies Apple, Microsoft and Nvidia have a combined value of over $9 trillion. Now, a company's total value is known as its market cap, and that is simply found by multiplying share price and shares outstanding. By comparison, all the gold in the world is worth 15 trillion.

Keith Weinhold (00:07:54) - Hey, if you're familiar with an event called Freedom Fest, I have some cool news for you. It's an annual conference that. How would I describe it? Well, I haven't attended it before, but there you can learn to expect more about free thinking and ideas about the size of government. Well, it starts in two days. It's July 10th to 13th in Las Vegas. You can meet one of Gre's investment coaches in person there and you can also meet me. Yes, we'll both be there. If you see us, be sure to say hi. We'd both like to meet you. Hashtag IRL in real life, some of the Freedom Fest speakers include our frequent great guest, Robert Kiyosaki, as well as some other guests that you've heard with me here on the show. Also, Steve Forbes, Iced Tea, the comedian Rob Schneider, Nevada Governor Joe Lombardo, Whole Foods founder John Mackey and the congressman that wants to end the fed, Thomas Massie and more. They're all speaking. So yes, not a lot of notice, but if you're going, it's a way to meet me in real life, perhaps just in a casual way, in two days at Freedom Fest.

Keith Weinhold (00:09:08) - Well, it is public information that the net worth of this week's guest is $300 million. He's been influential for a long time. Let's talk to legendary investor Jim Rogers. This week's guest needs a little introduction. He is a legendary business and investing mogul of our time. He's a Yale educated, prolific author. He co-founded the Quantum Fund, and he even has his own commodities index and ETF. He's also a prolific traveler. He wrote a very well known book about his world travels, visiting some 116 nations. Hey, welcome back to gray. It's Jim Rogers.

Jim Rogers (00:09:51) - I'm delighted to be here. Okay, let's get rich. I need to get rich. I want to get rich.

Keith Weinhold (00:09:56) - Hey. Well, your guidance helps us do that. That's why you're here. And Jim is joining us remotely from his home nation city of Singapore today. And it's always interesting syncing up our times of day here. Jim, where to begin? You've been with us here. I think this is the fourth time you're here and about the last five years, and we're at a time when asset prices of seemingly everything are near their all time highs, maybe even in their inflation adjusted all time highs in some cases.

Keith Weinhold (00:10:25) - What are your thoughts with asset price levels?

Jim Rogers (00:10:29) - Keith. You it's very perceptive of you and insightful. Yes. This is one of the few times in world history that I know about where nearly everything is making new eyes. I think China is probably the only country. It's not making new eyes, but nearly everything else is. Now it's wonderful. It's great. A lot of people are having a lot of fun, but unfortunately, I've been around long enough to know that when things get this good, when everybody's having so much fun, we're getting closer to the end. I am not selling short or anything yet, but I see the signs that this is going to come to an end, as it always does, and it's going to be a mess. And the reason this is going to be a big mess this time. You remember what happened in 2008 because of too much debt each. That's 2009. The debt everywhere has skyrocketed. I mean, even China has a lot of debt now. China bailed us out before, but everybody has a lot of debt now.

Jim Rogers (00:11:31) - Maybe not North Korea, but everybody else does.

Keith Weinhold (00:11:34) - And that sure includes us. I mean, we have these asset prices at all time highs. Yet here we are, still the largest detonation in the history of the world in the United States now at 35 trillion. And we're spending dollars on others wars, something that we couldn't say when you and I talked a few years ago. The biggest line item of our national budget anymore is about $1 trillion in annual interest payments alone in. Jim, we're really on this course now where soon the US annual tax receipts won't even cover the interest payments on our debt, and we may have to borrow just to pay the interest. So where do we reach the breaking point here? With this world in debt led by the United States?

Jim Rogers (00:12:20) - You one makes some very good points. Unfortunately. I wish you didn't. I wish you couldn't make those points right. It's simple arithmetic. Just look at the numbers. And the numbers you recite are just what they admit, what they write.

Jim Rogers (00:12:34) - There's a lot of off balance sheet debt that they don't even talk about. I mean, the numbers, if you try to get out of pencil on a piece of paper, you will realize that the market can never pay this debt. Never. Countries that have gotten into this situation in the past have had big problems. Now it's a good time to be an old American. I don't have to worry about all this for too many years, but I have young children. Oh my gosh. The problem is that their country is going to face in their lifetime. I was staggering. You look back at previous countries that have done this kind of thing. In the 19 to 100 years ago, Britain was the richest, most powerful country in the world. 50 years later, it was bankrupt. IMF had to fly to London and pay their bills. It wasn't fun. It was terrible what Britain went through. But other countries have done the same thing. Maybe we don't like what I'm saying or what's happening, but just read the history and you will see how it winds up.

Jim Rogers (00:13:38) - I certainly don't like it, but I have to deal with facts. If I don't deal with facts, I'll go bankrupt. To which I don't want to do.

Keith Weinhold (00:13:48) - Yeah, sometimes let's laugh to keep from crying. Right? When you talk about how certain government figures are just what the government is willing to admit to, I think that's the right lens to look through. When you look at any government figures. Well, at least that's the part that they're willing to admit to. It's interesting that they're willing to admit to this is interesting that they're willing to admit to 9% inflation like we peaked at two years ago. But when you talk about the future and this huge debt load and children or grandchildren, could austerity be part of it, something that's very politically unpopular. But if we lived in an austere state, wouldn't that really be sort of like the downfall of the American empire at that point?

Jim Rogers (00:14:30) - Well, that's what happened to the British. As I said 100 years ago, they were the richest, most powerful country in the world.

Jim Rogers (00:14:36) - There was no number two. Then if two years later, completely bankrupt, I happened to be in England during part of that time and it was a mess. Wretched. So I don't like saying any of this, but I have to deal with the reality and the numbers you cite or what they admit. You know, the numbers are much worse. I don't know if anybody in Washington really knows. I don't even know if they care enough to check to see how bad things are. But every time a someone from Washington, a politician or a bureaucrat says something, they say, don't worry, everything's okay. We have a Janet Yellen who's a secretary of the Treasury. Are you or two ago said, don't worry, we have everything under control.

Keith Weinhold (00:15:20) - Reassuring isn't it? Not really.

Jim Rogers (00:15:22) - Oh my gosh. He's got a couple of fancy Ivy League degrees, but she still says, don't worry, it's okay. Well, I worry, I'm probably not as smart as she is, but I worry.

Keith Weinhold (00:15:36) - Well, it's interesting that you bring up the fact about the things that we don't know and these numbers, these debt levels and even the deficit gets so big, we're just throwing around this word trillion anymore.

Keith Weinhold (00:15:48) - For some perspective, I happen to know that 1,000,000,000,000 seconds is 31,700 years. In order to help put this into perspective, well, 31,700 years ago, that's just about as far back as when the planes of Europe were being roamed by Neanderthals. That's 1,000,000,000,000 seconds ago. And again, we are $35 trillion in debt, and we have a deficit of at least $1 trillion. The annual thing.

Jim Rogers (00:16:21) - I'm glad you're putting some perspective on this, but I don't need it. I know it's a staggering whatever number you want to look at, whether it's the one they report or the one that's they hide whatever it is, I know, because I can add and subtract. I know that America has a gigantic problem that is going to end up like every other country that's done this sort of thing. It's going to end up badly. America is going to lose its status, not this month. Don't worry. July is okay. But no, I can read, I can add, I can subtract. I know how it's going to wind up.

Jim Rogers (00:17:02) - It's not good for young Americans.

Keith Weinhold (00:17:06) - I mean, we think of the fall of the Roman Empire. You bring up the UK. The UK is still part of the G7, but they're no longer the one predominant power in the world. Jim, when I look at history and I think about sort of the powers that be and how they create and debase the currency, and how those problems percolate into so many parts of the society. I think if the United States is basically they have a monopoly on creating currency, and I just wonder if that's part of the problem. Lennar builds houses, but they have competition from KB homes. John Deere makes tractors and they have competition from New Holland. Heinz makes ketchup and they have competition from hunts. See, when there's competition, there's sort of this incentive to produce quality and provide others with value. But since the U.S. has no substantial competition to the dollar, I wonder if we can think of this as a de facto monopoly from its dilution of the purchasing power of the dollar.

Keith Weinhold (00:18:06) - Its quality is suffering because the dollar doesn't have any substantial competition. So I guess what I'm leading up to, what I'm getting at, is we think about currency creation as a de facto US monopoly. I mean, does the government have to be the exclusive money printer where all this just ends up in the debt column here?

Jim Rogers (00:18:24) - You raise some very good points. But back to the first main point. The main point is there is no way that America can ever pay these debts except by default, Which is one horrible way. Or by printing gigantic amounts of money, which is another horrible way. This is not the first time countries have done this. If you just go back and look, it is never ended well. Never ended well. Yes, England is still there, but nobody thinks about England the way they did 100 years ago. And nobody in England lives like they did 100 years ago, and many people left. I don't know what's going to happen to the US, except I know it's not going to end well because I can add and you can add and subtract.

Jim Rogers (00:19:15) - I wish we could subtract. There's nothing to subtract because the debt just keeps high and higher and higher. And the numbers are very simple. If you get out the amount of debt we have and see the possible income, it just doesn't work. If you have fifth grade education, fifth grade arithmetic, you know it doesn't work.

Keith Weinhold (00:19:39) - Jim, I don't know if you remember this, but the first time you were with us, it was January of 2019. That was more than five years ago. And at that time you said interest rates are going to go much, much, much higher. That was your direct quote, three matches. And you said that it's going to ruin a lot of people. And here we are with a lot of people ruined in the commercial real estate world and the apartment syndication world and so on. So if you continue to think there's going to be more currency creation to make it easier to pay back our debt, does that mean you believe that higher interest rates and higher inflation are going to be a persistent condition, say, just till the end of this decade, which is about another five years? What do you think about inflation and interest rates for these next five years?

Jim Rogers (00:20:27) - I know that in Washington they will print money.

Jim Rogers (00:20:31) - That's all they know. They want to keep their jobs. They don't care about you. I don't care about any of us. They care about keeping their job. And they will do whatever they have to to keep their job the easy way. Now, the proper way, of course, is to buckle up, buckle down, and start doing something about the rendus situation we were in. They don't care. They think they'll be gone by the time those times come, if they're ever coming, and they will say, but we're America. We cannot have problems like that. Well, that's what the British said, too. Once upon a time. And as I say, there was no number two to the British. They were that power. They were that much on top. It's not that I don't like saying. I don't like thinking it. I don't like living with it. But I do hope I can prepare so that I don't go down the tubes like some other people will. But I may just do the arithmetic.

Jim Rogers (00:21:32) - It's very simple. The numbers just cannot work. I didn't say the numbers do not work. I said they cannot work because the situation is that dire. They can hold it off for a while by printing money. Great. But then not for you and me. Certainly not for our children.

Keith Weinhold (00:21:51) - I think that's all they're going to keep doing. That's the most expedient way to do it, to keep printing any politician that proposes austerity. And you having soup for breakfast, lunch and dinner is not very likely to get re-elected. Does that mean in the next five years you foresee historically elevated interest rates and inflation, which is basically where we actually still are now?

Jim Rogers (00:22:14) - Well, of course I do. I mean, there's the market. The problem is right now the central banks still think they're in control, and they pretty much are. But there will come a time. And there always has in history when the market says, wait a minute, we know you're lying. We know this cannot work. And then when the market takes over and the market starts setting interest rates and other conditions, that's called disaster.

Jim Rogers (00:22:41) - That's a real, real serious problem. The market will know how bad things are, and the Treasury secretary can sit there and say all day long, don't worry, don't worry. We have it under control. And the Marquis will say, thanks, but we know better.

Keith Weinhold (00:22:59) - Well, we've got more coming up with Jim, including. He spent some 60 plus years abroad. I want to learn more about what he thinks with living and traveling so much about the United States. You're listening to get Rich education. Our guest is legendary investor Jim Rogers. When we come back, I'm your host, Keith White. Hope 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 25 K.

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Speaker 5 (00:25:08) - This is The Real World Network's Kathy Petke, and you are listening to the always valuable get Rich education with Keith Reinhold.

Keith Weinhold (00:25:26) - Welcome back to get Rich. university. So we're talking with investing mogul legendary Jim Rogers.

Keith Weinhold (00:25:32) - He's joining us from Singapore today. He's joined us a few times over the past five years. And with what he said in what's coming, he's really been remarkably accurate. Sometimes he just gives a pretty casual delivery, but you really want to listen in to what he's saying. A lot of people have hung on his every word for decades here. And Jim, part of that is all your worldly experience. From so many of your travels and visiting over 100 nations. I've only visited about 35 so far myself. What do you think that we can learn about the United States from living and traveling abroad?

Jim Rogers (00:26:07) - First of all, I used to tell you I have made many mistakes in my life. I don't think I don't know how to get things wrong. I have many times. But yes, living abroad, I certainly even traveling abroad is an eye opening experience. It's a fabulous education. Rudyard Kipling, who won the Nobel Prize for literature, once had a line and a poem. The name of the poem was The English flag and the lion was.

Jim Rogers (00:26:36) - What can he know of England? Who only England knows. One is you'll know a lot about your own country if you know about the rest of the world. And you will you. If you go to country X and you see they eat different food or wear different clothes, it'll make you realize a lot about America. So my point is it's a fabulous education to see other places. I don't know if it's helped me. I in my view, it has helped me a lot to understand the world and to understand other people.

Keith Weinhold (00:27:11) - Now, in my international travels, which are a fraction of yours, a lot of times I get a reminder that life in the United States is still pretty clean and efficient. We have an abundance of potable water all the way to an amenity like fast Wi-Fi. And you know if someone abroad is traveling in the United States, they get to experience those things, and they probably don't even realize or understand that we're the greatest detonation in the history of the world. It's actually pretty difficult to know.

Jim Rogers (00:27:40) - There are signs that even those travelers will see. If you go to JFK airport, you will see the huge difference in JFK and say, the Japanese Narita Airport. You know your intuitive world when you visit some international airports outside of the US. But it's not just that America. Five star hotels do not compare with five star hotels in other countries. Listen, I don't like any of this because I have to live it. But the facts are. Yes. And you make a very good point that most people do not notice or does not affect them much at all if it affects them at all. But that just makes the eventual problem worse, because it hits us out of the blue and we don't know what happened. At least if we're worried, we can prepare. But you know, if you ride down the highway, most people think everything. It's okay. This is a nice interstate layout of potholes. They think everything is great. I hope that this all changes. I hope I'm wrong, but I have seen enough to dough that it's not going to end well.

Keith Weinhold (00:28:55) - Tell us about where you've lived for a long time. I mean, you come from the United States, but you've lived abroad for a long time. You've been there in Singapore for a while. Singapore, which is a place I haven't traveled to, has a reputation for being prosperous and enterprising in a really clean place. So will you tell us a little bit more about why Singapore is prosperous, including what its real estate markets like?

Jim Rogers (00:29:20) - Singapore is a tiny country. There are only 5 or 6 million people here. So yes, it has been a remarkable success story. It's probably been one of the greatest success stories in the world in the past 40 or 50 years. It still amazes me to see how efficient and how well everything works here. And they don't have yet the getting debt now, but they don't have the staggering debts that some other countries do. I mean, Japan, America. You look at some of the great success stories that come to people's minds. Japan did it by borrowing staggering amounts of money.

Jim Rogers (00:29:57) - Every day, the Bank of Japan borrows huge amounts of money it's going to have a problem to someday. I mean, it's just very simple. I don't want it to sound like some crazy fear monger, but I can read. And I know how this is always wound up. Now there's some very exciting and successful places in the world. And if you go to some parts of the United States, you say, oh my gosh, what a wonderful place. And it is. But underneath seems to me that there are problems developing. If you come to Singapore, you'll say, oh my gosh, and I'm not the only one who knows it all. The international surveys show that Singapore is one of the very top.

Keith Weinhold (00:30:42) - Now in Singapore, is it more of an owner society where most of the residents own the home they live in or like you find in a lot of urban areas? Is there a disproportionately high amount of renters there in Singapore?

Jim Rogers (00:30:55) - Over 80% of the people at Singapore own their own home.

Jim Rogers (00:31:00) - The guy who set out to build Singapore new and he especially because in his lifetime there had been a lot of riots in Asia. And he somehow knew that if people own their own home, they had a huge stake in the country, right? Had a reason to make sure, to try to make sure everything went well. So in this country, over 80% of the people own their own home. Yeah, he may have a mortgage, but still they own their own home. That's part of the reason for the success. I mean, for what it's worth, I'll also tell you he was a huge believer in education. He made sure that everybody spoke at least two languages. I mean, he knew what it took to be successful and he did it. Yeah.

Keith Weinhold (00:31:49) - Homeownership is generally good for communities like you touched on. You just have more of a stake in making sure your neighborhood stays quiet. Or you might show more interested enthusiasm in new clean mass transit coming into your area. You're more likely to be a voter when you own your home, and so on.

Keith Weinhold (00:32:06) - So sure, that gives the residents a more vested stake in their own community, which is good for everybody. Does Singapore have one problem that we have here with United States housing? Do you have any idea if there's a substantial housing shortage there in Singapore, like we're seeing in so many places?

Jim Rogers (00:32:21) - Do not shortage in the sense that you probably mean it? Yes. At times prices go high because there's not an abundance of housing and people keep moving to Singapore because it has been a successful place. So no, it's not like many places that we both know, but there are more immigrants coming here. The population is rising and they got a little somewhere. Yes, people are building homes and so it's not a gigantic problem at the moment. Can it be? Yes, of course it can be. And maybe it will be someday, but not at the moment. One thing I'll quickly say. Many societies, many countries, have a saying that families go from rags to rags and three generations. And there are many reasons for that.

Jim Rogers (00:33:11) - So social reasons. I will point out that Singapore is now on its fourth new government. So maybe if human wisdom is correct, maybe Singapore is going to have some problems in the future. You don't see them now. They might though.

Keith Weinhold (00:33:28) - Well, that's an interesting way to think about it. We've talked about problems in a few nations, Jim. I wonder, do you see there being a bright next up, incoming nation because you have this relative perspective from all your travels.

Jim Rogers (00:33:43) - There are places that are trying to change and do better. Yet, Nam is a perfect example. I mean, what a nightmare it was 40 or 50 years ago. Right now it's on the rise. South Korea is one of the most successful, prosperous nations in the world. And in 1970, North Korea was richer than South Korea. That, of course, is not true anymore. So countries can change and can develop. And it has worked. I'm interested in Uzbekistan now, in Central Asia. It was ruined by the communists.

Jim Rogers (00:34:20) - over 600 years ago. Uzbekistan conquered a lot of the world. I mean, then the communists came along and ruined it. But now they're changing again. So there's always somebody on the rise, and I'll be somebody on the decline. That's key, of course, is to be in the place where things are getting better, not getting worse.

Keith Weinhold (00:34:42) - With that in mind is we're about to wrap up here. Jim, you know, I like an actionable takeaway for the audience. And before I ask you that, if I can share with you what we do here in a nation and a world of expanding debt, Grey's take on debt here is the way that we can borrow large amounts prudently and get our own debt is to buy income producing real estate. If you borrow more, you can only control more and both inflation and tenants passively debase your mortgage debt for you, which enriches that borrower as long as they can control their cash flow. So really, that's one thing that we're doing to play things here in a world of inflation.

Keith Weinhold (00:35:25) - What are your thoughts with that? Or if you think that there's something else that the everyday person can really do to protect themselves in the future.

Jim Rogers (00:35:33) - It's pretty clear that there have been, if you understand that and if you manage it properly, oh my gosh, you can become unbelievably successful and unbelievably rich. The proper words are though, if you handle it properly. History also showed that many people have been ruined by debt, so I hope that everybody understands that debt is not as simple as it looks, but if you handle it properly, oh my gosh, the returns and the rewards are huge. And yes, there are many, many throughout history, throughout the world, many people that made gigantic fortunes from property, from real estate. So I hope you're doing it right. I hope all of your viewers are doing it right. It's not as easy as it looks, but it can lead to great success and great disaster. So yes. Don't stop. Make sure that everybody understands the potential problems and the potential rewards and they don't get overextended.

Jim Rogers (00:36:37) - Oh my gosh, you'll be very, very rich.

Keith Weinhold (00:36:40) - Yeah, that's a little bit like fire. If used inappropriately, could burn down your house. But if you know how to use fire, you can cook meals for the rest of your life. Do you have any last thoughts overall, anything you'd like to share? Anything we really want to know?

Jim Rogers (00:36:54) - I will tell you again that before this is over, interest rates in the US are going to go much, much higher. The debt is staggering. It is just whenever I look at the numbers and think about them, it shocks me, stuns me because I know it's going to lead to huge, huge, huge problems. But the people who are aware and understand what's happening and thrive. So this is not some kind of disaster for everybody, but some people will do extremely well. I hope that everybody you know does extremely well.

Keith Weinhold (00:37:31) - Well, Jim Rogers, it's been a pleasure hearing from you again. As always. Thanks so much for coming out of the show.

Jim Rogers (00:37:37) - My pleasure. I hope we can do it again sometime.

Keith Weinhold (00:37:45) - Oh yes. It's good to get the bigger picture. Sage like wisdom. I'm not sure if you caught it early in the interview, but Jim is not selling short. That means he's not betting that stocks are about to take a big fall. He expects even higher interest rates when it comes to America's swelling debt. Most agree that they're just going to keep inflating their way out of it, rather than default on it. I do, too, but consider that the US actually does have a history of defaulting, like in 1971 when we told the world that you can no longer redeem our debt, IOUs for your gold, that there was defaulting on a promise, we weren't going to give them the gold anymore. Singapore is still growing fast. In fact, it's averaged about 2% annual growth over the last decade. If you discard pandemic aberrations, the value of the median Singapore condo is $1.7 million, and it is 1000ft² in size. That sort of makes you think about New York City real estate.

Keith Weinhold (00:38:52) - And in fact, I had a trip planned to Singapore in February 2020. It was a cruise, but I didn't go. That part of the itinerary got cancelled. If you remember, Covid heated up in Southeast Asia early on, so I ended up spending more of that trip in India and Dubai. As it turned out, with our accelerated expansion of the supply of dollars that have been created since 2020. Here's one result today, more than 43% of Americans have been forced to cut back over the past year, and nearly 20% have had to borrow from family or friends in order to make ends meet. And you know when politicians brag about government funding. Just remember this. They're actually expecting you to give them credit for spending your money. That's what that means. And unfortunately, no one is immune from Congress's spending, which can be reckless at times. If you don't pay for something with taxes, then you pay for it with inflation. And that's exactly the type of issue that we expect to study on at Freedom Fest, where I might be fortunate enough to meet you in two days.

Keith Weinhold (00:40:10) - Big thanks to the iconic Jim Rogers today. His website is Jim rogers.com. Coming up on the show here in future episodes soon, we're going to discuss a few components that add value to your residential real estate that really don't get discussed very often. Garages and also the vacant land that your property sits on. Also, the King of Commercial real estate is set to make his Get Rich Education debut. We'll learn about commercial real estate turmoil and the commercial sectors that higher interest rates have blown up. Well, hey, do you have family or friends that are into investing or real estate? I love it when you hit the share button on your podcasting device or whatever platform you're listening on. Everything that we do here is free, and the share button really helps the show. And be sure to follow or subscribe to the get Rich educational podcast yourself if you haven't already. Until next week, I'm your host, Keith Reinhold. Don't quit your daydream.

Speaker 6 (00:41:19) - Nothing on this show should be considered specific, personal or professional advice. Please consult an appropriate tax, legal, real estate, financial or business professional for individualized advice.

Speaker 6 (00:41:29) - 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.

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Direct download: GREepisode509_.mp3
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Mon, 1 July 2024

Explore influential quotes and maxims from the investing and business world.

This includes from: Warren Buffett, Mark Twain, Robert Kiyosaki, Albert Einstein, Dan Sullivan, Thomas Edison, Benjamin Franklin, Suze Orman, and yours truly, Keith Weinhold.

“Why not go out on a limb? That’s where the fruit is.” -Mark Twain

“Given a 10% chance of a 100x payoff, you should take that bet every time.” -Jeff Bezos

“The stock market is a device for transferring money from the impatient to the patient.” -Warren Buffett

“Don’t live below your means; expand your means.” -Rich Dad

“The wise young man or wage earner of today invests his money in real estate.” -Andrew Carnegie

“Savers are losers. Debtors are winners.” -Robert Kiyosaki

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507: Compound Interest is Weak

Complete episode transcript:

Keith Weinhold (00:00:00) - Welcome to GRE. I'm your host, Keith Weinhold. Real estate and other investing involves people from the disappointing to the mesmerizing. People have contributed countless quotes, maxims and aphorisms on investing today. All recite and then we'll discuss dozens of influential ones and what you could learn from this timeless wisdom today on get Rich education.

Robert Syslo (00:00:29) - Since 2014, the powerful get Rich education podcast has created more passive income for people than nearly any other show in the world. This show teaches you how to earn strong returns from passive real estate, investing in the best markets without losing your time being a flipper or landlord. Show host Keith Reinhold writes for both Forbes and Rich Dad Advisors and delivers a new show every week. Since 2014, there's been millions of listeners downloads and 188 world nations. He has A-list show guests include top selling personal finance author Robert Kiyosaki. Get Rich education can be heard on every podcast platform, plus has had its own dedicated Apple and Android listener. Phone apps build wealth on the go with the get Rich education podcast.

Robert Syslo (00:01:06) - Sign up now for the get Rich education podcast or visit get Rich education.com.

Corey Coates (00:01:14) - 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 (00:01:30) - Welcome to diary from Ellis Island, New York, to Ellensburg, Washington, and across 188 nations worldwide. I'm Keith Weinhold, and you're listening to get Rich education for the 508th consecutive week. Happy July. It's the first day of the quarter, and it's now the second half of the year. So late last year when you got takeaways from our goals episode here, I hope that you're still applying them today. We're doing something different on this show. For most episodes. I divulge a lot of my best guidance. Some even quote that material. But why don't I acknowledge others great quotes maxims in aphorisms along with some of my own? And then I'll tell you what you can learn from them. So yes, today it's about axioms, adages, mantras and quotes, maxims and aphorisms. Some of these you've heard, others you probably haven't.

Keith Weinhold (00:02:28) - The first one is the only place you get money is from other people. Yeah. Isn't that so solidly true? You've never received any money in your life from yourself, unless you try to counterfeit it and give it to yourself. It's always been from other people. When you realize that the only place that you do get money is from others, you realize the value of relationships and connectivity. The next one comes from the brilliant entrepreneurial coach Dan Sullivan. You are 100% disciplined to your set of habits. Gosh, this is a terrific reminder about the importance of how you have to often uncomfortably apply something new in order to up your skill set up your game. If you keep getting distracted, well, then that's a habit, and then you'll soon become disciplined to the habit of distraction. The next two go together, and they're about market investing. Nobody is more bearish than a sold out bull. And the other is bears make headlines. Bulls make money. Really the lesson there is that they're both reminders that it's better to stay invested rather than on the sidelines.

Keith Weinhold (00:03:53) - The next two are related to each other as well. Albert Einstein said, strive not to be a person of success, but rather to be a person of value. And then similarly, a more modern day spin on that. Tony Hsieh, the late CEO of Zappos. He said, Chase the vision, not the money and the money will end up following you. And the lesson here is, well, we'd all like more money, but if you focus on the money first, well then it doesn't want to follow you. You need to provide value and build the vision first, and then the money will follow and you know, to me, it's kind of like getting the girl if you act too interested in her and you get too aggressive, it's a turnoff. But if you quietly demonstrate that you're a person of value, or subtly suggest somehow in a way that their life could be improved by having a relationship with you or being around you, then they're more likely to follow. And yes, I'm fully aware that this is a heterosexual male analogy, and I use it because that is what I am.

Keith Weinhold (00:04:58) - So if you're something else, I'm sure you can follow along with that. The next quote is from Susie Kasam. Doubt kills more dreams than failure ever will. Gosh, isn't this so on point? It's about overcoming the fear in just trying. And then if you know that you've lived a life of trying, you're going to have fewer regrets. Thomas Edison yes, the light bulb guy in the co-founder of General Electric, he said the value of an idea lies in the using of it. Oh, yeah, that's a great reminder that knowledge isn't really power. It's knowledge plus action that creates power because an idea that remains idle doesn't do anyone any good. Hey, we're just getting started talking about investing in real estate quotes today here on episode 508 of get Rich education. And, you know, remarkably, these maxims and catchphrases, they're usually just 1 or 2 sentences, but yet they are so often packed with the wisdom such that these takeaways and lessons are like your three favorite ones today. They can change the trajectory of your entire life.

Keith Weinhold (00:06:20) - The next quote is one that I have said carefully bought real estate has the best risk adjusted return in. The world. And I don't need to explain that because we talk about that in some form or another on the show many weeks. Albert Schweitzer said success is not the key to happiness. Happiness is the key to success. If you love what you're doing, you will be successful. Yeah, I'd say that one is mostly true. Just mostly, though, there's no attribution here. On this next one, you might have heard the aphorism money is a terrible master, but an excellent servant. Yeah. Now, I've heard that one for a long time, and it took me a while to figure out what it really meant. And here's my take on that. If you make money, the master will. Then you'll, like, do almost anything. You'll trade your time for money. You'll sell your time for dollars instead. If you invest passively and it creates leveraged equity and income streams, oh, then money serves you.

Keith Weinhold (00:07:28) - It's no longer the master. That's what that means to me here in a real estate investor context. And, you know, it really underscores the importance of making money work for you. And is a follow up to last week's show. Whose money are we talking about here? Whose is it? It's focusing on getting other people's money to work for you, not just your own. Now, the next one is a quote that I've said on the show before, quite a while ago, though. And come on now, what would an episode about quotes, maxims and aphorisms be without some contribution from Mark Twain? Here Twain said, why not go out on a limb? That's where the fruit is. that's just so, so good in business and in so many facets of your life, constantly playing it safe is the riskiest thing that you can actually do. Because a risk averse investor places a ceiling on his or her potential in a risk averse person imposes an upper limit on their very legacy. In fact, episode 275 of the get Rich education podcast is named Go Out on Limb precisely because of this Twain quote.

Keith Weinhold (00:08:45) - So listen to that episode if you want to hear a whole lot more about that. It's actually one of Twain's lesser known quotes, but perhaps his best one. The next one comes from famous value investor Benjamin Graham. He said the individual investor should act consistently as an investor and not as a speculator. Okay, so what's the difference there? A speculator takes big risks in hopes of making large quick gains. Conversely, an investor focuses on risk appropriate strategies to pursue longer term goals, which is really consistent with being a prudent, disciplined real estate investor. Presidential advisor Bernard Baruch contributed this to the investing world. Don't try to buy at the bottom and sell at the top. It can't be done except by liars. yes. Tried to time the market. It might be tempting, but it rarely works because no one really knows when the market has reached its top or its bottom. All you can really hope to do is buy lower and sell higher. But you're never going to buy at the trough and sell at the peak.

Keith Weinhold (00:10:00) - And even buying lower and selling higher is harder to do than it sounds, even though everyone knows that's what they're supposed to do. Albert Einstein is back here, he said. Compound interest is the eighth wonder of the world. He who understands it earns it. He who doesn't pays it. And as you've learned here on the show on previous episodes, compound interest. It does work arithmetically, but not in real life would apply to the stock market. Of course. My quote contribution to the investing world on this is compound interest is weak. Compound leverage is powerful. I broke that down just last week on the show, so I won't explain that again. Now, really, a central mantra in GR principle is don't live below your means, grow your means. But I must tell you, I can't really take credit for coining that particular one because from the rich dad world, the quote is don't live below your means, expand your means. But I did hear that from them first, and though it can't be certain, I think it was Sharon letter that coined that one.

Keith Weinhold (00:11:13) - A lot of people don't know this, but she was the original co-author of the book. Rich dad, Poor Dad with Robert Kiyosaki. And Sharon has been here on the show before, and if I have her back, I will ask her if she is the one that coined that. Don't live below your means. Expand. Your means. But yeah, I mean, what this quote really means is, in this one finite life that you have here on Earth, why in the world would you not only choose to live below your means, but actually take time and effort learning how to do a better job of living below your means when it just makes you miserable after a while, when instead you could use those same efforts to grow your means and you can only cut down so far. And there's an unlimited ceiling on the upside. And now there is one caveat here. I understand that if you're just getting on your feet, well, then living below your means might be a necessity for you in the short term.

Keith Weinhold (00:12:08) - And what's an example of living below your means? It's eating junk food because it's cheap and filling, expanding your means. That might be doing something like learning how to do a cost segregation to accelerate your depreciation. Write off on your 20 unit apartment building. But you know, even if you're in hardship, I still like live within your means more than the scarcity minded guidance of live below your means. Next is a terrific one, and it really reinforces the last quote a rich man digs for gold. A poor man is concerned with the cost of a shovel. Oh yeah, that's so good. And I don't know who to attribute that to. It's about growing your means and taking on and actually embracing calculated risks. Not every risk, calculated risk. And you can also live that regret free life this way. In fact, episode 91 of this show is called A Rich Man Digs for gold. So you can get more inspiration for that from that episode. Okay, this one comes from the commodities world where there are notoriously volatile prices.

Keith Weinhold (00:13:18) - How do you make a million? You start with 2 million. now, this next one is one that I don't really agree with that much. You really heard this a lot the last few years. It applies when you have a mortgage on a property, and that is the house is the liability and the debt is the asset. I know people are trying to be crafty. People kind of use this pithy quote when they're discussing how those that locked in at those artificially low mortgage rates years ago considered the debt so good that it's an asset. It's like, yeah, I know what you're saying. And I love good real estate debt and leverage and all that, of course. But really, for you, truly, then if the House is a liability and the debt is an asset like you're saying, then give away the house to someone else. If it's such a liability, and keep the debt to pay off yourself if it's really such an asset. A little humorous here. Next, Forbes magazine said, how do you make a million marry a millionaire? Or better yet, divorce one then more? Real estate ish is Jack Miller's quote how do you become a millionaire? Well, you borrow $1 million and you pay it off.

Keith Weinhold (00:14:31) - And I think we can all relate to that here at GRE. Better yet, borrow $1 million and don't pay it off yourself. Have tenants and inflation pay it down for you. And you know, inflation is getting to be a problem for any of these, like century old classic quotes that have the word millionaire in them. Because having a net worth of a million that actually used to mean you were wealthy, and now it just means you're not poor, but you might even be below middle class. Now, you probably heard of some of these next ones, but let's talk about what they mean. Warren Buffett said the stock market is a device for transferring money from the impatient to the patient. And then Benjamin Franklin said an investment in knowledge pays the best interest. I mean, yeah, that's pretty on point stuff there when it comes to investing. Nothing will pay off more than educating yourself. So do some research before you jump in. And you've almost certainly heard this next one from Warren Buffett.

Speaker 4 (00:15:28) - You want to be greedy when others are fearful, and you want to be fearful when others are greedy.

Keith Weinhold (00:15:32) - That is, be prepared to invest in a down market and to get out in a soaring market. As per the philosophy of Warren Buffett, it's far too easy for investors to lose perspective when something big goes wrong. A lot of people panic and sell their investments. And looking at history. The markets recovered from the 2008 financial crisis. They recover from the dotcom crash. They even recover from the Great Depression, although it took a long time. So they're probably going to get through whatever comes next as well, if you really follow that through what Buffett said there. Well, then at a time like this now, I mean, you could be looking at shedding stocks as they continue to approach and break all time highs. Carlos Slim, hello said with a good perspective on history, we can have a better understanding of the past and present and thus a clear vision of the future. Sure. Okay, that quote like that probably didn't sound very snappy and it's really simple, but he's telling us that if you want to know the future, check on the past.

Keith Weinhold (00:16:39) - Not always, but often. It will tell you the future directory, or at least that trajectories range. And this is similar to how I often say take history over hunches, like when you're applying economics to real estate investing. Now this next guy has been a controversial figure, but George Soros said it's not whether you're right or wrong that's important, but how much money you make when you're right and how much you lose when you're wrong. Okay, I think that quote means that too many investors become almost obsessed with being right, even when the gains are small, winning big, and cutting your losses when you're wrong. They are more important than being right. Amazon founder Jeff Bezos said given a 10% chance of a 100 times payoff, you should take that bet every time. All right. Now, that's rather applicable to the high flying risk of, say, investing in startup companies. We'll see. Bezos himself, he took a lot of those bets, a 10% chance at a 100 X payoff. And that is exactly why he's one of the richest people in the world.

Keith Weinhold (00:17:49) - Now, if you haven't heard of John Bogle before, you should know who he is. He co-founded the Vanguard Group, and he's credited with popularizing the very concept of the index fund. I mean, Bogle transformed the entire investment management industry. John Bogle said, don't look for the needle in the haystack. Just buy the haystack. Okay? If it seems too hard to say, find the next Amazon. Well, John Bogle came up with the only sure way to get in on the action. By buying an index fund, investors can put a little bit of money into every stock, and that way they never miss out on the stock market's biggest winners. They're only going to have a small part. And what that means to a real estate investor is, say, rather than buying a single property in a really shabby neighborhood, that neighborhood will drag down your one property. So to apply boggles by the whole haystack quote. What you would do then is raise money to buy the entire block, or even the entire neighborhood and fix it up, therefore raising the values of all of the properties.

Keith Weinhold (00:18:55) - Back to Warren Buffett. He had this analogy about the high jump event from track and field. He said, I don't look to jump over seven foot bars. I look around for one foot bars that I can step over. Yeah. All right. I mean, investors often do make things too hard on themselves. The value stocks that Buffett prefers, they frequently outperform the market, making success easier. Supposedly sophisticated strategies like short selling. A lot of times they lose money in the long run. So profiting from those is more difficult. Now, you might have heard the quote, and it's from Philip Fisher. He said the stock market is filled with individuals who know the price of everything but the value of nothing. Yeah. I mean, that's really another testament to the fact that investing without an education and research that's ultimately going to lead to pretty regrettable investment decisions. Research is a lot more than just listening to the popular opinion out there, because people often just then invest on hype or momentum without understanding things like a company's fundamentals or what value they create for society, or being attentive to price to earnings ratios.

Keith Weinhold (00:20:08) - Even Robert Arnott said in investing, what is comfortable is rarely profitable. You know, that's pretty on point at times. You have to step out of your comfort zone to realize any big gains. Know the boundaries of your comfort zone. Practice stepping out of it in small doses. As much as you need to know the market, you need to know yourself too. Can you handle staying in when everyone else is jumping out, or do you have the guts to get out during the biggest rally of the century? You've got to have the stomach to be contrarian and see it through. Robert Allen said. How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case. That's the end of what Robert G. Allen said. Yeah, though inflation could cut out the millionaires part. Yeah I mean point well taken. No one builds wealth through a savings account. Now a savings account might be the right place for your emergency fund. It has a role, but it's not a wealth builder.

Keith Weinhold (00:21:10) - I mean, since we left the gold standard back in 1971, so many dollars get printed most years that savers become losers. Which, hey, that does bring us to Robert Kiyosaki. He's been a guest on the show here with us for times now, one of our most frequent guests ever. Here he is. The risks at Port Arthur. And you probably know what I'm going to say. He is, he said. Savers or losers? Debtors or winners of something that your parents probably would never want to know that you subscribed to your grandparents, especially. Yes, he is one of the kings of iconoclastic finance quotes. And as you know, I've got some contributions to that realm myself. But what Kiyosaki is saying is if you save 100 K under a mattress and inflation is 5%, well, now after a year you've only got 95 K in purchasing power. So therefore get out of dollars and get them invested. Even better than if you can get debt tied to a cash flowing leveraged asset. In fact, episode 212 of this very show is named Savers are Losers.

Keith Weinhold (00:22:18) - Debtors are winners. So I go deep on that theme there. We've got more as we look at it and break down some of the great real estate investing quotes, maxims and aphorisms. They generally get more real estate ish as we go here, including ones that you haven't heard before and dropping, quote, bombs here that absolutely have to be enunciated and brought to light ahead. A group of Real Estate quotes episode. Hey, learn more about what we do here to get rich education comm get rich education.com. And do you have friends or family that are into investing or real estate? I love it when you hit the share button on your pod catching device or whatever platform you're listening on. Everything that we do here is free and the share button really helps the show. Be sure to follow or subscribe yourself if you haven't done that more. Straight ahead. I'm Keith Reinhold, you're listening to get Rich education. Your bank is getting rich off of you. The national average bank account pays less than 1% on your savings.

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Speaker 5 (00:25:02) - This is Rich dad advisor Ken McElroy. Listen to get Rich education with Keith Reinhold and don't quit your daydream.

Keith Weinhold (00:25:20) - Welcome back to Get Your Education. I'm your host, Keith Weiner. We're having some fun today, looking at and breaking down some of the great investing quotes, maxims, and aphorisms. Andrew Carnegie said, the wise young man or wage earner of today invests his money in real estate. Another one for Mark Twain here by land. They're not making it any more. You probably heard one or both of those. And yeah, Twain's time predated that of those islands that are built in Dubai. But Twain's point is still well taken. There is an inherent scarcity in land. Louis Glickman drove the point home about real estate investing when he simply said, the best investment on Earth is Earth. A Hebrew proverb goes as far as saying he is not a fool man who does not own a piece of land.

Keith Weinhold (00:26:18) - Wow, that's pretty profound right there. And if you're a female listener, yes, many of these timeless quotes from yesteryear harken back to a period when all of the landowners were men. President Franklin D Roosevelt, he has a real estate quote that you probably heard, but let's see what I think about it. Let's talk about it. Here it is. Real estate cannot be lost or stolen, nor can it be carried away, purchased with common sense, paid for in full and managed with reasonable care. It is about the safest investment in the world. That's from FDR. That's pretty good. I just don't know about the paid in full part because you lost your leverage. FDR, Johnny Isakson, a US senator, said, in the real estate business, you learn more about people and you learn more about community issues. You learn more about life. You learn more about the impact of government, probably more than any other profession that I know of. And that's good, really on point stuff there.

Keith Weinhold (00:27:23) - If you're a direct real estate investor like we are here, you really learn those things. If you're in, say, a REIT, well, you're not going to be exposed to that type of knowledge in experiences. Hazrat Ali Khan is a spiritualist and he said, some people look for a beautiful place, others make a place beautiful. Yeah, that's some mystical motivation for the house flipper or the value add real estate syndicator right there, Political economist John Stuart Mill, he said something you've probably heard before. Landlords grow rich in their sleep without working, risking or economizing. Oh, yes, you can have a real estate quotes episode without that classic one. Although rather than landlords growing rich in their sleep, the phrase real estate investors is likely more accurate. Don't wait to buy real estate. Buy real estate and wait. You've surely heard that one. You might not know that it was actor Will Rogers with that particular attribution, entrepreneur Marshall Field said buying real estate is not only the best way, the quickest way, the safest way, but the only way to become wealthy, billionaire John Paulson said.

Keith Weinhold (00:28:45) - I think buying a home is the best investment any individual can make. That's what Paulson said. let's give Paulson the benefit of the doubt here. Although Robert Kiyosaki famously said that a house is not an asset because an asset puts money in your pocket and your home takes money out of your pocket, well, a home is something that you get to live in, build family memories in, and you do get some leverage if you keep debt on your own home. So maybe that's more of what's behind John Paulson's maxim there. Notable entrepreneur Jesse Jones. He said I have always liked real estate, farmland, pasture land, timberland and city property. I have had experience with all of them. I guess I just naturally like the good Earth, which is the foundation of all our wealth. Business mogul Tamir Sapir said if you're not going to put your money in real estate, where else? Yeah, I guess that's a good question. Anthony hit real estate professional. He said to be successful in real estate, you must always inconsistently put your client's best interests first.

Keith Weinhold (00:30:00) - When you do, your personal needs will be realized beyond your greatest expectations. Yeah, I think he's talking about being a team player there. And if you're a real estate agent, it's about putting your client's needs over yours. If it's a landlord, perhaps then you're thinking about putting your tenants first and meeting their needs so that they stay in your property longer. Here's a quote that I've got to say I don't understand. It's from real estate mogul and shark tank shark Barbara Corcoran. She says a funny thing happens in real estate. When it comes back, it comes back like gangbusters. I don't really know what that means, and I don't know what a gangbuster is yet. I see that quote all over the place. I can't explain why that would be popular. I don't get it at all now, novelist Anthony Trollope said it is a comfortable feeling to know that you stand on your own ground. Land is about the only thing that can't fly away. Entrepreneur Armstrong Williams is here with this gem. Now one thing I tell everyone is to learn about real estate.

Keith Weinhold (00:31:12) - Repeat after me. Real estate provides the highest returns, the greatest values in the least risk. Yeah, that's a real motivator of a quote. As long as one knows what they're doing and buys, right? All of that could very well be true from Armstrong Williams. It was none other than John de Rockefeller that said the major fortunes in America have been made in land. Yeah, it's just really plain and simple there. John Jacob Astor, he got specific and more strategic here. This is Astor. He said, buy on the fringe and wait by land near a growing city. Buy real estate when other people want to sell and hold what you buy. I mean, yeah, that's pretty much an all timer right there from Astor. Winston Churchill said land monopoly is not only monopoly, it is by far the greatest of monopolies. It is a perpetual monopoly, and it is the mother of all other forms of monopoly. Yeah, interesting from Churchill. And there's a good chance that you haven't heard that one before.

Keith Weinhold (00:32:26) - Perhaps. So say, for example, if one owns real estate on all four corners of a busy street intersection, then that quote applies. It's like you've got a monopoly on a popular intersection. Russell Sage said. This real estate is an imperishable asset, ever increasing in value. It is the most solid security that human ingenuity has devised. It is the basis of all security and about the only indestructible security. That's from Russell Sage. And, you know, you know, something here is we've got lots of real estate specific quotes in this segment is that it is rare to nonexistent to see any negative quotes about real estate, about anyone saying anything bad about it. It's all positive stuff. Waxing eloquent about real estate. And there are a lot of reasons to do that. But not every real estate moment is great. Maybe this is all because nothing quotable is said when you find out that one of your tenants is a drug dealer. Well. Finance expert Susie Orman says this owning a home is a keystone of wealth, both financial affluence and emotional security.

Keith Weinhold (00:33:46) - Yeah, a lot like an earlier quote. A home is the only investment that you get the benefit of living in. Peter Lynch said. No, what you own and why you own it. I mean, that is short, sweet and it's just a really good reminder to you. Do you now own any properties that you would not buy again? And if you wouldn't buy it again, then should you consider selling it now? Not FDR, but Theodore Roosevelt. He said every person who invests. In well selected real estate in a growing section of a prosperous community, adopts the surest and safest method of becoming independent for real estate is the basis of wealth. That's Theodore Roosevelt. Yeah. He reiterates that you want to own most of your property in growing places, something that really hasn't changed over all this time. Coke Odyssey contributes to this. The house he looked at today and wanted to think about until tomorrow, maybe the same house someone looked at yesterday and will buy today. Oh, gosh, that's true.

Keith Weinhold (00:34:58) - I think that everyone has the story of the one that got away. Margaret Mitchell said the land is the only thing worth working for. Worth fighting for, worth dying for. Because it's the only thing that lasts. Yeah. Wow. Some real passion there from Margaret. Sir John Templeton said the four most dangerous words in investing are. It's different this time. Yeah. I think what Templeton is advising is to follow market trends in history. Don't speculate that this particular time will be any different. Warren Buffett said wide diversification is only required when investors do not understand what they are doing. Yeah, that insight from Buffett. That's pretty applicable when you understand that you've got to get good in a niche and then get rich in that niche, meaning being narrow. Why diversification? That's likely better when you're just beginning and you don't know much, but then you want to get niche in your big earning years. And then perhaps when you're older, you get diversified once again because you're more interested in just protecting what you have.

Keith Weinhold (00:36:15) - Robert Kiyosaki said it's not how much money you make, but how much money you keep, how hard it works for you, and how many generations you keep it for. Now there's something with tax efficiencies and more in that Kiyosaki quote. My friend Dave Zook, billionaire dollar syndicator and frequent guest on this show, he said, you can be conventional or you can be wealthy. Pick one. Oh yeah, I love that from Dave. Because if you do what everyone else does, you'll only get what everyone else got. And I've contributed some material here over 508 episodes of this show. Although I won't claim the eminence of some of the other luminaries of the past few centuries discussed today. I've been known to say these. You do care about what others think. That's your reputation. I've been known to say the scarcity mentality is abundant and the abundance mentality is scarce. And some say that in real estate, I was the first one to point out back in 2015 that real estate pays five ways. Another that I have is a critique of delayed gratification.

Keith Weinhold (00:37:31) - Now, some delayed gratification is okay early on in your life, but I've said too much delayed gratification becomes denied gratification. Here on Earth, you live just one life. Hey. And the other day, an entrepreneurial friend. I don't know. He seemed to think that I have the right life balance. I'm not sure if that's true or not, but here's what I told him. And I think he said this because he often sees me out to exercising and things. I told him I give my best to exercise. Business only gets left over time. That's because exercise is hard and making money is easy. Yeah, there it is. That's my take on that. And that's it for today. I hope that you got some learning, some perspective, a few laughs and that some thought was spurred inside your mind in order to give you at least one big, rich novel takeaway here. And it's probably best for you to refer back to this episode of quotes, maxims, and aphorisms. At times when you're feeling shaky about your investment decision making, or just other times of uncertainty.

Keith Weinhold (00:38:49) - Until next week, I'm your host, Keith Reinhold, and there's something else that I've been known to say. Don't quit your day. Drink.

Speaker 6 (00:39:00) - Nothing on this show should be considered specific, personal or professional advice. Please consult an appropriate tax, legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own. Information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of get Rich education LLC exclusively.

Keith Weinhold (00:39:28) - The preceding program was brought to you by your home for wealth building. Get rich education.com.

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506: Properties are Vanishing, More $2M Median Home Prices

Complete episode transcript:

Keith Weinhold (00:00:01) - Welcome to GRE. I'm your host, Keith Weinhold. Compound interest is weak. What kind of iconoclastic heresy is that? Oh, I've got even more. Including. Don't get your money to work for you. This is a wealth building show. So why don't we discuss 401 days in IRAs here? It's precisely because they're not designed to build wealth. We'll get into that then. A way you can achieve higher property, cash and cash returns than you can with buy and hold real estate today and get rich education.

Robert Syslo (00:00:38) - Since 2014, the powerful get Rich education podcast has created more passive income for people than nearly any other show in the world. This show teaches you how to earn strong returns from passive real estate, investing in the best markets without losing your time being a flipper or landlord. Show host Keith Wine, who writes for both Forbes and Rich Dad Advisors and delivers a new show every week. Since 2014, there's been millions of listeners downloads and 188 world nations. He has A-list show guests include top selling personal finance author Robert Kiyosaki.

Robert Syslo (00:01:06) - Get Rich education can be heard on every podcast platform. Plus it has its own dedicated Apple and Android listener. Phone apps build wealth on the go with the get Rich education podcast. Sign up now for the get Rich education podcast or visit get Rich education.com.

Corey Coates (00:01:23) - 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 (00:01:39) - We're going to go from Saint Helena Island to Helena, Montana and across 188 nations worldwide. I'm Keith Weinhold, and you are listening to get Rich education. Compound interest is weak. Compound leverage is powerful. And with both available to most anyone, why don't you have more leverage in your financial life? That was a long time listener. You probably understand that if you're a newer listener, your reaction to that is like, wait, what? I mean, your inner self is telling you something like that challenges my existing longtime belief about how compound interest builds wealth. In fact, I will fight to protect this core belief. Even Albert Einstein purportedly called compound interest the eighth wonder of the world.

Keith Weinhold (00:02:36) - All right, well, let's break down compound interest until it looks as impotent as it is, as pathetic as it is, and as fallacious as compound interest is in the sense that it applies to your life as an investor. Now understand, I once thought the same limiting way that perhaps you once did, and that most others still do. When I was out of college and at my first job, I thought that there could be nothing better than getting my money to work for me with compound interest. Oh, and then maybe even the layer on top of that with the tax efficiencies of, say, a 401 K, 400 3B4 57 plan or an IRA. Then I took a real interest in this stuff, and I soon learned that I don't want any of those things because they don't build wealth. I don't want compound interest. I don't want to focus on getting my money to work for me. And I don't want any of those government sponsored retirement plans either. And that's why today I don't have any of them now, I remember when I had this one particular appointment, a financial planning appointment a few years ago, and I had it with what I'll call a conventional financial planning firm.

Keith Weinhold (00:03:56) - Maybe I remember it so well because it was an in-person meeting. It was in a tall office building that I went to and visited in downtown Anchorage, Alaska. And when I was in this money manager's office where basically what he was trying to do is win me as a new client. That's fine. That's his business model. Well, he had this big paper and cardboard sort of laminated charts thing resting on an easel, and this chart was prominently placed in his office so that I or anyone could see it. It showed the rate of return over time of. And I forget which index it plotted. It was either the Dow or the S&P, but no matter. It showed the return line going up and to the right for over 100 years. Your classic chart go up. It gave the impression to a prospective new client like me that, oh well, I had the opportunity to buy into this. And if I just invest my capital with this money manager and pay him fees for managing it for me now, I was at the point where I was starting to become better educated on these sorts of things compared to a layperson, for sure.

Keith Weinhold (00:05:06) - And I had been a real estate investor for a while at this point. Well, that physical chart in his office resting on an easel, it showed something like an 8 or 10% stock market return over time. Let's just be kind and call it 10% annually. And that's the first time in my life that I ever remember asking the question when I asked that money manager something like the chart shows a 10% market return, but what would my return be after inflation? Emotion taxes, your fees and volatility. Mic drop. You could hear a pin drop. I'll tell you what. That money manager almost froze. He didn't know what to say. I just remember, he began his reply, starting with talking about how inflation was low at the time. And yes, CPI inflation was low at that time, but he just didn't have a good answer for me. He was overwhelmed. He may have not ever had anyone ask him a question like that in his life. That sure is how he acted. And needless to say, I left his office that day without ever becoming one of his investors.

Keith Weinhold (00:06:17) - All right, so then let's dig into it. I've scratched the surface a little. What is the problem with, say, a 10% average annual return compounded over time? I mean, that sounds rather attractive when it's presented that way. Well, first, what do you think that the real rate of. Long term inflation is some make the case that it's still 15% today, even though the current CPI is 3 or 3.5%, and anyone that's looked at it feels that measure, the CPI is understated. So what do you think you want to use 6%. How about 6% as the long term true diminished purchasing power of the dollar? Okay then will your 10% stock market return -6% or you're already down to a 4% inflation adjusted return? Then there's the emotional component to buy and sell at exactly the wrong time, because no matter what people say they're going to do, most people want to sell when stocks are low because they're discouraged and they're just tired of taking their losses and they want to cut their loss. And then conversely, people want to buy when stocks rise because they're encouraged and they say they're a momentum investor and they experience FOMO if they're not in and riding the stocks up, well, what did you just do then? You just sold low and bought high.

Keith Weinhold (00:07:42) - How much does that emotional effect drag down your 4% inflation adjusted stock return that were already down to now? I mean, are you already at less than zero? Then there's taxes. Even in a 401 or IRA, you either pay the tax now or you pay the tax later. It's not tax free. How far below zero is your real return? Now that it's taxed? The IRS won't adjust your tax for inflation on a capital gain. Then tack on the investment fees, which can be 2% or higher. If you've got a professional money manager like the guy I met with in downtown Anchorage, or the fees can be really low if you are in an index fund. But how far below zero are you now? And that brings us to the last drag on compound interest in the stock market. We're not even done yet, remember? Okay, all we've done now is deduct out inflation, emotion, taxes and fees. What about adjusting it down further for volatility. Let's look at how deleterious volatility is to this floored compound.

Keith Weinhold (00:08:48) - Interest builds wealth thesis right here. Because you know on a lot of episodes we've just glossed over that. It just comes down to math. If you're up 10% one year and down 10% the next year, you're not back to even run the math and you'll see that you've lost 1%. That's just simply math. And now I'm going to get wonky here for a moment, and I'll use a more extreme example to demonstrate my volatility point for you. But I must get that way in order to debunk this myth about how compound interest builds wealth, or the getting your money to work for you builds wealth. Time spent making up lost returns is not the same as positively compounding your return. Any time you're looking at the annual average performance of an investment, it is vital to check how that performance has been calculated. And bear with me here for a minute, because this is substantive. Say your collection of stocks or whatever it is, just your overall portfolio value. It doesn't matter. Say it's up 50% one year, down 40% the next, then 50 up 40, down 50, up 40 down again.

Keith Weinhold (00:10:05) - All right. That right there was a 5% average annual return. But your average annual return. That is a lie because a 5% return through arithmetic performance. That sounds better than what really just happened to your money. So in a mutual fund prospectus, you might see that as a headline number, the 5% average annual return. But that's a lie in the small print. That's where you're more likely to see this CAGR, the compounded annual growth rate, and the CAGR. That's usually going to be worse than what the average annual number is. That headline number. And in our example, the CAGR is -5.1%. In this case that's the geometric figure. That's what you really want to look at not the arithmetic one. It looked like the market was up 5%, but your real return on your money was down 5.1%, a delta of 10.1% then. And the more volatile your returns are, the wider and wider this difference becomes. Now, if there were zero volatility, your average annual return, the arithmetic thing and the CAGR, the geometric thing, they would be the same and there wouldn't be any need to have this discussion.

Keith Weinhold (00:11:35) - This discussion is. Germane because volatility exists in the stock market and its related derivatives. So small differences over time compound and see really the problem is over the decades in your conventional retirement account, if you think that you're going to be quadrupling your money over time, but you only double your money over time, now you can see how this becomes a major problem. Come time for your retirement when it's too late. All right. Now, if you didn't follow that part because there were a few numbers flying around, just remember this time spent making up for lost returns is not the same as positively compounding your return inflation, emotion, taxes, fees, and volatility that just broke down any conventionally invested nest egg to less than nothing. This is why volatility is worse for investments than most people think. Well, we had someone write in to our general mailbox a while ago. And by the way, we like to hear from you. You can always communicate with us here at GR either through email or voice at get Rich education.

Keith Weinhold (00:12:52) - Com slash contact that's get rich education comment. I'd love to hear from you and really appreciate having you as a listener. Well, a listener wrote in on our inbox. They're asking why, if we're a wealth building show, why don't we talk about the benefits of 401 or IRAs? Well, it's squarely because those things don't create wealth. They aren't even designed to build wealth, but they create the illusion of doing so, partly due to the myth of compound interest that I just explained. But there's more outside of any employer match for IRAs and just generally investing cash in mutual funds or stocks or ETFs, they all have another gigantic problem. It could be a problem even bigger than the compound interest fallacy, which I just addressed. And that is all you're trying to do is get your money to work for you. Getting your money to work for you does not build wealth. Show me some evidence that it does. All right. Well, what's the problem here with these 41K and IRAs? I think you know, where I'm going is that you don't get any leverage.

Keith Weinhold (00:14:06) - Where is your leverage? Every single dollar that you lock away there means that you don't get the opportunity to ethically use three x or four x of what you've invested in OPM, other people's money, which you can build wealth off of. Where is your compound leverage with those conventional vehicles? It's gone. It never existed in the first place. Plus there's typically zero monthly cash flow. Plus you could have it invested where you don't legally have to pay any tax. Instead any tax, because retirement fund investors either pay tax today or pay tax later. Real estate can permanently mitigate income tax like you can get with real estate depreciation and absolutely zero capital gains tax on your real estate with the 1031 exchange. But let's not let the compound interest versus compound leverage case go to rest here just yet okay. How does then compound leverage build wealth instead? Well, the most available means for you to get access to leverage OPM is with real estate. Well, let's just look at what's going on today. Today, per the Fhfa, national home prices, they're up 6.6% year over year.

Keith Weinhold (00:15:26) - That's the latest figure that's not too different than historic norms. All right then. Well, if one year ago you had made a 20% down payment on a property that's 5 to 1 leverage, so you just take your 6.6% home price appreciation rate multiplied by five, and there's 33% for you. You went from a 6.6% return on the asset to a 33% return on your money, because you got the return on both your money and the bank's money. The majority is from the bank, OPM. So if you got a 33% return in year one, maybe it's 26% the next year and 21% the following year. It will go down over time as equity accumulates. And that's compound leverage. That's the wealth builder. And notice what else? Now that you know how destructive volatility is to returns, there is less volatility in real estate asset values. So now you're really on the path because you have a durable wealth builder. And then of course in real estate those high leverage returns are one of just. Five ways you can expect to be paid, but that one is the biggest leveraged appreciation.

Keith Weinhold (00:16:41) - That is the biggest return source of the five over time. And now you better understand why you don't want to set up your investor life to optimize getting your money to work for you. You don't want that. It's to get other people's money to work for you. And my gosh, mathematics makes compound interest in getting your money to work for you look amazing. But the real world proves that compound interest in getting your money to work for you is a farce, and it will keep you working at a job, maybe a soulless job until you're old. But the sheep believe it. You're listening to this show, so you're not a sheep. You're not among the masses. If you do what everyone else does, you'll only get what everyone else got. If you want wealth for yourself. All right, well, then, do you see that? You would have to think differently. And do you think that you would have to learn new things and then act differently than the masses? Well, yes, of course you do.

Keith Weinhold (00:17:41) - You can either go through life as a home run hitter or as a bunter. Most people are afraid to do anything other than learn how to be a bunter. And that's why the most popular personal finance platforms give the worst advice that limit you and keep you small. It's because they're talking to people with average or below average mindsets, not below average intelligence, but an audience of average or below average mindsets, which are the masses and they're just striving to get to a level of mediocrity, okay. They cater to financially irresponsible people that are just trying to get up to a mediocre level. And you know what? I was recently listening to one of these shows, I'll call it, a get rid of your debt and invest for compound interest and get your money to work for you shows. One caller called in. He and his wife got a $60,000 windfall from an heir. And they're wondering what they should do with the money. And they owned a home valued at 500 K, with 320 K left on the mortgage, which was a 3.25% interest.

Keith Weinhold (00:18:53) - And the guidance that the host had for this caller. I'm not kidding. Here was to use the 60 K to pay the 320 K mortgage down, so then they'd only owe 260 on the mortgage. I'm not kidding. That was the recommended course of action. And this is not an aberration. I've heard this same guidance with other callers on this conventional show. I mean, the opportunity cost of such a misguided move, what has he done when he pays down his mortgage? 60 K like that. He lost liquidity, he lost leverage. And it didn't even help with his cash flow. Because with a fixed amortizing loan, your monthly payment is the same the following month. Anyway, that 60 K, instead of being used to pay down a mortgage that could have been leveraged again by purchasing, say, a 250 to 300 K rental property. So my point is that conventional guidance does not build wealth in financial freedom. When you're actually young enough to enjoy it, you do things like learn how to get out of debt and then solely grind for decades, doing so, all while paying the opportunity cost of being leveraged less for the opportunity cost of targeting something like debt free, which is the wrong target rather than being financially free.

Keith Weinhold (00:20:18) - It's just like, if you want a wealth coach, well, then you don't hire and listen to guidance from a mediocrity coach. It's the same is if you want to learn how to skydive, then don't ask a basketball coach because you're going to die. We practice what we preach here at GRA. Now me what would I do if I had a paid off rental property or paid off home? Well, first, I've never had any residential rental property paid off in my life. Not one. Although I could, I'd recognize the opportunity cost of zero leverage. But just say, hypothetically, a paid off home fell in my lap. What's the next thing I do? I would go get the maximum loan against it, and then I'd have access to cash that I could invest in other properties. But what about these new loans that I'm taking out? What happens with them? I'm not concerned because both tenants and inflation pay it down passively, without my involvement at all, without my grinding for it at all, without me trading my time for dollars at all.

Keith Weinhold (00:21:27) - Well, I am really glad that we got into this here in the first segment of today's show. If you're near the show, it probably gave you a starting point for. Some new topics to search. Maybe you should start with learning the difference and reading more about average annual return versus compounded annual growth rate. It's really eye opening. And yes, you've heard me say on the show before that stock returns are dragged into negative territory with inflation, emotion, taxes, fees and volatility. And what's new here today is that I took the volatility component and broke it all the way down for you. There is a real paradox out there in America and elsewhere. You know, people spend all this time learning about how work works, zero time learning about how money works. And yet money is the main reason that people go to work. So congratulations so far on educating yourself some more today. Suffice to say, compound interest does not build wealth. If you're focused on getting only your money to work for you, you are really missing out on leverage through OPM.

Keith Weinhold (00:22:38) - And the good news here is that you actually don't have to believe everything that you think. Even if you thought the same way for years or decades. Chances are you're by yourself when you're listening to me right now. So that way you can change your mind all on your own without anyone thinking that you're wishy washy. Is it iconoclastic? Yeah, sure it is. If you're going to live an outsized life, if you're going to have an outsized impact in this world and on others, then you don't want to get labeled as normal. I mean, me, myself. I want nothing to do with normal. You can learn more on topics like this with our Don't Quit Your Day Dream email letter that makes it visual for you. Get it free at get Rich education com slash letter I write every word of the letter myself again. Get it at get Rich education.com/letter or it's quicker while it's on your mind right now. Text gray to 66866 to get the letter. Text gray to 66866. More straight ahead on how to potentially achieve cash on cash returns of 20% plus with real estate today.

Keith Weinhold (00:23:58) - That's next. I'm Keith Reinhold. You're listening to get Rich education. 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 25 K. 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. Role under the specific expert with income property you need. Ridge lending Group Nmls 42056. In gray history from beginners to veterans, they provided our listeners with more mortgages than anyone.

Keith Weinhold (00:25:21) - It's where I get my own loans for single family rentals up to four Plex's. Start your pre-qualification and chat with President Charlie Ridge personally. They'll even customize a plan tailored to you for growing your portfolio. Start at Ridge Lending group.com Ridge lending group.com.

Ken (00:25:48) - This is Rich dad advisor Ken McElroy. Listen to get Rich education with Keith Reinhold and don't quit your daydream.

Keith Weinhold (00:26:06) - We're talking about how to profit more and faster than with buy and hold property with the BR real estate investing strategy will tell you more about a live virtual event tomorrow night, with more about it where you can attend from the comfort of your own home and have any of your questions answered in real time. And can is with me today to talk about it. Welcome in. Hello, Kate. Thank you. Thank you for the invitation to be.

Ken (00:26:32) - A part of the get Rich education podcast.

Keith Weinhold (00:26:34) - Oh, we're honored to have you. Tell us a little more about yourself. First, you're Memphis based and you're part of a real estate family. Your wife is a realtor.

Keith Weinhold (00:26:44) - Yes, that is true. I have been in.

Ken (00:26:46) - The real estate industry in Memphis, Tennessee since 1992. I believe I was born to be in real estate. If real estate's in my DNA. If you cut me open little houses, duplexes, commercial buildings and multifamily apartments will drip out. I am pure real estate.

Keith Weinhold (00:27:05) - And you definitely came up in the right place for that. For us major metros, you're in perhaps the best cap rate market. Now. A lot of people are familiar with fix and flip real estate, maybe something that they've seen on HGTV where you buy low, you fix it up and you sell it for more. In fact, a lot of people think that's what real estate investing means. And others, they think of real estate investing more passively by identifying a good property that's already fixed up for you with a tenant in it, and ready property management. That's sort of the turnkey way. Tell us more about the BR, where I think of it as using elements of both the fix and flip world and the buy and hold world, putting them together to produce high returns and even infinite returns.

Ken (00:27:54) - That is correct. So what we're doing and what we offer, it's a hybrid, turnkey and BR, we call it BR key a nice. So basically that acronym as you know it stands for buy, renovate, rent, refinance and repeat. And we've added the key to it because we do all of the turnkey worked for our investor clients. We do all of the heavy lifting. So we turn BR into a passive investment where we find properties through our sourcing, we vet the properties and then the properties are offered to investors in as is condition. We provide a desktop appraisal which provides a future estimated after repair value after the property has been renovated. We seek out appraisers who are certified, who are licensed in the areas in the markets that we provide properties in, so that we're not just shooting at the door on a future value, basing the values on what Trulia says or Zillow or Redfin and what have you. So it's a real certified value from a licensed appraiser. Then we have licensed contractors to provide the scope of work and an estimate on how much the renovations are going to cost.

Ken (00:29:24) - And then we do we have a relationship with an in-house property manager. The property manager markets the property, leases the property out, and our target market is partially section A, government subsidized tenants, because we found that in the Memphis, Tennessee area is that section eight pays more than market rate in most instances. And I like to say that section eight rent payments, the recession proof, they're Covid proof, they're pandemic proof. I have not received a call yet. And section eight says, hey, we could not get your section eight payment out because of Joe Biden not being able to sign the check, or he didn't work last week, or Donald Trump could not sign the check or what have you. But time and time again, those section eight payments, even during the pandemic, they always showed up at the beginning of the month without fail.

Keith Weinhold (00:30:25) - I have rented to section eight tenants myself, and I can attest to that. That check just keeps coming in. You have to have a case manager come in and take a look at the property.

Keith Weinhold (00:30:38) - Prior to that section eight tenant being placed. Section eight a government subsidized housing program for those that qualify. But now that we've talked about the tenant, some what which is the rent are if we look back at the first are in the borough that is the rehab. You could also call that first are renovation. And really what you're doing there is you're eliminating friction for a lot of people because one thing that turns. People away from the Bir or concerns them about the BR. Is that first r the rehab because they find it daunting or intimidating to manage contractors? A lot of people don't want to have to manage contractors, and those that do, they don't want to do it again. But the thing is, is that you formed a team of contractors, property managers, project managers to manage those contractors and lenders to assist with that entire BR key process, making it pretty hands off for the investor.

Ken (00:31:37) - That's absolutely correct. So we have the relationships with contractors your locally that we've vetted that have proven themselves.

Ken (00:31:46) - They're true blue and these contractors have withstood the test of time. We develop relationships with electricians, plumbers, heating and air conditioning guys, roofers, painters, flooring experts, guys that can do kitchen cabinets, countertops, everything from the router to the tuner. And we also have excellent relationships that we've developed not only with the big boxes, Home Depots, Lowe's, but there are actually many locally owned mom and pop family owned supply houses that we are able to get better prices on some items versus the big boxes. So if those savings are passed on to the investor clients that our project managers and contractors are renovating those properties for.

Keith Weinhold (00:32:41) - I want to talk more about how that's actually going the actual track record with that team. But before we do, if we talk bigger picture, let's look at some real numbers on an example property so that one can understand the overall process. On why BR is attractive to investors, and why they can put substantially less money into the deal than they can with what we would call a deal that's already completely done for you.

Keith Weinhold (00:33:08) - Turnkey.

Ken (00:33:09) - Yes, and I like to use a $100,000. It's a nice round number, right.

Keith Weinhold (00:33:16) - Inflation is basically it, but you can still find some.

Ken (00:33:19) - Yes. So an example said hypothetically, if we had a vetted property that was available to be purchased by an investor client, and that appraised value after repairs is estimated to be $100,000, we simply take 75% of that after repair value of $100,000, and we arrive at 75,000. So we work in reverse, in a sense. And if the contractor has estimated that the renovations, labor and material cost is going to be $25,000, 75,000, 75% of the 100,000, -$25,000 in renovation expenses that would leave $50,000. So the actual purchase price of the property would be $50,000 plus $25,000 in renovations. So the investors approximate all in is $75,000. That doesn't take into consideration title company fees, homeowners insurance. We encourage all of the investor clients to get a six months builder's risk policy from one of our sources that we use here locally, but of course, all of the investor clients are free to use or choose whomever they'd like to.

Ken (00:34:53) - So the property is purchased for 50,000. The renovations, which are high quality, are done for 25,000. So now the investor is all in for $75,000. Now we're at that second stage, and many times the renovations are completed before the property is rented. So though that second and third are kind of interchangeable, sometimes we the property's refinanced before it's rented, sometimes it's rented before it's refinance. So in a perfect world, the property has been rented to a client. So if the client's all in for $75,000 and we have what we created, our own 1% rule of thumb. So if the investor is all in for 75,000 and the numbers are still based on renting it for maybe 1% of the value. So we find that our rent versus price return is more than 1%. So in many cases we blow that 1% out of the water. We're talking about the.

Keith Weinhold (00:36:01) - Monthly rent being 1% or greater of the overall value or purchase. Price of the property.

Ken (00:36:06) - Yes, sir. That's true. That's correct. So after the property is rented for, let's say, $1,000 per month.

Ken (00:36:15) - Now it's time to get the property appraised. We do have lending partners that are very experienced with investment refinancing, whether it's conventional or whether it's DSC or refinancing. So now the appraiser comes out to the property after the investor client has made loan application. The investors appraiser comes out and voila, the property is totally renovated. It's rented out. The appraiser appraises the property for $100,000 plus or minus. It may appraise for 95, it may appraised for one T, and so on, so forth. So what happens with the investment refinancing the loan to value or LTV is usually 75%. It's not typical for the lender to refinance at 80% or 85% of the refinance. But with investment financing, refinancing nowadays is typically 75%, so the praise is for 100,000. The lender lends 75% of the 100,000, which is 75,000 on the refinance. So now the investor who has paid cash or possibly obtained a hard money loan or private financing in order to purchase the property, their coffers are replenished with it. 75,000 were either the hard money or the private.

Ken (00:37:42) - Long is paid off, and the investor now has a property that they've refinanced for 75,000. That's worth 100,000. But the key is now they've refinanced and they're at that final, or now they're able to repeat the process, rinse and repeat, re-up whatever you want that are to me. But it basically means you can reuse that $75,000 again to purchase your second property. Third property, you're able to scale quickly or pay off the hard money lender. And the hard money lender says, hey, I don't need this $75,000. Do you own it again to buy property number two? We're property number three. And it just goes on. And I'd like that word that to use key efficient.

Keith Weinhold (00:38:28) - Right. Because in at least one of the scenarios you described there, you would have no money left in the deal and 25% equity in the property.

Ken (00:38:37) - That is correct because even though the investor is all in for 75,000, that new roof, the new windows, the new luxury vinyl plank flooring, the new HVAC system and so on, so forth.

Ken (00:38:53) - Those improvements cause to happen is called force appreciation. It's worth more than $75,000 because of all of the improvements that have been made to $25,000 to new light fixtures, the pretty paint color, the new mailbox, the landscaping. So we found that many of the houses that we offer, they once were the ugly ducklings of the neighborhood. Now they're the beautiful swans of the neighborhood, and they're the homes and houses that people flock to that they prefer to living.

Keith Weinhold (00:39:30) - Yeah. So we're talking about some of those rehabs you might LVP the floor do a kitchen fluff up. By that I mean maybe you're saving and painting the cabinets, but replacing the countertops, new light fixtures, perhaps keeping bath tile in place, but glazing it and then bringing everything to code?

Ken (00:39:47) - Yes, sir. That's absolutely correct. And we do have a really nice design for our properties. We use really nice neutral colors when it comes to the tile, to the paint, the flooring, the vent hood color, so on, so forth.

Ken (00:40:02) - And you mentioned code enforcement, which we had excellent relationships with the Memphis Shelby County Code Enforcement officers, whether it comes to the electrical inspection, plumbing inspections, what have you, we have really good relationships with those government officials.

Keith Weinhold (00:40:20) - You might want exotic colors for your own home, but in a rental property you want to go neutral. It can take a while to rent a purple kitchen. Now talk to us about the the timeline to rehab and refinance a property. How many months or days does that take? And I'm looking for an not an optimistic scenario, but a realistic scenario and a real life track record of what you've done. Because I've known that our followers have bought a number of properties from you.

Ken (00:40:49) - Yes, our average turnaround time right now is approximately 90 days. The quickest turn that we've ever done from acquisition all the way to the final stage of refinancing was 32 days. But that particular property there was the scope of work of $15,000. It was really clean. Okay, already had a new roof, the AC system was already top knots, so there was just very few things that had to be delivered.

Ken (00:41:21) - But on average it's about 90 days from start to finish. And in this part of the country the weather's quite nice, especially during the summertime. It's very hot, but we are hit occasionally in the wintertime with snow and ice, and it paralyzed the city of Memphis because we're just not equipped the way the northeast is and some other parts of the country when it comes to snow and ice. So we push back our estimated time frame to complete a Berkey property during the winter months to about 120 days. But our average is 90 days, and we tend to we like to under-promise with the 90 days, but we may hit our target in 75 days or 80 days, and we just recently had some properties that we should be able to smash the all time record of 32 days, where we may be able to get from a buy to refinance done, and maybe 21 days.

Keith Weinhold (00:42:21) - Wow. That's the result of a well refined system. And I would submit to most any listener to try to do that across state lines or even in your own home market, as you're trying to manage contractors and codes and inspectors and appraisers and lenders and everything else, you're going to join us with our investment coach narration, co-hosting Gre's live virtual event.

Keith Weinhold (00:42:47) - Alex, a little bit more about what one can expect there. Attending the live virtual event to learn more about what.

Ken (00:42:54) - One can expect is that we will have, I guess, actual numbers on properties that are available, scopes of work, rental amounts that are based on our studies with the data that section eight provides, as well as the local market rents for cash paying tenants. So I do want to make it clear we do have cash paying tenants as well. But we do offer to the investor clients a choice. If we have a four bedroom property, for example, that section 8th May possibly pay 1700 a month for, and then all of a sudden we get a cash paying tenant that's willing to pay 1600. We present the information to the investor to say, hey, would you rather hold out for the $1,700 section eight tenant? Or would you rather go with the $1,600 cash flowing ticket that works at Blue Oval City, the electric vehicle plant that's on the outskirts of Memphis, about 30 miles outside of Memphis at the end.

Ken (00:44:01) - Who knows? Real soon. It was just announced yesterday that X, I and Elon Musk, they've chosen the city of Memphis to be the headquarters for the world's largest supercomputer. So we're looking forward to the benefits and economic boom that that's going to add to the Memphis market.

Keith Weinhold (00:44:23) - All right. So we've got some economic drivers behind this. Learn more about vetting tenants. Berkey and importantly, the value added here. By bringing that team, especially those contractors that are being managed for you with the Berkey join Jerry's live virtual event. It's where you can attend live in real time. You can ask questions if you wish that way, and you can do it all from your own home. Gree investment coach extraordinaire Naresh is going to co-host it along with my guest Ken. Here it is free to attend free learning and if you wish, expect a buying opportunity for property conducive to the BR. Often single family homes two, three and four bedroom properties in Investor Advantage Memphis, you'll learn which properties are right for this and which ones are not.

Keith Weinhold (00:45:10) - Attend tomorrow night it is Tuesday the 25th at 8:30 p.m. eastern, 530 Pacific. Attend tomorrow and sign up now at GR webinars.com. You can do it right now while it's top of mind for our live event that is at Gray webinars.com. Hey, it's been great having your insight. Thanks so much for coming on the show today.

Ken (00:45:33) - Thank you. You're welcome.

Keith Weinhold (00:45:40) - Between last year and this year, more followers have bought from this provider in this system than any other in the entire nation. Strong deals with less out of pocket for the investor. And maybe you don't prefer a section eight tenant. You can ask about that during the virtual event. And again, what was I saying here last week? This is the event that's a bigger deal than Olympic handball. Really though I would like for you to attend. This is entry level housing. So you're going to own a scarce asset that everyone wants. Expect to be in for a little of your own skin in the game, and you'll own a leveraged asset of tangible value that down the road.

Keith Weinhold (00:46:27) - Demographics say that people will desire to first rent from you and then later buy from you. If you think that it can benefit you and you like to learn, then I'd really like you to attend tomorrow night. I invite you Tuesday the 25th at 8:30 p.m. eastern, 530 Pacific. Register free now at Gray webinars.com. Until next week. I'm your host, Keith Wild. Don't quit your day dream.

Speaker 5 (00:46:58) - Nothing on this show should be considered specific, personal or professional advice. Please consult an appropriate tax, legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own. Information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of get Rich education LLC exclusively.

Keith Weinhold (00:47:26) - The preceding program was brought to you by your home for wealth building. Get rich education.com.

Direct download: GREepisode507_b.mp3
Category:general -- posted at: 4:00am EDT

Mon, 17 June 2024

The homeownership rate has fallen due to low affordability. This means that there are more renters.

There are still just one-half as many housing units as America needs. But it had been one-quarter.

New duplexes, triplexes, and fourplexes are vanishing. I describe six reasons why.

Two entire US counties now have a median home price of $2M+. Learn where they are.

It’s better to be an investor than a landlord or flipper.

GRE Investment Coach, Naresh, and I discuss how to use a lower down payment to achieve a potential 20% cash-on-cash return with the BRRRR Strategy. Join our live, virtual event for this at: GREmarketplace.com/webinar.

Resources mentioned:

For access to properties or free help with a

GRE Investment Coach, start here:

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RidgeLendingGroup.com or call 855-74-RIDGE

or e-mail: info@RidgeLendingGroup.com

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505: Real Estate Problems - Affordability Issues and Foreclosures Today

Complete episode transcript:

Keith Weinhold (00:00:01) - Welcome to GRE. I'm your host, Keith Weinhold. Hold properties are vanishing, and sadly, they represent some really good property types that are hardly being built anymore. American housing is changing for good. Two entire U.S. counties now have median home values of $2 million or more. You'll learn where those are and learn about a specific real estate investing strategy, where investors are getting especially high yield returns in today's low affordability market. All today on get rich education.

Robert Syslo (00:00:37) - Since 2014, the powerful Get Rich education podcast has created more passive income for people than nearly any other show in the world. This show teaches you how to earn strong returns from passive real estate, investing in the best markets without losing your time being a flipper or landlord. Show host Keith Weinhold writes for both Forbes and Rich Dad Advisors, and delivers a new show every week. Since 2014, there's been millions of listeners downloads and 188 world nations. He has A-list show guests include top selling personal finance author Robert Kiyosaki. Get Rich education can be heard on every podcast platform.

Robert Syslo (00:01:09) - Plus it has its own dedicated Apple and Android listener. Phone apps build wealth on the go with the get Rich education podcast. Sign up now for the get Rich education podcast or visit get Rich education.com.

Corey Coates (00:01:23) - 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 (00:01:39) - What we heard in 188 nations worldwide. I'm your host, Keith Weinhold, and you're listening to get Rich education. Last week, I covered a lot of bad news here as you and I uncovered some real estate problems. Of course, overall, when you're invested in real estate and obtain productive working income for yourself through tenants in their employment, you can almost always play another side of the coin and be profitable because, well, it really comes right back to the fact that real estate pays five ways simultaneously, for example, souring housing affordability. Well, that's bad for homeowners. That's bad news for people that are primarily want to be homeowners and not you. You're an investor. In fact, here's exactly what that means when you're the investor, the homeownership rate has fallen in in the past year.

Keith Weinhold (00:02:38) - It's gone from 66% down to 65.6% due to that low affordability. Okay. Well, that's just a 4/10 of a percent drop in the homeownership rate. And it is poised to fall further. Or what does that 4/10 really mean. Well, that's the proportion of Americans that don't own their homes. So then they have to rent. And this means that there are hundreds of thousands more American renters today than there were just a year ago. And that pushes up rental demand, rental occupancy and the price of rent itself. And that's what you get to capture off from a low affordability problem, which outsiders only think of as bad real estate news, because it is bad news through the lens of that one of your first time homebuyer. Now I want to tell you about the property types that are disappearing. Just vanishing today, and it's the degree to which it's happening that you probably aren't aware of. I'll also tell you why it's personally concerning to me, why this is all going on at all, and I don't even see any reason that it's going to turn around.

Keith Weinhold (00:03:52) - It's probably going to get worse. What's going on is basically that too many builders have thrown their duplex, triplex, and fourplex development plans out the car window like it's an Apple Corps on a summer road trip. They are vanishing. Yes, 2 to 4 unit properties vanishing. In fact, if you're a newsletter subscriber here, you got to see a jarring chart that shows this. And what you'll basically see is that in 2007, the number of 2 to 4 unit properties built just fell off a cliff. It flatlined, and it still hasn't gotten up. The amount constructed now is still just one half to one third of what it had been in pre global financial crisis years. Really they're only closer to a third. All right. So what we're talking about here is only about one third as many duplex triplex and fourplex starts today as there were 20 years ago. And this is sourced by the National Association of Homebuilders. And some call this entire phenomenon M triple M multi families missing middle. And whatever you call this disappearing act.

Keith Weinhold (00:05:10) - Before I get to the reasons for why this is happening, I've got to tell you that this disappearance, it hurts me a little. It's sort of heartfelt because as you know, I began this way with a fourplex that was my first ever property of any kind. You know, the story where I lived in one unit and rented out the other three. It was just an amazing way to start with a bang. Well, now, when we compare this paltry construction, this dearth of. construction today, when we compare that to both smaller property types and larger property types, that being single family homes and five plus unit apartment buildings, will construction of all three of these types fell hard around 2008. But here's the thing. Single family homes and five plus apartment buildings. They got back up around 2010 and they started resuming more building. But duplexes and fourplex, they never did. They never had that happen. The number coming out of the market that just kept flatlining. Those new starts. All right.

Keith Weinhold (00:06:16) - So why exactly is this going on with these vanishing 2 or 3 and four unit property construction types? Why this trend? Well, first, it's NIMBYism, not in my backyard ism primarily of those single family homeowners, because once people are comfy in owning their single family home. Well, then they don't want higher density duplexes in fourplex built in their area. They fear that it can lower their property values. It'll almost certainly increase the traffic around that area. And the second reason is that there simply just been less building overall of most all housing types. And I have discussed this elsewhere, so I won't get into it again. Yes, it is that erstwhile housing supply crash. A third reason for these vanishing 2 to 4 unit properties is the need for zoning reform and the adoption of what's called light touch density. Light touch density. That means a zoning strategy for more dense housing. And what are we up to now for? The fourth reason is that builders, they find more scale efficiencies when they build larger apartments.

Keith Weinhold (00:07:25) - Fifth is limits in international building codes, in international residential codes. And the sixth reason is that this trend began around 2008. These more recent work from home lifestyle starting in 2020. That means that residents can live in single family homes, and they tend to be further from the urban core, rather than 2 to 4 unit properties. And this lifestyle trend right here, that can mean that this disappearing trend for this property type continues. And there you go. They are the six reasons for why. If you were 2 to 4 unit properties are being built today, drastically fewer. And I lament this fact because see duplex the four plex neighborhoods, they can have good walkability where you don't always need a car to get everywhere. And yet at the same time, they still have ample green space. Now, conversely, some fourplex neighborhoods, you know, they can get to look and really junky. Well, they all have different owners. And then there are dumpsters all over the place, like my first fourplex was, and like my second fourplex was as well.

Keith Weinhold (00:08:33) - I really hope that builders become more attracted to the 2 to 4 unit space. See, with giant large apartment complexes, say 300 units. Well, the builder has to wait until the construction of all of those 300 units are done until they can start filling it with rent paying tenants. So therefore builders have to wait longer to start getting that rent income. But instead, construction of this missing middle housing that can be broken into phases. And that way units can be open when they're completed. And that provides early rent revenue to the builder and 2 to 4 unit properties. I mean, they really are an investor sweet spot, but due to builder and lifestyle trends like I'm describing, fewer are being built new. But please remember there were many missing middle properties built decades ago and they can still make good investment properties into the future. In fact, the first two fourplex that I bought were both built in the mid 80s, so there's still plenty that are already out there. The takeaway here for you is that you're going to be seeing fewer new ones, and that means that duplexes to fourplex is now take up a smaller proportion of America's housing stock, and that portion is positioned to become smaller and smaller going forward.

Keith Weinhold (00:09:56) - So it's not that death of these properties. We even have home builders at Gray Marketplace right now with new build 2 to 4 plex. So it isn't their death, but they are dying, waning in number. Now, Jerry recently got Ahold of some jaw dropping info here. I my gosh, now remember a few years ago, maybe even ten or more years ago when you probably heard something like certain small towns in California, Silicon Valley. They now had median priced homes that hit the million dollar mark. And you know, when you first heard that, you might have thought, oh, wow, it's not just neighborhoods, but entire towns in aggregate have hit the million dollar mark in some high priced American places. Well, then get ready for this. As housing affordability makes headlines in California in its wealthiest cities, continue to fight building more housing. We have two Bay area counties, not towns, but entire counties that have hit a milestone. The median price for sold homes there has climbed to $2 million or more.

Keith Weinhold (00:11:15) - We're not just talking 1 million anymore, and we're not just talking about one upper crust town, but two entire California counties now have median home prices of $2 million or more. And notice these are not asking prices. No speculation here. These are the values, the amounts that they have actually sold for. And this is according to a recent California Association of Realtors report. Median homes are now $2 million plus in which two Bay area counties, you might wonder? Well, first, Santa Clara County, which includes San Jose, they notched an even $2 million back in April. And yes, this is more than San Francisco County's $1.8 million. And the second county, it spirals even higher than that. The second California county, with median home prices of 2 million plus is San Mateo County. It's basically a county that lies between San Francisco and San Jose. And that's where the median home price sold for in San Mateo County, California, $2.17 million. Not just one upper crust town, but an entire county.

Keith Weinhold (00:12:38) - Not just $1 million, not even $2 million anymore, but $2.17 million. And this is not for a fancy, lavish home. This is just the median priced home in the middle and San Mateo County that is home to the nation's most expensive zip code, by the way. Atherton, California, where the median home price tops the charts nationally at $7.1 million. That's that is according to Compass Real Estate. And if that's not enough, homes are still flying off the shelves there. They're days on market is now at the lowest since 2022. And though all this sounds pretty astonishing right now, you know what? If you are listening to this episode ten years from now, well into the 2030s, you might think these were the good old days here. How quaint. Because over the next ten years, we all expect more inflation, and we've still got more housing shortage years between now and say, ten years into the future. And of course, here at URI, we don't tend to focus on the high priced markets, which tend to be on the coasts, things like this.

Keith Weinhold (00:13:55) - Really, it's just a harbinger of what's to come to more parts of the nation later on. What we do here is we help you win in real estate without being a landlord and without being a flipper. As a savvy investor that tends to buy either new or fixed up properties and might have a manager manage them for you, hands off is the place to be. Hands off is being an investor, and you get the best tax advantages this way to when your hands off and you know something. Some people that get into real estate investing, they think that they have to be a flipper, or that they have to be a landlord in order to make it profitable. Now, there's nothing wrong with those two disciplines. So much flipping or landlord. I was a landlord for a little while on my own properties. Most of my investment career. I use a property manager and I never flipped. It's just that these things flipping and landlord, they're not any sort of prerequisite to you being a successful investor. You can shortcut all of that with turnkey real estate investing or like with a different strategy that we're going to talk about later today.

Keith Weinhold (00:15:04) - What most people really want is the financial freedom that real estate investing brings. But in order to get there, it's often not the route that you think it is. It's typically not flipping or landlords. And, you know, really it's this way with a lot of things. For example, say that you want to own in ice cream business. Well, most people think that they have to start their own ice cream business from scratch. And like you need to find a space and you need to buy all the equipment and develop systems and go through the excruciating process of hiring all of your staff. No, a lot of times you can shortcut all of that by not starting your own ice cream business, but instead studying, vetting, and buying an existing ice cream business without having to start your own from scratch. Be strategic, study a little, shortcut the process and get in where it's profitable. You want the benefit of owning real estate without having to use a nail gun yourself, or being a manager where you're 25 tenants can text you.

Keith Weinhold (00:16:17) - What kind of life are you building for yourself? Then you want the benefit of owning an ice cream business. The way to get to the end goal. The path there is often different than you think. And here's another example that I can relate to, but I think that you will too. Do you have a favorite real estate? Influencer out there and they think about starting a podcast. Well, I personally know three real estate podcasters out there that have all quit. They produce some episodes and all three quit doing their podcast. And these are just among people I know and just real estate thought leaders. Just that space and all. Recent hosting your own podcast platform is a ton of work from. You need to have a huge bank of your own original content, to having the ability to book big name guests and then making sure they're prepared to. Making sure you have the right marketing team so that a podcast actually reaches the right people. It is work, work, work, and seemingly no one in this world knows that better than me.

Keith Weinhold (00:17:21) - With 500 plus episodes reliably released every single week since 2014, and we don't replay old shows either, there is nothing passive about this. There are so many shows today that if your favorite real estate influencer starts one, they're going to be competing with a lot that are already out there. I mean, anymore, even celebrities that start podcasts, they usually don't get any substantial reach or traction. All these people that start and quit their podcasts, they were too slow to realize that actually they didn't want to host a podcast. What they really wanted is for their voice to be heard. Well, the way to shortcut that, like with turnkey real estate investing or with buying an existing ice cream business, is that that influencer should have developed a strategy for being a guest on other shows that are already popular and established, probably by hiring an experienced and connected booking agent. That way, you've outsourced all of that marketing and research activity to another show that already did that for you. So the point is, be clear on getting what you want.

Keith Weinhold (00:18:34) - What is the goal that you want first, it's probably a large real estate portfolio built for leverage and income, and then work your way back to try to find the most efficient route to get there. And there are often shorter paths to get there than what you first thought. Now, when we talk about where are the best real estate deals today, you have to look harder than you did, say, 8 to 10 years ago. Coming up shortly, you'll have the pleasure of hearing an in-house chat with I in one of Gre's own investment coaches. We're going to talk about a strategy that specific and proven but underutilized in order to recapture those higher cash on cash returns like you could have gotten back in, say, 2015 and 2016. And for a time, I had been talking about how Newbuild properties and their builder interest rate buy downs, that they're really the place to be. And that's still true, but not to the extent that it was just a year ago, because today some builders, they're not paying down your interest rate for you as much as they did last year.

Keith Weinhold (00:19:39) - They're asking you to pay more toward it. Now. A few minutes ago, I told you about America's vanishing duplexes to fourplex. And if you're one of our newsletter readers, you got to see a jarring chart or two that demonstrates exactly what I was talking about there. And also in our newsletter, I show you great maps, real estate maps that beautifully demonstrate housing market trends and where the opportunities are for you. Also, in a recent letter, I showed you exactly where I'm getting 8% interest paid to me and what's basically a savings account. If you don't already subscribe, it is free. Our email letter is called the Don't Quit Your Day Dream letter. It's concise, valuable info that's just good, clean content that I put directly into your hands. It is easier to use than a website. Today's websites have paywalls and cookies, disclaimers or pop up ads. This is just the good stuff directly from me, straight to you. And you can get the letter now at get Rich education com slash letter that's get rich education com slash letter.

Keith Weinhold (00:20:50) - In a world of AI and bots, I actually write every word of the don't quit your daydream letter myself, just like I have from day one. And another easy way to start the free letter is text gray to 66866. Just do it right now while it's on your mind. Text gray to 6686616. I'm Keith Reinhold. You're listening to get Rich education. 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 25 K. 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%.

Keith Weinhold (00:22:02) - 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. Role under the specific expert with income property, you need Ridge lending group and MLS for 2056 injury history from beginners to veterans. They provided our listeners with more mortgages than anyone. It's where I get my own loans for single family rentals up to four Plex's. Start your prequalification and chat with President Charlie Ridge. Personally, they'll even customize a plan tailored to you for growing your portfolio. Start at Ridge Lending group.com Ridge lending group.com. This is peak prosperity.

Robert Syslo (00:23:00) - Chris Martinson, listen to get Rich education with Keith Arnold and don't quit your daydream.

Keith Weinhold (00:23:15) - Hey, would like to welcome in Gray's extraordinary investment coach. He's booksmart because he's got his MBA. He street smart because he's an active direct real estate investor, just like I am. Before joining gray back in 2021, he worked for financial publishing companies and in the banking sector, too and elsewhere. And today is an investment coach here.

Keith Weinhold (00:23:36) - He helps beginning real estate investors understand the process of acquiring rental property, and he helps veteran investors optimize their strategies to save on taxes and more. Hey, it's terrific to welcome back Naresh Vizard. Thanks a lot Keith. It's been a while, but I'm looking forward to talking real estate before we're done. Today, we're going to tell you about an upcoming live GRE virtual event, where you learn how to get 20 to 25% of immediate built in equity through real estate. And before we do the race, let's talk about what's really going on. Besides giving GRE devotees free education and guidance like you do, you also help them find the best deals on income properties nationwide and for a time, brand new build to rent properties they look good in. Many still do with a lot of rate buy downs into the fives and even the fours on those new build properties. But this year, I learned that builders aren't contributing to buying down the race for the investor like they had last year, and that the onus seems to be more on the investor to buy the rate down with some of these builders.

Keith Weinhold (00:24:44) - So tell us more about what's happening in America's build to rent sector. Well, Keith, build to rent. For those who don't know, it's been around here at GRA. Bill to rent asset classes, build to rent real estate. But it's the concept of builders building real estate properties with the intention of selling them to investors so they can rent it out. So right now I live in a house that was built, and I bought it because the builder intended for somebody to buy it and live in it. That's not built to rent. Build to rent is the idea of.

Naresh Vissa (00:25:16) - Specifically selling it to investors like our listeners, like our loyal followers who live out of state and who want to rent the properties out to tenants. Now, Build to Rent was very hot and it's still popular. I don't want to call it hot, but it's still popular for those who want new construction properties. However, the rehabs are making a furious comeback because there was about a four year period from 2019 to 23 or so where you just couldn't find good cash flowing rehabs.

Naresh Vissa (00:25:50) - Right. And when I say rehabs, I mean these older properties that were built 50 years ago, maybe as long as 120 years ago there we have some properties in our inventory that were built in the late 1800s, and they've just kept being rehabbed and rehabbed and renovated. Buildings are making a furious comeback because they're cash flowing better. Previously, they were just cash flowing marginally better than new construction built to rent properties. Now, especially with a strategy called ver, which we'll talk about some more, you can have the opportunity to get cash on cash returns back to what you remember in 2016, 2015 where we're talking 15, 16% cash on cash returns. I mean, some of our BR clients or listeners who ended up buying BRS, they're doing 2021 all the way up to 30% cash on cash returns. So BR simply means buy, rehab, rent, refinance, repeat the cycle. So that's B followed by for Rs b r r r r buy, rehab, rent, refinance. Repeat the process again.

Naresh Vissa (00:27:10) - And it's during that refinance where investors are getting a good chunk of their down payment back. Because what happens in that refinance is after you rehab it and you read it, you rent it out at the target rent, which almost all of these are renting out at very aggressive high target rents. When you refinance it, the property appraises at a value that's much, much greater post rehab than when you initially bought it. And that's where you get essentially your money back. You can choose to keep it in with the mortgage company so you have more equity in the property, or you can take the cash back and use it to buy more BR properties. It's become a very popular. Form of real estate investing. People think when they hear this. Well, it sounds like flipping, right. This is not flipping. Flipping is kind of like day trading. You're looking to make a quick buck, whereas in this case you're not selling the property. You're keeping the property with the intention of renting it out and collecting the cash flow from your tenant.

Naresh Vissa (00:28:19) - So that's in a nutshell, what BRR is. And we are having a live event on Tuesday, June 25th at 8:30 p.m. Eastern Time. That's Tuesday, June 25th at 8:30 p.m. eastern. Time to talk about and go over this BR process. The bird key process or listeners are familiar with turnkey. Well we have BR key which is similar except it's using the BR method. And Keith, you probably know this and you've talked about it a little bit on your podcast. BR has become the most popular strategy that our investors are utilizing this year, 2024.

Keith Weinhold (00:29:01) - Yeah. Now back to the build to render the new build properties is attractive as they can be because they attract a certain quality of tannin and they're not going to have any maintenance or repair issues, most likely for quite a while. The thing with those is, oh, you might pay 300 K or more for a new build. Single family home in the builder rent style with 20% down payment, 5% for closing costs, you're out of pocket. 75 K.

Keith Weinhold (00:29:30) - One reason that this has become the most popular strategy for gray followers we're talking about here. The BR strategy is that you could come out of pocket with a lot less to begin with.

Naresh Vissa (00:29:42) - That's number one. Number one is we have some GRE followers who went into this Berkey and they put no money down. They got lucky. They initially bought the property, and the property appraised so much that they got their money back and their down payment was actually zero. They didn't make money on it, but what they allocated, what they thought that they would allocate 25% down, they ended up using that money since they got it back to buy a second property and then a third property and then a fourth party. We have one guy who bought six properties, all birds, because he didn't get I don't want to say, look, we're not making promises that you're going to put 0% down. That's not the promises that we're making. The worst case scenario is that you put 25% down and that's your standard real estate investment.

Naresh Vissa (00:30:27) - But there is a chance that you could put 15% down or 10% down if the rehab turns out really well. And if you get a good appraiser, there's a chance it can happen. But the goal here, again, is not to make a quick buck or to house hack. We're not taking shortcuts here. The goal here is simply to buy a property renovated or rehab it and drive up the rent price, drive up the value of the property, put a good tenant in there and call it a day. Collect those cash flows. Now I do want to say a few things about that process. So like I said, the first thing that you do is you buy. So first you buy, then you rehab. You do not have to do we call it Berkey because everything is done for you. So when people hear this, they're like, oh, this sounds like I live in Florida. I don't want to go to Memphis. And by the way, this specific market is in Memphis, Tennessee that we're focusing on.

Naresh Vissa (00:31:26) - We have burrs in Baltimore, Maryland and Philadelphia, Pennsylvania and Pittsburgh, Pennsylvania. But we've identified Memphis as not just the hottest, but it just makes the most sense numbers wise. And so I want to go back to the point of, hey, you don't have to physically go or even go on Google and find handymen or rehab ers to do this for you, our Berkey provider. The best part is they do it all for you. It's completely taken care of. You literally just sign some papers. Once you decide that you like a property and the specs of the property, you sign some papers. They take care of it. The rehab takes about 90 days. Then from rehab to closing, it takes another 40 days or so. And then from closing to someone signing a lease that takes another 30 days to find somebody, stick them in there and takes another 30 days after that for the tenant to move in. So overall, this process can actually take just for one property. You can take six months.

Keith Weinhold (00:32:26) - Now. Naresh has touched on it somewhat. One conventional problem with the Burr strategy by rehab rent, refinance, repeat is that first are the rehab because it involves vetting and managing contractors, which is a real nightmare for many. So instead, we're talking about tapping into a system with a proven team of contractors and lenders and project managers to make it easy. It's known as Berkey, and it's in profitable Memphis.

Naresh Vissa (00:32:54) - Profitable Memphis. And I'll say this about Memphis, we're going to talk. Way more about this on the webinar. Highly recommend people go to GRI webinars. Com gri webinars.com. You can sign up for the webinar there. It's actually live. So this is not like something that you just can show up to whenever you want. It's a live event on Tuesday, June 25th at 8:30 p.m. Eastern Time. That's Tuesday, June 25th at 8:30 p.m. Eastern Time. Great webinars.com is how you can register. And like you said, we could have focused on Baltimore, Maryland or Pittsburgh. Memphis has really and I myself by the way, own five properties and four in Memphis proper.

Naresh Vissa (00:33:42) - And one is in the Memphis area and Mississippi, a suburb of of Memphis. And this I don't want to call it a town, because Memphis used to be one of the most popular towns in the south back in the day. But this city has really come up as a result of pandemic, of population growth, of even inflation. We've seen rents go up, we've seen the population go up. Memphis is not what you think of from eight years ago. Seven years ago when I first bought my properties. I'll admit, when I bought my first property seven years ago in Memphis, I had a lot of problems with tenants. I had a lot of problems with the city. I didn't like what I was reading about the police department, just all sorts of things. Not the police department, just crime in general. And Memphis has really turned itself around. Not completely turned itself around, but it's gotten better. And we're seeing it just on the investment side because that's where we're seeing appreciation growth. My personal properties, they're up since 2020, since January 2020, I was when I closed all my last Memphis property.

Naresh Vissa (00:34:49) - They're all up at least 50% in value. So it's a market that's still appreciating. But the most important thing because we are cash flow investors, not necessarily appreciation investors. It's great to get the appreciation, but the rents keep going up. And I actually today I've talked to a Berkey client, great loyal Jerry listener and follower who ended up buying three properties, and she's on her fourth one, or about to do a fourth one with this Memphis market provider. And when she told me her rents, I was blown away at how much these properties were renting for before the rehab. So it's not just the appreciation again, that goes up after the rehab, how much they were renting for before the rehab. We're talking less than $800 a month and post rehab. Her rents went up by nearly 50%, about 45% on average. House rehab is like three bedroom, one and a half bathroom. Homes initially she bought them. This is how a lot of the properties are. They only had two bedrooms and they converted one of the spaces.

Naresh Vissa (00:36:05) - The rehab were converted at no extra. You know, it's all inclusive of the rehab charges. They were able to find space in a lot of these properties that were two bedrooms to create a third bedroom and turn them into three bedroom properties instead of two bedroom properties, which also improves the value of the home. And you can get another body in there and increase the rent. So, Jerry, listeners have been really, really happy with this burpee process because at the end of the day, you really do get more bang for your buck. Yes, new construction overall. It's just safer. We have tons of great new construction providers, especially in Florida, whom we recommend, but this is an alternative for those people who don't have $100,000 sitting in the bank ready to invest in a new construction, single family, or a new construction duplex. The Berkey, I mean, really all you need is about 20, $25,000 to do it. And like I said, if you get lucky, you could get a decent portion of that back after the rehab.

Keith Weinhold (00:37:08) - Well, you bring up so many good points there in the race. For one thing, with real estate, you can intentionally improve the value. That's something that you cannot do if you own a stock or if you own cryptocurrency, or if you own gold, you can help control what your investment is worth. And a lot of that happens here in the rehab process. Well, the race would love to tell you more, including walking you through an example with numbers, but that's the best place for him to do it. That is on the live event next week because it is co-hosted by narration. You can join the live virtual event from the comfort of your own home. You can ask questions and have them answered in real time. It is all free and we'll also be sharing special off market Berkey inventory. In Memphis for two, three and four bedroom properties, so go ahead and attend on June 25th. Which again is next Tuesday. Be sure to register now at GR webinars.com. Just been great to walk through the Berkey.

Keith Weinhold (00:38:12) - Thanks so much for coming back on the show.

Naresh Vissa (00:38:14) - Thank you. It's been a pleasure.

Keith Weinhold (00:38:21) - Oh good info from Gree investment coach Naresh as always. Next week's live event. That could be a bigger deal than the Paris Olympics this summer and this year's presidential election combined. Oh yes. Well, at least it expects to be more profitable for you than those other events. It will also be more entertaining when you join as an attendee live next week. Certainly more entertaining and informative than Olympic handball and Olympic race walking, no doubt about that. I don't think I've offended any race walking fans because there are only perhaps five in the world. In any case, BR is a process by which, after you buy months later, you can expect to refinance at a higher valuation since the property has been rehabbed from your initial purchase, and then you get a big chunk of your own down payment back, meaning you have less invested in the deal. And that's why you get a higher cash on cash return. Because cash and cash return all that is, is your annual cash flow divided by your initial investment or your starting equity position.

Keith Weinhold (00:39:37) - The last R in BR is repeat. You can repeat sooner because you did get some of your invested cash back. And that's part of what makes the strategy so effective. Now is part of your refi. You might get a post appraisal rehab that's so high you essentially get all of your down payment money returned to you, at which point it would be an infinite return because you don't have anything invested in the deal. But you should not count on having all of it returned, just a lot of it or most of it. Next week's live event is where the BR real estate investing strategy gets introduced to a wider swath of America one last time. Attend live next Tuesday. The 25th. I really encourage you to check it out. Be sure to sign up for the virtual GRE live event now! It's pretty quick and easy to do at GR webinars.com. Until next week, I'm your host, Keith Weintraub. Don't quit your day dream.

Speaker 5 (00:40:41) - Nothing on this show should be considered specific, personal or professional advice.

Speaker 5 (00:40:45) - 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 yet Rich education LLC exclusively.

Robert Syslo (00:41:09) - The preceding program was brought.

Keith Weinhold (00:41:10) - To you by your home for wealth building. Get Rich Education.com.

Direct download: GREepisode506_.mp3
Category:general -- posted at: 4:00am EDT

Mon, 10 June 2024

Big capital gains tax bills are hitting more home sellers. Exemptions exist for up to $250K single, $500K married.

Bad housing affordability means a low home ownership rate, hence, more renters.

The homeownership rate has dropped from 66.0% to 65.6% in the last year.

I have a hole in the roof of a rental single-family home, with about $10K in damage. Learn how I handle it.

Two of the first three income properties that I bought performed poorly.

VP of Market Economics at Auction.com, Daren Blomquist joins me. We learn why foreclosure activity is 10% to 20% below pre-pandemic levels.

Learn about judicial and non-judicial foreclosure states.

From homeowners surveyed, the top concern about falling into delinquency are rising insurance and property taxes.

Auction bidders are confident about the real estate market. They’re willing to pay more, which is 60% of ARV nationally.

You can bid on distressed properties with your phone via Auction.com.

Opportunity Zones are generally working.

Resources mentioned:

Nation’s Largest Online RE Auction Marketplace:

Auction.com

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.

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504: The Father of Reaganomics, David Stockman Joins Us: Ominous $100 Trillion Debt is Coming

Complete episode transcript:

Speaker Weinhold** ((00:00:00)) - - Welcome to GRE! I'm your host, Keith Weinhold, talking about a lot of housing market problems today. Capital gains taxes hitting more home sellers. Home affordability is still bad. The American homeownership rate is falling. I've got roof damage on one of my own properties. Then an update on American mortgage delinquencies and foreclosures. It's mostly bad real estate news today on Get Rich Education.

Speaker Syslo** ((00:00:29)) - - Since 2014, the powerful Get Rich education podcast has created more passive income for people than nearly any other show in the world. This show teaches you how to earn strong returns from passive real estate, investing in the best markets without losing your time being a flipper or landlord. Show host Keith Reinhold writes for both Forbes and Rich Dad Advisors, and delivers a new show every week. Since 2014, there's been millions of listeners downloads and 188 world nations. He has A-list show guests include top selling personal finance author Robert Kiyosaki. Get Rich education can be heard on every podcast platform. Plus it has its own dedicated Apple and Android listener. Phone apps build wealth on the go with the get Rich education podcast.

Speaker Syslo** ((00:01:06)) - - Sign up now for the Get Rich education podcast or visit GetRichEducation.com.

Speaker Coates** ((00:01:14)) - - You're listening to the show that has created more financial freedom than nearly any show in the world. This is get rich education.

Speaker Weinhold** ((00:01:30)) - - We're gonna go from Bavaria, Germany, to Batavia, New York, and across 188 nations worldwide. I'm Keith Weinhold, and you're listening to Get Rich education. There is a large online source of foreclosure and bank owned properties that you won't find on the MLS. In fact, they are the largest in the nation, and their VP of Market Economics will be here with us later today. Home price appreciation. That has been wonderful for the last several years. But one negative consequence is the fact that more home sellers now are getting hit with big capital gains tax bills. Now we'll discuss income property shortly, but when it comes to primary residences, you probably know that if you are single, you won't pay any capital gains tax on the first 250 K profit of your sale. That 250 K exemption. That is only half of what married couples enjoy.

Speaker Weinhold** ((00:02:29)) - - They don't have to pay tax on the first 500 K of profit. Yes, a $500,000 exemption on capital gains for married couples. So basically, single people in high priced markets like you often find on the coasts, they get hit the hardest. Married couples in lower priced markets more toward the heartland and in the South. Those married couples, they're more likely to get away without paying any tax on the profit from their home sale. All right, well, just what proportion of homes are we talking about here? Well, last year, 8% of sales had capital gains of over 500 K. All right, well that potentially makes them exposed to the tax hit. Compare that to a couple decades ago. That share was just over 1%. So it's gone from 1% to 8%. These are exorbitant capital gains tax events. And you know what this does. People trying to avoid that it keeps even more homes off the market. Now it's not as pronounced as the well-documented interest rate lock in effect okay. Call this the capital gains tax lock.

Speaker Weinhold** ((00:03:46)) - - In effect people avoid the tax by not selling. And it makes some older people age in place. That's part of what's going on here. Because if the homeowner keeps it until they die, then the heirs, they might be able to sell it tax free due to the tax laws and capital gains taxes. Like, what rate do you actually pay that can be as high as around 20% on you for selling your primary residence if the gain exceeds those thresholds? And yeah, those thresholds, they haven't moved with inflation in quite a long time. Now, understand that right now you are living in an era where many Americans, they can't afford to live in the home that they live in right now if they tried to repurchase it at today's prices. So again, it's not the mortgage rate lag in effect here. It's the purchase price paid lock in effect. Now look, yes, overall I am a real estate market optimist. You are too, when you understand how real estate pays you five ways. But as far as anyone saying something like, oh, there is never been a better time to buy, that doesn't make any sense.

Speaker Weinhold** ((00:05:02)) - - Now. At the same time, I don't see any evidence that waiting is going to do you any favors, but there have obviously been some better times to buy. In fact, do you know the best year in modern history that I can think of for buying real estate? Any idea it was the year 2013? Yeah, 2013. That's when prices were low because they still hadn't bounced much off of the GFC lows and mortgage rates. They actually were in the absurdly low threes back in 2013. Now starting in 2021 you know I have been on record on this show. I've been on record on television and on our own YouTube channel here and in Forbes and elsewhere. Since then, I've said that home prices, they're not poised to fall, they're going to stay stable or they're going to keep going up. I was perhaps one of the earlier people to point that 3 or 4 years ago that the low housing supply and the government safety nets that won't let people lose their homes, those things keep the markets buoyant.

Speaker Weinhold** ((00:06:16)) - - Now, today, I see more signs that prolonged bad affordability will slow down. Home price growth in that part is bad for investors, of course. Prolonged. Bad affordability. That means something good for income centric investors at the same time, sort of like David Stockman and I touched on last week here. Yes. Souring affordability. What that means is a falling homeownership rate that would make sense in the homeownership rate. That means that just what it sounds like, that is the proportion of American homes that are occupied by their owner in the past year. Yeah, the homeownership rate has fallen, but not too much yet because there are some lag effects and other factors to account for. Like, imagine if there are new zero money down loan programs that are made available. You can see how that would make homes more affordable, even if rates and prices and wages stayed the same. So there are X factors out there and lag effects out there. In the past year, the homeownership rate has fallen from 66% down to 65.6%.

Speaker Weinhold** ((00:07:33)) - - Not too much of a slide, just 4/10 of 1%. That is a Fred stat sourced through the Census Bureau. All right. So what's that really mean if you're looking for income. Well, what that means is that there are now hundreds of thousands of additional renters today than there were just one year ago. And the number of renters, those that aren't homeowners, that looks to increase in both absolute and relative terms. There's a lot of people expect the homeownership rate to continue to drop from here. Now, no investor conditions are absolutely ideal everywhere you look. In fact, of the first three investment properties that I personally bought in my life, only one of those three went really well. It was that first ever fourplex I bought because it appreciated from 295 K to 425 K in just three and a half years, and it provided some cash flow and even a place for me to live. But the second property I bought, which was also a fourplex, it hardly cash flow because I bought it at 90% loan to value, and I also bought it in 2007.

Speaker Weinhold** ((00:08:46)) - - Not great timing, so its value dropped. I was a pretty new real estate investor then, and when its value dropped, it didn't return to the 530 K value that I bought it for for about six years. And then I got wiser and I started buying across state lines, since that's where the best deals often are. Well, this was then my third investment property, a brick single family home that cost 153 K in the Dallas-Fort worth area. And the main reason I bought it is because it was cheap, which was a mistake. It was also in a growing area, but I couldn't keep it occupied, so I soon sold it for about the same price that I bought it for. All right. But even in those far less than ideal beginnings for me, two of my first three properties, they weren't disasters, but they weren't a great experience either. Yet I still got some leverage, a little cash flow. I got tenant made principal pay down all the while, tax benefits all the while, and that inflation profiting benefit.

Speaker Weinhold** ((00:09:52)) - - And I did then find myself better off overall. Despite that the appreciation and the cash flow weren't all that great. If you blend those first three properties together and today, perhaps a lot like you or what you want to do. I own properties in multiple markets, and I remotely made as the property managers in those markets. And you know, just yesterday I got an email from one of my property managers about roof damage to one of my properties. It's a rental single family home. It's going to be about $10,000 worth of repair work. Some bad news and the way I'm hailing it is a way that you might think of handling a real estate problem. I sure don't just send off a $10,000 check right away and chalk it up as a loss, and ask myself how many months it's going to take me to make that up. The first thing that you can do in this situation is check to see if you have a home warranty that covers it in full or in part. Whether you bought your property new or renovated, a warranty might apply.

Speaker Weinhold** ((00:10:58)) - - It actually does not in my case here. Well, if the warranty doesn't cover your issue, of course, check with your insurance provider and see what your deductible is there. Consider that when insurance premiums have risen sharply in a lot of markets, you need to get something back for that premium that you're paying in a lot of cases. All right. And if those things don't work, then don't just take the first quote that your property manager gives you that they got from the first contractor, which is. Ten K in my case. For a substantial work item, ask your property manager to obtain at least three quotes for you. That's reasonable. And then look at the most competitive of those three quotes. So to review here three ways to avoid paying. For example a full 10-K. In my case it's your warranty, it's your insurance. And if you feel like you must come out of pocket, then get three quotes in order to reduce your cost. And here's the thing you don't do these things yourself.

Speaker Weinhold** ((00:12:03)) - - What you do is you ask your manager to do these things and make it easy for you. Your manager should check with your insurance policy and they should check on your warranty. And then you can back it up and take a look at it. If you don't like the answer, they should obtain the roofing contractor quotes for you to. You are paying your manager for this stuff, maybe 8 or 10% in a management fee, and that should not be for nothing. Have them do this stuff that's their job and ask them to do it. Because if you don't just watch, they'd be happy to have you do it for them. Don't. You don't have to. So we're talking about mitigating your out-of-pocket cost in your time expended when you have a real estate issue, like a hole in a roof of one of my single family rentals. Now sometimes you're going to get caught in some snafu. But again, our strategy here is that you're usually not even holding any one rental property for more than 7 to 10 years, because by that time, it's accumulated sufficient equity so that you can make a tax deferred exchange up to another property, keep leveraging that equity, because the rate of return from equity is always zero.

Speaker Weinhold** ((00:13:16)) - - Now, that process, that 7 or 10 years, that might be on the slower end. Now though, since the property that you consider relinquishing is going to have a lower mortgage rate than your replacement property, it will. And one other thing to keep in mind here it's about providing America with that clean, safe, affordable, functional housing. What that means is that while roof quotes are being obtained here if needed, and it takes a few works until those roof repairs can begin, what you can do is have a cheap temporary repair done until the permanent roof fix starts. That's pretty common with roofing repairs, and that way not only is any interim damage avoided, but the tenant is not being negatively impacted here either. No slumlords around here. As we're discussing real estate problems today, we're about to delve into what happens when homeowners in real estate investors, when they can't make the mortgage payments on their property, and is that proportion of people going up or is that going down in this low affordability market? We'll also get some takeaways by looking at the bidder activity on foreclosure properties.

Speaker Weinhold** ((00:14:33)) - - That can tell us quite a bit about the market and about buyer expectations for the future of the market. And I'll also tell you how you too, if you're interested, you can find opportunities and get a deep discount on a foreclosed upon property. That's all. Next with a great guest, I'm Keith Reinhold. You're listening to get Rich education. 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 $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%.

Speaker Weinhold** ((00:15:41)) - - 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. Role under the specific expert with income property you need Ridge Lending Group and MLS 42056 in grey history, from beginners to veterans. They provided our listeners with more mortgages than anyone. It's where I get my own loans for single family rentals up to four Plex's. Start your pre-qualification and chat with President Charlie Ridge personally. They'll even customize a plan tailored to you for growing your portfolio. Start at Ridge Lending group.com Ridge lending group.com. This is Rich dad advisor Tom Wheelwright. Listen to get Rich education with Keith Reinhold and don't quit your daydream. This week's guest is the VP of Market Economics at auction. Com they are the largest online source of foreclosure and bank owned properties that you won't find on the MLS. You can bid on properties from anywhere with your mobile device. We'll learn more about that later. First, we're covering a general real estate market update today, and then we're mostly going to discuss what's happening in the foreclosure market, including just what a foreclosure market even is.

Speaker Weinhold** ((00:17:25)) - - Hey, it's been over a year since we've had you here. So a big gray welcome back to Darren Lundquist. Thank you so much. It's great to be back and.

Speaker Blomquist** ((00:17:34)) - - Glad to see you, Keith.

Speaker Weinhold** ((00:17:35)) - - For listeners in the audio only Blomquist is spelled with just one oh, despite being pronounced. Blomquist and Daren, as we talk about the state of these markets today, it also helps to mix in lessons for the follower and listener that's watching or consuming this. In ten years. And before we discuss foreclosures. Now, Darren, when I look at the residential real estate market today, there are a few ways that it appears rather normalized actually. For example, all price appreciation rates are normal rent growth levels. They're pretty close to historic norms. Interest rates are even near historic norms, which is a surprise to laypersons. But that's three huge measures that are actually normal, and no one else anywhere talks about that. But there are some aberrations in today's market, the most chronic and saddening of which is the lack of housing supply.

Speaker Weinhold** ((00:18:28)) - - So with that backdrop, what are your thoughts on today's overall American housing market?

Speaker Blomquist** ((00:18:34)) - - It's really interesting. We have these normal metrics that we look at when we look at how home price appreciation. Now home sales I would say are abnormally low. Right. But home price appreciation is doing well. Some of the other metrics that we look at. But it's coming off of this abnormal what I would say an abnormal period over the last three years or so, mostly during the pandemic when the housing market went a little bit crazy and you saw home prices rise abnormally fast. I would argue too fast for such a short period of time. And so you'd almost expect after a period like that to see a correction in home prices. And we saw a slight correction in late 2022, early 23. Right. But now home prices are, as you mentioned, kind of back to normal actually maybe a little bit on the high side of normal, 5 to 7% home price appreciation that we're seeing annually. And so there is this sense that things look normal.

Speaker Wheelwright** ((00:19:32)) - - But below the surface there are, I believe I would argue and you may not agree with this, some underlying problems that I think could come back to bite us if, you know, depending on how things go over the next few years. But certainly the underlying fundamental biggest storyline, that's not necessarily maybe as accessible to a lot of people is this housing supply that you mentioned, Keith. And over the last the decade that ended in 2020, we saw, I would guess, based on my analysis, about 4 to 5 million housing units that were not built, that in a sense should have been built. But we were short 4 to 5 million housing units relative to the number of households that were being formed during that same time period. And so that is set us up for this market that we're in now in the 2020s, where we're seeing, despite the fact that home prices are going up and are out of whack with fundamental price to income ratios. In other words, affordability is a problem. Despite that fact, home prices continue to go up because you have this underlying lack of supply and so you have enough demand to fuel rising home prices, given the lack of supply, if that makes sense.

Speaker Weinhold** ((00:20:48)) - - Yes. You mentioned the paltry volume of sales, which is really one consequence of this constrained supply. And there are so many ways to measure it. You threw some numbers out there just using Fred's active listing count. They have one and a half to 2 million homes normally available. Inventory bottomed out near a jaw dropping, just fantastically paltry 350,000 units in 2022. And then the latest figure is about 730 K. So really doubling off the bottom, but yet still far below what is needed there in in 2021 and 2022, I started informing our audience that the housing crash of this generation, it's already occurred. It was a supply crash, which hedges against a price crash even amidst a tripling of interest rates. I guess there. And from your vantage point, when will this low housing supply abate?

Speaker Wheelwright** ((00:21:46)) - - But I think on the multifamily side, you're seeing signs that we've, in a sense, caught up with housing supply. You're seeing the multifamily sectors start in terms of the builders start to pull back. I think because of that.

Speaker Wheelwright** ((00:21:58)) - - And one piece of evidence of that is the slowdown in rent appreciation. But then on the Single-Family side, we're still seeing pretty robust increases in housing starts and builders starting housing units. And I was just looking at the latest numbers for April up 18% year over year. And we're at over a million housing starts in April on an annualized basis. You know, it's hard to predict what household formation will be doing over the next decade, but I believe that million number is enough to supply the new households that are being formed and are projected to be formed over the next few years. And so we're kind of at a place where at least we're treading water in terms of housing supply. And I do think there are some demographic trends that could by the year 2030, which may seem like a long ways off still, but by that time we would see this kind of reverse a little bit. And the demographic trends I'm talking about are slower population growth, the birth rates. There's a big article in the Wall Street Journal.

Speaker Wheelwright** ((00:22:58)) - - If you write, birth rates are surprisingly not really coming back. They dropped during the pandemic have not really come back. And in many areas, including the US or below replacement level in terms of replacing the population at 2.1. Yes. So not to get too deep into the demographics, I'm not a demographer, but I think that combined with these increases in housing starts that we're seeing, we will see that supply in the next five years. Maybe when I'm on next, I'm with you to see that it is a slow moving train. I think we're headed in a good direction in terms of that, that housing supply. And those are already, I would argue, some early signs at 2024 at least. It's still a low supply environment, but it's at least somewhat better, incrementally better than 2023 was in terms of inventory. And we're seeing some more inventory. Come on. One tip I would just say that's I think a long term thing to look for, no matter what environment you're in, is if you look at the inventory, inventory is a great and a barometer of market health.

Speaker Wheelwright** ((00:24:00)) - - And if you look at inventory numbers by market, which we do, you do see some markets all of a sudden inventory is starting to spike. And that to me is a signal that those markets could be softening in terms of prices and even in terms of sales. So you see some markets in Florida popping up like that. But whether or not we're talking about now or anytime, it's a great metric to look at. For anybody investing in real estate, especially at a market level, is that inventory of homes. You can look at month supply of inventory for sale. Six months supply is a great milestone. If there's six months supply, that's a balanced market. If it's below six months supply, it's a seller's market. And if it's above six months supply, it's a buyer's market. So just a general kind of rule of thumb to look for there.

Speaker Weinhold** ((00:24:46)) - - Sure. We've seen months of supply three months or less in an awful lot of places. However, you alluded to coming potential problems for the housing market earlier.

Speaker Weinhold** ((00:24:55)) - - Can you tell us more about that? Have you already done that with talking about a potential softening with some inventory coming on faster in some markets?

Speaker Wheelwright** ((00:25:04)) - - I think you're a thesis about this. The housing crash has already happened and it was a supply crash is very interesting. When I look at price to income ratios over time, you know, home prices versus incomes, we've diverged from that long term mean of that price to income ratio right. In the last couple of years. We saw that during the the bubble of 2004 five six. But it's even more dramatic in the last couple of years where we saw at the peak of this, the actual home prices. We. Nationwide, we're about 30% above what we would expect the price to be based on incomes and that historic price to income ratio. And so I do expect a reversion to the mean at some point. Now, whether that could occur as a pretty sharp correction, although I can't point to a specific trigger that would cause that correction necessarily may could occur more of a stagnation over time, where home prices kind of flatten out and increase less than the median long term average.

Speaker Wheelwright** ((00:26:07)) - - I do believe that we will see a reversion to that mean eventually, especially as we see more supply coming onto the market. I think it's actually healthy for the housing market, but it could be experienced by many people as weakness in the housing market, because you could see home prices decline a little bit, especially in certain markets.

Speaker Weinhold** ((00:26:25)) - - From your vantage point. Darren, you are an expert there in helping people find deals because you really keep a pulse on what's happening in the foreclosure market. Maybe some of our audience doesn't completely understand what the foreclosure market means. Now, Darren, I think of delinquency is that condition means that mortgage borrowers have been making some late payments. Tell us about how delinquency differs from foreclosure. And that will help if you go ahead and define just what the foreclosure market is.

Speaker Wheelwright** ((00:26:57)) - - Starting with the foreclosure market. I mean, when you can call it the distressed market or the foreclosure market. And that's really where auctions. Com operates. And is this foreclosure market, it's loans that the borrower cannot continue to make payments for a variety of reasons.

Speaker Wheelwright** ((00:27:12)) - - When you have a home that's financed and the borrower cannot continue to make payments, the recourse for the lender is foreclosure to take back that property by taking back that property and then selling it, recouping or trying to recoup as much of the losses on that property that they can in terms of the loan that was given on that property. Okay.

Speaker Weinhold** ((00:27:34)) - - So let's talk about delinquencies here. We're looking at certain levels of severity being 30 days late on your payments, being 60 days late and being 90 days late. And interestingly, we see a big spike in FHA loan types that have had more delinquencies than conventional loan types.

Speaker Blomquist** ((00:27:50)) - - That's right. Yeah. So delinquency is kind of the top of the funnel if you think of the distressed market or for leisure market as a funnel, the top of that funnel is someone can't make their payment one month. They miss their payment, mortgage payment one month. That's what this 30 or 30 day delinquency. And when you look at the chart that we're looking at, you do see those 30 day delinquencies rising over the especially on FHA loans, which are, I would argue, the most kind of risky loans in our current marketplace.

Speaker Blomquist** ((00:28:19)) - - Yeah, the last ten years, over the last decade. And we see those even from 2021, rising steadily up back to really 2019 highs on the 30 day delinquencies, you also see a slight gradual increase in conventional loans, which are loans backed by Fannie Mae and Freddie Mac as well as VA loans. But those are the 30 day delinquencies. They're are not back to pre-pandemic levels even on that front. So that's the 30 day. Usually if someone misses a monthly payment, it's not super serious at that point. What really gets more into our marketplace is when we see a 90 day delinquency, or what's known as a seriously delinquent loan alone, that is past due by 90 plus days. And we have that chart here. What stands out to me on this chart is you actually see those 90 day delinquencies continuing for the most part to trend lower, even though the 30 day delinquencies are going up, 90 days are coming down, and there's a lot of reasons for that. But at the end of the day, that means people maybe are getting into trouble, but they're able to get out of trouble before they lose the home to foreclosure in many instances.

Speaker Weinhold** ((00:29:29)) - - All right. So in summary, 30 and 60 day delinquencies have risen over the past two years. But over the past two years, serious delinquencies, 90 day delinquencies therefore, are lower over the past two years.

Speaker Blomquist** ((00:29:43)) - - That's right. And then if we look at foreclosure starts, which is kind of the next step. So you missed three months worth of payments. That's when the bank starts to think about starting the official foreclosure process. And if you look at foreclosure starts, we are seeing those rise as well. And part of the reason that you see these rising, even though seriously delinquent loans are falling, is because there was a bit of a backlog from the pandemic still. Yeah, loans that were delinquent when the pandemic started that were delayed from going to foreclosure, that are now coming back. So we see this sharp drop off in 2020 when there was a foreclosure moratorium. Those numbers have reverted back, have bounced back. But there's we're still seeing about 60 to 70,000 foreclosure starts, a quarter nationwide just to put some numbers on this.

Speaker Blomquist** ((00:30:31)) - - But back in the first quarter of 2020, before the foreclosure moratoriums, we were at 81,000. So we're still at about 80% of the pre-pandemic levels. But foreclosure starts have come back. We're just getting back to what I would consider kind of normal levels of foreclosure, and especially if you look at in the context of what we saw during in 2009, 2010, we were seeing over 500,000 foreclosure starts a quarter back then. Now we're seeing 68,000. So we're paling in comparison to those numbers.

Speaker Weinhold** ((00:31:04)) - - As you, the investor, is thinking this through, we're talking about how many opportunities there will be for you here, basically to scoop up a distressed deal, a fixed and flip property. If you're looking to fix and flip one just in the general context, that's what we're talking about here.

Speaker Blomquist** ((00:31:21)) - - Opportunities really foreclosure starts are for. Opportunities. If we look at where the opportunities are emerging in terms of those foreclosure starts, we do see a lot of increases in looking at March of 2024. Year over year, a lot of increases in Florida, and foreclosure starts and also Texas in California.

Speaker Blomquist** ((00:31:42)) - - So it's interesting. I mean, these are markets that are doing pretty well, pretty healthy. But we are seeing some of those foreclosure starts come back in pretty big percentage wise in those areas. If we look at auction com data, specifically the state level, in the interest of time. But just to look through the lens of looking for opportunities. Auction com resides a step after the foreclosure start. Then eventually it goes to a foreclosure auction where the property either sells to an investor or it goes back to the bank is what's known as an REO. And where we're seeing on our platform the biggest kind of return to normal levels of foreclosure auction volume, where there's that property actually is sold, is mostly in the Rust Belt, Upper Midwest. That's where we're seeing volumes return to normal. And a place like Florida, we're only seeing foreclosure volumes are over 70% below normal, and Texas were 55% below normal. And when I say normal, I'm saying I'm comparing that to pre-pandemic levels. And then in California, we're at about 45% below those pre-pandemic levels.

Speaker Blomquist** ((00:32:54)) - - So some of the big volume states, we're still waiting for the foreclosure volume to return. But if you look like at states like Indiana, Iowa, Minnesota, places like that, Oklahoma, we are seeing that foreclosure auction volumes have returned to those pre-pandemic levels. So there are more opportunities in those areas, at least relative to their population and their their size of in terms of housing units.

Speaker Weinhold** ((00:33:20)) - - So in general, in a lot of these upper Midwestern states, in northern Great Plains states, we see a greater foreclosure volume than we did pre-pandemic, because those levels are at over 100%, 100 being the pre-pandemic level. There is one aberration on your map, for one thing, Darren, and that is in Connecticut, where we have 306% of the foreclosure volume that we did pre-pandemic. That's over three x what's going on in Connecticut?

Speaker Wheelwright** ((00:33:50)) - - I'm glad you pointed that out. I mean, that is part of the the issue with Connecticut is you do have relatively low foreclosure volumes there. So the 306% is coming off even pre-pandemic, some pretty low volumes of foreclosure.

Speaker Wheelwright** ((00:34:03)) - - We are seeing and I can't point to exactly what's happening there in terms of the economy, any other extra weakness in the economy or in the housing market there? But we are seeing definitely that's the top state in terms of where foreclosure volume is back way above, in fact, pre-pandemic levels. That was one of the areas, at least parts of Connecticut where the work from home trend maybe got a little bit out of control, and people were buying homes and willing to pay very high prices for homes that were who worked in New York City. And now we're thinking, well, I can work from Connecticut. In the country. There was probably more of a pandemic housing boom in Connecticut than some other areas of the country, and that may be part of the story that's going on there.

Speaker Weinhold** ((00:34:54)) - - We're talking about the most densely populated part of the United States here, the tri state area, which is New York, Connecticut and New Jersey. And what's unusual is that one of those three states, new Jersey, is the antithesis of what's happening in Connecticut.

Speaker Weinhold** ((00:35:09)) - - Connecticut has about three x the foreclosure volume than they did before the pandemic, and new Jersey is just 25%. They only have one quarter the foreclosure volume that they did before the pandemic. Are there any other tri state dynamics going on there with foreclosures there?

Speaker Wheelwright** ((00:35:25)) - - That's a great observation. And one thing that becomes very important with foreclosures is the foreclosure process is governed by state law. It's not a federal national law that governs how the foreclosures work. And so you do see a lot of variation in the states based on how that foreclosure process works. And then also even how the the legislatures in those states have stepped in in some cases. And that's the case in new Jersey and created new laws even in the last couple of years to, for lack of a better word, stymie the foreclosure process and may put extra barriers in getting to foreclosure. And so, number one, new Jersey is what's called a judicial foreclosure state, where the foreclosure process is inherently longer than many states, including Connecticut. And then on top of that, the new Jersey legislature has enacted at least one law that took effect in January that even creates more barriers to foreclosure.

Speaker Wheelwright** ((00:36:22)) - - And we probably don't have time to get into the details of that law. But that's really, I think, what's it's less about that new Jersey is a much more healthy housing market than Connecticut. As to what you see there is the effects of the state governed foreclosure process with those numbers.

Speaker Weinhold** ((00:36:40)) - - So just some great context for the listener and viewer here. The state jurisdiction in the judicial process has an awful lot to do with foreclosure volume. That's not necessarily indicative of the condition of its housing market.

Speaker Wheelwright** ((00:36:55)) - - That's right. And it does vary quite a bit. When we look at going forward at risk. We actually asked, so our clients are the banks, the mortgage servicers, the lenders who are foreclosing on these properties. And we ask them what they think is the highest risk of increasing foreclosures in the future. And the the top of their list was rising insurance and property taxes.

Speaker Weinhold** ((00:37:22)) - - That's super interesting.

Speaker Wheelwright** ((00:37:23)) - - Yeah, and that's been a hot topic recently. I would put that at the top of my list of risks.

Speaker Wheelwright** ((00:37:29)) - - Going back to your question about why could the housing market experience weakness in the somewhat near future? I think this is the top of my list of as a catalyst that could potentially trigger weakness in the housing market, specifically home prices. Because of these variable costs of homeownership. You know, your mortgage is a fixed cost. You know what it's going to be every month, but your insurance and property taxes are variable costs. And there are in some states, those have skyrocketed. For some homeowners. This insurers are pulling out of states.

Speaker Weinhold** ((00:38:02)) - - This is all such a great finding. Again, Darren's firm asked the survey question how much would you assign each of the following in terms of risk for higher delinquencies between now and the end of this year? And the number one answer is rising insurance and property taxes to Darren's point. That's because these are variable costs that everyone is subjected to. And we need to be mindful that more than 4 in 10 American homeowners are free and clear of their mortgage, so they don't have any payment.

Speaker Weinhold** ((00:38:27)) - - So on a percentage basis, when you look at homeowners expenses, when they have rising insurance and property tax problems, you can see how this can increase foreclosures.

Speaker Wheelwright** ((00:38:38)) - - That's right. That's a great point. A couple other risks that ranked fairly high with our clients. We're rising consumer debt delinquencies so that we do see things like credit card debt and auto loan debt, specifically those two delinquencies on those types of more or loans, not mortgages, are rising quite quickly over the last few quarters. And so that's an area of risk that we're seeing. And then they put rising unemployment is third. But you know right. We're not seeing unemployment rise right now. And unemployment is very low. They put that a little bit lower on the list. Those two things to look out for are those rising insurance and property taxes. If we continue to see that be a problem, that could be a trigger that causes some fallout in the housing market, as well as if we continue to see those rising delinquencies on credit card and auto loan debt that could ripple out as well to the housing market.

Speaker Weinhold** ((00:39:35)) - - It's really interesting. Higher property taxes are often a result of a homeowner's property having gone up in value. But if you own a paid off home and you're just going to continue to live there for the rest of your life, that rising property value that really doesn't help you so much, it actually might hurt you in a way, because you will have a commensurate increase in your property. Taxes, making it harder for you to live.

Speaker Wheelwright** ((00:39:57)) - - Yeah, that's right. It's a double edged sword there with the rising values. And usually it's, you know, property taxes is not an unbearable cost for most people. But when you're on the margins and you're just barely able to make your mortgage payment each month, and if you're in that situation, a fairly small rise in property taxes can make a big difference in whether you're able to continue to make those payments.

Speaker Weinhold** ((00:40:21)) - - Yes. And then the rising insurance premiums, they've gone to X to three X on some homeowners in just a few years. It won't go up that much on a property taxes.

Speaker Wheelwright** ((00:40:30)) - - The insurance is there's been more of the problem recently, but property taxes are kind of layered on top of that. Moving on. I just wanted to land, I think really on getting back to that question of opportunity for investors out there and auction com buyers are typically fix and flip or you know, fix and rent investors. And so what they're doing is they're looking to buy these properties. And it usually takes maybe six months, 90 days to six months to renovate these properties and turn them around and sell them. And so one of the things we look at very carefully is, are the bidding behavior on our platform as an indicator of what's coming in the retail market, because our buyers are they're pretty good usually at anticipating what's going to be happening in their market over the next 3 to 6 months. Our buyers did pull back in their bidding behavior, they got more conservative and were willing to pay less. Back in 2022, when mortgage rates spiked. But it appears now that our buyers have gotten comfortable with this kind of higher for longer concept of interest rates.

Speaker Wheelwright** ((00:41:36)) - - Yeah, and our bidding behavior on our platform is mostly trending higher, meaning that our buyers are pretty confident that the housing market, despite, you know, I might have sounded a little doom and gloom, but our buyers are pretty confident that in their local market, they will continue to be able to buy these distressed homes at a discount. The metric we look at is what they're paying at auction, relative to the after repair value of the home, the estimated after repair value, and as of March of this year, that was at 59.8%. So they're buying at 60% of after repair value at 40. You could turn that around and call that a 40% discount. That number is, believe it or not, been trending up over the last few months. So they're willing to pay more, which indicates confidence in the housing market going forward. Historically, that's our bidders have been a good harbinger or indicator of what's to come in the retail market when they're more confident the retail market typically does well and vice versa.

Speaker Wheelwright** ((00:42:39)) - - You know, if we look at that by market, it's really interesting to see where our bidders are most confident about home prices going up in different markets. And we see a lot of confidence actually, the places where we see it's probably coincidental, but some of the places where we see higher foreclosure volume, as we talked about earlier, some of the upper Midwest Rust Belt areas are where we're seeing our buyers willing to pay more than they did a year ago relative to after repair value. So that's where they have a lot of confidence, actually, even out in California and most parts of Florida, they're still pretty confident. And Texas, there are some areas where our buyers are pulling back and and are paying less relative to after repair value. And there's kind of a cluster of markets in on the Gulf Coast, right? You know, in Mississippi, Alabama. And I don't know if that relates to insurance costs. I haven't made that connection solidly. That's an area where there has been rising insurance costs.

Speaker Wheelwright** ((00:43:39)) - - It varies quite a bit. There are some other markets mixed in across the country. Even though most of Florida, our buyers are pretty confident there is one area where they're they've become cautious, which is Cape Coral, Florida. They've pulled back in terms of what they're willing to bid.

Speaker Weinhold** ((00:43:55)) - - Buyers for foreclosure properties still look overall quite confident in Florida. But yeah, like you touched on Darren, it's the lack of confidence to pay more for foreclosure properties in and around southern Louisiana. I know there's been some population loss there. And yes, like you touched on, they are more sensitive to insurance premium rises in Louisiana too.

Speaker Wheelwright** ((00:44:17)) - - That's right. So the takeaway is there's still the beauty of buying at that auction and distressed properties you are buying at a discount below after repair value. There's still a lot of risk involved because you may not know all that that's needed to renovate these properties, but you do have that. Rather than just counting on the housing market. Home price appreciation to increase to drive your profits, you have this component of added value.

Speaker Wheelwright** ((00:44:45)) - - So you're buying the property at a discount. And even at the housing, home prices don't go up in the next six months. By adding value to that property, you can still turn a profit because you're selling it for more than you bought it for. We have two types of auction on auction. Com there's the foreclosure auction, which we've talked a lot about, which comes at the end of the foreclosure process. And that's typically on the local courthouse steps. Although auction com in many counties allows you to bid remotely on your phone, we're we're pretty excited about that technology that we've introduced in the last couple of years. And then the second type of auction is if it doesn't sell at the courthouse steps foreclosure auction, it goes back to the bank as an REO. And we do the Ro auctions, which are mostly all online, and you can bid from anywhere. And it's pretty consistent between those two types of auctions. On average, at least over time, buyers are typically paying about 60% of after repair value, so about a 40% discount between after repair value.

Speaker Wheelwright** ((00:45:46)) - - Now, a lot of these homes need are in need of a lot of repair. But you have that type of discount available. And even though foreclosure volume has not come back to pre-pandemic levels, we're still seeing a consistent flow of that happening. There are certainly many markets, especially if you're willing to go off the beaten path a little bit in terms of markets where you can find inventory and also good discounts on these properties, especially if you're going to markets where maybe other investors aren't as aware of or aren't as interested in.

Speaker Weinhold** ((00:46:18)) - - Therein. I wonder about local flavor. For those that bid through your platform on these distressed, foreclosed properties. Here we have a lot of investors that buy properties pretty passively where the property is already fixed up for you, maybe already held under management. And a lot of those investors, they go ahead and buy across state lines, because the best teals tend to be in the Midwest and Southeast and a few other pockets in places. So there are an awful lot of out of state investors.

Speaker Weinhold** ((00:46:49)) - - On the passive side, what do you see for a breakdown of local investors in state investors and out-of-state investors through your platform for these distressed properties? I imagine it might be somewhat more localized than what I just described.

Speaker Wheelwright** ((00:47:01)) - - We do have some investors who are buying out of state, but actually the majority are buying in their backyard. Again, because these properties require their high touch, they require a lot of renovation. And so it's good to be local. It's definitely possible, especially with the REO properties where you can buy online. There is some more flexibility there if you have a crew, if you have boots on the ground in the market where you're buying, where you can do that, actually, the average distance between our buyers and the properties they buy is about 20 miles. I should say that's a median distance. So they're very local. There's definitely some exceptions to that you can buy across the country. But it is harder with these properties. These folks are very local. They know the markets they're operating in, and they know they have the resources in those markets to do the renovations.

Speaker Wheelwright** ((00:47:53)) - - Our buyers are probably a great resource for your students, Keith, to be able to tap into these types of local investors who have a supply of homes that they're creating, and sometimes they're selling back to owner occupants, you know, they're putting those properties on the market as renovated properties, and those might be good turnkey rental opportunities as well.

Speaker Weinhold** ((00:48:17)) - - You know, that makes a lot of sense. And how your platform can help people not just find properties, but maybe network and find some like minded people that have tread where you're trying to go. Well, Darren, is there any last thing that you would like to tell us along with your online platform? Is there also perhaps an auction mobile app?

Speaker Wheelwright** ((00:48:37)) - - Absolutely. We have an auction. Com app, and that's a great way to just either on on the website or on the app. You can go on and start searching. There's no subscription fee or anything like that to start looking and seeing where the opportunities are in the markets that you're interested in. You go to auction.com/in the news.

Speaker Wheelwright** ((00:48:57)) - - I actually end up talking to quite a few buyers of our buyers, and we've done some videos where we've gone and visited some of these buyers on location to see what they're doing, how they are operating on a human level. It's very interesting because these buyers are actually doing a lot of good in their communities. Many times by willing to take these down and out properties and down and out neighborhoods and renovate them, but also just on the level of understanding how this all works. That's a great resource. So that's auction.com/in the news and look for those videos featuring some of our buyers. I think that would be a great resource.

Speaker Weinhold** ((00:49:33)) - - Well this has been great information to get an update on what's happening in the foreclosure market and where some of the local areas of opportunity might be as well, especially compared to pre-pandemic conditions. It's been valuable and it's been a pleasure having you here on the show. Thank you so much, Keith. Yeah. Good knowledge for foreclosure expert Darren Bloomquist today. It's when borrowers miss three months of mortgage payments.

Speaker Weinhold** ((00:50:05)) - - That's that mark, where banks often begin foreclosure proceedings. Another thing that you learn is compared to pre-pandemic levels, national foreclosure levels are 10 to 20% lower today than they were then. And see with those that have a late mortgage payment or two, oftentimes that's not going all the way to foreclosure. They're getting caught up on their payments before it goes to foreclosure. And what's really going on here with that dynamic is that, see, today's homeowners, they are more motivated to stay caught up on their payments if they fall behind. And that's because they usually have a substantial positive equity position to protect. And the other factor is that if you lose your home today and you're locked in at a low pre 2022 mortgage rate, it's often going to cost you more per month to go out and rent somewhere else. So it's cheaper on a monthly basis to live in the home that you own. One piece that you might have learned is that high foreclosure activity in a state or city that is not necessarily indicative of that area's economic fortunes.

Speaker Weinhold** ((00:51:10)) - - Instead, it might be tied to its judicial foreclosure process. Nationally, buyers are paying about 60% of after repair value for a foreclosure property. I just talked to Darren some more outside of today's interview, he discussed that foreclosure properties are often in opportunity zones, and if you don't know what they are, are designated distressed areas. That's where there are benefits given to you. If you invest specifically in that zone, you might remember that Opportunity Zones were part of Trump's 2017 Tax Cuts and Jobs Act. They have those zones in all 50 states. And Darren said that overall Opportunity zones are working next week here on the show. Properties are vanishing. Yeah, it is a real tweak to your investor mindset. Disappearing properties. Tune in next week as I cover. Properties are vanishing here on the show. If you haven't yet on your favorite pod catching app, be sure to subscribe or follow the show on your favorite app. Until next week, I'm your host, Keith Windle. Don't quit your daydream.

Speaker Blomquist** ((00:52:23)) - - Nothing on this show should be considered specific, personal or professional advice.

Speaker Voice** ((00:52:27)) - - 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 yet Rich education LLC exclusively.

Speaker Weinhold** ((00:52:51)) - - The preceding program was brought to you by your home for wealth building. Get rich education.com.

Direct download: GREepisode505_b.mp3
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Mon, 3 June 2024

We’re joined by President Ronald Reagan’s Budget Director, David Stockman. He tells us what real estate investors and everyday people need to know.

Stockman served as Reagan’s Director of Office, Management and Budget from 1981 to 1985.

He tells us to expect higher inflation and interest rates for longer, maybe even the rest of the decade. Don’t expect rate cuts for a long time.

The US is moving toward an unsustainable debt situation, with $100T in public debt expected within twenty-five years. We have embedded deficits.

Learn why the recession has been postponed. David also reveals what will inevitably pull the trigger to potentially start the recession. Hint: Household budgets.

Pandemic stimulus programs gave citizens $3T. Half of it has now been spent.

He was also one of the founding partners of Blackstone.

David Stockman tells a story about President Reagan’s personal touch with him.

You can subscribe to David Stockman’s Contra Corner for free here.

Resources mentioned:

David Stockman’s Contra Corner

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GRE Investment Coach, start here:

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503: How Decades of Inflation Destroyed Our Dollar, Today’s Rent Trends

Complete episode transcript:

Keith Weinhold (00:00:01) - Welcome to our Ivory Coast, Keith Whitehill. There are some dire warning signs for the future of our economy. We're joined by none other than the father of Reaganomics. To break it down with us. Today is late. President Ronald Reagan's budget director joins us. When is this perpetually postponed recession coming? Why? Inflation and high interest rates could carry on for the rest of the decade. And what it all means to your finances and real estate today on get Rich education.

Robert Syslo (00:00:34) - Since 2014, the powerful get Rich education podcast has created more passive income for people than nearly any other show in the world. This show teaches you how to earn strong returns from past real estate, investing in the best markets without losing your time being a flipper or landlord. Show host Keith Wine, who writes for both Forbes and Rich Dad Advisors and delivers a new show every week. Since 2014, there's been millions of listeners downloads and 188 world nations. He has A-list show guests include top selling personal finance author Robert Kiyosaki. Get Rich education can be heard on every podcast platform, plus it has its own dedicated Apple and Android listener.

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Keith Weinhold (00:01:35) - We're going to drive from Glen Burnie, Maryland, to Glen County, California and across 188 nations worldwide. I'm Keith Reinhold, and you're listening to get Rich education. We're going bigger picture this week before we talk to President Reagan's money guy in the white House. Understand that today's guest was also one of the founding partners of Blackstone, and they are in the real estate business. You're going to get a lot of deep, uniquely qualified insights today. And I'll tell you what's going on around here. Lately, things have been feeling awfully presidential between last week's program and now this week's program. Hey. Stars and stripes forever. Semper fi. Rah! Now, as the greatest detonation in the history of the world, how in the heck are we, as the United States, going to keep financing our debt now, you can think of a treasury, also known as a bond, as an IOU, as we take on debt to fund our government spending programs.

Keith Weinhold (00:02:42) - Really, what we do is issue then these IOUs to the rest of the world and then down the road. We need to pay back these IOU holders, treasuries, holders, whatever we've borrowed with interest on top of that. That's a really simple way to describe how it works. Think of a Treasury as an IOU. Well, we have $9 trillion in treasuries that need to be rolled over at higher interest rates just this year alone. Okay. Well, how does the market look for that sort of thing? Well, a lot like before you decide to sell a piece of real estate, you would want to know how that buyer's market looks. How is the buyer's market for us selling more treasuries, which is basically us issuing more IOUs? How is that world interest level in our treasuries? Well, this is a time when the world is selling treasuries. We're trying to get rid of them. Well, why would they buy more when we keep printing like crazy, debasing the dollars that they will eventually get their treasuries repaid in down the road? Case in point, China is down to just over 700 billion of treasuries that they're holding.

Keith Weinhold (00:04:01) - Well, they were 3 trillion not too long ago, more than four times that Russia and Iran sold all of their treasuries. Other countries are shedding them too, like Japan. It gets even worse than that because the number one holder of our own debt is our own fed. And then it gets even worse than that. Yet, because even our own fed is rolling treasuries off of their balance sheet. So who is going to finance this often irresponsible US spending the 10 trillion or $11 trillion every single year for the next ten years that we have obligations toward already, and it looks like all those are going to be at higher interest rates, too. Now, I am not telling you how to think about us as the United States, for example, sending foreign aid to multiple nations. That's up to you to decide whether it's Ukraine or the Middle East or Taiwan that gets political. And that is beyond the scope of GR. We are an investing show. What I'm saying is that backdrop that I just gave you, that's something that you need to take into consideration, is you weigh those foreign aid decision types.

Keith Weinhold (00:05:20) - Speaking of getting worse, do we at least have competent decision makers today? Now, as we'll talk to the father of Reaganomics here shortly, someone that served in an earlier era. Here's a clip from this era that really went viral lately, but it's apropos to play it here. This is Jared Bernstein today. He chairs President Joe Biden's Council of Economic Advisers. How much confidence does this instill? And remember, this guy chairs the economic advisers to today's president.

Jared Bernstein (00:05:56) - The US government can't go bankrupt because we can print our own money.

Voice (00:06:00) - Like you said, they print the dollar. So why? Why does the government even borrow?

Jared Bernstein (00:06:04) - Well, the, so the I mean, again, some of this stuff gets some of the language that the, some of the language and concepts are just confusing. I mean, the government definitely prints money and it definitely lends that money, which is why the government definitely prints money. And then it lends that money by, by selling bonds. Is that what they do? They they, the.

Jared Bernstein (00:06:34) - Yeah. They, they they sell bonds. Yeah. They sell bonds. Right. Because they sell bonds and people buy the bonds and lend them the money. Yeah. So a lot of times, a lot of times at least to my year with MMT, the, the language and the concepts can be kind of unnecessarily confusing. But there is no question that the government prints money and then it uses that money to so, yeah, I guess I'm just I don't, I can't really, I don't, I don't get it. I don't know what they're talking about.

Keith Weinhold (00:07:08) - Well geez. How's that for clarity and confidence from today's major decision makers on our economy? Gosh. Now, in my opinion, back in 2020, our government, they set up the wrong incentive structure to deal with the pandemic. Remember things like the PGP, the Paycheck Protection Program, remember mortgage loan forbearance and the eviction moratorium. See when that type of aid is given, well, then the result is that citizens don't learn that they need to keep some cash handy, and then that behavior that gets rewarded gets repeated in that behavior is handouts.

Keith Weinhold (00:07:53) - And then the expectation for more handouts. 56% of Americans don't even have $1,000 for an emergency expense. Well, see, they're not really incentivized to in the future. If in a crisis, everyone just gets another taxpayer funded handout, but then see those same people that got that handout get hurt in the long run. Anyway, with the longer run inflation that the handout created, don't let there be one day of austerity for the least prepared American, I guess. Instead, bail them out and add on to everyone's debt load, which you know that right there. That seems to be the playbook. Like that is the protocol of the day that is not responsible, in my view. Now, the minutes of the latest fed meeting, they said that some fed officials would be open to raising interest rates if inflation doesn't let up. I mean, that news alone that sent stocks plunging like they were riding the Tower of Terror, giving the Dow its worst day in a while. I'll discuss that more with the father of Reaganomics, David Stockman, today.

Keith Weinhold (00:09:01) - It's the kind of episode that can stretch your thinking here. Now, what is Reaganomics? Well, one thing that you should know is that it's committed to the doctrine of supply side economics. You probably heard that term before. And really what that's all about is lowering taxes, decreasing regulation, and allowing free trade and what was called the Reagan budget. That's something that his budget director Stockman expected would help curtail the welfare state. And he gained a reputation as a tough negotiator for that. He lives on the Upper East Side of Manhattan today, and it's kind of funny with macroeconomic discussions. You'll notice something here, the word million, that doesn't even come up that much anymore. It's simply a number that is too small. It is more like billion and trillion. And hey, let's see if the term three orders of magnitude above trillion comes up today. Quadrillion, or even the one after that quintillion. Is that where we're going next? We'll see. before we meet David Simon, I've gotten more questions about something, because the national average bank account pays less than 1% on your savings.

Keith Weinhold (00:10:18) - And where do you really get a decent yield on your savings, even beyond the 5% in an online only savings account or a CD, which that does not outpace true inflation? For years now, I've reliably been getting 8%. What I do is keep my dollars in a private liquidity fund. You can do this to your cash generates up to an 8% return. The minimum investment amount is just 25 K, and you keep getting paid until you decide that you want your money back. And the private liquidity fund has a decade plus track record, and they've always paid their investors 100% in full and on time. And I would know this because I am an investor with them myself. So see what it feels like to earn 8%. A lot of other great listeners are any investing involves risk, even dollars at a brick and mortar bank. So to learn more, just text the word family to 66866. Learn more about the liquidity fund. Get 8% interest. Just do it right now while you're thinking about it.

Keith Weinhold (00:11:23) - Text family to 66866. Let's meet David Stockman. A Wall Street and Washington insider and Harvard grad. Today's guest is a former two time congressman from Michigan, a prolific author, and he is none other than the man known as the father of Reaganomics. He was indeed President Ronald Reagan's budget advisor. Welcome to the show, David Stockman.

David Stockman (00:11:54) - Great to be with you. And, that was a while back. But I think there's some lessons from that time that we would be well advised to try to apply today, that's for sure.

Keith Weinhold (00:12:05) - Well, it's an illustrious title that you'll never shake. It's a pleasure to have you here. And David is a real estate investing show. At times we need to step back and look at the bigger picture. And now on the economy, one seems to get a different answer depending on who they speak with. You have a highly qualified opinion. What do both investors and citizens need to know today about the condition of the American economy?

David Stockman (00:12:29) - I don't think the outlook is very promising, but I think it's important to understand what that means for real estate investors, because the fact is, if you're in real estate and I know many of your listeners or viewers are very knowledgeable and sophisticated, there's really two ways to look at real estate.

David Stockman (00:12:49) - One is as a property that generates a flow of cash or income that is highly reliable, and that you can count on and produces a rate of return on the invested capital that's attractive. That's one way. The second way is that if you invest at the right time, when perhaps interest rates are falling and therefore multiples or cap rates are becoming more attractive and property values are rising rapidly, mainly because of easy money and lower interest rates, then there's a huge opportunity for capital gains. As another way of generating return on capital. But those are two obviously very different tracks. The capital gains route by old invest, improve flip flop the gain and move on or the, you know, income based rent and earnings based, approach to property. Now, I think the reason I went through this is pretty elementary, of course, is that the macro environment is very different between the first strategy and the second strategy. And therefore, the important thing to understand about the macro environment is which environment are you in and is it conducive to strategy a the income strategy or b the capital gains strategy? I would say right now we're totally in an incomes strategy environment, the first route.

David Stockman (00:14:34) - And that's because as we've gone through several decades of easy money, of rapidly rising asset values, of ultra low interest rates, very high multiples, in terms of property values to income that has generated trillions and trillions of capital gains for smart real estate investors. But I think we're out of that environment, and we're in an environment now where we're stuck with massive public debt and deficits. We're stuck with a, central bank that is, basically painted itself into a corner, created so much fiat credit, generated so much liquidity into the economy that now it will be struggling with inflation for years to come. Which means, notwithstanding Wall Street's constant belief that rate cuts are coming tomorrow, there won't be rate cuts for a long time to come. And what we're facing, therefore, there is likely higher rates for longer. A environment in which property values are flat if not declining, and therefore the capital gains route is not going to work very well. But if you have good properties with good tenants and good cash flows and, rental flows, real estate mine works out pretty well.

David Stockman (00:16:05) - But you have to understand the macro environment. And that's one of the things that I work on daily when I, publish my daily newsletter, which is called, David Stockman's Contra Corner.

Keith Weinhold (00:16:19) - You can learn more about Contra Corner, David's blog, before we're done today. David, you have a lot of interesting things to say. There we are in this environment where rates have been higher, longer. It sounds like you believe that is going to continue to be the. Case is rate cuts will be postponed is a little more difficult question. It's some crystal ball stuff. But can you tell us more about that? What can we expect for inflation in interest rates for the rest of this 2020s decade, which has about six years to go?

David Stockman (00:16:48) - There's going to be high rates for most of this decade because we have so much inflation and excess demand built into the economy. We really went overboard, especially after 2020 with the pandemic lockdowns and then these massive stimulus program, something like $6 trillion of added stimulus, was injected into the economy in less than 12 months.

David Stockman (00:17:16) - That created a undertow of inflation that is still with us. And despite all the hopeful commentary that comes from Wall Street, if you look at it year to date, I don't look at just the CPI because the headline number is somewhat volatile and can be pushed and pulled a lot from a month to month based on nonrecurring conditions. But if you look at something called the 16% trimmed mean CPI, it's just the same CPI, but it takes out the lowest 8%, the highest 8% of price observations each month out of the thousands in the market basket. What it does is basically takes the extreme volatility out of the top and the bottom, and gives you a trend that is more reliable if you're looking like on a quarter by quarter or year by year or even multi year basis, well, I mentioned this is important because the trim means CPI is still running at about 4.3% during the first four months of this year to date. That's not a victory over inflation. That's double what the fed says his target is. And frankly, the Fed's target is a little bit phony.

David Stockman (00:18:35) - I mean, what's so great about 2% inflation if you're a saver and your savings are, you know, shrinking by 30% over the course of a decade, so they're going to have a tremendous wrestling match with inflation, not just for a few more months, but I think for several more years in this decade, I don't see the federal funds rate, which is kind of the benchmark rate for overnight money coming down below 5% very soon, or if at all. And that's because with inflation running at 4% or better, if you have a 5% money market rate, you're barely getting a return on capital, especially if you factor in taxes. You know, it's like it's a rounding error and that doesn't work over time. I mean, you're not going to get long term savings. You're not going to get long term capital investment. If the return is after inflation and taxes are either non-existent or negative, as they've been for quite a while. So even though everybody would like to hope we're going back to the good old days of 0% over 90 money or 1% money, which they got so used to over the last couple of decades.

David Stockman (00:19:55) - It was bad policy. It wasn't sustainable. It caused a huge amount of bubbles and distortions in our economy. But once we finally got to the end of that in March 2022, when the fed had to finally pivot and say, yeah, inflation isn't transitory, it's, embedded, we got to do something about it. People think we're going right back to where we were, and that's the key thing to understand. We are not going right back to where we were, in part because of all this inflation business I've talked about, but also in part because they got so used to borrowing money on Capitol Hill and practically zero interest rates that they are now, you know, they have built in deficits of 2 trillion or more a year. And, we are going to be pushing into the bond pits, massive amounts of new government debt. There's no consensus to do anything about it. You know, if the Republicans talk about reforming the entitlements, the Democrats say you're throwing grandma out the snow. If the Democrats talk about raising revenue, the Republicans talked about, you're going to get slaughtered with higher taxes.

David Stockman (00:21:12) - And then everybody's for more wars and more defense and the bigger and bigger national security budget. And that's all she wrote. If you don't do with revenue, you don't do it national defense and entitlements. The rest of it is rounding errors. And so we're stuck with these massive additions to the debt. Now, everybody knows the public debt. Is 34 trillion. Ready? Yeah. What I'd say they don't understand is that by the end of this decade, you ask about the decade, right? Will we close to 60 trillion of debt. And, if you look at the last CBO, projection they do every year at long term projection, and CBO actually is more optimistic than it is warranted in any way. In other words, their long term assumptions I call rosy scenario. There's no more recessions for the next couple of decades. Inflation is well-behaved, interest rates stay low. Full employment lasts indefinitely and forever. Well, this doesn't happen. Look at the real world. Over the last 20 or 30 years, we've been all over the lot.

David Stockman (00:22:18) - So if you look at the CBO forecast, which is I'm just saying here is exceedingly optimistic. They never are the less are projecting that the public debt and they don't even write this number down in their report because it's too scary, will be $100 trillion before the middle of this century.

Keith Weinhold (00:22:41) - That's a.

David Stockman (00:22:42) - Trillion. Yeah. Now, if you ask people today who are market savvy, I like a lot of your viewers. Where are the Treasury bills, notes and bonds today? Well, if you average it all out, it's about 5%. I don't think it's going to come down much. It'll vary a little bit up and down over time, but let's just say it stays at 5%. That means the carry cost of the public debt of a couple decades will be 5 trillion a year. The interest okay. It's staggering. That's almost as much as the whole federal budget is spending this today at, you know, about 6.6 6.7 trillion. So that's where we're heading, a massive debt crisis because they built in a structural deficit that the politicians and I call it the unite party.

David Stockman (00:23:33) - They fight about silly things, but they agree on the big things which are leading to this outcome. The unit party has no ability to do anything about this structural deficit or the march from the 34 trillion that we're at today to 60 trillion by the end of the decade, and 100 trillion of public debt by mid-century. Now, for a real estate investor, that's probably the most important number you're going to hear. You know, at least this week or maybe this month or even this year, because what it means is that the amount of new government debt flowing into the bond pits, that'll have to be financed and that can't be monetized by the fed anymore because there's too much inflation, is going to put constant, enormous pressure upward on interest rates. And of course, higher interest rates mean lower property values. That's just basic real estate math. That's the environment we're heading into, which means good properties with good income and good rental flows are really the only way to go.

Keith Weinhold (00:24:55) - Yeah, well, there's an awful lot there.

Keith Weinhold (00:24:57) - And with this persistent higher inflation that you expect, the way I think about it is the higher the rate of inflation, the more that moves a person's dollars out of a savings account and instead out onto the risk curve. Well, David alluded to a problematic economy. We're going to come back and talk about more of those warning signs and what you can do about it. You're listening to Get Resuscitation, the father of Reaganomics and Ronald Reagan's budget director, David Stockman, I'm your host, Keith Reinhold. Role under this specific expert with income property, you need Ridge Lending Group and MLS for 256 injury history from beginners to veterans. They provided our listeners with more mortgages than anyone. It's where I get my own loans for single family rentals up to four Plex's. Start your pre-qualification and chat with President Charlie Ridge. Personally, they'll even customize a plan tailored to you for growing your portfolio. Start at Ridge Lending group.com Ridge lending group.com.

Speaker 7 (00:26:06) - This is author Jim Rickards. Listen to get Rich education with Keith Reinhold and don't quit your day dream.

Keith Weinhold (00:26:23) - Welcome back to Get Ready. So we're talking with the father of Reaganomics. His name is David Stockman, President Reagan's budget advisor. David, you've been talking about a problematic economy and places we can look and the outcomes that that can create. Why don't we talk about some more of those where we're here in a period where we feel like it's an official recession postponed, for example, are there other places that we should be looking? Is it the sustained inverted yield curve that we had for almost two years, the longest one ever, and a Great Recession predictor? Or is it that we're on the precipice of implosion from a debt to GDP ratio that's at 122%. It actually spiked to 133% when Covid first hit. Or for example, is it something and you've already touched on it a bit, is it more of that federal spending on our debts, interest payments alone each year, which had almost $900 billion for that interest line item that now even exceeds the massive $800 billion that we spend each year on national defense, or should we be looking at somewhere else? So what's out there that's really problematic and what's overblown?

David Stockman (00:27:28) - Okay.

David Stockman (00:27:29) - That's great. And all of those things you mentioned you should be looking at, it depends on your time frame. But I think on the initial question, where is this postponed recession? Why hasn't that happened? The place to look is somewhere that I think most Wall Street analysts aren't focused on, but they should be. And that's a series published by the Federal Reserve that tracks household balance sheets, in other words, liabilities and assets. But there's a particular series that I think is critically important to look at, and it's basically bank deposits, checking account savings accounts plus money market funds. This is all the liquid cash accounts of the household sector, not long term investments in real estate or stocks or bonds, but the short term money. It's the spendable money that households have now, what happened during the pandemic and lockdowns. And then the 6 trillion Is stems that were injected into the economy, like some kind of fiscal madness was going on in Washington, created a total aberration in the amount of cash in the economy, in the household sector, in these accounts that I just mentioned, normally right before the lockdown started and the stimulus was injected, you know, the level of cash accounts was about 12 trillion.

David Stockman (00:29:00) - Within two years it was up to 18 trillion. And normally that cash balance grows about the same rate as the economy. In other words, as incomes go up, people save a small share of their income that goes into various bank accounts. There tends to be a lock step relationship. But what happened during that two year period was there was so much extra cash sent out to the households with the $2,000 checks in the $600 a week extra stimulus money, and then the, trillions that went, you know, for things like the Small Business Administration loan program, which was all forgivable, was about almost upwards of $1 trillion. You know, we could itemize all the others. But this enormous government, unusual cash flow into the economy added to these bank accounts enormously. And then something else happened. The geniuses in Washington, led by Doctor Fauci, decided to shut down half of the service sector, the economy. I'm talking with restaurants and bars and gyms, malls and movies and and all the rest of it.

David Stockman (00:30:09) - So all of a sudden, the normal money that people would have been spending on the service venues, which is a big part of total spending, was stopped. It was kind of forced into artificial savings, sort of government mandated savings. Now, if you put the two together, there was about 2 trillion, extra transfer payments sent out to the public during that two year period. And there was a little over a trillion of normal service spending, restaurants in, etc. that didn't happen because there was a closed sign on the door, compliments of Doctor Fauci, or people were scared to death to go out because, you know, they created all this fear that Covid was some form of black death, which it really wasn't for 95% of the population. In any event, if you put the extra free stuff from the government, 2 trillion and the for savings because of these lockdowns, trillion, you have 3 trillion of unusual cash that flowed into the economy on top of the normal production. Income and profits and spending that would have otherwise gone on.

David Stockman (00:31:26) - Now that 3 trillion temporarily ended up in this account, that I'm just talking about the cash balances of the household sector and its peak, there was about 2.8 trillion extra compared to what would been be the normal case in a regular economy. In a normal economy, that money has been slowly spent down by the household sector, even as the fed has tried to put the screws to the economy. In other words, there was so much extra cash in the system that even as the fed raised interest rates from 0 to 5% and did their darndest to slow things down, all of that excess that was built up during the pandemic period was available to spend. It was spent. And here's the key point. About half of it is now been spent. In other words, there's only about a trillion and a half of the nearest 3 trillion left. Now that is what's delayed the recession. If that big, massive 3 trillion nest egg had been there and the fed began to push rates up as it normally did in a normal cycle, we would have been in recession months ago.

David Stockman (00:32:41) - But what has delayed or deferred the recession is this, cushion, this huge macro piggybank of cash that the government inadvertently or adversely is the case may be generated, during the pandemic period. So that's new. See that? Nobody looks at that because normally it's not a factor. You know, the cash balances are a pretty, prosaic, neutral part of the economy. They're not where you look for the leading edge of where the cycle was going or where new developments may turn up tomorrow. But this time, because of this total aberration of what happened to government transfer payments plus the lockdowns, we have a, X factor, let's call it in the macro picture that is confusing people. It's leading a lot of people to abdicate this no landing scenario. In other words, you know, there's not going to be a recession. We're just going to go on to bigger and better things. And, the fed will get inflation under control and then we can be back to happy times again. No, they're missing.

David Stockman (00:33:56) - The elephant in the room is this massive aberrational unusual one time cash balance that was, generated by these policies. And that still has a little ways to go now. I think at the rate it's being run down, you can almost calculate it a couple hundred billion dollars, a quarter sometime next year, all of that extra cash will be out of the system. And then people will be back to spending only what they're earning. And frankly, earnings they're not. I'm talking about wage and salary earnings, are advancing barely at the inflation rate at the present time. So when we get back to about zero real growth in earnings, we're going to finally see the recession.

Keith Weinhold (00:34:45) - I think one of the big takeaways here is that all these artificial economic injections really take time to unwind.

David Stockman (00:34:56) - Exactly. You have to look at, you know, they always say, well, when the government changes policy, fiscal policy, you tighten or you loosen or monetary policy they raise or lower interest rates. They got QE or they got cute putting money in or taking money out that there's lag and lead times in all of this.

David Stockman (00:35:18) - The problem is, none of the great economic gurus who talk about this really know whether the lag time is 12 months, 25 months, 50 or 5, and it varies. I mean, the circumstance has changed so much in a world GDP of 104 trillion, a domestic economy with 28 trillion of GDP, and all the complex factors that are moving back and forth in today's world, especially as it's enabled by technology and global trade and the internet and all the rest of it, nobody knows the lag times. And as a result, it's very hard to predict when the, brown stuff is going to hit the fan, so to speak. On the other hand, you don't have to know the exact date. You really need to understand the direction, the flow of things. And if you're in an environment that isn't sustainable because you're borrowing like crazy or interest rates or artificially. Low or stock price multiples are way the L2 ie or cap rates on real estate or you know, abnormally low. Then what you have to say is we're going to a different state.

David Stockman (00:36:35) - It's not going to be as conducive as the current state, and we have to be prepared for it, even if we are not sure whether that's 12 months from now or 24 months. But it's going to change. So one thing you can be sure of, there is a famous economist back in my day when I worked on Capitol Hill earlier on, he was Nixon's chief economic adviser in the early 70s. And he famously formulated an aphorism, I guess, which said anything that is unsustainable tends to stop. Okay, that's what I know about the lag times. We're in unsustainable financial, fiscal and monetary environment. And the trends that it has given rise to are going to stop and and not in a good way.

Keith Weinhold (00:37:24) - He even fed Chair Jerome Powell has confessed as much as that. This situation is indeed unsustainable, the exact word that he used. Well, David, this has been great in winding down as Ronald Reagan's budget director. Can you share any anecdote, story or quote from you spending time personally with Ronald Reagan? And the reason I ask is because he is perhaps the most revered president of the past few generations.

Keith Weinhold (00:37:52) - That might mean a lot to our listeners here.

David Stockman (00:37:54) - He should be revered, and not only because he was a great president and a great communicator, and did a lot of important things in policy. Some of them got implemented, and a lot of them were frustrated by Washington and the politicians and the Democrats and everybody else. But also, he was a great human being. And my story about that was when I was budget director, in the fifth year of the Reagan administration, we had our first child, and my wife was in the hospital. At that point in time, President Reagan was in Europe on a very important big international, series of meetings. But, somebody in the white House told him that our daughter had been born. And so he took the time out of his schedule for a call from Germany, the hospital where my wife was, and said he would like to talk to her and, congratulate us on our new arrival. But my wife was in a room with another, a new mother.

David Stockman (00:38:53) - She the other person answered the phone and she said to my wife, there's some joker on the phone with President Reagan. And sure enough, he was there. and he took the time to congratulate my wife. And, so that's the kind of, person he was. He really was a great human being.

Keith Weinhold (00:39:13) - Wow. Yeah. That really shows that he can still be warm and heartfelt, even while doing some key international negotiations there. Potentially. Well, we mentioned it earlier. I can tell you, the audience, that David is a regular author and contributor to his Contra Corner blog and letter, and you can get access to that for free. This is information coming from the father of Reaganomics to you. If you think you would find it a value. David, tell us how our audience can connect with you there.

David Stockman (00:39:44) - Just Google David Stockman Contra corner I publish, I have a website, issues a newsletter every day. It comes automatically in the email. I also have a Substack version. You can sign up for either one, the email from my site or from Substack.

David Stockman (00:40:02) - And every day we try to publish something on these issues that we've been talking about. One day it might be Wall Street, another day it might be Capitol Hill, another day it might be, you know, the war in Ukraine. All of these things matter. All of these things influence the environment that investors have to function in. So we try to comment on a variety of those issues based on, you know, the long experience that I've had, both not only in Washington, but also I was on Wall Street, for about 20 years. I was one of the founding partners of Blackstone, for instance. And we were in the real estate business in a major way, even then.

Keith Weinhold (00:40:44) - Well, we absolutely love that. And I sure am appreciative of your time. It was great connecting with you. And thanks for being on the program today, David.

David Stockman (00:40:53) - Very good. Enjoyed it.

Keith Weinhold (00:41:01) - Yeah. Deep insights from the father of Reaganomics. Stockman thinks we'll be struggling with inflation for years to come.

Keith Weinhold (00:41:08) - There won't be rate cuts for a long time. He sees real estate values as flat or declining, so have good tenants with steady income streams. Of course, in our favoured real estate segment here, residential 1 to 4 units where you can get 30 year fixed rate debt. Higher mortgage rates tend to correlate with higher prices, just like it has for the last three years and almost every period before that too. But there could be more pain for the commercial sector then, and assets that are tied to floating rate debt. And if you're aligned with David Stockman on that, you might want to look at your helocs, because after a fixed rate period, their rates tend to float along with the fed funds rate. So be cautious with Helocs and ask David for specifics. He doesn't see the federal funds rate coming down below 5% anytime soon, and you probably know that is the interest rate that a whole bunch of other interest rates are based off of. And that rate is currently at about 5.3%. By the way, there is projected to be more than 100 t more than $100 trillion of public debt before the middle of this century.

Keith Weinhold (00:42:22) - That's less than 25 years away. I mean, these figures just become unfathomable sometimes. Pandemic wrought inflation that really occurred due to this greater supply of dollars that was introduced chasing a reduced supply of goods. And there were fewer goods because people got paid to stay at home not producing anything. Plus, what had been produced often could not be shipped either. David discussed the 16% trimmed mean CPI, and I've got to say, as much as I am a student devotee in studying inflation, I had never heard of that from his vantage point to find recession signs, look at household balance sheets and what's delayed the recession is that those pandemic measures put an extra 3 trillion bucks into households, and households still have about 1.5 trillion left to spend, which could further delay a recession. He projects that it's sometime next year that all of that extra cash will be out of the system. When you talk to how many people got this recession predictions so horribly wrong? Back in October 2022, Bloomberg Economics forecast a 100% chance of a recession by the following fall, which is almost a year ago now.

Keith Weinhold (00:43:48) - Well, a 100% chance that left no room for anything else to happen. And they really whiffed on that one. Now, you know, I've got to add something here. A personal note if I can, but I'll give you a lesson along with it. And that is that at times like today, where I found myself one degree of separation from one of the most revered presidents in all of American history, I sometimes have some difficulty understanding how I keep having the opportunity to share time with people like today's guest. Now, I'm certainly not a PhD economist. And in fact, on the flip side, I've also never been a person that's been so poor and destitute that I was dying of hunger. But I do come from a modest place. When I flew the coop and left my parents home, I rented my first pathetic place to live a $325 a month pool house in the back of my landlord's property at 852 Spruce Avenue in Westchester, Pennsylvania. Yeah, a pathetic little pool house right next to the landlord's swimming pool.

Keith Weinhold (00:45:04) - I mean, I was living really pathetically there for a while as I was struggling just to do things like find gainful employment and figure out the world and find a steady income. Yeah, it was 325 a month plus electric and the one small heater that was there, it was electric and it was really expensive to run. And on the coldest days, it wouldn't even adequately heat my pathetic little pool house that I ended up living in for 18 months. And just because I couldn't figure a way out of that situation for a while, I mean, I was too ashamed to ever bring a girl back there to that sad pool house. It was just one sink for the whole place. Combined kitchen and bathroom sink in the bathroom. I mean, most of my friends, they got their driver's license at age 16 and they soon had their own car. I didn't own a car until I was aged 22 or 23, and it's not because I lived in an urban area and walked. Everywhere use public transit there in Pennsylvania.

Keith Weinhold (00:46:02) - It just took me a long time to afford a beater car and pay for insurance. I really needed a car and couldn't afford one. So really my point here is that sometimes I have to wonder how I got here from there. And I think what it is is taking an interest in real estate and investing. And despite just having a humble bachelor's degree in geography, it's really about becoming an autodidact, meaning self-taught. And it's easy to teach yourself when you find what interests you. And let me point to two other things besides adopting an auto didactic ethic to help me turn the corner into being in a place where I can have conversations like the one that I've had today. It was getting around aspirational friends. Like I've mentioned before, that showed me how I can start with a bang buy with little money. On my first home, I could put a 3.5% down payment on a fourplex, live in one unit and rent out the other three. And I will give myself some credit for doing those things. And then really, the third thing is that stroke of luck element, like just 4% of world inhabitants have been.

Keith Weinhold (00:47:15) - I was one of that 4% that was born in the United States. And then I had two great, married, stable, supportive parents to cultivate the right environment for me. And well, today was just one of those days where I sort of nudged myself and I'm glad that it happened. Most importantly, I trust that you got value from today's show and that you do every single week here. Check out David Stockman's Contra Corner. Next week, we'll look for signs of distress in real estate as we delve inside the foreclosure market and how you can find discounted deals there. Until then, Idaho's Keith Wayne hold don't quit your day trip.

Speaker 8 (00:48:02) - 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. The.

Keith Weinhold (00:48:30) - The preceding program was brought to you by your home for wealth building.

Keith Weinhold (00:48:34) - Get rich education.com.

Direct download: GREepisode504_.mp3
Category:general -- posted at: 4:00am EDT

Mon, 27 May 2024

We’ve already had more inflation in this young 2020s decade than the entire 2010s.

If the next forty years have as much inflation as the last forty, gas will cost $13.38 per gallon, the average home $1.88 million, and the average rent $59,000 annually.

Inflation impoverishes most people. You can profit from it 3 ways at the same time. Watch the free 3-part video series: GetRichEducation.com/TripleCrown.

The 30-year fixed rate mortgage is a uniquely American construct. It virtually exists nowhere else in the world. I compare this to mortgage terms in Europe, Canada and Australia.

In much of the world, homeowners have had their mortgage payments double overnight!

Trends that won’t soon be disrupted: more inflation, people need to live somewhere, there aren’t enough places to live. That’s so simple! Invest in it.

Rents are increasing the most where little new supply has been added.

There’s a myth that gigantic institutional investors are gobbling up all the single-family rental homes. But they only own 3% of the market. Mom & pops own 80%.

Single-family rents are up 3.4% per CoreLogic. Detached SFHs are up more than attached types.

Property prices and rents are positively correlated. Some people falsely think that they move inversely.

Resources mentioned:

Profit from inflation 3 ways:

GetRichEducation.com/TripleCrown

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RidgeLendingGroup.com or call 855-74-RIDGE

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502: The BRRRR Investing Strategy: Your Path to Infinite Returns

Complete episode transcript:

Welcome to GRE! I’m your host, Keith Weinhold. Learn how the misery of INFLATION is altering BOTH your quality of life and the return on ALL of your investments…

… also, many people are now having their mortgage payments DOUBLE overnight and IT’S creating pain, then, what are the factors affecting the future direction of RENTS - all that, and more, today on Get Rich Education!

______________

Welcome to GRE! You’re listening to one of the longest-running and most listened-to shows on real estate investing. This is Get Rich Education. I’m your host, Keith Weinhold - the voice of RE since 2014.

I don’t know if you fully realize how much inflation is steering all of your investments - and it’s emphatic at a time like this when the dollar is down 25% cumulatively just in the last four years. Gosh!

And I’ve got some jaw-dropping inflation fact to share with you soon.

We’ll get to inflation’s RE affects shortly. But here’s what I mean.

In stocks, they keep riding up on a wave of optimism, anticipating a Fed interest rate cut - largely due to future INFLATION expectations. Yes, there’s jobs & GDP and some other factors.

But the stock market - which is a FORWARD-looking market - it moves based on what’s expected to happen 6 to 12 months from now.

STOCK investors know that rate cuts open the floodgates to get us closer to the “easy money” days again.

That’s why - as backwards as it is, the worse the economy looks, the lower that inflation tends to be, and then, in turn, the lower that interest rates can go, which the stock market likes.

So a worsening economy often pumps up the stock market. Soooo backwards.

Just look at what happens historically. Recessions sound bad. Yet what happens is that rates get cut in a recession - because the economy needs the help.

But nearer-term, it’s this ongoing expectation of the rate cut - that’s been looming out there for months but hasn’t happened - which CAN keep propelling the stock market to higher highs. It’s already hit all-time highs here recently. You can make the CASE that stocks should keep floating higher from here… based on that premise.

Before we look at real estate & inflation. Understand this.

Inflation has already widened the divide between the affluent and the deprived. That divide has gone from a gully to a canyon.

But... my gosh! Here’s the stat that I want to share with you. And you’re really going to get a sense for the gravity of what you’re living through this decade.

We've already seen more inflation in the first 51 months of the 2020s decade than in the ENTIRE decade of the 2010s. Already.

This gets really interesting. Let’s look at about the last four decades here.

Alright, in the 1990s decade, America had 34% cumulative inflation. Let’s go ahead and… we’ll associate this decade with President Bill Clinton.

We won’t tie any President to the inflation number because there are lag effects and other factors. A President really can’t take the credit or blame, in most cases. Just marking the era here.

So, 34% inflation in the 1990s.

The 2000s decade saw the GFC and… 29% inflation. Most of those were George W. Bush years.

The 2010s decade saw lower inflation → Just 19%. So that’s under 2% a year. These were mostly the Obama years here in the 2010s.

Little flex there from the former Commander in Chief.

Then the 2020s decade → have seen, like I alluded to, and under Joseph Robinette Biden, Jr. - yes, as the oldest sitting president ever, it’s easy to forget that he’s a “junior. In this young 2020s decade, we have, 21% cumulative inflation. Already.

So this figure is after just the first 51 months of this decade, if we’re counting from 2020… and this is largely due to supply shortages from the COVID pandemic.

So 21% ALREADY this decade… and just 19% ALLLL of last decade which was a full decade. That’s the impact.

That’s reflective of what you see in home prices and rent prices and utilities, transportation, labor, and almost every facet of your life.… and what you see in your weekly Costco bill and Trader Joe’s bill.

Who have we left out here? A one-term president, so far? Does somebody feel left out.

Yes, that is the actual person of one Donald John Trump.

Psssshhh!

All of those figures I cited are from the BLS, and I’ve been rounding to nearest whole percent.

But get this! Inflation over the next forty years could make the LAST 40 years seem like a picnic.

That's partly because we're $35T in debt and that figure now grows by $1T every single quarter… every 90 to 100 days. So we MUST keep dollar-printing to help pay it back.

But just, if the last forty years repeats itself, by the year 2064, which is the next forty years, we'll see these prices. Prepare for a future that looks like this:

Gas at $13.38 per gallon

The home price at $1.88 million

Average rent at $59,000 per year

And the average salary at $104,000

That is if inflation over the next 40 years, looks like that last 40 years.

Also, note how salaries don't keep pace with prices. That $104K average salary in the year 2064 doesn’t sound as high-flying as those other figures.

Well, this is all really frustrating for consumers… and even debilitating to one’s standard of living. Remember, this latest wave of inflation brought us the biggest YOY increase in homelessness - based on HUD figures.

and why you need to invest in something that reliably BENEFITS from inflation and pays you an income at the same time.

Look, here’s really, the deal. Dollars are abundant. So then isn’t it a paradox that a major spike in the supply of dollars would create more homelessness?

Well, you know that dollars are there for your taking - because so many more have been brought into existence. Dollars are abundant. So as they cycle through the economy, rather than going through the consumer motions, you can build your diverter. That’s where the world of abundance exists, so get into that flow.

Ultimately, REAL capital is scarce. Your time and energy are scarce. Natural resources are scarce. Labor is scarce.

What’s frustrating is that money ought to reflect that scarcity if it is going to accurately convey the value that enables people to make capital accumulation decisions.

And alas, we’re doing our measuring in dollars and the dollar is not remotely scarce.

The middle class and poor often have wages that don't track inflation, yet they disproportionately suffer the higher consumer prices.

The investor class owns assets that float up with inflation. And GRE listeners will do even better than that.

As income property owners with mortgages, we're winning three ways at the same time with the Inflation Triple Crown. That’s your dollar diverter.

Alright, so that’s longer-term inflation. I’ve been talking in terms of decades - both the past and with an extrapolation into the future to 2064 there - and it’s really rather sobering.

Well, what's the more CURRENT inflation situation? The situationship? Ha! What’s the situationship now?

In trying to quiet it down to their 2% target, the Fed has run into so many hurdles that you'd think they were training for this summer's Olympics in Paris.

After it peaked over 9% two full years ago now, inflation’s been bouncing near 3-and-a-half-percent for a year and they just keep having trouble getting it lower than that.

Hmmm... would we say that this could turn into Jerome Powell's three-quarters life crisis? We’ll see.

Rising inflation is one of the key factors that brought down the Roman Empire. They famously experienced hyperinflation after a series of emperors lowered the silver content of their currency, called the denarius.

Today, some lament that the dollar isn't backed by gold, silver, or anything else.

But it is.

It's backed by the world's most powerful military, strongest economy, reserve currency status, international trade agreements, and you also… must pay your taxes in dollars.

Dollars are still liquid and useful… but perpetually debased, so get them and then transition out of them.

Yet, at the same time, we're also the greatest debtor nation in world history. The easiest way to pay it all back is to simply print more and inflate more.

So that’s why it's almost inevitable that dollars will keep being worth less... and BTW, the two words “worth less” sound awfully close to the word “worthless”. Ha!

That’s where we keep heading.

Until you can send a Venmo request to the Fed to compensate you for your loss in purchasing power, we need to actually do something about this.

And the dollar that you had when you started listening to me today could very well now only be worth 99 cents. Ha!

We can either have our standard of living degraded by inflation or we will decide to profit from it.

So, if you haven't yet, check out GetRichEducation.com/TripleCrown.

Rather than impoverish you, learn how you can make inflation CREATE wealth for you three ways at the same time with that free, 3-part Inflation Triple Crown video series. Good learning there.

It’s free & easy to watch, again, at GetRichEducation.com/TripleCrown

Inflation seemingly seeps into everything.

Inflation took down the commercial sector - Apt buildings & offices. Apts are down 30-40% in the last two years. It’s all because inflation made the Fed panic and jack up those rates.

If that’s not jaw-dropping enough. Office values are down 80%+ in the last two years. 80%+, 90%+ in some cases.

Of course, office RE got the double-whammy of the inflation-induced interest rate hikes AND the Work-From-Anywhere movement.

That leaves residential 1-4 unit properties in good standing - and still impacted by inflation, but LESS impacted by inflation.

Yeah, your 1-4 unit RENTS are up - and I’ll talk more about rent later in the show today.

inflation also jacked up your expenses like insurance, utilities, maintenance & repair cost and more.

But as we move away from the inflation conversation now, of course, one big reason that 1-4s have stayed resilient is the American privilege of LTFIRD - and the fact that it’s 30 years for most US properties.

In fact, in 2022, 89% of homebuyers applied for the 30-year.

I think that you’re about to get more appreciation for this… perhaps than you’ve ever had.

The 30-year FRM is a UNIQUELY American construct.

And, BTW, some people don’t seem to know what the word “unique” means. You’ve probably heard people misusing this word all the time.

Unique does not mean something that’s sort of different.

Unique means “ONE of a kind”. Unique means something that does not exist ANYWHERE else.

What do I do here on this show? Besides giving you the occasional geography lesson as a side dish to your real estate, I do this with vocabulary, grammar, and syntax as well, don’t I?

Even though my own is surely imperfect.

Anyway, the reason that the 30-year mortgage can exist is due to our deep financial markets - especially our secondary market for mortgage-backed securities, where your loan gets packaged up and purchased by a bond investor - a bit like Ridge Lending Group President Caeli Ridge & I touched on last week.

The reason that mortgage-backed securities are attractive to investors in the U.S. and across the globe is because their government sponsorship makes them safe investments over long periods of time. They also provide a fixed payout to the MBS holder.

And see, the rate on the 30-year fixed-rate mortgage tracks closely to 10-year Treasurys because “U.S. real estate is almost as good an investment as a U.S. Treasury bond.”

They’ve got Fannie & Freddie insurance.

And that entire MBS process now has more guardrails in it than we had before the Global Financial Crisis.

We’re talking about the foundation here - really - of where you get your big lumps of money from - the 30-year FRM and its uniqueness.

Compared to the world, the US has very little variable rate debt.

Less than 4% of American mortgage borrowers have debt that’s on rate terms of a year or less. Over 96% of US debt is LTFRD, defined as 10 years or more.

That is virtually unparalleled worldwide. To compare us to some other developed nations, mortgage borrowers in Germany - just 47% of them have long-term fixed debt - and none of them can get 30-year debt.

Long-term debt, again, defined as ten years or more,

Is little to ZILCH for mortgage borrowers in Canada, the UK, Ireland, Italy, Sweden, Finland, Australia, and other developed nations like them.

In Canada, the most common mortgage terms reset to the prevailing market interest rate every five years.

In Finland, their mortgages reset annually or faster. Gosh, can you imagine if your mortgage rate reset every year like it does for the Finns?

Sheesh, that's more often than some people lose the remote control or rearrange their furniture.

OK. So what's this really mean?

Ya gotta… pour one out for most mortgage borrowers in the rest of the world.

They can’t lock in their mortgage interest rate for the long-term. So with rates doubling or tripling, starting from 3 years ago, it's totally ruined a lot of foreign homeowners.

Look, what if you're middle class and your monthly mortgage payment soars from $1,893 on Tuesday up to $3,415 on Wednesday?

That's what's happening elsewhere. It can go up 50% overnight and nearly double overnight in Australia, Europe and elsewhere.

But in the mortgage-advantaged US, we're safe.

If we buy at an 8% mortgage rate on a 30-year fixed amortizing loan today—just the plain, vanilla loan:

If rates rise to 10% later, you're happy to be locked-in at 8%

If rates fall to 6% later, you'll refinance

Note that I refrain from saying "just refinance". I don't like the word "just". You'll still need hours to provide documentation and your credit score will be checked. But it's worth it.

You won’t “just refinance”. Ha! You’ll refinance.

So think of it this way then, you can alter your deal with the bank whenever you want—and usually with no prepayment penalty. Yet the bank can't alter it on you.

What did Darth Vader say to Lando Calrissian in the “Empire Strikes Back?”. I am altering the deal, pray that I don’t alter it any further.

Ha! We better not play that clip here. I don’t know the copyright laws with LucasFilm or Disney there. Ha!

But you’re not a dark lord of the Sith for doing it… for altering the deal on the bank. You’re playing within the rules.

This is almost an unfair advantage for Americans.

The bottom line here - with this unique American advantage, is that, as rates change, you get to play both sides of the game. And that’s why we add smart properties with loans.

We turn that into wealth, with compound LEVERAGE.

Now, mere compound interest, that’s a vehicle for you to rely on more for your shorter-term funds, your cash or what you’re keeping more liquid.

Long-term wealth is build through compound LEVERAGE.

Short-term funds - that’s for compound INTEREST.

And… 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 about 4-5% today, you’re losing your hard-earned cash to inflation.

What I do, is keep my dollars in a private LIQUIDITY FUND. You can do this too.

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 - or even 4-5% elsewhere.

The minimum investment is just $25K.

You keep getting paid until you decide you want your money back. This private LIQUIDITY FUND has a decade-plus track record - and they’ve always paid their investors 100% in full and on time. I would know… because, I'm an investor with them myself.

See what it feels like to earn 8%. A lot of other GRE listeners are. To learn more, just text the word FAMILY to 66866 to learn more about Freedom Family Investments' LIQUIDITY FUND. Get 8% interest! Just do it right now, while you’re thinking about it. Text FAMILY to 66866.

More straight ahead, including what’s happening with rents. I’m Keith Weinhold. You’re listening to Get Rich Education.

_____________

Welcome back… you’re listening to Episode 503 of Get Rich Education. I’m your host, Keith Weinhold.

We’ve got a poll result, from our Get Rich Education Instagram Page.

The poll question was simple. “When buying property, what’s more important?”

The purchase price or the mortgage rate.

71% of you said the purchase price. 29% of you said the mortgage rate.

Of course, both are important, but I think that the PURCHASE PRICE is the best answer - because your purchase price stays fixed for the life of your ownership period, and you can CHANGE your fixed mortgage rate and make it malleable… whenever it suits your needs.

As we talk about where the OPPORTUNITY is today, though multifamily apartments are going to bottom out sometime and therefore, at some point, they’ll make a wise investment - who REALLY knows - maybe the time for larger apartments is now…

… one opportunity is… giving good people OPTIONS during a housing affordability crisis.

And what’s going on right now is that… let me put it this way… when people have a hard time affording their own home today, basically (ha!) people are having a hard time transitioning from resenting their landlord to bickering with an HOA.

Ha! That’s kind of how the world works.

Seemingly everyone would rather be bickering with an HOA rather than resenting their landlord.

A lot of renters want to be buyers… they can’t… and that isn’t expected to change anytime soon… as prices will likely stay elevated… and mortgage rates are staying higher, longer too.

These things are ALMOST “knowns”. It’s often wise… to invest in trends that are known. Nothing’s completely predictable, but when you’re looking for a place to park your investment dollars, a few other things… are known… right now.

And AI is not expected to change what I’m about to tell you… anytime soon.

VR - virtual reality is not about to change what I’m about to tell you anytime soon.

AR - augmented reality isn’t either. Machine learning won’t imminently disrupt this.

And that is, that… everyone expects more long-term inflation. At what rate, no one knows.

People will need to live somewhere… and there are not enough places to live.

Those three facts, right there, are so simple. I love simple. Ha! One reason I love simple things is that I can remember it.

So many investors - investors in all types of things, say, from tech EFTs to junior mining stocks to crypto - you can make money there.

But, at times, investors will unnecessarily go out on the risk curve and GUESS and speculate… at a future trend.

Some are right. They’re often wrong, and adopting too much of that approach… that’s exactly when your risk-adjusted return goes down throughout your investor life.

Instead, you can get great returns - real estate pays 5 ways-type of returns - in these trends that I just described that are near certainties.

Why guess? When instead, you can almost be certain.

Often times, the certain thing is right… there.

It’s often easier, like I think I brought up on the show once before, inspired by Jeff Bezos - don’t ask what will change in 10 years.

The more insightful question and profitable question that fewer people think to ask is actually - “What will be the SAME in ten years?”

Well, when we talk about rents and the fact that tenants WILL keep paying you to live somewhere ten years from now, the trend that’s taking place here in the mid-20s decade - here in the mid 2020s, is that…

Rents are increasing the most where there hasn’t been enough new supply added - up 5-6% in parts of the Northeast including New York and Boston - Seattle too… and parts of the Midwest. Detroit and Honolulu rents are each up about 5%.

Rents are decreasing the least, and even declined - where they’ve added lots of new supply recently, like Austin, Texas and Miami, where they’re down 3% or more in each. New Orleans is another major city that’s down - at minus 1%.

But among the larger cities, Austin, Texas is the WORST performer in the nation right now.

If you’re listening to this either this week or you’re listening to this ten years from today, if you want to know future rent trends, look at where they’re adding supply.

Especially in apartments. But all these new apartments will fill up and nationally, they’re building fewer apartments this year than last year’s apartment-building boom.

When we talk about rents and who owns SINGLE-FAMILY HOMES, there are a few myths that I want to help bust for you here.

There seems to be this misconception or misinformation that GIANT Wall Street firms are buying up all the SFRs. That’s just not true.

Now, there is more participation from the big firms than there has been historically, but those that own 1 to 9 SFRs… which is our definition of mom & pop investors here… constitute 80% of the SFR market.

80% own one to nine units. Now, you might own more than 9.

In fact, 14% are in that next tier up, owning 10 to 99 SFRs. Then 3% - known as small national investors own between a hundred and a thousand.

And, what’s left, the big institutional investors - those that own 1,000+ SFRs - and you’ve heard of some of these companies - Invitation Homes, and another is American Homes 4 Rent.

Progress Residential, Blackstone, First Key Homes - all those big players own just 3% of the market.

So again, 80% are the small ones - the mom & pops… a highly fractured market.

There are a total of 82 million SFHs in the United States. Out of all of them, do you have any idea what percent are OOed and how many are rentals?

It’s 83% OOed and 17% of the single-families are rentals. So about one-sixth of SFHs are rented out.

Now, here’s the thing. Some people tend to think of mom and pop single-family rental operators as unsophisticated charity case workers who never raise rents.

That’s part of the perception out there.

But that narrative has never really been true, and, in fact, the COO of American Homes 4 Rent - his name’s Bryan Smith - recently brought up this key point on their recent earnings call.

He said that while historically mom and pops hadn't always priced directly to market because of a lack of market data, "they've migrated into a strategy that's closer to ours."

How is this and why is this? Anymore, why ARE mom & pops raising rents just about as aggressively as the big institutional players.

It’s really increased transparency on the rents that landlords are asking… through internet listing sites like Zillow.

It's not that mom and pops didn't increase rents before. (I mean… just look at what happened with rising rents in the 1970s and 80s before institutions were in the sector.)

But when there's a lack of rent amount transparency, it takes longer for operators to discover and adjust to market pricing-- especially for smaller players in a deeply fragmented market.

That's the part that’s changing.

But see, increased transparency works both ways. It’s good for you and bad for you as a property investor.

This information helps tenants too. In upswing markets, operators may push rents faster than they would otherwise.

But in a downswing market, operators may cut or keep rents flat faster in order to lease the unit.

Because tenants can easily see what other LLs are charging and compare features. When you price too high, units sit vacant and generate no income.

Since renters benefit from increased transparency too, if they see two similar homes, they're usually picking the better deal.

And increased transparency is why NEW lease rent growth is cooling off.

In fact, CoreLogic just released their latest SF Rent Index report last week. It showed that, nationally rents are up 3.4%, which coincidentally, happens to be the same as the latest CPI inflation number.

Detached properties are seeing more rent growth than ATTACHED ones - like townhomes. If you think about it, that makes sense. Townhomes are in less demand now.

Because the homeownership dream, is when one moves out of the apartment & buys a detached house.

And since that’s so unaffordable to buy here in the 2020s decade, that’s why more people are willing to pay more for to rent the detached type.

Note that SFR rent growth has moderated since mortgage rates spiked-- further dispelling the sticky myth that rents boom when home sales fall.

Remember - when homes price growth is really hot - like it was in 2021 and 2022 - near 15% - rent growth tends to be hot too. It was ALSO near 15%.

And when home price growth is moderate, like it is now, well, rent price growth is moderate too.

Prices and rents move together. They’re POSITIVELY correlated. Some people think they move inversely… and we’re looking at history over hunches again - what REALLY happens here.

So though you’re almost certainly going to get nominal rent growth over time, it’s not a good thing for you to count on it in the short-term - it NEVER is, in any era.

The time for you to push rents is, of course, in any market, when you go for NEW leases. A new lease with a new tenant is going to be higher than a renewal lease.

It’s the ol’ - this has been a good tenant for three years, so I don’t want to push the rent too hard & lose them.

To review what you’ve learned today, inflation is affecting ALL of your investments, 30-year FRMs are a UNIQUE American advantage…

…it’s wise to invest in future trends that are KNOWN, if you want to know what is going to happen with rents in the near future, look where they’ve added supply.

Less new supply correlates with more rent growth… and large institutional investors own just 3% of SFRs.

If you enjoy the show, please, tell a friend about it.

Isaiah on LI had the most flattering comment. Over there, he wrote and called GRE “The best podcast on the planet.”

I… really don’t think that I can take credit for that, though… I’d like to think we’re a good resource for building your wealth through REI and regularly informing you, giving you ideas that you’ve never thought about before that add real value to your life.

You’ve heard of Bidenomics. The first portmanteau type that I ever heard about a President’s economic policies is REAGANomics, though it was a little before my time.

Here on the show next week, with us, will be none other than “The Father of Reaganomics”.

Yes, late President RONALD REAGAN’S Budget Director will be here next week. Basically, he was Reagan’s “Money Guy”.

His name is David Stockman and he often met with the President in the Oval Office, advising Reagan on economic affairs.

I have asked David Stockman, if besides talking about the condition of today’s economy next week, he’ll also discuss real estate - and he agreed to do so.

That’s “The Father of Reaganomics”. You can look forward to he & I together next week here on the show.

You might be one of the listeners that’s been here every single week since 2014 - just like I’ve been here for you.

A new podcast is published every Monday. If you want more our DQYD E-mail Letter is published and sent about weekly, that’s typically been on Thursdays lately. Then, there are many new videos published each month over on our Get Rich Education YouTube Channel. Those are the main three places that you can find us.

Until next week, if you enjoy listening, I really appreciate if you would told a friend about the Get Rich Education Podcast.

Until then, I’m your host, KW. Don’t Quit Your Daydream!

Direct download: GREepisode503_b.mp3
Category:general -- posted at: 4:00am EDT

Mon, 20 May 2024

You can get financially free twice as fast with the BRRRR Strategy instead of buy-and-hold.

But it’s less passive.

BRRRR stands for: Buy, Rehabilitate, Rent, Refinance, and Repeat.

You can get an infinite return this way, by generating yield with none of your own money left in the deal.

Learn how to obtain BRRRR financing from Caeli Ridge, President of Ridge Lending Group.

The LTVs are 70%, 75%, or 80% depending on the property and financing type.

RidgeLendingGroup.com specializes in helping investors buy income property.

Resources mentioned:

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:

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501: Home Prices Aren't Really Up. Here's Why.

Complete episode transcript:

Keith Weinhold (00:00:00) - Welcome to GRE. I'm your host, Keith Weinhold. The real estate BRRRR strategy is a shortcut to growing your wealth. But it's less passive than buy and hold with a property manager. Learn what is the Burr strategy and then about some of its pros and cons, mistakes you must avoid and financing programs available, and how it can generate infinite returns for you today and get rich. Education.

Robert Syslo (00:00:28) - Since 2014, the powerful get Rich education podcast has created more passive income for people than nearly any other show in the world. This show teaches you how to earn strong returns from passive real estate, investing in the best markets without losing your time being a flipper or landlord. Show host Keith Reinhold writes for both Forbes and Rich Dad Advisors, and delivers a new show every week. Since 2014, there's been millions of listeners downloads and 188 world nations. He has A-list show guests include top selling personal finance author Robert Kiyosaki. Get Rich education can be heard on every podcast platform, plus it has its own dedicated Apple and Android listener.

Robert Syslo (00:01:02) - Phone apps build wealth on the go with the get Rich education podcast. Sign up now for the get Rich education podcast or visit get Rich education.com.

Corey Coates (00:01:13) - 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 (00:01:30) - Welcome from Bridgeport, Connecticut, to Bridgeport, Texas, and across 188 nations worldwide. I'm Keith Weinhold, and you're listening to get Rich education. Let's Do Good in the world and abolish the term slumlord profiting at the same time by providing housing to others. It's clean, safe, affordable and functional. This is where, you know, on this show, we often tell you how to become financially free through real estate investing in the next 5 to 10 years without having to be a landlord or flipper. We're going to talk about how to shorten that timeline in a moment, but I have a couple resources to share with you. First, one, late breaking development at GRI marketplace that's been popular is in Florida with new builds, brand new construction for plex's duplexes and single family rentals with points paid a 4.25% mortgage rate.

Keith Weinhold (00:02:28) - Yes, 4.25%. You can pay fewer points and still get a 4.75% rate. Also, some good low interest rate deals for foreign nationals. Go ahead and connect with a great investment coach and learn about those at great marketplace.com. For a 4.25% mortgage rate. If you're a Spanish speaker or have Spanish speaking friends, check out get Rich education.com/espanol to see my free video course on how real estate pays five ways in Spanish. It's pretty interesting how our team here has applied AI to show me speak it in Spanish. Again, you can see that at get Rich education. Com slash espanol. Now the BR real estate investing strategy is popular because it can reduce your out-of-pocket expense for property substantially. Let's break it down here. That is the b are are are are. There are four hours after the B which stands for the first B is buy. You buy a distressed property that needs to be fixed up. Then the R's stand for rehab, then rent, then refinance at that higher value, then repeat. More of you have been buying BR property through GRE marketplace.

Keith Weinhold (00:03:52) - Yes, we help you find not just buy and hold properties here, but properties optimized for the BR as well. There are properties that need some work and they are not turnkey, not ready to go with little or no money. In less than three years, you can have a portfolio of 10 to 20 properties with the BR strategy. That's a shortcut, but that does take some work. It's less passive. You're buying distressed property that needs to be fixed up, and you have to be sure that the contractor is getting the work done on time, on budget, and of adequate quality standards. And vetting contractors and dealing with contractors is not easy. I'm going to have a few tips to help you deal with that today, but if you get it dialed in, BR lets you pursue an infinite return strategy where you buy property at a low price, renovated, get it rented, and then refinance it at the higher value. And at times you can get all of your invested cash out on that refinance.

Keith Weinhold (00:05:04) - Well, because a return on investment formula is simply your dollars returned divided by the cash that you have invested in the deal. Well, therefore, if you have no money left in the deal anymore, your return is infinite. Listen carefully. If our guest doesn't do it, then what I'll do is introduce an example here in our conversation for you to get you to help understand the BR. And if this is new to you, this will stretch your thinking somewhat. And then after our break, I'm going to come back and we'll discuss more about any changes to conventional loans for buy and hold investment property. And there's one place that's created more financial freedom through real estate than any other lender in the entire nation. It's time for a big welcome back to their leader, Charlie Rich.

Caeli Ridge (00:06:02) - Hey, Keith. Thank you for having me. It's always a pleasure to be here.

Keith Weinhold (00:06:05) - Well, you know who she is by now. She leads Ridge Lending Group. They're an investor centric lender, and she does such a good, concise job of explaining what real estate investors need to know in optimizing your loan positions.

Keith Weinhold (00:06:18) - And that's why she's here with us again. And, Charlie, rather than just learn about conventional buy and hold loans or refinance loans like we've covered in the past, let's talk about lending for the BR real estate investing method. BR is a method for buying distressed property at a discount. So not turnkey, not fixed up property. Here in BR stands for buy, rehab, rent, refinance and repeat. Now for these loans. Is the lender looking more I guess Charlie maybe we should start with are they looking at the property strength or more at the borrower strength for BR loans?

Caeli Ridge (00:06:54) - Well, first of all, I would say that BR is one of my favorite strategies for real estate investors, especially if they're getting into diversifying their portfolio. I think BR is a very lucrative way to achieve the returns that people are after, not only in appreciation but also in cash flow. You can get some really great leverage in these ROI and ends up being better if you find the right properties. So I'm a big fan of the BR, but to your question, Keith, it depends on what product they're going to elicit for the end loan, for that refinance loan, if we're talking about a conventional loan, Fannie, Freddie and the qualifications are still about the individual and their debt to income ratios, etc. if we're going to put this on a debt service coverage ratio, which it can apply to both, or can, I mean, the strategy does not obligate them to one or the other.

Caeli Ridge (00:07:39) - So we can go conventional where it's still going to be about the individual. Or we can look at more of a debt service coverage ratio, where it's about the income of the property in relation to the mortgage payment.

Keith Weinhold (00:07:48) - And before we go on, of course, identifying a deal is a key here in the BR strategy. Is there any guidance you'd give with identification of that property. Because you might know more from the lender perspective on what's going to be lendable.

Caeli Ridge (00:08:03) - Well, as long as it's habitable, we can lend on it. I would say that you really want to pay close attention to a couple of things. From a lender's perspective, the ARV, right? The after rehab after repair value is the linchpin to all of this. And if you're out there getting your comps from whatever sources, the agent or Zillow or Redfin or whatever it is, the more data that you can gather, the better. But just keep in mind that the ones and zeros that you're probably gaining access to don't necessarily have the components that show all the rehab work that you're putting into it.

Caeli Ridge (00:08:34) - So if you're getting a value of a property like kind property in the area or vicinity that the property is located, it's not always going to attest to what extras you put in, whether it be the hardwoods or square footage or whatever it may be. Just keep in mind that you may not be on point there, and real estate agents, I would want you to have or be working with one that really understands the BR method, aka investor models, to make sure that you don't get caught in a scenario where you're expecting a value of x that comes in at Y, that can be very devastating to the BR methodology, especially for new investors.

Keith Weinhold (00:09:09) - It was more about coming up with the ARV because with a conventional loan on a conforming property, that value that you're lending against is typically the appraisal.

Caeli Ridge (00:09:21) - Correct. And the appraisal is going to take into consideration those rehab pieces. But it's not dollar for dollar. And while I don't know that we want to go down the appraisal rabbit hole, I will tell you that if you've got $50,000 of rehab into the property, that doesn't necessarily mean you're going to get a full 50,000 in extra value.

Caeli Ridge (00:09:38) - A lot of it has to do with what you paid for it. Like Keith, you said at the top of the podcast here, distressed property. A lot of times when people are getting into BR, they're finding under market value property to begin with, that's already worth more. They're putting in some real value adds, maybe cosmetic, maybe a little bit more, and then expecting quite a bit more in value. So there's definitely a science to it. But just make sure that for all intents and purposes, you're gathering as much data as you can. And the agent, if you're using a real estate agent to help with MLS listings, etc., that they have some basis of background within this, this particular philosophy.

Keith Weinhold (00:10:12) - Okay, so we are projecting an RV in after repair value here, and then we need to lend against a percentage of a certain value. So clearly since in this case the property is distressed, well then if the property is the lender's collateral and that collateral is a little, you know, why don't we call it damaged, if you will? Well, then I'm going to speculate that is that lender probably not going to give you as favorable loan terms as they would on a conforming property.

Keith Weinhold (00:10:39) - So tell us more about how those bur loan terms look.

Caeli Ridge (00:10:42) - So you might be surprised. Again, as long as the property is habitable the LTV is going to be the same. The value of the property. It is probably what you're going to notice more than what the lending side is going to allow for in the loan to value. So on a single family residence, if it's habitable, we're going to give the individual up to 75% of that ARV. Now, I don't know if we're ready to go down this road. I think we should talk about it at some point. The ARV and how we want to maximize and not leave any money on the table. We want to discuss the purchase price and the acquisition. I think we'll come to that. But to answer your question, habitable 75% single family or 70% on a 2 to 4 unit is going to be the maximum loan to value using the appraisal. When we talk about a cash out refinance of an investment property, which may be different if we get into a rate and term refinance as a purpose of Bur, which will probably touch on as well.

Keith Weinhold (00:11:36) - What I think for the listener benefit here, maybe it's good to jump into an example if you want to apply some real numbers here to a bird deal, and then let's walk through that with the financing and more.

Caeli Ridge (00:11:48) - Let's start with cash out, because it is different than a rate and term. So cash out simply to clarify means that the individual is going to get cash in hand. We are not simply paying off an existing hard money loan. That is a rate and term refinance. So we want to start with cash out where the cash to acquire the property was the individual sourced and seasoned funds. And let's assume that the scenario looks like this. They paid $100,000 for the property. And then there's $50,000 in renovation with the expectation. Or let's just say that we get an appraisal for 200,000. So at 200,000 and it's a single family residence, 75% of that is 150,000. Okay. So that pretty much covers their total acquisition costs. But then we've got a recommendation.

Keith Weinhold (00:12:28) - Cost is quite.

Caeli Ridge (00:12:29) - Covered. But we have to account for closing costs tax and insurance.

Caeli Ridge (00:12:31) - Let's just make it around ten grand. So the individual is going to end up with 140,000 from their 150 total acquisition cost. If you divide those two numbers, you're probably going to be at what? So 140 divided by 150,000. Yeah, 93% overall leverage. You've got ten grand skin in the game. And when you look at it from that perspective, 93% over all loan to value or leverage of this property is very, very high. If you can get a deal to work like that, you're doing very well.

Keith Weinhold (00:12:59) - And you can see why people like this and why people are attracted to this. So go ahead and tell us more about this. Because really, when we talk about lending for a bigger property, we're probably talking about two different loans, right? We're talking about the purchase price upfront and then the refinancing later on.

Caeli Ridge (00:13:17) - Right. So let's going back to my example. If you paid cash for the property, if that 150,000 was your sourced in season funds. And if you want Keith tell me later and I'll go into what source and season it is.

Caeli Ridge (00:13:28) - But you have 150,000 in on this property. The key to getting up to the maximum of 150 back. Or in our example, you ended up with 140 back because we accounted for ten grand. And in closing, cost is to make sure this is wildly important. And a lot of people get this wrong the first time they go down the Burr road. Make sure both the purchase price and the acquisition costs are listed on your final CD, aka Closing Disclosure. A closing disclosure comes to you at closing, where it's a document, a form that illustrates all of the line item pluses and minuses of the buyer and the seller and what everybody netted at the end. The CD must have the total 150 listed on there, and just one number is fine. It can be broken up into two numbers, whatever. But as long as both numbers are listed on the CD, you as the borrower, our client, her guidelines are eligible to get up to that much back. So the guideline states that the individual cash in hand cannot exceed a maximum of what the total acquisition costs listed on that CD is.

Caeli Ridge (00:14:28) - So what the common mistake is, let's just keep using our 100,000 purchase in our $50,000 renovation. The common mistake that people make is, is that they pay the 100,000, the seller is made whole. And then the day after closing, they are officially now the owner of this property. They send the 50,000 out to the contractor. Seems obvious, right? Well, in doing it that way, you've left 50,000 on the table and now you're going to have to wait 12 months per new guideline to have 12 months of ownership, seasoned ownership for Fannie Freddie to get the total 150. So make sure that the total 150 is on that CD. And the way to do this, just one more little detail. You want to be working with an escrow company that provides something called an escrow hold back. Because a lot of times when I give this advice, people say, well, I don't really want to release $50,000 to the contractor before they even started any of the work, right? That makes sense to me.

Caeli Ridge (00:15:16) - And most escrow companies do this in escrow. Hold back says that the hundred grand goes to the seller. The 50,000 is earmarked for the general contract, you've gotten your bids, etc., but the escrow company will then deliver the 50,000 upon your approval as draws to the contractor as work is being completed. And that kind of absolves that extra layer of risk. But now you've done the appropriate thing for the financing to get maximize your cash out, and you're not leaving yourself in a weird position to frontload 50 grand before you know they've even started on whatever repairs there are.

Keith Weinhold (00:15:49) - Yes. How much motivation does every contractor have if they've already got their 50 K for 50 K worth of work before they do their work? And it works this way a lot in the contracting world, where progress payments are made intermittently as the contractor performs their work. So tell us more about what we need to know here. Clearly, especially when it comes to the Bir and loans, because you just gave us a great mistake to avoid there.

Caeli Ridge (00:16:13) - Kind of keeping on that theme. And then let's talk about a rate and term refinance. You know, some of the pushback that I'll get when I have these conversations. Well, you get your bids. Okay. We'll start talking about the 50,000 renovation per hour example. And you probably get a low and a high and middle. Maybe you go with the middle. It's been my experience personally and just through conversations that the bid is 50,000. If you don't have the upfront conversation to say, I'm not going to pay a cent over the 50,000 and or you negotiate to say, okay, what is our variance here? Because a lot of times the contractor is not going to be pigeonholed to 50,000. They're going back and say, no, I'm not going to sign anything that says that it will not exceed 50,000. There are costs and things that are out of my control, blah, blah, blah. Then coming up with, okay, fine, 55,000, 50, 2000, whatever that margin might be, including that in there and then having the conversation that says, okay, fine, because you don't want to leave that money on the table.

Caeli Ridge (00:17:03) - So let me take a step back. 50,000 becomes 55,000. And if you didn't have it on the CD, that $5,000 is not eligible to get back. So if you increase the amount that's on that CD, per the conversation with your contractor, make sure one of two things that if it isn't spent, that it's coming back to you and assuming if it is, then everybody is on the same page and it's just going to be part of the expense and part of what you have potential to get back. So just food for thought there. Then moving into the rate and term refinance. Now this is something totally different. This means that you went out and got a hard money lump, some kind of a private bridge loan, which by the way, Ridge does. We have bridge loans that can help fund the purchase and the renovation. We can talk about that if you like. But if you went out and got a hard money loan, this is no longer a cash out refinance unless the value is so high that based on a 75% LTV for cash out, that there's enough money on the table that you don't want to wait the 12 months.

Caeli Ridge (00:18:00) - I'm going to pause on that for a second and just say that the numbers work for a rate and term refinance, where we have an existing loan. Let's say you've got a hard money loan for 150,000. A rate and term refinance lets us go to 80% loan to value on a single family, 75 on a 2 to 4. If you recall a minute ago it was 75 and 70. That's cash out. Refinance rate and term refinance rules when you're not getting any money in hand, were simply paying off existing liens plus closing costs. They increase the LTV allowances. So 75 2 to 480% on a single family residence. So if we can go 80% on the 200,000, what is that one? I can't do mental math, Keith. So 80% of 200,000 is 160. So in that case think about this. So let's just keep going back to our example. You've got 150 into it. We've got 10,000 of closing costs okay. 150 is a hard money loan that we have to pay off. And the 10,000 is what the new refinance closing costs are going to be.

Caeli Ridge (00:19:00) - The value came in at 200,000. 80% of that is 160,000. That's no skin in the game. You have completely covered the hard money loan paid for the closing costs. I mean, you can't get better than that. That's 100% leverage, right? You're not getting cash back. Now let's take that and say that the value came in at 250. And that's a lot of money. In that case, you may want to wait for the 12 months to get that cash back, because you're going to be limited if you use leverage to acquire the property versus your own cash, that's when you're going to have to wait that 12 months. Or if you're cash acquisition, the numbers work out where you'd get an exponentially more amount than what you put into it. You may want to wait there, too. It really just depends on what that RV is going to be. That's why it's the linchpin that'll make you decide whether you're going to wait the 12 months, or if you're ready to rock in in the immediate terms with a rate and term refi.

Caeli Ridge (00:19:53) - No seasoning. If you're not getting cash back, I don't care. We can do it immediately or a cash out refinance. As long as you're not getting more back than what you paid for it. And we can show that the dollars to acquire all in the CD and they came from, you know, seasoning.

Keith Weinhold (00:20:07) - All right. So it's the BR strategy with the cash out refinance and then the burr strategy with the rate and term terms there, if you will. Is there anything else that we need to know about either one of those.

Caeli Ridge (00:20:19) - Really a lot of people always want to say what are the rate differences? And I would say that, you know, overall they're going to be roughly the same when we start talking about those LP's. Again, Keith, low level price adjustments there, pluses and minuses that have to do with risk. A cash out is a higher risk than a rate and term, a rate and term at 80% versus a cash out at 75% might offset that. So relatively speaking, they're probably going to be within an eighth to a quarter percentage point if all the other variables are equal.

Keith Weinhold (00:20:44) - Now, clearly, I think of a hard money loan is something that allows. You to put both the purchase price of a property and the projected rehab cost, and roll those all into the loan at closing. That's what I think of as a hard money loan. Is there any difference between a hard money loan and the other things that you're describing to us?

Caeli Ridge (00:21:04) - Not really. I mean, it's probably a cat of a different name, right? I mean, a hard money loan, a private money loan, a portfolio loan, a bridge loan. I mean, you could use the same thing, depending on the context of the sentence, to mean the same thing, maybe something different. You're probably right in this context. It's going to be the same, I think.

Keith Weinhold (00:21:21) - Well, I want to talk to you more about conventional loans and any mortgage industry trends that have been taking place lately. But before we do, do you have any last thing to tell us about the Burr strategy, where really someone can accumulate maybe 10 or 20 properties in just three years with little or no money, but more work?

Caeli Ridge (00:21:39) - Yeah, a little bit more work.

Caeli Ridge (00:21:40) - I would say get to know your market, have your team. That contractor. Man, I think you alluded to this. I think that that's the piece that most people struggle with is finding the right contractor for one of the things that tends to work well, if you have established a relationship, is kind of getting in with some kind of a JV with the contractor, right? They've got skin in the game. Maybe if your numbers work out, they get a 5% bonus on the end, whatever. Just to kind of not keep them honest but keep them honest, if you know what I mean. So making sure you've got a good contractor that you can trust if you're going to be doing this out of state from where you live, even more so, doubly so you really want to have the right team. And that includes the general contractor, the escrow company, your lender. Everybody's got to kind of be on the same page if you're going to continue to do this as a rinse and repeat.

Caeli Ridge (00:22:23) - And then finally I would say bring it to Ridge. Let's just make sure if you're new to doing this, I want to make sure you're not leaving that money on the table, that we're structuring it appropriately so that we're maximizing the loan to value, we're maximizing your dollar, and that you're not leaving money or leaving money for some period of time longer than what you would have wanted to, because this is a rinse and repeat, right? If you don't do it right the first time, you could be stuck tying up 30 grand for 12 months that you would have otherwise been able to capitalize on. If we looked at it in advance of you pulling a trigger.

Keith Weinhold (00:22:52) - Yeah, that's correct. In fact, that last R in the BR strategy is to repeat it. And yet, to your point about contractors, I like to think about what contractor motivations are and what my motivations are. And in times I have incentivized contractors with giving them a 5% bonus if they finish things ahead of schedule or a 5% penalty if they finish things behind schedule and putting that in the contract as well.

Keith Weinhold (00:23:14) - You're listening to get versus a case. We're talking with Ridge Landing President Charlie Ridge about getting loans for the BR strategy more when we come back. I'm your host, Keith Windhoek. Role. Under this specific expert with income property, you need. Ridge lending Group Nmls 42056. In gray history from beginners to veterans, they provided our listeners with more mortgages than anyone. It's where I get my own loans for single family rentals up to four Plex's. Start your prequalification and chat with President Charlie Ridge personally. They'll even customize a plan tailored to you for growing your portfolio. Start at Ridge Lending group.com Ridge lending group.com. You know, I'll just tell you, for the most passive part of my real estate investing, personally, I put my own dollars with Freedom Family Investments because their funds pay me a stream of regular cash flow in returns, or better than a bank savings account, up to 12%. Their minimums are as low as 25 K. You don't even need to be accredited for some of them. It's all backed by real estate and that kind of love.

Keith Weinhold (00:24:29) - How the tax benefit of doing this can offset capital gains and your W-2 jobs income. And they've always given me exactly their stated return paid on time. So it's steady income, no surprises while I'm sleeping or just doing the things I love. For a little insider tip, I've invested in their power fund to get going on that text family to 66866. Oh, and this isn't a solicitation. If you want to invest where I do, just go ahead and text family to six, 686, six.

Speaker 5 (00:25:06) - This is our Rich dad, Poor dad author Robert Kiyosaki. Listen to get Rich education with Keith Wayne. All scripture data.

Keith Weinhold (00:25:25) - Hey. Welcome back. You're inside. Episode 502 of gray. I'm your host, Keith. Y'know, we're talking with the president of Ridge Lending Group, Charlie Ridge. She talked to us before the break about her financing strategies and the things that you need to keep in mind in order to optimize your returns there. It's only now back here on the conventional side, we talk more about conforming loans for properties that are already fixed up.

Keith Weinhold (00:25:48) - Or maybe people call those turnkey. What about some of those hurdles that investors often have in there? For example, I know that the DTI one exceeding their debt to income ratio threshold when they try to qualify is sometimes a problem. So can you talk to us about some strategies with that? For example, sometimes a person might have a $500 a month car payment, but they only have four or more payments to make for their $2,000 principal balance. And it just makes more sense to pay that off. And then that drops off the DTI calculation. Are there any other thoughts you have with regard to that?

Caeli Ridge (00:26:18) - There's so many in this. I mean, we probably have our own episode for all different ways on debt to income ratio and to move that needle. Just to go back to your example, just FYI, if the car loan is financed, not leased, and there are ten months or left reporting on the credit report automatically per guideline we had, we can exclude that if it was at least with ten months or less, we have to keep it in the ratio.

Caeli Ridge (00:26:39) - But if it's a finance car, ten months are left are showing on the report. It's automatically reduced from the liability section of DTI. The other things that we're to look at just obvious things. Can we gross up any kind of income. Right. Are there bonuses or commissions or Social Security or veterans benefits or whatever that allow us to gross those up, making sure that we've got all of the applicable income that they gather? Sometimes people will forget to say, oh, I get this. You know, child support or alimony or whatever it may be that I didn't think to disclose. We want to make sure that we have that in there. And then we talk about liabilities we want to look at here's kind of a good one. Student loans let's say that either cosigned or you have your own student loans. Fannie and Freddie have different. And maybe they're in deferment. Okay. So when we pull the credit it shows zero as the monthly payment. While Fannie and Freddie have different rules about what we have to hit them for.

Caeli Ridge (00:27:25) - And I could be getting these backwards, but I think that Fannie is 1% of the outstanding balance, whereas Freddie is a half a percent. So depending on some other variables, we may elect to say, okay, DTI is really tight, we're going to take this and make this one of Freddie, assuming that they fit all the other boxes so that we're only having to hit them for that half a percent. Otherwise we look at maybe paying off revolving debt, get those payments down if they're small enough, maybe there's a $3,000 balance that has a $300 payment that's really screwing things up, and they can afford to pay that off. So certainly we can look at those kinds of things, adding in a co-borrower, putting more money down, buying the interest rate down, maybe finding slightly cheaper insurance, right. At least for the purpose of the loan. And then if you wanted to get higher insurance or lower deductibles or higher deductibles later, you could certainly do that. So there's so many different variables that we can look at to really it's not a one size fits all.

Caeli Ridge (00:28:13) - And DTI is kind of a slippery slope. And there's lots of different ways in which we can get that down into check. And if it doesn't happen today, we can help them plant the seeds for what to do tomorrow and making sure that we get them there.

Keith Weinhold (00:28:24) - Wow, that was fantastic. I hope you, the listener, are listening closely because Charlie just gave so much packed, nutrient dense information about what you can do with your DTI. And for starters, I think a lot of people think about reducing their debt to improve their DTI. But is all your income being credited as well? Hopefully you caught that part which said that. But when it does come to reducing the debt portion, of course student loans have very much been in the news with all these plans for forgiveness. Is that impacting DTI substantially?

Caeli Ridge (00:28:53) - If they had the right documentation? Sure. Yeah. If they're on there and we have the right documentation that shows that they are forgiven, but they just haven't caught up with the system, then absolutely.

Caeli Ridge (00:29:00) - Otherwise, if they don't have the supporting doc, the letter that says and it's on the credit report, we're going to have to hit them for it, whether there's a payment there or a zero deferred. And then we have to figure out the 5.5 or the 1%. It'll have to be in there. Just depends on what they can deliver in terms of that forgiveness in paper trail.

Keith Weinhold (00:29:18) - You do with mortgages every day in there. That's what you specialize in for investors. Are there any just overall mortgage industry trends that really specifically impact real estate investors that have occurred? Or amid.

Caeli Ridge (00:29:31) - The rates? Everything is going to come back to the rates. As much as I impress upon people, it really shouldn't be about the rate. And I understand the psychology. Listen. But if they're not doing the math, they're really doing themselves and their future investment a disservice. The shelf life, you guys of an investment property mortgage is five years. Whatever the rates are today, you're not going to have that interest rate almost certainly in 5 to 7 years.

Caeli Ridge (00:29:54) - So kind of looking down the forecast of where rates we think they're going to go, the appreciation of the property, harvesting equity, pulling cash out. Keep those things in mind when you fixate on the interest rates. I would say that that's usually what it's top of people's minds. The most recent inflationary data came out. It was hotter than we expected. However, shortly thereafter, if you're watching closely the unemployment rate and the jobs report, I think it offered 175,000 new jobs and the projection was to something. So that's good news. And listen, you guys, you can't have it both ways. We're in a hot economy. I guess it depends on who you're talking to and who you're asking. I understand, but for all intents and purposes we've got inflation is is down. It's not down where the Fed's wanted that 2%. The unemployment rate is very, very low. So in that regard we're doing very well. So interest rates are going to be higher. Unfortunately it balances this way. The worse the economy does the better the interest rates do.

Caeli Ridge (00:30:48) - Finding that equal balance I think is the key. And don't ask me, I'm not going to try and predict how to do that. But do your mouth be prepared for refinancing when it comes. Sitting on the fence is usually not going to be to your advantage if you're waiting for interest rates to come down, and that coupled with house values, come down a little bit too. And you may have played yourself out of the refinance anyway for the purposes that you wanted to pull cash out. So just be educated. Call us. We can kind of walk you through some of that stuff. Interest rates, I think, are going to be higher for longer unless we see some real significant data trends, because there's a lag. And what we get from the Fed's and I think they try to put that in there, but who knows what's going to happen. What are they going to see us again June, July. We'll see what happens. If jobs reports keep being light, then maybe we start to see a little bit more reprieve in the interest rates.

Caeli Ridge (00:31:32) - But we're still we're what, seven and a quarter, seven and a half for investment property I think in most cases. So if that's too high to cash flow, find a short term rental. Find a mid term rental. There's other ways in which to accomplish your variety of variables. Even in the seven and 7.5% interest rate environment.

Keith Weinhold (00:31:49) - Well, there's so much I can say about the fed and the interest rates, but I think you said something very important earlier that the average shelf life of a mortgage loan product is about five years. It's exceedingly few people. Well, less than 1%. They're making their 360th monthly payment ever at a 30 year fixed rate loan. Charlie, I want to ask you what. Maybe it's becoming sort of known as the Charlie Ridge question. I like to ask you this almost every time that you're on the show, because it gives us a temperature of the market, because you see so many loans and so many appraisals come in there, what percent of appraisals are coming in above value? What percent are coming in on value, and what percent of appraisals are coming in below value?

Caeli Ridge (00:32:26) - We don't see as many low values.

Caeli Ridge (00:32:28) - I think that there was a period of time where that was rampant. It was really frustrating for a lot of people, especially on the Non-owner occupied side. The vast majority are coming in on point, and I think a lot of that has to do with 0809 regulation. Appraisers are kind of scared of their own shadow and overvaluing properties. So I think that they do very everything they can to hit the mark. And I don't see too much over an occasion. We'll see a little bit over. It's more likely to see it over than under these days. I would say, okay, percentages under 10% on the mark 8075 and then over. We'll give it.

Keith Weinhold (00:33:03) - 1515. Okay, a few more over than under, but pretty close to right on value there. You do loans in almost all 50 states. And these are the states where the property is located, not where the borrower lives. Right. So it's every state except a few.

Caeli Ridge (00:33:20) - Right? We're not in North Dakota and we are not in New York.

Caeli Ridge (00:33:22) - Otherwise we are lending in all 48 states where the property is. That is correct.

Keith Weinhold (00:33:27) - Yeah. And you specialize in loans for investors. Like I said earlier, what other loan types do you offer investors and others in there because you do a few primary residence loans too.

Caeli Ridge (00:33:38) - We do lots of primary. I would say, you know, it's 7030 probably. We're very capable, full service direct lender. What that means is we fund on our warehouse line, we underwrite in house, but we don't service these loans. So we bundle them up in mortgage backed securities and we resell them on the secondary market to aggregators. You guys will know this as servicers. Any Mac, Wells Fargo, whoever is going to be the end servicer of the loan. And I've worked really, really hard to create an environment specifically for investors, not exclusively, but largely so that we're not a one size fits all. So I really appreciate the question and being able to articulate to your listeners, we really do everything. It's very uncommon that we don't have a loan product to feed the actual need.

Caeli Ridge (00:34:17) - The one thing that I would say we don't have or don't offer is going to be a lot bear lot loans we don't fund on just bare land, but we can do the Fannie Freddie's bridge loans. So for the fix and flip or fix and hold the BR, we do non QM. This is just non QM is kind of everything outside the Fannie Freddie box. If you can't quite fit into the rigors of Fannie Freddie you're going to be in non QM probably where debt service coverage ratio lives. Bank statement loans live, asset depletion loans live. We have commercial loan products for commercial properties. For residential properties we have. Ground up construction. First line Helocs for relationship clients we have second line Helocs. We had second line for everybody when we pulled back just for relationship clients for reasons that we'll discuss on one on one if anybody's interested in that. What am I forgetting, Keith? You get the point. There's a lot. If you think that you're trying to get financing for residential or commercial properties, please email us and we'll take some information to let you know what we can do.

Keith Weinhold (00:35:10) - Well, yeah, to my point, you provide such a great service in a wide palette of options. It's somewhat easier to describe what you don't do. Yeah. And what you do offer to people. And of course, I've done my own loans in there at Ridge and my own refinancings in there. And yes, I usually end up getting a servicer. That's one of the big banks that you've always heard of over the long term that I make payments to. Where does one get started to get things rolling with Ridge or just to ask some questions.

Caeli Ridge (00:35:36) - Call us 855747434385574. Ridge, you'll get someone immediately. We don't have any call trees. You'll speak to me if I'm available at the time. Our website's got a lot of great information. Ridge lending group.com email info at Ridge Lending group.com. All of those ways will get you on the books with me, if that's what you like. Or assign you to a loan officer in the company. And we look forward to serving you.

Keith Weinhold (00:36:00) - You have given our longtime listeners more good, timely mortgage information than anyone in the history of the show here, and we're all better for it.

Keith Weinhold (00:36:09) - Charlie Ridge, thanks so much for coming back on to the show.

Caeli Ridge (00:36:11) - Thank you Keith.

Keith Weinhold (00:36:18) - Let's review some of what you learned about Bir and their loans today. Once your property is renovated and rented, which are the first and second are the third are. Is refinance for a cash out refinance type? It is a maximum of 75% loan to value on single family and 70% on a 2 to 4 unit, and then for a rate and term refinance, which means when you don't get any money in hand after closing and you're simply paying off existing liens plus closing costs, it's 80% loan to value on single family and 75% on a 2 to 4 unit. And you learn to be sure that both the purchase price and the acquisition cost are listed on your final closing disclosure. You know what I think is interesting with originating mortgage loans today? Overall, it's one question that I've been thinking about, and maybe we'll do a poll on this question. If we do, I'll share the results with you. And that is, do people care more about the mortgage interest rate than the purchase price of the property itself? Sometimes it seems that way to me.

Keith Weinhold (00:37:29) - Now your mortgage rate definitely matters, but not as much as the purchase price. I mean, later months or years down the road. After you purchase a property, you can often renegotiate the mortgage interest rate, like if rates fall, but your purchase price stays fixed, that part never gets renegotiated. And like I mentioned last week, low mortgage rates don't create wealth. Leverage does. And to put a finer point on that, consider that in 1971, the mortgage interest rate was 7.3%. Back there in 1971, if you had waited for interest rates to go down, you wouldn't have purchased a home or an income property until 1993. You would have waited 22 years for rates to go down. And meanwhile the price of real estate quadrupled, and many people expect mortgage rates to stay higher, longer. Whether you're interested in the BR strategy or already renovated income, property or even primary residence loans, I invite you. You can get loans at the same place that I have myself for years. That's it.

Keith Weinhold (00:38:41) - Ridge lending group.com. Until next week. I'm your host, Keith Winfield. Don't quit your day dream.

Speaker 6 (00:38:52) - Nothing on this show should be considered specific, personal or professional advice. Please consult an appropriate tax, legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own. Information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of get Rich education LLC exclusively.

Keith Weinhold (00:39:20) - The preceding program was brought to you by your home for wealth building. Get rich education.com.

Direct download: GREepisode502_.mp3
Category:general -- posted at: 4:00am EDT

Mon, 13 May 2024

In this episode of the Get Rich Education podcast, host Keith Weinhold explores the current state of home pricing and the housing market.

He examines whether homes are overpriced or underpriced by comparing them to historical values, gold, and bitcoin, and discusses the influence of inflation and financing on affordability.

The episode features insights from Danielle Hale, chief economist at realtor.com, on the challenges for young homebuyers, housing supply issues, and mortgage rate effects.

The conversation also covers the build-to-rent trend, investment strategies, and the importance of increasing housing construction.

Weinhold concludes by offering free coaching for building real estate portfolios.

Resources mentioned:

For access to properties or free help with a

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Get mortgage loans for investment property:

RidgeLendingGroup.com or call 855-74-RIDGE

or e-mail: info@RidgeLendingGroup.com

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500: All You Ever Have is Now—Always

Complete episode transcript:

Welcome to GRE! I’m your host, Keith Weinhold. Home Prices Aren’t Really Up! Brace yourself. A mic drop moment on real estate costs is coming.

It’s an unmasking - a reality check on property prices. Are homes actually still priced too LOW today? How could that POSSIBLY be true at all? On Get Rich Education.

_____________

Welcome to GRE! From Belgrade, Serbia to Belleville, Illinois and across 188 nations worldwide. I’m Keith Weinhold and you’re listening to Episode 501 of Get Rich Education.

We’ll get to “Are homes overpriced or underpriced today?” shortly.

But understand this…

I successfully acquired something at a young age. And you can too. That thing that I successfully got ahold of was not millions of dollars… because I came from average means.

What I intentionally and successfully acquired was millions of dollars in debt.

Yes, obtaining millions in debt from a young age… is what led to me quitting my day job while I was young enough to enjoy it.

You, the longtime listener, COMPLETELY understand and appreciate what I just said. If you’re a newer listener, that sounds unusual or even irresponsible. Well, come along for the ride.

Also, a layperson - or a newer listener - would respond with, “No one talks that way, thinks that way, or does that.” - taking out millions in debt and calling THAT aspirational.

But using that debt as leverage is how you ethically take funds from the big banks - take Chase Bank’s money, take Bank of America’s money, take Wells Fargo’s money - learn how to use it, be a responsible steward of the funds, provide good housing for people and prosper.

That means you get the return on both your down payment - and the entire amount that you borrowed from those banks. That all goes to you. And both your tenants and inflation pay the debt back - not you.

Look, I know one person. I personally know a guy - Greg. Greg makes $80K a year from his day job. Good guy, married guy, one kid.

And his NW increased by $2M just in the COVID run-up. He has a modest salary but his NW is up $2M just since 2020.

First of all, do you think that any of Greg’s co-workers experienced that effect? No, he’s really going down my path. You soon get unrelatable to co-workers and even some of your peers.

Well, what makes it possible for a good family guy - or anybody - to go from a middling salary to obtaining life-changing wealth?

It takes leverage. He borrowed for bank loans. That way, he could acquire 5x as much property than if he paid all cash for his rental properties.

That way, he had 5x as MANY properties… and properties all appreciate at the same rate regardless of how much equity you have in them.

See, if he had paid all cash, he’d only have a $400K capital gain. Not bad, but $2M is life-changing. Thanks to leverage.

Everyday people obtain life-changing wealth this way. It’s so substantial… that it won’t only affect Greg’s life. If he continues on this way, it’ll take care of his children, grandchildren, and great grandchildren.

And you know, maybe this is why, one of the most recurrent guests we’ve had here in the history of this GRE, Ken McElroy, he says:

“The best investment in RE is the one that appreciates the most, not the one that cash flows the most.” That’s Ken McElroy. And now you can see why he says that.

Leveraged appreciation creates wealth the fastest. Cash flow is important and it CAN boost wealth but that happens more slowly. Principal paydown doesn’t create it - it enhances it… and it’s the same with tax benefits.

Deferring your tax on a 1031 means that you can re-leverage a greater amount.

Low interest rates also don’t create wealth. In fact, I bought my first ever income property with a 6⅜% mortgage rate and my second income property with a 7⅝% rate - that second one had interest-only payments.

But I borrowed the maximum amount that I could without OVERleveraging. Overleverage means losing control of the mortgage and operating expenses.

The lesson here is… get the leverage.

And… case in point. Here we go…

Speaking of appreciation, the LATEST Case-Shiller Home Price Index figure came in. The US currently has… 6.4% YOY home price appreciation. Now, their index is only based on 20 cities but that gives you a pretty good idea.

In fact, that is the fastest rate of increase since 2022.

Now, if you’ve let equity build up in your properties to the point that they’re half paid off, you had 2x leverage, meaning the 6.4% appreciation just gave you a 12.8% leveraged return on your skin in the game.

And, of course, if you leveraged with a 20% down payment a year ago, that 6.4% means that you just got a 32% return.

And as we know, these returns I just told you about are from one of just one of FIVE ways that you’re expected to be paid simultaneously.

But yeah, a 6.4% higher is merely a DOLLAR-DENOMINATED price. That’s what that is. Why do I say that carefully?

Well, there are a few reasons that home prices are 6.4% higher - inflation from dollar printing could be why, the value - not price - but some properties have a greater VALUE, distinctly separate from inflation.

What’s the distinction there - how does this happen? What’s one difference between an INFLATED price and a greater value?

Well, say that a local economy is hot because there are more high-paying jobs there now than there were last year - say an influx of medical jobs or AI jobs or chipmaking jobs.

Well, even absent inflation, a property that now has PROXIMITY to better-paying jobs - that’s now a property that’s more desirable.

Someone is more willing to PAY MORE FOR - and simply CAN pay more for. Again - that phenomenon is ABSENT inflation.

What’s another reason that home prices rise - and rose 6.4% YOY in this case?

If better PHYSICAL AMENITIES are in new homes than there used to be - say bigger garages or new communities with pickleball courts, well, people are more willing to pay more for that.

To review, there are three reasons that home prices go higher: inflation, appreciation from value creation - like how the same home is now located closer to more high-paying jobs, and thirdly, better built-in amenities.

All three of those increase dollar-denominated price or value. They all increase the nominal price.

Now, let’s pivot into the fact that “Home Prices Aren’t Really Up”.

I’ve covered this a little before, but I’m going to go deeper today in giving you the most comprehensive look at home prices today - compared to the past - perhaps than you’ve ever had in your life.

Some might say, “C’mon. How can this be? Homes cost, perhaps 40% more than they did just four years ago.”

Well, I’ve got a mic… drop… moment… coming.

- Home Prices Aren’t Really Up.

We need a good measuring stick to see what home prices are doing. So we’ve got to stop pricing homes in dollars for a minute. It's a poor long-term value measure.

Ludicrous inflation means the dollar has lost over 25% of its value just since 2020, and 97% of its value since 1920.

Let’s use a commodity and money that has been valued for five millennia - and its physical properties have not changed one bit in allll that time, and its valued across continents and cultures - that’s 50 centuries of value! That’s gold.

We’ll get to a more modern measure soon. But first, gold is the best one.

Now, I don’t know who to credit, but for a while, there was an image floating around out there that GRE got ahold of.

It showed that 10 kilos of gold would buy you an average home back in 1920… and also, that 10 kilos of gold would still buy you an average home today… total… mic… drop… moment. Wow! Is there any better evidence that home prices are NOT up - but higher prices reflect that the dollar is down?

Actually, yes, there is a little better evidence. We ran the numbers here and learned that - it’s even more astounding than that!

You run how many dollars per ounce gold is worth, that 35ish ounces are in a kilo and you look at home prices then and now and we discovered that - it’s even more of a jaw-dropper…

… because in 1920 - which I’ll just call a century ago - you could buy an average home for 8 kilos of gold and today, you can buy an average home for just 6 kilos of gold.

So if you want to know how much home prices have changed in the last century, they are down 25%.

They’re 25% cheaper today in terms of gold - clearly a more stable value indicator than horrendously diluted dollars are.

And also, GRE made a new image that shows this - 8 kilos for an average home a century ago, 6 today. I sent you that image in our newsletter about ten days ago and that image got shared a LOT of times.

Your first reaction to this whole thing could be: "Wow! That's wild. The dollar really is sooo diluted."

Alright. What about home prices in terms of a popular, nascent asset that only arrived fifteen years ago, bitcoin?

2016: Average home cost $288K, or 664 bitcoins.
2020: Average home cost $329K, or 45 bitcoins.
2024: Average home cost $435K, or 7 bitcoins.

So, eight years ago, a home cost 664 bitcoins and today it costs 7.

That means that home prices are down 25% in terms of gold in the last century.

But they’re down 99% in bitcoin over just the last 8 years.

And the dropped mic keeps reverberating through the stadium.

Today's homes are cheaper in gold and drastically cheaper in bitcoin.

See, it takes real world resources and proof of work to create real estate, gold, and bitcoin. None of these things are required to produce a dollar - none of them. That's why its value is approaching zero.

But let’s go deeper. You need more answers - you are part of a really intelligent audience.

Because you might be thinking: "Wait a second. Some other things have changed too." For real people - everyday people - aren't home prices actually more out of reach than this?

That's because since 1920, home prices have risen faster than incomes. That puts them OUT OF REACH for more people.

Something else has changed. A home's lot size is smaller today too - the land that comes with the property has a smaller area.

Let’s understand too - homes also use some cheaper materials today. For example, heavy, milled raw wood doors - the interior doors - of yesteryear have given way to molded particle board today.

This is beginning to build the case - evidence - that homes SHOULD be cheaper than they are today.

Let’s keep going, because there’s more to consider.

Mortgage rates themselves - just rates in isolation - they don't put homes out of reach at all. The long-term average is 7.7%, per Freddie Mac, on the 30-year FRM. That average goes back to 1971, when they first began tracking them.

Oppositely, you can make the case that U.S. homes should cost even more than they do today.

In many advanced nations, homes are way more pricey. Even next door in Canada, they cost about 20% more than U.S. homes. Canadian salaries are lower than US salaries too - yet their home prices are markedly higher.

On some levels, you're getting more "home" today in the US.

A 1920 home would feel savagely uninhabitable to you if you tried to live in one now.

Here’s what I mean…

In 1920: 1% of homes had electricity and full plumbing.
Today: 99% of homes have electricity and full plumbing.

What I mean then, by savagely uninhabitable, is enjoy walking to the outhouse in the middle of the night when it's 35 degrees.

Then there's size:

1920: The average home had 242 sf per person.
Today: The average home has 721 sf per person.

Because today, family sizes are smaller and homes are way larger too.

Today's amenities would be unthinkable in 1920—walk-in closets, roofs with R38 insulation, double-paned thermal windows, smart thermostats, voice-controlled lighting, quartz countertops, and Kitchen Aid appliances. Maybe even a security system. They’re all things that homes have today.

Gosh, even the fact that you have a garage - a HEATED garage even, finished basement, air conditioner and modern washer-dryer would leave 1920 homeowners dumbstruck with their mouth agape—maybe even flabbergasted. Those old folks from yesteryear wouldn’t believe all that you get with a home today.

Yet that 1920 home would have cost you more in gold, than today’s more sizable homes with all their plush amenities.

Now, when it comes to - though home prices aren’t up, are they more “out of reach” for the average American?” Over the past five years, they ARE - because home prices have now risen faster than incomes over THAT stretch.

But another BIG reason that homes are SUBSTANTIALLY more affordable today than they were in 1920 is… financing terms.

Today, you can make a down payment for between 3% and 20% on a home. Do you know what loan terms were like in 1920? You had to make a 50% down payment and then had to pay off your mortgage in 5 years.

Can you IMAGINE if that were the case today? How many people could put 50% down on a home today and then pay off the balance within 5 years. Virtually nobody. That’s why homes are more within one’s grasp today.

Overall, you can see that there are a lot of countervailing factors here… tempering that it took 8 kilos of gold to buy a home a century ago, and it just takes 6 kilos today.

The bottom line here is that, long-term, real home prices aren't up. Dollars are down because they've been printed like crazy.

From today, nominal home prices could keep rising for years.

Dustin on social had a funny comment about this - “How many baconators from Wendy’s would it take to buy a home today?” Ha!

I don’t know. I guess that’s a hamburger - I don’t go to Wendy’s. Maybe then, a home costs 60,000 baconators today.

Coming up straight ahead - what will happen first - a $750K median-price home, $100K bitcoin, or $5K gold.

Also, what’s perhaps the biggest trend in real estate investing that not enough people are talking about - and how you can make money from it… and more… all next - I’m KW. You’re listening to Get Rich Education.

______________

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

On our latest GRE Social Media Poll, we ran this question.

What will happen first?

The median home value hits $750K.

Bitcoin hits a $100K price. Or…

Gold hits $5K.

I’ll give you the result, but what do you think? Again, which one of these three things will happen first?

The median home value hits $750K.

Bitcoin to $100K. Or…

Gold hits $5K.

The results across both LI and IG were pretty similar - sometimes you get differences there, as LI is a more professional audience.

One voter in the poll also commented - it’s syndication attorney Mauricio Rauld, who we’ve had here on the show before.

Mauricio said: I think assuming Bitcoin doesn't collapse, it probably makes a run to $100K in the next few years (who knows, could be next few months). But with the median home, at 10% a year, it would take 6 years to hit $750K so that is a decade away. That’s his thought - sounds reasonable.

The poll RESULT is:

Bitcoin will hit $100K first. That was most likely, with 57% of you answering that. That makes sense since its volatile and close to striking distance.

The median home value will hit $750K finished 2nd. 26% of you said that.

And gold up to a $5K price got just 17% of the vote. That makes sense since gold prices would have to about double from here.

You can always join along in the conversation and polls. We are really easy to find - because on virtually every social platform - Facebook, Instagram, LI, YouTube - we ARE: “Get Rich Education”.

Over on the Get Rich Education YouTube Channel, I recently covered how the Fed is overseeing a “Tug of War” between inflation and a recession. They don’t want the game to end. The Fed is trying to keep the game going.

They don’t want participants on either side falling into a pit in the middle of the Tug of War game between inflation and a recession. They don’t want either side to win. If one side wins, the Fed loses.

This “Tug of War” game is really a great way to understand how the Fed works, how they control your money, and what their motivations are. A video about that is on our YouTube channel - where you get the visual of the Tug of War game between inflation and a recession.

That’s just one example of how that content is often different from what you’re hearing now. Get more… on our YouTube Channel… called “Get Rich Education”.

The homeownership rate just fell again a little, quarter-over-quarter, increasing the number of renters and rental demand, which I expect will only continue. From CNBC, Realtor.com’s Chief Economist Danielle Hale tells us more. Let’s listen in. It’s about why the housing market is pretty dire for young Americans, then I’ll be right back with some key commentary on this.

Yeah, there in Economist Danielle Hale’s interview - if mortgage rates go higher, inventory pulls back and we tend to see modest HPA. Most agree that if mortgage rates go lower, we’ll see RAPID HPA.

She also just keeps exposing what we all know. “We need to build more housing”.

A brand-new home constructed with a renter in mind, sold to an investor, is known as build-to-rent housing. You’ll see it abbreviated BTR. It's usually single-family.

Some abbreviate it B2R. These must be the same people that say H2O instead of water.

It's become massively popular.

Despite an overall housing shortage, last year, a record 27,495 BTR homes were completed.

That's up 75% from the prior year and up an astounding 307% since pre-pandemic deliveries back in 2019.

So what's driving the build-to-rent trend?

Locked into low mortgage rates, existing homeowners won't sell. So, instead, new inventory must be constructed.
More overall housing demand than supply.
Wannabe first-time homebuyers cannot afford homes today. Renting a BTR is next best. National BTR occupancy is over 96%.

BTR operates similarly to apartment buildings under property management, yet offer a single-family living experience.

Some of these communities have: leasing offices, pools, and fitness centers.

The homes themselves often have: luxurious modern finishes, garages, and fenced backyards.

What's in it for investors? How do you make money with BTRs?

5% mortgage rates* (I’ll get back to that in a minute)
A long-term ownership focus, generating revenue over time rather than immediately
Tenants have a house-like feel. Expect 3+ years avg. tenancy duration.
Mgmt. fees are low because all houses are the same and all in the same area too
BTR purchase prices are HIGHER than resale property. You will pay more.
Expect better appreciation than resale property
The rent range is often $1,500 to $3,500
You can expect low maintenance. It's new.
Builder home warranty

So there are a ton of factors that give build-to-rent investor appeal.

Really, 5% mortgage rates? Yes. Here at GRE, we can introduce you to some BTR homebuilders that will buy down your rate for you. One is lowering it to 4.75%.

I encourage you to get that incentive now, because when mortgage rates fall substantially, I don’t expect these national and regional homebuilders to keep giving you the rate buydown.

Sorry J-Pow. This kinda makes your next Fed rate decision… seem pretty irrelevant.

It's a great rental model to pursue and an amazing time to do it with the rate buydowns. I wish BTR would have existed when I began as an investor.

You really didn’t start hearing about BTR at all until about ten years ago.

Now, I appear as a guest on other business and investing shows. Quite a few times, the host asks me where the REI opp is today.

The answer that I’ve been giving is that it’s with build-to-rent properties and these rate buydowns.

An income-producing asset is like your employee that’s working for you—but without the personality problems. The property is also working for you 24/7.

Besides just helping you find the best BTR deals today, we can help set up an entire real estate investment portfolio plan for you.

-We can help build an income-producing RE portfolio for you with our free coaching. Truly free.

Now, if you’re new here, you might think that we’re trying to sell you something - and we aren’t.

The way it works elsewhere is that some people get attracted to the free thing and then once you’re on the phone or Zoom or free live, in-person event, they’re going to try to sell you their better PAID coaching or some online course for a fee.

We don’t even sell coaching or sell a course. This is free no-strings, no upsell, no catch coaching.

OK, it’s sort of the opposite of your auto dealer calling you about your extended warranty - an overpriced item that you don’t want. Ha! If you want to buy something from GRE, you can’t because we don’t even have anything to sell you. We are here to help!

Also, I have no problem with companies selling paid courses or paid coaching - not at all. Some courses are worth paying for. It’s just not what we do or have EVER done here.

But see, buying real estate that you own directly is still not as simple as just finding a keyboard and pressing: Ctrl, alt, Deal.

So that’s why our Investment Coaches help you learn your goals, and navigate the process. Then you’ll want to keep in touch with your coach because the best deals are often changing.

For example, you might think that you want to buy income property in, just say, Alabama, because its prices haven’t run up as much as they have in Florida.

But we keep regular lines of communication open with build-to-rent homebuilders nationwide… and say there’s a new community, in, Florida, where the real deals are going to be for the next few months…

…and though you still like Alabama, you like how Florida is growing faster so you end up going there.

Or there’s better cash flow with some BRRRR strategy properties in say, Ohio, that we have that your coach informs you about.

So, I encourage you. Get & maintain a line of communication with your GRE Investment Coach.

To review what you learned today:

Leverage is THE most powerful wealth creator.

You can make the case that homes are NOT overpriced today. Home prices aren’t up; the dollar is down.

No one knows the future. But there is ample room for more home price growth.

Build-to-Rent property keeps increasing in popularity… and investors can get mortgage rates on them as low as about 5%.

To contact an investment coach, it’s free, start at GREmarketplace.com.

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

Direct download: GREepisode501_c.mp3
Category:general -- posted at: 4:00am EDT

Mon, 6 May 2024

Become a time billionaire.

In this episode of the Get Rich Education podcast, host Keith Weinhold explores the significance of living an extraordinary life, emphasizing the importance of time management and the value of time.

You are here today, gone tomorrow.

Gain new perspective on life and death.

The show promotes strategies for achieving financial freedom through real estate investing.

A hypothetical scenario examines the potential impact of eternal life on Earth's resources, prompting listeners to consider the implications of unlimited population growth.

The episode offers a blend of motivational content and practical wealth-building advice, with a side of philosophical musing on the nature of time and life's finitude.

We listen in to Neil deGrasse Tyson’s “Life and Death: A Cosmic Perspective”.

Resources mentioned:

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”

Top Properties & Providers:

GRE Free Investment Coaching:

Best Financial Education:

Get our wealth-building newsletter free—

text ‘GRE’ to 66866

Our YouTube Channel:

Follow us on Instagram:

Keith’s personal Instagram:

499: How They Revolutionized Real Estate - Behind the Scenes of “The Memphis Miracle”

Complete episode transcript:

Welcome to GRE! I’m your host, Keith Weinhold. You need to become financially-free so that you have… time to be present and live in the “now”.

You are here today and gone tomorrow. There’s not much time to leave your dent in the universe. All that you ever have is now - and that’s how it will always be. Today, on Episode 500 of Get Rich Education.

Welcome in… to Get Rich Education. I’m your host, Keith Weinhold.

At times, people tell me something like: “Look at what you’re doing. You live an extraordinary life.”

Now, I might reply to that person with something like - “Thanks. I appreciate it. I like to get out and see the world.”

But do you know what’s really going on inside my head when someone tells me that I live an extraordinary life?

I’m really thinking, “Well, of course, I do. Don’t you? You design your life: So why would you choose anything… else or anything… less… than an extraordinary life?”

Esp. in this world of abundance that we all live in. That’s why you have zero reason to live any life that’s LESS than extraordinary - if that’s what you want.”

Investing for income now is a tool for freedom.

When you're no longer trading your time chiefly for dollars, that's when you can stop living a disembodied existence - when you’re living such that your mind and your body are in two different places.

Begin to own your time and truly be yourself.

You need time.

And you don’t have much time. That’s why, in my experience, it's better to err on the side of being too early over being too late.

Are you truly living… or are you only existing in space and time? I think that deep down… you know. Ask yourself. You already know the answer.

Remember, Episode 1 of this very show is called: “Your Abundance Mindset.”

But if you’re thinking in LIMITING ways, here’s the good news - the really good news for you.

You don’t have to believe everything that you think.

The good news is that… you were born rich. You were born with an abundance of choices. Society stifled that.

You don’t have to believe… everything that you think.

Since there's never a "perfect time" to build financial freedom, your conception that it's too early is often just your fear.

As long as you've got a few touchpoints, once you dive in, you'll figure it out.

Old people tend to regret the things they didn't do, or didn't do earlier—not the things they did.

The best reason for becoming financially-free is so that you can buy time and finally start to be yourself.

If you don’t want to do it for yourself, do it for someone you love… because there's someone in this world that needs you to be... you.

Since all that you’ll ever have is “now”, you need residual income to buy time so that you can spend more of your life present in the “now”.

Now, if you were to ask yourself, what made the most successful leaders in the world successful, was it the capital they had, their technology, the people they knew, or their mindset? Which one of those things was it?

It’s their mindset.

See, because if you took away the capital, technology, or friendships from Jeff Bezos or Steve Jobs or Mahatma Ghandi or MLK - whoever you want to use as your leader.

If you took away those elements but they retained their mindset, they would most likely go on to regain everything they’ve got.

That’s why you must deeply explore and consider, what mindset do you have, where did you get your mindset, and what mindset do you need for the decades ahead?

Did you get it from… your parents? If so, I’m sorry to say, that’s usually a red flag… and that’s where most of us get our mindset from.

But most people never learn differently.

Realize this - and this is a little hard to say. But the truth is hard.

Your parents don’t want your success. Isn’t that ironic? Your very own parents don’t want your success; they want your safety.

They want you to have a stable, safe, say, accounting job, in a cubicle that only gives you two weeks of vacation a year - because it’s KNOWN and average.

A ship in harbor is safe; but that’s not why ships are built. Some safety is OK. But you weren’t built to live a life CENTERED on safety either.

That’s not even approaching living your dreams or doing anything ‘extraordinary’.

Most people aren’t living their dreams. They’re living their fears.

When your parents had you at birth - in the hospital delivery room - they’d be thrilled to know that you’d grow up to live your DREAMS. But on the day-to-day, they’ve got you living your fears.

Once your parents got “newborn you” home from the hospital, all the way up to adulthood, an overly fragile safety mindset often becomes pervasive… and it stifles dreams.

If you don’t take a chance, you don’t have a chance. Take the risk or lose the chance.

Don’t live below your means; grow your means. It’s in your genes… though that probably wasn’t part of the mindset of your formative years.

I love my parents. They cultivated the right environment for me. But you’ll often find an overabundance of safety from yours - especially from your mother.

Eckhart Tolle said: “Most humans are never fully present in the now, because unconsciously they believe that the next moment must be more important than this one. But then you miss your whole life, which is never not now. That’s Tolle.

Alright. But once you’ve made time, what’s next? It’s how you arrange your priorities.

We think it’s about time management - and it STARTS THERE.

True achievers in life make large blocks of uninterrupted time - notifications off, phone one room away.

But more specifically, it’s about your priority management.

For me, I know that I’m going to be living in this same body 50 years from today - just like you will inside yours, so I make FITNESS a priority in life - often at the expense of investing & business opportunity.

That’s my take - it doesn’t have to be your take. That’s an example of priority management.

First, you’ve got to play a game worth winning.

It’s been said that one question to establish focus is, ask yourself:

Are you hunting antelope or field mice?

This… idea is simple (but supremely powerful):

A lion is capable of hunting field mice, but the prize wouldn’t be sufficient reward for the energy required to do so.

Instead, the lion must focus on the antelope, which does require considerable energy to hunt, but provide a sufficient reward.

In whatever you are pursuing, are you hunting antelope or field mice? Are you focusing on the big, weighty, important tasks that will provide sufficient reward for your energy?

Or are you burning calories chasing the tiny wins that won't move the needle?

Ask yourself this question from time and time and use your answer to reset as necessary.

Always hunt antelope!

When it comes to priority management…

… you’ve got to make time for yourself and create better “nows” for yourself beyond the mandatory loads that you’re already encumbered with.

Because you’ll still have meal planning, grocery shopping, doctor’s appointments, housekeeping, scheduling, meeting, driving…

There’s not much leftover discretionary time left over to make you the you that you need to be - whether you’re trying to be the best equestrian rider that you can be because you connect with horses…

…you’re trying to be the greatest PARENT ever, cleaning up a beloved local creek, coaching your kid’s sports team… or maybe you’ll move heaven & earth to write that book that you just KNOW that you have inside of you. Get it out there!

But instead, people rationalize away their low quality of life.

If you’re working for the weekend, examine your M-F. You’re not living in the “now”.

If you call Wednesday “hump day”, you’re not living in the now.

The good guys are BRAVE enough to risk investment, commitment, marriage, being vulnerable to family members, and all those things that make the non-doers and bad guys envious. Be brave enough to study and then risk boldly.

This is sad. You’ve probably heard of stats like this before - a Pew survey from last year found that 46% of US workers who receive paid time off from their employer take less time than they’re offered. Almost half!

People rationalize away their low quality of life - actually defending living a small, scared, too-safe life.

If you need a push to fire up Google Flights, consider that you will be happier because of it.

That’s what the science says: researchers from the Netherlands found that the biggest boost in happiness around vacations came from the simple act of planning one. Then you get to anticipate it.

How important is it to build a residual income rather than work more hours? Is working more and working late the answer?

Understand… that twenty years from now, the only people who’ll remember if you worked late are your kids.

Instead, become a time billionaire. Let’s lean into this and look at what some others say.

Graham Duncan proposed the concept of the Time Billionaire. If you’ve got a billion seconds worth of wealth, that’s 31 years. He said that:

"A million seconds is 11 days. A billion seconds is 31 YEARS… I feel like in our culture, we’re almost obsessed, as a culture, with money.

And we deify dollar billionaires in a way...And I was thinking of time billionaires that when I see, sometimes, 20-year-olds—the thought I had was they probably have two billion seconds left.

But they aren’t relating to themselves as time billionaires."

That’s what Graham Duncan said.

The central point here… is that TIME is our most precious asset.

No one ever posts pictures of napping on the sofa on social media. But if you’re a time billionaire - you might consider that an ostentatious display of time wealth. Ha!

When you're young, you are RICH with time. At age 20, you probably have about two billion seconds left (assuming you live to 80). By 50, just one billion seconds remain.

But as Graham Duncan pointed out, we don't relate to ourselves as the "Time Billionaires" that we really are. Most of us fail to realize the value of this asset until it is… gone.

In his passage called On the Shortness of Life, the stoic philosopher, Seneca, says, "We are not given a short life but we make it short, and we are not ill-supplied but wasteful of it." That’s Seneca.

To me, being a “Time Billionaire” isn’t necessarily about having the actual time, but about the awareness of the precious nature of the time you do have.

It’s about embracing the shortness of life and finding joy in ordinary daily moments of beauty.

Let me introduce the “Surfer Mentality”. Yeah, the surfer mentality. When a surfer gets up on a wave, they enjoy the present moment, even though they know with certainty that the wave will eventually end.

They fully enjoy THIS wave, with the wisdom and awareness that there are always more waves coming.

There are five ways that you can apply this “Surfer Mentality” and have this awareness in your life: (1) enjoy your next wave and embrace the present moment, (2) be strategic about your positioning in between waves, (3) PASS on more waves rather than jumping at the first one that comes your way, (4) always get in the water and stop sitting on the shore, and (5) roll with the punches that life deals you.

That’s the “Surfer Mentality”

Do not become an ostrich. An ostrich will bury its head in the sand to avoid danger. A lot of humans behave the same way when they encounter new information that challenges their existing beliefs or views.

An ostrich cares more about being right than finding the truth. Do not become an ostrich, embrace new information that forces you to change your mind. That, right there, is growth.

A great, actionable way for you to GROW with the time you’ve created and the priorities that you’ve outlined is to Do something new that scares you. This is EXACTLY what you did as a kid but that you forgot how to do.

For example, when you were age 11, you swam in water over your head for the first time. It made you rise up, grow, and gain confidence. I can’t tell you what grows inside you psychologically, but…

We’re operating 200,000 year-old mental software. That’s when the modern human brain came into existence.

Our primordial brains are evolutionarily wired to see problems - to detect threats like lions & tigers - and our body still responds to those threats like they are lions.

And today, we don’t have to look very hard to find those problems. Just turn on the news or scroll social media and there they are.

And in this environment, it can be easy to let ourselves be yanked around by our circumstances.

When it comes to OTHERS - peers, family, and friends along your life journey…

You have to be strict with yourself but tolerant of others.

That’s what the stoic Marcus Aurelius wrote about in his meditations. He has these exacting high standards.

Most people don’t have the self-discipline that you do… and it’s called SELF-discipline for a reason.

It’s not a thing that you get to project onto other people. You don’t get to go around insisting that other people follow YOUR standards and your code.

You have to be encouraging and forgiving of other people because they don’t have the gift that you have. They don’t own the drive that you have. There’s even a saying in ancient Rome.

“We can’t all be Catos.” If you remember from history, Cato was the influential leader that championed Roman virtues during THEIR empire.

We have to be tolerant, and accepting and encouraging of other people. If this realization is still frustrating to you…

Another way that you can think of this, is that others never signed up to the code and standards that you have.”

Money is a tool for freedom. The best reason to accumulate wealth is to buy yourself freedom from anything you don’t want to do, and the freedom to do the things you do want to do. Money is not an end in itself. If you sit on it and never use it, you’ve wasted your life.

Money CAN absolutely buy happiness. But only so long as you spend it on upgrading and expanding the things that make you happy or in buying time, instead of using it to play status games or on fleeting experiences.

Increase the difficulty. If you’re listening to this, then your life is (probably) already on easy mode compared to the global and historical standard. You need to strategically introduce some challenges to keep yourself motivated. Don’t ruin yourself, but don’t let yourself get too complacent, either.

Investing involves risk. You’re going to lose sometimes. The good news is that you don’t have to make money back in the same PLACE where you lost it.

If something in your business or life is losing money, you don’t have to plug the hole right there at that spot. Often it’s easier to make the money back elsewhere.

It’s never the right time. Any time you catch yourself saying “oh it’ll be a better time later,” you’re probably just scared. Or unclear on what to do. There is never a right time for the big things in life: having kids, changing jobs, breaking up, getting engaged, or buying the property.

Err on the side of too early over too late. Related to that point, since there’s never a “perfect time,” it’s almost always better to do things “too early.” Your conception that it’s too early is just your fear, and once you dive in you’ll figure it out. Old people tend to regret the things they didn’t do, or didn’t do earlier. Not the things they did.

Bad things happen fast, and good things happen slowly. This is one reason why bad news seems more newsworthy - but it’s not actually more important.

It’s hard-wired within you that money is a scarce resource.

Don’t be afraid to commit. You’ve got to let go of fear about tomorrow and just get on with it.

Uncertainty is a PERPETUAL condition - it’s existed in your entire past, and will in your entire future. That’s why you feel uncertainty in the present too. Uncertainty only disappears when you die.

We all want to know the future. But the truth is, it’s easier to make decisions within your certainty of NOW rather than postpone & speculate about your perpetually uncertain future.

“Life is meant to be lived, not postponed.” Don't get so caught up trying to make a living that you forget to live a life. That's not a life well-lived.

Regretting past decisions is an utter waste of energy. Does the past exist now separate from your own thoughts? Nope… it doesn’t even exist.

Coming up - you’ll hear ANOTHER voice with a more COSMIC perspective about life and the power of “now” - it includes some sound effects to anticipate.

Then I’ll come back in for today’s conclusion. I’m Keith Weinhold. It’s Episode 500 of Get Rich Education.

LISTEN: Neil Degrasse Tyson: Life and Death - A Cosmic Perspective

That’s Neil DeGrasse Tyson on the significance of life, death, and the power of “now”.

Horace Mann said, "Be ashamed to die until you have won some victory for humanity."

Life feels ordinary. But in fact, it’s incredible that you overcame tremendous odds to have your… one… precious life.

In order to be born, you needed:

2 parents
4 grandparents
8 great-grandparents
16 second great-grandparents
You needed 32 third great-grandparents
64 fourth great-grandparents
128 fifth great-grandparents
256 sixth great-grandparents
To be born, you needed 512 seventh great-grandparents
1,024 eighth great-grandparents and
2,048 ninth great-grandparents

For you to be born today from 12 previous generations, you needed a total sum of 4,094 ancestors over the last 400 years.

Think about what they overcame… to produce you – How many struggles did they have? How many battles? How many difficulties? How much sadness did THEY have?

How much happiness? How many love stories created you? How many expressions of hope for the future? – did your ancestors have to undergo for you to exist in this present moment…

The past is history, the future is a mystery, and this moment is a gift. That’s why they call this gift, “the present”.

Spend your time where time disappears. Your work should feel like play… your passions should feel like flow… with people that make hours feel like minutes.

The more present you are, the quicker the present goes. That’s the paradox.

A full life goes fast. But in the end, time that flies… is time well spent. And a life that flies by… is a life well spent.

At least here on Earth, all you’ve got is one life and one shot.

You shouldn’t fear death. You should fear a life where you could have accomplished more that fulfills your potential and aligns with your soul.

You’re here today and gone tomorrow. You’ve got NOW to go leave your dent in the universe.

There’s no time to wait. You now have less time remaining in your life than when you started listening to me today.

All that you ever have is now - always. Don’t Quit Your Daydream!

Direct download: GREepisode500_b.mp3
Category:general -- posted at: 4:00am EDT

Mon, 29 April 2024

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

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

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

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

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

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

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

Resources mentioned:

Mid South Home Buyers' Website:

www.MidSouthHomeBuyers.com

Liz Brody’s e-mail:

liz@midsouthhomebuyers.com

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”

Top Properties & Providers:

GRE Free Investment Coaching:

Best Financial Education:

Get our wealth-building newsletter free—

text ‘GRE’ to 66866

Our YouTube Channel:

Follow us on Instagram:

Keith’s personal Instagram:

498: Will Population Decline OBLITERATE Real Estate?

Complete episode transcript:

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

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

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

Speaker Coates** ((00:01:08)) - - You're listening to the show that has created more financial freedom than nearly any show in the world. This is get rich education.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Speaker Weinhold** ((00:24:53)) - - They provided our listeners with more mortgages than anyone. It's where I get my own loans for single family rentals up to four Plex's. Start your pre-qualification and chat with President Charlie Ridge personally. They'll even customize a plan tailored to you for growing your portfolio. Start at Ridge Lending group.com Ridge lending group.com. You know, I'll just tell you, for the most passive part of my real estate investing, personally, I put my own dollars with Freedom Family Investments because their funds pay me a stream of regular cash flow in returns, or better than a bank savings account, up to 12%. Their minimums are as low as 25 K. You don't even need to be accredited for some of them. It's all backed by real estate and that kind of love. How the tax benefit of doing this can offset capital gains and your W-2 jobs income. And they've always given me exactly their stated return paid on time. So it's steady income, no surprises while I'm sleeping or just doing the things I love. For a little insider tip, I've invested in their power fund to get going on that text family to 66866.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Speaker 7** ((00:40:17)) - - Nothing on this show should be considered specific, personal or professional advice. Please consult an appropriate tax, legal, real estate, financial or business professional for individualized advice.

Speaker 7** ((00:40:27)) - - Opinions of guests are their own. Information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of get Rich education LLC exclusively.

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

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

Mon, 22 April 2024

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

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

US and world birth rates keep declining.

As population declines, per capita GDP often increases.

Richard believes that inequality will widen.

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

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

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

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

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

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

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497: Why High Salaries DON'T Create Wealth, Why Western US Homes Cost More than Eastern US Homes

Complete episode transcript:

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

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

Corey Coates (00:01:30) - You're listening to the show that has created more financial freedom than nearly any show in the world. This is get rich education.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Keith Weinhold (00:21:44) - Their minimums are as low as 25 K. You don't even need to be accredited for some of them. It's all backed by real estate and that kind of love. How the tax benefit of doing this can offset capital gains and your W-2 jobs income. And they've always given me exactly their stated return paid on time. So it's steady income, no surprises while I'm sleeping or just doing the things I love. For a little insider tip, I've invested in their power fund to get going on that text family to 66866. Oh, and this isn't a solicitation. If you want to invest where I do, just go ahead and text family to six, 686, six.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Speaker 5 (00:46:24) - Nothing on this show should be considered specific, personal or professional advice. Please consult an appropriate tax, legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own. Information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of get Rich education LLC exclusively.

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

Direct download: GREepisode498_.mp3
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Mon, 15 April 2024

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

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

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

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

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

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

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

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496: The Housing Market’s Future—Trends and Predictions

Complete episode transcript:

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

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

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

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

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

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

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

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

Let’s break this down.

People DON’T get wealthy from high salaries.

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

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

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

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

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

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

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

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

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

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

The answer is right in front of you!

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

There are two main ways:

#1 - You can launch and own a business.

#2 - Real estate.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

But learning about leverage is like… seeing the light.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Often, I use the product or service myself first.

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

For advertising information and inquiries, visit, GetRichEducation.com/Ad. That’s GetRichEducation.com/A-D

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

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

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

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

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

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

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

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

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

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

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

Bitcoin was up 68% to $70K

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

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

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

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

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

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

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

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

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

Let me demystify it for you.

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

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

New Mexico is an outlier as a cheap western state.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

DOWN BY THE RIVER:

[Play insert]

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

The East has the Great Lakes and more rivers.

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

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

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

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

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

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

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

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

The last reason is…

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

There's a reason.

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

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

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

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

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

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

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

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

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

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

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

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

Mon, 8 April 2024

Get our free real estate course and newsletter: GRE Letter

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

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

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

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

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

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

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

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

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

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

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

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

Resources mentioned:

Show Page:

GetRichEducation.com/496

Inquire about business with Rick:

CJPatrick.com

Rick Sharga on X:

@ricksharga

LinkedIn:

Rick Sharga

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

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495: How Recessions Impact Real Estate with Rick Sharga

Complete episode transcript:

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

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

Corey Coates (00:01:34) - You're listening to the show that has created more financial freedom than nearly any show in the world. This is get rich education.

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

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

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

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

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

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

You know, I'll just tell you, for the most passive part of my real estate investing, personally, I put my own dollars with Freedom Family Investments because their funds pay me a stream of regular cash flow in returns, or better than a bank savings account, up to 12%. Their minimums are as low as 25 K. You don't even need to be accredited for some of them. It's all backed by real estate and that kind of love. How the tax benefit of doing this can offset capital gains and your W-2 jobs income. And they've always given me exactly their stated return paid on time. So it's steady income, no surprises while I'm sleeping or just doing the things I love. For a little insider tip, I've invested in their power fund to get going on that text family to 66866. Oh, and this isn't a solicitation. If you want to invest where I do, just go ahead and text family to 66866. Role under the specific expert with income property, you need Ridge Lending Group and MLS for 256 injury history from beginners to veterans.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Speaker 5 (00:41:04) - Nothing on this show should be considered specific, personal or professional advice. Please consult an appropriate tax, legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own. Information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of get Rich education LLC exclusively.

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

Direct download: GREepisode496_.mp3
Category:general -- posted at: 4:00am EDT

Mon, 1 April 2024

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

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

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

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

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

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

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

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494: Do You WANT to Retire? What is Retirement?

Complete episode transcript:

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

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

Corey Coates (00:01:33) - You're listening to the show that has created more financial freedom than nearly any show in the world. This is get rich education.

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

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

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

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

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

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

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

Keith Weinhold (00:10:17) - And that way you won't miss any upcoming episodes. I only met today's guest about two years ago. We enjoyed that conversation and now we collaborate regularly. He helps provide crucial market updates that straight ahead. I'm Keith Reinhold, you're listening to episode 495 of get Rich education. You know, I'll just tell you, for the most passive part of my real estate investing, personally, I put my own dollars with Freedom Family Investments because their funds pay me a stream of regular cash flow in returns, or better than a bank savings account up to 12%. Their minimums are as low as 25 K. You don't even need to be accredited for some of them. It's all backed by real estate. And I kind of love how the tax benefit of doing this can offset capital gains and your W-2 jobs income. And they've always given me exactly their stated return paid on time. So it's steady income, no surprises while I'm sleeping or just doing the things I love. For a little insider tip, I've invested in their power fund to get going on that text family to 66866.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Speaker 4 (00:43:37) - Nothing on this show should be considered specific, personal or professional advice. Please consult an appropriate tax, legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own. Information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of get Rich education LLC exclusively.

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

Direct download: GREepisode495_.mp3
Category:general -- posted at: 4:00am EDT

Mon, 25 March 2024

Get our free real estate course and newsletter: GRE Letter

Time, health, and money are three key resources in your life. Learn about their trade-offs.

“It’s not at what age I want to retire, it’s at what income.” -George Foreman

I discuss at least three definitions of retirement:

1-The time of life when one permanently chooses to leave the workforce.

2-To remove from service.

3-When you become job-optional.

4-When you stop doing mandatory income-producing activities.

Social security, pensions, 401(k)s, and residual income from real estate and stocks are all discussed.

Compound interest is faulty. Compound leverage can help you retire young.

“After the first $2M-$3M, a paid off home, and a good car, there is no difference in the quality of life between you and Jeff Bezos.” We discuss.

I briefly cover the antitrust case against the NAR, making the 5-6% commission paid by the seller largely a thing of the past.

Rents are up 2% annually, the biggest gain in thirteen months, per Redfin.

Learn 15 reasons why single-family rentals beat apartments.

I discuss two specific addresses—one in Memphis and one in Little Rock. Our Investment Coaches help you free with these and other income properties and your strategy at GREmarketplace.com.

Resources mentioned:

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GetRichEducation.com/494

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493: Why the Fed Should NOT Lower Rates, Spartan Summit Presentation

Complete episode transcript:

Keith Weinhold (00:00:01) - Welcome to GRE. I'm your host, Keith Weinhold. Do you want to retire? What is the definition of retirement today, anyway? In fact, with just 2 or $3 million, would you be as happy as the world's richest man, Jeff Bezos? I'll break that down. Then I discuss key trends in the rental housing market today on get Rich education. When you want the best real estate and finance info, the modern internet experience limits your free articles access, and it's replete with paywalls. And you've got pop ups and push notifications and cookies. Disclaimers are. At no other time in history has it been more vital to place nice, clean, free content into your hands that actually adds no hype value to your life? See, this is the golden age of quality newsletters, and I write every word of ours myself. It's got a dash of humor and it's to the point to get the letter. It couldn't be more simple. Text GRE to 66866. And when you start the free newsletter, you'll also get my one hour fast real estate course completely free.

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

Corey Coates (00:01:33) - You're listening to the show that has created more financial freedom than nearly any show in the world. This is get rich education.

Keith Weinhold (00:01:49) - We're going to go from Andover, England, to Andover, Massachusetts, and across 188 nations worldwide. I'm Keith Weinhold, and you're listening to Get Rich education. Around here, we say that financially free beats debt free. And for many, financially free means retirement. Now, you might be far from retirement, but those with the most foresight are those that begin with the end in mind. And it can be rather dreamy for some to think about retirement and then others don't want to retire. I'm asking you, do you want to retire? Do you ever want to retire? In fact, we posed that very question to our general education audience. I've got those results that I'll share with you here later, and it is really interesting.

Keith Weinhold (00:02:41) - But let me give you some perspective. First, I think that some young people fall into the trap of daydreaming about retirement. Oh, you might want to retire someday, but look, you can't dream about it too much. You've got to live in the moment. Because if you retire a traditional retirement age, those people tend to look back on their younger years and regret the things that they didn't try when they were younger. Don't quit your day dream, but don't dream about older age too much when you're younger. With the wealth building concepts that we discuss here on the show every week, you don't have to be that old when you retire to me. What sets the stage for you being able to retire is when you reach the point of being job optional. At what point are you job optional? That is a key turning point and for you, as soon as you're job optional. You might want to retire at that point, but you don't want to retire so soon that things will be iffy on whether or not you run out of money before you run out of life.

Keith Weinhold (00:03:49) - The best way to avoid that situation is to build your residual outside of work income alongside you during your working years, and then you won't have to merely guess on if a certain lump sum amount is going to be accumulated and sufficient. Now, one definition that I like for retirement is that you stop doing income producing activities that you don't want to do. All right. That's one definition. What you've done there is that you stopped sacrificing today for some imaginary tomorrow. If you stop doing those mandatory income producing activities. Look, you've got three key resources in your life time, health, and money. When you're younger, you'll trade away your time and even your health for money. That's because you feel like you have an abundance of time and health and not much money yet. But as you progress through life continuing to make this trade, your time and your health become more scarce, resources no longer abundant ones, there will come a point in your life where working will cost you more than retiring. You don't want to get to that point.

Keith Weinhold (00:05:09) - Now. You probably see no sheets of paper with the squares that you can hang up. There's 52 boxes in a year and is divided into 90 sections, one for each year of your life. And it shows you graphically in your face how many weeks and years you really have left. And by the way, I cannot get myself to hang up one of those sheets. That is just too much of an in my face reminder of my own mortality. Okay, I'm not doing that, but what do you like to do? Do you like canoeing or reading books or running in five K races? Well, if you read five books a year and you're going to live 50 more years, let's just 250 books for the rest of your life. Now, that sounds like quite a few, but when you're done, you're done. Do you have some best friends that you see, say, once a year? Do you live a long ways from your parents and you only see them once or twice annually, or at this rate, then you might only see your friends, say 31 more times.

Keith Weinhold (00:06:17) - And if your parents are older, what if you only see them 18 more times? That might sound like quite a few, but when that's done, that is done. Now this can get a little depressing. But what I'm helping you do here is identify what's important to you in your life. A lot of people don't have any real hobbies outside of their jobs. People feel sad and unfulfilled and can never see themselves retiring when this is the case. Now, you might enjoy drinking with your friends. All right. Sure, but that's not a real hobby. Hopefully you have the ambition to know that there are a lot of things that you really want to do, and you need to find the time in order to do those things. Well, here's the good news you are the one that's in control of how much of your time on earth you spend doing those activities are spending time with those people. Now, I was chatting with one woman about retirement. Gosh, this was interesting. And she told me that she doesn't want to retire.

Keith Weinhold (00:07:23) - Okay, well, she justified her stance by saying, who wants to stay at home? And I'm thinking, who wants to stay at home? I found that a really curious answer. Why does retirement mean staying at home? Like if you don't go to work, you'd stay at home. So maybe this person didn't have any hobbies. I mean, I would think that retirement would include the time and ability to travel. Well. So retiring and staying at home or not at all identical to me. A few years ago we had financial expert Kim Butler here on the show. You might remember that really intelligent woman. She was a retirement detractor, not a fan of retirement. The definition of retirement to Kim, if you remember, is to remove from service. That was her definition, meaning that she'll no longer serve others. I'm not saying that's right or wrong. That's her perspective. Well, I think that you can still serve others in retirement. Take a leadership position at your church, coach kids baseball, volunteer at a homeless shelter.

Keith Weinhold (00:08:28) - And even if retirement does mean to remove from service, or you probably served others at a full time job for decades, probably even for most of your life. So it's okay to have others in turn serve you in retirement. Well, today I'm here asking you, do you want to retire and what is retirement and not giving you some food for thought, let me discuss some more formal definitions of retirement first before I continue here. Now if you go and Google what is retirement, the word age appears after that as a fourth word, suggesting that you might select what is retirement age. Well, the former boxer George Foreman, he said it well. He said it's not at what age I want to retire. It said what income. Yeah. The first retirement definition that you find though, is the time of life when one permanently chooses to leave the workforce. All right. Well, that's actually a good short definition. And it'll show you that the traditional retirement age is 65 in the US and a lot of other developed countries too.

Keith Weinhold (00:09:39) - But in the US today, full retirement age when you can collect full Social Security benefits is age 67. If you were born in 1960 or later, and the earliest that you can collect benefits is 62. But do you know what the average monthly Social Security check amount is today? It is $1,767. Now, that amount can vary a lot depending on the recipient type, but it gives you some idea that that is only a supplement to your other income that you've got to figure out. And a sad and paltry $1,767. I mean that right there. That may very well be a motivator to make you want to invest well elsewhere. The old standard is that retirees need 80% of the income that they had when they were working, but were more abundantly minded. Here at GRI, I'd like to think that your income could go up in retirement as you keep adding cash flowing assets. But in a recent survey of consumer finance, the mean retirement amount saved of all working age families, the complete family here, not just the individual, is just 269 K.

Keith Weinhold (00:10:58) - That's not per year as retirement income. That's just the lump sum to live off of. Now some workers, especially government employees, they have a pension. That's where you don't have to just draw from a lump sum at the end of your life, like you would at the end of your life, like you would with a 401 K. So a pension that's a predetermined livable amount that you're paid each year in retirement, it's often based on the percent that you earn during your working years, say 75%. That's why most people like a pension within a 401 K, because pensions are about the perpetual income, not the lump sum, where you just hope that it lasts. But pensions are expensive. So the private sector really started phasing them out beginning in the ninth. 80s. Really in the US retirement. What that used to mean is turning 65 and drawing a pension and Social Security. I mean, that's what you'll hear your grandparents talk about. Now for us in younger generations, remember, your 401 K withdrawals must begin between age 59.5 and 70, and you must begin paying tax on it at that time.

Keith Weinhold (00:12:13) - Now, there's been a flurry of research about advances in longevity. Some of the more optimistic ones even say that if you're currently under age 55 and you get to the age of 65 in good health, you're likely to live to be 125 plus, if that comes true or even partially true, that tilts toward not accumulating a lump sum in retirement, but having an income stream from something like income producing real estate or stock dividends. You really need to focus on that income stream. If you're going to live a few decades longer than the current life expectancy. Look, when you make the production of ongoing income part of your ongoing investment strategy, you don't need what many retirees think of as the 4% rule. You probably heard of it what the 4% rule is. That's a popular retirement withdrawal strategy that says that you can safely withdraw the amount equal to 4% of your savings during the year that you retire, and then you're supposed to adjust for inflation each subsequent year for, say, 20 or 30 years. Well, that imposes serious limits.

Keith Weinhold (00:13:28) - I mean, that is synonymous with the life deferral plan, like a 401 K, where you voluntarily reduce your income in your working years to participate in an employee sponsored plan that isn't even designed to produce income until you're older, trading away pieces of your 30 year old self to get pieces of your 80 year old self back, you're drawing down on your big pot that you have saved for retirement. And instead, if you've been adding income producing investments for a decade or more, what you won't have to draw down at the limiting 4%, you've got to, of course, figure out inflation. Those retirees that are tapping into one lump sum amount, like from an employer sponsored plan a 401 K or a 403 B, they just try to guess at the future inflation rate. That's all any of us can do. And a lot of times they safely assume 4%. Around here we talk about how the real world inflation long term is almost certainly higher than that. So if you've got income from real estate and say you even do want to have your real estate paid off in retirement, you may or may not want to pay it off since you're ten and services your debt.

Keith Weinhold (00:14:41) - Well, you know, when it comes to inflation, rents tend to stay indexed to inflation. So your residual cash flow is pretty well protected from erosion to inflation. I've got some good news. You might be able to retire substantially sooner than you think. That's because if you're age 20 or 30 or 40 or 50, whatever, most planners, they project your wealth from a lump sum that grows with compound interest or compound interest is faulty, as we know it's degraded down after you account for inflation, emotion, taxes, fees, and volatility. Luckily for you, you have more than weak, impotent, and deluded compound interest because in addition to your residual income, you're going to have bigger lump sums than others because you had compounding leverage, not compounding interest. Even if you had zero real estate cash flow in retirement and you've got leverage, you made lots of 20% down payments on properties that appreciated, say, 5% a year. That means you were leveraged 5 to 1 and you got a 25% return in that first year of each rental property that you owned and is any Gary devotee knows that 25% is one of just five ways you're paid.

Keith Weinhold (00:16:07) - This is why you can actually retire sooner than you're thinking. With help from leverage. What you've done is collapse time frames. Understand that when you're in your retirement years, most people they have a U shaped spending pattern. Yes, u shaped spending in retirement because you tend to spend a lot of money in your early retirement years. You're traveling, you're living it up, and then you get a decade or two older. You slow down, you stay at home and spend less the trough of the U. And then your expenses go up before end of life. Care. Yes, you shaped spending patterns in retirement are common. And I know I talked about slowing down there at the trough of the year, but of course you won't be slowing down. It's just that others have tended to. Now, a really interesting topic that has circulated among many lately, and I believe that this was first proposed and debated on Reddit or X, and that is this after the first 2 million or $3 million a paid off home in a good car, there is no difference in the quality of life between you and Jeff Bezos, the richest man in the world.

Keith Weinhold (00:17:29) - That's the topic. What do you think about that? 2 or $3 million is attainable. You might already be there or beyond it. And of course, this says nothing about an income stream. So let's presume that there isn't one. All right. Well, in response to this topic, Spencer here from Orlando says I strongly disagree. Private jets complete immunity to health care costs and the ability to donate sums that change lives are all heavy hitting things that you can't do with $3 million. Tug from New York says, I agree 100%. Things like vacationing on a private island or a superyacht they may be cool to experience, but these are not necessarily things I'm thinking of when I think of happiness and anonymous respondents says Bezos's 420,000 acres probably have several views. That would be my view. Glenn, from Florida, says I have a paid off 975 square foot home, a 2018 Honda Cr-V, and not much spare cash. But I do have a wife going on 49 years who loves me, so I am richer than most millionaires like Quay.

Keith Weinhold (00:18:43) - I don't know where he's from, Mike says. I disagree with the 2 million to $3 million thing. I have some wealthy friends and they say that the sweet spot is 10 million to 100 million. In this zone, you can live very comfortably, but you're also able to blend in easily enough with most of the middle class. When you eclipse $100 million, typically you're involved with something public invisible, and then security and other considerations become much more of a problem. All right, that was his take, Mike keys. And then we had a number of others point out that $2 million is not enough to fly private, which makes a big difference to your quality of life. And yes, they do have a point there. I have flown private once and there is a substantial difference. Finally, Tanner's got a good point here. He says, I agree there is no significant difference in quality of life. Having safety, security, education, some autonomy and growth potential is key. The difference between a regular vacation and a $50,000 vacation is negligible, and it is the same with cars, food, watches and anything materialistic.

Keith Weinhold (00:19:54) - That's what Tanner says. All right, well, to summarize that for you here, and this is also parallel with my belief is that I disagree with this Bezos thing, with the 2 to $3 million net worth in your necessities taken care of. There is a difference between that life and Jeff Bezos life. But remember, the claim is that there was no difference. However, that difference is not that vast. That's my opinion. And yes, one can say that no amount of money can bring you happiness, but with money, you can buy time that you can fill with happiness and those that you love. Now that you have some perspective in different viewpoints, maybe you're better able to answer that question that I asked you at the beginning. Do you want to retire? And here it is, our poll that was run on our Instagram Stories. It asked, do you want to retire and blow those words? It showed a happy couple on vacation holding hands and the result was yes, 58% of you want to retire and the nos were 42%.

Keith Weinhold (00:21:06) - If you've given extraordinary service to humanity, I say sure. Thank you for your great service to humanity. Congratulations. Go ahead and retire more straight ahead. As I discussed the most proven retire early vehicle of all time and key shifts in the real estate market, and how you can accidentally build wealth with it. Positive leverage. This is episode 494. You're just six weeks away from an unforgettable episode 500 I'm Keith Reinhold. You're listening to get Rich education. You know, I'll just tell you, for the most passive part of my real estate investing, personally, I put my own dollars with Freedom Family Investments because their funds pay me a stream of regular cash flow in returns, or better than a bank savings account up to 12%. Their minimums are as low as 25 K. You don't even need to be accredited for some of them. It's all backed by real estate and that kind of love. How the tax benefit of doing this can offset capital gains and your W-2 jobs income. And they've always given me exactly their stated return paid on time.

Keith Weinhold (00:22:19) - So it's steady income, no surprises while I'm sleeping or just doing the things I love. For a little insider tip, I've invested in their power fund to get going on that text family to 66866. Oh, and this isn't a solicitation. If you want to invest where I do, just go ahead and text family to six, 686, six. Role under the specific expert with income property, you need Ridge Lending Group and MLS for 256 injury history from beginners to veterans. They provided our listeners with more mortgages than anyone. It's where I get my own loans for single family rentals up to four plex's. Start your prequalification and chat with President Charley Ridge. Personally. They'll even customize a plan tailored to you for growing your portfolio. Start at Ridge Lending group.com Ridge lending group.com. What's up everyone? This is HGTV. Tarek Moussa, listen to get Rich education with Keith Reinhold and don't.

Speaker 3 (00:23:31) - Quit your day dream.

Keith Weinhold (00:23:43) - Welcome back. To Get Rid of Education. I'm your host, Keith Weinhold. You might want to know what I think about the ruling that was made ten days ago.

Keith Weinhold (00:23:50) - With respect to the antitrust case against the Nar. I was asked to speak on television about it. I put more about that in last week's newsletter, so I don't have too much more to tell you here. The high point is that the standard 5 to 6% commissions are gone. Sellers used to pay that completely. That commission amount was split between their seller raisin in the buyer's agent. What really happened here is that the lawsuits argue that the Nar and brokerages kept buyers and sellers out of the commission negotiation process, and that led to higher overall costs. And really, the result of this is that it should make some agents lower their fees in order to stay competitive. We should end up seeing lower sales costs when one sells a property. Some estimates are that agent commissions will be down about 30%. Perhaps half of America's 2 million agents will lead the industry. We'll see about that. But see, sellers are still going to want to get the most money for their property that they can, and they're still going to be using comparable sales.

Keith Weinhold (00:24:54) - So that's why it remains to be seen if it really affects listing prices at all. Overall, the Nar continues its waning influence in the real estate industry. Before we discuss the rental property market, you know, I find this kind of upsetting. I mean, do we need to politicize everything? Redfin recently reported that the majority of U.S. homeowners and renters say that housing affordability affects their pick for president. I mean, this is getting ridiculous. That's according to a Redfin commissioned survey conducted by Qualtrics, 3000 US homeowners and renters were surveyed. Those surveyed were worried about the lack of housing inventory and affordability. I mean, how do you really know which presidential administration to blame that on for who to give credit to? I mean, Biden did recently roll out a plan to help with housing affordability. And then, on the other hand, Trump is famously known as a real estate investor, after all. Let's talk about the single family rental market. Do you know what the typical rent range is for a single family rental in America today? Well, the John Byrnes Single Family Rental Survey shows us that most respondents report monthly rents in the $1750 to $2250 range.

Keith Weinhold (00:26:18) - There are about eight ranges here, and 54% of single family reds are in that range. So really close to $2,000. And yeah, I myself have many or even most of my single family rentals in that same range near $2,000. Rents are lowest in the Midwest and Southeast, where a lot of operators report average rents 17 to $1800, and then it almost $2,700. California rent outpaces much of the nation. And you know what? If you just heard that right there, you'd actually think that California is the place to invest and that the Midwest and Southeast or not. But it's just the opposite of that, because it's not about the absolute rent amount. It's about that ratio of rent to purchase price. And that's what makes the Midwest and Southeast the best places. And a third region that's an investment sweet spot is what I like to call the inland Northeast Pittsburgh, Harrisburg, Philadelphia, even Baltimore. Although Baltimore is getting a little coastal, it's the Inland Northeast that has the numbers that work, not the coastal northeast like New York City in Boston and those really high priced markets where rents don't keep up proportionally.

Keith Weinhold (00:27:39) - And of course, there are pockets of opportunity elsewhere, like Texas and some other markets. And note that no part of Pennsylvania is on the East Coast at all, not even Philadelphia. None of it touches the coast. I am indeed a native Pennsylvanian. You get these little geography lessons from me interspersed here at gray., Redfin tells us that rents in the US now this is both apartments in single family. Now we're just talking about single family. Earlier rents are up 2% annually. That's actually the biggest gain in 13 months. Yes, a pretty modest increase there as rent amounts have just been really pretty steady for the last year. And so much new apartment construction took place last year that there is quite a bit of apartment supply to soak up in certain metros, and you might even see concessions. On some of these. I mean, if a new apartment complex is just finished, you know what's sitting there? 250 vacant units all at once. So you're seeing some apartment owners try to entice renters with one month's free rent for a 12 month lease, for example.

Keith Weinhold (00:28:51) - The single family rental market is in better shape from a demand supply perspective than apartments are. See, what's happened, though, is that with the Airbnb market becoming both oversaturated in some markets and then cities cracking down on short term rentals in other markets, it's there's some STR owners have turned their single family homes from Airbnbs over to long term rentals, and that brought a little more supply out of the long term rental market. More places have bans on short term rentals, and gosh, I just had an awful short term rental experience last month when I stayed at one. I usually go for hotels and that's what I'll be doing for a while again,? Now, Adam data, they have some great stats for us here. They reported that rental margins are increasing in about two thirds of the nation. That's some good news. But the increase is still pretty small. And they show us the top five counties for single family rental yield. And they used three bedrooms in their single family rental yield comps. And they did it in larger markets of a million plus.

Keith Weinhold (00:30:03) - All right. So these are counties of a large population where you're getting the best cash flow today basically on single families. Fifth, and I'm surprised that this is Riverside County California. That's the Inland Empire. You sure want to check landlord tenant law in a highly regulated place like California. Fourth is Cook County, Illinois. That's Chicago. Third is Coahoma County, Ohio. That's Cleveland. The second best single family rental yield is Allegheny County, Pennsylvania. That's Pittsburgh. And first number one for rent yield on single families is Wayne County, Michigan. That's Detroit. We've discussed Detroit on the show before. It has a stigma. It seems like the only way to make the stigma disappear is to visit. And you're going to find Investor Advantage properties in a lot of those counties through our gray investment coaches here at Gray marketplace.com about single family rental homes. Now, some asset types like apartment buildings or perhaps self-storage units, they have economies of scale and some other advantages over single family rentals. But single families are a favorite.

Keith Weinhold (00:31:18) - They might have the best risk adjusted return anywhere today, even after 2008 Great Recession, those that had bought for cash flow persevered and even thrived. In fact, single family rentals have at least 15 distinct advantages over a larger apartment building, some that you probably never thought about before. And as I discussed this, don't think that I dislike apartment buildings. Okay, it's likely not the most advantageous time in the market cycle for apartments. It's tenant quality. Single family rentals attract a better quality of tenant. They take better care of the premises. Then there's the neighborhood. Single families tend to be in a better neighborhood. Then there's appreciation. Properties tend to appreciate better over time. Fourthly, there's the school district. They're more likely to be in a better school district. Then there's the retention. Tenants stay longer, creating less vacancy expense. And the aforementioned neighborhood and school districts are why they stay. And you've got common areas. A lot of people don't think about this single families. They don't have these common areas to clean and maintain.

Keith Weinhold (00:32:29) - Apartments have hallways, stairs, larger rooms, and common outdoor grounds that a custodian needs to service. And this is another overlooked profit drag that apartment investors miss in their PNL in their profit and loss projections. And I miss this expense on my first ever apartment. By then, there's utilities in single family rentals. Tenants often pay all the utilities. They even care for the lawn. The larger the apartment building is, the more likely you'll, as the owner, be the one paying utility costs like heat, electricity, water, wastewater, and landscaping. Then there's divisibility. What if you've got property that's not performing the way you hoped it would? Well, if you had ten single family rentals, you can sell the 1 or 2 that are not performing. And with a ten unit apartment building, you must either keep or sell all of the units. It's not divisible. Fire and pestilence. You know, fire and pests. They are more easily controlled in single family rentals where there aren't common walls, even if you're at.

Keith Weinhold (00:33:34) - Ensured these diffuse conditions. They often affect multiple units and families in larger complexes. Financing is a big deal. Income. Single family rentals. They have both lower mortgage interest rates and lower down payment requirements than apartments. You can secure ten single family rental loans if you're single, 20 if you're married at the best rates and terms through the GSEs, the government sponsored enterprises Fannie Mae and Freddie Mac, with 20% down payments and apartments, rarely, if ever, have 30 year fixed rate terms like 1 to 4 unit properties do, and you can get more than 10 or 20 of them. But the financing terms are not going to be as good. And what about vacancy rate? That's true that if you're a single family's vacant, your vacancy rate is 100%. If your fourplex has one vacancy, then your vacancy rate is only 25%. But the same is true if you own four Single-Family rentals in one is vacant. Then there's management. If you hire professional management, your manager would likely rather deal with higher quality single family residence.

Keith Weinhold (00:34:44) - If you're self-managing, this is a demographic that you would probably rather handle yourself to supply and demand. There aren't enough low cost single family rentals that make the best income producing properties. Demand exceeds supply, and this is going to continue in both the short and the medium term. Then there's market risk. This is another overlooked criterion. Yes, criterion. Does anyone even know that the singular of criteria is criterion?, you've got to keep your properties filled with rent paying tennis. They have jobs. So if you think you're going to be able to buy ten rental units in the near future with your tenured apartment building, that's only going to be in one location, leaving you exposed to just one geographies economic fortunes instead with, say, ten single family rentals, you could have four in little Rock, three in Dallas and three in Birmingham. And then your exit strategy, that's an important consideration, especially for newer investors years down the road when it's time for you to sell your income property, hopefully, after years of handsome profits, there's a greater buyer pool for your single family then there's going to be for your apartment building.

Keith Weinhold (00:35:58) - More buyers can afford the lower price, and then, unlike apartments, you even have access to a pool of buyers that might want to occupy your property themselves. To live there as an owner occupant, there might even be your current tenant that buys it from you. So those are some of the attributes of single family rental homes. Again, I really like apartment buildings too. I could go on with more advantages for apartment buildings. If you've been meaning to grow your portfolio, you know when you have this information, don't let it be like two well-meaning friends that meet at the gym. And then they say, hey, we should grab lunch sometime. You know what? That is a nonstarter. You got to put something on the calendar to make something happen. You can't make any money from the property that you don't own. You can just copy me and buy the same types of properties in the same places where I buy. Get pre-qualified for a mortgage loan and we'll help you find property. We talked about retirement earlier.

Keith Weinhold (00:36:58) - I mean, the earlier you get into real estate, the better off you're going to be. From that perspective, the best time is today as you get leverage working for you and inflation profiting working for you. What's going on today is with this lower affordability, first time homebuyers, they have often now got to spend years saving for a down payment while they rent. And in the meantime, you can solve their housing problem. They become your renter in these freshly renovated homes or new build homes. And I'll even give you two addresses before we leave. Today. Though in today's tightly supplied market, you know, sound income properties can seem more rare than a pop up. And that's actually useful. Supply is short overall, but because of our long standing relationships, we have a good selection right now. This first of two properties is on Crane Road in Memphis, Tennessee. It's a single family rental. The purchase price is $169,500. The rent's 1253 bed, two bath, 1265ft². The year built is 1964.

Keith Weinhold (00:38:12) - Ask your investment coach about the fresh renovations there. And the other one is in little Rock, Arkansas. And I think I told you that when I made my little Rock real estate visit, I had some extra time and I visited the Bill Clinton Presidential Library, which though, although it's called a library, presidential library, is there really like museums a tribute. To the past president. What I don't think that I did share is that in the entire Bill Clinton presidential library, I could not find one mention of Monica Lewinsky. Not one shred of evidence that that ever took place. Nothing.

Speaker 4 (00:38:50) - Let me tell you something. There's going to be a whole bunch of things we don't tell Mrs. Clinton.

Keith Weinhold (00:38:58) - Nothing whitewashed. All the evidence at all.

Speaker 5 (00:39:01) - Nothing there.

Keith Weinhold (00:39:03) - This property is on Duncan Drive in Little Rock, Arkansas. The single family rental has a purchase price of 117 nine. Rent is 975. Three bed, two bath, 888ft². In the year it was built was 1967. So these are some of the lower cost properties that you find at Gray Marketplace.

Keith Weinhold (00:39:25) - If you prefer brand new builds, brand new construction, we can help you with those two. You typically can't find these deals on public facing platforms that are broad like the MLS or Zillow, and it's completely free. Contact your gray investment coach and learn about these properties. Rehab details and others like them. Learn about their occupancy status and more. And if you don't have a coach, pick one. They'll help you out at Gray marketplace.com. Until next week. I'm Keith, landlord. Don't quit your Daydream!

Speaker 6 (00:40:02) - 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 yet Rich education LLC exclusively.

Speaker 7 (00:40:30) - The preceding program was brought to you by your home for wealth building. Get rich education.com.

Direct download: GREepisode494_.mp3
Category:general -- posted at: 4:00am EDT

Mon, 18 March 2024

Get our free real estate course and newsletter: GRE Letter

I state the reasons why I DON’T believe that the Federal Open Market Committee should lower interest rates. Rates are currently normalized.

Watch the full Spartan Summit Presentation here. The first half is played on this episode.

President Biden is trying to help the housing market’s poor affordability and undersupply.

Fed Chair Jerome Powell made recent remarks on the real estate market. He emphasized the lack of supply.

High rates = strong economy

Low rates = weak economy

Lowering interest rates to zero is artificial and introduces distortions in an economy.

If we have a recession, we need “rate cut ammo” in order to make cuts at that time.

Lowering rates also sets up an inflationary environment. That’s bad for society, but leveraged income property investors benefit.

A “Fed pivot” means that the FOMC changes from raising rates to lowering rates, or vice versa.

Resources mentioned:

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Freddie Mac mortgage survey:

https://www.freddiemac.com/pmms

Mortgage News Daily mobile app

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RidgeLendingGroup.com or call 855-74-RIDGE

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492: Inflation is an Immoral Force

Complete episode transcript:

Keith Weinhold (00:00:01) - Welcome to Greece. I'm your host, Keith Whitfield. President Biden tries to help the housing market. Everyone wants to know when interest rates will be cut. I'm asking, why would we cut rates anytime soon? Yes. Some fed talk today and a lot more on get rich education. When you want the best real estate and finance info. The modern internet experience limits your free articles access, and it's replete with paywalls. And you've got pop ups and push notifications and cookies. Disclaimers are. At no other time in history has it been more vital to place nice, clean, free content into your hands that actually adds no hype value to your life? See, this is the golden age of quality newsletters, and I write every word of ours myself. It's got a dash of humor and it's to the point to get the letter. It couldn't be more simple. Text 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.

Keith Weinhold (00:01:15) - Make sure you read it. Text gray to 66866. Text gray 266866.

Corey Coates (00:01:27) - 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 (00:01:43) - Welcome, Jerry from Bowmanville, Pennsylvania, to Louisville, Kentucky, and across 188 nations worldwide. And Keith Wayne Holden, I'm grateful to have you here with me for another week. This is get rich education. I'm about to discuss the case for not lowering interest rates, and you'll hear a clip of Jerome Powell commenting on the real estate market shortly. But first, President Biden recently made a state of the Union address, and he unveiled his plan to help the Undersupplied housing market. Part of the plan was to help the buyer side the demand side with incentives, which I'm not sure that we need the support over there on that side. And now that would juice real estate prices. More on housing supply side. Biden's plan creates a $20 billion fund to build more rental housing and kill some construction restrictions. Okay.

Keith Weinhold (00:02:35) - Yeah, that's the key part of the plan. And that's more helpful. Help that supply side. Perhaps the most interesting part of the plan is a $10,000 credit that's meant to incentivize people to sell their starter homes. That's our president on housing. Let's pivot over to Club Fed. Yeah. Welcome in to Club Fed. There's no cover charge for some reason Janet Yellen still hanging around chaperoning. And she still looks like my grandma. Earlier this month, Fed Chair Jerome Powell acknowledged that the commercial real estate loan problems could cause manageable problems for regional banks, possibly for years. I find it interesting that he uses the word manageable when acknowledging problems on the commercial side. I mean, we'll see, but that kind of reminds me of one of Powell's predecessors, former Fed Chairman Ben Bernanke, in 2007, saying that the subprime loan problem was contained is the word that he used. And we all know that. I know the mortgage meltdown contagion of 2008 was anything but contained. Today, when we talk about Powell and interest rates back around 2021, he got beaten up pretty badly for not acknowledging rising inflation sooner.

Keith Weinhold (00:03:56) - But he's brought inflation down to about 3% without a recession. So some credit is due there, but not too much credit because the game's not quite over. And it took that torrid set of interest rate increases where they climbed a cliff in order to quell inflation. And that already hurt a lot of people, including those erstwhile commercial real estate people in their loans that jumped up to a higher interest rate. Now we're talking about interest rate policy. Let me give you something that's easy to remember. High rates mean a strong economy. Low rates mean a weak economy. With that in mind, let's look at where we've come from. And then we'll look at the future. A lot of people got drunk with easy money starting 15 years ago, because it was nearly free to borrow an interest rate of zero at the federal funds level. That gives you no incentive to save and more incentive to borrow and spend. Well, the federal funds rate was zero from 2009 to 2015 to get us out of the Great Recession.

Keith Weinhold (00:05:04) - And then it was zero again from 2020 to 2022 to help lift us out of Covid. That's the past since the federal funds rate, which a lot of other interest rates are based off of two since it quickly shot up starting two years ago, it's now been a full eight months since rates have moved at all. They haven't budged since July of last year. So that's where we are now and I'm fine with them staying here for a while now. Jerome Powell recently testified to the House Financial Services Committee. Let's listen in to him discuss real estate as he's questioned.

Jerome Powell (00:05:44) - The housing market is in a very challenging situation right now. You had this longer run housing shortage, but at the same time, you've got a bunch of things that have to do with the pandemic and the inflation and our response with higher rates. So you you have a shortage of homes available for sale because many people are living in homes with a very low rate mortgage that they can't afford to refinance. So they're not moving, which means the supply of regular existing homes that are for sale is historically low and very low transaction rate.

Jerome Powell (00:06:14) - That actually pushes up prices of of of other existing homes and also of new homes, because there's just not enough supply. The builders are busy, but they're running into, you know, all kinds of supply issues still around zoning and, and workers and things like that. So, so it's quite challenging. And of course, rates are high. So people who are buying a lot of the buyers are, are cash buyers or able to actually pay without a mortgage because mortgages are expensive, I will say. The first problem. The longer run problem of supply is a longer run problem. The other problems associated with low rate mortgages and high rates and all that, those will abate as the economy normalizes and as rates normalize. But we'll still be left with with the housing market nationally where where there's a housing shortage.

Keith Weinhold (00:07:02) - That's Jerome Powell on real estate. And I'm surprised that he said rates are high. Do you know what the long run federal funds rate is? It is 4.6%. That's the average. And currently it is at 5.3% where it's been for a while.

Keith Weinhold (00:07:18) - So it's not that much higher than average. The 30 year mortgage long run average is 7.7% for Freddie Mac. And that's been hovering around 7% for months now. So therefore both key rates are close to normal today. But despite that fact, seemingly everyone is waiting for the fed pivot. And what the fed pivot means is when they reverse their monetary policy stance. Meaning when they start lowering rates again after the long increase cycle that we're coming off of. Well, I'm here asking why should the fed pivot in lower rates since they're near normal now? All right. Let me give you some real perspective here. Look I'm going to describe a scenario to you and tell me what you think about this. Imagine a dreamy bygone era where there happened to be this period that saw a strong national labor market, plenty of jobs, steady GDP growth, rising wages and inflation a little above normal. All right, now that you're done imagining that cloudy slice of economic Americana. Pretty rosy scenario. Well, then you might consider raising rates in a situation like that to help cool off wage and price inflation.

Keith Weinhold (00:08:37) - Well, you know what I just did? I actually just described to you where we are today. That's what today's conditions are are. Yet there's still talk of lowering rates later this year. And now you might see why I'm questioning that because the economy doesn't need the help. Sure enough, in front of that same committee, Fed Chair Jerome Powell and other fed officials, they did say that they expect interest rates to come down later this year. I hope they're not doing that for political pressure or to try to reassure the stock market. Those would not be good reasons. And dropping rates to zero at the first sign of a crisis that shouldn't become a habit. Because, look, before the 2008 crisis, when they dropped from the zero, going all the way back to at least the 1950s, maybe longer rates were never zero. That entire time, see if the fed just steps back and doesn't touch rates for a while, then it's all the longer that more free market forces can prevail. I don't know that we need to constantly tinker with rates, like a greasy guy crawling under his classic car in his garage and tinkering around with it.

Keith Weinhold (00:09:52) - Another reason the fed should lower rates, and is because it needs to hold on to some rate cut ammunition in case there's a recession. Because in a recession, one of the best tools that the fed has to cool it off is by lowering rates in order to incentivize investment in a slow economy. But see what happens. If you use up all your ammo, you already start lowering it and you're already near zero. And then we have a recession. I don't know that America is ready for negative interest rate policy like some other nations have tried. And by the way, if you earn a negative interest rate, that means that if you park your money at the bank, you have to pay them interest rather than the bank paying you interest. They get the use of your money and you have to pay them for parking it there. That's a negative interest rate. Well, recessions have a strong correlation with lowering rates. I mean, just look back historically again, history over hunches. But you know, if you don't follow this stuff, the short story of what's happened the past several months is that interest rate cuts keep being delayed because of stubborn inflation that just won't fall down to the Fed's desired 2%.

Keith Weinhold (00:11:06) - And Powell also recently said that he needed just a bit more evidence that inflation was coming back down to normal levels before he'll reduce rates, although we're not far from it. That's exactly what he said. Now, if rates go back down and it's probably when rates go back down, look for the housing market to break loose. The interest rate lock in effect will wither away, property affordability will improve, and there's a good chance then, for a strong upward jolt on property prices on those values. Last year, the. There were some studies done and it was interesting. It showed that 5.5%, that is the magic mortgage rate level that makes the real estate market want to really transact. But this year, with rates that have stayed higher longer, surveys say that level is now up into the high fives. And there is another factor. As interest rates drop, the cost of maintaining our national debt also decreases. That is part of the calculus two. Well, if you're a fed watcher, a fed speak geek, you are in luck.

Keith Weinhold (00:12:15) - Because though it's not really much of a spectator sport, and the parties at Club Fed and all their PhD economists really aren't all that lively, if you're so inclined, one of the Fed's eight annual meetings where they announce any interest rate changes happens in just two days, and then the next two meetings conclude May 1st and June 12th. If you like to track rates, especially if you're perhaps in the mortgage loan process right now, my favorite website is Freddie Mac. The mobile app that I use is the Mortgage News Daily app, coming up here on a future episode of the show. Retirement. Some wanted, some don't. Real estate might give you an early retirement option, but I'm asking the question do you want to retire? Do you ever want to retire? We're going to go deep on that. And then what even is your definition of retirement today? You could learn something about yourself on that upcoming episode about retirement here. Speaking of spectator sports,, no, this is really one either. But you could have gotten on a jet and paid for a ticket to watch me speak.

Keith Weinhold (00:13:23) - Or you can listen free next to part of the recording of that presentation of mine at the Spartan Summit from earlier. They had me kick off their event. I was their opening speaker, and I share some things with that audience that really shake people up that they've never heard before. You will hear it both at new material as we play this and some things that you've heard before here on the show. But even those things I say differently in a format like this. So straight ahead, it'll be wealth mindset first and then the real estate investing fundamentals. If I could condense the best gray content in principles into less than an hour, you know, that's pretty close to what this presentation is. You hear about the first half of it coming up straight ahead. You're listening to get Rich education. You know, I'll just tell you, for the most passive part of my real estate investing, personally, I put my own dollars with Freedom Family Investments because their funds pay me a stream of regular cash flow in returns, or better than a bank savings account, up to 12%.

Keith Weinhold (00:14:31) - Their minimums are as low as 25 K. You don't even need to be accredited for some of them. It's all backed by real estate and that kind of love. How the tax benefit of doing this can offset capital gains and your W-2 jobs income. And they've always given me exactly their stated return paid on time. So it's steady income, no surprises while I'm sleeping or just doing the things I love. For a little insider tip, I've invested in their power fund to get going on that text family to 66866. Oh, and this isn't a solicitation. If you want to invest where I do, just go ahead and text family to six, 686, six. Role under this specific expert with income property, you need Ridge lending Group and MLS 42056 in grey history, from beginners to veterans. They provided our listeners with more mortgages than anyone. It's where I get my own loans for single family rentals up to four Plex's. Start your pre-qualification and chat with President Charlie Ridge personally. They'll even customize a plan tailored to you for growing your portfolio.

Keith Weinhold (00:15:45) - Start at Ridge Lending group.com Ridge lending group.com.

Speaker 4 (00:15:55) - This is Hal Elrod, author of The Miracle Morning. And listen to get Rich education with Keith Weinhold and don't Quit Your Daydream.

Speaker 5 (00:16:16) - It is with great pleasure that I get to introduce you to our first speaker for today. He is the founder of get Rich education and host of the popular get Rich education podcast. His show has nearly 3 million listener downloads from all across the world. He also actively invest in apartment buildings, single family homes and agricultural real estate. He is a member of the Forbes Real Estate Council, and his work regularly appears in Forbes, Business Insider, and Rich Dad Advisors. Today, he's taking us back to the basics to discuss why real estate is such an attractive and solid investment option for those looking to find their own financial freedom. If you've listened to the grit Rich education podcast, then you've heard him speak. But today we are so thrilled that he's kicking off our second annual Spartan Summit. Ladies and gentlemen, here's Keith Reinhold.

Keith Weinhold (00:17:13) - Hi, my name is Keith Weinhold.

Keith Weinhold (00:17:14) - I am the founder of get Rich education. My presentation is called simply Why Real Estate? Because if you don't know why you're doing something, then you really won't care about how. And I'm really pleased to be first up here at the Spartan Summit, you're going to hear some things that you've never heard before today. For example, compound interest does not build wealth. Getting your money to work for you does not build wealth in the real world. And real estate investors, one of the first things they need to do is actually stop looking at property. So what is this financial heresy that I'm talking about? Well, I think it's going to be pretty clear to you in less than an hour's time here. It all starts with you thinking differently. You really need to open yourselves up. And I think you start to have the realization that any outsized thinker or doer, over time, did think outside the box to have that outsized impact, whether that's Thomas Edison or Jeff Bezos or Sara Blakely or Warren Buffett, they all dared to think differently.

Keith Weinhold (00:18:15) - And if you're not getting the results that you want in life, you know, maybe a great question to ask yourself is, am I thinking differently enough when you come of age in the world, whether you finish high school or college or whatever it is, you probably never really had this vision for yourself, or you're intentional and you say, yeah, I can't wait to go out there and live a small life. But then you know what? That's exactly what everyone does. Everyone goes out and lives a small life. So with thinking differently, you know, Mark Twain's got some great quotes about thinking differently. Mark Twain said, as soon as you find yourself on the side of the majority, it is time to pause and reflect. Absolutely love that for Mark Twain. Mark Twain also said one of his lesser known quotes is go out on a limb. That's where the fruit is. Yeah, absolutely. Love that one. So being a conformer does not build wealth or does not have a substantial positive impact on other people.

Keith Weinhold (00:19:16) - And you know, I wouldn't suggest that you think differently or do something differently if I weren't doing that myself. I don't know that I've had the outsized impact of some of those visionaries and inventors that I mentioned earlier. I probably haven't had as many years on this earth yet as them either. But one thing I did that was different is years ago I moved from Pennsylvania, where I was born, raised, and lived much of my life to Anchorage, Alaska. Well, that was deemed by Pennsylvanians and a good part of my peer group is a strange and unusual thing to do. But I knew that a place like Anchorage fit my interests for skiing and mountaineering because I had vacationed there. That was the place for me. The first ever home that I bought of any kind. I was only a rent paying tenant up until the day I bought a fourplex building where I lived in one unit and rented out the other three. That was pretty strange. I didn't start with a single family home. I quit my job, my good paying day job with benefits for residual income from real estate.

Keith Weinhold (00:20:14) - Another strange thing to do. I launched the get Rich education podcast in the year 2014. Kind of weird talking to myself in a little room all by myself. A lot of people didn't understand what I was doing then, so those are just some examples of some different things I've done. You know, you're different things are probably going to be different, but you really don't want to be a conformer if you think about it, high school was the place where you were rewarded for fitting in. But when you become an adult, really you get rewarded when you stand out and you don't be that conformer well, we talk about my presentation called Why Real Estate? We're really taking it from philosophy all the way through to the numbers here. And years ago, I would have loved to know why real estate made ordinary people wealthy. You know, an interesting thing. I'll just tell you, when I bought that first fourplex building, I didn't even know what terms like cash flow and equity meant. I did not even know the meaning of those terms.

Keith Weinhold (00:21:13) - And here I had owned a. Substantial building a $295,000 fourplex, which is a lot for me when I was working a day job and I bought it, and I think as a layperson before I bought that building and got down this road, I kind of thought, now, how could real estate possibly make people wealthy? Because real estate only appreciates at the at about the rate of inflation over time. That's about all it does. And I found that that part's true. And then real estate, it has the elements working on it from the outside. And it has tenants like working on it and wearing it down and degrading it from the inside. So how could real estate possibly be a good investment? I didn't understand that. I tell you, it's really important for you to learn from someone that's actually doing it. That's inside and doing this thing. I'm about as active as real estate investor could possibly be. I own Single-Family rental homes, up to larger apartment buildings, even some agricultural real estate. So it's important to learn from someone that's doing it.

Keith Weinhold (00:22:16) - And this presentation is really what my ears have shown me. And we talk about how you have to think differently and be opened up. You know, interestingly, we're in what people call the information age. We have been for decades this information age. But I like to say we're really in the affirmation age because most people would rather be affirmed and comforted in what they already believe, rather than get informed with information, because it kind of shakes you up a little bit, just like you're going to be shaken up today. So I would say, don't only seek affirmation, which is what most people do, seek information as well, and then make up your own opinion. What is wealth? You know, we kind of begin with the end in mind. It's ask yourself what is? I think that there are a lot of different definitions for that. I mean, money's got to be one of the first things that come to mind. And we are talking about financial betterment here. But, you know, it seems like people that want material things more than experiences, it seems like a lot of those people that want material things get knocked and get criticized.

Keith Weinhold (00:23:21) - I don't know, like I would rather have experiences than stuff. But really the abundance mentality is why not have both experiences and stuff if they're both easily within reach? Because they really are. But I think really the best definition of wealth, it's one that I've never heard criticize once in my life is freedom. Having the ability for you to do whatever you want to do whenever you want to do it. Real wealth is having that time freedom and not having to have a job. Being job optional, you can continue to go if you want to. Wealth really is freedom. So let's talk about money and freedom and what freedom really isn't. I've actually got a really nice proposal for you. Just imagine this. Imagine you're 20 years old. I'm talking to the 20 year old version of you. I'm going to tell you that I want you to mow my lawn for me regularly, and I am going to pay you $114 an hour to mow my lawn. Pretty amazing, right? Like, doesn't that sound incredible? Yeah, that sounds like a good deal.

Keith Weinhold (00:24:29) - You'd probably be pretty excited about that. Maybe even now you'd be excited about that. Not just the 20 year old version of yourself. Sounds amazing, but could you ever really get wealthy off that? Probably not. Probably not. Because in fact, you would have to work every single hour in a year, all 8760 hours in a year just to make your first million bucks. And that ain't happening in this scenario is completely implausible. No one would really pay that much to mow the lawn, most likely. And you couldn't work every hour in a year. You couldn't eat, you couldn't sleep, nothing like that. So it's really numbers like this that I think kind of slap someone in the face if they think they can just hustle and grind their way to wealth. I really don't think that's the best way. In fact, what I would share with you is that this is the exact opposite of being wealthy. This is the opposite of growing rich in your sleep, because you have to continue to trade your time for dollars.

Keith Weinhold (00:25:32) - In order to make this work, you need to continue to sell your time for money in order to make this work. And then really, what happens when you come of age and get older and you're probably not mowing lawns for money anymore. You end up in a place that looks kind of like this. Okay? And this is the workplace. What happens in the workplace? I like to say the workplace is where you pretend to work and your employer pretends to pay you, but there's probably a pretty good chance, and I would probably call this a pre-COVID workplace. But, you know, you probably did spend most of your working years so far in a pre-COVID workplaces. People were packed in pretty tight right there that I think,, but don't worry about being in the workplace. You've got the commute to relax anyway, right? It shouldn't be so bad. You're grinding, trading your time for dollars. But also this worker here, they're doing something else that the lawn mower didn't do. Okay. We're going to say that you mowing the lawn that classified a poor person.

Keith Weinhold (00:26:31) - You had to work for money. But the middle class person here, they're also working for money. But they do have a better and higher use of their investing dollars. They're also getting some of their money to work for them in something like a 401 K or a 403 B, or a thrift savings plan, or an IRA or a 457 plan or something like that. So the middle class person here, they get some of their dollars working for them. That's significant. But look, here's the real point getting your money to work for you doesn't build wealth. And all these middle class people here, they think there couldn't possibly be anything better than me getting my money out there working for me. So I'll just leave it there. It can't get any better than having my money work for me. Well, that's not true. And I find it to be a real conundrum and paradox that people will spend tons of time learning about how work works. They spend zero time learning about how money works, but yet money is the only reason that they even go to work, which is really unusual to me.

Keith Weinhold (00:27:36) - So getting your money to work for you does not build wealth. Now, that doesn't sound too bad on the surface, but if you think about a 10% return over the long term from the S&P 500, which is about what you could expect, most people don't even consider the five deleterious drags on that 10% of inflation and emotion and taxes and fees and volatility, all five of those simultaneous drags. Now, I think some of these are easier to explain and understand than others. For example, if you have a 10% rate of return and 3% inflation, which is a long term historic term, you're already down to a 7% inflation adjusted rate of return. We haven't even subtracted out those other four things yet, and I like to look at things in really long timeline. So let's take a look at some long timelines with some returns you can expect. And therefore I also like to look at inflation in a long timeline. We'll call it 3% inflation. You've got to beat inflation substantially in order to have any real return.

Keith Weinhold (00:28:39) - And things like stocks mutual funds, ETFs just don't do it. So let's look at long timelines of let's say over 100 years here. I talked to you about the drag of inflation. Let's talk about the drag of volatility. This is little understood. Stocks are quite volatile. They go up and down. They're choppy where real estate is a substantially smoother ride. So let's look at two different lines here on this graph okay. Over the last 120 years since about the year 1900, the stock market has averaged roughly that 10% return, 6% from capital appreciation and 4% from dividends. So therefore, the Green Line, this shows capital appreciation. You're probably pretty used to seeing this. The compound return. This looks thrilling. Your mutual fund advisor loves to show you this line. This line goes like exponential. Like, who wouldn't want some of that, right? Some even believe Einstein was purported to say that compound interest is the eighth wonder of the world. So what's wrong with it? Where does it break down? Okay, well, I'm going to show you a second line.

Keith Weinhold (00:29:46) - And both of these lines show a 6% return from the year 1900, more than 120 years of returns. So the green line is what you think you got. But what did you really get with this 6%, quote unquote compounded return? You don't get this. You get this? That's what you really got. This is the deleterious effect of volatility on stock returns. You're like whoa, whoa wait. Well why why did that happen? How did that happen? The difference here is that whole effect of, let's say you have a $100 stock and it loses 50%. Now it's down to 50 bucks, but it gains back 50% the next year. Now it's only up to 75. So you've gone from $100 down to $75, even though you lost 50% in year one, say, and you gain 50% in year two. So it's really a mathematical problem. Another way to say it is that time spent making up previous losses is not the same as growing your money. It's not the same as compounding your money.

Keith Weinhold (00:30:51) - In fact, the tip of the blue line, the end of it there. Today's dollars. That's only 38% of what you get at the tip of the Green Line at what you expect to get. So a lot of investing has to do with expectations. If you expect a green line and you only get the blue line, that's when you end up like this. You know, sort of these stereotypical stock kind of photos when people can't pay the bills. And the interesting thing is we've been in a 401 K based world for 35 to 40 years now, where that's sort of the norm. People continue to end up like this, but yet they still get into 401 K's, and think getting their money to work for them is a way to build wealth. We're here and we're talking about why it isn't and that is the problem. And compound interest and compound interest does not bail people out of their income and savings problem either. Four out of five people have less than one year's worth of income, save for retirement.

Keith Weinhold (00:31:48) - This is why we have a retirement crisis today. You can't count on compound interest alone. So I would like you to imagine another pretty dreamy scenario for yourself. Okay. And this this is a pretty important exercise. This is some better news for you. I want you to think about how much money you think you're going to make, both earned and through investment returns your entire life. We'll say it's inside this vault right here. Okay. And the reason that this is some, some better news is, you know what? If you're in this room, the chances are that you're going to have a greater net worth and greater residual income than other people will. Because you've shown up here, you've shown that you're interested in this. And a lot of people, they don't think about inflation and they underestimate their life's earnings. So let's say that your entire life's net worth, accumulated assets would be the way to say it. Let's say your total accumulated assets are coming up to $8.5 million. How's that sound? $8.5 million.

Keith Weinhold (00:32:58) - That sounds pretty good, doesn't it? Wouldn't that be amazing? Now just imagine this. I'm going to give you all $8.5 million at one time. You're going to receive this all at once. How would that feel like? Wouldn't that be amazing? How fast are you going to quit your job? Hopefully you at least give the two weeks notice. Where are you going to go on vacation? Are you going to have time to care for your loved ones now, or be a volunteer at habitat for humanity? Or finally have time to be a deacon at your church? Or do whatever is important to you because you are job optional. Now with this 8.5 million delivered all at once. But wait, here's the thing I didn't tell you when the 8.5 million is being delivered to you all at once, it's all going to be delivered to you on the last day of your life. That's when you're going to get it. What do you do now? I guess you're not going to do around the world trip anymore, right? You're just saying your goodbyes to people.

Keith Weinhold (00:33:55) - It's the last day of your life. All right. What if you got 80% of this amount, then at age 80, would that be a little better or 70% at age 70? Would that be a little better? So my point is, timing matters. I don't know, what can you really do if you get 70% of it at age 70? You know, maybe when you're 73, that's the last year you can really paddleboard very well because you've had six knee surgeries by that or something. So timing really matters. So you really want to be invested in something that gives you an income stream that provides liquidity to you over time. You really ideally most want this sort of lifestyle smoothing effect where they get this income metered out to them. So liquidity really, really matters. And what helps achieve this smoothing it is those income streams. In fact, I would go as far as to say that the standard advice that you hear out there from people invest for your future, period. I'd actually say that's bad advice or incomplete advice.

Keith Weinhold (00:35:04) - Why would you only invest for your future when you can invest now for a stream of income now and not hemorrhage or sacrifice the future at all, which is really something that you can do with real estate. Build an income stream. Now, it typically appreciates faster than stocks and you didn't sacrifice the future at all., there's more bad advice out there. I think sometimes you'll hear a person say, for example, oh, pay yourself first. That means put your money in a traditional retirement plan or something like that. Pay yourself first. Wait a second. How in the world is it paying myself first if money is deducted from my paycheck when I'm, say, age 35 and I don't get that back until, say, I made 75, look what the 401 K the most popular plan in the United States. You cannot take penalty free distributions until between age 59.5 and 70.5. That's just when they begin. And you also must begin paying taxes on it at that time. So. Would you really find it a good trade if you trade away one hour of your 35 year old self? And in return, you get one hour of your 75 year old self.

Keith Weinhold (00:36:16) - Does that sound like a good trade? A lot of people that invest in these traditional retirement plans, that's really the trade that you're making. And I used to be involved in traditional retirement plans. I used to think they were the best thing until I looked at it. A lot of people talk about the benefits of delayed gratification, and I think delayed gratification. There's something implied in that being a desirable thing, that there's a positive outcome and that there's some big reward for delayed gratification. But it's definitely not guaranteed. We're not guaranteed tomorrow. So I think for one K plans, they're known as tax deferral plans. But I think you could just as easily call them life deferral plans because that's principally what they do in my opinion. So let's go back to the lawn mower. The lawn mower again, I'm classifying that as the poor or however the middle class are doing a little something different. Remember, not only were they working for money, they got some of their money to work for them, oftentimes in a retirement plan.

Keith Weinhold (00:37:14) - I guess they're symbolized by these,, what do they look like here? Construction engineers or something like that. They're middle class, the wealthy. You're doing something that the poor and the middle class aren't doing. The middle class. They get their money to work for them. What are the wealthy do? What is this guy doing right here? What does he have figured out? He knows the best and highest use of his investing. Dollar is not getting his money to work for him. It's getting other people's money to work for him. And in real estate, you can actually get other people's money to work for you three ways at the same time. And you can do it ethically. I think it's important to be ethical. You never get called a slumlord. Like, for example, my mission is to provide housing that's clean, safe, affordable and functional. You can use other people's money three ways at the same time will call this OPM Other People's money. You might have seen that abbreviation before.

Keith Weinhold (00:38:11) - You can do it three ways simultaneously with real estate. And you know, the great thing is you don't need any degree. You don't need any certification at all in order to ethically use other people's money three ways at the same time. The first way is with the bank's money. Like for example, the way I bought that first fourplex is with 3.5% of my own money, is a down payment, and I borrowed the other 96.5. So use the bank's money for the loan and leverage you use the tenant's money for that all important income stream, and for paying down your loan for you. And then the third way you use other people's money simultaneously in real estate is that you use the government's money for very generous tax incentives, like you can defer your capital gains tax endlessly. You can get a mortgage interest deduction. There's something called depreciation which shelters a portion of your rent income from ever getting taxed. Don't get your money to work for you. Or at least don't make that the focus. The focus should be on ethically getting other people's money to work for you.

Keith Weinhold (00:39:18) - And you know, I think really a concept like this harkens back to the late business philosopher Jim Rohn. Right? Jim Rohn said formal education will make you a living, but self-education will make you a fortune. So you really getting a condensed self-education right here? So let's just look at one of these three. Let's talk about that ten in income stream. That's the important one. That's the one where you build residual income. If you do want that freedom, if you do want to build enough of that residual income so that you can be job optional and do what you want to do, think about it conceptually. Think about how amazing it is that the tenant pays you what they pay you. The tenant pays completely one third of their income most of the time in rent to you one third of the time. So that is like you getting paid and that tenant going to work for you ten days every month. We'll call it the first ten days of every month just to work for you and to pay you.

Keith Weinhold (00:40:22) - Do you have any idea how amazing that is? Think about that. What other company gets one third of people's incomes and can do it at scale? Apple doesn't get one third of people's incomes. Think of all the stuff that people buy on Amazon, all those consumer products. But people still don't spend a third of their income on Amazon. So this is amazing. Like, who else gets this? Really nobody but you in real estate. So, you know, we're getting you to think differently here. This is just again one of the three ways that you can ethically employ other people's money. The others were the banks money and the government's money. We're talking about the tenants money here. All right. That was almost the first half of my presentation at the Spartan Summit. We are get rich education. So to review what you learned earlier in the show here today, keeping it real simple. High rates are for a strong economy, and low rates are for a weak economy. A fed pivot means when they reverse their monetary policy stance.

Keith Weinhold (00:41:31) - For example, going from raising rates to lowering rates. From that point where we left off on my presentation there, I go on to discuss more about the importance of cash flow, how leverage beats compound interest, inflation, property selection, properties to avoid, and more. If you'd like to watch all of that presentation, you can in entirety with the video on the get Rich education YouTube channel. Also, the link directly to that full video is in today's show notes. On the way out today, again coming up on a future episode retirement, we polled our great audience with the two you want to retire question. And we're also asking what is retirement anyway? We're discussing both of those huge questions coming up here on the show. If you'd like to hear that episode more, be sure to follow the show on your favorite podcast platform. Until next week, I'm your host, Keith Reinhold. Don't quit your day dream.

Speaker 6 (00:42:32) - Nothing on this show should be considered specific, personal or professional advice. Please consult an appropriate tax, legal, real estate, financial or business professional for individualized advice.

Speaker 6 (00:42:42) - 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. The.

Keith Weinhold (00:43:00) - The preceding program was brought to you by your home for wealth building. Get rich education.com.

Direct download: GREepisode493_.mp3
Category:general -- posted at: 4:00am EDT

Mon, 11 March 2024

Get our free real estate course and newsletter: GRE Letter

Learn why inflation helps dishonest people and harms honest ones. I use an example of a honeymaker.

Both new-build SFRs and apartment units are being shrinkflated.

Landlords skimpflate by: delayed maintenance, transferring the electric bill to the tenant, adding a surcharge for storage locker use, firing the doorman, charging to park beneath the carport, or not replacing an old fridge.

Instead, raising the rent is the ethical thing to do.

To comfortably afford the typical US home, it took $59K in 2020 and $107K today.

In a sense, you’re both richer and poorer than your grandfather.

Learn why investing through IRAs is a poor strategy.

I compare RE market conditions from when I bought my first property in 2002 with 2024’s conditions.

Timestamps:

Inflation and Immorality (00:01:51)

Explanation of how inflation impacts the economy and the moral dilemma it creates for producers.

Housing Affordability (00:04:26)

Discussion on the impact of inflation on home affordability and the consequences for renters and homeowners.

Rental Affordability and Apartment Shrinkflation (00:05:47)

Insights into the shrinking size of new apartment units and the implications for rental affordability.

Impact on Middle Class and Homeownership (00:08:29)

Analysis of how inflation affects the middle class and the changing dynamics of homeownership.

Affordability by Metro Area (00:11:09)

Breakdown of home affordability in different metro areas and its correlation with real estate cash flow.

Impact of Inflation on Wealth and Society (00:17:11)

Discussion on the implications of inflation on wealth accumulation and its societal effects.

Conventional Finance and IRAs (00:24:45)

Brief mention of conventional investment vehicles like 401(k) and Roth IRA in relation to real estate investing.

Conventional Wisdom (00:26:36)

Challenges conventional financial wisdom, emphasizing real estate investment over traditional saving and budgeting.

Roth IRA vs. Traditional IRA (00:27:45)

Discusses the limitations and drawbacks of Roth IRAs and traditional IRAs in relation to increasing income and real estate investment.

Market Timing (00:28:59)

Emphasizes the importance of having a sound investment strategy and taking advantage of market conditions, using personal experience as an example.

Real Estate Market Comparison (00:30:14)

Compares the real estate market conditions in 2002 to those in the mid-2020s, highlighting changes in pros, neutrals, and cons.

Investment Uncertainty (00:32:53)

Addresses the uncertainty of investment and the need to adapt to shifting market conditions, emphasizing the importance of taking what the market offers.

Property Highlights (00:34:13)

Details three available investment properties in different locations, providing information on purchase price, rent, and potential cash flow.

Long-Term Investment Strategy (00:36:55)

Advises on the ideal holding period for rental properties and the benefits of new build properties in the current market cycle.

New Build vs. Resale Properties (00:38:02)

Discusses the advantages of new build properties and the potential impact of declining home price premiums on resale properties.

Investment Coach Contact (00:39:12)

Encourages listeners to contact investment coaches for assistance in exploring potential income properties.

Disclaimer (00:39:42)

Provides a disclaimer regarding the information presented in the podcast and advises consulting professionals for personalized advice.

Resources mentioned:

Show Page:

GetRichEducation.com/491

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GRE Investment Coach, start here:

Get mortgage loans for investment property:

RidgeLendingGroup.com or call 855-74-RIDGE

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491: A Savings Account That OTHERS Fund For You

Complete episode transcript:

Speaker 1 (00:00:01) - Welcome to GRE. I'm your host, Keith Weinhold. Sure, you might find monetary inflation annoying today. Learn why inflation is even worse than you think. It is an immoral force. How bad homebuyer affordability has become by metro region. Then why conventional finance and IRAs don't move the meter in your life and more today on get rich education. When you want the best real estate and finance info. The modern internet experience limits your free articles access, and it's replete with paywalls. And you've got pop ups and push notifications and cookies. Disclaimers are. At no other time in history has it been more vital to place nice, clean, free content into your hands that actually adds no hype value to your life? See, this is the golden age of quality newsletters, and I write every word of ours myself. It's got a dash of humor and it's to the point to get the letter. It couldn't be more simple. Text gray to 66866. And when you start the free newsletter, you'll also get my one hour fast real estate course completely free.

Speaker 1 (00:01:18) - 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 266866.

Speaker 2 (00:01:35) - You're listening to the show that has created more financial freedom than nearly any show in the world. This is get rich education.

Speaker 1 (00:01:51) - Welcome, Gary. From Gainesville, Florida, to Brownsville, Texas, and across 188 nations worldwide. I'm Keith Weinhold. Hold in your listening to get Rich education. I'm honored to have you here. Inflation is immoral. Now, at best, you might find what the central bank, the fed, does as annoying on the consumer level. It might even severely debase your standard of living, eroding away your one and only quality of life. But how does inflation have an immoral impact on you and the actors? In an economy? A honey maker sells his jars of honey for $20. The fed prints money like crazy. The money supply doubles well. The honey maker now has three options. Keep selling honey for $20, which is where he eats the loss and keeps providing honey for his customers at the same price.

Speaker 1 (00:02:51) - Secondly, he can water down the honey or use other inferior ingredients, which is known as skin deflation or shrink the honey jar size known as shrinkflation. The last option is to be honest and increase the honey price to $40. But if he behaves honestly, he drives away his customers and they look for honey elsewhere. So therefore, those that choose to water down the honey will outcompete the honest guy. And over time, what happens with currency debasement is the producers must now weigh their financial well-being with moral integrity. And that is the problem. This is why inflation has an immoral impact on human beings. It's also a contributor to why food quality suffered during the big wave of inflation in the 1970s and 1980s. It led to rampant obesity and prescription drugs, now comprising half of our TV commercials. All these people now walking around as near zombies that need their meds. And on top of that, somehow society has quickly come to believe that this is normalcy. Then the 2020 wave of inflation is both fueling that trend, and it's now making homes unaffordable for the middle class.

Speaker 1 (00:04:26) - As a landlord, the honest thing to do then is to raise the rent. It's not honey inflation or rent inflation because the honey maker and the landlord didn't create it. It is central bank inflation. Higher rent is simply the consequence of more dollars in circulation and simultaneously new build homes. They are indeed experiencing shrink inflation as a result of this currency inflation. I discussed the incredible shrinking size of new build single family homes with you last week, where that new home size has fallen 14% in the past decade plus or minus. Well, the average American apartment size that's falling to, yes, apartment developers in their new projects. They're cutting square footage, and they're doing that to try to contain rents. The square footage of apartment units being built has not been this small since at least last century, and maybe ever. Soaring construction cost. That means developers have got to either pass along all of those increases through into the rents, or find ways to limit rent. Or one way to do that is by building smaller units.

Speaker 1 (00:05:47) - Yes, apartment construction shrinkflation. And who can blame the builder? Because rental affordability has been of increased importance in recent years, and developers have got to be able to convince their investors and their lenders that there is going to be sufficient demand at proforma rent levels among apartment units completed in 2022. That's the most recent year available. Average unit sizes fell to 1045ft², and that is the lowest level on record for apartments. And we just got confirmation on that through the US Census Bureau figures. Yes, that is for newly built multifamily rental units that therefore apartment sizes are down 8% from just five years ago. And that number could drop a bit further when 2023 stats are released. Yes, American lifestyles are being shrink inflated. All over the place, and it is even worse for those that don't own assets. And a recent peak of apartment sized construction was 2013, when they were just over 130ft². And I told you that the latest figure here is, again, 1045ft². The Covid era really saw new build.

Speaker 1 (00:07:12) - Apartment sizes drop fast because that's when people started to split up. Like if they weren't a family. Now, when rents rise, whether that's for apartments or single family homes or self-storage units or whatever it is, most any kind of real estate, you know, when those rents rise, people try to keep from raising the rent sometimes. Now landlords, instead of raising the rent, they can instead skimp flat themselves. They can do that by delaying maintenance, transferring the electric bill to the tenant, adding a surcharge for storage locker use, firing the doorman, charging to park beneath the carport, or not replacing an old fridge. That might have given you some ideas there, but I do not advocate that. That's the best way. The bottom line is that inflation is not just a persistent economic affliction. It's an immoral force. And the ethical thing to do, like you learn with the honey maker, is raise the rent. Now, when wages don't keep up with prices, that's a problem. Let's take a look at just how bad affordability is.

Speaker 1 (00:08:29) - All right. Here is the lowest salary amount that US households need to at least earn to comfortably afford the typical priced US home. Okay, we're rounding to the nearest thousand dollars here in 2020. That figure was just 59 K. In 2024 it's 107 K. All right, 59 K in household income up to 107 K today to afford the typical US home. Astounding. That is up more than 80% in four years. But at the same time here's how bad it is. Median US household income did not keep pace. You probably figured that much. American incomes are not up 80% in the past four years, but in 2020, the household income, the median was 66 K. Today it's 81 K. Well, that's up only 23%. So the income needed to comfortably afford a home is up 80%, while the actual median income has risen just 23%. That's per Zillow. Well, who does this hurt the most? Of course, it hurts that prospective first time homebuyer, not just because they usually have entry level incomes as well, but it's because they don't have any equity to roll forward into a purchase.

Speaker 1 (00:09:58) - And when first time homebuyers never get that mortgage loan pre-approval, what happens? They have to rent. So this affordability trend is good for income property owners. And you know, this is one big reason why. For a while now, I have said that I expect the homeownership rate to fall and therefore for America to have more renters, more rental demand. Well, that has now begun to fall from 66% in Q3 last year to 65.7% in Q4 of last year, and expect a homeownership rate to keep dropping. And that share of renters in the United States to keep rising. Now, let's break down this poor affordability by city. Let's break it down by metro area. I'll start with some select lowest priced cities, and then let's work our way up to the highest price cities. And I'll tell you as we ascend, when we pass the national mark, and you're going to notice that the lowest price cities, which are the earlier ones that I mentioned here, they tend to be the better areas for real estate cash flow.

Speaker 1 (00:11:09) - Here we go. In 2020, the typical Pittsburgh home could be bought with a 35 K household income. Wow, that's low today. It takes 58 K Memphis a very popular investor city here at GRA. Maybe our top investor city that has gone from 38 K in 2020 to a 70 K household income today. And it appears that more people will have to rent in Memphis. Cleveland from 41 K up to 71 K, Birmingham 42 K up to 70 4KD. Fruit 45 up to 76. Buffalo 42 up to 77. Saint Louis 45 up to 77 Kansas City 52, up to 93 Houston 56 up to 95 San Antonio 57. Up to 95. Columbus, Ohio 52, up to 96 Chicago. Still pretty affordable for such a world class city, but the median household income required to afford the average Chicago home in 2020 was 65 K, and today it's 105 K, and then you've got that aforementioned national average, 59 K and income needed four years ago up to 107 K today Philly 61 K up to 109 Jacksonville 58 K up to 109.

Speaker 1 (00:12:46) - Minneapolis 72. Up to 114 Baltimore 70. Up to 114 Atlanta 59. Up to 115 Tampa 57. Up to 116 I mean, we're looking at more than a doubling in Tampa. Las Vegas 65 up to 120. Dallas 68. Up to 121. Phoenix 66 up to 131. We're looking at about a doubling of the household income that it takes to afford the median home in Phoenix just over the last four years. Miami 76 to 151. That's another basically a doubler there. Denver 101 up to 173. Boston 118 to 205. New York City 135 to 214. And we just got a few left here as we're getting close to the top. Seattle 120 to 214 and then the top three Los Angeles 158 K to 279 K San Francisco 220 up to 340 K today. And number one San Jose, California Silicon Valley 263 K up to 450 4k. That's how much a household needs to earn to afford the typical home in their local market. Not an extravagant home, not a home that's even above average, just the typical home in their local market, as calculated by Zillow.

Speaker 1 (00:14:31) - That's what's happened to affordability, basically since Covid began about four years ago. So some other takeaways from what I just told you about there. The correlation here is that lower priced metros often have high homeownership rates because they are more affordable. Yet, paradoxically, those places, those low cost places with high ownership rates are often the best markets for you to own rental property in due to that affordability. And this is not just true in the United States. When you look at Europe and we shared a map of this on our general education Instagram page last week, Europe also has higher homeownership rates in less expensive nations, led by Kosovo at an astounding 98% homeownership rate. Can you believe that 98% Kosovo, part of the former Yugoslavia and then Kosovo in the high ownership rate, is followed by Albania in second, Romania and third? And again, today's U.S homeownership rate is nearly 66%. And then, conversely, some of Europe's more expensive nations have the lowest homeownership rates. Switzerland is the lowest at just 42%, and that's followed by Germany in Austria, with the next lowest European homeownership rates with declining US affordability.

Speaker 1 (00:15:59) - I mean, sometimes, do you ever think that it just feels like dollars are losing all of their value? I mean, some of these figures just look like funny money anymore. If you visited U.S Debt Record recently, you'll see that our national debt keeps ticking up, nearing $35 trillion now. Now, I recently listened to two guys talking about rising prices back when they were kids and when they were kids, they thought that meant that the economy is prosperous. Have you ever thought that even as a kid, I didn't. I never thought that rising prices were some sign of economic prosperity, like when you were a kid, that pack of baseball cards going up from. $0.50 to $0.60 symbolize that economic prosperity was taking place somewhere else. I never thought that. I guess as a kid, though, I thought that if a 100 K home increased in price to 200 K, that it meant that it doubled in value, although it surely did not. I probably thought that as a kid before I understood things like inflation and leverage.

Speaker 1 (00:17:11) - But inflation is not some law of nature. Not at all. I mean, if you want to look at what happens is technology progresses. Well, of course prices should go down if we are picking apples by hand and then a machine comes along that picks apples 100 times faster, and you don't need to pay all these human harvesters anymore, well, then the price of apples should plummet. Prices should go way down as we get better at producing things. So just imagine how much higher prices would be today if there weren't these productivity gains that try to hold down the inflated prices just somewhat. My gosh. But instead, governments are incentivized to expand the money supply to pay for programs rather than tax you. What's the easiest way to pay for a $1 trillion federal infrastructure program? Just print a trillion bucks out of thin air. That way they didn't have to send you a tax bill because people don't like seeing tax bills. They didn't have to ask for your vote either. Just quietly print it. And now that they printed $1 trillion more, every single dollar that you're holding on to just got diluted.

Speaker 1 (00:18:29) - That's another reason that inflation is immoral. If you hold dollars in a savings account, fed inflation diluted it. If you hold dollars in a stockbroker as account inflation just diluted it. If you hold equity in a property, inflation just diluted it. Well what hedges you against inflation. Gold and bitcoin. They both break the government monopoly on money. That's just simply hedging yourself. And then what doesn't just hedge but help you profit from inflation. As we know that formula is income property with debt. Now the United Nations, they recognize 193 sovereign states across the world, but many with their own currency. And like I said, governments are incentivized to expand the money supply to pay for programs rather than tax you. It's not just an American thing. Everybody does it. It is just a race to the bottom with every currency, all of which eventually go to zero. Historically, they all have. Well, you and I, we actually gotten richer from our technology advancements in some ways. And at the same time, we are horror for our debased dollars by almost any standard out there.

Speaker 1 (00:19:59) - You and I are both richer than our grandfathers were. The technology is better. The iPhone in your pocket would blow away your grandfather or your great grandfather. But back in my grandfather's day. See, here's the difference. He could pay for both of his kids to go to college and do it without student loans. Grandpa could easily find a job in a factory, bought a house. His wife didn't have to work. He supported his kids. His wife was home so she could take care of the house and kids. We have lost that. That wave of high inflation in the 70s and 80s made it so that both parents had to soon work, eroding the nuclear family. Inflation destroys families because wages often don't keep up. When you have these ways of inflation, both parents work and the wife cooks last, meaning even more obesity. And now, in this era of inflation, the 2020s, the first time homebuyer has instead become the renter so that the median age of the first time homebuyer is now 36, per the Nar, which I think I mentioned on a show last year.

Speaker 1 (00:21:13) - And that number looks to be going higher. So the American dream, owning your home, it looks like that soon won't even begin until you're near 40. And it's not just a result of government inflation. Government regulation has driven up the cost of doing business, hence why the prices are so high. You're seeing more and more evidence of inflation widening this chasm between the haves and the have nots. I mean, Macy's, the department store they recently announced. Plans to reorganize their stores around this hollowing out of the middle class businesses are reacting, and inflation is the problem. In fact, it made a lot of news a few weeks ago. You might have seen this story where, gosh, can you believe that a public figure would say this out loud? Kellogg CEO Gary Pinnick commented on how Americans are dealing with high grocery prices when he was quoted as saying, cereal for dinner is something that is probably more on trend now. And he got blasted for it. From malnutrition to family erosion to unaffordable homes, inflation from the central bank is the culprit and it's reached levels of immorality.

Speaker 1 (00:22:35) - More straight ahead. I'm Keith Whitehouse and you're listening to episode 492 of get Rich education. You know, I'll just tell you, for the most passive part of my real estate investing, personally, I put my own dollars with Freedom Family Investments because their funds pay me a stream of regular cash flow in returns, or better than a bank savings account, up to 12%. Their minimums are as low as 25 K. You don't even need to be accredited for some of them. It's all backed by real estate and that kind of love. How the tax benefit of doing this can offset capital gains and your W-2 jobs income. And they've always given me exactly their stated return paid on time. So it's steady income, no surprises while I'm sleeping or just doing the things I love. For a little insider tip, I've invested in their power fund to get going on that text family to 66866. Oh, and this isn't a solicitation. If you want to invest where I do, just go ahead and text family to six, 686, six.

Speaker 1 (00:23:47) - Role under the specific expert with income property you need. Ridge lending Group Nmls 42056. In gray history from beginners to veterans, they provided our listeners with more mortgages than anyone. It's where I get my own loans for single family rentals up to four Plex's. Start your pre-qualification and chat with President Charlie Ridge personally. They'll even customize a plan tailored to you for growing your portfolio. Start at Ridge Lending group.com Ridge lending group.com. Hi, this is Russell Gray.

Speaker 2 (00:24:27) - Co-host of the Real Estate Guys radio show, and you're listening to get Rich education with Keith Reinhold. Don't quit your day dream.

Speaker 1 (00:24:45) - Welcome back to Jewish Education where we are day trading. We are decade trading. I'm your host, Keith Reinhold. As we approach springtime before your tenant considers moving out, this is the time to remind them of the cost of moving. I've seen landlords effectively do this with a well worded letter. If you're raising the rent, this could accompany that notice. Tell them how costly moving is, because tenants often don't realize that until it's too late.

Speaker 1 (00:25:16) - And moving is also one of the most stressful things that a human can do. Vacancy and turnover are your biggest expense, so you should consider doing this before your tenant makes moving plans, because by then it's too late. Andrew Carnegie said that 90% of all millionaires become so through owning real estate. I could still believe that 90% figure today. But sadly, Carnegie's quote wasn't quite inflation proofed, and I'm sure he would admit that if he were alive today, a net worth of $1 million today does not make you rich. Millionaire. Yeah, not a wealth marker, but it probably means that you aren't poor. But yeah, a millionaire is no longer that aspirational. multi-Millionaire might not be a net worth of $2 million or more if you're under, say, 60, a $2 million net worth, that probably means that you better keep doing something to generate income. Here at gray, we probably spend less than 5% of our content, or even less than 2% of our content here, describing what most people think of conventional investment vehicles like, say, a 401 K or a Roth IRA.

Speaker 1 (00:26:36) - Instead, we follow something more like what Andrew Carnegie said, because being conventional, it just doesn't get you anywhere. And trimming your expenses, that really doesn't move the meter much in your life, unless you do enough of it to make you miserable. Saving money by getting your haircut at home is not going to build financial freedom. How many at home haircuts would you need in order for that to happen? There's no number. Neither will finding a way to get a free Thanksgiving turkey, or saving $90 on a flight itinerary by adding a layover and losing three hours of your time. That's not respecting your own time. So this is why we don't talk about conventional stuff here. Savers lose wealth, stock investors maintain wealth, and real estate investors build wealth. But now really, why else don't we discuss something like the benefits of a Roth IRA or comparing them to a traditional IRA? The main difference there being with a Roth you fund with post-tax dollars, meaning that you pay the tax today versus a traditional IRA where you pay the tax later rather than now.

Speaker 1 (00:27:45) - Well, you can't draw the funds penalty free until you're older, for one thing. And also, if you're under age 50, you can only contribute $7,000 a year to an IRA, and it's a care year if you're over 50. It doesn't move the meter in your life. And also, since we're a show about increasing your income, not cutting your expenses in a don't live below your means, grow your means vein. Well, this year's Roth IRA income limits are 161 K for single tax filers in 240 K for those married filing jointly. All right. Well, if you are not there at that income level yet, you are targeting exceeding those limits. So you won't be qualifying to participate anyway. Even if you had wanted to 401 K's in IRAs, they take money out of your pocket every month and every year. And I said with income property, you made a plan to put more money, tax advantaged money in your pocket every month and year. And this is all why I frown on budgeting, too.

Speaker 1 (00:28:59) - Now, one classic investor axiom that makes a little more sense to me is that you can't time the market. This is precisely why time in the market beats timing the market. Another phrase you've surely heard. I think that another way to say this is take what you've been given. Yeah. In general, once you've got a sound strategy, take what you've been given. The epiphany of real estate pays five ways is a motivator to adding more property. For example, when I bought my first property, yes, that modest and seminal Blue fourplex in 2002, there were pros and cons to buying 22 years ago. Just like there always are. Well, what I did is I took what I was given because I begin to understand how real estate could benefit me. And do you want to know what the market conditions were like back then? Let's look at this and compare this to today's income property market. This will be really interesting. What are the big factors that have changed in 22 years? Well, back in 2002 there were pros, neutrals and cons to buying.

Speaker 1 (00:30:14) - Then back then the pros were a good rent price ratio and I got a historically low six and 3/8 mortgage rate. Yes, I still remember that the neutral back then was an average vacancy rate, and the cons back in 2002 were low inflation, a high housing supply. The fact that I had made a $295,000 full price offer for that fourplex, which felt high at the time. I asked the owner if he'd come down and he said no. And another con is that I own in a small metro area, Anchorage, which was more vulnerable to economic change. That's something that I didn't even realize at the time. And another con to me, buying back then, as successfully as that turned out, was weak. Future demographics. Tenants quickly vacated because it was so easy for them to get first time homebuyer loans, liar loans amidst that loose lending environment. So right there were the pros, neutrals and cons in the marketplace. When I first started out taking what I was given, I took what the market gave me and became a profiteer.

Speaker 1 (00:31:32) - Once I had a strategy. Now this current environment, let's look at it. It could very well be better than when I started out. Here's what the market is giving investors here in the middle of the 2020s decade. The pros are low vacancy, higher inflation, though I would not call it high any longer. Another pro low housing supply. The polar opposite of when I begin there is strong future demographic demand. And another pro is like I've been touching on earlier here in that first part of the show, this dreadful first time homebuyer affordability. And what that does is that increases tenancy duration. Those are the pros today. The neutrals are strict loan underwriting and historically average interest rates okay. So those are both neutral conditions. And then the cons today are lower rent to price ratios and higher insurance premiums. So there they are. They're the progression of pros neutrals and cons in the real estate market. Since I bought my first property in 2002, one has got to own assets. When the middle class is hollowing out, it's caving in.

Speaker 1 (00:32:53) - No one wants to end up as desperate as Google's. I struggling to catch up with Microsoft and OpenAI. We don't want that to happen. And uncertainty. As you think about the future and growing your portfolio, you know, uncertainty that is an ever present condition with zero antidote. Uncertainty will only disappear when the world ends. These factors oppose neutrals and cons. They constantly shift. And in fact, life is about not knowing. The only safe years of your life are past years. Live in the question. Take what you've been given. That's the message here. Like I discussed last week, investor purchases are breaking records in today's environment. And speaking of today's market conditions, let me give you something tangible that you can really sink your teeth into with some real property addresses. These are ones that you find at Gray Marketplace. Let me start with the most expensive one first in San Antonio, Texas. It is a 2024 new build fourplex for a price of $1,100,000. Yeah. Hey, big spender, $1.1 million.

Speaker 1 (00:34:13) - The rent is $7,580. Class A neighborhood 5000ft², three bed, two baths per unit. Gosh, I wish this would have been my first ever fourplex. Mine was two beds, one baths, and when I bought it, it was about 20 years old. Well, the interest rate on this new build San Antonio fourplex is 4.25%. You need to use the seller preferred lender for that you're down. Will be $275. Projected monthly cash flow is $1,413. The second property is at 16 1027 Street Northeast in Canton, Ohio. Yes, canton, Ohio, the home of the Pro Football Hall of Fame, which I visited about five years ago. This is a single family rental in canton. The price is 130 K. The rent is 1125 B class neighborhood 1100 and four square feet. It was built in 1952. It has three beds in one bath. 33 K is the down payment, $279 of projected monthly cash flow. And then the last one that I'll detail here is 8700 East 79th Terrace in Kansas City, Missouri.

Speaker 1 (00:35:35) - It's also a single family rental 213 K purchase price. The rent on it is 1875. And gosh, that is a really good rent to price ratio. They're almost 9/10 of 1% here in Kansas City. B is the neighborhood class. It's 1180 eight square feet built in 1967, four beds, two baths. And it is a down payment of 53 K down with a projected monthly cash flow of $449 there in this Kansas City single family rental. Now you don't want to count on rent increases, but rents in the Midwest are now rising faster than any other region in the whole nation. And that's not hard to do, by the way, because in most U.S. regions, rents are hardly rising at all today. Now, as far as homes built in the 50s and 60s, although it's still good for you to mark more for maintenance expenses on properties of that age. You recall that I said earlier that you're likely doing more decade trading than day trading with these rehabbed or new build investor homes and 7 to 10 years.

Speaker 1 (00:36:55) - That's typically how long you want to plan on holding for, because by that time, or even earlier, it might have been as little as three years here recently. But by that time, sufficient equity has built up so that you want to sell in order to keep your return high and trade up tax free. Well, you only need new or rehabbed systems or components, therefore, to last 7 to 10 years, and you're typically selling the property before you need anything like a new roof or new Hvac. I personally don't believe I've ever held any rental property for more than ten years now, as I gave details of those three available properties there. This really is a time in the market cycle for you to consider new build properties. If you can swing the higher price, and that's for a lot of reasons you probably realize. The first one is that because builders are still buying your rate down for you to under 6%, you saw their with that San Antonio new construction fourplex, how a builder is buying down your rate to 4.25.

Speaker 1 (00:38:02) - Gosh, another trend that's been developing is the new home price. Premium over resale property seems to have declined substantially in the US, but builders just cannot keep doing these rate buy downs forever. Once rates go down, they're going to have less incentive to do them. For one thing, there won't be a need there. And also see, it depends on the builder, but a lot of builders, they bought land back in 2021 that they're only building on today, and those builders got to pay lower 2021 prices for that land that they're now building on. Will in a year or two, when builders are selling property where they had to buy the land in 2023, that is going to be reflected in higher prices in a year or two. So go new build if you can swing it. If not, you've got your 7 to 10 year hold strategy for resale properties, and that's 7 to 10 year hold. Strategy also applies to new builds on a scarce asset that everyone is going to need all 340 million Americans.

Speaker 1 (00:39:12) - And if any of these income properties or ones like those seem interesting to you, go ahead and contact your gray investment coach. If you don't have one, they'll help you for free. And our coaches really just make it easy for you. You can book a time right on their calendar, set up a friendly zoom or phone call, and strategize at Gray marketplace.com. Until next week, I'm your host, Keith Weintraub. Don't quit your day dream.

Speaker 3 (00:39:42) - Nothing on this show should be considered specific, personal or professional advice. Please consult an appropriate tax, legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own. Information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of get Rich education LLC exclusively.

Speaker 4 (00:40:11) - The preceding program was brought to you by your home for wealth building. Get rich education.com.

Direct download: GREepisode492_.mp3
Category:general -- posted at: 5:00am EDT

Mon, 4 March 2024

Others quietly fund a savings account for you with every income property that you own.

This is known as your ROA, your Return on Amortization. Primary residence owners don’t have this benefit.

Tenants rent a property from you. To own the property, you got to “rent” the money from the bank.

Landlord tipflation: have you ever asked your tenant for a tip? I don’t recommend it.

Integrity: Now that the statistics are in, I follow up on my 2023 Home Price Appreciation (HPA) Forecast. See how it went.

When measuring HPA, I explain why I use existing home prices, not new home prices.

The size of a new-build home has shrunk 12-15% in just the last decade.

Learn about the surprising correlation between rents and home prices. Be honest. Is it completely different that what you thought?

Redfin just reported that real estate investor purchases are breaking records.

Find the right income property for building your wealth. Our GRE Investment Coaches provide you with free guidance at GREmarketplace.com.

Timestamps:

Welcome to Get Rich Education (00:00:01)

Introduction to the episode and a brief overview of the topics covered.

The Benefits of Real Estate Investing (00:01:58)

Discusses the benefits of investing in real estate, including equity growth, cash flow, tax benefits, and inflation profiting.

Tenant-Made Equity Growth (00:02:47)

Explains how tenants contribute to the landlord's equity growth through monthly principal pay down.

Landlord Tip Inflation (00:06:39)

Compares the lack of tipping in the landlord-tenant relationship to other service interactions and discusses the concept of "landlord tip inflation."

Review of Home Price Appreciation Forecast (00:09:06)

Reviews the accuracy of previous home price appreciation forecasts and discusses the factors influencing the real estate market.

Use of Existing Home Sales Numbers (00:13:01)

Explains the rationale for using existing home sales numbers in home price appreciation forecasts and discusses the trend of new home construction.

Impact of Population Growth on Real Estate (00:17:03)

Highlights the impact of population growth on real estate prices and rental demand, emphasizing the significance of demographics in real estate investing.

Special Episode Announcement (00:21:33)

Announces the upcoming special episode 500 and expresses gratitude to listeners, particularly those from Colombia.

Listener Guest Invitation (00:22:43)

Encourages listeners to share their experiences and the impact of the show on their lives, inviting them to become guest speakers on the podcast.

The surprising correlation between rents and home prices (00:26:07)

The correlation between the direction of rents and home prices, and how they move together.

Investor purchases breaking records (00:29:21)

Insights on the increasing investor purchases, housing shortage, and the impact on the real estate market.

Real estate anniversary (00:32:11)

Keith Weinhold's heartfelt reflection on his parents' 50th anniversary in the same home, emphasizing the significance of providing people with a home.

Commitment and growth in real estate investing (00:33:46)

Encouragement to commit to real estate investing, learn, grow your portfolio, and build your empire.

Conclusion and disclaimer (00:37:10)

Disclaimer and conclusion of the podcast episode.

Resources mentioned:

Show Page:

GetRichEducation.com/491

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

Will you please leave a review for the show? I’d be grateful. Search “how to leave an Apple Podcasts review”

Top Properties & Providers:

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490: How to Invest in Timberland Like the Top 1%

Complete episode transcript:

Keith Weinhold (00:00:01) - Welcome to GRE. I'm your host, Keith Weinhold. Today, get in on a savings account that others fund for you. Landlord Tip Foundation a follow up to see how my last home price appreciation forecast actually performed. The surprising way that rents correlate with home prices. Investors are now feeling a record share of property buys and a heartwarming 50 year anniversary that I'm in awe of today. An get rich education. When you want the best real estate and finance info. The modern internet experience limits your free articles access, and it's replete with paywalls. And you've got pop ups and push notifications and cookies. Disclaimers are. At no other time in history has it been more vital to place nice, clean, free content into your hands that actually adds no hype value to your life? See, this is the golden age of quality newsletters, and I write every word of ours myself. It's got a dash of humor and it's to the point to get the letter. It couldn't be more simple. Text gray to 66866.

Keith Weinhold (00:01:17) - 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 (00:01:42) - 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) - Welcome to GRE, from Italy's Sorrento Peninsula to America's Florida peninsula and across 188 nations worldwide. You're listening to the 491st consecutive weekly installment of the get Rich education podcast. I'm your host, Keith Weinhold. And when you invest in real estate with a strategy, which is what we've discussed here for over nine years, you can't help but be a profiteer, even a wild profiteer. It might feel like so much money is falling out of the sky that you might need an umbrella to keep yourself from being hit with it. Raining Benjamins. In fact, with one of the five ways that you expect to be simultaneously paid. All right, let's not focus on the equity growth here, which has been torrid the last four years.

Keith Weinhold (00:02:47) - Not the cash flow, which has been slowed lately, not the tax benefits or the inflation profiting benefit. What else is there that ROA you return on when we talk about so much money falling out of the sky that you catch a case of affluenza, that ROA, it's really one of your quieter profit centers. It is like a savings account that someone else is funding for you. Let's say that you check in at your table of your typical mortgage income property, and it shows that it has $400 of monthly principal pay down. All right. Well, imagine if you had a number of economic actors say you own six rental properties, and then you've got six tenants, six economic actors, perhaps people that you've never met. And all six of them are putting 400 bucks a month into a savings account with your name on it. That is $28,800 a year. That goes into your quote unquote, savings account. Yeah, nearly 30 K a year that your net worth is growing by that you hardly even think about.

Keith Weinhold (00:04:02) - And it's all just part of the profitable background noise that you hardly even hear, along with your leverage depreciation, cash flow taxes and inflation, profiting your tenant builds up your equity. This way, even if your property didn't appreciate at all. And again, in your own primary residence, your ROA is zero because you had to work to pay down your principal, your tenants not doing it for you. Now, this account that they're funding for you, it's not as liquid as a savings account, but it's perhaps more like an old bank CD, a certificate of deposit. It's your money, but you can't access it. In a couple minutes. You would need to do a sale, or you could do a cash out refinance and then it's yours. Your ROA is your tenant made annual principal pay down divided by your equity. Okay. And what if you had more and larger properties? Then this small example I gave you the quietly increases your net worth nearly 30 K every single year. Well, a lot of investors have more or a larger properties where you might have 300 K in annual principal pay down alone.

Keith Weinhold (00:05:22) - The more rental properties you own, the more tenants you have that month in, month out. Every single month they fund a low liquidity savings account with your name on it. And think about it. How did you get in this advantageous position? Well, first you educated yourself. You'll know that they will rent the property from you. And how did you get the property? You don't own an outright. That typically implies too much opportunity cost to have the entire value of your property tied up and paid off. Although they rent the property from you, you got to rent 80% of the money from the bank to buy the property with reap the reward, and you might have to use that umbrella to avoid getting rained on. With the financial windfall. And residential real estate investors have been feeling the rain pouring down for the last three four years. Many commercial real estate investors with short term mortgages don't feel the same way now when you're paid five ways, which has been enhanced by inflation since 2021, you don't really need tip inflation.

Keith Weinhold (00:06:39) - Hunt up of that. In fact, have you ever asked your tenant for a tip, or has a tenant ever paid you a tip for providing housing for them? I wouldn't expect it. It hasn't happened to me. In fact, I've never heard of it. But if. If so, tell us about it right into us at get Rich education. Com slash contact. That's our contact page. A tip for your landlord. Now, think about it this way. You've got all these people asking for tips, really, since the pandemic began. And that's when it really heated up. And then the pandemic receded. And yet the tip requests persist. Baristas, delivery people, fast food workers and the parade of other micro interaction participants that you encounter throughout the day. Those people have no shame in asking you for a tip, and that's even if the service is poor. Now, I'm not saying that you should or shouldn't tip them, but they are micro interaction participants in your life because they're just handing you a coffee, or they're handing you another drink that has too many ice cubes in it.

Keith Weinhold (00:07:55) - On the other hand, what you do is you provide tenants with the roof over their head 30 days in a row, 24 hours a day. By buying the property, you educated yourself. You sunk in a down payment. You build up your own good credit to get a loan to provide housing for a stranger. Well, I guess you'll be asking your tenant a new question each month. Would you like to tip me 18%, 20%, or 25%? Landlord tip inflation? No, I doubt that you're really going to do that. But this is the case that compared to the service level from vendors that you interact with at a lower economic level, you sure could ask for this landlord tip inflation. Let me know if it's ever happened to you now, starting at the end of 2021, near the end of each year here on the show, I have provided you with a home price appreciation forecast for the following year. Well, we have got the results now from last year, so let's check the performance.

Keith Weinhold (00:09:06) - And yeah, don't you wish everyone that made predictions or forecast they reliably review them and followed up with how they actually performed. That's what we're going to do here. Now there are some things that I don't like to predict. In fact, I was the guest on Tom Wheelwright’s show at the end of last year as his 2024 Real estate predictions expert. And if you watch that, he really had to press me to get my mortgage rate forecast. I told him back then that 6% by the end of the year was my best guess. But that's all it was not formulaic, not a forecast, and not a 100% confidence level at all. So when we talk about Gray's home price forecasts and our track record, let me share a little context with you here. First, so many other people, including some expert peers that I actually respect. They really got home price appreciation so wrong in this era, especially in 2021. That's when many forecast a home price crash 2021. That's the year we had the highest home price appreciation in a long time, nearly 20% nationally.

Keith Weinhold (00:10:23) - And of course, I have never called for any national home price downturn at all, even a mild one. I'm on record here on the show back in 2020 and 2021. That is when I shared the fact that, look, this administration, our elected officials, whether you like them or not, for better or for worse, they don't want to see people kicked out of their homes and living on the street back then. Remember, like mortgage loan forbearance. But at the end of 2021, I forecast a cooling down of home price appreciation. And I told you then that I expected 9 to 10% for 2022. And at the end of 2022, the result was indeed 10% home price appreciation. And then at the end of 2022, we had already seen mortgage rates spike two and a half times from their lows. And again, many said that was going to catch up with us so that in 2023, home prices would just have to sink. No, they didn't sink. That's when I told you that the only housing crash was going to be a supply crash, and the higher mortgage rates actually correlate with higher home prices, not lower ones.

Keith Weinhold (00:11:39) - That's what historically happens. And I said right here on the show that home prices absolutely can't crash. In fact, they won't fall at all. So 0% was my forecast for last year. No gain, no loss. We now have the number in. Only for last year. Yes, real estate statistics can move slower than an Alaskan glacier. Well, it affirmed that indeed, prices didn't fall. They came in up 3.5% last year. That's the result. We'll round it up to 4%. And we maintain a consistent data set here. The same measuring stick. And that is the Anna's national median single family existing home price. Let me just add that of course I'm neither omniscient nor clairvoyant. I'm giving you the best information my research can provide. It is surely possible that I'll get it wrong sometime. I just haven't yet. Now. And you learn something about real estate here. Why do I use only the existing single family home number? Therefore, why exclude no new build homes? Well, in short, this is how you better compare apples to apples.

Keith Weinhold (00:13:01) - New home construction changes over time. And in fact, the trend for the last decade is that new build homes are shrinking in size and are also being built closer together to each other when they're constructed. So you can see how this disrupts the apples to apples comparison. Ten years ago, the existing single family home was about 1600 square feet and is still 1600 today. But ten years ago, a new build, single family home was about 20 300ft². And it's just 2000ft² today, or 2036 to be exact. So yeah, new build sizes have shrunk 12 to 15% in just the last decade. So this is why I use existing home numbers. And by the way, this shrinking trend, this is the opposite of the early 2000 trend. When you saw a super sizing of homes about 20 years ago, that's when the term McMansion really increased in popularity there about 20 years ago. But it's the opposite now. The shrinking new home trend looks to pick up steam because, like I talked about a few weeks ago, affordability is down.

Keith Weinhold (00:14:19) - Remember, it's worse than it's been since George Jefferson was on television 40 years ago. Don't let's not play The Jeffersons theme music again. The deluxe apartment in the Sky. We played that two weeks ago. Moving on up to the East side. I think that's the music that meant Manhattan's Upper East Side. For those uninitiated on that, that has long been one of New York City's most affluent neighborhoods. Yes. Then the Jeffersons were also funding their landlords return on amortization and more. But getting back to today's new home construction, you can. Therefore, you could say that homes are experiencing shrinkflation today from about 2300ft² to 2000ft² in just a decade, and you can easily see that falling below 2000ft² within two years here. Yes, that type of shrinkflation is more impactful than you paying the same for your shrinking jar of prego spaghetti sauce. Now that you understand why existing home sales numbers are used in Jerry's Home price depreciation forecasts sourced by the Nar, you'll recall that at the end of last year, I forecast 4% home price appreciation for this year.

Keith Weinhold (00:15:43) - We'll check back on that in one year's time. Now, that's amidst the fact that I understand we've got high asset prices all over the place right now, almost everywhere you look, a record high US stock market near record highs in Bitcoin and near record highs in home values. Yes, more home price appreciation is likely. In fact, real estate investor purchases are breaking records. I've got more to tell you about that later. In fact, there is even more fuel being poured out of the housing record right now. And this was breaking news a couple of weeks ago in our Don't Quit Your Daydream newsletter. So if you're a reader, you saw it. And that is the fact that population growth drives real estate prices and rents. News broke that we just experienced the largest one year population increase in all of American history, with an astounding 3.8 million. Our population was up 3.8 million people last year, more than ever in previous census estimates of a 1.6 million person increase had underestimated immigration flows. This was reported in Newsweek and elsewhere.

Keith Weinhold (00:17:03) - Now, look, I've been directly investing in real estate since 2002, and I have rarely encountered a supply demand inflection point like this that requires such attention from you, locating an available property that is already more elusive than finding the missing car keys, and it's going to get even more scarce. This has the appearance of an astounding real estate investment window that we are now entering. See, in most asset classes, the future is largely unknown. Like in stocks, futures markets, derivatives, bonds, crypto, gold, oil, all kinds of other commodities. There are so many unknowns there. And real estate has unknowns too. But there are no three giant certainties for residential real estate in America going forward. Number one is more inflation. Number two is a prolonged scarce housing supply. And thirdly, it is astoundingly good demographics that fuel more demand. This third one is newer. And this is what I'm highlighting here. The demographics were already good, but it's just been turned up another notch. All three of these things are inevitable, and so many people try to predict the future and they fail.

Keith Weinhold (00:18:30) - But these three profitable real estate tailwinds for investors are as assured. I mean, there is a third. Is you forgetting someone's name immediately after they introduce themselves? Yeah. The way to get around that is to recite their name back out loud as soon as you meet them. But what I'm getting at is that this is not hyperbolic to call this potentially a once in a decade opportunity. Other high income countries like Japan and so much of Western Europe, they are sweating buckets, thinking about how their nation's aging populations are sending them over a demographic cliff. And besides just the magnitude of the population growth, again, the biggest one year increase in American history, understand that America's largest group of immigrants are working age producers aged 25 to 54, and they are overwhelmingly renters, not homeowners. So this is your surge in rental demand and this immigration surge. It may or may not last, depending on policy, regulation and the presidential election outcome late this year., you know, Jeff Bezos discussed this one time.

Keith Weinhold (00:19:55) - He discussed about how everyone wants to know the future and understand this. You already know more about the future than what you think, whether it's about your future business life or your investing life or your family life, or the way that you're thinking about technology in autonomous cars or flying cars, in machine learning and artificial intelligence, you know, with things that a lot of people, they ask themselves a question about the future, and they ask, what will be different in ten years? Well, there's nothing wrong with that question. In fact, it's a perfectly good question. But instead, ask yourself the opposite. What will be the same in ten years? Yeah. What will be the same in ten years? Now, black swans aside, in real estate investing, it is indeed those three things more inflation, a prolonged scarce housing supply, and astoundingly good demographics for rental demand. That's what will be the same. And now you have the basis for a sustainable wealth strategy. The bottom line is that even if it comes to a sudden stop, the addition of an all time record 3.8 million Americans in one year, that has left an indelible mark on real estate demand, the economy, and nearly all of society.

Keith Weinhold (00:21:33) - Residential real estate investors are going to own a scarce asset that everyone will need. You're listening to get resuscitation. It's episode 491, and that means that we're just nine weeks away from what is going to be a special, unforgettable episode 500. It's an episode that you probably want to listen to more than one. Coming up in two months on May 6th. And I'll tell you, I really know how to put the performance pressure on myself for May 6th, don't I?, hey, I really want to give a shout out to our great listeners in Columbia. Last month, I spent nine days in Colombia and eight days in Ecuador exploring a coffee farm, checking out urban sites and doing some Andes mountaineering, taking in the best of steak, coffee, chocolate and fruits to. And I've got to say, when Colombians learned that I was there, you Colombians were amazing at reaching out, making me feel welcome, telling me how the show has helped you. Ecuador. And it wasn't quite the same. I love you and your beautiful nation, but frankly, I didn't hear much from the Ecuadorian listeners.

Keith Weinhold (00:22:43) - I don't know why there was a big difference there, but I'm appreciative of some of the South American listenership for a show that's based on about 95% US real estate here. Speaking of listeners and the show, at times, we have listeners here on the show. If gray has impacted your life and you'd like to come on the show and tell us about it, I and our audience like hearing from you and how an abundance mindset and real estate investing has changed your life right into us. At our contact page again, get rich education. Com slash contact and tell us about yourself. We've had some really cool listener guests here on the show, like Grammy Award winning music producer Blake La Grange, the inventor of a home fitness system, Sean Finnegan, and even my former coworker that used to have a neighboring cubicle right next to me, back when I had a day job in a fertile who became a listener. If you think you're just maybe a boring accountant with a spouse and two kids, but Jerry has influenced you, well, you're exactly who we want to hear from a write in and let us know.

Keith Weinhold (00:23:53) - Coming up next, hear the surprising correlation between rents and home prices. Then investor purchases are breaking records in more. I'm Keith Weinhold, you're listening to get rich education. You know, I'll just tell you, for the most passive part of my real estate investing, personally, I put my own dollars with Freedom Family Investments because their funds pay me a stream of regular cash flow in returns, or better than a bank savings account, up to 12%. Their minimums are as low as 25 K. You don't even need to be accredited for some of them. It's all backed by real estate and that kind of love. How the tax benefit of doing this can offset capital gains and your W-2 jobs income. And they've always given me exactly their stated return paid on time. So it's steady income, no surprises while I'm sleeping or just doing the things I love. For a little insider tip, I've invested in their power fund to get going on that text family to 66866. Oh, and this isn't a solicitation.

Keith Weinhold (00:25:01) - If you want to invest where I do, just go ahead and text family to 66866. Role under this specific expert with income property, you need. Ridge lending Group NMLS 42056. In gray history from beginners to veterans, they provided our listeners with more mortgages than anyone. It's where I get my own loans for single family rentals up to four Plex's. Start your pre-qualification and chat with President Caeli Ridge personally. They'll even customize a plan tailored to you for growing your portfolio. Start at RidgeLendingGroup.com. RidgeLendingGroup.com.

Matt Bowles (00:25:48) - Hey, everybody, this is Matt Bowles from Maverick Investor Group. You're listening to Get Rich Education with Keith Weinhold. And don't quit your daydreaming.

Keith Weinhold (00:26:07) - Welcome back to Get Rich Education. I'm your host, Keith Weinhold. As I like to say, history over hunches, it's easy to have a hunch about how something works in real estate. But take a look at history and see what really happens. History over hunches. So to that point, you might be surprised at the correlation between the direction of rents with respect to home prices.

Keith Weinhold (00:26:31) - Now, the cost of rent has grown over the last 12 years. That's not news to anybody, but many think that rents and home prices move inversely. If demand for home purchases falls, then rents rise, right? No. Instead, they move together. When rents move up, home prices tend to move up to. Rents rose gradually from 2012 to 2020, and they rose rapidly since 2020. Well, home prices, they behaved in a similar way. They also rose modestly from 2012 to 2020, and they rose rapidly since then. Rinse and home prices have therefore been positively correlated. And in fact, I've been investing long enough to remember that when the home price bubble burst from 2008 to 2010, where rents fell a little. Then to an underscore my point some more, both rents and prices bottomed together around 2011. Yes, I think most real estate investors believe that this positive correlation is less likely than that. A movie about Barbie could ever reach $1 billion in sales. Well, that happened too.

Keith Weinhold (00:28:01) - So I simply look at what really occurs when I do my research. It's history over hunches, and that's why these should not be mind blowing discoveries. Just look at what really happens. So if your tenant balks that rents are rising, well, you know what? Home prices are probably rising to the bottom line here with rents and prices being correlated, is that whether it's to rent or own, wait a million homes when the economy grows, that is the real history over any other hunch. Now, as a wealth building show here I am empowering you with the information that you need to improve yourself. You can't follow the herd. You've got two choices. Either you can be a conformer or you can build wealth. Your wealth is not coming from anyone else. Chances are a rich uncle won't be helping you. In fact, getting an inheritance remains a rarity in the US yet as of 2022, data from the Federal Reserve shows only about a fifth of American households had ever received an inheritance at all. And it gets worse.

Keith Weinhold (00:29:21) - According to NYU, the most common inheritance amount is between 10,000 and $50,000. Yeah, that's enough to fund your life for one average month, or maybe one good month, depending on how you're living. The good news is that great listeners and others are getting the message, because last month, Redfin reported that real estate investor purchases are breaking records. Yes, investors bought 26% of the country's most affordable homes in the latest quarter ended, and that is the highest share on record ever. We've got all these on record ever sort of things that we're talking about on the show today. Yes, Redfin let us know that low priced homes are increasingly attractive to investors in today's environment. Redfin agents in Florida and California report that investors are the ones hungry for homes, but they can't find properties to purchase due to an ongoing housing shortage. But we can help you with available supply here at gray. But these overall record investor purchase figures they are, according to a Redfin analysis of county home purchase records across 39 of the most populous US metro areas, not just a couple states.

Keith Weinhold (00:30:45) - There are a lot of investors out there fighting for properties, said a Redfin premier agent in Orlando, Florida. There just aren't enough properties to go around, which is putting a cap on how many homes investors can buy. In fact, single family homes represented over two thirds of investor. Purchases. So congratulations, you are acting. You are making it happen in this canyon, this chasm, this divide that's opening up between the haves and have nots, shrinking the middle class. You are getting on the right side of that. I want to tell you more about being an investor shortly. But first, I have somewhat of a heartfelt real estate anniversary for you, and it has to do with my own family. March 5th, 1974 is a special day. You might note that tomorrow will be the 50th anniversary of that special date. Now look, I can remember every single place that I've ever lived. The modest single family home that I grew up in, college dorm rooms, a pathetic pool house, efficiency apartment in Westchester, Pennsylvania, a condo, a house as an adult.

Keith Weinhold (00:32:11) - Can you can you remember every place that you've ever lived? There's a good chance that you can. It's how intimate, really and important real estate is to your life. And think about how significant you are. You're providing people with a home that they will always remember. This is key. Think about how this contrasts. If you supplied the world with software packages or patio furniture, that stuff is forgettable. You're doing something significant when you help abolish the term slumlord and provide other people with that clean, safe, affordable, functional housing. Well, tomorrow my parents, Curt and Penny Weinhold, will have lived in the same home for 50 years. 50 years in the same home for my parents in sleepy and remote Appalachia. Coudersport, Pennsylvania. I asked my dad about that recently, and he said that when the paperwork with the lawyer was finished, he recalled walking into the house and happily shouting. He was tired of renting. When I visit my parents annually in Pennsylvania, I am still sleeping in the same bedroom of the same home, on the same block in the same small town where they still live in the first home that I ever remember.

Keith Weinhold (00:33:46) - Great job Mom and dad. You committed. You married before you had my brother and I. You're still happy, you're still healthy, and you're still together. You're even in the same home I grew up in. I'm in awe. I won the parent lottery five decades in the same home. You know where the creaky spots in the floor are of that old Victorian place. And when my brother is there, the four of us know right where to sit in our same spots at that same kitchen table. And, you know, as tomorrow is an amazing 50 years there. There are some lessons in this. Find out what the great things in life are, learn about them and commit to them. Like me trying to be the highest man on earth recently, or you buying the property or getting married. So many of the most successful people get diligent and learn and then make lasting commitments. Being a real estate investing devotee is a commitment. Each property that you add is a small commitment itself. I encourage you to act if it resonates with you.

Keith Weinhold (00:35:03) - Learn and grow your portfolio. There are always going to be naysayers that try to hold you to the confines of conformity and mediocrity. So fear, uncertainty. Telling someone that times are uncertain is like telling someone that they're breathing air. Well of course, no kidding. Each condition, uncertainty and breathing air have persisted every day of your entire life. In the year 1920, ten kilos of gold would buy you an average home. Today, ten kilos of gold will buy you an average home. Home prices aren't high so much as the value of the dollar is simply down. Homes are not overvalued by the most timeless financial measure. Gold mortgage rates near 7% are still below. Their long term average. So go forth and build your empire. You can either teach a man to fish or give a man a fish. Here at Jerry, we do both. We teach them in or women to fish at get worse education. Com which this show is a part of and then a great marketplace. Com we give a man a fish.

Keith Weinhold (00:36:30) - We have the supply of housing. You have access to the national providers with the lower cost real estate that makes the best rentals. And starting about two years ago, we added free investment coaching here, giving you that fish and making it easier than ever to get started or get your next property. Play a game worth winning and commit to something worthwhile. If you haven't yet, I encourage you to look into that at GREmarketplace.com. Until next week, I'm.

Speaker 3 (00:37:03) - Your host, Keith Weinhold.

Keith Weinhold (00:37:05) - Don't quit your day dream.

Speaker 4 (00:37:10) - 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 yet Rich Education, LLC exclusively.

Keith Weinhold (00:37:38) - The preceding program was brought to you by your home for wealth building. Get rich education.com.

Direct download: GREepisode491_.mp3
Category:general -- posted at: 4:00am EDT

Mon, 26 February 2024

Owning raw land, timberland, and farmland is often the domain of the wealthy. This is partly because it is difficult to obtain loans for this property.

Today, we discuss an income-producing timberland that also tends to increase in value.

For under $7,000 you can own quarter-acre parcels of producing teak trees in Panama and Nicaragua.

You can invest yourself. All at once, this provides diversification with a hard asset in a foreign nation and a different product type.

Over a twenty-five year period, each $7K quarter-acre teak parcel is projected to return $94K. You get title to the property.

Learn more at: www.GREmarketplace.com/Teak

With ownership of two quarter-acre parcels, you can qualify for a second residency in Panama for under $22K with legal fees, etc.

A SFR does not grow into a duplex. But teak trees grow in volume while its unit price typically appreciates. Teak price growth is historically 5.5% annually.

I’ve met the company CEO and Chairman in-person. This provider has offered this opportunity for 24+ years.

They’ve recently added a sawmill, increasing profits.

What are the risks of teak tree investing? Disease, pests, fire, geopolitics and more. They are proven mitigation plans.

In-person teak tours for prospective investors are offered.

Trees grow through recessions, COVID, market cycles, and Fed rate decisions.

Learn more about teak tree investing at: GREmarketplace.com/Teak

Timestamps:

Welcome to Get Rich Education (00:00:01)

Keith Weinhold introduces the podcast and emphasizes the importance of real estate and financial information.

The US economy and land ownership (00:01:44)

Keith discusses the strength of the US economy and the importance of diverse and resilient real estate portfolios.

America's top 100 landowners (00:02:29)

Keith talks about the largest landowners in America and the reasons why land ownership is often associated with the wealthy.

Investing like a billionaire (00:05:32)

Keith introduces the topic of investing in producing land and the benefits of owning producing land.

Introduction to ECI Development (00:06:21)

Keith introduces Michael Cobb and discusses the company's projects in Latin America.

Marriott resort project in Belize (00:07:08)

Mike talks about the construction of a Marriott resort in Ambergris Key, Belize, and the challenges of financing such projects.

Development and tourism in Belize (00:08:37)

Michael Cobb discusses the development and popularity of Ambergris Key, Belize, and the involvement of major hotel brands.

Teak tree parcels investment (00:11:30)

Michael Cobb explains the investment opportunity in quarter-acre teak tree parcels and the generational wealth stewardship associated with it.

Reasons for teak investing (00:14:05)

Michael Cobb discusses the reasons why people are interested in teak investing, including hard asset diversification and international residency opportunities.

Cash flow cycles and teak investment (00:16:42)

Michael Cobb explains the 25-year cash flow cycle associated with teak investments and the generational income potential.

Optimal growing conditions for teak (00:19:26)

Michael Cobb discusses the optimal growing conditions for teak and the physical growth of the trees.

[End of segment]

Teak Plantation Locations and Growth (00:19:42)

Discussion on the optimal locations for teak growth and the historical track record of teak price growth.

Teak Price Growth and Business Plan (00:20:44)

The historical 55% annual increase in the value of teak and the business plan's conservative approach to teak price growth.

Physical Properties and Residency Opportunities (00:21:33)

The value of teak and the opportunities for achieving residency in Panama by owning teak.

Residency and Citizenship (00:24:33)

Differentiating between residency and citizenship in Panama and the process and benefits of obtaining permanent residency.

Sawmill and Value-Added Component (00:27:56)

The integration of a sawmill into the investment proposition and the value-added potential of processing teak into lumber.

Sawmill Investment Opportunity (00:30:07)

Details of the investment opportunity in the sawmill, including the expected return and investment structure.

Risks and Mitigation (00:32:41)

Discussion on the risks associated with teak plantation investment abroad and the mitigation strategies in place.

Property Management and Tours (00:35:25)

Outsourcing property management and the availability of tours to visit the teak plantations in Panama.

Long-Term Investment Perspective (00:37:43)

The long-term growth potential of teak investments and the comparison to the investment strategies of wealthy families and institutions.

Earth's Highest Real Estate (00:38:11)

Discussion about Earth's highest point, the equatorial bulge, and the location of teak plantations in Panama and Nicaragua.

Investing in Teak Parcels (00:38:11)

Information about purchasing teak parcels, the absence of loans, and the potential for building wealth through teak investments.

Consultation Disclaimer (00:39:34)

Disclaimer about seeking professional advice and the potential for profit or loss in investment strategies.

Resources mentioned:

Show Page:

GetRichEducation.com/490

Learn more about teak investing:

GREmarketplace.com/Teak

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

Will you please leave a review for the show? I’d be grateful. Search “how to leave an Apple Podcasts review”

Top Properties & Providers:

GRE Free Investment Coaching:

Best Financial Education:

Get our wealth-building newsletter free—

text ‘GRE’ to 66866

Our YouTube Channel:

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489: Strategic Loan Options for Real Estate Investors, Mortgage Rate Forecast

Complete episode transcript:

Keith Weinhold (00:00:01) - Welcome to gray. I'm your host, Keith Reinhold. An affordable way to simultaneously invest like a billionaire. Get diversified in multiple ways with real estate. Help the earth. And if you prefer, even achieve residency in a second nation 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 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.

Keith Weinhold (00:01:16) - Make sure you read it. Text gray to 66866. Text gray 266866.

Corey Coates (00:01:28) - 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 (00:01:44) - What category? From Sorrento, Italy to Sacramento, California, and across 188 nations worldwide. I'm Keith Reinhold, and you're listening to get Rich education the Voice of Real Estate since 2014. As we're two months into the year now and the US economy has continued to stay strong. Let me ask, how's your portfolio doing and how resilient is your real estate? How diverse is it? How would you grade yourself on those criteria?

Donald Trump (00:02:17) - I would give myself, I would look, I hate to do it, but I will do it. I would give myself an A-plus. Is that enough? Can I go higher than that?

Keith Weinhold (00:02:29) - Well, well, whether your, I guess, straight A's or not. Consider this land report.com. They recently published a report about America's top 100 Las donors. Now, Lynn could be vacant and nonresidential, yet have active ranching or agriculture or forestry taking place.

Keith Weinhold (00:02:52) - That way the land produces something while it might increase in value at the same time. But the reason that often land is the domain of the wealthy is that it's harder to get loans for land, and therefore one must often pay all cash. Well, by the time they were done. Today, you'll learn about producing land that's actually available at such a low price point that alone typically is not required for you to buy it. In 2024, America's largest land owner is Red Emerson, and that's what the report found. Read and his family owned 2.4 million acres in California, Oregon and Washington through their Timber products company and the number since they became America's largest landowners in 2021, when they acquired 175,000 acres in Oregon from another timber company. Well, with that acquisition, the Emerson surpassed Liberty Media chairman John Malone's 2.2 million acres. And then in third place is CNN founder Ted Turner. Yeah, he's America's third largest landowner, with 2 million acres in the southeast on the Great Plains and across the West. And it was a few years ago now.

Keith Weinhold (00:04:05) - It was 2020 when news broke that Microsoft co-founder Bill gates was America's largest farm land owner, with more than 260,000 acres. So the wealthy are attracted to real assets that can produce yield in something like land, which they aren't making more of. That's the backdrop for today. Surely we'll talk about income producing land, although most years it won't pay out and it's available to any investor, big or small. But before we do, let me share that. About ten days ago, I climbed up the highest point on Earth here while we're talking about non-residential real estate. Well, where was it? Where was I? Yes, I was on Earth's highest piece of real estate. Kind of a trivia question here, and I used to think that that must mean Mount Everest, but it's not. So there's a clue for you there. Where is Earth's highest point is you ponder that. I'll give you the answer later. Let's talk about investing like a billionaire with the opportunity to own producing land did it to you? We've discussed this topic before, but it's been quite some time and there have been some important updates, including a sawmill for the production timber.

Keith Weinhold (00:05:32) - After success in the computer industry, today's guest formed ECI development in 1996. I suppose going on nearly 30 years now. He served on advisory boards for the Na as a resort community developer. They have projects in Belize, Nicaragua, Costa Rica, El Salvador, Honduras and Panama, and neighborhoods include homes, condominiums, golf courses and over five miles of beachfront. So they got some really beautiful properties. He and I first met in person in 2016. He and his family lived in Central America from 2002 to 2016. It's always fantastic to have back on grea, and I guess I must button up here because it is the chairman and CEO, Michael Cobb. It's good to be with you. Thanks for having me.

Michael Cobb (00:06:21) - Back on the show. It's fun to have these conversations. I didn't realize we met in 2016. That's a little while ago.

Keith Weinhold (00:06:27) - Yeah, it has been eight years. Yes, we met in the region then down there and Mike's about the most relatable and down to earth guy that you can find and literally down to earth is.

Keith Weinhold (00:06:41) - Besides the resort development, you've made it easy and inexpensive for investors worldwide to buy producing teak tree parcels. But before we discuss that, you've got a project that's drawn a lot of interest on Ambergris Key, Belize, which many of our listeners already know, that's Belize's largest island and its top tourist destination. I have visited and owned property there, and it's coming online next year. It's pretty exciting. Tell us about it.

Michael Cobb (00:07:08) - It is exciting. It's been in the works for goodness, eight years. I think we signed our contract with Marriott maybe 7 or 8 years ago. We started construction just about a year ago last January. So almost exactly a year. Yeah, it's a marriott resort, 202 room oceanfront resort. It's fantastic. It will be done in August of 2025. Soft opening heart opening October 25th. So yeah, about 1618 months from now have this project finally finished. You know, the big challenging thing in this part of the world is financing. But it's really hard to get financing or affordable financing.

Michael Cobb (00:07:42) - Let me say it that way. Yeah. And so we took our time and we would not start a project until it was fully funded. I think a lot of challenges are people start these projects are kind of betting on the. Com. Right. Oh well we'll figure it out later. And we don't operate that way. We've been around for yeah 28 years. And so we're very very conservative. And until we had all the money to build the hotel, the resort, we did not start. And so we kicked it off last January. It was just down there last week. Steel is arriving. The superstructure is already going up. Yeah, man. It's just so nice to see it really coming to fruition. But you know, it's prudence and patience to take our time, make sure we have all the funding and then launch so that what we start finishes. And that's really been our mantra for almost three decades now.

Keith Weinhold (00:08:27) - Make it up, make it real, make it happen. In the largest town there on Ambergris Key, Belize, just a few decades ago, it was still this sleepy fishing village.

Keith Weinhold (00:08:37) - And with the setting that that island has and all the great snorkeling and everything else, it's really become popular and is boutique hotels grew into larger hotels. Yeah, it was probably, what, ten years ago perhaps, that you saw some of these big brands start to take more of an interest, like Hilton and Marriott, in branding the buildings what is.

Michael Cobb (00:09:00) - And, you know, I give a presentation called Why Belize, Why Right Now? And you nailed it there when you talked about the timelines. Right. And how a country or a region, it's not even a country in this case. Ambergris key. It's very specific. Right. How ambergris Key Belize has moved through this timeline, this path of progress. And at some point it goes from being a niche market or a no name market to a niche market, to a boutique market. And then all of a sudden, you're right, at some point the brand start to pay attention and then you move into popular acceptance and really mainstream tourism. And so, right.

Michael Cobb (00:09:31) - The cruise ships started going to Belize about 15 years ago, which put Belize as a country into the mind of a more mainstream traveler. And then you're right, about eight, ten years ago, the brand started to pay attention. And we do. We have a Hilton, we have a curio by Hilton, we have an autograph by Marriott, our company, ECI. We picked up the best Western franchise, and so we operate a Best Western on the island for that middle class market. And then Marriott, obviously, for the very high end traveler who wants an oceanfront 4 or 5 star kind of property. So yeah, but the brands are paying attention. And by the way, we're just seeing the beginning of that happening. This popularity curve Belize has entered what I would call the fast growth period. And over the next five, maybe eight years, we're going to see incredible growth in the tourism industry. Airlift is up. JetBlue just started flying down. So we're starting to WestJet. So we've got Canadian Air.

Michael Cobb (00:10:22) - We've got a discount carrier southwest. So when those things start to happen what you see is a market dynamism that's you know really it's exciting and it's going to change. Very, very rapidly. The pace of change is going to grow rapidly as well. So great time to look at Belize. If folks are interested in sort of that positioning in the path of progress in the marketplace.

Keith Weinhold (00:10:43) - Each time I visit Ambergris Key, Belize, the level of development increase is palpable. And, you know, this is an opportunity for a US or Canadian buyer or a buyer from outside that nation to come in. And it's just a very easy step with the English language and the common law in Belize, where you can invest yourself in this Marriott project that Mike discussed. Now, Mike, a while ago, to change topics, you recognize that the world has been really deforested and losing its valuable teak hardwood forests so continuously since 1999, you've offered a program so that individual investors at a really affordable price. We'll get to that price later.

Keith Weinhold (00:11:30) - They can own quarter acre parcels with the property deeded in their name, and reap the benefits and returns from the growth of the teakwood on top of the land. And now this is pretty novel, because for hundreds of years, only the hedge funds and super wealthy had access to an investment like this. So get us up to date with what you're doing on the teak hardwoods, because I know that so many of our listeners and viewers have already gotten involved.

Michael Cobb (00:11:56) - They haven't really. Thank you for being one of the people who put the word out there. Right? Because most people don't even know you can own teak or let's just back it up and you say, own timber, right? You start there. You're right. Only the super rich land barons, hedge funds. Those are the people that have always owned timber for centuries. Right. And so I think in most people's minds it's like, oh, I can't even get there. How would I even do that? Right. Well, then you take it overseas and you take it into something very, very specific, like teak timber.

Michael Cobb (00:12:25) - That's just not on anyone's radar. So. So you have done a great job. Thank you for getting the word out to just let folks know that this is something that they can do. So quarter acre teak parcels. We are now on our third plantation in Panama. We have one in Nicaragua as well. And so we're in our third plantation in Panama. Just because of the incredible number of folks, well over a thousand folks now who have decided they want to invest in own teak. You said something really interesting, Keith. You said you get to own the land, you get title to land and you get the harvest of the trees. That's absolutely correct. But it gets better because when the trees are harvested, they get replanted. And then the next generation of people your children, your grandchildren, whoever that might be, get the next harvest. But because you still own the land and the trees are replanted, a third harvest, you know, and a fourth harvest. So what you've really created with teak ownership is generational wealth stewardship.

Michael Cobb (00:13:24) - And that is something that's just so far beyond the comprehension of so many people that it can be so easy and so affordable to do.

Keith Weinhold (00:13:32) - I'm an investor myself in producing land like this in Latin America, so I know what some of my reasons are for being interested in this. And yes, it's more than the fact that I'm just a geography guy. It's the fact that I know I'm diversifying in multiple ways at the same time, a different product type in residential real estate. And I'm getting international diversification in a different nation, for starters. So are those some of the reasons that you see for why so many people are interested in teak investing like this? What are their reasons?

Michael Cobb (00:14:05) - Yeah, I think you've nailed a big part of it, which is the hard asset. A lot of folks, your listeners, readers in the news that are right, I mean, hard assets are important. I hope more people recognize that. Right. And more and more people are, thank goodness. So hard. Asset real estate being this particular hard asset.

Michael Cobb (00:14:22) - Right. And then the international diversification, one of the challenges we have is us, especially in Canadians to some degree, is that we kind of locked into the US system like we can own, say, Toyota stock, right? Japanese company, we can own Nestlé, a Swiss company, but generally we're doing it on the New York Stock Exchange. And so even if we own an international stock, it's still the US basket are still the Canadian basket that we hold it in. Right. And so when you physically own a titled property outside your home country, you have now truly diversified internationally. And there's a lot of prudence in that. And even just tiny little percentages of your portfolio, 5% of your portfolio, 10% of your portfolio outside your home country and hard assets is prudent because you want some other baskets for those nest eggs. Antiqued because it's such a low price point of entry with a huge yield, by the way, that it has become very, very popular for folks who want that international diversification in a hard asset.

Michael Cobb (00:15:23) - But to have the true international diversification because it's a physical asset outside your home country. And then I. Just say this and we can pick up on the theme or not. The other reason that people are looking at teak in Panama and Nicaragua, by the way, both countries, is because of the availability or the qualification for a visa for a second residency. And a lot of times people look at that as a plan B, if we kind of think maybe the US is going off the rails or Canada or wherever your home country is at, or it could go off the rails. Doesn't have to be now. It could be going off the rails in the future. You sort of that Boy Scout mentality of, you know what, I want a plan B, and if we have a second residency outside our home country, we now have an option. If we don't like the way things are going or where they get to, we can actually pick up and we can move and we have the right legal right, because we have a residency to live in another country.

Michael Cobb (00:16:17) - That's another reason that a lot of people have picked up the teak because it qualifies you for that residency. But I think the bigger reason is the international hard asset diversification. I think that's the leading reason people do it.

Keith Weinhold (00:16:31) - I want to ask you more about the residency shortly, but tell us more about the investment. We're thinking about maybe capital growth as the trees grow. And then what about the income?

Michael Cobb (00:16:42) - Sure. And so I think let me back it up. A lot of people think in cash flow cycles, right? If we have a job, we get paid every two weeks. You know, you have a lot of folks that have invested in properties. We get a monthly rent check, right? Or if we have stocks, maybe we get a quarterly or annual dividend. Right. So those are the what I would call the common time frames that we think about in cash flow. But what the Uber wealthy, what the hedge funds, what the family offices, what the endowment for places like Harvard, Yale, these big institution or big institutional thinkers have known for centuries is that there are actually other cash flow cycles that are largely ignored by the what I would say, the average investor.

Michael Cobb (00:17:21) - And those cash flow cycles are much longer. Teak, for example, is a 25 year cash flow cycle, right? You plant the trees and in 25 years you harvest them. You plant them again, not them. You plant new ones, right? In 25 years you harvest those and then so on and so on. So what you're creating is this 25 year cash flow machine. Now the kinds of returns are truly outsized. I mean you're talking about double digit ers. Now a lot of people say, well Mike, that's great. But what happens if I need the money in year 15? You can't have it because there is no money in year 15. Your trees are still growing, right? So it's this weird investment timeline. It's almost flatlined until the very end. And then it jumps way up and then it drops back down to a flatline again. And so it'd be silly to put tons of money into teak unless you had thousand times tons of money, right? But for some small piece of your investment portfolio where you have enough cash flow coming in from your maybe your job, your rent, your dividends, whatever, that a small piece that moves into this 25 year cash flow cycle with the thought process that this is how I steward wealth into the future, to children, grandchildren, great grandchildren, because the 25 year cycle is almost generational, right? In fact, in the US, it probably is generational because we're having children in the ages of, you know, 25 to 30.

Michael Cobb (00:18:44) - So it kind of starts to line up with generational income as opposed to, you know, sort of that whatever biweekly, monthly, yearly income. So it's just a different cash flow cycle.

Keith Weinhold (00:18:56) - That's right. And I brought up before that, when you think about the growth of one of your investments, you now get to think about it in two ways. If you own a duplex, it might have growth in its price. However, it doesn't grow into a fourplex and have growth in its price. However, with teak, you might have an increase in the value of the wood, perhaps on a board foot unit basis, and at the same time it is growing in height and volume.

Michael Cobb (00:19:26) - Absolutely no. That's a cute way to say it. I never really thought about a duplex growing into a fourplex, right? That's good. Exactly. And so what you do, you're right. You have the physical growth of the trees. And we have located our plantations in the optimal growing conditions, fatigue. And they are very known.

Michael Cobb (00:19:42) - Right? I mean, the British started plantation growing teak 350 almost 400 years ago in Southeast Asia. And so the Brits have just meticulously kept statistical records of every plantation that they were involved with the altitude, soil type, rainfall, temperature, on and on and on. And so it's really well known exactly where teak will grow well, and both where we have our plantations, it does Nicaragua and Panama, and we'll stick on Panama today, but the locations are dead center bull's eye locations for the best optimal growing of teak. So you have this growth of a physical thing, right. But you mentioned the board foot price. And by the way, the track record on teak being grown in plantations is 350 years. So what a track record, right? But since 1970. Two. The average price of teak over 5152 years has been 5.5% a year. That's the growth in the price of teak, right? And so you know who knows the future, right? I mean, the future is the future, right.

Michael Cobb (00:20:44) - But if a 50 year track record on a 5.5% increase in the value of the teak itself is pretty powerful, right? That's the long track record of nice growth. And when we factor in our teak into our business plan, we take that 5.5 and we make it zero. We just say, what if there is no increase in the price of teak over 25 years? How much will the tree grow? And if that tree is cut down and is sold as lumber? When we'll talk about our Solomon in a minute. If that tree is sold as lumber, what's the value of that lumber today? And what will the tree be worth in that value 25 years from now? And so if things do continue to increase at 5.5% a year, that's just all gravy. And that just starts to take that rate of return and just ratcheted up even further.

Keith Weinhold (00:21:33) - Teak has a number of physical properties that make it valuable, from its beauty to its fire resistance and more. Mike has now touched on a few interesting things.

Keith Weinhold (00:21:44) - We'll come back and talk about that soon, including how you can achieve residency in Panama by owning teak, what the risks are, and more about their sawmill that he just mentioned, adding value to the operation there. And then we're going to talk about what the prices are. We're talking with ECI Development Chairman and CEO Michael Cobb more when we come back. I'm your host, Keith Wynn. You know, I'll just tell you, for the most passive part of my real estate investing, personally, I put my own dollars with Freedom Family Investments because their funds pay me a stream of regular cash flow in returns, or better than a bank savings account, up to 12%. Their minimums are as low as 25 K. You don't even need to be accredited for some of them. It's all backed by real estate and that kind of love. How the tax benefit of doing this can offset capital gains and your W-2 jobs income. And they've always given me exactly their stated return paid on time. So it's steady income, no surprises while I'm sleeping or just doing the things I love.

Keith Weinhold (00:22:52) - For a little insider tip, I've invested in their power fund to get going on that text family to 66866. Oh, and this isn't a solicitation. If you want to invest where I do, just go ahead and text family to six, 686, six. Role under this specific expert with income property, you need Ridge Lending Group and MLS for 256 injury history from beginners to veterans. They provided our listeners with more mortgages than anyone. It's where I get my own loans for single family rentals up to four Plex's. Start your pre-qualification and chat with President Charlie Ridge personally. They'll even customize a plan tailored to you for growing your portfolio. Start at Ridge Lending group.com Ridge lending group.com.

Speaker 5 (00:23:49) - This is the Real World Network's Cathy Fekete, and you are listening to the always valuable get Rich education with Keith Reinhold.

Keith Weinhold (00:24:06) - You're listening to the SOS created more financial freedom for busy people just like you than nearly any show in the world. This is guitarist education. I'm your host, Keith Whitehill. We're talking with ECI development chairman and CEO Mike Cobb about teak hardwood investing in Panama and Nicaragua.

Keith Weinhold (00:24:22) - Like, tell us more about how one can achieve residency, for example, in Panama if they own teak there maybe just how residency varies from citizenship?

Michael Cobb (00:24:33) - Sure. Well, why don't we start with the second part, how residency differs from citizenship. And there's a good place to start. You know, citizenship is you become a citizen of the country. You have a passport, you can vote. You have every legal right of that country. Right. The decision would have residency to use a US term is like a green card, right? It's the legal permission to live in that country for some period of time. Many of them are permanent. In fact, Panama's is permanent. So once you have a Panama permanent residency, you could literally pick up, you could move there tomorrow, and you could live for the rest of your life in Panama. And so it gives you the legal right to live there. But you don't have a passport. You can't vote. I guess that's the main difference, right? You don't have a passport, you can't vote.

Michael Cobb (00:25:18) - But for most people, in fact, the overwhelming majority of people, a residency delivers exactly what somebody wants, which is the ability to live somewhere. Right? And we don't care if we vote or not. I mean, right, we'd still be citizens of our home country, US, Canada, or wherever we can vote back home or citizen. We have our passport from those countries, but the right to live somewhere else is powerful. And so the teak in Panama qualifies you in two ways for two quarter acre parcels, and then the legal fees and stuff like that. It's just under 22,000. A little less gives you permanent residency in Panama. Right? That's such an affordable way to be able to I call it the back pocket. Right. The insurance policy or the plan B in the sense that, like, I think a lot of folks are worried about the direction things are headed. And, you know, you have the teak parcels, which are going to produce a tremendous return. And then this byproduct that you qualify for and you have to go, you have to get down there a couple times.

Michael Cobb (00:26:16) - I mean, there's a little bit of administrative stuff, some legal fees, that's all included in that 22,000. Right. So that's all included. You have to go there a couple times. So there's a little bit of friction I would say. But when you get finished with that friction, you are a permanent resident of Panama and you only have to go there one day every two years. So you fly down every other year, whatever. Go, go talk to your trees, maybe sing to your trees a little bit, whatever you want to do and fly. All right. And you have a permanent residency. So it's a very easy, fast way to get that plan B now in the future, if you ever said, well, I really love Panama, I'd like to live here. Panama is beautiful. The city itself, it's got skyscrapers, apartments on the 50th floor of use or killer. You can be out on the beach or somewhere. You can be up in the mountains. So there are a lot of different climates and geographies in Panama where you might say to yourself, yeah, I think I want to come down here and live someday.

Michael Cobb (00:27:09) - Well, you already have your residency. You already have the legal right to do that.

Keith Weinhold (00:27:14) - Yeah, I mean, 100%. Now, Panama isn't predominantly English speaking like Belize is, but Panama just has a lot of inherent familiarity and feel to a lot of Americans. Since the canal is there and there is that strong American presence, and they've even dollarization their economy there, for example, in Panama. So it might be that nice plan B for you. And tell us more about the residency and the investment into the sawmill and how that works. So it sounds like there's now a value added component is you essentially vertically integrated and now have this sawmill with the teeth. Tell us more about that.

Michael Cobb (00:27:56) - So we've always factored in the sawmill into the investment proposition. Because if we were to just take the logs for example, 25 years, you cut down the trees, you stick the logs in the container and send them off to China or India, which is where most of the logs go. The return on investments.

Michael Cobb (00:28:13) - It's not great, it's okay, but it's not great. The way you actually get a phenomenal return on investment is you take those logs and you turn them into lumber, which has about a 3 to 4 x differential, or what we call first stage end product or simple end product, which would be something like flooring, which is basically lumber that's been finished one more level rooted and bulldozed so that you can put them together right on a wood floor. So those two modifications from the log all the way to the first degree of finished product, the returns start to really jack it up into that double digit IRR right over 25 years, which again is phenomenal. So we talked about price. But just to give an idea, a $7,000 quarter acre parcel at harvest turned into lumber and first level finished. Product turns into about $94,000, right? So 7000 turns into $90,000, which is a tremendous return. But the way you get that return is to deliver to the marketplace lumber and first grade finished product. And so Soma has always been part of our business plan.

Michael Cobb (00:29:19) - Well, we are now two years away from our harvest on our first plantation, the one I planted back in 1999. Right? I mean, it's incredible thinking that, you know, 20, gosh, 24 years ago planted a teak plantation. So we're two years from harvest. We have one more set of kind of odds and end thinning of just trees that didn't quite grow. Right. We're going to use those thinning over the next couple of years to practice in our sawmill. Because you know what? We are going to make mistakes. I mean, you don't ever get it right the first time. So we're going to make mistakes. We're going to learn from them. And by the time we actually do the real harvest of that first plantation, 100 acres of teak, two years from now, we will be up to speed with our sawmill will size up, we'll capacity up to do that. But yeah, so folks can actually we have a $2 million opening in the sawmill. And it's a real simple formula.

Michael Cobb (00:30:07) - It's two times your money and then a proportionate 10% interest in the sawmill. So for example, just rough numbers off the top of my head. You put in $100,000, you get twice your money back in about a 3 to 4 year period. As a sawmill really becomes operational. We take the first harvest, like the thinning, aren't going to produce much. In fact, we hope to just basically kind of break even over the next two years while we practice. Then we cut down 100 acres of teak. We start putting that through the sawmill, right? So you get two extra money, you invest 100 to get back to 100, and then your return would be about 13 or $14,000 a year. On going after that, because you get a 10% carried interest in the sawmill into the future as well. So that's the investment opportunity that produces a shorter cash flow, much tighter on the cash flow. But then a nice trailer for many years. But the investment is 100,000. So it's a more significant investment than, say, somebody wanting a little bite sized piece of a quarter acre parcel or two quarter acre type parcels paired with the residency that gets you that.

Michael Cobb (00:31:13) - So a couple different levels of investment depending on what your goals are, but also what your timelines are.

Keith Weinhold (00:31:19) - We described the sawmill investment numbers there. And then just to clarify, on the quarter acre parcels, they cost $7,000 each with an expected value or return of $94,000 after 25 years.

Michael Cobb (00:31:37) - That's correct. 6880. I'm using round numbers, but 6880 is the quarter acre teak and right at harvest when it processes through the sawmill. A little over that, but $94,000 is returned to the investor along the way. I'll mention this. There are maintenance fees. It's about $150 a year. We just take a credit card. We just tap it once a year. That takes care of property taxes, thinning, cleaning, anything that they have to do with the plantation. So $150 a year, your maintenance fee. But yeah, 6880 turns into 94,025 years. If teak continues to go up at 5.5% a year, the return would be better than that.

Keith Weinhold (00:32:16) - You probably have investors that come in oftentimes from North America, maybe some from Europe, and they see this as a really low cost of entry, $6,880 for one quarter acre parcel.

Keith Weinhold (00:32:29) - So are there any risks that one should consider? Therefore, if they're a first time investor abroad, maybe something they're not thinking about if they buy a rental single family home in their own hometown?

Michael Cobb (00:32:41) - Yeah. Very different. I mean, in some ways it's very different. In other ways it's pretty similar. Right. You're going to get title to the property. The process of getting title will be a little different. You're going to have to send in copies of your passport, a notarized utility bill. Just some things that you wouldn't have to do if you were buying a property in the States. But at the end of the day, you will get what's called Escritorio Publica public title. So it's a registered land deed. And so that part of it's all pretty similar risk factors. Absolutely. The business plan has them in there. But the big ones are any kind of disease. It's monoculture. So I mean a disease could come through and kill all the trees. Right. The good thing there is, again, teak has a 350 year track record of being managed and grown in plantations.

Michael Cobb (00:33:24) - So it has a long track record where they've kind of figured out, well, if this happens, then do this or if this pest comes along. This is how we, you know, we mitigate that, but nothing can mitigate all risk. That fire is an interesting one. Fire is a risk in the first three years of teak. So we call it baby teak. But once the tea trees are 3 to 4 years old, they're really above any kind of fire. Because you clean the plantation and the guys are in there with the machetes chopping to keep the, you know, the brushed and grass down in the dry season, which, by the way, you mention the qualities of teak, the hardness of teak is actually the most. Prized quality. And so the hardest of the teak that we get will actually be taken and sold as marine lumber, which is an unbelievable differential in price. But only 5 to 10% of your teak would qualify as marine lumber. So it's a small percentage, but the value of that is very, very high because it's set to hardwood.

Michael Cobb (00:34:20) - But the rest of the tree is also likewise very hard. The dry season is what cures the teak. And so in the dry season teak drops its leaves. And so it's very resistant to fire. If you do good maintenance on the plantation, we do so fires only a risk really in the first three years. And we actually warranty the trees of a fire comes through. In the first three years. We replant the plantation for any parts that are burned. So there's sort of a warranty that comes with the first three years. I mean, the other risks are political risk. What if Panama goes off the rails? The good thing about Panama, it's got the canal. And that is a major, vital strategic US interest. I just don't see the US letting Panama kind of go off the rails. But it could. But those I think are the three what I would call main risk factors. And we mitigate those to the best way possible.

Keith Weinhold (00:35:13) - You heard Mike mention about the thinning and cleaning. Yes, there is ongoing management, but that is already handled and taken care of in any of the prices that you already mentioned.

Keith Weinhold (00:35:24) - Is that right, Mike?

Michael Cobb (00:35:25) - Yeah, correct. And we outsource to a company called Geo Forest. All Geo Forest, all. They've been our plantation manager from since 1999. And and they're phenomenal. What they do, their world class. They've been doing it for longer than 25 years, maybe 30 years at this point. But we outsource what we have to outsource because we're not management plantation managers. So we can find folks that are.

Keith Weinhold (00:35:47) - The same property manager for a quarter century, a property manager that actually doesn't get fired. Hey, that's a novel concept. Two times two is what some investors back here in the U.S. are thinking with their residential real estate investments. If you want to learn more about this investment, I encourage you to check it out. You can do that through Gray Marketplace at Gray marketplace.com/teak. Mike, do you still offer tours.

Michael Cobb (00:36:16) - Oh my goodness yes. And I hope that you will take us up on the opportunity to come down and see the dairy and province. But yes, we do.

Michael Cobb (00:36:24) - And I don't know the dates off the top of my head, but for folks who are interested, uh, two things. One, we actually run a tour that's fun because it's a group of people and it's just, you know, you come down and you do it. But if somebody says, hey, I can't make those dates, but I want to come see the trees. Yeah, it's very reasonable. I think it's a couple hundred bucks. They pick you up at your hotel, they'll run you out to the plantation, bring you back. But it's a whole day. I mean, it's four hours outside of Panama City and four hours back, so it's a long day. And if it's a couple, it's still 200. It's basically for the vehicle out and back. Right? The driver and the vehicle. So you can come anytime or you can come with a group. And if you come with a group there is no charge. I mean, we get the van or the bus and we pay for it all.

Michael Cobb (00:37:03) - And yeah, we make peanut butter and jelly sandwiches and we have fun.

Keith Weinhold (00:37:07) - All right. Well, I think people have probably covered for the tea more than the sandwiches, but that is a nice touch that you do for people because you do that whether someone is a great investor or not, whether they haven't invested at all yet, and they just want to go ahead and check it out. And you can learn more about those dates at GR marketplace.com/teague Mike, it's always such a fun chat to discuss something so exotic. It's been great having you back on the show.

Michael Cobb (00:37:34) - Nice to be back with you. I look forward to seeing you in Panama one of these days.

Keith Weinhold (00:37:43) - Trees grow through recessions, they grow through market cycles, they grow through Covid, and trees just keep growing through every single fed rate decision. The wealthiest families on the planet, the top 1%. They have locked up vast portions of their wealth for timeframes even longer than the 25 year peak harvest cycle. In fact, Harvard has fully 10% of its endowment, specifically in timber.

Keith Weinhold (00:38:11) - To follow up on what I asked earlier, as we're discussing non-residential real estate today, Earth's highest point above sea level is Mount Everest. The highest from base to peak is Monica. But Earth's highest piece of land, uh, the highest point is measured from the center of the Earth is Chimborazo Volcano, Ecuador. That's because Earth is not a perfect sphere. But there's an equatorial bulge. That's what I was climbing ten days ago. Earth's highest real estate, Chimborazo, was also there for the closest real estate to the sun and moon. But back down here at a lower elevation where the teak plantations are in Panama and Nicaragua, there are no loans for teak. But at prices under seven K, many GRI listeners have found that they don't need a loan and they have bought ten or more parcels. But you can buy as few as 1 or 2 a quarter acre teak parcels and then later cash it out for yourself or build that wealth legacy for your family. Kind of like the top 1%. If it sounds interesting to you, learn more.

Keith Weinhold (00:39:22) - Get started at GR marketplace.com/t. Until next week. I'm your host, Keith Wild. Don't quit your day dream.

Speaker 6 (00:39:34) - 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. The.

Keith Weinhold (00:40:02) - The preceding program was brought to you by your home for wealth building. Get rich education.com.

Direct download: GREepisode490_.mp3
Category:general -- posted at: 4:00am EDT

Mon, 19 February 2024

You’ll get an exact mortgage rate prediction from the President of the lending company that’s provided investors with more financial freedom than anyone in the nation.

Learn how to best access your equity, yet keep your low mortgage rate first loan untouched.

In this Get Rich Education podcast episode, host Keith Weinhold and guest Caeli Ridge, President of Ridge Lending Group, delve into the direction of mortgage rates.

They highlight the importance of understanding today’s environment and discuss refinancing opportunities in the current market.

Caeli outlines various loan products available to investors and predicts over 50% of appraisals now come in high, indicating strong future valuations.

She also forecasts higher mortgage rates to persist, with a possible Fed Funds Rate reduction by June and a 6.125% rate for 30-year fixed mortgages, non-OO, with 25% down, by the end of 2024.

The episode emphasizes education and strategic planning in real estate investment.

I get my own loans at Ridge. You can too at RidgeLendingGroup.com

Timestamps:

The impact of inflation on real estate investing (00:00:00)

Discusses leveraging properties to increase wealth, the relationship between mortgage rates and real estate, and the impact of inflation on property values.

Understanding the importance of mortgage rates (00:03:52)

Explores the neutral relationship real estate investors have with mortgage rates, the impact of mortgage rates on home affordability, and the significance of current mortgage rates.

Historical perspective on home price affordability (00:06:18)

Provides insights into the historical trends in home affordability, comparing past and current median home prices and the impact of inflation on home values.

The power of leverage in borrowing (00:10:14)

Illustrates the impact of inflation on loan principal balances and monthly mortgage payments, emphasizing the benefits of optimizing borrowing.

Mortgage rate prediction and refinancing trends (00:16:57)

Discusses the future direction of mortgage rates, refinancing trends, and the importance of considering interest rates in the context of overall investment strategies.

Explanation of high points charged on investment property loans (00:23:12)

Provides an explanation for the high points charged on investment property loans, related to the servicing of mortgage-backed securities and the absence of prepayment penalties.

Accessing Equity with HELOC and HE Loan (00:24:21)

Discussion on accessing equity using keylock and HE loan, including LTV ratios and interest rate comparisons.

Trade-offs Between HELOC and HE Loan (00:25:27)

Comparison of trade-offs between keylock and HE loan, including flexibility and interest payment structures.

Considerations for Second Mortgages (00:26:36)

Exploration of the benefits of having a second mortgage as an option and the potential drawbacks related to minimum draw requirements.

Blended Mortgage Rates (00:27:56)

Explanation of how to calculate blended mortgage rates based on the balances and interest rates of first and second mortgages.

Appetite for Adjustable Rate Mortgages (00:28:44)

Assessment of the current environment for adjustable rate mortgages and comparison with fixed-rate mortgages.

Obstacles for New and Repeat Investors (00:29:45)

Common obstacles faced by new and repeat real estate investors, including understanding investment goals and managing debt-to-income ratios.

Forecast for Mortgage Rates (00:33:45)

Prediction for future mortgage rates based on inflation indicators and the potential impact of the Fed's decisions.

Loan Types Offered by Ridge Lending Group (00:35:54)

Overview of the various loan types offered by Ridge Lending Group, including Fannie and Freddie loans, non-QM loans, and commercial loans.

Resources and Tools for Investors (00:38:03)

Information about free resources and tools available on the Ridge Lending Group website, including simulators and educational content.

Conclusion and Recommendation (00:39:38)

Summary of the discussion with Caeli Ridge and a recommendation to explore the services offered by Ridge Lending Group for real estate financing needs.

Resources mentioned:

Show Page:

GetRichEducation.com/489

Ridge Lending Group:

RidgeLendingGroup.com

Call 855-74-RIDGE

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

Will you please leave a review for the show? I’d be grateful. Search “how to leave an Apple Podcasts review”

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Complete episode transcript:

Keith Weinhold (00:00:00) - Welcome to GRE. I'm your host, Keith Weinhold. A new take on how to profit from inflation. The best strategies for accessing equity from your property while leaving your low rate loan in place. A surprising trend with real estate appraisals. Then the president of one of the most prominent national mortgage companies joins me to give a firm mortgage rate prediction today on get rich education. If you like the Get Rich Education podcast, you're going to love our Don't Quit Your Daydream newsletter. No, a eye here I write every word of the letter myself. It wires your mind for wealth. It helps you make money in your sleep and updates you on vital real estate investing trends. It's free sign up egg get rich education.com/letter. It's real content that makes a real difference in your life. Spice with a dash of humor rather than living below your means, learn how to grow your means right now. You can also easily get the letter by texting GRE to 66866. Text GRE to 66866.

Speaker 2 (00:01:11) - You're listening to the show that has created more financial freedom than nearly any show in the world.

Speaker 2 (00:01:18) - This is Get Rich Education.

Keith Weinhold (00:01:27) - Welcome to Gary from Oak Park Heights, Minneapolis, to Crown Heights, Brooklyn in New York City and across 188 nations worldwide. I'm Keith Weinhold, and this is Get Rich education. When you have that epiphany, that leverage creates wealth, it can be enough to make you want to be the town iconoclast. Walk around, beat your chest, and boldly proclaim that financially free beats debt free. You might remember that I helped drive that point home a few weeks ago when I talked about the old fourplex owner, Patrick, who owned his fourplex next to mine years ago. He wanted to pay his down and I wanted to leverage mine up. I told you then that rushing to pay off one property by making extra payments on the principal is like drilling a deep hole into one property. And the deeper you drill, the more likely that hole is to cave in. Your return goes down and now you've got more of your prosperity tied up in just one property, just one neighborhood and just one market.

Keith Weinhold (00:02:34) - The most sure fire way to wealth, and exactly what wealthy people do, is optimize and almost maximize the number of properties that you own. And as long as you buy right as they inevitably inflate, just keep borrowing against them. And that way you never have to pay capital gains tax either. And that goes beyond just real estate. That's assets of many types. You'll want to own more assets. The way to do that is with more loans. And paradoxically, that is why the richest people have the most debt. As you watch your debt column grow, watch your column grow even faster. And as we're talking about mortgages and the direction of interest rates today, us as real estate investors, you and I, we have a somewhat neutral relationship with mortgage rates. Yeah, it's often a neutral relationship. Now, prospective homebuyers, they often want mortgage rates to be low. Sellers often want rates to be low two so that they'll have more home bidders, legacy landlords, ones that own a bunch of property and they're not buying anymore.

Keith Weinhold (00:03:52) - They often want mortgage rates to be high because it hurts first time homebuyer affordability, and then it keeps the rents high and it keeps the occupancy high. And then you and I see we both own real estate. We also look to opportunistically put more in our portfolio. Well then we want rates to be high in a sense and low in a sense too. So you might have relative neutrality, feeling aloof about it all because you're thinking about it from both sides. But in any case, we can always predict the future. But the one thing that you know for sure is what you have now. A lot of people don't optimize their potential for what they have now. Instead, they speculate about the future. Now, one thing a lot of people have now is so many Americans are still loving their 3% and 4% mortgage rates they locked in 2 or 3 years ago, and they're refusing to give it up. However, over the past two years, when the number of real estate listings were at historic lows, a lot of life changing events have occurred in the past two years 7 million newborn babies with a need for a larger sized home and a desire to get out of the starter home.

Keith Weinhold (00:05:11) - Also in the last two years, 3 million marriages, including some of those marriages, are among older couples who now need to sell a home that can help solve the market. And then, of course, most home sellers. They also become home buyers. Next, they need another place to live. So home sellers, they often don't add a net one to the supply. We had a million and a half divorces, 7 million Americans turning 65 years old that might want to trade down during the retirement years and also during the last two years. Consider that there were 4 million deaths and 50 million job changes, some of those inconsequential, while others with fundamentally changed commuting patterns. So the point here is that life moves on. For some, though still a minority, but a growing minority, it is time to give up the three and 4% mortgage rate. Still not enough of them, but for better or worse, that is what it's going to take to move this market and put some available supply out there.

Keith Weinhold (00:06:18) - Now, today we have apparently finally just come off this period where home price of. Affordability had hit 40 year lows for 40 years for decades. Again, with low affordability, you dislike that if you're a home buyer or seller, you might feel neutral about low affordability as a landlord or a real estate investor because it makes your new purchases less affordable. But it keeps your renters as renters when you buy that income property. From an affordability standpoint, the very best time to buy was 2013. Yep, 2013 is when prices hadn't fully recovered from the GFC and mortgage rates had fallen dramatically. Now, to open up that range in years, from an affordability standpoint, it was just a sensational time to buy a home or property from 2009 to 2021, just historically extraordinary, that sensational affordability level during that decade or so, 2009 to 2021, that added to the exceptional rise in home values over end since that time. But yeah, a few months ago, affordability reached its worst level in 40 years and it has since improved.

Keith Weinhold (00:07:43) - I mean, 40 year lows in affordability reach then in 1984 and what happened in 1984, that is when Ronald Reagan defeated Walter Mondale for his second presidential term. Steve Jobs launched the Macintosh personal computer. John Schnatter opened the first Papa John's store in Indiana. LeBron James was born in 1984, and on television running were The Cosby Show and The Dukes of Hazzard. Hey, if you were alive then and you watch those shows, um, I know you wouldn't confess to watching Charles in Charge back then, and you'll never get back those socially redeeming hours that you spent watching Punky Brewster, and you would not admit to doing that either. What is this show, the Jeffersons still on TV in 1984? Look into that. Yeah. You know, that was kind of a real estate ish show. The deluxe apartment in the sky. Yes. It was on then. Yeah. Sherman Hemsley, Isabel Sanford Q that up.

Speaker UU (00:08:55) - Where we're moving on now? All up to this island, to a deluxe apartment in the sky.

Keith Weinhold (00:09:06) - Yeah, they even had the episode where the landlord came over and threatened not to renew their lease. I'll tell you. Has there ever been a television show in history where the landlord was depicted as a good guy? I mean, a landlord in television, they're always cast is a money hungry bad guy that won't fix anything, or is just trying to unscrupulously kick out the tenant, a slack jawed slumlord, every single time. I never really understood that show's theme music, either Beans or Burden on the grill or something. Let's get back to mortgage loans. Understand this. It might be in a way that, okay, you've never thought about it before. It's the power of leverage in borrowing. Now, you probably won't hold any 30 year fixed rate loan all 30 years in reality, but they'll make this effect clear. Let's just act like you have done this on a property. Now the median home price is near 400 K today. But what was it not 40 years ago, but in this case 30 years ago? All right.

Keith Weinhold (00:10:14) - So 1994, per the Fred numbers, which are sourced from the census and HUD, it was 130 K. Yes, a 130 K median priced home in 1994. So then if you put a 20% down payment on that property, you'd have a loan principal balance of 104 K. Now imagine it was an interest only loan somehow, and you still just owed a 104 K balance on that home today, whose median price is up to 400 K. Well, that 104 K. That just seems like a little math that you could almost swat away. I mean, this is how inflation makes the numbers of yesteryear feel tiny. But now if you're 104 K loan were an amortizing loan and the principal were being paid down to hopefully all principal pay down made by the tenant. During all those years, mortgage rates were 9% back then. So if you were making the final payment today on what's now still a median priced home, today your mortgage payment would just be 837 bucks a month. It feels like nothing. Inflation benefited you both ways on the total principal balance and the monthly payment.

Keith Weinhold (00:11:35) - Just feeling lighter and lighter and lighter in inflation adjusted terms now. And if your mortgage rate were 6% on that property, your payment would only be 623 bucks. You might have refinanced to something like that. I mean, 623 bucks. That is lower than the average new car payment today of 726. But if you had not gotten that loan back in 1994 and instead would have paid all cash for the 130 K property, were you 130 K all cash that was put into the property back then? Well, that would have had the purchasing power of today's approximately 400 K reflected in the price of today's median priced home. But to take it back ten years further to 1984, the George Jefferson year, the median home price was 80 K and your loan would be 60 4k. I mean, these numbers feel like little toys or almost lunch money or something. So this is the power of optimizing your borrowing and perhaps but not quite maximizing your borrowing power because that does risk over leverage. That is the inflation profiting benefit that you're feeling right there.

Keith Weinhold (00:12:59) - Coming up in just a few minutes, the president of one of the most prominent national mortgage companies for investor loans will be here with me. We're going to talk about mortgage rates some more, the overall temperature of the mortgage market. And I expect that she'll give a firm mortgage rate prediction for where we're going to be at year end, because she's done that with us before. They see so many investor loans in there at their lending companies. They've really got a great pulse on the market. We have set up the makeshift gray studio again for yet another week. Here is this week I'm in Nevada, where I will be the best man at my brother's wedding. I have been on the road a lot lately. That's what a geography guy like me does. Gotta get out and see the world. Life is meant to be lived, not postpone. Before we discuss both general and some intermediate Murray's concepts shortly. If you happen to be new to real estate investing. And you just like to listen to that one episode that tells you, step by step, how to get started and how to build your credit score and make an offer on a property, and best navigate the inspection process and the property appraisal inside the management agreement and more.

Keith Weinhold (00:14:15) - You can find that on get Rich Education podcast episode 368. It's simply called How to Buy Your First Rental Property. More next. I'm Keith Reinhold, you're listening to get Rich education. You know, I'll just tell you, for the most passive part of my real estate investing, personally, I put my own dollars with Freedom Family Investments because their funds pay me a stream of regular cash flow in returns are better than a bank savings account up to 12%. Their minimums are as low as 25 K. You don't even need to be accredited for some of them. It's all backed by real estate and that kind of love. How the tax benefit of doing this can offset capital gains and your W-2 jobs income. And they've always given me exactly their stated return paid on time. So it's steady income, no surprises while I'm sleeping or just doing the things I love. For a little insider tip, I've invested in their power fund to get going on that text family to 66866. Oh, and this isn't a solicitation.

Keith Weinhold (00:15:24) - If you want to invest where I do, just go ahead and text family to six, 686, six. Role under the specific expert with income property, you need Ridge Lending Group and MLS for 256. In gray history, from beginners to veterans, they provided our listeners with more mortgages than anyone. It's where I get my own loans for single family rentals up to four plex's. Start your pre-qualification and chat with President Charlie Ridge. Personally, though, even customized plan tailored to you for growing your portfolio. Start at Ridge Lending group.com. Ridge lending group.com.

Speaker 3 (00:16:12) - Hi, this is Tom Hopkins, and I can't tell you how smart you are to be with get rich education and make these ideas you.

Keith Weinhold (00:16:32) - What is the future direction of mortgage rates? How do you qualify for more mortgage loans at the best terms with the lowest interest rates, and Americans have at near record equity levels in their properties? So what's the best way to access that equity yet? Keep your low rate mortgage in place. We're answering all of that today with a company president that's created more financial freedom through real estate than any other lender in the entire nation.

Keith Weinhold (00:16:57) - That is, the top tier and eponymous ridge lending group is time for a big welcome back to Charlie Ridge. Keith, you flatter me. Thank you very much.

Caeli Ridge (00:17:07) - I'm very happy to be here, sir. Good to see you.

Keith Weinhold (00:17:09) - Well, you help us here because debt and loan are our favored four letter words around here at gray. Can you help us efficiently optimize them both, Charlie? Interest rates have just been on so many people's minds. Shortly after, they had their all time low in January of 2021, and they since rose and then have settled down. Charlie, I've been trying to think through myself why people seem to put this over emphasis on the interest rate now. It's surely important. It is your cost of money. But the way I've thought that people overemphasize the rate is because maybe people love to discuss the direction of interest rates, even more so than real estate prices in rents is because prices and rents nearly always go up in interest rates can go up and down. So therefore it's maybe more interesting for people to talk about.

Keith Weinhold (00:17:57) - I also think about how rates sort of tap into that human fear of loss by paying interest, trumping the triumph of gain through cash flow or appreciation. And then maybe as well, it's because higher mortgage rates, they mean higher rates of all types which permeate into all of one's life's debt. So these are my thoughts about why people maybe put an over emphasis on mortgage interest rates. What are your thoughts?

Caeli Ridge (00:18:23) - I'm sure there's probably something to that. And you're right, Keith. Interest rates are always the hot topic. Everybody wants to talk about interest rates. I think that overall though, it is a lack of education and there's a psychology to it. You and I have talked about interest rates at nauseam over the years, and I do understand, but I think you and I agree, because we live in this space and we're constantly looking at the math. They are probably third or fourth on the list of priorities. When you're deciding on if this investment is valid. For fitting into my goal box, I think it's more about getting information out there and informing the masses about interest rates, and doing that math to make sure that they're not just pigeonholing themselves into keeping a 3% interest rate, or not expanding their portfolio because they're afraid of giving up what they have and not really realizing the power of the equity, the tax deduction, the rent increases.

Caeli Ridge (00:19:15) - All of those variables are often ignored when people start talking about interest rates, until you start to have that reasonable, rational conversation that helps them identify what the math is. Because the math won't lie, right? The math will not lie.

Keith Weinhold (00:19:29) - Yeah, that's right. Things more important than interest rate with an investment property might be the price you're paying for that property, or the level of rent that's there, or even maybe knowing you already have a good property manager that you trust in that market where that property is. But of course, rates matter somewhat. Now we're going to get a future looking prediction from you later. But your last mortgage rate prediction, Charlie, you may not remember the details of it. It was made here on the show in November of 2022. That's when rates were 7%. Back at that time, you said that rates should keep climbing but at a slower pace, and that happened. And you predicted the peak by spring of 2023 of 7.625%. What happened is in October of 2023, they hit 7.8% per Freddie Mac.

Keith Weinhold (00:20:17) - So you almost completely nailed it because most everyone believes that that was the peak for this cycle. And if so, you're within a few months in just 2/10 of 1% of identifying the peak.

Caeli Ridge (00:20:32) - Thank you Keith. I appreciate that acknowledgement. I get it right a lot. My crystal ball has been broken several times over, especially the last couple of years, so I'll want to acknowledge that too. I pay attention to the fed and as a good friend of mine is always saying, don't fight the fed if you are listening to what they're saying, actually listening to the words that are coming out of their mouths, it's not too terribly hard to kind of predict where we're going to be in certain milestones of any given year. So I do have a good prediction for this year. We'll share later. As you said, rates are not completely irrelevant. I just want to impress upon your listeners that they really should be looking at the investment holistically, and not just laser focused on that interest rate. There's more to it.

Keith Weinhold (00:21:15) - That was excellent. You have more audacity than me when it comes to predicting interest rates. It's a business I typically stay out of, so I'm going to outsource that to you later. I'll predict things like real estate prices, but I think rates are notoriously difficult. And what's happened with rates now that they have come off their peak substantially from back in October of 2023. What's happened with the refinance business, is that something that's picked up again there?

Caeli Ridge (00:21:39) - Yeah, we're starting to see a bit more. I would say that last year refi numbers were down right for obvious reasons. But we are seeing some more business in the refinance department. I think depending on the individual and largely the strategy of the investment, the long term versus the mid-term versus the short term, we're seeing a little bit more on the refi side for the short term rentals than we are in the long term. But overall, yes, I would agree that they're starting to pick up. I may mention to Keith it might be useful for the listeners.

Caeli Ridge (00:22:06) - So while I agree, we've seen that interest rates started on their descent, which was great news, everybody was excited to see that. We're still finding that the points that are being secured or paid on, especially investment property loans, are still on the high end of the spectrum. And for those that aren't aware of the why behind that, how might be important. Just to mention that when we talk about mortgage backed securities, the overall servicing of these mortgage backed securities that are bought and sold and traded on on the secondary markets, they're pretty smart in forecasting when rates are high, what happens to those mortgages? When they come back down, they start to refinance, right? They start to pay off. And the servicing rights of these loans take 2 to 3 years before they're even profitable. So the servicers and the secondary markets know that they have to charge those extra points to hedge their losses, because when the loans that they're paying for and servicing today are going to pay off in six months or 12 months, they're going to be at a loss.

Caeli Ridge (00:23:01) - If it takes them 24 to 36 months to be profitable. That's why investors are seeing especially investors are seeing extra points being charged on the loans that they're securing today.

Keith Weinhold (00:23:12) - Oh, that's a great explanation. And really, this is because there's no prepayment penalty associated with residential mortgage loans in the United States typically. So therefore, the person that's on the back end of these loans, the investor there needs to be sure that they're compensated somehow when one goes ahead and maybe refinances out of their loan at a presumably lower interest rate, maybe in as little as 12 months or so.

Caeli Ridge (00:23:39) - Yes, sir. Exactly right. Yeah. And prepayment penalties on conventional. There are no prepayment penalties on conventional. Just to clarify on a non QM product which of course we have to, you know, debt service coverage ratio products etc. on non-owner occupied those typically will have prepayment penalties. But the Fannie Freddie stuff, the GSE stuff no prepay ever.

Keith Weinhold (00:23:57) - Now the rates have come down presumably off their peak in this cycle. You know, I think a lot of people wonder about all right now, what's a prudent way for me to harvest my equity since we have near-record equity levels in property and yet keep my low rate mortgage in place? I think a lot of people don't even understand that you can do that and take a second mortgage to access some of that dead equity.

Keith Weinhold (00:24:20) - What are your thoughts?

Caeli Ridge (00:24:21) - I love a keylock in general. We do now have one of our newer product lines is a second lien lock. We have two options there. Both of them cap at 70% LTV. That's combined loan to value. So all you need to do to figure out what you're going to have access to is take the value that you think the property would appraise for times 70% from that number, subtract the first lien balance, and that will give you what your line on a key lock. Secondly, and position you lock would be. And I love it.

Keith Weinhold (00:24:49) - All right. So therefore if one has 50% equity in a property they could access 20% more up to that 70% CLTV. That combined loan to value ratio between your first mortgage and your second mortgage, which might take the form of a keylock a home equity line of credit.

Caeli Ridge (00:25:07) - Perfectly said. We also have second lien he loans worth mention. He loan is really exactly the same thing as your first lien mortgage. It's a fixed rate.

Caeli Ridge (00:25:15) - Second it's just in second lean position 30 year fixed. Those go to 85% CLTV. So you get quite a bit more leverage. But the rates are going to be on the 1,213% range.

Keith Weinhold (00:25:27) - That's interesting. Tell us about some more of the trade offs between the key lock, where we typically have a fixed rate period in a floating period afterwards, and the he loan some more of those trade offs as we devise our strategy.

Caeli Ridge (00:25:41) - Yeah. The key lock is variable right. The interest rate can change. As you said. The reason I prefer the He lock, if the numbers made sense, is that you're only paying interest on monies that you're using at that point in time. So if you had $100,000 key lock and you're only using 20,000 of it for whatever investment purposes or whatever, then you're paying interest just on the 20 that he loan is exactly as you would expect. You're getting all of that money at once, and you will be paying interest on all of it, whether or not you're using it.

Caeli Ridge (00:26:10) - There's less flexibility on a key loan. While it does provide extra leverage, I do generally prefer that he lock.

Keith Weinhold (00:26:18) - Now, sometimes a question that I've asked myself in the past, Charlie, when I was new as an investor, is sort of why wouldn't I take a second mortgage? He lock or he loan? Because I don't necessarily have to draw against it, but it might be good for me to have it as an option just to be sure that it's there.

Caeli Ridge (00:26:36) - Absolutely. Especially the key lock, because like I said, I will not pay interest on anything you're not using. And to have it when the time comes, right. If you want to be prepared, which I think is huge. We both agree there. The one thing I would mention about that though, is oftentimes on the helocs there will be a minimum draw at closing. You can put it right back after closing, but chances are there's going to be a 50,000 or 100,000 minimum draw, depending on what the line limit is.

Caeli Ridge (00:27:01) - Maybe 75% of the entire limit is what the minimum draw would be. But again, you can put it right back after closing. So maybe you pay 30 days of interest on that before you're able to to stick it back in the lock. Otherwise, it's one of my favorite strategies for investors and having access to those funds when the time comes.

Keith Weinhold (00:27:20) - That's an interesting piece there. So you as an investor is you're devising your strategy as you're looking at the equity position in your own home as well as your rental properties. Maybe you're looking at a low rate of, say, you have a 4% mortgage loan, but you've had a bloated equity position, and you go ahead and you take out a second mortgage in any of the forms of Charlie is talking about. And that second mortgage has, say, a 10% interest rate. Well, you don't simply take the 4% on your first loan and your 10% on the second and average it and say, well, now I'm paying 7%. Of course, you have to wait those averages.

Keith Weinhold (00:27:56) - It's pretty likely that you have a higher mortgage balance on your first loan than your second loan. So depending on their balances, therefore, if your first mortgage has a 4% interest rate and your second mortgage has a 10% interest rate, you're blended rate might be something like five and a half.

Caeli Ridge (00:28:10) - Exactly right. And there's all kinds of tools and calculators online. If somebody wanted to check that out you can find them very easily. Just the weighted average of mortgage rates. And you can plug in your numbers. It'll tell you exactly if you're using this amount or this amount or whatever it is, what your weighted average would be.

Keith Weinhold (00:28:27) - Yeah, definitely important for you as an investor checking your arbitrage and your cash flow. Certainly, Charlie, I wonder now that we are in an environment finally where rates have actually fallen, how is the appetite for arms adjustable rate mortgages looked in there?

Caeli Ridge (00:28:44) - We're still on what's called an inverted yield from the 0809 housing and lending kind of debacle, we found ourselves in a place where adjustable rate mortgage or arm's actually priced in interest rate higher than a 30 year fixed, creating that inverted yield.

Caeli Ridge (00:28:58) - We have yet to see the correction of that. So we're still kind of in that place where depending on the characteristics of the transaction, the arm might be a higher interest rate. Maybe it's about the same as the 30 year fixed. If there is a scenario where the arm is lower, it might be an eighth or a quarter of a percentage point. So it's unlikely that we would recommend an arm over a fixed. There'd be have to be some very specific circumstances. If it's only a quarter point improvement to rate for a five year arm versus a 30 year fixed.

Keith Weinhold (00:29:26) - Charlie, you deal with so many investors in there, both newer investors and veteran real estate investors. So when we talk first about the new investors, are there any just sort of common obstacles to overcome that you see in there for people that are looking to get their first investment property?

Caeli Ridge (00:29:45) - I think they're why a lot of times we'll have investors come to us and really not even understand more than they just don't want their money in the stock market anymore, and they want to find another venue or another vehicle in which to create their investment freedom, their financial freedom through.

Caeli Ridge (00:29:59) - So I would say for brand new investors, really start to ask that question, what is your why? What is it that you want to get out of this? Do you want total replacement income of your ordinary income today? Do you love what you do for work and you just want supplemental income? How much does that income need to be? Does it need to be what you're making today? Can it be a little bit less? Does it need to be more based on what you expect your lifestyle to be? So lots of different questions to be asking yourself. So I would say that commonly just really understanding at least a baseline. And then we can start connecting some dots together and planting seeds that I talk about a baseline of, of what it is that you're hoping to accomplish through real estate.

Keith Weinhold (00:30:37) - So that's what you often see with the beginning investor. How about that repeat investor. Their obstacles to overcome that are common in there on expanding one's portfolio. Maybe that's a debt to income ratio threshold that one reaches and you need to strategize with them there.

Caeli Ridge (00:30:54) - Yeah, the debt to income ratio problem ultimately when you get there is probably a good problem to have, right when you're having to have conversations that way. I think that the obstacles to overcome is making sure that you have a good support team, and I think that would start with your lender, someone that has a multitude of loan products that aren't just one size fits all. I would say that we check that box very well, but strategizing. One of my favorite conversations with my clients is having those strategy one on one calls about their debt to income ratio and figuring out from a scheduling perspective, how can we maximize their deductions, because that's one of the beautiful things about real estate investing, right? Is that schedule E so maximizing over there without it taking you over certain thresholds to continue to qualify, there can be a weighted scale there as well. And those are the conversations that we have with our clients usually earlier in the year. But we're always looking at our client's draft tax returns. That's important.

Caeli Ridge (00:31:47) - Before you ring that bell, get us copies of your draft tax returns so that we can run the math, and we'll even show them how the pluses and minuses work. It's pretty interesting to most people. And then come up with a solution that says, okay, if you want to do this for 2024, here are our recommendations X, Y, or Z. And then they can make the informed decision that fits what their goals are for the year.

Keith Weinhold (00:32:08) - Yeah, these are the scenarios that a mortgage loan company that specializes in income property loans can help you with your future planning. How can you set yourself up considering your personal situation, your tax deductions, how much income do you want to show, and all those sorts of things to give you more runway to add income properties to your portfolio. And you do see so many scenarios in there and so many investors. Sometimes when you're here, I like to ask you to get a temperature of the appraisal market. What percent of appraisals are you seeing coming high on and what percent are coming in low? Approximately.

Caeli Ridge (00:32:43) - We're probably over 50% on the high, but not by any large margin. I'll see 10,015 thousand regularly over what we had expected in the actual value. Pretty commonly, just right on the money, right on the mark. I think it's real market specific, to be sure. I don't see that the short values come in all that much. If it is, generally it's probably because the investor is brand new, didn't unfortunately talk to us in advance. They were doing the BR method and they didn't get the right comps or have the right advice about what that RV might end up being. So they got trapped in a situation where they learned the hard way.

Keith Weinhold (00:33:21) - Interesting. I don't know that I remember that from the past, where more than 50% of appraisals have come in high. That pretends well for future valuations, at least here in the near term. All right, Charlie, well, we talked about your record with mortgage rate predictions here and how good that track record was. Why don't you let us know where you think mortgage rates are going to be by the end of 2024.

Caeli Ridge (00:33:45) - I do think that the rates are going to be higher for longer. Don't fight the fed, remember? Listen to what they have to say. I would preface this by saying that all of the indicators for inflation, except for one of them, have been hot to the side. That does not help us with interest rates. The employment jobs report, you've got the CPI, all these different metrics have come in hot where they're higher than what we would want to see them for that inflationary measure, where the feds have been extremely clear that they want to hit that 2% mark, where that number came from, I don't know. That's another conversation. There's only been one metric that actually worked to the rate environment to get it lowered, which is the PCE, the personal consumption expenditure. For those that aren't familiar with that acronym, I think they're going to be higher for longer. There's been a lot of headlines out there saying that I'm getting to a rate. I promise. I'm just going to to preface this first, that March might be the first reduction in the fed funds rate, which, by the way, remember, is not the same as a long term 30 year fixed mortgage rate.

Caeli Ridge (00:34:42) - There are links to them, but they are different. I don't think that's going to happen. I think that if we're going to see rates come down, the first fed funds rate reduction, probably sometime in June, is where I may put my predictions. And then by the end of the year, the interest rate, I'm going to put at 6.125 for 30 year fixed mortgages and non-owner occupied purchase with 25% down. That's my prediction.

Keith Weinhold (00:35:09) - You are on the record though, and it's so interesting, at least with what the fed does with rates generally. It's like an entire world where good news is bad news, right? If you've got great job growth and great GDP, well, that's bad news because they're probably going to keep rates high since those things tend to keep inflation high. It's like, what if you want the lowest mortgage rate, everyone in the world would be unemployed except you. You know, it's just so funny. I'm glad you said that. Yeah.

Caeli Ridge (00:35:36) - The worse the economy is, the better the rates are.

Keith Weinhold (00:35:38) - Yeah. That's right. You offer so many products in there, mostly to investors, but you have other ones that it's not just for buy and hold type of investors. It's for those that are doing better strategies like you mentioned in other strategies. Well, you tell us about all the loan types that you offer in there.

Caeli Ridge (00:35:54) - Yeah, we do have quite a few. Thank you for asking. So we start with the Fannie Freddie's. We call these the golden tickets. Everybody. Highest leverage, lowest interest rate. A lot of times the newer investors will start by exhausting those. There are ten per qualified individual. If you're a married couple, you can have up to 20, as you and I have talked about in the past, Keith. Beyond that, we've got something called Non-cumulative. QM stands for Qualified Mortgage. Fannie Mae and Freddie Mac are the definition of what a qualified mortgage is. So everything outside of that box of underwriting is now non QM. And non QM in and of itself is extremely diverse, not just for investors, for anybody, but within that subset of product you've got debt service coverage ratio where there is no personal income documentation.

Caeli Ridge (00:36:33) - It's all about the properties rents divided by the payment. We have bank statement loans in there. We've got asset depletion. So if you've got $1 million in an exchange, a stock exchange account, there's a formula that we can use to utilize that as income. Beyond that, we have short term bridge loans for those that are fixed and flipping or fixed and holding where you need cash for the purchase and the renovation or rehab. So we have second lien helocs. Those are newer to our product line. So I'm pretty excited about those. We touched on that. We have commercial loans for commercial property, commercial loans for residential if it were applicable. And then of course the all in one, which is a first lien Helocs still my favorite, but we've spent lots of time talking about that. So that's probably a good overview or at least abbreviated checklist of products we have.

Keith Weinhold (00:37:16) - And I've got investor loans in there myself or new purchases I've done investor loans in there myself or Refinancings. I mean, you're who I go to for my own loans and you're in nearly all 50 states, right? And these are the states where the property is not where the investor resides.

Caeli Ridge (00:37:34) - Yes, sir. Exactly right. We are in 48 states. We are not in New York or North Dakota. Otherwise we're going to be funding everywhere that they're looking to purchase, refi, sell, etc..

Keith Weinhold (00:37:45) - We'll let our audience know where they can learn more, because I know you offer a lot of good free tools, like something we didn't get a chance to talk about a first lien helocs all in one loan. Like for example, you have a simulator there when an investor can just go ahead and run through that. So we're one find all of those resources.

Caeli Ridge (00:38:03) - So check out our website. There's a lot of good information on there. Lots of video content free education. The simulator link will be on there. If you wanted to check out the comparison between what you have now, your 3% interest rate, or your 2.5% interest rate compared to this all in one. I'll tell you guys that I've run that scenario all the time, and people are very surprised when they see that this adjustable rate first line is beating the pants off of a 2.25% rate.

Caeli Ridge (00:38:26) - So check that out. Our community is in the website we meet every other Tuesday. It's called live with Charlie. That's Ridge Lending group. Com. Email us info at Ridge Lending Group. Com and then you can call us of course toll free at (855) 747-4343. The easy way to remember is 85574 Ridge.

Keith Weinhold (00:38:45) - Charlie Ridge. Informative as always. And brazen. With the mortgage rate predictions. You can learn more about how they can help you at Ridge Lending group.com. It's been great having you back on the show Charlie.

Caeli Ridge (00:38:58) - Thank you Keith.

Keith Weinhold (00:39:06) - Oh, yeah, there's such experienced pros in there. And as you can see, they offer nearly every loan type. In fact, there were so many that I almost asked her, do you even loan lunch money to elementary school kids? Uh, because, uh, because they've seemingly got a loan type for most every real estate investment scenario that there is primary residence loans as well. Helpful people over there at Ridge. In fact, I even visited their headquarters office and I was hosted by Charlie there one day.

Keith Weinhold (00:39:38) - See what they can do for you in there. They are real strategists in helping you grow your real estate portfolio, going beyond just what a typical retail mortgage company does. It helps people with primary residences. You can join their free community events too, and they've really expanded their educational offerings to a giant degree the past couple of years. Financially free beats debt free, and she helps bring it to life and make it real. So big thanks to Charlie Ridge at Ridge Lending Group. Until next week, I'm your host, Keith Wangled. Don't quit your day dream.

Speaker 5 (00:40:17) - Nothing on this show should be considered specific, personal or professional advice. Please consult an appropriate tax, legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own. Information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of get Rich education LLC exclusively.

Speaker 6 (00:40:45) - The preceding program was brought to you by your home for wealth building. Get rich education.com.

Direct download: GREepisode489b_.mp3
Category:general -- posted at: 4:00am EDT

Mon, 12 February 2024

Learn the pros and cons of bitcoin, the world’s largest cryptocurrency.

Bitcoin can be moved well across space and time. You can’t move dollars over time due to inflation; you can’t move gold over space due to weight and security concerns.

Real estate, bitcoin, and gold are all scarce and take real-world resources to produce.

Bitcoin is a global digital currency that’s decentralized.

Nick Giambruno joins us to discuss why bitcoin has value today.

Since there can only be 21 million bitcoin, it cannot be debased like dollars are.

By April, bitcoin will experience a halving. Rather than 900 new bitcoins brought into issuance daily, there will be 450.

The SEC’s recent Spot EFT approval will give more investors bitcoin access.

The higher the stock-to-flow ratio, the harder the asset.

What about governments shutting down bitcoin, regulating it, or taxing it to death? We discuss.

Bitcoin price volatility is a problem in currency adoption.

Lots of energy is used in bitcoin mining. But much of it is stranded energy.

Bitcoin cannot produce income.

Keith Weinhold stresses his preferred way to hold bitcoin.

Timestamps:

Bitcoin's value proposition (00:00:01)

Keith Weinhold introduces the topic of Bitcoin's value and why it is relevant to a real estate show.

Jamie Dimon's criticism of Bitcoin (00:05:27)

JPMorgan Chase CEO Jamie Dimon expresses his disdain for Bitcoin and blockchain technology in a heated conversation.

Bitcoin's resistance to debasement (00:07:19)

Keith Weinhold discusses the resistance of Bitcoin to debasement and the skepticism of governments and financial institutions towards it.

The origin and value of Bitcoin (00:08:18)

Nick Giambruno, an international investor, explains the history and value proposition of Bitcoin, emphasizing its decentralization and resistance to debasement.

Bitcoin's hardness and production rate (00:14:21)

Nick Giambruno delves into the concept of Bitcoin's hardness and its production requirements, comparing it to other assets like gold and real estate.

Bitcoin's upcoming halving event (00:16:28)

Nick Giambruno discusses the significance of Bitcoin's upcoming halving event, which will impact its stock-to-flow ratio and reinforce its value proposition.

Bitcoin's scarcity (00:19:42)

Bitcoin's limited supply and its unique scarcity attribute, compared to other commodities like gold.

Upcoming halving event and Bitcoin ETF approval (00:20:53)

Discussion on the significance of the upcoming halving event and the approval of a new spot for Bitcoin ETF, indicating the growing acceptance of Bitcoin.

Bitcoin as a currency and value proposition (00:22:42)

The value of Bitcoin as a currency for transferring value and its resistance to debasement, emphasizing the importance of self-custody of Bitcoin.

Global adoption of Bitcoin (00:24:30)

Comparison of Bitcoin adoption in different nations, highlighting the potential benefits for early adopters and the impact of Bitcoin on the world's financial landscape.

Bitcoin's market potential and investment consideration (00:27:27)

The potential market share of Bitcoin in the global economy and the consideration of Bitcoin as an investment asset.

Government's ability to regulate Bitcoin (00:34:11)

Discussion on the government's potential regulation and taxation of Bitcoin, emphasizing the power of economic incentives and Bitcoin's resilience to government intervention.

Bitcoin's uniqueness and credibility (00:36:12)

Differentiating Bitcoin from other cryptocurrencies, highlighting its credibility and resistance to change, making it the real innovation in the crypto space.

Bitcoin as a Store of Value (00:37:55)

Discussion on Bitcoin's role as a store of value and its comparison to gold.

Bitcoin as an Emerging Form of Money (00:38:25)

Explanation of Bitcoin as an emerging form of money and its distinction from established money like gold.

Bitcoin's Transaction Network and the Lightning Network (00:39:37)

Explanation of Bitcoin's transaction network, scalability, and the use of the Lightning Network for smaller transactions.

Earning Income from Bitcoin (00:41:40)

Discussion on earning income from Bitcoin through related companies, dividends, and caution regarding Bitcoin lending services.

Bitcoin Exchanges and Custody (00:44:20)

The importance of custodying your own Bitcoin and the risks associated with centralized Bitcoin exchanges.

Connecting with the Guest (00:45:13)

Information on how to connect with the guest and access a helpful Bitcoin guide.

Bitcoin's Energy Use and Price Volatility (00:46:01)

Insights into Bitcoin's energy use, price volatility, and the use of stranded energy sources by miners.

Real Estate vs. Bitcoin (00:47:04)

Comparison of real estate as a wealth builder with the merits and risks of owning gold and Bitcoin.

Disclaimer and Conclusion (00:47:54)

Disclaimer about the content and a conclusion to the episode.

Resources mentioned:

Show Page:

GetRichEducation.com/488

More on Nick Giambruno:

FinancialUnderground.com

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

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487: Immigration Crisis Worsens—Severe Housing Impacts Felt

Complete episode transcript:

Keith Weinhold (00:00:01) - Welcome to GRE. I'm your host, Keith Weinhold. Why does Bitcoin have any value? And why is a real estate show dedicating one episode to this topic now? The benefits and criticisms of the world's largest cryptocurrency Bitcoin today on Get Rich Education. If you like the Get Rich Education podcast, you're going to love art. Don't quit your day. Dream newsletter. No, I here I write every word of the letter myself. It wires your mind for wealth. It helps you make money in your sleep and updates you on vital real estate investing trends. It's free. Sign up egg get rich education com slash letter. It's real content that makes a real difference in your life, spiced with a dash of humor rather than living below your means, learn how to grow your means right now. You can also easily get the letter by texting gray to 66866. Text gray to 66866.

Corey Coates (00:01:06) - You're listening to the show that has created more financial freedom than nearly any show in the world. This is get rich education.

Keith Weinhold (00:01:22) - Work degree from Quito, Ecuador, where I am today, to the Mosquito Coast, Nicaragua, and across 188 nations worldwide.

Keith Weinhold (00:01:29) - You're listening. One of the United States longest running and most less than two shows on real estate investing. I'm your host, Keith Reinhold. Yes, we're a real estate show, but with 488 episodes, it's time to focus at least one of them. Finally, on Bitcoin. We'll bring it back to US real estate next week. Now, this is for a few reasons. Today, Bitcoin is largely misunderstood. It's become so big that it's hard to ignore. And there are two recent Bitcoin events two happenings with global impact that makes now the right time to cover this. Now look, I think that it's human nature that when you learn about something new for the first time and you don't understand how it works like Bitcoin, it's sort of innate to you start criticizing it or sort of discounted in your mind, chiefly because you don't understand it. Though Bitcoin's pseudonymous creator, Satoshi Nakamoto wrote the Bitcoin paper in 2008 and the first Bitcoin was issued in 2009. And, you know, when I first heard about it sometime after that, I probably discounted it in my mind as well.

Keith Weinhold (00:02:45) - And I think most people that don't understand Bitcoin, you know, they first think something like, oh come on, what is this. Just magic internet money. How does that work? How could that have any value. And I think is one matures when encountering the unknown. They inquire rather than criticize it. Look now and I'm getting really personal here, aren't I? I don't do drugs and I never have. But I don't criticize those that do drugs because it's a world that I just don't understand at all. Last year I was having dinner with a couple. They asked me what book I'm currently reading, and I told them that it's a 350 page book about Bitcoin, and the response was laughter, sort of dismissing it. And they said, well, how could anyone write that many pages about Bitcoin just completely discounting the whole thing? Well, for me, a turning point on Bitcoin is when I found highly intelligent people that understood it well and they were excited about it and they endorsed it. Now real estate has more intrinsic value than the dollar or gold or Bitcoin.

Keith Weinhold (00:04:02) - Because real estate is essential to your survival. You can make arguments that the dollar, gold and Bitcoin all have questionable backing. But today enough people agree that the dollar, gold and Bitcoin all have value. People are agreeing all three gold, the dollar and Bitcoin have varying levels then of anthropogenic faith. Today you and I, we live in a digital world that's comprised of 195 world nations. Well then, shouldn't money be made of something that's digital and doesn't know any national borders? Think of Bitcoin's value proposition this way you cannot move dollars across time. That's due to inflation. You can't move gold across space that's due to weight and security. But consider this Bitcoin can be officially moved across both space and time. Its supply is absolutely fixed. At 21 million, there can never be more than 21 million bitcoin either. It's traded on the blockchain, which is basically a digital ledger, but not every intelligent or influential finance person believes in Bitcoin. Of course, not every one of them. For example, it gets a little heated here from last month.

Keith Weinhold (00:05:27) - This is one of the most powerful men in the world. JPMorgan Chase CEO Jamie Dimon. He's getting annoyed about CNBC asking him about Bitcoin just entirely too often. What do you make of the other firms the BlackRock's of the world.

CNBC (00:05:42) - That that obviously and Larry Fink change his view of this obviously. And maybe he changed his view because you think he genuinely believes in Bitcoin or or believed it because he thinks that there's a marketplace for it and he wants to be part of that market. But what do you think of the there's about a dozen big financial companies, fidelity included.

Jamie Dimon, JP Morgan Chase (00:05:59) - Number one I don't care. So just please stop talking about this. And and I don't know what he would say about blockchain versus currencies to do something versus Bitcoin that does nothing. And maybe that's not different than me. But you know, this is what makes a market. People have opinions. This is the last time I'm ever in state. In my opinion.

CNBC (00:06:18) - Gold really didn't do anything either.

Jamie Dimon, JP Morgan Chase (00:06:21) - Yet because it's limited in supply.

Jamie Dimon, JP Morgan Chase (00:06:23) - So it's and it's been used. Uh, so you think so, huh? I do think there's a good chance that when bitcoin when we get to that 20 million bitcoins 42 know that Satoshi is going to come on there laugh hysterically. Go quiet. All Bitcoin is going to be erased I think. How the hell do you know it's going to stop at 21? I've never met one person who told me they know for a fact they take that as it's not.

CNBC (00:06:44) - It hasn't happened because by the last one will be mined in 2150. And it gets harder and harder every time there's another halving. But but, Jamie, I do like looking back over.

Jamie Dimon, JP Morgan Chase (00:06:55) - Just do what you want. I'll do what I want. Ask for gold.

CNBC (00:06:57) - You can. The six characteristics that make gold valuable for 4000 years. They're all present in Bitcoin. That's all I'm saying. I love you and I don't want to. And I also don't I don't also don't want to be a you may enjoy Joe.

Jamie Dimon, JP Morgan Chase (00:07:08) - You may be right.

Jamie Dimon, JP Morgan Chase (00:07:09) - Yeah. Like I don't own gold either. So okay. That's what.

CNBC (00:07:11) - I mean.

CNBC (00:07:12) - Couple of quick final question.

Jamie Dimon, JP Morgan Chase (00:07:12) - I like to own things that pay me incomes, but it doesn't cost money to carry anyway. And it costs money to carry Bitcoin to. By the way.

Keith Weinhold (00:07:19) - Uh, that was Jamie Diamond. Now governments and banksters like Jamie Diamond, they often dislike bitcoin because it cuts out the use of their chief product, the dollar. So governments are especially hesitant to want to promote bitcoin, a lot of them in the world. Anyway, I've got a conversation with a bitcoin expert coming up. We're going to talk about its value proposition and then the criticisms. Yes, I'm in Quito today. I was last year in Ecuador two years ago, this Colorado sized nation of 18 million people. I plan to attempt climbing to the summit of a 20,000 foot mountain later in the week. As for today, let's continue with why should Bitcoin have any value? Today's guest is the founder of the Financial Underground, and he is the editor in chief of that publication.

Keith Weinhold (00:08:18) - He's a renowned international investor, and he specializes in identifying big picture geopolitical and economic trends ahead of the crowd. And you've seen him featured seemingly in everything from Forbes to the Ron Paul Liberty Report. He was a speaker at the well-known New Orleans Investment Conference as well. Hey, it's great to welcome on to gray, Nick. Jim Bruno.

Nick Giambruno (00:08:41) - Hey, Keith, great to be with you.

Keith Weinhold (00:08:43) - I think a lot of our listeners are real estate investors are going to be wondering now, why are you talking about Bitcoin on a real estate show? Actually, I think there are a few more commonalities here than what a lot of people think. What a real estate in Bitcoin have in common. They're both scarce, neither can be easily deluded, and they both take real world resources to produce more of. You could apply those same three attributes to gold. So real estate gold and bitcoin they have this scarcity. And really I think that's a wise investing theme. Go ahead and invest in what's scarce. Limit what's abundant and take zero cost to produce like dollars.

Keith Weinhold (00:09:21) - So really that's the commonality between real estate in Bitcoin. But on a real estate show, I think we have a lot of listeners that just don't have an overall common understanding. Nick, of just what is bitcoin and why does it have any value in the first place?

Nick Giambruno (00:09:37) - Well, that is a some very good observations and a very profound question. What is Bitcoin. Well, Bitcoin is a relatively new asset. However it has been decades in the making. People don't understand that Bitcoin didn't just fall out of the sky, or is some kind of accident in some mad sciences garage. This is something that has been in the the works basically since the late 70s, and it came out of the Cypherpunk movement. Now, you may have heard of these people. You may have not. The Cypherpunks are basically I find them as the good guys. They are involved in creating technologies that empower the individual and disempower the state. They are behind some of the most prominent freedom oriented technologies that you and I may take for granted, including encryption.

Nick Giambruno (00:10:27) - And that's another story in and of itself. Let me just briefly get into that, because that's what puts the crypto cryptography in cryptocurrency. Cryptography is a very important field. It's basically the method of encoding information so that only the recipient can see it. And it's very important to understand that while we take for granted the average person has access to unbreakable cryptography today, that was not always the case. Cryptography has been around since the time of the ancient Greeks, and maybe even before, but it's always been a government monopoly until very recently in terms of historical standards, when cryptography was made available to the average person. That is a very profound thing, because now the average person can secure their information and secure their online life in a way that nobody can break. The US government can't break it. Chinese government can't break it, nobody can break it. And that is very important. And that laid the foundation for Bitcoin. So what is bitcoin. It's just a summit. But it is a superior alternative to central banking.

Nick Giambruno (00:11:27) - And that is a very revolutionary thing. It basically does the job of what a central bank does but much much, much better and removes all of the corruption, all of the nastiness that goes along with central banking. So what we have here is a genuine, workable alternative to central banking, and we can get into the details of that. But if you want to look at it, what it is, that's what it is. And at the same time, it's a form of money that is not just resistant to debasement, it's totally resistant to debasement. You're talking about gold and real estate. Well, gold. What made gold money over thousands of years? Yes, it is scarce. However, I always like to use this example. There's a concept that's related to scarcity, but it's not that it was scarce. And the reason is, is think about platinum and palladium. There's actually scarcer than gold, like there are fewer ounces of platinum and palladium in the world than there are gold ounces. So why don't people use platinum and palladium as money? It's a very, very important point.

Nick Giambruno (00:12:26) - The reason is, is because the platinum and palladium supply is not resistant to debasement. So it's scarcer, but it's not resistant to debasement. What does that mean? It means the annual supply growth of platinum and palladium are basically equal to the stockpiles. So depending on what this year or next year's annual production of platinum or palladium are going to be, it can wildly swing the market. That is not true of gold. Gold is only about 1.5% growth per year. And that's very, very consistent. What does that mean? That is a very important concept. So the gold supply only grows at about 1.5% per year.

Keith Weinhold (00:13:02) - And this is basically an inflation rate.

Nick Giambruno (00:13:04) - Yes it is its inflation rate. But it's very small and nobody can really change that. Think about it. There's a. It's not as if people don't want to increase the gold supply. They would love to. The way that the gold is distributed in the world, and the cost it takes to mining it puts a really hard limit on what you can produce each year.

Nick Giambruno (00:13:22) - So that's what makes it a good store of value. And if something is not a good store of value, it's not going to be a good money. These are some very, very fundamental concepts I'm talking about because they also apply to Bitcoin.

Keith Weinhold (00:13:35) - Then when someone asked me what Bitcoin is to give it a really short definition, I call Bitcoin a global digital currency that's decentralized. And you brought up the decentralization. That's really important. That's where I can make a peer to peer payment without having to go through an intermediary where I can send my Bitcoin directly over to Nick. There was no bank involved in that transaction, for example, the decentralization of Bitcoin. But we talk more about why Bitcoin has value. I believe you began touching on it there, Nick. Bitcoin has this hardness, which is a strange term to people because Bitcoin is digital. So can you tell us more about Bitcoin's value that comes through its hardness.

Nick Giambruno (00:14:21) - Let me just touch on a quick point you made also. So simply put, the value proposition of Bitcoin is that it allows anybody, anywhere in the world to send and receive value without depending on any third party.

Nick Giambruno (00:14:32) - At the same time. It's a form of money that is 100% resistant to debasement. That's its value proposition. That's a very profound thing. So going to the hardness. Yes, hardness is a concept that a lot of people get confused. Look, I love gold, I own gold, I recommend gold chain from the gold community. And I know the gold community. So I think a lot of people in the gold community get confused around this hardness now. They think it's hard, like physically hard, like abrasive metal. That's not what art means. Hard. And in terms of a hard asset, what it means is hard to produce. That's what it means. Yeah, that's what a hard asset is. It's hard to produce. And what is the opposite of that? Something that's easy to produce. Nobody would want to store their value, store their savings, store their economic energy into something that somebody else can make with no effort, almost like, you know, oh, let's put our life savings in arcade tokens or frequent flyer miles.

Nick Giambruno (00:15:26) - It's ridiculous when you think of it in that way. But that is, in my humble opinion, the most important attribute of money is that it's hard to produce all the other attributes of money. Quite frankly, are meaningless if the money is not hard to produce. Because if it's not hard to produce, none of the other stuff matters. And that's the most crucial attribute of money.

Keith Weinhold (00:15:45) - Yes, reinforcing why we have that investing theme of invest in something that's scarce and difficult to produce and takes real world resources to produce, much like real estate does. Much like gold with all the mining and assaying and much like Bitcoin, because to produce new Bitcoin, it takes electricity, it takes hardware and it takes software, some real world resources in order to produce Bitcoin. We talk about the production rate or the inflation rate in just a couple months. Here we're coming up on something really interesting, which is really one reason why I have you on the show talking about Bitcoin now. And that is the having event, the halving being that rate of new Bitcoin issuance is cut in half every four years.

Keith Weinhold (00:16:28) - So tell us more about that and bring the stock to flow ratio into the conversation here. We're at a cusp.

Nick Giambruno (00:16:34) - Of a very important moment in monetary history. Because you can quantify the hardness of an asset. It is quantifiable. It is basically the inverse of the supply growth. And there's another way of saying that, as you mentioned, the stock to flow ratio basically. In short, you got the stockpiles. That's what's available. And then you have the flow which is like the new supply. So the higher the stock to flow, the harder the asset is and the more resistant to debasement it is. And same thing when you take the the supply growth, you want a smaller supply growth. It's just the inverse of the stock to flow. So gold has always been mankind's artist money for thousands of years and gold's stock to blow ratios about I think it's around 60 which means it takes about 60 years of current production to equal current supplies. If you look at silver, it's much less than gold.

Nick Giambruno (00:17:25) - And every other commodity is closer to one, which means that every year the new production basically equals the existing stockpiles. And that's not a very good attribute for something that you want to have as a store of value. Now, what is going to happen in this having that's coming up in around April of this year? You can quantify the stock that flow. I just told you how to quantify it. So right now Bitcoin and gold have about equal stock to flow ratios in about equal hardness. However a key feature of the Bitcoin protocol is that every four years the new Bitcoin supply issuance gets cut in half until around the year 2140, when it is just goes to zero. So Bitcoin is not only going to exceed gold's hardness in a few months, it's going to double it. Now that is a very interesting moment in monetary history because mankind has not had a harder money than gold I don't think. Ever. So this is all going to be very important and it's coming very soon in April. Late April I think is when it's going to happen.

Nick Giambruno (00:18:28) - So a very important moment in monetary history.

Keith Weinhold (00:18:31) - There is real profundity there with the stock to flow ratio of Bitcoin exceeding that of gold with the upcoming having. And if you, the listener still hung up on the stock to flow ratio, we're talking about the ratio of the existing stock, how much of this stuff already exists, whether it's real estate or gold or Bitcoin divided by the rate of new issuance. So the higher the stock to flow ratio, and as it has the greater hardness it has. And currently 900 new bitcoins per day are being produced. And the having means just what it sounds like in April that will drop to 450 new bitcoins being mined into existence each day. So really you can think of Bitcoin as being disinflationary. It will continue to inflate until the year 2140. Like Nick described. That's when new bitcoin will cease to be mined. And until that point, the new amount the flow continues to get halved. Every four years, there will only ever be 21 million Bitcoin that exist, and 19.6 million of those have already been mined.

Keith Weinhold (00:19:36) - So you can get an idea of the hardness and how this helps supply the value of Bitcoin.

Nick Giambruno (00:19:42) - Well, absolutely. And it's he talks about that. I think it's something like 93% of the time, supply has already been mined, and the remaining 7% are going to come online over the next 120 years or so. You might want to get some before other people figure this out. There is definitely not enough Bitcoin for every millionaire to have one bitcoin, it's far less. I think there's something maybe 50 million millionaires in the world, probably more. They can't all have a bitcoin. It's a very tight supply and we have a situation here too that is related. Because Bitcoin is the only asset, the only commodity were higher prices cannot induce more supply. If gold went to 10,000, you can be sure there are going to be more gold miners getting into the business, more economic deposits being found and and exploited and more supply eventually coming on to the market. Great point. And the same is true for every commodity.

Nick Giambruno (00:20:38) - Gold is just the most resistant to that process. However, Bitcoin, no matter how high the price goes, it cannot induce the production of more Bitcoin. That's a very unique scarcity attribute that I don't think people really appreciate very much. It's certainly there.

Keith Weinhold (00:20:53) - So this upcoming halving event is one reason why I'm having Nick on the show now to do our first ever Bitcoin episode in almost 500 episodes. And the other reason is the nation see of the SEC approving a new spot to Bitcoin ETF. And all that basically means is it helps give everyday investors really easy access to Bitcoin without having to set up a crypto wallet and bam, hey, your mom can become a crypto bro now.

Nick Giambruno (00:21:22) - It is certainly a milestone in acceptance. I think it signifies that Bitcoin is no longer a fringe. It's here to stay. It took over ten years for the SEC to approve one of these things. I think the Winklevoss twins applied over ten years ago for the first Bitcoin ETF, so they reluctantly did it. I don't think they want it to do it.

Nick Giambruno (00:21:43) - I think they lost a couple of key court cases that kind of forced their hand, but they did approve it. I frankly don't recommend the ETFs. It's not really Bitcoin because what you have is a Bitcoin IOU, several Bitcoin IOUs. So let's say you buy the Blackrock Bitcoin ETF. Will you have an IOU from your broker for the Blackrock ETF share. And the broker has an IOU from Blackrock. And then Blackrock has an IOU from Coinbase which actually holds the Bitcoin. So I always tell people look it's a spectrum. If you want to take that trade off and you're taking a trade off for convenience over a security and sovereignty, if you want to take that trade off, that's go right ahead. But be have your eyes wide open and be conscious of the trade off that you're making. I always prefer to, uh, tell people Bitcoin is unique. This is a bearer asset. People forget about bearer assets. Bearer assets are a very good thing. They give the people who hold them ownership over them.

Nick Giambruno (00:22:42) - I think people who are interested in sovereignty. One thing too that's very important is that even if the Bitcoin price stays flat forever, it doesn't go up at all. It still offers people tremendous value as what we were talking about before, even if it stays flat and doesn't go up ever again, it's still offers anybody, anywhere in the world the ability to send and receive value from anybody else, anywhere in the world, and to hold money that's resistant to debasement, that's hugely valuable, even if the price doesn't go up. So and you can only get those benefits if you hold Bitcoin properly in your own bitcoin wallet, where you control the keys and only you control the keys, because that's who has ownership to this. Bitcoin is by who controls those private keys. You can just kind of think of that like the password dear Bitcoin. So that's what you want to do. If you can learn how to drive a car you can learn how to self-custody Bitcoin.

Keith Weinhold (00:23:33) - I love what you did there, Nick, because what you helped us do is you helped us transition from talking about Bitcoin as an investment asset to using bitcoin as a currency, if you wish to use it to transfer value.

Keith Weinhold (00:23:47) - Really, Nick, I think a lot of people in the United States, one reason that they're not that interested in Bitcoin is because our currency, our United States dollar, it sure has problems. It sure recently went through a big wave of inflation, but our currency just is not as bad as some of these worthless pieces of paper have been in the Argentine currency or in Turkey or in Iran or Haiti. So maybe Americans don't have enough of a reason to want to go ahead and get a currency that holds its value. So what are your thoughts with what people in other nations are doing, including El Salvador, with immediate legal tender versus the United States, where we have this dollar that's being debased but just not quite at the rate of most other world nations.

Nick Giambruno (00:24:30) - That's a good point. I see this in my travels around the world. It may seem like an advantage for the Americans, but I think it's a disadvantage because they're going to be catch on to this last because they're going to have, oh, we've got the dollar.

Nick Giambruno (00:24:43) - The dollar's great. So why do I need to look at other alternatives. And and they're going to be the last people. So you're going to have I think what you could see over this the next few years, and certainly over the longer term, is that countries like El Salvador, the countries that are experiencing the highest rates of inflation now and are thus more motivated to look at a superior form of money like Bitcoin or gold, but a lot of them are going to Bitcoin. These are going to be the countries that might fare better over the long term, because they're going to be relatively early adopters in this superior monetary technology. Nobody takes a horse and buggy from New York to California anymore. No, you don't need to because you have airplanes, you have cars, superior technologies for transportation. And likewise, we now have a superior technology for money, which is to say storing and exchanging value. That's all money is. People think it's all confusing. You need a PhD and there's all these charts and confusing jargon.

Nick Giambruno (00:25:38) - Money is not confusing. It's actually intuitive and anybody in the world can understand it. It's just something that stores and exchanges value. It's really quite simple. So now we have a superior technology for storing and exchanging value. And I think people who adopt it first are going to reap the most benefits. There are a lot of Americans who have adopted it, but they have been spoiled by the fact that the dollar has been the world's reserve currency. Now, I think that's going away. That's a whole other story. I think that's the two big reasons why, you know, you shouldn't just depend on the dollar one. We can talk. This is a whole new discussion about the dollar as the world reserve currency. I think it's going away. But now despite that we also have a superior alternative with Bitcoin. So yeah, I think the people who are going to adopt this technology sooner are going to reap the most benefits.

Keith Weinhold (00:26:24) - Well, Nick, in your opinion, is Bitcoin's takeover inevitable and how does that look?

Nick Giambruno (00:26:30) - I don't think anything's inevitable.

Nick Giambruno (00:26:32) - I think it's a good that I mean, if I thought it was inevitable, I would sell everything and buy it. I have a more diversified portfolio, but I have a strong conviction in it, very strong conviction in it. But nothing is certain. Nothing's 100%. So I never tell people, you know, and I'm not giving anybody any investment advice. I'm not a registered investment advisor or anything like that. But in any case, even if I was, I wouldn't tell anybody to go all in on anything. And that's certainly not how I manage my risk. However, I do have a very high conviction in it, and I think as it stands now, it has an excellent chance at gaining huge market share in the market for money. And people don't think of money as a market, like a real estate market or a technology market, or the market for any industry. But money is a market. It's probably the biggest market. And I think Bitcoin is you need to put it into perspective, the market cap of all the gold in the entire world is about $13.7 trillion.

Nick Giambruno (00:27:27) - The market cap for all Bitcoin in the world, last I checked, is around $850 billion. So we're less than 10% of gold's market cap. It has. And that's not even including all the fiat currencies. All the fiat currencies have a much larger market cap than even gold. So Bitcoin is just a blip on people's radars. So I think it has a lot of upside from here.

Keith Weinhold (00:27:46) - One important question an investor can ask themselves once they learn more about Bitcoin is, can I really afford to have absolutely none? You're listening to get reciprocation. We're talking with Nick Bruno of the Financial Underground Warren. We come back when now we've talked about the upside of Bitcoin. Let's talk about a lot of the criticisms you're listening to get rejection I'm your host Keith Weiner. Role. Under this a specific expert with income property, you need Ridge Lending Group and MLS for 256. In gray history, from beginners to veterans, they provided our listeners with more mortgages than anyone. It's where I get my own loans for single family rentals up to four Plex's.

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Keith Weinhold (00:29:52) - This is Richard Duncan, publisher of Macro Watch. Listen to get Rich education with Keith Winchell. And don't quit your day dream. You're listening to SOS created more financial freedom for busy people just like you than nearly any show in the world. This is jet versus cash, and I'm your host, Keith Whitehall. We're talking with the Financial Underground's Nick Bruno. We're talking about Bitcoin in a dedicated episode for the first time ever here in the history of the show. And when we had a chance to talk to Nick Bruno, you can see why we wanted to do this. But, Nick, a lot of people in the United States are concerned that the US government might do something similar to what China did and just go ahead and shut down Bitcoin and shut down cryptocurrency because Bitcoin, it basically competes with the US government's product, the dollar. So what are your thoughts when people say, oh I don't know about that. The government can just shut Bitcoin down.

Nick Giambruno (00:30:53) - I'm glad you mentioned China because the communist governor of China is a very powerful governments.

Nick Giambruno (00:30:58) - It's one of the most powerful and maybe arguably the most powerful government in the world. And they've tried many times to ban Bitcoin. You know how it turned out. It was a total failure because Bitcoin is basically code in its mathematics. So it's not the easiest thing to ban even if they wanted to ban it. You're trying to ban mathematics because that's all Bitcoin is. And further many Bitcoin wallets and it all works on cryptography. As and as I said, cryptography is just advanced mathematics. Many Bitcoin wallets have a way to back up your funds a 12 word phrase. So if you can memorize well words, which represents your wallet, you can potentially store billions of dollars just in your head. Now this is how are you going to ban that? You can't ban that. It's completely impractical. I always tell people, you know, look at how governments have tried to ban cannabis. Everybody has been able to buy cannabis in any city they wanted to. And then also other countries have tried to ban US dollars.

Nick Giambruno (00:31:57) - Argentina tries to ban U.S. dollars, Venezuela tries to ban U.S. dollars. You know what it does? It creates nothing. But an underground market doesn't extinguish people's desire to have dollars. And I think that's what we have here. I think economic incentives are more powerful than governments. And aside from that, I don't think that's going to happen because what they approve all these ETFs, that they were just going to turn around and ban it? I don't think so. Further, you have lots of court cases. There is established federal court cases that have ruled that computer code, which Bitcoin is just computer code, is equivalent to free speech protected under the First amendment of the US Constitution. Oh yes, I understand the Constitution is not people can change it and it's malleable. But still, that complicates any government's desire to ban it. They're going to have to overturn those federal court cases. That's not going to be easy. And even if they do, how are you going to ban something that somebody can just memorize with 12 words written on a piece of paper or in their head, it's completely impractical.

Nick Giambruno (00:32:58) - And then, of course, you have the example of China, which has banned Bitcoin several times. You know what? Absolutely nothing happened. But Bitcoin business is moving out of China and Bitcoin adoption among regular Chinese people going up. They can hinder businesses and large like entities that have big presences. They can hinder that certainly. But Bitcoin is global. It'll just go where it's treated best. It's like water. It'll just move to wherever it's treated best. I always say this too. So even if like the northern hemisphere disappeared, let's say there's an all out nuclear war between Russia and the US that will basically wipe out the northern hemisphere. You know what? Bitcoin won't miss a beat in the southern hemisphere. It'll still keep going in the southern hemisphere because it is decentralized and un over tens of thousands of computers around the world. And if even one of those computers survives Bitcoin lives on. So I think this is a very, very hard I wouldn't want to be trying to ban this thing because it's not practical.

Keith Weinhold (00:33:56) - Other critics say, all right, if the government can't ban it, well, the government can just then allow it make it be legal, but they can regulate the heck out of it and they can tax it at really high rates. What are your thoughts there?

Nick Giambruno (00:34:11) - Well, the government can do whatever it wants, but I think, yes, it can do all of those things. But I think here's the main point is that Bitcoin is we talked about economic incentives. Economic incentives are more powerful than politicians. And I think that's a truism. So as more people become holders of bitcoin aware of bitcoin, I don't think restricting bitcoin or banning bitcoin or adding regulations to Bitcoin or adding taxation to it, I don't think that's going to help anybody win an election. Is that going to help anybody win an election? I don't think so. That would be extremely politically unpopular. Yeah, that could happen. It would be bad news for the people who live in that jersey. But you know what? It's not going to kill bitcoin.

Nick Giambruno (00:34:52) - It's going to just be a hindrance for the people who live under these Luddite politicians who would do such a thing. But I don't think they're going to do such a thing. They just approve the ETF. I think Bitcoin has reached escape velocity in terms of its political popularity. I don't think anybody is going to win an election by being tough on Bitcoin.

Keith Weinhold (00:35:11) - A number of congresspeople hold bitcoin, Cynthia Loomis being one of the more prominent ones. And then you and I talked about the SEC spot Bitcoin ETF approval earlier. Well, that's a bit of a de facto stamp of approval on bitcoin really in a sense. And I think another criticism Nick, in my opinion this is easy to dispel. But some people will say, well, there are tens of thousands of cryptocurrencies out there. This stuff's just junk. There's something like hump coin that a prominent rapper promotes. I mean, all this stuff is just a bunch of junk. When all these cryptocurrencies come out. And I tend to think that's very different than Bitcoin.

Keith Weinhold (00:35:50) - Just like if there's some new stock IPO with zero fundamentals that comes out, I mean that doesn't diminish blue chippers like Apple or Microsoft at all. So I think of Bitcoin as the first or one of the first cryptocurrencies with a finite supply. So these overnight fly by night new cryptos I don't think that's really a very good criticism of Bitcoin.

Nick Giambruno (00:36:12) - No, I think this is one of the most popular misconceptions is that there is this crypto asset class and that Bitcoin is just one of 20,000 cryptocurrencies. And I think this is transparently false. It's like saying, oh, you know an increase in the pyrite supply is going to, you know, dilute the gold or something right. So it's kind of ridiculous. And the reason behind this is very simple. Bitcoin is the only one that nobody controls. Nobody can change bitcoin. It's the only one that is like that from Ethereum which is number two on down. They can be changed. A group of people can get together and change it. And in fact, Ethereum's monetary policy has been changed more often than the Federal Reserve's monetary policy.

Nick Giambruno (00:36:54) - It's just instead of the FOMC getting together and deciding what we should do with the money supply, it's a group of Ethereum developers and insiders that get together and change it. And the same thing is true of every other cryptocurrency. So that's the very defining feature of Bitcoin is that nobody can change it. That's what makes it interesting. If somebody could change Bitcoin, it wouldn't be interesting. And we don't need to get into the weeds of that. But needless to say, Bitcoin is the only one where the supply has credibility. We all know the bitcoin supply is 21 million. Nobody can do anything to change that. What is the Bitcoin supply going to be in five years? I could tell you with precision what it will be in five years. I can tell you with precision what it'll be in ten years. And you tell me what the Ethereum supply is going to be in five years. Can you tell me what the supply is going to be in ten years? You tell me what any cryptocurrency aside from Bitcoin supply is going to be in five years.

Nick Giambruno (00:37:41) - No you can't because it depends on how the developers are going to change it. So it's quite ridiculous to lump these two things together. They're entirely separate. Crypto is a cesspool. Quite frankly. Bitcoin is the real innovation.

Keith Weinhold (00:37:55) - And immutable protocol as they call it. Nick, I think one criticism is to pull back. We all know that money is three things. It's a store of value. It's a medium of exchange and it's a unit of account. And a lot of people say, I don't think Bitcoin can be a legitimate currency because all people do is store it. So it might meet the store of value criterion of those three. But I don't know about its legitimacy as a currency. Does that matter? I mean, people kind of use gold as a store of value, but not a currency. What are your thoughts?

Nick Giambruno (00:38:25) - Yes, it does matter. And it's a good question. The answer is is Bitcoin is not an established money. Take gold for example. Gold has been around for thousands of years.

Nick Giambruno (00:38:34) - It is an established form of money. Bitcoin is an emerging form of money. It's a very big distinction. So I personally think the way this will go and you know people disagree. But I think just logically, if you look at it, yes, story of value comes first. Why. Because once people store their value in Bitcoin, the monetary network of people who will be willing to exchange that bitcoin for something else grows and you can't have one before the other in terms of like nobody's going to exchange bitcoin if they're not already storing bitcoin. So the more people that store bitcoin have it available to exchange it for other people, it's like a network effect, any kind of network effect. That's a monetary network effect. And that's time to build further Bitcoin related misunderstanding is you kind of view Bitcoin in a different lens than just paying for like a cup of coffee, because that's really not what it's made for. The Bitcoin network has a hard limit on the number of transactions that I can process every day in order to keep it decentralized, because if it processed everybody's coffee transaction, you would need huge data centers to run the Bitcoin software.

Nick Giambruno (00:39:37) - The matter is, is that the Bitcoin software needs to be decentralized. So right now, anybody who has an average laptop, an average Raspberry Pi can run Bitcoin. That is very important for its decentralization. And if you were putting everybody's retail transaction on the Bitcoin blockchain would be impossible. You need large data centers. Now does that mean Bitcoin can't scale to become a medium of exchange? Absolutely not. You have to just think of bitcoin. What is a Bitcoin transaction represents. It represents final international settlement and clearance. So it's more akin to an international wire transfer. You wouldn't pay for a cup of coffee with from a Swiss bank account to Starbucks in New York. That's basically what you're talking about. What you do is you build layers. There are different layers that are built on top of that bedrock, which is the Bitcoin network that is immutable, unchangeable, and then you build transaction networks on top of that. So what we have with Bitcoin, the most prominent one right now is called the Lightning Network, which is another network that's built on top of Bitcoin that is really more suitable for smaller day to day coffee transactions.

Nick Giambruno (00:40:43) - You can actually send about 1/32 of a penny over lightning. So you can do all sorts of micro-transactions. Very interesting. So that's akin to, you know, like a credit card or a credit card is kind of like a layer two network that's built on top of central banks, which do international clearing and settling, and credit cards are built on top of that. And you can think of the same kind of solutions that are going to be built on Bitcoin. You're going to have different layers for different applications. And in terms of these medium of exchange and transaction network in Bitcoin it's the Lightning Network. And it's very exciting to use.

Keith Weinhold (00:41:19) - Yeah the Lightning Network it's been around for a while. It's been getting more adoption to help promote payments through Bitcoin. Being a real estate investing show here, oftentimes our listeners are interested in buying a property that will produce income from a tenant that's in that property. Can Bitcoin produce income?

Nick Giambruno (00:41:40) - Bitcoin itself cannot produce income because it's just simply money. It's simply an asset in the same sense that gold doesn't produce income.

Nick Giambruno (00:41:47) - If you want to earn income from Bitcoin, invest in Bitcoin related companies and Bitcoin related businesses that pay dividends. There are some and there is going to be many more. There are Bitcoin mining companies. These are companies I specialize in covering. In my financial research. They're relatively new. They don't pay dividends yet, but there are several that are looking to establish dividends. You can also lend your bitcoin I mean that's not bitcoin giving you a yield. That's you earning a yield from lending your bitcoin. I would caution you because there's been a lot of these kinds of bitcoin lending services that have gone bankrupt. BlockFi Celsius I'd be. And so whenever I hear about Bitcoin yields I caution people to be not just vigilant, be double vigilant of how you would normally be because there's been so many scams in this area and bad companies that have gone bankrupt. Taking advantage of people looking to earn a yield on their bitcoin. It's really a nascent industry. And you know what? Look at Bitcoin's compounded annual growth rate over any period of time for years.

Nick Giambruno (00:42:50) - You don't need a yield. It's going up if the trends continue. And I always tell people if you're going to invest in Bitcoin, have at least a four year time horizon, because that's a long time horizon. But the reason is, is because that gives you through one halving cycle, these having cycles go every four years. It's almost impossible. There's maybe a couple of instances, a couple of days where the bitcoin price wasn't higher than it was four years ago. So I always tell people have a four year time horizon when you're dealing with Bitcoin. And when you look at the returns, that could be possible. And I think the pastor. Returns. Past performance doesn't guarantee anything in the future, but I think that being said, we can expect this cycle to be similar to the other cycles. When you see that kind of potential, it should really make you not interested in these yield products.

Keith Weinhold (00:43:39) - You mentioned a couple of bankrupt crypto exchanges there, BlockFi and Celsius. I got caught up in some of that.

Keith Weinhold (00:43:48) - Now I keep all of mine on a hard wallet because really what these exchanges do is they're centralize something that's supposed to be decentralized like Bitcoin, and it gives Bitcoin a really bad name. Nick, I had some people reach out to me when FTX imploded and people said, this proves that Bitcoin is a scam. And I had to gently explain to people, whoa whoa whoa whoa whoa whoa whoa. Just because Wells Fargo or Chase fails. We didn't say the dollar failed. It wasn't a failure in Bitcoin. It was a failure in these exchanges.

Nick Giambruno (00:44:20) - Oh, yes. This has been going on for a long time. And before FTX, there's Mt. Gox. There's a lot of these things. So I think the underlying lesson here in all of these examples is that don't trust third parties. And with Bitcoin you don't need to trust their authorities because if you can learn to custody your own Bitcoin, you are totally responsible, totally in control of your destiny. You don't have to worry about one of these bitcoin companies going bankrupt because you hold it and only you hold it.

Nick Giambruno (00:44:48) - And I think that's what makes it special.

Keith Weinhold (00:44:51) - This has been a great chat and I think a really good Bitcoin 101 for a person that still doesn't understand very much about it. And you help people understand Bitcoin, you do an awful lot of other things, including informing people about global trends and macroeconomics. So if someone wants to connect with you and learn more from you, what's the best way for them to do that?

Nick Giambruno (00:45:13) - The best place is Financial Underground Comm. I have a really helpful Bitcoin guide that shows people how to use it in the most sovereign and the most private ways possible, and I keep that guide up to date with the current best practices, because these things change very frequently. Like what is the best wallet, what is the best hardware wallet, and so forth. So I keep this guide alive with the best current practices. I think that would be a big help for people. Could definitely save them many, many hours of time by simply just identifying today's best practices. So I think that would be very helpful.

Nick Giambruno (00:45:45) - You can find all that at Financial underground.com.

Keith Weinhold (00:45:49) - Nick Bruno has been super informative. Thanks so much for coming on to the show.

Nick Giambruno (00:45:54) - Thank you Keith, great to be with you.

Keith Weinhold (00:46:01) - Another Bitcoin criticism is its energy use. Oh, look at all the electricity that mining consumes. What a waste. But the more you learn, you find that Bitcoin miners, they often use stranded energy sources that might not get used otherwise. In fact, miners have an economic incentive to use stranded and low cost energy. Volatility in Bitcoin's price has been a real problem if you want to use it as a currency. The price for one Bitcoin peaked at almost $70,000 in late 2021, and just a year later it was under 16 K, and now the price has swelled up a lot again from that recent low. In any case, if you choose to own Bitcoin or any other crypto, please store it on a cold wallet for security. It's a small device. It's about three times the size of a thumb drive. It looks like a thumb drive, and there is a learning curve that you have to meet in order to use one.

Keith Weinhold (00:47:04) - I don't own much gold or bitcoin, just a little. They both have their merits and risks like we've discussed. I'm a real estate guy. Even most gold and bitcoin proponents that I've talked with seem to agree with me that real estate is the proven wealth builder. I'm not sure if we'll ever devote another episode to Bitcoin here. I hope that today's episode at least equipped you to ask better questions, in case you want to know more about it. Today's episode had a more international than usual feel. Bitcoin has no boundaries. I'm in Ecuador and our guest Nick joined us from Argentina today. I'll be back in the US next week when I have some really important real estate trends to tell you about. Until then, I'm Keith Reinhold. Don't quit your daydream.

Speaker 7 (00:47:54) - 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. Information is not guaranteed. All investment strategies have the potential for profit or loss.

Speaker 7 (00:48:09) - The host is operating on behalf of get Rich education LLC exclusively.

Keith Weinhold (00:48:22) - The preceding program was brought to you by your home for wealth building. Get rich education.com.

Direct download: GREepisode488_.mp3
Category:general -- posted at: 4:00am EDT

Mon, 5 February 2024

Immigrants keep pouring into the US’ southern border.

How are we going to house them? We’re already millions of housing units undersupplied.

Some migrants get free housing. Yet there are homeless veterans.

Here’s what to expect from more immigration: more rental housing demand, more multigenerational dwellings, more homelessness, higher labor supply.

Get a simple explanation about title insurance.

Our in-house Investment Coach, Naresh, joins us with a real estate market update.

Two popular investment markets are Memphis BRRRRs and Florida new-builds.

He provides free coaching at GREmarketplace.com.

Timestamps:

The immigrant crisis worsens (00:00:01)

Discussion on the increasing number of immigrants and the housing shortage crisis in the United States.

Housing supply shortage (00:02:44)

Analysis of the shortage in housing supply, estimated to be around 4 million units, and the decline in available housing units.

Impact of immigration on housing demand (00:05:07)

Forecasted impacts of immigration on housing demand and the expected population growth due to immigration.

Challenges and solutions for housing immigrants (00:09:03)

Discussion on the challenges of housing immigrants and potential solutions, including easing construction restrictions and promoting the building of entry-level housing.

Title insurance explained (00:17:29)

Explanation of title insurance, its types, and its significance in real estate transactions.

Update on property manager's situation (00:15:08)

An update on the property manager's situation involving stolen rent payments and the tenant's agreement to compensate for the loss.

Mortgage rates and inflation (00:21:52)

Discussion on the current mortgage rates and their correlation with inflation, as well as predictions for future rate movements.

Mortgage Rates and Fed's Strategy (00:22:54)

Discussion on the impact of the Fed's decision to hold rates and its potential effect on mortgage rates.

Incentives and Real Estate Markets (00:25:08)

Explanation of incentives offered in Memphis and Florida real estate markets, including the BR method and new build properties.

Real Estate Investment Strategies (00:29:04)

Comparison of the Memphis BR method and Florida new build as investment strategies, emphasizing the benefits of each approach.

Property Investment Insights (00:32:16)

Discussion on the impact of property ownership and the potential for life-changing outcomes through real estate investment.

Economic Uncertainty and Real Estate (00:37:07)

Anticipation of potential economic volatility and its impact on real estate investment decisions, emphasizing the stability of real estate during uncertain times.

Resources mentioned:

Show Page:

GetRichEducation.com/487

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

Will you please leave a review for the show? I’d be grateful. Search “how to leave an Apple Podcasts review”

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486: Should We Eliminate the Property Tax? Featuring Tom Wheelwright

Complete episode transcript:

Keith Weinhold (00:00:01) - Welcome to GRE. I'm your host, Keith Weinhold. Hold. The immigrant crisis worsens. Where are we going? To house all these people. A simple explainer on what title insurance is. Then where do you find the best real estate deals in this market today on get Rich education. If you like the get Rich education podcast, you're going to love our Don't Quit Your Daydream newsletter. No, I here I write every word of the letter myself. It wires your mind for wealth. It helps you make money in your sleep and updates you on vital real estate investing trends. It's free! Sign up and get rich education.com/letter. It's real content that makes a real difference in your life, spiced with a dash of humor. Rather than living below your means, learn how to grow your means right now. You can also easily get the letter by texting gray to 66866. Text gray to 66866.

Speaker 2 (00:01:06) - You're listening to the show that has created more financial freedom than nearly any show in the world. This is get rich education.

Keith Weinhold (00:01:22) - Welcome to jewelry heard in 188 world nations from Lima, Ohio to Lima, Peru. I'm your host, Keith Weinhold. Get rich education founder, Forbes Real Estate Council member and longtime real estate investor. Our mission here. Let's provide people with good housing, help abolish the term slumlord and get paid five ways at the same time. Immigrants keep pouring into our southern border. In fact, federal agents encountered roughly 2.5 million migrants there just last year alone. Now, though, not all will become permanent residents. Understand? 2.5 million. That's the population of the city proper of Chicago or Houston. All in just one year. How are we going to house all these migrants? This crisis has only worsened in that 2.5 million migrants in a year figure is, according to US Customs and Border Protection data. Now, understand first that America has about 140 million existing housing units. That's what we're dealing with today. By every estimate out there, we already have a housing shortage. The layperson on the street knows that and estimates about its magnitude.

Keith Weinhold (00:02:44) - I mean, they're all over the map, some as high is America is already 7 million housing units undersupplied in order to house our current population. And you have other estimates as low is that we're only 1.5 million housing units. Undersupplied. So let's interpolate and kind of be conservative, or just use a figure closer to a common consensus and say that we are 4 million housing units. Undersupplied. All right. But if that's our given, here's what that means. 4 million housing units undersupplied to merely reach a balanced housing supply, we'd need to build enough homes to meet population growth, plus 400,000 on top of that. And we'd have to do that every single year for an entire decade. Just astounding. And to be clear, that's not to be oversupplied with housing. That's just to reach an equilibrium between supply and demand. Now, the supply of available housing, and this is basically what I'm going to talk about next, is the number of homes for sale at any given time, right. That began gradually descending in 2016.

Keith Weinhold (00:04:02) - And back then it was one and a half to 2 million available units. And in the spring of 2020, like I've talked about before, the housing supply just crashed to well below 1 million, and it still hasn't gotten up from its mighty fall. In fact, it's only about 700,000 units available today. All right, that is the Fred active listing count and Fred's sources there. Statistics from Realtor.com. All right, so that's what we're dealing with. That's a dire situation. All right, well, how do housing starts? Look, are we building up out of the ground enough to maybe start getting a handle on this sometime in the next decade? I mean, is there anything that could be more encouraging than more housing starts? Well, really, there's nothing encouraging there at all. In fact, new housing construction starts have hit a ten month low. My gosh. So that's the supply side. All right. What about the housing demand side? Well America's population grew by 1.6 to 1.8 million people between 2022 and 2023.

Keith Weinhold (00:05:07) - And that number is forecast to climb during the next few years, worsening the housing shortage crisis. And with US births falling and deaths rising, it's immigration, immigration is what is going to fuel the majority of population growth for the next decade. Immigrant related growth that is going to impact local housing markets across the country. And it's expected to hit especially hard in the northeast, Florida, California, Nevada and Texas. And what's happening is outraging some people. Some cities are housing migrants in public places, even arenas, including ones that Texas Governor Greg Abbott has bused to the northeast. And, of course, New York City Mayor Eric Adams has been outspoken about how to handle the migrant crisis. Understand that there are homeless veterans out there in America, yet the state of Maine is giving migrants up to two years of free rent for new apartments. In that right there has made a lot of people. And there are a lot of other cases out there like that of migrants getting free housing. Now, just consider this John Burroughs research and consulting.

Keith Weinhold (00:06:31) - They provide a lot of good information to the real estate market, and they have for a long time credit to them. And by the way, if you'd like us to invite John Burns onto the show here or if you have any other comments or questions or concerns, feel free to write into us through get Rich education. Com slash contact. So you can send either an email or leave a voice message. Well, according to their industry respected data, some of which is compiled through the US Census Bureau back in 2021, that's when we reached an inflection point where the US population grew more through immigration than it did through natural increase in natural change. That is simply the births minus deaths, and that is continued each year since there is more US population growth through immigration than there is through natural increase. In fact, bring it up to last year, our population grew by 1.1 million through immigration and just 500,000 through natural increase, more than double more than double the increase through immigration as natural change. And John Burns makes the forecast through the year 2033.

Keith Weinhold (00:07:47) - So the next nine years, the growth through immigration will outstrip that some more and become double to triple that of natural growth overall. Every single year through 2033, we'll add 1.7 to 2 million Americans. And they all need to be housed somewhere. So the bottom line here is that immigration fueled growth already outstrips natural growth. And that should continue and only be weighted more heavily toward immigrants every single year for the next decade, probably beyond the next decade. We just don't have projections that far yet. Well, how are you going to house all these people when we're already badly undersupplied and understand I'm not making any judgments on saying who or who should not be able to enter our nation. That is for someone else to decide. And in fact, I'm the descendant of immigrants. They're my ancestors. And you may very well be too. And over the long term, immigrants can be an asset. I am simply here asking where and how are we going to house them for the next decade and what that means to you.

Keith Weinhold (00:09:03) - Tiny homes, 3D printed homes, shipping container homes none of them seem to be the answer. And of course, population forecasts. When you look out in the future like that, they're going to vary based on the percentage of successful asylum seekers in the 2024 presidential election winner, and more. So, the figures that I shared with you, they are only the average case. In any case, the crisis is poised to worsen because now you've seen that there is a terrible mismatch between population growth and housing starts. How are you going to solve this? The government needs to ease construction restrictions and promote the building of entry level housing. More up zoning should be allowed. Do you know what up zoning is? It means just what it sounds like increasing the housing density, often by building taller buildings. So up zoning is taller building heights. All right. Well let's look at really.

Speaker 3 (00:10:02) - Four.

Keith Weinhold (00:10:03) - Big impacts that this immigration wave is having on America's already scarce supply of housing. New immigrants typically rent property. They don't buy property.

Keith Weinhold (00:10:16) - So that's higher rental housing demand. Secondly, expect more multigenerational and family oriented dwellings. That's what's needed with additional bedrooms and affordable price points like entry level single family rentals. If you want to own rental property, that right there is the spot for durable demand. And thirdly, I'm sorry, another impact is expect to see more homeless people in your community like I've touched on before. In fact, homelessness is already up 12% year over year. That's partly due to inflation, and that is already the biggest jump. Since these point in time surveys have been used. The biggest ever jump in homelessness are ready. Those stats only go back to 2007. That's when they begin measuring it. And that's according to HUD and federal officials. And then the fourth and final impact of all this immigration is that builders and manufacturers will probably see a small uptick in labor availability these next. Few years. Okay, that part could help. America could help with this labor shortage crunch. But all the other major impacts put more demand and strain on what's already a paucity of American housing supply.

Keith Weinhold (00:11:36) - And the bottom line is that there are too many people competing for too little housing, driving up prices and driving up rents this decade. I've been talking about lots of people moving north across borders. Me, I've recently moved south across borders, though for only a few weeks here. I'm joining you from here in Medellin, Colombia today, where in between doing my real estate research here, I'll be trekking in the Colombian Andes this week and the Ecuadorian Andes next week, when I'll be based in Ecuador's national capital of Quito. And, you know, there's a real estate lesson in this itself. Really? Okay, me traveling to Colombia and Ecuador, people often label and mischaracterize areas that they haven't been to or say they hear of the drug trade in Colombia or of some of the more recent, I guess, civil unrest in Ecuador, where I'll be next week. And they think, sheesh, isn't it dangerous in those places? Oh come on, I mean, sheesh, Colombia is a nation of 52 million people and it's almost twice the size of Texas.

Keith Weinhold (00:12:44) - The question is where? Where in Colombia do you think is dangerous? Don't you expect there would be great variability there? Now you the great listener. You're smarter than the average American. So I think that you get it with last month's continued civil uprising in Ecuador, seeing that story in the news that actually reminded me to book a trip there, the opposite of staying away when they held up all the people at that TV station that was way out in Guayaquil, Ecuador. To tie in the real estate lesson here. Back to your home nation. If you do live in the US or wherever you live like I do, see our investment coach, Andrea. She moved from Georgia to the Detroit Metro a couple of years ago. I don't think you'd want to invest in real estate in Andrea's neighborhood, where she lives in Detroit, because it's too nice. The property prices are high and the numbers wouldn't work for you in an upper end neighborhood of metro Detroit. But people that haven't been to Detroit don't think about areas being too ritzy for investment.

Keith Weinhold (00:13:49) - Well, of course, some of the areas are. Some of my point is, stereotypes are hard to shake. I encourage you to get out and see the world now. I've got an interesting and really an unlikely update on my property manager that had the tenant rent payments stolen from his drop box, meaning I didn't get paid the rent. The property manager, he didn't make good on that and pay me the rent. He wanted me to take the loss from the rent payment that he failed to secure from the paper money order stolen from his overnight drop box. So the manager doesn't want to take the loss. I don't want to take the loss well, and I can hardly believe this, but apparently the tenant has agreed to make the property manager hold. The tenant would effectively pay rent twice for that month, and then the property manager will apparently finally pay me the missing rent after it flows through him. The manager. I don't know if the property manager had to convince the tenant that it's the tenant's responsibility to put the payment right into the manager's hands, or what? So the tenant, what they're going to do is pay an extra $200 a month until the $1,950 stolen rent is compensated, I guess what, eight months of stepped up rent.

Keith Weinhold (00:15:08) - And so I was just really surprised that the tenant would agree to do that. And, you know, in this saga that I've been describing to you for, I guess, the third week in a row now, you know, one Jerry listener, they asked me something like, doesn't your property manager know that you're rather influential in the real estate world? Like thinking maybe I'd get preferential treatment? Oh, to that I say, no, I don't want preferential treatment. I mean, few things are more annoying in society than people that position themselves like that. But I will tell you that I actually did meet this property manager in person before he started managing my properties, and he did wear a suit and tie in the conference room for meeting me, which I thought was interesting. Later today on the show, we've got a guest that's familiar to you. He was somewhat bearish on real estate when he was here with us back in November. That's when he talked about how activity was slow, and you might even want to sit on the sidelines of adding more property to your portfolio.

Keith Weinhold (00:16:10) - We'll see if that's changed today. Now over on YouTube, you might very much like watching me in our explained. Video series because in a video format, I can show you where the numbers come from at. Very simply, break down an investing term like net worth for one video or cash flow, or your return on amortization in another one. There's also a new video in our explained series about title insurance, and this is what you'll hear over there. The title to a house is the document that proves that the owner owns it. Without that proof, the house can't be bought or sold, and title insurance is written by title insurance companies. What a title insurance company does is research the history of the house to see if there are any complications, also known as clouds, in its ownership issues that cloud the title could be like an outstanding old mortgage that the prospective seller has on the property. A previous deed that wasn't signed or wasn't written correctly and unresolved legal debt or a levy by a creditor, like an old lien placed by a contractor who once did some work on the windows and was never paid for it.

Keith Weinhold (00:17:29) - They're all examples of clouds on a title, and make transferring the property ownership difficult or impossible. But if the title appears to be clean, no clouds, then the title insurer writes a policy promising to cover the expenses of correcting any title problems if they would happen to get discovered after the sale. Title companies may refuse to insure a clouded title to be transferred, so it's important to know about any potential issues as soon as possible. Now there are two types of title insurance. There is lender's title insurance and owner's title insurance. First, lenders title insurance. In most areas of the country, the mortgage lender requires that the property buyer purchase a lender title insurance policy to protect the lender's security interest in the real estate. Lender's title insurance is issued in the amount of the mortgage loan and the amount of coverage decreases and finally disappears as the mortgage loan is paid off. And then secondly, owner's title insurance. It protects the homebuyers interest and is normally issued in the amount of the purchase price of the property. Coverage means that the insurer will pay all valid claims on the title as insured, and in most real estate transactions, separate title policies are purchased for the lender and the buyer, and although it can vary by location, the buyer typically purchases the policy for the lender, whereas the seller often pays for the policy for the buyer.

Keith Weinhold (00:19:12) - And that's title insurance, if you like. Simple to the point education by video like that, and you'd want to get a really good look at me for some inexplicable reason. Uh, for more, check out the new explained series. It is now on our get Rich education YouTube channel or next. I'm Keith Reinhold, you're listening to get Rich education. Render this a specific expert with income property you need. Ridge lending Group Nmls 42056. In gray history, from beginners to veterans, they provided our listeners with more mortgages than anyone. It's where I get my own loans for single family rentals up to four Plex's. Start your pre-qualification and chat with President Charlie Ridge personally. They'll even customize a plan tailored to you for growing your portfolio. Start at Ridge Lending group.com Ridge lending group.com. You know, I'll just tell you, for the most passive part of my real estate investing, personally, I put my own dollars with Freedom Family Investments because their funds pay me a stream of regular cash flow in returns are better than a bank savings account up to 12%.

Keith Weinhold (00:20:35) - Their minimums are as low as 25 K. You don't even need to be accredited for some of them. It's all backed by real estate and that kind of love. How the tax benefit of doing this can offset capital gains and your W-2 jobs income. And they've always given me exactly their stated return paid on time. So it's steady income, no surprises while I'm sleeping or just doing the things I love. For a little insider tip, I've invested in their power fund to get going on that text family to 66866. Oh, and this isn't a solicitation. If you want to invest where I do, just go ahead and text family to six, six eight, six, six.

Speaker 4 (00:21:21) - Anybody? It's Robert Elms with a Real Estate Guys radio program. So glad you found Keith White old and get rich education. Don't quit your day dream.

Keith Weinhold (00:21:40) - Hey. Well, I'd like to welcome in someone that you might have met by now. That is one of our terrific investment coaches. Narration. The race. Hey, welcome back onto the show.

Naresh Vissa (00:21:49) - Keith. It's a pleasure to be back on race.

Keith Weinhold (00:21:52) - I know you've got mortgage rates on your mind. It's been such an interesting topic lately, since they peaked at about 8% back in October of 2023, and almost everyone this year anticipates that now that embedded inflation is lower, that rates of all types are going to fall, rates in inflation are typically correlated. And why don't you talk to us with your thoughts about where mortgage rates are currently and where they go from here?

Naresh Vissa (00:22:19) - Like you said, mortgage rates peaked around October. The fed did their last rate hike in July 2023, so that's why the lagging effect caused rates to rise a little. And then they've been slowly creeping down since October. And what does that mean? Or where do we go from here in this new year 2024? I've been pretty spot on with what the Fed's going to do. I think they made some mistakes. I think they should have done 2 or 3 more 25 basis point hikes in 2023 because we're seeing inflation creep back up.

Naresh Vissa (00:22:54) - And that's a huge problem for the fed because their target is 2%. But that's a completely different topic. We get Monday morning quarterback the fed all we want. The fed has essentially come out and said that their rate hiking campaign is over. They've hiked enough and it's a take it or leave it. They're just going to hold and hold and hold until inflation reaches that 2% target. So what does that mean for mortgage rates? If we know that the fed isn't going to raise rates anymore, that means we are. We've already seen it. Mortgage rates have slowly creeped down. And there is a legitimate chance that the inflation rate that the CPI hits 2% by this summer, there is a chance of that. Right now we're at 3.3 or 3.4%, but there is a good chance that by the end of this summer, let's say August, we hit that 2% target, which means the fed will immediately start cutting rates after that whenever the next meeting is, I think September 2024, they'll start cutting rates, which means that's going to have an effect on mortgage rates.

Naresh Vissa (00:24:00) - We can see mortgage rates plummet even more later this year going into 2025. Now, this is just a prediction. There's a chance that inflation could go up if there is a middle East crisis or World War three or whatever you want to call it, there's a chance that inflation spikes back up and the fed just they could hold rates where they are for two years. I don't have a crystal ball in front of me. There was a black swan event that happened in 2020. Obviously, there could be a black swan event that happens in 2024. We won't know. But what we do know is the fed is done hiking rates and they're going to hold as long as possible until we get to that 2% inflation target. What does that mean for real estate? If mortgage rates are going back down, you're getting a better deal today than you were in October 2023 or November 2023. So it's almost 100 basis points lower from the peak that we saw in October. So interest rates have gone down. They've somewhat normalized to a level that digestible for investors, still not quite digestible for the average homeowner.

Naresh Vissa (00:25:08) - And the best part about this, Keith, is that the providers who we work with are still offering amazing incentives, the same amazing incentives, if not better, with the lower interest rates. So previously we brought up a 5.75% interest rate incentive program, one year free property management, another program that was two two for two years of free property management, 2% closing cost credit, $4,000 property management credit, all sorts of incentives. And those incentives are still in play while interest rates have gone down. So instead of 5.75% incentive that these providers are offering, they're now offering 4.5% interest rate. So that's why I think if there were no incentives, hey, you know what? We should probably wait until the fed starts cutting again. But with these incentives, this is incredible because they're going to be gone again the moment the fed starts cutting aggressively. These incentives are all gone. So you may as well get in. Now when home values have somewhat corrected and some markets are seeing precipitous declines, home value declines, real estate declines.

Naresh Vissa (00:26:20) - So right now it's still an excellent time to invest. Given this economic landscape.

Keith Weinhold (00:26:26) - Gray listeners are pretty savvy. And you the listener, you realize that changes in the fed funds rate don't have a direct change, and they don't move in lockstep with the 30 year fixed rate mortgages. The fed has really loaded up with the fed funds rate near 5%. Now they basically have a whole lot of ammo in the cartridge where they can go ahead and lower rates if the economy begins to get into trouble. One reason mortgage rates are higher than other long term rates is that US mortgages can be prepaid without any penalty. The anomaly in what's been different and what's been happening here is that typically there's a spread of about 1.75% between the ten year note, which has been 4% or so recently. And the 30 year mortgage rate is about 1.75% higher, which. She would put it at 5.75, but instead mortgage rates have been almost 7%. So a greater than usual historic spread between the ten year teno, which is more what mortgage rates are based off of and what that rate actually is, and the reason that that spread has been so high as this perceived greater credit risk or anticipated economic changes like this recession that is always just perpetually around the corner.

Keith Weinhold (00:27:44) - So we don't really know where mortgage rates are going to go. We know that they're not high. They're actually below their long term average. But of course, they just feel high because the only thing that was unusual is the rate at which they've increased. With that in mind here as we talk about mortgage rates nowadays. Why don't you tell us more about the incentives that are being offered right now?

Naresh Vissa (00:28:03) - The incentives are still being offered. The question is, Keith, I want to share two different strategies or two different markets. It's kind of a mix of strategy and market. The two most popular markets we are seeing right now are in Memphis, Tennessee, and in Florida. Still, Florida continues to be hot. Why is that? Why these two markets? Well, number one, Memphis still has a lot of rehab properties that you can purchase in the 100 to $150,000 range. Before the pandemic, it was common to see properties selling for 60 to $80,000. Those properties are a dime a dozen now, because of what we've already talked about the inflation, the home values, rising real estate going up.

Naresh Vissa (00:28:51) - Memphis still offers those options. Now we work with a provider in Memphis who specializes in the BR method, the B or R r. So it's for cause the BR.

Keith Weinhold (00:29:04) - It's not the February temperatures. BR yes.

Naresh Vissa (00:29:07) - Yeah. It's not the February temperatures. It stands for you buy rehab rent then you refinance and then you repeat it with the next property. So buy rehab rent refinance repeat. So this is a little different from your traditional real estate investing where you're just buying. It's already rehabbed. So you're buying renting it out. And then end of story here. It's a strategy that is meant to build equity. Almost immediately. You rehab it. And look we're not going to get into the details of this right now. I highly recommend that, folks, they can go to the GRE marketplace and set up a meeting with me if they want to talk some more about BR or if their experience and they know about BR, they may not know that we offer BR properties. But our investors have loved Memphis, BR.

Naresh Vissa (00:30:02) - They have loved it. They have bought more and more is one of our hottest asset classes or strategies right now. Memphis BR so highly recommend it. What are the incentives? There actually no incentives that our Memphis, BR provider is offering, because the incentive of the BR strategy is enough to get people to keep buying. They keep getting inventory, they don't run out. They find ways to make it work. Now in Florida, we work with a provider who we've featured on this show a couple of times before, and they're owned by the largest Japanese real estate developer called Sumitomo Forestry. They're one of the largest Japanese companies in the world. Warren Buffett owns a huge stake, Berkshire Hathaway in Sumitomo. So I highly recommend this Florida provider because they're able to offer properties that values that other providers can't compete with at prices that other providers can't compete with. They're offering the incentives that I told you, the 4.5% program, in some cases, you can buy down the rate all the way down to 4.25% if you want.

Naresh Vissa (00:31:10) - They have two years free property management or one year free property. It just depends on the package that you choose. They're offering closing cost credits. You can negotiate the list price. These are the two most popular partners we are currently working with, and I highly recommend if you are liking this real estate market, you're seeing lower interest rates. You're seeing that there's been a correction in home values and you want to get in right now. Contact your investment coach. If you don't have an investment coach, go to the marketplace. You can select me if you want, or you can select the other investment coach Andrea, it's up to you and we can share more information.

Keith Weinhold (00:31:52) - You're talking about two different strategies here, the Memphis BR and the Florida Newbuild. And I think of the Memphis burger is something that's lower cost. It's for an investor with a more aggressive disposition where it will take some of your involvement, even though it's still only going to be remote involvement. And then on the flip side, with the Florida new build, you're going to benefit from those low bought down rates that the builder will buy down for you.

Keith Weinhold (00:32:16) - The longer you plan to hold the property, the more the rate buy down is going to benefit you. And then also think of the Florida new build is kind of being a low noise investment.

Naresh Vissa (00:32:29) - You're absolutely correct, Keith. So I highly recommend those who are sitting on the fence. I've come on this podcast before and said, hey, Keith, you know, right now I'm not really sure where things are going. Like it's a little dead. Maybe investors should hold off.

Keith Weinhold (00:32:44) - Yeah, back in November, that was your guidance?

Naresh Vissa (00:32:46) - Yep. That was. And now I think because we've seen the lower interest rates, you can just get in at a much better deal. Everyone can be happy. I think our investors would be happy. And it's a great time to start investing in real estate again. Don't put it off. I remember when I first got into real estate, I was putting it off, putting it off, and I look back and I say, man, I should have gotten in four years earlier or five years earlier.

Keith Weinhold (00:33:13) - How many properties do you think it took for you to buy until it changed your life? For me, it was probably when I bought my second fourplex and I had eight units. But I think if you're buying single family homes, it takes probably fewer units than that to really start changing your life.

Naresh Vissa (00:33:30) - Yeah, one units aren't going to change your life. Two units aren't going to change your life. In my case, it's just a personal story. I bought one the first year, another one the second year, and then my third year I scaled from 2 to 7. That was the life changing experience right there. And the last two properties I bought were new construction. So number seven and number eight were new constructions. And that also changed my strategy too, because I said, hey, new construction is just so much better than these older rehab properties, just less headache. We've talked about this before on previous episodes, and so moving forward, I'm actually saving up right now to buy my next new construction property.

Naresh Vissa (00:34:13) - New construction. Me personally, I think that's a way to go, there's no doubt about it. And because I went from 2 to 7, that was the game changer for me, at least on the taxes on the passive cash flow. And look, I'm relatively young. I'm in my mid 30s. But when I think about retirement, which I don't think about much, but sometimes I do, and when I do think about it, I'm like these eight properties, if I hold on to them, that's a nice retirement that I have in retirement. That's a great passive cash flow. By then the mortgages will be paid off. Although we believe in refi til you die. Just to get a little more specific about some of these incentives, I'm looking at the Florida ones right in front of me. Option one, for example, is a 4.25% interest rate. That's where the buy down the 2.75% buyer paid point buy down. But it comes with two years of free property management. I think the best deal if you want zero buy down it's two years of free property management seller paid closing costs of 1.5%.

Naresh Vissa (00:35:19) - So that's a 1.5% closing cost credit and a 5.75% interest rate that you'll be locked into. I think that's a pretty darn good deal.

Keith Weinhold (00:35:30) - There are some attractive options there. Yeah. It's interesting you raised when you talk about how many properties does it take to change one's life. Yeah. You're right. When you buy your first property, your second property, it isn't life changing. You probably haven't own property long enough yet to benefit from leverage, and surely not cash flow just off 1 or 2 properties. But what happens is you accumulate more is sometimes you don't have to use and save up your own money to buy a new property. You might want to do that, but at the same time, the properties that you bought a few years ago have built up enough equity. So now that rather than your money buying new properties, it's like your properties, buy your new properties for you as you do these cash out refinances. And that's where you really get things rolling. So it can take a few properties and a few years.

Keith Weinhold (00:36:16) - But nowadays you're so right about the opportunity really being with New Build. Today I'm a guest on other shows and a lot of people are just an economics host. They think about real estate investing, they think about higher mortgage rates, and they're like, you know, where's the opportunity for an investor today? And that's usually what I tell him. It's with these builder rate buy downs on new build properties. Take advantage of that this year.

Naresh Vissa (00:36:38) - Absolutely. So like I said great marketplace. You can get more information set up meetings with Andrea or me or whoever you're assigned investment coaches. If you don't have an assigned investment coach, take your pick and let's get your real estate investment journey either started or on cruise control.

Keith Weinhold (00:36:57) - If you have any last thoughts, whether that's this year's direction of prices or rents or the economy as it relates to real estate or anything else at all.

Naresh Vissa (00:37:07) - Well, Keith, I think we're about to see and we don't get political on here, but for whatever reason, we tend to see crazy financial markets during election years, whether it's presidential elections or midterm elections.

Naresh Vissa (00:37:22) - We saw the stock market drop wildly in 2022 during a midterm election year. Of course, 2020 will never forget the craziness of lockdowns and masking and social distancing and what the financial markets did. I mean, all the at least the stock market. President Trump lost all the gains that he had in the stock market as president, were lost in over a two month period in February and March 2020 because of pandemic. And then they came surging back. So the point that I'm making here is economically, I shared my vision of just systematically, I think inflation is going to hit the 2% by the end of the summer. The experts initially thought it would hit the 2% by March. In the latest CPI reading showed that inflation actually went up. I think we're going to see some type of, I don't want to call it a black swan, but this year is not going to go according to plan. Maybe the inflation plummets because something deflationary happens. Or maybe the inflation rises again because something inflationary happens. That's just not on our radar.

Naresh Vissa (00:38:30) - So how does that affect real estate. Well that doesn't change what we said five minutes ago, which is right now, today. Given all this uncertainty, today is still a great time to jump in, because if there is a deflationary event, you can always refinance your rate in a year or two when rates are much lower. And remember, mortgage rates are tax deductible.

Keith Weinhold (00:38:54) - A presidential election year brings more uncertainty than usual. You can buffer yourself from that volatility with real estate and investment that's more stable than most anything else out there. I encourage you, the listener, to check out Naresh and the other coach, Andrea at Great Marketplace, and it can really help you out and help you put a plan together. Hey, it's been great having your thoughts. I think the listeners are going to find this helpful. Thanks for sharing your expertise. Thanks, Keith. Yeah, there's some valuable guidance from Naresh on where the real deals are in this market today. Memphis Bears and Florida, new builds. They're really just two of the dozens of options from Gray's nationwide provider network.

Keith Weinhold (00:39:44) - Learn more, see all the markets or connect with a coach all at Gray marketplace.com. Enjoy the Super Bowl I'm Keith Weinhold. Don't quit your Daydream.

Speaker 6 (00:39:59) - Nothing on this show should be considered specific, personal or professional advice. Please consult an appropriate tax, legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own. Information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of get Rich education LLC exclusively.

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

Direct download: GREepisode487_.mp3
Category:general -- posted at: 4:00am EDT

Mon, 29 January 2024

California is strengthening protections for tenants. I discuss. It’s already a disadvantageous state for real estate investors.

My Property Manager had my tenant’s $1,550 rent payment stolen from his drop box last year. He expects me to take the loss. I won’t. Who is liable for the payment - the thief, bank, tenant, manager, or the investor (me)?

Tom Wheelwright, CEO of WealthAbility, joins me. We discuss the role of property tax in funding essential services.

The conversation touches on the regressive nature of property tax, alternatives to it, and the importance of understanding tax strategies.

US taxes of all types keep ratcheting higher over time. But they’re still lower than most world nations.

The episode also considers the impact of elections on tax policies, emphasizing the need for informed voting regarding taxation.

You need a tax professional that knows how to find you all the deductions for real estate investors here: GetRichEducation.com/Tax

Timestamps:

Landlord-Tenant Relationships (00:00:00)

Discussion on landlord-tenant relationships, stolen rent payment, and potential elimination of property tax.

New Renter Protections in California (00:02:30)

Overview of new laws in California regarding upfront deposit amounts, eviction protections, and banning of crime-free housing policies.

Options for Homeowners in California (00:03:50)

Details about new housing laws in California, including more options for accessory dwelling units and their impact on the housing crisis.

Stolen Rent Payment Dilemma (00:05:53)

Narrative about a stolen rent payment, liability concerns, and the property manager's proposed resolution.

Feasibility of Eliminating Property Tax (00:13:45)

Discussion on the possibility of abolishing property tax and its funding of schools, fire departments, and police services.

Property Tax Funding (00:18:37)

Insights into the funding of property tax and its allocation to schools, fire departments, and police services.

Property Tax and Its Impact (00:19:37)

Discussion on the challenges and implications of property tax as a wealth tax and its regressive nature.

National Property Tax Rates (00:20:40)

Exploration of the national average property tax rate and its impact on property value and inflation.

Proposition 13 in California (00:21:34)

Analysis of the impact and benefits of Proposition 13 in California, which limits property tax increases for homeowners staying in the same home.

Alternatives to Property Tax (00:23:27)

Exploration of alternative taxation methods, such as transaction tax and the potential elimination of property tax in favor of a transaction tax.

Primary Residence Capital Gains Tax Exemption (00:25:16)

Insights into the primary residence capital gains tax exemption and its impact on homeowners, including the need for inflation adjustments.

Future Taxation Trends (00:27:24)

Discussion on the potential for heavier taxation and comparisons with taxation policies in other countries.

Potential New Tax Types (00:29:16)

Exploration of the possibility of new tax types, including the concept of a poll tax and its implications.

Value Added Tax and Tax Reduction Strategies (00:31:17)

Insights into the potential implementation of a value-added tax in the United States and strategies for tax reduction through understanding the tax code.

Selecting the Right Tax Advisor (00:33:00)

Advice on choosing a qualified CPA and the importance of having a knowledgeable tax advisor for effective tax planning.

Election Year and Taxation Policies (00:34:54)

Analysis of the potential impact of the upcoming election on taxation policies and the importance of considering tax implications when voting.

Property Tax and School Funding (end)

Perspective on property tax funding for schools and the broader community impact, addressing objections to paying property tax.

Property Tax (00:37:07)

Discussion on the controversial nature of property tax and its impact on property ownership.

Tax Strategy and Deductions (00:38:13)

Importance of finding the right tax professional for real estate investors to maximize deductions and benefits.

Disclaimer (00:39:25)

Legal disclaimer regarding the information provided in the podcast and the need to consult appropriate professionals for personalized advice.

Resources mentioned:

Show Page:

GetRichEducation.com/486

Get matched with the right tax pro:

www.GetRichEducation.com/Tax

Tom’s book, “Tax-Free Wealth”:

https://www.amazon.com/Tax-Free-Wealth-Massive-Permanently-Lowering/dp/1612681204

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

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485: The Creeping Silent Depression and Current Economic Realities with Doug Casey

Complete episode transcript:

Keith Weinhold (00:00:00) - Welcome to GRE. I'm your host, Keith Weinhold. California and new renter protections. My own property manager had my tenants rent payments stolen from his drop box, and he wants me to take the loss. Then Tom Wheelwright joins me for a discussion about can we abolish the property tax today on get rich education? If you like the Get Rich Education podcast, you're going to love our Don't Quit Your Daydream newsletter. No, I here I write every word of the letter myself. It wires your mind for wealth. It helps you make money in your sleep and updates you on vital real estate investing trends. It's free. Sign up and Get Rich Education. Com slash letter. It's real content that makes a real difference in your life, spiced with a dash of humor. Rather than living below your means, learn how to grow your means right now. You can also easily get the letter by texting GRE to 66866. Text GRE to 66866.

Speaker 2 (00:01:06) - You're listening to the show that has created more financial freedom than nearly any show in the world.

Speaker 2 (00:01:13) - This is get rich education.

Keith Weinhold (00:01:22) - Welcome to GRE! From Montpelier, France, to Montpelier, Vermont, and across 188 nations worldwide. And Keith Weinhold, in your listening to get rich education across the United States, it's fortunate for us that states with landlord friendly policies also tend to be those states where the numbers make sense to. And for landlord tenant relationships, it's the state and local policies that often trump the national ones. Now, of course, in residential real estate or any real estate for that matter. I mean, you can make money in all 50 states, of course, but there's a reason that we generally avoid certain places, and that includes California. One difficulty in California has long been the process of getting a prompt eviction. It can be hard to do that even if you have just cause, where it can take months and months, or even longer than a year to get an eviction. Let's listen in to this minute and a half clip on how tenants rights are being strengthened in California. Just a little more.

Speaker 3 (00:02:30) - Well, every month, renters in California spend a hefty portion of their paychecks on housing. And as we kick off, 2024, seven is on your side with the new laws. Renters should know to save some money and also protect themselves against eviction. Before you lock in an apartment, you usually need your first month plus a security deposit in advance. Well, now the amount you have to pay up front could potentially drop by thousands of dollars.

Speaker 4 (00:02:54) - Landlords can now charge just one month of security deposit up front, and previously they could charge two months if the unit was unfurnished or even up to three months of the unit was furnished.

Speaker 3 (00:03:05) - Renters are also getting new eviction protections. Soon, it will be harder for landlords to evict a tenant under the no fault, just cause policy. Currently, a tenant can be evicted if the landlord or landlord's family is going to move in, but starting April 1st, the landlord or their family will have to move in within 90 days and live there for at least a year.

Speaker 3 (00:03:24) - Local governments are also now banned from crime free housing policies. Cities and counties can't mandate penalties or evictions against people who have been charged, convicted or had police called on them. The ban also applies to the family members of tenants. Now, renters are not the only ones benefiting from the new housing laws. Homeowners will now have more options when it comes to so-called granny flats or accessory dwelling units.

Speaker 4 (00:03:50) - Now they can separate and either build or sell an Adu and accessory dwelling unit and sell that separately as a condo. Lawmakers think that that's something that's going to help the state's housing crisis.

Speaker 3 (00:04:02) - And with housing prices sky high, this could give many would be homebuyers the opportunity they need to afford a starter home.

Keith Weinhold (00:04:09) - Yeah. So there it is in California this year. Lower upfront deposit amounts for tenants and more protection from evictions. California landlords, they can now charge just one month of security deposit upfront. That's the most they can charge. Previously, they could charge two months if the unit was unfurnished and up to three months security deposit if the unit was furnished.

Keith Weinhold (00:04:36) - Now, on the flip side, you've got to give California credit for helping homeowners, existing homeowners. They will now have more options when it comes to so-called ADUs accessory dwelling units, which some people call granny flats, because now they can separate and either build or sell in Adu. They could sell that separately as a condo, and that might help California's affordable housing crisis and the housing shortage crisis that could give more California homebuyers the opportunity that they need to afford a starter home. So that is better for first time homebuyers in California. And whether you live there or not, this matters. California has the same population as all of Canada in between 11 and 12% of all US residents are indeed Californians. Let me tell you about a completely weird situation that I have with one of my property managers. Now, I own rental properties in different states around the US, and each of those local markets has their own manager, and you might have this situation as well. Or perhaps that's what you would soon like to do to have this situation of having properties in multiple markets.

Keith Weinhold (00:05:53) - Well, about 12 months ago now, I got a message from a property manager that manages a bunch of single family homes for me in this one particular area, and he let me know that I was not going to be seeing a rent payment for one of my tenants. And that's because the tenant paid the rent, but they paid it with a paper money order that was left in the manager's overnight drop box and the mail from that box. Was broken into by a thief and stolen. And then apparently the thief converted the money order at the bank by in this house. Unbelievable. By waiting out the name of the money order recipient, which I guess would have been the manager. And then the thief wrote in his own name on the Wite-out. Now there were three tenants that had their payments stolen from my property manager like this. So mine was one of the three from my tenant. And the thief also broke into two other real estate offices around the same time. So the thief broke into three offices total, apparently.

Keith Weinhold (00:07:01) - Now, the question that we're leading up to here is, I tell you more about this. Who is liable for this missing payment? And really, there are five parties here where you could give an answer. Is it the thief, the manager, the tenant, the bank or me? The investor who is liable for that stolen payment? Who should make good on it? Who will make good on it? Now, the amount that we're talking about is a stolen rent of $1,550. Okay. This is a rental single family home that I have. So I've been out this $1,550 for about a year now. And by the way, the tenant that had the rent payment stolen a full year ago, they still live there in their rent is now 1750, but it was 1550 them. Now I'm only making a thing of this a full year later and starting to ask my manager to make me whole now. And that's just because I've got a lot going on in life and $1,550. That's just not enough to make that big of a deal over.

Keith Weinhold (00:08:03) - But when life took a pause and I got to thinking about this some more, the principle of it is really bothersome. Wouldn't it bother you? I mean, if I let others like my manager get away with something like this, then I could get walked all over in other ways. Now, when I requested that the manager paid me because it was their drop box that it was stolen from, really, the only answer that they want to give me is that they can't pay because they don't have insurance to cover that type of loss. Well, I don't either. Now, should the bank be the liable party here for processing a payment where the pay to name was whited out, and then the criminal wrote over it with his name? And by the way, the criminal used his real name. And that's also part of how he got caught, which is unbelievable. And they also, though they do know who the criminal is because they have video surveillance of him at the bank depositing the money orders. I mean, how should he have been able to catch them? But the process of trying to get the criminal to remedy this or the bank to remedy this, those approaches have not worked.

Keith Weinhold (00:09:14) - And I think that the manager wants me to take the loss and pay because he doesn't want to take the loss. And you know, something? Admittedly, between the tenant, the manager and I, I'm probably the one that could most afford the loss, but that does not make it right now. At last, check the property manager who keeps refusing to pay up. They propose something ridiculous that I want to share with you in a moment. You're not going to believe it. Well, as you know, you have a written management agreement when you enter in an agreement to have your manager manage your property for you and that management agreement that's between you, the investor and your manager, just those two parties. And as we know, one job that your manager does for you is that they collect the rent for you. So I figured what I would go do is look at my management agreement, and I'm going to go cite that line where it says that the manager collects the money for the property owner.

Keith Weinhold (00:10:16) - But would you believe it? Nowhere in our agreement does it state that the manager collects the payment for the owner. So here's one lesson. The next time you're signing a new management agreement, see that that line is in there. I think it's just kind of easy to assume that it is. But, you know, those agreements, they're typically written by the property management company. So they might write it in ways that protect them. But here's the thing. The manager still doesn't want to pay $1,550 and was stolen from the drop box. They had proposed something that seems wild to me when I said I'm not going to let go. They told me that their plan is to ask the tenant to pay by adding an extra 150 or $200 to their monthly rent payment until the deficit is paid up. So that would be what, something like eight months of payments. Now, I doubt that the tenant would agree to something like that. If the manager is accepting rent in a drop box, it seems like it's the manager's responsibility to make sure that it's secured.

Keith Weinhold (00:11:20) - So to me, of the five parties involved here, it should be either the criminal, the bank for processing the payment that way, or the manager that should be held liable. One of those three parties, not the property owner and not the tenant. So you've got to believe that I consider firing this property manager and using someone else. And by the way, whenever you have to do that, if you ever do have to do that, and I've had to do it before, you can ask the provider that sold you the property for new property management recommendations, or you can find some new property managers by checking online forums with other clients that have actually used property managers. If you replace your manager. What that does is that your manager, they're going to lose more than just that 8 to 10% monthly management fee. They'd also lose future leasing fees. They lose any arrangements that they have with service providers to service your property, like plumbers and electricians. When it comes time for you to sell your properties that your manager manages for you, that manager might also lose the ability to collect referral fees at that, manager has the real estate license so you can make firing your manager hurt them more than you might think.

Keith Weinhold (00:12:40) - Now, I don't like hurting anyone in business. That's why I'm trying to find a constructive way to resolve this. But the manager has had a long time to make this right with me. They're probably just hoping I would forget about the whole thing. The property manager does not want to take the loss, and I will not either. I'll keep you updated on how this weird situation concludes here, but yeah. Hey, I'm an investor just like you. I want to dig in and get involved sometimes and see if something like a stolen rent payment happened with a stock that you own. I mean, you might take the loss there and you wouldn't even know that it happened. So I like real estate investing trends agency with a manager. I don't have the day to day involvement responsibility, but yet I can see a lot of what's going on with the monthly statements that they send me. Or if I have a concern, I know who I can directly contact to remedy something. And if you're a new real estate investor, please be mindful that this situation with my manager and the stolen rent payment is not typical at all.

Keith Weinhold (00:13:45) - In 20 years of doing this, I have never had a situation like this. In a few minutes here, we're going to discuss how feasible it is that America could eliminate the property tax altogether. And our guests. He's also going to tell us why he's been seeing more people like you paying tax on the gain from the sale of your primary residence. Hey, would you like to see me at breaking down real estate investing concepts on a whiteboard? Yes, a magic marker in hand with a whiteboard and an easel. Well, you can watch me do that from the comfort of your home. Over on our YouTube channel, we recently launched our explained series, and I begin it by breaking down basics and just showing you an actual net worth and actual cash flow statement, and then figuring out how you can take those and learn exactly when you can quit your job and retire. It's easier to do the numbers over there than it is here on an audio format, and later I'll whiteboard some more advanced concepts for you soon, like explaining an inverted yield curve.

Keith Weinhold (00:15:00) - Watch me on the whiteboard in our explained series. It is free on YouTube right now and our channel is pretty easy to find because it's called get Rich education. Eliminating the property tax. Next I'm Keith White hold. You're listening to get rich education. Role under the specific expert with income property, you need Ridge lending group and MLS 42056 in gray history, from beginners to veterans, they provided our listeners with more mortgages than anyone. It's where I get my own loans for single family rentals up to four Plex's. Start your pre-qualification and chat with President Charlie Ridge personally. They'll even customize a plan tailored to you for growing your portfolio. Start at Ridge Lending group.com Ridge lending group.com. You know, I'll just tell you, for the most passive part of my real estate investing, personally, I put my own dollars with Freedom Family Investments because their funds pay me a stream of regular cash flow in returns are better than a bank savings account up to 12%. Their minimums are as low as 25 K. You don't even need to be accredited for some of them.

Keith Weinhold (00:16:20) - It's all backed by real estate and that kind of love. How the tax benefit of doing this can offset capital gains and your W-2 jobs income. And they've always given me exactly their stated return paid on time. So it's steady income, no surprises while I'm sleeping or just doing the things I love. For a little insider tip, I've invested in their power fund to get going on that text family to 66866. Oh, and this isn't a solicitation. If you want to invest where I do, just go ahead and text family to six, 686, six.

Speaker 5 (00:17:02) - This is author Christine Tait. Listen to get Rich education with Keith Reinhold and don't quit your Daydream.

Keith Weinhold (00:17:19) - A renowned tax and wealth expert is back on the show with us today. He's also a CPA, and he's the CEO of a terrific tax firm called Wealth Ability. He's the best selling author of the Mega-popular book Tax Free Wealth, which you may very well want to check out again, because he just updated that book with a third edition. I have the original tax free wealth on my bookshelf.

Keith Weinhold (00:17:40) - Welcome back to Dr. Tom Wheelwright. Thanks, Keith. Always good to be on your show. Tom, we have a lot of real estate investors listening. Why don't we talk about property tax? It applies to one whether they own income, property or whether they own a primary residence. Tom, I thought about the discussion that we were going to have today. I was thinking about it yesterday. And you know what happened? I looked out my window and the garbage had just been picked up from the curb, and this was shortly after my driveway was plowed of snow. Okay, now, if an alien came down from another planet and we described that there's a property tax in the United States, so we'll probably believe, oh, all right. Well, they're going to like, pick up your trash and like, plow your driveway for you and everything for that property tax you pay. It's like, oh no. Well those are separate services that I pay. So really what I'm getting at is maybe more philosophically in big picture, should there be a property tax? That's a big question.

Keith Weinhold (00:18:37) - Yeah. But let's do talk about what property tax funds. So property tax funds schools. It's the primary funding mechanism of schools. If you talk to an old timer they still call it school tax sometimes. Yeah it funds schools. It funds fire departments. It funds the police. So those are the three big services that have funds. This is why, by the way, Keith, when there was that group in Seattle that took over that section of the city and the government refused to send to kick those people out. I don't know if you remember this a couple of years ago. And I'm going, wait a minute, why are we paying property taxes? Because the police force and the fire department were being paid by property taxes on the buildings that had been taken over by this renegade group. Wow. And so I have a commercial property. I pay a huge property tax on that commercial property doesn't house children, so I don't send children to school, but I still pay tax for education. Why? Because I need educated employees, so I'm happy to do that.

Keith Weinhold (00:19:37) - I pay for fire protection. I pay it for police protection. I think what the money is used for generally is fine. I don't have an issue with that. The challenge I have with the property tax is twofold. One is it is a true wealth tax. If your property goes up in value, you pay more tax and it's a tax on inflation, because if you're a property goes up in value because of inflation, you pay more tax. And then second of all, you're out to sell your property. But it's also a regressive tax. So people who have no more income, they're on fixed income, they're Social Security. They have a pension plan whatever that their property goes up because of inflation, not because it's a better property and they're paying more tax even though their incomes not going up. That's my biggest challenge with property tax. That's really a good point. I had never thought about it that way before. The property tax can be a regressive tax. Therefore you pay a higher rate with a lower income, which is what a regressive tax means.

Keith Weinhold (00:20:40) - I know that some jurisdictions try to help senior citizens out with that. Maybe you both say like the first 100 K of assessed property value is exempt. But yeah, on basis you're right about that. With it being a regressive tax. Tom, I kind of look around the landscape. We deal with a lot of markets and properties and providers nationwide here at gray, and I seem to see a national effect of property tax rate of about 1%, something like that's pretty common 1% of value on a 500 K property. You're going to pay about $5,000 in property tax. Of course, that varies substantially. New Jersey is a really high one. So the states in the Deep South are really low ones. But what are your thoughts about that 1% average national effect? Think about that tax rate. Let's say you bought that property for $50,000. You bought the property for $50,000 based on your income. You bought it for $50,000. Now, because of inflation, it's $500,000. Now it's really a 10% of what you bought it for.

Keith Weinhold (00:21:34) - So it's not really 1% anymore. It's 1% of the price value. It's not 1% of what you paid for it. This is where California with prop 13 they apt their property tax. Right. If you didn't move into a new property. I loved that proposition. Frankly, I love prop 13 because what I said was, look, if you're staying the same home, your property tax isn't going to go up. Because you get no more value out of it than you did when you bought it. So why are you getting more tax even though you're not getting more value? That makes no sense. I'm not a big fan. You know, like Texas has a they rely heavily on property. Remember we have three types of taxes. We have an income tax. We have a transaction tax which the biggest one is sales tax. But it's also excise taxes. And then we have property tax. And property tax and estate tax are the only two wealth taxes we have. And property tax is a true wealth tax.

Keith Weinhold (00:22:29) - Why is it allowed. Why can we have a property tax in our hometown. But we can't have a federal property tax because Constitution doesn't allow a federal property tax. But our state constitution probably does allow a state property tax. And so robbery taxes are really interesting. I talk about in tax free wealth. Tax wealth has a chapter on property sales and property tax. It's my least favorite tax because again A it's regressive and B it's a tax on something I've never realized. The only benefit I have is that I live in it. But that benefit's not gone up even though the property tax goes up. You brought up so many interesting things there. Sure, that proposition in California is what kept people staying in their homes for a very long time. But we think about property tax and should there even be one? As we ponder that big question, what do other nations do? Because a lot of times I know you look at foreign nations tax policies. Most localities. A lot of them have a local property tax.

Keith Weinhold (00:23:27) - I don't think it's uncommon. What's interesting to me is that Missouri is looking at getting rid of their property tax and putting in a transaction tax instead. So in other words, you don't pay a tax for owning the property. You only pay a tax when you sell it. Well, that actually makes more sense. You know, in previous episode we talked about more versus United States. We talked about that whole idea of a wealth tax and realized gain. And some states do this already. California does this, Hawaii does this, Pennsylvania does this where you have a tax when you sell the property, an excise tax when you sell the property, or a transfer tax, if you will? That makes some sense because you did get the money. You actually have the ability to pay the tax. It's not coming out of your earnings. It came out of the sale of the property. So it's a tax on the sale. Frankly, if I had to choose, I would probably choose the transaction tax.

Keith Weinhold (00:24:23) - I mean, I would choose to have very little tax. I think we need fire. We need police. Those two things we absolutely need we need roads. We should have taxes to pay for those school. I'm a fan of school choice. And should we have property tax pay for those? Or is that something that we ought to pay for some other way? I don't know, there is argument that, again, that should be maybe you ought to pay that out of sales tax or a transaction tax. Yeah. I think I'm feeling your vibe on that one time that a transfer tax of real estate is somewhat more palatable than this ongoing property tax that you have to pay, because the transfer tax probably is realizing a gain there. Along with that, even though we probably don't like that piled on top of ongoing property tax, for sure. We think about property taxes, something that applies to every homeowner, whether they own income, property or not, is the pretty well known primary residence capital gains tax exemption for quite a while.

Keith Weinhold (00:25:16) - That's been 250 K if you're single and 500 K if you're married. Can you tell us more about that and where the direction of that's going? And is that adjusting with inflation or what are your thoughts. Yeah, it's not adjusting for inflation unfortunately. It's interesting. Some things adjust for inflation. Some things don't. Tax brackets adjust the exclusion for your primary residence doesn't. And your deduction for miles driven for charity doesn't adjust for inflation. But your deduction for miles driven for work does adjust for inflation. So it's very interesting to see what does Congress say. We're going to adjust for for inflation. What they don't. That came into effect under Bill Clinton prior to his presidency. You had to actually put your new house, had to be worth more than your old house is very much like a 1031 exchange where as long as you bought a new house that was equal to or greater in price than the sales price of your old house, you paid no tax but the minute you went down. So when, for example, you're retiring and you decide, well, I don't need all this house, my kids are gone, I'm going to go move into a condo on the golf course, or I just don't need that much space.

Keith Weinhold (00:26:25) - Then you had to pay tax. What happened in the Clinton era was we actually got this exclusion, which is as long as you live in the house for two years, two out of the last five years, you get 100% exclusion on the gain, up to 250, like you said, 250 single, 500 joint. I would love to see them index that. I think it needs to be indexed. Frankly, they need to adjust it retroactively because too many people got caught in this last run up where for the first time ever, I saw a lot of people paying tax on the gain from the sale of their house. Yeah, that's something that you hope that you don't have to do. We'll see if and when they do adjust that for inflation. I'm not always talked about property tax bill. Why don't we open it up somewhat more and talk more about what we discussed the last time you were here on the show with us? Well, I think we already learned then whether Americans, just over time, over the long term, are more likely taxed or more heavily taxed.

Keith Weinhold (00:27:24) - It seems like they're always piling on more and more taxes. What are your thoughts with where we're going on lighter taxation or heavier taxation? I said, well, we rarely get taxed less. We're actually taxed less than just about any other country. Just to be clear, we pay a lower share of our income in taxes than just about any other country. But of course, we have much, many fewer benefits. We don't have national health care. We have Social Security, but it's a small amount, right. In France, remember, they had these big protests, right? Because the French president raised the retirement age from 62 to 64. Why were so many people protesting that? Well, it's because in France the salaries aren't enough to keep up. And so they're relying on that. They can't save up and say, I'm going to retire earlier because I've saved up money. There's not enough income for them to save. So they're relying on the government to save for them. That was a hard thing for them.

Keith Weinhold (00:28:18) - We have a hard time understanding that in the US because our tax rates are so much lower. France, for example, I was. Reading. That's the other day. 50% of GDP goes to taxes in France. In the US it's about 26% of GDP. So we're almost half of what percentage of our GDP goes to taxes. So they're the highest. What's happening is you're seeing Germany. There's this going up Korea. Theirs has gone up, Japan theirs has gone up. And the US, they expect ours to be up. It's 28% of GDP within a few years. So it's all relative, right. The problem is, is that the taxes are more and more as a proportion of our gross domestic product. If you think the government should stay out of our lives, then you're on the wrong end of that stick, because that means that the government's getting more and more involved, and more and more money is being spent by the government instead of the private sector. Well, Tom, you've been here on the show with us a lot of times.

Keith Weinhold (00:29:16) - We've talked about how your rental income gets taxed. We've talked about capital gains tax and property tax and sales tax and income tax, one tax type we haven't talked about. When we think about whether things just get worse as the government piles on more taxes, is there any threat in your mind of a tax for those that don't know what that is? That's basically a head tax. That's a tax that's imposed on you just for existing. Is that a possibility? Zionist capitation tax and not a decapitation tax. It might feel like one. Yeah. It's, uh, commonly called the poll tax write poll. As in poll. You go to the polls that the number of people that is actually allowed, the government could impose that that is allowed under a constitution, a poll tax. Great Britain has a poll tax. So it's not unheard of. I haven't heard a lot of people talk about. The problem is, is that a poll tax is a tax on voters. And we know politicians don't want to put a tax on voters.

Keith Weinhold (00:30:16) - Right. So where's the incentive to vote? They're more likely to put a tax on corporations who don't vote. I'll tell you the favourite tax. The favourite tax is to put a tax on out-of-towners. Somebody who's coming into your place like a travel tax. One of the key policy points of any tax unit is you want to export your tax to people who don't vote for you. So you're always trying to put the tax on somebody who doesn't can't vote for you. Because if you put on people who do vote for you, you will soon lose your job. Interesting point. That's why you see taxes on Ubers and taxis and hotels, resort taxes. You see those kind of tax skills are basically export tax, right? They're taxing people who don't live and vote in your state or in your location. A poll tax would be a tax on people who do live in your state or location. I have a hard time seeing that one coming down the line. More likely is you really wanted us to be more competitive with the rest of the world.

Keith Weinhold (00:31:17) - We'd have a value added tax in the United States, we do not have one. And if you wanted to make us more competitive with the rest of the world, if you really want to raise funds or you want to pay off the deficit, or you want to get rid of an income tax, the best way to do it would be a value added tax. Well, maybe you, the listener, just have a shred of a little something to be thankful for. There are tax types you've heard of that we don't actually have yet. There actually are some remaining. It seems like they'll all get used up. Europe has a. Europe uniformly has a 20% value added tax that just goes to increases the price of your meals at a restaurant, increases the price of every product you buy. That's a value added tax. That's a national sales tax that is common in the rest of the world. We're the only major developed country that doesn't have one. Well, at least in Europe, they're not asking that.

Keith Weinhold (00:32:06) - When you get your restaurant meal bill that you add a tip onto the tax about, like what's happening a lot of times here. And I think a lot of people aren't even aware of that. That's another absurdity. Yeah. Another absurdity of being a consumer in the United States today. Tom, you're really an expert in helping people understand that there are so many parts of the tax code out there for reducing one's taxes. The tax code, mostly most of the pages are about tax reduction. There are just a few pages about the tax tables. And then basically the rest of the tax code says you have to pay the tax in those tables if you don't do these other things. So tell us more about how one and everyday people can learn and get informed by being matched up with the right professional, so they can learn about all those exceptions to paying those taxes in the tables. I appreciate your promotion of tax free wealth because that's the starting point. You really do need to understand the concepts, and the concepts are all in tax free wealth.

Keith Weinhold (00:33:00) - Okay, so really inexpensive way for you to get an education. Once you've got the education though, you do need a team around you. And what I think the most important person, well outside of your bookkeeper, who I actually think is the most important person of that team, I think your number two person is your CPA. And I'm going to be very specific. There are a lot of people who hold themselves out as tax advisors, and I would not touch them with a ten foot pole. Whether it's I don't want a financial planner giving me tax advice, nor do I want a CPA, give me financial advice. Let's have a specialist do the specialist work. I don't want an enrolled agent. And the reason I don't want enrolled agent. If I'm really simple, that's great. But remember enrolled agent, they have very little education. They took a test. An IRS test that takes a couple of hours. That's all they did. If you're a business owner, you're a serious investor. You need a CPA and you need a CPA who cares more about you than they do about protecting themselves from the IRS.

Keith Weinhold (00:33:59) - This is one of my big complaints about some of my fellow CPAs is they seem to be so concerned about an audit. And my question is, if you're so concerned about an audit, does that mean you're afraid of the IRS? And if your CPA is afraid of the IRS, it's probably time to get a new CPA. That's right. Well, please, I tell you, we have a resource on our website where you can connect with Tom's team and get messed up with the right advisor. That is it. Get rich education complex. But like Tom said, a good thing to do is read his book, Tax Free Wealth first. That way you'll be able to ask the right questions so you can get the right answers from the right professional that you can be messed up with. Tom, do you have any last thoughts? Here is we're still relatively new in a year here when it comes to taxation, and one taking their plans forward through the year. Let's remember that we have an election coming up this year.

Keith Weinhold (00:34:54) - And one of the biggest issues in this election is going to be taxation. There's certain politicians that would like to take the 2017 tax reductions and extend them. There are others that would like to eliminate them and actually raise taxes. A couple of years ago, we had a proposal called Build Back Better. Great. Started as a $6 trillion proposal and ended up being $2 trillion and change the name to, quote unquote, the Inflation Reduction Act, or as I like to call it, the Inflation Enhancement Act. But that's going to be back. So you may love one party. You may hate the other party. Just know that when you go to vote, think about you are voting for a tax increase or a tax decrease depending on who you vote for. Look at their policies. Look at what they propose. Look at what they've been talking about. Don't believe for a second that they're gonna all of a sudden say, well, we're not going to raise taxes, when in fact they're looking at you and they're going, is that my money in your pocket? It is a presidential election year.

Keith Weinhold (00:35:59) - The good news is you now have a way for your voice to be heard this year in taxes are part of that, Tom. We're right. It's a great having you back on the show. Thanks, Keith. Sometimes I hear people that pay property tax but yet don't have any children themselves. They say that, well, since property tax often funds schools that they're opposed to paying it. Well, let's look at it this way. I'm a person that doesn't have any kids yet. And even if I never do have kids, well, when I was a kid myself, I attended public school. So therefore I was the beneficiary of adults paying property tax to fund the school that I went to. So therefore, when you think of it in those terms, it's more palatable for a, I suppose, non father like me to pay it forward, pass it along and pay school tax for others. So though there may be other objections to paying property taxes, not having children, that's often not such a valid reason when you think about it that way.

Keith Weinhold (00:37:07) - Now, I think that the Liberty First Society's Christian Hall, she has an interesting take on property tax. Here's what she said. And I quote, property tax should end when you complete the sale or purchase, just like you do when you buy groceries or a bicycle. It's theft of ownership to keep paying property taxes, especially when government has the authority to take your property. When you don't pay your taxes for three years. That's not property tax, that's rent, and you're a tenant in your own home. Property tax makes government the owner of your property, not you. End quote. And again, that is from the Liberty First Society's Chris Ian Hall, thought provoking, if nothing else. Now, when it comes to finding the right professional to get real estate investors, all of our generous and legitimate deductions that we enjoy, I mean, it is one of the five ways real estate pays. After all, you do need to find the right pro so that they can find all the deductions for you.

Keith Weinhold (00:38:13) - And this is just the time of year to get that right. For more than ten years now, I have had the world's number one tax firm do my wealth strategy, my tax strategy and my tax preparation. I even use my bookkeeper through them. They understand what real estate investors need. They make sure that I don't miss out on optimizing benefits and deductions for mortgage interest and tax depreciation and property tax and cost segregation, which accelerates my deductions. And they make sure I get infinite capital gains tax deferrals and bonus depreciation and so much more. All the good things that real estate investors get when you work with an investor centric tax professional. In this way, you can also legally write off many of your expenses for property management and maintenance and utilities and even your travel. So you can do that by connecting with Tom's team by visiting get rich education.com/tax. That is this week's actionable resource. Until next week I'm your host Keith White. Hold don't quit your day dream.

Speaker 6 (00:39:25) - Nothing on this show should be considered specific, personal or professional advice.

Speaker 6 (00:39:29) - 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.

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Direct download: GREepisode486_.mp3
Category:general -- posted at: 4:00am EDT

Mon, 22 January 2024

Has America already descended into a depression worse than the 1930s Great Depression?

Today’s guest, Doug Casey, suggests that we have. He joins us from Buenos Aires, Argentina, where inflation has been 100%+.

Is real estate cheap, adequately priced, or overpriced?

America’s national debt is so bad that we must now spend $1T annually just on the interest alone.

Keith Weinhold and guest Doug Casey explore the silent economic depression in America, discussing signs and impacts on daily life.

They compare real estate affordability across locations, viewing housing as a consumer good. Doug offers insights on Argentina's housing market, inflation, and the new president's influence.

They critique government intervention, fiat currency, and advocate for gold-backed currency, emphasizing moral values.

Strategies to counter currency debasement, like investing in durable goods and property improvements, are shared, alongside the benefits of spending on experiences and potential tax advantages of real assets.

Timestamps:

The silent economic depression (00:00:00)

Discussion on the concept of a silent economic depression and how it may be affecting America.

Real estate and property management issues (00:02:32)

An unusual property management incident and the impact of inflation on real estate in Argentina.

The guest's background and consistency (00:03:53)

The guest's background, consistency in views, and a discussion on diverse viewpoints.

Comparison of housing costs (00:04:59)

Comparison of housing costs and other expenses between the Great Depression era and the present day.

Real estate in the United States and Argentina (00:06:08)

Comparison of real estate prices and living expenses in the United States and Argentina.

Housing as a consumer good (00:09:29)

Discussion on housing as a consumer good and the impact of government policies on housing and wealth creation.

Comparison of housing costs and amenities (00:10:56)

Comparison of housing costs, amenities, and political changes in Argentina.

Impact of inflation on standard of living (00:14:37)

The impact of inflation on capital, standard of living, and the unsustainability of the current economic situation.

Government deficits and inflation (00:18:05)

Discussion on government deficits, inflation, erosion of the middle class, and the role of the government in creating inflation.

A Currency and Gold (00:20:22)

Doug Casey discusses the benefits of using gold as currency and the potential impact of government involvement.

Investing and Loans (00:22:42)

Keith discusses investing in real estate and loans, providing insights and tips for beginners and veterans.

Government Numbers and Inflation (00:24:54)

Doug challenges the accuracy of government unemployment and inflation figures and predicts higher inflation levels due to excessive money creation.

US Involvement and Financial Meltdown (00:27:57)

Doug discusses the impact of US military involvement, potential financial meltdown, and the unstable foundation of global debt.

Strategies to Counter Currency Debasement (00:32:05)

Doug presents the concept of saving in durable goods as a strategy to counter currency debasement and avoid capital gains tax.

Beating Inflation (00:34:41)

Keith proposes spending money as a way to beat inflation and improve quality of life, while Doug emphasizes the importance of saving for the future.

Doug Casey's Novels and Publications (00:36:44)

Doug promotes his novels and encourages listeners to subscribe to internationalman.com and watch his YouTube channel for more insights.

Improving Quality of Life and Beating Inflation (00:38:03)

Keith suggests making improvements to one's home as a way to beat inflation and improve quality of life, without incurring higher tax assessments.

These are the timestamps covered in the podcast episode transcription segment, along with their respective topics.

Resources mentioned:

Show Page:

GetRichEducation.com/485

Doug Casey’s YouTube Channel:

https://www.youtube.com/@DougCaseysTake

Doug Casey’s blog:

InternationalMan.com

Doug Casey on Donahue in 1980:

https://youtu.be/uAk6_74m_kI?si=qeQw0404xcTIAsOU

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

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484: How to Avoid Living Below Your Means and Leverage Debt

Complete episode transcript:

Keith Weinhold (00:00:00) - Welcome to GRE. I'm your host, Keith Weinhold. Is America suffering from a silent economic depression? It's gradually creeping into your life, but you just haven't noticed. That's what today's guest believes. Where do you look for signs of this? And what do you do about it? A silent depression today on get rich education. If you like the get Rich education podcast, you're going to love art. Don't quit your day dream newsletter. No, I here I write every word of the letter myself. It wires your mind for wealth. It helps you make money in your sleep and updates you on vital real estate investing trends. It's free! Sign up a get rich education.com/letter. It's real content that makes a real difference in your life, spiced with a dash of humor. Rather than living below your means, learn how to grow your means right now. You can also easily get the letter by texting gray to 66866. Text gray to 66866.

Speaker 2 (00:01:06) - You're listening to the show that has created more financial freedom than nearly any show in the world.

Speaker 2 (00:01:13) - This is get rich education.

Keith Weinhold (00:01:22) - Welcome to GRE, heard across 188 world nations, including Equatorial Guinea. I'm your host, Keith Weinhold. This is get rich education, the voice of real estate investing since 2014. How can your quality of life and your one and only standard of living actually be getting worse today, especially here in the United States? From your iPhone, with fast Wi-Fi to a stable electrical grid to a bounty of produce for you to select at the supermarket, well, we'll soon learn why today's renowned guest and prolific author feels like we've already entered a silent depression. He is going to make his case. We have plenty to get to with our guest. But first, I've got a problem with one of my property managers, and this is a really weird one. In two decades of doing this. This is among the weirdest. What happened a while back is that one of my ten ends that this manager manages. Okay, the tenant paid his rent with a paper money order and he placed it in the property managers drop box.

Keith Weinhold (00:02:32) - They're at their offices. The money order was stolen out of the drop box by a thief. The manager doesn't want to take responsibility for it. And I'm the one that's been out. The rent money, the $1,550. I've told the manager, no, I'm not going to be pushed around like that. So there are more details on that, which I expect to tell you about next week. It is an interesting situation to say the least. I'll give you more on the payment stolen from the manager's overnight drop box. Now today's guest will join me from Buenos Aires, Argentina, where they currently have inflation of perhaps 100% or 200% per year. We're going to talk about real estate and probably more with what he calls the silent, depressed. Now I'm probably a more upbeat, optimistic sort than our guest in general, but that does not make him wrong at all with this silent depression. But here, in a world where we've increasingly heard the word diversity a lot for the last decade, well, there are a lot of ways to think of diversity, and I like to champion some diversity of thought around here with our guests viewpoint today.

Keith Weinhold (00:03:53) - Now, I just recently saw a YouTube video of today's guest on The Phil Donahue Show in 1980. It was probably about the best known talk show that there was back in that era. And by the way, I'll leave that link in the show notes for you so that you can watch it too. And since today's episode is episode number 485, you can get the show notes either it get Rich education comp 485 or on your pod catcher. But yeah, Phil Donahue, he was kind of before my time. But yeah, really well-known show. And it's interesting to see today's guest and what he looked like back then. And from watching that video myself, I can tell you that one place where I do need to give this guest credit is with consistency. Now, does every single the world is going to end sort of thing that he says will happen? Does that end up happening? That's up for you to determine. But, you know, he has been consistent on promoting his ideals for a smaller government and more he's returning.

Keith Weinhold (00:04:59) - Guest. Let's meet him and discuss the silent depression. Are we on the verge of an economic depression known as a silent depression, where you're not aware of it? Today's guest has pointed out that during the 1930s Great Depression, the average home cost just three times the average income, but today it costs about eight times as much. The average car costs about 46% of a year's earnings back then. Today, it eats up about 85% of the annual average wage. Rent, which previously claimed just 16% of yearly income, now demands an astounding 42%. So by these metrics and others, you might wonder if the average person is actually in a worse position than during the Great Depression, which was the most challenging economic period in the last hundred years. A lot of people feel it. You might be getting squeezed, and by the end here you'll hear some new ideas for what you can actually do about it. We have a rather revered guest here with us today. He's been here a few times before to discuss other economic and real estate concepts.

Keith Weinhold (00:06:08) - He's a very popular author, often writing around the topic of crisis investing and known as the International Man. He hosts a podcast on YouTube called Doug Castaic. He's known as the International Man because he's extremely well traveled. He has residences in multiple nations today. Hey, it's great to have back on GRI the incomparable Doug Casey. Thanks. Okay.

Doug Casey (00:06:30) - It's a pleasure to be here. At the moment I'm in Buenos Aires, where I've lived part of the Earth for a long time.

Keith Weinhold (00:06:38) - Truly the international man living up to it today. Doug, I touched on housing to start with. With real estate show housing is one's biggest recurring expense in life, unless it's taxes. But today I actually think it's a valid question. Is real estate cheap in the United States? Is it adequately priced or is it overpriced? Now, depending on how you slice it, the median U.S. home value is 450 K, but if your mind shoots right to dollars like that, when you consider valuation, the dollar has been debased so much that it's a pretty poor measuring stick.

Keith Weinhold (00:07:15) - I know you like gold. A bar of gold is the same today as it was 100 years ago and a thousand years ago, and today it takes about 40% fewer ounces of gold to buy a home today than the long run 100 year average. So what we just did there is we got rid of dollars. We compared the relative cost between two real assets gold and real estate. You brought up a really good point in one of your articles, though. I think it's a better way to measure the cost of housing as a percent of one income, it takes two and a half times to three times as much of that annual income to own a home or rent a home today than it did in the 1930s. So when we think about housing costs, what are your thoughts?

Doug Casey (00:07:58) - It depends on where you are and where should I start? Right now, as I said, I'm in Buenos Aires and the apartment that I'm in here is about 5500ft² in a part of town, which is very much like the Upper East Side of New York.

Doug Casey (00:08:16) - It's called the Recoleta. Now, what would a a very classy top building with 24 hour security apartment of 5500ft² cost you in, uh, on the Upper East Side of New York, I'd say probably $20 million, roughly here in the Buenos Aires. This apartment is really got a current market price of about $1 million. In other words, 5% of what it is in New York. Yeah, costs of maintaining it are in line with that. That's point number one. Point number two is in most of the world, or certainly here in South America, when you buy something, you buy it for cash. In the U.S., when you buy something, it's usually for a mortgage. And the old saying, I'll give you the price you want if you give me the terms I want. Right. Not quite as attractive as it was just a while ago, where the average mortgage, now 30 year mortgage fixed in the US 7%, and for a while it was 8%. What do I think of the price of housing in the US? That's where most of your listeners live.

Doug Casey (00:09:29) - First of all, housing is not, in my opinion, an investment. It's a consumer good. It's very expensive. Consumer goods are not throwaway consumer goods like toothbrushes. Longer live consumer goods like a suit of clothes longer yet like a car and a house is just a longer alive consumer good. But an investment is something that produces new wealth, right? Housing doesn't it? Can? I mean, if you use it as a business. Yes. Okay, look, treat your house like a consumer. Good. That's the first mistake that everybody makes. They think it's an investment. That's going to go up. It's not. It's like a car. It should depreciate. It's got expenses to maintain it. That income that maintains you. I know you can rent it out and so forth, but.

Keith Weinhold (00:10:20) - Yeah, we champion residential income property around here. Something that I think you and I do consider an asset. But yeah, you're completely right. When you talk about the primary residence side, a home is primarily a liability, not an asset.

Keith Weinhold (00:10:32) - Why is that? Because a home takes money out of your pocket every month. Rather than putting money into your pocket every month like you touched on. Doug, before we go on about that 5500 square foot apartment there in Buenos Aires, I'm not familiar with the area. Can you just tell me a little bit more about the amenities that you have there? Are there very steep condo association dues? Is there a doorman? Tell me more about it.

Doug Casey (00:10:56) - Well, we have a doorman here in the building. We only have six apartments in this building. I have a two story penthouse, so it's probably the best apartment in the building. This area, the Recoleta. Like I said, it's like the Upper East Side of New York. We have lots of fine restaurants with short walk away. I pay my maid. We have a full time maid here. In addition, she earns $1,000 a month. Where can you get a full time maid in the US for a thousand bucks a month? Let me point something out.

Doug Casey (00:11:25) - That's very interesting. In Argentina, they elected a new president. And this is one of the most radical political changes in all of Western history. The new president of Argentina is a chap named Javier Mula. He identifies radically and openly as an anarcho capitalist. In other words, what he's interested in doing is basically tearing apart the government of Argentina and getting rid of as much of it as he can, all of it that we can. Now. Argentina is full of taxes, full of regulations. That's a delightful place to live. But if you want to do business or create wealth, it's a very bad place to live.

Keith Weinhold (00:12:10) - Well, with inflation.

Doug Casey (00:12:11) - Yeah, exactly. I mean, right now they have inflation of about, they say 140% per year, but it's more like 200 or 300% per year. You can trust the Argentine government's figures at all. You can only trust the US government's figures marginally more. But Melaye, as we talk, is firing massive numbers of government employees. It's eliminating agencies and so forth, and the government and the next step will be radically reduced taxes, radically reduced regulations.

Doug Casey (00:12:41) - So this department here is, I think, within the next five years, going to be selling for about what one what its sister on the Upper East Side of New York might be selling out. So I hope to make 10 to 1 on my money on this piece of real estate as a speculation. And it's a nice place to live in the meantime.

Keith Weinhold (00:13:01) - Yeah, with Malay in Argentina, it'll be interesting to see if he sticks with their currency moving from the Argentine peso to the dollar. It sounds like he might already be backing off of that. But getting back to your condo there, Doug. And yeah, that would be a terrific arbitrage play if you indeed bought low in the Buenos Aires market goes up, it sounds like an exceptional value you get there. We talk about our homes overpriced today, especially in the United States. Or are they underpriced? We talked about how one spends more of their proportion of income on housing today, and if that might make them trend toward this silent depression. But of course, you also get more home today.

Keith Weinhold (00:13:39) - I mean, 100 plus years ago in the United States, a new Victorian style home, it had sparse amenities and maybe 950ft². And today, an American home averages 2415ft². That's the figure. So you might pay two and a half times more of your income, but you might get two and a half times more square footage and of course, maybe like you're finding in your place there in Argentina, Doug, the average American home, it has features today that would have been considered unthinkable a hundred years ago. Luxuries, things that would have been considered luxuries back then like air conditioning and multiple bathrooms, quartz countertops, closets so vast that you could play pickleball inside them. So you're getting more home today, and it really hardly feels like a depression era lifestyle for many. But there are some less fortunate people, and inflation has widened this gap between the haves and the have nots. So what are your thoughts, especially when it comes to housing and the fact that you're getting more today? But not everyone is.

Doug Casey (00:14:37) - Because advances in technology, number one and number two, the fact that the average person is wired to produce more than they consume and save the difference, of course, we have more today than we did 100 years ago. That goes without saying, but it doesn't seem that way because even though workers are more productive than they were in the past, everything is fine. As with debt today, people talk about inflation as if it's just part of the cosmic firmament. It just happens. It doesn't happen. The government is the sole and entire cause of inflation. It does it by printing up money directly and indirectly. And what that does is it destroys the capital that you save. Americans save in dollars. Okay. You want to get ahead. You use more than you consume and you save the difference in dollars. But when the government destroys those dollars through inflation, your standard of living goes down. Now, that's been disguised through that. It used to be that when you bought a house, you paid cash for it.

Doug Casey (00:15:52) - Then many years ago, it started out with the. A five year mortgage with 20% down. Now we're talking about 30 year mortgages so that you really never own your home. Inflation is the real problem. It destroys capital. It destroys people's standard of living. The standard of living, generally speaking, in the US is going down. It's disguised by the fact that when you borrow money, you're either taking capital that people have saved in the past and you're using it for consumer goods now, or you're mortgaging your future for a higher standard of living. Today, all of that we have in the US, I think is unsustainable. And we could have either a credit collapse if they don't create money fast enough, or if they raise interest rates too high, or we can have something resembling a hyperinflation we have down here in Argentina. Either way, it's going to be very, very bad news because in an advanced industrial society like the US, to poison the money supply with inflation is asking for economic catastrophe.

Doug Casey (00:17:06) - So I think what we're looking at over the next ten years, and this is true for a number of reasons, not least of them, is the fact that Americans have elected in Washington people that are the equivalent of Jacobins during the French Revolution. I mean, they have the same ideas. I'm looking for very, very tough times, quite frankly, not just in the US, but almost everywhere in the world.

Keith Weinhold (00:17:32) - Today in the United States, compared to 100 years ago, one spends more of their income on housing and transportation and healthcare, and less on food and clothing. And yet, Doug, to your point about inflation, like dollars are such a poor measuring stick. That's why earlier, when we look at the cost of housing, I tried to discard dollars by going ahead and looking at the ratio between the home price and the gold price. I brought up the point last month with our audience that actually there's no such thing as grocery inflation or rent inflation. It's the government that creates the inflation.

Keith Weinhold (00:18:05) - So it's not landlords or grocers that are creating inflation. Those higher prices are just the consequence of the inflation that the central bank creates. And that's creating this erosion of the middle class, because those in the lower middle class and the poor, they don't have assets that benefit from the inflation. Yet they have the same fixed consumer costs that we're talking about here, like housing, transportation, health care, food and clothing. Talk to us some more about the problem in the government and how that could help lead us toward a silent depression. I know you brought up the point that the US government is running embedded deficits of $2 trillion per year, and that number is going to go much higher, if only because the interest cost alone is $1 trillion per year.

Doug Casey (00:18:49) - Yeah, people have to stop looking at the government as being their friend. It's not. It's a predator. It's a dead hand on top of society. It's certainly not a cornucopia, which is the way most people see the government. The government will give them stuff, right? The government will do stuff now it doesn't.

Doug Casey (00:19:08) - The government produces absolutely nothing that it doesn't take away first from society as a whole. So they have people have to stop looking at the government. It's a friendly big brother. It's more like increasingly the kind of big brother that you might have discovered in George Orwell's 1984. If we want to save the idea of America, which is one of the best ideas that humanity has ever had, we have to get rid of the government or as much of it as we can, and go back to the values, moral values, social values type of thing that this country had 200 years ago, what it was founded. I mean, that's my answer to the question. And the money, the dollar itself is a floating abstraction. It's a fiat currency. It's an IOU. Nothing on the part of a bankrupt government which can't even tax enough to give the money value. It just prints up more money and people out of inertia accept them. Well, there's nothing else they can use to trade Buck. We should go back to gold as being money and even a gold backed currency.

Doug Casey (00:20:22) - A currency is money. It's just a medium of exchange and a store of value. You don't need to insert the government and a central bank in between you and what you do with your fellow citizens in a country. That's why we should use gold, which for thousands of years has proven to be the best thing to use is money. It's one of 92 naturally occurring elements. And just as aluminum is particularly good for building airplanes, uranium is particularly good for making nuclear. Power plants. Gold has unique characteristics that make it unique. Almost unique. Uses money so the government shouldn't be involved in this. In all, this is a radical thought. I know that's something that most people have even thought about. They'll say, oh, this is completely ridiculous off the wall. This is unrealistic. This is the direction that the country should be going, but it's going the opposite direction at an accelerating rate. So yeah, we're looking at a nasty depression and it's been building up for many years. This isn't a recent phenomenon that's come up just since Biden, although the Biden pieces are making it much worse.

Doug Casey (00:21:37) - This is a trend that's been building up slowly for decades.

Keith Weinhold (00:21:42) - With the government having all of that debt that I just mentioned, that would create the propensity for them to create even more dollars so they can pay back their own debt, which could create more inflation and just this perpetually vicious cycle. Doug and I are going to come back and talk more about where all this is headed. When you think about the profundity of some of these things, if our currency went on to a gold standard or a Bitcoin standard, the fact that the government would not even be involved in currency issuance anymore, as you think about that, Doug and I have more on the silent depression when we come back. This is Jeffrey situation. I'm your host, Keith Weintraub. Role under the specific expert with income property, you need Ridge Lending Group and MLS for 256. In gray history, from beginners to veterans, they provided our listeners with more mortgages than anyone. It's where I get my own loans for single family rentals up to four plex's.

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Speaker 4 (00:24:04) - This is Rich dad, sales advisor Blair Singer. Listen to get Rich education with Keith Winehouse. And above all, don't quit your day dream.

Keith Weinhold (00:24:22) - Welcome back to get Rich. And we're talking with Doug Casey, the international man, about the Greater Depression. That's really a silent depression as he sees it. And Doug, I want to know where you see us headed, because a lot of people see today unemployment under 4% in the United States, we have GDP growth that's decent. The rate of inflation is still higher than the fed target but has come down substantially. The Fed's even talking rate cuts this year. So where do you see this all headed with the silent depression.

Doug Casey (00:24:54) - First of all, it's a big mistake to trust the government's numbers. If you look at the way the government computed unemployment and the way it computed inflation back in 1980, it's very, very different from the way these numbers are computed today. And if you computed them the way they did way back when in 1980, you'd find that our current unemployment is something more on the order of 10%, and current inflation is not I don't know what they say.

Doug Casey (00:25:27) - It is not 2%, 3%, 4%. It's also more like 10% or more. But with the amount of money that they've created, I mean trillions of dollars that have been cranked out of Washington in recent years. I expect we're going to see inflation go back to much, much higher levels. There's no limit to how bad it can get. And since the government has promised all these things to various pressure groups in the US, they have to be paid. The taxes aren't there to do it. The borrowing they can't borrow anymore, especially as interest rates go up. And incidentally, I point out that because of the debasement of the currency, that's a better phrase to use than inflation. The basement of the currency is an actual thing that's done by the government and its central bank, whereas inflation people think, well, maybe inflation falls on the butcher or the baker or the gasoline maker. No it's not. Those people fight the effects of inflation. Inflation is something that comes out of Washington because the government has all these pressure groups that get all kinds of benefits.

Doug Casey (00:26:43) - They're going to have to keep printing up money to pay for these things, and you're going to wind up in the same position as Argentina has wound up. In fact, it's going to be worse because unlike Argentina, which doesn't have any foreign involvements, they had a war with the Falklands 40 years ago. But there's basically no Argentine Army. There's no Argentine Navy to speak of. But the US has 800 military bases scattered all over the world. They're very expensive to maintain. The natives aren't particularly happy to have foreign soldiers in their lands. In addition to the war in the Ukraine, why were involved in a border war between two countries is a mystery to me. And now we have Israel and Gaza dusting it up. Literally, I feel sorry for both sides, but on the other hand, I don't epoxide both their houses. It's not our problem. This has been going on between these people for 2000 years, and the US getting involved in it is going to add on to our ongoing bankruptcy and maybe start World War three.

Doug Casey (00:27:57) - There's new wars popping up all over the world that are going to cost us huge amounts of money. And of course, the Defense Department spends giant amounts of money building high tech toys, which are basically useless in today's military world. It goes on and on. It's a big problem, and I suspect we're going to reach a crescendo by the 2024 election, assuming we have one. I don't know who's going to win that election if had anybody, quite frankly. So it's we're looking at chaos, political chaos, economic chaos, the potential for a financial meltdown because the whole world is built upon a foundation of debt, which is a very unstable foundation to build things on. And of course, you've got all kinds of sociological problems, starting with total and absolute corruption of the US educational system, which is spread like poison throughout society. We're seeing that now, incidentally, with the presidents of Harvard and Penn, MIT, but all of the higher educational institutions in the US suffer from the same problem. This is like a many headed hydra.

Doug Casey (00:29:10) - Where are we going to take any one instance of a problem in society? And when we examine it, you find that it's even worse than you might think. Like I was talking about education. Your kids are being indoctrinated a great cost. I think it's the University of Michigan has 161. I believe that's the number for the University of Michigan D administrators. That's the diversity, equity and inclusion administrators. All are earning over six figures. And what are they doing? Well they're justifying their positions by doing absolutely ridiculous things in education that shouldn't be about educating as opposed to. Enforcing somebody's goofy ideas of diversity and equity and inclusion. So anyway, we've got lots of problems beyond real estate and beyond the high level of rent that people have to pay today. But listen, it's so hard to build a new house. God forbid, build a new apartment building today by the time you jump through all the hoops. Local. County. State. Federal. The cost of construction is probably twice what it should be.

Doug Casey (00:30:21) - Because of inflation. Because of regulations. I hate to be so gloomy, Keith, I do, but.

Keith Weinhold (00:30:28) - Well, there's a lot there. We talk about diversity. We're in an era where people are very conscious of that. But a lot of people think of it with regard to race or gender or perhaps religion. But I like to champion diversity of thought as well. And then when it comes to we.

Doug Casey (00:30:44) - Don't have any of that anymore.

Keith Weinhold (00:30:45) - Yeah, yeah, that's for sure. But when it comes back to the root of productivity, I think that's really important because whether the government gives away money to programs in the United States or outside the United States to Ukraine or Israel, whether you believe in that or not. And a lot of the giveaways have been in the hundreds of billions of dollars to those nations were now running a national debt of over $34 trillion. And my point is, is that the United States doesn't produce as much as they used to. However, the United States produces a lot of dollars and a lot of debt.

Keith Weinhold (00:31:17) - And when the government has giveaways, either domestically or internationally, a productive person is the one that has to end up paying for that. So, Doug, we think about a lot of the problems out here, much of it coming back to the root of inflation. But you tell us more about what can be done. In fact, I know you have a practical, common sense way where you don't save in dollars. You and I have talked before about how real estate or gold can give you a hedge or even help you profit against inflation, but you've talked about the importance of real material things, like food that you can store, or light bulbs that you can put away, or tools that you can use because you're also not taxed on those sorts of things. So can you tell us more about that?

Doug Casey (00:32:05) - There was a book written years ago, and it's still available on Amazon by an old friend of mine named John Pugsley, and the book's name was The Alpha Strategy. The point that John made in that book was that rather than trying to save in dollars, you should save in things that have a long shelf life that you're going to need and use.

Doug Casey (00:32:30) - So, for instance, if light bulbs common thing, they burn out if you wait until there's a sale on light bulbs. Get them cheap. Buy them in quantity, buy them extra cheap, put them aside. You're not going to have to buy a light bulb forever. Whereas if you don't plan ahead and do it that way. If your light bulb burns out, you don't have one. You got to get in your car or in gasoline. Buy it at the convenience store where it's going to cost you. License much, and you can do this with many areas of your life planning ahead. In other words, this is a variation, if you would on the old Mormon idea. A lot of people are aware that Mormons or their religion tells them that they should put aside three months or a year worth of food, and it's storing food which is properly canned and so forth, so that no matter what happens, they'll always be able to eat. Well, the alpha strategy is something that you take that attitude towards food and you apply it to all the consumable things that you have in life.

Doug Casey (00:33:37) - And as they go up in price, lightbulbs go up from $1 to $5. With inflation, if you made an investment that kept pace $1 to $5, you'd have to pay capital gains tax on it. But you don't on the consumable that you put aside. So, I mean, this is just one of a number of strategies that you can use to counter the effects of currency debasement.

Keith Weinhold (00:34:03) - I love that as a strategy on what you can do. You are not taxed on the gain in price or value of an entire pallet of food or tools, like a tractor or ladder or table saw. So it's a really elegant way to beat inflation. Doug, I have an idea, and it might not be one that you heard before. It might even make the listener laugh a little bit. Here. I have an elegant way to beat inflation and improve your quality of life at the same time. And it's something really simple. And that solution is to spend your money. It's an elegant way to beat inflation and improve your quality of life.

Keith Weinhold (00:34:41) - At the same time. If a mediterranean cruise for you and your wife is going to cost $18,000 this year, and you think it's going to cost $22,000 next year, spend beat inflation and get an experience that you'll never forget that as long as you've got something set aside already spend, it's a way to beat it and live a better life.

Doug Casey (00:35:01) - I can't argue with that case. But on the other hand, it's wise to put aside capital for the future, because once you consume that grows, the capital is not there anymore, and you may need it in the future. But this is one of the problems created by currency debasement. People start thinking in terms of live for today, because tomorrow we might die with their money, and that's not a good way to get wealthy. Although it's true, you do beat some of the effects of currency debasement that way.

Keith Weinhold (00:35:34) - Yeah, if there were no inflation, there would be less incentive to do something like that. In spend would also be less incentive to invest.

Keith Weinhold (00:35:41) - But Doug, you've given us a lot of good ideas today for this creeping of the silent depression fueled by inflation and some actionable things about what we can do about it. Give us any last thoughts and then how our audience can learn more about you.

Doug Casey (00:35:56) - I've written a series of novels. Well, they're quite well written that explain a lot of these principles in the form of an exciting story. They're called speculator, where our hero, uh, gets involved in gold mining in Africa and a bush war and so forth, and it becomes a drug lord. Or we show a drug lord can also be a good guy, and then he becomes an assassin because he's so pissed off. There are four more novels to come. So I suggest people go on Amazon, pick up those three novels that are out there. That's one thing they should do. Second thing, I'd encourage you to go and subscribe to International man.com, and you'll get a great free daily blog from me and other people. It's really a good publication.

Doug Casey (00:36:44) - And the third thing on YouTube is we have Doug Cassie's take where once or twice a week I, uh, talk about different subjects.

Keith Weinhold (00:36:54) - Though our subject is depression, our conversation has not been thoroughly depressing. So thanks so much for coming back out of the show.

Doug Casey (00:37:02) - I see you again, Keith.

Keith Weinhold (00:37:10) - Well, you might wonder what kind of prepper weirdo is going to save a bunch of durable goods like tires or crescent wrenches, or even store an extra car, or a few extra cords of firewood that may or may not be feasible for you, some of it having to do with your storage capacity, whether you live urban or rural. But what you can do if you're really concerned about persistent inflation is to beat it by making improvements to your own home, and you can do that sooner rather than later. And see, that way you might actually get to enjoy the item and integrated into your lifestyle. For you, that might mean getting yourself new windows, or a new water heater, or renovating a bathroom, or remodeling the kitchen.

Keith Weinhold (00:38:03) - And if you can avoid activities, though, that create a higher tax assessment, then you will not get taxed on those real assets, all while improving your quality of life at the same time. So there's an idea, some real guidance, spurred from today's chat with Doug Casey. Big thanks to him. Next week, I'll tell you more about the weird problem with my rent payment that was stolen from my property manager and what I'm going to do about it. My manager says he's not taking the loss. I'm not taking the loss either. Interesting stuff. Until then, I'm your host, Keith Weintraub. Don't quit your day dream.

Speaker 5 (00:38:44) - 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. The.

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Direct download: GREepisode485_.mp3
Category:general -- posted at: 4:00am EDT

Mon, 15 January 2024

Join our live, virtual event for Alabama income properties tomorrow at: https://gremarketplace.com/webinar/

Learn a lesson from a story about when I was a landlord. My neighbor was a fourplex owner-occupant, just like me. We built a fence together. He told me that he can’t wait to get his building paid off.

Don’t pay down your mortgage debt. In most cases, you can invest those dollars elsewhere for a higher return.

I discuss two things build wealth: 1) Leverage. 2) Borrowing against your assets, tax-free.

You don’t have substantial equity in your properties because you paid them down. You have substantial equity because its value has appreciated.

Today, you can report tenant rent payments to the credit reporting agencies.

Alabama has low property prices and the nation’s 2nd-lowest property taxes.

GRE Investment Coach, Aundrea Newbern, MBA, joins me.

Join our live event for Alabama income properties Tuesday, January 16th at 8 PM Eastern. The provider is offering 5.99% interest rates and 3% PM fees on your first three properties. Sign up now at: https://gremarketplace.com/webinar/

Timestamps:

The introduction (00:00:01)

Keith Weinhold introduces the podcast and mentions the topics to be covered, including lessons from being a landlord, a formula for wealth, and a focus on a lucrative property market.

Keith's early real estate experience (00:02:46)

Keith shares his early experience as a landlord, comparing notes with another landlord and discussing their strategies for living for free in their fourplexes.

Debt mindset and wealth building (00:05:30)

Keith discusses his divergent mindset from his fellow landlord, emphasizing the importance of leveraging debt for wealth building and portfolio expansion.

The power of leverage and portfolio growth (00:10:08)

Keith explains how he leveraged equity to expand his real estate portfolio, emphasizing the benefits of using accumulated equity to acquire more properties.

Real estate market diversification (00:11:22)

Keith advocates for buying properties across different states and markets to access better deals and maximize portfolio growth.

Tenant management and credit reporting (00:13:42)

Keith shares tips on tenant management, including the option to report rent payments to credit bureaus to incentivize timely payments and manage tenant relations.

Financial perspectives and real estate strategies (00:16:12)

Keith discusses contrasting financial perspectives with a CFO friend, highlighting the benefits of leveraging debt for real estate investments.

Market pulse and expense control (00:20:26)

Andrea discusses the market pulse for income properties, focusing on the Southeast region, and addresses the trends in controlling investors' expenses, particularly related to insurance rates.

Conclusion and invitation (00:22:02)

Keith and Andrea conclude the segment by discussing the migration trends in the Southeast and the importance of controlling expenses for real estate investors.

Lower Property Management Costs (00:22:55)

Discussion on the stabilization and decrease of property management costs due to technology and institutional investment money.

Investment Timing and Market Trends (00:25:01)

Encouragement for investors to take advantage of the current market conditions, including interest rates, prices, and inventory.

Alabama Market and Incentives (00:28:24)

Details about the Alabama market, including low property prices and incentives such as the 333 property management fee and 5.99% interest rate.

Live Event and Registration (00:32:33)

Information on how to register for the live virtual event to learn about the Alabama market and have questions answered in real time.

Final Encouragement and Event Promotion (00:33:27)

Encouragement to attend the live event to learn about the Alabama market and connect with an investment coach.

Resources mentioned:

Show Page:

GetRichEducation.com/484

Join our live, virtual event for Alabama income properties at: https://gremarketplace.com/webinar/

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

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Complete episode transcript:

Speaker 1 (00:00:01) - Welcome to Dr.. I'm your host, Keith Weinhold, with lessons from being a landlord myself including some tough ones. A simple formula for how to get wealthy and stay wealthy without paying any taxes legally. Then we focus on one of the most lucrative property markets in the United States, and it includes an invitation to you today on get Rich education. If you like the get Rich education podcast, you're going to love art. Don't quit your day dream newsletter. No, I here I write every word of the letter myself. It wires your mind for wealth. It helps you make money in your sleep and updates you on vital real estate investing trends. It's free. Sign up at get Rich education.com/letter. It's real content that makes a real difference in your life, spiced with a dash of humor. Rather than living below your means, learn how to grow your means right now. You can also easily get the letter by texting gray to 66866. Text gray to 66866.

Speaker 2 (00:01:12) - You're listening to the show that has created more financial freedom than nearly any show in the world.

Speaker 2 (00:01:19) - This is get rich education.

Speaker 1 (00:01:28) - Welcome to GRE! From Dorchester, Massachusetts, to Westchester, Pennsylvania, and across 188 nations worldwide. I'm Keith Weinhold. Hold in your listening to get Rich education. I trust that you're prosperous and well in a still somewhat new year here, along with my usual gray research of market trends, teams, and properties I've been serving on and writing for the Forbes Real Estate Council. Next week we have a thought provoking show on whether America is actually undergoing a silent depression that's creeping up on us, but I've got an important story to tell you today. It's really rather formative and foundational to the, I suppose, mind spring of abundantly minded real estate ideation. When I bought my first Seminole fourplex building for $295,000 about 20 years ago, you know, there was an identical fourplex right next to it. It was bought about the same time as mine, and it was bought by another guy about my age. His name's Patrick. We each had these blue fourplex next to each other, and I still remember his full name, although I'll just stick with his first name, Patrick here.

Speaker 1 (00:02:46) - He was a data and security engineer. Really sharp guy. And by the way, he only paid 275 K for his nearly identical fourplex next to mine. And since I paid 295, I felt like I overpaid. But he and I, we got to know each other a little bit. We kind of had a similar path. All right, as owner occupants, each living in one of our four units and renting out the other three and doing that right next to each other. We would compare notes as to how it was going with being an on site landlord. And, you know, Patrick and I, we both kind of figured out that we were living for free. And that's because the three $725 rent incomes, there were enough to pay our mortgages and our operating expenses on the buildings, but after that, there was really nothing left over. But we effectively had a free place to live in one of the fourplex units. Now, a few times, Patrick and I collaborated on some projects together to improve things around our contiguous fourplex buildings, and I specifically remember that one day we had bought materials at Home Depot, and then we met outside to build a fence together, and it was just this cheap host and rail style fence that we made with two by fours and painted blue is something that he and I built at the back of our buildings in order to keep vagrants from cutting through our yards.

Speaker 1 (00:04:19) - This was in Anchorage, Alaska, and Anchorage has a lot of these paved bike paths all throughout the city. And vagrants also use those to get around. And we had this bike path right behind our fourplex. Now, as you know, I am not that good at building stuff or fixing broken stuff. Okay, but this fence project that we were doing, it wasn't too complicated. And I had Patrick right there to help. Now, by this time, I had probably owned the fourplex for about two years, and I was really just starting to get this realization for what real estate investing could do for me, because I had only made a small down payment, yet the fourplex had appreciated quite a bit. This was around 2005, and I didn't even know that that effect was called leverage yet. But anyway, Patrick and I, as we're building this fence together or talking about our properties, he said one thing I can distinctly remember, and it's something that a lot of people say, and that is, I can't wait until I have this property paid off.

Speaker 1 (00:05:30) - Now, back at this time, there was no gray, yet I'm still rather fresh and new to real estate investing. This fourplex was the only property that I owned, but already this desire to have the property paid off, that is not a feeling I shared that did not resonate with me. Okay, I responded to him with something like, oh, do you think that's the best use of your money? All right, because I had a mortgage interest rate of five and 3/8 at the time, and his was probably pretty close to that too. Well, I told him that I want to keep the debt on my property because instead I could invest my spare dollars elsewhere and get a better return than five and 3/8. And that fact would be true even if my interest rate were eight or more. Really, his only reply to that is that he just simply doesn't like having debt. That's about the only answer that he had, even though it's usually irrational to. Pay off good debt like that. Now my financial freedom ideas, they were still in their nascent period back then.

Speaker 1 (00:06:34) - I sure wasn't going around and saying that financially free beats debt free or anything like that. That wasn't quite putting it that way yet. I sure didn't say, hey, don't you know that the scarcity mentality is abundant and the abundance mentality is scarce? Or that compound interest is weak in compound leverage is powerful? Or that a rich man digs for gold and a poor man is concerned with the cost of a shovel. But I already knew that if you focus on debt paydown like taking all your extra dollars to accelerate the principal pay down on, just say one fourplex building, you are just borrowing one deep hole in to the property. It's like a deep hole that might even cave in. Instead, wealth is built by expanding your portfolio size. More doors, more income, more leverage, serving more people with housing, and actually more safety because you can be in more markets that way. See, you gotta give your money multiple jobs. So the lesson is, Patrick and I were already on divergent mindset paths because by that time I had read books like Rich dad, Poor Dad, and it got me thinking differently.

Speaker 1 (00:07:54) - You know, it was the whole don't get your money to work for you get other people's money to work for you and that whole thing.

Speaker 3 (00:07:59) - I don't even think about it. I'm built a little differently, I guess, because I have had people come up to me and say, how do you do it, sir? How do you do it? I don't even think about it.

Speaker 1 (00:08:10) - Nuh uh. Geez. I, I do it because if you don't want to run with the herd, then you've got to think and act differently in order to diverge from the herd. Keep leveraging more income property. So Patrick and I built the fence that day, and I don't really know how much he paid down his building's principal balance, which is a lot like sending off your dollars to go die. But I can tell you what I did. Okay. About another year went by after building the fence. So now we're into year three of me owning the fourplex. What I did is I kept the building, but I got a home equity line of credit, second mortgage on the fourplex, and then I use those funds to make a down payment on a single family home so that I could live offsite and get some privacy from my fourplex tenants.

Speaker 1 (00:09:06) - So this is the start of me acting diversely from the herd. It was the opposite of paying down my property, borrowing against it instead. Yeah, I took more debt out on it, which is a tax free event, by the way, and you could go to 90% loan to value back then. Yes, that's back when dollars were being lent out more freely. I mean, that's what wealthy people do. What do wealthy people do when they need money? They just keep borrowing against the value of their assets. And it's a tax free event since the IRS does not tax debt. So if you want to be wealthy, that's what you do. What I also did by doing this was expand my portfolio size, increase my leverage ratio. And since I vacated one of the four fourplex units, now I had four rent incomes rather than three. I mean, that is, some don't live below your means grow. You mean stuff right there. And then two years after that, I kind of did the same thing again.

Speaker 1 (00:10:08) - I borrowed against my properties, and I used the funds as a 10% down payment on a second, more expensive fourplex building. So now I lived in a single family home and I had to fourplex buildings. And then a few years later, when equity accumulated in those two fourplex buildings, I sold them and did a 1031 exchange into two larger apartment buildings. Everything I've done so far is tax free, all expanding the portfolio, all serving more tenants, all reducing my risk despite increasing my debt, because the tenant pays the debt for me. And it was all with almost none of my own money. Instead, it's just using accumulated equity from one property and rolling it into more. Just keep rolling those same funds forward. Okay, so that is all what I'll call one line of leveraged equity. And by then I was beginning other lines because I started to buy property out of state and in multiple states. And it wasn't until 2012 that I discovered that buying across state lines is possible. It's proven. And that's where the real deals are.

Speaker 1 (00:11:22) - I mean, you might want to own some properties in your local market or you might not. But see, the thing is, is that there are 387 MSAs, Metropolitan statistical areas in the US as defined by the Census Bureau. So if you're only buying in your local market, chances are you're not getting the best deals. And another way to think about your portfolio's growth in your real estate equity management is to consider the fact that you don't have substantial equity in your home right now because you paid it down. You have equity in your home because it increased in value. So you can use equity from your home to buy perhaps ten other rental homes, as long as you can control cash flow. So it's about trading away antiquated notions of safety and security in exchange for freedom. But now most of Patrick and I's conversation about being neighboring fourplex landlords for a few years was, I would say, more anthropogenic meaning relating to human activity. Yes, that is dealing with tenants because although the discipline is called property management, it could just as well be called tenant management.

Speaker 1 (00:12:39) - And early on, this is where my naivete got exposed, like with a tenant that was laid on the rent and he said he'd pay it, but then he didn't pay rent and I had to a victim early on. I inherited that tenant from the previous owner, so I did not get to screen him. Now, three weeks ago here on our Christmas episode, when we did How the Rent Stole Christmas. That was fun. I shared a lot of my tenant relations tips with you on how to help ensure that your rent gets paid, but today you can do something that you couldn't do when I got started in real estate, you can report your tenants rent payments to the credit reporting agencies and affect their credit score. So if you are a do it yourself landlord today and you're doing your screening, you know, I would tell prospective tenants that before they even apply for your vacancy and put it in a positive light, make it known that one attribute of renting from you is that with their timely rent payments, it can help their credit score.

Speaker 1 (00:13:42) - So position it positively rather than any sort of threat, and it's going to help you get more timely rent payments if that's been a problem for you. Yes. Institute reporting to the credit bureaus, the credit scoring agencies, Equifax, Experian and TransUnion. That is another handle that you have as a landlord today. Yes. The only guarantee is that there will be some inevitable real estate problems for you. But like problems with anything else in life, your mind and my mind, we tend to inflate the significance of problems, whether it's a tenant that you just can't get to change their AC filters, or an unexpected water leak, or an overgrown tree that you have to pay an arborist to handle, or a persistently late paying tenant. Oftentimes, your fear about the problem is worse than the problem itself. In fact, it was the stoic philosopher Seneca that said, there are more things likely to frighten us than there are to crush us. We suffer more often in imagination than in reality. Gosh, isn't that so? On point? Yeah, we suffer more in imagination than we do in reality.

Speaker 1 (00:15:01) - You can say that about most any problem that you've ever had in your life. Now, some things have changed and some things have stayed the same since I began my real estate journey with that blue Anchorage fourplex. It looks like there are some signs of hope for financial education in the near future here. Formal financial education. When it was recently announced that Pennsylvania, my native state, will become the 25th US state to have a formal, standalone financial education class in high school. Hey, that's a really good start. But one constant seems to be that the dispiriting saying don't live below your means. You know, that still seems to trump the aspirational grow your means. And it's not about whether a person is intelligent or unintelligent in adopting one or the other. It's really more about having the ability to think freely. Now, today, I have a friend that's the chief financial officer, the CFO of a publicly traded corporation. He and I got together a few times last year, and he can talk about earnings reports and EBITDA.

Speaker 1 (00:16:12) - And he knows that language of business. He's a super sharp guy. But he told me that he has his house, his family's primary residence paid off. And I asked him about that, and I told him that I keep the maximum debt on mine. And why now? Your primary residence. It's not like a fourplex where your tenant pays your debt for you, but you've got to pay your own debt on your own home. Yet the mortgage rate on a primary residence is lower than it is on a rental. So the question persists is that really the best place to park your dollar? Is that where it's doing multiple jobs? You've got to consider that it's illiquid and its ROI is zero. Now, I didn't quite put it that starkly with my CFO friend, but in any case, and remember, this is a chief financial officer. He's a guy that's good with money. You know, at least he did give me this. He said from a financial perspective, he knows that it makes zero sense to have a paid off home.

Speaker 1 (00:17:16) - It just makes him feel better. And, you know, I accepted that this is not the way that I view the world. And that's okay. Coming up next in in-house chat with one of our gray investment coaches as we talk about the real estate market overall, controlling your rising expenses as a real estate investor and about real estate in the southeast Alabama, as well as an invitation for you with some pretty generous incentives that I think you're going to be excited about. I'm Keith Reinhold, you're listening to get Rich education. Role under the specific expert with income property you need. Ridge lending Group Nmls 42056. In gray history, from beginners to veterans, they provided our listeners with more mortgages than anyone. It's where I get my own loans for single family rentals up to four Plex's. Start your pre-qualification and chat with President Charlie Ridge personally. They'll even customize a plan tailored to you for growing your portfolio. Start at Ridge Lending group.com Ridge lending group.com. You know, I'll just tell you, for the most passive part of my real estate investing, personally, I put my own dollars with Freedom Family Investments because their funds pay me a stream of regular cash flow in returns are better than a bank savings account up to 12%.

Speaker 1 (00:18:45) - Their minimums are as low as 25 K. You don't even need to be accredited for some of them. It's all backed by real estate and that kind of love. How the tax benefit of doing this can offset capital gains and your W-2 jobs income. They've always given me exactly their stated return paid on time. So it's steady income, no surprises while I'm sleeping or just doing the things I love. For a little insider tip, I've invested in their power fund to get going on that text family to 66866. Oh, and this isn't a solicitation. If you want to invest where I do, just go ahead and text family to six, six eight, six, six.

Speaker 4 (00:19:34) - This is our rich dad, Poor dad author Robert Kiyosaki. Listen to get rich education with eat whine oh God put your daddy.

Speaker UU (00:19:45) - You you you you you you you you.

Speaker 1 (00:19:53) - Hey. Well, today I'd like to welcome you in our terrific investment coach, Andrea, for an in-house chat here. How's it going, Andrea?

Speaker 5 (00:20:01) - Hey, Keith.

Speaker 5 (00:20:02) - Doing good. Trying to recover from the holidays. How are you?

Speaker 1 (00:20:05) - Yeah, it's still a fairly new year here. The holidays were a few weeks ago with the advent of a new year. Andrea, a lot of people make a resolution to increase the residual income, often by expanding the real estate portfolio. So really just taking the temperature here. How's your feel about the pulse of today's income property market?

Speaker 5 (00:20:26) - It's been interesting the past year, right? We've had a lot of ups and downs. I would say what we've typically seen from the different markets across the US, particularly the southeast, which is what we're going to talk about a little bit more today. We have seen that there's still inventory out there right now. We've seen interest rates slightly go down, not significantly, but we have seen some decreases. And we're seeing pretty steady demand for income properties right now.

Speaker 1 (00:20:49) - Yeah. Mortgage interest rates down more than 1% from their peak in October last year. Yeah. Oftentimes real estate and the pulse of the market comes down to supply and demand.

Speaker 1 (00:21:00) - To your point the demand sure is not going away. We've got a population growth, and we have a lot of pent up demand from the huge millennial cohort. And then over there on the supply side, there is so much new building in the multifamily space, but there's really a dearth of supply and a dearth of new supply coming onto the market for 1 to 4 unit properties.

Speaker 5 (00:21:23) - Yes, there is. And we're seeing a lot of that growth, like I mentioned in the southeast, which are the markets that I personally invest in. And I, you know, have a lot of our listeners go to to purchase as well. So very excited about what we're seeing happen in 2024 and what that means for our investors.

Speaker 1 (00:21:38) - Yeah. Now, back at the beginning of the year, two prominent moving companies, U-Haul and United Van Lines, they released their migration report for the year ended last year. And the southeast quadrant of the nation by far, that had the most net migration growth states in their list easily.

Speaker 5 (00:21:58) - It did. And I think that's going to continue. We're going to talk about that a little bit.

Speaker 1 (00:22:02) - Well, we pull back in. Just think nationally before we go into the southeast. You know, oftentimes investors of course are thinking about controlling their expenses. That's been a big issue that bubbled up last year is probably going to continue to be one this year. So we're talking about investors controlling their expense side from mortgage rates to property insurance rates that have really spiked. So do you notice any trends with controlling investors expense side? Since you and I are active investors ourselves?

Speaker 5 (00:22:34) - A couple of things that I've noticed in the southeast and my personal investments, as well as some of the markets that we have turnkey relationships with. Keith, we are seeing insurance continue to go up just a little bit, but we're not seeing those reckless, you know, doubling that we saw over the last 2 to 3 years. So it's going up not seeing doubling. So I'm hopeful that that continues. And it's not we're not seeing that fast rapid increase.

Speaker 5 (00:22:55) - The other thing that we're seeing a lot of is a lot of our turnkey companies that we work with, we're starting to see kind of property management costs stabilize or go down in certain areas. So we're seeing that expense decrease. The other thing is we're not seeing as rapid of increases and material costs and labor costs right now still going up. Things are not, you know, going down by any means, but we're not seeing those costs go up as much either. So this is allowing the investors to have a little bit more money in their pocket than they did over the last 2 to 3 years during the pandemic.

Speaker 1 (00:23:25) - Yeah, it's not that big of a consideration for an investor on the expense side. But yes, I do see more evidence of lower property management costs. So can you talk to us more about that trend? Is it more of the infiltration of technology into the space that's bringing the cost down for property management?

Speaker 5 (00:23:44) - Such a great question. And I do think that is part of it for sure.

Speaker 5 (00:23:47) - We're seeing a couple of things here. We're seeing some of these smaller kind of mom and pop property management companies. They are stepping out. They can't really afford to keep up with the technology and all the changes that are happening in the property management space, and what's causing that happen is these property management companies that can do a little bit larger scale. They're able to get these nicer systems and this better technology and things for their investors to be able to use as well as their tenants. And we are seeing that bring the cost down of property management a little bit.

Speaker 1 (00:24:16) - You're seeing more infiltration of institutional investment money into the single family rental space and rentals up to $4 per unit. And those companies, those institutional investors have deep pockets, and they have the ability to go ahead and implement a lot of these technology systems. So that's making it so that others, including these smaller mom and pop property management companies, they need to keep up with their technology that's lowering property management costs across these mom and pop property managers are going to be put out of business.

Speaker 1 (00:24:48) - So there are so many pros and cons about institutional investment money coming into the space. And that's just one of the potential pros for everyday investors.

Speaker 5 (00:24:57) - You're exactly right. I have nothing to add to that because you were spot on with that comment.

Speaker 1 (00:25:01) - Anything else, just in general that you see across the real estate market that you really think a real estate investor needs to know today?

Speaker 5 (00:25:08) - One thing that I really think is important for people to keep in the back of their minds is I talked to a lot of our listeners who are very, very interested in dipping their toes in the water, or they've been kind of sitting to the side the last few months, kind of seeing what will happen with the market. Right now is the time for you to invest. If you wait a few months, I suspect in several of these markets you may see interest rates come down, but you're going to see prices go up and you're going to see even more of a lack of inventory. So just kind of keep that in mind as you're thinking about where to invest, how to invest and when to invest.

Speaker 1 (00:25:38) - Here in gray. We've often talked about the fact that higher mortgage interest rates actually correlate with higher prices, not lower ones. And I think some people were sitting on the sidelines saying, is that really going to be the case? Yeah, we saw mortgage interest rates triple and prices still went up. A lot of people think rates are poised to fall this year. It's probably going to put more upward pressure on prices. Andrea, when we talk about one controlling their expense side, I think something that a lot of people overlook, and this is so simple, is buying in a state or buying in a market that simply has low property prices, because that's the best indicator of giving you a high ratio of rent income to purchase price. Low priced states.

Speaker 5 (00:26:23) - That's right. Yeah. And so I mentioned this in the last couple of minutes. But the southeast and the Midwest are those two areas where you really do have those lower cost properties that even if you're an entry level investor, you can get in there pretty easily.

Speaker 1 (00:26:36) - And now we've had a lot of investor interest in Florida with all their in-migration. We still like that market, but prices have really run up there. So we've increasingly had investor interest from our followers and people that you help coach about another southeastern state.

Speaker 5 (00:26:52) - That's right. So that market is Alabama. So we have had a provider that has been offering turnkey, fully renovated properties and sometimes new construction in the Alabama market. And it has been an absolute wonderful market for our listeners that have actually invested in that area.

Speaker 1 (00:27:09) - Alabama, compared to a place like Florida, has substantially lower property prices. We're talking about you as an investor here controlling the expense side. Alabama has the second lowest property taxes in the entire nation, second only to Hawaii. So that's something that's really baked into your recipe here with income property in Alabama.

Speaker 5 (00:27:32) - That's right. I mean, there's been increases in property taxes across the US over the last few years as values come up. But of course, in Alabama you haven't seen those fast rises.

Speaker 5 (00:27:42) - And because the rates are so low, it's going to adjust kind of accordingly with the market. So you're not going to see anything creep up really quickly there as well.

Speaker 1 (00:27:49) - In general. And a lot of jurisdictions you see property taxes increase commensurately with the value of your property. And we've been in Alabama with a really renowned provider there that provides property almost statewide across Alabama, and you're going to co-host with them on a great live event for Alabama Income Properties, because right now they're really offering a good set of incentives and they have available properties. So tell us more about that.

Speaker 5 (00:28:24) - Like you mentioned, they have properties across the state. So you have kind of an option of which geography within Alabama that you would want to invest in. They have different kind of price points as well. And then like you mentioned, they have some very exciting incentives. And I don't think that I have seen an incentive this good as far as property management goes in a really long time. So what they are offering our listeners is called the 333.

Speaker 5 (00:28:50) - And essentially what this is, is if an investor wants to purchase up to three properties, you can purchase one, 2 or 3. You're not committed to a certain number. You're going to get a 3% property management fee for three years on these three properties. Once you go over three, it does revert back to the normal price of 9% for the property management that you can get 3%, which is kind of crazy.

Speaker 1 (00:29:11) - So the incentive offered on this great live event that you're going to co-host tomorrow night is that three, three, three incentive. Let me just review it so that we have it right for a limited time. There's going to be a 3% property management fee for three years on up to three properties.

Speaker 5 (00:29:29) - That's exactly right. Yep.

Speaker 1 (00:29:31) - That is really attractive when it comes to controlling the investors expense side.

Speaker 5 (00:29:36) - It certainly is. That's not the only incentive they have, though. So they're also offering across their entire inventory, 5.99% interest rate on the purchases of any of these properties. And that's really low.

Speaker 1 (00:29:48) - That is really compelling. Yes. So that's substantially lower even than what you can get for an income property rate today. Income property rates are typically, oh, something like three quarters of 1% higher than what you typically see on that 30 year fixed rate mortgage. And that's what we're talking about here. This builder and provider buying down your mortgage rate for you to 5.99% interest. Do you know about the terms on that. Is that 30 year fixed advertising or.

Speaker 5 (00:30:14) - Yes, that is 30 year fixed amortizing. So you're not looking at anything variable. You're looking at kind of your mortgage payment every single month, which is really nice.

Speaker 1 (00:30:22) - Yeah. That's like rolling back the clock to to three years with getting a mortgage rate like that. That's going to help a number of people. Andrea, I'd like to get your thoughts. Do you have very many people that you work with? Here are followers when you're coaching that want to self-manage remotely or do they want that remote property manager?

Speaker 5 (00:30:41) - I don't think in the past year I've spoken with one investor that plan to actually purchase and manage themselves remotely.

Speaker 5 (00:30:47) - Everyone wants to use the property management function, which this particular provider does have property management in house.

Speaker 1 (00:30:55) - So they will want to use that 3% property management fee. Not being a do it yourself or, you know, they're probably taking after me. I don't want the job of property management. That's just a business. I don't really want to have that much to do with. I love to outsource that duty to somebody else. A big reason that a lot of people self-manage their property is because they just don't have that much of a gap between their income and their expenses. So when you buy in an investor advantaged market like Alabama, where you have a high ratio of rent income to purchase price, you can therefore have one of those expenses. Be your property manager, especially when it's only 3% in this case. So those are some really good incentives. The three, three, three and a 5.99% interest rate. Is there anything else you can tell us, especially with on tomorrow night's live event with what markets within Alabama we're going to be talking about?

Speaker 5 (00:31:44) - Yeah.

Speaker 5 (00:31:45) - So we're going to focus on a couple different markets. We're going to look at Huntsville as well as Birmingham. We may also talk about some markets that are in the southeast that they have some properties in outside of Alabama. So just stay tuned. I'm not promising that. But we may talk about that a little bit depending on how things go. The other thing that I think is really important to keep in mind is we're going to have a live buying opportunity. So we're actually going to show you some of the properties that are available right now. You're going to be able to see all the financials on them. And you can reserve them as soon as you want right after we get off. While we're on it, however you want to do it, we can buy it tomorrow.

Speaker 1 (00:32:18) - That is a really actionable event. Tell us more about the event, how one can register and be on there with you so that they can have their questions answered by you and the provider in real time. That's really the benefit of you attending tomorrow.

Speaker 5 (00:32:33) - You can go out to GR webinars. Com you'll be able to register there. It'll be at the very top of the page. Make sure that you know you fill in all of your information. You'll get an automatic email that'll remind you to get on to the webinar tomorrow, and you can jump on. You're going to have the opportunity to ask live questions. So we're going to be there to answer them. And then we'll go through the properties. And if you're ready to reserve, I can hop on a call with you right after we get off of the webinar and kind of talk through what inventory that we have available and help you through that process.

Speaker 1 (00:33:03) - Well, Andrew, before I ask you if you have any last thoughts, just summing it up here. I really encourage you, the listener, to join the live virtual event because you can see real properties like Andrea mentioned in an Investor Advantage market and get any questions answered that you have answered in real time, whether it's about the cash flow or property insurance costs or your property manager.

Speaker 1 (00:33:27) - It's Grace live event for Alabama Income Properties tomorrow, the 16th at 8 p.m. eastern. So go ahead and sign up right away at Grace webinars.com. Any last thoughts? Andrea?

Speaker 5 (00:33:39) - No, I'm just excited to see more faces, see old faces and talk to you all about the market and the properties that are available.

Speaker 1 (00:33:46) - This is really going to help a lot of people. Thank so much for coming back onto the show.

Speaker 5 (00:33:49) - Thank you.

Speaker 1 (00:33:56) - Yeah. Here's an opportunity for you to learn about a market and connect with Andrea. Of course, when we talk about the Alabama real estate market, that entails many market varieties and geographies. In fact, Alabama has 12 of the nation's 387 MSAs. I very much encourage you to attend the live event from the comfort of your home. It's for you if you want to learn about a market and really the fundamentals that drive investor advantage markets, you can meet Andrea and perhaps add some property to your portfolio. It can give you long term equity growth and short term cash flow.

Speaker 1 (00:34:34) - And I have actually been inside walked Alabama properties with this provider. And it is exactly what they do. This isn't some side venture. And they've been in business a long time too. They serve out of area investors and they do the management for you too. This is Grace live event for Alabama income, property and overall in America, entry level homes are few. You're going to have a chance to own scarce assets that seemingly everyone is going to want over time. It's coming up fast. It's tomorrow night, the 16th at 8 p.m. eastern. Sign up now! It is free at Grace webinars.com. Until next week, I'm your host, Keith Weinhold. Don't quit your day dream.

Speaker 6 (00:35:23) - Nothing on this show should be considered specific, personal or professional advice. Please consult an appropriate tax, legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own. Information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of get Rich education LLC exclusively.

Speaker 7 (00:35:51) - The preceding program was brought to you by your home for wealth building. Get rich education.com.

Direct download: GREepisode484_.mp3
Category:general -- posted at: 4:00am EDT

Mon, 8 January 2024

483: Five

Yes, simply "five". The number "5" has remarkable symbolism on both real estate investing the GRE way, and elsewhere in your life pathway.

See how real estate actually performed when compared to other asset classes in the past year: stocks, gold, bitcoin, and bonds.

Everyone knows that some commercial real estate is sagging, like office. Industrial is steady. Retail is actually booming.

Recession predictions were so bad. In the past year, we had low unemployment, rising GDP, solid corporate profits, and inflation fell.

I explain what an inverted yield curve means and why it matters to you.

Not only does “Real Estate Pay 5 Ways”, but the number “five” often has significance in both symbolism and numerology.

Using a $40K down payment on a $200K property, I add up how “Real Estate Pays 5 Ways” and sum a lofty 46% total rate of return with today’s real-life numbers.

We have available inventory of income property. If you’re ready to buy, contact our Investment Coaches. It’s free at www.GREmarketplace.com/Coach

GRE Marketplace properties are less expensive because: there’s no agent to compensate, selective investor-advantaged markets, and not dealing with owner-occupant emotions.

Timestamps:

Asset Class Performance (00:01:25)

Comparison of various asset class performances in the past year, including stocks, global stock markets, bitcoin, treasury notes, gold, and residential real estate.

Inverted Yield Curve Explanation (00:07:47)

Explanation of an inverted yield curve, its significance as a predictor of economic downturn, and a simplified example to illustrate the concept.

Five Ways Real Estate Pays (00:12:18)

Discussion of the five ways real estate provides returns to investors: appreciation, cash flow, return on amortization, tax benefits, and inflation profiting, with a focus on the symbolic significance of the number five.

Real Estate Returns Calculation (00:18:49)

Illustration of a simplified method to calculate the total return on investment from a real estate property, covering appreciation, cash flow, return on amortization, tax benefits, and inflation profiting.

Investment Opportunities (00:16:23)

Promotion of investment opportunities with Ridge Lending Group and Freedom Family Investments, emphasizing the potential returns and benefits of investing with them.

Upcoming Episodes and Conclusion (00:17:44)

Teaser for upcoming episodes featuring investment coaches and discussions on property tax, and a conclusion expressing the significance of real estate returns and investment.

Replacing Toilet Flappers and Spackle (00:23:56)

Discussion on conservative estimates, tax benefits, and property management costs in real estate investment.

Visual Explanation of Five Ways (00:25:09)

Explanation of the five ways real estate pays returns and the simplicity of real estate math.

Introduction to Get Rich Education (00:26:17)

Overview of Get Rich Education's history, team, and independent voice in the market.

Real Estate Market Inventory (00:28:40)

Discussion on the slowing real estate market, available inventory at GRE marketplace, and the importance of free coaching.

Ethical Use of Other People's Money (00:29:51)

Explanation of the formula for starting or growing a portfolio of buy-and-hold properties, emphasizing the use of a small down payment.

Benefits of Off-Market Properties (00:31:13)

Explanation of competitive off-market property prices and the advantages of buying direct, investor advantage markets, and property management solutions.

Safeguards in Property Purchase (00:33:57)

Importance of property inspection, lender appraisal, and independent third-party property inspection in property purchase.

Free Coaching and Financial Readiness (00:35:03)

Emphasis on the free coaching at GRE marketplace, the absence of upselling to paid courses, and the importance of financial readiness before investing.

Disclaimer and Host Information (00:36:05)

Disclaimer regarding the content of the show and information about the host operating on behalf of Get Rich Education LLC.

Resources mentioned:

Show Notes:

GetRichEducation.com/483

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

Will you please leave a review for the show? I’d be grateful. Search “how to leave an Apple Podcasts review”

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text ‘GRE’ to 66866

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482: Will You Pay This Gigantic Proposed Tax?

Complete episode transcript:

Speaker 1 (00:00:00) - Welcome to GRE. I'm your host, Keith Weinhold. I compare real estate to how other asset classes have performed. Give you a simple example to help you understand an inverted yield curve. Describe the significance of the five in your life. Then help find a match with the right income property for you today and Get Rich Education. If you like the Get Rich Education podcast, you're going to love art. Don't quit your day dream newsletter. No, I here I write every word of the letter myself. It wires your mind for wealth. It helps you make money in your sleep and updates you on vital real estate investing trends. It's free! Sign up and get rich education.com/letter. It's real content that makes a real difference in your life, spiced with a dash of humor rather than living below your means, learn how to grow your means right now. You can also easily get the letter by texting gray to 66866. Text gray to 66866.

Speaker 2 (00:01:09) - You're listening to the show that has created more financial freedom than nearly any show in the world.

Speaker 2 (00:01:16) - This is get rich education.

Speaker 1 (00:01:25) - Welcome to GRE. From Johannesburg, South Africa, to Mechanicsburg, Pennsylvania, and across 188 nations worldwide. I'm Keith Weinhold and you're listening to Get Rich Education. This is where your educational major is real estate investing. And your minors are in real estate economics and wealth mindset. That's what we do here. It all culminates with your doctorate in financial freedom. Before we talk about real estate, we recently had a year that just ended. And to know their real estate is the right place for you long term at times, especially after a year ends, we need to compare that to other asset classes. So what actually happened last year? Elsewhere in the investing world? Stocks, the S&P 500 was up 25%, even though for most of it invest in stocks, you're only paid one way, not five ways, but still 25%. That's a pretty healthy return on tech companies accounted for most of the gains, yes, what they call the Magnificent Seven that is putting the team on its back.

Speaker 1 (00:02:33) - Yeah, these are the seven tech mega caps Microsoft, Apple, alphabet, Nvidia, Tesla, meta and Amazon. They surged more than 75% last year, while the other 493 companies in the S&P 500 have gained just 12%. Yes, the Magnificent Seven now accounts for nearly 30% of the index's entire value. That's per the Wall Street Journal. And speaking of the S&P 500, it just added a prominent new member a few weeks ago, and that is Uber zooming outside, the United States, global stock markets had their best year since 2019. Bitcoin was up 157%. Yes, you heard that right. 157 as the crypto winter thawed out last year, the yield on the ten year Treasury note was up just eight basis points. That's virtually unchanged. Very little movement. And see, that's also why mortgage rates ended the year at the same level they started at, which is near 6.5%. That is because mortgage rates track that ten year note. Gold was up 11%. And here in residential real estate it was up 4%.

Speaker 1 (00:03:51) - That's on the median price of existing homes. But it's only through November, not the full calendar year. Yes, real estate is such a laggard with reporting statistics. So almost everywhere y'all look prices are up up, up. Yes. It's not just for those essentials on your last grocery store run where they're up okay. The value of your assets fortunately is up too. And really, one of the few places that pain was felt was in the commercial real estate market. I think you know that. But let me tell you how that pain is positioned to get even worse shortly here. All right. U.S. office vacancy rates hovered around 20% last year. Now, that's a rate that was actually worse than during the 2008 financial crisis. More companies told workers, hey, get back to your desk, okay? Calling workers back to the office at Salesforce, Amazon, Blackrock. But still, card swipe data in America showed that only about half as many people are making the trip into the office compared to pre-pandemic numbers.

Speaker 1 (00:05:03) - And you've got some companies like meta, the parent of Facebook and Instagram, they're getting creative and actually subleasing their office space to other tenants. But not all commercial real estate is struggling. The retail vacancy rate fell to just 4.8% last year. Retail is not dead, and that retail vacancy rate, that is actually the lowest in 18 years since the real estate firm CBRE started tracking it. And big box stores and malls, shockingly, are. So back. There's also a big real estate demand for warehouses, data centers and industrial space, thanks to the recent surge of AI and that pandemic induced e-commerce boom. But we probably haven't seen the worst of it yet because, okay, within the next four years, about two thirds of commercial real estate loans will likely be refinanced, with interest rates much higher than they were the first time around. The last thing that we have to recap for you that we learned from last year is all of those god awful, dreadfully wrong predictions. A recession. So many predictions were so wrong.

Speaker 1 (00:06:27) - Instead, we had historically low unemployment and solid corporate profits. Inflation fell. Now there is one prominent financial media platform, one of the nation's biggest. I won't mention their name, though you've surely heard of them. This agency gave zero room for any other outcome because they predicted a 100% chance of a recession last year. 100%. All right. They really look wrong. Although let's be mindful, technically, due to a statistical lag, we often don't know if we are in a recession until after the fact. But if you think that we were late last year, understand though, not absolutely everyone was a Debbie Downer, say back in late 2022, let's give some credit where it's due. Moody's Analytics chief economist Mark Zandi, he was one of the few experts who kept the faith for a soft landing. He pointed out the recessions typically come out of the blue, and that there was a good chance the fed would get inflation under control without taking the economy. Now, one condition that a lot of people pointed to saying that a recession should be here by now, is that dreaded condition that you probably heard of? Maybe.

Speaker 1 (00:07:47) - Maybe not. But that is known as an inverted yield curve, which is deemed as a harbinger of bad things to come, usually recession. Okay, now that phenomenon inverted yield curve. That sounds intimidating. I think when you hear that. Okay. And what that means in inverted yield curve is that the interest rate on long term bonds is lower than the interest rate on short term bonds. And that that right there is what's often a bad sign for the economy. Now, if what I just said right there kind of makes you scratch your head and say to yourself, what was all that gobbledygook again? And why does it matter? Why don't I give you a simple example of an inverted yield curve? Then you can actually remember. What I'll do is make this personal to you. A bond is just a fancy name for a loan. Let's say that you need a loan for $10,000, and you've got this great friend, a lifelong and trusted friend, and he will let you borrow the money from him.

Speaker 1 (00:08:56) - Now, if you take out the loan and tell him that you'll pay him back as quickly as next week, which is our short term bond. In this example where your friend might not charge you any interest on the loan at all, then just say that he wanted you to pay him a small 1% interest rate. Okay, see, your rate is low because there's not that much risk for him since you'll pay him back next week. That's not too long for him to wait. But say that you want to take the same $10,000 loan from that friend, but you're going to pay him back for ten years. An entire decade? Well, for him to want to make you that loan, he's going to need to get compensated more with a higher interest rate for the heightened risk in that long payback period. Okay, what if you move or if you aren't even alive in ten years? All right. That entails more risk for him, the lender. So therefore your loan comes with a 10% interest rate that you've got to pay your friend.

Speaker 1 (00:09:57) - This is analogous to the long term bond. All right right there I've just explained the normal yield curve condition right there. That's normal. The longer someone lends money out for to you, the more that they must get compensated. And that should make sense to you that that is a normal world. One week was 1% interest, one decade was 10% interest that you'd have to pay. That's normal. However, in inverted yield, curve simply flips that normal world upside down. It inverts it. It's the opposite of the arrangement that I just described with your friend. So this is where the shorter duration that one makes a loan for the higher interest rate they're compensated with. See, that's a weird world. That's an inverted yield curve. Because if your friend thinks that the world is going to crash soon with a recession or a depression, or Earth gets hit with an asteroid soon, well, then he'd want high compensation, even on a short term, week long loan, because freakish things are happening. And that's an inverted yield curve.

Speaker 1 (00:11:10) - And that's why having one like we have recently signals something dire, like a recession coming to many. Now, at the top of the show, I talked about the returns of various asset. Over the past year. Of course, that is only in terms of capital appreciation. That's all that most investors think about simply, did it go up or did it go down? It's an important question, but around here we know that real estate is a special asset class because when it's bought, right, it can pay you five ways at the same time. When it comes to the numbers, that number five, that is symbolic of why we do what we do here at gray. So let me talk about really, the existential and symbolic virtues that resonate with you across your life and the meaning behind that special number five. And it's about more than our real estate pays. Five ways, which is any listener knows is appreciation, cash flow, return on amortization, tax benefits, and then fifthly, inflation profiting.

Speaker 1 (00:12:18) - And I'm holding up five fingers right now, as I say this, according to numerology, the number five symbolizes freedom, curiosity and change, a desire to have adventures and explore new possibilities. But it signifies more than just high energy and excitement. In numerology, the five negative traits can include talking too much and overconfidence. Okay, that's what numerology says. Five ways real estate pays is a freedom formula. So that's actually numerology appropriate, I suppose. Now we don't do astrology or tarot cards here. Nothing hokey, concrete evidence though I will venture to guess that at least in some other facet of your life, five resonates with you. You've got five senses. Each one of your limbs has five fingers or five toes. In Christianity, there are the five wounds of Jesus Christ. If you're Muslim, there are the five pillars of Islam. Muslims pray to Allah five times a day. In Judaism, the Torah contains five books. Aristotle said that the universe is made up of five classical elements water, air, earth, fire, and ether.

Speaker 1 (00:13:41) - A lot of more popular folklore celebrates the five like Indiana Jones sort, the Sankara stones. They were five magical rocks. In music. Modern musical notation uses a musical staff made of five horizontal lines. Sports. The Olympic Games have five interlocked rings. When you shake hands to close your next real estate deal, you're each using those five fingers. In law, five is what renders a verdict. Five is the number of justices on the Supreme Court of the United States necessary to render a majority decision. There's a show on Fox called the Five and near the top of our Don't Quit Your day dream letter. We've got the five. Five is defensible in your investment fortress, just like the Pentagon is a five sided building in D.C. known for defense. Real estate pays five ways. And hey, even that phrase is five words. And it's a concept that was first introduced to the world right here on the Gerry podcast in 2015. So we're done with the touchy feely stuff, but look around five. It has a lot of meaning in your life.

Speaker 1 (00:15:02) - And in fact, the next time someone asks you why you're invested in real estate, hold up five fingers and confidently tell them that real estate pays five ways. What better way to affirm this than to come back with a concrete example shortly on how this helps you navigate toward financial freedom in your life, in ever changing real estate markets, we're going to use today's real life numbers in summing up the five. I hope you enjoyed me whipping around the asset classes in explaining what an inverted yield curve really means to you. More next, I'm Keith Reinhold. You're listening to get Rich education. Role under the specific expert with income property, you need Ridge Lending Group and MLS for 256. In gray history, from beginners to veterans, they provided our listeners with more mortgages than anyone. It's where I get my own loans for single family rentals up to four Plex's. Start your pre-qualification and chat with President Charlie Ridge personally. They'll even customize a plan tailored to you for growing your portfolio. Start at Ridge Lending group.com Ridge lending group.com.

Speaker 1 (00:16:23) - You know, I'll just tell you, for the most passive part of my real estate investing, personally, I put my own dollars with Freedom Family Investments because their funds pay me a stream of regular cash flow in returns are better than a bank savings account up to 12%. Their minimums are as low as 25 K. You don't even need to be accredited for some of them. It's all backed by real estate. And I kind of love how the tax benefit of doing this can offset capital gains in your W-2 jobs income. They've always given me exactly their stated return paid on time. So it's steady income, no surprises while I'm sleeping or just doing the things I love. For a little insider tip, I've invested in their power fund to get going on that text family to 66866. Oh, and this isn't a solicitation. If you want to invest where I do, just go ahead and text family to six, six eight, six, six.

Speaker 3 (00:17:26) - This is Rich dad advisor Ken McElroy. Listen to get Rich education with Keith White.

Speaker 3 (00:17:32) - Hold and don't quit your day dream.

Speaker 1 (00:17:44) - Welcome back to get Rich education. I'm your host, Keith Wayne. Hold. You've been with me here every single week since 2014. A lot of you have anyway. You're listening to episode 483, and I'm deeply appreciative for you, the listener, coming up here on the show and in house chat with one of our investment coaches, Doug Casey, on the Silent Depression. And like I told you last week, soon, a return of Tom. We write when we discuss whether the US can just completely do away with and delete the property tax. Wouldn't that be amazing? Around here? We like to say that when we provide good housing to people, we can help abolish the term slumlord. But your real estate investing venture isn't solely altruistic. There are generous profits, too. And, you know, it's incredible to me how more real estate investors don't even understand the answer to basic questions like how do I get paid in? How much do I get paid, and where the sources of where that money comes from.

Speaker 1 (00:18:49) - And really, these are all huge reasons for why you and I are even investing in real estate at all. So I love doing this. Let's add up the five ways and come up with a total ROI. And it's always a little awe inspiring to do this, even with conservative numbers, to see how high your return gets. And let's use the year 2024 sort of numbers. And it's kind of funny in a sense. I dislike real estate elements where down the outside tenants might get difficult to manage on the inside, and you're certainly going to have some problems, including some weird problems along the way in your investor journey. So although in a sense I dislike real estate, rather I like what real estate does, for me, it's largely about those giant returns. So let me demystify real estate returns with a quick breakdown. And I think you know that the five ways are not for fix and flip property. This is just with buy and hold investing on a property that's ready to go, ready to be moved into turnkey.

Speaker 1 (00:20:03) - Here's a simplified method the concrete numbers. Right. Let's say that you make a 20% down payment. In this case that is a 40 K initial investment on a 200 K income property in just a year. Here's what can happen. The first way appreciation. You've got that initial property value of 200 K and appreciation rate of just 5%. Where your new property's value is now 210 K, you just experienced an equity gain of ten K divided by your 40 K initial investment. That is a 25% return to you just from the first of five ways you're paid. That is due to the magic of leverage, because you got the gain on both your down payment and the money that you got to borrow from the bank. The second way is with cash flow. Let's say your rental income is $1,600 a month, but things are running a little thinner on this property, and your expenses are $1,500 a month with the mortgage and all the operating expenses, that gives you leftover cash flow of only 100 bucks a month. That's 1200 bucks a year that's still divided by that same 40 K initial investment you made.

Speaker 1 (00:21:13) - All right. That is another 3% return to you. The third way you're paid is that ROA return on amortization. Also known as principal pay down. All right. Will you have a 160 K loan on this property? We'll use an 8% interest rate. So all you got to do is search for a loan amortization table, bring it up, and you'll see that you have a monthly principal reduction of about $110 a month. That is $1,320 a year that your tenant paid down, not you. So right here, your $1,320 equity gain is still divided by your same 40 K skin in the game down payment. That is yet another 3% gain. Then the fourth of five ways are your tax benefits. All right. Your property value is 200 K. That's how much your property is worth on the day that you bought it. And your building value might be about 70% of that. And the other is in the value of the land. So therefore you're building value. Or that improved portion of the property is worth about 140 K will annual depreciation is about 3.6% of that.

Speaker 1 (00:22:30) - That gives you a $5,000 tax depreciation benefit. If you're at the 25% tax rate, that's 1250 bucks a year divided by your same 40 K initial investment, that is another 3% return to you just piling on. And then the fifth and final way is your inflation profiting you profit from inflation as your debt gets debased by inflation. This is the least understood of the five ways you've got that 160 K loan amount at a 3% inflation rate. That gives you an annual debt debasement of $4,800, again divided by your same 40 K initial investment. This is another 12% return to you. All right. There we go. Now let's add up all of those ROI from the five ways real estate pays. You had 25% from appreciation plus 3% from cash flow, plus 3% from your ROA, plus 3% from your tax benefit, plus 12% from your inflation profiting that equals a 46% total ROI that you have from this property. I mean that right there. That is exactly why you're a real estate investor. That is exactly why I'm a real estate investor.

Speaker 1 (00:23:56) - What do you think it was for to replace toilet flappers and spackle? Drywall? Hey, this stuff's important, but I don't personally do it myself. That's the kind of stuff I dislike because I'm not good at it. Now, at a number of steps when I went through that, you'll notice that I was conservative or rounded down. I used an 8% mortgage rate and 3% inflation. Although there are numerous tax benefits, the only one I considered is tax depreciation. Your seller can often help pay your closing costs if you make a full price offer. So to keep it simple, I did not roll closing costs into that. See, all these numbers are realistic. While paying a property manager is accounted for. And as a reminder, that was only in year one. Your subsequent years returns. They are going to gradually diminish as equity accumulates in your property. And of course, that's an example. You are real life numbers. You're really going to be better than that or worse than that. And yes, we could get more precise numbers if we like, discuss numbers from 20 spreadsheets and really made your head hurt.

Speaker 1 (00:25:09) - But we're not going to do that. And you do enough years of this, and you're going to have hordes of people lurking in the viewers of your Instagram story about your latest month long vacation in the Maldives islands. Okay, now, if you need to see what I just explained visually and your newer to our platform and you haven't seen that yet, I also explain the five ways in a free mini video course so that you can really get a good look at all those numbers and where they come from. And you can get that at get Rich education. Com slash course. The cool thing about real estate math like I just did there is it simplicity. All we did there was addition, subtraction, multiplication and division. It real estate. I've never had to do trigonometry, calculus or use exponents. Okay, it's not about complicated maths. All it is is knowing what numbers to use. And in fact, that's probably why I'd expected. My skills are pretty rusty in calculus and trigonometry right now. I don't need to use that stuff.

Speaker 1 (00:26:17) - You can do all this with a pen and a napkin at. Lunch. And that is a big part of the beauty of this. So here at gray, we brought the world in awareness to this for about nine years now, and shortly after show inception, we helped lead you to the actual property addresses that are conducive to this because you kept asking me, where can I actually find properties, where this works? And then more recently, we added free coaching to help get you started or to help you get your next income property. And by the way, if you've ever wondered, there are eight of us that are here on the team at gray, and we often recruit new team members. We do that through our newsletter subscribers like you, because you already understand abundantly minded concepts like financially free beats debt free. We are not owned by any parent company. So when you tell a friend about the show or you interact with our sponsors, you're really supporting an independent voice here. And that's not to disparage the big corporate in any way.

Speaker 1 (00:27:26) - That's just simply not who we are. It was recently reported that Warner Brothers and Paramount are in early merger discussions. Well, gray won't be facing scrutiny from antitrust regulators anytime soon. And our sponsors, like you hear on our ads here during the show, they are ones that I use myself. We don't produce AI generated material here either. This is organic, original content, and a number of people on our team here have been with us for a while. Our investment coach Andrea since 2020, nourish since 2021, and our podcast Sound Engineer and has helped produce this show that you're listening to right now, every single week since episode three, in 2014, almost since inception, nine plus years now, Gray Marketplace is where you'll find the income properties for almost two years now. To make it even easier for you, you can even find and select from our two investment coaches on that page in order to help you out. And since our coaching is truly free, please respect their time. They're not there just to chat.

Speaker 1 (00:28:40) - It is for action takers now. Seven weeks ago, we did an episode here on how the real estate market is slowing it down. And of course, when we're talking about slowing down, the slow real estate market is in terms of the number of sales or the sales volume, not as many homes are transacting as usual. For one thing, there's always a lag around the holidays, but there's also an overall lack of American housing inventory, as you probably know well, I am happy to tell you that we do have inventory at GRE marketplace and a good selection. Everything from an older, renovated Ohio single family income property for a sales price of, say, 110 K to Alabama and new build single families for 300 K to Florida. New build duplexes for 500 to 600 K to four plex's for upwards of $1 million. If you want to benefit from everything that we discuss here on the channel, the actionable way for you to do that is with our free coaching. Yes, I'm talking about you. Make yourself that long term.

Speaker 1 (00:29:51) - Five ways profiteer. By not focusing on getting your money to work for you. That is a fixed mindset paradigm shift to ethically getting other people's money to work for you. Like we discuss here. That is, you simply put a small down payment on an income producing property. I mean, that's most of the formula right there. That's it. We're talking about how you can start or grow your own portfolio of buy and hold property, not fixing flips. It's often entry level property which is what makes a good long term rental property that's either already renovated or it is brand new. Oftentimes it's single family homes. Up to four plex is sometimes some apartment buildings. They're now a great marketplace. You can either shop off market property yourself, or have the free help of one of our great investment coaches. And your coach learns your goals, guides you, and makes it easy for you. They help you shop. The great marketplace properties, tell you where the real deals are nationally, and sometimes they tell you how to get improbably low mortgage rates when new home builders make those available, and your coach if you don't have one already, they give you the insights, the news on the latest good deals.

Speaker 1 (00:31:13) - For about a year now, a lot of new home builders have got to keep building and they have to keep moving properties to stay in business. So that's why amidst. Higher mortgage rates. You can get an interest rate for income property in the fives now because the builder buys it down for you and or even get a year's worth of free property management. Yeah, builders are often able to buy down your mortgage rate for you, because what they do is that they buy big chunks of money from lenders in bulk, where instead, if a lender does it directly with you, they have more documentation that they have to do with each individual investor for their smaller loan sizes. That's how builders are buying down your rate. They buy money in bulk from lenders. Now you'll see that grey marketplace properties are often less expensive than you'll find elsewhere. For properties that are turnkey and ready to be tenant occupied. Like this. Now, how are these off market property prices so competitive? Really? Where's the advantage come from here? Well, first of all, there is no real estate agent that the seller has to compensate with a traditional 5 or 6% commission.

Speaker 1 (00:32:30) - Instead you get to buy direct. Secondly, investor advantage markets just intrinsically have lower prices than the national median. They tend to be in the Midwest, southeast and Inland Northeast, and they come with a property management solution. And thirdly, the providers in our network, they're not mom and pop flippers that provide investors like you with just 1 or 2 homes a year. Instead, these are builders and renovation companies in business to do this at scale. So they get to buy their materials in bulk, keeping the price down for you. And really a fourth reason that you tend to find good deals at Gray Market Place is that you aren't buying properties from owner occupants where their emotions get involved, and they sometimes expect irrationally high prices for some offbeat reason because the living room is where they open their Christmas stockings every year for a decade or something like that. Now, just like buying your own home to live in, these income properties come with a lot of the same safeguards when you buy. We suggest that once your coach helps you make an offer and you're under contract for a property, that you have an independent third party property inspection done, and then the seller typically fixes any inspection findings for you at their expense, the seller's expense, before you close the deal.

Speaker 1 (00:33:57) - And we're talking about anything from a window that doesn't close properly to a faucet that drips. You want to have those conditions cured and taken care of before you buy. Now, as a buyer, it's not legally required that you do an inspection, but I recommend it even if it slows down your purchase process a little. Inspection is like cheap insurance for you. Don't rush that part as a condition of your mortgage lender giving you the loan, there will be an independent lender appraisal of the property's value before you buy. That part is mandatory. And this appraisal? It's another safeguard to keep you from overpaying. If you don't have an investment coach yet, it is truly free. They're there to help you out. Read a few sentences about each coach and pick the coach that you think resonates with you. Or just pick the one that you think has the best smile over there on that page. Uh, they are really well qualified. They have their MBAs, but more importantly, the coaches are relatable because they're active real estate investors themselves, just like I am.

Speaker 1 (00:35:03) - Coaching is truly something that's free. We don't try to upsell you to some paid course or some fee based coaching program later. There's nothing like that. So just create one login one time and connect with them at Gray marketplace.com. And it's really helpful if you're financially ready. First check with your mortgage loan company and get pre-approved unless you're paying all cash. Really? Today, with inflation about as little as you'd want to spend on a rental property, they won't give you an inordinate amount of problems. Is your 20% down payment on a 100 to 150 K property? Well, you should find this most helpful. You can get started with investor advantaged off market deals and investment coaches at Gray marketplace.com I'm Keith Reinhold. I'll chat with you next week. Don't quit your day dream.

Speaker 4 (00:36:05) - 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.

Speaker 4 (00:36:20) - The host is operating on behalf of get Rich education LLC exclusively.

Speaker 1 (00:36:33) - The preceding program was brought to you by your home for wealth building. Get rich education.com.

Direct download: GREepisode483_.mp3
Category:general -- posted at: 4:00am EDT

Mon, 1 January 2024

After discussing the direction of rents, learn about an ominous new tax that’s proposed.

SCOTUS and Congress are considering a tax on unrealized gains.

For example, if your gold or furniture appreciates from $5K to $8K, would you have to pay a tax on the $3K gain, even if you keep owning the gold or furniture?

Tom Wheelwright from WealthAbility joins us to discuss this.

Though this is considered a “wealth tax”, the middle class would have to pay it.

The tax case being heard is called “Moore vs. United States”. We expect it to be decided this year.

Tom & I discuss how few people understand marginal income tax rates’ progressivity.

The last dollar that you earn is taxed at your highest rate. The first dollar that you earn is taxed at your lowest rate.

Timestamps:

Factors Driving Rent Growth (00:02:45)

Inflation, lack of inventory, expired rent freezes, shifting workforce, demand for single-family homes, high employment, barriers to homeownership.

Promising Development in Multifamily Construction (00:05:33)

Multifamily construction reaching a 15-year high, new supply likely to slow down apartment rent growth, inclusionary housing requirements for new construction.

Current Rent Trends (00:08:04)

Single-family rents up 5%, apartment rent growth at 3%, highest rent price growth in the northeastern quadrant of the US.

Supreme Court Case: Moore v. United States (00:11:47)

Overview of the case, implications of taxing unrealized gains, arguments for and against the taxation of unrealized income, potential impact on everyday investors and citizens.

Challenges of a Wealth Tax (00:18:07)

Discussion on the problematic nature of a wealth tax, potential impact on individuals and assets, comparison to estate tax, and potential implications of a wealth tax on various assets.

The tax on unrealized gains (00:22:43)

Discussion on the potential impact of a proposed wealth tax on unrealized gains and the complexities of taxing assets while they are still held.

The regressive nature of wealth taxation (00:24:38)

Exploration of the regressive nature of wealth taxation and the challenges in implementing and managing taxes on wealth.

Tax laws and equal protection (00:27:19)

Insights into how tax laws apply equally to everyone and how billionaires benefit from better advisors to minimize tax payments.

Tax rate misconceptions (00:30:15)

Clarification of misconceptions about tax rates, including the progressive nature of tax tables and the impact of earning more income.

Tax strategies and investment decisions (00:32:17)

Exploration of tax benefits related to investment strategies, including the impact of deductions and the suitability of IRAs for different investment types.

Updates on tax laws and book release (00:34:57)

Announcement of the third edition of the book "Tax-Free Wealth" and the incorporation of major tax law changes into the updated edition.

Wealthy's tax contributions and future episode preview (00:36:03)

Discussion on the tax contributions of the wealthy and a preview of a future episode topic on the feasibility of abolishing property tax.

Conclusion and show updates (00:37:13)

Closing remarks on upcoming content, including the landmark episode 500, and a call to subscribe to the show for valuable insights.

Resources mentioned:

Show Notes:

GetRichEducation.com/482

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GRE Investment Coach, start here:

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RidgeLendingGroup.com or call 855-74-RIDGE

or e-mail: info@RidgeLendingGroup.com

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481: Is US Residential Real Estate Underpriced or Overpriced?

Complete episode transcript:

Keith Weinhold (00:00:01) - Welcome to GRE. I'm your host, Keith Weinhold, and it's a new year. We talk about what drives the growth of rents. Then a gigantic new tax is being proposed that could fundamentally change virtually every current investment you own and future investment you make today on Get Rich education. When you want the best real estate and finance info. The modern internet experience limits your free articles access, and it's replete with paywalls. And you've got pop ups and push notifications and cookies. Disclaimers are. At no other time in history has it been more vital to place nice, clean, free content into your hands that actually adds no hype value to your life? See, this is the golden age of quality newsletters, and I write every word of hours myself. It's got a dash of humor and it's to the point to get the letter. It couldn't be more simple. Text GRE to 66866. And when you start the free newsletter, you'll also get my one hour fast real estate course completely free. It's called the Don't Quit Your Day dream letter and it wires your mind for wealth.

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

Speaker 2 (00:01:30) - You're listening to the show that has created more financial freedom than nearly any show in the world. This is get rich education.

Keith Weinhold (00:01:46) - What could go from Beckley, West Virginia, to Boise, Idaho, and across 188 nations worldwide. You're listening. To get rich education, I'm your host, Keith Weinhold. What about this new proposed wealth tax? Should there be one? How big is it? As you're gonna find out, you would probably even have to pay this huge new proposed tax. If you're in the middle class. That's all. If it gets legislated, that's coming up shortly. But first, last week I told you about the future direction of home prices. As I revealed our 2024 National Home Price Appreciation Forecast this week, let's talk about the direction of rents in America, higher prices for everything that could make tenants feel tapped out. Although we have now had a few months of wage growth picking up before we get into the rent trend, this is get rich education.

Keith Weinhold (00:02:45) - So focusing on the education part as we often do, what are the factors that drive rent anyway? What drives rent growth and how did rent get to feel so expensive for a lot of people? Well, the fast growth of rent costs since 2020 that derives really from a number of factors, including inflation and also including a lack of inventory. There is a shortage of vacant rental properties in general and of affordable ones in particular. You've also got those expired rent freezes and expired discounts. I mean, landlords are making up for pandemic era rent freezes and steep discounts in urban areas. And by doing that, what they've done now is hiked up prices on new units and on lease renewals. Another factor that drives rent growth is what's happening with the workforce. And we've had a shifting workforce. As the pandemic increased, the popularity of remote work, you had deep pocketed renters that sought out larger homes, often single family homes, in areas that had previously been pretty low cost. So this migration then it increased the rents in suburban and outlying areas more than it lowered them in urban ones.

Keith Weinhold (00:04:06) - And see that trend overall that yielded a net increase in rents. And then another factor is that you have more demand for people to live alone. Prospective renters are increasingly looking for studio in one bedroom apartments, driving up demand for available housing, and that drives demand for space and therefore rent growth, because living alone, that means that rather than two people demanding to live in one unit, two people demand two places to live. And of course, high employment like we've had. That's another factor that drives rent growth over time. And the last factor that I'll share with you as a rent growth driver are barriers to homeownership. Yeah. Prospective homeowners, they remain renters for longer because they face high demand and low inventory on those existing homes. Like I've talked about before, higher mortgage rates. And you had those supply chain disruptions that really began a few years ago. Most of those are alleviated now, but that made it more expensive and more difficult to construct new homes. And then as mortgage rates rose starting back in early 2021, housing prices, they cooled off faster than rents, and rents are finally rising at a slower pace now then they did in the past two plus years.

Keith Weinhold (00:05:33) - And so those are the factors that drive rent growth. Now. Back in 2022, a promising development began, promising for those that are looking to pay less for housing in the future anyway. From their perspective, and that is the fact that multifamily construction reached a 15 year high nationwide, and that new supply is what's likely to slow down apartment rent growth. And since many cities require really this inclusionary housing, that means that a portion of new housing needs to be affordable. Well, therefore, new construction also means new affordable housing. Again, that's predominantly on the apartment side. But see, many families, they want a single family home. They want that privacy. They want that separation. They want to live in something that feels like their own, but they can't afford a single family home to buy. So they rent one. And, you know, I thought Zillow recently pointed it out really well when they said that single family rentals are the new. Their homes. They appeal to those that are priced out of buying.

Keith Weinhold (00:06:49) - And now you can see this reflected in rent growth. So now that we talked about some of the longer term drivers of growth, let's talk more about the current period of time. We don't have Q4 numbers in yet, but through Q3 we can see that the growth of single family rents is 5%. All right. That sounds healthy. And it is. And that's per John Burns research and Consulting. But that 5% increase is down from two years ago when it had its recent peak of between 9 and 10%. So again, right there, we're just talking about the annual growth rate in single family rents. It's about 5% through the latest quarter that we have stats for now. Compare that 5% to apartment rent growth, which is about 3% today. Even in an economic slowdown, rents rarely fall. And by the way, if rents ever do fall, I call it falling rents. Or perhaps I use the phrase declining reds for some reason. If price is contracting anything, some economists and analysts and others, they refer to this as negative growth.

Keith Weinhold (00:08:04) - I don't tend to use the term negative growth. That's confusing. I just call it a decline. Okay. Negative growth. That makes you wonder if someone means slowing growth rates or do they mean an outright decline. So negative growth is an oxymoron like jumbo shrimp or black light or friendly fire, or telling someone to act natural, or perhaps a working vacation? Okay, that's what negative growth means to me anyway. Now rents, whether it's single family rentals or apartments, when you blend those together regionally, you're seeing the highest rent price growth in the northeastern quadrant of the United States, which oddly contains a good chunk of the Midwest. So you just look at the northeastern quadrant of the United States. So leaders in red growth we're talking about here Providence, Rhode Island, Hartford, Connecticut, Cincinnati, Columbus, Saint Louis, Milwaukee and Chicago, they are all on that list. The highest rent growth blended together, single family rentals and apartments. By the way, two months ago I was in Hartford, Connecticut for the first time in a while.

Keith Weinhold (00:09:18) - Nice skyline there. Yeah, Hartford. You have an impressively urban feel for a city that's not among America's largest. Now. You're seeing slight rent price declines this past year in a lot of their really big, swaggering, broad shouldered gateway cities New York City, San Diego, San Francisco, San Jose, and also in Raleigh, North Carolina. I'm not sure what's going on in Raleigh, North Carolina, with their sluggish rent growth, but here, as testimony to the fact that rents don't often fall far, all of those bigger cities that I just mentioned, these big losers, they're only down between one half of 1% and 1% for year over year rents. So to review nationally in the last year, single family rents are up 5% and apartment rent growth is up 3%. But both have slowed from a couple years ago. Can the federal government tax your unrealized gains, also known as a wealth tax? We're going to talk about what that means. But how far could this go? If your home appreciates a 30 K in a year, but you want to keep living in it, might you have to pay tax on that gain even though you don't sell it, you just want to keep living there.

Keith Weinhold (00:10:41) - Could that even apply to you? If you own furniture that goes up in value, but you kind of like dining at that nice mahogany table of yours, could you get taxed on that every year? If the value of that goes up? And then you would have to ask the question, where are you supposed to get the money from in order to pay the tax? Might you have to sell that asset in order to pay the tax on it? So let's discuss a wealth tax that is tax on your unrealized gains. A renowned tax and wealth expert is back on the show with us today. He's also a CPA and the CEO of a terrific tax firm called Wealth Ability. He's the best selling author of the Mega-popular book Tax Free Wealth, which I have on my bookshelf. And a third edition is about to come out. He's going to tell us more about that. Hey, welcome back to Dr. Tom Wheelwright. Thanks, Keith. Always good to be with you. It's good to be with you, too.

Keith Weinhold (00:11:47) - And I think it's going to be especially informative and maybe disturbing this time, Tom, because really, it's been called the quadrillion dollar question. This is where Supreme Court justices decide whether the federal government can tax certain unrealized gains. And what this means is that these are assets that you own, but yet you haven't sold yet. So, Tom, tell us about this Supreme Court case hearing it known as more Maori versus the United States. Yeah. So this is a couple that invested in a company in India. They owned, I think, 12 or 13% of the company. And when the 2017 Tax Act was passed, what we commonly think of as the Trump Tax Act, one of the provisions was that in order to go to a taxation where you couldn't just put off bringing back the money all the time, they said, well, look, we're going to have a one time tax, we're going to have a tax on repatriated earnings. Some of you have heard that term repatriated earnings as if they came back.

Keith Weinhold (00:12:56) - Okay. So whether or not they came back as if they came back. And if you're a shareholder of 10% or more, then you have to pay that tax in certain situations. And so the laws actually had to pay the tax. This was the tax on the income of their corporation. So the corporation could have its own tax. But this is actually a tax on the shareholder. So that's actually where this is interesting because is similarly frankly we have taxes on partners and partnerships. Right. If you're a partner in a partnership you're taxed on that income. Whether or not you get the money in a corporation, typically you're not taxed on the income unless you get the money. That's a dividend. If you don't get the money, the corporation's taxed, but you aren't taxed. This was a situation where it's a corporation, but the shareholders were taxed. The Moores are arguing, well, this is equivalent to a wealth tax. And it's actually why I think the Supreme Court took this up, because it's not a case that you would normally think the Supreme Court would agree to hear.

Keith Weinhold (00:13:57) - Well, I think where this concerns people is, could this open up things so that the everyday person and the everyday investor could have to pay these unrealized gains on assets that they own, that have not sold? I mean, even their primary residence, if that appreciates from 500 K to 550 K, are they going to owe tax on that 50 K even if they plan to continue to stay there and hold on to it because they want to live their. That's what certain members of Congress would like. Liz Warren would absolutely like that to happen. Bernie Sanders absolutely like that to happen. I actually think that's why the Supreme Court took up the case, is because I don't think the Supreme Court believes that that should happen. I think it's going to come out. They're going to narrow what a wealth tax can and can't be, because I think they need to because they need to say, look. So we've had oral arguments already. So we expect a decision out sometime this year. But basically the arguments by the IRS were we do this all the time.

Keith Weinhold (00:14:56) - We have taxes, unrealized income. We have mark to market on stock trading. So that's a tax on unrealized income. We have a tax on partnerships. That's a tax on realized by undistributed income. The reality is this tax the Moores are are arguing against is a tax on realized but undistributed income. I think that's where the Supreme Court would come down. I'm actually willing to make a prediction on this because I think the Supreme Court say, well, this isn't a wealth tax, and a wealth tax would be prohibited under the Constitution because that would have to be based on population. A property tax, for example, is a wealth tax. Then the US that's reserved to the locales. We can't do a federal tax. We couldn't have a federal property tax. And that's, I think, what the Supreme Court is going to say. You can't have a federal property tax that's prohibited by the Constitution. You now have local property taxes because the locals can do whatever they want. But unless you have it apportion among the states based on population, you'd literally have to have a poll tax, which is a tax per person, as opposed to a tax on the value of what a person owns.

Keith Weinhold (00:16:07) - That's the difference. So there's a lot of complications. That's a direct tax versus indirect tax, all that kind of stuff. I think the important thing is to understand that there are realized, but undistributed income, that's like a partnership, right? You can be a partner in a partnership. The partnership really uses the income. They get the money, but they don't distribute it. As a partner, you're taxed on your share of that income. It has been realized you just haven't gotten it yet. This is, by the way, very similar to the Moore situation. That money, that income was earned that just hasn't been distributed yet. And the question is the fact that they haven't distributed, does that mean they can't tax it? The odd thing is, is I think the Moores are going to lose the case. Moores will lose the battle and win the war. This is a small amount of money, right. So this is obviously the Moore is not trying to save money. There's way more money being spent on legal counsel than the tax.

Keith Weinhold (00:17:03) - So the Moores aren't doing this. This is people behind saying this is a good test case. We need to put a stop to the wealth tax conversation of Liz Warren and Bernie Sanders and Wade. And this is a case to do that. That's really what kind of the background is. That's all the background of this court case is what's really going on and what's really going on is the Ninth Circuit made it sound like any taxes find. And the Supreme Court said, well, we're going to take this up because I think a majority thinks we don't think any tax is fine because clearly under the Constitution, not any taxes. Fine. We're going to help define that. And so I think we're going to get some better clarity on what kind of taxes Congress can enact. Ultimately, I think the Morse will lose their case. Yes, the more clarity is good. I mean, the Supreme Court knows that this is a contentious issue, and I sure want any discussion to get shut down. It might lead to everyday investors and citizens paying tax unrealized gains.

Keith Weinhold (00:18:07) - I mean, with that example that I gave you of, say, a couple that owns a 500 K home and they want to keep living in it, but it just happened to go up to 550 K. I mean, where would they get the tax to pay on that. Well yeah. Well that's another problem. You can talk to any fixed income retiree and they'd have the same complaint about property tax. Sure. Yeah I don't know where this could go. I mean, what if you own rare furniture in your home? Okay. This furniture is worth more at the end of the year than it is at the beginning of the year. But yet you didn't sell it. You just continue to use your furniture. I mean, could that get taxed? It's a terrible slippery slope. And, you know, they talk about, well, don't give me I'm billionaires. I'm going okay. But let's face it, the income tax was only supposed to be on billionaires, okay. The equivalent of billionaires.

Keith Weinhold (00:18:51) - You had to make a lot of money to be subject to income tax in 1913. Yeah okay. So we know it's going to come down. It always does the tax law. You know politicians never like to give up any tax money. They always are trying to apply to more and more people more and more income. So it is problematic. You know, the idea of a wealth tax is very problematic. You know, several European countries have tried it and they've all failed. France tried it. And people like Gerard Depardieu, um, the actor, he just left France, you know, people leave now, what Bernie Sanders wants to do, this is fascinating. He wants to put an exit tax. So if you do leave, you still have to pay the tax. You actually have to pay a tax to leave. So basically what Trump is, he wants the Berlin Wall, but he wants an economic Berlin Wall. Right. That's what he wants. He wants an economic wall. He's going to complain about the wall bordering Mexico, but he's going to put an economic wall around everybody and not allow you to leave.

Keith Weinhold (00:19:50) - It'd be like somebody, California, putting a wall literal wall up and saying, you can't leave California, right. That's kind of the idea that. And if you do leave California now, California, in fact, they talked about it in 2023. And actually, interestingly, the governor defeated it. They talked about imposing an exit tax. So if you leave California, you have to pay a tax for leaving. And fortunately he defeated that. He crushed that. I mean, not sure why he did that, but he did understand the states have more power to tax than the federal government does. Federal government is limited in its taxing power, and it's really limited by the 16th amendment that allowed a pure income tax. The question and this is the argument that Sanders and Warren are making, is that it is income. And the reality is we do have billionaires who pay no tax. And the reason they pay no tax is because their stocks, which are public, go up in value. They're not required to sell them.

Keith Weinhold (00:20:51) - They can borrow against them and they never pay tax. So the argument is, well, wait a minute, that's not fair. That's a decent argument. Honestly. The challenge is yeah, if you could really say we're going to limit it to billionaires and we're going to limit it to publicly traded stock, you're fine. Not a big deal. But it never gets limited. And that's the problem. It never ever gets limited. Once the camel gets its nose under the tent it just right going on taxation all over the tent piling on and not get pulled away. They don't remove layers of taxation. It seems once the president is sent somewhere, it just seems like it continues to spread. Tom, if I could just give one last example on this. If this ever goes to where unrealized gains get taxed and how absurd this all is, just say you. Oh, gold and gold goes from $2000 to $5000. You don't sell it, you just keep holding on to it. And then you'd have to find the income to go ahead and pay the tax.

Keith Weinhold (00:21:48) - Well, you'd have to sell gold. And that's actually what they want. They actually want you to have to sell the gold. Oh, they would want gold to be sold to sell the gold. I want you to sell the stock. So the goal behind the wealth tax is to force you to sell these assets and pay the tax. Okay. Now we have a wealth tax. It's called an estate tax. That is a wealth tax. And there are businesses. There are families who have to sell their family home. They have to sell their family business. They have to sell their family farm because of the estate tax. And so this is another argument that the proponents of wealth tax are making is, wait a minute, we have a wealth tax already. It's called an estate tax. If we can have an estate tax, why can't we have a tax currently? Why do we have to wait until somebody dies to impose that tax? It's an interesting argument. I'm not a policy guy. I'm not one to make policy.

Keith Weinhold (00:22:43) - I want to explain policy. It is a question. If I can have a tax on wealth when you die, why can't I have a tax on wealth while you're alive? Sure. And I thought through the scenario as well. If the river is a tax on unrealized gains, whether that's your house going up in value or furniture or gold after you would pay this unrealized tax, then in the end, when you do want to sell it, what if you sold it for less than you thought it was worth? And then how the heck do you go back and adjust that for the tax that you are now in it? And it actually gets worse than that. Keith. Let's say we have a boom market this year and next year we have a recession. Are we going to get the money back? Exactly. And that's the hardest part because the answer is clearly, no, we're not. I mean, because think of it right now, we have a provision in the law that taxes capital gains.

Keith Weinhold (00:23:35) - There's an argument capital gains should never be taxed because especially at least if there are a capital gain because of inflation, they should never be taxed. If you actually went up in value, yes, they should be taxed. But if they're just inflated in value, why are you paying a tax on something that's not worth anymore than it was five years ago that got the same value? It's just got a different price. But we have a capital gains tax. But think about this. Let's say you have a year and you sell stocks and you have this big game. And the next year you have a loss because you sell stocks because everything went down well. You don't get to use those losses to offset your income. You have to carry those losses forward forever until you have gains again, you don't get go backwards with those losses and recapture the gains that you paid, you know, last year. So we already have this problem built into the system. And now all you'd be doing is exacerbating it. The other problem with, by the way, is that it's very regressive in that you're talking about people taxing their wealth.

Keith Weinhold (00:24:38) - Now, you can put limits, right, which is what you would have to do. And you say, well, look, your personal residence, we're not going to tax, you know, we're only going to tax the excess, which is, by the way, what income tax originally was. It was only excess investment income. You were never taxed on wages. When the 16th amendment was passed there was no tax on wages. We didn't get a tax on wages until 1944. You go, well, we'll exempt all these today. What about tomorrow? And that's always the issue. I'll tell you, the taxes just keep piling and piling on. We're going to talk more about taxation with Tom. We're right when we come back you're listening to University Kitchen. I'm your host Keith Reinhold. I render this a specific expert with income property you need. Ridge lending Group Nmls 42056. In gray history, from beginners to veterans, they provided our listeners with more mortgages than anyone. It's where I get my own loans for single family rentals up to four Plex's.

Keith Weinhold (00:25:39) - Start your pre-qualification and chat with President Charlie Ridge. Personally, though, even customized plan tailored to you for growing your portfolio. Start at Ridge Lending group.com. Ridge lending group.com. You know, I'll just tell you, for the most passive part of my real estate investing, personally, I put my own dollars with Freedom Family Investments because their funds pay me a stream of regular cash flow in returns are better than a bank savings account up to 12%. Their minimums are as low as 25 K. You don't even need to be accredited for some of them. It's all backed by real estate and that kind of love. How the tax benefit of doing this can offset capital gains and your W-2 jobs income. And they've always given me exactly their stated return paid on time. So it's steady income, no surprises while I'm sleeping or just doing the things I love. For a little insider tip, I've invested in their power fund to get going on that text family to 66866. Oh, and this isn't a solicitation. If you want to invest where I do, just go ahead and text family to six, 686, six.

Tom Wheelwright (00:27:02) - Anybody? It's Robert Elms or the Real Estate Guys radio program. So glad you found Keith Reinhold and get rich education. Don't quit your day dream.

Keith Weinhold (00:27:19) - Welcome back to cash. We're talking with Tom Wheelwright, the author of the Mega-popular book Tax Free Wealth. He runs the terrific tax firm called Wealth Ability. Tom, you often like to talk about how really, in a lot of cases, tax laws can apply to everyone, but do business operate really under the same tax laws as a middle class or us in the middle class? Really take a page out of what billionaires are doing. How can we best do that? So we have a wonderful aspect of the Constitution, a clause called the Equal Protection Clause. And what it says is taxes have to be applied equally to everybody in the same situation. So what we're billionaires are different is they have better advisers. That's where they're different. So their advisors know all the rules of the tax law. They pay them hundreds of thousands, millions of dollars a year to make sure that they're paying the least amount of tax possible.

Keith Weinhold (00:28:14) - Presumably, all they're doing is following the law. Those same laws apply to you and me. So that's why, for example, somebody who owns a single family home that they rent out to an unrelated person is entitled to the same tax benefits as somebody who owns a 200 unit apartment complex or somebody who owns Trump Tower, as an example. Okay. You get the same tax benefits in the same situation. The challenge that, you know, the average person has is not enough access to those advisers and a misunderstanding of how the tax law works, because this whole idea will the billionaires get different tax than the average person is just false. That's just a falsehood that is propagated by a certain part of the public in a certain part of the administration that wants to add another tax to billionaires. The reality is we all get the same tax. The difference is, is that if you're a billionaire, let's say you made $1 billion a year and you paid $400 million in tax. You still have $600 million left over, which is more than 99.999999% of people have in a lifetime.

Keith Weinhold (00:29:25) - So it doesn't really hurt you. It doesn't change your lifestyle. Whereas if you put a 40% tax on somebody who makes $200,000 a year, now they're going from 200 to 120, and that has a major impact. And you're really just explain one reason why in the United States, we have tax tables set up that are what we would call progressive, where the more you make, the more you pay. But yeah, you're right, Tom. There are just there's such a knowledge gap out there. I have something happen to me. I bet it still happens to you a lot. Or I will talk to people and they say something like, well, I don't want to earn too much money this year. I'll go from the 24% tax bracket to the 30% tax bracket, and they act like all of their income is then going to be taxed at 30%. So they don't want to earn too much. So I'll tell you a funny story. Yeah. So I used to teach a class every month we'd have anywhere from 30 to 100 people in the class.

Keith Weinhold (00:30:15) - And I'd always do an example and I'd say, okay, let's say that you earn X amount of dollars and you get a $5,000 bonus. What's the cost of that $5,000 bonus from a tax standpoint? And I would say a good 40% of the class would come up with about $8,000. Was the cost of the $5,000 bonus, because just like you say, well, that puts me in a new bracket there for all my income is being taxed in the new bracket. No, it is progressive, meaning the last dollar you earn is taxed at the highest rate, but the first dollar you earn is taxed at the lowest rate. And that's important distinction because we're never taxed on more than right now. It's actually 40% because we have net investment income tax. So you're never taxed on more than 40% of your income by the federal government. You just can't be. So you can make whether you make a, you know, $1 million a year, $1 billion a year, $10 billion a year, your maximum tax rate is 40%.

Keith Weinhold (00:31:14) - That's an epiphany to some people to learn that tax rates are progressive, like you just explained with that $5,000 bonus example, why don't you tell us about another tactic or another example like that? We have a lot of savvy listeners. A lot of Marty realize that marginal example. Can you give us another one about how there's something relatively simple that can really elevate one's and lower their tax rate? Yeah. Let's go to the flip side of that. If the last dollar you earn is taxed at your highest rate, the first dollar you deduct is deducted at your highest rate. Great point. This is why, by the way, and if you read my book, The Windmill Strategy, I talk about this in chapter eight. I used to say for a long time that you never got a permanent tax benefit from putting your money in an IRA for one K and I ran the numbers and win win. And I was wrong. That's not true. And the reason is because let's say you put in $10,000 a year for 30 years, that deduction that you get for that $10,000 you put into your IRA for one K, you get a deduction at the highest tax bracket.

Keith Weinhold (00:32:17) - When you start pulling the money out, you're going to pull it out and you get all the tax brackets. So you put the money in, you get a deduction of the highest, you pull the money out, you get basically the combination of the different tax brackets. So you are actually better off. So for example, if somebody says I want all I investment to go on in the stock market, I would say you need A41K. That is the answer because self-directed would be best. Absolutely. Because you get a deduction now at your highest tax rate bracket. But down the road you're going to pull it out. Basically, even if you have the same income you can pull out a lower rate. Now that only applies if you're going to put the money in the stock market. If you're going to put the money into real estate for one, K is a terrible idea because real estate is a tax shelter and you lose all the tax benefits of a tax shelter. If you put it in an IRA, you actually take a tax shelter and make it a tax expense by putting it into an IRA for one K.

Keith Weinhold (00:33:14) - So there are certain things you would never do in an IRA. A reformed K real estate is one of those. Energy is one of those businesses. One agriculture. You'd never do those in an IRA or for one K, it's a terrible idea. But if you want to invest in the stock market, the bond market, things like that, IRAs make all the sense in the world. So really, that's why people ask me, well, should I do it for one K I'm going. I have no idea. What's your investment strategy? What's your wealth strategy? Where are you putting your money? People all the time. I have some imitators and they'll ask this question, well, how do you make your money? We can reduce your taxes. I'm going. That's the first question you have to ask. But I'm more interested in what are you going to do with your money? Because what you're going to do with your money has a much bigger impact on how we set things up from a tax side, how much money you're going to make, what kind of investments you're going to do, all that is impact by what you can do with your money.

Keith Weinhold (00:34:06) - That question about, you know, how do I make my money is a simple question that, frankly, I can do that kind of a tax strategy on stage in ten minutes. Well stated. That is a good point. Well, Tom, this has been great. You mentioned your latest book, the Win win. Well, strategy, but in one of your very well-known books, Tax Free Wealth, you've got another edition coming out. Tell us about that. Yeah, we have the third edition. So for the second edition we did that. When the Trump Tax Law 2017 was enacted, we needed to put in fact, we did a kind of in a rush. So we just added in things. Since 2017, we've had six major tax law changes, six major tax law changes during Covid. And so what we felt we want to do is let's roll it all in to a third edition will take the Trump tax law. Changes will roll those in. We'll take all the new tax law.

Keith Weinhold (00:34:57) - Changes will roll those in. So now tax free wealth is up to date. I think it's a better book. When I went through it of course I spent hours and hours and hours going through it. This is the best version of tax free wealth we've ever released. There are so many critical updates there. Again, the name of his book is Tax Free Wealth. I recommend checking that out. Tom. We're right. It's been informative. As always. Thanks so much for coming back out to the show. Thanks, Keith. Yeah. Sharp insights from Tom. As always, you can keep following along with the more versus United States case this year. Now, sometimes the wealthy, they will point something out that you've got to consider. It's got to give you a little pause. And that is actually should the wealthy get a tax rebate yet not get taxed more heavily because in the US see the top 1% pay about 42% of federal income taxes, and you might say, okay, well, that's the top 1%.

Keith Weinhold (00:36:03) - Why don't we bring in some of the middle class and revisit this? Well, the top 25% pay nearly 90% of the taxes. And that's all from a recent year per the Tax Foundation. Should the wealthy then get a tax rebate? Because you could say that they pay more than their fair share. Whatever fair share really means. Well, that is a valid question. Ask at the least. Well, today is the first time that we've had the marvelous, successful author, Tom. We're right on the show here in more than a year and a half. That's just a little unusual because he is the most recurrent guest here in history. And so therefore, for some more catch up coming down the road, Tom is going to return here to discuss a big question that I have for him. And in that future episode, Tom and I are going to discuss, should there even be such thing as a property tax, does it make more sense to say, abolish the property tax and then the government can get their revenue from somewhere else, as well as where that proposal might not be feasible? That should be super interesting.

Keith Weinhold (00:37:13) - Asking the question should there even be a property tax? In the meantime, check out Tom's third edition of his book Tax Free Wealth. It is a good read as far as tax reading goes. You're listening to episode 482 of the get Rich educational podcast. We have got a big year in store with plenty of original, groundbreaking content planned, including a memorable landmark episode 500 Coming Up, which will release on May 6th of this year. If you haven't already, I encourage you to subscribe to or follow the show here on your favorite podcasting device, or tell a friend about the show. I think they'll find it really valuable. Until next week, I'm your host, Keith Reinhold. Don't quit your day dream.

Speaker 4 (00:38:05) - Nothing on this show should be considered specific, personal or professional advice. Please consult an appropriate tax, legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own. Information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of get Rich education LLC exclusively.

Speaker 5 (00:38:33) - The preceding program was brought to you by your home for wealth building. Get rich education.com.

Direct download: GREepisode482_.mp3
Category:general -- posted at: 4:00am EDT

Mon, 25 December 2023

Is real estate cheap, adequately valued, or overpriced? I explore.

Everything considered includes: inflation-adjusted price, affordability, quality, and other nations’ prices.

Stadium trends are affecting urban real estate. More plan to move outside of downtowns.

I divide society into four groups of people. Then I discuss who is harmed by inflation and who benefits most:

1: The poor—lose

2: Paid-off homeowners—hedge

3: Mortgaged homeowners—hedge and profit

4: Mortgaged income property owners—hedge, profit, and increase income

Learn how to talk to your tenant so that they never think “How the Rent Stole Christmas”. It’ll help ensure timely rent payments. Many tenants don’t understand that you have a mortgage to pay.

Finally, I reveal the exact percentage number that indicates GRE’s 2024 National Home Price Appreciation Forecast.

Timestamps:

Real Estate Valuation and Gold Ratio (00:02:53)

Explains the concept of using the home price to gold ratio as a measure of real estate value and compares it to the long-term average.

Global House Prices (00:05:28)

Discusses how US home prices are comparatively cheaper than those in other developed nations, such as Australia and Canada.

Impact of Quality on Real Estate Value (00:06:40)

Highlights the increase in home size, amenities, and safety features over time, suggesting that today's homes offer more value at a potentially lower inflation-adjusted price compared to the past.

The trend of sports complexes with casinos (00:12:15)

The speaker discusses the trend of building sports complexes with casinos, mentioning examples such as Mark Cuban's plan for a new Mavs arena and the proposed entertainment complex and casino next to Citi Field.

The necessity of a second job due to inflation (00:13:36)

The speaker explains why inflation makes a second job necessary, emphasizing the importance of investing money at a rate higher than inflation to maintain prosperity and quality of life.

The four groups and their relationship with inflation (00:14:46)

The speaker categorizes four groups of people based on their ownership of property and how they are affected by inflation, highlighting the benefits and disadvantages each group experiences.

The Landlord-Tenant Relationship (00:24:22)

Discussion on maintaining open lines of communication with tenants and addressing misconceptions about landlords being greedy.

Explaining Property Expenses (00:25:37)

Informing tenants about the various expenses that landlords have to cover, such as mortgage, insurance, taxes, and maintenance.

Forecasting Home Price Appreciation (00:29:04)

Discussing past predictions and forecasts for future home price appreciation, including insights from various agencies and factors influencing prices such as housing supply and interest rates.

Home price appreciation forecast (00:35:22)

Keith Weinhold discusses his forecast for home price appreciation for the next year, which he predicts to be 4%.

Investment decisions based on forecast (00:36:51)

Keith Weinhold mentions that people are increasingly making investment decisions based on forecasts, but reminds listeners that forecasts are not guarantees.

Resources mentioned:

Show Notes:

GetRichEducation.com/481

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

Will you please leave a review for the show? I’d be grateful. Search “how to leave an Apple Podcasts review”

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480: Goal Setting—The Key to Unlocking Your Riches

Complete episode transcript:

Speaker 1 (00:00:01) - Welcome to GRE! I'm your host, Keith Weinhold. Today is real estate underpriced, adequately priced or overpriced? All outline a hierarchy of winners and losers with inflation in real estate. How the rent stole Christmas. Then the verdict is in as I reveal GRE’s 2024 home price appreciation forecast 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 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 hours 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 grey to 66866. And when you start the free newsletter, you'll also get my one hour fast real estate course completely free.

Speaker 1 (00:01:18) - It's called the Don't Quit Your Day dream letter and it wires your mind for wealth. Make sure you read it. Text grey to 66866. Text grey 266866.

Speaker 2 (00:01:35) - You're listening to the show that has created more financial freedom than nearly any show in the world. This is get rich education.

Speaker 1 (00:01:51) - Welcome to GRE! From North Pole, New York, to North Pole, Alaska, and across 188 nations worldwide. I'm Keith Weinhold, and you're listening to Get Rich Education on Christmas. Happy holidays. Today is real estate cheap? Adequately valued or overpriced? Well, to many it doesn't feel like a relative bargain today, when you see how much housing prices and payments have escalated these past three years. There are a lot of ways to approach the question about whether today's U.S. real estate is cheap, adequately priced, or overpriced, so let's approach them. But when you ponder that question, didn't dollars quickly come to mind? Well, the median home price is $431,000 today, depending on how you slice it. Let's not be quick to forget that when you're looking for a measuring stick to determine the value of real estate or anything, dollars are an exceedingly poor way to track value.

Speaker 1 (00:02:53) - Because also, starting about three years ago, their slow, steady debasement turned into a rapid debasement and dilution of purchasing power. Dollars keep getting so relentlessly debased that, well, of course, it would take substantially more of those dollars to buy most anything today than it did three years ago. Property included. And this is precisely why the car that you own today costs more dollars than your grandparents first home did. Okay, so let's cancel out dollars. For 5000 years, gold has had enduring value. It's been a loose barometer for inflation all that time. As the dollar goes down, it takes more of them to buy the same amount of gold. So rather than pricing the home in dollars, wouldn't it make more sense to use the home price to gold ratio? Yeah, that is just what it sounds like. Instead of comparing home prices to dollars, compare it to how many ounces of gold it takes to buy a home and track that over time. Well, we find out that today it only takes about half as many ounces of gold to buy a home today as the long term average.

Speaker 1 (00:04:12) - And that's dating all the way back to the year 1889, yet just half as many. Yeah, that is a data set in the past 130 plus years, when you take the long term average of how many ounces of gold it takes to buy a median single family home, realize how special this comparison is. You now see the value of two of the most popular real assets relative to each other. All right, so home prices now appear low since it takes just 50% as much gold to buy a home today. But isn't that measure right there in itself enough evidence to say that real estate is under priced? No, that's certainly not. But it is one powerful touch point. We need more than that. Consider global house prices. So much of the world is a renter nation compared to the US, because home prices are substantially higher in other developed nations, from Australia to Canada, Canadian home prices are still nearly double the price of the same US home. This is a second powerful measure that US home prices are cheap here in the middle of the 2020s decade.

Speaker 1 (00:05:28) - Well, let's add some more. Consider affordability. Can people afford homes? Well, there is wage growth, which often lags home price growth in, you know, your wage growth. It often lags inflation until the latter part of an inflationary cycle like where we could be now. But let's look at what really happens. Most people don't buy property based on its price as much as its monthly payment. It's the affordability of that payment that most people are looking at. Today's mortgage rates, though, they don't feel low because of where we were a few years ago. Like I mentioned here on the show before, mortgage rates are still below their long run average of 7.7%. This is another important measure of how real estate prices in America today are not overpriced. But what I'm going to do now is turn the prism in another direction here so that the sunlight strikes it differently. Let's shine the light somewhere else, because we still have not adjusted for something extremely important. When you're valuing real estate or anything for that matter.

Speaker 1 (00:06:40) - Let's look at the attribute of quality. Yes, we need to adjust for quality since 1889. And. An ounce of gold is just still that same ounce of gold. Its physical properties have not changed one bit since the year 1889, which is one reason why it's a good measuring stick and why I brought it up earlier. But in 1889, let's look at real estate. It has changed to an astounding degree. A new Victorian style home back then had sparse amenities and perhaps 950ft². And yet that was a normal sized home back in that era. In 2023, a home average 2415ft² in today's home has features that would be considered unthinkable luxuries yesteryear like air conditioning, multiple bathrooms, quartz kitchen countertops and closets vast enough that you could play pickleball inside them so you're getting more, more home today. Between today's home size, lot size, amenities, and safety features, you can make the case that you're getting five x more, or perhaps even ten x more home than you were in 1889. And you're getting that perhaps even at a lower inflation adjusted price.

Speaker 1 (00:08:13) - And the more you realize all of this, you can increasingly validate asking the question, why are homes still so cheap in America today? And there are some other factors too. But all things considered, one can surely make the case that today's US residential real estate is not overpriced. It's cheap. As we're talking about the relative valuation of homes today. Here's a hint this plays into when I'll reveal Gary's 2024 home price depreciation forecast at the end of the show today, where I will pin the projected appreciation number down to the nearest whole percent for you. That's how exact we're going to get before we talk about residential real estate again. When we discuss how the Reds stole Christmas, let's discuss a niche of the commercial real estate market here that we've never discussed that Gary, before. And it's so interesting whether you are a sports fan like me or you're not. And that is stadiums. Yes, sports stadiums have a lot to do with urban real estate dynamics, and they're even more important amidst this struggling office sector that's already hollowing out parts of some downtowns.

Speaker 1 (00:09:30) - Well, the reason that I'm telling you about this with stadiums is that it looks like a new trend now. About 30 years ago, there was a trend toward having urban stadiums beginning to use these great city skylines or old historic buildings as backdrops. Everyone points to Camden Yards in Baltimore in the 1990s as kicking off the urban real estate ballpark trend. All right, we'll fast forward 30 years to today. Earlier this month, Ted Leonsis, the owner of the NBA's Wizards basketball team and the NHL's capitals hockey team, both in Washington, DC. They announced the deal to move both teams from downtown D.C. across state lines to Alexandria, Virginia, although at last check no official documents had been signed. So, yes, moving them out of the central city, the move looks like a huge win for Virginia. By the way, it's the most populous state without any big league sports teams. That's where the two teams could play. At the heart of a new proposed $2 billion, 12 acre entertainment complex as soon as 2028.

Speaker 1 (00:10:46) - But it is a huge bummer for the nation's capital. Yes, Washington, D.C. it has one of the highest rates of people working remotely in the US, so that hollows out the urban core. DC's once buzzing downtown is still struggling to recover post-Covid. Now, DC Mayor Muriel Bowser, who has made a last minute offer to Leonsis to keep the teams right there in the city, faces the potential loss of two major fan bases and a sports hub. It's right there in the city's Chinatown area. Yeah, this could be a new trend in stadiums in shaping the complexion of urban real estate. Now Leonsis is playing for Virginia. That really places him, among other billionaire franchise owners that want to build these massive entertainment complexes near their teams in order to capitalize on this growing synergy between sporting events and other nightlife and entertainment, and part of what's really going on here. Is the legalization and the spreading of sports gambling. That's the big prize that some other franchise owners are chasing a casino as part of this complex next to the stadium, and oftentimes you're going to have to move the team out of the city center to build these big multi acre complexes that will surround the sports stadium.

Speaker 1 (00:12:15) - Earlier this month, Dallas Mavericks owner Mark Cuban he came one step closer to his dream of building a new Mavs arena in the middle of a resort and casino after he struck a deal to sell his majority stake of the team to a casino mogul named Miriam Adelson. In November, New York Mets owner Steve Cohen, along with hard Rock international, they proposed an $8 billion entertainment complex and casino to be built next to Citi Field. These are major urban projects, so this trend of sports complexes with casinos is really picking up in the nation, but not absolutely everywhere in Oklahoma City. There is an exception there. In OKC, voters approved a good old fashioned 1% sales tax for the next six years to fund the construction of a new downtown arena for the OKC Thunder, and with that agreement, the Thunder could stay in OKC through 2050. We're talking about how a trend worth tracking in urban real estate is stadiums leaving downtowns. Now, one reason that I often talk about the power of inflation ravaging most people's lives here on gray is because it's so bad that it means you need a second job.

Speaker 1 (00:13:36) - Yes, you do not in the traditional sense. But look, if you are, say, during the day, a corporate attorney or you're a financial systems analyst or you're a crab fisherman, why can't you just do a really good job at your day job in that position and then go home and at the end of the week, call it good enough? Why can't you just do that? Well, you cannot do that because if you're being paid in dollars, your second job is learning how to invest those dollars at a rate higher than inflation. Otherwise, your prosperity gets diminished in your one quality of life and one set of opportunities are going to suffer. That's why inflation makes a second job a necessity. So your second job is investing. The other reason that I often discuss this topic is because, as we know, real estate helps you profit from inflation three ways at the same time. Two weeks ago I told you that if you want to learn more about how that works with the Inflation Triple Crown, that you can go to get rich education.

Speaker 1 (00:14:46) - Com slash Triple Crown to watch my free three part video series, I did that because I've described the inflation Triple Crown here on the show before, and I don't want to be too repetitive, but seeing that it is an enduring great principle. I've got a new way to explain this to you. Whether you're a long time listener or a newer one, then you're going to get some perspective out of this. I think you're really going to like it. What we're going to do is let's look here at four groups of people and see how much they benefit from or lose to inflation. We're going to view this through a real estate lens. Let's go from the worst off group to the best off group. And then what you can do is see which one of these four groups you belong to. The first group are the poor. They don't own any property and therefore they don't benefit from inflation one bit. This first group, the poor, their grocery and energy expenses are exacerbated by inflation, but yet they have no assets to benefit from it if they have a job.

Speaker 1 (00:15:54) - But the poor tend to have the job type wage that lags inflation, so the poor lose to inflation. The second group. So getting a little better off as we move through here. They are the primary residence homeowner with a paid off mortgage. So they benefit from one crown of the inflation triple Crown, yet they are better off. Two of every five homeowners have a paid off mortgage, just like this second group does here. And if there's 10% inflation over, oh, a couple years, well then there are 500 K home price floats up to 550 K and now they got 10% more dollars. But each one's worth 10% less. So at least they didn't lose purchasing power. But they are right back where they started. So this homeowner with the paid off mortgage does not profit from inflation. They are merely hedged. Then we have the third group out of four. This third group is homeowners. Again, just primary residence owners with a mortgage. Yep. They're actually better off than Group two with the paid off mortgage.

Speaker 1 (00:17:04) - Just in terms of who benefits from inflation. So like the second group, 10% inflation makes this third group's 500 K home rise to 550 K. But this mortgaged homeowner has another benefit. There are 400 K mortgage on this property, gets water down to just 360 K of inflation adjusted debt. And that is because inflation makes salaries and wages and prices and rents float higher, making the debt easier to pay back over time. Banks and lenders don't ask you to repay them with inflation adjusted debt, they will accept your diluted future dollars. It's like they got you locked in to a contract that was good for you years earlier. That effect is called debt debasement. And this is why this third group now benefits from two crowns as primary residence homeowner with the mortgage. And then come on, you know who this fourth group is? The coup de gras landing, the deathblow to inflation because they really make out in profit, benefiting from all three crowns. This fourth group owns income property with a mortgage. If you listen to this show, you're constantly trying to add more income property with a mortgage.

Speaker 1 (00:18:30) - And that's precisely what we hope you do here in gray. And this fourth group has both asset inflation like the second group and the debt debasement benefit like the third group. And additionally the rent income will outpace inflation enriching them. Now listen to this part closely for just a minute or two because the math is simple. But there are a few numbers here. Say you begin with $2,000 of monthly rent income on your rental property, minus your $1,200 mortgage, -$600 of expenses. That's $200 a monthly positive cash flow left over. All right. We're going to add 10% inflation on all that. And this inflation could happen in one year or over a number of years like magic. Now you've got $2,200 of rent income up from 2000 minus that same $1,200 mortgage balance because it stays fixed, -$660 of expenses, up from 600. All right. You're now left with $340 of cash flow. That's up from 200 bucks before the inflation. Do you understand the significance of this? Do you see how you're really on the superhighway to financial freedom? This is big because the mortgage principal and interest payment stays fixed with just 10% inflation.

Speaker 1 (00:19:58) - You just saw the money you feel in your pocket each month skyrocket from $200 to $340. In that example, that's 70% more income, 70% more. Extrapolate that effect across your entire rental portfolio. Wow. That is called cash flow enhancement. The third and final crown of the inflation Triple Crown. You just won all three with a loan on an income property. And hey, congratulations. If you caught that and you would have had to skip back to listen again, you are really on your way to understanding a path for creating wealth in your life. Now. I sure kept that example general in order to simplify things. And also some people span multiple groups. For example, poor people in terms of income could still be homeowners. Let's review what you just learned there. With inflation in real estate, the poor lose paid off, homeowners hedge, mortgaged homeowners hedge in profit mortgages income property owners hedge profit and increase income. So look and this is kind of weird. Once you've got income property, you might notice that the price for a pound of salmon rises from 1599 up to 1899, or that a Ford F-150 truck price spikes from 50 K up to 55 K over time, these could actually be strangely positive signs.

Speaker 1 (00:21:40) - It's a soft indicator that your real estate wealth is growing, though people would think you're nuts. I mean, you might secretly start. Rooting for inflation as avidly as an NFL Philadelphia Eagles Tailgater. Now, I'm not really sure if you'll pump your fist after the first time that you pay 12 bucks for a gallon of gas. We'll see about that. Well, hey, now that you've done the hard learning coming up straight ahead, a little more entertaining here how the rent stole Christmas and the anticipated 2024 Jerry housing price appreciation forecast. I'm Keith Weiner. You're listening to episode 481 of get Rich education. Role under the specific expert with income property, you need Ridge lending Group and MLS for 256. In gray history, from beginners to veterans, they provided our listeners with more mortgages than anyone. It's where I get my own loans for single family rentals up to four Plex's. Start your pre-qualification and chat with President Charlie Ridge personally. They'll even customize a plan tailored to you for growing your portfolio. Start at Ridge Lending group.com Ridge lending group.com.

Speaker 1 (00:23:00) - You know, I'll just tell you, for the most passive part of my real estate investing, personally, I put my own dollars with Freedom Family Investments because their funds pay me a stream of regular cash flow in returns are better than a bank savings account up to 12%. Their minimums are as low as 25 K. You don't even need to be accredited for some of them. It's all backed by real estate and that kind of love. How the tax benefit of doing this can offset capital gains in your W-2 jobs income. And they've always given me exactly their stated return paid on time. So it's steady income, no surprises while I'm sleeping or just doing the things I love. For a little insider tip, I've invested in their power fund to get going on that text family to 66866. Oh, and this isn't a solicitation. If you want to invest where I do, just go ahead and text family to six, 686, six.

Speaker 3 (00:24:04) - This is Ridge Lending Group's president, Shale Ridge. Listen to get Rich education with Keith Wine.

Speaker 3 (00:24:10) - Hold and remember don't quit your daydream.

Speaker 1 (00:24:22) - Welcome back to get Rich education. I'm your host, Keith Reinhold. Be friendly, not friends. Those four words are the best concise guidance for how a landlord should keep their relationship with tenants. But there's a persistent school of thought out there among some in the general public. And it is that landlords are greedy. Landlords like you even want rent on January 1st. Who do you think you are, the Grinch that stole Christmas? Well, as a landlord, of course, you should maintain open lines of communication with your tenants if you're also managing them. When it comes to things like those top priorities, I mean repair and maintenance issues. But when I've had conversations with tenants and by the way, I don't anymore, my property managers do. Let me share with you some pieces that I have gently inserted into my conversations with tenants in regard to rent collection. This has done a lot to ensure timely payments, and they've always known then that my intent is not to steal Christmas.

Speaker 1 (00:25:37) - I see a lot of tenants. They're smart people, but they just don't understand your situation as an income property owner, often with a mortgage on your rental property, many tenants think that you just take their rent payment of, say, $1,800 and that that money is all yours for, say, a big Hawaiian vacation. You and I both know that most of that rent income is spoken for and already passed along for your expenses. One thing that you can tell tenants is, I have a big mortgage on this property to pay every month. That's what you tell them. Younger tenants are less likely to know this at all. Another thing that you can say is 90 to 95% of the rent goes toward all the property expenses, which are always going up. Yeah. I mean, these are your mortgage, insurance, property tax, maintenance, repairs, turnover, utilities and more. That's what I've called mortgage plus vim. Tom expenses, vim Thomas vacancy insurance, maintenance, taxes, utilities and management. Yeah.

Speaker 1 (00:26:47) - Even with the decently cash flowing mortgage rental, this statement is true. 90 to 95% of that rent is gone. It's not yours. Another thing you can tell tenants is I'll be in debt all my life. That's another thing you can mention. And of course, you and I both know that that's good debt. Another thing that you can say to tenants, and really, this is just something else that could be said to broader society that thinks that landlords are greedy. And you can say this, I build up my credit score, made a big down payment and put my money at risk. That's what you say? Yep. Ian, you did all this to provide good housing to strangers. How is that greedy? You can also just simply say I don't have a 401 K, and the more you listen to this show, the more you would ask yourself, why would you want one? And I'll leave you with this last one. I must constantly maintain this property. That's what you say, and you should constantly maintain that property.

Speaker 1 (00:27:52) - Now, you probably only need to bring up 1 or 2 of those sentences with tenants. The best time for you to do it is actually. Just before they're officially attendants. Say those things right at the beginning of the relationship. When you're just reviewing the lease, when you're going over that with them and they're about to sign that initial lease. Or you could also mention this months later when they pay the ongoing rent. So this is about your ongoing tenant relations. So they understand your situation. They're going to know that you're a human and you have your own set of issues in financial obligations and you have to take care of. And it's always about telling the truth. Only a Grinch would lie during the holidays. So it's always about being honest and informative. And, you know, with all of that said, it is somewhat of a paradox that all of this can be true. And yet at the same time, strategically bought property is so profitable on your side and see with your tenants, this is not the optimum time to wax poetic about how financially free beats debt free.

Speaker 1 (00:29:04) - Yes, it's really remarkable that all these statements can be true, even if 90 to 95% of your written income goes toward your mortgage and operating expenses, all while real estate pays five ways at the same time. And now they'll know that the rent they pay is not the rent. It's still Christmas, and you sure are not the Grinch. Let me prepare you for Gary's National Home Price Appreciation Forecast for 2024. First things first how well have past predictions performed? Well, let's take a look at this using the Nars number of median existing single family home prices. Understand that the forecast that I make here is always made near the end of the year, prior to the year forecast. It's all done ahead of time and unlike a lot of agencies, we don't revise our forecast later. It's all set in stone before the forecast year begins in late 2021. Recall that we had just come off a year there, 2021, when national home prices were up 20%, and some people predicted that prices would fall in 2022.

Speaker 1 (00:30:12) - Oh no. I let you know in late 2021 that home prices were going to rise a healthy 9 to 10% for 2022. That was the forecasts made at the time, and the result was 10%. Then late last year, you had more agencies predict that prices would fall. I let you know. I did not see how with such low housing supply and some of the other reasons. So I forecast 0% for this year. Yeah. Forecast, no gain, no loss. And as far as the result there it is too early to know yet. The year isn't done. All right. We'll build some context here as I make the reveal the forecast for next year. How about other agencies. What are they forecasting for next year. At last check, the NBA mortgage Bankers Association says home prices will rise 4%. Fannie Mae 3%, Freddie Mac 3%. The HP's. That is the home price expectation survey. They forecast 2% appreciation. Goldman Sachs also 2%. The Na 1%. Zillow 0%. Realtor.com -2%.

Speaker 1 (00:31:23) - If you take all of those and average them, you get a forecast of about 1.5% appreciation for next year. I'll tell you as we lead up to our forecast here, I'll let you know that it is not that close to the 1.5% average from those agencies. And none of those figures understand, including mine, are inflation adjusted. So nominal prices. All right. Well let's look at what we use to determine the trajectory of home prices. How is housing supply looking. We know demand is strong. Well with the fed active listing count data that I usually use where the normal supply is 1.5 million units or more will. The current amount is about 750,000. So it has rebounded somewhat, but it's still less than half of what's needed. And this dearth of supply supports more upward prices. Let's look at interest rates. Recent developments from the last fed meeting show us that Jerome Powell does not plan to put a rate hike lump of coal in your Christmas stocking now or anytime soon. Everyone wants to talk about how far rates are going to fall next year.

Speaker 1 (00:32:40) - But here's the thing to remember. Like I've discussed before, mortgage rates hardly matter when it comes to prices. They don't have much to do with housing prices at all, and I've discussed why a few times before. In short, that is because when rates rise, yes, it hurts affordability, but rates also rise when the fed is trying to cool a hot economy in that hot economy is what helps prices. Conversely, when rates fall, it helps affordability. But unemployment is higher and we might be in a recession when rates are falling and that constrains upward prices. You know something even real estate agents in the certification course, they have to take in those ongoing agent continuing education classes. They're taught that higher mortgage rates mean falling prices, but yet in reality, they almost never do. Just look at history. She she don't have to look any further than the last few years. Rates tripled and prices rose anyway. So when an agent prepares a CMA, a comparative market analysis for a client, agents are taught to consider mortgage rates with CMAs because higher rates put downward pressure on house prices.

Speaker 1 (00:33:58) - Yeah. Agents are taught that mortgage rates determine buying power, but they aren't taught the entire economic picture like I just briefly explained. So the point is that the direction of mortgage rates are not completely, but they're actually largely irrelevant in forecasting prices. Four out of every ten homeowners in this nation are free and clear with no mortgage. And among those that do have a mortgage 62. None of them still have a rate under 4%. All right. So if mortgage rates do drop next year from 7% to 6%, it still doesn't become that attractive for those homeowners locked in at that really low rate to sell. And yet if rates do fall to 6%, you're going to have a larger buyer pool because more people can now qualify to buy a home. Looking at the broader economy. Jobs are still being added, but many are part time jobs and GDP growth is strong. Unemployment is under 4%, CPI inflation, that's near 3%. So I'm not going to be full speed ahead with a huge number for next year's appreciation rate, because the economy, it still has a pretty substantial chance of slowing down because all these pass rate increases, lag effects could show, but that won't totally break the economy.

Speaker 1 (00:35:22) - And note something Fannie, Freddie, and FHA, they all announced higher conforming loan limits for 2024, and that's because they expect that more home price appreciation is coming. And I do too. We're a show about rental income. So what do I forecast? Prices rather than rents anyway? Well, there's a few reasons rents are more stable, so there's not as much to talk about that 15% year over year rent increase from last year that is seriously atypical. Also, as you are leveraged, you're going to get more overall gain from price appreciation than you do rents. As everything that I discussed and more has been weighed and analyzed in sprinkling in the spice of my personal experience as a direct real estate investor, I am happy to report to you here on the last show of the year that my expected home price appreciation rate for next year is 4%. Yes, a pretty historically normal 4% for next year. As the forecasts for the previous couple years, they saw more anomalous numbers, of course. What's that mean to you, the savvy leveraged investor? If you make a 25% down payment on a property, meaning you're leveraged 4 to 1 as best I can see it, you will then have a 16% return on your invested capital.

Speaker 1 (00:36:51) - Just as one of up to five ways that you're simultaneously paid. Increasingly, people make investment decisions based on the forecast any reasonable person should know. But I then be remiss not to remind you that this is a forecast, not a guarantee. Is this is the last show of the year. I trust that you've got even more to be grateful for than the expected 4% home price appreciation. I am sincerely grateful to have you as a listener this week, every week, and for another year here, as I'm sure you'll understand that I recorded this episode a few days before Christmas so that I could have a free and clear holiday. Best wishes on the remainder of your holiday season. I'll be back next week. Right on cue to talk about investing in a new way that you've never thought about before. May all of your New Year's resolutions be as successful as the home price forecast. Uh, until then, happy holidays to you and yours. I'm Keith Reinhold. Don't quit your daydream.

Speaker 4 (00:37:56) - Nothing on this show should be considered specific, personal or professional advice.

Speaker 4 (00:38:00) - Please consult an appropriate tax, legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own. Information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of get Rich education LLC exclusively.

Speaker 1 (00:38:24) - The preceding program was brought to you by your home for wealth building. Get rich education.com.

Direct download: GREepisode481_.mp3
Category:general -- posted at: 4:00am EDT

Mon, 18 December 2023

Most people float through life without direction. You must get clarity of focus before you can even begin setting goals.

Robert Helms of The Real Estate Guys, a professional real estate investor, reveals a framework for goal-setting.

Goals should be SMART—Specific, Measurable, Attainable, Relevant, and Time-Based.

I provide examples of two athletic goals that I failed to achieve this year.

It’s vital to surround yourself with the right people.

Goals should be written down. It helps to set intermediate benchmarks within the goal.

It’s difficult to stretch more than 50% from year-to-year. Keep the goal achievable.

Is your life destined or is your life made? Our recent Instagram Poll result is that 75% chose “destined”, 25% “made”.

You can attend the highly-rated Goals Retreat, hosted by Robert Helms, January 12th to 14th in Dallas, Texas.

You’ll learn how to get clear on who you really are and really want to be, then set goals.

Timestamps:

Setting Goals and Achieving Growth (00:02:40)

Keith Weinhold discusses the importance of setting clear goals and the need to step out of one's comfort zone for personal growth.

The Influence of Others on Goal Setting (00:08:01)

Robert Helms emphasizes the impact of surrounding oneself with the right people and being strategic about the influences in one's life.

The SMART Goal Framework (00:09:44)

Keith Weinhold mentions the SMART goal framework as a well-known framework for setting goals and achieving success.

Setting SMART Goals (00:10:03)

The speaker discusses the SMART goal framework and how it helps in setting specific, measurable, attainable, relevant, and time-based goals.

The Importance of Specific and Measurable Goals (00:11:08)

The speaker emphasizes that goals need to be specific and measurable in order to track progress and determine success.

Breaking Down Outcome Goals into Activity Goals (00:13:56)

The speaker explains the importance of breaking down outcome goals into specific steps or activity goals to make them more achievable and actionable.

Discover Your Destiny (00:19:40)

Discussion on the belief in destiny and the importance of clarity in goal setting.

Success Stories (00:21:14)

Examples of individuals who have achieved success and life satisfaction through goal setting and clarity.

The Importance of Clarity (00:26:30)

The significance of clarity in goal setting and the initial steps to take before setting goals.

The assessment of personal skills (00:28:38)

Discussion on the importance of assessing one's skills and areas for improvement in personal development.

The goals retreat (00:30:12)

Information about an in-person event called the goals retreat, where participants can focus on setting and achieving their goals.

The structure of the goals retreat (00:30:59)

Details about the schedule and activities of the goals retreat, including journaling, answering questions, and turning goals into action plans.

Resources mentioned:

Show Notes:

GetRichEducation.com/480

Attend the Jan. 12th-14th Goals Retreat:

GoalsRetreat.com

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

Will you please leave a review for the show? I’d be grateful. Search “how to leave an Apple Podcasts review”

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479: How Inflation is Ravaging America

Complete episode transcript:

Keith Weinhold (00:00:01) - Welcome to GRE. I'm your host, Keith Weinhold. Today's episode is rated PG for personal growth. Most people just float through life with hopes and wishes that are never realized, because they never turned those ambitions into concrete goals. How do you get clarity of mission, vision, and values before you set the right goals for yourself? It's a transformative episode today with a terrific guest on get Rich education. When you want the best real estate and finance info. The modern internet experience limits your free articles access, and it's replete with paywalls. And you've got pop ups and push notifications and cookies. Disclaimers are. At no other time in history has it been more vital to place nice, clean, free content into your hands that actually adds no hype value to your life? See, this is the golden age of quality newsletters, and I write every word of ours myself. It's got a dash of humor and it's to the point to get the letter. It couldn't be more simple. Text grey to 66866. And when you start the free newsletter, you'll also get my one hour fast real estate course completely free.

Keith Weinhold (00:01:18) - It's called the Don't Quit Your Day dream letter and it wires your mind for wealth. Make sure you read it. Text grey to 66866. Text grey 266866.

Corey Coates (00:01:36) - 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 (00:01:52) - Welcome to GRE! From Toms River, New Jersey, to Hood River, Oregon, and across 188 nations worldwide. I'm Keith Weinhold and you are tuned in to get rich education. Now, why do you live the almost same routine that you live day in and day out? How are you spending your highest order in finite resource of your time? Maybe you're intentional, and maybe you don't really enjoy shoveling your snow or mowing your lawn all that much, but you do it just because it's the way that you've always done things, but at the cost of what higher order activities could you instead fill with that time? And that's exactly what a lot of people have never explored. I know that today's guest and I both admire the Robert Heinlein quote.

Keith Weinhold (00:02:40) - In the absence of clearly defined goals, we become strangely loyal to performing daily trivia until ultimately we become enslaved by it. One other axiom that I find so frustratingly inconvenient, because it's simultaneously true, is that your growth happens outside of your comfort zone. So then you've got to get comfortable being uncomfortable. And once you do enough of that, you'll become so enamored of growth that you'll soon find yourself being uncomfortable when you get comfortable. The best version of you. It means constantly disrupting yourself. Well that's disruptive. Now, within real estate, I've had various goals, and you might too. If you work at a dissatisfying day job, you might have a passive cash flow goal through real estate so that you can replace your job income. That's a pretty common one. Now, when I made my first ever property, that first fourplex, I didn't have much of a financial goal then. I just knew that I was effectively living for free, supplemented by the other three rent incomes. And when I first bought that building, I didn't even know what cashflow meant.

Keith Weinhold (00:03:57) - But once I did snowballing my cash flows became a goal until I could use that to replace my day job. Once that was achieved, the goal became how many doors can I control? Because that's a measure of service and influence. And today, one strong real estate goal is reaching more people like you with this very show right here today, we're talking to an expert at setting goals and helping you live the life that you were meant to live. He has had a deep influence on me and my growth. In fact, if it weren't for him, Jerry might not even exist and you would not have even heard of me. That's how much. Let's talk about setting and achieving goals to get the outcome that you want for your life. Today's guest is a professional real estate investor with experience in nine states and six nations, and I have toured some of that property with him in person internationally. He is also taught real estate practices and appraisal at the college level, but you might know him as the host of the nationally syndicated radio show The Real Estate Guys, now in its 27th year of broadcast.

Keith Weinhold (00:05:10) - You know that I've recommended that show to you, the listener, today. It's great to give a warm welcome back to Robert Helms.

Robert Helms (00:05:19) - Hey, Keith. So good to see you.

Keith Weinhold (00:05:21) - Robert. It's good to see you too. But we're not here today to talk so much about real estate, because a lot of people use real estate to fuel their other goals in life outside the real estate world, you brought a keen awareness to the fact that most people just kind of go floating through life without any real direction. And I think we're all aware, Robert, that there is a gap between who we are and the most that we can be. So can you talk to us about how finding our trajectory can perhaps be an exercise in connecting these dots that we call goals?

Robert Helms (00:05:58) - Yeah, I love this topic, as you know, because if we're left to our own devices, human nature is we're just going to bounce from thing to thing, like a boat without a rudder. And we get excited about something and it's a shiny object and we go off and pursue that.

Robert Helms (00:06:11) - And maybe real estate is that thing for you. And then, you know, you've got all the rest of your life to contend with. And whether you're a full time real estate investor or a part time real estate investor, I've found that one of the great keys to be able to discipline yourself, to do the things necessary to get the results you want in your life, is to set goals. And goal setting is pretty simple, but at the same time, it's almost alarmingly simple because if it seems too easy, people don't do it right. And the crux of goal setting is to figure out what you want, and then put that down in a way that you can be driven towards the things you have to do to make those things happen.

Keith Weinhold (00:06:52) - Maybe before we talk more about ourselves and what each of us really wants, maybe we can talk about what we don't want. And so many of us, me included, are influenced in life by the people that we surround ourselves with. You and I are both familiar with the quote from the late business philosopher Jim Rohn.

Keith Weinhold (00:07:11) - You are the average of the five people that you spend the most time with. A lot of people probably wouldn't like to admit it, but the statistics are kind of alarming with how much time one spends around their co-workers versus how much time spends around their family and friends, and with influences from co-workers. And that temptation to maybe just go with the flow. You know, it's pretty interesting because your coworkers are not chosen by you. They're chosen by your employer. Now, maybe that's good because it opens you up to a new set of ideas and a new context for your life, and that might adjust the goals you set. But then on the other side, if you don't have that and you don't have those coworkers, maybe those coworkers can help keep you out of one think silo and just thinking all the same way. So you talk to us about the influences of other people in one's lives. As you think about the life that you want to create for yourself.

Robert Helms (00:08:01) - This is such an important topic. I'm glad you bring it up at the beginning here because it is subtle, right? We don't get shoved off course.

Robert Helms (00:08:10) - We get nudged off course little by little by little. One of those five people you spend the most time with says, hey, let's go out drinking Friday night. And you were thinking, well, I was going to work on a podcast or a chapter on my book, or I was going to, okay, I'll just go out drinking and before you know it, like, that's not a bad decision. You get to spend time hanging out and there's some time in your life you want to be able to hang out with friends. But I think it's important that you become very strategic about your time. Time is a zero sum game, and it's also the most interesting resource because once this minute is gone, it's never coming back. What we do with this minute, we get a chance to do once, whether that's an hour, a day, a week. But at the same time, what happens after this minute? Well, another one and another month and another week. And so time can get away from you.

Robert Helms (00:08:58) - And if you're strategic about it, this is the key to success. Just spending time with people that have you going places, having you looking at your future, excited about what's happening now, you know, you mentioned your coworkers and you don't get to pick them. And that's true. But that's true about your family too. So you don't want to just write off your family. But let's face it, we probably all have negative people in our lives, whether it's friends, lifelong friends, people from college, but sometimes people in our family. So it's not that you don't spend any time with those people. It's your strategic about how and where you spend time with those folks. And the influences in our life probably have more impact on how well we do in life than any other factor.

Keith Weinhold (00:09:44) - We talk about being strategic and intentional with goal setting. There isn't a have you here today is because you're an expert in helping people set goals and help define a mission for their life, so I'm sure a lot of people, Robert, have come to you with a pretty well known framework for setting goals, called the Smart Goal Framework.

Keith Weinhold (00:10:03) - That's an acronym that stands for the fact that goals should be specific, measurable, attainable, relevant, and time based. So now I do think about the Smart goal framework before I set a goal, but I'm sure not to muddy up goals with a mission and all personalizes for a moment to give a good example for the audience. Robert, you can let me know what you think about this. And this is something outside of real estate investing. But when it comes to physical training, I have this mission of longevity and lean musculature. But to me, that's only a mission because it's kind of fuzzy and hazy. And then I have goals within that. For example, I had a couple goals within that. This year. I failed at them both. By the way. One was to be under £180 by June 1st, and the other was to run uphill up this trail in under 40 minutes by the end of the season. To me, those two things were goals, the body weight in the running, both of which I failed at within this broader mission of longevity and lean musculature.

Keith Weinhold (00:11:02) - So what are your thoughts about the Smart Goal Framework? Does that help people set goals and get them where they want to be?

Robert Helms (00:11:08) - Yeah, 100%, because just wanting something like, I want to be healthier or I want to be richer, those are great sentiments, but those aren't goals. What makes it a goal is the things you mentioned in the Smart framework works great. There's kind of the 101, which is if you've never set goals before, there's three things to focus on. The first is that a goal has to be specific and measurable. If you can't measure it, you don't know whether or not you hit it. So when you talk about something like your health and being lean, well, there's a couple of metrics in there. Percentage of body fat is a number and it's measurable how much weight you want to gain or lose is a number. And it's measurable. So that will help you instead of just I want to be lean. It's how lean do I want to be. And of course you might seek some counsel in that regard, either from a trainer or a doctor or someone to say, what's a good, healthy weight for me and so on.

Robert Helms (00:12:00) - So that's the specific part, which is also measurable. I kind of put that in as one thing, and the second is having a time deadline, a time limit or a deadline. So the best way to think of those two things is how much buy win, and your example of being able to do a specific amount of time metric by a certain date. That's exactly right, specific and measurable and with a time limit. And then the third thing is that to be effective, goals have to be written down. If you don't write down your goals, they're worth the paper they're written on. And it's not just so you won't forget. It's that something magical happens when we take pen to paper and writing it down. Using your computer, keyboard or voice to text is not the same as getting a good old fashioned pen or pencil and writing out your goals. Now that's the 101 write to take it. Beyond that, there are some few things in the smart model. It's either attainable or achievable for the A, and what that means is it has to be somewhat realistic.

Robert Helms (00:13:03) - You don't want to put limits on yourself, but if you say, well, you know, Robert, I made $50,000 this year and next year I'm going to make 5 million. Okay, well that's possible. People do that. There are people that go from 50,000 to 5 million. It's just not very likely. So unless you have some information that would show why that would happen, a much better way to think about it is how much can I stretch and still make the goal? If you made $50,000 a year for the last three years, Zig Ziglar says you can stretch to about 50% $75,000. That's a stretch, but it's realistic. So that's the attainable part, and it is a great framework. Now the other part, which is awesome when you're talking about how do I affect what I'm going to do. This is the crux of golf setting. There are two types of goals. If we were to narrow it down, there are outcome goals. That's how it's going to be at the end.

Robert Helms (00:13:56) - And then an even more important there are activity goals. So let's say you're in real estate sales and you want to sell 20 houses in 2024. That's a great goal. That's an outcome goal. At the end of 2024, I want to have listed and sold 20 houses. Okay, so January 2nd, when you get back, you know from your celebrating January 1st, what do you do? It's nebulous to say, well, gosh, to get to 20 houses by the end of the year. So what you do is you break down those 20 houses, that outcome goal into the specific steps necessary, and it would be different depending on every goal, right? It would be different for health than it was for relationships, than it was for your income. But to use this example, you might say, well, in order to sell 20 houses. Maybe I have to list 30 houses. Okay. To list 30 houses, I have to talk to 60 people. Okay, well, to talk to 60 people, I got to get 200 people on my list and so on and so forth.

Robert Helms (00:14:56) - Until you break it down to the actual activity, you can do January 2nd. So it might look like this. On January 2nd, I have to talk to four new people. I have to send out emails or letters or postcards to ten new people. And if I do that, if I do those two things, following the numbers all the way to the end of the year, that should result in my 20 houses. Now, how do you know what those numbers are? That's from your practice. You've done this before. If you're brand new in the business, you would get counsel from folks that are already doing that. Back to the five people you spend the most time with, right? Surround yourself with folks that have already done what you want to do, and then break down the outcome goal into the activities necessary to achieve the goal.

Keith Weinhold (00:15:40) - Oh, this is great step by step guidance. After I knew I failed at those two goals I shared with you, Artemis tried to reassure myself and tell myself that, well, you know, a lot of people don't even set concrete goals, so I ought to be okay about it because I've definitely ended up more fit.

Keith Weinhold (00:15:54) - But then at the same time, I don't always want to be comparing myself to normalcy or that's just a recipe for mediocrity. But maybe just here, as the introductory beginner goal setter that I am, I would have been more successful had I written them down, and had I made more intermediate steps in order to reach those two goals that I told you about? So I learned a little something there. I'm your host, Keith Weinhold, with Robert Helms of the Real Estate Guys. More on goals when we come back. You're listening to get Rich education. Render this a specific expert with income property, you need Ridge Lending Group and MLS for 256. In gray history, from beginners to veterans, they provided our listeners with more mortgages than anyone. It's where I get my own loans for single family rentals up to four plex's. Start your pre-qualification and chat with President Charlie Ridge. Personally, though, even customized plan tailored to you for growing your portfolio. Start at Ridge Lending group.com. Ridge lending group.com. You know, I'll just tell you, for the most passive part of my real estate investing, personally, I put my own dollars with Freedom Family Investments because their funds pay me a stream of regular cash flow in returns are better than a bank savings account up to 12%.

Keith Weinhold (00:17:22) - Their minimums are as low as 25 K. You don't even need to be accredited for some of them. It's all backed by real estate, and I kind of love how the tax benefit of doing this can offset capital gains and your W-2 jobs income. They've always given me exactly their stated return paid on time. So it's steady income, no surprises while I'm sleeping or just doing the things I love. For a little insider tip, I've invested in their power fund to get going on that text family to 66866. Oh, and this isn't a solicitation. If you want to invest where I do, just go ahead and text family to six, 686, six.

Robert Kiyosaki (00:18:09) - This is our rich dad. Poor dad. Author Robert Kiyosaki. Listen to get Rich education with Keith whine old Dot Prichard, Adrienne.

Keith Weinhold (00:18:27) - Welcome back to get Rich education. We're talking with Robert Helms of the Real Estate Guys about goals or not talking so much about real estate today because many people use real estate in order to fuel their other goals in life.

Keith Weinhold (00:18:40) - So many people just go floating through life without many goals. I could do a better job with my goal framework myself, as I think you just learned there, Robert. I think some people, they might be dismissive of goals because some people have the mindset where they're thinking, well, I'm just ordained to live a life like this, or I'm just destined to live a life like this. I don't know that our audience necessarily thinks that way, but I'd like to get your input on this. We recently had an Instagram poll over on our Instagram page, and the poll was simple are you destined or are you made? And 75% of respondents chose that they are made rather than that they are destined. So what are your thoughts with regard to that as we set goals for this trajectory in our life?

Robert Helms (00:19:28) - That is a world class question. We always say, if you want great answers, you have to ask great questions. And that's a great question and something people don't think about. There are folks that believe that they are completely self-made and that it's up to them.

Robert Helms (00:19:40) - If it's to be, it's up to me and I completely respect that. And then there are folks that believe that no something is written on my heart. Something tugs towards me. I have a destiny. I have a life work that I need to pursue, and I respect that as well. So we for years have done an annual goal setting retreat that we call Create Your Future. But people wrestle with this, and I kind of witnessed the same thing. About three quarters of the people resonate with Create Your Future. But the very first evening of the event, I also submit to the attendees that if you feel called, if you feel like I have a destiny, but I'm not clear about it, then I just suggest that they reframe the entire event by the original title we use, which was Discover Your Destiny. So whether you believe that there is a destiny, a calling for you, or you've got to figure it out, this process of thinking about your goals, breaking them down to action steps, making sure they're in alignment with your vision, having that mission that you talked about, right.

Robert Helms (00:20:45) - All those things will serve you kind of either way.

Keith Weinhold (00:20:49) - Yeah, that's a rather deep existential question that I think some people need to figure out, I would imagine, before they develop their goals. So now that we've talked about mission and goals somewhat, Robert, can you tell us about some of your more successful people and some real success cases you've seen with people that have actually achieved goals and gotten this life satisfaction about becoming the most that they can be?

Robert Helms (00:21:14) - I love that the reason I keep doing this part of my life is because of the results people get. It's absolutely astounding. We've watched people go from modest means to incredible success, and not just monetarily, although that certainly happened. One of my favorites is a young gentleman who was dragged along to this, the goal setting event we do every year by his dad. His dad had been through a four years, brought his son and his son was kind of lackadaisical, had a job that paid okay, but he was living in a home. He was £50 overweight, just kind of plodding through life.

Robert Helms (00:21:51) - After three years. This guy was a brand new guy and he has completely changed his life. He's fit as can be. He found the woman of his dreams, which was something he thought might never happen. He's no longer working at a job that he just deals with. He loves his career like everything has changed and he gives credit to that, to finding this clarity. So here's the essence of goal setting. Your two best friends are clarity and focus. You have to get clear on exactly specifically what you want and the steps to get there. Most people are not clear. They're vague, they're nebulous. They kind of know what they want to do, but they aren't sure. And so you need a process to help you uncover and get that clarity. And then once you have that clarity, focus, right? Tracy says. And this is a deep one. All of life is the study of attention. What you think about comes about, said Earl Nightingale. And so the point is, what if we focus on something? Think about in your life, you've had some experience that's been successful.

Robert Helms (00:22:59) - It's probably because you put a lot of focus into that, a lot of attention. Sure. I remember all those years ago when we were talking about, hey, you said, I'm thinking about starting a podcast, and I'm like, awesome, right? And I was encouraging of it. I was thrilled you'd thought you'd already recorded a couple episodes. Yeah. And so many guys or gals come up and say they want to start a podcast, and most never do. But because you had the passion for it and you were committed to it and you did all the hard work, right? Those first several episodes where you got six or 7 or 10 listeners, you can't get to the first million until you get to the first ten. And this is what life is. It's focusing on the things that you want in your life. Instead of spending our focused time on distractions, things that the advertisers in our life want us to do, things that those friends that maybe like us but don't necessarily have our best interests at heart.

Robert Helms (00:23:54) - They want us to come to you. So there's a lot to figuring out who you want to be when you grow up. But if you'll take the time to figure that out and then work towards it, it's extraordinary what can happen now as far as success stories, I'll tell one more story because this is a reality check. It's not all happy high notes four years ago. At the end of the Create Your Future Goals retreat, I had a gentleman come up to me, pretty well-known guy, and so I won't mention who it is. But he said, Robert, you don't know this about me, but you saved my marriage this weekend. He said, I came with my wife. She was really reluctant to come. We were on the verge of divorce and we spent our time to separate parts of the room. But as you recommended, we came together Saturday night for dinner and we just connected like we haven't in years. And I saw this guy a couple weeks ago thrilled with his marriage, with everything that's like, awesome.

Robert Helms (00:24:49) - Now, I have to tell you, the other part of the story, which is that same evening, I talked to another gentleman who came up to me and he said, I'd like to talk to you about something. My wife and I came to this event and we both played full out, and we took all the notes and we really got clear on on what we want to have and be and do in our lives. And we've made the decision that we're going to get a divorce. I'm like, wow. So here's my point. If that was in their trajectory, if the best thing for them really was to separate, like, how soon would you want to know that versus the other couple that for all those reasons, they have strife and challenges in their marriage, but when they really looked at who they were and who they were becoming, they figured out they were much stronger together. So all that to say that when you get into the tough stuff, right, that squishy part of your heart and your soul, that stuff will come up for you.

Robert Helms (00:25:42) - You know, at the event, we put Kleenex out everywhere and people are like, what is a cold going around? Like, no, you. May need this. You may not. But I will tell you most people, if to get it done right, you have to be emotional because emotion is what will create motion, and that motion in your life will change your life.

Keith Weinhold (00:26:01) - Well, you talked about how clarity is an early step and wow, that's astounding for a couple to get the clarity that they want, amend things or a couple to get the clarity that they should end things. So we talked about goals kind of the back end and everyone knows what goals are. But kind of on that front end in the clarity, in winnowing down toward your goals. Can you speak to us more about that clarity piece? Because really, I think that's what a lot of people lack, because it probably takes some real vision.

Robert Helms (00:26:30) - Boy sure does. And it's the part I think, that people don't teach.

Robert Helms (00:26:33) - So the simple part of goal setting, you know, the Smart goals that works, but it it assumes you already know what you want. And so at our workshop the first day, we don't spend a minute on goal setting. And people are like, isn't this a goal setting workshop? Yeah, there's a whole bunch of stuff you have to do before you can set goals, right? And so I'll give the listeners some nuggets. The first is to get clear on who you are. Now, that sounds too vague and too big of a question, but specifically your principles and values that govern your life. And I've discovered that most people have about a half a dozen. There's about a half a dozen things that you value that really, really matter to you. And I don't even want to prime the pump. I don't even want to put words out. So people jump into that. Oh yeah, that sounds good. Instead, you have to spend some time alone or with some awesome music, or how whatever's best for you to get in that state, and then really delve deep on to the things that matter in your life.

Robert Helms (00:27:36) - What principles guide your life? What's super important to you? If you could only have 2 or 3 things in your life, what would they be? And then you start to get clear on really what matters. Because most of us are busy. We're busy doing all kinds of different things. And busy is not necessarily the path to success. Sometimes you have to take things off your plate in order to do more. As we like to say, you have to say no to the good in order to say yes to the great right. And most busy people really need to do some changes in that regard. First, the things that maybe you've been doing but you really aren't suited to or you don't enjoy doing, you offload those things. You learn how to delegate some of that. And then if you can spend time thinking through what matters to you as a person independent of real estate or your career, or even your family life, just the values and principles that guide you now you start to open up to that clarity, and then we take you through a whole bunch of exercises to imagine what life would be.

Robert Helms (00:28:38) - And, you know, pay attention to things that you are good at. Most people don't give themselves enough credit for their skill sets, and there's two schools of thought in personal development getting better as a person. One is I'm going to do an assessment and this is really important, do an assessment of where you're at. And as Jim Collins said in his book, Good to Great, confront the Brutal facts. If you're messing up somewhere, admit it. This is just between you and yourself, right? So admit where things aren't going. So are where maybe you're not as skilled as you like to be, or you don't have the experience that you want. And then you take an assessment of the places that you're pretty good at. You know, we don't like to pat ourselves on the back publicly, but in the privacy of your own mind, figure out, hey, there are some things that I'm skilled at. Either I have learned and developed the skill. I'm naturally drawn towards a behavior that's positive, whatever that might be for you, and then school of thought number one is I'm going to look at all the things I'm not very good at and try to get better at them.

Robert Helms (00:29:37) - And if I do that, that'll make me a better person. And that's true. The second school of thought is I'm going to do the same exact assessment, except I'm going to look at the things that I'm really good at and I'm going to design my life. So that's what I spend my time doing and the things I'm not good at. I find out how to have somebody else do those things. You can probably tell from my energy that's the school of thought I subscribe to, but both will work. But if you will focus on your unique talents and gifts and those things you are destined to be, then that's how you become the next best version of you.

Keith Weinhold (00:30:12) - Oh, these are key pieces in finding the clarity that you need to go ahead and set goals. We all become victims of weapons of mass destruction. Robert. Oftentimes I joke about how I can't believe how much stuff I get done when my iPhone is over on the charger because I can't be on the iPhone at all. So every year you host the Goals Retreat, an in-person event so a person doesn't have weapons of mass destruction, and they can really be focused.

Keith Weinhold (00:30:40) - And it's important that this is done in person. It's a hands on workshop in a focused environment. You've got a lot of great testimonials about it, and even people that repeat and show up year after year, people that become teary eyed for what you brought out of them, people that say that their lives have been changed forever. So tell us about how one can attend your goals retreat.

Robert Helms (00:30:59) - What's coming up the second weekend of the new year. It's a great time to be thinking about your future as we're at the beginning of the year when 2024 is a blank canvas and it happens in Dallas, Texas, we picked a hotel that is really conducive to having little nooks and crannies and places that you could go because there is instruction, but there's also times where you're going to go journal and answer questions and think and be alone. And it's a beautiful place. So you get some inspiration in that regard. It takes two and a half days. So we started about 5:00 in the afternoon on Friday and go till 10 or 1030 that night.

Robert Helms (00:31:33) - A lot of people are traveling in a day, so that's about as much as we can get people to pay attention before they start to nod off. But then the next day, Saturday, it's all day from, you know, 730 breakfast till 1030 at night. And then Sunday kind of 8:00 in the morning for breakfast until 6:00 at night. And then we have our afterglow reception. And, you know, I used to do this, Keith, in three hours and in three hours I could teach a lot about how to set goals and how to ask those questions. But then I'd have to send you home to do it. And a few people would, and most people wouldn't. So now in the two and a half days, you will get a ton done. Your missions, your values, your purpose. You'll answer more than 250 questions, and you'll do it in writing and you'll get some great, great stuff. Some of it you'll go, yeah, of course. And other times you'll be absolutely surprised at what happened when you put pen to paper.

Robert Helms (00:32:27) - And then on Sunday, it's really a workshop to turn those goals into action plan. So you leave not confused, not vague, but crystal clear. You obviously can't get every single thing done on every goal. In two and a half days. There's some homework, but you're going to have enough done that you'll have that momentum. So if people are interested in that, that sounds interesting to you. All you have to do is go to Goals retreat.com goals retreat.com and you can learn all about the Create Your Future 2024 goals. Retreat.

Keith Weinhold (00:32:58) - Invest in future. You. You're worth it Robert. It's been valuable. Thanks so much for coming out to the show.

Robert Helms (00:33:05) - Great to see you, Keith. Thanks for having me. I wish everybody out there a wonderful 2024.

Keith Weinhold (00:33:16) - Oh yeah, great stuff from Robert Helms. As usual to review Smart goals are specific, measurable, attainable, relevant, and time based. Even if it's your personal goal and you know that you won't forget that goal, it has been shown to increase your success.

Keith Weinhold (00:33:33) - If you write down your goals old school style with a pen and paper, let's review a few other things that you learned there. When you set a goal, set intermediate benchmarks within it. That's something that I need to work on personally. But before you even set goals, you'd have to know that they are the right goals. And that means that you need to get clarity of vision first. That comes with understanding your principles and values, and then you can spend your life being in the lane that you enjoy because you've helped figure out what that was in our discussion about. Are you destined versus are you made? Earlier in my life, I believed I was destined and now I believe I am made. Back when my high school classmates voted me as the most quiet and shy student, and then later I'd go on to host basically a talk show here. Well, that was my pivot point. To know that you make yourself, if you're still wrestling with the you are destined versus you are made conundrum, perhaps you can adopt the belief that you were destined to make yourself the best you that you can be, and there you've got both in one, the real estate guys host a number of world class, in-person events.

Keith Weinhold (00:34:50) - I would know because I've attended a number of them myself, from a real estate syndication event to a summit cruise to real estate field trips. But among them, all their goals retreat is their highest rated event, and it's only held annually. If it sounds interesting to you again. Goals retreat.com major thanks to Robert Helms today. Next week here on gray. It's real estate investing content that you've probably never heard before when we do How the Rent Stole Christmas. And I'm also going to deliver Gre's big home price appreciation forecast for next year and more on top of that. That's all next week. Until then, I'm your host, Keith Reinhold. Happy holidays. Don't quit your daydream.

Speaker 5 (00:35:40) - Nothing on this show should be considered specific, personal or professional advice. Please consult an appropriate tax, legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own. Information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of get Rich education LLC exclusively.

Speaker 6 (00:36:08) - The preceding program was brought to you by your home for wealth building. Get rich education.com.

Direct download: GREepisode480_.mp3
Category:general -- posted at: 4:00am EDT

Mon, 11 December 2023

A crying, sniffling mother reveals how inflation is ravaging her family. Despite a two-parent income, she tells us that they're trending toward poverty due to wages that struggle to cover inflated prices.

For home prices to fall, many homeowners need to walk away. But if they tried that today, they’d have to pay more in rent than they would on their low mortgage payment.

It’s absurd to only have one source of income.

401(k)s are considered a scam by some. I explain. Plan participants buy an income stream “probably later”. Real assets that cash flow provide income “surely now”.

There’s no such thing as: rent inflation, food inflation, or energy inflation. Inflation comes from the central bank.

One dollar in 1776 has the purchasing power of $35.36 today.

The worst consequence of inflation is that one parent could work to be middle class in the 1950s. It became two by the 1990s. After the 2020s inflation wave, two parents might not be enough anymore.

I explain why the Fed should keep interest rates the same for at least one year. But I doubt that they will.

Resources mentioned:

Show Notes:

GetRichEducation.com/479

Terrific inflation resource, charts:

https://www.officialdata.org/us/inflation/1776

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478: The Corporate Transparency Act is Coming. It Probably Affects You.

Direct download: GREepisode479_.mp3
Category:general -- posted at: 4:00am EDT

Mon, 4 December 2023

If you own a real estate entity (like an LLC), the new Corporate Transparency Act (CTA) must be complied with soon.

I have my own attorneys on the show to discuss this today, Garrett and Ted Sutton.

You must report ownership information to the federal government. It must only be done one-time, not annually.

The penalties for non-compliance with the CTA can be as high as $10,000 in fines or up to 2 years in jail. Those penalties would be for the most egregious acts.

The intent behind the CTA is to prevent money laundering and terrorist financing.

If you don’t own real estate in an LLC, you probably won’t need to comply. There are pros and cons of using LLCs, which I discuss.

For help complying with the CTA, you can contact Corporate Direct at CorporateDirect.com or (800) 600-1760.

Resources mentioned:

Show Notes:

GetRichEducation.com/478

Corporate Direct:

CorporateDirect.com

1-800-600-1760

Video platform with kids’ FinEd:

SunnStream.com/fivetricks

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

Will you please leave a review for the show? I’d be grateful. Search “how to leave an Apple Podcasts review”

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477: Uncertain and Unsafe

Direct download: GREepisode478_b.mp3
Category:general -- posted at: 4:00am EDT

Mon, 27 November 2023

Today's topics: Conventional financial advice is God-awful; tertiary real estate markets; I’ve got a solution to guilt tipping; whether or not the world is uncertain and unsafe.

Conventional financial advice is so bad. I attack the practices of setting budget alerts and paying off your smallest debts first.

Don’t roll a debt snowball; roll a cash flow snowball.

In the past five years, tertiary markets are beginning to exhibit the rent stability of larger markets.

Guilt tipping is out of control. Learn my elegant solution. You’ll never pay a guilt tip again.

It seems like the world is increasingly uncertain and unsafe. It isn’t. I talk about why it only seems this way.

Timestamps:

The limitations of budgeting (00:02:43)

Discussion on the drawbacks of using budgeting platforms and how they reinforce scarcity thinking.

The debt snowball concept (00:05:09)

Explanation of the debt snowball method of debt paydown and why it is not aligned with an abundance mindset.

Investing in tertiary real estate markets (00:09:43)

Exploration of the emerging bullish case for investing in smaller, tertiary real estate markets and their stability compared to larger markets.

Tertiary Real Estate Markets (00:10:56)

Discussion of the advantages and objections to investing in smaller tertiary real estate markets.

Increasing Investor Appetite in Smaller Markets (00:12:02)

Exploration of the growing interest and sales volumes in tertiary real estate markets.

Guilt Tipping and a Solution (00:20:16)

Explanation of guilt tipping and a proposed solution to avoid feeling pressured to leave a tip when making digital payments.

Guilt Tipping and the Increasing Expectations (00:21:20)

Discussion on the rise of tipping expectations and the use of digital payment prompts to ask for tips.

The Problem with Guilt Tipping and the Inconvenience of Undoing Tips (00:23:45)

Exploration of the annoyance of guilt tipping and the difficulty of undoing tips after poor service.

The Solution: Paying Cash to Avoid Guilt Tipping (00:31:18)

Suggestion to pay with cash as an elegant solution to circumvent guilt tipping and ignore electronic payment terminals.

The Uncertainty of the World (00:32:25)

Discusses how uncertainty has always existed and how waiting for complete clarity can hinder investment decisions.

Disasters and Uncertainty (00:33:47)

Lists various disasters and events that have occurred in the US, highlighting the constant presence of uncertainty and the relative sense of certainty and safety today.

The Ultra Safety of American Society (00:36:13)

Examines how society has become ultra safe, discussing the term "safetyism" and providing examples of excessive safety measures.

Resources mentioned:

Show Notes:

GetRichEducation.com/477

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

Will you please leave a review for the show? I’d be grateful. Search “how to leave an Apple Podcasts review”

Top Properties & Providers:

GRE Free Investment Coaching:

Best Financial Education:

Get our wealth-building newsletter free—

text ‘GRE’ to 66866

Our YouTube Channel:

Follow us on Instagram:

Keith’s personal Instagram:

476: The Real Estate Market is Slowing, 5.75% Mortgages in Florida

Complete Episode Transcript:

Keith Weinhold (00:00:01) - Welcome to I'm your host, Keith Weinhold, with a rant on how conventional financial advice is so terribly god awful an outlook for tertiary real estate markets, then? Are you getting worn down from guilt tipping? I've got a proven solution on how you'll never pay a guilt trip to a business again. And finally, how do you arrange your investing in personal finances in a world that's uncertain and unsafe? 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, 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 hours 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 to six, 6866.

Keith Weinhold (00:01:15) - And when you start the free newsletter, you'll also get my one hour fast real estate course completely free. It's called the Don't Quit Your Day dream letter and it wires your mind for wealth. Make sure you read it, text GRE to 66866. Text GRE to 66866.

Speaker 2 (00:01:40) - 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 (00:01:56) - Welcome from Los Angeles, California, to Las Cruces, New Mexico, and across 188 nations worldwide. I'm Keith Wayne holding. This is get rich education. When you pay for a low level service item like a Chipotle burrito, and another human is looking at you to see if you leave a 20% tip on a digital payment terminal, does that make you feel uncomfortable? Well, now you're being asked to. Guilt tip I've got a foolproof way on how to never get put in that situation again. That I'll share with you later here. You know, sometimes you just hear something that triggers a rant. I recently heard an ad for a digital platform that helps you manage your finances.

Keith Weinhold (00:02:43) - And what an awful, in scarcity minded way of thinking this reinforces. But this is actually what mainstream financial guidance looks like. All right, it was an ad for a digital platform trying to attract you there. And here's basically how it works. You set up your account. Then based on your income and expenses, you set up your budget. And as you know, that is a bad word around here, a budget. It's not how you want to live long term. All right. Then, when you're close to hitting your spending budget for the month or whatever, this platform triggers a budget alert. Are you kidding me? You get emailed a budget alert. How convenient. Oh, geez. So much for living an aspirational life by design. What a dreadful idea. Like someone that really wants more out of life would actually take effort to set up something like that. You would be building an architecture to establish life patterns that completely say, I think that money is a scarce resource. Now, in the short term, you've got to do what you've got to do, which might mean living below your means for a little while.

Keith Weinhold (00:03:55) - But in a world of abundance, delayed gratification should be a short term notion for you. I think that this type of platform that centered around stupid budget alerts is so limiting. Gosh, you've got to feel cheap just saying that out loud a budget alert. But anyway, that sounds conducive to this concept of scarcity based finance called a debt snowball that you can read about the debt snowball on Investopedia. But the debt snowball, that's basically how you pay off your debt with the smallest balance first, not the highest interest rate, but yes, the smallest principal balance it would have basically says is in the first step, what you're supposed to do is list your debts from smallest to largest, and that's regardless of interest rate, just smallest to largest based on the amount. And then the next step is that you make minimum payments on all of your debts except the smallest one, because you pay as much as possible on your smallest debt. And then the last step is you're supposed to just go ahead and repeat that until each debt is paid in full.

Keith Weinhold (00:05:09) - That's the debt snowball. So according to that, why do they say to disregard the interest rate, which is your cost of capital? Because they say that when you pay off the smallest debt super quick, that you're going to be jumping up and down with excitement, and that is going to motivate you to keep working hard to get debt free. They say that hope is more important than math. That's the school of thought. And along the way you should lower your expenses, cut spending, work hard and add a side hustle where you can. Oh my gosh, that is all congruent with this debt snowball concept that we sure do not endorse here at. I mean, that is 100% orthogonal to the world of abundance that we believe in. So often on your high interest rate debt. What you would do then is you'd make the minimum payments with this debt snowball, and then you focus it all on your smallest debt amount, regardless of interest rate. You've heard that right? And it even advocates that you stop investing and just focus on that smallest debt amount, even if it's a low interest rate.

Keith Weinhold (00:06:22) - That makes no sense. If you've decided that debt paydown is the best allocation of your first expendable dollar. All right, even if that were a yes, then in most cases you'd want to pay down the highest interest rate independent of the total principal balance on each of your debts. I mean, that's arbitrage, but they even bigger question for you, almost existential in nature is why is the best way to allocate your first expendable dollar on debt? Paydown. And. Any way it's or that. First, because one of the first places to look is how you can leverage that dollar 4 to 1 or 5 to 1 as long as you've controlled cash flows. Now, sometimes there are instances where you'd want to pay down debt before investing, certainly like a 20% Apr credit card debt, that could be one such place. So could retiring a debt to help your DTI, your debt to income ratio so that you can originate a new business loan or a new real estate loan first? All right, you might do thatrillionegardless of the interest rate on a loan.

Keith Weinhold (00:07:30) - But my gosh, if we want to stick with the snowball analogy, since we're a few days from December here, instead of trying to push a debt snowball up a hill to start rolling a cash flow snowball down a hill, when you buy an asset that pays you a monthly income stream to own it, that is constructive. Compounding your cash flows beats compounding your debt paid out. Instead of trying to push a debt snowball up a hill because you're cutting your one and only quality of life down. Instead, start rolling a cash flow snowball down a hill, and now you've got gravity working with you in the right way. That is the end of my rent. Hey, maybe I just feel like complaining a bit. My Jim was playing Phil Collins and Elton John all weekend, so maybe that's a kind of what in the world kind of mood that had generated in me, I don't know. And hey, nothing wrong with Phil Collins and Elton John. I mean, those guys are truly talented singers, 100%.

Keith Weinhold (00:08:28) - I just don't want to be working out to those guys. Michael Bolton, George Michael that's not motivating me to hit 20 burpees. Okay. Hey, well, I hope that you were set up for a great week. Be sure that part of it is that you are signed up for our live event tonight for 5.75% mortgage rates on Florida Income property@webinars.com. Now, whether you're looking at investment property in Florida or most any of the other 49 US states, there's a really nascent and interesting development that's been taking place for at least five years now. And that is what's happening in tertiary markets, smaller markets. I'll define tertiary a bit more shortly, but we're talking about metro statistical areas, MSAs that are probably not under 100,000 population, not that small. From a rent growth perspective. What's happened is that over the last five years, tertiary markets have had similar patterns to bigger markets. And historically, these smaller markets have been more erratic. But in rent growth terms, tertiary markets have stabilized. Now, a primary market is something like New York City or Chicago, a secondary market.

Keith Weinhold (00:09:43) - You might think of that as a little Rock, Arkansas, where it's under a million in size, and then a tertiary market that's going to be somewhat discretionary. But we're talking about a population of 100 K up to, say, 300 K. And what's noteworthy is that there are now more analysts and investors that are bullish on vibrant tertiary markets. So let's talk about why this is happening. I think there's an emerging bull case for overcoming some of the historical roadblocks to tertiary market investments in a diversified multifamily or single family rental portfolio. And one classical objection is that tertiary real estate markets are too volatile. Historically, we perceive smaller markets as more volatile. Yes, and some surely are. But over these last five years, markets outside the top 50 in size were regularly more consistent. Okay. They avoided rent cuts in 2020. They recorded sizable but less lawfully rent hikes in 2021 and 2022. And now they remain moderately positive in 2023, even as larger markets have kind of flattened out in the rent growth.

Keith Weinhold (00:10:56) - And of course, we're talking about a composite group of tertiary markets here. Some are more stable than others. You got to watch those local trends as always, of course. And you know, classically a second objection with these smaller markets is that, well, it's too easy to add a lot of supply. And yes, that is sometimes true and sometimes it's not. Indeed, there are a handful of small markets that are building like crazy, like Sioux Falls, South Dakota in Huntsville, Alabama. But as a group, the construction rate in what that is is the total units under construction divided by the total existing market, that is 5% in large markets versus the construction rate of just 4% in small markets. See, it can be harder to build in certain small markets due to NIMBYism or a lack of debt availability, especially if local banks aren't interested in the check size needed for construction loans. It can also be harder to build in certain small markets due to a lack. Of equity because it's a tougher sell to ask investors in a syndication to bet on a market that they don't have a lot of knowledge of.

Keith Weinhold (00:12:02) - Another objection to these tertiary markets is that small markets are not liquid. Since 2019, sales volumes in dollars going into tertiary markets has doubled. Investor appetite has definitely increased in smaller markets. And that's particularly true among these traditional regional investors that are looking for better yield as the larger cities got pricier. So good small markets, you know, a lot of them really are not secrets anymore. And there's only one more objection to these tertiary real estate markets and that it is harder to scale operations. And yes, there is always benefit in efficiency of scale. But, you know, it's certainly been getting easier with better technology today. Investors can always work with top local property managers. And for investment property owners or managers, they often target small markets adjacent to larger markets where they have a bigger presence. So some other considerations before you as an investor go deep in one of these smaller tertiary markets is you want to be choosy in your market and in your site selection. Look for small markets that have multiple drivers.

Keith Weinhold (00:13:13) - You don't just want these one trick ponies. You know, I've discussed with you before about how markets that are heavily focused on commodities or heavily focused on military, they are not favorable because those two sectors, for example, commodities and military, are just pretty volatile. Look for growth or steady markets, lots of small markets. They continue to grow at a pretty healthy clip. And you want to look for markets with an absence of new product. Now why don't I name a few tertiary markets so that you can get a better idea of this. So about 100 K to 300 K in population size. Not that these next ones are necessarily good or bad markets. It's just for size comparison. I'm thinking about Ocala, Florida and Shreveport, Louisiana. You know those two. They're almost getting too big. They're almost secondary markets Wilmington, North Carolina at 300 K. That's a tertiary market. So are Akron and Canton, Ohio Dayton. That's pretty tertiary, but it's also close to Cincinnati. So you got a little more safety in Dayton.

Keith Weinhold (00:14:20) - Toledo is secondary. Burlington, Vermont is tertiary. Bellingham, Washington is tertiary. Yuma and Flagstaff, Arizona are both tertiary. Yes. We're talking about the stability in rents in tertiary real estate markets. Conventionally. You know, in the past, I've said that MSAs of 500 K population or more, that's pretty much where you want to be. But anymore, with the rise of remote work after 2019, it's really making some of these smaller tertiary markets more palatable to real estate investors and something that you probably want to consider. So really, that's the takeaway for you here and say this is the kind of stuff that really plays into my interests as a geography guy. See, I'm a real estate guy, but I might be the most geography interested real estate guy out there. Geography is something that I really love, though I could I don't share too much geography here on a real estate show. Sometimes it's relevant because both geography and real estate are location, location, location, but sometimes it's less relevant.

Keith Weinhold (00:15:25) - For example, North America's longest river is not the Mississippi, it's the Missouri River. The New York City metro area is so populated that more than one in every 18 Americans live there. That's almost 6% of the entire American population. See, some of this is more trivial or of general interest than it is relevant to real estate. Although you could learn some geography from me. Do you know the closest US state to Africa? If you draw a straight line, the closest state to Africa is not Florida or North Carolina. It is Maine. Look on a globe. Part of the reason that Maine is the closest state is that Africa is primarily in the Northern Hemisphere, not the southern, contrary to popular belief, and to look at a different continent. The entirety of South America is east of Jacksonville, Florida. Here's one more piece of geography. Canada's beautiful and mountainous Yukon Territory is larger than California, yet California has more than 900 times the population of the entire Yukon. Yes, the giant Yukon has less than 45,000 people.

Keith Weinhold (00:16:39) - It is the practice of guilt tipping out of control. And how do you respond to our world that seems to be increasingly unsafe and uncertain. That's coming up next. They say, if you give a man a fish you have fed him for. Or a day. But if you teach them to fish, you have fed him for a lifetime. Well, here at gray, we do both. I'm not talking about both in terms of men and women, but we teach you how to fish and give you a fish. Get rich. Education is where we teach you how to fish. With this show, with our blog and newsletter and videos, we also give you a fish. That's it. Gray marketplace. It's one of the few places you'll find affordable, available properties that are good quality there at marketplace. They're all conducive to our strategy of real estate pays five ways I'm Keith Wild. You're listening to get Rich education. Jerry listeners can't stop talking about their service from Rich lending group and MLS. For 256.

Keith Weinhold (00:17:45) - They've provided our tribe with more loans than anyone. They're truly a top lender for beginners and veterans. It's where I go to get my own loans for single family rental property up to four plex. So start your pre-qualification and you can chat with President Charlie Ridge. Personally, though, even deliver your custom plan for growing your real estate portfolio. Start at Ridge Lending Group. You know, I'll just tell you, for the most passive part of my real estate investing, personally, I put my own dollars with Freedom Family Investments because their funds pay me a stream of regular cash flow in returns are better than a bank savings account up to 12%. Their minimums are as low as 25 K. You don't even need to be accredited for some of them. It's all backed by real estate, and I kind of love how the tax benefit of doing this can offset capital gains in your W-2 jobs income, and they've always given me exactly their stated return paid on time. So it's steady income, no surprises while I'm sleeping or just doing the things I love.

Keith Weinhold (00:18:55) - For a little insider tip, I've invested in their power fund to get going on that text family to 66866. Oh, and this isn't a solicitation. If you want to invest where I do, just go ahead and text family to 66866.

Speaker 3 (00:19:16) - This is real estate investment coach Naresh Vissa. Don't live below your means. Grow your needs. Listen to get rich education with Keith Weinhold.

Keith Weinhold (00:19:34) - Welcome back. I'm your host, Keith Weinhold. There will only ever be one great podcast. Episode 477. And you're listening to it perhaps on one third of our episodes. Throughout the show's history, there is no guest. It's 100% me, a slack jawed monologue like it is today, and lots of great Jerry episodes coming up in the future, including Robert Helms other real estate guys here soon as he runs alongside me for an episode as we discuss goals. If you get value from and you don't want to miss any future episodes, be sure to hit subscribe or follow on your favorite podcast platform so that you're sure to hear from me again after today.

Keith Weinhold (00:20:16) - Is guilt tipping out of control? We have all felt it now. Does this happen to you today when you're about to pay the Starbucks barista or for the subway sandwich and they spin the digital payment terminal around toward you and say, it's just going to ask you a question before you pay. And then they stand there and they look at you in the face and they watch what you choose. All right. Does that right there give you a tinge of anxiety or even stress you out? Well, if you give in to that, that is called guilt tipping. And you know what? I've got a solution to guilt tipping. A simple and elegant way that I'm going to share with you so that you never have to see a payment terminal like this in your face again, that asks you for a tip when you're out shopping or dining and paying for something. Yes, I've got a proven solution for how you'll never even be asked to leave a guilt tip again because I tested it and mastered it. It works.

Keith Weinhold (00:21:20) - We even have an unverified report on Reddit of a self-serve digital kiosk now even asking you for a tip. What? I mean, how far will this go? Yes, like a self-checkout for your own groceries at a supermarket like Giant or Safeway? First, let's get some context about why this is so important to you in the first place and how bad it's getting. It might even be worse than what you're thinking here. All right, a new study from Pew Research. It found that 72% of people said that the long standing practice of tipping is now expected in more places than it was five years ago. My reaction to that stat is what? How is it not 100% of people saying that it's happening all over the place, and consumers like you and I are increasingly getting tired of it? The way it works is that today's digital payment prompts, they allow businesses to preset suggested tip levels, so it's easier than ever for them to ask for tips and companies that have not done so in the past. They are definitely doing it now rather than giving employees a raise.

Keith Weinhold (00:22:35) - Instead, they're asking you to supplement the employee wage by asking you for tips where they didn't before. Must you fight back like David Horowitz, if you're uninitiated on that? I learned about a popular show that apparently ran on prime time network television in the 1980s. The show was called Fight Back with David Horowitz, and it advocated for how consumers can fight back against unscrupulous business practices. In fact, let's listen into the cornball intro of this show, which your parents might remember. It's something about fight back. Don't let businesses push you around.

Speaker UU (00:23:20) - But don't let anyone push you around. Fine, but stand up and hold your ground. I got. Someone tries to you in. Five spot. Just.

Speaker 4 (00:23:44) - Oh, jeez. Yeah.

Keith Weinhold (00:23:45) - Fight back against guilt tipping, I suppose. See, a few years back, the reason that you began getting asked to leave a tip in places you hadn't before. That's because it was a way for you to provide a gratuity for service workers. Because you were supposed to have appreciated that they showed up during the health crisis when a lot of workers did not want to show up.

Keith Weinhold (00:24:09) - But now that the crisis appears largely over with, the tip requests have not gone away. They've gotten worse because by now companies see what they can get away with. Now, look, people don't want to feel like a jerk or a cheapskate. You don't. I don't, but businesses are taking advantage of that fact by making bigger than usual tips. The default option on these payment terminals. It really that's the crux of the annoyance. Say that you're given choices of 20, 25, or 30% on a payment terminal just for someone handing you a pre-made sandwich that's already wrapped in cellophane. I've had it happen to me, and then hoping that you will just go ahead and pay the extra amount, rather than hassling with clicking custom tip and entering a smaller number like 10% or zero. Understand something here. The business call it a sandwich shop. They're not the ones that always decide what tip options you're presented with. Did you know that because the companies that own the payment systems, they can earn a cut of your money from each transaction? Those payment system companies, they also have an incentive to increase those amounts as much as possible, not just the sandwich shop, but they are both complicit in this scheme together.

Keith Weinhold (00:25:37) - But now sometimes you get asked to leave a tip beforehand before you're even delivered any good or service. And see, that's getting awkward too. And see the fear of that you and I should have. Now is that in this case, as the customer, as the client, you are going to get punished if you leave a low tip before they deliver the service to you. See, that's another big problem here with guilt tipping. Now, traditionally, tips were thought of as a way to reward good service after you already received what you paid for, right? That's how it works. You pay your server after a meal, you pay your valet. After they bring you your car. You pay the tour guide after your volcano hike or snorkel tour. If you thought that they did a good job. Now, just the other day at a chain fast casual Mexican restaurant that you've certainly heard of, I was being rung up about $35 for two double steak burritos, and there's a lower service level there than a full sit down restaurant.

Keith Weinhold (00:26:44) - But I left a 10% tip at the counter on that day. I thought they put lots of steak on them. And then I walked my burritos to the tables and the tables were messy. I could not find a clean table anywhere, but I had already left the tip. It was too late, so I left the tip and then only later did I discover the poor service, the messy tables. Oh gosh, I wasn't going to go back and try to undo the tip, huh? Before I tell you about my elegant solution so that you can forever avoid guilt tipping. So let's understand just where are Americans tipping today? The situations when people add a gratuity. You know, this really offers some insight into the new tipping landscape. And again, this is according to Pew Research for dining at sit down restaurants, 92% of people are tipping there. And of note, a majority said that they would tip 15% or less for an average sit down meal. That kind of surprised me, because etiquette experts say the tipping 20% at a full service restaurant is standard now, and that's what I do.

Keith Weinhold (00:27:48) - Okay, getting a haircut 78% of people tip today. Having food delivered 76% for those using a taxi or rideshare service like Uber, 61% of people said that they would tip. I tip for all those things. Buying coffee. Only 25% of people leave tips and eating at fast casual restaurants only 12%. So look, people are upset because we've had years of high consumer price inflation and service inflation on top of that. And then a tip on top of that. Yeah. So it's tip relation on top of inflation. And then there is this preponderance of restaurants especially. It suggests that you tip the post-tax amount. Have you noticed that that means that you're also paying a tip on the tax that you pay? So just pay attention to that next time you're at a sit down, full service restaurant, or really most any other place that suggests a tip amount. And yeah, that's annoying. And I really doubt that that business sends that extra revenue to the IRS where you're paying a tip to the tax amount.

Keith Weinhold (00:29:00) - Gosh. But it all comes back to tip and the influx of automatic prompts at businesses like coffee shops, it gives you more chances to tip, and it'll just wear you down and then wear you out, creating this sense of exhaustion thinking what is all this for? It is just wild. If supermarkets are asking you to leave a tip for self checkout, your supermarket wants to outsource their checkout duties from clerks and cashiers to you, asking you to scan your own groceries. By the way, that is an example of service inflation. And then they ask you for a tip. On top of this food inflation and service inflation, you're doing it all yourself. What is next? You're going to have to unload the store's delivery of food from the 18 Wheeler truck in the back, onto a forklift, and onto the shelves yourself. I kind of doubt that. But if grocery stores are convenience stores, self-serve kiosks, if they're requesting tips, then it's more likely that soon enough, your human checkout clerk is going to start requesting tips.

Keith Weinhold (00:30:09) - When you're checking out at Whole Foods or Publix or Wegmans or Safeway, that human checkout clerk that's going to appear as some sort of small luxury comparatively. I mean, I would expect that to come to your town next. Expect to see it if you haven't already. There used to be this general understanding of what different tip amounts convey to servers and workers. Now, decades ago, it used to be a 10% tip meant, all right, well, hey, it wasn't horrible, but it wasn't great either. A 15% tip was normal and 20%. That meant that person did an excellent job. But now those amounts have all become expected and they've all been bumped up 5% or more. All right, well, here's my solution to avoid guilt tipping the way to no longer see a digital payment terminal spun around put in your face. Putting you on the spot to make a nice tip is just this two word solution pay cash. Yes, when you pay cash, you don't have to see an electronic payment terminal at all.

Keith Weinhold (00:31:18) - And it's far easier for you to ignore a physical tip jar that's sitting on the counter over to the side of you. The elegant and simple solution to guilt tipping is to pay cash. Now go ahead and leave a tip for good service if you want to. I'm not here to suggest that you stop all tipping. It's about how you can make an elegant circumvention of guilt tipping. If you have an eight second long exchange where you ask for a cup of coffee and they turn around and pour it from a spout and hand it to you. And that's all they did. Well, that tips discretionary. The bottom line is that you don't have to tip every time you're prompted. And now go ahead and hit up that ATM with cash. You will be armed and you can avoid guilt tipping completely. And hey, can we say that you will be fighting back like David Horowitz? Tipping is fine, but guilt tipping is out of control. And hey, if you want to see more on guilt tipping, I really brought it to life on a video recently where I really broke it down.

Keith Weinhold (00:32:25) - That is on our YouTube channel. We are consistently branded as they say. Our YouTube channel is called get Rich education. So you can watch me talk about guilt tipping and show you more over there. Do you feel like the world that you're living in is increasingly uncertain and unsafe? And is that adversely affecting your investment decisions? That happens to some people and you can't make gains when you stay on the sidelines. I think some people make too much of uncertainty, even though it has always existed. Just look at the last about four years. You know, someone could have said, I am just paralyzed with inaction because of the pandemic. Oh, that's uncertain then the recession fears uncertain, then rising interest rates where they rose fast, uncertain. And today it might be wars uncertain. And you know, the same people that get paralyzed with uncertainty. They will soon say something next year like, well, it's a presidential election year. So. I think uncertainty is going to sideline me again. If you wait for uncertainty to abate, such as you have complete clarity or even great clarity, you're going to be waiting your entire life.

Keith Weinhold (00:33:47) - Uncertainty and an absence of complete safety that's existed in the world every single day since the day that you and I were born and before you and I were born. And it will exist after we're gone, too. I mean, really, just look at some of these disasters that have taken place just this century, and we're still in the first quarter of this century. And let's look here at some just in the US, not foreign crises. I'm thinking about the Y2K bug, the September 11th terrorist attacks on the World Trade Towers in the Pentagon, the Iraq war, the invasion into Afghanistan, Hurricane Katrina, where 1800 people were killed, the GREAtrillionECESSION, the Arab Spring, the surprise of Donald Trump becoming our president in 2016. Remember, that was a real upset over Hillary Clinton. How about the jarring events of January 6th of the Capitol less than three years ago, the eviction moratorium, the slow creep of climate change, the riots and civil unrest with the George Floyd protests, the wildflowers from California to Maui.

Keith Weinhold (00:35:00) - I mean, I could go on and on about how winners just keep thriving despite a world that's constantly uncertain and unsafe. And I'm only talking about things that involve the United States here, and I'm keeping it confined to this century just a little more than two decades. I mean, before that, we had World wars. We had the Dust Bowl, Cuba's Bay of pigs invasion in the Cuban Missile Crisis that could have led to a nuclear apocalypse that completely destroyed the entire world. There is relative clarity today compared to all that. How about an assassination attempt of our President Reagan? I mean, things are substantially more certain today in a lot of ways. And today, American employment is strong, GDP is growing. Our currency is fairly stable despite our problems, which will always exist. Today, the US economy is outperforming everybody in the world. And in a world that some feel is uncertain and unsafe, just consider the relative sense of certainty and safety you have today. Well, we discuss wars today. As bad as they are when they do happen, they're never on US soil.

Keith Weinhold (00:36:13) - Can you imagine an attack on American soil? How would that sound? Like? The enemy has destroyed and taken control of Charleston in Savannah. And next they're moving inland to take down Atlanta. I mean, that's so unlikely that your mind isn't even conditioned to think that way. But the reason that it seems, seems like your world is getting less certain and less safe is because of media. Media is more fractured than it's ever been. It wants your attention. So with more competition with everything from YouTube videos to TikTok clips now competing with legacy media, you get introduced to more fear in order to get your attention. My gosh. I mean, is American life safer than ever? You can make the case that it's become too safe even. I've talked to you before about how things could very well be in safety overboard mode in real estate. Now here we talk about providing clean, safe, affordable and functional housing. But she should need GFCI outlets all over the place in your property, and carbon monoxide detectors and fire rated doors, even when their improvement to your safety is negligible.

Keith Weinhold (00:37:32) - American society at large is so ultra safe and in fact, there's even a term for this now it's called safety ism. Yeah, look it up. It's how excessive safety is becoming harmful to society. When you are on your last passenger plane flight at night and you just wanted to take a nice nap, or you wanted to get some sleep, did the pilot come on to the intercom system and wake you up, telling you to sit down and put your seatbelt on every time? Just a small amount of turbulence was being felt. Oh, there are endless instances like that where society's gotten so safe that it's just annoying. The last time that I was shopping at Lowe's, the home improvement store, a forklift driver was slowly driving the aisles really carefully. And besides just the forklift driver sitting on the seat, there was a second man, a flagger, that was out in front of him, walking, holding two little flags. So the shopping customers knew that a forklift. This coming. Like, that's such a wild hazard to human safety.

Keith Weinhold (00:38:37) - I mean, gosh, the gross inefficiency of that just to improve safety ever so slightly. Construction workers that have to wear hard hats outdoors in an open field. I mean, our society has become Uber safe. Now, don't get me wrong, some measure of safety is definitely a good thing, but I'm underscoring the fact that historically, this world that you're living in is ultra safe and ultra certain. And then within our investing world, take a look around what can be said to be certain and uncertain. Apple. They're the world's largest company by market cap at about $3 trillion. And their risk is that eventually they might fail to keep innovating. How about Bitcoin? Bitcoin could have government crackdowns or some other lack of certainties, their money in the bank and owning Treasury bonds. All right. That's fairly safe and certain. But you aren't getting any real yield there. And in a world that feels more uncertain and unsafe than it really is, bring it back to the positive attributes of being a real estate investor here.

Keith Weinhold (00:39:46) - You know, monetary inflation is a near certainty, and so is the fact that people will pay you rent if you put a roof over their heads. Certainty. It helps to be mindful that safety is the opposite of freedom, and that having security is the opposite of having opportunity. Hey, well, speaking of opportunity, join our investment coach Norris for Grizz Live event that is to night. You can join from the comfort of your own home. You get to select from one of the two options for Florida Income property. You can select either a 5.75% mortgage rate or the 224 program, which means two years of free property management. 2% of the purchase price. In closing cost credit to you and a generous $4,000 lease up fee credit. Sign up. It's free. It's our live event tonight, the 27th at 8:30 p.m. eastern, 530 Pacific. If you're a few days late, be sure to watch the replay soon. register@webinars.com to have a chance at putting some new Build Florida Income property in your portfolio.

Keith Weinhold (00:41:00) - Until next week, I'm your host, Keith Winfield. Don't quit your day dream.

Speaker 5 (00:41:08) - Nothing on this show should be considered specific, personal or professional advice. Please consult an appropriate tax, legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own. Information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of get Rich education LLC exclusively.

Keith Weinhold (00:41:36) - The preceding program was brought to you by your home for wealth building. Get rich education.

Direct download: GREepisode477_.mp3
Category:general -- posted at: 4:00am EDT

Mon, 20 November 2023

Join our free Florida income properties webinar on Monday, November 27th for 5.75% mortgage rates at: GREwebinars.com

Home prices are up 4.5% annually through Q3. It’s the fastest growth rate in months.

Three out of ten renters are now age 55+, the most ever. Older renters are good for you: lower turnover, more quiet, more savings & income, and lower regulation compared to assisted living.

Overall US population growth is slowing, from 1.2% a generation ago to 0.5% today. It’s expected to grow until 2080.

I discuss the DOJ crackdown on the NAR and real estate commissions. 1.6 million real estate agents could lose their jobs.

Apartment building rate caps have become super-expensive.

One of our real estate Investment Coaches, Naresh, joins us from Florida.

Naresh tells us how to get 5.75% mortgage rates on new-build Florida income property at GREwebinars.com

Resources mentioned:

Show Notes:

GetRichEducation.com/476

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475: Why Settle for 5%? How to Obtain 10-12% High Yield Returns.

Timestamps:

The housing market stats (00:02:52)

Discussion about the current state of the housing market, including the 45% increase in home prices and the reasons for continued home price support.

Home price appreciation forecasts (00:05:28)

Talks about the predictions for future home price appreciation, with both CoreLogic and NAR expecting a 26% rise in home prices next year.

The impact of older renters (00:10:08)

Explains why older renters are desirable for property owners and landlords, highlighting their lower turnover rate and stability.

The Aging Population and Older Renters (00:11:15)

Discusses the benefits of older renters, such as lower mobility, more savings and income, and low regulation.

US Population Projection and Immigration (00:12:30)

Examines the projected population decline in the US by 2100 and the importance of immigration for continued growth.

Housing Demand and Household Size (00:17:12)

Explores the trend of fewer people living in each household and its impact on housing demand.

The timestamp's title (00:22:05)

Rising Costs of Rate Caps for Apartment Buildings

Discussion on how the cost of rate caps for larger apartment buildings has become prohibitively expensive.

The timestamp's title (00:25:23)

Real Estate Market Trends and Slowdown

Insights on the current state of the real estate market, including a slowdown in November and leveling off of home values and rents.

The timestamp's title (00:28:28)

Opportunity in Real Estate Market in 2024

Predictions for the real estate market in 2024, including a potential bottoming out of the market and a decrease in mortgage rates.

The decline in home values and the health of the economy (00:32:58)

Discussion on the decline in home values and the health of the economy, with reference to the 2008 financial crisis and current housing supply.

Short-term rentals and the potential for a decline (00:34:14)

Exploration of the decline in short-term rentals due to a decrease in travel and corporate expenses.

The impact of mortgage interest rates on home prices (00:35:19)

Analysis of the relationship between mortgage interest rates, economic slowdowns, and home prices, with a focus on potential rate cuts and their effects on the housing market.

The Florida In-Migration Stat (00:43:53)

Florida's astounding population growth and becoming the second most valuable property market in the US.

The Rate Buy Down Courtesy of the Builders (00:44:23)

Explaining the options of a 5.75% rate or the 2-2-4 program for property buyers in Florida.

Disclaimer and Closing (00:46:02)

A disclaimer about the show and a mention of the sponsor, Get Rich Education.

Complete Episode Transcript:

Speaker 1 (00:00:01) - Welcome to I'm your host Keith Weinhold told how price appreciation is up 4.5%, but there are signs that it is slowing down. Finally, learn more about our upcoming live event that you can join from the comfort of your own home 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 hours 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 to 66866. And when you start the free newsletter, you'll also get my one hour fast real estate course completely free. It's called the Don't Quit Your Day dream letter and it wires your mind for wealth.

Speaker 1 (00:01:17) - Make sure you read it text to 66866. Text 266866.

Speaker 2 (00:01:29) - You're listening to the show that has created more financial freedom than nearly any show in the world. This is get rich education.

Speaker 1 (00:01:45) - We're going to go from Roxbury, Connecticut to Roxbury, Wisconsin, and across 188 nations worldwide. This is get rich education. I'm Keith Weinhold, GRE founder host of this very show since 2014, longtime real estate investor and Forbes Real Estate Council member. In fact, check out my latest article in Forbes for my work in research on the housing market. What we do here is by investment property with the bank's money, pay the debt with the tenants money, and then well, that's about it. In a sense. We enjoy life mostly. There will be some bumps along the way. The devil is in the details. Yeah, all those sus vibes that you got from the housing price apocalypse, doomsday, YouTubers. All of those vibes you had are validated by now. Just in time for a sweater weather. Respected research firm CoreLogic released their report with end of quarter housing stats nationwide.

Speaker 1 (00:02:52) - Home prices still haven't fallen. There was a healthy 4.5% in September of this year compared to September of last year. Yes, these real estate numbers always run behind a little bit. Well, that 4.5% increase that even includes distressed sales. And that is the fastest growth rate in quite a few months. And again, this is primarily due to a robust job market spiked inflation and housing inventory lows that just keep scraping along the sea bottom floor. So these fundamental reasons for continued home price support, I mean, it's the same stuff I've emphasized for over two years, even as I stated prominently back on television in November of 2021. And although that was avant garde at the time, it's really not in my personality to get smug until the incessant rumors today I told you so or anything like that. Well, the highest price gains this past year. They were concentrated in places that had, I suppose, the best autumn foliage this year, that is, most northeastern states. They are the big gainers now. There were some price declines in a few places.

Speaker 1 (00:04:08) - They were felt in just four western states and D.C. the four western states were Utah, Idaho, Montana and Wyoming. Now, see, in the pandemic, those states prices, they stretched broader than basketball star Victor Wembanyama. And today they are mildly correcting. But back to the base case here. The 46 of 50 states which experienced appreciation oven mitts are needed to handle the three hottest states led by Maine 10%, Connecticut also at 10%, and new Jersey, with a 9% gain. And when you break that down in the metro area, it was Miami that led with soaring 8.5% appreciation. And it's interesting are core investment areas of the Midwest in southeast, which I call the stable markets. They lived up to that moniker again, they appreciated moderately during the pandemic and still appreciating moderately today. And as we approach winter, expect home price depreciation to have its seasonal slowdown. That's what tends to happen each year. In fact, there's a slowdown in sales of volume two. There are just so few homes on the market, but it has gotten really slow lately.

Speaker 1 (00:05:28) - Now, I do like CoreLogic, the supplier of this information. They contribute their single family rent index to our industry. And that's so valuable because most rent data that you find out there is about apartments. CoreLogic predicts further home price appreciation over the next year of 2.6%. And similarly, the Nar. They expect home prices to rise 2.6% next year. Now, next month, you will hear me. Release gives home price appreciation forecasts right here on the show, and you're also going to learn how accurate my forecast was for this year that I made last year. Now, just last month, I made an in-person field trip to Cash Flow Country, the Midwestern United States. You've got some income property providers there that are still steadily sourcing properties to investors like you. But, you know, there are a few now where they're not even doing that lately because some providers are having trouble making the numbers work for you, the investor. Like, for example, on a single family rental that was built in the 1960s.

Speaker 1 (00:06:40) - Right. A somewhat older property. Where it is commanding, say 1650 rent. And this is a real example of rehab property that I visited in the Midwest, 1650 REM. Well, these property providers can get, say, $230,000 for that property if they sell it to an owner occupant instead of an investor like you. Well, with higher interest rates on an older property, you know, 1650 rent on a 230 K purchase price. And it doesn't work so great for you as an investor, although it might on a newbuild property. So that's why a provider like that is selling to owner occupants instead of investors like you, an owner occupant, they'll pay 230 K because they don't have to make it cash flow. It's their home. So instead of selling it to an investor like you were, say 190 K is the most that it would make sense for you to pay. Well, then sure, that provider is going to get 230 K from an owner occupant, so it makes more sense for that provider to sell it to the owner occupant as well.

Speaker 1 (00:07:44) - Now, one income property company that has in-house management and all that. I mean, this is a company that then is set up to serve investors. What they've done though is currently they're selling about 80% to retail homeowners, owner occupants in just 20% to turnkey real estate investors. For just that reason, owner occupants can pay more for it because of what's going on in the cycle. So in that particular Midwestern market, either mortgage interest rates must come down or rents must rise in order for it to make sense to you as an investor again. Now, later in the show today, you'll soon see that we've effectively found a way to make interest rates go back in time a couple of years when they were low, and how you can apply them to new Build income property. Today you'll learn exactly what that rate is, and this is fairly exciting. But yes, everyone wants to know where are mortgage rates going to go. And no one I mean absolutely no one knows where rates will go. Not your mortgage loan officer, not Janet Yellen, not your property provider.

Speaker 1 (00:08:55) - They don't know where mortgage rates are going to go, not the president of the United States, not Charlie Ridge, not a real estate agent, not Ron DeSantis and not me. No one knows where rates are going, of course. But we did learn something just about ten days ago. Fed Chair Jerome Powell said he's not confident. Those were his words in quotes, not confident that policymakers have done enough to curb inflation. Well, that right there. That is what is known as a hawkish comment in fed vernacular. If they haven't done enough to curb inflation, then that is what has renewed fears of more interest rate increases. Now your investment properties next tenant might be a grandparent with a flip phone. Roughly three out of ten renter households are now headed by people age 55 plus. After bottoming out in 2004, older renters have become a major share of the tenant population today, and I share this with you recently. If you're a reader of Art, Don't Quit Your Day Dream letter. And by the way, welcome to all of our new letter readers.

Speaker 1 (00:10:08) - We recently had a few thousand new Don't Quit Your Adrian Letter subscribers, our weekly email newsletter. Welcome here to the podcast. Now as I'll explain why in a moment you should like and embrace older renters. Now, first things first. Understand that as a property owner or landlord, you cannot age discriminate in your advertising or in your tenant screening. But all right, once you're done poking fun at their jitterbug or their track phone, understand that older renters, they are desirable. And by the way, our jitter, bugs and track phones still made us think that at least one of those two phone models is still made. At least one of them is a flip phone. Not completely sure, but anyway, yes, now that we know that there are more older renters here, about 3 in 10 American renters now age 55 plus, okay, older renters, hey, they really are desirable for a bunch of reasons. You're going to have lower turnover. Okay? Older people tend to stay put. There's a low transient rate.

Speaker 1 (00:11:15) - They have a low mobility rate. That's another way to say it. Also all the renters, they tend to be more quiet. They're less likely to throw three keg ragers no beer pong, no headbutt dents in the drywall. And when it comes to savings and income, they have more of it and expect low regulation. Unlike something like assisted living, there is no special government permitting or any specialized staff that's needed. So. There are some big reasons why this growing group of older renters that is good for you as an income property owner. So to review what you've learned, that's due to lower mobility. They're more quiet, they have more savings in income and there's low regulation. And I'm going to say that personally, I've come to appreciate my older friends more as time goes on. And I recently realized that I have some of my best conversations with them. But they won't talk me into the jitterbug. They can't talk me into giving up my life without Instagram on an iPhone. Many older adults, they don't want the hassle of homeownership and others they are just feeling the weight of dreadful homebuyer affordability, just like everyone else.

Speaker 1 (00:12:30) - And one major reason for why there are more older renters. If you're trying to find a reason why it's not due to some seismic behavioral shift, it's just the simple fact that the American population keeps getting older overall. Overall, we have an aging population. And by the way, is 55 that old? I mean, the 55 plus age group, that can mean a lot of things. And 85 year old and 55 year old lived very different lives with different activity levels, of course. But is 55 that old? I don't know, I know that you only need to be age 50 to be an AARP member. I guess 55 sounds old, because you can say that you're pretty likely to be in the second half of your life, but maybe if you divide life up into thirds, you could say then that 55 is in the middle third, and then therefore 55 could be seen as middle aged and not old, I suppose. And for some reason, it's systemic in American culture that people don't seem to want to be called old for whatever reason.

Speaker 1 (00:13:35) - It has a mildly pejorative connotation, but it is a group of people with their own separate habits, and these people are more likely to be using trekking poles when they go hiking, I guess. And I don't agree that age is just a number. I mean, come on, age means something in 85 year old men. They are not going to qualify to play in the NBA All-Star game. They're not going to be the most agile defensive back on an NFL field. So that takeaway here is that more renters are older. Embrace it. It's good if you're a listener but still don't have our valuable don't quit your day dream letter, which wires your mind for wealth, and it updates you on real estate trends. You can get it for free right now. Just text message group to 66866. That's green to 66866. We've been talking about the aging population here on get Rich education episode 476. All right. But how about the overall US population trend. This is something that you might have seen elsewhere since it transcends real estate.

Speaker 1 (00:14:46) - But I'll give you my real estate take on it too. All right. So the latest Census Bureau figures, they show that the US population is projected to contract to shrink by the year 2100, which would be only the second decline in the nation's history. And the other decline occurred in the 1918 Spanish flu and World War one. For those reasons, annual population growth rates, they have dropped from about 1.2% a generation ago to just one half of 1% today, and the culprits are declining birth rates and that aforementioned aging population. All right. The US has the world's third biggest population, and it could be demoted to fourth or fifth by Pakistan or Nigeria as soon as the middle of this century. So this anticipated population contraction, that means that immigration could become vital for any hopes of continued growth. And yet understand the US is still growing faster than a lot of other high income nations like Japan and Italy, that are already losing population. All right, so the US population is projected to shrink by 2100.

Speaker 1 (00:16:02) - The more important thing for you to remember as a real estate investor that's going to need a population to drive demand, is that our population is still expected to grow every year until about the year 2080 by most every model out there. So still 50 to 60 years of population growth. And then it isn't until later 2100 that is expected to decline. And of course, birth rates and immigration rates are bigger unknowns than the death rate out there in the future. Just estimating how soon our population is going to peak, but it's going to be a. While many decades. And then, of course, even in 50, 60 years, if the overall American population stops growing. All right, well, it'll probably still grow in some regions. And, you know, I wonder if Florida will still be growing late this century. It seems like it never stops there with population growth. And also it's not just about overall population growth when it comes to housing demand. It's how people choose to live within a certain population growth rate.

Speaker 1 (00:17:12) - Okay, with a population of 100, if there are two people per household, well, they can be housed with 50 homes, but if there is just one person per household, well then it's going to take 100 homes to house those same 100 people, no longer 50 homes. All right. And one trend that's made for surging American housing demand is that you have fewer people living in each household. That's how people choose to live today. So keep that in mind. You see a small half of 1% annual growth rate in more recent years, but there are a lot of numbers behind the numbers. Now, you might wonder what I think about the federal jury that recently found the National Association of Realtors and large brokerages, and how they conspire to keep commissions artificially high. What's that really mean? Well, what it means is more flexibility for buyers. I mean, under the current system, sellers pay their own agents commission of roughly 5 to 6%, and then that 5 to 6% that's shared with the buyer's agent.

Speaker 1 (00:18:18) - Well, if sellers now get billion from paying buyer's agents, well, then buyers would have to start to pay their own agent if they choose to use one. And a buyer could do that at either a flat rate or an hourly rate. But first time homebuyers, they could really feel the crunch, or that could become a bigger issue for those wannabe first time homebuyers that are having a hard time amassing the savings to pay for an agent on top of their down payment and their closing costs. Just another whammy for those wannabe first time homebuyers. They keep getting beaten down, and that's what could put some upward pressure on rents. But I don't think it would really be much as a result of that alone. And another consequence of this is that there would be less commission paid by sellers. I mean, the way it works is that in order to advertise a listing on the database, the MLS, the Multiple Listing Service, are that MLS that populates real estate websites like Zillow and Redfin? Well, in order for that to happen, sellers in most markets they have to agree to pay the buyer's agent's commission as well as their own sellers agents commission.

Speaker 1 (00:19:31) - Well, that's the practice that could be scrapped and that could spell trouble for real estate agents. A lot of people have estimated that $30 billion could potentially leave the industry, and some estimate that 1.6 million agents could lose their jobs. See, the way that the system had worked in the past is that one reason that the seller pays the entire 5 to 6% commission for both sides is because it's usually easy for them to do that, since sellers are the ones that have the equity in their property and the buyers often don't. So this could make homeownership even more difficult to qualify for. I mean, if first time homebuyers already had to jump over a four foot hurdle, now it's perhaps a five foot hurdle if this all happens. But there are still legal battles ongoing there in the real estate agent commissions case. Now, as I've talked about before, with this American housing shortage, it's the affordable housing segment that has high demand and is so drastically undersupplied. Now just get this understand that from 2019 until today, the price of a new car rose 22%, the price of a median home rose 42%.

Speaker 1 (00:20:54) - And the mobile home price, which is about the most affordable option for housing that rose by a giant 58%. I mean, wow, that is a testament to the major housing shortage at the affordable price points. That really, really spells it out. And if you're confident that the long term play is to provide good, affordable housing like we are here at, you know, there are more reasons to look at loading up on properties like duplexes and triplexes. And for plex's where you can get fixed rates now. And if you wanted to, you could refinance to long term fixed rates later. Now to buy a rate cap for a larger apartment building. That has just balloon in expense for you? Yes, a rate cap buying the what's basically like insurance you buy that puts a ceiling on how high your interest rate can go on larger apartment buildings. You don't have to do that with 1 to 4 unit property. You can just get fixed rate certainty. Now, a couple years ago, rate caps for large apartment buildings, they were pretty affordable.

Speaker 1 (00:22:05) - They were inexpensive. It took 40 K, 50 or 100 K to ensure that your rate wouldn't adjust too high. And then once it did, of course the rate cap insurance would kick in. But that same rate cap this year could be nearly $1 million. Yeah. See, a couple years ago, the $10 million loan, you could have bought a 2% rate cap for 60 to 75 K in three years coverage. Well, if you'd want to extend that this year, just a one year renewal, you could probably spend 350 K. Well, that has become prohibitively expensive for a lot of larger apartment buildings. And coming up, one of our in-house investment coaches in the race is going to be joining us from Florida, where they're building new construction duplexes and for plex's affordably. And they're selling them to investors like us at just a 5.75% interest rate. That's straight ahead. I'm Keith Winfield, you're listening to get Rich education. Jerry, listeners can't stop talking about their service from Ridge Lending Group and MLS.

Speaker 1 (00:23:18) - 42056. They've provided our tribe with more loans than anyone. They're truly a top lender for beginners and veterans. It's where I go to get my own loans for single family rental property up to four plex. So start your prequalification and you can chat with President Charlie Ridge. Personally, though, even deliver your custom plan for growing your real estate portfolio. Start at Ridge Lending Group. You know, I'll just tell you, for the most passive part of my real estate investing, personally, I put my own dollars with Freedom Family Investments because their funds pay me a stream of regular cash flow in returns are better than a bank savings account up to 12%. Their minimums are as low as 25 K. You don't even need to be accredited for some of them. It's all backed by real estate. And I kind of love how the tax benefit of doing this can offset capital gains in your W-2 jobs income. They've always given me exactly their stated return paid on time. So it's steady income, no surprises while I'm sleeping or just doing the things I love.

Speaker 1 (00:24:29) - For a little insider tip, I've invested in their power fund to get going on that text family to 66866. Oh, and this isn't a solicitation. If you want to invest where I do, just go ahead and text family to six, 686, six. This is Rich dad advisor Tom Wheelwright. Listen to get Rich education with Keith Reinhold and don't quit your daydream. It's always valuable for you, the listener and me as well. To have a market discussion with one of our in-house investment coaches were doing that today. Naresh, welcome back onto the show.

Speaker 3 (00:25:23) - Is Keith looking forward to talking?

Speaker 1 (00:25:26) - Let us know what's happening from your view. I mean, give us your perspective on the real estate market today and any drivers or trends.

Speaker 3 (00:25:35) - Look, Keith, I've been working as a real estate investment coach for about four and a half years now. I've been a real estate investor for about six and a half years. I've been working with for two years now, and it's great because it's almost like I'm a leading indicator on what's going on with inflation, what's going on with the housing market, because I see it in front of my eyes in real time.

Speaker 3 (00:26:02) - I have it on my spreadsheets that are in front of me. Of all the different properties that were sold or inquiries that we get from clients right now, I am actually seeing a slowdown this month of November compared to the first ten days or the first 20 days of the previous month. There's definitely somewhat of a slowdown. We're getting more complaints or nagging from clients saying, oh, I'm not able to rent out my property for as much as I thought I'd be able to, or my property's been vacant for longer than usual. What this is telling me key is, at least in my state, look, home values vary based on geography. We know that home values are like the weather. The weather is not the same everywhere. For the most part, I think you're going to see that national home values peaked a month or two ago. Rents certainly peaked about two months ago. What I mean by that is we saw rents go up precipitous just going up, up, up since January 2021 nonstop. And they finally peaked.

Speaker 3 (00:27:17) - And when I say peak home values, peak rents don't mean that they've crashed. I don't mean that they've gone down. They've just peaked and leveled off. So I haven't seen a decline in rents. I haven't seen a decline in home values from two months ago. I'm just saying they've leveled off. And so I actually expect this inflation or I expect inflation CPI moving forward to go back down. I know that we did see a blip up for a few months, but I think we're going to start seeing things go back down as the fed old rate study appears. They're done raising for good, and they're just going to ride it out with how it is currently. And then once unemployment crosses, probably 4.5%, if at all, that does cross 4.5%, that's when they're going to start cutting. If unemployment crosses 4%, then they're probably just going to wait it out until inflation hits that 2% target. And so what does this all mean for real estate. What does this mean for interest rates. Low interest rates I've talked about peaks.

Speaker 3 (00:28:28) - We saw peak mortgage rates. Also it looks like mortgage rates peaked. And they've slowly crept back down not significantly to a point where as an investor you're like, oh let me jump in. No. But think we saw mortgage rates as well. So again, what does this all mean. This means 2024. We're almost a month away from 2024. I think it's going to be a great opportunity to jump in, because you'll be able to catch the real estate market that's going to hit some type of bottom in 2024. You're going to see mortgage rates go back down in 2024. That also means today because remember, Keith, I've come on your show before talking about incentives that providers who we work with, partners who we know personally and who we've worked with for many, many years, we've been offering incentives that make up for this high inflation, that make up for the higher interest rates. And those incentives are very likely going to be gone in 2024 as mortgage rates go back down, as the home values maybe decline slightly.

Speaker 1 (00:29:39) - We want to talk about some of those incentives later, about how providers are buying down the interest rate for you on rental property, but rates, I think perhaps the most interesting thing you said, the thing that I didn't expect is that you're talking to some investors out there where they're telling you about how they have more or longer vacancies than they had expected. I didn't think that I would hear that from you. Is that a pretty small sample size, or is that passed by apartments versus single family homes or entry level versus luxury or anything else?

Speaker 3 (00:30:13) - I'm talking about single homes, so can't speak for apartments. I'm talking about cookie cutter, entry level, single family homes. This is in multiple different markets. So not just in one city. This is in multiple cities states. We're seeing vacancies. We're seeing, like I said, the rent growth rate that was previously being used six months ago, eight months ago, the property managers have had to use a lower rate because there's been a decline. So it's not surprising.

Speaker 3 (00:30:44) - There's just no way that the country would would have been able to survive with rents going up the way they were going up with home values going up the way that we're going up. So there was bound to be a stoppage. And so we've seen that stoppage in home values, we've seen that stoppage in rents. And when I say stoppage again, not a decline in rents, not a significant decline in home values. But they leveled off from their peaks. And that's just how the business cycle works. Every 30 years or so when we see super high inflation, it's not surprising that I'm seeing this. But this is what's going on in the market right now, from Florida to Tennessee and Alabama to Ohio, in Missouri, Kansas City.

Speaker 1 (00:31:31) - For about five months in a row now, we have seen wages be higher than inflation. But of course that's just stated CPI inflation. And then there is quite a lag effect there too. If wages do exceed inflation, when will that eventually catch up to higher rents? We don't really know.

Speaker 1 (00:31:50) - But one thing we do know over the long term is rents are historically very, very stable, even more stable than home prices. It was so unusual when rents were up about 15% year over year, a year or two ago. You don't typically see that rents tend to stay stable, and they sure are stabilizing lately. What do you have any other thoughts as you look around the market and race? Because you often talk to our followers in there, they get a hold of you for you to help lead them through contracts and connect them with the right properties and providers that can meet their goals. So what are our followers asking about?

Speaker 3 (00:32:27) - Our followers right now are fearful, which is very common. Fear always rules people's minds and they're fearful of a crash. And look, there are certain real estate asset classes, commercial real estate, which you've talked about for a while, is going through a decline right now and could be going through a major crash as many of these commercial real estate owners default on their mortgages or their loans, their commercial loans, there is a concern that there could be a crash in the housing market.

Speaker 3 (00:32:58) - Meredith Whitney, who really famous real estate banker, I believe the only woman to call the 2008 financial crisis. She called it back in seven. Meredith Whitney came out a couple of weeks ago and said, there's going to be a decline in home values, and I'm here to tell you that there has been a classic line on values. And will that continue? It could continue where there's a, again, a slight decline. So don't see a crash coming. The reason is because I feel like the economy, the banks are much healthier today than they were. And let's say at 2007, the people who have been laid off, we're going to see unemployment continue to go up. It's not the 10% plus that we saw during the pandemic or the really we reached close to that 2008, 2009 or so. I just don't see something systemic to where there's going to be a housing market crash. And it's all about supply. Housing supply is still very low. So until the supply catches up to the demand, think the real estate market is going to stay healthy.

Speaker 3 (00:34:14) - And if you're looking to buy an old over a 30 year period, if you're looking to buy and rent for cashflow, it's still a great time. Right now, there's just certain asset classes. Like I said, commercial real estate. Maybe wait for the crash. They're short term rentals. The worst time to get into short term rentals would have been a year or one and a half years ago, 18 to 20 months ago. That space has declined because there has been a decline in travel, leisure, airfare, corporate expenses, the corporate trips. There has been a decline. So we don't promote those often. They're available. What? We don't promote them often, but that's another asset class that could be ripe for, I want to say, a crash, but a big decline when it comes to cookie cutter, entry level Single-Family homes. I just don't see this huge crash that people have been waiting for over the last 15 years.

Speaker 1 (00:35:13) - Right. As you know, I've talked extensively about how it's virtually impossible for that to happen.

Speaker 1 (00:35:19) - And yes, everyone wants to know what's coming. It surely has been a consensus among analysts and others that mortgage interest rates have peaked and or the fed funds rate is done increasing in this cycle. Many seem to think that next year, if rates come down, that that is really going to push home prices through the roof. I don't know if that's necessarily true, because typically a cutting of rates coincides with an economic slowdown or a recession. So I think a cutting of rates next year that could result in a moderate price increase. But of course, we have to remember that some of that supply is going to come once rates go down, you will have a few more people motivated to sell. You also have a lot more people motivated to buy and that can qualify as well. But the rates think a lot of people really in this cycle lately, when they've seen higher mortgage interest rates maybe than some people have seen in their entire investment life, you know, they feel like they kind of want to get some sort of break, but they sort of want to wait and see what happens with the market.

Speaker 1 (00:36:20) - But we actually have something to talk about here where they can get a break. They don't have to wait and see with what's going on in the market. And that's with what is taking place in Florida.

Speaker 3 (00:36:33) - That's exactly what's taking place in Florida. We work with a provider who is going to be on with us. We're hosting a webinar with them about a special 5.75% interest rate. The lowest interest rate that we see across the board with any provider we work with from Alabama to Texas, etcetera. So they're coming on our webinar. They're going to promote and discuss that 5.75% program that they have, as well as a 2 to 4 program. That's two years of free property management, 2% closing cost credit into $4,000 release fee. You might say, well, why do I need a $4,000 release a credit? Because their best properties or highest cash flowing properties. Highest returning properties are quads and duplexes. So these are huge breaks that will reduce the amount of money you need to bring to close and look. If you're a high net worth or if you're a high income earner sucking it up and paying the 9% interest rate today.

Speaker 3 (00:37:37) - If that's what you decide to opt for with the 224 program, 9% interest rate, or 8% interest rate today, it'll save you on your taxes, the mortgage interest tax deductible, and in 5 or 6 years, you can just refinance, most likely at an ultra low rate, maybe even sooner than that. So still, there are some really good deals. If you work through us, then we can help you find some really, really good programs and incentives so that it's like going back to 2020 or 2021, when interest rates were super low, or when there was less cash that you had for bringing to the same level. So we have that definitely recommend that people check out this webinar. It's great webinars. Com you can register for it over there. webinars.com. I'm going to be on it's Monday November 27th. That's Monday, November 27th at 8:30 p.m. Eastern Time. So people on the West Coast can finish up work, attend the event. People on the East Coast can finish up dinner, put their kids to sleep and attend the event.

Speaker 3 (00:38:43) - So I look forward to seeing everybody there. It's a special, special webinar, special deals, special promotions only through the average education.

Speaker 1 (00:38:54) - So the 5.75% rate, if I remember from previously narration, it's a ten year fixed rate and a 30 year amortization at those terms. And then is one choosing between the 5.75 rate and the 224 plan that you described. Is it one or the other? Can you get.

Speaker 3 (00:39:12) - One or the other? It's one or the other. Because to get that 5.75% rate, yeah, the builder is paying the lender a lot of money. And to lower those points, they're buying points to to get you the investor that rate. So it's one or the other. And by the way, that 224 program the purchase price is negotiable. So that's also why I like that 2 to 4 program. Because you can go back and forth and I can help you out negotiate the price, maybe shape 10 to 15 maybe $20,000 if it's a high ticket item off the purchase price. So makes the numbers look even better.

Speaker 3 (00:39:54) - That's my favorite program, the 5.75% program. That might be right for some other people, so that's fair to.

Speaker 1 (00:40:02) - Else about the property prices and types.

Speaker 3 (00:40:06) - So this provider we work with has single families, duplexes, four plex quads all available. The price points are anywhere from $250,000 to $800,000. Everything is new construction. That's also in flux, as in the single family is just cash flowing much. So I would say go for a duplex or a quad. Duplexes are around $400,000, give or take 20,000 over under, and quads are somewhere between 650 to $800,000.

Speaker 1 (00:40:45) - Okay, so these are brand new build properties in Florida. So yeah we're talking about entry level rental homes here. The asset type that seems to have the greatest dearth of supply in housing, entry level single family homes. You just have such a good chance to own an in-demand asset that everyone is going to want over time here. Do you have any last thoughts about this webinar trace, which you're going to help put on for people? That way the participants can ask you questions.

Speaker 1 (00:41:16) - They can ask the provider questions, any question they want to, things about the physical property, things about just how they bought down your rate to 5.75% for you, or how they can do the 224 program for you. Those are some of the benefits of attending. You can have your question answered in real time there with narration. Do you have any last thoughts about this event that's taking place on Monday? The 27?

Speaker 3 (00:41:39) - Well, you definitely want to register at Jerry webinars. Jerry webinars. We already have more than 50 people registered and now this episode is out. I'm sure we're going to get another 100 or so. Like you said, people can come on and ask some questions, actually talk to us, interact with us. Last time they wanted to these webinars, it went like 2.5 hours. People were having such a great time. We went into the wee hours of the night just talking to all sorts of folks, answering questions. It's super interactive, really educational. The best part is completely free and you get goodies and perks and incentives back in return for ten.

Speaker 1 (00:42:17) - Now, look, I know that some of these incentives have got to sound terrific to you, the listener and viewer here. I just want to pull back and take a look at things. More fundamentally. This is truly investing. This is not speculating. You own a piece of Florida land in a house constructed of commodities. On top of that land, from wood to steel to concrete. You already know about Florida's In-migration. We've talked about that at nauseam on the show here, and it's not speculative because you're purchasing something for rent production, not a speculative endeavor. Over the long term, people will pay you in order to live in a property that you provide to them. I mean, this is the sort of thing where you could even if say, you have a spouse or a mother that has nothing to do with real estate knowledge, they don't know anything about it. You can explain this to your spouse or your mother and they would understand. So it's easy to understand where your income comes from.

Speaker 1 (00:43:12) - It's really fundamental. I don't know how long the 5.75% rates are going to last, because this same provider had a lower rate a few months ago. I told you then I didn't know how long it was going to last and it didn't last. Now it's 5.75%, which is still a great rate. I really encourage you. Sign up. It's free. It's our live event next Monday night, the 27th at 8:30 p.m. eastern, 530 Pacific. Again, you can register@webinars.com. What a great update in race. Thanks so much for coming back into the show.

Speaker 3 (00:43:46) - Thanks, skeet.

Speaker 1 (00:43:53) - If you're unsure about making it on the live event on the 27th, but it interests you, sign up and we might be able to get you access to the replay, but you want to watch it soon because the properties available are limited. And again, I don't know how long the 5.75% rate will last. You think you've heard every amazing Florida In-migration stat by now? Well perhaps not. In the latest year over year, Florida saw 740,000 people moved there.

Speaker 1 (00:44:23) - Yeah, basically three quarters of a million in just one year. That is truly astounding. That's clearly the most of any state in the country. And with all the growth, Florida's property market became recently the second most valuable in the US last year that bumped New York down to third place. That's according to Zillow. So this population growth is leading to a prosperity increase in the value of Florida property. So I think a lot of people get focused on these things, like wondering if the fed will raise rates another quarter point at their next meeting, and if that's going to show up in mortgage rates. And they wonder about the mortgage market in the future, and it feels like something that you cannot control. But now you can with this rate, buy down courtesy of the builders. So joining us on the webinar to learn all about it. Again, it's all new build and we make that really clear and spell it out for you. In next week's live event, you get to select from one of the two options.

Speaker 1 (00:45:29) - To make it clear here, either a 5.75% rate or the 224 program, which means two years of free property management, 2% of the purchase price and closing cost credit, and a $4,000 lease up fee credit. Sign up. It's free. It's our live event next Monday night, the 27th at 8:30 p.m. eastern at 530 Pacific. Register at GRC webinars dot com. Until next week. I'm your host, Keith Weinhold. Don't quit your day. Great.

Speaker 4 (00:46:02) - Nothing on this show should be considered specific, personal or professional advice. Please consult an appropriate tax, legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own. Information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of get Rich education LLC exclusively.

Speaker 1 (00:46:30) - The preceding program was brought to you by your home for wealth building. Get rich education.

Direct download: GREepisode476_.mp3
Category:general -- posted at: 4:00am EDT

Mon, 13 November 2023

I don’t keep much money in a savings account, money market account, or treasury bonds. They only pay 5% interest.

Instead, I get 10-12% cash returns and semi-liquidity by private lending on real estate and operations with Freedom Family Investments.

My guest, the company CEO, Dani Lynn Robison and I discuss how it works. They’re a family of 7 real estate-centric companies.

They pay me 10-12% on a loan that I make to them that funds their real estate and business operations. You can too. It’s called their Master Note.

Text FAMILY to 66866.

These private lending programs have just a $25K minimum, accredited and non-accredited, returns up to 12%.

Rather than getting in on the equity side here, which is usual, you’re getting in on the debt side. This way, you’re more liquid than when you buy property yourself.

We discuss 3 vital investor questions: Who do you trust? Where do you begin? What’s the best path for you?

Dani Lynn & I discuss a good investor outcome. We also discuss how when things went wrong, the investor/lender still got completely repaid.

I can personally tell you that they’ve always paid me on-time and in full.

Some people don’t like to share where they personally invest, but this could really help you.

Vocabulary terms explained: financial runway, demand depositor, time depositor, vertical integration.

If a high-yield passive return of 10-12% sounds interesting to you, text FAMILY to 66866.

Resources mentioned:

Show Notes:

GetRichEducation.com/475

For 10-12% returns with Master Notes with

Freedom Family Investments:

Text “FAMILY” to 66866

Dani Lynn Robinon’s book, “Get Real”:

https://www.amazon.com/Get-Real-Understand-Estate-Investing/dp/B0BZF99S5K

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

Will you please leave a review for the show? I’d be grateful. Search “how to leave an Apple Podcasts review”

Top Properties & Providers:

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Get our wealth-building newsletter free—

text ‘GRE’ to 66866

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474: America's Eventual Recession Reckoning with Richard Duncan

Timestamps:

The importance of increasing income (00:01:28)

The speaker emphasizes the importance of increasing income rather than cutting expenses and discusses the concept of a financial runway.

The need for liquidity in real estate investing (00:04:05)

The speaker explains the need for liquidity in real estate investing and recommends having 3 to 5% of the total value of a real estate portfolio in liquid funds.

Investing in residential real estate for strong returns (00:06:44)

The speaker discusses the benefits of lending to the long-term stability of residential real estate and related businesses, highlighting the potential for strong returns.

The acquisition and growth of Freedom Family Investments (00:11:35)

This topic covers the growth of Freedom Family Investments, including the number of units acquired, funds raised, and the value of their portfolio.

The concept of vertical integration in real estate (00:12:38)

This topic explains the concept of vertical integration in the business world, specifically in the context of real estate companies. It discusses how vertically integrated companies have more control over their supply chain.

The Master Note Program by Freedom Family Investments (00:15:45)

This topic introduces the Master Note Program, a lending program offered by Freedom Family Investments. It explains the program's features, including high yield returns, liquidity, and the option to compound interest.

Private Money Lending and Investing in Materials (00:20:57)

Danny explains the process of private money lending and how investors can invest in materials for discounted prices.

Expansion of Opportunities for Passive and Active Investors (00:23:34)

Danny discusses the various opportunities available for passive and active investors, including turnkey real estate, private money lending, and funds.

Minimum Investments and Accredited vs Non-Accredited Investors (00:26:22)

Danny explains the minimum investment amounts and the options for accredited and non-accredited investors, as well as the different investment opportunities available for each category.

The trust question (00:30:14)

Importance of trust in investment, transparency, and how to choose trustworthy partners.

The worst deal (00:32:21)

A story about a bad investment deal, the importance of honoring commitments, and how volume can mitigate risks.

Get Real (00:35:28)

Introduction to the "Get Real" book series, the importance of authenticity and transparency in real estate investing, and the power of sharing failures.

Time Deposit Accounts and Demand Deposit Accounts (00:38:36)

Explanation of the differences between time deposit accounts (like CDs) and demand deposit accounts (like checking and savings accounts).

Vertical Integration in Business Strategy (00:38:36)

Definition and explanation of vertical integration as a business strategy where a company takes ownership of multiple stages of its supply chain.

Financial Runway (00:38:36)

Definition of financial runway as the amount of time one can maintain their lifestyle without the need for a paycheck.

Complete Episode Transcript:

Speaker 1 (00:00:01) - Welcome to. I'm your host, Keith Weinhold. Why settle for growing your money at a 5% interest rate in a savings account, money market account, or treasury bonds? You could earn double that or more. In fact, we're talking about exactly where I invest my more liquid dollars myself, often with a real estate centric backing. Today on get Rich education.

Speaker 2 (00:00:28) - You're listening to the show that has created more financial freedom than nearly any show in the world. This is get rich education.

Speaker 1 (00:00:51) - We're going from Hartford, England, to Hartford, Connecticut, and across 188 nations worldwide. I'm Keith Weinhold, you're listening to episode 475 of the Get Rich Education Podcast, the Voice of real estate investing since 2014. Don't live below your means. Grow your means. It's in your genes. Most people tie up so much life energy in their job, and they're scared to death of losing their job because it provides everything to them, not just their salary, but their health care, their retirement, and even who they are.

Speaker 1 (00:01:28) - And then even their very identity is in their job now. So that might be okay, especially if you truly get a deep existential meaning from your job and you get that sense. In fact, in that case, thank you. You're probably serving society, and I might be a beneficiary of that. But now we isolate the fine part of your job. It is a real mystery to me how so many study, how work works, so few study how money works. And yet money is the main reason that people go to work. In the personal finance world, it's more important to increase your income, then cut your expenses. Spend more time building a cash flow statement. See that's constructive to your standard of living, not a budget which is destructive to your quality of life. Think of residual income in terms of what I'd like to call your financial runway. Your financial runway. Yeah, it is that amount of time you can maintain your lifestyle without the need for a paycheck. So the length of your financial runway is measured in time, and it is critical for you to lengthen this runway if you hope to retire early and it can dramatically reduce your stress.

Speaker 1 (00:02:49) - Level two well, that can create outcomes so that you can say, go on a super long vacation and make your ostentatious display of time wealth as it is now. At some point in your life you probably listen to and had. The real estate pays five ways epiphany. And it is really compelling to then keep the majority of your capital invested there, for sure. But you likely don't want to keep absolutely 100% of your dollars there because you need some liquidity to fund the operations of your daily life. In fact, you can make the case that you need more liquidity than a non real estate investor does. Now, a six month emergency fund is the rule of thumb for laypeople, but on top of that is real estate investor. It's also a good idea to have 3 to 5% of the total value of your real estate portfolio in liquid funds. Now, a lot of people hold liquidity in a bank, and you do that as either a demand depositor or a time deposit. In fact, in banking vernacular, do you know the difference between demand deposits and time deposits? Well, demand deposit accounts, they include things like checking accounts, savings accounts and money market accounts.

Speaker 1 (00:04:05) - And they're called demand deposits because they allow you to withdraw your money from the account whenever you want to. That is different from time deposit accounts, like a CD, which requires you to deposit your money for a specific length of time. So that's the difference between a demand deposit and a time deposit. So time deposits like a CDS certificate of deposit. Therefore they pay you a high your rate of interest in exchange for your reduced liquidity. Now with that understanding, let's take a time out here to remind ourselves of something. When money flees the stock market, which it often does, it usually ends up in bonds as demand for bonds goes up, their interest rates go down. Then, as bond interest rates go down, investors go back to stocks in pursuit of yield and everything reverses. So that is an ebb and flow of funds, which creates a degree of equilibrium. But it also moderates your return. And you're also never going to get in and out at just the right time trying to time those markets.

Speaker 1 (00:05:22) - So when it comes to your dollars that you don't have being actively leveraging real estate, you know you can't hit every note in the symphony yourself with just one investment vehicle. It takes an orchestra full of your prosperity, all your dollars, all playing their notes boldly to help you hear the complexity of the. Position. Well, when you park money at an everyday bank or a treasury bond. Either way, you're now making a loan and oftentimes the exact way that that loan is backed your collateral that's actually unknown to you. Well, instead of that, what we're talking about today is that you can lend to the long term stability of residential real estate and related businesses and still get a strong return. And yes, I'm focused on the resilience of residential, just like we have here at from day one. Now, when it comes to something more precarious, really touchy section like office real estate. We work. They're expected to seek chapter 11 bankruptcy protection after that embattled office space company missed interest payments that it owed to its bondholders.

Speaker 1 (00:06:44) - So instead, you can keep your more liquid and semi liquid dollars working for you as a loan to someone else in residential, and enjoy some of the condensation on that pipe with returns that are about double what you can get on a 5% savings account today. Now, today it is the right time to talk about returns of 10% plus, because just a year or two ago, we were in this inversion where inflation was higher than interest rates. That's atypical. In fact, in June of last year, CPI inflation peaked just over 9%. And you got to ask yourself, how attractive is a 10% return on your liquid dollars? If inflation is 9%, well, that's not attractive to you at all because you real rate of return would only be 1% in that case. But now with inflation down, you can get a higher real return again. Today, interest rates are higher than stated CPI inflation and even the true rate of inflation. If you know where to look for that and you have a sense for what that is today, I'll help you know where to look, because it's exactly where I invest my liquidity today.

Speaker 1 (00:08:02) - See, in order to do this, it's really investing like a billionaire. And you don't need to have some wealthy sounding name like Brandon Meriweather, Rudiger, Bertram Lawrence, Perry Bottom or Carruthers Davenport. You don't need any names like that. You just need the knowledge. No, I guess I won't call you Carruthers if you preferred, but I think you'd sound like a guy that blows rings of smoke into people's faces. And I don't think that's a good look for you. We'll talk to the custodian of my funds here shortly. I make private loans to her company. She and I both serve on the Forbes Real Estate Council. She is a strong visionary, and she's not afraid to discuss problems either. That's something I really like. In fact, I'll be sure that comes up. This could really help you today. That's next. I'm Keith Weinhold in your listening to get Rich education. Diary listeners can't stop talking about their service from Ridge Lending Group and MLS. 42056. They've provided our tribe with more loans than anyone.

Speaker 1 (00:09:10) - They're truly a top lender for beginners and veterans. It's where I go to get my own loans for single family rental property up to four plex. So start your prequalification and you can chat with President Caeli Ridge personally, or even deliver your custom plan for growing your real estate portfolio. Start at Ridge Lending Group. You know, I'll just tell you, for the most passive part of my real estate investing, personally, I put my own dollars with Freedom Family Investments because their funds pay me a stream of regular cash flow in returns are better than a bank savings account up to 12%. Their minimums are as low as 25 K. You don't even need to be accredited for some of them. It's all backed by real estate, and I kind of love how the tax benefit of doing this can offset capital gains in your W-2 jobs income. They've always given me exactly their stated return paid on time. So it's steady income, no surprises while I'm sleeping or just doing the things I love. For a little insider tip, I've invested in their power fund to get going on that text family to 66866.

Speaker 1 (00:10:27) - Oh, and this isn't a solicitation. If you want to invest where I do, just go ahead and text family to six, 686, six.

Speaker 3 (00:10:39) - This is Hal Elrod, author of The Miracle Morning and listen to get Rich education with Keith Weinhold and Don't Quit Your Daydreams.

Speaker 1 (00:10:56) - Okay. I'd like to welcome back onto the show today, the co-founder and CEO of the whole operation Freedom of Family Investments. There's seven real estate centric companies based in Centerville, Ohio. By the way, the other co-founder is her husband, Philip, whom you've heard on the show before. Hey, we are graced with the presence of Dani Lynn Robison.

Speaker 4 (00:11:15) - Hello, Keith. I'm so happy to be here.

Speaker 1 (00:11:18) - So good to see you again. I've got to congratulate you on your success. You've got 62 team members. They're now in your vertically integrated companies. And by the way, that's a term vertically integrated that might throw some listeners off. I'm going to come back and explain just what that term means. They've done over 1500 deals now.

Speaker 1 (00:11:35) - They've acquired 600 plus units since 2020, and they've raised more than $20 million through podcasts and word of mouth. And they now have a portfolio valued at $32 million. Plus, they've been in real estate since 2008. And they'll tell you that they have a perfect track record of always returning investor capital, including to me, I'm one of their investors and paying 100% of the returns as promised, even if they themselves lost money on a deal. We'll talk about what losing money on a deal looks like in a moment. And in fact, you, the listener, you've probably heard me talk about how I personally participate for a high yield return with them myself, with Danny Lin's company backing me near the middle of Gary. Episodes like this right here. You know, I'll just tell you, for the most passive part of my real estate investing personally, I put my own dollars with Freedom Family Investments because their funds pay me a stream of regular cash flow in returns are better than a bank savings account up to 12%.

Speaker 1 (00:12:38) - Well with having. Listen to that. Danny, I want to ask you about your master note program shortly. But first, since this is get rich education, emphasizing the education part here, I think the term vertically integrated, that might throw some people off. It sounds like a mouthful. And. And what is that, Danny Lynn seven syllables. But it is a term that you, the listener, you see that and hear that across the entire business world, vertically integrated. That's a term for a business strategy where a company takes ownership of two or more stages of its supply chain. So, for example, a vertically integrated automaker, they might produce automobile components and vehicles and also sell directly to customers. All right. That's ownership of multiple stages of a supply chain. So to me it comes down to vertically integrated. It means that you now have more control. So Danny tell me about how that vertical integration applies to your seven real estate companies.

Speaker 4 (00:13:41) - You nailed it. As far as the definition and really why we created all of the companies when we first initially created our turnkey real estate company, we hadn't had the intention of bringing everything in-house.

Speaker 4 (00:13:54) - But as we outsource different pieces of the renovation or the property management, we found that the lack of control that we had was hurting us and hurting our investors. And so one by one, we would bring in a company. So first was renovations. Because of all the contractor nightmares that many fix and flippers have experienced themselves. We had them too, and in spades because we were doing volume. So we brought that in-house first so that we can control the subcontractors and the project management and the scopes of work and how we paid our contractors. The next thing we brought in house was property management. And then we had a brokerage so that we could just list our properties on the MLS internally and keep that in house as well, since we had to have a broker anyway. And then acquisitions got brought in-house because the wholesalers were buying all of our deals from went dry with deals and we're like, hey, we need deals. And so we brought the marketing in-house and started doing acquisitions. And then I've told this story of drugs, thugs and bugs many times about our 56 unit apartment complex.

Speaker 4 (00:14:54) - That led to company number six, which is our funding syndication company. That was a really great company because it allowed our private money lenders to be able to start putting their money to use 24 over seven instead of going in and out of deals. And then company number seven is going to be a hard money lending company, because as we've raised all of this capital, we found that there's times we have excess capital and we don't want to say no to incoming investors. So we started using that to network with our mastermind groups and saying, hey, let us know if you've got a deal going on. We'll underwrite it. And if we feel like it's a good deal, we'll go ahead and lend on that deal for you. And it allowed us to keep putting that money to work for our investors. So it's been really fantastic. Help us as an internal company, helped our investors be able to earn more returns and helped other our entire network just do more things with us.

Speaker 1 (00:15:41) - That's a vertical integration. And like that it hadn't heard that before.

Speaker 1 (00:15:45) - Drugs, thugs and bugs can lead to an epiphany that creates a new company bringing more in-house. So you have to listen to the least you need to remember is vertical integration. That means control. And one of your company's vertically integrated into that, Danny, is something that can benefit the listener here, and that is your lending arm. Now, your most popular program for giving everyday investors high yield returns is your master note program. That's actually a common program in the private lending industry, but some might not know about it. So go ahead and talk to us about what your master node program is.

Speaker 4 (00:16:25) - So this was brought to us by an investor who was working with us and said, hey, I love your private money lending program. You know, I've researched you. He actually found us on Forbes and came to our office and visited and said, I would really love to lend, but I don't necessarily want to keep going in and out of deals. And so we worked with an attorney and said, hey, what can we do in order to keep an investor's money at work? And so he talked with us and we explored different ideas, and we kind of went back and forth between us and the investor and the attorney and ultimately created this program called the Master Note Program, which offers investors 10 to 12% returns.

Speaker 4 (00:17:03) - It offers them liquidity so they can get cash out at any year that they want. So they'll invest in every single year they have the opportunity to say, hey, I'm going to go ahead and give you 180 days notice to get my cash back. So the liquidity piece has been really, really powerful, especially for private money lenders, because they reason that private money lenders like that program is because they know that, that they're going to get their capital back in 12 months or less. And at that point in time, they're going to say, hey, do I want to invest again? Yes, okay, I do. Or hey, I could use this money for something else that I was waiting for. And in the meantime, it was earning interest while I was waiting to use it for this other avenue. So the master note program was really just meant to have flexibility and to be able to customize the program based on the investor's goals. So what we've done is created a five year auto renewing note.

Speaker 4 (00:17:55) - So that way these investors can say, hey Danny, I've got $100,000. I'd like to invest that with you. And at that $100,000 level, that is 12% interest. And so they put the money in, and they know that every single year it's either going to auto renew or they're going to say, hey, I'm ready for the money to come back to me. And it also allows us to give them compound interest. I would say over half of our investors are not investing with us for distributions or cash flow. They actually are investing with us because they trust us and they trust our track record, and they want their money to grow. And so they actually choose to compound instead of taking the distributions, which allows for faster growth.

Speaker 1 (00:18:39) - Your master note program 10 to 12% returns. I know it's just that 25 K minimum. So it's really available to investors. So okay. Unlike an all say five year certificate of deposit from a bank that might only pay you 5%. Plus you're illiquid for five years.

Speaker 1 (00:19:00) - With a conventional instrument like that, you can cash out your master note any year, or you can just keep rolling it over. You have the option.

Speaker 4 (00:19:09) - Exactly right. And so what's interesting is we all like liquidity. I know Philip and I like liquidity. It's nice that you got this peace of mind that you can access your capital if you choose to do so, but in reality, most of us leave the money exactly where it's at. We like to see the growth. We like to see, you know, the returns that we're getting. And we get excited and we're like, where else am I going to put this money? So I love having the ability to get it back. But I would say 95% of the people in our master program and even our funds, after they get to the period in which they committed to, whether that be a year or three years, just depends on the vehicle that they're using. They stay there like, I love this, this is fantastic. You can keep my money and just keep it growing.

Speaker 1 (00:19:51) - Real estate is largely thought of as an equity based investment. You're the listener, putting 20 to 25% down and borrowing the rest. That's great. We talk about the virtues of doing that all the time, but you are not very liquid when you do that. Here. We're getting on the opposite side rather than being on the equity side. You're on the debt side, you're making a loan and you have higher liquidity this way.

Speaker 4 (00:20:18) - Exactly right. And so with our master Note program, the way that we worked it out with the attorney is it's used for both deals and our business growth. So that's really important that I think that we talk about because the private money lending. Let me give an example. Private money lending. You are going to maybe loan a $70,000 and that's going to cover an acquisition and rehab of a property. But maybe you had $100,000 available. Now your $70,000 is backed by a lien on that property. And then once we're done with the rehab and once we resell the property, then we're going to give you all of your capital back, plus the interest that you were owed for the time that we borrowed your money.

Speaker 4 (00:20:57) - Now, this is where our private money lender said, Danny. Danny, will you keep my money? And if you're a private money lender, I have to say no, I can't. I have to give you back your money because you have to sign a release of mortgage. There's a lean on that property. You have to sign the release that you got your capital back, and then we can give you another deal. And that might take two weeks or two months. What the most master program provided for investors was allowing them to invest with us still being used on deals, but for our protection, if we didn't have a deal to put money into, then we can use it for the growth of the company. So right now we're actually partnering with another investor who is out of Columbus, and we are creating a home supply company of materials. We have this opportunity to buy materials at huge, huge, massive discounts. And so we're working on acquiring the office space that we're in, which has 20,000ft² of warehouse right next to us, and we're going to buy in bulk all of these materials.

Speaker 4 (00:21:54) - And not only is that reducing the cost of our business and our rehabs, but now we can help other investors in the local area save money. And we have created a revenue stream. As a result, the growth of all the companies has been a result of working with investors exactly like this. So now the investor gets to say, hey, Danny, I'm going to give you $100,000 and I'm going to invest it in this master note program. Now they got to use $30,000 or more of their capital, as opposed to the $70,000 example I use for private money lending, so they can put all the capital they want to use. And then me, if I have a $70,000 deal, that I'm still going to use it on that same deal, and it's owned by our company, and then that other $30,000, then I can use it for things like we're buying materials in bulk, and it's allowing us to save money on those rehabs. It's allowing us to create another revenue stream. So it allows us to have a little bit of flexibility, and it allows the investors to have a higher return, still have that liquidity piece and still have it backed by real estate and or our business.

Speaker 1 (00:22:59) - Well, what an explanation. And you know what's interesting, Danny Lee, and listening back to that is the realization that most bank depositors don't have any idea how that bank is investing their money. They don't know how their deposit is backed at all. But with an explanation like that, that's substantive, we really do hear. So it's really an interesting contrast. We discussed the details of your master note program, including where you can get up to a 12% return. Tell us about the other opportunities that you have besides your master Note program.

Speaker 4 (00:23:34) - Because of our vertical integration, we have many different things that we can offer. If you're a passive investor, we have turnkey real estate. We do have private money lending, the master node program. We have funds that also provide great returns. And one of them we're getting ready to launch in the next couple of weeks, is offering even more liquidity, allowing people to get in and out in 90 days. So for those who don't want to wait a full year, maybe they just want it.

Speaker 4 (00:23:59) - Hey, I just want to put my money to use and I want to have this access to it every 90 days. We're now allowing people to have that option, and that is really a reflection of our conversations with investors in seeing what they want based on today's market, today's economy, what they feel comfortable investing in. So that's some of the passive investor opportunities for our active investors. We don't typically serve them. But I thought, hey, you know what? We are buying all of these deals and we're getting all of these leads, some of the deals we don't want, maybe because we have enough and we don't want to buy another one because our rehab team is stretched and we don't want to have a house sitting for a couple of months for our rehab team to be able to get to it sometimes. There's other reasons. So now we are starting to wholesale properties to investors who are active, that are wanting to flip the properties themselves for a higher profit. And because we are vertically integrated, we said, hey, if you want to buy one of these wholesale properties that we're not buying ourselves, we have a renovations department, we have a property management department, we have a brokerage.

Speaker 4 (00:24:58) - So if you're an out-of-state investor, you've got an entire team you can leverage through us to be able to buy a property as is, get it renovated, and then either sell it on the market or hold it and have our property management company look after it. So we're just continually trying to expand what we can do in service of other investors.

Speaker 1 (00:25:18) - I love that we can let the term vertically integrated just roll off our tongue. Now that everyone knows that, it means having control of multiple portions of the supply chain of their business, a real estate business. In this case, again, we're talking with Danny Lynn. She is the co-founder and the CEO of Freedom Family Investments. You deal with investors on both the more active side and the passive side smartly. I know, Danny Lin, that you don't call turnkey real estate investing passive, even though it's mostly passive. It's not completely passive. You have both passive and active sides. You know what investors want. You know the pallet of items to offer them with what interests them.

Speaker 1 (00:26:00) - So with that in mind, tell us just a bit more on the landscape overall in just how you serve people. I know a lot of them. For example, they might wonder, do I need to be accredited or do I need to be non accredited? And tell us more about the minimum investments amounts kind of that bar to clear in order to participate with you, just like I am myself.

Speaker 4 (00:26:22) - For the minimum investments, it's $25,000. That's typical for turnkey properties. That's typical for our master node program, and then $50,000 for some of our funds, also our private money lending program. And then for the accredited versus non-accredited, we have both options. So there are rules as to when we can offer certain investment opportunities if you're non accredited. So things like private money lending, turnkey investing, master node program those are all opportunities for non accredited investors. And then for our accredited investors we have funds that are it's 506 C. It's a little bit technical but it's the way the SEC says hey you can talk about this.

Speaker 4 (00:27:01) - You can advertise it but you can only allow accredited investors inside. So as we work with our attorney we are like, okay, we don't want to serve just accredited investors. So how do we make sure that we're serving both at the same time? And so we've made sure to just really have a variety of offerings. And I talked to people a lot about what you said about active versus passive. I think that's a really, really important conversation because many people who are getting into the real estate game, they don't know whether they want to be active or passive, and so many of them end up being active first, only to realize they just created another job for themselves. And then they go, okay, I don't want to do this anymore. I actually want to live a quality life. I want to spend time traveling. I want to spend time with my spouse or my kids and just enjoy life. And I didn't mean to create another job, even though it is building wealth. And then they move to the passive side so that they can get mailbox money or have their money working for them while they sleep, or while you are traveling like you just got back from traveling.

Speaker 4 (00:28:05) - Keith and I loved watching your Facebook post, right? I love having that educational piece of really talking to somebody about what their goals are, what the quality of life is that they want, so they don't make a mistake of going active, only to feel like they lost some time because the active journey is difficult, like it's not been easy to build seven real estate companies, and we've got two more in the wings that we're getting ready to launch that we talked about even the the home supply company. It's not an easy road. You make a lot of mistakes, you lose a lot of money. And so when somebody has capital to invest in, their goal is to grow their wealth, build wealth, have a legacy, be able to retire and not worry about money. Going the active route may seem like I'm going to make more money because I'm going to get the big chunk of equity, but it ends up being something where they learn the hard lessons themselves and then usually waste a lot of time and energy and frustration, only to realize that they probably could have made equal, if not more on the passive side and not had all the stress.

Speaker 4 (00:29:06) - So I love really having that conversation with everybody. I love active and passive investors alike. It's just making sure that they truly know what journey they want to be on.

Speaker 1 (00:29:16) - In my mind, the term ROI return on investment is more active and a term that I've talked about wrote I return on time invested with that being considered that falls more on the passive side with you guys experience and understanding, you're surely quite cognizant of that. Why don't you talk to us about some of the other questions that you get from new investors, things that really they want to know about before going ahead and making a loan and participating in a lending opportunity with you.

Speaker 4 (00:29:49) - So the top three questions that we get is where do I start? Which path is right for me and who do I trust? And I actually talked to one of our investors who has grown his seed capital of $100,000 into $2.5 million with us over the course of four years that he's been investing. Every time he has capital, he's like, what opportunities do you have and where can I put my money? And again, we talk about compound.

Speaker 4 (00:30:14) - He has been compounding since day one with us and is really allowed his capital to grow extensively. I was interviewing him to tell his story about his journey with us and his experience. He actually said, you know, those questions are funny, Dannielynn. I would tell you that you should ask them in the opposite order. You should say, who do I trust? And then once you know who to trust, then ask, where do I start and which path is right for me? And I do agree that the trust question is the most critical piece of the puzzle, right? So many times I get on the phone and I talk to investors who have lost money working with somebody else, and so they've maybe heard me on your podcast or seen me somewhere else and heard me say over and over, private money lenders, our investors are our number one priority. I am never going to put myself in a position where they're not receiving their full capital back, receiving every single penny owed for the interest of the time that I was using their capital.

Speaker 4 (00:31:11) - And I'll allow myself to lose money to make sure that they get paid. And that's so important to me that I tell people very often they said, you want to work with people that will be transparent enough to say, this is my worst deal, this is what happened. And what you're going to get by asking that question is a revealing of their character. Yeah, who they are. How did they treat that situation? How was the investor treated in that situation and what happened? Did they tuck tail and run? Do they walk away, which many investors do? They get frustrated and they're like, oh my gosh, I lost all this money. What am I going to do? And they just they stop answering their phone. They stop answering emails. And then the investors are stuck with the house. I think the questions like that are really important. Looking at track records and just asking the hard stuff, understanding the true nature of a person. And then lastly, the which path is right for me is a question of really understanding that active and passive piece, and then understanding your goals when it comes to money, is it cash flow, is it growth? Is it tax benefits? Is it liquidity? What are the things diversification.

Speaker 4 (00:32:11) - There's so many goals you can have in investing. And if you don't know the questions to ask, then you might not be hitting the goals that you truly desire in life.

Speaker 1 (00:32:21) - We learned about a really good investor outcome there. How about a bad outcome or a worst deal? And then how did you cover that to make sure the investor is made whole?

Speaker 4 (00:32:33) - Our worst deal is a duplex in Dayton. And what happened was one of the reasons we brought our renovations company in-house, because we had a project manager, we had a runner, and one of the processes that we have is when the contractors are rehabbing a property, then the runner will go to the properties and just double check that what their invoice is saying, that they actually did the work and then we will pay them. So the project manager is trusting the runner. The runner is saying he went to the houses and we're paying this contractor. And it turns out one of the contractors had not done anything. The pictures that they were submitting to us was from another property they were rehabbing, so it looked like he was doing the work.

Speaker 4 (00:33:12) - The runner? Yep. The runner was relying on those pictures as his proof instead of actually going to the property and physically seeing the work being done. And we were paying them as a result of this hierarchy of process that we had. So we ended up having a property where none of it got rehabbed, and we paid the full amount of rehab to that contractor. So we had to pay for the rehab twice. So in this situation, we lost over $50,000. Our investor didn't even know what happened. And I say that not because we weren't being transparent, it's because we were going to do exactly what we said we were going to do. They were going to get all of their capital back, and they were going to get every single penny of interest owed. We ended up asking them at the end of 12 months, do you mind extending on this loan? We're still working on it. It's okay if you don't want to. We will still get you paid back, plus all interest, and we'll replace your loan with another private money lender.

Speaker 4 (00:34:06) - They said no, it's no problem. Absolutely. You can extend. So by the time it was all done we actually had the house fully rehabbed. We had lost a lot of capital. The reason that we can cover situations like that and make sure that we're honoring our word to our investors is because we do volume. When you do volume, I tell people, this is what I say. If you've been in real estate long enough, you understand you're going to lose money. You're understand that you're going to pull back walls and find things that you did not anticipate. So doing volume was our way of mitigating that risk. If we're doing ten deals a month and two of them go bad, well, we've got eight others that are covering the two that went bad. And so it's a numbers game for us knowing that we're going to find some duds, we're going to make some mistakes. And that's okay because we're playing the volume game.

Speaker 1 (00:34:53) - Ah, that harrowing story about the contractor and the rudder that comes back to the old Ronald Reagan trust, but verify they're right.

Speaker 1 (00:35:01) - So. Right. Well, thanks for sharing a more difficult story with us like that. Well, Danny, as we're winding down here, you do a lot of things there at Freedom Family Investments because you have this big holistic picture. Since you are vertically integrated company, and that's given you the experience and the wisdom. Do a lot of things. I know you have a book published and you're speaking at events around the theme get real. I own your book. Get Real. Can you quickly tell us more about it?

Speaker 4 (00:35:28) - So our very first book was Get Real, understand Real Estate Investing before it's too late. And it was just our first book. And it's going to be a series of Get Real Books was our first book to really introduce people that were new to real estate. What is it? Why do we love it? Why do we have such a passion for building real estate businesses and love that we can not only grow wealth for ourselves, but we can help other investors do the same? And then the get real part of it.

Speaker 4 (00:35:52) - The reason that we love this is actually one of my marketing team members, actually, you know him, Matthew. He's the one that came up with a Get Real brand. And it's really become something that people say, hey, Flip and Dani, you guys are so down to earth, like, I feel like I can talk to you about anything and you're so transparent. You tell us the ups and the downs and the crazy roller coaster rides, and there's so many people that are on social media or on podcast that will just tell you the rosy rainbows and sunshine stories, you know, as if nothing goes wrong. And I think reality is, is people want to work with people that are just more authentic, that are willing to share, hey, I'm human, I'm not perfect. We're going to make mistakes, but watch how we correct those mistakes, watch how we act during those situations. I think if you can do that, you actually gain more trust. And that's something that surprises a lot of the masterminds that I'm in.

Speaker 4 (00:36:43) - When I say they say, how do you have so many investors? How do you raise so much capital? I'm just like, I'm just authentic and transparent about everything that we do. And that garners a lot of trust in the people, because not a lot of people are willing to talk about their failures. That $50,000 loss on a duplex. And I don't know why, but it builds trust instead of loses it. And their jaw drops to the ground going, oh my goodness, I can talk about my failures. And I'm like, yes, start. People want to know that you're real. So I think that that get real concept is important. So we're going to keep on building creating some more books. We have investors that are giving us ideas of, hey, write a book about this. So we're going to keep on releasing them. And we're also speaking in events nationwide and just really just getting down to earth for people and letting them know, hey, stop telling yourself your can't. Anybody can build wealth.

Speaker 4 (00:37:32) - If you run a great podcast, you have so many loyal listeners and we love talking to them, and you have helped educate people for years and years and years, and we just need more people out there doing that.

Speaker 1 (00:37:45) - Well, thanks. The name of the platform and book is Get Real, Danny. Dannielynn, in closing, why don't you let our audience know about the best way to reach out to you and learn more about your private lending programs, including your Master Note program? Because for you, the listener, if this sounds interesting, here you go. Mean this is where I tie up a lot of my liquid funds for a high return. Let our audience know how they can learn more.

Speaker 4 (00:38:11) - All you have to do is text family to 6686, six.

Speaker 1 (00:38:17) - Dani Lynn, it's been valuable. As always. Thanks so much for coming back onto the show.

Speaker 4 (00:38:21) - Thank you so much, Keith. It's an honor.

Speaker 1 (00:38:29) - Yeah, good stuff from Dani Lynn Robison of Freedom Family Investments. Today, let's review what we've learned.

Speaker 1 (00:38:36) - Demand deposit accounts, which include things like checking accounts, savings accounts and money market accounts. They allow you to withdraw money from the account whenever you want, whereas time deposit accounts like CDs require you to deposit your money for a specific length of time. Vertical integration that's a term for a business strategy, where a company takes ownership of multiple stages of its supply chain and the term financial runway. That is, the amount of time you can maintain your lifestyle without the need for a paycheck. As you know, I often like to leave you with something actionable. Their Master Note program offers 10 to 12% returns, some liquidity, and just a 25 K minimum. And another way to think about it is that, in fact, then that is a 10 to 12% cash on cash return. And if you're interested in being more nimble than that, there are other lending programs where you can get a strong return with just 90 day liquidity. And to get started on any of them, or simply learn more. Text family to 66866.

Speaker 1 (00:39:45) - Until next week where we've got a great show for you. I'm your host, Keith Weinhold. Don't quit your daydream.

Speaker 5 (00:39:55) - Nothing on this show should be considered specific, personal or professional advice. Please consult an appropriate tax, legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own. Information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of Get Rich Education LLC exclusively.

Speaker 1 (00:40:23) - The preceding program was brought to you by your home for wealth building. Get Rich Education.com.

Direct download: GREepisode475_b.mp3
Category:general -- posted at: 4:00am EDT

Mon, 6 November 2023

Will higher interest rates and inflation persist for a decade?

An upcoming recession always seems to be perpetually just around the corner. Learn when it should finally happen.

Macroeconomist Richard Duncan joins me. I tell you a funny story about when he was GRE’s first-ever guest in 2014.

Currency is now being destroyed—called Quantitative Tightening.

Negatives for future asset prices: QT, higher rates, student loan debt repayment, stronger dollar, asset prices already inflated, high personal asset-to-income ratios, higher oil prices, looming government shutdown.

Positives for future asset prices: monetary stimulus hangover, high employment, CHIPS and Science Act, Inflation Reduction Act, The AI Revolution, prospect of lower future inflation and interest rates.

Richard provides his opinion and insight on today’s real estate market.

If inflation-adjusted credit growth is less than 2%, expect a recession. If it goes negative, expect a depression.

Get a 50% Discount on Richard Duncan’s MacroWatch video newsletter. Use the code “GRE” at: RichardDuncanEconomics.com

Resources mentioned:

Show Notes:

GetRichEducation.com/474

Get a 50% Discount on Richard Duncan’s MacroWatch video newsletter. Use the code “GRE” at:

RichardDuncanEconomics.com

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

Will you please leave a review for the show? I’d be grateful. Search “how to leave an Apple Podcasts review”

Top Properties & Providers:

GRE Free Investment Coaching:

Best Financial Education:

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473: Multifamily Values Down 25%. Will it Hit Residential? Featuring Neal Bawa

Direct download: GREepisode474_.mp3
Category:general -- posted at: 3:00am EDT

Mon, 30 October 2023

Failed deals. Capital calls. Lost investor money. A dreadful and sobering conversation ensues for many in some commercial real estate sectors.

Residential (1-4 unit) and commercial (5+ unit) real estate fortunes are decoupling.

Multifamily commercial loans are at the mercy of interest rate resets.

Residential is stable due to low supply and sustained demand.

Neal Bawa from MultifamilyU and I outline the multifamily problem. Values have plummeted 25%.

The magnitude of the multifamily problem is about 1/80th of the 2008 Global Financial Crisis.

There are two reasons for the office apocalypse—both declining income and increasing expenses.

Only 3% of office buildings in downtown cores have a floor plan that can be converted to residential. Dreadful.

There will be possible discounts in the hotel industry due to a lack of funding and loans.

Retail has surprising bright spots.

We discuss the future of rents through 2026.

Will multifamily problems create contagion into 1-4 unit residential? We discuss.

Timestamps:

Multifamily industry changes and challenges [00:00:46]

Discussion on the new difficulties faced in multifamily, such as failed deals, capital calls, and banking industry challenges.

Opportunity arising in the multifamily market [00:01:12]

Exploration of the current opportunity in the multifamily market due to a 25% reduction in prices from the peak, caused by distressed transactions and high interest costs.

Anatomy of the problem with floating rate debt [00:05:57]

Explanation of the issues faced by apartment building owners or syndicators when they have floating rate debt without rate caps, leading to potential deal blow-ups.

The rate cap issue [00:08:29]

Discussion on operators neglecting to buy a rate cap or buying a rate cap set too high, leading to negative cash flow.

Magnitude of the multifamily reset problem [00:09:47]

Comparison of the current multifamily reset problem to the global financial crisis, highlighting the challenges faced by operators.

Challenges in refinancing properties [00:12:10]

Explanation of the challenges faced by properties in refinancing due to decreased net operating income and increased mortgage costs, leading to potential loss of investor money.

The availability of multifamily loans [00:16:50]

Neil discusses the availability of commercial real estate loans, particularly in the multifamily space, and how it differs from other asset classes.

Lending challenges in the commercial real estate space [00:18:03]

Neil talks about the severe lending challenges faced by asset classes like office, retail, and self-storage, while expressing confidence in the stability of multifamily lending.

Contagion and the impact on the 1 to 4 unit space [00:20:56]

Neil discusses the limited level of contagion that could affect the 1 to 4 unit space due to problems in the multifamily market, highlighting the healthiness of the single-family market and institutional interest in it.

The Troubled Office Sector [00:25:35]

The speaker discusses how the office sector is facing a long-term demand crisis due to the decrease in office occupancy and the challenges of converting office buildings into residential units.

The Ten-Year Problem in the Office Sector [00:27:06]

The speaker explains that the office sector is about to face a ten-year problem, with defaults and declining values affecting the downtown core and other assets.

Bright Spots in Retail and Hotels [00:29:21]

The speaker highlights that retail occupancy is higher than multifamily occupancy, and despite the Amazon effect, retail is doing well. They also mention that hotels have seen strong recovery post-pandemic.

Hotels and Multifamily Discounts [00:32:55]

Discussion on the current cash flow opportunities in hotels and multifamily properties, potential discounts in the next 12 months.

Retail Reinvention and Rents in a Recession [00:33:57]

Exploration of how retail can sustain itself through experiential offerings, the resilience of rents in past recessions.

Artificial Recession and Rent Growth [00:35:33]

Analysis of the possibility of a recession and its impact on rents, the strength of the US economy, and the expected short duration of the recession.

The recession and its frequency [00:40:56]

Discussion on the frequency of recessions and how they are a normal part of the business cycle.

Learning opportunities at MultifamilyU.com [00:41:31]

Information on the webinars offered by multifamily ewcom, covering various topics including single-family and multifamily projects.

Appreciation for Neil Bawa's insights [00:42:22]

The host expresses gratitude for Neil Bawa's informative contributions and welcomes him back on the show.

Resources mentioned:

Show Notes:

GetRichEducation.com/473

Neal Bawa:

MultiFamilyU.com and Grocapitus.com

For access to properties or free help with a

GRE’s 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

Will you please leave a review for the show? I’d be grateful. Search “how to leave an Apple Podcasts review”

Top Properties & Providers:

GRE Free Investment Coaching:

Best Financial Education:

Get our wealth-building newsletter free—

text ‘GRE’ to 66866

Our YouTube Channel:

Follow us on Instagram:

Keith’s personal Instagram:

472: Pennsylvania's Secretary of Banking and Securities Joins Keith

Complete episode transcript:

Speaker 1: Today's guest is well known as the mad Scientist of multifamily. He's a data guru, self-described self-described process freak, and an outsourcing expert. He's a ten figure man with his billion dollar plus multifamily portfolio and his 900 plus investors. He's also the CEO at a multifamily education company because he's a really good teacher. It's been about a year and a half since you were first here. Welcome back to Neal Bawa.

Speaker 1 (00:00:40) - Well, thanks for having me back on. It's it's a delight to be back. Had a fantastic conversation with you last time. So I'm looking forward to this one. We did.

Speaker 2 (00:00:46) - The last one was so fun and spirited. But my gosh, since then, Neal, about a year and a half ago, so much has changed in the multifamily industry. We know that a lot of new difficulties have come into multifamily, like failed deals and capital calls and the need to raise bridge debt and banking industry challenges.

Speaker 2 (00:01:06) - So where would you like to start to help give us some perspective on all that?

Speaker 1 (00:01:12) - Well, think opportunity is finally here. You know, when when we talked a year and a half ago, I was I said things like, well, prices are too high. I said things like, I don't know where the margins are. I don't know how people make deals work. I don't know how they make them pencil out. Right. Um, in some ways, I'm still saying some of those things, but it's certainly not because of pricing anymore. So, you know, the single family market is a perfect sort of benchmark for the world that live in multifamily. As far as I know, in the last 12 months, single family prices have either been flat or up 1% or down 1%, depending upon which analyst you pick. But it's certainly been an extremely, extraordinarily stable market in terms of prices, where it's it's you know, the volume, of course, has cratered. It's down a ridiculous percentage.

Speaker 1 (00:02:00) - Whereas multifamily was an industry that has hurt more because of the portion of multifamily that was purchased or traded in the 2020, 2021 and 2022 time frame. Almost all of those trades happened using bridge loans which were floating, whereas almost all single family transactions were 30 year fixed loans. Right. So so two completely different things have happened. Normally the single family and multifamily market tend to be in lockstep. And that's certainly been the case for ten years. But over the last 18 months, single family and multifamily have separated from each other. And the big reason for that is almost all of the distressed transactions that you're talking about, that you're alluding to all of those cash calls. They are related to bridge loans, which had floating debt. And that floating debt has gone from, you know, 6% to ten, eight, you know, 11%, even for for some of these, these operators making it extremely difficult to make numbers work, making it very difficult to pencil. But on the good side, we've now seen compared to the peak, which was probably about 20, 21 months ago, we've seen a 25% reduction in prices, which is huge because we mean multifamily usually as an asset class, doesn't go down 25% simply because it its value is based on rents, you know, and rents rarely go down.

Speaker 1 (00:03:22) - They hardly went down for 6 or 7 months in 2008, so we didn't see much of a decline there in 2008, simply because, you know, the, the, the income was strong, but this time, the much, much higher cost of interest means that our overall post mortgage income is down. And that's why prices are down 25%. So both opportunity and distress in the multifamily space.

Speaker 2 (00:03:46) - That's such a staggering number. So let's frame that. Multifamily prices down 25% since their peak or year over year. And then just to be clear, we're talking about five plus unit residential apartment buildings with that figure.

Speaker 1 (00:04:01) - Yes, I'm glad you asked the question that way because I do need to qualify a few things. So so first thing is down from peak and depending upon different markets, the peak was either the last quarter of 2021 or the first quarter of 2022. And in a couple of markets, even the second quarter of 2022. So it's I'm not saying year over year, it's basically they're down 25% in the last 18 or 20 months.

Speaker 1 (00:04:25) - Um, so the second piece is that the down 25% is predominantly, let's call it hotter markets in the United States. So if we're talking about a steady Midwest market like Kansas City or Indianapolis, then you're probably seeing a decline of half that amount. So maybe 12.5, 13, 14%, where if you're talking about a very fast growing market, you know, all the Texan markets, the Floridian markets, then you might be seeing declines of that 25% level, since a lot of the transactions that did happen in the last two years were in the faster growing markets, that 25% number is still reasonable. And some people listening to this show might say, no, I don't think 25% is right. It's more like 20, it's more like 18. So I'll. Be at that by saying it's a pretty wide range. We're seeing as little as 18% in some of these fast growing markets, you know, hot markets. And we're also seeing markets like Phoenix, where we're seeing 27, 28% declines in price.

Speaker 1 (00:05:23) - Also, the the range is dependent on the number of units. We are seeing smaller declines if you've got less than 100 units. Right. So smaller properties, we're seeing a smaller decline maybe 15%. And then when we are seeing properties that are 300 units or more, just the whoppers, we're seeing 30% declines in those assets. So so a lot of it is really dependent upon, you know, because the bigger the size, the harder it is to finance it these days, the less the banks want to take a risk on it. So the bigger the property, the harder, harder it's hit at this point of time.

Speaker 2 (00:05:57) - The bigger the property, the less liquidity. So maybe, Neil, to help the listener get a full understanding, maybe you can take us through the anatomy of where a common problem is with what happens to an apartment building owner or syndicator when they got this floating rate debt and they didn't get a rate cap and rates spiked? What exactly happens that makes these deals blow up?

Speaker 1 (00:06:24) - Right? First, want to, you know, set the size of the of the problem.

Speaker 1 (00:06:28) - Right. So when you compare it to 2008, it's not comparable in 2008, the total size of distress or you know, potential distress was 8000 billion or $8 trillion. So it was it was a it was an absolutely staggering event. Luckily, not a lot of that distress actually happened. So that was good. But the the total size of distress was in that $8 trillion or $8000 billion range, the total size of distress in the multifamily market appears to be in the $100 billion range, so about 1/80 of the size of the distress in 2008. So keep that in mind. Also, as a percentage of the overall multifamily industry, there's about 100,000 multifamily properties in the United States that are on the bigger size. Let's call them more than 50 units. There's 20 million apartment units total. 100,000 are the bigger properties. Of those 100,000, the distressed portion of the portfolios is about, from what I can tell, about 3000 properties. Maybe it could be as much as 4000, but 3000 is a very common number.

Speaker 1 (00:07:30) - So about 3% of the properties are distressed. And why are they distressed? Multifamily has been doing incredibly well. Rent growth has been phenomenal, especially in 2021 where it was 15%. Just so you know, they the 50 year average is about 2% rent growth. So 15% is you know, champagne time. So so we've certainly had positive trends. And we continue to see positive trends. You know there's there's less and less people can afford a mortgage. So there's basically a you know brand new renters being created every day because of mortgage rates being this high. But the, the the downside was that a portion of those 100,000 properties were purchased in late 2020, 2021 and then, you know, 2022, and they were purchased using floating debt. And the the so we're talking about those 3000 properties. Those 3000 properties either didn't have a rate cap. So when when you you're purchasing using, you know, bridge debt or floating debt, you want to buy a rate cap. So if rates do go up they hit that cap.

Speaker 1 (00:08:29) - And then anything above that cap is something that the rate, you know, cap selling company reimburses to you. So that way you're not affected by but by going above that, well, some of these operators neglected to buy a rate cap, which was a really bad thing to do. But then there were others that other operators that bought a rate cap, but their rate cap was set too high. So, you know, they basically didn't think that rates would go up. So they did put a rate cap in. But instead of buying a rate cap at 6% or 7%, they may be bought a rate cap at 8 or 9. They were basically looking for the worst case scenario, and so they bought the cheapest rate cap that they could find. And now, you know, rates have gone up and they've already hit that rate cap. Maybe it's eight and a half or 9% and it had eight and a half or 9%. That mortgage is still too high for that property to cash flow. So now the property has negative cash flow.

Speaker 1 (00:09:18) - So there's I personally know of a few dozen properties where the negative cash flow is between 20,000 and $200,000 a month. And that negative cash flow means that the syndicators, the the general partners are basically putting that money in themselves, or they're taking short term loans and they are now looking for a solution there and their solutions are limited. I can give you a list of those, but their solutions are limited because the property is is negative cash flow and nobody wants to touch a property that's negative cash flow.

Speaker 2 (00:09:47) - Did we say that he's a data driven guy or what? That was some great perspective that the magnitude here of the multifamily reset problem has been about 1/80 of what the problem was in real estate during the global financial crisis. That was a great way to put things in perspective. Yeah, Neal, you know, it's such an interesting mindset that an operator would have the awareness to buy a rate cap with their floating rate debt, but yet not have the cap be low enough in order to keep them out of trouble.

Speaker 2 (00:10:20) - That's really unusual to me. Do you have any idea what percent of operators have bought a rate cap with their floating rate debt?

Speaker 1 (00:10:30) - I think a majority of them have. So I'd say more than 50% of the properties that were purchased during this time did have caps, but a lot of the caps were set high. So that that was a very common thing, where the caps were set to 8% or higher, as opposed to them being set at, you know, 6 or 6.5%. So it's more of a high cap issue rather than a no cap issue. And I think the bigger the secondary challenges, let's say let's say they had a good rate cap, right? So I bought it. Let's say you bought a property in the, um, let's call it the final quarter of 2020. And you bought a two year rate cap. And the rate cap was good. It was 6.5%. Yeah. Good for you. Right. But that rate cap was a two year rate cap. So now it expired basically last year.

Speaker 1 (00:11:14) - And so since last year you're now up at 10 or 11%. And, you know, a year's gone by. Your property is bleeding. Maybe it was doing well, but now that it's been bleeding for a year and you've been paying all of that bleed out of your operating expenses, now you're in trouble. And maybe you bought it. Three rate cap. Well, if you bought the property in the final quarter of 2020, then in about a month or two months from now, we're in the final quarter of 2023. Well, that rate cap is going to be gone. And then maybe in the next three, 4 or 5, six, seven months, all of your operating budget, all of your operating, you know, fund is going to be, you know, gone because you have this much higher mortgage. So what's happening is that this is one of those situations where there isn't a trigger on any one particular day, and a huge number of properties come to market. There were a lot of properties purchased in the final quarter of 2020, all four quarters of 2021 and the first three quarters of 2022.

Speaker 1 (00:12:10) - Right. So you're looking at a total of eight quarters. So each quarter, a certain percentage of those properties get to the point where either their rate cap is gone. Right. So it's finished because you bought a one year or two year rate cap, or they're they're at the point where even without the rate cap, their loan is expiring. So a lot of these bridge loans were two year loans and three year loans. And so the vast majority of the challenges that the multifamily industry is going to face are going to be in 2024, because that's when a vast majority of either rate caps or mortgages expire. And because because the net operating income of these properties has gone down and the and the mortgage cost has gone up, most of these properties cannot be refinanced. So I'd say out of the 3000 properties, you could probably refinance using some mechanism, a thousand of them, maybe a third of them. And that could be, you know, do a cash call, get, you know, money from your investors.

Speaker 1 (00:13:07) - Or you could do what is known as a pref lending, where you basically take money from an outside party and that outside that extra money helps you refinance into into perm debt. So those are your options. And the third option, which is likely to be most common, is that you go out and sell your property. But from what I'm seeing, the vast majority of these properties that don't get refinanced. So out of 3000, the 2000 that don't get refinanced are likely to come to market, and the vast majority of them will end up losing all of their investor money or a majority of their investor money. And so you, you know, if it's a $100 billion problem, that's, you know, we're talking about 30 to $40 billion of investor money, and a majority of that 30 to $40 billion could be lost.

Speaker 2 (00:13:48) - Yeah, that is troubling and really concerning as far as those LPs, those limited partners, those investors in someone else's syndication, hopefully that syndicator, that operator is communicating with their investors.

Speaker 2 (00:14:03) - But for investors, is there anything they can do to identify cracks in the arm or where they might be losing their deal, where they might be losing their money, where they might be throwing good money after bad if a capital call is requested?

Speaker 1 (00:14:18) - I think it's a very difficult thing to do for a limited partner because you have, you know, you have more, you have much more exposure to the deal than you would when you invest in the stock market, where you know, there's almost no exposure unless it's a public company. Um, but and these are all private syndications. But I think that a lot of investors simply don't know how to read the, the budgets versus actuals. They don't necessarily know how to read the Performa. So it's it's challenging. So if you're somebody that is. Comfortable doing that. I suggest you dive in and basically ask a lot of the questions of the syndicators. I have one such property, so, you know, I was lucky in that during that time a lot of my colleagues had I have people who I know colleagues that bought 10 to 12 properties during that time frame.

Speaker 1 (00:15:02) - It was very normal. I bought one and a half. So one of those properties was my own property, exited one of my partners. So I call it a half a property because it was already mine. Um, and then I bought purchased one other property in a military metro. So I was able to get it for a lower price because it was a military metro. And usually the prices are lower for, for for military towns and, and that property, you know, I'm having the same challenges that I've described. So, you know, the the rate cap issues and the fact that basically prices have gone down by 25%. And I'm dealing with it by constantly communicating with my investors, giving them, you know, options. You know, here's, you know, how when, when we were when we were all selling these these shares to investors, we gave them a, um, a sensitivity analysis showing them, you know, worst case scenario, best case scenario, you know, in a middle case scenario.

Speaker 1 (00:15:55) - And so now we're basically doing a sensitivity analysis based on what we are seeing in the marketplace today. And and giving them feedback on what our options are and think a lot of it comes down from the the general partners communicating with the limited partners. And if the your general partner is not very communicative, is not giving you information, ask for one on one meetings, ask for you know, more information in their webinar or in their updates. I think this is a time for limited partners to be vocal.

Speaker 2 (00:16:25) - You've learned about the problem in the larger apartment space. You've learned about how operators and apartment syndicators are dealing with the problem. And then, Neil, where do you think that we're going next and think maybe we should ask and look at it through the lens of where do you think we're going next with the availability of multifamily loans, could this help the source of capital dry up?

Speaker 1 (00:16:50) - And so I think the answer is we are going to a very dark place with availability of commercial real, you know, loans.

Speaker 1 (00:16:57) - Multifamily is in a privileged asset class. So, you know, the the term commercial real estate is sometimes meant to include multifamily, sometimes not. So I'll assume that multifamily is part of commercial real estate, but there are many other asset classes. So there's office which is the next biggest asset class. There's retail hotels, there's self-storage, you know, and and a few others like mixed use. And of those commercial real estate asset class, there's only one that's privileged and that's multifamily because there are not one, not two, but three lenders who are government or quasi government organizations whose only job it is to keep lending in the multifamily space liquid, and also the single family space liquid. And they are Fannie Mae and Freddie Mac and hard. Right. So Housing and Development Authority. So these three lenders right now are extremely, extremely active. And what has happened is that in in good times, call it 20 early 2022. You had life companies. You had all these private, you know, bridge capital, you had all kinds of capital that was lending to the multifamily space.

Speaker 1 (00:18:03) - Now some of that capital has backed off. There's still a huge percentage, I'd say probably 40, 50% of all loans that are being done today are these kinds of private, you know, groups. But think the government or quasi government groups are much more active today and their lending. So I don't think multifamily lending dries up at all. I don't think that that's the case. I think it dries up for the non privileged asset classes, hotel, retail, self-storage, office. These are the classes that are likely to see, you know, near lending dry up especially because on a fundamentals basis there's absolutely nothing wrong with multifamily. In fact as I mentioned I think we're a lot better off than 2019 to 2023 given that home prices have gone up 40%, incomes are only gone up 15%. So there's a very large number of Americans that simply cannot qualify for a single family home anymore. And so those people have to go to apartments. So the the fundamentals are really good for apartments. That is not true of office.

Speaker 1 (00:19:02) - So office is an asset class that is experiencing the worst fundamentals it has seen in its entire history. And so I do think that there's going to be very severe lending challenges in the commercial real estate space. But I haven't really seen that multifamily, and I don't anticipate seeing it in the future as well.

Speaker 2 (00:19:20) - Well, I don't know if any of that could have as much fun as last time. There were rather gloomy subjects to discuss here with Neal and come back. Can this problem in the multifamily space create contagion for the 1 to 4 unit space? And like with what Neil touched on, what about other commercial sectors like office and retail? How troubled are they when we come back? This is get recession. I'm your host, Keith Weinhold.

Speaker 2 (00:20:14) - Welcome back to Get Rich Education. We're talking with the mad scientist of multifamily, a big brained visionary. He's also an excellent teacher. I'm sure you can tell as you're listening to him here. And if you're listening in the audio only Bawa is spelled b a w a new. Here on this show, we talk an awful lot about investing in the 1 to 4 unit space and the advantage of the 30 year fixed that long term fixed interest rate debt. Do you see any areas for contagion with problems in the multifamily five plus unit space bleeding over into the 1 to 4 unit space?

Speaker 1 (00:20:56) - Yes, but to a limited level, I think that the the 1 to 4 unit space is the healthiest that I've seen in a very long time.

Speaker 1 (00:21:05) - And there's reasons for that. One of the biggest reasons is multifamily, which is the most well sought after asset class for institutional investors who don't typically don't usually like the 1 to 4 unit space. There's a few companies in that space, let's call them half a dozen, but there's several thousand companies that invest in the multifamily space. Some of them are right now looking at single family as a, you know, as a, you know, safe haven to park some of their money. Right? So there's, you know, more institutional level interest in the single family space because of its access to those, you know, those those 30 year fixed loans. So there's and the fact that single family prices basically haven't declined. So I think that there's there's a lot of interest in the single family space. Um, keep in mind that millennials are reaching their peak years of household formation. So they started in 2019. So until 2025. So from 19 to 2025, those are the peak years of household formation for millennials.

Speaker 1 (00:22:01) - And that's also putting a cushion under the single family space there. Contagion is some form of contagion is inevitable. I think that the office market is going to see spectacular levels of contagion, similar to 2008. I think that the other associated markets, like hotel and retail, are going to see some level of contagion, though I certainly don't expect it to be as bad as office. And then multifamily is going to see some contagion, as we mentioned, because of these 2 or 3000 properties that have to be basically sold into the marketplace and prices are down, which always creates contagion. Why? Because think about it. You're a mid-level bank. So a mid-level bank in the US is $250 billion or less in assets. Well, a lot of these assets are these banks are the ones that loaned out money to multifamily and retail and hotel and in office, and now are being forced by the Federal Reserve through a process known as mark to market. They're being forced to write down the value of these assets because these assets, you know, there's still you know, there's still active loans, but maybe they they loan $20 million.

Speaker 1 (00:23:00) - And now basically they're $20 million is only worth 18 or 16 or 15. And so now the fed is saying, hey, you know, you got to mark these assets down in value. And as they mark them down to value, that can lead to the banks becoming or mid-sized banks becoming less stable. I don't think this affects any of the large banks in the US, but the midsize ones are affected. And some of those mid-sized banks do lend to the single family space, but not a lot. I find that the single family space, when I look at their source of lending, not a lot of those mid-sized banks are involved. There's a little bit they do some brokerage work, but then they're selling those loans back to Fannie Mae and Freddie Mac and a bunch of other, you know, governmental type organizations. So I don't see a sense of contagion in the single family space. I do see potentials of some price declines because until about two months ago, mortgages were predominantly in the sixes. They, you know, they spiked up once to the sevens and then they pulled back into the sixes.

Speaker 1 (00:23:56) - Now they've gone into the sevens and they may stay in the sevens for a substantial amount of time. When that happens, that can affect the single family market as well, simply because, you know, you can get to the point where supply is higher than, than demand. So I wouldn't be surprised if there's a pullback in single family prices. Let's call it 5%. But I'm not predicting the kind of challenges where the office market think we could see 40% declines in prices from peak, whereas single family you might see 5%. I think that's still an incredible outcome for the single family market compared, you know, just looking at the outrageous increases in prices since Covid don't I don't think that's a even a pullback. I would just say that's a balancing out.

Speaker 2 (00:24:44) - Who know the residential housing market. Really, it's something that's non-discretionary on a human need basis. Everyone needs to live somewhere and they will either own rent or be homeless. And you talked about some of those affordability challenges before. The lower the homeownership rate gets, the more renters you have.

Speaker 2 (00:25:05) - So long term, we will have some demand baseline for both multifamily and properties in the 1 to 4 unit space, of course, but the same thing cannot be said about some of these other commercial sectors, especially the troubled office sector space, where you have more and more abandoned buildings downtown. And a lot of these office buildings cannot be easily converted from offices to residential units. So why don't you talk to us about some of those other troubled commercial sectors, starting with office.

Speaker 1 (00:25:35) - Office is in a apocalypse. I think that this is far, far worse than 2008 and far, far worse than than 2001, because 2008 and 2001, they were liquidity crisis. They were short term, you know, demand crisis. This is a long term demand crisis because, you know, I read very important documents from companies that are in the key swiping business. You know, when you enter an office in a downtown core, you're swiping your card. And so those companies actually have phenomenal day by day data of how many people are actually going into offices today.

Speaker 1 (00:26:11) - It's been more than a year since companies started calling back, you know, people to the office and think that by now every company, whether you know, they're they're forcing five days back to the office or four days or three days or two days, everyone's sort of, you know, put their line in the sand. And we're at the point where, you know, this, this is what offices look like going forward. And if I'm right and this is what it looks like going forward, it is simply catastrophic for the office market in the United States, because we're still seeing key swipes at 50 to 60% of the people that used to swipe in before Covid. And that number is staggeringly, staggeringly low. And if this is what it settles at, you know, some companies are two days, some three, some four. I think we're in for a world of pain for the office market. You also, you know, there's a lot of people that in these podcasts basically will often say something like, no, the office stuff will get converted into residential.

Speaker 1 (00:27:06) - And I have news for you, only 3% of office buildings in office in downtown course have the floor plate, the floor plate necessary for residential conversion. Why? Because residential conversion by law requires that every every single room have a window. So what is happening is most of the time you basically can only convert the buildings on the edge, the, the square footage on the edge of a building, but that's central core but then becomes worthless. And if you don't have a use for it, then you still have to buy that office building to convert and you have to buy it at a reasonable price. The math doesn't work. I mean, you'd you'd need to see office values down 80% for, for, you know, a somebody who's converting to multifamily to say, fine, I'll just leave the 60% in the middle empty and I'll just convert the size. So 80% declines in value are needed for that kind of conversion to happen. So we are about to see a ten year problem in the office sector.

Speaker 1 (00:28:03) - And it's also dragging down all of the other assets in the downtown core. So we are seeing we just saw a $727 million default on two hotels in San Francisco. We saw a $558 million mall default. Also in San Francisco, we're seeing defaults across the board in New York, Boston, Seattle, San Diego, Miami, sort of heavy markets where this these challenges are happening. We're seeing a lot of these and it's happening in a very, very slow way. Keith. And the reason for that is the office market, their average lease is, you know, five years long. Some leases are ten years long, and a lot of these companies haven't gone out of business. So if the company is in the lease, they're continuing to pay even though the office is empty. But the moment that lease comes up for renewal, either the company doesn't renew it or they renew maybe half the space. Right. And so we we already know that this is an incredible debacle, but it doesn't seem like it at any given point of time because it's happening in a very slow motion way.

Speaker 2 (00:29:02) - Well, that's such a good point about how there will be this slow drain, this slow leak when these office leases expire over time. What about other areas of the commercial space, any other particularly troubled areas or bright spots that you see going forward?

Speaker 1 (00:29:21) - Ironically bright spots. And this is where I've been proven wrong in the past. You know, I've often maybe 4 or 5 years ago talked about the retail apocalypse, right, where Amazon would basically, you know, lead the retail market to become illiquid. Well, none of those things have happened because of two reasons. One is the retail apocalypse with people like me, you know, being on on 200 podcasts, talking about it, a lot of development of retail that was scheduled to happen simply didn't happen. So the very.

Speaker 2 (00:29:48) - Late podcast, people lost confidence. No. They were invested in retail.

Speaker 1 (00:29:52) - Exactly right. So so, you know, I fulfilled that prophecy. Think. But bottom line is that there's there's been very responsible levels of new construction in retail.

Speaker 1 (00:30:02) - So, you know, they haven't built a lot. Very few models have been built in the United States in the last few years. And even some of the malls that have been repurposed, some of their square footage is being used up for, for multifamily. And so that was one. The second reason is that retail is being very careful with pricing. So, you know, over, over the last 5 or 6 years, the retail market has adjusted to new forms of pricing, where, you know, you go into a mall and you see a gym where before the pricing of that mall never really allowed for a gym to be in a mall. It just gyms, you know, they want, you know, a lower price per square foot. And so malls have adjusted, strip malls have adjusted. And so today we have a surprising event where retail occupancy in the United States is higher than multifamily. This is the first time ever that multifamily is about a little under 95%. Now it's 94% occupied.

Speaker 1 (00:30:52) - Retail is 96 or 97% occupied, which never happens, right? Normal. Normally retail is right around 90%, 88%, something like that. But the high level of occupancy shows that that retail is doing well. Now, having said that. So so on the occupancy side, they're doing really well. There's there's really no pullback in terms of demand. But on the other side, because of the fact that interest rates are so high, retail cap rates are very high, which means prices are low. So prices are very reasonable there for retail. And so I think that real opportunity that I'm seeing I wouldn't invest in office at this point, Keith, because you don't know the end of this process. You don't know how long it takes. I think it takes a decade. So I might get 50% off in office and I don't want it. I just don't want to touch that asset class. It's tainted. Now, if I get 40% off in retail, I think I'm interested because fundamentally I don't see a demand issue if this is the highest occupancy that retail has seen ever.

Speaker 1 (00:31:53) - And at the same time, I'm getting a 40 or 50% discount simply because of lack of lending. Well, that is to me a classic opportunity to look at because once again, fundamentally, nothing is wrong with demand. And I realize that the Amazon effect is extremely real. But what I'm seeing is that that people want that experience of shopping. And so even amongst the young people, sure, each year Amazon, you know, goes up a little bit. But now Amazon's growth is no longer a hockey puck. Amazon's growth is sort of like this. You know they're growing by 10%, 15% a year, which is still great for Amazon. But I think when you when you project that across a 300 million person market that the US is retail no longer has to fear for an apocalypse. So this is actually a pretty good time to take advantage of the 40% discounts that I think will happen in 2024 for retail. Same thing. Everything I just said also applies to hotels. Hotels came out of the pandemic very strong, with huge increases in ADR or average daily rates and huge, huge increases in occupancy.

Speaker 1 (00:32:55) - So hotels right now are a very robust cash flowing business. If you've got good hotels and good locations, you're making a lot of money. They're cash flowing like crazy because their orders have gone up and their occupancy has gone up. So they've taken two positive hits. But once again, I expect there to be discounts simply because of a lack of funding, a lack of loans. And you can you might we might easily see 30%, maybe not 40, but 30% discounts in hotels in the next 12 months. So think both of those are really good opportunities, along with multifamily discounts at 25%. So this is an opportunity. This is a case of distress creating unusual levels of opportunity. I don't think we're quite there yet, Keith. We're beginning to see some distress in multifamily. We're certainly seeing distress in office. We haven't heard anything about the distress in retail or hotels yet. That's because a lot of their their loans don't don't trigger until 2024. Right. So that's we'll see what happens next year when these loans start to trigger and you can't really refinance them.

Speaker 2 (00:33:57) - I completely believe that inflation has thoroughly soaked in to hotels. You talk about their ADR, their average daily rate. I've recently stayed at hotels in Denver, Omaha, Chicago, Toledo and Boston, so I've gotten a pretty good sample size and sure feel the hit there. And interestingly, the last time I shopped at a mall, it was the biggest mall in this city, and I noticed a bowling alley that I had not noticed there before. And I went bowling and noticed an ice skating rink was there. So I just wonder how much retail can reinvent itself if it tilts enough into the experiential part, rather than just buying items off a shelf at a store, maybe that can help sustain that retail sector, to your point. Well, Neil, maybe we should wrap up really on what supports an awful lot of values in multifamily, and that is rents and the direction of rents, especially if we have almost hate to say this. R-word, a different R-word, a recession, because it seems like this thing has been around the corner forever.

Speaker 2 (00:35:03) - I know historically that rents are quite resilient in a recession, something that you touched on earlier back even during the 2008 global financial crisis, when I was a landlord, I owned fourplex buildings. Then I noticed that I had a pretty good steady stream of renters. My rents didn't really go up much, but they were really resilient. They didn't go down, and that's because people couldn't get a loan. So that was an affordability problem. Then we have another affordability problem now. But if we do tilt into recession, what do you think that is going to do to rents?

Speaker 1 (00:35:33) - I think we are going to see a decline in rents if a recession happens. Now, that's a question. By the way, six months ago, if you told me, you know, a recession wasn't going to happen, I'd say, no, that's not possible. We are going to go into a recession. However, I must admit that the US economy has truly, truly, truly outperformed beyond anyone else, beyond anyone's imagination.

Speaker 1 (00:35:54) - So today, the chances of a recession are certainly not 100%. Might be 50%. But let's assume that it happens and a recession happens. I think what is very, very likely is that this recession will be very short. So once again, if you're not paying attention to to to what's happening in the marketplace, this is a time that, you know, I was born in India and this is my adopted country. I feel very proud of the US economy today. If I compare the US economy to the Canadian, the eurozone, the Germans, the Japanese, we are outperforming every one of those economies. We're at the point where we're outperforming China, which almost never happens, by the way. And so we have an extraordinarily resilient and strong economy at this point. So if it falls into a recession just because the fed keeps hitting it over the head with this interest rate hammer, I think that recession will be fairly short, because as soon as the economy does go into a recession, the fed usually figures that out within a few months.

Speaker 1 (00:36:47) - Then they can stop hitting us with a hammer. I'm not saying that they'll just cut interest rates back to zero, but they certainly will provide some cushion. Maybe they cut rates by one one time, two times, just to make the market breathe a little bit easier. Because this is an artificial recession, there is no shortage of demand in the US economy. There's an incredible number of open jobs. There were as many as 11 million jobs now. Now there's about 9 million open. So there's there's a and wage growth has been so strong. Right. Because we have so many people retiring that at this point, for the first time since the early 60s, I believe, or late 60s, we actually have pricing power. So anyone who wants to be employed can ask for more money and get it. And so wage growth has been about four, 4.5%, which is really good for rents, by the way. It's phenomenal news because we needed wage growth for future rent growth. So we have a artificial recession if it does happen.

Speaker 1 (00:37:38) - And that artificial recession is being caused by the fed because they want that wage growth to come closer to 2% from the 4% that it's at, because everything else has come down. Right. So commodities have come down with the exception of oil, and so has, you know, so have the supply chain issues are gone, rents are down. So in the US the last 12 months, rents were flat and in some markets they might be down 1% or 2%. Austin I think was the only market that was down a lot. But most other markets were down very, very small amounts. So rents have been flat, which is, I think, really credible because if you look at rents over the last two years, they're up 16%. So in 2022 they were up 16%. In 2023 they were up basically zero. So if you average that out now you're looking at 8% rent growth, which is phenomenal compared to the long term average of 2.5%. So we've been outperforming on rent and we needed to take a breather in the last 12 months have been that breather.

Speaker 1 (00:38:32) - Now, if the recession happens, I do expect rents to go down, but not normally they don't. So in a in a in a six month, three month or six month average recession, you know, the average US recession is two quarters. So six months normally you don't get rent drops. You might get, you know, the rents plateau out. Or maybe their rent growth drops from 3% to 1%. That's that's much more common this time. We might see rent growth in a short recession drop by maybe 1% or 2%. And the biggest reason for that is supply. The largest supply of apartments in the history of the country is delivering, starting basically the beginning of 2023 until the end of 2024. So these two years, 2023 and 2024 are massive apartment supply years. And obviously, as you supply 500,000 apartments into an economy that overall is not outperforming, is is doing okay, but and it starts to go into a recession, then you're going to see some concessions. And that concession drives down the price of multifamily, which then drives down the price of single family rentals.

Speaker 1 (00:39:36) - So we could see a decline in rents. I'd say probably 1% to 2% is is possible, but that decline is likely to be short. So I think let's assume that the recession starts in the final quarter of 2023, which might not happen. I think it's more of a Q1 and Q2 of next year. If the recession does happen, those are the two most likely quarters. As soon as the economy rebounds and becomes positive, we should see very strong and stable rent growth. Well, I would say stable rent growth for the rest of 2024 by 2025, a lot of that incoming supply is done. So now supply supply and demand are in balance. So in 2025 I expect strong rent growth as much as 4 or 5%. And in 2026 I expect very, very strong rent growth. We might we might see 6% rent growth in 2026. So 2024 is that year where rent growth is a little bit shaky because of this. Word, the recession word. And, you know, whether it happens or not is we don't know.

Speaker 1 (00:40:37) - And when it happens, we don't know how long it lasts. But I think because it's an artificially induced recession, it's likely to be the vanilla US six month recession, which basically drives wages closer to that 2% target for the fed, and gives the fed the room to start easing up on interest rates.

Speaker 2 (00:40:56) - Recessions are not good. Perhaps the one positive about a recession is that then we can all stop talking about and speculating upon when does eventually happen, because on average, it does happen every five years. It's just a normal part of the business cycle. Well, Neal, this has been very informative around the multifamily world and beyond, including projections for the future. You've always got such great insight in stats on the pulse of the market. If someone wants to learn more about you and your resources, what's the best way for them to do that?

Speaker 1 (00:41:31) - Come join us at multifamily. That's multifamily, followed by the letter EW.com we get about 20,000 registrations in our webinars. We do about a dozen webinars each year.

Speaker 1 (00:41:41) - We do them on single family multifamily. We do them on other asset classes like office. We just did one on on on the office apocalypse and people like that because there's no education fee, there's no subscription, there's no upsell. People come join us. They learn a lot. And occasionally during one of these webinars, if you have a multifamily project that we are doing, we mention it for about 30s. And if that sounds like it's interesting, you can, you know, jump in and you know and participate. But otherwise, you know, there's a lot of tens of thousands of people that have never participated with us in any of our projects that come and join us at this ecosystem of learning called multifamily EW.com.

Speaker 2 (00:42:22) - Neal Bawa, Gro Capital and multifamily EW.com. It's been informative, just like it was the last time you were here. It's been great having you back on the show.

Speaker 1 (00:42:32) - Thanks for having me on, Keith.

Direct download: GREepisode473_.mp3
Category:general -- posted at: 4:00am EDT

Mon, 23 October 2023

Before our PA Governor-appointed public official guest joins us, I discuss how autonomous cars expect to change real estate.

Richard Vague, Pennsylvania’s Secretary of Banking and Securities from 2020-2023 joins us. We’re in the state capital of Harrisburg, PA.

We discuss America’s beginnings in real estate and banking from around 1800.

He tells us about the health of banks in the wake of recent failures due to higher interest rates.

I ask Richard about full reserve banks vs. fractional lending banks.

Great Britain prohibited colonists from owning land west of the Appalachians.

The basis of early land wealth were crops grown on the land—wheat, corn, tobacco, indigo, and rice.

Mortgages around 1800 were often 50% LTV and 6% interest rates.

Here in the 2020s, Richard believes that private sector debt is a larger problem than public debt.

Wherever debt growth is most rapid are where the economic cracks exist.

Inflation benefits the Top 10% of the economic strata.

Private debt becomes unsustainable around 225% of GDP. In the US, it’s currently 160%.

You become insolvent when you cannot make interest-only payments. That’s true for you as an individual, or a nation.

If these topics interest you, check out Richard’s new book, “The Paradox of Debt” at ParadoxOfDebt.com.

Timestamps:

America's beginnings with banking, real estate, and debt [00:00:01]

Discussion on the historical influence of Pennsylvania banking on the formation of US banking, including figures like Robert Morris and Alexander Hamilton.

The impact of autonomous vehicles on real estate [00:02:54]

Exploration of the potential effects of autonomous vehicles on real estate, including reduced need for parking and changes in commuting patterns.

The role of the Secretary of Banking and Securities in Pennsylvania [00:09:20]

Insight into the responsibilities of the Secretary of Banking and Securities in Pennsylvania, including oversight of banks and consumer protections.

The fractional reserve lending system [00:10:44]

Explanation of how banks operate through fractional reserve lending and the possibility of full reserve banks.

The origins of the US banking system and the role of Thomas Willing [00:12:06]

Discussion on the founding of the US banking system and the involvement of Thomas Willing, the first banker in the United States.

The land crisis of 1796-1797 and its impact on Robert Morris [00:14:14]

Exploration of the financial crisis caused by land speculation and how it led to Robert Morris, a prominent figure in credit ratings, ending up in debtor's prison.

The formation of the nation and its intersection with banking [00:21:50]

Discussion on the short-term loans and interest rates during the formation of the United States and the role of debt in the westward expansion.

Private sector debt and its growth [00:25:30]

Exploration of the significant increase in private sector debt since World War II and the focus on the potential issues associated with it.

Debt growth as an indicator of economic crises [00:28:23]

Insight into how rapid debt growth, particularly in the private sector, can serve as a predictor of economic crises and the shortcomings of economic models that exclude debt as a factor.

The paradox of debt [00:31:47]

Debt creates wealth, using leverage and appreciation to generate wealth.

The end game of private debt [00:33:29]

When the requirement to service debt slows the economy down to near zero.

Inflation profiting with real estate [00:37:42]

Real estate is not just an inflation hedging vehicle, but an inflation profiting vehicle due to fixed interest rate debt and rising rents.

Resources mentioned:

Show Notes:

GetRichEducation.com/472

Richard Vague’s new book:

ParadoxOfDebt.com

For access to properties or free help with a

GRE’s 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

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471: Real Financial Freedom, 4.75% Mortgages in Florida

Complete episode transcript:

Speaker 1 (00:00:01) - Welcome to. I'm your host, Keith Weinhold. I'm sitting down in Pennsylvania with the governor's appointed state secretary of banking and securities. What were America's beginnings with banking, real estate and debt? Learn how this affects you as an investor today. And what does America's day of debt reckoning look like today on Get Rich Education?

Speaker 2 (00:00:28) - You're listening to the show that has created more financial freedom than nearly any show in the world. This is Get rich education.

Speaker 1 (00:00:44) - Welcome from Harrisburg, Pennsylvania, to Harrisonburg, Virginia, and across 188 nations worldwide. I'm Keith Weinhold and you're listening to Get Rich. Education has been the Keystone state of Pennsylvania this week. In just a few minutes, you'll hear my sit down with secretary of banking and Securities for this great state of Pennsylvania from 2020 to 2023. The rather distinguished guest also sits on the Ivy League University of Pennsylvania's Board of Trustees. And before we're done, I'll be sure he understands at least one core principle here and get his opinion on that. Yeah, I visited seven US states so far here in the past month and I'll continue to visit so much of the United States.

Speaker 1 (00:01:28) - In fact, I might have done more driving this past month than at any time in my life. Now. Some people are really car people. We have this kind of car culture in the United States for some evidence that younger people aren't as interested in that is older people. I mean, some people, they get really excited about new car features or new dashboard interfaces or hybrids or EVs and charging stations. You know, none of that is really that interesting to me. However, you know, the one new car feature that I actually really care about and I'm waiting to go more mainstream. Any idea the one game changing car feature that I really can't wait to get here because it's really going to improve your quality of life. And mine and I talked about this way back in Get Rich Education Episode 13 in the year 2015 is something that is still expected to have substantial ramifications for real estate, and that feature is autonomous vehicles, also known as driverless cars. I mean, as much of the world that's automated these days and digitize, it feels like something is out of whack to have all of this technology that you have in your car today.

Speaker 1 (00:02:54) - Yet even if you're on cruise control out on Interstate 80, like I have been a lot lately, you've mostly got to keep your eyes glued to the car bumper in front of you. Yes. And the car that reliably drives itself. That's the new feature that I really want. I mean, imagine for you to be able to get some sleep or scroll your phone or I know that it sounds funny, even exercise while your car drives itself. And of course this still pretends to have a real impact on real estate. Cars will really need to be owned. It's just the subscription service that you order. A car comes to pick you up and then it drops you off where you need to go. So these cars just continue to stay in motion out there. You don't need a garage so much. And this means that cities won't need nearly as much parking. So parking lots are less important, parking garages are less important. And since you can be more productive while you're a passenger in the car drives itself, well, therefore, those neighborhoods that are say no one hour outside of the center or metro area, well, those areas won't have as much of a price discount because autonomous cars lower your time expense in commuting.

Speaker 1 (00:04:16) - But autonomous car adoption has been slower to develop than a lot of people, including me, expected. I mean, there have been a lot of experiments, But see, what happens is an experimental autonomous car crash that just makes more news than a human created car crash. And that has really slowed adoption. So yeah, I'm not so into cars. The only feature that's on the horizon that really gets me interested is winning back some of my time with autonomous cars. Hey, we have a ton of great podcast episodes lined up here at some of the most brilliant minds in the real estate and money world. Continue to join me coming up soon. Here on the show is the return of a really dynamic guest. He goes by the nickname the mad scientist of multifamily in the industry. Some call the amount of multifamily, mobile home parks self in other commercial real estate investors that have these floating interest rates, the amount of those people, it's almost insane. Higher rates are going to bring those deals down and investors will keep losing money in those deals.

Speaker 1 (00:05:27) - That's what the mad scientist of multifamily and I are going to focus on them. Yes, these people that learn how to perhaps do syndications through TikTok videos, they are losing their deals. Isn't that really is too bad because that reputation seriously that. The good operator, so we're going to sort that out for you. Then on a later episode here, one of the sharpest economic minds in the entire world joins us to discuss why the recession didn't happen as soon as he and a lot of others thought and what that means for the future of stocks and real estate and commodity prices. All of that is in the near future here on the show. But today I'm visiting my home state of Pennsylvania, where I've lived most of my life. It is the fifth most populous state, despite not being that large by area and despite the fact there are still a ton of rural areas in Pennsylvania, and of the five biggest states, Pennsylvania may very well have the deepest history. So we'll dig into some real history today.

Speaker 1 (00:06:31) - Pennsylvania banking was influential on the formation of United States banking, including that of Robert Morris. He's a pretty well known name, but he was succeeded by a better no name. Right after Robert Morse, we had Alexander Hamilton in that banking role. But yeah, Pennsylvania Robert Morris, he is known as the very financier of the American Revolutionary War. As we're about to discuss the nation's beginnings, America's formative years in land and real estate hundreds of years ago. Look, if a hundred years ago, a colonist or an early American, if he or she said this, I'm going to buy a piece of property and develop it. Okay. What do you think that meant when they said that today? If you said, I'm going to buy a piece of property and develop it, well, most people would think that you're going to build a housing development. But back then it probably meant that you were going to clear your land of trees and planted for agriculture and you're going to grow wheat or corn or tobacco.

Speaker 1 (00:07:37) - That was the discussion you were having then. What crop are you developing on your real estate? It sure wasn't. Are you going to develop apartments or condos or single family homes? That's how it might sound today. In fact, the 1790 census that shows that roughly 90% of the American population was employed in agriculture. 90%. So your real estate income was largely derived on your crop yield, which you might use to pay your debt on your land. Let's start this interview that I expect to be wide ranging as we'll take it from yesteryear up to the present day. This week's guest has served as secretary of banking and securities for the great state of Pennsylvania from 2020 to 2023. It is a cabinet level agency here in the state capital of Harrisburg. He was appointed to that position by Pennsylvania Governor Tom Wolf today. He is managing partner of Gabriel Investments as well based in Philadelphia. And today he's the author of an interesting new book. It's titled The Paradox of Debt A New Path to Prosperity Without Crisis. Welcome to Richard Vague.

Speaker 3 (00:08:53) - Thank you so much for having me.

Speaker 1 (00:08:55) - It's good to have you. For those of you listening in, the audio only vague is spelled vague. You and Richard, as Pennsylvania's secretary of banking and Securities, I know that you have various deputy secretaries that assist you. Tell me. I'm going to venture to guess that that role includes acts like the oversight of banks and various consumer protections. Are they important parts of that role?

Speaker 3 (00:09:20) - Without question. The fundamental job is looking to the safety and soundness of the banks chartered here in Pennsylvania to make sure they don't fail. And we all saw the importance of that recently. Silicon Valley bank failed in California. And I think if we'd had the caliber of examiners out in California that the folks here in Pennsylvania or that might not have happened.

Speaker 1 (00:09:44) - That's a nice compliment to those that have that oversight here in state, Richard. It sure has been interesting with interest rates actually not being historically high, but at the rate that they change and the rate that they spiked, making some things break everything else to tell us about that role with the oversight that you had of banks and consumer protections in Pennsylvania and really what everyday depositors are concerned with.

Speaker 3 (00:10:10) - Everyday depositors are concerned with getting the highest yield they can. Sure. And certainly they've been rewarded more lately than they have been over the last, let's say, ten years prior to that. But they also should be concerned about the safety and soundness of the bank they deposit with. And I think a lot of folks forgot that lesson. You know, a few years passed from a crisis and folks aren't worried about whether their bank's going to be around so much anymore. I'm really pleased to report the banks here in Pennsylvania are in really good shape.

Speaker 1 (00:10:44) - Richard, I don't even think that everyday depositors understand the fractional reserve lending institution system, which is really how most banks operate, and that is when a depositor gives the bank money or the money goes ahead and lends that out, that difference, that spread being their arbitrage, which is how they stay in business. I've got a rather interesting question, perhaps are full oil reserve banks feasible as the norm? And what I'm talking about there is banks that can't lend depositors money out and instead that bank needs to profit by charging fees to depositors.

Speaker 1 (00:11:23) - Now, I know everyone likes to get something for free, but would that be a more responsible system? Are full reserve banks feasible at all?

Speaker 3 (00:11:31) - If you did that. You know, that's something I've studied quite a bit, and that was a very active question, by the way. Yeah. In the founding of our banking system here in Pennsylvania in 1781, it's a question that's been around forever. Any economy needs to have money created in order to grow, and the banking system is what does that now. But if you banned that in the banking system, it would just have to happen somewhere else.

Speaker 1 (00:11:58) - Were there any prominent names that were involved with the setup of banking in Pennsylvania?

Speaker 3 (00:12:06) - The name that you hear the most is the guy named Robert Morris, who was the head of it was in effect, the secretary of the Treasury during the Revolutionary War. But his senior partner was the original banker in the United States, and his name was Thomas Willing in history has more or less forgotten him. And that's, by the way, the subject of my next book.

Speaker 3 (00:12:30) - I'm in the Middle of writing a biography of the origins of the US banking system and our first banker, Thomas Wells.

Speaker 1 (00:12:38) - There is a Robert Morris University in Pennsylvania, of course, and we're talking about history here, Richard. And I know that you have an excellent sense of history about the nation's beginnings in land and in real estate. Can you speak to that?

Speaker 3 (00:12:55) - The United States was all about land from the very beginning. You had massive land grants like to William Penn to found the state in the first place. But almost immediately after the founding of the country, you know, one of the reasons we had the American Revolution is because Great Britain prohibited colonists for owning land west of the Appalachian Mountains. And that was very frustrating to people like George Washington and others who had surveyed really lush pieces of land in the Ohio Valley. Immediately after the success of the revolution, the wealthy investors in America began buying millions and millions of acres towards the west, in the Ohio Valley, in Kentucky, in New York, in western Pennsylvania and the like, and got into trouble and brought the first financial crisis in US history, the land crisis of 1796 and 1797, because they were buying all that land on credit, either from the landholder, the private landholder or the the state or commonwealth that the land was in.

Speaker 3 (00:14:14) - They bought this under the presumption that the value of real estate would always go up and of course it just didn't go up fast enough. And Robert Morris to speak of someone actually ended up in debtor's prison because he overextended himself, which is somewhat ironic since he's something of a icon for credit ratings and credit prudence. And yet he was very much of a wild speculator and ended up in prison destitute.

Speaker 1 (00:14:45) - This is really interesting. Okay. And nefarious character early on in America's private real estate development, when the Appalachian mountain range in the late 1700s was deemed as the frontier to a lot of people.

Speaker 3 (00:14:59) - Absolutely. Everybody was looking west of there for the big games and the big opportunities.

Speaker 1 (00:15:06) - I mean, this is part of Manifest Destiny and the American Dream. So can you tell us more about a lot of that land in the early days west of the Appalachian Mountains? How much did the government claim is theirs and sell to private landowners on credit? And then how much were private landowners taking and were they allowed to make land claims and then sell it to someone else? Or tell us more about those early beginnings of that real estate setup?

Speaker 3 (00:15:34) - Well, that's exactly right.

Speaker 3 (00:15:35) - Most of that land was owned by the colonies, which in 1776 became states. The states own that land. The states all incurred massive debts in prosecuting the revolution itself. So by the time you get to 1783, 1787 states are deeply in debt and bondholders of state debt are not getting paid interest. And one way to alleviate that crisis was to sell land and selling it an acre here, an acre. There wasn't going to do you any good. So the states were selling land of 100,000 acre parcel a year, a million acre parcel there. Now, the guys that bought that, at first they were thinking, we'll do it, we'll develop towns, will lay out the towns, will survey them, will sell them, will attract settlers into this realm, will sell it plot buy plot to these settlers. But it was pretty clear that was a pretty slow way to make your money back. So they started looking to the wealthy in Europe and started sending brochures and agents to Europe to in essence, be able to flip their land in Early on, they were very successful at that.

Speaker 3 (00:16:54) - Guys like William Bingham, who was the richest man in America, and Robert Morris, who was one of the richest, would make, you know, 100,000 here and 100,000 there, which is tantamount to making tens of millions. Now that ended. They started doing bigger speculations. There weren't the settlers to buy it. The Europeans got a little bit smarter. You had a major national financial crisis, including, by the way, it wasn't just those Western lands. One of the biggest parts of the financial calamity was in the new town of Washington, DC, where they were moving the government, and people came in, including Robert Morris, thinking it's the seat of government where this is going to be a boomtown. And a lot of folks got into deep trouble speculating on plots in Washington DC.

Speaker 1 (00:17:42) - And if you're the listener, think that this sounds rather unorganized and free wheeling. Of course, we just need to think back a little bit earlier as to what happened when we as colonists went ahead and wrested the land away from the natives as well, of course.

Speaker 1 (00:17:57) - But yeah, Richard, you talked about some of the draw and the appeal to some of the land around Washington, D.C. there along the Potomac River. But just generally overall, in a lot of cases, this new American government, who were the land sellers trying to attract or were they trying to attract them to do, for example, was it to only and to set up a farm for agriculture or was it for trapping or what attracted people to this new land grab, if you will?

Speaker 3 (00:18:24) - The basis of wealth early on in the United States was the crops that we grew. And that obviously, first and foremost was wheat and the biggest supplier of wheat, not just in the United States, but to Europe was Pennsylvania. That's why Philadelphia became the largest city in the United States. Then just south of US and Maryland and Virginia. You had tobacco, which was our number one crop, but it was our number one export. South of that, you had indigo and rice. The further north you got, there really wasn't a lot of arable land.

Speaker 3 (00:19:03) - And that's why, you know, places like Massachusetts had to turn the manufacturing so heavily. It was really that. And fishing for cod were the only thing they could do. So, yeah, absolutely. We were a breadbasket for not just the country, but the world almost from the beginning.

Speaker 1 (00:19:21) - You talk early on about the extension of credit and how that enabled settlers to go ahead and own some of this new land? Is this sort of the early formation of long term mortgages? When did that.

Speaker 4 (00:19:35) - Occur?

Speaker 3 (00:19:36) - Well, absolutely. You know, really from well before independence. One of the problems you had is that there wasn't enough currency to really facilitate economic growth. So they began issuing paper currency in various forms. And a lot of these were very successful. This was done at the state level. And what they would do is they would create land banks. And so you would go in and take your land as a farmer. You would take it to the land bank and you could get currency up to half the value of your land and you'd pay interest on it.

Speaker 3 (00:20:14) - So it was really was a de facto mortgage, a.

Speaker 1 (00:20:18) - 50% mortgage, a.

Speaker 3 (00:20:19) - 50% mortgage, and you could spend that currency. They were well managed early on. Most of these didn't work, failed. And the first real commercial bank was Thomas Williams Bank in 1781 and Philadelphia.

Speaker 1 (00:20:35) - What were interest rates like at this time in these formative years of our nation.

Speaker 3 (00:20:40) - For bigger transactions, the range was really just 5 to 6%. It might get down to four, might get up to seven. Interest rates in the U.K. were closer to five and us, they were closer to six. There were breakdowns by a slice of an interest rate, so there wasn't an interest of 5.1% or 5.2%. And for high risk transactions, you could easily get into the same interest rate realm that some of our usurious lenders do today. Yeah, you see situations where folks in dire straits would borrow for an interest rate of 5% a month. A lot of loans in those days were very, very short term. There were the land loans that were long term.

Speaker 3 (00:21:28) - Most commercial banks made loans for 30 to 90 days, and they really were meant to bridge the period from when you, as a merchandiser bought your wholesale supplies to when you sold them as goods to the folks in your town. You could roll those loans over. But they were very short term back in those days.

Speaker 1 (00:21:50) - That is interesting. Those are really short term loans. And this is pretty parallel with what I've read around that time, that interest rates seem to be about 5%, something like that. We're talking about the formation of this nation, its beginnings in land, in real estate, and how that intersects with banking and the mortgage market and really part of the manifest destiny in the westward expansion of the United States. Yes, we are talking about a popular four letter word debt, and that word debt has only become more popular in America with consumerism here in past decades. So when Richard and I come back, we're going to talk more about debt today in the United States. In his new book, The Paradox of Debt, you can get that at Paradox of Debt.

Speaker 1 (00:22:35) - More we come back with Richard. I'm your host Keith Wayne hold you're listening to Get Rich Education. Jerry listeners can't stop talking about their service from Ridge Lending Group and MLS 42056. They have provided our tribe with more loans than anyone there truly a top lender for beginners and veterans. It's where I go to get my own loans for single family rental property up to four plex. So start your prequalification and you can chat with President Charlie Ridge personally, though even deliver your custom plan for growing your real estate portfolio. Start at Ridge Lending Group. You know, I'll just tell you for the most passive part of my real estate investing personally, I put my own dollars with Freedom family Investments because their funds pay me a stream of regular cash flow in. Returns are better than a bank savings account up to 12%. Their minimums are as low as 25 K. You don't even need to be accredited. For some of them. It's all backed by real estate. And I kind of love how the tax benefit of doing this can offset capital gains in your W-2, jobs, income.

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Speaker 4 (00:24:22) - Listen to Get Rich Education with Keith Reinhold and Don't Quit Your Day Dream.

Speaker 1 (00:24:37) - Welcome back to Get Rich Education. We're talking with the guest that served as the secretary of banking and securities for the great state of Pennsylvania since 2020. Today, he's the author of an interesting new book. It's titled The Paradox of Debt A New Path to Prosperity Without Crisis. His name is Richard Vig. He's joining us from here in Pennsylvania, where we are together today. And Richard, I know that you have a lot of commentary about modern debt and what we can do about today's debt and how debt really seems to have expanded a lot since Nixon pegged us from the last vestige of the gold standard back in 1971.

Speaker 1 (00:25:14) - I guess really the preeminent question, Richard, is should debt be a concern? We read all these stories about unrelatable numbers, about how the United States has $33 trillion of stated public debt. What's problematic?

Speaker 3 (00:25:30) - There's a lot more private sector debt than public debt. And I think private sector debt is the area where we need to focus and where our concern needs to be. Private debt has increased since World War two from 35% of GDP to 160% of GDP. Wow. So it's almost quintupled. There's about $41 trillion worth of private sector debt. That's a bigger number than the government debt number, and that's globally as well. There's about a $150 trillion worth of private sector debt and only about $90 trillion worth of government debt.

Speaker 1 (00:26:09) - And what is private sector debt? Are we talking about automobile loans, credit card loans, student loans?

Speaker 3 (00:26:14) - It's roughly divided between business and household debt. So if we've got 40 trillion in debt, it's about 20 business and 20 households. And within both of those categories, the single biggest type of debt is real estate by far.

Speaker 3 (00:26:31) - So within household debt, it's about 20 trillion. Almost 14 trillion of that is mortgage debt. On the business side, it's about 20 trillion. About 6 trillion of that is commercial real estate debt. So there's never been a time where real estate debt, household and commercial has not been really kind of the driving force of the economy.

Speaker 1 (00:26:57) - You got public sector debt and you got private sector debt. And, you know, it's kind of funny, Richard, if someone asked me what the difference between those two is, there's a few different directions you could go. What I like to tell some people is, well, the government can just print dollars, okay? Everyday consumers in businesses, they don't have that handle. So the government can print dollars and they can call that whatever name they want to quantitative easing. Maybe they want to call it currency creation. But over here, if the individual tries to do something like that, it's called counterfeiting. So, yes, it can be more problematic. Individuals cannot print their own dollars at home.

Speaker 3 (00:27:32) - That's exactly right. And that's why private debt is the area that we should focus more on. If you think about the great financial crisis of 2008, mortgage debt in 2002 was $5 trillion. By 2007, it was $10 trillion. It had doubled in less than five years. And we all now know that was millions of mortgages that it should never have been made. That was mortgages where the individuals had no income, no job, no assets. Those were homes that stood empty for years. And in many cases, they had to get torn down.

Speaker 4 (00:28:10) - Yeah.

Speaker 3 (00:28:11) - If you want to look out for trouble, the place to look is in the private sector debt. And the way to detect it is wherever it's growing very, very rapidly, that's where you're going to have a problem.

Speaker 1 (00:28:23) - So that's therefore a way to help predict economic crises. It's debt growth or I guess you could really call it credit growth as well, right? I mean, both credit and debt are basically the same terms for the different side of a transaction wherever the growth in that is most rapid is really where the economic cracks are.

Speaker 3 (00:28:43) - That's exactly right. And the fact that the Federal Reserve did not spot that in 2005 and six is one of the great stories of our time. They build economic models that don't even include debt as a factor whatsoever. Everybody finds that very surprising. It's called the DSG model, and it models the future of the economy without taking into consideration anything about debt.

Speaker 1 (00:29:12) - Why is that excluded? Mean, I'm a bit taken aback by what you just told me. Think you can tell.

Speaker 3 (00:29:18) - It's the fact. And economists got so theoretical going back a couple of decades that they started separating out financial economy from what they call the real economy. And they just stopped studying the financial economy as kind of a secondary matter to the real economy. The real economy would be, you know, the wheat and the automobile that gets manufactured and so forth and so on. My argument is those two things are inseparable. You shouldn't and cannot consider one without the other. And that's a huge blind spot in our Orthodox economics profession.

Speaker 1 (00:30:01) - Tell us more about how what we've discussed ties in to the thesis of your book.

Speaker 1 (00:30:06) - Richard The Paradox of Debt. What's the paradox?

Speaker 3 (00:30:10) - Paradox is that debt creates wealth, but it also creates calamity. So, for example, in the pandemic, 20 through 22, government debt alone increased by $8 trillion. Household wealth increased by $30 trillion. So the money the government spends does not disappear. It actually goes into the checking accounts of households. So at the end of that three year period, households had 8 trillion more in deposits in their checking accounts. And the flood of new money had pushed up real estate and stock values. So cash in bank accounts increased by 8 trillion, and the value of real estate and stocks increased by 20 something trillion. So households were $30 trillion better off at the end of 22 than they had been at the end of 19. However, most of that, like 80% of that benefit, went to the top 10% of the population. And that's for the very simple reason that most assets, most stocks and real estate are held by the top 10%, like 65% of all the stock in real estate in the country is held by the top 10%.

Speaker 3 (00:31:32) - The bottom 60%, six 0%, only hold about 14% of the stocks in real estate. So for real estate and stock values go up, it's the most well-to-do that get the benefit.

Speaker 1 (00:31:47) - That's right. And it's really the listeners on this show that we want to help take from poor or middle class and help them understand something you said in just a couple of minutes ago, that debt creates wealth, which is a paradox to many. The title of your book is The Paradox of Debt. So here what we often do is get 75 to 80% loans on an income producing property where the rent income meets or exceeds all of the expenses. And this is creating wealth. How is that wealth generated debt? A 75 to 80% loan debt is leverage and leverage appreciation actually makes compound interest look pretty slow. So a very concrete example in a sense of the paradox of debt that we're using right here at Get Rich education. Richard.

Speaker 3 (00:32:31) - You have described something that is not just true about real estate transactions, but it's true about the economy as a whole.

Speaker 3 (00:32:40) - That's the essential analysis. Yeah. And to put some macro numbers on it, in 1980, total debt in the economy, government plus household was 125% of GDP. Today it's 260% of GDP. Yeah. Yeah. And that exact same time span, household wealth, net of debt went from 352% of GDP to 600% of GDP. Debt created. Well.

Speaker 1 (00:33:12) - Yes, those are some astonishing figures. I guess as we're winding down here, Richard, one might wonder, well, where is the ceiling? When is the day of reckoning? When do we reach a calamity? How do we know that there's too much private debt and how does that actually look?

Speaker 3 (00:33:29) - We have a chapter on that very subject in the book there. It's pretty easy to see that there's an end game on the private sector side. And right now we're at about 160% of GDP. We think that that's probably somewhere in the 225% of GDP range here in the United States when there's so much debt that the requirement to service that debt slows the economy down to near zero.

Speaker 3 (00:34:00) - On the government debt, for the very reason you suggested that limitation doesn't really exist, the government could refinance its debt in perpetuity. As we said a moment ago, that ends up in the bank accounts of households anyway. So the thing I look to and I'm concerned about is private debt. Even though if you go flip on the cable news channels, you would think the world's about to end because of our government debt.

Speaker 1 (00:34:26) - Now tell me, am I oversimplifying things here, at least with private debtors, everyday Americans, when an interest only payment on your debt exceeds your ability to service it each month? Is that the path to bankruptcy right there?

Speaker 3 (00:34:42) - You got it. And whatever you say about an individual, you can say about the economy as a whole, because GDP is really just the sum of the individuals and businesses in the US. So if all the individuals and businesses are approaching this, the circumstance you just described, economy is not going to grow well there.

Speaker 1 (00:35:03) - Any last things that you would like to tell us about you very well received book because again, it's called The Paradox of Debt in the subtitle is A New Path to Prosperity Without Crisis.

Speaker 3 (00:35:14) - We cover the same material for the other six largest countries in the world. So if you read the book, you're not just going to learn about the US, you're going to learn about China, Japan, Germany, France, England and India. And I think it gives you the kind of fulsome grounding you need to better understand the news stories that we get such a barrage of every day.

Speaker 1 (00:35:38) - That's right. We need a frame of reference and putting our own more domestic debt into perspective here. Well, Richard, if someone wants to get a hold of the book, remind them of how they can best do that.

Speaker 3 (00:35:49) - Thank you so much. Go to Paradox of Debt or go to Amazon or Barnes and Noble and just search for that and it'll be right there.

Speaker 1 (00:35:58) - Oh, Richard, you've helped expand our debt mindset somewhat here on the show today. It's been great having you here.

Speaker 3 (00:36:05) - It's been such a privilege. Thank you for having me.

Speaker 1 (00:36:14) - A lot of interesting history with Richard Vig today, this great state of Pennsylvania's secretary of banking and securities.

Speaker 1 (00:36:20) - One concept that really hasn't changed throughout history that we discussed there is that inflation mostly benefits those at the top. Again, check out Richard's book at Paradox of debt.com. But yes, real estate, it is still known as an inflation hedge. You still hear that term thrown around a lot but I really try to use a different term not hedge I don't like hedge. Okay. In the investing world, the word hedge means something that you do to offset risks. I don't like that word used with real estate. So therefore, the word hedge that really correlates with a defensive strategy. I mean, hedge, that's probably a better term for gold. Gold is a hedge against inflation. That makes sense to me. But where I draw the distinction is that investment property bought with a loan is not merely a hedge against inflation. That's why when I coined the real estate pays five ways back in 2015, the fifth benefit, it's not called inflation hedging. It is called inflation profiting. Now, if you're only looking at the overall capital price of your real estate, even your own home, well then it's dollar denominated price alone.

Speaker 1 (00:37:42) - Well, that could be a hedge against inflation. But that's only the beginning, because when you get the fixed interest rate debt with it, now you're profiting because inflation debases your debt while the tenant makes all of the payments. And then as your rents rise with inflation, the reason that your monthly profit, your cash flow rises faster than inflation is, of course, due to the fact that your principal and interest payment stays fixed and feels really low over time. That's the inflation Triple Crown that I just described right there. And that's why when you buy investment property, REIT real estate is not just an inflation hedging vehicle, it is an inflation profiting vehicle. And today real estate isn't just scarce. It is still about 60% below the needed supply. And then amidst that, within that, single family homes are even more scarce. And then entry level homes that make the best rentals are even more scarce than that. But here on the show, we connect you with those builders and providers that are making the most in-demand properties available.

Speaker 1 (00:38:59) - Oftentimes these single family homes that are entry level. So therefore, in this environment, if you can get a hold of those, you are going to own a scarce asset that everyone wants. That's what we help you do here. But mortgage rates have been a hindrance for adding investments. But with our referral network here, we have largely solved that problem for you. We have providers that offer 5.75% mortgage rates because they buy down your rate for you less. We're going to show you've heard how a Marketplace income property provider is offering an astounding 4.75% mortgage rate. And although it has some shortcomings, there are also 2.99% seller financed investment properties that you can tie up. Yes. Today. So profit from a scarce asset that everyone wants and benefits from higher inflation. And today it really tilts toward you, often giving more consideration to new build properties because builders, they're the ones that are aggressively buying down your rate for you today. And new builds also have lower insurance rates last year. To make it easier for you, we started our free investment coaching service so contact your investment coach to help get you started.

Speaker 1 (00:40:19) - Some of our more popular markets lately are in Ohio, Indiana, Missouri, Tennessee, Alabama, Florida, Georgia in summer. So whether you like to connect with the provider on your own, if that's what you like to do or if you don't, you can then just utilize our service free of charge investment coaching. You can do all of that at GREmarketplace.com thanks to Richard Vague today until next week I'm your host Keith Weinhold. Don't quit your daydream!

Speaker 5 (00:40:57) - Nothing on this show should be considered specific, personal or professional advice. Please consult an appropriate tax, legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of Get Rich Education LLC exclusively.

Speaker 1 (00:41:25) - The preceding program was brought to you by your home for wealth building. Get rich education.

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Mon, 16 October 2023

At age 20, you’re actually happy to trade your time for money.

At 30, many have realized that they don’t want to work at their job for the rest of their lives.

At 40, if you have collected things that pay you to own them, you’re financially-free.

Instead, by age 50, corporate ladder-climbers often realize that their ladder was leaning up against the wrong building.

Most people play the wrong financial game all their life. You want to get financially-free first. You can get debt-free later.

“The Debt Decamillionaire” concept is revisited.

Learn how to get 4.75% mortgage rates for Florida income property with what is known as a “builder-forward commitment”. Start here.

What about hotly spiking Florida property insurance? We discuss how premiums have been kept in-check with post-2004 built property and more.

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470: The Collapse of American Cities with Doug Casey

Monologue transcript:

Welcome to GRE! I’m your host, Keith Weinhold. Financially, you need to play a game worth winning. It’s not about being debt-free. Instead, I discuss how at each age-when you’re 20, 30, 40, 50 and beyond, it’s about being financially-free.

Then, in an era where mortgage rates are 7 to 8%, we go straight to the source, in Florida, on how to get 4¾% mortgage rates on new-build property. Today, on Get Rich Education.

___________

Welcome to GRE! From Framingham, MA to Dillingham, AK and across 188 nations worldwide, yeah, you & I are back together here on Episode 471 of Get Rich Education. I’m your host, Keith Weinhold.

You’ve got to play a game worth winning - with your personal finances. Most play the wrong game.

Now, you’re already initiated on this. Debt-free just means that you don’t owe anyone anything. FF means that you’ve got enough passive income that you can do what you want to do, when you want to do it. FF is the flex.

Now, when you’re around age 20 - you might be new to full-time employment.

And you know what, it actually can feel kinda good when you’re in your early twenties are you’re being paid what feels like a respectable income for the first time in your life.

Now, ten years go by, and by the time that you’re 30, you know, I think that a lot of work-a-day job types - you might tell yourself, ya know, making money is alright at this point. But I really don't want to do this for the rest of life.

Maybe around age 30, you pursue alternative avenues of more RESIDUAL income.

But some people just keep plowing ahead hating big chunks of their life and devoting energy at a full-time job, because somehow, you feel like you HAVE to.

Others, though it’s a minority, it’s you. Because, instead, maybe around age 30, you tell yourself that you’d rather start building things that pay you to own them.

The mindset supersedes the grindset.

And by age 40, you’re out. You’re out of that soul-sucking job and you’re living that life that you’ve always dreamed of living already. It sure could happen earlier.

And by age 50, you’re so glad that you chose the financially free financial track in life - rather than the debt-free track.

Back on the slow, scarce debt-free track - the people that mistakenly think that debt-free is the game worth winning - they’re still losing their zero-sum, non-replenishable resource of time in their 30s and 40s and 50s and 60s and maybe 70s.

Perhaps somewhere around 30, abundantly-minded, aware people like you developed your divergent, not-running-with-the-herd FF path instead.

You believe that money is an abundant resource - because you start having it all around you.

You built a financial windfall for yourself with simultaneous RE cash flow, leverage, and arbitrage while you’re young enough to enjoy it.

Instead, the “work at a soulless job” type tries to get debt-free, climb the corporate ladder, and believes that money is a scarce resource (which is why they think they need to be debt-free). They defer their life and get eaten up by inflation and zero passive cash flow.

THAT person, by age 50, is asking themselves where all the time went. It went to a job that you’re not passionate about - and you can’t change history. All those time chapters of your life… are… gone.

And you begin to realize that the corporate ladder that you climbed… was leaning up against the wronggggg building for decades.

Those are two paths of those in their productive working years - the “there’s never enough” debt-free world vs. the “money is abundant” FF world.

If you retire debt, like paying off a mortgage early, all those dollars are gone, when they could have been leveraging, say, 5 properties at once.

Now, if you’re late to realize this, like you didn’t have the FF epiphany by 30 or whatever. It’s not too late.

You’ll remember that in recent months here, we had two GRE listeners come on the show for two different episodes - Scott Saunders and then Shawn Finnegan.

Shawn - you might remember that was the inventor of a home gym system - he didn’t hear this show & start until he was 52 and he’s gotten to his first $2,000 of passive cash flow fairly quickly.

FF beats DF. And FF is the game worth winning.

Retiring debt early means your dollars can't be employed in true wealth-building activities.

Now, look. You might call me old-fashioned on this. But I like the integrity of doing what I say that I’m going to do, following through, and following up.

We check back at the end of the year to see how GRE’s housing price appreciation forecast from the previous year actually went.

Back in January, we had the return of an agricultural RE principal where the cash flows DIDN’T hit what were targeteded, so we followed through and discussed why THAT happened.

And now…

You might remember that a few years ago, here on the show, I introduced you to the novel concept of being the Debt Decamillionaire.

That means that you’ve achieved $10M in debt - which doesn’t sound like an achievement to most people. That’s the Debt Decamillionaire. I recommended this as a desirable path for you - though many could deem it iconoclastic or even heretical.

If the only thing that I knew about you is that, say, you had $10M in real estate debt, I’d know that the chances are good that you’re a financial WINNER.

Yep, it’s actually unlikely that $10M in debt would make you a loser.

Not only would you have to be creditworthy to even get $10M of debt… just think about if you would have tied up that much debt, say, five years ago.

Well, how has it actually gone for the person with $10M in income property debt over the past 5 years?

We've had perhaps… 25% cumulative inflation since then - with higher wages, prices, salaries, and rents.

So then, your $10M debt is whittled down to just $7½M of inflation-adjusted debt.

So inflation passively beat down your debt for you, plus your tenants would have paid it down to somewhere below $7M.

So now, you’d be $3M wealthier, just off the debt debasement alone.

Meanwhile, over on the asset side, your property value that you borrowed against might have gone from something like $12M up to $18M… and all

While it created ALL that leverage plus some cash flow and tax benefit for you at the same time.

If you only managed to tie up $1M in investment property debt, then just take 10% of all those numbers.

And pat yourself on the back for being a debt MILLIONAIRE. Ha! Not Debt Decamillionaire.

Instead, high inflation made the debt-free approach hurt - really sting over the last five years. The opportunity lost!

DF is playing small ball, saying money is a scarce resource, and it even correlates more with people being addicted to a paycheck.

There’s a benefit to a paycheck. But is the trade-off worse? Paycheck dependence is like you being addicted to a TIME thief.

That is, unless you get an unusually extraordinary amount of meaning from your work. In that case, great.

Now, a high interest rate environment could narrow the gap between how much better FF is than DF. But we’re not in one of those. We’re in a historically average interest rate environment.

But in just a few minutes here, we’ll bring in a prominent American homebuilder of BTR homes that’ll tell you how to still get mortgage rates as low as 4¾%.

In fact, the time in the market cycle is really right for talking about this. You’ll remember that last month, Housing Intelligence Analyst Rick Sharga & I discussed why today’s market is a good opportunity for residential REIs.

It’s a bad market for primary residence HBs

It’s a bad market for flippers

It’s a bad market for real estate agents - with lower sales volume.

And it’s a… decent market for many homebuilders.

I am in Chicago today.

Next week, I’ll be in - my home state - the Keystone State of PA. I’ll Sit down with Richard Vague, the Secretary of Banking and Securities for the great Commonwealth of PA from 2020 to 2023, there in the state capital, Harrisburg.

It is a cabinet-level agency.

He was appointed to that position by PA’s Governor.

He also sits on the Ivy League University of Pennsylvania Board of Trustees.

I’ll be sure he understands some core GRE principles here and get HIS opinion on those. That should be a really interesting episode next week. I don’t know what kind of turn that’s going to take.

To review what you’re learned so far, I think you already know that FF beats DF.

Rushing to be debt-free exacts an opportunity cost on you. It postpones what you really want - Financial Freedom… and once you get FF, if you do desire to be debt-free then, hey, great!

Let’s discuss how to get lower Florida insurance premiums, 4¾% mortgage rates and a free year of property management.

A lot of our listeners have acted on this. And I don’t want you to miss out because I don’t know how long it can last.

___________

Usually, you see fewer investors that want to exchange their properties in a higher interest rate environment, because you’re trading in a lower rate property for a higher rate property.

But here, 1031s look more attractive because we’ve bent that back with rates down to 4.75% + lower insurance premiums on post-2004-built Florida property plus 1 year of free PM.

So many of you have been acting here on this - either by yourself at GRE Marketplace, or working through one of our free Investment Coaches. So, if it can help you, don’t miss out. This won’t last forever.

You can get started at: GREmarketplace.com/Southeast

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

Direct download: GREepisode471_.mp3
Category:general -- posted at: 4:00am EDT

Mon, 9 October 2023

Crime, homelessness, poverty, immorality, theft and urban decay. What are US cities turning into?

NYC Mayor Eric Adams has said that 100,000 new migrants will destroy his city.

With business and residents moving out of many urban cores, property tax revenues decline.

San Francisco’s Union Square neighborhood has been especially hard hit. 60,000 people left SF county from 2020 to 2022. There’s homelessness, crime, higher housing costs and more remote work. There are now shuttered storefronts. Nordstrom and Whole Foods closed there.

Vacant office buildings often can’t be turned into residential housing. This accelerates decay and urban stagnation.

Author Doug Casey joins the discussion.

We discuss the “Defund the Police” movement.

The fall of Rome and Babylon are compared.

Learn what other nations think about America today. If America is so bad, why are migrants attracted to it?

We need to be mindful that nations, states, and cities all vary substantially by crime and demographics within them.

Resources mentioned:

Show Notes:

GetRichEducation.com/470

Doug Casey’s website:

InternationalMan.com

Doug Casey’s YouTube:

Doug Casey’s Take

If you’d like help with one of

GRE’s Investment Coaches (free), 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

Will you please leave a review for the show? I’d be grateful. Search “how to leave an Apple Podcasts review”

Top Properties & Providers:

GRE Free Investment Coaching:

Best Financial Education:

Get our wealth-building newsletter free—

text ‘GRE’ to 66866

Our YouTube Channel:

Follow us on Instagram:

Keith’s personal Instagram:

469: How To Work the Tax System Like a Billionaire

Direct download: GREepisode470_.mp3
Category:general -- posted at: 4:00am EDT

Mon, 2 October 2023

Learn how to permanently reduce your tax burden. The greatest tax breaks for real estate investors are revealed.

But first, home prices are permanently elevated because they’re larger and with more amenities than they had in the 1970s.

Today’s homes have vaulted ceilings, multiple fireplaces, granite countertops and more square footage. I describe.

John Hyre, the Tax Reduction Lawyer, joins us for the first time.

The top federal income tax rate is 37%. Learn where it’s headed next.

On your short-term rentals (like Airbnbs), sometimes you can reduce your taxes by legally stating that it’s a “hotel”.

Your rent income is taxed at less than your day job (W-2) income. Rent income is not burdened with social security and self-employment tax.

Learn exactly how tax depreciation lowers taxable income for real estate investors.

You’ll legally never pay any capital gains tax with a 1031 Exchange. We review how.

Will the 1031 Exchange go away?

John tells us how to get $100K tax-free out of your property—without doing an exchange.

Timestamps:

The direction of the marginal income tax rate [00:08:19]

Discussion about the current marginal income tax rate and the potential for changes in the future.

Tax changes under the Trump administration [00:09:22]

Explanation of the Trump tax changes and the potential impact of those changes on real estate investors.

Taxation of rental income [00:10:08]

Explanation of how rental income is taxed differently from regular job income, specifically regarding self-employment and social security taxes.

Opportunity and traps of Airbnb rentals [00:10:25]

Discussion on the potential to convert Airbnb income into losses and the tax implications of Airbnb rentals.

Making an Airbnb an active trade or business [00:11:41]

Exploring the distinction between treating an Airbnb as rental income or hotel income for self-employment purposes.

Accelerating depreciation with cost segregation study [00:14:17]

Explanation of cost segregation study and how it can help real estate investors lower their taxable income by depreciating certain assets more aggressively.

Tax Depreciation and its Benefits [00:21:34]

Explanation of how tax depreciation works in real estate investing and its value in reducing taxable income.

The Basics of 1031 Exchange [00:26:13]

Overview of the 1031 exchange, a tax-deferred exchange that allows real estate investors to swap properties without paying capital gains tax.

The Long-Term Benefits of 1031 Exchange [00:28:37]

Discussion on the strategy of using 1031 exchanges until death to maximize tax deferral and potentially convert it into tax-free gains for heirs.

The 1031 Exchange Trick [00:30:36]

Speaker 3 explains a trick to maximize the benefits of a 1031 exchange by utilizing passive activity losses.

The Pass-Through Deduction [00:33:21]

Speaker 3 discusses the concept of the pass-through deduction and its application to rentals, providing insights on how to maximize the deduction.

Future Tax Policies [00:36:15]

The potential tax policies of Democratic and Republican presidential candidates are discussed, with an emphasis on their stance towards real estate and taxes.

The 1031 tax deferred exchange [00:40:03]

Explanation of the 1031 tax deferred exchange and its potential benefits for real estate investors.

Disclaimer and advice [00:40:36]

Disclaimer about the show not providing specific personal or professional advice, and the need to consult appropriate professionals for individualized advice.

Sponsorship message [00:41:04]

Acknowledgment of the show's sponsor, getricheducation.com, as a platform for wealth building.

Resources mentioned:

Show Notes:

www.GetRichEducation.com/469

Learn more about John Hyre:

www.TaxReductionLawyer.com

If you’d like help with one of

GRE’s Investment Coaches (free), 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

Will you please leave a review for the show? I’d be grateful. Search “how to leave an Apple Podcasts review”

Top Properties & Providers:

GRE Free Investment Coaching:

Best Financial Education:

Get our wealth-building newsletter free—

text ‘GRE’ to 66866

Our YouTube Channel:

Follow us on Instagram:

Keith’s personal Instagram:

468: Is This America's Best Cashflow Real Estate Market?

Complete episode transcript:

Speaker 1 (00:00:01) - Welcome to. I'm your host, Keith Weinhold. Real estate investors get tax breaks like you'll find absolutely nowhere else in the entire tax code that can help you legally work the tax system like you're a billionaire and actually work your way toward becoming a billionaire. Today on Get Rich Education.

Speaker 2 (00:00:22) - You're listening to the show that has created more financial freedom than nearly any show in the world. This is Get rich education.

Speaker 1 (00:00:38) - Welcome from Belgrade, Serbia, to Bellingham, Washington, and across 188 nations worldwide with 5.2 million listener downloads. I'm your host Keith Weinhold and this is Get Rich education. Yeah, you're back at that abundant place and you gotta be because the scarcity mentality is abundant in the abundance mentality is scarce so be frugal with your time, not your money. You can afford to be because you live by the mantra that financially free beats debt free. Throughout our nine years of weekly shows here, Waiting in the Wings is just the third ever expert tax guest we've had on the show. The other two are Tom Wheelwright and Kristen Tate.

Speaker 1 (00:01:18) - You meet the third one in a few minutes. Here I am sitting the first half of this month in Denver, Omaha and then Chicago checking out real estate markets and more. Before we talk taxes. All prices have risen this year, just like they do most years, and they expect to stay elevated. I've talked before about all those reasons why demographic and supply demand and all of that, but why else are houses permanently more expensive today than they were decades ago, even when adjusted for inflation in some cases? Well, it's not all the dollars given to people during Covid or anything like that. It's just the fact that houses are bigger and more complicated than they were in the 1970s and 1980s. I mean, they used to build houses that were just 1000 or 1500 square feet. I mean, often it would be like a three bed, one bath house with a one car garage that used to be sort of the suburban staple. Well, today it'll often be four bed, three bath, three car garage with things that didn't exist in yesteryear.

Speaker 1 (00:02:26) - I mean, today you have things like multiple fireplaces and vaulted ceilings and more overall size and more amenities that would have just been considered a luxury home like 50 years ago. So the home quality is better and you also have more strict building codes that leads to things like more insulation or egress windows or different roofs or wiring or Hvac and plumbing in that courts are going to countertops, even in rentals. That was an unthinkable luxury 50 plus years ago. And also today, it's just more expensive to develop land. It takes years to get approvals for drainage and utilities and roads and environmental requirements. And after all that, all those factors that make us real estate more expensive. The US still has some of the most affordable property prices in the entire world. Now those changes that I talked about aren't bad. It just makes real estate more expensive. And a lot of times those changes are actually good. It means we have a higher and better standard of living now and now seemingly everyone from Warren Buffett, with his big investment in home builders to shark tanks, Barbara Corcoran's bullishness, I mean, all these people have made either bullish bets or bullish remarks on real estate, all these prominent figures.

Speaker 1 (00:03:52) - And we are to, in future episodes of the show here, someone who admits that he's a gloomier guest. He and I are going to produce a fascinating episode on the collapse of American cities, what's happening in some of our inner cities, How bad is it and how bad will it get? Yeah, we're talking about the collapse of American cities in that episode. And also in a few weeks, I will be in the Keystone state of Pennsylvania for a different, fascinating episode. That's what I'm going to sit down with. The Honorable Secretary of Banking and Securities for the great state of Pennsylvania. He's in that role from 2020 to 2023. That's a cabinet level agency there in the state capital of Harrisburg. And my guest for that show there, yes, he was appointed to that position by Pennsylvania's governor. And he also sits on the board of trustees for an Ivy League university. That is Penn there in Philadelphia. And I'll be sure that the secretary of banking and securities for Pennsylvania that he understands some core principles here and get his opinion on those.

Speaker 1 (00:04:58) - So, again, that's the secretary of banking and securities for the great state of Pennsylvania appointed by the governor. Coming up here on Gray. Now, when we look down the road into the more distant future here on the show in, well, I guess, 31 weeks on Monday, May 6th, 2024, do you have any idea what that day is? That day is episode 500 of the Get Rich Education podcast, and I'm going to take you on an abundance mindset journey then that I hope you'll never forget for episode 500. That's on May 6th of next year. So many other great episodes are in the works here for the show. The housing market has momentum. I have a lot of great material that I want to share directly with you, and we really have some of the top guests in the industry. And I guess they're attracted here because they know that they'll reach a large, passionate, actionable audience and that's what you are. So if you're new here to the podcast, I invite you come along with me.

Speaker 1 (00:06:01) - I think you'll find it valuable. If you immerse yourself, you'll find it life changing and everything that we do and offer here is free. This show reliably recurs in your life every single week without any exceptions, just like it has since 2014. And we have never replayed an old show. I am here for you. I'm inviting you. Be sure to subscribe or follow in your favorite pod catcher. And the reason that I tell you about the Get Rich Education mobile app is that if you have someone in your life whose life would like to be changed by real estate investing or could be changed by real estate investing but doesn't know about podcasts that way. For iOS and Android, you can just have them grab the Get Rich Education mobile app. We are in Q4 and it is time to think about your taxes before the year ends. Today's expert tax guest is brilliant and understands nuances about the tax code that I sure don't. This centers on the US tax code. But you know what? If you're outside the United States, many nations provide similar incentives to the United States.

Speaker 1 (00:07:08) - Now, I don't know about you, but in my opinion, tax talk, you know, if one isn't careful, it can quickly feel like an abstraction which can make it hard to understand. We are get rich education. I'm here to help you understand things. So what I'd like to do to help aid in your comprehension is jump in and use concrete examples during our interview here. And then after the interview, I'm also going to review what you learned. Hey, today's guest is making his debut. He's a tax reduction professional. He caters real estate investors and small businesses. In fact, he is pretty well known as the tax reduction lawyer. Hey, welcome on to John Hiatt. Thanks for having me.

Speaker 3 (00:07:57) - Glad to be here from Argentina.

Speaker 1 (00:08:00) - Yeah, you're joining me from a most interesting place today, a place with high inflation and tasty steaks and a lot of other things going on in Argentina today. But back here in the United States, where so much of our listenership is, I want to get into the real estate part and how real estate investors can lower their tax burden shortly.

Speaker 1 (00:08:19) - But first of all, just in general, John, every one of us that has an income pays an income tax. Now, Obama had the highest marginal income tax rate of 39.6% under the Trump administration. That was soon lowered from 39.6 down to 37 when the Biden administration came into power. A lot of people felt like that 37% rate was going to be raised back up to 39.6, but it was not, and it's still at 37%. So with that context, can you talk to us more about the direction of the marginal income tax rate?

Speaker 3 (00:08:55) - Gridlock, glorious, wonderful gridlock, when those people in DC are unable to, quote unquote do anything mean? I'm happy in one sense. I get a lot of opportunities to make content when the law changes. But in terms of the good of the country, when very little is changing in DC, yeah, usually I'm a happy camper and right now with the gridlock and they're not agreeing on things, I would say the most that's likely to happen, I don't think marginal tax rates will change.

Speaker 3 (00:09:22) - There is some negotiation on some of the Trump tax changes, which were almost all very positive, are fading out. For example, bonus depreciation is dropping by 20% per year. Right? So the Republicans are trying to keep it at 100%. The Democrats want more spending. That's the polite term. Let's leave it at spending. And so there is some discussion going. We'll see if they can agree or not. But I don't see any massive changes coming given the gridlock.

Speaker 1 (00:09:51) - Now as real estate investors and we think about the income tax, one often wonders, even when someone's been a real estate investor for a little while, John, I don't quite think they understand how the rent income is taxed differently than their daily job income. Can you tell us about that?

Speaker 3 (00:10:08) - Yeah, really important in two contexts. I'm going to give you the straight rentals on straight rentals. The rental income had schedule E instead of schedule C or some other schedule. So like W-2 income, the extent it's tax, there's no self-employment or Social Security.

Speaker 3 (00:10:25) - So that is a positive. Also, with things like depreciation, you have a lot greater opportunity to zero out the income or even convert it into losses. Now, if you manage to convert it into losses, we have a separate struggle which is making those losses useful. In other words, they're not being passive losses which we can have a discussion on. Another up and coming area is short term rentals. I'll just call it Airbnbs generically, even though there are a lot of other systems, it's really important to understand there's opportunity here, but there also traps. Airbnbs can be taxed as rental income or hotel income. And which one do you want? Well, the lawyer answer, of course, is always it depends. Usually we want it taxed as rental income for self-employment purposes. In other words, your Airbnb normally belongs on schedule E, not schedule C, which is good because you avoid self-employment tax. Most CPAs don't understand that. Second, from a passive loss standpoint, in other words, converting these passive bad losses into good losses that might offset your W-2.

Speaker 3 (00:11:36) - You want the Airbnb treated from that standpoint as a hotel.

Speaker 1 (00:11:41) - And when John's using the word hotel, he's using his fingers to make little, quote, signs around the word hotel.

Speaker 3 (00:11:48) - Yes, because hotels are considered not rentals. It's an active trade or business. And the definition is different. So we have the code might take the same word and define it 15 different ways depending on which part of the code you're playing with here. That helps us real brief one your audience, A lot of them have a day job. A lot of them would have a hard time becoming real estate professionals, which would allow them to take passive losses on rentals. Right. Well, for those who happen to be in Airbnbs or even just temporarily want to get into Airbnbs to get a loss, here's a classic strategy for people who have a W-2 job or otherwise have too much work time outside of real estate. They cannot ever be a real estate professional. It's just not going to happen. And again, the impact of that means passive rental losses stay passive.

Speaker 3 (00:12:40) - They. On the return. They don't help you in the present. A way to wake up those losses and make them active is the first year you have a rental for passive loss purposes. Make it an Airbnb and be personally involved with it. So let's talk about that. How do you make it an Airbnb for passive loss purposes? There are a number of ways because I can talk for hours and you don't want that. The most common way to make something into an Airbnb for passive loss purposes is on average rented for seven days or less. If you rent it for seven days or less, it still goes on schedule. E No social security tax. But instead of rental passive loss rules, you deal with the normal ones. What does that mean If you spend 100 hours or more and by the way, you means you and your spouse, if you're filing married, filing jointly, your hours both count so you can split the burden. If your hands on renting the Airbnb, let's say you buy it late in the year so you don't have to run it all year and you spend 100 or more hours on it between the two of you and no other human spends more time than you, then it is considered active.

Speaker 3 (00:13:51) - People will want to rewind and listen to that because it's a great strategy for in the first year you own something going to be a rental, maybe buy it towards the end of the year, run it as an Airbnb for the end of the year. Not a big time commitment. 100 plus hours. Take the cost segregation study, write that all off and use it. It's actually will lower your W-2 income. It's useful. And then in year two, if you want to go back to it being a normal rent.

Speaker 1 (00:14:17) - So we're talking about accelerating your depreciation and therefore decreasing the amount of your taxable income with this strategy.

Speaker 3 (00:14:27) - Yep. So the cost segregation study where the basics of cost segregation, when you hear the term, first of all, you only use it if you can use the loss. But if the loss is going to be passive, don't add cost, it's going to cost you money and get you not. But if you can use the law, what is cost? Segregation? We depreciate more aggressively.

Speaker 3 (00:14:46) - A very brief description. Everything outdoors that God did not put there. Fences, sidewalks, decks, landscaping. It was put there by builders like the oak tree that the squirrel put there. We give God credit for that one. But if the builder actually planted a row of trees, they get the credit. All these things that God did not put outdoors can be depreciated very rapidly and get you a much larger write off. And then all personal property which we define as anything a tenant can steal without using power tools. So furniture, some of the carpeting, maybe some of the cupboards, window treatments, etcetera. That's a cost seg study that will draw your income. Usually it produces a loss. And then we have to ask, can you use the loss?

Speaker 1 (00:15:33) - We hit on a very specific and valuable strategy there for reducing you, the real estate investors, taxable income. But just pulling back to something more basic, you said something important in the beginning there when asked about how rental income is taxed differently than the bank.

Speaker 1 (00:15:50) - You did let us know that rental income is not subject to self-employment tax and Social Security tax. And I know it's difficult to do 1 to 1 because certainly it depends. But oh, if one is in the 24% tax bracket, so therefore they're $1 from their job, that really only resulted in them getting $0.76 if they get $1 from rental income, just roughly or perhaps give us a range as to how much after tax income they get from that dollar of rent income.

Speaker 3 (00:16:19) - Classic Lawyer Answer It depends. Here's a rough rule of thumb. So self-employment and Social Security tax are pretty much the same thing.

Speaker 1 (00:16:26) - And how much percentage are they alone?

Speaker 3 (00:16:28) - So here's how the bracket work. That's the reverse of the normal bracket. It gets lower. The more you make. Roughly speaking, I'm just rounding here. If you have 150 gram of Social Security or self-employment taxable income, for example, your W-2, this is per person, not per couple. If you have 150 up to 150, your Social Security tax bracket is roughly 15%.

Speaker 3 (00:16:52) - Then it drops after that 150 grand to right around 3 to 5%, depending on factors you don't want to know. So it depends on your total income. For example, if you have a $200,000 W-2 and you run out and have a side business that generates self-employment tax, your self-employment tax is probably only 3 to 5%. So it depends on how much you're making that is self-employment taxable.

Speaker 1 (00:17:18) - Right. So we're talking about how you will have a chance to keep more of your $1 of rent income than you would from your $1 of day job income. And that's interesting with the Social Security tax, I actually didn't realize that, therefore, Social Security tax is a regressive tax policy. With increasing income, you pay a lower tax rate where generally overall in the United States, we would have with the income tax what's called a progressive tax policy, where you pay a higher tax rate with increasing income.

Speaker 3 (00:17:47) - Correct. And here's the theory to make it pass politically. Back when they did this in the 30s, they had to sell it as it's insurance and we're going to cap out your insurance, but we're also going to cap out your benefits.

Speaker 3 (00:17:59) - And so if you look in that regard, it's not really regressive because your benefits are also capped out. Now, what's one of the proposals? Let's make it flat so that people who make more subsidizing, those who make less, making it functionally progressive because you don't get any more benefits past a certain level.

Speaker 1 (00:18:17) - You're listening to get raises occasionally. We're talking with the tax reduction lawyer, John. Here we come back, we're going to talk about some more of those real estate tax advantages and get into the nuances of some things that people don't understand that well, like tax depreciation and the 1031 exchange. More with John. I'm your host, Keith Reinhold. Jerry listeners can't stop talking about their service from Ridge Lending Group and MLS 42056. They have provided our tribe with more loans than anyone there truly a top lender for beginners and veterans. It's where I go to get my own loans for single family rental property up to four Plex's. So start your pre-qualification and you can chat with President Charlie Ridge personally, though, even deliver your custom plan for growing your real estate portfolio.

Speaker 1 (00:19:04) - Start at Ridge Lending Group. You know, I'll just tell you for the most passive part of my real estate investing personally, I put my own dollars with Freedom family Investments because their funds pay me a stream of regular cash flow in. Returns are better than a bank savings account up to 12%. Their minimums are as low as 25. K. You don't even need to be accredited. For some of them, it's all backed by real estate and I kind of love how the tax benefit of doing this can offset capital gains in your W-2, jobs, income. And they've always given me exactly their stated return paid on time. So it's steady income, no surprises while I'm sleeping or just doing the things I love. For a little insider tip, I've invested in their power fund to get going on that text family to 668660. And this isn't a solicitation If you want to invest where I do, just go ahead and text family to 66866.

Speaker 4 (00:20:15) - This is author Kristen Tait. Listen to Get Rich Education with Keith Reinhold and don't Quit Your Day dream.

Speaker 1 (00:20:32) - Welcome back to Get Rich. Okay. So we're talking with John here. The tax reduction lawyer is how he's known. You can learn more about him at tax reduction, lawyer John's real estate investors. We get some of the very best tax breaks anywhere. In fact, they're so generous that I consider it to be a profit source. And I don't know that you can really say that about taxes in all contexts. I talk about how real estate actually pays you five way simultaneously appreciation cash flow, loan pay down made by the tenant. Fourthly, is that generous basket of tax benefits that we'll discuss. And then fifthly, is the inflation profiting benefit that you get on the long term fixed interest rate debt? But coming back to the fourth one, the tax advantages, really the two big ones that I predominantly think of, the quickly come to mind for a lot of us are tax depreciation, which is a deduction that reduces the investor's taxable income and the 1031 exchange, meaning that we can defer all of our capital gains tax all of our lives, which is incredible.

Speaker 1 (00:21:34) - But do you want to touch on the tax depreciation portion first, John, and tell us why that's so integral and valuable to real estate investors? Sure. When you buy stock.

Speaker 3 (00:21:43) - For example, on the market, it does not produce any paper deductions. Basically, you get the stock, whatever you paid for, it is your tax cost, your basis, and when you sell it, you just look, what did I sell it for, minus the tax cost. That's my gain. There are no benefits in the intervening time. You just sit and hold it. Nothing really happens. Real estate is different and that you get a paper deduction. Why Congress said so. You get something called depreciation and it's formulaic. You take the cost that you have in the property, what you have invested, and you multiply it by some number. Now that's where the cost segregation gets interesting because we debate which number. But for the moment, let's just pick a number. The most typical one is 3.6%. Multiply the building by 0.036 of what you have invested in it.

Speaker 3 (00:22:33) - And annually that's a deduction you get because and so that goes a long way when you add it to other expenses to reducing your income to zero. So the so if you have the income tax rate is much lower.

Speaker 1 (00:22:45) - So if you have a $1 million building, we're not talking about the value of the land with the building, just a $1 million building. Therefore you'd have about $36,000 each year that you do not get taxed on. That $36,000 is deducted from your rent income.

Speaker 3 (00:23:03) - Exactly. Try that with stock or mean you can. So that was a hypothetical non suggestion. Yeah, but that's one of the big benefits of depreciation. Now what's the downside? Because there's always strings attached. It drops your tax calls. So if I bought for a million, I took 36,000. Now my tax cost is 964,000. And so when I sell, if I sell will get into that, I have a larger gain. So there's a trade off. Now, in fairness, one of the other benefits of rental real estate is if you do sell for cash and you choose to pay taxes, we're going to talk about an alternative.

Speaker 3 (00:23:39) - If you choose to pay taxes, the tax rate on selling real estate are almost always 98% of the time lower than your normal tax bracket. So even if you sell after getting this depreciation benefit, the bracket is almost always considerably lower than your normal income, which is nice.

Speaker 1 (00:23:59) - I don't want this point to be lost on people. With that example I give of the $1 million building that you buy and the fact that say you get $100,000 of rent income from that, you'd only be taxed on $64,000 worth because you're able to deduct 3.6% of the value of the million dollar building against your rent income. And that $36,000 deduction typically with a lot of other investments, in order to get that deduction, you would have to make a $36,000 expense, like, for example, buying a new heating system for the building. But no, you don't have to buy a new $36,000 heating system for the building where you might qualify for that deduction. It's just the magic of appreciation. You can just take this $36,000 deduction out of thin air because the tax code says that you can.

Speaker 3 (00:24:47) - Yep, it's pretty much automatic. In fact, the code says you have to take it.

Speaker 1 (00:24:51) - That's right. I have learned that the tax code actually says you must take this benefit. And who wouldn't want to do that? Would there be any situation in which someone would not want to do that job?

Speaker 3 (00:25:02) - Yes. If they're going to sell later on or if they're going to sell in the comparatively near future, let's say they're going to buy and hold rent for three years and they're going to sell after three years taking the depreciation if it did not help them, let's say, created a passive loss, raises their bracket a little bit when they sell in three years. Now it's still lower than your normal bracket. It's just not as. Much lower as you would like. So yeah, there are a few spots where people resisting depreciation. It's pretty rare, but it happens.

Speaker 1 (00:25:32) - So you must take that depreciation, which is going to be a benefit to most investors in most cases down the road when it comes time to sell this million dollar building, oh, say ten years later, you wanted to sell this million dollar building for $2 million.

Speaker 1 (00:25:47) - Oh, I'm certainly oversimplifying here, but say that gave you $1 million gain because you bought it for 1 million and you're selling it for $2 million down the road. We have something known as the 1031 exchange. It's called the light kind exchange. It's also known as a tax deferred exchange. Tell us more about the 1031 exchange when it comes to selling this example, building ten years down the road for $1 million more than what you bought it for.

Speaker 3 (00:26:13) - You want to avoid paying tax. Here's the basics and then we'll get into a little bit of the process. The basics are you're swapping one house for another, but you don't have to direct swap. It's not barter. You don't have to go find someone who wants your house and you happen to want their house. That's just not practical. Rather, you sell your house, the money goes into the hands. This is really important of what's called a qualified intermediary. There are tons of them and that's pretty much a commodity at this point. So they're not that expensive.

Speaker 3 (00:26:39) - The money has to go in their hands. If you touch the money with your hands, it becomes dirty money and it's taxable, which sells. It goes straight from closing to the qualified intermediary. And you have certain deadlines, 45 days to find properties that you want and 180 days total from the sale date close, which kind of can help you time, especially if you have a cooperative buyer helps you. You need a time. For example, maybe I want to find the property I want sooner and then get out and sell the one I've got and you can do it in reverse order. You can go buy a property and then sell something afterwards and say to the government, Listen, I want the funds from this later sale to apply to this prior purchase. A reverse reverse fixture. Yeah, reverse exchange. And there are some creative games we can play with reverse exchanges. They're looser rule wise than the normal ones. I enjoy those 1031 exchange.

Speaker 1 (00:27:36) - Such a benefit where you can defer your capital gains tax.

Speaker 1 (00:27:40) - Hey, in this example you had $1 million then that would be subject to the capital gains tax, which is going to be a rate of 15% or more. And if you don't do a 1031 exchange, you have to pay back to the government all at once that tax depreciation that we discussed earlier. So there are actually consequences. It's going to feel like there are consequences to not doing a 1031 exchange. So you kind of get your money trapped in this real estate game. It might be the best place to have it, but that's something that I think investors need to understand for the long term.

Speaker 3 (00:28:12) - And it's the classic strategy. 1031 Until you die. Now, what typically occurs with investors and then life cycle, they want a little more time, so they start 1030, letting in some more passive type investments, whether it's with a management company or a property that by its nature tends to be a little bit more passive, but the object is to die and not sell. I'm not suggesting everyone go out and die right away.

Speaker 3 (00:28:37) - That's great tax planning. But in terms of reality, it's not so great. But if you. 1031 let's give an example. You bought for a million, many years later it's worth 10 million. Your basis in the property is 100,000. You've depreciated it. So if you sell, there's a huge gain, you die. Whoever inherits is going to love you. At least we hope they will, because when they inherit the property that's worth 10 million, their tax cost, their basis at law is 10 million. They can sell the next day with no gain. That's the infamous step up in basis. And the object is to convert the deferral into tax free. If you defer long enough, it becomes tax free. That's the goal.

Speaker 1 (00:29:18) - And John touched on it. There is no limit to the number of times that you can do the 1031 tax deferred exchange. As a real estate investor, you can trade up from a $1 million property to a $2 million property. Ten more years go by to a $4 million property.

Speaker 1 (00:29:33) - Ten more years go by to an $8 million property. Now I'm certainly oversimplifying this, but at each step you don't owe any capital gains tax. So because you can defer it endlessly, you really never have to pay it and effectively becomes tax free with that step up and basis to your heirs like John just described. John, I'd like to know your thoughts. You know, it seems a few different presidents lately. I know Biden, at least he threatened to do away with the 1031 exchange. I just wonder if the 1031 exchange is ever going to get precarious. I think some people, though, don't understand that the 1031 tax deferred exchange has been around for more than a hundred years.

Speaker 3 (00:30:12) - They've been talking about getting rid of the 1031 since the 1930, and Democratic administrations have threatened to do it since the 1930. They've never had the supermajority they need to actually get away with it. And even then they've come close to it. And even then, some of the lobbyists on the Democratic side said, listen, this is not a good idea, freezes up capital.

Speaker 3 (00:30:36) - We want people to be able to buy and sell and not be frozen into a property because of tax reasons. So, look, could it happen? Sure. We live in a crazy world, but the probability of the 1031 going away I think is pretty darn low. Let me give one real quick trick that's going to help. Some people won't help very many, but the ones that helps it help big time for you. 1031 A property. Ask your accountant. Do I have any passive losses tied up in the property? They're going to know there's going to be a form on your larger tax return. There are different versions of your return. The big thick one is not. The one that goes to the government. Ask them how much passive activity loss you have in the building. Whatever that is in a 1031. Take out the cash. It's tax free and in fact, it's tax arbitrage. To give you an example. We are selling a property. You had a million and you're selling for 2 million.

Speaker 3 (00:31:29) - Let's say you had 100,000 of passive losses tied up in it. Go ahead and take out 100,000 cash from the exchange. Go ahead, ask double check with the 1031 intermediary because they know the rules. But go ahead and take out the 100,000. What happens? You get the 100,000 tax free because your passive losses that were hibernating on the return are now activated and wipe out. Normally when you pull cash out of a 1031, there's gains. Normally we don't do that. But here the losses are activated. They not only offset the 100 you pulled out, they drop your tax bracket because you're getting a capital gains tax bracket offset by a normal loss that was now brought out of hibernation. So just a little trick for those of you always before 1031, always ask your CPA, what's my passive activity loss? And think about taking out exactly that amount of cash, tax rate, tax arbitrage.

Speaker 1 (00:32:28) - I just learned something as well. I've got a number of 1031 exchanges in my life and that's one tip that I sure didn't know about.

Speaker 1 (00:32:35) - So thanks for that. And if you, the listener, if you want to learn the nuances of the 1031 exchange, which John and I aren't going to do here, because that really goes a mile deep with the three properties rule and the 200% rule and all of that. You can listen to episode 143 where that entire episode is dedicated to the 1031 tax deferred exchange and just how you can best pull it off for maximum tax efficiency so that you can then go ahead and re leverage those dollars into a larger property later. Well, John, that was very helpful on both tax depreciation and the 1031 exchange. Do you have any last things to share with us? Any last strategies so that a real estate investor can pay less in tax or anything that's particularly helpful?

Speaker 3 (00:33:21) - Yes. There's this concept of the Trump tax law called the pass through deduction or qualified business income tax code, Section 199 Capital A First of all, it applies to all rentals. Unless they're triple net least. A lot of accountants still don't get that.

Speaker 3 (00:33:38) - You have to have a trade or business that's tax term trade or business rentals that are not triple net leased are a trade or business, which is a good thing under the code. So there's this deduction. It's large. If you're showing that income even after depreciation and everything you buy is typically 20% of the net income. So if I'm showing 100 grand of net income, I get a $20,000 deduction because Congress said so. Protect that. In particular, if you make roughly I'm rounding here 164 grand total taxable income on your 1040 single and roughly 370 filing joint, there are special things you need to do to maximize the QBI and you need to do it before the end of the year. Nothing pains me more than to see high income people who benefit the most from this deduction because of their high bracket and they're in these high brackets. And if they would have done a little bit of talking to their CPA, hey, I think I'm going to make married filing jointly 370 or more for the year. It's going to cut my QBI based on the mechanical rules.

Speaker 3 (00:34:41) - What can I do to preserve my qualified business? Income tax deduction might pass their tax deduction. To do that, you need a really good set of books and returns. You have to have good books in the knowledge of your income so your accountant can look and say, Hey, here's how much we think you're going to make. B Here's what we can do to preserve this deduction. That is the number one easy pick up by C in tax returns. I review for planning purposes that people missed in prior years and we tell them going forward, please, please towards the end of the year, start thinking about if you're going to show gain. Doesn't matter if you're showing a loss, but if you're going to show gain in any business, not just rentals, please look at the deduction. Please make sure you're getting the full 20%.

Speaker 1 (00:35:25) - John is an expert at looking at your recent tax returns and pointing it to one area and saying, hey, there's a quick ROI for you if we change this. And right over there is another quick ROI for you if we change this.

Speaker 1 (00:35:37) - Well, John, that's been great with what we can do with the existing tax code to help optimize our situation. But wrapping up here, a lot of people are interested in what's coming down the road in the future. It can be a little bit speculative, but it also can be a proxy for how people and politicians are thinking. And that's. Is there anything that the presidential candidates are offering tax wise? It's very interesting whether that be an RFK Jr or a Ron DeSantis or a Vivek Ramaswamy or Nikki Haley or anyone else with this potential future direction of where an influential candidate wants to take taxes.

Speaker 3 (00:36:15) - I think the parties are pretty consistent regardless of candidate. Now they each have their subgenre of flavor, right? Do you like your chocolate? Dark or milk chocolate or with or without salt, but it's still milk chocolate. So likewise, the Democratic presidential candidates are going to be looking to increase taxes, get rid of what they view as loopholes, and they are aware of real estate having a lot of special benefits and they don't care for it.

Speaker 3 (00:36:41) - The Republicans, by contrast, are going to be more for lowering taxes. They are not hostile to real estate. They're generally pro-business, especially pro small business. And I think that's consistent across the board. I don't think there's a lot of deviation there with either party. The specific proposals will vary. For example, the Kennedy candidate strikes me as less hardcore left wing and a little more common sensical than maybe some of the more progressive sorts and might not be as harsh in that regard.

Speaker 1 (00:37:13) - Well, that's helpful in knowing what future policy might be and that might affect the way that you want to vote. This has been really helpful, particularly to real estate investors and small business owners. You are the tax reduction lawyer, so if our audience wants to connect with you and learn more about what you can do for them, what's the best way for them to do that?

Speaker 3 (00:37:33) - Not coincidentally, tax reduction lawyer.com and I put out a ton of content. I take a few clients but it's really getting more and more content based.

Speaker 3 (00:37:43) - So if you like what you heard, you might hear more.

Speaker 1 (00:37:47) - Sometimes in the video, hear you and the audio only might not be able to see that. For example, when John was using the word loopholes, he was using his fingers as air quotes. He understands that these are intentional incentives that help direct behavior because the government knows that society is generally better off when the private sector and the mom and pop investor are the ones providing good housing for society. A lot of public housing projects really haven't fared so well. So that's what John is here to help you do provide clean, safe, affordable, functional housing for others and get all the tax benefits that come along with that. Hey, John. Hi. It's been great having you here on the show.

Speaker 3 (00:38:26) - It has been an absolute pleasure. Thanks for having me.

Speaker 1 (00:38:35) - Oh, yeah. Nice clear breakdowns from the tax reduction lawyer John Heyer. I was talking with John Moore outside of our show. He read the entire some 1000 page long inflation reduction act that was passed last year.

Speaker 1 (00:38:51) - He did that to try to help understand its tax implications for his clients and was kind of impressed that he had the endurance, I suppose, to read all of it. And I asked him how many members of Congress he thinks read it and we both answer the question at the same time. Zero To achieve one looks like the top 1%. You must act like the top 1% does. And that might include tapping the expertise of a pro like John to review what you've learned today with our expert guest John. No changes to federal income tax rates are expected. There are ways to lighten the tax burden on your short term rentals, which you might not be aware of. Your dollar of day job income that's taxed at a higher rate than your dollar of rent income. Because on your day job income, you must pay Social Security and self-employment tax. You don't pay those tax types on your rent income. Real estate tax depreciation is kind of like magic. It means that you can write off a portion of your rent income each year, meaning that you can make it non-taxable even if you don't have a real expense associated with doing that.

Speaker 1 (00:40:03) - You learn more about the 1031 tax deferred exchange and the fact that it will persist as a benefit for real estate investors is highly likely. Again, if you like what you learn each week on the Gerry podcast, I invite you to subscribe or follow within your favorite podcasting device. For those non podcast listener friends you might have, they can try the Get Rich Education mobile app. Everything that we do is free until next week. We'll all be back to help you build your wealth. I'm your host, Keith Wild. Don't quit your day dream.

Speaker 5 (00:40:36) - Nothing on this show should be considered specific, personal or professional advice. Please consult an appropriate tax, legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of Get Rich Education LLC exclusively.

Speaker 1 (00:41:04) - The preceding program was brought to you by your home for wealth building Get rich education.com.

Direct download: GREepisode469_.mp3
Category:general -- posted at: 4:00am EDT

Mon, 25 September 2023

With skyrocketing property insurance costs, more homeowners are skipping insurance altogether. That proportion is estimated at 12% per the WSJ.

Single-family rents are up 6.5% annually.

Next, we discuss what might be America’s best cash flowing real estate market.

Home prices are up this year for four main reasons: large Millennial demand, scarce supply, mostly healthy economy, interest rate levels that are actually normal.

As we discuss one of America’s best cash flowing markets, it’s in a state that has strong legal protections for landlords.

The cost of living there is 17% below the national average. Unemployment is 2%, according to the provider.

Single-family rents are $1,200 to $1,500; prices are $115,000 to $140,000.

You can own a freshly renovated property, complete with granite countertops. Average tenant duration is 3-4 years.

With higher interest rates, more buyers in this market are paying all-cash or making a larger down payment.

Contact your GRE Investment Coach, a free service, if you consider purchasing property in this investor-advantaged market.

Timestamps:

National home prices and insurance costs [00:00:01]

Discussion on the increase in national home prices and the impact of rising insurance costs on homeowners.

Rise in single-family rent growth [00:04:04]

Exploration of the increase in single-family rent growth and its implications for the rental housing market.

America's best cash flow real estate market [00:07:54]

Introduction to an area with low property prices and potential for cash flow, including its job growth and investor advantages.

The lost luggage incident [00:11:27]

Keith shares his memory of his luggage arriving late during a trip to Little Rock and going for a run in street shoes.

Little Rock's recognition as a top place for young professionals [00:13:15]

Forbes Advisor ranks Little Rock, North Little Rock, and Conway as top ten places for young professionals to live, highlighting employment opportunities and affordability.

Growth and economic drivers in central Arkansas [00:15:20]

Discussion on population growth, job creation, and economic drivers in central Arkansas, including the presence of distribution hubs, major retailers, tech companies, and government and medical sectors.

The demand for single family rentals [00:20:40]

The speaker discusses the shift in multifamily housing, the increase in demand for single family rentals, and the lack of new construction in this sector.

Arkansas as a landlord-friendly state [00:21:42]

The speaker explains that Arkansas has landlord-friendly laws and a simple eviction process, with evictions typically taking 30 days or less and costing less than $1000.

Criteria for properties in the investor market [00:24:59]

The speaker talks about the areas and property types that fit their buy box, focusing on working-class tenants and B-class properties in the Little Rock metro area.

The availability of properties in Little Rock [00:30:51]

The speaker discusses the current tight inventory in the Little Rock market and how it affects both homeowners and tenants. Demand is high, but there are fewer places to rent or buy.

Interest rates and cash buyers [00:31:52]

The speaker talks about the impact of higher interest rates on investors and the increase in cash buyers. Some investors are willing to pay all cash now with the intention of refinancing later when interest rates come down.

Advantages of investing in Little Rock [00:33:48]

Resources mentioned:

Show Notes:

www.GetRichEducation.com/468

Get access to Little Rock properties:

GREmarketplace.com/LittleRock

If you’d like help with one of

GRE’s Investment Coaches (free), 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

Will you please leave a review for the show? I’d be grateful. Search “how to leave an Apple Podcasts review”

Top Properties & Providers:

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467: Navigating Awful Housing Affordability - Rick Sharga Joins Keith

Complete episode transcript:

Speaker 1 (00:00:01) - Welcome to. I'm your host, Keith Weinhold. National home prices continue to increase for at least four big reasons. There's also a hindrance that's getting so bad that it could keep more price growth in check. We look at why single-family rent growth is increasing. Then we focus on one particular metro area that could be America's best cash flow real estate market and why today on Get Rich education.

Speaker 2 (00:00:30) - You're listening to the show that has created more financial freedom than nearly any show in the world. This is Get rich education.

Speaker 1 (00:00:53) - Walking from Whitney Island to Mt. Whitney, California, and across 188 nations worldwide. I'm your host, Keith Weinhold. And this is Get Rich. Education, National home prices continue to increase and no one knows what mortgage rates are going to do. There's one factor that could slow the home price growth party down. It could be impeded a little by these rising insurance costs. Now, in years past, do you know how many American homeowners decided that they were just going to skip insurance and not buy it so that they don't have to pay the premium? Any idea what percent? Well, the longer term norm is that 5 to 8% of homeowners skipped insurance.

Speaker 1 (00:01:38) - They just said we'll handle any risk and not buy it. Hm. Maybe that's sort of like not using a case for your phone, perhaps, which I don't actually. I never use a case for my phone, but I do have insurance on all of my properties. Well, The Wall Street Journal was just reporting that the number of homeowners that have decided to forego insurance has increased. Okay. The longer term historic number is 5 to 8%. That decided to skip insurance. And now amidst insurance premiums that in a lot of places have risen faster than inflation, that proportion of those that skip homeowners insurance is now from 5 to 8%, up to 12%. Yeah, 12% of homeowners electing to skip insurance. And they're going to be those people that are free and clear of a mortgage. And if you have a mortgage, you must have property insurance. The Wall Street Journal also found that it's mostly lower income people that forgo it, lower income people that skip the insurance. Now, of course, homeowner borrowers, you have to eat that premium increase if you're a homeowner, borrower, they have to eat that.

Speaker 1 (00:02:53) - You're going to remember that just seven episodes ago on Episode 461, I went into a lot of detail on the areas of the nation that do have skyrocketing insurance premiums. And if you're a landlord in any of those markets, you can pass along the hot potato because you can raise your rents in order to offset that. But primary residence homeowners, they cannot do that. They cannot pass along the hot potato. Homeowners have to eat the hot potato. And sometimes that hot potato can burn the roof of your mouth. That's why the proportion of those that skip insurance has about doubled. And also some areas have become uninsurable. If you want a new policy, think of some of the forest fire prone areas out west and you know, the eastern half of the nation, they can get forest fires, too, of course, But east of the Mississippi, it stays more humid and you get more rain. That's why it's just not as much of a problem in the eastern half of the US. Well, you've taken my guidance to heart and you sure are passing along the insurance hot potato, raising the rent on your tenants.

Speaker 1 (00:04:04) - Here's some evidence because John Burns, real estate and consulting shows us that in the latest stats, single family rents are up 6.5% year over year. Yeah, single family rentals are also seeing higher occupancy and lower vacancy, and that's 6.5% annual growth rate in single family. So that's worth watching if you forecast inflation because of course that does make up part of the CPI like Rick and I recently discussed. Now single family rentals. They are roughly one quarter of America's rental housing stock. And this differs, by the way, from the rent growth on larger apartment buildings. Apartment building rent growth is slow due to so much new construction of larger apartment buildings where they're just still not building enough single family rentals in so many markets. So with this low, really just awful affordability for wannabe homeowners, what's happening in this area is that single families, they're attracting quality tenants. As this affordability worsens, the quality of the single family tenant is therefore increasing. The Fred charts tell us that the median sales price of the new build home is now $437,000 for 37.

Speaker 1 (00:05:31) - Note that that's for a new build, not existing. And home prices are up, up, up for four big reasons. It's really for major reasons that home prices are up. There is high home demand from the large millennial generation, this astoundingly scarce supply. Thirdly, there is a still pretty strong economy and. And then fourthly, believe it or not, if you're new to real estate, fourthly is, yes, historically normal mortgage interest rate levels. All these things are supporting these higher and higher prices and this scarce housing supply. That is a genuine American problem that we have here. Now, President Biden, he's tried to address it with a five year plan that he announced last year. And in just two days, Republican presidential candidates are going to take the stage in California for the second GOP primary debate. And the presidential candidates, they should be asked, what would you do about the housing shortage? That question was not asked in the first presidential debate. If I could ask them one question, yeah, it would be about housing and our next president matters whether Biden wins reelection or whether it's someone else.

Speaker 1 (00:06:44) - But my gosh, America spends too much time wrapped up in all this debate posturing and all this media hype over the positioning of the candidates. I mean, this is already been going on for months and months. Trump, Haley Pence, Ramaswamy DeSantis. Yes, the primaries are sooner, but the presidential election is still more than a full year into the future, even from this point. And this has already been going on for this long. I mean, virtually no other nation in the world drags it out for this long. It's almost a two year cycle of vetting these presidential candidates with two years. That's half of a presidential term right there. My goodness. Next week, as I'll be leaning on my team for a makeshift studio, I'll be joining you from Chicago, Illinois. And I will be checking out the sites and also the real estate opportunities there and those still in Chicago land. It's typically on the Indiana side of the Illinois Indiana line, where you'll tend to find the better real estate deals and the lower taxes is back to this week's show.

Speaker 1 (00:07:54) - We're not talking about Chicago today. Straight ahead, is this America's best cash flow real estate market? It's an area that has population and job growth, but it's slow growth. You'll be surprised with how low the property prices are. I mean, they're often below replacement cost, which is remarkable. But what that means is with today's high materials and labor and regulatory costs, it would pay more to build a new home on that site than what you can buy that completed existing for home today that was built decades ago. And I've walked these very neighborhoods. A lot of them are nice. They're not in war zone areas. The city has a great base of distribution jobs. It says sector where it's hard to outsource distribution jobs over to a less developed nations because those jobs need to be fixed right there where you need to move the goods. So in this city, they are building fulfillment centers. That's warehousing in this highly investor advantaged place is also a state capital. So they have another base of government jobs that are not going away.

Speaker 1 (00:08:58) - I'm talking to an experienced principal in this market that offers freshly renovated property to out of market investors like you. That's next. I'm Keith Windell you're listening to Get Rich Education. Jerry listeners can't stop talking about their service from Ridge Lending Group and MLS 42056. They have provided our tribe with more loans than anyone there truly a top lender for beginners and veterans. It's where I go to get my own loans for single family rental property up to four plex. So start your pre-qualification and you can chat with President Charlie Ridge personally, though even deliver your custom plan for growing your real estate portfolio. Start at Ridge Lending Group. You know, I'll just tell you, for the most passive part of my real estate investing personally, I put my own dollars with Freedom family Investments because their funds pay me a stream of regular cash flow in. Returns are better than a bank savings account up to 12%. Their minimums are as low as 25 K. You don't even need to be accredited. For some of them. It's all backed by real estate.

Speaker 1 (00:10:10) - And I kind of love how the tax benefit of doing this can offset capital gains in your W-2, jobs, income. And they've always given me exactly their stated return paid on time. So it's steady income, no surprises while I'm sleeping or just doing the things I love. For a little insider tip, I've invested in their power fund to get going on that text family to 668660. And this isn't a solicitation If you want to invest where I do, just go ahead and text family to 66866. This is Perrin Life's Patrick Donahoe. Listen to Get Rich Education with Keith Wayne Mold. And don't quit your day dream. Hey, well, I'd like to welcome in one of our marketplace providers in such in Investor advantage geography, that is in Little Rock, Arkansas. Brian, we're going to be listening to one of the voices of Marketplace today. Hey, thanks so much for being here. Hey, thank you, Keith. Appreciate being here for the second time. This is great. Great catching up with you.

Speaker 1 (00:11:27) - Well, that's right. Now, it's been a few years since you and I got together in person in Little Rock, Arkansas, and we toured the market. If we walked the number of properties. But I think the thing that stands out most to me with that trip to Little Rock, where I spent the day with you, is that my baggage arrived late. Now, we had good accommodations at the Capitol Hotel, kind of the stately nice hotel right in the center of downtown. But my luggage to Little Rock arrived about 20 hours late. I've had really good luck with luggage all my life, but didn't this time. And my most enduring memory maybe, is that I had to go running in street shoes. And I still remember near the end of my run, I was running over the bridge that spans the Arkansas River between North Little Rock and Little Rock. Looking down while I was running at these slightly dressy black shoes on my feet, thinking, My gosh, it's a miracle that my feet don't hurt me.

Speaker 1 (00:12:24) - Yeah, that's exactly what I remember, Keith. I remember piecing it together. So you didn't come right out and just tell me you'd mention your bag had been lost. And then you mentioned that you went for a run that morning and thought, What did you run? So, yeah, you described basically running in your loafers from the day before. So I was like, This guy's a real machine from the north, the Great North down here. So I was impressed. Yes. And you're probably also wondering, did you really have to go running it? Right? That's the other thing. Well, right. Hey, you and I were just discussing this great media clip that we watched there from the local news there in Little Rock. This tells us quite a bit about the economic drivers in Little Rock as well as the low median home price there in the Little Rock area. Let's listen to this together. This is about two minutes in length and then we'll come back to comment.

Speaker 3 (00:13:15) - We turn now to the national recognition that three communities in central Arkansas are receiving.

Speaker 3 (00:13:20) - Little Rock North, Little Rock and Conway ranked in the top ten places for young professionals to live by for.

Speaker 1 (00:13:27) - Some great news channel. Seven's Brenda Lipinski is on your side tonight. She joins us now live in our studio. Brenda, tell us a little bit about these rankings.

Speaker 3 (00:13:34) - Yes, Chris. So Forbes advisor analyzed 99 of 100 largest cities and found that Little Rock North, Little Rock and Conway had great opportunities for young people. Little Rock North, Little Rock and Conway named Top ten Best Places for Young Professionals to Live by Forbes Advisor. And some agree. I think that there's no no doubt here in Arkansas, central Arkansas that we foster some of the greatest minds in talent. The criteria for the ranking included employment and pay, housing affordability, lifestyle and cost of living. North Little Rock Chamber of Commerce saying investment in young people is crucial for the area.

Speaker 1 (00:14:11) - They're the next leaders. So we need to make sure that we can continue to recruit them and develop them because they're going to be the next people on our board of directors are going to be the next city council members.

Speaker 3 (00:14:19) - Mayor Frank Scott Junior, who's a millennial, says good public education and jobs are a must.

Speaker 1 (00:14:25) - We've seen historic job growth for close to 10,000 new jobs.

Speaker 3 (00:14:28) - Young professionals saying there's a ton of reasons why they like the area, the community affordability.

Speaker 1 (00:14:34) - Every single time I connect with someone and I'm I'm able to find a new opportunity, whether it be inside of work and with my career or outside of work with just having fun.

Speaker 3 (00:14:44) - And for the future. So I'm hoping the state will create policy that will continue to attract more young people and think about the ways that we can continue to attract diverse professionals and how policy can impact people's image of the state and of the area specifically. Now, Forbes advisor also says that the areas are evolving into an entrepreneurial and innovation hub, which may also attract young professionals on your side. I'm Brenda Lipinski.

Speaker 1 (00:15:09) - Okay, Brenda, thanks so much. Forbes also likes the cost of living in central Arkansas, where the median home price is about $200,000. Right. So that's what the media is reporting.

Speaker 1 (00:15:20) - But you're right there, you're the boots on the ground. So tell us more about population growth and job creation and just overall the market vibe in the drivers there in central Arkansas. We have continued to see growth here. You know, I think it was mentioned that over 10,000 jobs created in just the last five years. One of the things that stands out here, too, is really driving that growth is that we're kind of known as a distribution hub or an upcoming distribution hub. A lot of that has to do with our geography and where we're located very centrally in the United States. And we're at the crossroads of two major interstates, I-40 and I-30. And so we've seen in just the last five years a very large Amazon facility put in actually three different fulfillment centers put in. So that's said to have brought in around 2000 jobs just right there. Then we've seen other big retailers come in like Lowe's and Ace Hardware and Dollar General, and they've all built distribution fulfillment centers here as well. And then even still we seeing growth with manufacturing moving into our river port here.

Speaker 1 (00:16:26) - It was just announced this year that a big Trex facility, they manufacture decking materials and from environmentally friendly sources and they're putting a major operation here. And they were drawn here for the location in proximity to the interstate. So those things really are driving us right now. A lot of our growth is accelerated by this sort of fulfillment warehousing distribution space. We have other drivers, too, and just the last few years, very diverse in the economy here. But we have a large tech company here called Apta. G. They were created right here in Little Rock and have really accelerated their growth. I believe they're said to get up to around 800 jobs. And those are all young professionals that could be working in Silicon Valley if they wanted to. Very diverse. We have aerospace here with Disso Falcon Jet, and then we have lots of government jobs here. We are the state capital. So we have all of our state government here. We're also a major medical center. So all of our medical professionals train here.

Speaker 1 (00:17:24) - Our medical school for the state is here in Little Rock. So all of our large hospitals there's on that note, things that we have coming now, they're announced they're building a new dental school here in Little Rock. So there's not a dental school in Arkansas currently. Also building a veterinarian school here in Little Rock. These are both going to be attached to another college that's here in Arkansas. So starting on a good foundation for those two schools. But that's another exciting move for Little Rock. So all these things are driving the workforce and bringing in younger workers, generating out workers from the medical school, for example, putting them out into the marketplace here. So we have a lot of young professionals, and I think that's why Forbes ranked us in the top ten of places for young professionals to live being the state capital there. Yes, you have that base of government jobs, some of the private sector jobs you mentioned you mentioned the expansion of medical. You know, these are two areas, government and medical that rarely contract very much, especially with the medical often growing and then with the government jobs, with the state capital being there in Little Rock, those just aren't the type of jobs that are going to be outsourced.

Speaker 1 (00:18:32) - And they're also not going to move the capital from little Rock to Pine Bluff, Arkansas, anytime soon either. So you do have that base there. And Brian, you and I were looking at different media articles recently and studying more statistics. No one area has it all. Little Rock has a lot of advantageous drivers, especially a high ratio of rent income to purchase price for investors. And we'll get into that later. But really with one of the statistics that we were consuming together, basically, if you think of it as gradients in an area's population growth and job growth, maybe let's think of five of them. There's high growth, there's slower growth, there's no change, there's slow decline or there's fast decline. And of those five, it seemed to be pointing to that second one, slow growth for the area. Yes, I mean, we're a very linear market here. Our growth is consistent. We haven't had a major increase or a major dip. We're just very consistent in linear in our growth.

Speaker 1 (00:19:32) - But it is continuous. We've seen that happen with even with housing, we've seen a lot of permits increase in the last few years, more multifamily permits even than single family permits. And it kind of tells you that the demand that's there for housing that rises along with the growth we are in that category, I would say, yeah, that's right. When we think about slow population growth, obviously those people need to be housed somewhere. And in the past decade you touched on it. To your point, both Little Rock and North Little Rock have had more multifamily built than they've had single family homes built. And nationally we are just so undersupplied depending on what numbers you look at. Were millions of housing units undersupplied nationally? How does that translate to the local picture there in central Arkansas, including Little Rock as far as being oversupplied, adequately supplied or undersupplied with housing? Well, I think we're undersupplied with single family housing first, and there's a real demand there. And there has been an increase in multifamily and most of that multifamily increase is at the top of the market.

Speaker 1 (00:20:40) - So there's been a real shift in multifamily. And what maybe used to be an A-class multifamily building is now A, B or a C because new A-class has been built to replace it. So we've seen some shift there. But where the majority of the housing stock is coming from is the multifamily sector and that puts more demand on the single family rentals. I mean, that is still a very desirable place. I think most anyone who lives in an apartment or has lived in apartment aspire to eventually have their own home or be within their own four walls in a yard that, you know, they belong to them or they control or rent or whatever else and have their own piece. So their demand stays there for single family rental, but there's not as much being built. So we've really seen an increase in our single family rental rates. I know there's been increases across the country in rental rates, but usually it's linear here. But you know, we've with not a great big jump, but we've really experienced a significant jump over the last few years.

Speaker 1 (00:21:42) - And I think a lot of it is driven with the demand for the single family and there's just only so much of it Now. We think about investors. Of course, most of the investors that you provide product for come from out of state. They live in areas that aren't nearly as investor advantaged as Littlerock is, but that's about more than the numbers. Oftentimes it's about that local landlord tenant law. I've got to say, it's been a while since I've consumed any material about this, but I remember in the past reading for years that oftentimes Arkansas comes in as one of the most landlord friendly states. That's correct. And it's been that way for a long time here. Our process is very simple and it's very much in favor of the landlord. But here an average eviction, if you get to that point of having to evict, typically it takes 30 days or less to actually get the tenant that's fast and less than $1,000 and that's hiring an attorney. So you're hiring an attorney? We have several that specialize here in the Little Rock area, for example.

Speaker 1 (00:22:45) - They can turn this thing around in about 30 days. And the process is it goes to an unlawful detainer if you filed for eviction and the tenant hasn't followed the eviction process and hasn't followed the proper notices and the proper days to get out, then the legally you can follow a unlawful detainer. And once that process gets moving and it moves pretty fast, a writ of possession is issued. And so at that point, the tenant is actually served by a police officer and they don't it's not a harsh dragging out with handcuffs, but they show up and generally escort them out of the place. It's pretty quick process overall and it's backed up by law enforcement. So but in no means is it a bullying or a brutal process or anything like that. And most residents here in Little Rock in Arkansas in general, that's the way it's been forever. They understand it. And usually when you serve an eviction notice, it means business. And most tenants know it means business and they just abide by it. So really, we don't have to enforce all that many evictions all the way through other than that, we serve, so we serve evictions and they generally just get out.

Speaker 1 (00:23:51) - That's sort of the process in Arkansas is known as to being one of the most landlord friendly states, and it's been that way for quite a long time. Of course, we're highly interested in that long history of the law reinforcing landlord interests more so than tenant interests, since we are interested in being long term investors. And when we talk about a metro area there in and around Little Rock, including their MSA, which includes North Little Rock and Conway, and we sometimes want to think about, all right, now, what parts of town would fit ones by box? Because even in an investor advantaged place, you probably don't want class A+, single family homes because of those higher price points. Rents don't keep up proportionally. And then we also typically want to avoid class areas. Those properties are shabby. They can't attract a rent paying tenant and properties don't typically appreciate very well on those low end class properties. So tell us about those areas in the criteria that fit your buy box that you know that investors want to put in their portfolio? Yeah, that's correct.

Speaker 1 (00:24:59) - I mean, we really stick a lot into the space. We're looking for kind of that working class tenant. They've got a good job. They are, you know, blue collar. They're hardworking people. Generally it's a family. Those are the areas where we're focused on and we're not exclusively in Little Rock. As you mentioned, the metro area is about a 55 mile radius. There's about a million people within that radius, the metro area. And that encompasses other areas around us other than Little Rock. So the city of Little Rock. There's the city of North Little Rock, which is actually not just the north side of Little Rock. It's a separate city from Little Rock and the other side of the Sherwood, Cabot, Jacksonville, Conway, Benton, Bryant. All of these are communities, cities around us enjoying Little Rock. We find rentals in those areas, too. We target specific areas within those different cities where really that B-class property in that B-class tenant is looking to live. And so we're not just in Little Rock.

Speaker 1 (00:25:56) - We do venture out into some of these other areas and we're talking about the Little Rock, Arkansas, and the investor market there and its growth story. However, a slow growth story, perhaps it's not growing as fast as some Floridian counties are, where you have a lot of foreign in-migration, you're going to have less foreign in-migration, for example, in Little Rock as compared to a lot of other places. We think about where the tenant income stream is going to come from. We've talked about that. All of those market drivers there, we start to think about, all right, what are the properties like in the prices in the rents? So can you tell us about the property types and then get into some of the important numbers for investors, Brian, And tell us about the quality of the renovation you do to get that property ready and make it effectively turnkey for investors. Tell us about the properties, the prices in the rents. We try to target mostly single family and we do come across and dabble in some multifamily as well, and it's mostly smaller multifamily.

Speaker 1 (00:26:58) - So you know, anywhere from a duplex up to maybe a 20 or 30 unit complex and fits within our box. But mostly we're focused on single family rentals. Our criteria is a three bedroom. Obviously it's going to have a bath, but three bedroom, two bath is what we like. We do come across a lot of three bedroom, one and a half baths. A lot of these homes were built in the 1960s, 1970s. Those homes are going to have some of the more modern things, sheetrock versus plaster wire versus knob and tube. So, you know, those are reasons why we want to focus on those 1960s, 1970s homes. Again, most of them are three bedroom, one into two baths. Most of them are around 1200 square feet. And we do a fairly extensive remodel. We have a lot of boxes to check. But I would say our average home ends up with a new roof, new Hvac, new hot water heater, almost all new flooring. We always put in granite countertops.

Speaker 1 (00:27:53) - It's a staple in Little Rock. We find that that just is a little bit of a wow factor compared to some other competitors out there and what they're offering as a result. So we pay attention to the finishes. We want all the hardware to match, we want all the light kits to match. We want everything to feel uniform. And our whole philosophy is we're trying to attract best quality tenants we can, but we want this to be it. Hope this is the best rental property they've ever had as well. We want them to really fall in love with the property and our number one goal is to retain tenants for as long as possible because one of our biggest killers is turnover cost. So, you know, if you lose a tenant, you've got to get that thing rent ready and put it back out on the market. And you've got to go through the whole process of finding a new tenant. So what we find is by providing a better product, it equals longevity of the tenant and then staying with us for a long time.

Speaker 1 (00:28:46) - And we typically start with an 18 month lease with escalators there with rent increases built in. But we find that we keep tenants for three and four years. Really good success with that. And think a lot of it is due to the areas we pick and then the product that we put out in the market. That's an excellent tenancy duration between 3 and 4 years with what you just laid out and describe there with these fresh rehabs and even granite countertops in your single family homes, it kind of feels like your own. So therefore you want to be a tenant longer. And I think that tenant duration, as long as mortgage interest rates stay high, really is set up to lengthen because it's that much more difficult for a renter to go out and be a first time homebuyer. So therefore, if you put them in a rental that they're really happy in and get that right right from the beginning that you guys do, it's unlikely that they're going to move into another rental because it's hard to do better than that.

Speaker 1 (00:29:40) - And it's also difficult for them to buy their own home due to this affordability constraint with the higher mortgage rates and higher prices. And when it comes to property prices, we listen to that media piece earlier where it was stated that the average or median home price, whatever it was, is about 200 K. So tell us about what rent we would see with what price for one of your typical properties there that you prepare for investors? Long var properties once they'd gone through the full turnkey renovation process and have been rented, they fall somewhere in a price range of 115 to say $140,000. Maybe our average sweet spot there. And those rents range anywhere from 1200 to $1500 a month, just sort of depending again on the location where it is and that sort of thing. So that medium may be up there in the 200 range. But again, we're sort of focusing on the B-class areas. And so that's where our price points tend to fall, that sort of like 120 to 140 price range. And if you're new to the show and you're a listener in Brooklyn, New York or Burbank, California, we're not talking about the 20% down payment amount here.

Speaker 1 (00:30:51) - We're talking about the complete purchase price amount with what we've discussed there. Tell us about your availability just in general over time. The inventory here, not unlike a lot of places around the country, is very tight right now. I mean, a lot of people are staying in homes and real estate just isn't moving like it was. So we're still finding opportunities, but not like we were. And that goes all the way down to home owner occupants. They're having a hard time finding places to buy because the sellers aren't selling. And that I think, trickles down to tenants as well. They're just fewer places to rent. That's what we're seeing. There is less supply than demand. And when something is coming on the market, I mean, it's getting gobbled up pretty quick, be it a rental or a property to buy. So the demand is still very strong and inventory is low. No, I'm curious, with prices that low, 150 K or less now that mortgage interest rates are higher, I think you know that I'm a leverage fan and we have ratios like that.

Speaker 1 (00:31:52) - You might be able to pay a higher interest rate yet still have cash flow but with higher interest rates. Brian Have you seen it where anyone is interested in making an all cash payment, a greater proportion of those people than there used to be? Yeah, absolutely. I mean, we're seeing people bring more money to the table for the down payment. We've seen quite a few cash buyers that we didn't normally see before. So yeah, people are just, you know, using their resources to write some of these things out or there's understanding to that this interest rate level is probably short term. And so they're like, you know, hey, let me go ahead and get this great property and hold on to it. Now, put a little bit more money into it. I'll refinance it later. So we are seeing a lot of people think more with that type of strategy in mind. I guess one approach is paying all cash now and then mortgage rates come down to a level where an investor is comfortable.

Speaker 1 (00:32:40) - They could maybe do an 80% cash out refinance. In my experience. What I've found, though, is that usually when someone pays for a property, all cash, no matter what mortgage rates do, they don't go back and get a mortgage on it. They just leave it paid all cash. That's what I always tend to see happen. Absolutely. And that's not a wrong way to go at all. I'll tell you what. And with appreciation built in and then, you know, all the other benefit tax write off benefits and those types of things. I mean, it ends up being a great place to put your cash if you had your cash, if you look at the full picture of the return. So to your point, people who go there temporarily end up staying there, right? Yeah, it goes from temporary to permanent and keep that paid off condition, even though it probably doesn't make a lot of financial sense. But it can depend on what situation. Well, in conclusion here, is there just anything else that an investor should know in general about the Little Rock market or Little Rock property or the particular renovations that you make to the property there? One thing just to point out kind of from an earlier part of our conversation about why, you know, the city is great for young professionals and had that Forbes ranking.

Speaker 1 (00:33:48) - And, you know, our cost of living here in Little Rock is 17% below the national average. So your money just goes further here. I believe. And I think that translates out right. And you know, at our unemployment is around 2%. So it's a very low unemployment rate. So the cost of living is lower your dollars go farther. Your tenants here tend to be more stable. There's job opportunities for them. So I think all of that builds into why Little Rock is a great investment market and why we see tenants stay in units for longer than their lease periods. As far as availability and quality of renovations, I mean, we certainly have availability. We have deals popping up all the time. I mean, we're known for our renovations and being at the top end of our renovations and a lot of our tenants come to us almost word of mouth. They've been in one of our rentals before with a friend or neighbor, and a lot of times they are knocking on our doors as we're renovating, asking when is this going to be available for rent? So a lot of it is reputation of product out there, even among the tenant population, not just the buyers out there.

Speaker 1 (00:34:53) - So I think those are some of the things we have going for us here. We continue on our our journey here. We've been investing in Little Rock since 1997, so we've got a great track record here and a lot of great experience. Yeah, Your volume of repeat investors that want to keep buying there is really a testimony to what you're doing. Well, thank you so much for sharing this. It's really an opportunity a lot of people don't know about or a lot of people don't think about. It's hard to find a more investor advantaged place than Little Rock, Arkansas, and surrounding central Arkansas. There for you, the listener from Marketplace, you'll see our little rock provider there or contact your investment coach If you don't have an investment coach yet, you can visit Marketplace com slash coach and pick your coach It's been great chatting about Little Rock. Oh yeah, a great chat about Little Rock. You know, one of the things that I visited while in Little Rock, it was the Clinton Presidential Library.

Speaker 1 (00:35:56) - It's worth checking out. But, you know, the one thing that I did not see, despite all the memorabilia and historic tributes to Bill Clinton there, there was not one mention, nothing about Monica Lewinsky. I could not find one in the whole place. I guess it's his library and he'll be remembered how he wants to be. But yeah, these numbers really work for investors 1200 to $1500 rent renovations like what we discussed in purchase prices of 115 to 140 K, So you can start with one of those properties or get a pack of these smaller sized single family rentals and then they can manage them all for you long term. They seek tenants for life there, quote unquote. So we're talking about working class, stable families now here in central Arkansas that should not be confused with higher priced areas out in northwest Arkansas. Okay. The provider and I were talking off air about a story that's emblematic of that area, Northwest Arkansas, a schoolteacher priced out of Bentonville. She couldn't find housing there. So she lives in a Fayetteville rental and commutes into Bentonville.

Speaker 1 (00:37:12) - Okay. Those are both northwest Arkansas cities. Of course, Bentonville is famously known as the Walmart headquarters. So we're not talking about northwest Arkansas here, which is an area that just doesn't work as well for long term rentals as Little Rock, central Arkansas. Forbes Even highlighting that Little Rock ranks as one of the top ten places for young professionals to live in, pointing out those super low house prices, Little Rock should be considered to see if it fits into your portfolio as a stable place with some of America's very best cash flows, which you can do is from Marketplace. You'll see our little rock provider there. If you want to connect with the provider yourself, you can also go directly to Marketplace slash Little Rock or if you prefer, contact your investment coach. It is free and Jerry marketplace slash coach until next week when I'll be back to help you build real estate wealth. I'm your host, Keith Winfield. Don't quit your day dream.

Speaker 4 (00:38:16) - Nothing on this show should be considered specific, personal or professional advice.

Speaker 4 (00:38:20) - Please consult an appropriate tax, legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of Get Rich Education LLC exclusively.

Speaker 1 (00:38:44) - The preceding program was brought to you by your home for wealth building. Get rich education.

Direct download: GREepisode468_.mp3
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Mon, 18 September 2023

The Fed can raise interest rates, but they cannot create housing supply.

Housing intelligence analyst Rick Sharga joins us for the second week in a row.

This housing market is awful for primary residence homebuyers. But at GRE Marketplace, you can still buy income properties with rates as low as 4.75%.

Rick tells us that the most prosperous markets now favor the: Midwest and Southeast, single-family homes, rental property investors with buy-and-hold strategies.

National home prices are appreciating modestly. Home sales volume is still down.

Investors now account for more than one-quarter of property purchases.

Mortgage delinquencies are near an all-time low.

Rick and I discuss why this market is so bad for flippers.

High homeowner equity positions ($300K+) support this housing market.

Timestamps:

The impact of rising mortgage rates [00:02:37]

Discussion on how the Federal Reserve's raising of short-term rates has caused mortgage rates to go up, affecting the housing market.

The affordability challenge [00:03:38]

Exploration of the impact of higher mortgage rates on homebuyers, particularly first-time buyers, and the decrease in affordability.

Low supply of homes [00:08:48]

Analysis of the low inventory of homes for sale, with a decrease of 9% from the previous year and 47% from 2019, leading to a challenging market.

The mortgage rate lock in effect [00:11:05]

Discussion on how the mortgage rate lock in effect can crimp demand but cannot create supply.

Hottest markets in the Midwest and Southeast [00:11:05]

Analysis of the hottest real estate markets in the Midwest and Southeast regions of the United States.

Positive turn in home price appreciation [00:13:06]

Explanation of how home price appreciation went down but has recently turned positive again.

Housing Permits, Starts, and Construction [00:21:24]

Discussion on the trends and levels of housing permits, starts, and construction, and the need for builders to increase production.

Investor Activity in the Residential Market [00:22:28]

Exploration of the percentage of home purchases made by investors, with a focus on small and medium-sized investors and the misconception of institutional investors dominating the market.

Delinquencies and Foreclosures [00:24:36]

Analysis of mortgage delinquency rates, foreclosure activity, and homeowner equity, highlighting the low delinquency rates, the presence of equity in foreclosed homes, and the importance of early-stage foreclosure sales.

The future direction of rents [00:32:00]

Discussion on the potential upward pressure on rents due to low affordability and high homeownership rate.

Inventory coming to the market [00:33:03]

Exploration of the impact of expensive inventory coming to the market and its effect on rent prices.

The overall economy and housing market [00:34:03]

Consideration of the possibility of a recession, unemployment spike, and foreclosures affecting the housing market.

The coach's role in finding real estate deals [00:43:06]

Explanation of how an investment coach can help you find the best real estate deals in the marketplace.

Advantages of buying properties from marketplace [00:44:20]

Reasons why buying properties from marketplace can lead to good deals, including lower prices and absence of emotional seller involvement.

Resources mentioned:

Show Notes:

www.GetRichEducation.com/467

Rick Sharga’s website:

CJPatrick.com

Rick Sharga on X (Twitter):

@RickSharga

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RidgeLendingGroup.com or call 855-74-RIDGE

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466: Red Flags for an Economic Recession? Rick Sharga Joins Keith

(00:00:01) - Welcome to. I'm your host, Keith Weinhold. Hold a terrific discussion today on the direction of the housing market, including lessons that you can learn for all time plummeting home sales volume and direly low home inventory. Why home price appreciation is taking place now. Could the government soon penalize you for owning too many rental properties? What's the best place for a real estate investor to position themselves in this era? And more today on Get Rich Education.

(00:00:33) - You're listening to the show that has created more financial freedom than nearly any show in the world. This is Get rich education.

(00:00:56) - Walking from Horseheads, New York to Nags Head, North Carolina, and across 188 nations worldwide. I'm Keith Weinhold. And you're listening. To get rich education, you are going to get a fantastic market update today. And along the way, you'll also learn lessons if you're consuming this 5 or 10 years from now. Our expert guest was with us last week to discuss the economy. This week, it's episode two of two as we discuss the real estate market.

(00:01:25) - He has been the executive VP of markets at some of America's leading housing intelligence firms, and today he's the founder and CEO of Patrick Company, either a market intelligence firm for the real estate and mortgage markets. And he has 20 plus years of experience in those industries. It's the return of Rick Saga Part two of two. It's not imperative that you listen to last week's Part one of two that we can help you see the big picture. Enjoy this long, unbroken interview and then after the break, I'll come back to close it. Just you and I. We're talking with Rick Sagar, expert housing analyst, previously. We talked about the general condition of the economy. And now Rick and I are going to break down the housing market with what's happening there. There's so definitively connected. Keith One of the things to that the Federal Reserve has done by raising those short term rates is caused mortgage rates to go up, right? Mortgage rates tend to run loosely in line with the yields on the ten year US Treasury bonds that we talked about at the end of the first segment.

(00:02:37) - Those are now up around 4%. And typically a 30 year fixed rate mortgage will be between one and a half and two percentage points higher than that yield. So in a normal market, we'd be looking at a mortgage rate today of about five and a half to 6%. Instead because of the risk and the volatility that the market is pricing in because they're not sure what the Federal Reserve is going to do next. We're looking at mortgage rates for a 30 year fixed rate loan of over 7%. The most recent numbers from last week from Freddie Mac, we were at almost 7.2% on that average, 30 year fixed rate loan and 6.5% on a 15 year fixed rate loan. You and I were talking before the show and and you know, historically speaking, if we keep these things in context, we're still actually below the 25 year average, which was 8%. But we have a whole generation of homebuyers who've come of age during the period of the lowest mortgage rates in the history of the country. They got spoiled, they got spoiled.

(00:03:38) - And to be clear, it's one of the reasons that home prices rose as rapidly as they did and got as high as they are is because you could afford to make monthly payments with a two and a half, three, 3.5% mortgage. Now, you still have home prices about as high as they were then, and you have a mortgage rate that's doubled. And for most home buyers, particularly first time home buyers that make your monthly mortgage payment was going to go up by 45 to 60%. And most of us didn't get that 45 to 60% raise last year. It really had a huge impact on affordability. In fact, this is such an unusual occurrence that according to Freddie Mac, it's the only time in US history when mortgage rates doubled during a calendar year and they didn't just double in a calendar year. Keith They doubled in the space in a few months. It was that kind of systemic shock to the system that really hit the housing market as hard as it did. Right. And they've also nearly tripled in a pretty short period of time.

(00:04:35) - Yeah, they really have. And again, going back historically speaking and and get this from Gen Z folks and millennials, when I talk about, you know, the old days of mortgage and I do remember my first mortgage had two numbers to the left of the decimal point. I forget if it was 11 or 12%, but it was something like that. And they basically say, okay, Boomer, but that 11% mortgage was on your $70,000 house, Right. And not, you know, today's median priced home of $430,000 or whatever it is. So it's a fair point. Mortgage rates are not high, historically speaking, but that monthly cost, because of the combination of home prices and higher interest rates, is choking some people and making affordability a problem. And because of that, one of the forward looking metrics that I take a look at is the purchase loan mortgage application index from the Mortgage Bankers Association. So this is the number of people that are applying for loans with the purpose of buying a house.

(00:05:35) - They're off almost 30% on a year over year basis right now. You can see without straining your eyes at all the impact that these higher mortgage rates are having on the housing market. And we had almost record numbers of purchase loan applications from the time people who are allowed out of their house during the pandemic until these mortgage rates doubled from 2020 through the early part of 2022, mortgage rates were in the threes and fours and sometimes even in the twos. Yeah, everyone wants to talk about mortgage rates and it is an important discussion to have here at Marketplace with our investment coaches. Rick Some builders, as you know, they commonly offer rate buy down incentives to buyers of new homes. And what some of our providers are doing here, Rick, is we have one builder where if you use their preferred lender, they're buying down your income property's mortgage rate to 5.75%. And we have another builder where if you use their preferred lender, they're still buying down your mortgage rate to 4.75%. And of course, with Non-owner occupied property here, you know, previously you had talked about mortgage rates in excess of seven.

(00:06:47) - They might normally be about 8% for non owner occupied property, but you're able to buy them down to five and three quarters or even four and three quarters with one of our providers for new builds right now, that's a great deal and your listener should really be taking advantage of those opportunities. We'll get into new homes in a few minutes and what we're seeing builders do for consumers, But have to tell you, those numbers are better deals than consumers are getting right now. And you're being generous when you're talking about private lending rates right now. Most of the lenders I'm familiar with are nine, ten, 11%, depending on the nature of your investment. So your folks are getting a great deal with those rates. We talked about purchase loan applications. The other advanced predictor I look at is pending home sales. These are people that are entering into contracts. The deal hasn't been closed yet. Has it been recorded yet? This comes out from the National Association of Realtors. And those numbers are down on a year over year basis as well.

(00:07:42) - There's a lot of rate sensitivity in the market, though, Keith. And if you go back to March when rates went down just a fraction of a percent, we saw more purchase loan applications. We saw more pending home sales. But as rates have climbed back up over seven, we've seen both of these metrics go down. Yeah. So we're talking about pending home sales. We're talking about sales volume that's down in this discussion, not sales price. And anyone might be hard to say, but when you see sales volume that's down, including pending sales, how often is that due to worse affordability and how often is that due to low supply of homes? Why don't we jump right into that? Keith That's a great segue. And this is a very difficult time in the housing market because it has both of the factors that you just mentioned, two very difficult headwinds for the market to try and overcome. And and we'll get into details on both of those in just a minute. Because of that, existing home sales were down in July and they were down pretty significantly on a year over year basis, about 16%.

(00:08:48) - And that's the 23rd consecutive month where existing home sales were lower than they were the prior year. January was the lowest month of sales this month, and it broke a streak we started this year. I was forecasting that we'd see between 4.3 and 4.4 existing home sales. That's down from about 5.2 last year in about 6.1 million the year before. Right now, we're trending at a little over 4 million existing home sales for the year. So even my relatively low forecast for the year may have been overly optimistic. You mentioned inventory and inventory is a huge headwind for the market. Inventory of homes for sale today is down about 9% from where it was a year ago. It's down 47% from where we were in 2019, which was probably the last normal year we've had in the housing market. In a normal year, we would be looking at about a six month supply of homes available for sale. That's what economists or housing market analysts will look at as a balanced market balance between supply and demand. We're at about two and a half months supply right now nationally and in many states it's much lower than that.

(00:09:56) - So there's just not much out here. And the only reason the inventory number looks as good as it looks and it doesn't look very good is because it's taking a little longer to sell properties once they hit the market. If you were looking at new listing data, it's even worse. There's very little inventory coming to market in the way of new listings, and that's because of the rate increases we talked about a minute ago. 90% of borrowers with a mortgage have an interest rate on that mortgage of 6% or less. 70% have an interest rate of 4% or less. If you're sitting on a mortgage rate of 3.5% and you sell your house and buy a house at the same exact price with a 7% mortgage, you've just doubled your monthly mortgage payment. It's not that people psychologically don't want to trade a low rate for a high rate. There's a financial penalty for them doing so. And until we see mortgage rates come down a bit, probably into the fives, we're just not going to see a lot of inventory coming to market except for homeowners who need to sell or have so much equity and maybe you're going to downsize into a smaller property that they don't care about that kind of shift.

(00:11:05) - Yeah, that is the mortgage rate lock in effect. Perfectly explain. And the Fed with the raising rates, they can crimp demand. But one thing that the Fed cannot do is create supply. As much as you might like to see Jerome Powell in work boots with a nail gun, that just doesn't happen. There's an image for you, for your listeners. Yeah, and I'm not sure I'd want to. I'd want to live in that house. That's not Chairman Powell building, but inspection. Yeah. Good economist. Maybe not a carpenter. We were talking about this a little bit earlier, too. And if you're an investor, this is probably worth noting, whether you're a fix and flip investor or investor who's buying properties to rent out a lot of the interest. This is from the sharing some data from Realtor.com and they've taken a look at where people are searching for properties and where transactions are taking place and they're finding that Midwest Southeast are really the hottest markets, places that are a little off the beaten path, you know, places in New Hampshire and Connecticut and Maine and Ohio and Wisconsin.

(00:12:06) - But interestingly, some of the markets that had been suffering a little bit, they're starting to see a little more interest in whether it's California, but off the coast or markets in Colorado or Washington state. But clearly, a lot of the activity, a lot of the money is moving into the Midwest, in southeast. That's right. With the work from anywhere trend, you might see this small flattening and not as much of a disparity in home prices between markets. You're certainly still going to see that, but that can just help create a mild flattening when it doesn't matter where you live anymore and you can go ahead and purchase in lower cost markets. Yeah, and what I'm sharing now is national home prices, home price. And I'm glad you mentioned what you just did, Keith, because the fact of the matter is this has been a very localized correction. And if you're in San Francisco or San Jose, if you're in Seattle, if you're in Austin, if you're in Phoenix, you're in markets where prices are off 10% or more from peak.

(00:13:06) - If you're in Boise, Idaho, you're off more than 10% from peak of Boise had oil prices go up by 47% in a single year, a year or so ago. So he just overshot the mark. One of the reasons the national numbers don't show more volatility is because of what Keith just mentioned. It's because people are trading in where they are in a high price, high tax state moving into a lower price state and candidly outbidding local buyers and probably overpaying a little bit for those properties. So you're seeing home prices go up in some of those less expensive markets much more rapidly than they would under normal circumstances. And what we're talking about here is national home prices that are appreciating at a modest rate now. Yeah, and they are. So if you look at whether you're looking at the Case-Shiller index, it gets published monthly or the National Association of Realtors data. We saw home price appreciation start to go down last year. It was still positive but going down and that was true until pretty much the end of the first quarter this year when the data went negative for the first time in years.

(00:14:15) - So we were seeing on both a month over month and year over year basis home prices go down and that happened until June, June, things flatlined in July. Prices actually went up ah, year over year. So if you're looking at the median home price compared to the peak price a year ago, it's actually up about 1% from where we were last year, which is kind of amazing. The Case-Shiller index is a little bit of a lagging indicator and it rolls three months together, but it also started to turn the corner with its July report. So after almost a full year of price appreciation coming down and prices in decline, we've seen both of these indexes turn and are starting to go positive. It does show you that there continues to be demand for properties that are brought to market. And while home price appreciation certainly isn't soaring by any means, it's back in positive territory now. And that's something that a lot of people hadn't predicted this year. When the supply of homes is this low, it keeps generating a few bids for any available home.

(00:15:21) - Now, not as many bids as it did back in 2021. But besides generating bids, you have these huge population cohorts of millennials and Gen Zers that are growing, and they're in their prime homebuyer years moving through the system to go ahead and place those bids and keep just modest home price appreciation here lately. That's sort of how I see it. Rick If you want to add any color or thoughts to that, I think you're spot on. Keith It's the largest cohort of young adults between the ages of 25 and 34 in US history. That's prime age for forming a household. 33 to 34 is the average age of a first time buyer right now. And so these people would like to buy a house. And for people who are investing in single family rental properties in particular, at least short term, the affordability issue is something that definitely works in your favor. If somebody was looking to buy a house, they might prefer to rent a house rather than rent an apartment. I've read research that shows somewhere between 20 and 30% of people who had planned to buy have decided to rent for the next year or two while market conditions settle down or while they can put aside more money for a down payment.

(00:16:27) - These market conditions are playing in favor of people who have rental properties to offer. One other metric I'd like to share in terms of home prices, Keith is the FHFa puts out its own index. FHFa is the government entity that controls Fannie Mae and Freddie Mac. So these are your conventional bread and butter, vanilla kind of 30 year fixed rate loans. If you look at their portfolio, home prices are actually up 3.1% year over year. And every sector of the country is showing positive rice appreciation except for the Pacific states and the mountain states. And those are some of the markets we talked about earlier. And even those are very close to breaking even at this point. So HFA breaks it into about ten regions, nine of those ten currently appreciating year over year. Yep, something like that important for you to know again as an investor as to what's happening in your region. Again, whether you're you're planning to sell the property or rent it out. You talked about what builders are doing for your investor folks.

(00:17:28) - Yeah, we're seeing new home sales actually improving to consumers as well for a lot of the same reasons, incentives. So a lot of builders are coming to the closing table with cash. They're paying points on mortgages and getting those rates down where they're short term or long term. They're offering discounts, they're offering upgrades to properties. And so new home sales are still down, but just slightly on a year over year basis and have actually been beating last year's numbers for the last four months. My original estimate for new home sales this year was about 600,000. I think we're going to probably coming closer to 675,000 this year. And the only reason we won't sell more is because the builders aren't building that fast enough. But one of the reasons people are buying these new homes is because that's what's on the market today. People would have bought an existing home, can't find one. Here's the other factor. New home prices are down 16.4% from last year's peak. Now, this is informative. Think this would surprise a lot of people? Well, it surprises me.

(00:18:28) - It should surprise people because new home prices almost always go up, right? This does not mean builders are discounting homes 16.4%. What's happening is they are building less expensive homes, They're less expensive per square foot, and they're building smaller homes. And they're doing that in acknowledgement of the higher cost of financing. That also, by the way, is in sending people to look at these properties as either a starter home or a minor move up kind of property. But it is one of the reasons why new home sales are doing better than existing home sales right now on a percentage basis. That's an interesting number, Rick. A few weeks ago, I shared with our newsletter audience that builders are building homes smaller and closer together, which might be reflected in lower prices, but just didn't think it would be 16.4% lower from peak. Now, if you're doing year over year, it's probably not that big of a drop, but from the peak price we are off. And it is to your point, it's a pretty significant number.

(00:19:26) - It would be a problematic number if it was the existing home market, right, because then you'd be looking at the same property being worth 16% less. But a builder can kind of play with those numbers a little bit. Single family housing starts after falling for quite a while, are now back going back up only slightly from where they were a year ago, but they are moving in the right direction. Multifamily starts have actually tailed off a little bit after reaching record high numbers. There could be as many as a million apartment units coming to market this year. Yeah, which would be an all time record. So we've seen building on those multifamily units slow down a little bit. If you look at at new home starts for single family properties still below where they were a year ago. But again, for the first time in quite a few months, starting to trend up. A couple of things to share with your viewers here, Keith. In terms of construction, we're seeing construction continue to grow in the multifamily market because of all the starts we saw previously.

(00:20:23) - We are seeing single family construction slowed down, but that's because the builders are working their way through a glut of homes that was under construction. So we had a really weird happenstance about a year ago, a little over year, we had the highest number of homes under construction ever. And this data goes back to the early 1970s, and we had the lowest number of completed properties available for sale ever. And a lot of that was due to supply chain delays and to labor shortages. And over the last year to 15 months, the builders have gradually begun working through this glut of homes that were started but not finished. And we've seen the number of completed homes go up a little bit, almost back to normal levels, not quite there. One of the reasons they're not quite there is people are buying these homes before they're completed. They're working with the builder. Buying a home is it's almost ready to go, but still under construction. What's been encouraging, looking into the future is that permitting has increased a bit over the last two quarters.

(00:21:24) - We know builders are betting on the future. They're not necessarily breaking ground on all these properties they have permits for because they don't want to oversaturate either. And they're being very judicious with their building because they got caught with a ton of inventory during the Great Recession that they wound up selling at fire sale prices. But the trends are long term, looking like they're going in the right direction right now for new homes. So to help the viewer and listeners chronologically, we're talking about housing permits followed by housing starts. And then finally, housing construction. Right? Permits are up, starts are up recently, but down year over year. And the construction numbers are getting back close to normal levels. And we need the builders to build more because even before the rate lock effect took effect and existing home inventory got so scarce we didn't have enough housing in the works, we were depending on whose numbers you believe, somewhere between 2 and 6 million units short. We need the builders to come back to market. Note for your folks.

(00:22:28) - Keith Investors continue to account for a fairly significant amount of activity in the residential market. Over a quarter of home purchases 26% in June, which is the most recent data we have, were made by investors and believe this number actually under reports the number of investor purchases because it's from a company called CoreLogic, it's accurate data for what they count, but they only count investor purchases where the buying entity has an LLC and LP Corp kind of entity. And we know that a lot of buyers don't do that who are investors. So it probably understates it. But the fact of the matter is that historically speaking, 26% of residential purchases being done by investors is pretty high number. That's a pretty high number and as you alluded to, is probably actually higher than 26% of home purchases being made by investors. And so the headlines will breathlessly tell you that Main Street is being gobbled up by Wall Street. Oh, I know. And those institutional investors are evil people. They're buying everything that the truth is is completely the opposite.

(00:23:31) - If you look at investors who are buying properties, it's really the small investors who are buying about 46% of those investor purchases and medium sized investors about 35%. If you're looking at the biggest of the big investors, they're buying less than 10% of what's going out today. And they still own collectively about 3% of the single family rental stock. It's the mom and pop investor who continues to drive the market. Yeah, I'm glad you bring this up, Rick, because there seems to be this outsized perception that institutional money through someone like, say, in Invitation homes is just gobbling up all the good investor homes. And and they're really not. It's mom and pop investors that rule. In fact, there's some legislation pending in D.C. right now that's aimed to keep these institutional investors from doing what they're already not doing and have some tax penalties for anybody who owns. Here's the number that's important. More than 50 properties well, Invitation Homes owns significantly more than 50 properties. I know a lot of medium sized investors who own more than 50 properties.

(00:24:36) - Yeah, they're certainly not institutional investors. They certainly don't have a hedge fund behind them. Important again, for folks in this market to be in touch with their legislators and let them know what's really going on in the marketplace so we don't get this kind of bad legislation. It makes it tough for the average investor to really take full advantage of the opportunities that are out there. 100%. Mom and pop investors might need more than 50 units to obtain financial freedom. Yep. Just to wrap up, Keith, a couple of points on delinquencies and foreclosures. I know a lot of investors got into the business, you know, a decade or so ago and there was just a rash of foreclosure activity and you could buy a distressed property by just walking down the street and knocking on doors. It's a little different these days because of that strong economy we talked about earlier. In that low unemployment rate. Mortgage delinquencies are at an all time low. Mortgage Bankers Association reported that the midpoint of this year, at the end of the second quarter, the total delinquency rate was 3.37%.

(00:25:36) - To put that in context, historically the number is somewhere between 4 and 5%. So not only are we not seeing a lot of delinquencies, we're seeing less than we would see normally as seriously delinquent loans. The ones that are 90 days plus past due is as low as we've seen it in probably the last 6 or 7 years. That's really interesting. So not very many homeowners are in trouble with making their payments, which to some people might seem like a conflict with what we described back in the earlier part of the chat about low savings and higher credit card debt. So many of these homeowners are locked in to these really low payments where they got low mortgage interest rates. Plus inflation cannot touch those fixed rate payments. And that's an important point for those people that are in these homes. It would be more expensive for them to go rent right now, probably because they got such a good deal on the mortgage rate. There's usually a pretty strong correlation between unemployment rates and mortgage delinquency rates. So I mentioned that the most recent report had unemployment at 3.8%.

(00:26:37) - I think at the end of June it was a 3.5%. So we might see delinquency rates tick up a little bit. There was also some really bad social media memeing going on during the government's mortgage forbearance program. There was even an economist who predicted that almost everybody who got a forbearance was going to go into default and that would have been a catastrophe. If you look back a little over a year ago, actually more like two years ago when there was there were a lot of people in forbearance. You saw delinquency rates very high, but that was because people were allowed to miss payments. They were just being counted by the industry as delinquent. The fact is that less than a half of a percent, less than one half of 1% of the borrowers who were in forbearance and there were 8.5 million of them have defaulted on their loans. The overwhelming majority have done very, very well with that program. So it really didn't contribute to any kind of delinquency or default activity. So strong economy, extremely high, low quality because lenders really haven't been making many risky loans since the Great Recession.

(00:27:40) - The record amount of of homeowner equity that's out there. Yeah. Is keeping this market pretty solid to the point where foreclosure activity today is still running at a little bit less than 60% of pre-pandemic levels. So in a normal market, about 1 to 1.5% of loans are in some state of foreclosure. In today's market, it's about a half a percent. So we're just not seeing much go into foreclosure and the properties that go into foreclosure. The homeowners have a significant amount of equity. 92% of borrowers in foreclosure have equity in their homes, which is wildly different from where we were during the great financial crisis, when a third of all homeowners were underwater on their loans. At just about everybody in foreclosure was upside down. And people push back at me when I'm out talking at conferences about this. Keith Oh, yeah, they have equity, but they don't have enough equity to make a difference. Oh, yes, they do. 88% of the borrowers in foreclosure have more than 20% equity. That's typically the magic number that a realtor will tell you you need in order to sell your property and avoid any other kind of complications with one of these foreclosures, preventing any sort of fire sale and lowering of prices that makes all home prices go down in a neighborhood where not anywhere near that.

(00:28:57) - No, not at all. And in fact, some other data that I'll share with you and your listeners is that about 62% of the distressed property sales we see right now are properties in the early stage of foreclosure prior to the foreclosure auction, which means these distressed homeowners are protecting their equity by selling the property before it gets sold at a foreclosure sale. And so they're protecting the vast amount of this equity. But if you're an investor in today's market, there's some really important information in what I just gave you. You can't wait for the bank repossession. In this cycle, bank repossessions are running 70% below where they were prior to the pandemic, so there's fewer properties getting to auction because 67% of these distressed property sales are prior to the auction. Properties that get to auction are selling through at about 60% rate. So there's nothing going back to the lenders. So if you want to buy a property in some stage of foreclosure, your best bet in today's market is to get a list of people in the early stages of foreclosure and reach out directly to them.

(00:30:01) - Your second best bet is to get to that foreclosure auction. Be ready to move at the auction, and your worst bet is to wait for the lender to repossess the property. And in fact, I've seen anecdotal data that suggests that those properties are actually more expensive than the ones you could buy from the homeowner or at the auction because the lenders are fixing them up and selling them at full market price. Good guidance for those chasing distressed properties. So that's what's going on in the foreclosure market. I don't see foreclosure activity being back to normal levels until sometime next year. And I don't see activity bank repossessions being back to normal levels even next year. It's a very different marketplace. This is what I was just talking about. Keith If you were to break up what selling and what stage of the foreclosure process right now, about 64% of distressed sales are taking place prior to the foreclosure auction and less than 20%. Distressed sales today are those background properties. So it's a very different world than what a lot of investors grew up in.

(00:31:03) - Rick is about to share his summary with us, his closing thoughts. Before he does that, I've got two questions for you, Rick. I hear some people out there, it seems to be oftentimes the real estate agent type, maybe that's trying to be a big cheerleader for the market. And I hear a few of them say something like, hey, you know what? You better buy now, because when mortgage rates fall, home prices are really going to shoot through the roof. I don't really know that that necessarily happens because when mortgage rates fall, okay, that might increase demand of capable homebuyers, but it should also increase supply. Now, the mortgage rate lock in effect, goes away and more people will want to bring supply onto the market. And I also like to think about what happens when rates are falling. Typically, that means the economy needs help and unemployment might be a little higher. So my thoughts, Rick, are if mortgage rates do fall substantially, that might help home price appreciation a little bit, but I don't see it as any sure thing that that would make home prices go through the roof.

(00:32:00) - What are your thoughts? It's a great question. You make a very logical argument. A lot of it comes down to supply. And that's where I would hedge my bets. I don't think we see a ton of supply come back to market until rates are back in the low fives. So there's a point and a half of interest going from little over seven to maybe 5.5%, where we're probably going to see more buyers come to market than we're going to see inventory come to the market. My other thought we touched on it earlier is with rents. Talk to me about the future direction of rents. They were horribly hot a year or two ago, up 15% year over year. Rents have moderated substantially. But with this really lousy home affordability and a high homeownership rate, it seems like with this low affordability, we're set up for the homeownership rate to go lower in the proportion that rent go higher, which could put upward pressure on rents over time here. What are your thoughts with rents? Yeah, offsetting what you just said is a record number of apartment units coming to market this year.

(00:33:03) - There are likely to be some markets across the country that wind up oversupplied because of the amount of inventory coming to market. Now, don't get me wrong, the inventory coming to market is going to tend to be expensive inventory. And so that in and of itself could make rent prices come up a bit. I do believe in the short term I would tend to agree with you that the lack of housing stock available for people who would like to buy is going to play in the benefit of the folks who own properties to rent. And that will, I believe, be particularly true for people that own single family residential units that are like houses to rent. I guess we're going to split the difference on these two questions. I'm going to mostly agree with you on the second one. I do believe there's a chance prices will go up a little bit more than you think as mortgage rates come down until we get down to about 5.5%, mortgage rates are lower when we see more of that inventory coming to market. And what is the real wild card in all of this, of course, is what happens with the overall economy.

(00:34:03) - Do we enter a recession? Does unemployment spike? If that's the case, that should weaken, demand a bit and you could have a little bit of an uptick in foreclosures, which will weaken the market as well. So a lot of different components at play. And I think what people ask you questions like that, Keith, about, you know, mortgage rates come down, is this going to happen? They kind of oversimplify the equation quite a bit. There are a lot of other variables that go into it. 100%. Why don't you go ahead and share your closing thoughts with us? A lot of stuff we covered, so I won't dwell on too much of this very long. But from my perspective, a recession is still a real possibility. Probably not until next year if we have one. And if we do, it's likely to be pretty mild and fairly short and we shouldn't see a huge, huge spike in unemployment. I do believe that as the Fed decides it's done raising the Fed funds rate and announces that we'll see mortgage rates gradually decline back toward 6% by the end of this year.

(00:34:57) - And we'll be back in the fives next year. And by the way, historically, every time the Fed has stopped raising the Fed funds rate, we have seen mortgage rates come back down. Existing home sales right now are on pace for their lowest number since 2009. Likely, we're going to see somewhere in the neighborhood of 4.2 million existing home sales. But we're likely to see more new home sales than a lot of people had forecast beginning of this year, maybe 650, 675,000 of those sales in 2023. And we've seen prices decline in the new home market, but they might have bottomed out in the existing home market because of the supply and demand thing that Keith and I have kind of beaten to death during this podcast. Again, importantly for this audience, investors continue to account for a very large percentage of residential purchases and a lot of you seem to be shifting toward buy and hold strategies, which again makes ultimately good sense in a market like today's. And then that anticipated wave of foreclosures that all those folks on YouTube were trying to sell you courses to figure out how to maximize never materialized.

(00:35:57) - And at least during this cycle, not likely to any time soon. Probably won't. Yes, A lot of people a couple of years ago, especially on YouTube, were talking about a certain price collapse is coming and it never happened. And I never saw how it would have happened and I never made those sort of dire predictions. Well, Rick, this was a great chat about the overall economy, the housing market and what investors need with the housing market. I'm sure our audience learned an awful lot. It was a terrific update. If our audience wants to learn more about you and kind of wish this chat would just go on and they could learn more about you and engage with your resources. What's the best way for them to do that? Well, you can certainly follow me on social media. I refuse to say my Twitter handle is just Rick Saga. I'm on LinkedIn to hard to find there. You can also check out my website which is Patrick. Com. Enjoy doing these conversations with you Keith.

(00:36:51) - Think the first time we talked you reached out because I had come down like the wrath of God on somebody who was predicting a housing price crash because I didn't see one coming either and thought he was doing investors a disservice. So keep the faith and keep the good fight going. Keith And I'll be here whenever you want to talk. Jerry Listeners can't stop talking about their service from Ridge Lending Group and MLS 42056. They have provided our tribe with more loans than anyone there truly a top lender for beginners and veterans. It's where I go to get my own loans for single family rental property up to four Plex's. So start your pre-qualification and you can chat with President Charlie Ridge personally, though, even deliver your custom plan for growing your real estate portfolio. Start at Ridge Lending Group. Com. You know, I'll just tell you for the most passive part of my real estate investing personally, I put my own dollars with freedom family investments because their funds pay me a stream of regular cash flow in. Returns are better than a bank savings account up to 12%.

(00:38:00) - Their minimums are as low as 25. K. You don't even need to be accredited. For some of them, it's all backed by real estate and I kind of love how the tax benefit of doing this can offset capital gains in your W-2, jobs, income. And they've always given me exactly their stated return paid on time. So it's steady income, no surprises while I'm sleeping or just doing the things I love. For a little insider tip, I've invested in their power fund to get going on that text family to 668660. And this isn't a solicitation If you want to invest where I do, just go ahead and text family to six six, eight six, six. Hi, this is Russell Gray, co-host of the Real Estate Guy's radio show. And you're listening to Get Rich Education with Keith Reinhold. Don't Quit Your Day dream. Yeah, terrific insight from Rick, as usual. It's remarkable how much this interview is aligned with what we're doing here. As Rick discussed how, though, it's a tough environment for homebuyers, it's better for investors, especially for single family rentals and especially in the Midwest and South are core areas.

(00:39:23) - It's a better market for the buy and hold investor than it is for flippers. It's a tough chase for flippers. Sometimes you don't flip the house, the house flips you. There are still so few homeowners in delinquency and foreclosure. Rick believes that when lower mortgage rates come, home, prices could appreciate more than I tend to think. We'll see how that turns out. And, you know, historically here, as we talk about the direction of home prices and the direction of rent growth Now with respect to home prices, when I provided you with the home price appreciation forecast, I keep somewhat undershooting. The market appreciation tends to outperform what I think by just a bit. Back in 2018, 2019, home price appreciation rates, they were just kind of bumping along at 4 or 5%. Back then, interest rates were super low, housing supply was more balanced. And I said right here on this show then about five years ago, that I don't see what will make home price growth like really accelerate or shoot up from here.

(00:40:32) - Well, then we had the pandemic, something that no one saw coming when the pandemic fog cleared. You remember that all here on the show in late 2021, I forecast 9 to 10% home price appreciation for the coming year, which back then I was talking about 2022. And then that appreciation rate for 2022 came in at 10.2%. Although I was close, I shot just a touch low. Now at the end of 2022, well, about nine months ago, I predicted zero home price appreciation for this year. As we near the fourth quarter, it looks like we'll get low single digit appreciation, but that remains to be seen. However, I've long been undershooting the market just a bit, though. Close and mortgage rates. No, don't even ask me. I don't try I don't make mortgage forecast. That is too hard to do. Making a mortgage rate prediction is almost like a certain way to be wrong. Although Rick and I talked about how this is a good market for investors, to my point from last week, in some markets, cash flow has become an endangered species with some of these increasing expenses for investors.

(00:41:46) - And again, I have some really good news for you here. We have largely solved that problem here at Gray of higher mortgage rates, hurting your cash flow. And that's why investors like you are still snapping up rental properties from Marketplace right now because of the strength of our marketplace network and relationships. Here we have a new build provider offering a mortgage rate to investors of 5.75%. Yes, they will see that your rate is bought down to 5.75%. In today's environment, another new build investment property provider is offering a rate buy down to 4.75%. Yes, you heard THAtrillionIGHT? And we have another builder provider where our investment coaches have been sharing with you a 2.99% seller financing option. There is more to it than that. And these builders, though they are in business to move property. So take advantage of it where you can. And besides buying down your mortgage rate for you like that, some are even waiving their property management fee for you for the first year. In addition to buying down the rate. I don't know how long all that's going to last, so this can be a really good time for you to contact your in investment coach.

(00:43:06) - Your coach will help you shop the marketplace properties, tell you where the real deals are and tell you how to get those improbably low mortgage rates for income properties. Today, your coach guides you and makes it easy for you If you don't have an investment coach yet, just go to Marketplace. Com slash coach and they're there to help you out. And marketplace properties they are often less expensive than elsewhere in addition to the low rates from some of the providers. But now you might wonder why often are the prices not always, but often, why are they lower? Well, first of all, investor advantage markets just intrinsically have lower prices than the national median. And secondly, there is no real estate agent to compensate with the traditional 6% commission, you are buying more directly. Thirdly, these property providers, they are not. And pop flippers that provide investors like you and other people where they just flip like one home a year instead. These are builders and renovation and management companies in business to do this at scale so they get to buy their materials in bulk, keeping the price lower for you.

(00:44:20) - And another reason that you tend to find good deals at Marketplace is that you aren't buying properties from owner occupants where their emotions get involved and they get irrational over there on the seller side. So you can go ahead and get started with off market deals at GRI, marketplace.com. If you'd like the free coaching from our investment coaches, then contact your coach. And if you don't have one yet again you can do that straight at GRI marketplace.com/coach that's an action item for you this week that your future self should thank you for until next week. I'm your host Keith Winfield. Don't quit your day dream.

(00:45:04) - Nothing on this show should be considered specific, personal or professional advice. Please consult an appropriate tax, legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of Get Rich Education LLC exclusively.

(00:45:32) - The preceding program was brought to you by your home for wealth building get rich education.

Direct download: GREepisode467_.mp3
Category:general -- posted at: 4:00am EDT

Mon, 11 September 2023

In many world nations, if you’re born poor, you stay poor. I discuss how in America, you can be upwardly mobile.

Back in 2010, real estate prices had fallen, but rents had not. This created years of cash flow. Today, as prices have outpaced rents, cash flow keeps shrinking.

Our Investment Coaches have access to income properties with 4.75% and 5.75% mortgage interest rates. It's a way to "bring back cash flow". Get started at GREmarketplace.com/Coach

Terrific housing intelligence analyst Rick Sharga joins us for the first of two consecutive episodes.

Rick & I discuss the condition of the American consumer, inflation and interest rates, concerns about a potential economic downturn, the housing market, the impact of consumer confidence on spending, and the actions taken by the Federal Reserve to control inflation.

There’s flagging consumer confidence and a yield curve inversion. Are these finally harbingers of an economic recession?

Rick’s informal survey of economists find that there’s a 50-50 chance of a recession this cycle. Earlier this year, 80% of economists felt that a recession was imminent.

If there is a recession this cycle, Rick thinks there’s a probability that it will be mild.

Average hourly wages are $28-29 / hour. Wage growth is 4-5%. Wages are finally running higher than home price appreciation.

Timestamps:

The Future of Real Estate Investing [00:01:33]

Discusses how owning real estate can help individuals move into a different wealth class and the benefits of owning rental properties.

Changes in the Real Estate Market [00:04:06]

Explains how the real estate market has changed over the years, with property prices catching up to rents and the decrease in cash flow opportunities.

Taking Advantage of Low Mortgage Rates [00:07:53]

Highlights the opportunity for investors to take advantage of low mortgage rates offered by builders and the benefits of using their preferred lenders. (Yes, even here in 2023. We have 4.75% and 5.75% rates that builders buy down.)

The housing market correction [00:11:31]

Discussion on the correction in the housing market and its localized impact on different regions.

Economic landscape of the United States [00:16:09]

Overview of the US economy, including GDP growth and the strength of consumer spending.

Wage growth and home price appreciation [00:20:16]

Comparison of wage growth outpacing home price growth, impacting housing market affordability.

Consumer Confidence and Spending [00:21:24]

The correlation between consumer confidence and spending during the pandemic, the impact of subsequent waves of COVID, and the role of pent-up consumer demand and government stimulus.

Red Flags in Consumer Spending [00:22:25]

The disconnect between consumer spending and low confidence scores, the record level of consumer credit card use, and the decrease in personal savings rates.

Inflation and the Federal Reserve [00:25:44]

The high inflation rate in 40 years, the actions taken by the Federal Reserve to control inflation, the impact on housing costs, and the potential for a recession.

Yield Curve Inversion and Recession Predictions [00:31:07]

Discussion on the yield curve inversion and its historical correlation with recessions.

Impact of Recession on the Housing Market [00:32:04]

Exploration of the potential impact of a recession on the housing market.

Part Two: State of the Housing Market and Future of Investment Real Estate [00:33:03]

Teaser for the next episode, which will analyze the state of the housing market and the future of investment real estate.

Resources mentioned:

Show Notes:

www.GetRichEducation.com/466

Rick Sharga on X (Twitter):

@RickSharga

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

Will you please leave a review for the show? I’d be grateful. Search “how to leave an Apple Podcasts review”

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465: Unearthing the Wealth of Gold

Keith Weinhold (00:00:01) - Welcome to. I'm your host, Keith Weinhold. Today, it's part one of two of my exclusive interview with one of the nation's foremost housing intelligence analysts. How's the condition of today's American consumer? What's the future of inflation, the Fed interest rates? And should you really be concerned about a downturn today on get rich education?

Corey Coates (00:00:28) - 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 (00:00:51) - Welcome from Orange County, Florida, to Orange County, California, and across 188 nations worldwide. You're listening to one America's longest running and most listened to shows on real estate. With nearly nine years of weekly episodes. You're listening to Get Rich Education. I'm your host, Keith Wine expert, housing and mortgage analyst Rick Sugar is back and he is figuratively waiting in the wings. Here to give us an update on the economy shortly. In many nations of the world, if you are born poor, you stay poor. It's really hard to change wealth classes because you can't own anything in so many world places.

Keith Weinhold (00:01:33) - If you're born middle class, you also stay middle class. There's no way out of that. Owning real estate is the number one way to move yourself into a different wealth class. Owning your own business is another way, but with owning real estate, it's quite easy to follow a template and do what someone else has already done. Within a proven system. You don't have to have a new out-of-the-box business idea. For example, in the US, if you start collecting assets that pay you each month, you can quickly become upwardly mobile. In America, even if you were born into poverty and have a long line of impoverishment in your family, you can own your own home and that can help you go from poor to middle class. You can add rental properties and go from poor or middle class to wealthy because if you're in the US you are allowed to own things. Yeah, keep accumulating properties and keep getting rent money from tenants. In so many nations of the world. If you come from modest means, you just cannot get dozens of people or hundreds of people to pay you one third of their income every month.

Keith Weinhold (00:02:52) - But here you can get all these tenants to pay you one third of their salary in rent so you can close that class divide. It's up to you. That's what makes the US great. You can move into a different wealth class, the GSEs, the government sponsored enterprises. They will even give you backing on a bank loan so that you can do this. They're really encouraging this and enticing you to do this with as little as a 3% down payment on your primary residence or 20% down on rental properties. It's like they're almost forcing you to succeed. And there's even a 1% down program for primary residences now available in some places. So the bank gives you the loan, the tenant pays you the rent, and the government gives you the tax break. Like I say, that right there is using other people's money three ways at the same time, the bank, the tenant and the government, it all sort of falls in your lap if you want it to, but you do have to ask for it and you do have to do some arranging and you need to be diligent and attentive to.

Keith Weinhold (00:04:06) - But most Americans, they just aren't wise to this. Now, the real estate market, it has changed from a few years ago. It was spring of 2020 where we had that big inflection point, as you know, because I often discuss it. That was that supply crash. And since that time, home prices have run up faster than rents. But I'd like to give you some broader perspective here. There's something important with real estate investing that you may not have realized coming out of the global financial crisis 2008, 2009, 2010. At 2010, when we really started to lift up out of the rubble because by 2010, property prices were still down low. They were near the rock bottom. They're even lower than replacement costs in a lot of markets, which was artificially low. But see, rents didn't really fall much in the GFC. Rents stayed the same. So you know what happened in 2010 and all the years following it will cash flow began. And that's because all over America you then had these high rents and low purchase prices that had been beaten down by the GFC.

Keith Weinhold (00:05:18) - Cash flow like that wasn't really normal, but by now property prices have caught up to rents and even surpassed them. So besides investors being used to low mortgage rates, these ultra low rates, they also got used to this ultra high ratio of rent income to purchase price. That's just not there like it used to be. So today, in more places, you can't expect much of anything for cash flow now with a few years of. Income property ownership. Say if you bought something late this year, a few years later, now you shouldn't count on it. But rents, as we know, historically rise to then start providing you with cash flow to complement the other four ways that you're simultaneously paid. So my point is that today the deals aren't as good as they were ten years ago and five years ago, and that is all part of the provenance and perspective that I'm sharing with you from the real estate investing landscape starting from back around 15 years ago. But today I posit that it is still difficult to find a better place to invest a dollar than with a loan on carefully bought income property.

Keith Weinhold (00:06:31) - And I have some really good news for you here. All right. We know higher mortgage rates. They're not just a pain point for first time homebuyers and second time homebuyers for that matter, but they're a pain point for you, the investor. Well, if you didn't already know, we have largely sort of that problem here at Gray. And that is why investors like you are still snapping up rental properties fast. From Marketplace today, owner occupied mortgage rates are about 7% in income. Property rates are about 8%. But because of the strength of our marketplace networks and relationships here we have one new build provider offering a mortgage rate of 5.75%. Yes, they will see that your mortgage rate is bought down to 5.75% for your purchase. Yes, right here in today's environment, another new build investment property provider is offering a buy down to 4.75%. Yes, you heard that right. And we have another builder provider where our investment coaches have been sharing with you a 2.99% seller financing option. So is cash flow back? Yes, a lot of times it is.

Keith Weinhold (00:07:53) - The builders know that it's a pain point for buyers and our coaches and I hear a Gary know it too, So we have rubbed salve on the wound here, I suppose. 5.75% interest rates, 4.75 or even 2.99. At times you'll have to use the builders preferred lender to get those terms. Otherwise I like to use Ridge lending Group because they specialize in income property loans. There is even more to it. These builders are in business to move property, so take advantage of it. And besides buying down your mortgage rate for you like that, some are even waiving their property management fee for you for the first year, in addition to buying down the rate and don't know how long all this is going to last. So this could be a really good time for you to contact your investment coach. Your coach will help you shop the marketplace properties, tell you where the real deals are and tell you how to get those improbably low mortgage rates for income properties. Your coach guides you and makes it easy for you If you don't have an investment coach yet, just go to Marketplace slash coach and they're there to help you out.

Keith Weinhold (00:09:11) - Hey, it's really great to have the savvy and the experience of Rick Shaka back on the show today. His mind is always in the market. He's often doing these public speaking appearances informing audiences about it. He's been the executive vice president of markets at some of America's leading housing intelligence firms. We have so much to discuss that Today's episode is part one of two back to back episodes with Rick. This week, we'll discuss the direction of the economy. Next week, we'll go deep on the housing market. But even our discussion on the economy today is probably going to be viewed through the lens of having real estate investors in mind. So this intelligence is fresh and it is timely here in fall of 2023. But even if you're listening to this, a decade from now, in 2033, you are going to get lessons for all time. It's the economy this week and the real estate market next week. It could be a day or two until we have today's episode on Get Rich Education YouTube. But you can watch us there as well if you want the visuals and charts that complement our discussion.

Keith Weinhold (00:10:19) - Many of the sources that he cites today will be from Trading economics in the US Bureau of Economic Analysis. What's the present and future of the economy, especially as it pertains to real estate investor interest with Rick and I straight ahead. I'm Keith Reinhold in this is get rich education. Jerry listeners can't stop talking about their service from Ridge Lending Group and MLS 42056. They've provided our tribe with more lows than anyone. They're truly a top lender for beginners and veterans. It's where I go to get my own loans for single family rental property up to four Plex's So start your prequalification and you can chat with President Charlie Ridge personally, though, even deliver your custom plan for growing your real estate portfolio. Start at Ridge Lending Group. You know, I'll just tell you for the most passive part of my real estate investing personally, I put my own dollars with Freedom Family Investments because their funds pay me a stream of regular cash flow in. Returns are better than a bank savings account up to 12%. Their minimums are as low as 25.

Keith Weinhold (00:11:31) - K. You don't even need to be accredited. For some of them, it's all backed by real estate and I kind of love how the tax benefit of doing this can offset capital gains and your W-2 jobs income. And they've always given me exactly their stated return paid on time. So it's steady income, no surprises while I'm sleeping or just doing the things I love. For a little insider tip, I've invested in their power fund to get going on that text family to 668660, and this isn't a solicitation If you want to invest where I do, just go ahead and text family to 66866. This is real estate investment cogeneration. Listen to get Rich education with Keith Reinhold and don't quit your day dream. And you're going to get a fantastic market update today. And you're also going to learn lessons even if you're consuming this 5 or 10 years from now. Our expert guest was first with us here six months ago. He's been the executive VP of markets at some of America's leading housing intelligence firms. He was twice named to the Inman News Inman 100 most influential real estate leaders.

Keith Weinhold (00:12:54) - He is one of the country's most frequently quoted sources on real estate, mortgage and foreclosure markets. You've seen him seemingly everywhere CNBC, CBS News, NBC News, CNN, ABC News, Fox, Bloomberg in NPR got about just every letter of the alphabet in there on that one. Today, he's the founder and CEO of J. Patrick Company. They're a market intelligence firm for the real estate and mortgage markets. He has 20 plus years of experience in those industries. Hey, welcome back to Rick Saga. Thank you for having me, Keith. Happy to be here. It's an interesting time. Rick. I think some people are rather confused because you have such unusually low housing supply still. You have higher mortgage rates and we're careful not to call them high mortgage rates because we know historically they're pretty normal. And you have what I would characterize is a rather distinct regional variation in home price appreciation. So we're going to get some clarity today from that confusion. Now, if you're listening on audio only, Rick will describe the charts in a way that gives you a good experience.

Keith Weinhold (00:14:03) - If you're watching this on YouTube, go ahead and give us a like. So we really anticipate, Rick, your take on both the broader economy first and then the real estate market. That's exactly what we're going to go over today. And before we get started, I think you said something I'd like to emphasize a little bit. And this is something we talked about. I believe the last time we chatted is I've been saying all along that we were not going to see a housing market crash. We were going to see a correction of sorts and that the correction was going to be very, very localized. That the results you see in coastal California, in the Pacific Northwest, in markets that were overpriced, like Boise and Salt Lake City and Phoenix and Austin, we're going to be very different than what you saw on the East Coast, particularly the southeastern states, places like Tennessee and Florida and the Carolinas and virtually everywhere else in Texas other than Austin. So it's really worked out that way. There are some markets where we're seeing double digit price declines and other markets where prices continue to go up.

Keith Weinhold (00:15:05) - And we'll get into the national trends in a minute. But thought that was a really important point. Keith Yeah, Thank you for adding that, at least for a while there. Rick. It was one of the most unusual home price appreciation maps I have ever seen. There were some exceptions, but generally the nation east of the Mississippi River, you had rising home prices and recently west of the Mississippi River, you had falling home prices like a river divided it. It was really weird. To your point, it's normalized a little bit. I live in California. Speaking of weird and the pricing out here, the month over month prices and year over year prices went down for the first time in quite a while for about four consecutive months before normalizing in July. Now, even within California, you see different price trends depending on where you are in the state. But the point is really important for investors to remember that you almost threw the national numbers out, that they're important from a trend perspective, but you really need to become an expert in whatever market you happen to be investing in because the local conditions really determine how successful you're going to be.

Keith Weinhold (00:16:09) - Like the national outdoor temperature average is pretty useless, almost somewhat like the national home price average is. I guess the national home price average Still has some meaning to it though. Yeah, and you don't find quite as much variation in home price trends as you do in temperatures, but your points well taken. And again, it's important to be looking for economic trends. It's important to be looking for housing market trends and the markets that you're interested in investing in because that makes all the difference. So we're just going to talk about the general economic landscape of the United States, and then we're going to pivot into real estate and just what's going on with the housing market and getting the latest there. Yeah, why don't we jump right into it at this point, Keith, We're going to do a fall update on the housing market for this year. We're going to take a look at the economy. We'll take a look at what's going on in housing. I have a few slides to share on what's going on to delinquencies and defaults because I know a lot of investors are interested in foreclosure properties.

Keith Weinhold (00:17:11) - And then we'll have some closing thoughts and then you can chat a little bit more about some of the observations we're making in the market today. Let's start talking about that economy, including that part where some people anymore, year after year, they're always predicting this recession that never quite seems to happen. Well, we have predictions of a recession that are very much like predictions of a housing crash. And if you keep predicting that terrible thing long enough, someday you'll probably be right. It'll be right eventually. Just like a broken clock is right. Broken clock. It's right twice a day. So the GDP, the gross domestic product is the way that that most economists measure the strength of the economy. And the second quarter, this number was just adjusted downward a little bit, but we still had over 2% growth for the second quarter of 2023. That was a higher number than most economists had forecast. It was certainly a higher number than what the Federal Reserve was expecting. But it really shows you the strength of the US consumer.

Keith Weinhold (00:18:09) - A lot of people probably don't realize that almost two thirds of the GDP is comprised of consumer spending. There's other factors that go into it business spending, government spending, productivity, trade and the like. But two thirds of it is consumer spending. So when you see the GDP showing strong numbers, it typically means that the consumer is doing pretty well. And that's an important consideration as we move forward. Yeah, that's right. One of those reasons consumers are spending is because we're in this economy where pretty much if you want to have a job, then you've got a job. Yeah. The headlines read about tech companies doing layoffs and mortgage companies doing layoffs. Bottom line is the most recent unemployment numbers we saw were 3.8%. I think we're getting a little spoiled by some of these low unemployment rates because people forget historically, anytime you were under 5% unemployment, it was considered full employment. And the fact of the matter is there's still more jobs open than there are people looking for work. There's about 9.5 million open jobs in about 6 million people who are looking for work.

Keith Weinhold (00:19:11) - So employers have to compete with each other for those employees. And so these low unemployment levels are actually one of the things that's causing wages to go up, which continues to stoke inflation when there are more open jobs than there even are workers that makes employers want to entice employees with higher pay. Yeah, they need to do that to keep employees on the payrolls and they need to do that to hire new employees. So whether you look at hourly wages, which at the moment are up around 28, $29 an hour, or you're looking at annual wage growth, which is running around 4 to 5% a year. Wages are very strong right now. And this is the first time, Keith, in many years that I've been able to tell people that wage growth actually is running higher than home price appreciation for well over a decade. We saw home prices appreciate much more rapidly than we saw wages. And this is the first time in a while where that situation has been reversed. That's a really interesting takeaway, Rick.

Keith Weinhold (00:20:16) - Wage growth that's outstripping home price growth and that's going to be important going forward because one of the big headwinds that the housing market faces today is affordability. Despite what we just talked about, home prices nationally are running at all time high levels. We're going to talk about the cost of financing be much higher than it was just a year ago. And wage growth is the one positive in that category. As wages continue to grow and if home prices settled out a little bit, affordability ultimately will be a little bit better for potential homebuyers. Average wages at 28 to $29 an hour, Americans are basically making a dollar every two minutes now yet could be worse. And that varies, again, market to market, shock to job, but it shows you what's going on on average, partly because of this, consumer spending continues to be very strong. But one of the the real unusual situations we're looking at today is that there's usually a direct correlation between consumer confidence and consumer spending. And the more confident consumers feel about things, the more willing they are to spend money, particularly on big ticket items like cars and houses.

Keith Weinhold (00:21:24) - And that was all true. And the correlation held true until we hit the pandemic. And as we started to come out of the first wave of Covid, you saw consumer confidence start to go up, but then it came back down as we had subsequent waves of Covid. Then we had the war in Ukraine that we had high inflation and all sorts of other odds and ends. And consumer confidence has really never recovered back to pre-pandemic levels while consumer spending has continued to go up. And part of that is pent up consumer demand. We still hear people talking about supply chain delays, trying to order appliances and the like and having to wait for months. Part of it is all the stimulus money that the government poured into the economy during the pandemic and probably overstimulated the economy to a certain extent. One of my economist friends refers to what the government did in terms of stimulus, is trying to stuff $15 trillion into a $3 trillion hole. And the numbers may be a little lost. But think the visuals is image is kind of good.

Keith Weinhold (00:22:25) - But this disconnect we're seeing between. How much money consumers are spending and their relative low confidence scores is a red flag of sorts in a couple of ways. It's a red flag, among other ways, in that if consumer confidence doesn't recover, consumers ultimately could pull back on spending, and that really could ultimately lead us into a recession. Consumer spending outpacing consumer confidence. There are other two other red flags with this consumer spending, and we'll cover them pretty quickly. What is that? Consumer credit card use is at an all time high in the last quarter. For the first time ever, consumer credit card use topped $1 trillion. And the concern here is that consumers in a high cost of living environment may be tapping into credit cards to make ends meet. That's not a good scenario and ultimately is not a scenario that would end well. So part of what we're seeing kind of backstopping or enabling consumer spending is an increased amount of credit card use. The other red flag, Keith, is that consumer personal savings rates have gone down below historic averages.

Keith Weinhold (00:23:33) - So we hit an all time high in savings rates during the pandemic when the government sent out stimulus checks and unemployment benefits were enhanced. And candidly, there wasn't a lot consumers could buy. So they socked away a lot of this money post-pandemic. We saw savings rates drop down to almost historically low levels and they haven't come back much up from that. So the two red flags that we really are looking at right now, that could be indicators of trouble ahead for the economy are record level credit card use and lower than average savings rates. And again, both of those suggest that families who are sort of on the margins financially might be tapping into credit cards, might be tapping into their savings to make ends meet. In fact, I read some recent research that suggests that on average, most households have higher credit card debt than they have savings. It's not a great scenario, and this is consistent with many sources citing the fact that between 60 and 70% of Americans live paycheck to paycheck. Yeah, and it almost doesn't matter how high that paycheck is, which is a little bit counterintuitive.

Keith Weinhold (00:24:43) - I remember doing an interview on CNN years ago when Evander Holyfield mansion was being foreclosed on. It was a $30 million mansion outside of Georgia with two bowling alleys, swimming pool, indoor boxing rinks, basketball courts, the whole nine yards. I had to explain to the reporter that just because you're wealthy doesn't mean you're not living paycheck to paycheck. It's just sometimes there's more zeros to the left of the decimal point. Their cost of living tends to be much higher. So expenses are keeping up with income. All right, Expenses keep up with income. What's been going on in terms of consumer spending, in terms of wage growth, in terms of the GDP being strong has all contributed to inflation. And we had the highest inflation rate in 40 years. Not too long ago, we were up over 9% inflation year over year. And the Federal Reserve has taken very aggressive actions to try and get inflation under control. The primary tool they use is raising the Fed funds rate, which is basically what sets the rates on all short term interest.

Keith Weinhold (00:25:44) - And they've raised it more rapidly and higher than it pretty much any time in history. If you go back to the 80s, they actually raised the Fed funds rate higher because inflation was completely out of control then, but not as quickly as they did this time. So typically what you see is something more like what the Fed did say back in the 2015, 2016 period, where inflation ticked up a little bit. So they raise the Fed funds rate a little and they waited a while to see what kind of impact it would have. Then they raise it a little bit more and it's kind of a step by step process until they feel that inflation is peaked and they can then drop off the Fed funds rate. This time they raised it at higher increments they'd ever done before and much more rapidly. The good news is it does seem to be having its effect. The most recent inflation numbers are around 3% year over year, which is close to the Fed's target rate of 2% year over year. And a lot of the inflation rate that is reported on is housing costs.

Keith Weinhold (00:26:42) - And most of the housing costs are actually rental rates or what the Fed refers to is the rental equivalency. If you have a mortgage. And what we have seen is rental rates have gone back down from ridiculously high, asking prices. A year or so ago, it wasn't unusual to see an asking rent 15% higher than the prior rent rate. And that's in a market where the usual increase is 1 to 4%. So it was just completely off the charts. Those numbers have all come back to normal. And in some markets, we're actually seeing slight declines in year over year rental asking prices. The reason the Ric is bringing rents into the inflation discussion here is because rent and something called owners equivalent rent are a substantial contributor to the. They comprise more than a third of the CPI basket. Exactly right, Keith. And thank you for reminding me why I started this dissertation. The fact is that that decrease in rental costs has not hit the Fed's inflation numbers yet. There's about a full year lag in the housing numbers that the Fed uses in its CPI analysis and what's going on in the real market.

Keith Weinhold (00:27:52) - So if the Federal Reserve does nothing else, these housing costs get caught up. We will see inflation come down a little bit more. A lot of us are hoping that the Fed is done with its increases because of what's happened historically. Historically speaking, if you go all the way back to World War Two, the Federal Reserve not counting this cycle, has raised the Fed funds rate 11 times to get inflation under control. Eight of those times it's waited a little bit too long or it's waited for inflation until inflation got too high and it was a little bit too sticky and they had to overcorrect. And that ultimately steered us into a recession. There were three times once in the 60s, once in the 80s and once in the 90s where the Fed acted proactively to try and get inflation under control. And in those three cases, they were able to steer us into a soft landing and avoid a recession. In this case, they've already admitted they waited too long. They admitted that inflation got much higher than they expected.

Keith Weinhold (00:28:48) - It certainly wasn't as transitory as they'd hoped. So the likelihood is that they've already overcorrected and we will see something of a recession. They may get lucky this time. They may have actually walked the tightrope correctly. And assuming they don't continue with this aggressive course of action, they may have actually managed to work us into a soft landing this time. Yeah, and that is a terrific history lesson that you gave us, Rick. I often like to tell my audience about when you want to predict the future direction of something. I'd like to take history over hunches. It's easy to have a hunch that something's going to go a certain direction. But you look at history. You talked about basically how the Fed was late to identify inflation because they had called it transitory for a while, so they started hiking too late. Now, maybe they've overhyped or maybe they haven't. But if they have, maybe they will need to lower them too quickly. If they don't have that desired soft landing. The economists that follow right now are split about 5050 on whether we'll actually see a recession coming out of this cycle.

Keith Weinhold (00:29:51) - It was more like 8020, looking for a recession just a few months ago. Right. The economy is slowing a little bit. The last jobs report had about 187,000 jobs created, which was a good number, but it was lower than what we've seen in recent reports. So the economy slowing down, but not going to full stop or going into negative terms is an indication that maybe we do escape a recession. Good news, by the way, is even if we do have a recession, the rest of the economic measures that you look at are also strong, that it's very likely it would be a very short and very mild recession, and unemployment probably wouldn't get over about four and a half or 5%. So that's something to keep in mind as you go forward. You talked about history, Keith. I big on that too, history as a predictor of what might happen. Yeah. The other thing that points to a recession is something called a yield curve inversion. And without getting too inside baseball on people, people track the yield on a ten year US Treasury and they track the yield on a two year US Treasury and typically your yield on a short investment like a two year Treasury is lower than your yield on a ten year or longer investment because there's more risk involved in the longer time period and so forth and so on.

Keith Weinhold (00:31:07) - Every now and then, the bond market senses a disruption in the force. Darth Vader is looming over the market and you see these things switch places and suddenly the yield on a ten year US Treasury is lower than the yield on a two year US Treasury, and that's called a yield curve inversion. Now yield curve inversion doesn't cause a recession, but the last seven times we've had one, it's correctly predicted that a recession was coming and this current period we're in is one of the longer and deeper inversions that we've ever seen. So again, if you look at history as a predictor of the future, this yield curve inversion points toward us having a recession at some point before we get through the cycle. And I know yield curves can confuse a lot of people. If you're the listener or the viewer here, make a very long term loan to a friend, well, you'd want to get compensated with a higher interest rate for that higher risk amount than if you made a short term loan to a friend and he was paying you back.

Keith Weinhold (00:32:04) - Tomorrow, you might not charge him much of any interest at all because there's more certainty that you're going to get paid back. But that condition has been inverted, where when you make the long loan to the buddy, you're compensated with a lower interest rate yield. That is what is known as a yield curve inversion. Yeah. And I think yield curve throws people off. If you just think of it in terms of the yields, that probably makes it simpler. But again, if you're looking at recession predictors, these are the two. That I typically look at. And that's kind of important to know if you're going to be investing in the housing market because recessions can have an impact on the housing market. Rick thinks there's a likelihood that the Fed has already overcorrected with too many interest rate increases. If we do have a recession, Rick believes that it's most likely to be mild without many layoffs. Rick and I, we actually seem to agree on a lot of things. We see a lot of things the same way.

Keith Weinhold (00:33:03) - Maybe it would be more interesting for you if we disagreed a bit more to stay up on the latest moves in the real estate market. You can follow Rick Saga on X, formerly known as Twitter. His handle there is simply Rick Saga. Well, Rick made a Darth Vader reference there. And, you know, much like the original Star Wars movie had the sequel, which was called The Empire Strikes Back. You know, that was one sequel that some people liked more than the original. And that is atypical because usually people like the original more. But The Empire Strikes Back was a fantastic sequel, and I think that could happen here next week. Rick and I are back together for part two of two, the sequel. We are probably going to analyze and break down the state of the housing market and the future of investment real estate. And we should go on for twice as long on that as we did for today on the economy. So therefore, next week is kind of like the Empire Strikes Back, although I don't expect that next week Darth Vader is going to cut off Luke Skywalker's hand like what happened in the movie.

Keith Weinhold (00:34:10) - That just wouldn't be proper. And we're clearly not into improprieties around here.

Darth Vader (00:34:18) - You are unwise to lower your defenses.

Keith Weinhold (00:34:23) - Oh, Luke lost his hand this week. Not next week. Well, that's not even the scene where Luke loses his hand, But, hey, that totally worked. So. Getting back to real estate here, you need properties to be an investor. The builders know that higher mortgage rates are a pain point for buyers. Our coaches and I hear a know it too. So we have. Yes. Rubbed salve on the wound 5.75% interest rates, 4.75% or even 2.99%. And at times you're going to have to use the builder's preferred lender in order to get those terms. But really some remarkable Bibles that we've negotiated for you. So take advantage of it since I don't know how long that is going to be around. In fact, I'll even bring up those rate by down terms to Rick Saga next week and get his take to help you out on the cash flow side. We also have access to properties that would make good mid term corporate rentals in the southeastern US midterm rentals.

Keith Weinhold (00:35:27) - They often have higher cash flow than a traditional long term unfurnished rental. For any and all of that, contact your investment coach, you're probably working with one by now. They'll help you shop the marketplace properties, tell you where the real deals are and tell you how to get those improbably low mortgage rates for income properties. Your coach guides you and makes it easy for you If you don't have an investment coach yet, just go to Marketplace. Com slash coach and they're there to help you out until next week I'm your host Keith Winfield. Don't quit your Adrian.

Speaker 4 (00:36:08) - Nothing on this show should be considered specific, personal or professional advice. Please consult an appropriate tax, legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of Get Rich Education LLC exclusively.

Keith Weinhold (00:36:36) - The preceding program was brought to you by your home for wealth building. Get rich education.

Direct download: GREepisode466_.mp3
Category:general -- posted at: 4:00am EDT

Mon, 4 September 2023

Why is gold even worth anything in today’s modern world? Isn’t it just a lump of metal?

In fact, I tell today’s guest that I believe gold is a poor wealth creation vehicle.

Our guest is Dana Samuelson, Founder and Owner of American Gold Exchange. He’s one of the most influential, pedigreed and respected names in the gold industry.

Major central banks have been hoarding gold recently—like Russia and China. Last year, central banks bought the most gold on record. We discuss why.

A recent survey found that only 11% of Americans own gold.

The case for owning gold: no counterparty risk, millennia of value, liquidity, limited supply, it’s like “money insurance”.

The case against gold: storage burden, no yield, few industrial applications, difficult to lever.

Though gold is historically a poor wealth *creation* vehicle, it’s excellent for long-term wealth *storage*. Dana generally agrees with me there.

Most gold that’s been mined in world history still exists today.

Learn how to identify fake gold.

Dana discusses how you can store your gold.

You effectively pay “closing costs” on bullion. I describe.

We also quickly cover: silver, platinum, and palladium.

Resources mentioned:

Show Notes:

www.GetRichEducation.com/465

American Gold Exchange:

www.AmerGold.com

info@amergold.com

1-800-613-9323

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

Will you please leave a review for the show? I’d be grateful. Search “how to leave an Apple Podcasts review”

Top Properties & Providers:

GRE Free Investment Coaching:

Best Financial Education:

Get our wealth-building newsletter free—

text ‘GRE’ to 66866

Our YouTube Channel:

Follow us on Instagram:

Keith’s personal Instagram:

464: Avid GRE Listener Buys 11 Rental Properties in 4 Years. Here’s What Happened.

Direct download: GREepisode465_.mp3
Category:general -- posted at: 4:00am EDT

Mon, 28 August 2023

Today’s guest, Shawn Finnegan, failed in California real estate investing pre-2008. But in 2019 he listened to GRE, came back, and succeeded.

He now benefits from $2,000 in monthly residual cash flow from 11 Memphis income properties. He wants a fourplex next.

Shawn and his family moved from Los Angeles, CA to Costa Rica where he now lives financially-free.

He’s a former abdominal model, appearing on magazine covers. He invented “The Anchor Gym” home gym system.

By listening to GRE, he had the confidence to invest with our “Financially-Free Beats Debt-Free” mantra.

“Don’t Quit Your Daydream” resonates with him most.

Resources mentioned:

Show Notes:

www.GetRichEducation.com/464

The Anchor Gym:

www.TheAnchorGym.com

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

Will you please leave a review for the show? I’d be grateful. Search “how to leave an Apple Podcasts review”

Top Properties & Providers:

GRE Free Investment Coaching:

Best Financial Education:

Get our wealth-building newsletter free—

text ‘GRE’ to 66866

Our YouTube Channel:

Follow us on Instagram:

Keith’s personal Instagram:

463: America's Frightening Homeless Problem, Crazy Investing Manias—Tulip Bulbs, Beanie Babies

Direct download: GREepisode464_.mp3
Category:general -- posted at: 4:00am EDT

Mon, 21 August 2023

More homeless people have been created due to the housing supply crisis. Homelessness is up 11% since last year, per the WSJ.

The opioid crisis, consumer inflation, and NIMBYism have contributed too.

California has the most homelessness on both a total and per capita basis.

States with higher housing costs have more homeless people.

I share our poll results: “Should we pay to house the homeless?”

Are you a NIMBY? We find out today.

We can increase housing supply with rezoning, construction training, and lower mortgage rates.

The cycle of investor emotions led to wild investing manias. It was tulip bulbs in the 1600s Netherlands and Beanie Babies in the 1990s United States.

I discuss exactly why “buy low, sell high” is more difficult than it sounds.

Timestamps:

The correlation between homelessness and the housing market [00:00:00]

Discusses the relationship between the housing market and the increasing problem of homelessness in America.

Investing manias and lessons from history [00:00:00]

Explores the phenomenon of investing manias and the lessons that can be learned from historical examples.

The tight inventory market conditions and potential solutions [00:04:56]

Lawrence Yun, Chief Economist of the National Association of Realtors, discusses the tight housing market conditions and suggests tax incentives to increase housing supply.

Timestamp 1 [00:10:32]

Affordability of moving to different cities and the proposal of a tax incentive for real estate investors.

Timestamp 2 [00:11:49]

Discussion on the housing supply crisis, mortgage rates, and the homeless population in the US.

Timestamp 3 [00:14:14]

Increase in homelessness in America, reasons behind it, and the correlation between housing prices and homelessness rates.

The impact of high density housing on quality of life and home value [00:21:12]

Discussion on the potential negative effects of building high density housing near single family homes, including reduced home value, increased traffic and noise, and loss of nearby open space.

Alternative solutions to increase housing supply and reduce homelessness [00:23:30]

Exploration of alternative measures to address homelessness, such as trade training for the homeless and relaxing excessive safety requirements in home building.

Giving real change to the homeless [00:25:50]

Encouragement to give directly to homeless shelters or soup kitchens instead of giving small change to individuals on the street, with the concept of "give real change not small change" explained.

Note: The timestamps provided are approximate and may vary slightly depending on the podcast episode.

The Origins of Tulip Mania [00:31:37]

Tulips were introduced to Europe in the 1500s and became a luxury item for the affluent. The cultivation of tulips locally in the Netherlands led to a flourishing business sector.

The Tulip Bubble [00:32:55]

By 1634, tulip mania had swept through the Netherlands, with the demand for tulip bulbs exceeding supply. Prices reached exorbitant levels, and futures contracts were being bought and sold.

Lessons from Tulip Mania [00:37:53]

Tulip mania serves as a model for financial bubbles, with similar cycles observed in other speculative assets like beanie babies, baseball cards, NFTs, and stocks. It highlights the dangers of excess, greed, and speculation without tangible value.

The cycle of investor emotions [00:44:32]

Explanation of the different stages of investor emotions, from optimism to panic, in relation to stock market investing.

The peak of the stock market [00:46:43]

Discussion on the peak of the stock market being the point of maximum financial risk and the difficulty of selling at the right time.

Real estate as a stable investment [00:51:56]

Comparison of real estate investment to speculative bubbles, highlighting the stability and income stream provided by real estate.

Explains how the integration of HOA (Homeowners Association) helps maintain uniformity and cleanliness in the rental property investing world.

Details about the upcoming real estate event [00:38:31]

Promotion of a live event where listeners can learn about new construction fourplexes and have their questions answered in real time.

Resources mentioned:

Show Notes:

www.GetRichEducation.com/463

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

Will you please leave a review for the show? I’d be grateful. Search “how to leave an Apple Podcasts review”

Top Properties & Providers:

GRE Free Investment Coaching:

Best Financial Education:

Get our wealth-building newsletter free—

text ‘GRE’ to 66866

Our YouTube Channel:

Follow us on Instagram:

Keith’s personal Instagram:

462: How Often Do Home Prices Fall? Homeownership Rate, Join Our Live Event

Complete episode transcript:

Welcome to Get Rich Education. I’m your host, Keith Weinhold. America’s homeless problem has become FRIGHTENING. I describe how that correlates… with the housing market.

Then, investing MANIAS. What drives people to spend more for one tulip flower bulb than they would for an entire luxury home?

And lessons you can learn that’ll benefit you the rest of your life from other manias throughout history. All today, on Get Rich Education.

___________

Welcome to GRE! From Seaford, DE to Carmel-by-the-Sea, CA and across 188 nations worldwide, you’re listening to one of America’s longest-running and most listened to shows on real estate investing. Along with plenty of ongoing hot takes on wealth mindset and the real estate economy.

I’m your host, Keith Weinhold.

See, the crash in the SUPPLY of available American homes is bad and it isn’t just creating more upward prices, it’s a contributor to homelessness.

Let’s talk about some of the drivers of homelessness, understand the problem a little more, how many homeless people ARE there in America, and then… what can we do about it?

As you’ll soon see, one prominent real estate industry influencer actually suggests that you actually SELL your rental single family homes in order to help serve the homeless. More on that shortly.

Also, I have the results from a GRE Instagram Poll. The poll question is: “Should we pay to HOUSE the homeless?”

And the answers that you - the GRE listeners gave… actually surprised me. I’ll give you those super-interesting poll results later, because I have more to explain there.

But first, what IS a homeless person? Let’s define it. I think most anyone knows that since it’s a person without a home, it’s thought of as living on the street.

Really, then, that person might not be homeless but “houseless” in a literal sense. Even if they live in a tent under a bridge, that is then, their home. Though it might be INADEQUATE housing.

More accurately, the unsheltered or undersheltered population could be more apropos.

Then there’s vagrancy. A vagrant is defined as a person without a settled home OR regular work… who wanders from place to place and lives by begging.

So vagrants are PART of the homeless population then. This all helps DEFINE what we’re discussing.

Now, the lack of available American housing supply - especially the affordable segment - is OBVIOUSLY a big contributor to homelessness.

For example, anymore, how many builders even construct a new-build entry-level home for $200 or 250K? Practically nobody… anywhere.

And just how bad is the supply problem now? Well, the NAR has been tracking housing supply since 1982 and it just hit its lowest level ever this summer - EVER - and that’s in 40+ years of tracking.

That’s one reason why just last week, it was announced that Warren Buffett is making a big bet on housing by investing in homebuilders.

Now to keep consistent with the same stats I’ve been reporting to you for you, to update that, again 1-and-a-half million available homes is the baseline supply. That’s the long-term “normal” per the FRED Active listing count.

And through last month, it’s still under 650,000. That is STILL a housing SUPPLY crash of 57% from its peak of 1 ½ million.

I want you & I to listen to this upcoming piece together. This recent interview with NAR Chief Economist Lawrence Yun is from the 8th of this month.

Yes, HE is the one that basically wants you to sell your SF rental properties. And he makes his case for an inducement to get you to do this. (Ha!)

He’s not proposing anything COMPLETELY ludicrous. It’s REALLY interesting. Listen closely for that.

This about 5 minutes in length and there’s a lot of material here within this clip - a nutrient dense piece, so I’ve got SO much to say about this when I come back to comment.

[Yun clip]

Yeah, the NAR Chief Economist there talking about how, much like I have for years, great opportunity is in the Midwest and Southeastern parts of the US.

With this greater ability for people to work from anywhere, when people move in from the pricy coasts, it’s sooo affordable to them.

Moving from Manhattan to Cincinnati feels incredibly affordable.

Moving from San Francisco to St. Louis feels like you’ve upgraded from serfdom to a kingdom.

Moving from Boston to Jacksonville feels like a total life makeover.

That’s why, here at GRE, we’re focused on properties in those INbound destinations.

Before I continue, especially for those outside the US, I know that it seems a little odd that Ohio and Indiana are in what we call the Midwest when they’re actually in the northeastern quadrant of the nation.

But the fact that they ARE midwestern states is rooted in history and in cultural tradition.

So, getting back some new angles on the housing supply crisis.

Lawrence Yun proposed that a tax incentive be introduced to unleash the inventory of SF rentals from individual REIs.

And says that there are over 20 million single-family housing units that are rented out.

If we reduced or canceled the capital gains tax & just got 1% of that inventory on the market, he states that that would help.

Well, yeah, but even that then would only put about 200,000 units of the market - and they’d get snatched up so fast.

Now, if mortgage rates come down to say, 5%, it would unleash both housing demand AND supply.

Both - like Lawrence Yun says. So it’s not apparent that that would help this shortage, if both demand and supply go up.

In a nation of about one-third of a BILLION people now - that’s how I like to express it this year - America now has one-third of a billion people… also known as 333 million - how many do you think are classified as homeless?

As you think about that - as you think about how many of America’s 333 million Americans are homeless, this homeless population figure that I’m about to share with you is from HUD and it’s through last year, so it’s their latest year-end figure.

And I’ll tell ya, it’s hard to believe this number. The Department of Housing and Urban Development states that about 582,000 Americans are experiencing homelessness.

Now, how HUD does this is that their number is a snapshot of the homeless population as of a single night at the end of January each year.

The total number of people who experience homelessness for SOME PERIOD each year will be higher than that.

I just did the math and then that means that just 1 in every 572 Americans are homeless. C’mon. Do you believe that? Only one in every 572 Americans are homeless?

I might believe that it’s something like more than 1 in 200. What are your thoughts?

Even HUD would probably concede that there are shortcomings in that stat and that it’s only a starting point.

And over the last decade, according to HUD, the homeless population is little changed… apparently until just this past year.

Homelessness is surging in America. The number of people experiencing homelessness in the US has increased 11% so far this year over 2022. That would be the biggest jump by far in equivalent government records beginning in 2007.

Now this 11% homeless jump is according to a WSJ analysis of hundreds of smaller & local agencies.

Most agencies say the alarming rise is because of the lack of affordable housing and rental units, and the ongoing opioid crisis.

Inflation is part of that affordable housing problem. Inflation widens the disparity between the haves and have-nots.

To cut some slack to census-type of surveying, homelessness can be hard to measure. Some live on skid row, some live in the woods, some homeless people live in their cars.

Some aren’t interested in being counted. Others are essentially invisible.

I mean, if someone’s between jobs and needs to couch surf at their aunt and uncle's place for three months, are they homeless or not? So, to be sure, there’s a lot of leeway in those numbers.

One in 572 as homeless - that should just be a minimum - a starting point in my opinion.

Now, homelessness broken down by STATE is really interesting.

California at 171,000, has the most of any state, more than double of next-most New York, and then Florida is third.

But let’s break that down by rate - on a per capita basis. So… think of this as the highest CONCENTRATION of homeless:

Washington DC has 65 homeless per 10,000 people. That’s not really a state though, so…

#1 on a per capita basis is STILL California, with 44 per 10,000. So California leads in the nation in homeless on both bases then - both absolute and relative.

The second highest rate is Vermont.

Third Oregon

Fourth Hawaii

Fifth is New York

And then numbers 6 through 10 on the most homeless per capita are Washington, Maine, Alaska, Nevada, and Delaware.

Now, strictly anecdotally. You’ve probably seen just what I’ve seen in the last year-plus - more visible homeless people in your city and other cities.

The state with the FEWEST homeless of all 50 states is Mississippi - and see, housing is quite affordable there. MS is one of the most affordable states for housing.

There is at least SOME correlation between your cost of housing and homelessness.

Recently on our Instagram page, and the handle there is easy to remember - it’s @getricheducation - if you want to participate in future polls, we ran a poll on homelessness.

Here is the poll question that we ran - and I’d like you to think about your answer to this too.

“Should we pay to house the homeless?”

That’s the question.

And in polling, the way that the question is phrased, of course, can skew your answer.

See, if instead, we phrased it as, “Should the government house the homeless?” you might have more ‘yes’ answers - even though it’s the same question - because you FUND the government.

But the question as we phrased it: “Should we pay to house the homeless?” - it also showed a photo of vagrants on a street curb under the question.

Here we the results, which surprised me, to:

Should we pay to house the homeless?

Those answering “Yes” were just 6%

The no’s were 45%

But we also had a third option: “It’s complicated”. 48% answered with that option.

So again, just 6% of you said we should pay to house the homeless and 45% said “no”. “48% said it’s complicated”.

In a way, that makes sense to me since we have a largely entrepreneurial, self-made type of audience. I thought that might have happened.

But what surprised me is in how emphatic it was. It was a landslide. 7 to 8 TIMES as many of you said we should not pay for the homeless as those that said we should.

Well, the reason that I added - and I’m the one that ran the poll myself - they’re quick to do. I added the paying to house the homeless “It’s complicated” option because it IS complicated… that WAS the most popular answer.

I mean, why should you go to work and pay to house a stranger that has no income because he or she doesn’t want to work?

But what if they’re disabled and they can kinda work but not really work… or a zillion other complications.

Substance abuse is obviously a big problem that keeps homeless people homeless… and there’s a substantial thought paradigm that says, if they’re an abuser, then why would I pay for THEIR housing?

Substance abuse is just one reason that there is a population that’s VOLUNTARILY homeless. They don’t want to have to comply with a group home’s ban on substances.

I wanted to address the homeless problem somewhat today, because here we are on Episode 463 of a real estate show and this is the most that we’ve even discussed it.

I think the perspective it gives you is that it helps you be grateful for what you’ve got.

But it’s abundance mentality here. You can be grateful for what you have and at the same time, grow your means.

What else would help with more housing supply which would also move us toward mitigating the homeless problem?

Well, we’ve already discussed a number of them so I’ll only go in depth with some fresh angles here.

Obviously, more homebuilding. We’ve done episodes on how 3D printed homes and shipping container homes are not quick, easy answers. Tiny homes might be but then you could get into a zoning density problem again.

Just last week, my assistant brought me this Marketwatch article that reported that the average American home size is shrinking just a little & that often times, new-build houses tend to be a little closer together.

That’s what gets us into relaxing zoning requirements. But you know something, OK, this is going to be interesting.

This plays into NIMBYism. Not In My Backyard: communities saying that they don’t want high-density housing built next to them.

Now, I think that there are a lot of critics of NIMBYism. But the criticism comes from people that live far out of that area and aren’t affected.

Let me just play a fun little experiment with you here. Let me paint a picture of a fictitious life for you and just… place yourself there.

Say that you live in a nice single-family home, with a quarter acre lot. It’s not a sprawling estate but you’ve got a good measure of privacy that way.

You’re in a SFH, quarter-acre lot and two car garage. That is classic suburbia.

And… just a hundred yards away from your home there’s a big, wide-open field where you walk your dog and use as a little makeshift golf driving range or whatever. Nice open space nearby.

Say you’ve got a fairly idyllic life here. It’s always been this way since you bought the home years ago.

Suddenly, in your neighborhood of all SFHs, you learn that they want to build a bunch of fourplexes in the nearby lot where you used to throw tennis balls to your dog.

What can that do to your quality of life & your home’s value, now that a bunch of new fourplexes and eightplexes were built nearby?

It reduces your home’s value because there are less valuable, high density properties nearby.

It also increases the amount of traffic & even noise in your neighborhood. Now you can’t use that nearby park anymore - it’s been all-built up with these higher-density apartments.

So, let me go back and ask - point blank - did you really want all those new high-density developments near your home?

If that made you uncomfortable, that’s NIMBYism. So it’s quite natural to evoke that feeling type. You’re just a human being.

How else can we increase housing supply to help reduce homelessness?

NOT with rent control. Over time, capping the amount of rent that a LL can charge gives property owners no incentive to improve their property and neighborhoods end up dilapidated.

We need more training for tradesman and laborers. How about training the homeless for that? But then someone’s got to pay for that training.

Another measure that’s become ridiculous is that we’ve gotta relax these excessive safety requirements in homebuilding. Now, some safety is good.

But when every single home - entry-level and all needs to have fire-rated shingles and fired-rated doors and GFCI outlets and smoke detectors in every room and carbon monoxide detectors all over the place, sheesh! Well, that raises the cost of housing for everyone.

In some earthquake-prone areas, you’ve got to have seismic restraining straps on your water heater or you can’t even sell your home. Do you know how big of an earthquake it would take to damage your water heater like that?

And an excessive safety PROPONENT might say, yeah, but did you hear about that one family that died ten years ago that would have lived if they had carbon monoxide detectors?

Well, the counterargument to that is, yeah, but what about all the homeless people that were exposed to the elements and died in the cold because they couldn’t AFFORD the more basic housing, the prices of which have escalated for all this excessive safety stuff.

Are you saying a middle class person’s life is worth more than a poor, homeless person’s life? That’s the counterargument.

Again, some safety is good. But we’ve gone overboard in too many places - in housing & beyond.

Rising housing costs keep people homeless. A few weeks ago, I did that episode about escalating insurance costs.

I now own some properties that have extremely low mortgage rates and the insurance has gone up to the point where I pay more in monthly escrow expenses than I do principal & interest.

But, hey. I’m not homeless, and if you’re listening to this, neither are you.

So when it comes to helping the homeless in the short-term, that campaign called, “Give real change, not small change.” - that really resonates with me.

Don’t give 5 bucks to a vagrant on the corner. That just keeps them showing up at that corner, plus they’re going to spend your 5 bucks on a cheap bottle of Monarch vodka.

Instead, if you’re going to give, give to a homeless shelter or soup kitchen.

That’s what’s meant by “Give real change, not small change.” And that’s something actionable.

Coming up next, investing MANIAS. How wild it gets - paying more for a tulip flower than a SFH, shooting and killing someone over a Beanie Baby toy… and then I’m going to wrap it all up with what all this has to do with the cycle of your investor emotions.

Around here, we don’t run ads for the Swiffer. This week’s sponsors that support the show are people that I’ve personally done real estate business with myself and have benefited from.

Ridge Lending Group specializes in INVESTMENT property loans in nearly all 50 states. Start your prequalification at: RidgeLendingGroup.com

Then, for super-passive real estate returns, check out Freedom Family Investments. Right now, what you can do, is just text “FAMILY” to 66866.

I’m Keith Weinhold. You’re listening to Get Rich Education.

___________

Welcome back to the GRE Podcast. I’m your host and my name is Keith Weinhold.

If you’ve got a friend or family member that you think would benefit from the knowledge drops here on the show, you can simply tell them to grab the free Get Rich Education mobile app.

That’s a convenient option for listening every week for both iOS and Android.

Today’s topics of homelessness and investing manias could very well bring a new audience here, so…

A little more about my backstory. I’m from PA but got my real estate comeuppance in Anchorage, Alaska of all places & grew out nationally & internationally from there. I had humble beginnings and wasn’t born anywhere near wealthy. I had to figure out how to build it myself.

But see, if I were born wealthy, I wouldn’t have learned how to build it, and then I wouldn’t be of much help to you. Likewise, if you’re building it yourself, you’ll be able to help others too.

BTW, I was born in the same PA town as Taylor Swift.

Though she & I don’t have much ELSE in common, I guess that she & I are both best-known for using a microphone.

Though I think that I’m about as likely to start using this microphone to sing into your ears like Taylor Swift does… as Taylor is to launch a real estate investing show.

For hundreds of years, the tulip has been one of the most-loved flowers in the Netherlands. It’s an enduring icon - as synonymous with the country as clogs, windmills, bicycles, and cheese. The tulip has a long and storied history - including the infamous shortage in the 1600s known as “tulip mania”. If you’re someone that has even a fleeting interest in investing, you should at least know what this is.

Tulips first appeared in Europe in the 1500s, arriving from the spice trading routes… and that lent this sense of exoticism to these imported flowers that looked like no other flower native to the continent.

It’s no surprise, then, that tulips became a luxury item destined for the gardens of the affluent.

According to The Library of Economics and Liberty, “it was deemed a proof of bad taste in any man of fortune to be without a collection of [tulips].” Hmmm.

Well, following the affluent, the merchant MIDDLE classes of Dutch society sought to emulate their wealthier neighbors and also demanded tulips.

So to start out with, it was purchased as a status symbol for the sole reason that it was expensive.

But at the same time, tulips were known to be notoriously fragile, and would die without careful cultivation. In the early 1600s, professional cultivators of tulips began to refine techniques to grow and produce the flowers locally in the Netherlands. They established a flourishing business sector that persists to this day.

By 1634, tulipmania swept through the Netherlands. The Library of Economics and Liberty writes, “The rage among the Dutch to possess tulip bulbs was so great that the ORDINARY INDUSTRY of the country was neglected, and the population, even to its lowest dregs, embarked in the tulip trade. Now, everyone’s in - rich to poor.

It’s a little hard to say for sure how much people paid for tulips.

But Scottish journalist Charles Mackay, wrote an extremely popular 1841 book - you’ve probably heard of this book - it’s called the Memoirs of Extraordinary Popular Delusions and the Madness of Crowds…

It does give us some points of reference such that the best of tulips cost upwards of $1 million in today’s money (but a lot of bulbs traded in the $50,000–$150,000 range).

By 1636, the demand for the tulip trade was so large that regular markets for their sale - like a little Dow Jones Industrial Average - got established on the Stock Exchange of Amsterdam, in Rotterdam, Haarlem, and other towns.

It was at that time that PROFESSIONAL TRADERS got in on the action - that’s all that some people do now - is trade tulips… and everybody appeared to be making money simply by possessing some of these rare bulbs.

Dutch speculators at the time spent incredible amounts of money on bulbs that only produced flowers for a Week—many companies were formed with the SOLE PURPOSE of trading tulips.

To everyone, at the time, it seemed that the price could only go up forever.

Pretty soon, demand for tulips EXCEEDED THE AVAILABLE SUPPLY of tulips by so much that people were into buying futures contracts, basically saying, I’ll pay you this much money TODAY for a tulip that you provide to me in 3 years.

By the last 1630s, these futures contracts were like a crack that appeared in the price runup. Demand began to wane when people were just buying a token for a future tulip that hadn’t even started growing yet.

People felt like they weren’t buying anything tangible anymore. That’s one factor that helped create an oversupply of tulips in the market and started depressing the prices. Supply caught up with - and exceeded - demand.

A large part of this rapid decline was driven by the fact that people had purchased bulbs on credit, hoping to repay their loans when they sold their bulbs for a profit. But once prices started to drop, holders were forced to sell their bulbs at any price and to declare bankruptcy in the process.

So people had begun buying tulips with leverage, using margined derivatives contracts to buy more than they could afford. But as quickly as the run-up began, confidence was dashed. By the end of 1637 is when prices began to fall and never recovered.

And the bubble burst.

Buyers announced that they could not pay the high price previously agreed upon for bulbs, and that made the market fall apart.

While it wasn’t actually a devastating occurrence for the entire nation’s economy, it did undermine social expectations. The event destroyed relationships built on trust and people’s willingness and ability to pay.

It’s been said that “the wealthiest merchants to the poorest chimney sweeps jumped into the tulip fray, buying bulbs at high prices and selling them for even more.”

Well, this is what can happen - today it happens with financialization and nothing real backing up purchases.

Tulipmania is a model for the general cycle of a financial bubble. That’s what happened with Dutch tulips.

Now, here in more recent times, similar cycles have been observed in the price of Beanie Babies, baseball cards - I got caught up in the baseball cards as a kid, owning more than 100,000 baseball cards at one time, also non-fungible tokens (NFTs), and shipping stocks.

The example of tulipmania is now used as a parable for other speculative assets, such as cryptocurrencies today or dotcom stocks from around the year 2000.

So, when you hear someone likening an investment to a Dutch tulip bulb, now you’ll know what they’re talking about. It’s a symbol of excess, greed, and FOMO.

But there has been a good bit of more modern scholarship that tells you that tulip mania did indeed occur in the 1600s Netherlands. But that the tale has been exaggerated and it’s something that the upper classes of society were mostly involved in.

Now, that’s the Dutch tulip bubble. But for a more modern-day parable about an investing mania, there’s a new movie about the rise & fall of BEANIE BABIES that’s on Apple TV+.

These were little stuffed, plush toy animals that became more popular among adults than children.

The rise and fall of Beanie Babies—toys that people mistakenly thought would make them rich. The movie is called “The Beanie Bubble”.

It’s a MOSTLY TRUE account of the lovable toys’ boom and bust in the ’90s - comparable to the meme stock frenzies that took place during the Covid-19 pandemic.

These $5 pellet-stuffed plush toys had astronomical appreciation estimates: Stripes the Tiger, released in 1996, was predicted by collectors to surge from $5 to $1,000 by 2008.

Forecasts like these were so enticing that one dad invested his kids’ college funds in Beanie Babies, thinking he’d resell them later for a hefty profit.

At the height of the frenzy, people were ruining relationships and committing felonies to get their hands on some of these sacks of fuzz.

Border officials confiscated more than 8,000 smuggled Beanie Babies at a US–Canada border crossing in 1998.
A West Virginia man shot and killed a former coworker in 1999 after an argument partly about $150 worth of Beanie Babies.
That same year, a divorcing couple couldn’t agree on how to split up their collection, so the judge made them divvy up the toys in person, right on the courtroom floor.

How did that all happen?

Barely anyone cared about Beanie Babies when a company called Ty Inc. launched them in 1994. Stores only got lines out the door once the toy’s creator, now-billionaire Ty Warner, began pulling strings to juice demand. Here’s what Warner did. OK, so here’s how you induce people into a speculative bubble.

He refused to stock Beanie Babies at Toys R Us and Walmart. Instead he created an illusion of rarity by only selling them at small toy stores and independent shops.
Even if you did find a retailer, every store’s supply of Beanie Babies was limited to 36 of each animal, so inventory restocks drew a crowd.

This, combined with Warner’s decision to start “retiring” certain animals in 1995, created artificial scarcity and a mass panic to stock up on Beanie Babies.

Soon, an aggressive resale market was born, replete with magazines and blogs and even trade shows for these Beanie Babies.

One woman’s guide to the secondary Beanie Babies market got so popular that she was selling 650,000 copies per month and, on many days, she did two or three radio interviews before her kids woke up for school. Ty Inc. later gave her an award for boosting sales.

At Peak Beanie mania, Ty Inc. and legions of speculators actually made hordes of money:

The stuffed animals accounted for 6% of eBay’s sitewide sales in 1997 and 10% in 1998. Beanies averaged a resale value of $30—six times their retail price—but rare ones, like the Princess Diana bear, went for hundreds or thousands of dollars (and now you can find one online for $15 bucks).
Ty Inc. hit $1.4 billion in sales in 1998, which is what Mattel grossed in Barbie dolls in 1995. At the end of the year, Ty Warner gave all ~250 employees holiday bonuses equal to their annual salaries.

But most regular people didn’t sell their Beanie Babies at their peak price. And unfortunately for them, the hype subsided. Anticipating a drop in interest as more kids reached for Pokémon and Furbies, Ty Inc. announced it would stop making Beanie Babies at the end of 1999, and that poked a hole in collectors’ this-will-never-not-be-popular mentality and that sent demand plummeting.

There were no underlying fundamentals to Beanie Babies’ value. That’s all that I’ve got on that speculative craze.

So let’s review how this happened with both speculative crazes - Dutch tulips and Beanie Babies:

Investors lose track of rational expectations.
Psychological biases lead to a massive upswing in the price of an asset or a sector.
A positive-feedback cycle keeps inflating prices.
And soon, investors realize that they are holding an irrationally-priced asset.
Prices collapse due to a massive sell-off, and an overwhelming majority go bankrupt.

Now, much stock market investing is based off of buy low and sell high mentality. And stock investors can get caught up in similar crazes.

But because many stocks are tied to productive companies, the stock investor deals with smaller bubbles. A lot of times, the stock price can double, triple, or even 10X even though that company is not even profitable.

Buy low & sell high. Well, that sounds easy. But why is this harder to do than it sounds? It's called the cycle of investor emotions.

It starts here with… optimism. Because you HEAR about 10% stock returns or people making money with Dutch tulips or Beanie babies.

Let’s say that you aren't fully invested in the stock market. But some friends are, and they're achieving small gains.

Then comes excitement. The market is now up some more. Hey, what’s in motion tends to stay in motion.

More friends are telling you how much money they're "making".

You're soon experiencing a full-blown case of FOMO—Fear Of Missing Out.

The next stage is the Thrill you feel. So you jump into the stock market fully, rationalizing with something like, "Hey, I'm a momentum investor". Sounds pretty good, I guess.

Now that you’re in, it actually feels fantastic to you for a short time. You figure that some days, you're making more from stocks than your job. Winning activates dopamine.

Dopamine is a brain chemical that’s known as the “feel-good” hormone. It gives you a sense of pleasure. It also gives you the motivation to DO SOMETHING when you're feeling the pleasure.

So then, you add MORE shares… at an elevated price until you are FULLY invested. Now everyone is "making money", even your Uber driver.

The next stage is Euphoria - The peak! As you can see, this is the Point of Maximum Financial Risk.

OK, now, remember the simplicity of “buy low, sell high”?

Well then, savvy stock investors should now be SELLING here in my example - at the HEIGHT.

Now be “selling”? Leaving the party at its crescendo? Stopping the dopamine flow? Yes, exactly… and THAT’S why it’s so difficult.

What happens after the stock market peak? Overbought, with bloated price-to-earnings ratios, the market soon drops 10% from its recent high.

That’s what’s known as a correction - a drop of 10% or more. Now you feel a little ANXIETY. Your dopamine flow is stifled.

Next, you tell yourself, "I shouldn't be worried because I'm a long-term investor." It's down 15%. You're experiencing DENIAL & FEAR.

Now you're checking the Robinhood app almost hourly to see if it will recover.

Next, comes Desperation & Panic - Stocks are down 20%, that’s the definition of a bear market. You're devoting more mindshare to this each day than what's healthy.

Then there’s Capitulation - Down 30%, you finally surrender to a FEAR of FURTHER LOSS. You’re getting so sick of months of losing. You finally do it and cash out your stocks into a safe money market fund. Now you’re out.

And you rationalize and justify doing this because you tell yourself, "You know, at least when I wake up tomorrow, I'll know that I haven't lost money AGAIN. And THAT gives me certainty.”

The next stage in the Cycle of Investor Emotions is Despondency - You realize that what you've done is the polar opposite of successful investing. It’s complete. You’ve now bought high… and then sold low.

Next, stocks completely bottom out. But this is actually the Point of Maximum Financial Opportunity. Instead, you should be buying.

But you can’t. Because you’re experiencing the next investor stage - Depression. You're so full of contempt for the situation that the idea of actually buying at bargain-basement levels again is simply inconceivable. You've been burnt badly.

Then, there’s Hope & Relief - The market has begun ticking up after the crash. It soon should be clear that share prices are FAIRLY VALUED again.

But you don't buy the recovery story. You wait until enough price growth occurs that the confidence and Optimism stage is felt again before you’ll even consider getting back in and buying.

And the entire pattern repeats.

That's the “cycle of investor emotions”. There's an average of 3-and-a-half years between each stock bear market, BTW.

Of course, we've been kind to call this all “investing”. It's more like speculating.

But here's the real problem—most investors THINK they're better than average stock pickers, so they keep playing this game. This effect has a name. It’s called illusory superiority.

It's like how at least 70% of people think they're better than average drivers, despite the statistical impossibility.

Even professional money managers fall prey to this! Fewer than 10% of active U.S. stock funds manage to beat THEIR benchmarks.

The renowned British economist and value investor Benjamin Graham once said: "The investor's chief problem—even his worst enemy—is likely to be HIMSELF."

Well, as real estate investors, we largely SIDESTEP the cycle of investor emotions for two main reasons.

Returns are more stable.

Real estate, we sidestep this emotional roller coaster. Not only do we have stable prices, but appreciation is one of just 5 ways that you’re simultaneously paid.

RE also has monthly income. Dutch tulips or Beanie Babies don’t pay you a durable monthly income stream. They don’t provide an income stream at all.

And finally, RE is a REAL asset that fulfills a REAL human need.

I hope that you enjoyed this journey through speculative bubbles today and how they play into human psychology and investor emotions.

Go ahead and tell a friend about Get Rich Education.

If you’ve got a friend or family member that you think would benefit from the knowledge drops here on the show, you can simply tell them to grab the free Get Rich Education mobile app.

That’s a convenient option for listening every week for both iOS and Android.

My name’s Keith Weinhold and I’ll be back with you right here… next week. Don’t Quit Your Daydream!

Direct download: GREepisode463_.mp3
Category:general -- posted at: 4:00am EDT

Mon, 14 August 2023

Get our free "Don't Quit Your Daydream" Letter. Text 'GRE' to 66866.

Home prices fell three times since 1975. We explore the reasons why.

The homeownership rate is 66% today. (The long-term average is 65%.) I expect the homeownership rate to fall due to low affordability, which will increase renter households.

If you have dollars in a savings account that pays 5% interest, I describe why you’re losing prosperit.

Our Investment Coach, Aundrea & I discuss the state of the real estate market.

Then we discuss our upcoming live event for new-build Utah fourplexes. They produce cash flow, have great tenant amenities and come with built-in equity. This area is extremely fast-growing: Register here.

Timestamps:

National Home Prices Fall and Causes [00:00:01]

Discussion on the historical trends of national home prices, the causes of price falls, and the impact of the 2008 global financial crisis.

Housing Affordability Crisis [00:00:50]

Exploration of the current state of housing affordability and the impact of the pandemic on home prices.

Upcoming Real Estate Event [00:01:44]

Announcement of an informative live real estate event that listeners are invited to join.

The current state of housing affordability [00:11:45]

Discussion on the challenges faced by first-time homebuyers due to higher prices, mortgage rates, and lending requirements.

Homeownership rate trends [00:13:11]

Analysis of the historical homeownership rates, including the impact of aging population and low affordability on the rate.

Future outlook for homeownership rate [00:19:40]

Prediction of a decline in the homeownership rate below the current 66% due to poor affordability and increasing number of renters.

Rental Market Overview [00:24:10]

Discussion on the current state of the rental market, including cash flowing properties, stable prices, and limited inventory.

Demand for Investment Opportunities [00:26:14]

Exploration of the demand from investors who are looking to invest their existing equity and the regions they are interested in, such as the Southeast and Midwest.

New Build Income Properties [00:28:14]

Introduction of a provider offering new construction fourplexes in the Intermountain West, discussing the market growth, population demographics, and amenities of the properties.

The opportunity for new build properties in a fast growth area [00:34:59]

Discussion on the benefits of investing in new construction properties in a rapidly growing area with good cash flow.

The role of HOA in maintaining property values [00:36:04]

Explains how the integration of HOA (Homeowners Association) helps maintain uniformity and cleanliness in the rental property investing world.

Details about the upcoming real estate event [00:38:31]

Promotion of a live event where listeners can learn about new construction fourplexes and have their questions answered in real time.

Resources mentioned:

Show Notes:

www.GetRichEducation.com/462

Join our Utah fourplexes live event:

GREwebinars.com

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

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461: Skyrocketing Insurance Costs, The End of Free Money

Complete episode transcript:

Welcome to GRE! I’m your host, Keith Weinhold. Historically, just how often DO national home prices fall… and what causes it?

Then, learn more about how TODAY’S housing affordability is absolutely awful. Then, our informative live real estate event that you’re invited to join. All today, on Get Rich Education.

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Welcome to GRE! From Pennsylvania’s MONongahela River to Mono Lake, CA and across 188 nations worldwide. I’m Keith Weinhold and you are listening to our one big weekly show. This is Get Rich Education.

"Real estate never goes down."

Yeah, a handful of people actually told me those five exact words in the mid-2000s decade. “Real estate never goes down.”

Of course, 2008's Global Financial Crisis (GFC) and Mortgage Meltdown proved them ALL wrong.

And ya know what, I've never heard one single person utter those words since!

Late last year, national home prices took just a small dip for a few months on a m-o-m basis. That’s not something that often happens though.

So as minor as THAT was, that’s the event that actually precipitated the creation of this segment of our episode.

There’s a colorful chart that provides a… terrific visual of the month-over-month shifts in US home prices, per Case-Shiller, dating back to 1975. And if you’re one of our “Don’t Quit Your Daydream” letter subscribers, you got to see it last week.

Winston Churchill said, "The farther backward you can look, the farther FORward you can see."

I don’t know that I’ve contributed anything quite that proverbial to the world on that exact subject yet.

I just say that when it comes to future expectations, I favor "history over hunches".

So, before we look at WHY home prices historically fall, first of all, why go back to 1975 when we’re looking at a history of home prices. Why that slice of time, 1975 to present?

Well, that’s almost 50 years. It’s two generations, so it stops just short of your grandfather’s generation which was back when the dollar was still pegged to gold.

Here's what we can we learn from almost 50 years of home price history on a relatively untethered dollar:

Nominal home prices usually rise, but not always. This is NOT inflation-adjusted. That’s the first takeaway. Of the 500 to 600 little rectangles, that’s how many months there have been since 1975, they’re nearly all blue, which means prices rose.

Before we center on the red areas, which is when & where prices dipped…

The next thing I can tell you is that it shows that home prices are remarkably stable.

A SEASONAL fluctuation is quite apparent. Year after year, home price growth is weaker in winter and stronger in summer.

But do you know how many times national home prices have dipped since 1975? Any idea?

It is… three. Three periods of falling prices in the last… 48 years. Those periods were the erstwhile Global Financial Crisis period from 2007 to 2011, then that tiny dip that occurred in the last few months of last year.

That was due to a late pandemic slowdown.

Before I tell you about the other time, that third time, that so few discuss, let me tell ya, the 2008 GFC went deep red. Most markets had losses of 20% or more.

I WAS an active RE investor at that time.

And that downturn was caused by irresponsible lending, rampant speculation, and an OVERsupply of housing. That’s well documented.

Look around today, and we don’t have any of those conditions today. Today it’s tough lending standards, no wild speculation, and oppositely, as you know, it’s that STARK UNDERsupply of housing.

But few people seem to know about an earlier attrition in prices. It was a mild early '90s downturn. It was really small, just a percent or two per year in a lot of places, but it persisted for more than 5 years.

I think a lot of people DON’T KNOW about that small early ‘90s downturn, that’s why before the Global Financial Crisis, they said what we all know to be false, “Real estate never goes down.”

The start of the ‘90s. That’s before my time - I mean, I was alive but not old enough to be investing, so I had to do some research about what caused prices to circle the drain just a little.

And to boil it down, it occurred for two main reasons - it was from defaults created by high household debt and also, adjustable-rate mortgages kicking in, making those homeowners pay higher rates - and some couldn’t pay it.

So as we look back like Winston Churchill to get lessons from history, I like to look at today’s landscape and see if we have any of those two early ‘90s conditions.

High household debt? Well, rather, really this era’s aberration is the opposite condition. Today it’s households sitting on a lot of cash and equity.

And then the second reason for the early ‘90s price dip - adjustable rate mortgages kicking in.

Well, that is affecting the commercial space, not the residential side, where homeowners have now been long accustomed to FIXED rate debt.

Now, before we look into the future of home prices - and I’ve got some good stats there…

To summarize, the top takeaways from 48 years of looking at monthly HP growth are that:

Prices typically rise, not always
Prices are remarkably stable
Prices rise more in the summer than the winter
And that historically, let’s distill it down to three - three chief culprits for falling prices are an OVERsupply of homes, irresponsible lending, and a distressed borrower

Now, with housing, people tended to use the word “uncertainty” a lot - really, constantly, ever since the pandemic began in 2020.

Now, I think that we can finally say that the clouds have begun to clear. Though, of course, we never have 100% clairvoyance.

Most everyone is confident that the majority of interest rate hikes are done, inflation has come down, mortgage rates are back at historic NORMS right now actually, and home prices are rising at historic NORMS again too.

You have all this money sloshing around the economy that is still fueling consumer wealth from the pandemic.

All this money sloshing around AGAINST a low housing supply, and with more economic certainty.

All this really has a lot of people more bullish than I’ve seen in a couple years.

Homebuilder confidence is really surging right now.

And looking into the next year, more and more analysts are now forecast increasing national home prices.

Fannie Mae recently revised their forecast upward to 3.9% appreciation for THIS YEAR.

CoreLogic now expects prices 4.3% higher from June of this year to of next year. And Zillow expects 6.3% price appreciation over this same time period.

And, our core investor areas have just kept climbing and really didn’t experience last year’s slowdown at all.

I guess this isn’t necessarily good news, right? The bad news might be that there’s no price BREAK.

Higher RATES still didn’t break the market.

Now, I’ve heard some analysts at real estate research firms speculate that if INTEREST RATES fall in the next year with all these other favorable conditions that 10% HPA is possible.

I’d say, that’s speculative alright. It’s so hard to predict future interest rates that I’m not willing to do it.

And like I’ve shared with you here, which is contrary to what people USED to believe, it’s that:

Mortgage rates really don’t have that much to do with home prices!

So when it comes to home prices over the next couple years, I think that the most commonsense expectation is slow price growth and stability.

Now, just wait until you see what’s happening with the homeownership rate today. I want to share that with you shortly.

Before we get back to RE, let’s Zoom out for a moment and look at the broader investing landscape while we’re here at mid-quarter.

Bitcoin is getting less volatile than stocks. That’s one trend lately. Another way to say that though, is that bitcoin prices are in a period of historic stagnation.

Gold has fallen from the $2,000 an ounce mark that it touched recently.

Oil prices have been on a multi-month tear, but you know, when you look at it on an inflation-adjusted basis, which so many people forget to do, oil at under $100 a barrel feels inexpensive.

Elsewhere in investing, some online savings accounts have hit the 5% yield mark.

That might sound good when you consider that inflation has backed off.

But as most agree that the CPI is understated, if you think that the true diminished purchasing power of the dollar is 5% and your savings account rate is 5%, aren’t you at least treading water?

Well, first of all, just treading water means that you aren’t going anywhere or growing.

But you’re not even treading water. Because don’t forget that your interest earnings on savings accounts get taxed.

So it’s good to hold some liquidity - always. But you’re likely underwater with a 5% savings account in this era.

Yes, on your interest earnings, you’re taxed at your earned income tax rate, between 10 and 37%. Say that you’re in the 32% tax bracket.

Well then, real inflation is 5% and your 5% savings account only yielded 3.4%.

On an inflation-adjusted basis, even if you happen to have a savings account with a yield that high, your inflation-adjusted return is negative 1.6%.

That’s why, here at GRE, we typically invest in vehicles that target returns VASTLY exceeding both inflation and taxes.

As much as that might hurt, you know who today’s real estate market is actually really bad for? Even worse for the saver that isn’t even treading water.

It is downright AWFUL out there for those wannabe first-time homebuyers.

They are looking at this triple-headed monster of higher prices, higher mortgage rates, and stringent lending requirements. And then if they overcome ALL that, they’ve got to compete for that tight supply.

It’s made affordability for people in THAT position really awful.

In a lot of markets, a starter home is $400K. With your 20% down payment plus closing costs, that’s $100,000 out of pocket, right upfront, as well as your ongoing monthly payment… all for an asset that doesn’t generate income when it’s your HOME.

Well, that’s an insurmountable hurdle for a lot of people.

This low affordability moves people out of the homebuyer class and adds them to the ranks of the RENTER class.

Well, there's our opportunity as landlords.

You aren’t preying on them. You’re risking your capital to provide good housing for them.

But curiously, the HOMEOWNERSHIP RATE is actually just a touch higher than usual right now, despite souring affordability.

So, let’s take a look at this. And then I’ll break down what it means to you as well as where we’re headed.

Since 1965, the average homeownership since 65% and currently, it’s 66%, running a little high.

BTW, homeownership peaked at 69% in 2004—that's back when you could outright lie about your income, job, and assets, and still get a mortgage. Many people did just that. NINJA loans.

When you hear the acronym, NINJA loans, what that stands for is no income, no job, or assets.

Well, you either rent your home or you own your home. It’s one or the other.

So then, today's 66% homeownership rate means that everyone else, 34%, are renters.

When the homeownership rate drops, then you’ve got more renters.

The low point for homeownership was in 2016 at 63%.

It’s grown since then, and you might wonder… how in the heck is homeownership above average today in the face of this low affordability? How is it 66%.

Well, there’s a few reasons for that and it’s not always intuitive. America’s population keeps AGING.

And that skews figures… because homeowners tend to BE older.

Secondly, incumbents - those that already GOT their home have really low, affordable payments. They’re not going to lose their home & become renters.

80% of borrowers have a mortgage rate under 5%. You’re really happy to stay put when your mortgage rate begins with a “4” or less - and you can also keep making the payment.

It’s a payment amount that does not rise with inflation.

That introduces a lag effect in the stats. It’ll be a little while until this low affordability gets reflected in a lower HO rate.

There’s a low FORECLOSURE rate, under 1%. Americans can afford their payments and they have the motivation to keep making them.

Now, over on YouTube, I shared a great map with you, the Homeownership Rate by state and broke that down. Join us over there. On YouTube, we’re called “Get Rich Education”, of course. I host THAT show and it’s different from THIS show.

What’s the trend here? Well, HO is highest in low cost states like the Midwest and Southeast, and HO is lower in high cost states.

WV has the highest rate at 78%... because it’s low cost.

NY has the lowest HO at 54%... because it’s high cost. NYC drags down the number for upstate NY.

So where are we headed? In the future, I expect a NATIONAL DROP in the homeownership rate.

This is because few expect property prices or mortgage rates to fall significantly. Lending requirements should stay strict.

So it’s the awful FTHB affordability that will continue to take homeownership lower.

See, FTHBers are also exactly the type of people that often have student loan debt repayments to make… if they ever have to begin repaying them.

That’s also going to make it tougher for people to clear that affordability bar. They’re going to keep being your renter.

And that's why I expect the homeownership rate to plummet below 66% where it is now, and then below the long-term average of 65% by 2025 or 2026. That’s where we’re likely headed if market forces prevail.

Depending on who our president is in 2025, government relief programs are just about the only thing that I can see getting in the way of a declining HO rate.

Household FORMATION is high right now… because you have sooo many Americans between ages 25 and 40.

So that question you’ve got to ask is - is that new HH going to be formed as a OO residence or as a rental?

Increasingly, it’s gonna be a rental because of that continued poor affordability.

See, for a ton of people, if they didn't get their ultra-low rate mortgage the past couple years, then, well, it’s too late.

That era is over and that’s why their affordability ship has sailed. That ship has passed. It’s gone.

And that's why more RENTERS are being made every single day.

So if you’re a LL, this is expected to both increase your occupancy rate AND the amount of rent that you can charge.

Carefully-chosen rental property is really where today’s opportunity is.

I’ve got more on that shortly, as I’m about to bring in one of our two Investment Coaches.

You know, you’re telling us that you find it so helpful to have free one-on-one coaching with them, either Aundrea or nuh-RAYSH.

Both coaches have their MBAs. When you read their bios on our Coaching Page, they’ve got some impressive international corporate experience.

But they both live right here in the USA and they’re active REIs themselves - that’s really how they help get you started and connect you with the right market and property.

It’s an in-house conversation with an IC & I straight ahead and we’ll discuss how we can help you.

I’m Keith Weinhold. You’re listening to Get Rich Education.

__________________

Aundrea talked about cash flow. OK, that exists. Great. Yet, I still think of these as better for appreciation than cash flow over time. She’d probably agree.

Maybe you’re thinking a brand new construction duplex in the path of progress IM West could cost $1M or $2M, but no, this builder provides them for less than that.

And then, of course, you’re probably going to finance most of that cost yourself too.

And, BTW, Aundrea did smile at my dorky joke about her loving rap music. A big smile that you couldn’t see through the audio-only podcast here.

But, yeah. You didn’t quite hear a laugh. See, one prerequisite to laughing is that a joke actually be funny.

In any case, Aundrea and the provider are your two co-hosts on Wednesday.

The provider is a powerhouse of knowledge about not just real estate and demographics and fourplexes, but construction and financing too and everything that goes into it in order to optimize the investor experience for you.

HE can answer questions in real-time for you.

It is almost time for the Beehive State to shine as Utah is front, center and under the stage lights on GRE’s Live Event in just two days.

You are cordially invited to join… as long as you don’t ask Aundrea about rap music.

But, really. When you put this all together - a 4-unit building is the most that you can get with best financing terms, the cash flow, new construction, often this BUILT-IN equity at purchase time too, a fast population growth market, all inside a demographic population in Utah that’s young and has good incomes… it’s really quite remarkable. Quite a confluence.

We haven’t had an event for a product type like this before, and I don’t know if we’ll ever have an event quite like this again.

Attend live to get your questions answered and get the first look at the inventory.

But if you can’t make it on Wednesday, then sign up anyway and we will effort to get the replay link for you.

You can do it all at: GREwebinars.com

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

Direct download: GREepisode462_b.mp3
Category:general -- posted at: 7:20am EDT

Mon, 7 August 2023

Sharply higher insurance premiums are affecting property owners nationwide. It’s especially bad in: CA, LA, FL, TX and CO.

This is due to erratic weather (climate) and higher rebuilding costs.

Phenomena like an increasing intensity and frequency of hurricanes, tornadoes, wildfires, and floods are sending some insurers out of business.

State Farm and AllState completely stopped issuing new homeowner policies in California.

Some areas are on the brink of becoming completely UNinsurable. In that case, the only sales that could occur with all cash buyers.

Learn three techniques to keep your skyrocketing insurance costs lower.

As you’ll learn today, landlords have more options than homeowners for navigating spiking insurance rates.

Then, listen to a CNBC clip along with me about how the end of ZIRP (zero interest rate policy) affects your life and investments.

Resources mentioned:

Show Notes:

www.GetRichEducation.com/461

Get mortgage loans for investment property:

RidgeLendingGroup.com or call 855-74-RIDGE

or e-mail: info@RidgeLendingGroup.com

Find cash-flowing Jacksonville property at:

Invest with Freedom Family Investments. You get paid first: Text ‘FAMILY’ to 66866

Will you please leave a review for the show? I’d be grateful. Search “how to leave an Apple Podcasts review”

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460: Real Estate Cash Flow vs. Stock Cash Flow

Complete episode transcript:

Welcome to GRE! I’m your host, Keith Weinhold. First, I’m going to help you make your real estate more profitable in the near term as I discuss how to deal with skyrocketing property insurance costs.

Later, I’ll inform your strategy about your long-term, overall personal finance as we talk about what the end of free money means in this new era of higher interest rates. Today, on Get Rich Education.

____________

Welcome to GRE! From Tirana, Albania to Albany, New York and across 188 nations worldwide, I’m Keith Weinhold and you’re listening to Get Rich Education.

This is how real wealth is built in the real world with real estate. We aren’t day traders. We are DECADE traders.

And we do that with the right mission. Let’s invest directly in America - own real property in American neighborhoods, and provide housing that’s clean, safe, affordable and functional.

And when we all do that, we can abolish the term “slumlord”.

Conversely, what do some people think about first? Themselves.

[RIC FLAIR CLIP]

Ha ha ha! Over the top with some vintage Ric Flair. There’s nothing wrong with living well. But that best comes as a byproduct of serving OTHERS first.

Let’s talk about the SKYROCKETING cost of property insurance. Why it’s happening, what MY experience is, and what you can do to manage it.

First of all, and I hope that none of my insurance agents are listening, but why would you ever work in the insurance industry?

And I kid. But that’s got to be one of the most boring industries to work in.

What 15-year-old ever says that when they grow up, they want to be an insurance broker? Nobody.

But, in any case, it is a STABLE industry because there will long be a need for insurance.

But, I mean, even your customers - the policyholders like us - we don’t really want insurance.

Insurance ads all say the same thing: “Switch and save.” No one has seen an advertisement from this industry that says, “Upgrade for better coverage.”

That’s because so many people just want the minimum coverage and want to get on with their lives… until a calamity occurs.

But now, the insurance industry has gotten SOMEWHAT more interesting lately, the effects of which center around erratic weather… maybe you like calling it climate change, maybe you don’t.

But suffice to say, if erratic weather persists, then it’s no longer erratic, rather, it is, in fact, a pattern, and then, a change in a region’s climate.

The intensity & frequency of storms is increasing. I’m talking about weather phenomena like hurricanes, floods, wildfires, tornadoes, and even high snowfall.

Inflation also means that there are rising COSTS to rebuild.

And RE-insurance costs are higher. Yes, your insurance company gets insurance from insurers themselves, called re-insurance. Re-insurance companies insure insurers.

Everyone knows State Farm’s jingle. “Like a good neighbor, State Farm is there.” No, State Farm is gone.

State Farm is the largest home insurer in CA. So they’re the largest home insurer in the most populous state.

Well, you might have heard a few months ago that they’re completely stopping issuance of new home insurance policies in all of CA. And AllState followed shortly afterward.

Persistent wildfires are a culprit there.

Insurance companies can’t make any money so it’s hard to blame them.

Well, why don’t they just, say, double their premiums? Some sure have. Others can’t because of competition for lower rates from other companies.

But a lot of SMALLER insurance companies - including many in Florida - have done just that. They’ve gone out of business… and when there are fewer companies in business - less competition - that’s when rates can get jacked up high.

Insurance rates are up the most in many of the states that have the greatest incidence of hurricanes, floods, and wildfires.

What are the states where rates are rising most?

CA, LA, and FL. And after that, TX and CO too, and some other states.

TX is one state that’s subject to both hurricanes and tornadoes - hurricanes in SE Texas - Galveston, Houston and Corpus Christi.

And tornadoes in NE Texas, like Dallas-Fort Worth.

So, when hazards happen, losses can occur. That’s why your lienholder - your mortgage holder - forces you to have insurance. They require you to have it because they’re not willing to take that risk.

Louisiana’s problems with insurers REALLY compounded a few years ago when Hurricanes Delta, Ida, and Laura hit the state. That created a true crisis in Louisiana’s insurance market.

A lot of insurers just left with $24B in insurance claims during that period. Others in Louisiana stopped issuing new policies and increased the premiums on the existing insured homeowners.

Now, I’m going to center on the homeowner’s insurance problem in Florida soon, because Florida is a popular investor state, I own a lot of rental properties in Florida and I’ll tell you about my personal insurance experience there shortly.

When it comes to wildfires - which are often spurred by hot, dry, and windy weather conditions, some areas are on the brink of becoming completely UNinsurable.

California has a bunch of regions like that. And other places like Bend, Oregon and Boulder, CO are in danger of insurance denial because the homes are surrounded by forest.

If that happens there, the only resale market for the properties would be to all-cash buyers, unless the state ever comes in to buy them out since people were ALLOWED to build there in the first place.

Now, notice that I haven’t mentioned earthquakes yet. Earthquakes aren’t related to the surface weather like hurricanes and wildfires and these other things are.

Earthquake insurance, which many people have in places like CA, WA, OR and AK is often a completely SEPARATE policy from your standard homeowner’s policy and EQ insurance is prohibitively expensive.

Besides that, their deductibles can be high, like 10 or 20%. If an earthquake completely destroys your $500K home and you have a 20% deductible…

… then to even make a claim, you’d need to come out of pocket $100K first - plus you’d be paying high premiums all that time just to have that condition!

Anchorage, AK had a big magnitude 7.1 earthquake back in 2018.

I was in Anchorage when it happened and I told you about that here on the show back then. I was pretty shaken up.

At the time, I owned dozens of apartment units in Anchorage. I don’t anymore. I had, maybe $40,000 of out-of-pocket cosmetic damage that I had to pay from that one earthquake.

Lienholders DO not make EQ coverage a necessity, and 25% of Anchorage homeowners had coverage before the quake. It went up to 35% afterward.

Fortunately, the top cash flow REI areas don’t tend to be in the west coast of the United States.

So, how high have some of these insurance premiums gotten in states known for disasters?

Well, the average is about $225 per month in LA. In TX, it’s $250 per month on their average $300K home, and in Florida it’s about $325 monthly on a $300K home.

Of course, that’s going to vary by what region of the state you’re in and distance from the coast and such.

One weather phenomena that I haven’t seen any evidence of in contributing to higher insurance costs is heat itself.

This summer, Phoenix hit a new record for consecutive days that exceeded 110 degrees Fahrenheit. That went on for weeks on end.

But heat in itself, and its resultant air conditioner use and power load - is not something directly attributable to escalating insurance costs, unless power load problems start a fire.

Now, you keep hearing about climate migrants moving to more northerly places with access to a lot of fresh water like Minnesota, Michigan, and Wisconsin.

But these stories seem to be largely anecdotal and of little impact.

The faster-growing areas continue to be in the Mojave and Sonoran deserts - that’s Las Vegas and Phoenix - places with lots of heat, rising heat, and dry conditions.

And despite what you might think, they’re not going to run out of water anytime soon.

Those deserts actually have a lower incidence of natural disasters too, which is one reason why they’ve built new microchip plants in Phoenix.

Climate migrants moving north might be a thing at some point - but it still is not.

Well, speaking of hot in-migration states, Florida has had a LIGHT hurricane season so far. But that’s not the kind of thing that we can count on for long.

Rates have gone up more than 50% throughout the state of Florida, with ALL insurance carriers.

Carriers are either pulling out of the state (because its not profitable for them), or they’re increasing rates across the board, or they’re not renewing policyholders.

Now, I’ve had my rates hiked up on my Florida properties more than once.

There, it’s often because an insurance company goes out of business due to too many claims, and then I have to switch to another landlord’s policy carrier that always has higher rates.

So here’s what happens. I get a notice in the US mail that my current insurer on a Florida rental SFH - call them Insurer A - is going out of business in 5 months and that I have 5 months to find a new insurer - call them Insurer B.

So I take a photo of that notice and forward it over to my Florida insurance agent and ask them to give me quotes for my new prospective Insurer B.

Now, say that if you don’t do that.

If you don’t ask your insurance broker or agent to get you a new policy, if you don’t act, here’s what happens.

Say that the 5-month deadline approaches and you still don’t have new coverage lined up.

Your mortgage holder, call them Wells Fargo or Chase, they’ll send you a notice in the mail and remind you that it’s required that you have insurance in place – because Wells Fargo or Chase doesn’t want to be on the hook for the risk… and if you don’t get a new insurer - Wells Fargo, say, will buy a policy FOR you & make you pay it.

And the insurance that they buy for you will have lesser coverage and cost way more.

It seems like, whoever the bank is, they always tell me that they’re going to buy me an ultra-pricey policy with Lloyd’s of London.

So again, it doesn’t entail too much work on your part. If your insurer is going out of business or just doesn’t want to issue you a new policy, share that notice with your insurance person and ask them for new quotes. That’s a quick, easy thing to do.

And then, when you switch insurance companies, your PM must submit photos of your rental home to the new insurer within something like 15 days.

Over the past few years, I think I’ve had Florida properties where the premiums have been hiked up steeply twice. I seem to remember a complete doubling a year or two ago.

More recently, I had 30% rate increases on some of my Florida rental properties.

So how much am I paying now? Well, on one Florida rental SFH that has a market value of about $300K, I’m paying $330 per month.

Of course, for your long-term rental properties, your landlord insurance contract should provide what’s called “loss of rents,” coverage.

That’s something that OO homeowner’s policies don’t have.

That means that if your property is damaged and your tenants are displaced, your insurer pays the fair market rent to you since the tenant won’t. That’s typically capped at 12 months.

On your STRs - like AirBnBs and VRBOs, the coverage that you want is called “lost business income” with no time limit. And that might take an upgrade to a commercial insurance policy for STRs.

Alright, so let’s get to something actionable. We are real estate investors for the production of income.

So amidst what are perhaps UNPRECEDENTED increases in insurance premiums these last few years, how do you navigate this, and what do you do to stay profitable?

Well, whether you’re an OO or a rental property owner, you can do things like make sure that your coverage is appropriate.

You can raise your deductible amount to reduce your annual premium, of course.

The more financially strong that you are, the higher you can make your deductible because the less a claim is going to impact you.

But as a rental property owner, you have a FEW LEVERS that you can pull that OOs cannot.

The big one - is that this is your cue to RAISE THE RENT.

Yes, higher insurance premiums point to raising the rent.

Really, this is like a game of hot potato… and it is your job to pass along the potato. That’s all that you’re doing here.

See, the reinsurer raised rates on your property insurer.

Your property insurer is raising the rate premium on you, the property owner.

Now it’s your job to pass along the hot potato to the tenant in the form of a rent increase.

Then your tenant has to pass along the hot potato by asking their employer for a raise or finding new employment.

And it keeps going, now your tenant’s employer needs to pass along the higher labor cost in the form of raising consumer prices on the goods or services that they produce… and it continues throughout the economy.

That’s how inflation works.

It’s your job to pass along the hot potato.

What if the tenant leaves? Well, there’s always that possibility.

But if they go to rent or buy a “like” property, it’s still going to have the same higher insurance cost that they’d have to pay.

For help with that, and this is the second time that I referred back to this recently, in Episode 449, just twelve weeks ago, I provided you with 12 ways to raise the rent. Again, that’s Episode 449.

You always want to provide a REASON to the tenant about why their rent is increasing, say 5% in this case for example.

Nothing beats the truth. Your insurance costs are higher. That’s the reason.

Now, you might be wondering, if, say, insurance costs just rose 30%, like they did on one of my own properties recently, then how is a 5% rent increase going to offset that?

That’s because your rent amount is multiples more than your monthly insurance amount.

If your rent on a property goes from $2,000 to $2,100, that’s just 5%, but it’s a $100 increase in your income.

If your monthly insurance cost goes from $200 up 30% to $260. That’s a $60 decrease in your income.

You have a $100 gain from rent and just a $60 deduction from your insurance increase, and you’ve more than offset it. It’s THAT effect.

Now, what if your numbers don’t work for raising the rent though? As an income property owner, you have other levers that you can pull that are less palatable as an OO.

That is, can you sell the property? If you’re in SFRs, there is a big buyer appetite for them.

And in just the past three years, there’s been so much appreciation that you might have a lot of equity such that you can trade it up for 2 SFRs.

Now, new-build properties in a place like Florida have substantially lower insurance costs than older properties, because new-build properties are built to more stringent wind resistance requirements.

So you might trade up your older, existing Florida property in this case for a new-build property that has lower insurance deductibles.

Insurance costs ALONE rarely drive investment decisions. But it’s the fact that you’d get to reposition dollars at a higher leverage ratio at the same time.

But now, if you’ve owned the property for, say 2 years or more, you might lose your ultra-low rate mortgage that you got a few years ago.

You need to run some numbers and see if it’s worth giving up your low mortgage rate in order to get more leverage and lower insurance premiums. That’s the trade-off.

See what works best for you.

So, your first lever is clearly to just raise the rent on your existing properties that have higher insurance rates.

To summarize what you can do to meet higher insurance premiums is:

#1 - Raise the rent. #2 - Tilt your portfolio into more NEW-BUILD properties in some markets, and #3 - Increase your deductibles.

They are the actionable takeaways that I really wanted to share with you today.

Keep investing. Tweak your strategy where you need to. Be sure that your tenants are taken care of.

And after that, remember, that it’s common that when you have an insurance CLAIM, that you often profit from the event when your claim pays more than your actual losses were.

Coming up shortly, the 15-year Era of Money for Nothing is Over. How does this new era look and how do you adjust to it?

There is more real estate news and more that impacts your personal finances every week that we can cover in one big, weekly show here.

Strip Malls are Hot (yes, really) Strip malls are hot, Old Houses are Now as Valuable as New Houses, and Zillow predicts 6.3% HPA from June of this year to June of next year.

More details on stories like that, as well as my breakdowns of developments like that are in our Don’t Quit Your Daydream Letter. You can get it free. Just text “GRE” to “66866”.

Actionable real estate guidance, breaking news, and a dose of my dorky, cornball humor are all in the letter.

Get it free by texting “GRE” to 66866. More next. I’m Keith Weinhold. You’re listening to Get Rich Education.

_____________

Welcome back to Get Rich Education. This is Episode 461. I’m your host, Keith Weinhold.

The United States is entering a new economic era. 15 years of access to nearly FREE MONEY has come to an end.

Let’s listen in to this terrific CNBC compilation where you’ll hear the voices of a number of economists, reporters, and directly from people that used to work at the Fed… on what this all means with the end of Fed Funds Rates at zero - the good and the bad.

Some familiar voices that you’ll hear include CNBC’s Steve Leisman.

And, near the end, Former Fed Chair Ben Bernanke.

This is about 12 minutes in length and then I will come back to comment.

[CNBC Clip]

Let’s remember that economies work slowly. There are lag effects. The Fed began hiking rates in March of 2022.

And higher rates are only starting their job, not finishing.

Today, higher insurance premiums and a higher cost of MONEY (which is what interest rates are) are trends to navigate.

With both, if you’re a landlord, you can raise the rent.

Longer-term, have that 30-year FIRD. Just that plain, vanilla loan in most cases. Nothing fancy.

That’s because, living in the US has many benefits, like stunning national parks, seedless watermelon, and pizza with cheese baked into the crust.

But it’s got something even better, even better than fixing your rate for 30 years. It’s that ability for you to refinance as soon as rates drop.

You get to alter the deal whenever it’s best for you whenever you’re in residential real estate.

Well, at the end of the show, I’ve learned that you’re often thinking “I want more. How can I get more content like this without having to wait until next week?”

I often like to leave you with something actionable at the end. Get our Don’t Quit Your Daydream Letter. I write every word myself. You can get it free right now. Just text “GRE” to “66866”.

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

Direct download: GREepisode461_.mp3
Category:general -- posted at: 4:00am EDT

Mon, 31 July 2023

In this podcast episode, Keith Weinhold and Kirk Chisholm discuss the differences between real estate and stock investing.

Kirk Chisholm is the Principal of Innovative Advisory Group. He provides his perspective as a wealth manager, emphasizing the control and lower risk offered by alternative assets like real estate.

Learn the difference between risk and volatility.

We discuss risk-adjusted returns, liquidity, and the importance of understanding and managing risk. The conversation also covers cash flow, dividends, big tech stocks, and private mortgages.

Interest rates and inflation—we discuss their future. Kirk believes rates will stay at this higher rate for a long time.

Timestamps:

The Paradigm Shift in Interest Rates and Inflation [00:00:01]

Discussion on the new paradigm of interest rates and inflation and how it affects real estate and stock investors.

The Impact of Front Porches on Society [00:01:35]

Exploration of the impact of the disappearance of front porches on neighborhoods and communities.

The Definition and Management of Risk in Investments [00:05:50]

Explanation of how risk is defined and managed in different types of investments, including stocks, real estate, and alternative assets.

The difference between volatility and risk [00:10:21]

Explanation of the temporary price movements (volatility) and permanent impairment of capital (risk) in different investment assets.

The illiquidity of real estate and non-traded REITs [00:13:11]

Discussion on the illiquidity of real estate compared to publicly traded markets and the example of non-traded REITs during the 2008 financial crisis.

Importance of cash flow and dividends in stock investments [00:15:26]

Exploration of the two camps in stock investing: cash flow-driven investors and appreciation-driven investors, and the significance of dividends and cash flow in stock investments.

Dividend Stocks and Value Stocks [00:20:17]

Explanation of the difference between growth stocks and value stocks, with a focus on dividend-paying stocks.

Private Mortgages and Cash Flow [00:21:12]

Discussion on the benefits of investing in private mortgages and how it provides a passive income stream.

Default Rates on Hard Money Loans [00:25:48]

Exploration of the default rates on hard money loans and the industry's approach to mitigating risks for both borrowers and lenders.

The new paradigm of interest rates and inflation [00:31:32]

Kirk Chisholm discusses the shift in the economic paradigm from low interest rates and inflation to higher rates and a shrinking economy.

The impact of higher rates on mortgages and real estate [00:35:39]

Kirk explains how higher interest rates affect mortgage payments and housing affordability, leading to a decline in house prices.

The consequences of higher rates on corporate America [00:37:48]

Kirk discusses how higher rates can impact corporations, particularly those with short-term debt, potentially leading to bankruptcies and market clean-up.

Higher rates and recession correlation [00:39:55]

Discussion on the correlation between recessions and lowering of interest rates, and why it may not happen in the future due to high inflation.

Fed's focus on stable prices [00:42:48]

The Federal Reserve's prioritization of stable prices over high employment, within their dual mandate.

Interest rates and the economy [00:44:10]

The potential impact of higher interest rates on the economy, with a discussion on when the next recession may occur.

Resources mentioned:

Show Notes:

www.GetRichEducation.com/460

Innovative Advisory Group:

www.InnovativeWealth.com

Get mortgage loans for investment property:

RidgeLendingGroup.com or call 855-74-RIDGE

or e-mail: info@RidgeLendingGroup.com

Find cash-flowing Jacksonville property at:

Invest with Freedom Family Investments. You get paid first: Text ‘FAMILY’ to 66866

Will you please leave a review for the show? I’d be grateful. Search “how to leave an Apple Podcasts review”

Top Properties & Providers:

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459: Your Questions Answered: Raw Land, Debt Mindset, Controlling Repair Expenses

Complete episode transcript:

Keith Weinhold (00:00:01) - Welcome to. I'm your host, Keith White. As a real estate investor, you are highly cognizant of your cash flows to stock investors. Even think about that and how we've now entered a completely new paradigm of interest rates and inflation and how to respond today on Get Rich Education with real estate capital Jacksonville. Real estate has outperformed the stock market by 44% over the last 20 years. It's proven to be a more stable asset, especially during recessions. Their vertically integrated strategy has led to 79% more home price appreciation compared to the average Jacksonville investor since 2013. GPB is ready to help your money make money and to make it easy for everyday investors. Get started at GWB Real estate. Agree that's GWB Real estate. Agree.

Speaker 2 (00:00:59) - You're listening to the show that has created more financial freedom than nearly any show in the world. This is Get rich education.

Keith Weinhold (00:01:22) - What category? From Bogota, Colombia, to Wichita, Kansas, and across 188 nations worldwide. You are back in that abundantly minded place where financially free beats debt free.

Keith Weinhold (00:01:35) - And by now you might have already won the inflation Triple Crown. I'm your host, Keith Wild. Hey, Noah, is this a real estate problem? Philip Gulley, the author of Porch Talk. He said, I believe all that is wrong with the world can be attributed to the shortage of front porches and the talks we had on them. Somewhere around 1950, builders left off the front porch to save money, and we've had nothing but problems ever since. That's just the sort of thing that I think about now as you and I are enjoying the dog days of summer, as I trust that you are, you know, neighborhoods, property, it all used to be more wide open. The Pennsylvania house that I grew up in and that my parents still live in, it has a real front porch. And no one I mean, nobody has fences around their yard either. It is a real lemonade sipping chat with the neighbors vibe there that, well, seems to be more and more of a remnant of yesteryear.

Keith Weinhold (00:02:44) - I mean, gosh, from what I can see, there are more and more gated communities. Uh, people tend to get more concerned about security and that often means that they trade away freedom. Hey, well, our guest on the show today, he hits differently. And you're going to feel that because he's the principal of a firm that helps investors with stocks, bonds and mutual funds, as well as real estate investing. And it's not just REITs, real estate investment trusts, but more than that. And, you know, whenever he and I talk, we tend to get each other thinking in different ways, in shape, each other's opinions somewhat, as you'll probably see again today. He and I disagree on some things and we agree on others. I'm going to ask him about whether or not stock investors even care about cash flow. We'll be sure to get his insights on the direction of interest rates and inflation and more. Well, I'd like to welcome in our guest today he runs innovative wealth.com he's the principle and a wealth manager there at innovative advisory group.

Keith Weinhold (00:03:54) - They're based in Massachusetts but they advise well beyond any state borders. Hey it's been a few years. It's great to have you back. Kirk Chisholm Thanks for inviting me back. Keith. I was a little worried there didn't appear well in your show, but thanks for having me back. Yeah, well, it's been absolutely too long, and I really appreciate your perspective because they're with what you do. You're principal of a company that helps people invest in a big, wide palette of things, from stocks to private mortgages and some things with real estate and elsewhere. So you have this really broad view. So tell us what percentage of your business is is stocks, bonds and their derivative products like ETFs and mutual funds versus everything else? It's interesting because my industry is primarily focused on stocks, bonds and mutual funds. It always has been, probably always will be, in large part because they're easy to sell, They're publicly available information and everyone is can simply just click a button and get it done. So my industry tends to work towards lazy solutions or simple solutions.

Keith Weinhold (00:05:00) - Nothing wrong with that. You just have to know with what you're getting. It's funny, when we started our firm in 2008, we were doing a lot of private mortgages and we talked to the regulators at the time and they said, Oh, well, what percentage of your accounts in alternatives? Because we told them we did alternatives like what percentage of your accounts? And we said, Yeah, somewhere like 40 to 50%. You know, it probably ranges between 40 and 60. You could hear a pin drop in that room. I did pick the lady's mouth off the floor like she couldn't believe that. How quote unquote, risky that is. And she said the first question, she's like, are you serious? Isn't that really risky? And I started laughing and I said, risky? You mean like Worldcom, Enron, AIG, Tyco, You know, like Lehman Brothers, Bear Stearns? They just kept going on and on. She's like, all right, I get the point. And we had to define the concept of risk.

Keith Weinhold (00:05:50) - This is the part that your audience will appreciate, right? If you're investing in a company, it's been screened by the SEC. It's passed certain muster. It's SEC doesn't endorse it, but it's passed certain muster. You say, all right, I feel comfortable that this company's met the minimum criteria. That's not always the case. Right. Companies go bankrupt all the time. And we actually have a spike in bankruptcies most recently because of the economy. But if you look at piece of real estate, I can go walk up and touch it. I can go to the Registry of Deeds and see that I own it. I can talk to the maintenance guy or the property manager and see what's going on and have influence on it. I would say if you know what you're doing, there's a lot less risk. And I would say if you own a piece of gold, what's your risk? I could lose it. Somebody could steal it. The government confiscates it. That's pretty much it, right? It's not going to zero.

Keith Weinhold (00:06:37) - It's not going to the moon. It's just a rock. The way you define risk is really something that a lot of people don't spend time with is managing that risk. So a lot of what we've done is we've looked at it from a different perspective. What is the best investment given the criteria that we have, the markets we're in and the risk available? You know, what is going to do the best considering the risk as an example, Bitcoin or Ethereum or any sort of cryptocurrency, the risk is it could go to zero, right? It's not going to go below zero risk as you lose all your money or you might make 10 or 20 times your money, right? That is also possible. Both scenarios are probably on the extreme ends of probable, but either way, like you have to account for both scenarios and say is it worth it going to zero for me to make X amount of return? If the answer is yes, then it makes sense. If the answer is no, then don't invest in it or invest in a lot less of it.

Keith Weinhold (00:07:31) - So that's kind of how we look at risk and that's why we look across the board for alternative assets. We're very agnostic about the assets because it really just comes down to, is it a good investment or not? That's really the criteria we look at. Risk is what goes beyond the edge of your understanding. Think that's what applies to that conversation that you had that you brought up there earlier. Right. It's largely about one's risk adjusted return. You talk about with real estate how you have more control over an investment because you can get in there and understand it and change the operations of it in order to drive a return. And then stocks have this very efficient market where it's quick and easy to get in and out and things are more liquid. This very efficient market with real estate, there really isn't any app you can go on and be like, Oh, okay, well my duplex was up 3/10 of 1% this past week. That doesn't happen. That's part of the inherent inefficiencies with direct ownership of real estate, of course.

Keith Weinhold (00:08:32) - I would argue the point of efficient markets, the stock market is is not efficient, despite what the academics will tell you. It is more liquid. I would argue that real estate is illiquid, which is good and bad, right? If you need to sell, it's bad. If you're looking to buy and you don't need to buy, it could be really good. Stock market is very different in that it's claimed to be efficiently priced with all the known information at the given time. And the price is the price. And what I would argue is that's an interesting philosophical standpoint, but it's inaccurate, right? Because if all the information was known, then we wouldn't have volatility. But we do have volatility and the stock market is a forward pricing discount mechanism, right? So you look out six months and say, what's the market going to do? That's where the stock prices are six months from now, not today, six months from now. So whatever the market thinks is happening, they think it's going to happen then.

Keith Weinhold (00:09:26) - So if you look at interest rates, which I'm sure we'll get to, they're looking out six months and for the last two years I've noticed on the expectation of the yield curve, it's that, oh, rates are going to drop in the next 3 to 6 months and in 3 to 6 months it's going to drop in 3 to 6 months. Over and over, it keeps pricing out well, another 3 or 6 months. And I think that the market doesn't really look beyond that because it's really hard to predict. First of all, you can't predict the future anyway, but if you're probabilistically, going to try beyond six months is really hard because there's so many things that got to happen that changed the dynamics significantly. Talk about efficiency with stocks. I'm talking about how stocks are efficient and easy to liquidate. It's pretty easy to sell. And then over here in real estate investing, there is no panic selling because it takes quite a while to buy into sell. Therefore, that's some of the inefficiency of real estate compared to stocks.

Keith Weinhold (00:10:21) - We look at that through a liquidity perspective, right? So liquidity can be a good thing or a bad thing because when there's panic, selling, liquidity can lead to greater volatility like we see in stock. Yeah. And I want to point out two things here. So first is there's a difference between volatility and risk. And I think it's really important for people to understand the difference. So volatility is temporary price movements. It's how much the price fluctuates in any given day. Real estate investors don't see this right, But stock investors, Microsoft is up 5% yesterday. Nvidia's up like whatever, 70% of the day or whatever it was, 30 some odd percent in a day. That's volatility, right? You look at stock prices drop 30 plus percent in a short period of time. Technically, that should have been risk because the whole global economy shut down. But it turned into volatility because it went down and it came back up, actually exceeded the price of the start of Covid by the end of the year, which is insane to think about.

Keith Weinhold (00:11:20) - The whole world shut down. People are locked in their houses and yet the stock market is up. That is what I would consider volatility. Now, risk is what I would call a permanent impairment of capital. Now what that means is you buy a Beanie Baby at $100 because you think it's going to be worth a lot more. And then all of a sudden the Beanie Baby bubble crashes and never recovers and it turns into a $100 Beanie Baby into like a dollar. That's a permanent impairment of capital. That is a risk that you're not going to ever get your money back. You buy a I hate to swear on your show, but a beep coin that make up most of the cryptocurrency coins out there. They could all go to zero. I mean, you look at drawing a blank on the one with that. Elon Musk supports the dog dogecoin. Yeah, they claim this zero. It's a socially supported currency, but it doesn't have any value and they all admit it doesn't have any value. It's virtually worthless except for what people are willing to pay for it.

Keith Weinhold (00:12:15) - That has the potential to have risk in it because it could go to zero. But if I'm investing in GE, Microsoft, Apple, Johnson, Johnson, whatever, these companies that produce cash flow, they're solid companies with a long, long track record, they could certainly go to zero, no question. But typically the movements in price are volatility. Risk is when the chairman goes off, steals all the money and moves off to some island and people are left holding the bag saying, what's going on? You know, you look at AIG, Lehman Brothers, Bear Stearns, all those companies that basically made bad decisions, that is risk. That is not volatility. So it's important to understand the differences between the two, because if you don't, most people think of I am managing risk, I'm diversifying. No, you're managing volatility. Managing risk is completely different and you have to use different tools for that. Most people don't manage risk, they manage volatility. The other point I want to make is you mentioned the illiquidity of real estate.

Keith Weinhold (00:13:11) - And I want to point out an example which is kind of bordering the owning your own real estate versus, let's say, a REIT. I remember back in 2008, nine and ten when people were jumping out of the windows because they couldn't get rid of their illiquid non traded REITs. And I'm not a supporter of that of non-trade REITs or people jumping out of Windows. But in general, the non traded REITs market was interesting because technically they said you'd have quarterly liquidity, you could get a quarterly and normal times. That was true. They would just cash you out if you need money. However, when everyone's running for the door at the same time, they can't cash everybody out because they can't sell the property. So what do they do? They lock the doors, locked everybody in to burn alive. Well, the price went from, let's say, hypothetically, $100 down to $10 and people wanted out at any price. It didn't matter. They needed out. They need liquidity. Whatever it was, there were actually markets around.

Keith Weinhold (00:14:03) - You could buy people's shares of these non traded reach for like $0.10 in the dollar and people were willing to pay to discount 90% of the investment where you could have just walked in and purchased it and waited another five, seven years and you could have made 100 cents in the dollar. It's crazy. But that's one of the nice parts about real estate. And I'm using a security as an example because you can do that in real estate. But when you have the publicly traded markets, that doesn't necessarily happen, but it can happen in certain periods of time when the markets are completely irrational and everybody thinks the world is ending. Sure, that's a be greedy when other people are fearful, sort of seeing their I know their IT innovative advisory group. Since you do have this wide palette of offerings, you kind of have this broader view of things. I'm wondering, Kirk, a lot of people in that stock world, many of them concerned with cash flow or it might be dividend there, or are they even as interested in cash flow there with the kind of stock and mutual fund investments as they are over here in the real estate world where we're quite interested in cash flow? And then do they even take the dividends or do they just reinvest them, which is called a drip program dividend reinvestment program? How important is that to investors on the stock side? It's a good question.

Keith Weinhold (00:15:26) - So what tends to happen is people kind of fall into two camps, much like the real estate camp. Some people fall into the. Cash flow camp. Which is your camp? Which is my opinion. I think that's the best way to invest is cash flow appreciation. You're just taking a guess. But there are good amount of people that are appreciation driven. They don't look at cash, so they're happy to make zero cash flow for the expectation They're going to make lots of money and appreciation and look at them like, What are you thinking? Like, what if the cash flow declines? You're going to support the negative cash. Why do you own it? It's silly, but some people think that way. They think, Let's go for the appreciation. Let's roll the dice. Let's go. No whammies, you know? And what ends up happening is these people make mistakes because the real estate market, this usually happens at closer to the tops and people make bad decisions and they realize, oh, crap, I can't make this work.

Keith Weinhold (00:16:16) - I was trying to Airbnb this with a two cap, this not working. So now I need to sell this thing or I'm going to lose my shirt. I had these conversations all the time. So using that as an example, because that's where your audience will understand dividend investors the same. So a lot of people, when they're investing in stocks, they're looking at stocks as a way to make money. Most people want total growth, which really means in their mind, appreciation. What are the stock market do this week? What did it do this quarter? That's all people want to know. Well, what about the dividends? Well, actually, there was a time 40, 50 years ago when dividends mattered, you could get six, seven, eight, 9% dividends. Now, that's absurd to think about that. The only stocks that pay dividends of that nature are stocks that are highly speculative or the dividend is highly speculative. Market typically looks at dividends and if they don't trust the dividend will continue to get paid.

Keith Weinhold (00:17:08) - They'll actually discount the stock, which will make the dividend look real attractive. It'll suck people in to buy it and then they'll slash the dividend back to a rate that's normal. So people looking at dividend stocks, be careful because we're not in that environment where dividend stocks are all that attractive. If I can get a 5% close to zero risk US Treasury bond and I can compare that to a 2% dividend stock, I'll take the Treasury all day because it's close to guaranteed dividend stock. Maybe it goes up, maybe it goes down, who knows? But, you know, ultimately you're trying to solve a problem. The big challenge we have now, is any of this sustainable? Are the cash flows sustainable? Good value? Investors should be looking at cash flows. They should be looking at metrics and trying to find stocks that are at a good price that will pay them a handsome return over time. And the problem is, is we don't live in that environment much like the real estate market. It gets overheated because too many people are chasing too few properties and virtually everyone was putting all their money into 5 to 7 stocks on the Fantastic Seven or the Faang stocks or whatever you want to call it These days.

Keith Weinhold (00:18:18) - That name changes all the time. But the point is, you've got big tech that's driving most of the return this year. Think big tech made up 2,530% of the S&P 500 500 stocks. You have five stocks making up 25 to 30% of the index by size. And by return, it made up think the S&P was up 15%. And these 5 or 7 stocks made up 13% of that 15. Really crazy, crazy to think about. Right. But that's what people look at is the index. And the index is not necessarily accurate, but that's what people look at. So you have to gauge it by that. Most of the marketplace is chasing these appreciation returns. And like you have with real estate, you get the good with the bad, you chase appreciation. You can win or lose. I don't know where the future is going to be, but I know that if I'm chasing cash flow, I'm pretty certain I know where that's going. But if I'm investing in a tech stock that has negative cash flow, I have no idea where that's going.

Keith Weinhold (00:19:19) - Right. Could go up, could go down, who knows? But I look for stocks with good cash flow. I think if you're going to invest well, you want to find a legacy stock that you feel comfortable owning forever. Now, when it comes back to the Fang acronym, I tend to think Nvidia should be replacing Netflix in the Fang acronym about this time. But dropping back earlier when we were talking about dividends, I don't track this very closely, but last I checked, probably last year it seemed like the average dividend paying stock in the S&P 500 was something like 2%. Is that still about right? I think it's actually a little bit lower. I haven't looked at it in the last few weeks because it's gotten so low, it's almost not even worth looking at. I think last year was 1.77. As of right now, it's 1.47 on the S&P 500, 1.5%, which is insanely low for real estate investors. I think of the dividend yield in stocks as being synonymous with the cash on cash return in real estate.

Keith Weinhold (00:20:17) - But you said something earlier about dividends, Kirk, that I actually thought was the opposite way. I thought that dividend paying stocks tended to be kind of those older, stodgy or staid, like a utility company rather than a younger tech. Company. Yes, that is accurate. Yes, Most of the dividend stocks are what we would consider value stocks. So the terms growth, stock and value stock are actually don't mean anything. They're what everyone wants it to mean. What they tend to mean is growth Stocks tend to be stocks that are focused on appreciation. Value stocks are typically focused on cash flows or their stocks that are discounted, and you can buy them for good cash flow. But if you look at a stock like Microsoft, I mean, you got the dividend yield is about 75 basis points, 76 basis points as of today. So you're getting less than 1%. But Microsoft's one of the the Fang stocks, right, or Fang, whatever they're calling it now, they come up with a new acronym.

Keith Weinhold (00:21:12) - But some of these big tech Apple's fang of dividend so some of the big tech actually are paying dividends. Now what we're talking about, the production of cash flow or income from both stocks and real estate here. And one thing that I know you do in there and that you help investors with is private mortgages in producing an income stream that way. Can you tell us more about that? Is that where you have clients where you connect them with ways to make hard money, loans to real estate investors, for example? As we talk about here, I'm a big fan of cash flows and I have a few favorite asset classes and they're not the stock market, right? I love real estate. I love tax liens. Tax lien is by far my favorite. If you can get them the right way and the right price, which you can't, but if you could, that's one of my favorites for many reasons, but one of the ones that we do a lot of are hard money loans or private mortgages.

Keith Weinhold (00:22:05) - The reason I love it is because they're simple. If you're investing in real estate, it's not passive income. It's a business. You have to manage the business. You have a property manager, you've got tenants, you've got expenses, you've got taxes. All this stuff you have to deal with, which is fine. There's nothing wrong with that. But when people invest passively, it's not passive, right? It's active. It just happens to be a different business than one that you're selling widgets out of the corner store. If you're investing in private mortgages, you have to do your due diligence up front. But once you invest in it, you're done until you get paid back. It's like any sort of fixed income. It's a bond. It's fixed income is how I look at it now. For the past ten plus years, you couldn't get any rates on bonds, your fixed income, part of your portfolio, your treasuries, your corporate bonds, whatever you're buying, you're getting close to zero.

Keith Weinhold (00:22:54) - And there was a lot of risk. So we substituted these for our fixed income and you're getting 10 to 15% over the last ten years where the common rates and I like them because you're getting access to real estate. So real estate is backing the note. So it's a mortgage, right? So you're lending somebody else money at, let's say, 12% and they're going to pay you that 12% and give your money back at the end. And if they don't, you get their property. Now, personally, I don't want their property is too much headache because when I got to do foreclosure and go through all that, that's not the point. Some people do. Some people invest in hard money with the assumption they're going to own that property. And it's a great acquisition strategy. If you're so inclined. It's not you know, I have clients. I can't have that kind of business model. It's just too much of a headache for everybody. So we want people that are going to pay and pay on time and people are going to continually come back and I can work with versus having the lender investor that actually helps the borrower default so that they can get the property correct, which like I said, is a great investment strategy.

Keith Weinhold (00:23:55) - It's just not our investment strategy. And I think just like real estate, you can buy foreclosures, you can buy off MLS, you can build. There's so many different things you can do. Same thing with notes with paper. Paper is a great asset class if you know what you're doing. The challenge with private mortgages, hard money now is because everything is so expensive that these investors, these fixed and flippers investors would have. You can't make money. And I know there are people out there that are doing it. So it's not that it's not happening, but anybody I know that's really good at fixing flip or rehabs or things like that in my area, not speaking for every part of the country in Miami, in the Boston area, they're not doing deals because they can't make money. There's no margin of error. If they were to compete and win the deal and they make a mistake, they're going to lose money. They don't want to lose money. So they need to have a big enough margin cushion so that they make a mistake.

Keith Weinhold (00:24:49) - They're still making money. So these people we work with, they're not doing deals because there are no deals to find. So that means there are fewer mortgages times like 2008, nine and ten, we didn't have enough client cash to put to work. Like we had so many notes coming at us we didn't have enough cash to find. Now it's the reverse. There's plenty of cash chasing them and there's not enough notes out there. And a lot of the notes are poor quality because the risk is too high. We want easy. We want somebody paying on time, we want our money back and then go on and do it again. So I love them for cash flow. It's simple and easy and it solves a lot of problems. So this is interesting. If you as a real estate investor have ever taken a hard money loan, you might wonder who the lender is on the other side of that. And that might be someone like Kirk's clients in there where he is. Kirk. Can you tell us more about the default rates on the hard money loans lately? How often do they not get paid back and do they go into default? Yeah, that's a good question.

Keith Weinhold (00:25:48) - So I don't know the industry rates. So we work with a handful of people and that's all we work with, so we know the rates for them. I'll tell you about ours and I'll tell you about the industry a little bit more. So for us, we've done hundreds and hundreds of these things and I would say less than 1% of them have had issue. So we are truly not looking for rates of default. A tornado tore through the neighborhood and tore off the roof. That's an issue. That's not something I can deal with. Right. Guy you're working with dies. It's an issue you got to deal with, right? Like this isn't somebody making a bad deal or run away with the money. This is stuff that you can't predict and is inevitably going to happen in one way, shape or form. So we mitigate the risk as much as possible, but our rates of default or I would say not even default, but just having issue with the loan because most of the stuff it's, you know, maybe discount if you have a something like that, maybe it's your discounting the interest instead of getting the full interest, maybe get partial interest or even no interest, get your money back.

Keith Weinhold (00:26:44) - Like for us, it's like, how do you handle a default is really important because the borrower, there's some risk there, but then there's the lender, there's some risk there. So you have to find a balance that makes everybody happy so that, you know, the borrower is not taking it on the chin because then they're not going to come back. But it's not all in the lender either. So you have to find a balance and work with people. Much like with real estate, you know, you get a bad tenant, so you try to work with them so you still get paid. It's the same kind of thing. But if you look at the industry, the industry is interesting. So I interview a lot of hard money lenders on my show over the years and fascinated to hear what they say and some of the people who do the most or they're in charge of marketplaces of these notes. What they've been telling me for the last few years is think about this way. A lot of these things come from developers or fixing flippers.

Keith Weinhold (00:27:31) - They get their properties out of foreclosure, they get it out of sheriff's sale, they get out of fire or estate sales like these things where they're highly discounted. So during Covid, the courts were shut down for a year and a half. You couldn't get these properties if you were foreclosed on, you couldn't get foreclosed on for two years because the courts weren't open. And when they did open, there was such a backlog of other stuff that was more important than that. They were dealing with like murderers and whatever, rapists, people that actually need to go to jail. And they're not dealing with foreclosures to the same extent. So the courts are backed up for a long period of time. And so when they finally opened up, you start to see a trickle through. You're starting to see more now. But that was a big challenge to the market. So what I've been hearing for the people who are really deep in this market and they see everybody across the board, across the country is they've all said that there's a tidal wave coming.

Keith Weinhold (00:28:24) - And a lot of the problem is, is there are a lot of bad notes out there. So there are people who basically created these notes, right? So they underwrote the notes. They they lent money to somebody with bad terms or is a bad loan like the person should have borrowed or whatever it is, they're still paying. But you see, the quality of the paper is really bad. And what's going to happen is if you see a hiccup in the real estate market, then you're going to see this paper flush through the system because all of a sudden this deal that was marginal is now a bad deal and it flushes through either people default or they sell or whatever. And that stuff has to flush through the system until it does, the market's not going to be efficient. Everyone is waiting around saying, I know there's bad paper out there. I'm trying to find good stuff and it's harder to find, but it's not from a lack of paper, it's from a lack of quality paper. And this happens every real estate cycle.

Keith Weinhold (00:29:19) - Having 2008, nine, ten flushes out the bad people, buy the paper at a discount. You're listening to Get Rejection. We're talking with innovative welcomes Principal Kirk Chisholm when we come back, including his take on where we're going with interest rates and inflation. I'm your host, Keith Lindholm. You know, I'll just tell you, for the most passive part of my real estate investing personally, I put my own dollars with Freedom family Investments because their funds pay me a stream of regular cash flow in. Returns are better than a bank savings account up to 12%. Their minimums are as low as 25 K. You don't even need to be accredited. For some of them. It's all backed by real estate. And I kind of love how the tax benefit of doing this can offset capital gains in your W-2, jobs, income. And they've always given me exactly their stated return paid on time. So it's steady income, no surprises while I'm sleeping or just doing the things I love. For a little insider tip, I've invested in their power fund to get going on that text family to 668660.

Keith Weinhold (00:30:30) - And this isn't a solicitation If you want to invest where I do, just go ahead and text family to six six, 866. Jerry listeners can't stop talking about their service from Ridge Lending Group and MLS 42056. They've provided our tribe with more loans than anyone. They're truly a top lender for beginners and veterans. It's where I go to get my own loans for single family rental property up to four Plex's So start your prequalification and you can chat with President Charlie Ridge personally, though, even deliver your custom plan for growing your real estate portfolio. Start at Ridge Lending Group.

Speaker 3 (00:31:16) - This is author Jim Rickards. Listen to Get Rich Education with Keith Reinhold and Don't Quit Your Day Dream.

Keith Weinhold (00:31:32) - Welcome back to Get Rich. We're talking with Kirk Chisholm. He is the principal and a wealth manager at Innovative Advisory Group. And I like to chat with Kirk and some of these people that have this bigger picture view where they offer clients stock options, real estate options and more. In Kirk, I know you like to say that we're sort of living in a new paradigm and that people are only just now starting to realize this new paradigm, which has to do with interest rates and inflation.

Keith Weinhold (00:32:01) - So tell us about this new paradigm. Let's take us back a few years. So if you think about what's happened in history, I'm a student of history, much like you are, Keith, You look back in history, it's instructive as to how the future may act, right? It's never going to mirror that because it doesn't happen that way, as I think it was. Mark Twain has said that history never repeats, but it rhymes. I'm not sure if that's actually attributed to him, even though people say it is. But point being is if you look back in history for the pretty much starting in like the 70s, we had a period of time and I'm going to come back to the 70s, but we had a period of time where things were volatile, we had high interest rates and we peaked at 20% rates depending on which rate we're talking about. The 30 year treasuries, I think it hit 15%. Fed funds rate hit 20%. So we had some pretty high numbers. And so the subsequent 40 years, interest rates declined for 40 years.

Keith Weinhold (00:32:56) - If you had bought a 15%, 30 year Treasury in 1980, 1981 and held on for the whole 30 years, you would have made 15% for that whole time. And it bottomed out a few years ago. So think about the 70s. Like, here's the economy, right? I got my hands together. Here's the economy. This is what it looks like, right? It's this size Now. If you start injecting leverage, you get a mortgage on your real estate. That's leverage. The company borrows money. That's leverage. Right? So you're borrowing money. So your borrowing future cash flows to use today. So let's say I own a home outright and I decide, hey, I want to borrow money to go buy a motorcycle, whatever. Okay. Well, I just increased the economy size because I borrowed money, right? So I've increased the amount of money in circulation from 1983 81 until pretty much a few years ago, the interest rates went from a high amount of 20% down to close to zero.

Keith Weinhold (00:33:51) - Now, the lower the interest rates, the more you can borrow. So if you think about the economy, it kept increasing as rates drop because you can borrow more and more money. Now, how much money can you borrow? A 0%. Keith An infinite amount, in theory, yes. As much as they'll give you. And how much? If it's negative, I don't know. I'm going to borrow a bunch of people and borrow their money like and we get into this crazy period we had a few years ago where there actually negative rates in Japan still does. But the point is, is the lower the rate, the bigger the economy can be because you're allowed to leverage more and it means you can borrow more money and use that money for other things. And now that's a problem because you're borrowing future cash flows to use today. So at some point you got to pay that back one way, shape or form or another. The thing is, is that is increased the size of the economy over this time.

Keith Weinhold (00:34:37) - So the paradigm from the early 80s until a few years ago was one of leverage and growth. And there's a lot of things went into that globalization, outsourcing to China and Asia, technology, all these things influence this growth of the economy. But then in 2021, we hit the lowest rates. We hit mortgage rates at 2.5%. Fed funds rates were low, Treasuries were low, and they started raising rates in 2022. So the economy now started to shrink because you can borrow less. Now, it didn't actually shrink, but I'm using this for illustrative purposes. So if I'm looking at this big, huge balloon and think of it as a balloon, right? You start as there's no air in it, you blow it up with air, you get this huge balloon. Well, as rates go up, you start to let air out of the balloon because you can't sustain high interest rates because it comes down to cash flow. So what ends up happening is as rates go up, the economy effectively starts to shrink over time because if low rates help it expand, higher rates will contract it.

Keith Weinhold (00:35:39) - But it doesn't happen today or tomorrow. It happens over years, as the economy did in the last 40 years. So the paradigm we had changed two years ago and now we have high interest rates and the economy is shrinking to acclimate to this new higher rate environment. So you could have bought mortgage for 2.5% for 30 years on the house. You bought a $500,000 house, 2.5%. You probably would have paid, I think, $3,700 a month rate. You're paying $3,700 a month. That's where you can afford. And most people were doing that, so they bought as much as they could afford. However, now mortgage rates are seven and a quarter at seven and a half. That $3,700 a month mortgage is now doubled. So now you're looking at about a $7,400 a month mortgage. I can't afford $7,400 a month, so I can't buy that same price house. Now, the house price to accommodate that has to decline. And I'm using real Estate Illustrated because it also I'll tell you in a minute so the house price has declined to accommodate that higher payments because people can only buy what they can afford.

Keith Weinhold (00:36:43) - Now take that illustration and overlay that into corporate America, because companies do the same thing. They borrow as much as they can get away with. As you say, with mortgages, it's fixed. It doesn't affect me because it's fixed. And same thing with corporations doesn't affect me. It's fixed. That's correct. Which is why it doesn't impact the economy immediately. But it does impact it over time because with the 30 year mortgage, you never have to move. But if you do have to move, you're in trouble. If you own commercial property, you don't have 30 years, you might have a five or a ten year mortgage, which is going to roll at some point in time and hopefully rates are lower. But if they're not now, you've got some explaining to do, right? In corporate America, there's a lot of companies that get, you know, short term debt that's going to roll over at a higher rate. How are they going to afford it? Johnson, Johnson, Apple, Microsoft, they can afford it, but can borderline junk bonds, companies that are low quality, that are just making it, barely making it buy in cash flow because they can borrow money? What about them? Well, they're going to be forced to make hard decisions or go into bankruptcy.

Keith Weinhold (00:37:48) - So what higher rates do? It basically cleans up the economy by taking out the inefficient players and forcing some into bankruptcy, foreclosures, whatever it may be, it effectively will clean up the market, but it also caused the economy to shrink. So it destroys capital. And if we have rates that are higher for longer than, let's say a few more months, if they're higher for 5 or 10 years, it's going to be a problem. And I think we're going to have higher rates a lot longer than most people think. The market is predicting another six months they're going to drop rates. They've been saying that for the last year. So I don't think they're accurate. I think it's going to be at least a year, maybe two, and then we'll see what happens. Hard to see that far out, but people need to be become acclimated to these higher rates for a while because if you look at historically, these aren't that high. Their average rates. Yeah, they're right in the mean like we're not high historically.

Keith Weinhold (00:38:43) - If you look at bond yields I mean you look at late 90s, you've got up to 6%. I think you've got to 6 or 7% and depending on what you're investing in. So we are not high and default rates are not high. Default rates for high yield bonds historically are 7%. I think we're like 1% like last 15 years. So the numbers that we saw were extreme examples of the economy. And we're going to find a happy balance somewhere. And I don't know where that is, but this new paradigm is about reassessing the assumptions you're making about your investments, about the economy and any assumption what are interest rates going to be? What's inflation going to be? These are things that people never even thought of. They just assumed, Oh, inflation is going to be 3%, I'll just use that. Or interest rates, they're going to be similar. You can't make those assumptions anymore. You have to have broader. Lateral testing of whether this is going to work or not. You've done a great job of breaking down that new paradigm where basically that 40 year period from 1981 to 2021, we had gradually declining interest rates and something in 2021, that's where things changed and we entered into a new paradigm of increasing interest rates.

Keith Weinhold (00:39:55) - So as we're winding down here, you stated you think that we will have persistently higher rates for quite a while. So many people have been saying a recession is just around the corner for so long. It's sort of annoying to really think about it. But as we know, with the recession, that generally correlates with a lowering of interest rates. But you don't see that happening by next year, say, with a lowering of interest rates that corresponds with a recession. What you said is recessions typically correlate with lower rates. You're correct. But what if they don't? I'll give you some examples here of why things are different and why it matters. So if the last 20 plus years, if we had a recession or even a sniff of a recession, the Fed would drop rates, print money, they would boost the markets back up. Everything would be fine. Right. Problems solved. Right? The world's going to end. Don't worry. Here comes the Fed to the rescue. They did that for 20 years.

Keith Weinhold (00:40:49) - But now we have high inflation. So with high inflation, they can't do that because if they do that, it causes inflation to spike, much like the 70s. Now they're not oblivious to the 70s. They know full well what happened and they don't want to repeat it. What they're saying has been pretty clear. We're going to make sure we kill inflation. We don't want it coming back. It is very probable that we have inflation dipped down into two even 0% this year. There's the probability is low, but it's probability we could hit 0% inflation by the end of the year. However, I don't think it's going to stay there because we tend to get a bullwhip effect, which we've seen in many commodity prices, lumber in particular, where the prices go up and then too many people, they make too much lumber to sell and then there's a glut and then it goes lower and then it goes higher because, you know, so you get this bullwhip effect, which is a problem which caused and it's the same thing with inflation, right? You get this bullwhip effect because the changes have been too drastic that people can't adjust, so they over adjust, are under adjust, and that causes this big change.

Keith Weinhold (00:41:50) - So I think we're going to have a dip back to inflation, probably not 8%. But when that happens, they're going to have to come back and raise rates. So what they're trying to do is they're trying to keep rates higher, longer to make sure inflation doesn't come back. We're really in this back and forth of where are we going to go, where's the Fed going to take us? And if it tends to be five years of high rates, that's going to really impact the economy and eventually we will hit a recession. But I think the probability is showing very low probability of recession anytime soon because it's not playing out in the data. Some data is showing yes, some data is showing no. But when I start to see that, it means it just doesn't matter. It's not going to show up. Well, that's some good perspective, Kirk. CPI inflation peaked at.

Speaker 3 (00:42:36) - 9.1%.

Keith Weinhold (00:42:37) - A little over a year ago. It's at 3% now. But yeah, one place where I agree with you, Kirk, is, yeah, the Fed sure does not want to see that pop back up again.

Keith Weinhold (00:42:48) - And within the Fed's dual mandate of high employment and stable prices, it seems like they're prioritizing stable prices over keeping employment high, that's for sure. Well, yeah, there's been a great wide ranging chat.

Speaker 3 (00:43:01) - With interest.

Keith Weinhold (00:43:02) - Rates.

Speaker 3 (00:43:03) - Inflation stocks, real estate and producing income from both of them. Kirk If our audience wants to reach out to you or learn more about what you do, they're at Innovative Advisory Group. How can they do that?

Keith Weinhold (00:43:15) - Thanks, Keith. So yeah, the best way people can find me, I'm really easy to find. They can go to my podcast, Money Tree. Podcast. Com. We have two shows a week. One show we interview really intelligent investors like Keith, for example. We have the second episode is really more of a timely what's going on the markets this week, what's new, what's changed? Just so we can kind of keep people up to date with what's going on and if people are really looking to find out more about me and my services, you can go to Innovative Wealth and I've written all the blog posts there, but our company provides wealth management services for people, whether it's financial planning or portfolio management.

Keith Weinhold (00:43:52) - That's a lot of what we do. So like I said, I'm easy to find and I'm pretty easygoing guys. So if you're interested, you can find me there.

Speaker 3 (00:43:58) - Kirk Chisholm, Innovative Wealth. It's been great having you here. Thanks so much for coming on to the show.

Keith Weinhold (00:44:04) - Thanks for having me, Keith.

Speaker 3 (00:44:10) - Yeah. Well, Kirk Chisholm, he thinks that higher interest rates will linger longer. And he told us why. Now, Historically, it takes 3 to 5 quarters for interest rate hikes to hit the economy. Rate increases begin in March of 2022, but Americans are sitting on lots of cash. So many think that this recession that's perpetually just around the corner won't begin until at least next year. One benefit of a recession coming is that people will stop spreading undue concern.

Keith Weinhold (00:44:45) - About.

Speaker 3 (00:44:45) - A recession Coming Coming up here on the show, lots of great real estate investing strategy sessions forthcoming, not just big picture impacts like the direction of rents, home prices and interest rates, but also how to improve your operational efficiencies, like how to tamp down on higher property insurance premiums and more including what today's market for new build for plex's like investing in America's intermountain West and more.

Speaker 3 (00:45:14) - Until next week. I'm your host, Keith White. Don't quit your daydream.

Speaker 4 (00:45:21) - Nothing on this show should be considered specific, personal or professional advice. Please consult an appropriate tax, legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of Get Rich Education LLC exclusively.

Speaker 3 (00:45:50) - The preceding program was brought to you by your home for wealth building. Get rich education.

Direct download: GREepisode460_.mp3
Category:general -- posted at: 4:00am EDT

Mon, 24 July 2023

Watch the video of today's podcast intro here.

Are starter homes a thing of the past? Did the Fed just win? I provide commentary and perspective on both.

Hear clips from: Donald Trump, Jamie Dimon, and Jerome Powell.

Then, I answer four listener questions:

Should I make my first real estate investment a new development from raw land?

Does it make sense to sell some rental properties, pay off others, and make my life easier?

My returns are down because my property repair bills are higher than expected. What should I do?

Since the government has high debt, won’t they keep printing dollars?

If you have a listener question, ask it here: GetRichEducation.com/Contact

Timestamps:

The state of the real estate economy [00:00:01]

Home prices and housing supply [00:01:33]

Analysis of home prices reaching new highs, the decrease in new listings, and the impact on housing supply.

Mortgage rates and the future of interest rates [00:03:54]

Insights on the direction of mortgage rates, the unlikelihood of rates returning to the 3% range, and the opinions of Lawrence Yun, the chief economist at the NAR.

The Fed's Soft Landing [00:10:31]

Discussion on the Federal Reserve's efforts to control inflation and maintain economic stability.

Building Development as a First Investment [00:12:49]

Advice on whether it is a good idea for beginners to invest in land development and the challenges involved.

Acquiring More Property or Paying Down Debt [00:19:02]

Advice on whether to continue acquiring properties or pay off existing debt and downsize for a more enjoyable life.

The philosophy of debt [00:21:11]

Debt can be beneficial and indicate wealth, as seen in examples of successful individuals with high levels of debt.

Managing repair costs for rental properties [00:24:18]

Charging tenants for the first portion of repair bills can incentivize them to make minor repairs themselves and reduce long-term repair costs.

Inflation and government debt [00:30:12]

Inflation can debase government debt, reducing its value, similar to how it affects personal debt. The US government's ability to print money allows for easier repayment of debt.

The housing supply and marketplace [00:31:30]

Discussion on the historically low US housing supply and the importance of staying up to date with the inventory and other elements in the real estate market.

Resources mentioned:

Show Notes:

www.GetRichEducation.com/459

Get mortgage loans for investment property:

RidgeLendingGroup.com or call 855-74-RIDGE

or e-mail: info@RidgeLendingGroup.com

Find cash-flowing Jacksonville property at:

Invest with Freedom Family Investments. You get paid first: Text ‘FAMILY’ to 66866

Will you please leave a review for the show? I’d be grateful. Search “how to leave an Apple Podcasts review”

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458: How Scott Saunders Built a 64-Unit Portfolio of Single-Family Rentals

Complete episode transcript:

Speaker 1 (00:00:01) - Welcome to GRE. I'm your host, Keith Weinhold. First, I'll discuss the surprising state of the real estate economy. Then I answer your listener question Should I develop and build property myself? How do I keep my rental properties repair bill down? And two questions about real estate debt all today on Get Rich Education with real estate capital Jacksonville. Real estate has outperformed the stock market by 44% over the last 20 years. It's proven to be a more stable asset, especially during recessions. Their vertically integrated strategy has led to 79% more home price appreciation compared to the average Jacksonville investor since 2013. JTB is ready to help your money make money and to make it easy for everyday investors. Get started at JWB Real Estate.

Speaker 2 (00:01:01) - You're listening to the show that has created more financial freedom than nearly any show in the world. This is get rich education.

Speaker 1 (00:01:24) - Welcome to the area from Warsaw, Poland, to Warsaw, Indiana, and across 188 nations worldwide. And Keith Weinhold in your listening to Get Rich Education.

Speaker 1 (00:01:33) - Earlier this month, CNBC reported that home prices have hit new highs again, another up just slightly year over year, though the popular sentiment is that by now people have gotten used to paying 7% or even more than 7% mortgage rates and higher rates. That puts the squeeze on housing supply. I mean, gosh, within this era of already paltry supply, I mean, we're talking about direly few homes in some markets here. Nationally, new listings are down 25% from a year ago. All right. Now, that's all national stuff. But look now, just over half of the nation's 50 largest housing markets and they're mostly in the Midwest and Northeast. They have either returned to their prior price peaks or they have set new all time highs. Annual home prices are still weaker out west, but even some of the Western markets has slumped. They're now seeing month over month gains. Yes, we're talking about gains now even in San Jose, San Diego, Los Angeles, San Francisco and Seattle. Now, look, our starter homes, a thing of the past.

Speaker 1 (00:02:47) - Some now think so with these higher prices. Just listen to this from an NAR survey, 40% of millennials who bought homes last year, they plan to stay in them 16 years or more. And for Gen Z, that number jumps up to 48%. Now, who knows if they'll really stay in those homes at that long. But see, what's going on here is just affirmation that so many buyers don't plan to trade in their starter home for a move up home. They got their starter homes when rates were low, though starter homes are not coming onto the market, potential sellers have ghosted the market, making for fewer listings and those fewer listings. That's what's fueling the price growth. So yes, starter homes could largely be a thing of the past, but of course not completely. Now, just two weeks ago here on the show, Jim Rogers told us why long term, he thinks interest rates will go much higher and opinions can be all over the place. So I don't want to get too bogged down in that.

Speaker 1 (00:03:54) - But shorter term, one prominent commentator, he is now emphatic that mortgage rates have hit their top, like, for example, hit their top for perhaps this year and next year. Lawrence Yun, chief economist at the NAR on the direction of mortgage rates. He says, quote, This is the top. It will begin to move down. But you can also says if you're a US home buyer waiting for a return to super low mortgage rates, don't hold your breath. The short lived era of 3% interest rates for 30 year fixed mortgages, that is over, and they are unlikely to return anytime soon, perhaps for decades. He goes on to say that one can never truly predict the future but don't see mortgage rates returning back to the 3% range in the remainder of my lifetime. That is all of what Yun said. Okay. The remainder of Lawrence Hoon's lifetime, he looks pretty healthy and that might be 40 years, 40 plus years. Did we see rates that low again, according to him? Now, did you see this? We posted this in our Instagram stories as our curious article of the week last week.

Speaker 1 (00:05:07) - The Washington Post get a hold of this title. They published an article and it was titled The Housing Market Recession is Already Ending. My preeminent thought is the housing market recession is already ending. That's a curious headline. What housing market recession? I don't get it. And the subtitle doesn't help. It's subtitled Last year's downturn in the housing market didn't last even with higher interest rates. Now prices are stabilizing. Is supply chains have eased up. All right. Well, even with actually reading the complete article, I don't know what they mean by a housing market recession last year. I guess that national home prices stopped appreciating last year and they just stabilized. But I don't know how the heck you get a recession out of that. Maybe with low housing supply, there were fewer transactions and that was being considered a recession. Now, look, I'm going to posit something really unpopular here in today's climate, but I think that this is a question that you really need to ask yourself today, and that is, did Jerome Powell just win? I told you it was unpopular.

Speaker 1 (00:06:20) - He's not a very well liked. Person in a lot of circles. But with CPI inflation at 9% last year and 3% now. Yet throughout this spin, we had a few banks that broke but no recession. Is it possible that Jerome Powell has engineered a soft landing? I've got more on that in a moment. But the actual person of one, Donald, John Trump, made some quick remarks about the economy this month. Let's listen in.

Speaker 3 (00:06:52) - We've never had an economy like we had just three years ago. It was unbelievable. And frankly, this economy is not doing well. But the reason it's doing okay is it's running on the fumes of what we built. But those fumes are running out and they're running out fast. And it's not going to be a pretty picture.

Speaker 1 (00:07:11) - Yeah, I don't know about that. When we look at the broader US economy, let's get something more substantive. And speaking of people that aren't well liked, Jamie Dimon had some great perspective. I think you know that he's the billionaire business exec and the banker that's led JPMorgan Chase since 2005.

Speaker 1 (00:07:30) - To put it another way. This man runs the largest bank in America.

Speaker 4 (00:07:36) - It's the other way around. America has the best hand ever dealt of any country on this planet today ever. Okay. And Americans don't fully appreciate what I'm about to say. We have peaceful, wonderful neighbors in Canada and Mexico. We've got the biggest military barriers ever built called the Atlantic and the Pacific. We have all the food, water and energy we will ever need. Okay. We have the best military on the planet, and we will for as long as we have the best economy. And if you're a liberal, listen closely to me in that one, okay? Because the Chinese would love to have our economy. We have the best universities on the planet. There are great ones elsewhere. But these are the best. We still educate most most of the kids who start businesses around the world. We have a rule of law which is exceptional. If you don't believe me and we talk about Britain, Brazil, Russia, India, Venezuela, Argentina, China, India, believe me, it's not quite there.

Speaker 4 (00:08:29) - We have a magnificent work ethic. We have innovation from the core of our bones. You can ask anyone in this room what you can do to be more productive. Ask your assistants, factory floors, redo it. It's not just the Steve Jobs. It's this broad death with the wires and deepest financial markets the world's ever seen. Okay. And if you. I just made a list of these things and maybe I miss something. It's extraordinary. It's extraordinary. And we have it today. Yes, we have problems. But, you know, when I hear people down, if you travel around the world, I mean, get an airplane, travel around the world and go to all these other countries and tell me what you think.

Speaker 1 (00:09:02) - Yeah, Jamie Dimon really bringing up a lot of those geographic advantages like Peterson and I discuss in depth here Diamond's remarks. They're not new remarks. Those weren't recent ones. And by the way, I don't really care for him calling out liberals, just like labeling people conservatives.

Speaker 1 (00:09:20) - That's counterproductive. I like the quality of ideas as soon as we start labeling things left or right, that quickly becomes more divisive than it does unifying. Don't do left right politics. I do. Up, down, up is integrity. The quality of your ideas concepts means for getting things done and track record. That's what matters. But anyway, coming off Jamie Dimon waxing poetic with American optimism and exceptionalism. Yeah, it is time to ask if the Fed is winning. And first, let's understand something fundamental The fact that high inflation occurred for two years that is irreparable. Let's not overlook that. I mean, you're Trader Joe's grocery store prices. They're not coming back down even if the rate of inflation has slowed. I mean, that is a big fat L, That is a loss. It came from printing all those dollars to paper over the pandemic, which created the high inflation with everything from the paycheck protection program to Stemi checks to the Cares Act. And yes, the executive branch created some of that too.

Speaker 1 (00:10:31) - But my point is, make the irresponsible people that don't have any savings feel some pain once in a while. If you just make money fall from the sky every time there's a crisis, then people are going to learn to not have any reserves or any cash flowing investments during the next crisis. Yes, supply chain constraints are part of the problem too. But since you tried to paper over the pain, see then creating that inflation that results, that makes everyone feel the pain that's middle class or below. All right. But after that understanding, is Jerome Powell now winning by landing the inflation softly without crashing the economy and keeping GDP rising a little in keeping unemployment low in see even the producers price index that's forward looking that measures this change. In selling prices of goods and services producers. That's falling out, right? That leading indicator for consumer price inflation. And that's why inflation expectations are finally dropping. And that doesn't mean that I like the Fed or the system at all. But by now you've at least got to begin to wonder if the Fed can get their soft landing.

Speaker 1 (00:11:47) - They've dropped down from 30,000 foot cruising altitude. There's no turbulence, and they're below, call it, 10,000ft. Now, for the first time in two years, wages are finally rising faster than prices.

Speaker 4 (00:12:01) - We at the Fed remain squarely focused on.

Speaker 1 (00:12:04) - Our dual mandate.

Speaker 4 (00:12:05) - To promote.

Speaker 1 (00:12:05) - Maximum employment and stable.

Speaker 4 (00:12:06) - Prices for the American people.

Speaker 1 (00:12:08) - Yes, sir. That is your job after all. Well, I want to turn to your listener questions here for the remainder of the show. And if you've got a question for me, you can always reach out at Get Rich education, slash contact. The first question comes from Tina in Monroe, Louisiana. She says, Keith, I love your show. Just started listening last month. Tina asks Keith, I have the idea of buying land and I want to know if this is a good idea to build new rentals on. Like for Plex's, I've already formed an LLC and hope to open a business line of credit, but this would be my first ever real estate investment.

Speaker 1 (00:12:49) - Okay, Tina, thanks for finding the show here. Welcome in. I expect that you'll have years of profitable listening ahead to start a new development from digging raw dirt all the way through to procuring your certificates of occupancy and have that be your very first investment for almost anyone. I have got to say no because there is just so much to development. Development is going to rely on your experience and your ability to build a team. You're going to need general contractors and subcontractors and vendors, suppliers and experience dealing with regulators and a municipality and bankers and perhaps investors. And legal development is risky for beginners. You're purchasing something that doesn't yet exist. You've got to be sure that you're buying the right land in the right place. And that means studying everything from geotechnical reports and Perc tests to understanding the demographics, whether you plan to buy that land there in Monroe, Louisiana, or wherever else it is, and then your exit strategy. And while it might not actually be to exit, but it's going to be either to sell your completed development or for you to hold it for rental income, you have really got to know what you're doing.

Speaker 1 (00:14:13) - I am not a developer, but I talked to a lot of them, especially build to rent developers. Now, the reason that I say that the answer is no for development as your first real estate investment for almost anyone. Well, I say almost because if you have a remarkable mentor, someone that's going to go out in the field with you almost every day, then it's a possibility. And even then that mentor should have a proven track record. You need approvals and subdivision and plans drawn and bringing in drainage and utilities and entitlement mean instead of all that for a beginner and really even for most veteran investors, it is substantially easier to buy something that's already built, that has a history of rental occupancy and income. And then the team that you have to build a so much smaller with that primary long term team member as your property manager. But thank you for the question, Tina, because I think a lot of real estate investors wonder about building themselves from raw land. And it seems that even more investors right in here wondering about, you know, just building one individual single family rental home or duplex or fourplex.

Speaker 1 (00:15:25) - And even then, if it's successfully done, it usually takes longer than you think. And then once you're done, the property is vacant and you need to find tenants. So it might be a few more months before it even cash flows. So buy property that's already built, learn investing that way. And what you've done is you've outsourced all of the development unknowns to someone else and they bring you the known and completed development project that is better for more than 99% of people. And then look into being a developer yourself when you've got sufficient experience. If that remains interesting to you, a great mentor with a proven track record or both, if you'd like to ask a question and potentially have me answer it on air here again, go ahead and reach out through get ratification smash contact because that's where you can either leave a voice message or a written one. I am just. Getting started with listener questions. I'm back with more of them. Straight ahead. I'm Keith Reinhold in You're listening to episode 459 of Get Rich Education.

Speaker 1 (00:16:30) - If you want some really passive income, listen to this. You know, I'll just tell you, for the most passive part of my real estate investing personally, I put my own dollars with freedom family investments because their funds pay me a stream of regular cash flow in. Returns are better than a bank savings account up to 12%. Their minimums are as low as 25. K. You don't even need to be accredited. For some of them. It's all backed by real estate and I kind of love how the tax benefit of doing this can offset capital gains in your W-2, jobs, income. And they've always given me exactly their stated return paid on time. So it's steady income, no surprises while I'm sleeping or just doing the things I love. For a little insider tip, I've invested in their power fund to get going on that text family to 668660, and this isn't a solicitation If you want to invest where I do, just go ahead and text family to six six, 866. Jerry listeners can't stop talking about their service from Ridge Lending Group and MLS 42056.

Speaker 1 (00:17:43) - They've provided our tribe with more loans than anyone. They're truly a top lender for beginners and veterans. It's where I go to get my own loans for single family rental property up to four Plex's. So start your pre-qualification and you can chat with President Charlie Ridge personally, though, even deliver your custom plan for growing your real estate portfolio. Start at Ridge Lending Group.

Speaker 5 (00:18:12) - This is Jerry Operations lead Andrea Newburn. Listen to Get Rich Education with Keith Reinhold and don't put your daydream.

Speaker 1 (00:18:29) - You're listening to the show. It's created more financial freedom for busy people just like you than nearly any show in the world. This is guitarist Education. I'm your host, Keith Reinhold. The next question comes from Adam. He is a real estate agent in Seattle. And Adam asks this. Hi, Keith. I've been an avid listener and follower of yours for years now. Like you, the Little Purple Book changed my life early on and I was able to semi retire at age 35. The book that he's talking about, by the way, is that Poor Dad, I am 42 now and back working as a realtor because I love it.

Speaker 1 (00:19:02) - And then after he wrote I Love It in parentheses, he put well, sorta. So I don't know that he loves it too much and I am at a crossroad in my life. Do I keep acquiring more property and more debt or do I start paying down the properties I do have? I have seven properties now and with a mindset of less is more as I want to enjoy my life a bit more and I'm honestly getting tired of managing my three in state properties. Therefore I've been thinking about selling one to pay off the loan of two other properties and really start to downsize and truly be debt free. Life is too short and I want to enjoy the rest of my life. Do you have any advice or opinions for me? Thank you in advance. Okay. Adam. Well, since you've listened for years, you probably already understand that I don't pay off any of my properties, though I could. I don't want to. I'd lose leverage in all that. You probably understand that I don't self manage.

Speaker 1 (00:20:01) - You said that you self-manage three of your seven properties there in Washington state. So since you probably already understand all that, yes, I would acquire more property, more debt and outsource the property management. That way you can enjoy life if the property is in your home state, don't have high rents in proportion to their values. In a lot of places around Seattle, they don't have a high ratio there. Well then it's probably worth 1030 running into out of state property. Or if you really like those Washington properties, then find a property manager there in state and to find a suitable 1031 exchange facilitator with a proven track record, check the resources tab at GRI marketplace.com. That same website will help you find out-of-state properties if you like. You can also contact our coaches to help walk you through that at marketplace.com/coach. That is a free coaching service by the way. Now as far as keeping the instate Washington properties, if you decide that you do want to do that, the bigger Pockets forums can help you vet a qualified property manager there.

Speaker 1 (00:21:11) - Now, Adam, you did say something about the possibility of downsizing and becoming truly debt free, as you put it. But my question is, what's the problem with debt if someone else reliably pays it all for you? Of course your tenant pays a principal and interest and hopefully a little on top of that called cash flow. All right. In that case, all of that debt is outsourced. Now, let me get a little philosophical for a minute. I don't know the name of the person that's the biggest debtor in the entire world. But you know what? He is probably really wealthy or she all circle back to why in a second. Here's a fun way to understand this. The quarterback threw the most interceptions of all time. Oh, you must think that guy is a total loser. Well, you know what? The quarterback that's thrown the most interceptions all time by far is in fact, a Hall of Famer Brett Farve. Oh, well, how can that be? Well, it's because he got so many chances to play.

Speaker 1 (00:22:17) - He must have been a pretty good quarterback for the coach to put him on the field. Then often year after year, the baseball pitcher that lost the most ever games for his team all time, he is named Cy Young. Well, Cy Young also won the most games all time in Major League Baseball. He was one of the very first inductees into the Hall of Fame. And there's even an award given each year. Still, the most outstanding Major League Baseball player called the Cy Young Award. Yet he lost the most games and say, did you meet a guy on the street there where you live and you learn that he has $20 million in debt? I don't even need to know anything else right there. That tells me that he's probably a financial winner to have that much debt because, see, he would need to be highly credit worthy to even get all that debt in the first place. See, you're only looking at the $20 million debt side of his balance sheet. His asset side might be $50 million.

Speaker 1 (00:23:16) - Hey, that's a $30 million net worth. Even with high inflation, $30 million is fairly wealthy today and mad as Mark Zuckerberg is one of the wealthiest people in the world, he has a net worth. North of $100 billion. And the Zuckerbergs, they took a loan for their home even though they could pay cash for it many times over. And yet when Zuckerberg and his wife bought their home, they took out a loan for the leverage and the arbitrage. The wealthiest people in the world have the most debt AI model that you can model that I personally look to increase my debt as time goes on. And then simultaneously, I expect the asset side to increase faster than the debt side. The asset side increases faster because I've got the debt, hence the leverage. So this is why I have an aversion to being debt free. I hope there's both some helpful resources and a philosophical component for you to chew on there as well. Adam The next listener question comes from Heiko in Utica, New York. Sorry if I mispronounce your name.

Speaker 1 (00:24:18) - It's spelled at Jaakko. Maybe it's Jocko, but I'm going to go with Jocko. He asks. I've held my first ever purchase of a rental single family home for a little over a year. It's located in Holladay, Florida, though my property was projected to provide a cash on cash return of 6%, it only produced 3% because repairs cost more than expected On this 1978 built property. I use a local property manager that's been pretty communicative. I always anticipate reading my monthly email statement from him, just wondering how to manage costs over time. Signed Jocko. Okay. Jocko And by the way, I own rental single family homes myself, just about five miles from Holladay, Florida. And these areas are just north of Tampa. Well, Co only getting 3% rather than a projected 6%. It's actually not a terrible miss. Now, it would be if that were your only revenue source or your only return from an investment. But of course, this 3% cash on cash return is one of your five profit sources from income property.

Speaker 1 (00:25:28) - But suffice to say, one great long term strategy to keep myriad repair costs down over time. And it's something that Ken McElroy told me about, and that is charge the tenant for the first $50 in repairs or maybe charge the tenant for the first $100 of repairs. That way they're going to think twice before bugging you or bugging your manager. Now, this can have the desired effect of keeping your long term repair bill down in a few different ways, but yet ensure that you're still serving the tenant. All right. First of all, the first 50 or $100 a repair bill, it's really not that burdensome to most tenants, but yet they will think twice before calling you or it's calling your manager, in this case, Jocko, before calling about something ticky tacky and minor like the kitchen cabinet doors got a little loose on their hinges again. Now you want to provide clean, safe, affordable, functional housing. That is a core concept in mission here. At first, this might incentivize the tenant to make a 10 or 15 minute repair themselves so that you never even hear from them.

Speaker 1 (00:26:43) - And that also prevents, say, a $75 service call from being made in the first place. Now, if it's a repair that's beyond the tenants expertise or expectations to take care of themselves, say it's something like a kitchen faucet that just leaks a little, well, okay, you want to see that that's taken care of for them. But if they have to pay the first small portion of repairs themselves, then that incentivizes the tenant to report a number of small things in one batch. All right. Well, now, that makes it more efficient for you or for your property managers handyman. That makes for fewer service calls, fewer runs to Home Depot and a real reduction in your repair cost. See? Hello. The work from home movement. That's being good for us as residential real estate investors. But there is one downside to that. A few more tenants spend all day at home and there are more components that can wear out sooner. Or there's this more time that tenants spend at home to notice little things that are amiss.

Speaker 1 (00:27:47) - So that's why the time in the real estate market is right to charge the first portion of repair bills to the tenant. That's why this makes sense now. Now, there are a couple caveats around this. Hello. When the tenant first moves in, I'll go ahead and give them a week to bring you any findings and then those things should be taken care of without charging the tenant anything at all. Right? I mean, the tenant shouldn't have to inherit any problems. And the other caveat is that your tenant has to be communicative about items in disrepair that could create long term damage, like a leaky drain, because you don't want that to ruin your subfloor over. Time. So the short answer on how to lower your long term repair bills, especially in a work from home world, is to have it in the lease that the tenant pays for, say, the first $50 to $100 of repairs. Also, you may have heard it just ten episodes ago on episode 449, I discussed 12 ways that you can raise the red in add value to your property.

Speaker 1 (00:28:52) - There's a good bit of related content there to help you keep profitable and get your cash on cash return up. Now, plenty of properties. In fact, probably most properties have exceeded their return projections over the last three years, and that is primarily due to rapid appreciation. But see, you don't get the lessons from the winds, you get the lessons from the underperformers. And that's why I wanted to answer your question for everyone's benefit today. Taco Tacos question was microeconomics. Let's flip it to macroeconomics with this. Next question from Dave in Atlanta, Georgia. Davis This one a while ago. First, here's the remarkable part on the listener question form in the how did you hear about a section, Dave? You simply wrote, I've been listening to you from the very beginning. Gosh, Dave, this is so supremely appreciated. I know we've got a lot of great devotees and I'm incredibly grateful for it. Dave asks With the US government, 30 trillion in debt and there's some rounding there and if inflation is say 10% over a few years, doesn't inflation debase the government's debt just like it does ours, taking it from 30 trillion down to $27 trillion in this case? Yeah, that stays.

Speaker 1 (00:30:12) - Question That's right, Dave. You've 100% got it. I've talked about this in some prior episodes. Since we get to borrow our mortgage loans in the currency that's denominated in the units of the biggest detonation in the history of the world, the dollar in the USA, then they want to print Dave, just like you. If you had $1 million in debt but you couldn't pay it back right now and you had the ability to print dollars ad infinitum, then sure, the easiest way for you to pay back your debt is to print your own dollars, just like America is doing. And that is just another benefit of you keeping high debt on your properties. In fact, the true definition of inflation is an expansion of the money supply. It's not the result, which is a decline in purchasing power. Technically, if the same Chipotle burrito costs $10 last year at $11 this year, that's not inflation. That's the result of inflation. So the USA wants inflation for this reason and other reasons. I've said it before, the surest been investing is that the dollar is going to continue to decline in purchasing power and that's exactly why we are debtors rather than savers.

Speaker 1 (00:31:30) - Take the sure thing. Thanks for the listenership and thanks for the question, Dave. That's all for listener questions. I encourage you to help yourself out. No one's looking out for you more than you amiss. Historically low US housing supply. Gerri Marketplace is where the inventory actually is, and it's the right inventory. The properties that make the best rentals. Real estate pays five ways style. And the selection changes, of course, based on inventory and other elements. So stay up to date. And if you haven't lately, go ahead and log in. There are free coaching service is becoming popular as well in why not it's like your own concierge personal one on one if you want that it is all there for you at gray marketplace.com. I'll be here with you to run it back next week. I'm your host Keith Wayne a little bit. Don't quit your day dream.

Speaker 6 (00:32:35) - Nothing on this show should be considered specific, personal or professional advice. Please consult an appropriate tax, legal, real estate, financial or business professional for individualized advice.

Speaker 6 (00:32:45) - Opinions of guests are their own information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of Get Rich Education LLC exclusively.

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Direct download: GREepisode459_.mp3
Category:general -- posted at: 4:00am EDT

Mon, 17 July 2023

Get our newsletter free here or text “GRE” to 66866.

In this podcast episode, host Keith Weinhold introduces Scott Saunders, a successful real estate investor who shares his insights and experiences in building a portfolio of 64 single-family rental properties.

They discuss the advantages of investing in cash-flowing rental properties, the importance of focusing on cash flow in the early stages, and the benefits of single-family rentals compared to multifamily properties.

Scott also discusses his analysis of different markets for real estate investment and his approach to financing and leveraging his investments.

They emphasize the importance of seeking professional advice and using resources like GREmarketplace.com for wealth building.

Timestamps:

The advantages of single family rentals [00:06:22]

Scott discusses the advantages of investing in single family rentals, including better cap rates, long-term fixed-rate financing, and the inherent demand for single family homes.

Greater liquidity with single family rentals [00:08:31]

Scott and Keith talk about the liquidity component of single family rentals, highlighting that even in a recession, people will still need a place to live and therefore be buyers of single family homes.

Longer tenancy duration in single family rentals [00:09:34]

The discussion focuses on how tenants tend to stay longer in single family homes and duplexes compared to larger apartment buildings, often due to factors such as larger square footage and the desire to be in a specific school district.

The importance of cash flow at the beginning [00:11:34]

Starting with cash flow-centric properties and gradually moving towards appreciation as the portfolio grows.

Scaling up the portfolio with short-term targets [00:14:55]

Setting 90-day targets to buy a specific number of properties, leading to significant progress in a year.

Factors in selecting the next market to buy in [00:18:24]

Considerations include having a communicative property manager and existing opportunities in a market rather than solely focusing on a good deal.

The importance of relationships in real estate investing [00:19:18]

Scott discusses the significance of having a good relationship with property managers and asset providers in different markets.

Factors to consider when choosing a real estate market [00:20:18]

Scott talks about the importance of factors such as job growth, a diversified economy, and an influx of people when selecting a market to invest in.

Using inflation as a tailwind in real estate investing [00:23:54]

Scott explains how he leverages inflation to his advantage by locking in assets today and using inflation to propel his investing forward.

The importance of 30-year fixed rate financing [00:28:12]

Scott discusses the benefits of locking in a 30-year fixed rate for financing and shares his experience during the COVID-19 pandemic.

Using paid-off assets as collateral for future financing [00:29:11]

Scott explains his strategy of paying off some properties to use them as collateral for obtaining loans for future investments.

Managing properties and involving family in real estate business [00:31:19]

Scott talks about using Excel to track his rental income and involving his daughter in managing the financials of his real estate business.

The goal of acquiring lifestyle assets [00:36:34]

Scott Saunders discusses his long-term goal of purchasing properties in Tuscany, Italy, Steamboat Springs, Colorado, and other locations for both enjoyment and return on investment.

The importance of return on attention [00:38:01]

Scott explains the concept of return on attention, which focuses on having the freedom to enjoy life without being constantly distracted by financial concerns.

The impact of purchasing single-family rentals [00:40:07]

Scott emphasizes the benefits of purchasing 5 to 10 single-family rental properties, which can provide economic freedom and significantly improve one's financial situation.

The disclaimer [00:46:07]

The speaker provides a disclaimer stating that the show does not provide specific advice and encourages listeners to seek professional advice.

Introduction [00:46:35]

The speaker introduces the show and mentions the website getricheducation.com as the home for wealth building.

Resources mentioned:

Show Notes:

www.GetRichEducation.com/458

Scott Saunders’ resources:

ScottRSaunders.com

Get mortgage loans for investment property:

RidgeLendingGroup.com or call 855-74-RIDGE

or e-mail: info@RidgeLendingGroup.com

Find cash-flowing Jacksonville property at:

Invest with Freedom Family Investments. You get paid first: Text ‘FAMILY’ to 66866

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457: Interest Rates Will Go Much Higher, According to Experts with Jim Rogers

Complete episode transcript:

Speaker 1 (00:00:00) - Welcome to. I'm your host, Keith Weinhold. A follower has built a multi-state portfolio of 64 single family rental properties. He'll tell us how he's doing it, how he finances them all, his management technique and his guiding success principles today on Get Rich education. With real estate capital Jacksonville. Real estate has outperformed the stock market by 44% over the last 20 years. It's proven to be a more stable asset, especially during recessions. Their vertically integrated strategy has led to 79% more home price appreciation compared to the average Jacksonville investor since 2013. GWB is ready to help your money make money and to make it easy for everyday investors. Get started at GWB Real estate agree that's GWB real estate.com slash.

Speaker 2 (00:01:00) - You're listening to the show that has created more financial freedom than nearly any show in the world. This is Get rich education.

Speaker 1 (00:01:23) - Hey, welcome to GRE. From the tropical currents in the Gulf of Mexico to the icy waters of Hudson Bay across the Americas in 188 world nations, this is get rich education where we just reach the 5 million listener download.

Speaker 1 (00:01:37) - Mark, I am grateful to you for that. I'm your host, Keith Weinhold. Hey, a little context before we chat with our listener guests about the architecture of how he's building this robust 64 single family homes portfolio in growing across nine US states Once in a while. I like to drop things back for just a minute in case perhaps you're new here and you wonder how do people buy so many rental homes like adding ten every year? How am I supposed to do that? Well, of course, your speed of growth is going to be predicated on your income and some other things. But the best long term single-family rental homes, they're not 500 homes. They tend to be more like 200,000 homes in areas that are not upscale but yet safe, where you use a 20 to 25% down payment. And if you're new here and you have an aversion to debt, you know, I think that the simplest, most reassuring thing that I can tell a newcomer about real estate debt in just one sentence is that in a cash flowing rental, the tenant pays all of the debt for you, the principal, the interest, no matter what the interest rate is, all the operating expenses.

Speaker 1 (00:02:51) - And then a little on top of that called cash flow. Now, really, when you add the first few income properties to your life and you think about protecting your time, think about how that is a surrogate, a substitute to adding a part time job that can be a rather circuitous way of going about life, because what you really want is the income, not the job or not the lost time. So therefore add properties, not jobs. Most people think of financial improvement is cutting expenses. It is not. It is adding income. Then those the triadic income, many times they look to add a part time job. But I brazenly posit that income producing property is the way. And what do they call Ryan Seacrest the hardest working guy in show business? I guess if you wanted to, you could have as many part time jobs as Ryan Seacrest. Prepare yourself for drama on this stage.

Speaker 2 (00:03:54) - This is American Idol.

Speaker 1 (00:04:00) - Yeah, Ryan Seacrest. He will also become the Wheel of Fortune host starting next year along with the daytime talk show and being a producer and whatever else he does.

Speaker 1 (00:04:10) - I'm not really up on the latest. But yes, you want to have fewer jobs than Ryan Seacrest now speaking to your ROI, your return on time invested. You could get 64 single family rental homes like our guest today, and yet do it the wrong way. The wrong way might be say you live in a certain metro area and you buy all the properties just in your home metro so that the properties are spread, say one hour apart. That way you rationalize that you could self-manage, well, gosh, you'd be running all over the place. You'd have scores of tenants that could tax you. You'd almost be living at Home Depot, and after all that, you would still not be diversified because you'd only be in one metro market. Plus, how would you really ever get away on, say, a vacation? So that's probably not what you'd want either. Let's talk to our listener guest Scott, today and learn about how he does it. Here with me today is a great listener. Don't quit your day dream letter reader to discuss growing his Single-family rental portfolio.

Speaker 1 (00:05:22) - He's based in Colorado and he specializes in real estate in tax law. In fact, he often teaches real estate law to attorneys. He's a single family real estate investor that owns 64 single family rentals and four duplexes. So therefore, he owns 72 doors, 64 of which are single family rentals. And he owns those properties across nine different states Tennessee, Florida, Indiana, Missouri, Ohio, New Mexico, Colorado, Kansas and Arkansas. Higher mortgage rates aren't slowing him down as he's added six of those single family rentals this year. He's also a member of a Washington, D.C. based public policy organization that represents real estate interests. So he's really involved. He advocates for investor friendly tax policies with Congress. He's got a lot going on in his life. Hey, it's great to welcome on to Scott Saunders. Hey, Keith, Great to be with you. I'm a longtime follower and you have so many great nuggets of wisdom that you share, and it's just great. To visit with you for a few minutes.

Speaker 1 (00:06:22) - So thanks a lot. I appreciate that so much, Scott. Now, in the real estate world, there are pros and cons between single family rentals and larger apartments. Apartments have a certain economies of scale advantage, but single family rentals have advantages that some people overlook. So talk to us about why you like single family rentals so much. Happy to do that. I think single family rentals are, first of all, a great entryway to get into investment real estate. But some people kind of springboard. They get into single family and then they want to go into duplexes, four Plex apartments, Single family is an asset class. You know, if you just look at it, it has so many advantages. The cap rate on a single family is typically better than a lot of commercial buildings right now. You can lock in long term fixed rate financing. So even if the rate's a tad higher, you go into an apartment building or commercial, you've got to refinance. And as we all know right now in the marketplace, there are some commercial properties that are facing some significant distress because they're having to refinance at higher rates.

Speaker 1 (00:07:29) - Single family, you lock it in for 30 years and fix that. You've got buyer.

Speaker 3 (00:07:34) - Pool. I can sell a single family to an investor or a homeowner. So there just are a lot of advantages and maybe even just at the most basic level, we all need to live somewhere, right? And so a choice of an apartment or a single family. So many people like the freedom, the room, the convenience, the yard, the garage that comes with a single family. So I just think there's a lot of inherent demand where people want to be in that type of property, either as a renter or a homeowner. So I'm a big fan of buying a single family home, buy another one, you know, and just continue scaling in that niche. I call it Get Rich in a niche, right? And that's the single family rental niche.

Speaker 1 (00:08:16) - Sure. I had some apartment buildings that I sold recently that had balloon loans that were about to expire. And you mentioned the liquidity component where you have greater liquidity with single family rentals regardless of when it is in the cycle.

Speaker 1 (00:08:31) - Even if it were a recession, borderline depression, people will be a buyer because they need a place to live. But a person doesn't always need to invest in an apartment building regardless of where we're at in the economic cycle.

Speaker 3 (00:08:45) - Absolutely. Well, smart timing on your part to kind of see where those loans are going. And I think that there's a good time to maybe redeploy that capital somewhere else. So I like single family, and I think you can really grow and scale a portfolio. I mean, think of it this way, Keith. What if I needed to raise some cash? What if I had a medical need? I could unload a single family home or two right away. Now, I know from listening to your teaching, you'd say, don't sell it, refinance it. Right, harvest that equity. And that would be my first bet. But if I needed to generate cash, it's not that hard to unload some smaller single family rentals. And within a matter of a few months I could liquidate that and get the cash.

Speaker 3 (00:09:26) - Some apartment buildings, you know, in some markets it could take a long time to find the right buyer in some places.

Speaker 1 (00:09:34) - Now, during that whole time on a single family rental, you mentioned the cap rates. Oftentimes single family rentals are more profitable than what an investor projects. And one reason is that greater tenancy duration tenants tend to stay in single family homes and duplexes longer than they do a larger apartment building. Oftentimes it's because it feels like their own single family homes just tend to have more square footage, which lends to having larger families. We have a larger family. It just tends toward people wanting to stay longer and not uproot, and they get invested in things like buying to be in a certain school district, for example, where more single family homes tend to be than apartment buildings.

Speaker 3 (00:10:18) - Absolutely. You know, you bring that up. My very first investment years ago was a fourplex, kind of a C class neighborhood. And when I bought it, I naively write. I look back at it now, I thought, well, if this is fully occupied, look at what the money will make.

Speaker 3 (00:10:33) - The reality was there was a lot of turnover at that particular area. People came and went. It wasn't the top of the line. It wasn't a top tier neighborhood. And so I found that I was always chasing people and it was never in my case, fully occupied. And that tenant turn, that's expensive, as you well know. When you turn tenants, you have lost rent. You got to fix it up. So a single family home. I've had properties that my longest one I had attended stay in one for 15 years. I don't think you're going to find that in a multifamily property.

Speaker 1 (00:11:06) - Yeah, that really is rather unlikely. I know in that first fourplex you bought, you tended to do some things where later you learned that those were mistakes, like doing some excessive landscaping and spending a lot on fencing and. For a nice driveway so that you get a better quality tenant. But sometimes you learn you can only attract a certain quality tenant based on the neighborhood that you're already in. That's why oftentimes it's better to buy a lesser property in a better neighborhood.

Speaker 1 (00:11:34) - For example. Looking back and we'll get into your journey in a bit about how you've added all these properties, but one takeaway that you've had is that it's better to focus on cash flow at the beginning, more so that appreciation. So therefore getting a Class B or C property, which you probably don't want to stoop too low, or you also might have a bad experience at the beginning. So talk to us about the importance of for many people think they want to start with cash flow centric properties at the beginning and then maybe new build appreciation ones later.

Speaker 3 (00:12:03) - I agree. I think when you go into an asset that produces a cash flow, it kind of gives you the fuel to start growing, right? You get some positive reinforcement, but it also gives you the capital to go out and buy more assets. So I think that. BK and maybe call it B to C plus starting there, you know, getting 250 to 300 an asset in cash flow, you get one of those, you get three, you're talking about $1,000, you've got six.

Speaker 3 (00:12:29) - Now you're 2000. And at that point, when you get to maybe 6 to 10 properties, the cash flow is now helping to contribute your down payment to go out and buy another asset. So I personally think you kind of start with that maybe as your gateway for your first 5 or 10, get some momentum and then maybe later. So we all know an A-class property in a great neighborhood with great schools. It might appreciate better long term. And so I lean towards building the cash flow on the front end and then moving over into more appreciation as the portfolio grows. So there are merits on both sides. There's not a right or wrong way to do it, but that I think gets your average investor with some momentum. You know, you want to create momentum, you want to start buying assets. And so the cash flow allows you to buy assets faster than waiting for appreciation to kind of carry you up. That rising tide lifts all boats saying that'll happen over time, but get the momentum with the cash flow to help augment and help you buy more assets quickly.

Speaker 3 (00:13:33) - I tend to lean towards that approach. Again, no right or wrong, Keith, I'll tell you, I've done it wrong. I started out buying some A-class, about five new homes, and now those have produced good appreciation, but I didn't have much cash flow off them, so I had a little modest cash flow. I do things differently looking back, but I'm still moving forward. Real estate corrects, right? It's like a bad haircut and not that I would really know, but you can get a bad haircut and give it a 4 or 6 weeks and it'll grow out in a way you go and it covers over any mistakes that Barber made.

Speaker 1 (00:14:07) - Yeah, real estate's very forgiving over the long term. I kind of think of real estate as a game of attrition as long as you buy, right? Even if there is a bit of a mistake or a stumble, when you have five simultaneous ways that you're paid, you're going to feel that sooner than later. Scott You've really done a great job of scaling up your portfolio.

Speaker 1 (00:14:30) - Last I checked, you were in nine different markets. I mentioned the nine states that you were in earlier and you have 18 different property managers now. Can you talk to us more about how you scaled that? You talk to us about how it might be best to get that snowball rolling sooner with cash flow, but how do you scale up and ramp up to where you're at today with 72 doors, 64 of them single family rentals?

Speaker 3 (00:14:55) - Oh, what I'll do, Keith, I'll share what I did to kind of get there. And I want to be candid with you and listeners of that. I probably made a mistake doing that. I don't think everybody has to be in that many markets, that many managers. So what I did, quite frankly, it sounds so simple. I said a 90 day target. So I would say I'm going to buy X number of properties. That was a do or die goal. It wasn't an annual goal. If I wanted to buy three in that 90 day period, I would make sure no matter what, I bought three assets.

Speaker 3 (00:15:26) - So what happened was I maybe bought in different states to get the job done. I had to buy quickly, right? I was focused on adding my numbers. So for me, having that short term target that I looked at every day in the morning and the night that gave me the focus. So I wasn't looking over three years. I was like, What do I need to do in the next three months? And I really applied everything to doing that. And so you figure if you do a three month period, you pick up three, but you do that every quarter, that's 12 new assets in a year. That's big progress in just annual time frame. So that's what I did. 90 day targets were the game changer for me. Now, you shared kind of the downside of that and that I'm probably over diversified, I would say probably in my level being in three, four states, half the states and maybe two thirds less property managers would be more. Just from a relationship standpoint. So that was a mistake.

Speaker 3 (00:16:25) - And, you know, I can correct for it Over time. I'll probably do 1030 ones out of some of the states and consolidate in areas that I like. But that was how I did it is I just identified a lot of Midwest type markets that are good cash flow markets. And when I saw an opportunity, I grabbed it a few of them. Keith I buy one and then the next door, somebody was doing a renovation next door. And there are a few streets, right? Three houses right next to one another as a result of that. So that's kind of been interesting. And then I also find is word got out that I was buying. I had people approach me and say, Look, I've got a package of properties. Would you like the whole package or part of the package? And so that helped me a little bit. So instead of doing one loan on three different properties three times, I do one larger loan purchase, three properties at once. And so it gave me a little bit of efficiency.

Speaker 3 (00:17:19) - Now that didn't happen on all of them, but over time I've been doing more of that. My last one this year I bought four assets in Tennessee from one seller as a package deal, and that makes it a little bit easier.

Speaker 1 (00:17:32) - Yeah, I want to get into that financing piece shortly, but I think the important thing is you acted, you jumped in and once you do that, more opportunities begin to present themselves. And not everyone does everything the right way. If you've got 18 property managers you're dealing with, which would be a lot. I mean, if you get one monthly email statement from property manager that's getting one a little bit more than every other day, if one would happen to do it that way. I've often talked about how three, 4 or 5 markets to be in that number probably is a good number where you have adequate diversification, yet it hasn't overcomplicated your life administratively at the same time. But with that in mind, Scott, as you're growing your portfolio, what makes you decide what market to buy in next? Oftentimes it's not the sort of thing that you think it will be, just like you had an opportunity to present itself.

Speaker 1 (00:18:24) - For example, if you buy in a market and you find that you have a really communicative property manager that you really like in that market, you might buy in that market where you know you've already got a good manager, for example, rather than just what appears to be a good deal on the surface. So what are some of the factors that go into what make you decide which market to select next?

Speaker 3 (00:18:43) - Scott I've done a lot of analysis and there are a lot of good markets. You know, one thing, there's no perfect market. You and I probably know 20, 30, 40 good markets where people can make money that have good growing economies, populations growing. There's pressure on rents and appreciation. So I've identified some that I like. Would you just alluded to is really one of the factors now, which is more of a relationship, right? I've consolidated over, so I have a good property manager in Memphis, Tennessee. I've got a great working relationship with them and then also a provider of assets.

Speaker 3 (00:19:18) - And so for me, I'm finding having that relationship makes things a little smoother. There's a trust factor when you manage remotely. I haven't seen most of my assets and I do very little in my own home state. So for me, it's really important that I can trust who I'm working with out of state. And so I find having that relationship makes me more likely to purchase more properties in that particular market because I've got that. So Saint Louis, Missouri is one market. Memphis, Tennessee is another. Those are some markets that I like. Now, some of them have great fundamentals. You know, Memphis, number one airport in the entire country, you've got a waterway, you've got a lot of highways that converge there. You've got a lot of industrial Nike's there, Amazon. So there are, you know, kind of a multitude of factors. You know, right now in Memphis, you've got the blue oval development, which is the Ford. They're going to build battery trucks. And I think it's a $10 billion plant they're putting in.

Speaker 3 (00:20:18) - Well, that's going to be a huge draw for jobs. So I tend to look for jobs, a diversified economy. I like to see an influx of people coming into the market. So that's the big macro. When I look at my investment, I try to get fairly close to that 1% rule if I can. You know, I don't have to hit it perfectly, but that's kind of a decent benchmark on an asset. I like to get fairly close.

Speaker 1 (00:20:44) - You're listening to Get Rich Education. We're talking with super real estate investor on Single-family turnkey Homes, Scott Saunders. When we come back, including how did he do it with the financing and what does he do to manage all this? You're listening to Get Resuscitation. I'm your host, Keith Weinhold. You know, I'll just tell you, for the most passive part of my real estate investing personally, I put my own dollars with Freedom family investments because their funds pay me a stream of regular cash flow in. Returns are better than a bank savings account up to 12%.

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Speaker 1 (00:22:46) - Listen to Get Rich Education with Keith Weinhold. Welcome back to Get Rich Education we're talking with Scott Saunders get rich education listener owner of 64 single family rental properties. He really loves single family and he's still buying now. But Scott, some people have slowed down their buying with higher mortgage rates. They're not adding properties nearly as quickly. But still, really the question I asked myself is where could I invest better dollar today than in rental property? Of course, inflation debases that debt for us, and then when inflation and interest rates drop, I can refinance. And you've added just about 60 properties in the last four and a half years. So tell us about that.

Speaker 3 (00:23:39) - I have added a lot of them recently and it started again with setting those goals and I'm keeping up the momentum now. You know, I realized the rates have changed. This is still a good time to be a buyer If you're in certain markets.

Speaker 3 (00:23:54) - There are good purchases out there. So I'm able to negotiate a little better with sellers, maybe get a little concession where they'll give a couple points towards my rate or the closing cost. I couldn't get that and the go go days, people are doing that. And the way I look at it is I'm really making an investment now in an asset, right? What is a single family home? It's just a bunch of commodities glass, bricks, wood. And with inflation, we know commodities are going to go up. So I'm locking in that today and I'm going to really use inflation as a tailwind to propel my investing forward, whether that's with rents and appreciation, whether it's debasing my good business debt, I'm using that as a tailwind. And I'll tell you my personal opinion, Keith, I'll go on record on this. People are going to kick themselves a few years down the road when rates go down, whenever that is for not purchasing now, because when rates go down, it's going to create more demand.

Speaker 3 (00:24:54) - And I think you're going to lock in today's pricing now and somewhere rates will change. I don't know when, but nobody has that crystal ball. When they do, prices are going to pop up, I think, at that time. And so people are like, oh, I should have bought back in 2023. I don't want to do the woulda, coulda, shoulda. I'd rather make smart baby steps now. Just keep buying chunking along slow and steady and locking in assets today that I know five, ten years from now, my future self is going to be glad that I took action today.

Speaker 1 (00:25:30) - Now, I know that you, the listener, must be thinking, yes, I do want to buy more property here. But how to Scott add so many properties so fast and that really guides us into the financing. What do you do for the financing of these properties? Because of course for single people, those golden ticket Fannie Freddie loans run out at ten.

Speaker 3 (00:25:52) - One of the biggest things is getting over that hurdle of those lower rates.

Speaker 3 (00:25:57) - So I do what's called non QM or what they're also called DSR financing, where the load is made based upon the asset and the cash flow the asset produces. So these are going to be a little bit higher rate, a touch higher. But once you get into them and you get comfortable, you realize this is what all the big players do. People that buy commercial properties, that's how they buy them. So I'm using a rate that's a touch higher, but now I've got a great working relationship. I have one particular lender. I've done 40 loans with them directly, not with the broker. I go direct to the lender, save some money, and I'll literally email over to that lender at night. I'm buying just one of their contract on two more assets, and it's really easy to do the loan. So I find what's called non QM, which stands for Non-qualifying Mortgage, that type of financing. I actually prefer it. It's easier. I don't have to provide every financial statement, you know, updated within the last 30 days.

Speaker 3 (00:26:58) - I actually find it's an easier approach. And as long as you look at the numbers and you still have positive cash flow. So today maybe I'm positive $200 where a year and a half ago I might have been positive 3 or 350. So it takes me five assets to get another thousand in cash flow today where I could have done that and maybe three or so a little while back. Okay, I'm just buying more assets, right? I win with that because I'm still locking in more of those commodities in those assets. And so I just that inflation raised that up over time and I just get the benefit of it. So now instead of fighting against inflation, I'm using inflation to move me forward.

Speaker 1 (00:27:41) - About dcr loans, debt service coverage ratio loans which are used more commonly in the five plus apartment space area. That is one option for one after they run out of their ten golden ticket Fannie Freddie loans that are at the best rates in terms. Can you tell us more about those terms of the hours? Are you getting a longer term fixed rate? Do you need to put a greater percent down for those?

Speaker 3 (00:28:08) - Most of mine are relatively close to a conventional loan.

Speaker 3 (00:28:12) - You can get those with 20% down. I have chosen in some cases to put down maybe 25%, but I'm getting in almost all situations 30 year fixed rate financing. To me, I want to fix that debt service and have it locked in. So that's really important. So I'm a big believer in 30 year fixed rate. I did have during Covid right at the beginning and I had some assets under contract. You couldn't get a loan. It was very difficult. March, April, May and I had deals closing. Then I had lender that I had to get the lender that they required me to put down 40%. So I had to put a bigger down payment to get it done. At the time, Keith, I was like, Oh, I'm not getting as much leverage. My money's not working quite as hard. Now, that was several years ago, and a few of those because they were smaller assets. I've got little small loans on them where and I want to be careful because I know your view on debt.

Speaker 3 (00:29:11) - I'm going to be paying some of them off, not to have them free and clear, but to use those as a resource as collateral. So I can go to a bank and say, Look, I'm going to pledge this collateral. Let's say ten homes that are free and clear, you give me a loan and now I'll use that loan to do some other things, probably like hard money, loans, private lending. So I'm going to use those paid off assets as a tool for me to do some financing, some creative financing deals in the future. So it's a means to an end. It's a stepping stone to go a little bit deeper and use the banks money for me to make more money in the future. So that's kind of what I'll be doing there.

Speaker 1 (00:29:51) - All right. It sounds like you still want to keep most of them leverage. Are you talking about the advantages of having a few of them paid off and therefore really so that you can borrow against the value of those paid off properties? So really, you're just paying them off to effectively use leverage again in a different way?

Speaker 3 (00:30:08) - Precisely.

Speaker 3 (00:30:09) - That's exactly what I'm going to do is bundle those together and those become collateral. So exactly. I'm going to relieve them maybe in a different fashion. So I am a huge fan of good business debt. It's one of those things is concepts. So you got to wrap your head around it at the beginning because we're beat into our brains that, you know, debt is bad, but good business debt is not only good, it's great. It allows you to multiply your efforts faster than you could with your own capital. So to take the bank's capital and use that to get ahead, that to me is is a smart move 100%.

Speaker 1 (00:30:50) - So you've got this robust portfolio spread across several different states. You've even admitted probably dealing currently with more managers than you even want to. And it makes one wonder, is there any particular type of management software that you use? Now, of course, each one of your individual property managers, 18 of them, they have their own management software. But how does that work? How do you manage all this? Do you really get 18 monthly statement emails from 18 property managers each month?

Speaker 3 (00:31:19) - I do actually get 18 different emails and statements a month.

Speaker 3 (00:31:23) - I'll tell you what I've done, Keith. I'm very low tech. I'll be honest. I use Excel to track things and what I've done, which is kind of a fun thing for me. My youngest daughter, who, believe it or not, actually owns. She bought her first single family home at age 16. She's been watching me. She actually helps me now track my rental income and work with the financials. So I've hired her in my real estate business. She now gets all the statements she puts in, puts everything into my spreadsheet and then runs the reports for me. So it's been kind of neat in that I get the data I need, but I'm also training my kid about real estate. And not only that, I actually include her on my emails, so she has a real estate specific email. When I reply to my property manager about an issue, I'll copy her so she sees my thinking how I do it. So I'm trying to be strategic, realizing I'm not going to be around forever.

Speaker 3 (00:32:21) - Someday my kids are going to get a pile of real estate and I want them to know what to do with it when they get it, that they walk into it and they're like, okay, I kind of know what to do versus selling it all off and then giving the money to Wall Street, which is I would hate to have that happen. So I'm. Try to bring them along.

Speaker 1 (00:32:41) - Despite the fact you use Excel. You talk about how you're relatively low tech. I'm, in fact, impressed with that because it demonstrates to me that, you know, the proper formulas to use in Excel and which numbers actually matter to drive your current and future investment decisions. So that actually tells me a lot that you really understand what's going on behind the scenes and you don't have it too automated. Also, when you're involved like this, which is a sense that you just cannot get being a stock investor where your profits are really coming from and where they're really not coming from. Having one of your children involved that is huge at building this legacy wealth piece like we talked about on the show last month and helping ensure that there is generational wealth in your family, like with your daughter.

Speaker 1 (00:33:26) - Now, she understands where it comes from and what it takes. So I absolutely love that piece. Scott We talk about what drives investment decisions. We talk about how you've acquired and you've held some properties. What about the time to sell? For example, I like to buy turnkey investments that already have the renovation done, or they're just brand new and oftentimes like to just hold them 7 to 10 years because in 7 to 10 years, in the last three years, it's been as short as three years, those properties have gone up in value enough where the leverage ratio was cut such that I either want to do a cash out refinance or a 1031 exchange, not get too emotional about properties, only hold them seven years, rarely if ever, more than ten years. What are your thoughts with the whole time and the duration?

Speaker 3 (00:34:09) - I'm fairly similar to you on that. I do. My preference is turnkey. That's what most of my portfolio is. So I'm buying stuff that's already been renovated after, you know, 10 to 15 years.

Speaker 3 (00:34:21) - And that window, that's when you're going to start to see roof issues, the furnace, the AC. So my plan would then be to do a 1031 roll out and get more turnkey. So let's say I take one single family home that might allow me to go out and buy 2 or 3 more single family homes, probably ten years max would be what I would be doing. And I did that. I rolled out A1A couple of years ago. I had one single family in Arizona exchanged out of it, and I bought four in Saint Louis, one in Memphis. I got a much better return on my investment. So to think of if you take my portfolio today, right in the 60s, if I can roll out of that and go up to, let's say 120 or 130, that's going to give me some significant scale and benefits. So that would be my plan. I'll never sell and pay the taxes. I always do it 1031 or I'll refinance to harvest equity.

Speaker 1 (00:35:17) - If you're a brand new listener and you don't know what a 1031 tax deferred exchange is, the short story on that is it basically allows you to roll your profits from appreciation into another property, either multiple properties or a larger property is what it usually is with you being able to 100% defer the tax.

Speaker 1 (00:35:37) - And there's no limit to the number of times you can do that. Therefore, it should become a tax free event. You can defer that tax your entire life by trading up with that. 1031 also called a 1031 like kind exchange. As you go along, I know that you've got some great philosophy, Scott. I mean, first of all, you're a goal driven guy, so you have these longer term goals. And you mentioned you also have these shorter term milestones, like a 90 day goal on your way to those longer term goals. For one that hasn't heard the acronym before, Goals should be smart, that is specific, measurable, achievable, relevant and time bound. That's what differentiates a goal from a wish. So tell us about your goals and how that drives this. Scott.

Speaker 3 (00:36:22) - My duals. I do every three months. I do have a short term goal and I've got some For this year. I'll probably pick up 15 properties. I think I'm halfway through the year. I'm on track, so I'll do that.

Speaker 3 (00:36:34) - I've got some long term goals. One of them just before I left on vacation a couple of weeks ago, I'm under contract on a property in Tuscany, Italy, so I can have what I call a lifestyle asset. So one of my goals would be to get a few lifestyle assets. I want to buy a place in Steamboat Springs, Colorado, enjoyed some of the year, rent it out other times. So one goal would be picking up a few of these. That would be something that I can enjoy and my kids can enjoy, but it also produced a return. So it's a twofer. I gave money on it and I get to enjoy it. That's a big long term goal of doing that. So Tuscany, I like to do a place in Sardinia, Italy, which is the most beautiful beaches, gorgeous. The mountains may be a place in Florida, so I like to pick up over the next few years, maybe a property a year in that category. That's just something that's fun.

Speaker 3 (00:37:25) - It doesn't make any sense to work really hard and save if you can't enjoy life, right? I mean, that's the whole goal is to get free where you can enjoy your time and enjoy spending time with the ones you care about. So I want to transition that way into Tastic.

Speaker 1 (00:37:42) - Yeah, spending time in Tuscany was part of perhaps the best week of my life personally, part of your philosophies. It's not just having tangible goals, it's you call something rather than an ROI in ROA, and it's that the return on a realisation that I talk about.

Speaker 3 (00:38:01) - Yeah, what that is, you know, so many people have heard of ROI, which is a return on investment and we kind of get bottlenecked around that, right? Looking at our return, you know, 7%, 8%, 1619 And there's a lot of focus. What I tend to do, and this actually came through a good friend of mine, Rick ROA, is return on attention. Yeah. Looking at our life from a time standpoint.

Speaker 3 (00:38:25) - So when we look at ROI, we're looking at money dollars return on attention. We're now measuring things in time, right? What do we have the free time to enjoy without having to be distracted with following the stock market every day? And is it up or down? Or what's the Fed doing? So return on attention to me is actually more important than the ROI. And I know we're on a podcast talking about real estate, so surely making wise investment decisions is important. But if I look at where I am in life, more important to me is my return on attention than my return on my investment. So I want to have my attention free that I can enjoy what's around me while I'm young enough and vibrant enough to enjoy it. So I just got back from travel and Saint Lucia had a wonderful time out there. I love to travel. I typically do an international trip probably every quarter or so. I'm taking my son to Morocco, did an African safari. We did Iceland swam with whale sharks last year.

Speaker 3 (00:39:30) - Portugal. I want to spend time with the people I care about and travel is a part of that and having my attention freed up so I can do that. That actually is a big principle. It's a big objective is having my time freed up and my attention freed up.

Speaker 1 (00:39:47) - Wealth is measured in time, not dollars. You and I sure do agree there. Scott is we're about to wrap up here. I know you often talk to people about the importance of taking action and just sort of getting those base hits and how do you think that people would have more economic freedom if they just purchased 5 to 10 single family rentals?

Speaker 3 (00:40:07) - Absolutely. And it's not that hard, right? You get over the first one's the hardest and then you get a little momentum after that, Right. The first one hard, the second one, you've just doubled the size of your real estate portfolio. You go to four, you quadrupled your first one. And I think the magic number to hit is get to five and add five assets.

Speaker 3 (00:40:28) - You typically have enough rental income coming in that it's pretty close to being self-sustaining. So if you have one vacancy, you're going to typically have pretty much enough rental income to do it. So getting to five and then pushing on to 10 or 15, that can change so many people's lives. Just that small thing for the average American. If you had ten single family rental homes, you'd be light years ahead of the people that are doing all the 401. And Wall Street racket stuff.

Speaker 1 (00:40:59) - That's so on point. Yeah, you are really doing the things. Scott, before I ask you how our audience can learn more about you, do you have any last thoughts? Anything else you'd like to discuss maybe that did not come up with scaling up this terrific Single-family rental portfolio and how that's enhancing your life.

Speaker 3 (00:41:18) - I'll give two quick tidbits to kind of wrap things up here. Keith, it's been great visiting with you. I've been a longtime follower and just love all the information you bring out and the resources, so it's great to visit with you in person.

Speaker 3 (00:41:30) - Two things. One, I would say use the tax code, use guys like Tom Lehrer write, read those books, figure out how to master the tax code. A lot of people don't do that. They're intimidated by taxes and the IRS go after that and it'll give you more capital to grow your portfolio. The other one, I would say, and I think you alluded to it, is don't be paralyzed by inaction. Don't do that analysis paralysis thing of is this good or not? My whole philosophy is I never try to hit a home run. I don't need the best performing investment. I just need a good investment. And you know, in a portfolio, I've some that have been stellar and I've had 1 or 2 dogs like anybody would. When you get a bunch of them, my feedback would be, if you're not in the game of real estate, put all your focus on to getting that first one and then jump to your second translated into action rather than overanalyzing. So on your show, you've got a lot of great resources of turnkey providers.

Speaker 3 (00:42:29) - In many of the markets that I'm in pick market, take action and jump in. You'll be so much farther ahead by taking action than by studying and running formulas and spreadsheets. Get into the game, buy the first property, buy the second push with some short term goals, and then all of a sudden you're using all of these economic forces to get ahead in life and they're not fighting against you. And I think what that does is now you're swimming downstream, so to speak, rather than fighting upstream. That's what all these inflationary forces that you talk about all the time do. So get in, start swimming downstream, join it. I want to see more people in America that have freedom and have some independence and are benefiting from the economic forces rather than getting crushed by those same economic forces.

Speaker 1 (00:43:21) - And it starts with just getting your first base hit. Well, this has been terrific, Scott. How can our audience learn more about you?

Speaker 3 (00:43:29) - I've got a website up. It's my name, so it's Scott R Saunders.

Speaker 3 (00:43:35) - Sanders And that's got a little more background. And I've got for people that are interested, I put together a course of how to kind of get into single family and scale it and grow it. So for those that is appropriate, I'm happy to be a resource in that department there at that website.

Speaker 1 (00:43:54) - Scott has been such a great chat. Our audience is going to benefit from it. Thanks so much for coming on to the show.

Speaker 3 (00:44:00) - It's been a blast. Thanks, Keith.

Speaker 1 (00:44:07) - Yeah, great stuff from Scott. We do a lot of things the same way as far as having remote managers in multiple markets. I've also never seen most of my properties in person, nor do I need to. We often buy multiple properties at once. I like to buy at least two single family rentals at a time to make things more efficient. But big picture, we are not postponing life and are traveling to great places. As I'm fond of saying, some delayed gratification is good, but the risk of too much delayed gratification is denied gratification, which is the road of the 401 plan, which is also known as a life deferral plan.

Speaker 1 (00:44:49) - Scott is currently meeting with our provider of Chattanooga Properties on Marketplace. It is rare to see Crest buying properties in Jerry Marketplace. I guess I'm actually not sure we might have to turn him onto it so that he can quit one of those part time jobs. He's got pretty cool part time jobs, though. He's not breaking his back like a longshoreman. Yeah. Jerry Marketplace. That is where you find the right properties that really are just never going to make it out onto the open market at all. And they're the ones that are conducive to this strategy. Lower cost properties that have a high ratio of rent income to a low purchase price, they're typically fully renovated with a tenant from day one where an experienced manager also manages it for you from day one, if you so choose. And it's free. Just creating one log in one time like thousands of others have, gives you access to nationwide providers. We've even got free coaching for you there if you so choose. Knowledge really isn't power in itself. Knowledge plus action is what's powerful.

Speaker 1 (00:45:56) - Get started at GRC marketplace.com until next week I'm your host Keith Winfield. Don't quit your day dream.

Speaker 4 (00:46:07) - Nothing on this show should be considered specific, personal or professional advice. Please consult an appropriate tax, legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of Get Rich Education LLC exclusively.

Speaker 1 (00:46:35) - The preceding program was brought to you by your home for wealth building get rich education. Com.

Direct download: GREepisode458_.mp3
Category:general -- posted at: 4:00am EDT

Mon, 10 July 2023

Get our newsletter free here or text “GRE” to 66866.

Higher interest rates are cracking the economy—failing banks and failing commercial RE loans. With many expecting rates to go much higher, what else will break?

Keith Weinhold, the host of the Get Rich Education podcast, discusses the current state of interest rates and their potential future trajectory.

Jim Rogers, legendary investor with an estimated $300M net worth, returns. He shares his insights on interest rates and inflation.

We discuss the impact of inflation on various asset classes, including real estate, and the potential for higher interest rates in the future.

The conversation also touches on topics such as agricultural real estate, the oil market, central bank digital currencies, and the role of gold and bitcoin as alternative forms of wealth storage.

Overall, the episode provides valuable insights into the current economic landscape and its implications for investors.

Title [00:01:56]

Introduction and overview of the current state of interest rates and market distortions.

Title [00:05:03]

Discussion on the unpredictability of interest rate predictions and the acknowledgment of inflation by Jerome Powell.

Title [00:08:28]

Explanation of the historical trend of interest rates, the recent rise in rates, and predictions for future rate movements.

Title [00:12:09]

Jim Rogers on Borrowing Money and Interest Rates

Discussion on the benefits of borrowing money at low interest rates and the prediction of interest rates going higher.

Title [00:14:27]

Jerome Powell and the Possibility of a Soft Landing

Questioning whether Jerome Powell can raise interest rates enough to control inflation without causing an economic crash.

Title [00:18:41]

Inflation, Interest Rates, and Real Estate

Exploring the impact of inflation and interest rates on real estate investments and the potential risks for property owners.

Topic 1: Agricultural Real Estate [00:22:21]

Discussion on the opportunities in agricultural real estate due to erratic weather patterns and reduced yields in various crops.

Topic 2: Oil Market [00:24:16]

Conversation about the current state of the oil market, the decline in known reserves, and the potential for higher energy prices.

Topic 3: Central Bank Digital Currencies (CBDCs) [00:26:04]

Exploration of the proliferation of CBDCs and the implications of a digital currency controlled by central authorities, including potential restrictions on spending and increased government control.

Title [00:32:06]

History of Money and Gold Standard

Discussion on the different forms of money throughout history and the transition from silver to gold as the basis for the US currency.

Title [00:32:47]

The Diminishing Value of the Dollar

The prediction that the value of the dollar will continue to diminish over time and the suggestion to invest in real estate instead of saving in dollars.

Title [00:33:33]

Invest in What You Know

Advice for investors to only invest in what they know about and not rely on advice from others, emphasizing the importance of knowledge and understanding in investment decisions.

Resources mentioned:

Show Notes:

www.GetRichEducation.com/457

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456: Why a Housing Crash is 100% Certain - with Keith Weinhold and Ken McElroy

Complete episode transcript:

Speaker 1 (00:00:01) - Welcome to GRE. I'm your host, Keith Weinhold. Interest rates rose fast last year, but a lot of experts think that they're going to go substantially higher from today's level, including our guest today, who is a legendary investor. How much higher will rates go and what's driving them higher today on get rich education.

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Speaker 1 (00:01:10) - Join the Freedom Family and become a real estate insider. Start on your path to financial freedom through passive income. Text Family to 66866. This is not a solicitation and is for accredited investors only. Please text family to 66866 for complete details.

Speaker 2 (00:01:33) - You're listening to the show that has created more financial freedom than nearly any show in the world. This is Get rich education.

Speaker 1 (00:01:56) - Welcome to GRE! From Mount Washington, New Hampshire to Mount Whitney, California, and across 188 nations worldwide. I'm Keith Whitefield and you are listening to Get Rich Education. Hey, it's great to have you back. Interest rates are not high today. They're just moderate by historic standards. But of course, the rapid rate of increases last year was faster than it's ever been in our lives. And that's what introduces market distortions. Today's guest is going to talk about that with us later. That's the legendary Jim Rogers. And it's public information that he has an estimated $300 million net worth. When Jim talks, people listen. When he was here with us in 2019, he was emphatic that interest rates were going to go much higher.

Speaker 1 (00:02:43) - He was completely correct. And few others were saying that then. In fact, when he's with us here shortly, all recite the interest rate quote that he stated here on this show back then and get his forecast from this point on as well before discussing interest rates a quarter recently ended. So let's whip around the asset classes as we do here at times, because you need to be able to compare real estate with other investments. The first half of this year, the S&P 500 was up a fat 17%. I'm just running to the nearest whole percent here. The tech heavy Nasdaq index had its best first half of the year in four decades. Gold was up 6%. Oil was down 34%. Bitcoin up an astounding 84% the first six months of the year. And that's partly because it really bottomed out near the beginning of this year per Freddie Mac. The 30 year fixed mortgage began the year at 6.5%, and now it's up to 6.7 for real estate. Since it lags, we've got a realtor.com year over year figure.

Speaker 1 (00:03:48) - The median listing price was up 1% to 440 K financial institutions aced their Fed stress test that they call it that measures how banks are holding up during a downturn. Q1 GDP was revised way higher than they previously calculated, so the economy is doing even better than many thought. And the number of Americans that are filing for new unemployment claims that fell the most in 20 months. So therefore, the economy is still hot by a lot of measures. Well, that puts more upward pressure on interest rates. Well, an interest rate that can be thought of as your cost of money, and they can even affect factors beyond the economic world. For example, in demographics, I mean, historically high interest rates, they've actually been a mild impediment to people's very migration and mobility. Understand the Fed's interest rate predictions and really all of their predictions have been awful, just awful. A long line of them. Fed Chair Jerome Powell's inflation is transitory. I mean, this is the latest notable one. He said that in 2021.

Speaker 1 (00:05:03) - I mean, though, look on your phones weather app, you don't trust the weather forecast ten days into the future. So I don't know why we would listen so intently, even reverentially to what the Fed economists predict for the next month or the next year. I mean, the economy can have as many or more variables than the weather. I'm going to assume. And these people know nothing Volcker, Greenspan, Bernanke, Yellen, Powell. They know nothing but see, they act like they know. So I just sort of wish they'd say we don't know more often. And by the way, this is why I do not predict interest rates like virtually everyone else. I know nothing on that. I joke around and I say I will let someone else be wrong and go ahead and predict interest rates. It's really hard to do now. A little credit to Jerome Powell later on, though, he did acknowledge that they ought to stop calling inflation transitory. So I think the word transitory has different meanings to different people.

Speaker 1 (00:06:08) - To many, it carries.

Speaker 3 (00:06:09) - A time, a sense of of short lived. We tend to to to use it to mean that that it won't leave a permanent mark in the form of higher inflation. I think it's it's probably a good time to retire that that word and try to explain more clearly what we mean.

Speaker 1 (00:06:26) - Another credit to Powell in today's Fed is that they'll tell you what interest rate decisions they plan to make at upcoming meetings, which is certainly a welcome departure from the opaque Alan Greenspan where you needed to try to translate his Fed speak. So if the Fed rate goes higher, then you can generally expect other rates to go higher. The prime rate mortgage rates, credit card interest rates, automobile loans and more. Jim Grant. Who's been running the interest rate observer since 1983. He recently said that we are embarking into a long era of higher interest rates. He says that that's due to inflation and asset price speculation and of course rates wouldn't move up in some sort of straight line from here. During recessions, interest rates fall.

Speaker 1 (00:07:14) - Well, in that case, if you had recessions during a longer term up spell, where you'd have is higher interest rate lows in a recession. Now, starting in 1958, something strange happened in America. In a recession, prices did not fall into many. This marked the beginning of the age of inflation. That was 65 years ago. So you're pretty used to that. If there is a recession, prices don't fall. All right. Well, after that period, rates went up, up, up until they peaked in 1981. And then they went down. Rates fell from 1981 until 2021, and now they have begun to rise again. Well, because artificially low rates that were set to deal with Covid, because they're still recent, I mean, many people have this sort of muscle memory of zero zero interest rate policy. Maybe you do, too. And it was an all you can eat buffet table of credit. And that buffet table was open for business for ten years. Well, now that we've hiked up the Fed funds rate from 0 to 5%.

Speaker 1 (00:08:28) - All right. Well, back on June 28th, Powell said that more restrictive policy is still the COB because they're continuing to fight inflation. And that includes the likelihood of quarter point interest rate hikes at consecutive meetings and two or more increases by the end of this year. Now, our frequent macro economist contributor here on the show, Richard Duncan. He says there is an unusual divergence between weak credit growth and solid economic growth. And that was probably brought about by the surge in savings from people's government checks during the pandemic. Well, if that divergence persists, then the Fed might have to raise rates even more than the half percent plus that they suggested is necessary by the end of this year. And Duncan says that the stock market is not prepared for the Fed rate to go from 5% today up to 6%. And if it does, the stock market could be in for a painful correction in the months ahead. Now, to my point about interest rates being hard to predict, some economists think that rates will generally fall after this year as well.

Speaker 1 (00:09:34) - So some people see it that way, but I think there are more now predicting that they will rise rather than fall. As the legendary investor that predicted that interest rates were going to go way higher when he was back here with us in 2019 is he joins us soon. We could have some challenging audio quality on this remote to Singapore, but people really hang on what Jim has to say. That's next. I'm Keith Wild. You're listening to episode 457 of Get Rich Education. With real estate capital Jacksonville. Real estate has outperformed the stock market by 44% over the last 20 years. It's proven to be a more stable asset, especially during recessions. Their vertically integrated strategy has led to 79% more home price appreciation compared to the average Jacksonville investor since 2013. Genevieve is ready to help your money make money and to make it easy for everyday investors. Get started at GWB real Estate. Agree that's GWB Real estate agree Jerry Listeners can't stop talking about their service from Ridge Lending Group and MLS 42056. They've provided our tribe with more loans than anyone.

Speaker 1 (00:10:49) - They're truly a top lender for beginners and veterans. It's where I go to get my own loans for single family rental property up to four plex. So start your pre-qualification and you can chat with President Charlie Ridge personally, though, even deliver your custom plan for growing your real estate portfolio. Start at Ridge Lending Group. Hi, this is Russell Gray, co-host of the Real Estate Guys radio show. And you're listening to Get Rich Education with Keith Reinhold. Don't Quit Your Day Dreams. Today's guest is one of the most esteemed celebrated and legendary business moguls, investors and financial commentators of our time. He co-founded the Quantum Fund, one of the world's first truly global funds. He's created his own commodities index, his own ETF, and he is a popular author of a great many books. Welcome back. For your third appearance on Jim Rogers case. There's no reason to go into all that. I'm just a simple Earth. That's why people like listening to you, because you rather plain spoken on what some people deem to be some pretty complex concepts.

Speaker 1 (00:12:09) - So it's good to have you here joining remotely from where you live in Singapore. You were here with us in both 2019 and 2021 and in 2019 here on the show you said and I've got the quote right here, if you can borrow a lot of money for a long period of time at low interest rates, rush out and do it right now, That's what you said. That was prescient. And also in 2019 here on the show, you said, and I quote again, interest rates are going to go much, much, much higher over the next few decades and it is going to ruin a lot of people. And here we are today. So what are your thoughts with regard to interest rates and inflation here? Jim.

Speaker 4 (00:12:52) - You make many mistake. Please. It's made many, many mistakes and I'm sure hope I live long enough to make many, many more mistakes. Yes, interest rates are up. They're up substantially. It sent them, but it is not over yet. Interest rates will go much, much higher because we have friend, not just we, but central banks everywhere have printed huge amounts of money.

Speaker 4 (00:13:17) - And whenever you print lots of money, inflation, college interest rates go higher and the usual amount of money inflation gets very high. And that always leads to central banks having to raise interest rates too high level because they don't know what else to do. In 1980, before you were born, interest rates on central US government Treasury bills, 90 day Treasury bills, interest rates were over 21%. Gosh, that's not a typo. 21% because inflation was out of control and we had to take drastic measures, which meant you have to do something like that again.

Speaker 1 (00:13:58) - That would be interesting. So to bring us up to where we are right now, the federal funds rate is basically gone from 0 to 5% since last year. Mortgage rates rose from 3% to 7% just last year alone. And a lot of nations are jacking up interest rates. Turkey just decided that they are going to raise interest rates 6.5% all at once. And some people don't think that is enough. So here we are. I mean, you talked about what happened about 40 years ago.

Speaker 1 (00:14:27) - Can Jerome Powell engineer a soft landing? Does he have any chance of doing that where he can raise rates enough to quell inflation but yet not crash the economy?

Speaker 4 (00:14:37) - No, of course not. First of all, in 1980, America was still a creditor nation. Now with the largest detonation in the history of the world. Yeah, that's staggering. And they go up every week, and the amount of money that's been printed is beyond comprehension. I don't know how they can solve this problem without really getting drastic and taking interest rates to very high levels back in 1980. The Federal Reserve had the support of the president. The president told him to do whatever you have to do because the head of the central bank was all over. It was a smart man. He knew what he had to do, but he made sure he had political support before he did it. Now, the president did not get reelected because Volcker did what had to be done. We don't have as smart a central bank head now as we did then.

Speaker 4 (00:15:31) - And the amount of money that's been printed is overwhelming. And America's debt with the largest detonation in the history of the world and we were a creditor then. So there are things that are different. So he would be worried if I were you. In fact, I am worried, so I'll leave it to you. But I'm more.

Speaker 1 (00:15:50) - Well, that's right. Carter was a one term president. We'll see if Jerome Powell ends up breaking too many things. If Biden only ends up being a one term president, then as well, whether it's his fault or not, oftentimes the onus could fall on him. You bring up all this debt, the greatest detonation in the history of the world. And maybe the first time you and I spoke back in 2019, I don't know what our debt was then. Maybe it was 25 trillion. Now it's more than $32 trillion. Maybe just as concerning. More our debt to GDP ratio is about 121%. So I guess really what I'm getting at, Jim, is how will we know that things break and things are already breaking in a world of higher interest rates with failing banks and more stress in the commercial real estate market.

Speaker 1 (00:16:37) - So what else is going to break?

Speaker 4 (00:16:40) - Jimmy Carter did say to go do whatever you have to do and I will go you. I doubt Biden would say to the central bank, do whatever you have to do without or you. And I doubt if the central bank Powell, the head of the central bank, now really comprehend what he's gotten us into. You know, he kept saying all along, oh, don't worry, everything is under control. The secretary of the Treasury, Janet Yellen, he's got Ivy League degrees, also kept saying, don't worry, everything is under control. We know what we're doing. We do have different people this time, not many Paul Volcker's that comes along in history. To me, the indications are going to get worse. They will not solve the problem until we have a very, very serious problem. I'm not optimistic. Having said that, if I'm not selling short or anything else at the moment, I'm worried about the markets in a year or two. But at the moment, since nobody seems to understand what they're doing at the Reserve or in the presidency, we can have okay times for a while, but the ultimate problem gets worse and worse and worse unless you deal with it.

Speaker 1 (00:17:56) - I don't know whether the economy has been slowed down enough yet or not. So in the midst of higher interest rates, we continue to create an awful lot of jobs. But there's a greater body of work that shows a lot of these jobs are just jobs that have recovered, that were lost in the pandemic.

Speaker 4 (00:18:13) - The economy is not bad in the US, economy is still strong. You mentioned office. You'll have a lot of jobs. ET cetera. Yes, we have inflation, but inflation is not as bad as it was in the 70s. And you look out the window and everything seems okay. At the moment. I'm just worried about what's coming down the road because I know that some throughout history, if you print a huge amount of money, you create big problems.

Speaker 1 (00:18:41) - We are avid real estate investors here directly investing in real estate. And as we have this chat about inflation and interest rates is real estate investors, ideally we would have low interest rates and high inflation. However, those two are positively correlated.

Speaker 1 (00:18:57) - You typically have both high interest rates and high inflation or low interest rates in low inflation. That positive correlation.

Speaker 4 (00:19:05) - Inflation always in the history has led to higher interest rates for a variety of reasons, which I'm sure you understand. If history is any guide, interest rates are going to go much, much higher eventually. And then you know very well I interest rates are not good for property, not good for real estate investors. They never have that. Even if you don't have any big debt and you don't have that problem or mortgage problems or anything, maybe your neighbors do. And if your neighbors have problems, that means their property prices will go down and that's going to affect you because you're nearby and everybody will say, oh, that property is collapsing. What about teeth? And teeth can say, Oh, no, don't worry about me. I don't have any debt. They'll say, okay, you don't have any debt, but we can buy property in your neighborhood. Very cheap because your neighbors have problems.

Speaker 4 (00:20:06) - That gives you a problem.

Speaker 1 (00:20:08) - That's right. Fortunately, Americans have plenty of protective equity in their properties despite these higher rates. You know, residential real estate here in the second half of 2023 is still doing just fine, probably because there's still a scarce supply of residential real estate. You've got more people working from home driving demand for residential real estate. But of course, office real estate has probably been hit the worst, crunched by high interest rates and the work from home trend both. So really that's where we've seen so many of the cracks in the real estate world, especially around the office space. Where else might we see cracks as interest rates continue to go higher like you think they will?

Speaker 4 (00:20:46) - Well, again, throughout history, when interest rates go higher and it attracts investors and money and people take their money out of property or stocks or whatever with their money and say yielding is you can buy the Treasury bills at 21%. That's attractive to a lot of people. And that's, you know, risk free and it's very high return.

Speaker 4 (00:21:12) - So as interest rates go higher in attracts money from other investment classes in other areas, it's very simple. People are not that dumb. We know that if we can get high interest rates safe, they will do it. And we have to take a risk and the stock market or something else for that spike to do.

Speaker 1 (00:21:33) - Sure. Higher rates just incentivize a few more people to be savers as they can now safely get above 4% in these online bank accounts today, where they are getting pretty close to 0% just a couple years ago. We talk about real estate investment. Oftentimes here we talk about improved property on a piece of land. But of course, the more traditional use of real estate is growing crops on a piece of land. And I know you've been a long time agricultural investing enthusiast and a thought leader in agricultural real estate investing. What are your thoughts about agricultural real estate, since in these past few years really we've seen more of these erratic weather patterns that have resulted in things like reduced peach yields in Georgia and reduced ores yields in Florida.

Speaker 1 (00:22:21) - Something else, Jim, we've seen reduced coffee yield in Panama, that last one, that's sort of a fractional ownership investment that we featured on the show here. Fractional ownership investment in coffee farm parcels in Panama. That's created some problems with their yield. Of course, you can see that reflected in the low levels of the Panama Canal as well that looks to threaten the economy. But what are your thoughts about agricultural real estate in this erratic weather that we've had? Perhaps that's an opportunity if that's reflected in lower agricultural real estate prices?

Speaker 4 (00:22:52) - I'm optimistic about agricultural land prices because, you know, for a long time, nobody wants to be a farmer. The average age of farmers in America is 58. The average age in Japan is 66. Mean, I can go on and on. Although the highest rate of bankruptcy in the UK is in agriculture. So agricultural disaster worldwide for a long time and disaster usually leads to great opportunities. If you know how to drive a tractor, if you should go buy yourself some farmland and become a farmer, if you like getting hot and sweaty every day, it can be a very exciting way to live.

Speaker 4 (00:23:38) - I just see I know from history when something gets very bad for a long time, it usually leads to a great opportunity.

Speaker 1 (00:23:48) - Well, you are so experienced in commodities trading in the number one, the most traded commodity in the world is oil. And it seems that the oil price really isn't very high now, especially when you adjust that for all the inflation that we've had the past few years and of course the oil market and the oil price drives the prices of so many other downstream products. So what are your thoughts with regard to the oil market and where we're headed there? Jim.

Speaker 4 (00:24:16) - I know that known reserves of oil have peaked and are in decline just about worldwide. Does it mean it has to continue going up? But unless somebody finds a lot of oil quickly in accessible areas, the price of energy undoubtedly will go higher. The price of energy is going to stay high. Oil and natural gas, whether we like it or not, and I know we don't like it, but unless you wave a magic wand and you know, in Washington, they keep doing things that they don't help the supply of energy, they they damage it because they put restrictions and controls on energy.

Speaker 4 (00:24:55) - So unless something happens somewhere in the world pretty quickly, energy is not going to be cheap.

Speaker 1 (00:25:01) - Renewables like solar and wind may be the future, but oil has a high degree of energy density that a lot of those renewables still don't. We're talking with legendary investor Jim Rogers. He's joining us from Singapore. You talked about all this dollar printing, which has created inflation. And in order for central governments and central banks to get more control over people, discussion with Cbdcs central bank digital currencies has really percolated quite a bit in the past few years here. And with your international perspective, your world view. I'd like to know what your thoughts are on Cbdcs, whether you see a proliferation of it, where you see it starting for those that aren't aware of it. Central bank, digital currencies. That gives a government central control where all money is digital issued by the central authority, where your money can be stored digitally on your phone so that a central authority like a bank or a government can have control over you.

Speaker 1 (00:26:04) - For example, if your local economy is sagging, well, the government could tell you through your cbdc, your central bank, digital currency, for example, that you need to spend 30% of your income within a ten mile radius or else your money expires. Or this would give central authorities power to do something like say, you know, there's a curfew so you can't spend any of your money after 9 p.m. or this is where they could push ESG, environmental, social and governance agendas through targeting your spending or targeting your spending through diversity, equity and inclusion and getting more control that way through Cbdc. So what are your thoughts with the proliferation potentially of Cbdcs, Jim?

Speaker 4 (00:26:44) - We're all going to have digital money in the future, whether we like it or not. It already happened and China's way ahead of it. You can't take a tax in China with money. You have to have your digital money. Your own money. Yeah. And the ice cream in China with money. So it is happening. And nearly every country is working on computer money.

Speaker 4 (00:27:06) - Let's call it whatever you want to put your money. And governments love computer money is cheaper. It's easier. They don't have to transport it all they love. But mainly they love it because they've complete control over all of us. As you point out, they know everything you do. They'll call you up one day and say, Keith, you've had too much coffee this month. Stop drinking so much. Whatever it is, they love control and they love knowledge. I don't, but they do. So this is the world we're coming to. None of us will have money in our pockets except on our own. And yes, that's the new world. It's not far away in 2023. Okay. Anything that's not good for the citizen, Washington will catch up very fast if it's good for them. So no money is coming.

Speaker 1 (00:28:00) - Yeah. Let's hope the cbdcs don't turn up the coffee for anybody. This might make one wonder, you know, what can they do about it is you see more cbdc sentiment building in other nations with them potentially doing something like this.

Speaker 1 (00:28:15) - Is it a smart thing then for someone rather than store dollars, to instead borrow dollars by having loans on real estate? Or is it better to just completely be out of the government system of currency issuance or at least park more of your prosperity outside of the government system of dollars and euros and pesos and riyals and yen, and instead into a non governmental alternative like gold or Bitcoin. Would that be a better path? What are your thoughts there?

Speaker 4 (00:28:44) - When the government says, okay, now this is money, they're not going to say, okay, but if you want to use that money over there, use their money. We don't care. Governments love control and they love Monopoly, especially when it comes to money. So there may be competing types of money that you dollars now anyway. I guess you and I could swap gold coins or seashells or something if we wanted to. Most of the people in the US use government money and that's the way it's going to be. Whether we like it or not, the government has the monopoly.

Speaker 4 (00:29:22) - They have the guns. And if you can say, All right, I'm not going to use government money, I'll say, okay, but you're not going to be able to pay your taxes, then you're money. You're not going to be able to buy a driver's license or pay your other fees with other money. You're going to have to use government approved money.

Speaker 1 (00:29:42) - Well, the government tried to shut down ownership of gold like they did previously or Bitcoin, which would be unprecedented. I'm talking about the United States government, especially in this case or other developed economies.

Speaker 4 (00:29:54) - But when the US took away the right to go in 30s, that was gold was the basis for. Monetary system. It is much, much, much more important to the world economy. Then gold is not that important in the world's economy now. It's important, but so is right. So a lot of stuff. So I doubt if they will take gold away again. I don't see them outlawing digital money currency unless it becomes very successful and competitive to the government.

Speaker 4 (00:30:30) - Then they'll do. They always have.

Speaker 1 (00:30:33) - Bitcoin's market cap is still under $1 trillion, but increasingly you do have more and more politicians that own Bitcoin and there are a few advocates for Bitcoin there in Congress. So if that's the change you want to see, maybe you want to vote in people that are promoting the holding of prosperity outside of US dollars really by being Bitcoin advocates in Congress there. That's one thing that you can possibly do. But we talk about gold and silver. You know, I really like the fact that it is scarce. Just like Bitcoin has scarcity. There will never be more than 21 million Bitcoin. And of course gold and silver have a finite supply.

Speaker 4 (00:31:14) - Well, but first of all, please remember many digital currencies, not Bitcoin, but many have already disappeared and gone to zero.

Speaker 1 (00:31:23) - And there are some Bitcoin critics out there that say something like, well, there have been more than 20,000 cryptocurrencies. So what makes Bitcoin any better? Well, I think the fact that a lot of these cryptocurrencies that have little or no utility or mean coins, so if they come by and then they die, I don't think that should diminish Bitcoin in its utility in any way.

Speaker 1 (00:31:42) - Just like there have been over 20,000 stocks in history. And if a new stock comes by that doesn't have any value or any fundamentals and it fails, it doesn't diminish the market cap leader Apple one bit at all. So I don't think it's a valid comparison to say that just because a new cryptocurrency comes and goes that shouldn't diminish or knock Bitcoin at all, just like it shouldn't Apple, if a flashy new stock comes by and dies?

Speaker 4 (00:32:06) - Well, throughout history, money has come and gone. People use seashells, people use cows, People use lots of things, glass beads all over the world. You know, the US was founded on a silver standard at 1792. Silver was the basis for the US currency that later changed to gold.

Speaker 1 (00:32:27) - What's so interesting, Jim, written in our United States Constitution, it stated that gold and silver shall be money, but of course it's not. In Nixon completely departed the last vestige of that in 1971. Yet there was no amendment written to the Constitution to supersede it.

Speaker 1 (00:32:47) - Gold and silver shall be money when it comes to currency and how one measures the prosperity in the United States. It is the dollar. We know it's going to continue to be the dollar for some period of time yet, and you can't get too many certainties in investing. And really the second near certainty we can get is that the dollar is going to continue to diminish in value. So that's why rather than save it, we borrow for real estate. Jim, wrap it up here. In this world of higher inflation, though, it's come down in higher interest rates where you tend to think they will keep going higher. What should one do, maybe especially a younger person today, You know, any direction that you would have for a younger person, a younger investor, or maybe that's even investing in themselves and developing skills themselves. So what are your thoughts?

Speaker 4 (00:33:33) - They're all investors. Young, old, whatever should invest only in what they themselves know a lot about. If you want to be successful, don't listen to somebody on the TV or in the magazine or even on the Internet.

Speaker 4 (00:33:48) - You know your program. They should invest only in what they know about you. Listen to somebody and she said, Buy X and you buy x and x goes up. You don't know what to do because you don't know why you bought it. Right? X goes down, you don't know what to do because you don't know why you bought it. So if you want to be successful, just stay with what you yourself know a lot about. You might say that's boring. Be boring If you want to be successful, be boring. You know, invest in what you know. And I cannot tell you how important that is for all investors, young or old.

Speaker 1 (00:34:31) - Yeah, well, to sum it up on rates, Jim Rogers said that governments have debt, therefore governments will keep printing. So then governments will raise rates to keep inflation in check. Remember, just last year, a lot of people didn't think that Powell would have the guts to raise rates so high. Well, he sure did. Who else did I ask about how high interest rates will go? Will, I asked you on our get Recession Instagram poll, the majority of you think.

Speaker 1 (00:35:01) - That the Fed rate will exceed 6%. And again, it's about 5% now. All right. Well, then with mortgage rates around six and three quarters now, perhaps they'd go up to about 8%. But of course, mortgage rates don't track the Fed rate in lockstep. They more closely follow the yield on the ten year note. Now, this is really interesting for real estate investors when inflation is low. So interest rates, well, in those environments, real estate people seem to love that. But you know what? Those two things pretty much cancel out. Well, since we're big borrowers as real estate investors, you get less benefit from low inflation and more benefit from low interest rates, just like high inflation and high interest rates cancel out because now you've got your debt being debase faster and a greater interest expense to pay. So really it's a wash either way. If for some reason real estate investors seem to be more concerned about high interest than they are thinking about the benefits of the high inflation and in fact, real estate investors, hey, we can totally have our cake and eat it too, because when inflation goes high, well, you can stay fixed on your low interest rates.

Speaker 1 (00:36:16) - And then when inflation and rates go low, you can refinance. So savvy real estate investors then in fact benefit from the inflation and interest rate dance. This kind of tango that they do where they stay together. If you enjoy the show here each week, do you mind doing something as a give back that takes less than two minutes of your time? Leave a podcast rating and review. The fastest way to do this is just perform a search. Either search how to leave in Apple Podcasts Review, or how to leave a Spotify podcast review. I'd be grateful that helps others find the show. And we've got a bunch of terrific episodes coming up for you here on Gray, providing you with free content and reliably showing up for you every week. I would greatly appreciate your podcast rating in review. Again, it's easiest to simply search how to leave an Apple Podcasts Review or how to leave a Spotify podcast review until next week. I'm your host, Keith Weintraub. Don't quit, dude. Adrian.

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Direct download: GREepisode457_b.mp3
Category:general -- posted at: 4:00am EDT

Mon, 3 July 2023

Get our newsletter free here or text “GRE” to 66866.

Are you curious about the direction of rents and property prices?

In this episode of Get Rich Education, host Keith Weinhold dives into the absolute 100% certainty of a housing crash and how mortgage rates affect home prices.

Keith is interviewed by Ken McElroy.

He also shares the importance of real estate in reducing taxes and increasing income.

Keith discusses the attractive pricing and inflation in Ohio, and the benefits of investing in new build properties.

He even touches on the increasing gold purchases by central banks and the potential impact on personal finances.

Don't miss out on these valuable insights and learn about the prospects for a housing crash. Tune in now!

Title [00:01:37]

Advertisement for Freedom Family Investments

An advertisement for Freedom Family Investments and the benefits of investing in real estate.

Title [00:02:00]

Introduction to Get Rich Education

Keith White introduces the podcast episode and talks about the longevity and popularity of the show.

Title [00:03:54]

Real Estate Price Gains Since the Start of the Pandemic

Keith White discusses the cumulative home price appreciation in different regions since February 2020.

Title [00:12:33]

Discussion on the attractiveness of real estate pricing and the impact on renters.

Title [00:15:08]

Keith's personal experience of starting with a fourplex and the concept of house hacking.

Title [00:19:38]

Exploring the house hack model as a solution to affordability issues and leveraging other people's money for real estate investment.

Title [00:22:12]

Investing Out of State

The speaker discusses the benefits of investing in real estate out of state and the importance of choosing the right market and team.

Title [00:24:58]

Importance of Prioritizing Market and Team

The speaker emphasizes the importance of prioritizing the market and team before considering the property in real estate investing.

Title [00:27:19]

Supply Crash vs Price Crash

The speaker explains the significance of the housing supply crash that occurred in April 2020 and how it affects property prices and homelessness.

Title [00:31:51]

Inflation Measurement Challenges

Discussion on the difficulty of accurately measuring inflation due to various factors such as personal preferences and hedonic adjustments.

Title [00:34:05]

Housing's Impact on Inflation and Interest Rates

Exploration of the significant contribution of housing to the Consumer Price Index (CPI) and its implications for future interest rate changes.

Title [00:35:38]

Paradox of Rising Mortgage Rates and Home Prices

Explanation of the counterintuitive relationship between rising mortgage rates and increasing home prices, with historical data supporting this trend.

Title [00:42:28]

Advantages of Investing in New Build Properties

Discussion on why it makes more sense now to look at new build properties than in the recent past.

Title [00:43:49]

Feasibility of Building vs Buying in Different Markets

Comparison of the cost per unit for acquiring existing properties versus building new ones in different markets.

Title [00:46:28]

Turnkey Rental Properties and Scarcity as an Investment Theme

Exploration of the concept of turnkey rental properties and the importance of investing in scarce assets like real estate, gold, and bitcoin.

Topic 1: Central banks buying gold [00:51:38]

Discussion on how central banks are buying gold as a way to store value and hedge against the inflation and debasement of the US dollar.

Topic 2: Increasing geopolitical uncertainty and gold [00:52:36]

Exploration of how geopolitical events, such as trade agreements and conflicts, have led to increased uncertainty and a rise in the price of gold.

Topic 3: Reasons why home prices won't crash [00:56:46]

Explanation of several reasons why home prices are unlikely to crash, including a shortage of homes, strict lending guidelines, government intervention to prevent foreclosures, and the slowing of new home construction due to higher interest rates.

Resources mentioned:

Show Notes:

www.GetRichEducation.com/456

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455: Disturbing Facts About Your Bank, Many Millennials Will Rent Forever

Complete episode transcript:

Speaker 1 (00:00:01) - Welcome to Get Rich Education. I'm your host, Keith Weinhold, with a crucial update on the direction of rents and property prices. Then a discussion between Ken McElroy and I where I posit to his audience about why a housing crash is 100% certain and why what mortgage rates do to home prices is exactly the opposite of what everyone thinks. And more today on Get Rich Education. Taxes are your biggest expense. The best way to reduce your burden is real estate. Increase your income with amazing returns and reduce your taxable income with real estate write offs. As an employee with a high salary, you're devastated by taxes. Lighten your tax burden. With real estate incentives, you can offset your income from a W-2 job and from capital gains freedom. Family Investments is the experience partner you've been looking for. The Real Estate Insider Fund is that vehicle. This fund invests in real estate projects that make an impact, and you can join with as little as $50,000. Insiders get preferred returns of 10 to 12%. This means you get paid first.

Speaker 1 (00:01:08) - Insiders enjoy cash flow on a quarterly basis, and the tax benefits are life changing. Join the Freedom Family and become a real estate insider. Start on your path to financial freedom through passive income. Text Family to 66866. This is not a solicitation and is for accredited investors only. Please text family to 66866 for complete details.

Speaker 2 (00:01:37) - You're listening to the show that has created more financial freedom than nearly any show in the world.

Speaker UU (00:01:44) - This is Get rich education.

Speaker 1 (00:02:00) - Working from Hot Springs, Arkansas, to Palm Springs, California, and across 188 nations worldwide. You're listening to one of America's longest-running and most listened to shows on real estate. This is Get Rich Education. I'm your host and my name is Keith Weinhold. And with 456 weekly episodes, you probably know that by now. Hey, I'm really grateful that you're here. Carefully chosen buy and hold Real estate is not day trading. Rather it is decade trading. Yeah. I'm a decade trader. Perhaps you're one two. You just haven't thought of it that way before.

Speaker 1 (00:02:41) - When I was recently with Ken McElroy in person in his studio in Scottsdale, Arizona, we produced a terrific media interview and conversation together that I'm going to share with you later today. But first, you know, it's not just you're out of control. Trader Joe's grocery bill. The entire world seems to be losing its battle with inflation. U.S inflation is still double where the powers that be want it. The UK recently stunned markets will need jacked up interest rates a half point to the highest level in 15 years. The ECB, Australia, Canada, Switzerland and Norway. They have all announced recent rate hikes. But Turkey Turkey is raising rates and astounding. 6.5%. Yeah, you heard that right. 6.5% all in one fell swoop. That's how much interest rates are going up there. Yet many say that it's not enough for them to get on top of their wildly out of control inflation. Now, let's get into a few real estate numbers here before my fantastic chat with real estate influencer in Great Guy Ken McElroy.

Speaker 1 (00:03:54) - Now here's a great set of real estate numbers since inflation has hit real estate too. Okay, we'll talk about rents in a moment, but let's talk price first with credit to John Burns, Real Estate Consulting. Let's look at American real estate price gains since the start of the pandemic. Okay. So this is not annual. This is cumulative starting in February of 2020 up to today. Here we go. There is a national home price appreciation figure and then it's broken into ten regions. And I think this regional breakup is kind of quirky, and I'll tell you why in a moment. But nationally, since the start of the pandemic, national real estate is up 36%. But let's stop and think about what that means for a moment. Well, since that time, February 2020, which is when these figures are all tracked back to, has the real rate of inflation also been 36%? I'll just say that the answer is yes. Well, then real estate has no inflation adjusted gain in all that time.

Speaker 1 (00:05:03) - Well, here are the ten regions cumulative gain since that time. Okay. Going from lowest to highest, Northern California is up 27%. The Northeast up 29%. The northwest is up 32%. Southern California up 33% cumulatively since that time, about three and a half years here. The Midwest is also up 33%. The Southwest up 38%. Texas up 40%. The Southeast up 46%. North Florida up 50%. A lot of castle markets there in north Florida, too. And the top appreciating region, according to this stat set since February of 2020 with 56% cumulative home price appreciation is South Florida. Yeah, up 56%. And now some of those regions mentioned like in the West, they were actually up more than this a few months ago and they've given back a little bit of their gain. But that is a great stat set. The only thing that seems quirky about the methodology to me is that you've got Florida and California, each with two stat sets, yet the entire Northeast is lumped in together without, say, breaking out New England.

Speaker 1 (00:06:26) - But I don't know, There might be a reason for the odd amalgamations there. I might look into that. Maybe that's just some regional bias or some concern there. Since I am a Northeastern guy, I think that by now, any long time listener knows that I'm from Pennsylvania and have lived most of my life there. I'm in Pennsylvania every year and I like to avoid hot summers, so I spend my summertime and more time in Anchorage. AK So fantastic home price appreciation in the past three and a half years, partially demand driven. Partially inflation driven, you know, three plus years ago, a lot of people, but never me, a lot of people, including real estate influencers, they said that the pandemic would be awful for both real estate and stocks because people would lose their jobs and lose their homes and businesses would shut down. Oh, no. We talked here about agree with it or not, the government's safety net is on its way and it came with the PPE and the Cares Act and everything else.

Speaker 1 (00:07:29) - I mean, Biden won't let people lose their homes. That's what was going on back then. And then in late 2021, I stated Jerry's National Home Appreciation forecast that home prices would rise between 9 and 10% in 2022. They ended up rising 10.2%. And then you remember that late last year I forecast that there really wouldn't be much of any national home price movement this year. Okay, 0%. I am on record right here on the show saying that then and here we are near the year's midpoint. And I like how that forecast is looking. And it was interesting. Late last year, Realtor.com, they predicted 5.4% national home price appreciation for this year. Well, just last week they revised it down to a drop of 6/10 of 1%. Okay. So basically they've gone to 0% as well, much like I forecast late last year. But of course in our core investor areas of the inland in the south, home prices, they are rising just a little this year. What about rents? That's something you might care about more.

Speaker 1 (00:08:42) - CoreLogic They tell us that rents for both single family homes and apartments are up 4% year over year, and that's really unremarkable. That's just the historic long term norm. And it's really been interesting how the rent growth rate for single family homes and apartments has just been remarkably similar, like shadowing each other. But the real story is that rent growth has really decelerated because national rent growth, it peaked at about 14% a year and a half ago. And now among Single-family rental homes, what you'd expect in inflation is happening. High end property rents are up just 2% because they're the least affordable. And then the more affordable low end rents are up 6%. And like anatomy, there are so many ways to parse real estate. There are so many ways to dissect the frog here. So let's look at rental growth by region. And it's from that chart that I shared with you in last week's Don't Quit Your Daydream Letter. Rents are down 2% in the West. They are up 1%. In the South. They're up 5% in the Midwest and they're up 5% in the Northeast as well.

Speaker 1 (00:10:02) - And what's been persistently steadiest is the Midwest price growth in rent growth. I mean, they're in the Midwest. That is like as stable as the clover honey that's in your pantry right now. And also, did you know that honey is the only food that doesn't spoil? Did you know that? Yes. Yeah. It's also stable, so it doesn't need mixing either. Stable like Midwestern real estate. And that's the reason that's had that best ratio of high rents to a low purchase price, which is really that key metric that you care about as a real estate investor. Now, for example, let's take a look at this specific property in Exact Street address from Marketplace. I mean, this is a great example. This is 224 Baltimore Street in Middletown, Ohio. Middletown is between Cincinnati and Dayton. Okay. This duplex here has a monthly rent income of $1,400 total from both sides. The price is $139,900. And this duplex is substantially rehabbed. And the $1,400 rent that's broken down by $800 comes from the two bed one bath side and $600 from the one bed, one bath side.

Speaker 1 (00:11:26) - The duplex is 1680 eight square feet. It's in a classy neighborhood and the rental status is that both sides are already leased. Okay, So when you have an existing property like this, sometimes you have that as the advantage. It's leased and on a duplex when you have both sides leased, you know what questions I would want to know before I buy a duplex like this? What is the rent payment history of those tenants on each side of the duplex and where are they employed? I mean, one might have been paying the rent. But if they're employed at the malls, pop up, stand for 4th of July fireworks or something, Well, I would want to know that. Or if their employment is more stable than something like that. So this 140 duplex is something you could buy with a 25% down payment. So even with closing costs, you're in there for under 50 K. So yes, they're in America's seventh most populous state of Ohio and might take on a property like this. Is that this duplex that's for you? If you're more interested in cash flow than you are appreciation.

Speaker 1 (00:12:33) - I mean, my gosh does pricing like this almost make you feel like inflation missed Ohio? That's how it feels in hey, that's what attracts renters as well. And you can find their property in more like them, including an increasing proportion of new build property nationwide from Florida to Indiana to Texas to utah@marketplace.com. Coming up in this interview with Ken, where I was a guest on his show, you're going to hear me say some things that you might have heard me say before, but I sort of say them in a different way when someone else sees interviewing me and I talk about including why there is a 100% certainty of a housing crash in a few other surprising things. And then at the end I discuss some new things that I have not discussed previously, including what I personally champion and invest in myself outside of real estate. We don't run with the herd on the mainland, but you know, here in Jerry, we are not an island to ourselves either because the dust from the herd affects us. Our investing philosophy is on a profitable, I suppose, peninsula, if you will.

Speaker 1 (00:13:48) - That's why I definitely say things that you don't expect to hear in this interview. And you know what? If someone only says what you expected to hear, that would probably be a disappointment and a waste of your time and you wouldn't learn anything. A critical real estate conversation between Ken McElroy and I, straight ahead. I'm Keith Reinhold. You're listening to Get Rich Education. With real estate capital Jacksonville. Real estate has outperformed the stock market by 44% over the last 20 years. It's proven to be a more stable asset, especially during recessions. Their vertically integrated strategy has led to 79% more home price appreciation compared to the average Jacksonville investor since 2013. Genevieve is ready to help your money make money and to make it easy for everyday investors. Get started at GWB Real estate. Agree That's GWB Real estate. Agree. Jerry listeners can't stop talking about their service from Ridge Lending Group and MLS 42056. They've provided our tribe with more loans than anyone. They're truly a top lender for beginners and veterans. It's where I go to get my own loans for single family rental property up to four plex.

Speaker 1 (00:15:08) - So start your prequalification and you can chat with President Charlie Ridge personally, though even deliver your custom plan for growing your real estate portfolio. Start at Ridge Lending Group. This is Richard Duncan, publisher and Macro Watch. Listen to get rich education with cheap wine and don't quit your day drinks. Hey, everybody. I'm here with Keith Reinhold. Welcome back. Hey, it's so good to be here. It's interesting. I was last here in January of 2021. And remember, Ken, that's when we talked about how you can profit from inflation. Inflation was only 1.5% back then. So for all the viewers and listeners, had they watched that, they really were profited from that surge of inflation, we should go back and check that one out again, you know, because I remember that discussion was fabulous. And now now that's kind of the hot topic, the hot topic for sure. So Keith has a great company. It's called Get Rich Education. Before we go down that road, let's talk about how you started, because most people, you know, they struggle with just getting started.

Speaker 1 (00:16:22) - And I know you started with a fourplex. Yes. And you know, this is something very actionable for you, the listener, the viewer there. You can start off like I did. I didn't have a lot of money when I started out. I think that's a common investor's story. So how could I do more with less? And, you know, I was in Anchorage, Alaska, at the time when I was about to buy my first fourplex building, and I didn't have the inclination to know how to remodel places or be a landlord or anything like that. And, you know, Ken, it's a quote we've all heard, but it bears repeating the circle of friends I had fallen in with Harkins, the Jim Rohn quote, You are the average of the five people that you spend the most time with. Take your five closest friends income level. Take their educational attainment level, take the way they dress your five closest friends. If you want to change yourself, change your five. In two of my five in Anchorage, what I call pretty aspirational guys and two of my friends, they had made their first ever property a fourplex building with just a 3.5% down payment.

Speaker 1 (00:17:25) - So I learned how to do this from them. And you can still do this today. All you have to do is live in one of the units at least 12 months and just have a minimum credit score of 580. You can do that with a single family home, duplex, triplex or fourplex. That's how you can start with a bang and a small down payment. Yeah, we call that house hacking. Yeah, yeah, yeah. We talk a lot about this and I don't think people really realize, you know, and if you move into one side of a duplex and you buy a duplex with with this low money down and the lower credit score, you're basically you might not have a lot of cash flow if you live on the other side. But what you are is you're eliminating that huge expense that might have been for rent or something else, right? That's right, 100%. You know, everybody has their wacky landlord story. So I bought my first property living in one unit of the fourplex, renting out the other three.

Speaker 1 (00:18:16) - And like a duplex, like you said, where you might live. Did you tell me you were the owner? I because that's always thing. Yeah. You know, after a while after I got the new tenants in there, actually after I had moved offsite to another place, I didn't really want to admit I'm the owner. They ask all kinds of crazy things, but, you know, everything didn't go perfectly. For example, you know, shortly after I moved in, it was time for a tenant to pay the rent. It was the first that was due. They said they pay it the fifth. I was like, Oh, yeah, sure. Okay, whatever. Well, of course they didn't. I had to replace them. And you know how I qualified my next tenant in that vacant unit? What the qualifications were. Three females applied. They were attractive. So I let him move into the unit next to me based primarily on the fact that they were attractive. Well, that didn't work out very well.

Speaker 1 (00:19:00) - They had parties and they did not invite their landlord to the party. So everyone's got their wacky landlord story that's mine, but that's how you can start big. It is a good way to do it. And I think I don't think a lot of people realize that they can do that. So a lot of people I know are struggling with these affordability issues. So, you know, we've seen since our last podcast, you and I did, we've seen massive inflation, massive rent growth, obviously massive interest rate growth, which has driven people's mortgages up and doubling people, the mortgage payments up, plus we have all the inflationary components that I just mentioned. This is the best time to look at that house hack model because, you know, why wouldn't you grow.

Speaker 3 (00:19:38) - With inflation if you can do it with a with a two unit or four unit? Right now, there are some restrictions for for units and underwriters there something where if you go over that, it's a different kind of loan.

Speaker 1 (00:19:50) - That's right.

Speaker 1 (00:19:51) - Four units is the most you can do with that FHA loan in 3.5% down. So it's single family home, duplex, triplex or fourplex. And if you have VA Veterans Administration benefits, you can use that same plan with zero down. Believe it or not. It's a great way to start with the bank. Yeah.

Speaker 3 (00:20:07) - So you guys really need to look into this. If you could replace your living expenses large of the largest one, which is obviously typically rent and utilities and all that, then why wouldn't you?

Speaker 1 (00:20:20) - Yeah. And you know, here's the thing. Here's the takeaway. And I didn't understand this until I had owned that first fourplex for a couple of years. I think we've all learned we've all been influenced by the mantra that you don't want to invest with your money. You can build wealth profoundly by ethically employing other people's money. We're talking about doing it ethically. Providing people with housing that's clean, safe, affordable and functional. With that fourplex like I just described, I was using other people's money three ways at the same time.

Speaker 1 (00:20:50) - And you can do it too, because I use the bank's money for the loan and leverage. I use the tenant's money for the income that you were just talking about to offset all the building expenses and the mortgage payments. And then thirdly, I was using the government's money for very generous tax incentives, use other people's money three ways at the same time with the loan for income property, that's really going to accelerate your wealth building.

Speaker 3 (00:21:15) - That's right. That's right. And can you with that also do it with the down payment? That might be a fourth way.

Speaker 1 (00:21:21) - There are creative ways. For example, I know with FHA, sometimes you can get a gift. So that's a very astute question.

Speaker 3 (00:21:27) - Yeah. So that's another thing that a lot of people don't think about is, you know, I know with the FHA program, they're going to be looking at you. But there are there are ways to get gifts.

Speaker 1 (00:21:38) - That's right. And really use other people's money for the entire thing with keep using other people's money all that you can.

Speaker 3 (00:21:45) - The point is, guys, all can be OPM or other people's money. And that is the point. And so if you can't look into that, then it's now just an excuse. So let's talk about like you've done a very successful job of going out of state, out of the network and, and buying real estate. How have you done that? Because a lot of people are freaking out around, you know, how do I do I stay local? Do I go out of state? There's a lot of things to consider.

Speaker 1 (00:22:12) - I don't invest in my own local market. In fact, can I sell my last local meaning local to Anchorage, Alaska? I sold my last local apartment building last year. It's the first time in 20 years since I bought that first fourplex building. I don't own any local properties. I do all my investing out of state in investor advantage markets in the Midwest and South. And I know to some people it's scary to go out of state for the first time. You know, for some reason with stocks, people feel quite comfortable with, you know, buying stock for a company.

Speaker 1 (00:22:41) - They don't even know where that company's headquartered. But with real estate and something called turnkey real estate investing, that's one way to go across state lines. But really, here's my mindset in getting comfortable without estate investing, this is how I think of it. Can The property is only the fourth most important thing in real estate investing, and if you're thinking about investing, you often start by thinking about, okay, what would my next property be? It's important. But there are three things more important. Number one is you. What do you want real estate to do for you? This is what I like to share with people. Can Secondly is what market are you in? Thirdly, what's the team of professionals, especially your property manager, that you choose to surround yourself with? And then fourthly and only fourthly is the property. So let's go through that. It starts with you. What do you want real estate to do for you? Or are you looking for cash flow, which is common, or appreciation or tax advantages or a lifestyle benefit? Like maybe you want to live in it yourself.

Speaker 1 (00:23:37) - Once you've got that figured out what you want real estate to do for you, the market is the next most important thing. There is more risk with being in a little ho dunk market of 6000 people where half the employment is tied to the zinc mine than you think. So I like to be in larger metros have a diversification of economic sectors, something that you really excel in. Can So the market's at second thing because you need to have a place that's going to be filled with tenants. And when you buy your property, you need to have a reasonable expectation that 18 months down the road you're going to have another tenant that's going to be able to come in and fill that property. And then the third most important thing is the manager, your team. I mean, a bad property manager would drive a good property into the ground because you want this to be relatively passive. And fourthly and only fourthly is that property. And you know what happens. Can I see this happen? So often people get a 100% backwards.

Speaker 1 (00:24:30) - They go for three, two, one. First, they get all excited about a property and buy it because it has pretty blue shutters. Then they try to figure out if there's a good manager in the market because they don't like to get texts from tenants. And then secondly, they try to figure out the market that they bought in and it's too late. And then they go back to number one, which you're just so far out of line. And this is why a lot of people say that real estate doesn't work. So, again, the property is only the fourth most important thing. It starts with you market and team first. Yeah, I.

Speaker 3 (00:24:58) - Find that key. They do go for three, two, one all the time. Right? It drives me nuts because, you know, as you know and most professionals go one, two, three, four. And I think what happens is if when they get to one, they're they're figuring it out. You know, they need you to start there because it certainly clears up the vision, right?

Speaker 1 (00:25:18) - Yeah, 100%.

Speaker 1 (00:25:19) - And, you know, you intrinsically know this, but you just haven't thought it through before. Like, for example, you already know that the market is more important than the property. A giant mansion in a swamp outside Charleston, West Virginia, is not worth much, but yet a tiny 400 square foot efficiency apartment in the Tribeca neighborhood of Manhattan. Can be worth an awful lot. It's just reinforces the fact that the market's more important than the property and a lot of people get it wrong and always.

Speaker 3 (00:25:46) - Has been and always will be because you can you can screw up a purchase in a market that's going like this and you'll still look like a star.

Speaker 1 (00:25:55) - Yeah. And this will be true a decade and maybe even a century know. Yeah.

Speaker 3 (00:25:59) - So that's why the market is so important. So let's talk about the most controversial thing here, which is why there is 100% certainty, 100% of a housing crash. This is a I heard you talk about this and we talked a little bit about it for the podcast.

Speaker 3 (00:26:16) - I said, let's just wait, wait, wait, Let's talk about it on the podcast.

Speaker 1 (00:26:20) - There is a 100% certainty of a housing crash. And one might be wondering, first of all, how could you say that no one has complete clairvoyance to know the future? And the reason there is a 100% certainty of a housing crash in this era is because it already occurred. It happened in April of 2020, More than three years ago. It was a housing supply crash, not a price crash. In fact, the fact that we have had a supply crash really hedges against any sort of price crash. So using Freddie Mac data and I shared the chart with you before I came over to this video here so that you could see the backup. There are so many ways to go ahead and measure the available supply of homes, but about 1.5 million is what you'll see, Fred. The Federal Reserve economic data, about 1.5 million has historically been the amount of available homes going back to 2016. It began to fall after that with what happened in the health crisis.

Speaker 1 (00:27:19) - It plummeted in April of 2020 to 600,000 units and it still hasn't rebounded and it's continued to fall. So it's a 60% supply crash, 1.5 million down to less than 600,000 now. And that's what hedges against a price crash. That's why prices are continuing to stay buoyant at whatever demand level. The supply is really low, and that helps keep a bid on property. And really, I'd like to share with you the profundity of the fact that we've had a supply crash, not a price crash. I mean, think about this. We're the most powerful nation in the world, by so many measures, were the most powerful nation as far as political positioning and our military and our currency and our brand, the most powerful nation in the world. And we have trouble housing our own people. I mean, we're talking about food, shelter, safety, Maslow's hierarchy of needs, base level stuff here. So it's actually a bigger deal then a price crash. If you think about it, you may very well see more more homeless people in your in your hometown, for example.

Speaker 1 (00:28:25) - So the crash already occurred. A supply crash, not a price crash. Yeah. Yeah.

Speaker 3 (00:28:29) - It's important distinction, I think. I think people really need back up from this a little bit and understand where things are headed. You know, we have affordability problems. We definitely have homelessness issues creeping up. And so what really, really challenged everybody were these federal funds, increases in interest rates that went up. So all of a sudden, you know, we've also had the largest delta between rents and the the average mortgage price. So you got mortgages here. So rents and mortgages were kind of trending along at a pretty, you know, pretty equal amount. But now because of the whole prices that went up and the interest rates went up, there's a big, big gap between rents, even though rents have gone up. So that's also keeping people in their houses because they've got the 6%, let's say five, 6% interest rates, but they bought them at three. So they have this trapped equity, right? So so if you own a home that's 500 grand and you you have 3% on it, you're not going to move.

Speaker 1 (00:29:39) - Right? No, it's the mortgage interest rate lock in. Yeah, And that's a really astute point, Ken, because this plays in to the national dearth of supply on Iraq, 1.5 million available units down to 600,000. I talked to just lay people in everyday homeowners that have become landlords because they say, I don't want to sell my home. And it's 3.25% interest rate. So when I move out of it, I just want to hold on to that loan and rent it out. In the United States, you can't move your mortgage along with your property like that. So it's that interest rate lock in effect, that property, rather than coming up for sale, which would increase supply, doesn't it stays put. And almost two thirds of mortgage borrowers in the United States have a mortgage rate of 4% or.

Speaker 3 (00:30:24) - Less, a staggering number. It is. So I always tell people, Keith, you know, when I was growing up, cash was an asset, right? That was a liability. But now it's the opposite.

Speaker 3 (00:30:35) - Cash is now a liability because inflation. If you're if you have it in the bank is running faster and harder than what you're getting in interest. And now that debt at 3%, let's say, is an asset, you would actually be selling the property and you'll be getting rid of that asset. You can't borrow at 3% today because that is OPM or other people's money like we talked about.

Speaker 1 (00:31:00) - Right, Right. And if I borrow from a bank, say I'm a borrower and I want to take a loan from you. Well, of course, if I can do that at an interest rate, that's less than the rate of inflation. I want to do that because it's profitable. And how the mechanics of that work actually is when I repay Ken the bank in this case, every month that dollar debases on him faster than his interest can accrue on me. That's profitable for you if you can find that it's getting a little harder to find. But you can in some situations, still get interest rates lower than inflation.

Speaker 1 (00:31:33) - And inflation is such a fluffy number. We know that the CPI is manipulated with substitution and weighting and things, but if you can borrow at less than real inflation, that's exactly the transaction you're profiting from.

Speaker 3 (00:31:43) - What do you think real inflation is? Because I, I'm all over the Internet trying to figure this out, you know, and I go to all the shadow stats and all the things.

Speaker 1 (00:31:51) - Yeah, that's good that you're in shadow stats. There isn't really a good accurate way to measure inflation. I mean Ken and I a for next door neighbors were going to pay different rates of inflation. Say one of us is a vegetarian and the other eats beat then inflation in the price of steak affects one of us, but not the other. So if he commutes more than I do, gasoline prices affect him more than me. It's very difficult to pin down what the real rate of inflation is. There are hedonic reasons as well. Hedonic means pleasure seeking. So, for example, if home values go up 10% in a year, but now it's more common for homes to have quartz countertops in them a year later and they didn't have that in the homes of yesteryear.

Speaker 1 (00:32:33) - How do you adjust inflation for that? Because you're getting a better standard of living with quartz countertops. So this is why can and anyone has such a hard time pinning it down to what's the real inflation number. It's really nebulous.

Speaker 3 (00:32:45) - And I do know it's more.

Speaker 1 (00:32:48) - We do know it's more than what the CPI is reporting. How much more? No.

Speaker 3 (00:32:52) - One. I know it's true. It's all over the map. But I got to tell you, man, things are creeping up. You know, we were you know, my wife and I were you know, we just go to dinner and it's 100 bucks now. I mean, there's all these things that are there a lot more. But one thing is for sure, guys, if you can have an interest rate less than inflation, you're beating the market. That's the important thing to understand. And that's why, you know, go go the way back to Rich dad, poor dad with Kiyosaki. He was way ahead of his time when he said cash is trash.

Speaker 3 (00:33:27) - And, you know, savers are losers. And he doesn't mean that you are a loser. What he means is savers are losing money as compared with inflation. Back then, it was 2%. So now it's obviously more. Right?

Speaker 1 (00:33:41) - Yeah. And you know, really with inflation, I think the word is noticeable. No one talked about it when it was about 2% these past few years when it was right around the Fed target. It isn't until it became noticeable that it really became a thing. And you know, what do they say? What's Walmart greater say? They no longer say hello at the door. Instead, they just apologized for what's about to happen to you in there. It's noticeable.

Speaker 3 (00:34:05) - I noticed I was digging into the CPI or the Consumer Price Index recently for a video I was doing and I saw that housing was 44% of that number.

Speaker 1 (00:34:14) - Yeah. Between rent and owners equivalent rent, those two measures contribute to the CPI.

Speaker 3 (00:34:19) - So that's a lot. So think about that because I know, you know, what does that mean To me? That means that the Fed is not done increasing rates because, you know, I guess now they're reporting it at five.

Speaker 3 (00:34:33) - But if 44% of that 5% is housing in theory, then it looks to me like they're going to they're going to clip away at more of these federal funds rates. Right. What do you think?

Speaker 1 (00:34:46) - That's right. A lot of people think the Fed pivot will come later this year. The Fed pivot means when they stop hiking, which is increasing rates and begin to lower rates. I've got something really almost pretty trippy, really on interest rates to share with your audience here, Ken, because I think this is a real paradox that's going to blow some people away. What is it? So we know that mortgage interest rates have been up so much lately. And you know what happens with rising mortgage rates, right? When mortgage rates rise, home prices. You thought I was going to say fall, didn't you know? When mortgage rates rise, expect home prices to rise. And you might say what? That turns my whole world upside down. I mean, wouldn't one know that when mortgage rates rise.

Speaker 1 (00:35:38) - Well, that to. Creases affordability so one would afford less in prices would need to come down. And you know, the lens I like to look through a lot of times. Can we talk about applying economics to real estate? It's what I call history over hunches. I think it's really easy to have a hunch that when mortgage rates rise, well, obviously prices would have to come down due to impeded affordability. So maybe you're still wondering, well, what kind of upside down world would that happen? It's the world that you've been living in these past two years. What happened in 2021 and 2022? Home prices rose at a torrid pace, about 20% in 2021 and the following year last year, another 10% way beyond historic norms. And what happened with interest rates during that same time, they got doubled. I mean, they climbed a cliff. So that actually usually happens that when rates rise, prices rise. In fact, in the history over hunches, vane Winston Churchill is the one that said, the further you look into the past, the further you can see into the future.

Speaker 1 (00:36:44) - So let's open this up and look at the past, talk about why this happens, and then think about some lessons that you can learn from it. So in about the last 30 years, since 1994, mortgage rates have increased substantially nine times. That's defined as a mortgage rate increase of 1% or more. And during those nine times that mortgage rates rose, home prices rose seven of those nine times. This typically happens. And, you know, when I share this with real estate, people can a lot of them are blown away. They don't understand how they really don't even believe it. And I shared the data with you right before I came down here. You have the studio and maybe you can even put that chart up there to show people that I.

Speaker 3 (00:37:25) - Will do that.

Speaker 1 (00:37:25) - Jerry Yeah, but you know what? When I talk with doctors of economics, like the ones that I interview on my show, some of them aren't aware of it, but they all say, Oh yeah, I can believe it.

Speaker 1 (00:37:33) - I can understand how that would happen. All right. So what's going on here? Why does this happen? Why wouldn't mortgage rates rise? Would home prices rise? And, you know, there are for a couple of reasons. You know, can you and Donnell talk so eloquently about lag effects in the economy? Yeah, So that's one reason. But this can't completely be explained by lag effects because we have to think about what makes a person buy a home. Okay. We'll come back to that in a moment. But let's think about what happens when rates rise. Okay. Generally, the Fed is saying that the economy's hot, people are employed right now. There are some high profile tech layoffs for sure, but there are still more open job positions than there even are people to fill them. And this makes inflationary pressures heat up. So that's why they raise rates. When everyone has a job and you have an option if you get laid off to go to a second job and employers are competing for employees, what happens? You feel pretty secure in your job and what do you do when you feel secure in your job? You're likely to buy a home.

Speaker 1 (00:38:37) - So your situation, your income, your job security is an even more important factor than what mortgage rates are. So this is why, completely counter-intuitively and paradoxically, when mortgage rates rise, expect home prices to rise as well. And in fact, can. The only two times in the last nine that rates rose, that prices didn't rise as well. You know, they were they were 2007 and 2008 when there are really wacky aberrations going on in the market leading up to the global financial crisis. So, again, when rates rise, prices typically do two completely opposite of what most think.

Speaker 3 (00:39:12) - Yeah. And don't forget that part of the reason rates rise is because of the scarcity. So when you go from 1.4 million to 600,000, yeah, you have less just basic demand and supply. Less supply.

Speaker 1 (00:39:27) - That's right. And I think importantly, one needs to remember that there's less supply of both homes to buy and homes to rent. And even when one does want to buy and they continue to get shut out of the market with higher rates and higher prices than that obviously puts more people back in the renter pool, which is pretty good for guys like you.

Speaker 1 (00:39:45) - And I can know a lot of income priced right?

Speaker 3 (00:39:47) - That's why I did that video Renter Nation because it's not good by the way this you know housing is supposed to be balanced. So as somebody who owns a lot of rentals, we lose people. We lose people to single family home buying. That is the way it's supposed to be. Right? And then there are some people that when they're when they're done with the single family side, they want to come to rentals for convenience, for flexibility, for all kinds of things. So it's a natural stop. And so when one's out of whack or the other is out of whack, it's not necessarily good.

Speaker 1 (00:40:21) - No, it's not good. I mean, that impedes the upward mobility in really part of the American dream. Of course, you never want to lose a tenant from one of your apartments, but at least you can say, hey, congratulations, you moved up a rung or whatever. So this is the cost of any entry level. Housing is really high.

Speaker 1 (00:40:40) - In fact, when you parse the amount of available homes by the entry level type of, say, single family homes and duplexes, which tend to be the ones that make the best rentals, yeah, they're even more scarce.

Speaker 3 (00:40:51) - It's it's gotten worse. You know, I don't know that as a builder as you know, we built we can build entry level you know the.

Speaker 1 (00:41:00) - Most can't make it feasible.

Speaker 3 (00:41:01) - Cost the cost to build a house today is expensive.

Speaker 1 (00:41:05) - Yeah it really is. And you know, if you are looking to be a real estate investor in the 1 to 4 unit space, which is really an area where I specialize, if you can find a builder that builds entry level homes, I do know of a number of them in the Midwest and South, this could be a time for you to get a new build rental property more so than a renovated one. You know, that's really opposite of ten years ago. Ten years ago, we were still coming off the global financial crisis. Crazy.

Speaker 1 (00:41:32) - That was when the cost of property was even less than the replacement cost no one was going to build. Now you do have people building and, you know, can I know a number of these builders because mortgage rates are higher, that they're helping the investor, the individual investor down there. People like me, yeah, they're buying down the rates. So it's quite common for, oh, say on a $350,000 property for the builder to give you 2% of that 350 K purchase price. What is that, $7,000 at the closing table for you to buy down your mortgage rate? You also have turnkey newbuild companies that are giving 1 to 2 years of free property management. So new build typically costs more than renovated, which is why in the past a lot of investors like to buy a renovated property. But with the new builds and incentives like that and the fact that you're probably going to have lower insurance rates with new builds versus renovated, I think this really tilts toward you as the investors looking at property to your portfolio.

Speaker 1 (00:42:28) - It makes more sense now to look at new build than it has at any time in the recent past.

Speaker 3 (00:42:33) - Yeah, I know that like when we look at those big projects for for acquisition, you know, we're looking at what is it, what is the cost per unit for, let's say an acquisition in Phoenix versus building one? And in the last three years it was building all day long because the cost was 100,000 more per unit to buy crazy, crazy how existing product can get pushed up that high. And so all of a sudden that makes the building more affordable. Yeah, actually. And when you when you build the one next to the other, people are going to want the newer product all day long.

Speaker 1 (00:43:12) - Ken And maybe I can ask you a little something about being a builder. You know, I have learned from some builders that in a way some things are nice because they're not getting as much competition from resales on the market. We talked about why there aren't resales on the market. People want to hold on to their low mortgage rates so builders don't have the competition that way.

Speaker 1 (00:43:31) - But maybe you could let me know. Of course, it's going to vary by region and we've been talking very much nationally so far in the conversation here. But really, what's the lowest price point where it's still feasible as a builder to build where you have enough margin? Like what's the lowest price point on maybe a single family home? And then a larger. Yeah.

Speaker 3 (00:43:49) - So for me, it's mostly just apartments. So, you know, we'll go into a market. I'll give you a great example. We can buy in Austin, Texas, mid-nineties product, vaulted ceilings, nine foot ceilings, beautiful garages for $180,000 a door. Really nice. There's no way we can build that there for that price. Not even close. However, you take that exact project and you move it to Phoenix, it's 350 now. The rents are different, the expenses are different, the insurance is different, the property taxes are different. I understand the math. Is that the same? But, but on a per foot basis and a per unit basis, that's how different it is.

Speaker 3 (00:44:33) - So because of that, we're building in Arizona and buying in Texas. So now that can change. And also, you know that Austin could get really hot, those prices can go up and then we know that then it would change that dynamic. And so to your point, you always have to take a look at the difference between the deliverable. You know, do you buy The one thing I do like about buying is that it's immediate. You know, you could step into something immediate, make change immediate, whereas there's a bigger lag with the construction. So you do have some interest rate risk because you can't get a fixed rate loan on something that doesn't exist. It's land, it's air, and then it's built until it's in service, they call it. Then you can put fixed debt on it, but that's it. Up to that point, you're subject to a little bit of the whim of the fluctuations of the Fed and all the other things that that determine interest rates. So so you do have those things.

Speaker 3 (00:45:36) - We do love the new property. And so do our tenets. So when you build something new, people want to be there and they move out of that ten year or 15 year old product into something new. So there is that, plus you get a little bit more rent and, you know, all of those things. So there's positives and negatives for both.

Speaker 1 (00:45:55) - And so it's really, I'd say in the last ten years when you've seen the advent and proliferation of these build to rent companies, they're turnkey companies that build a finished product for you. That's the first thing that they do. And then the second thing they do is they place a tenant in it for you. And then thirdly, they hold it under management for you, the investor, if you so choose. Basically, it's those three things that define what a turnkey rental property is. So it's making more and more sense to do that with new build properties.

Speaker 3 (00:46:28) - Yeah, it certainly can and it's market by market. But you're right, you have to look at it each and every time.

Speaker 3 (00:46:34) - So before we wrap up, I'd like to talk about, you know, you always say invest in what's scarce, which I completely agree with. You know, And the other thing I like to say is invest the things that you can't print. So, you know, you could print dollars. You know, you can you can create a stock or ETF out of gold and all kinds of things, but you can't print gold, you can't print oil, you can't print trees. You can't print real estate. So let's talk about what's invest in what's scarce. So what do you mean by that?

Speaker 1 (00:47:05) - Oh, I love that. And we're so aligned on that. If I have any one investing theme, it comes down to one word scarcity. Yeah, I like to invest in what's scarce, not what's abundant and can be printed. You know, you don't even have to print anymore. It's just a few keystrokes and things like dollars and additional stock shares, abundant things, they can just be conjured into existence.

Speaker 1 (00:47:27) - So I avoid what's abundant like dollars in stocks and I focus on investing in what's scarce and is difficult to produce more of and take, yeah, real world resources to produce which is for me, it's real estate, gold and bitcoin that rounds out my scarcity theme. Why Real estate? It's a wealth builder really. Gold and bitcoin are not proven wealth builders. I think gold and bitcoin are maybe good places to move some capital once you've built it. Gold and bitcoin can be good stores of value gold really the classic store of value and bitcoin the real risk. But you know real world resources to produce. They're all scarce. Like we talked about the low supply of real estate. It has utility meaning usefulness. And yeah, when you buy a piece of real estate, a lot of people don't think about it this way, but break down all the commodities that you're buying when you buy a piece of real estate from drywall to gypsum, the copper wire to glass and all those sorts of things, it takes real world resources to produce that real estate.

Speaker 1 (00:48:27) - Real estate gives you advantages that gold and bitcoin don't like a reliable income stream and the ability to use leverage and terrific tax advantages. So that's why I'm a real estate guy. That scares gold, has a scarcity. What's really special about gold is it's one of the few things that's had enduring value for millennia, about 5000 years. You can say that about exceedingly few things. I guess you could make jokes about. It's intrinsic value. It's really not used that much industrially, but people have always flocked and gravitated toward that during times of uncertainty. And there's low supply inflation on gold that is very difficult to mine 2% more gold than it was the previous year. There were just challenges from exploration to mining and creating much more of this gold. And then thirdly, Bitcoin. You might not be that familiar with Bitcoin, but it takes real world resources, hardware, software and electricity to bring more Bitcoin into existence. There will never be more than 21 million bitcoins, so it has a fixed supply. You can't quite even say that about real estate and gold.

Speaker 1 (00:49:37) - A hard cap of fixed supply. More than 19 million bitcoin have already been mined. It's truly scarce and Bitcoin does have a role. It has some downfalls too, in case the government cracks down on it. I think that's the big risk with Bitcoin. But gold and dollars each have their downfall is difficult to transport gold across space due to its weight in its volume and security problems and then dollars. You can't transmit dollars across time due to inflation. Bitcoin is that one store of value. It's still volatile, it's still got some problems there, but it's the one store of value that you can transport across both space and time. You can't say that about dollars or gold. I'm a real estate guy. Real estate, you know, I think of it Ken is real estate is old and slow and analog and Bitcoin is young and fast and digital, so it is kind of a counterpoint. To the real estate with the Bitcoin. But yeah, if you need to build wealth and you don't have it yet, it's really difficult to invest in an asset class outside of real estate.

Speaker 1 (00:50:47) - Wealthy people's money either starts out in real estate or it ends up in real estate.

Speaker 3 (00:50:52) - Yeah, that's true. Yeah. I personally, I'm a big gold guy. I, I love being able to just throw a couple coins in my pocket and fly to wherever I want and pull them out and they're like, I got 4 or 5 grand.

Speaker 1 (00:51:04) - It's something tangible. You could actually look at it.

Speaker 3 (00:51:06) - It's nice. It's kind of nice to have that, you know, I don't particularly look at it as an investment, right? I look at it more as a hedge, an insurance policy, maybe a hedge against the dollar.

Speaker 1 (00:51:17) - Yeah, it's sort of like money insurance. I agree. And really a lot like an insurance policy. You hope you never have to use it, just like you hope you would never have to sell your goal. It's good money insurance. It's not a wealth builder. In my experience. It really just generally tracks inflation over time.

Speaker 3 (00:51:35) - Which is a good thing, by the way, especially now.

Speaker 3 (00:51:38) - I think what's interesting is have you had a chance to look at how much gold the central banks have been buying? I really have. So this is a really interesting point before we wrap up. So as you guys might know, central banks are in charge of printing money, basically. Well, other things, but one of those, that's one of them. So and they're kind of upset at the US dollar right now. Yeah. Because, you know, the world trades in US dollars and they're sitting on US dollars. And as we inflate and print US dollars, it looks like that a lot of them are buying gold, Right. And I would if, if they're they're trying to store their value in something that dollars so something other than dollars. I read an article the other day that said that we've been weaponizing the dollar against the rest of the world. Right.

Speaker 1 (00:52:28) - Right. So many foreign central banks, China, Russia and many more, they've really been loading up on gold these past few years.

Speaker 1 (00:52:36) - You see more and more international trade agreements, like you alluded to, cutting out the dollar and going through the yuan. You had the war in Ukraine, all these things increased geopolitical uncertainty. And that's why gold was on a tear and went over $2,000 recently.

Speaker 3 (00:52:49) - And then BRICs, BRICs is showing up. You know, that's the Brazil, Russia, India, China and South America. Right. And South Africa. Right. And I think there's a 30, 40 countries now. I've joined something like that.

Speaker 1 (00:53:04) - Yep. There's more and more. And they're not they're not pals of the United States.

Speaker 3 (00:53:07) - No, no. I don't know if you guys are watching this stuff, but it's something you have to watch. I mean, because your hard earned, your hard earned money is yours. And so you have to be a steward of it. You have to look at this stuff. It's not conspiracy theory stuff. You need to go out and Google this stuff and you'll see it's the dollar doomed. I don't know the answer, but I do know that you have to keep your eye on all this stuff.

Speaker 3 (00:53:30) - Right.

Speaker 1 (00:53:31) - Well, I'm glad you bring this up because one can speculate, one can make projections. But one of the few things that we do know and this is central to every investment that you make is that the dollar is going to continue to be debased. At what rate? We just don't know. But there are a few guarantees in life, but that's one thing that's virtually guaranteed. And really everything that we're talking about here hedges you against that. Again, dollars in stocks can easily be printed. Want to stay out of those sorts of checks?

Speaker 3 (00:53:59) - And if you could fix your rate while the government debases your dollar, you're winning.

Speaker 1 (00:54:05) - That's a winning formula for every million dollars in debt you have with just 5% inflation, you know the bank back 950 K after one year because wages and prices and everything, salaries are all higher. And with real estate, it's wow, your tenant pays all the interest for you while you're enjoying that debasement benefit. It's definitely counterintuitive. Get more debt. That's one of my favorite four letter words.

Speaker 3 (00:54:31) - Ha ha ha. Well, good. Keith, this has been awesome. So what's the best way people can reach you? I know I listen to your stuff, but I'm not sure everyone knows the.

Speaker 1 (00:54:40) - Get Rich Education podcast and get rich education YouTube channel. Real estate pays you five ways at the same time. Just regular buy and hold real estate. And it's actually okay that we didn't get into that because I made a free course with five videos, one on each of the five ways, just regular everyday buy and hold real estate pays and we're giving that away free right now at Get Rich education slash course. So it's a gift certificate and podcast and YouTube channel and again that free course real estate pays five ways which really reinforces why real estate is that generational wealth builder is a get rich education slash course. Awesome.

Speaker 3 (00:55:21) - All right, buddy, always great to see you.

Speaker 1 (00:55:23) - Love catching up, kids. Yeah. I hope that you enjoyed that vibrant conversation and a lot of original thoughts between Ken and I there.

Speaker 1 (00:55:36) - Ken is one of the more giving guys in the real estate industry. I like to hang around with the givers and reciprocate myself. One thing that I cannot take credit for as original is my part of the discussion where I was speaking about how the property is only the fourth most important thing in real estate investing. I learned at least some version of that from the real estate guys Robert Helms and Russell Gray. Now, when it comes to the prospect of a housing price crash, I think that a lot of the gloom and doom was that were completely wrong about that. Since 2020, you know, a lot of them have just dissipated or have gone away. Economic uncertainty that could not make home prices fall in any meaningful way like we've experienced the last three plus years and then last year a doubling of interest rates. Well, that couldn't really touch home prices either. Looking into the future, the rest of this year and into next year, I've got a good eight or so reasons here that home prices won't crash, although there could always be a black swan event, I suppose, from a pandemic to a direct hit by a meteor into the center of the United States.

Speaker 1 (00:56:46) - You are listening to someone that successfully invested through two recessions here. Home prices won't crash anytime soon because there aren't currently enough homes to house Americans. There are billions of dollars sitting on the sidelines right now just waiting for people to jump into the market. Lending guidelines have been strict for a decade plus, and that means those that own homes now can afford to make the payments. Home equity is also near record levels, so those that do have trouble making their payments, they wouldn't have to make a highly distressed fire sale. The government will do everything that they can to stop foreclosures, and on average, it takes 900 days to complete one. The population keeps increasing, although slowly US housing is still some of the most affordable in the world. And what higher interest rates do is that they also slow homebuilding. They slow that rate of new supply. This is all why housing prices cannot crash any time soon. We've got a fantastic show coming up here next week for you. If you're newer to this show or you just haven't seen my free real estate pays five Ways video course yet.

Speaker 1 (00:58:00) - Like I was telling Ken's audience about there, this is fundamental to you building the kind of life that you've always wanted for yourself. The course is truly free. I don't try to upsell you from that to some paid course. Perhaps the best thing that you can do for your financial future is to watch and understand all of the ways that you are paid. You can do that now at Get Rich Education slash course Happy independence Day. I'm Keith Winfield. Don't quit it.

Speaker 4 (00:58:35) - Nothing on this show should be considered specific, personal or professional advice. Please consult an appropriate tax, legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of Get Rich Education LLC exclusively.

Speaker 1 (00:59:03) - The preceding program was brought to you by your home for wealth building get rich education. Com.

Direct download: GREepisode456_.mp3
Category:general -- posted at: 4:00am EDT

Mon, 26 June 2023

Get our newsletter free here or text “GRE” to 66866.

Storing your money at a bank entails more risk than you think. Your deposit is a bank’s liability. Banks must take risks with your money because they don’t charge you fees.

Banks used to have a 10:1 reserve ratio. As of March 2020, all reserve requirements are now eliminated.

Rather than storing lots of money at the bank, borrow lots of money from the bank.

US households own $41T of owner-occupied property—$29T in equity, $12T in debt. The national LTV ratio is 30%, historically low. That’s 70% equity.

Of the five ways real estate pays: one profit source is the market, two are from the tenant’s job, and two come from the government.

Many Millennials plan to rent forever. 63% have nothing saved for a down payment.

The interest-rate lock in effect keeps constraining the available supply of homes.

This forces more homebuilders to build.

Last week, NBC Nightly News covered the rise of build-to-rent communities.

Resources mentioned:

Show Notes:

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454: How to Build Generational Wealth

Complete episode transcript:

Welcome to GRE! I’m your host, Keith Weinhold. Do you have any idea what banks do with your money? How home equity is like a bank, hot Millennial rental trends, and the proliferation of Build To Rent real estate, today on Get Rich Education!

___________

Welcome to GRE! From Glens Falls, NY to Klamath Falls, OR and across 188 nations worldwide, the voice of real estate investing since 2014. You’re listening to Get Rich Education. I’m your host, Keith Weinhold.

You did not wake up to be mediocre today. So we don’t focus on long-term budgeting here.

Correlating financial betterment chiefly with reducing your expenses is just a race to the bottom. You and your peers would just be racing to the bottom.

We know that, instead, yes, arbitrage is created when you borrow low and invest high. But the ultimate arbitrage - which is the gap or that spread, is when your quality of life vastly exceeds your cost of living.

That’s that gap that you & I pry open ever wider together right here, every week.

Savers lose wealth.

Stock investors maintain wealth.

REIs build wealth.

Savers lose wealth because inflation makes holding onto a dollar like a block of ice melting in your hand.

Retail stock investors only MAINTAIN wealth because their 9 to 10% long-term return is worn down to less than nothing with inflation, emotion, taxes, fees, and volatility.

And real estate investors BUILD real, durable wealth.

If you have a mentality of trading time for dollars, then you have a certain way of looking at your life.

If you realize that your investing mission in your life is to build things that pay you to own them, then you have a different way of looking at life.

The resources that you need to build those things are what we cultivate here on this show.

You know something though, by the time that I bought my first rental property, I didn’t have all of that figured out yet.

It really wasn’t until I bought my second property. It was also a fourplex, just like the first one. This second one cost $530,000. And check out how I bought it.

I bought it with a 10% down payment, interest-only loan, and interest rate of 7⅝%.

Yep, I took accumulated equity from my first four-plex and used it as a down payment on the second four plex.

Now, that way, I essentially had zero money in the deal - which is an infinite return strategy - and both fourplexes cashflowed.

Now, the interest-only loan on my second fourplex there… that gives some people pause.

Why would I do that?

That kept my monthly payment amount down - since I could pay only interest - and didn’t have to pay principal. That turned a property with a small cash flow into a nice cash flow.

Yeah, some people don’t like interest-onlys because then the tenant isn’t paying down your principal for you.

I typically take interest-only loans because for every dollar that doesn’t go into your illiquid principal as equity, instead, it becomes a dollar of liquid cash flow that goes into your pocket.

In fact, changes are that the reason that you have fat equity in home right now is from market appreciation, not principal paydown.

In fact, why don’t I approach the classic GRE principle of “your return from home equity is always zero” from a new and novel angle here today.

Gosh, this could make you hundreds of thousands or millions over your investor career.

Imagine a bank. We’ll call it a red bank. This bank is offering you zero rate of return, it’s difficult for you to withdraw your money from it, and this red bank might not even let you withdraw your own money at all - it is at their discretion.

How motivated are you to hold your money at that bank? Well, you aren’t at all.

Well, I just described equity that’s locked inside properties… and that’s why… your properties make terrible banks.

Equity is the opposite of you being liquid.

Instead, the GRE Way is leverage and arbitrage, but it needs to be supported by cash flow.

So, we are not quite on an island here with our strategy, because we’re still connected with the mainstream finance world - but we’re, say, a peninsula then.

And, like a peninsula, maybe, real estate keeps you insulated - though not completely disconnected from that more volatile stock and bond shuffle that most people are on - which provides little to zero leverage or cash flow.

Do you know what that stock and bond shuffle is - that seesaw?

Let’s remind ourselves… that when money flees the stock market, it usually ends up in bonds. As demand for bonds goes UP, interest rates go DOWN.

Then, as interest rates go down, investors go back to stocks in pursuit of yield, and everything reverses. It’s an ebb and flow of funds which often provides you with zero real return. That’s how that seesaw goes.

So rather than get a part-time job, which is selling your time for dollars, get a few rental properties instead.

Whether you manage them yourself or you manage the manager - like I do, I manage managers… you’ve got the income stream of a part-time job with an asset that appreciates at the same time.

As time passes, the reason that you will feel satisfied is because you took strategic risk.

Now, to stick to the bank analogy theme here, a lot of people still don’t realize that when you take your money to the bank, you are a creditor of the bank, and the bank is now lending your money out.

So, just think about what you’re doing - well, you yourself probably aren’t doing so much of this - you’re probably a better than average investor since you’re listening here.

But think about those depositors that keep a lot of money at the bank.

Yes, we know you’re losing to inflation, but besides that, just think about what happens to your money this way.

What about a parking garage and your car? OK, when you park your car at a valet, the valet is supposed to turn around and park it in a garage.

The valet does not have the right to take your car and let an Uber driver go make money with it while you’re off having dinner.

And then maybe they’ll give you the same make & model back at the end of the night… and they stick YOU with the risk of having a problem with your car - or your money.

That’s what banks are doing with your money when you park it there. It’s like a valet letting an Uber driver use it and take risks with it without your knowledge.

What isn’t FDIC-insured is… at… risk.

Well, what’s the alternative to banks lending out the money that you deposited with them? Well, the alternative to the existing system is that banks, instead, could make money off of fees that they charge you.

How is it that you avoid paying fees to your bank right now, like you are? I mean, afterall, banks have capital expenses, technology expenses, and employee expenses.

If banks charge fees to you rather than profiting from the spread that they get on lending your money out, we could have a safer system.

But most people like the allure of fee-free banking, partly because that’s what they’re used to.

Banks used to have to hold onto a dollar for every $10 they had in deposits. That’s also known as a 10:1 fractional reserve ratio.

Well, the risks of parking your money at a bank went up in March of 2020. That’s when the Fed just COMPLETELY eliminated reserve ratios for banks.

Now, for every $10 they have in deposits, banks can hold zero dollars in reserve.

Instead of parking your money at a bank, you do the opposite. You borrow from the bank, pay them their 7% interest and invest it in “Real Estate Pays Five Ways” property that beats 7%. Right there’s… your arbitrage.

Now you’re using their money instead of them using your money - like the valet that you entrusted your car with that lent out your car to the Uber driver while you were at dinner.

So outside of inflation, why is it risky to keep your money parked AT a bank - rather than borrowing from them. Because, as has often happened this year, banks implode.

Why are they imploding?

Well, just a couple years ago, when banks lent on mortgages at 3%, they’re only collecting 3% for 30 years.

What happens to the BANK when interest rates go up? No one wants to buy their 3% debt. The depositor (that’s you, the customer) wants their money back - because they can go invest it for 5% elsewhere. That’s a problem for the bank.

And if the government does come in to give a bailout of your bank - we know by now that they’re more likely to do it if it’s a large bank, like Chase, Wells Fargo, or B of A.

Well, more gov’t bailouts of banks… means more money printing… which means more inflation, making our eventual problems even worse.

So rather than keeping too much money at the bank, BEAT the bank.

Now, earlier, I mentioned how having a glut of equity in your properties is like keeping your money in a rather illiquid bank.

That is a germane point - a pertinent discussion to have right now, because take a look at this. This is America’s equity position, right now.

This is for the latest quarter ended. The Federal Reserve Flow of Funds report tells us that

U.S. households owned $41 trillion in owner-occupied real estate. Alright, $41T is the value of that US residential property.

Of that $41T, how much do you think is in debt, and how much is in equity? I’m just doing some rounding here.

$12 trillion in debt and the remaining $29 trillion is in equity.

Therefore, the national loan-to-value "LTV" right now is about 30%. That is historically quite low.

Another way to say it is that America’s primary residences have a 70% equity position today.

Yes, 70% of the value of American homes is locked into that vehicle that’s famously unsafe, illiquid, and always has an ROI of zero.

Homeowners today have an average of $302,000 of equity in their homes.

Now, as inefficient as that might sound from an opportunity cost perspective from homeowners.

There is, at least, a little upside to your neighbors having a glut of equity even if you try to opportunistically hold a low equity position.

This equity provides a cushion to withstand potential price declines, but also prevents any future housing distress from turning into a foreclosure situation.

Those equity cushions around American neighborhoods help prevent the down… drain in prices that we saw from 2007 to 2009.

I’ve got more for you coming shortly, including, has the Build-To-Rent concept that we’ve discussed on this show for years & years finally gone mainstream now that NBC news is discussing it?

You’ll hear that audio clip and get my commentary on it.

But first, I want to ask you, is this the "Golden Age" of quality NEWSLETTERS or what?

News WEBSITES are increasingly riddled with: paywalls, logins, banner ads, and pop-ups about cookies, the hassle of 2FA. Instead, a quality newsletter is just automatically “there” in your inbox.

Our valuable Don’t Quit Your Daydream newsletter is full of real estate investing industry trends and forecasts, broader economic forces that are going to affect you in the future & more.

Get top investment property news in under 5 minutes.

You can sign up and get the letter free now at GetRichEducation.com/Letter.

In there, you get updates about what provider has inventory now - even exact physical addresses of properties.

In fact, I’ve featured two of my own rental properties in the newsletter as I broke down their financials. Again, sign up at GetRichEducation.com/Letter

I STILL write every single word of that letter myself. I don’t think that a lot of founders do that.

Upon signup, you’ll receive some lay of the land e-mails, and thereafter, I only send it about weekly. Not daily.

Alternatively, you can easily sign up for the letter by text. If you aren’t yet one of many subscribers expanding your means with my letter, you can simply text “GRE” to 66866 for our DQYD Letter. It is free.

Again, you can sign up by simply texting “GRE” to 66866. More next. I’m Keith Weinhold. You’re listening to Get Rich Education.

_____________

Welcome back. You’re listening to Episode 455 of Get Rich Education. I’m your host, Keith Weinhold.

Five weeks ago on the show, you’ll remember that I reiterated why real estate does not pay 4 ways and does not pay 6 ways - it pays exactly five ways simultaneously.

Sometimes, amid uncertainty - and note that there’s ALWAYS - uncertainty.

It never abates. People wondered when the Fed would stop hiking rates at a meeting. Now they did. People wondered when inflation would get down to 4 - now it has.

But those that worry excessively will still point to something else that’s uncertain.

But in good times, bad times, and uncertain investing times, you might want to get more offensive. Other times, more defensive.

Real estate is both. Of the 5 ways you’re paid, appreciation and cash flow serve your offensive side.

At the same time, your return on Amortization, Tax Benefits, and Inflation-Profiting all serve your defensive side.

Now, let’s go and look at the sources - the headwaters - the genesis.

What are your 5 profit sources - for appreciation - it’s the market. It’s the vibrancy and diversity of the economic market that you bought in. That’s where your appreciation emanates from.

For the second way you’re paid, cash flow, it’s your tenant and your tenant’s job.

For the third way, your Return on Amortization - that ROA, that also comes from your tenant, since that pays your loan’s Principal & Interest.

The fourth way, tax benefits, that’s the gov’t.

And the fifth way, your inflation-profiting, that also comes from the gov’t.

Yes, that’s the source, the headwaters for each of the five ways you're paid and knowing that can help you be mindful about what to pay attention to in your investment real estate portfolio long-term.

Yes, this is just with carefully-bought buy & hold real estate. Unlike most investments, if the value of your property goes down, you still get paid 4 ways.

So to review the 5 Ways Real Estate Pays SOURCES - where your money actually originates, it’s:

Appreciation - from the market

Cash flow - from the tenant

ROA - tenant

Tax Benefits - gov’t

And Inflation-Profiting - also from the gov’t

Now, here at GRE, when we focus on your tenant and where your tenant comes from, you know, one word that comes up an awful lot is Millennials.

Why do we discuss Millennials so regularly? It’s not because we’re the first generation to embrace avocados or online dating over “in real life” dating or, it’s the first generation to be raised in a world of participation trophies. Ha!

It’s because, not only are Millennials the largest generation in American history, but they are in their prime household formation years.

Though there’s a bit of dissension among demographers, many agree that Millennials were born between 1981 and 1996. That makes them Age 27 to 42 - they are prime household formation years.

BTW, you probably know of the generation after that, Gen Z. They were born between 1997 and 2012, making Gen Z age 11 to 26.

But do you know about the generation after that? That is Generation Alpha. They were born between 2012 and today, making Generation Alpha age 0 to 11.

Well, the Millennial homeownership rate lags that of previous generations of people that were the same age. So this is why you have such a deep pool of people that’s driving demand for your rentals.

Millennials have the misfortune of being stung by back-to-back global crises.

When they were coming of age in 2008, many couldn’t get a job during the Global Financial Crisis. Then the pandemic disruption made getting their independence pretty bumpy.

In fact, fully 18% of Millennials say that they plan to rent forever. Forever! That’s up from 11% just five years ago.

Not just a few, but the MAJORITY of Millennial Renters have zero down payment for house savings. 63% of them have absolutely nothing saved for a house.

And in fact, another 14% have less than $5,000 saved - which is close to nothing. That is all according to a survey from Apartment List.

More Millennials plan to rent forever.

Now, I’ve done a fair bit of research on Generation Z real estate trends - again they’re the age between 11 and 26. And there are a few more Gen Z homeowners than you might think already.

But the short story on Gen Z, just isn’t that compelling. To distill everything I’ve researched, most Gen Zers want to own a home but few can afford it. Well, no kidding. That’s not a very novel takeaway, but that’s the REAL story there.

If Millennials are your current renters, then Gen Z are your current and future renters.

Now, I’ve talked to you a good bit about the “interest rate lock-in” effect. So many homeowners have ultra-low mortgage rates that they don’t want to sell their home, and when they don’t put it on the market, that further constrains supply.

Well, Redfin recently brought some new color to the interest-rate lock-in effect. They’ve shared some really interesting material with us.

92% of mortgage borrowers have an interest rate under 6%.

80% of them have an interest rate below 5%.

62% of these people have an interest rate below 4%.

And a quarter have a rate below 3%.

New listings of homes for sale and the total number of listings have both dropped to their lowest level on record for this time of year… and that is fueling homebuyer competition in some markets and preventing home prices from falling.

In fact, Redfin tells us that the national ASKING price for homes is the same that it was one year ago.

Sale prices increased most in these 5 metro areas.

Cincinnati leading the way at (9.2%). We’ve got cash-flowing Cincinnati property at GRE Marketplace. Miami (8%) not really a cash flow market there. Third-best is Milwaukee (8%), rounded out by Fort Lauderdale, FL (6%) and Virginia Beach, VA (5%).

They are the 5 metros with the highest appreciation.

Current months of national housing supply is still just 2.6 months - scarce inventory. 6 months is a balance market.

Homes that sold were on the market for a median of 28 days. That is the shortest span since September. There’s a bit of a seasonal factor there though.

Now, when we talk about the paltry supply of homes since existing homeowners don’t want to lose their low rate, it’s forced more homebuilders to build - in order to make some inventory available.

It’s made a good opportunity for you to buy these homes that are built for renters from Day 1, and rent it to a tenant yourself.

Now, I know that your life is more interesting than watching the NBC Nightly News with Lester Holt and then dozing off to sleep at 9:30 PM (ha!), so in case you didn’t catch it, here it is on “Build-To-Rent” last week.

It really takes the perspective of the RENTER and why they want to pay your rent to stay in a Build-To-Rent home… longer than they do for an apartment. This is about 2 minutes long & I’ll be back to comment.

BTR on NBC News: https://youtu.be/BXwTerRQWNo?t=954

Yes, that’s the popularity of build-to-rent homes. Something that we’ve been discussing here at GRE, for, gosh, maybe 8 years now.

Like they said there, rents are on the rise. But they’re not rising nearly as fast as they were 1 and 2 years ago. Rent growth has slowed for both SFHs and apartments.

I think that the assurance for prospective income property owners like you is that in your Build-To-Rent properties, you can have a reasonable expectation of high occupancy and low vacancy as long as you buy your SFRs in a decent market.

And see, more often than not, a builder is only going to build new, rental single-family homes if there are plentiful jobs nearby to support that.

So you can kind of crowdsource the due diligence that the builder did on what’s demographically and economically feasible if you choose to add these property types.

Despite the build-to-rent properties added, today, America only has half as many homes available as 2019.

Compared to just a year ago, there are 5% fewer available properties today.

But, we’ve got available Build-To-Rent and existing income property here at GRE Marketplace. Yes, just create one login, one time, and get access to all national providers at GRE Marketplace.com.

But say you want a little help, a little coaching. Say perhaps you haven’t bought property before, or you haven’t bought one in a while, or you haven’t bought property across state lines yet - since that’s where the best deals usually are - or you just want to lean on a coach to bounce ideas off of as you’re looking for your next investment property.

Well, in that case, you can rely on our free coaching service. That’s at GREmarketplace.com/Coach

Our coaches don't blow the whistle at you for missing a play. You'll never find them as grumpy as, say, New England Patriots' Coach Bill Belichick. They’re not that kind of coach. It’s not the kind of coach that will ask you to start your morning with an ice bath.

And if you're new to real estate, there's no such thing as a stupid question with GRE Investment Coaches. No penalty flags are thrown.

To find that property that builds your residual income and pays you five ways, you can choose which coach you want to have help you.

Coaching is a completely free service to you.

What they do is...

Learn your goals
Find you the best off-market deals nationwide
Find the property provider with incentives. (One provider recently offered 4.75% interest rates, another free PM for one year.)
Help write your offer if you would like that
Submit earnest money
Navigate the inspection
Interpret your appraisal
Check your management agreement
And just ensure a smooth closing day for you

Your Investment Coach can do more than this. If you prefer, they can do less than this.

GRE Marketplace is where the coaches source the properties. It is more like an organic farmers' market than a big box store. Property offerings change frequently.

Because there are limited slots available to talk with them through phone or Zoom, it helps if you've got your down payment and are ready to go.

Sheesh. If it were any easier, they'd even make your down payment for you.

Did I mention that it's completely free? To get started, choose your coach and book a time. Start at GREmarketplace.com/Coach

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

Direct download: GREepisode455_.mp3
Category:general -- posted at: 4:00am EDT

Mon, 19 June 2023

The wealth of families often dissipates to zero within a generation or two.

Learn about the Vanderbilt family’s downfall and how you can avoid these mistakes.

Have an estate plan. I explain the difference between a will and a trust.

I introduce you to my friend Michael Manthei.

A regular GRE listener, Michael and his wife bought 55 units within 4 years and acquired $85,000 of annual real estate income.

He thinks about generational wealth as: income, taxes and inflation, giving, faith, service, preserving stories, character, physical health, and that your family is a treasure.

Learn the difference between inheritance and generational wealth.

Today, Michael runs the Elevate Investing Group. His upcoming event, Generational Wealth 2023, is August 18th-19th, 2023 in Lancaster, PA. Register here.

I’ve never heard of an event like this. Multiple generations of one family will tell you how they did it.

Resources mentioned:

Show Notes:

www.GetRichEducation.com/454

Michael’s transformational event:

Generational Wealth 2023

Build a trust or will fast:

TrustAndWill.com

Get mortgage loans for investment property:

RidgeLendingGroup.com or call 855-74-RIDGE

or e-mail: info@RidgeLendingGroup.com

Find cash-flowing Jacksonville property at:

Invest with Freedom Family Investments. You get paid first: Text ‘FAMILY’ to 66866

Will you please leave a review for the show? I’d be grateful. Search “how to leave an Apple Podcasts review”

Top Properties & Providers:

Best Financial Education:

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text ‘GRE’ to 66866

Our YouTube Channel:

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453: America's Awful Housing Shortage, Meet Our New Investment Coach

Complete episode transcript:

Keith Weinhold (00:00:00) - Welcome to G R E. I'm your host, Keith Weinhold. How do you build generational wealth? How do you keep it and how do you pass it on so that it stays within your family for generations? Part of this is today's conversation with A G R E listener that's doing something that I've never heard of anyone else doing today on Get Rich Education.

Speaker 0 (00:00:22) - Taxes are your biggest expense. The best way to reduce your burden is real estate. Increase your income with amazing returns and reduce your taxable income with real estate write-offs. As an employee with a high salary, you are devastated by taxes. Lighten your tax burden. With real estate incentives. You can offset your income from a W2 job and from capital gains Freedom. Family Investments is the experience partner you've been looking for. The Real Estate Insider Fund is that vehicle, this fund investing real estate projects that make an impact. And you can join with as little as $50,000. Insiders get preferred returns of 10 to 12%. This means you get paid first. Insiders enjoy Castle on a quarterly basis and the tax benefits are life changing. Join the Freedom Family and become a real estate insider. Start on your path to financial freedom through passive income. Text family to 66866. This is not a solicitation and is for accredited investors only. Please text family to 66866 for complete details.

Speaker 3 (00:01:31) - You are listening to the show that is created more financial freedom than nearly any show in the world. This is Get Rich Education.

Speaker 0 (00:01:54) - Welcome to GRE from Weehawkin, New Jersey to Weed, California and across 188 nations worldwide. I'm Keith Wein Holden. This is Get Rich Education. Shortly we will hear from a GRE listener that's an engaged real estate investor and is having an unusually large impact on other people with generational wealth. Soil has profound effects on the type of agriculture that's possible and therefore soil has had profound effects on the kinds of societies that have been historically possible going back 12,000 years since the advent of agriculture. So productive and irritable soil is what made real estate valuable. A pattern of farms that are passed down through this same family for generations. Well, that's something that's possible in fertile regions, but not in regions where the soil is exhausted in a few years and has to be abandoned. And a new site found while the first site recovers its fertility.

Speaker 0 (00:02:55) - Whole societies had to move when the land in any given location cannot permanently sustain them. Therefore, cities couldn't even be built or contemplated. So then when you have bad soil, you can't have anything that lasts. And if you can't plant your family's principles, call them seeds in fertile soil, which is my metaphor for having moral and cultural standards, well then you can't build generational wealth either. You won't have anything that lasts very far beyond your one finite life. And as society advanced, we have more historic examples about families that built and have still capped their fortune today after several generations like the Rockefellers or families that have built and squandered their fortune like the Vanderbilts. And how that started is that really the Vanderbilts have been heralded as American royalty. The icons of the Gilded Age and that rich history all started with Cornelius Vanderbilt, Cornelius.

Speaker 0 (00:04:09) - He's the one that started to amass the family fortune from railroads in shipping businesses in the late 18 hundreds. He became the wealthiest person in America in the 1860s and then he went to pass that title down to his son William Henry Vanderbilt. And then he became the wealthiest American during the 1870s and 1880s. But it began to fall apart with William. Yep, just one generation later. The second generation, one generation after the wealth builder Cornelius and then Gloria Vanderbilt was born. Her father had a gambling problem and squandered most of his fortune. There was also overspending on frequent international travel. So Gloria, the granddaughter of the one that started the Fortune Cornelius, she herself would go on to have four sons each from different marriages. One of her four sons is prominent in American society today, and it might surprise you when I reveal his identity shortly by the time of glory, Vanderbilt's passing, okay, her estate had dwindled from $200 million down to just one and a half million dollars.

Speaker 0 (00:05:25) - So from wealthy to almost middle class right there, her New York apartment was bestowed to one of her sons. Two of her other sons remained estranged and only one of her four sons inherited the majority of the estate. And that person is none other than the, I guess, somewhat esteemed broadcast journalist and author Anderson Cooper. So you can see in the Vanderbilt family how that fertile soil broke down culturally and became in fertile to build something that lasts. You need that fertile soil. There's more than just a cultural component to creating generational wealth. I mean, first of all, of course you need to build the wealth in the first place by listening to this show. You're either on your way there or you're already there. And that means they focus on things that most people don't do. It's places, frankly, a lot of people just don't even look or consider like getting lots of smart debt for leverage or being inflation aware, being tax savvy and owning assets that pay you while you hold onto them.

Speaker 0 (00:06:33) - There's also a legal component here. I am not a tax or legal advisor or professional. So just super briefly in one minute and in plain English you need to have an estate plan. Step one is have a will. That is like a letter that you write before you pass away. Really that's all a will is if you have possessions that you want to go to a certain place, even if you're only 20 years old or if you're 80 years old and you have say a car and a little money or pets, then have a will. You can write a rock solid will really cheaply start at a place like trust and will.com. Then after a will understand a revocable trust, that's a special account where you put your assets like money in real estate while you are still alive. And the key to the word revocable is that you can cancel or change it any time you want to.

Speaker 0 (00:07:34) - When you pass away, things go to your beneficiaries, your heirs, without the annoying probate process in court. Okay, that's a revocable trust. And why have a will versus a trust? Well, there are a few reasons, but if you have less than a million dollar net worth though, then that first step, the will, that's probably going to suffice for what you need. But if it's a million plus, then it's more likely the trust. So really there are two main trust types. I touched on the re revocable trust. Now the irrevocable trust, that's something you cannot change once you set it up. It is rigid, not flexible. Well then why would you set up an irrevocable trust if you can't change it? Well, it can protect you from taxes, lawsuits, and creditors in certain situations. So that is the quick one minute on basic estate planning wills and trusts, yes, there is far more to know like beneficiary designations and durable power of attorney.

Speaker 0 (00:08:37) - But look, here's the thing and the motivation for you devoting sometime to estate planning like that. If you die, you can be assured that your family won't squabble over dividing up your assets if you get that in place and you sure don't want that because they're already gonna be broken up about you passing away. You'll want your generational wealth to pass on in a planned way and also wills and trusts. That's the way that your family locates your assets in the first place. Today you'll see how our guests and his wife hit financial freedom when they had $85,000 worth of real estate income and note that that was seven years ago. So therefore on an inflation adjusted basis, that might be say 110 K or 120 K in today's dollars depending on what you think the rural rate of inflation is. And then you'll see how that got him thinking about generational wealth and what he's doing to help others with it.

Speaker 0 (00:09:40) - Like I said, he's doing something with it I've just never heard of before. But first, I hope that you've been enjoying our valuable, don't quit your Daydream letter where lately I sent you that great map that shows where the top job growth states are. That chart comparing your rent increases to your increase in operating expenses, that story about how Phoenix is going to have construction limits due to their declining water supply. And all those stories about how wacky California real estate has become, including State Farm recently halting new insurance policies in the state of California. If you aren't reading our letter, which has a dash of humor, I send it about weekly, then you are missing out. I'd love to have you read it. It is totally free. It's full of real estate investing industry trends and forecasts and broader economic forces that are gonna affect you in the future and more.

Speaker 0 (00:10:38) - And also whenever we have job openings here at G R E as we keep growing, they are announced in the letter as well. And now you can easily sign up for the letter by text. And if you aren't one of the many subscribers growing your means with my letter, you can simply text GRE to 66 8 66 for or don't quit your Daydream letter. Again, it's free and I rate every single word, all the letter myself. I don't think that many founders do that. This letter is written from me to you and you get top investment property news in just a five minute read. You'll get some valuable introductory emails and then after that it's only sent about once a week, not daily. And again, you can sign up by simply texting G r e 2 6 6 8 6 6 for the letter that's GRE 2 6 6 8 66 generational wealth straight ahead. You're listening to Get Rich Education with J W B Real Estate Capital. Jacksonville Real Estate has outperformed the stock market by 44% over the last 20 years. It's proven to be a more stable asset, especially during recessions. Their vertically integrated strategy has led to 79% more home price appreciation compared to the average Jacksonville investor since 2013. JW B is ready to help your money make money, and to make it easy for everyday investors, get started@jwbrealestate.com slash g rre. That's JWB real estate.com/g R E

Speaker 0 (00:12:14) - GRE listeners can't stop talking about their service from Ridge Lending Group and MLS 40 2056. They've provided our tribe with more loans than anyone. They're truly a top lender for beginners and veterans. It's where I go to get my own loans for single family rental property up to four plexes. So start your pre-qualification and you can chat with President Chaley Ridge personally. They'll even deliver your custom plan for growing your real estate portfolio. start@ridgelendinggroup.com.

Speaker 4 (00:12:49) - This is Hal Elrod, author of the Miracle Morning and listen to Get Rich Education with Keith Weinhold and don't quit your daydream.

Speaker 0 (00:13:05) - Hey, I would really like you to meet someone today. He and I met last year through our mutual friend Dave Zook and of all things last year we crawled through a cave in the middle of the woods in Lancaster County, Pennsylvania together and I mean Crawled. He is a real leader, he's a professional investor and founder of the Elevate Investing Group. Welcome to G R e Michael Manthei!

Speaker 5 - Michael Manthei (00:13:29) - Keith, thank you for having me been a longtime fan of you and the show and the worldwide impact you've had. So honored to be here

Speaker 0 (00:13:36) - In your bio, you haven't yet added that you're an amateur caver or spelunker as it is

Speaker 5 (00:13:42) - One attempt at S Splunking. I'm not sure if I can put it in the bio yet, but uh, maybe after a second round .

Speaker 0 (00:13:48) - Well Michael, you have done though what most everyone wants, which is actually not spelunking. You have achieved financial freedom in your early thirties and you're much older than that now. You've now got more than a decade of experience in syndications property management and you have over $200 million worth in real estate acquisition. So talk to us about how you obtained financial freedom after less than four years of investing.

Speaker 5 (00:14:17) - I feel like it could be, uh, you know, almost an infomercial with how it's gone. You know, I read Rich Dad Poor Dad and that completely changed my world growing up. I wasn't around wealthy people to know how they thought or what they did with their money or how they got there. So to get a glimpse through the book, rich Dad Poor Dadd changed my life and I set a similar goal as Robert had in the book of buying two properties a year. So after 10 years I figured I'd have 20 properties if everything went well, but could never have expected that. Yeah, like you said, within four years we bought 55 units, had enough passive income to retire. It went a lot faster than I thought, but incredibly grateful. We started with a single family house. I was completely broke when I got married.

Speaker 5 (00:15:08) - I was actually a missionary for seven years coming off the mission field, not a dollar to my name. Married my wife who had saved a lot of money for me at the time was $25,000 is what she came into our marriage with. And so I was broke. She had 25,000 and that's how we bought our first rental, which was interesting to work through that process with her, you know, using her life savings to buy the first rental when we were still rent a house. You know, she thought she'd save this for her first house and I said, Hey, how about instead of us buying a house for ourselves, let's buy a house for someone else and start this journey to financial freedom. From there we bought another single family house, then we bought a 10 unit property and with that 10 unit property I bought it cash with a hard money loan.

Speaker 5 (00:15:56) - When I went to the bank to go to permanent financing, it appraised for 150,000 more than we bought it for. And so we got all the money back plus a line of credit of $75,000 that then opened us to keep buying. But Keith, the real advantage of that deal was it unlocked my mind to say I don't have to be limited by my own capital. I had no money in that deal and I thought we were gonna be limited by our own capital the whole way, you know, save up 20% down payment. This deal happened in such a way that it kind of unlocked this infinite return concept. And so from there it was kind of off to the raises. Once the creativity was set free from that point, including that 10 unit, we bought 50 units in less than two years and achieved our goal of financial freedom.

Speaker 0 (00:16:46) - That is really fast. And I note that at that point with the 55 units, you had a million dollar net worth and those assets generated $85,000 in annual cash flow. But dropping back thinking philosophically the book that introduced me to the concept that I didn't wanna believe for a moment or at least it was one of the Robert Kiosaki books and that is being wealthy is a choice. I actually didn't believe that. And you are being very intentional with the out-of-the-box choices that you're making and you and your wife Kristen, much like me, when I started, I didn't have much of my own money either. I started with that three and a half percent down payment on a fourplex. So then really the impetus often for using other people's money is because you have to because you don't have much of your own money.

Speaker 5 (00:17:33) - Yeah. And that's part of, you know, creating the grit. It can be a a blessing to those of us that wanna learn and grow to not have a lot handed to us because the confidence that it brings to be able to figure stuff out and get creative. And what I love is, and what I hope my story helps provide to your audience is when you see somebody else that's done it or hear stories of real people that have done it, it just unlocks the capability inside to say, Hey, that guy doesn't look that special. I think I could walk down some of the same road. So totally agree that it's, it's a philosophical shift and for me the big one was buy cash flowing assets. That kind of became my mantra that all my work, all my effort, all my energy went into acquiring cash flow producing assets and that simple concept just opened a whole new world,

Speaker 0 (00:18:26) - Real assets produce real income. So you began with, it sounds like a rental single family home and then shortly thereafter this 10 unit apartment building that sounded like that was the real pivot point for you. It allowed you to get creative that just gave you that much more room, that much more leverage. Had that been a duplex and it appraised overvalue or probably wouldn't have appraised 150 K overvalue like a 10 plex did. So tell us more about the options that gave you in growing this fast.

Speaker 5 (00:18:55) - The reason I was looking for a larger building is cuz my wife had gotten pregnant. She was working part-time during that portion of her life and I just had it in my heart. You know, she had wanted to stay at home with our kids once we started having kids. So she's pregnant, I'm thinking let's go find an asset that would replace her part-time income. So I was looking for smaller things honestly. I was like, well maybe if I buy a couple duplexes or a couple triplexes and then this 10 unit came on the market, but I'd had some issues with this seller on a previous purchase that we were trying to work towards and they just seemed a little bit squirrely. So I said, you know what, I want to give the most airtight offer that I can. So I talked to a hard money lender, said, Hey, I'm gonna offer all cash, no contingencies.

Speaker 5 (00:19:43) - So it was a big risk. I mean we're buying 10 units, we only had two at the time, so it felt like this huge stretch didn't have, you know, the money to do it ourselves. So got the hard money loan. But then when we took it to the bank and they gave us the appraisals, like oh my goodness. So not only did they pay off the hard money loan and give us a $75,000 line of credit, they also gave us like maybe 10, $15,000 that we, you know, put in our bank account. But then we could use that 75,000 to go put down payments on other properties and go buy other properties cash and then refinance out of 'em. So it really just, it changed everything. It unlocked everything for us.

Speaker 0 (00:20:19) - If you were going all cash, why did you need the hard money loan?

Speaker 5 (00:20:23) - The hard money loan. Once I secured that, I could offer all cash to I see the seller. So I gave 'em a cash contract because I had the cash lined up with the hard money lender.

Speaker 0 (00:20:34) - So it was about that deal making using your intuition when one seems squirrely. So that really leveraged things for you there in order to grow that faster as you're going through this process, as you're building this portfolio. Okay, now you've got 55 units, which does give you enough cash flow, $85,000 a year for most people to declare financial freedom. The interesting thing is you had the million dollar net worth at that time. Most people with a million dollar net worth are really only about middle class because they don't have residual cash flow. So net worth matters, but it's not as important as your passive income. You had the 80 5K of residual income accompanying that million dollar net worth and that's what makes the difference.

Speaker 5 (00:21:23) - Yeah, it goes back to the cash flow producing assets. All my effort was focused on acquiring those assets that would pay me the rest of my life. Never flipped anything, have a lot of friends that do flipping and I didn't want to get addicted to that big payout. You know, I take one single family house and maybe I make 20, 30, 40, 50,000 on it. I felt like I was gonna get addicted to that. Whereas for us, the first house that we bought, Keith, like $200 a month of cash flow, it's like this feels like it's doing next to nothing. But I said, you know what, I have a long-term goal here. The only way to get there is one property at a time, one step at a time. You eat the elephant one bite at a time. And so I said, let me continue making steps towards my goal and it snowballed faster than I expected. But again, cash flow producing assets,

Speaker 0 (00:22:12) - Find that first property with say, $200 in monthly cash flow. That doesn't change really anything in your financial life, but it changes your mindset. It's a pretty incredible moment. Like ta-da when that $200 shows up month in and month out with little or none of your own effort at all. That's really where it starts. You talk about retiring shortly after this time and you had a major philosophical shift then when you retired at just age 33. So tell us about that.

Speaker 5 (00:22:42) - I thought retirement was the goal. You know, I read in four hour work week and other, you know, books like that and it's like inactivity is the goal and I'm ashamed to say that I bought into that and you know, I can't wait till I do nothing. So once we got there, literally within a week I was bored. I'd worked like crazy to get to that point. I was working, you know, 50, 60 hours a week at my normal job plus buying and self-managing, you know, up to 50 units on the side. So it was a lot of work and I needed some time to rest. But after a week of rest, all my energy came back and I said, this feels wrong. I just had this sense. I have not been created to go through the rest of my life from 33 on in my easy chair.

Speaker 5 (00:23:27) - I wasn't expecting that at all. It, it hit me by surprise. And so I realized that that goal of financial freedom was a great motivator, but very empty once we got there. We recalibrated, my wife and I, you know, a lot of time in prayer talking with each other. It was a new experience to think we can do anything we want now. You know, our decision on what we do next is doesn't need to be dependent on how to pay our bills. Simple lifestyle, 85,000 a year covers us, but as we considered it, realized absolutely love what I'm doing, but this would be so much more fulfilling if we did it in relationship, became a part of other people's story, helped them on their journey, invest together, build a community and get to know people, build long-term relationships. So that was the major shift and uh, it's been seven years since then, so I appreciate that. Uh, you said I'm not much older than 33, uh, 40, which I guess isn't too far out, but we've had a lot more fulfillment in the last seven years as we've been a part of other people's journey.

Speaker 0 (00:24:30) - So that was really the turning 0.7 years ago at age 33 where you're like, we did what we have to do now we get to do what we want to do. Yeah, you're a man that serves. So basically to that point you had been serving society with good housing and now you can pivot to serving investors.

Speaker 5 (00:24:48) - Yeah, and really to me, service is life. The Bible talks about if you want to receive, give and you'll receive. So I've never focused on how do I receive, how do I get more. For me it's simple. I try to simplify things. What is the one input that I can focus on that then will knock down the rest of the Dominos? So it's give. And so I've looked at how can I serve, how can I give? And that's been my focus and that has opened up tremendous, uh, doors of opportunity. So seven years ago a mutual friend with Dave Zuck and he's doing these syndications and I was like, Dave, I wanna learn this, I wanna do this. So he introduced me to the guys that taught him and we started doing larger deals and, and Keith, I started on the smaller end. The first two deals that I put together as syndications were both 11 unit apartment buildings.

Speaker 5 (00:25:41) - And I'd already bought 10 units and 11 units and 12 unit buildings myself at that point. And I didn't need other people's capital to buy those, that point of our journey. But the goal had shifted from before that it was, how can I maximize my profit on these real estate deals, you know, maximize my cash flow, maximize my profit, and it switched to how can I give people a great experience with me? And so to me you can't give without it coming back. So in one sense I gave away more equity than I would've needed to, to have some investors and partners come along the journey with me. But I knew that if I gave them a good experience and learned this business, that that would snowball into a scale that we would never have been able to touch outside of that, which is exactly what's happened.

Speaker 0 (00:26:32) - It's interesting that you mentioned 11 unit apartment buildings because I have owned some of those myself. Oftentimes that's a zone I've operated in kind of these mid-sized apartment buildings. Things that are, are a million and a half dollars in value or below because oftentimes the big boys don't play there. But now you learn how to be a go-giver, that's become part of who you are and that's how you could go bigger with larger apartment buildings in making those opportunities available to investors.

Speaker 5 (00:27:00) - Yeah, it's really hard to take on investors at a smaller level. So when the, the focus shifted to how can I be a part of people's journeys and make long-term relationships with people, the answer is to scale up. And so, you know, we've scaled from there to now we own over 2000 apartments, uh, with our investor group and me serving them as a general partner.

Speaker 0 (00:27:21) - Congratulations. One of the first things that struck me about you when I met you is really your holistic vision of what wealth is. Finances are obviously part of that, but only one piece of the pie and you often champion generational wealth. Tell us about how you think of total wealth and generational wealth.

Speaker 5 (00:27:42) - I have three kids now. Uh, they are the greatest gifts in my wife and i's life. And when you have kids and you have people that you pour into, you start thinking about how can you improve their lives and how can you build something that outlives you? So this generational wealth concept has been, I would almost say consuming me. I mean it's just how I filter everything that I do. Where you set your strategy, tells you what your tactics are gonna be. So if you're making short-term decisions, you can do things that work short-term. They don't necessarily need to work long-term. But I said, what's the most successful patterns that I see in the world of wealth, in the world of impact? And it's these family dynasties that grow, preserve and pass on wealth from generation to generation. And so for me, there's a few things that go into that.

Speaker 5 (00:28:40) - It's obviously the financial wealth that's a big piece of it. You need, if you're gonna talk about generational wealth, you're talking about a substantial amount of money that gets passed from one generation to the next in in such a way that it can be carried on by that next generation. But we've all seen examples where just giving the money is not a total solution. And so really focusing on the relationships around you and the people and your family. I'm a fan of making your wife the greatest treasure your spouse, you know, for our ladies out there, your significant other, make them the greatest treasure that you have on earth. I look at my wife as my greatest treasure. I look at our kids as our greatest treasure. My kids right now are eight, six, and two and we train them from day one to think of themselves as kings and queens.

Speaker 5 (00:29:32) - I started with two daughters and then my third born is, is a little boy. So he's our little king. But there's this princess culture. All the little girls are princesses. Yeah. And when we grow up we sometimes hear what we heard as a kid in first person. Sometimes people still have those tapes that play and what's a princess? I mean entitled. Yeah, you're royalty but you don't have any responsibility ever since day one. I was like, you're not princesses, you are queens, you're powerful, but you have responsibility. You have resources but you have an obligation to use that to serve the people around you. God made you beautiful. So let's be accepting of every single person that we see, whether they are beautiful or not on the outside the resources that we have. I feel like we are to be a steward of it's never given to us, to prop us up and make others serve us.

Speaker 5 (00:30:25) - For me, my resources is a responsibility to serve others with what I've been given. So pouring into the kids spiritual wealth, which we talked earlier about the Jewish people and how they're the highest net worth per capita people group. Yeah, you look at the rich spiritual history that they passed down for thousands of years from generation to generation to generation. And so in our family, you know the stories of faith, the stories of courage, the stories of high character, I have those in my family that I'm passing down and we're creating new stories that we're passing down. And then the final one for me here on the generational wealth kind of holistic topic is one that you and I um, have some commonality with. And just physical health. If you're not taking care of your body, that is a major hindrance to long-term wealth. You know, your income generating capacity grows as you get older.

Speaker 5 (00:31:21) - We have this retirement mindset in a lot of our country, which I bought into, you know, in my thirties. I don't think it's as helpful as we may think it is if we want to continue to serve others. Our capacity to serve continues to go up throughout our lifetime as long as we're maintain faculty. And so to continue serving, generating wealth throughout our life, lasting as long as we can, putting things in place for the next generation. I wanna be around for a long time. I know you do too. And uh, it starts with taking care of ourselves.

Speaker 0 (00:31:54) - If I do invest well I'm sure gonna wanna be healthy enough to enjoy all of that. So it's really a symbiotic relationship. And you host an event. This year's theme is generational wealth. We're gonna learn about that in just a moment. But why don't you tell us just as a teaser, how does one prevent their generational wealth from getting frittered away? We know that often happens and the generational wealth doesn't really become generational wealth cuz often it doesn't last beyond one or two generations. The Rockefellers are a good example of what to do and keep wealth generational for example. But how do we prevent our wealth from being frittered away? Cuz there's a difference obviously between an inheritance and generational wealth

Speaker 5 (00:32:37) - Just practically for a moment for people that, um, are listening. Number one, you need to learn how money works and you need to get your wealth into assets and protect it from inflation and taxes. You know, those are the two biggest thiefs. So that's number one is, is you need to safeguard your money. Then once you have the wealth built and protected, it's really about passing on the character. That's really what it all comes down to because if you hand an ill-prepared heir a bunch of money, that is typically the worst thing that you can do for 'em. So it's passing on the character and instilling that and developing that in your heirs. There's different strategies for this, you know, you can recording the stories, some of the origin stories of grit, of resolve, of sticking with something until it is successful. Those stories inspire the next generations.

Speaker 5 (00:33:32) - Maybe they don't have the need for the same level of grit, but they can understand the diligence that is required to create and steward the wealth. So recording the stories people do family conferences where you know, if you're a wealth creator for your family, fly everybody in and have some meetings, you know, do it in a fun place, have some fun connected to it. You can have sessions where you're teaching the next generation about how to steward that wealth. You're giving not only the wealth but you're giving the mindsets and the tools of how to create and steward that. So again, goes back to character and the internal wealth that is needed to steward the external wealth, the the physical wealth, the capital and assets and everything.

Speaker 0 (00:34:23) - Oh yeah, that's some really helpful actionable stuff there. If you want to have what most people don't have, you need to be willing to do what most people won't do. Like perhaps these extended family get togethers and yes, that is important stewarding generational wealth. You can watch a a 30 minute video and learn something about taxes or inflation, but character can't so easily be taught. And this is part of what you are talking about at your upcoming event, generational Wealth 2023 in Lancaster, Pennsylvania. Tell us about it.

Speaker 5 (00:34:56) - This is our third year of doing, uh, this event. It really strikes a chord with our folks because typically the people that come to our events, they've bought the concept that wealth is not merely an external pursuit and if you don't have the internal wealth to go alongside of it, it ends up being pretty empty. So generational wealth, it's getting people together that have created and stewarded that and then sharing some of the real life stories. Dave Zuck is gonna be a speaker. He's uh, second generation in their family business now. Dave has a bunch of other, you know, businesses with their, his syndication and incredible money manager that he is. But this year his father actually has agreed to talk with us about how he started the family company. So I'm gonna interview him then I'm gonna bring up the four boys, Dave and his three brothers and what it's like taking the business from one level to another, successfully managing that in the second generation and growing it and how they're now passing it along to their children and preparing them to step into leadership.

Speaker 5 (00:36:00) - So I have a couple large businesses that are multi-generation that are gonna share like this also have Mitzi Perdue, I don't know if you've ever gotten a chance to know her. She was the daughter of the man that started uh, the Sheraton Hotels. So grew up in that family dynasty and then married Frank Perdue who created Purdue Chicken and today has, you know, 20,000 some employees. So she's seen from a couple different angles, family dynamics and family wealth that goes generation to generation and she's just a wonderful lady. Such a heart for other people and so full of life. I think she's in her eighties, she's a teenager, she's just so full of life. So she's coming, have a lot of amazing speakers and attendees that fly in from around the country. Last year we had about 350 people excited to see who shows up this year.

Speaker 0 (00:36:49) - See, this is why I wanted to talk about this event because I have attended so many in-person real estate events and masterminds and general investing events. And rarely, if ever do I see multiple generations come up on the stage at the same time to talk about how to do this the right way. Generationally, very few people in events just really think this long term. So I have to congratulate you in advance for putting this together. It's August 18th and 19th and again it is in Lancaster, Pennsylvania. Do you have any last thoughts Michael?

Speaker 5 (00:37:22) - So if people want to go to invest elevate.com, that would be a spot to check us out.

Speaker 0 (00:37:28) - I'm highly confident the future generations of your family will know you for more than crawling through a rural Lancaster County Pennsylvania cave.

Speaker 5 (00:37:36) - Yeah, hopefully my legacy includes more than our cave, uh, adventure, even though that was a blast. Last thoughts Keith. I just wanna encourage people to step out into what they feel in their heart to pursue. You know, it takes faith, it takes risk, but it's absolutely achievable. And so I hope my story has provided some encouragement to folks and if any of your people want to come to our event, we would welcome 'em with open arms. So thank you for today, Keith.

Speaker 0 (00:38:02) - It's a unique event in my experience. It's been great having you on the show.

Speaker 0 (00:38:12) - Yeah, as I've gotten to know Michael, he is a real go-giver now. He and his wife began with a single family rental home while they were still renters. Yeah, they owned that rental property before they even had a primary residence. I know a lot of successful people that have done just that. And then it sounded like for him, his third property, a 10 plex, that was the real pivot point. Of course, my pivot point was that very first purchase a fourplex. So for each one of us, the pivot point really came when we felt like we had massive access to other people's money. And you might feel like you have massive access to other people's money with just a 75 or 80% loan on a single family rental or duplex. If that's where you're starting, you don't need Rockefeller or Vanderbilt fortunes to get this going there at Invest Elevate.

Speaker 0 (00:39:04) - The interesting thing about their generational wealth event two months from now is how, from talking to Michael, he's actually not super motivated to have speakers there that are the most well-known names and Polish speakers, even if he has the chance to get them. Now you are gonna find some of those there, but he's interested in real stories, real people, and making a real impact with speakers that don't have some big marketing or sales agenda. And some conference attendees just want to meet the biggest names and get an Instagram selfie with them. And there's nothing wrong with that. You might even do some of that here, but he values real connection in meaning. And yeah, I've never heard of anyone else getting multiple generations of the same families on stage as he interviews them, including people that aren't used to speaking to an in-person audience of a few hundred people. Besides the generational component, you're also going to learn a lot about investing and meet a bunch of genuine, authentic people. That's the environment that he's creating. Gratitude to. Michael Manti Today it is Generational Wealth 2023 in Lancaster, Pennsylvania, August 18th and 19th. Check out invest elevate.com. Until next week, I'm your host Keith. We hold. Don't quit your day. Adrian

Speaker 1 (00:40:26) - Mother

Speaker 6 (00:40:27) - 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 L L C exclusively.

Speaker 0 (00:40:55) - The preceding program was brought to you by your home for Wealth building. Get rich education.com.

Direct download: GREepisode454_.mp3
Category:general -- posted at: 4:00am EDT

Mon, 12 June 2023

The world’s most powerful nation can’t even house its own people. Keith Weinhold discusses housing shortage problems and solutions.

Meet our new Investment Coach, Aundrea. Coaching is free for you. It helps you purchase investment properties. Connect with both of our coaches now at: GREmarketplace.com/Coach

We discuss: international RE investing, accumulated dead equity, portfolio loans, declining LTVs, rising insurance premiums, and regional markets.

Aundrea can help you with properties nationwide. We discuss Southeast Georgia and the Intermountain West.

Southeast Georgia has strong cash flow. We discuss mid-term rentals (MTRs) in the area. Many are single-families under $200K.

MTRs are furnished and the owner pays the utilities.

In LTRs, a 1% rent-to-price ratio is possible.

The Intermountain West features new-build duplexes to fourplexes in fast-growth Utah.

These are better for long-term appreciation and inflation-profiting. Often, you get built-in equity. Fourplexes prices are $970K.

Aundrea’s coaching makes it easy for you. She’ll learn your goals. If you prefer, she’ll help you: run the property numbers, write your offer, negotiate inspection and appraisal, manage your property, and help you through closing.

Get started at: www.GREmarketplace.com/Coach

Resources mentioned:

Show Notes:

www.GetRichEducation.com/453

Free GRE Real Estate Coaching:

www.GREmarketplace.com/Coach

Get mortgage loans for investment property:

RidgeLendingGroup.com or call 855-74-RIDGE

or e-mail: info@RidgeLendingGroup.com

Find cash-flowing Jacksonville property at:

Invest with Freedom Family Investments. You get paid first: Text ‘FAMILY’ to 66866

Will you please leave a review for the show? I’d be grateful. Search “how to leave an Apple Podcasts review”

Top Properties & Providers:

Best Financial Education:

Get our wealth-building newsletter free—

text ‘GRE’ to 66866

Our YouTube Channel:

Follow us on Instagram:

Keith’s personal Instagram:

452: Ken McElroy - Worse Than 2008? Commercial Real Estate Crash

Direct download: GREepisode453_.mp3
Category:general -- posted at: 4:00am EDT

Mon, 5 June 2023

Keith Weinhold and Ken McElroy discuss the impact of rising mortgage rates on the commercial real estate market.

They talk about the foreclosure of a Houston real estate investment firm, and the need for syndicators to anticipate changes in interest rates and have capital reserves in place.

The speakers predict that high-rise commercial office buildings will be the first domino to fall in the commercial real estate market.

They also discuss the potential fallout from the expiration of commercial debt and the upcoming Limitless Expo event in Scottsdale, Arizona.

Resources mentioned:

Show Notes:

www.GetRichEducation.com/452

Get mortgage loans for investment property:

RidgeLendingGroup.com or call 855-74-RIDGE

or e-mail: info@RidgeLendingGroup.com

Find cash-flowing Jacksonville property at:

Invest with Freedom Family Investments. You get paid first: Text ‘FAMILY’ to 66866

Attend the Limitless event, June 15th-17th:

LimitlessExpo.com

$22M Office Building to Convert to Multifamily:

https://www.loopnet.com/learn/deal-of-the-month-22m-office-teardown-makes-way-for-multifamily/2115617288/

Will you please leave a review for the show? I’d be grateful. Search “how to leave an Apple Podcasts review”

Top Properties & Providers:

Best Financial Education:

Get our wealth-building newsletter free—

text ‘GRE’ to 66866

Our YouTube Channel:

Follow us on Instagram:

Keith’s personal Instagram:

Complete transcript:

Keith Weinhold (00:00:02) - Welcome to GRE. I'm your host Keith Weinhold last year's spiking of the Fed funds rate caused banks to fail this year and last year's. Doubling of mortgage rates is causing commercial real estate to fail this year. Why is it happening? How bad is it with commercial real estate and how bad will it get? That's the topic of today's conversation with Ken McElroy on Get Rich Education.

Speaker 1 (00:00:27) - Taxes are your biggest expense. The best way to reduce your burden is real estate. Increase your income with amazing returns and reduce your taxable income with real estate write-offs. As an employee with a high salary, you are devastated by taxes. Lighten your tax burden. With real estate incentives. You can offset your income from a W2 job and from capital gains Freedom. Family Investments is the experience partner you've been looking for. The Real Estate Insider Fund is that vehicle, this fund investing real estate projects that make an impact. And you can join with as little as $50,000. Insiders get preferred returns of 10 to 12%. This means you get paid first. Insiders enjoy cash on a quarterly basis and the tax benefits are life changing. Join the Freedom Family and become a real estate insider. Start on your path to financial freedom through passive income. Text family to 6 6 8 66. This is not a solicitation and is for accredited investors only. Please text family to 6 6 8 66 for complete details.

Speaker 2 (00:01:36) - You are listening to the show that has created more financial freedom than nearly any show in the world. This is Get Rich Education.

Keith Weinhold (00:01:59) - Welcome to GRE from Montreal, Quebec to Monterey, California across North America and spanning 188 nations worldwide. I'm Keith Wein. Hold in your listening to Get Rich Education. Real estate investing is our major here. Minors are in both wealth mindset and the economics of real estate. That's what the matriculated graduates with here at G R E. You can think of an interest rate as how much it costs you to use money and to help you understand the preeminence of the cost of money. Let's you and I step back together for a second. If you go buy apples at the supermarket and Apple cost increase affects you. If you go buy a gallon of paint at Home Depot, a paint cost increase affects you. And if you go buy an acre of raw land, a land cost increase affects you. But rising interest rates mean that there was an increase in your money cost and you use money to buy those very apples paint or raw land.

Speaker 1 (00:03:04) - And now you begin to realize how interest rates touch and percolate into every single thing that you buy as a consumer or as an investor. And we know that interest rates are not currently high. Historically, yeah, you heard that right now that's not much consolation to those that are in trouble. But the Fed funds rate is about 5% and all year here the mortgage rate on an only occupied home has stayed between a range of six and 7%. Actually, mortgage rates are a little low. Their 50 year average is about seven and a half percent. Well, so then what's the problem? Well, the problem is not what are indeed historically normal rates. It's that rates rose so fast last year. You look at a graph and they climbed a wall. In fact, it's unprecedented, at least in you and i's lifetime to have them rise that fast. Just last year alone, mortgage rates spiked from 3% up to 7%. Economists estimate a 56% chance that they indeed are going to raise the Fed funds rate again. Yep. There is another meeting. Just next week, let's learn about commercial real estate deals blowing up with Ken McElroy.

Speaker 1 (00:04:28) - I'd like to welcome back longtime real estate investor influencer and multi-time bestselling real estate author and G R E podcast guest regular. Really? Hey, it's the return of Ken McElroy. How's it going Ken?

Speaker 3 (00:04:40) - Great Keith, how are you? It's good chief. Terrific. Great to see you in Arizona too recently.

Speaker 1 (00:04:45) - Yeah, that's right. We were just together in Arizona a few weeks ago, both there and everywhere across the United States, we know that residential loans are for the one to four unit space where those properties typically have long-term fixed interest rate debt, 15 to 30 years. The five plus unit department space is tied to commercial lending even though it's residential property and they often have variable rate debt for a shorter term. And commercial loans are where the trouble is in this world of higher mortgage rates. And a few months ago it made a lot of news in our world, Ken, that a Houston real estate investment firm that was at one time one of the city's largest landlords with $500 million worth of multifamily. They got foreclosed on and launched 3,200 apartments at the time. And one major reason were these floating interest rates that rose so much and rents couldn't keep up proportionately and more deals are going belly up like that. So Ken, tell us about what you are seeing out there now in regard to rising mortgage rates affecting the commercial lending market.

Speaker 3 (00:05:45) - Well, it's true. Obviously we all know that the Fed raise rates 10 times, so they were obviously fighting inflation. So if you bid around this business enough to know, know, you should have known that the Fed usually increases rates when inflation goes high. And so it is one of the tools that they use to kind of tampering 'em down inflation because that, no, the Fed is more concerned about inflation than interest rates because you obviously inflation affects everyone. So yeah, if you're in the real estate space, you might feel like you're being picked on. But the truth is, it's not surprising to anybody who's been around that they use this interest rate increases as a mechanism to lower inflation or the masses. So some of those mistakes that were made, I think it was Arbor, you have to go back to the experience of the syndicator. They elected not to buy interest rate caps and have other kinds of protections around those assets. And unfortunately, you know, some of those investors that invested in those assets, those were things that maybe weren't very clear to them. Uh, we're not exactly sure of all the details, but what's gonna happen next Keith, is we're going to start to see there's gonna be a big division of the experience versus the inexperience, I would guess

Speaker 1 (00:07:08) - A divergency, yes, of course that Fed has that dual mandate of full employment and stable prices since they're still doing pretty well on the employment. They want to get stable prices and the way to get a handle on that is to continue to raise rates. And when the Fed raise rates essentially from zero to five in just about a year, things are going to break. And we're talking about right now what is breaking first in the real estate space. And you mentioned a syndicator, when one buys an apartment building, oftentimes they get what's called a value add project, this renovation stage. And during that time they often have this variable interest rate debt. So often we are talking about apartment syndicators here, sponsors that put the deal together and what the syndicator essentially does is buy the apartment, renovate it, raise the rent, and then they cash it out to investors by either selling it or refinancing it at a higher value. And right here, these are the people that we're talking about that are in trouble due to their rates being jacked up.

Speaker 3 (00:08:07) - That's exactly right. I think you always have to anticipate a change in interest rates, whether they're up or they're down. And I think a lot of times people just always believe that they would stay as is. And I think that was obviously a flaw in their thinking and a flaw in their strategy. The other one of course is capital reserves. You know, cash, you have to have all these things in place. It looked to me from the article, the articles and the, and the different pictures and and things I've seen that they may have run into the problems on the management side as well. And you know, so there's a number of issues that I could see potentially that affected them. And I actually am hearing others kind of stories around this Keith as well. The first domino really to fall I think is gonna be some of these highrise commercial office buildings.

Speaker 3 (00:09:01) - That would be my guess because in a very different scenario where a lot of the folks that own those and maybe were in those, a lot of those tenants are deciding that they don't want their people to come back. Maybe they're doing a work from home model or the people that work for them decide that they don't wanna be back or whatever scenarios there are. There's definitely a lot of vacancies. I was looking today, you know, we're looking at pretty high uh, vacancies in la we're looking at very high vacancies in San Francisco, Portland, Seattle, New York. When I'm talking about high, I'm talking about unprecedented. We're talking about 30, 40% in many cases and in some cases even more so we know that if you have a vacancy that high, you're definitely not paying the debt. And so there's all kinds of these big landlords that are actually defaulting on their loans of those commercial office buildings.

Speaker 1 (00:10:01) - Now we're talking about vacancy in the office space there and we think really in our residential world, of course people think of you as a multi-family guy, but you also are in, you know, self stores in some other spaces. But we just think about the crux of the problem and how that's centered on residential. Maybe you can just talk to us, Ken, about exactly the details of the problem or maybe you have an example from a case study and just what that, that structure looks like for those in trouble.

Speaker 3 (00:10:29) - Why would I be concerned about it? Is, is probably a really good question. And the reason is is because don't forget, we all go to banks for stuff. So if it's an auto loan, a residential loan, a commercial loan or a business loan, it's still a financial institution and it's all connected even though we might only be going for one piece of that. And so as the commercial paper starts to default and starts to make its way into these large regional, smaller community banks, then what's going to happen is the underwriting criteria is going, they're gonna pull back because they don't care. They just know that they're taking water in the boat and they're in trouble. So, so that's why I look at it, you know, obviously, but you have to look at the real estate, the landscape completely, and you realize that, you know, while you might be just doing one piece of that, there are lot and these banks are connected out in the community in many, many, many ways, right?

Speaker 1 (00:11:30) - Yeah, that's it right there. Maybe people, some don't think about just a complete seizure and a reluctance to want to extend loans at all if they have enough on their books that are in trouble,

Speaker 3 (00:11:40) - Right? So that's why I'm looking at it from the multi-family standpoint as well, because we're already seeing underwriting criteria or in other words, banks are saying we're gonna give you less 50% loan to value, 55% loan to value. So why would that be? The reason is is that you know, they're looking at their, just like you would be and and all your personal assets that you have, stocks, bonds, gold real estate, whatever it is, business, each one is performing differently. A bank looks at it exactly the same way. So if something's happening over here that's negative, it's affecting over here and it's shining a light on the whole thing. And so we're already seeing a tougher underwriting. And what that means is that means that you're gonna have to come up with more money for down payments. And of course the banks are gonna be very cautious about any kind of lending if it's on a single family, if it's on a multi-family, if it's on a residential or retail or industrial or office buildings or self storage or whatever it might be. It we're all connected. And so that's what I think is gonna be hitting us is we're gonna be in a debt and a credit crisis here in the next 18 months.

Speaker 1 (00:12:54) - So there could be downward pressure on loan to value ratios, your bank wanting you to put more skin in the game so that they are less exposed and you are more exposed there. So we're talking about maybe new purchases oftentimes in that discussion. What about those that have a loan? Maybe the interest rate has gone higher, they want to refinance it. You know, a lot of times we talk about cash out refinances is something that we want to do when equity accumulates, but could this be an environment for cash in refinances with a lot of these commercial loans?

Speaker 3 (00:13:29) - Yeah, so we've done a couple cash in personally. Yeah. So what does that mean entirely? So what happens is, well let's say you had a load at three and now of course they're over five. Well our rate caps hit us at five, but we still don't forget, we went from three to five. So that little bit of piece was expensive for us even though we had a cap though, recap is simply just an insurance policy on the original purchase, that's all. So we're like okay, that cost us about 20 grand a month on this one property as an example,

Speaker 1 (00:13:59) - The rate cap below

Speaker 3 (00:14:00) - The rate cap below the rate cap purchase was less, but the three to 5% that increase in the mortgage payment was about 20,000 a month. Okay, so call it 250,000 for the year for one asset. So you're like, uh oh. I went from having great cash flow to having a lot less cash flow because my rate went out now it hit the cap. Well I was protected but it still went up 2%. So we started to take a look at what would it cost for us to fix this rate and it was uh, about a million bucks for a cash in. So we did it, we said let's do a million dollar cash in, fix the rate because I'm also afraid of future rate increases. So that $1 million that we put in to fix the rate at 5.2%, we know it's a four year payback or 250,000 times four is a four year payback.

Speaker 3 (00:14:52) - So it's a four year loan. But really what we're doing is we're hedging the entire time and of course we have that cashflow coming out each and every month. And the beauty of that E as you know, is what you do is you hedge the upside. You can always re refinance on the doubt. And all I was trying to do was protect that thing from when the recap expired, what's usually caps for two or three years, let's say. I didn't wanna be in a position where it was, you know, six or seven or something. So that's why we did it. We were just protecting against the future. And these are the kinds of things that you can do if you've been in the room before, you know what I mean? You, if you have the experience and and you see these kinds of things happening, you could take action to help yourself and help your investors. And that is clear that the arbor had not set up their loans that way. They had not set up their cash that way and they perhaps weren't looking at some of those things critically like that.

Speaker 1 (00:15:49) - Anna and I were each active real estate investors through the global financial crisis. So we know a crisis well, we see what each crisis is a little different when we talk about hedging ourselves against the crisis. Can you talk about rate caps, which is basically this insurance that one can buy to put a cap on how high their rates can go. If you go ahead and buy a property to 3% interest rate and you have a 2% rate cap, that means your cap cannot exceed 5%. So therefore if rates go up to 7%, you're kind of in the money.

Speaker 3 (00:16:19) - That's exactly right. And so it's clear to me that they didn't buy those cap, by the way, they're not the only one. There are others. And so if you shine the light on the multifamily industry, there's a fair amount of people that didn't do that either, not just them. And also there's other people that don't have the cash perhaps like the million dollars that we used to do a cash in. And so they're going out to their investors to try to preserve the asset. The crazy thing about it, as you know is we're still very under supply and on a housing stamp. Yeah, the fundamentals of the apartments are actually good though we're still seeing a a little bit moderate red growth and we're hitting theis and the occupancies are good. The apartment industry is not in any kind of crisis. The one thing that's changed is the cost of debt has got up a lot.

Speaker 1 (00:17:14) - Why don't we talk about that some more and just how bad is it going to get Ken, maybe through the perspective of just how much commercial debt is about to expire.

Speaker 3 (00:17:24) - If you google this, you'll see that there's about 1.4 trillion expiring by the end of 2024. So that's a lot . And so what has to happen is, Keith, let's say you all bought something. Well actually there's already examples. If you Google, there's an office tower that was appraised and valued at 250,000,002 years ago and it just traded at 70 as an example. Wow. So there's a big, big haircut there, right? So first of all, all the equity on that original deal gone wipe down and then the that 70, all that does is cover part of probably the debt. So some bank somewhere took it in the shorts, you know, on that deal. And so that is a good segue to say what happens is anything that was purchased, let's say in uh, call it one to three years ago, is subject to massive valuation change.

Speaker 3 (00:18:23) - And if they have a situation where they're trying to do a cash out refi and they're not going to be able to, if they have a situation where they're going to sell, they're not going to be able to because the value of that asset is probably 20 to 30% less than it was just two years ago. So what's going to happen is if they can wait, they might be able to wait it out. If rates go down like everybody's hoping it will, or cap rates go back down like everybody's hoping it will, then you're going to be fine. The issue is going to be the maturities and when they hit,

Speaker 1 (00:19:01) - There's a 20 to 30% loss in value as we know at a 75% loan to value loan. Yes, that is a complete wipe out of the equity. Ken, when we think this through, of course apartments have debt that someone is holding onto and apartments also have equity that someone else is holding onto and equity could be held by. It's not just investors in a syndication, it's also a pension fund or a family office. And if these go under, we have to think about those ramifications of course, but we think about equity that's held by LPs limited partners, which are those individuals that invest in a syndication. What do you think that LPs should do? What kind of situation are they in? I mean are syndicators communicating with their LPs and letting them know things like, hey, there just isn't gonna be a distribution this quarter and I don't know about next quarter either or, how's that communication been?

Speaker 3 (00:19:52) - So it's hard to know. Obviously if you read the article about Arbor, there was not much and a lot of the investors were surprised. It's interesting though, cuz if you really dial into it, there's no way that they were making distributions for a long time as the things were defaulting. So there must have not been distributions on those assets for some time. That would be obviously a red flag. So I think that some syndicators are probably communicating very, very well. But in this particular case, that wasn't happening because of what some of the people were saying in the article that had invested with them.

Speaker 1 (00:20:31) - And when you're talking about Arbor, you're talking about that group in Houston that I brought yeah, up earlier. That's really become sort of like the poster child for what's coming can often that might make one think like the LP that invests in someone else's syndication that might make a savvy investor wonder, well gosh, I wonder if there's going to be a contagion effect. Even if a syndicator shows me a deal and that one particular deal looks really good, does that syndicator have other deals behind him that are blowing up and could affect this good deal that looks good in front of me right now. So what are your thoughts about any sort of contagion effect that way? Are you seeing any of that out there?

Speaker 3 (00:21:08) - It's certainly possible. I know that a lot of it's gonna be based around the debt itself. So if somebody got a deal like we did like two years ago or one year ago that put fixed rate debt on it, not a problem. So you have to take a look at the maturity of the debt. There's a lot of people that have bought properties that where they assumed alone in the commercial space you can assume something, people are still doing deals, you know, so if you could step into somebody else's loan at three, three and a half percent, let's say you're not gonna have a default issue, you're not gonna have a debt issue where the debt's gonna go up while you bought something, it's fixed. And that was kind of the whole point. As you know, I've been telling people to get in fixed straight debt for two years. If you go back and look at my videos, I probably said it a hundred times, getting fixed straight debt, getting fixed straight debt, getting fixed straight debt because you have to know what your debt payment is month to month to month for a long period of time. You don't want a fluctuating variable number. And so the people who didn't do that, the people that in my opinion were inexperienced and didn't by caps, this is the result of that.

Speaker 1 (00:22:23) - We've been talking a lot about problems here. Of course the flip side of any problem is an opportunity. You are an excellent opportunist. You just talked about situations where apartment values could be down 20 or 30%. So are you seeing opportunity, especially with respect to apartment buildings and what's going on coming ahead?

Speaker 3 (00:22:43) - We looked at four deals on Tuesday, we've been in opera on one of 'em. So to your point, if somebody's sitting on some assets and they need cash for ones that aren't doing well, for example, they might sell a couple of the good assets. And what's a good asset? A good asset would be something that's highly occupied and is stable and has fixed rate debt and it's something that you can easily underwrite, easily buy, and you know it's gonna be like clipping a coupon moving forward. That would be what I would call a good asset purchase. And those are definitely hitting the market. So I mean, you think about your own portfolio, you know, at any given time you're looking at the winners and you're looking at the losers, sometimes you have to sell a winner to pay for some of the losers. So we're starting to see some good assets hit the market.

Speaker 3 (00:23:32) - That might be great. They help somebody that's um, in a situation that might need cash for something else. So that is exactly what does happen. That is what's happening. So we're gonna be all over those issues and try to snap up some of these really, really nice assets. Another really good opportunity is going to be on brand new class A apartments that are just now being completed. So you know, as you know on a new construction deal, you do not get fixed straight debt because there's no asset. It doesn't exist. So you have a land, you have to build it until it's considered in service, which means you have all the occupancy certificates and it's blessed and the city says, okay, it's all ready to move it. That's in service. And until that point you can't put fixed rate debt on anything. So there's going to be this many opportunities on assets that are under construction that are in trouble because of these high interest rates. People that come in with all cash, for example, are going to be able to buy some of those properties. What I would guess at under replacement costs, it's going be a very exciting time moving forward for buying perhaps real trophy assets or assets up that people have already done a lot of work on or under what they're worth.

Speaker 1 (00:24:51) - That could be a good niche to exploit. You're listening to get Resu education. We're talking with Ken McElroy about trouble in the commercial lending market and how that affects real estate. Warren, we come back. I'm your host Keith WeHo with J W B Real Estate Capital. Jacksonville Real Estate has outperformed the stock market by 44% over the last 20 years. It's proven to be a more stable asset, especially during recessions. Their vertically integrated strategy has led to 79% more home price appreciation compared to the average Jacksonville investor. Since 2013, JWB is ready to help your money, make money, and to make it easy for everyday investors, get started@jwbrealestate.com slash gre. That's jwb real estate.com/gre. GRE listeners can't stop talking about their service from Ridge Lending Group and MLS four 2056. They've provided our tribe with more loans than anyone. They're truly a top lender for beginners and veterans. It's where I go to get my own loans for single family rental property up to four plexes. So start your pre-qualification and you can chat with President Chaley Ridge personally. They'll even deliver your custom plan for growing your real estate portfolio. start@ridgelendinggroup.com. This is peak prosperity's. Chris Martinson, listen to Get Rich Education with Keith Wein old and don't quit your daydream.

Speaker 1 (00:26:33) - Welcome back to Get Education. We're talking with Ken McElroy, longtime influencer and very successful author, A great influencer in the real estate space. And can you hit mentioned some other sectors outside of the residential and the apartment space earlier, and we look at potential problems or opportunities outside of residential and we think about what's happening to office space. You touched on that earlier, that's probably about the worst real estate sector I can imagine in their high vacancy rates, hotels and retail and warehouses, which actually think about one sector as doing pretty good since the pandemic and online shopping really lifted the warehouse sector. But do you really have any other thoughts about those sectors, how commercial loans affect them or any good opportunities in those outside of residential?

Speaker 3 (00:27:24) - As everyone knows, you know, when you buy a home, they look at your FCO score, right? They look at your credit and they look at you or me as the person paying that home as they should. When you move to the commercial side, they look to the asset. So they're very, very different. One's an individual. Another one is the actual asset. So as these asset values go down, as interest rates go up, I think that anything that's going to need any kind of a loan and the next year or two is going to have a problem from an asset value standpoint. Because what we were all used to in the last 10 years were these value add. So you'd buy something and then you would improve it and it would be worth more money at the credit and debt markets were stable, you know, so you could go, uh, you had a very calculated model where you can go put new debt on there and scoop that out and do a cash out refi that's gone right now because the values are down and of course the cash out refi option is off the table.

Speaker 3 (00:28:30) - So th those are the real problems that people face moving forward. So that could be all kinds of things. It could be retail, it could be industrial, it could be multi-family cuz everything is impacted even though we've had high cracy and red growth in some of those areas. If you're a seller that has a 3% loan and you're trying to sell it to somebody like us who's a buyer, we're probably at six or seven. We're looking at cash flow very differently than they are when our debt costs are almost double. So we're not gonna be able to pay that price. And so that's what the debt, rising debt costs have done. If the income, any expenses are the same, but the debt costs are double, then we as buyers can't afford to pay that. So therefore the prices that we're we can afford to pay are gonna be a lot less. And so that's actually what's happening

Speaker 1 (00:29:26) - And what we think of as perhaps ground zero for problems in the real estate market. I think office first comes to mind, you've talked about office vacancy rates in many American cities being really high earlier, it was a particularly noteworthy stat that was released not long ago that in New York City they have 26 Empire State buildings worth of empty office space. So we talk about all this open office space with more of the work from anywhere crowd and this dearth of residential housing. You know, can you experience, do you learn about very many office buildings being viable for tear down and conversion into residential? Or is that not feasible very

Speaker 3 (00:30:07) - Often? Yeah, so that's the million dollar question. What are we gonna do with these big, big office buildings? And think about this, Keith, let's say it's a 50 story building, which is a very common building all over the place and it's got 20 or 30% occupancy. My guess is, you know, what do you do? Like you have to wait until it's a hundred percent vacant, obviously before you can even do something. So what's going to happen is the banks are actually gonna be taking these back, the banks are gonna be managing these and they're gonna have to figure that out. And the only way to take down an office building is if it's a hundred percent vacant. And even then it might not be worth it because let's don't forget, you step into the shoes on day one of the property taxes of the utilities of the insurance, regardless if it's full or not in order to maintain it.

Speaker 3 (00:30:59) - So there's an operating cost that exists whether there are people in it or not. And so you have to be careful that you're not catching a falling knife. You know, like, I mean if somebody said to me, I'll give you this vacant office building or a dollar, I probably wouldn't take it because unless I had some kind of a solution for the, uh, on the income side. So I'm not saying I wouldn't, but you have to have a solution on the income side to cover your operating expenses. Otherwise you're just gonna be writing checks just like the person before you

Speaker 1 (00:31:34) - That is so well explained on the difficulty of making a conversion feasible from office to residential. Well, if you're like me, you read a lot of Ken McElroy's books like the ABCs of Property Management, the ABCs of Real Estate Investing. Can I read the Return to Orchard Canyon on a beach in India a little over three years ago? Actually, I love that more recent book from you and you have a great live in-person event coming up really soon where the audience can come to see you at a bunch of other speakers. It's a fantastic event. It's a second year, you're doing it, it comes up really soon here in Scottsdale. Tell us about it.

Speaker 3 (00:32:15) - Thank you. It's, I cannot be more excited, especially what's happening right now. It's called Limitless and uh, it's at limitless expo.com. So it's just limitless expo.com. But kicking off the very first day is Joseph Wang, who wrote a book called Central Banking 1 0 1 and he is good. He used to work in New York for the Fed and is going to talk specifically about what's the Fed going to do in the second half of the year in 2024 based on all the things that he did on the open markets desk for the Fed. So that's gonna be very exciting. We've got Chris Martinson as well talking right after him, got kiosaki. We have a whole bunch of people around entrepreneurship and um, kind of side hustle stuff just to try to figure out what the heck is happening and what could we be doing to protect ourself moving forward.

Speaker 3 (00:33:11) - So this is really, this year in particular is a not to miss year because these are things that all of us are trying to figure out. I don't have a crystal ball just like anyone does, and I'm studying like crazy to try to figure out what's happening next. We've got 45 speakers all coming to try to help us understand what we can do next. Chris boss, who's, uh, wrote the book, never Split the Difference. If you guys haven't read that book, you need to read that book. He's the hostage negotiator in the world and he works for the FBI and Harvard. And, and his talk is going to be how to negotiate during troubled times because these are going to be real things, Keith, real things that are happening. You know, when there's a debt maturity or a loan coming up or you have problems with your limited partners or, or whatever it might be, this is the room you wanna be and that's the talk you want to hear. Chris is gonna be there, I'm gonna do a podcast with him. He is gonna do a book signing, so it's really fun. It's gonna be Thursday, uh, the 15th, the 16th or the 17th of June. And uh, it's right in Scottdale, Arizona.

Speaker 1 (00:34:21) - Janice Prager will be there as well. And yeah, it seems like you just keep adding speakers. Okay, I wanna talk to you. Last month it was 40 speakers, now it's 45. So you, you have a buffet that you can sample there as an audience?

Speaker 3 (00:34:34) - We do. I can't wait to meet Dennis Prager. I, I've been to his compasses in la I, I'm a big fan of, you know, his messaging and, and what he, he has a billion downloads last year, A billion with a B. That's incredible. So he's getting to be there. I just think it's like the who's who, right? It's tweet thought

Speaker 1 (00:34:52) - 100%. You can get started@limitlessexpo.com. Can I and our audience have benefited from your knowledge for years? Thanks so much for coming back onto the show.

Speaker 3 (00:35:02) - Yeah, my pleasure. Always great to be on

Speaker 1 (00:35:10) - Most of those speakers at the Limitless event. Were guests here on G R E, so you'll probably find a lot of residents there, including Chris Voss who was the FBI's lead hostage negotiator. He was on the show with us here twice you'll remember. And yeah, you'll remember that pretty fondly because it was entertaining the first time Chris was here back in episode 331, how the World's Best negotiator and I, Chris Voss did a mock face off in negotiating the purchase of a fourplex building. But getting back to imploding apartment syndications, they aren't just blowing up deals and blowing up investors, but also blowing up banks when the borrower cannot repay the loan. And banks have to take back apartment buildings and office buildings unlike, which is actually pretty unusual in a way that they need to take back apartment buildings. I mean, everyone understands how the work from anywhere movement created, the office space decline, but there is quite a demand for all residential types, single family homes and condos and trailers and apartments.

Speaker 1 (00:36:17) - But it's those resetting rates that blow up apartments despite the demand for people to wanna live there. So what this does, it makes banks more conservative with lower rent values being delivered, lower rent to value ratios also coming on the way. I would expect more of that ratcheting down. And for more people wanting to refi from a variable rate to a fixed rate, you know those syndicators they have got to put cash in in order to meet that lower loan to value ceiling will well capitalize syndicators. They can do that and others can't. Syndicators might very well be asking for capital calls from their investors then for their investors to help fund that cash in refi to keep those deals alive. The timeline for when you should expect a lot of this activity are from the peak 2021 and early 2022 deals that had short-term debt on them.

Speaker 1 (00:37:17) - They are going to face resetting rates late this year and into 2024. You probably noticed that just beyond the halfway point in the chat with Ken. I pivoted from talking about problems to discussing opportunity and the opportunity being that others might sell a good apartment deal because they need the cash to get out of that deal so that they can go take those funds and perform a cash in refi and shore up one of their other deals and get that other deal into fixed rate debt. Most modern offices, you know, they simply cannot be adapted over to residential uses due to their wide and deep floor plates that restrict natural lighting to only the perimeters. And because of the overhauls required to run mechanical and electrical and plumbing to individual residential units in the rare office building where conversions are possible, that sort of thing is wildly encouraged by everyone, developers and brokers and all kinds of governmental bodies.

Speaker 1 (00:38:19) - In fact, there was recently a sale of a 150,000 square foot office building in Orange, California oranges between Anaheim and Santa Ana. It's sold for 22 and a half million dollars and it's planning to be converted from office to residential. But yeah, multi-family conversions like that, they just aren't common. And the full story about that from LoopNet is in the show notes for you today. We've been discussing the difference between one to four unit properties and five plus unit multi-family apartments today. The difference in lending is really what makes all the difference. So those larger apartments bought with variable rate debt, say one to three years ago, they are problematic where the one to four unit space instead stays shielded with long-term fixed interest rate debt. Next week here on the show, you're gonna meet our new investment coach at GRE Marketplace. You have heard this person on the show before. I'll introduce you next week. Yes, we're adding a second one to keep up with demand for you. Until then, I'm your host Keith Wein. Hold, don't quit, it's your daydream.

Speaker 4 (00:39:31) - 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 on their own information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of Get Rich Education LLC exclusively.

Speaker 1 (00:39:59) - The preceding program was brought to you by your home for wealth building. Get rich education.com.

Direct download: GREepisode452_.mp3
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Mon, 29 May 2023

451: Racial Controversy

Did you expect to hear this about Black people? We have a discussion about equality in housing.

First, if you close your eyes and wake up in 10 years, where do you want to find yourself? I explore.

For some reason, investors want to time the real estate market, yet they dollar cost average into stocks.

1% down payment mortgages are here.

Learn about the latest AI development. The maker of ChatGPT is developing “Worldcoin”. It would verify if you’re human by scanning your eyeballs.

Finally, there’s a long history of racial discrimination in both society and housing.

The Fair Housing Act—part of the Civil Rights Act of 1968—helped break down discrimination.

The Fair Housing Act protects people from discrimination on the basis of race, religion, national origin, sex, handicap, and family status when they are renting or buying a home, getting a mortgage, or seeking housing financial assistance.

Learn the difference between equality of opportunity and equality of outcome. The latter is difficult to administer.

Providing equal opportunity in housing is not just the law. It’s the right thing to do. I explain why it actually benefits you.

Resources mentioned:

Show Notes:

www.GetRichEducation.com/451

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450: What If I Gave You $10M? Real Estate Pays 5 Ways Revisited, Why Everyone Wants to Live Alone

Complete transcript:

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

If you close your eyes and wake up in 10 years… where do you REALLY want to be? 1% down payment mortgages are here, profound AI impacts in your life…

Then, some contentious and even volatile discussion about racial discrimination and Black people… in housing. You’ll get my opinion on equality of opportunity. Today, on Get Rich Education.

____________

Welcome to GRE! From Allentown, PA to Glen Allen, VA and across 188 nations worldwide, I’m Keith Weinhold and this is Episode 451 of Get Rich Education… where we don’t live below our means. We grow our means.

If you’re being told that you’re crazy or that things aren’t going to work out… you know… hearing that right there can actually be a prerequisite to you being successful.

Are people raising their eyebrows at what you’re doing?

Yeah that could actually be some positive feedback on your direction, as long as your head tells you that it’s right and your gut backs it up.

Don’t trade away your authenticity for approval.

Look, if you close your eyes and wake up in 10 years, what do you want to see when you open your eyes? Awards for work?

I doubt it. Or is it kids, family and relationship-oriented?

Or is it, invisible footprints that you’ve left behind all over earth because you traveled or explored that much?

You DID raft the Grand Canyon, visit the Taj Mahal, see the Eiffel Tower, or dive the Great Barrier Reef?

Yeah, it’s probably those types of things.

Well then, why are you putting 90% of your effort into career-oriented stuff… if that doesn’t help you achieve that goal 10 years from now?

That’s a better set of questions for you to ask yourself.

That’s why we talk about generating residual income when you’re actually young enough to enjoy it here.

Rich people play the money game to win - that’s what we do here. While most people play the money game not to lose.

Real estate is not always easy. It’s not OVERNIGHT wealth, you’ll have your problems. But it can be amazing when you have a strategy and stick to it.

If you want me to make your financial life better in 30 days, maybe I can in some cases but that’s really not what we’re doing here, probably not even in a few months.

But in a few years… yes, definitely.

And I think it helps to remember something simple. The only place that you get money is from other people.

All your life, the only way that dollars have come into your hands or into your bank account is because it came.. from other people.

For many, that’s just one person - one employer that the money comes from.

With each rental property that you add, that is one more person that is paying you…

… that’s of tangible benefit to you in a world where the only place that you get money is from other people.

Now, as we dip into the mechanics about how to achieve that…

What would be different if you HADN’T taken action in RE?

Now, I don’t know what it is, but for some reason, people are trained to TIME THE MARKET in RE.

Yet people might put 10% of their salary - up to $22,500 is allowed this year - $30K if you’re over 50. They put that in their 401(k) - dollar-cost averaging - which is NOT timing the market.

I don’t know why that is. Why some people are predisposed to time the market in RE but yet they DCA in stocks - which is the opposite of timing the market.

Maybe it’s the cost of the property?

Treat RE the same way - DCA there too. Keep adding 1 or 2 a year or whatever you can.

When you consider 401(k)’s low returns and low liquidity, you might not even be putting money into it anymore.

You’ve got the wherewithal to know that very dollar you lock in a 401(k) is a dollar that can’t use OPM.

And it gets even worse.

Because with a 401(k), you are HOPING TO DIE before the money runs out. What kind of a retirement plan or life plan is that?

Doesn’t sound like diving the Great Barrier Reef to me. Ha!

Rocket Mortgage introduced a new 1% down home loan program. This is a new product for them. But some people to think it’s the first.

It’s not the first. It comes on the heels of rival United Wholesale Mortgage rolling out a similar program.

But this particular program is expected to reach a lot of people.

And here’s the thing. It also eliminates the monthly mortgage insurance fee. It deletes monthly PMI.

Now, even if we’re just talking about primary residences here, this affects you in the rental property market. I’ll tell you why in a moment.

But with this 1% down payment program, a buyer using this program who’s purchasing a single-family home, well, their income can be no more than 80% of their area’s median income…

… they are only required to make a down payment of 1% of the purchase price.

Then the lender covers the remaining 2% needed to reach the required 3% threshold for conventional loans.

So it’s not only going to reduce upfront costs, but that monthly mortgage insurance fee for the borrower is gone, which is typically a few hundred dollars a month…

That what they had to pay traditionally, if the buyer puts less than 20% down on their purchase. That’s going to help affordability.

So with 3% down being reduced to 1% down, then a homebuyer of a $250,000 home would only need a $2,500 down payment instead of $7,500.

Now, strict underwriting guidelines are still in place - you need income and credit and assets.

There aren’t really as many mortgage borrowers that put 20% down on a home as you might think. In fact, the average new purchase down payment amount in America is only between 6 and 7%.

But this 1% option, which it’s estimated that 90 million Americans will qualify for - over the long-term, that is just going to increase the available pool of buyers, of course, because more people that were on the edge of affordability can now qualify.

Now, in a normal market, a few of your tenants that were on the brink of qualification might be able to run off - and buy.

But you’ve still got those erstwhile strict underwriting guidelines and there’s still just such a lack of supply of this entry-level housing - like I updated you on last week.

You can’t move into what doesn’t exist. So this could create some tenant attrition, but it should be pretty limited for those reasons.

But, yeah, with this larger pool of buyers that now qualify, that puts more upward pressure on property prices.

When you make any good or any commodity MORE affordable in the short-term like this, with more buyers & more bidders, it makes that much LESS affordable long-term because that competition pushes prices up.

It’s just like decades ago, as soon as financial assistance came to the college enrollment world with Stafford loans and Pell grants and all that stuff, what did it do?

More people could afford to PAY MORE with more & better loan types and that made college costs skyrocket.

The same effect is happening here when you lower down payment requirements to just 1%.

Though, that factor alone shouldn’t make home prices skyrocket. They shouldn’t shoot up. But it’s just another tailwind on upward price momentum.

Typically when a tech CEO goes in front of a Senate committee, it gets embarrassing. Like, they end up explaining how to use email.

OK, Senate committees are not known for being tech savvy.

Not so a couple weeks ago, when Sam Altman, CEO of ChatGPT-maker OpenAI, testified on Capitol Hill on the future of AI and how the field should be regulated.

Now Sam Altman has a lot more going on than just ChatGPT. It’s possible that he’s the future wealthiest man in the world.

Now, this is where it gets scary.

He’s about to secure a $100 million funding round for an eye scan-accessible global cryptocurrency project, Worldcoin. That’s what the Financial Times told us.

Worldcoin is not totally unrelated to his signature project. The company’s goal is to verify whether users are human by scanning their irises to disburse universal basic income… to workers displaced by AI.

Now, I’ve explained before how technology actually creates jobs, not destroys them.

But the hearing continued with a discussion of the dangers of an unpredictable, evolving technology that can generate and spread misleading information without us even realizing it’s fake- like those famous fake images of the Pope in a puffer jacket or Trump running from police.

Well, for his cryptocurrency, Worldcoin, Sam Altman has already released a World App crypto wallet that can be downloaded to your mobile phone. And he’s got big plans for Worldcoin as the first-ever cryptocurrency to be held by every person on the planet.

It runs on the Ethereum blockchain. You don’t need to know what that means. In practical terms, Worldcoin will look (and trade) a lot like the cryptocurrencies that you’re already familiar with. So in that regard, Worldcoin isn’t breaking any new ground.

What makes Worldcoin stand out is the fact that it has aspirations to be both a cryptocurrency and a global identification system. With a tag line of "the global economy belongs to everyone," Sam Altman plans to distribute Worldcoin tokens to every single human on planet Earth.

And this is where things get really creepy. To pick up your free Worldcoin crypto token and sign up for a Worldcoin ID, you will need to give Sam Altman a scan of your eyeballs.

Yes, you heard that right -- Worldcoin has created a proprietary iris-scanning tool known as the Orb. Once you've had your eyeballs scanned with the Orb, you're good to go.

Altman says this step is necessary to verify that you are a real human and is not meant to be an invasion of your privacy. He won't even ask you for your name.

Yeah… I don’t know if people are going to go for that, especially Americans. Americans are more suspicious and have more resistance to authority than most places.

We’ll see what develops with WorldCoin but expect to hear more about Sam Altman.

If you want more real estate education, your source is GetRichEducation.com

For actually physical property addresses conducive to financial freedom, create one login one time like thousands of others have. You can get started there at GREmarketplace.com

More straight ahead, including a discussion and some contention about racism. I’m Keith Weinhold. You’re listening to Get Rich Education.

________

Welcome back to GRE. I’m your host, Keith Weinhold. As we’re about to get to racism, now, first…

It's no secret that I prefer investing directly in single-family rental homes and apartment buildings.

But when I look for real estate investments that are even more passive than turnkey...

... I just thought you might like to know that I personally invest my own money through a company called Freedom Family Investments.

Right from the beginning, they’ve always provided me with exactly their stated return, paid on time.

You might wonder, what makes their funds any better than, say, a Wall Street REIT or a 401(k)? Well, for starters…

It's being paid passive cash flow today, not when I'm age 65+.
And Tax benefits that offset W-2 job income and capital gains. This part itself can be life-changing.

It might be hard to rake in as much money as Taylor Swift's Eras Tour when you're young enough to enjoy it. But this can get you closer.

The fund invests in real estate projects that make an impact. So consider becoming an insider along with me.

We get preferred returns of 10% to 12%. That means we get paid first. Cash flow is paid quarterly.

You can join us with as little as $50K. It is for accredited investors only.

Freedom Family Investments they ARE THE experienced partner on the most PASSIVE portion of my real estate holdings.

If this sounds interesting, text FAMILY to 66866 and ask about the Real Estate Insider Fund.

Again, text FAMILY to 66866

Let’s discuss racism and discrimination in America.

It’s a topic that I think some people don’t want to discuss. But I will today, because, here we are, Episode 451 and it’s the first time.

This was recently published on our Get Rich Education YouTube Channel, so expect some sound effects as we’re about to play this for you here.

The first voice that you hear is 60 Minutes interviewer Mike Wallace with Morgan Freeman, then Denzel Washington, and finally, Dr. Jordan Peterson.

This is about 10 minutes in length, and then I’ll come back to wrap it up for you.

**PLAY VIDEO**

We’ll end it there. If you’d like to see more, check that out on our Get Rich Education YouTube Channel.

I’ll tell ya. Practicing equanimity, it was kinda difficult for me to discuss a sensitive topic. I’m not sure if you can tell in the video, but my forehead is sweating by the end of it.

The least that you need to know is that 1968's Civil Rights Act includes the Fair Housing Act.

This is a piece of landmark legislation is something that any citizen should know the basics about, and even moreso for a real estate investor.

The Fair Housing Act protects people from discrimination on the basis of race, religion, national origin, sex, handicap, and family status...

...when they are renting or buying a home, getting a mortgage, or seeking housing financial assistance.

So it’s not just when you’re renting to someone, it’s when you’re lending to someone.

You shouldn't steer your advertising in an exclusionary way. Even terms like "cozy bachelor pad" or "ideal for young couples" should be avoided.

And equal opportunity is simply better for you as a landlord.

Say that you excluded a rental applicant group that comprised 30% of the population.

Then your available renter pool would shrink by that amount, reducing your income potential, reducing your occupancy rate, and reducing your tenant quality. So keep that in mind.

Next week here on the show we are talking about some big problems and really… the toxicity in the apartment market, the commercial real estate market… and how 2022’s sudden spike in interest rates is causing syndications to fail.

Apartment building owners are getting foreclosed on. More of that is coming as their VARIABLE interest rate debt resets to WAY higher levels.

How bad is it going to get? What are you supposed to do as an investor if you’re IN a syndication? What’s it look like if you’re a real estate syndicator yourself?

Who is safe and who is going to go… under?

All that and more will be answered next week when Ken McElroy returns to the show here with us.

I really appreciate you being here this week.

But as always, you weren’t here for me, you were here for you. I’m Keith Weinhold. DQYD!

Direct download: GREepisode451b_.mp3
Category:general -- posted at: 4:00am EDT

Mon, 22 May 2023

Get a 4.75% mortgage rate or 100% financing on new-build Florida income property. Start here.

If I gave you $10M, learn why that probably wouldn’t even help you.

We revisit how “Real Estate Pays 5 Ways”, a concept that I coined right here on the show in May 2015.

Some think real estate pays three, four, or six ways. I revisit why there are exactly five.

Real estate has many paradoxical relationships. I explore.

Americans are living in homes longer than ever, now a duration of 10 years, 8 months.

The active supply of available housing dropped again.

Get an update on the gambling industry. A major sports gambling platform has offered to advertise with us.

Take my free real estate video course right here.

Zillow expects US home values to rise 4.8% from April 2023 to April 2024.

Months of available housing supply is currently 2.7 per Redfin.

Resources mentioned:

Show Notes:

www.GetRichEducation.com/450

Active Supply of Available Homes:

https://fred.stlouisfed.org/series/ACTLISCOUUS

Get mortgage loans for investment property:

RidgeLendingGroup.com or call 855-74-RIDGE

or e-mail: info@RidgeLendingGroup.com

Find cash-flowing Jacksonville property at:

Invest with Freedom Family Investments. You get paid first: Text ‘FAMILY’ to 66866

Will you please leave a review for the show? I’d be grateful. Search “how to leave an Apple Podcasts review”

Top Properties & Providers:

Best Financial Education:

Get our wealth-building newsletter free—text ‘GRE’ to 66866

Our YouTube Channel:

Follow us on Instagram:

Keith’s personal Instagram:

https://www.cnbc.com/video/2023/05/17/home-prices-still-rising-despite-sales-dropping-says-national-association-of-realtors-yun.html

Complete transcript:

Welcome to GRE! I’m your host, Keith Weinhold. If you were gifted $10M right now, why that very well wouldn’t help you at all.

Learn a fresh take on how Real Estate Pays 5 Ways at the same time. A housing market update with perennially sagging inventory supply amounts and more outlooks for stronger home price appreciation than many expected. Today, on Get Rich Education.

Welcome to GRE!

From Montevideo, Uruguay to Montecito, CA and across 188 nations worldwide, you’re listening to one of the longest-running and most listened-to shows on real estate… the voice of real estate investing since 2014. I’m your host and my name is Keith Weinhold.

How would you like it if I gave you $1M?

You know what? That’s not enough to make my point. Make it $10M. I adjusted for inflation - ha! How much would you like it if I gave you $10M? How would that feel?

But what if it comes with this one condition.

What if I told you that I’ll give you the $10M, but you are not waking up tomorrow?

Not waking up tomorrow? No way!

Now you know that waking up tomorrow is worth more than $10M.

This is how you know that your time and your life are worth infinitely more than any dollar amount.

Hmmm… if your time is so valuable. Then why did you check Instagram 15 times yesterday to see who viewed your Stories? Ha!

Why are you spending time with your AI girlfriend? Ha!

Get Rich Education is ultimately about living a rich LIFE - whatever that means to you.

And we do approach that from the financial perspective here. Money does matter… because leverage, cash flow, and inflation-profiting enable you to BUY time.

We’re really one of the few investing platforms… this show is one of the few places with the audacity to tell you that - sure, a little delayed gratification is good… but the risk of too much delayed gratification is DENIED gratification.

Denied gratification is a terrible investing risk that most people either don’t give enough weight to - or don’t factor in at all.

And getting a $10M windfall is not as great as it sounds either.

History shows that the $25M Lottery winner quickly loses their money. Why does that happen?

Because it seemed like it was effortless to get the windfall, and because they don't know how to handle an amount like that.

It’s really similar to a capital gains-centric investor that gets a windfall.

See, cash flow investors like you & I - we can be more measured because your income stream is metered out over time. That’s why you are less likely to be irrational with your gains.

Now, I touched on some of those ways that you’re paid in real estate investing.

Real Estate Pays you 5 Ways™ simultaneously. That’s a concept that I coined right here on the GRE podcast. We since went on to have it trademarked.

Do you know when I first introduced that concept right here on the show - the month & year?

And I’ve since gone on to do a lot with “Real Estate Pays 5 Ways” to help other audiences understand real estate’s five distinct profit sources.

Well, I had someone on Team GRE here do some digging into some of our legacy shows - our past episodes… because I wanted to know when I first said it… and it was apparently in May of 2015, so 8 years ago that I introduced it.

Since then, many other thought leaders have gone on to cite the phrase. Someone other than me even wrote a book on it. And that doesn’t bother me at all. I’d rather that other people and readers get good ideas. That’s more important than getting the credit.

Of course, c’mon, you can recite these 5 now like they’re the Pledge Of Allegiance or something.

This is as automatic as the Lord’s Prayer is for Christians. The five are:

Appreciation
Cash Flow
Your return on Amortization and
Tax Benefits and finally
Inflation-Profiting

But now, let’s dissect this frog here a little. Why five ways? Why not another number, like real estate pays four ways or six ways?

It is five. There are no more or less. Each of the five are a distinct benefit.

A common flawed case that Real Estate Pays 4 Ways is that most real estate teachers omit the Inflation-Profiting benefit on the long-term fixed interest rate debt.

Any GRE devotee knows that with 5% inflation on $1M in debt, you only owe the bank $950K of inflation-adjusted debt after year one, $900K after year two, etc. (And in the meantime, the tenant pays all of your mortgage interest.)

Some that make the 4 Ways case question the Tax Benefit. Could the tax benefit really be considered a profit source, or is it just a deal sweetener?

It's a profit source.

Outside the real estate world, to obtain a tax write-off, you must have a real expense backed up with receipts, like building a new computer equipment or buying a new farm tractor.

Instead, the magic of real estate tax depreciation says that you can just write off 3.6% of the improved property value each year just for doing... nothing all year. No improvements necessary.

It's a phantom write-off, yet legitimate to the IRS.

Then the 1031 Exchange means you can endlessly defer all of your federal capital gains tax for your... entire life.

Yes, it's one of the few places in life where procrastination actually pays.

I've even heard some say that they're a fan of GRE's Real Estate Pays 5 Ways™, but they've discovered a sixth.

This often involves an event that's either unlikely or falls into one of the existing 5 Ways.

For example, "My appraisal value exceeded the contract price. I’m buying it for $320K, but the appraisal is $340K. I got $20K in instant equity. See, I was paid a 6th way."

No.

I mean, good for you, $20K of instant equity is a nice sweetener - that’s a $20K credit in your net worth column that you received the moment you opened up that appraisal e-mail from your lender and saw it. Nice!

But an appraised value that exceeds the purchase price is not COMMON enough to be expected… and the 5 Ways are.

Also, you can make the case that "instant equity" is covered in the first way you're paid, Appreciation.

The reason that we invest in real estate is because there's virtually no other vehicle in the world where you can expect to be paid five ways at the same time.

That’s a foundational principle - it’s a core concept here at GRE.

It’s why we do what we do. It answers the compelling “why” for real estate better than any answer there is…

…and that’s why anything less than a 20 to 25% combined return when you add up all five ways is actually disappointing - and that’s done with low risk - which is paradoxical almost anywhere else in the entire investing world.

If you haven’t yet, take my free “Real Estate Pays 5 Ways” course in order to really understand each of your five distinct profit sources, where they come from, and how that all fits together.

It’s at GetRichEducation.com/Course. The free “Real Estate Pays 5 Ways” short course is free at GetRichEducation.com/Course

Let’s talk about real estate trends.

You know, real estate investing has a lot of relationships that you just wouldn’t expect.

Part of that is because it intersects with the economy. Economies are complex and you get these relationships that are counterintuitive.

For example, in a recession, mortgage rates and all interest rates tend to fall, not rise.

Another exhibit is how debt BUILDS wealth with prudent leverage.

Another one that I’ve explained extensively here and the show and elsewhere is that higher mortgage rates correlate with higher home prices - not lower ones. That throws nearly everyone off.

Some physical real estate trends have been counterintuitive.

About 30 years ago in America - the 1990s - a new trend was fueled that everyone wanted to have a big kitchen.

New homes were often built with a big, fancy kitchen in the center of the home. Open floor concept - no galley kitchens anymore. That began back then.

And this was really the advent of - at the time - what we considered luxury amenities like granite and quartz kitchen countertops.

Anymore, that’s become standard. Even our build-to-rent providers at GRE Marketplace often have new granite countertops in rentals.

But the paradox here is the assumption that a big emphasis on kitchens would mean that more people would start cooking at home.

Oh, no. Just the opposite, in the last 30 years, despite the big kitchens, more people eat out at restaurants and fewer people eat at home. Another real estate paradox.

Another counterintuition was the pandemic. Society locked down, people lost their jobs and you think that there are going to be mass foreclosures because with no job, no one can afford their mortgage payment.

People thought the pandemic will cripple the housing market. Oh, it was just the opposite. That created a housing boom. Everyone wanted their space. Another paradox.

Remember here on the show, shortly after Biden was elected, I told you that this administration - for better or for worse - will not let people lose their homes.

Then we had high inflation on the heels of the pandemic. That was bad for consumers and good for real estate.

But high inflation is supposed to mean that bitcoin and gold would surge. Well, another paradox, that brought crypto winter, and gold did nothing in high inflation, until more recently here.

Rather than high delinquency rates we’ve got low delinquency rates. In fact, the mortgage delinquency rate has been steadily falling for almost 3 years now. That’s because of strong borrowers and tough lending standards.

Now, another real estate investing trend, though there’s nothing paradoxical here, is mortgage rate resets.

Here in the US, on 1-4 unit rental properties, you’re in great shape, whether you locked in your interest rate at 3% or 7% - the thing is that you have a steady payment… and on an inflation-adjusted basis, your same monthly payment amount goes DOWN over time - it’s a tailwind to your personal finances.

Inflation cannot touch your steady, locked-in P & I payment.

But many Canadians are up for renewal with their 5-year fixed rate, 25-year amorts.

Yeah, just across the border in Canada, they don’t have these 30-year fixed rate amortizing loans.

Their rate resets every five years.

One Canadian homeowner that I talked to, he doesn’t live in that posh of a home in Ontario, it’s just a little above the median housing price.

His family’s loan terms are about to reset on the primary residence and it’s expected to increase their monthly payment by $1,280 / mo.

How would you feel if that happened to you overnight? It’s a nuisance at best. It might even crimp your quality of life - or worse.

That can’t really happen to you in the US.

Having a 30-year FRM is like you having rent control as a tenant.

In coastal areas, some tenants that have a rent control deal - New York, California, Oregon - they want to live in their home for decades under rent control because there’s a ceiling on their rent. Move out of their unit - lose the deal and they’d have to reset somewhere else.

It’s the same with you as an American homeowner or REI in the 1-to-4 unit space. Your P&I price cannot rise.

And, I’ve talked about the interest rate lock-in effect before, constraining the housing supply.

Get this. Just last week, First American Title Company informed us that the average resident duration in a home hit a record high.

Amongst this lower intrinsic mobility rate, interest rate lock-in effect, and other societal trends, the average resident duration in a primary home in now 10 years, 8 months.

Lower mobility. Studies show that people are holding onto their cars longer than ever, and people aren’t parting with their real estate either.

So, then, with fewer properties coming to market, let's update the available supply of homes.

This is pulling from the same set of stats that I’ve been citing for years, in order to be consistent. Check this out. This is the FRED Housing Inventory - the Active Listing Count of Available US homes.

Remember, historically, it's 1-and-a-half to 2 million units available. In 2016 it was still 1-and-a-half million.

Then in April of 2020 it dipped below 1 million and fell sharply from there - which I’ve famously called this era’s housing crash.

It was a housing SUPPLY crash - which hedges against a price crash.

It fell to as low as 435,000 a year later in mid-2021. Gosh, under a half million.

It’s rebounded as builders know that they need to build more homes. Six months ago it got up to 750,000 available homes - which is still less than half of what

America needs.

And now, today, did the supply get up toward at least 1 million yet? No.

It has dropped back the other way to just 563,000. This astounding dearth of housing supply - it’s a condition that we could very well be in for over a decade.

This scarce supply is a long-term American condition. Yes, it’s good for your real estate values - both present and future. But it is a problem too. It’s a contributor to homelessness!

The Covid home improvement boom is officially over. So says Home Depot. They posted a revenue drop in the first quarter and warned that annual sales would decline in 2023 for the first time in 14 years.

Home Depot said that shoppers are now holding off on the big-ticket purchases they made during the pandemic and are choosing to break up larger projects—like remodeling a bathroom—into smaller, bite-sized pieces.

There’s a fascinating new study from a bipartisan think tank shows that everyone wants to LIVE ALONE.

That’s what Business Insider just reported on. Now, of course, the term “everyone” is an exaggeration.

But Statista and Our World In Data tells us that - get this - this is the number of SINGLE-PERSON households in the US - people living alone.

Back in 1960, that figure was just a paltry 13%.

By 1970, 17% of households were people were living alone.

Every ten years, that percent crept up to 23, 25, then 26%. By 2010 it hit 27% and by 2022 it hit 29%.

Now, you can’t think that’s good for society - to have all these single-person households. Almost 3 in 10 living alone. C’mon. Find a good spouse.

But in any case, that’s good for you as a REI, when, say, 10 people live amongst 5 homes rather than 3 homes - absorbing all that housing supply and keeping it scarce.

Even if the US population stayed the same, there’s more home demand - with that trend.

Of course, the US population is growing, though really slowly, probably just a few tenths of 1% this year.

But because of all the Millennials and the embedded “Work From Anywhere” trend, housing demand is pretty strong.

The recent rental housing demand and rent boom came almost entirely due to a surge in household formation -- young adults leaving the nest and roommates decoupling to get their own space... especially in urban areas.

People working from home want more space (without a roommate) AND are willing to pay more for it -- and able -- to pay more for it.

So if you're bullish on work-from-home remaining the norm for at least a chunk of the population (and I am), you should be bullish on the rental demand outlook.

And this has really revitalized America’s SUBURBS - that’s the area where you find that space.

The WFH-fueled rise of the suburbs is a wake-up call to cities, where, in the case of NYC, 26 Empire State Buildings’ worth of office space now sits empty.

The typical office worker is spending $2,000–$4,600 less annually in city centers. Because even if they GO to the city to work, they might only do that 2 days a week now - not 5.

I’ve got more for you straight ahead, including a new forecast on how much home prices are expected to rise this year.

Again, check out my free video course if you haven’t “Real Estate Pays 5 Ways”. Get it at GetRichEducation.com/Course

I’m Keith Weinhold. You’re listening to Get Rich Education.

Yeah, big thanks to this week’s show sponsors. I’m only bringing you those places that will bring real value to your life.

Now, here at GRE, I recently read an offer that one of these major sports gambling platforms sent us. They want to advertise on the show here.

Do you want to hear sports gambling ads on GRE? I’ve got an opinion about that, that I’ll share with you shortly.

Gambling is not the same as investing.

If you’re wondering why you’re hearing more about gambling, especially sports gambling than you had just a few years ago, well…

Now, just last week, it was FIVE years ago that the Supreme Court lifted a federal ban on sports gambling in the US.

That spawned a multibillion-dollar industry that’s transformed how Americans watch, talk about, and experience sports.

Americans bet $95B on sports in legal jurisdictions with consumer protections last year. That’s more money than the amount spent on ride sharing, coffee, or streaming… and you can bet that the off-the-books gambling number, if added in, would make that WAY higher.

Two sports betting companies, DraftKings and FanDuel, control 71% of the US market, per gambling analytics firm Eilers & Krejcik. Gosh, that’s almost a duopoly right there.

But despite that, these companies have struggled to turn a profit. FanDuel recorded its first quarterly profit just last year, and DraftKings has YET to report a profitable quarter. Well, I’ll just tell ya, it’s one of those two big companies that inquired about advertising on GRE.

Of the 50 states, the number is 33 that allow it. That’s 2/3rd of the nation that has legal sports betting (Washington, DC, has it too). Another four states have legalized sports wagering, but don’t have any sportsbooks operating yet.

Interestingly, the three most-populous US states—California, Texas, and Florida—have not legalized sports gambling. And they account for 26% of all teams in the major North American pro leagues.

The number of women joining sportsbook apps jumped 45% last year, marking the third straight year that new women users exceeded men. Hmmm. I guess that’s the growth market there.

My inclination to have gambling advertising and associating with these companies is NOT to do it… not to accept that advertising income.

I don’t see how that’s serving you. This feels like a conflict in my gut and in my heart.

Gambling is sort of the opposite of investing for a stable rental income stream.

I mean, either way, I guess you’re putting your money at stake. But that’s about the closest common ground I can find.

At least at this time… and probably all-time, it’s a “no” for gambling content here.

That’s not any sort of moral judgment on the activity at all. I mean, gosh, as a teenager, I was really into sports gambling, but it was the informal kind. My friend & I each lay a $10 bill next to the TV - Phillies vs. Mets. Winner gets the $20 bucks.

So, my inclination is a pretty easy “no”.

Hook up with our sponsors - they support GRE. That’s Ridge Lending Group, offering income property loans nationwide.

JWB Real Estate Capital - if you want performing income property, JWB really has Jacksonville, FL sewn up & locked down. They do one thing and do it well.

Then, Freedom Family Investments. Get started with them for real estate funds that are ultra-low hassle. Text “FAMILY” to 66866.

Where will the next ten years take you & I on the show here? I would love to be along for the ride with you. I hope that you’ll be here with me.

Let me just take a moment to remind you that I’m grateful to have such a large, loyal audience to… well, listen to the words that I say every week. Thank you for your support.

This show has almost reached the 5 million download mark. I’ve been shown that it’s between 4.8 and 4.9 million downloads now. I’m genuinely honored and a little humbled about that even.

Let’s listen in to this 3+ minute CNBC clip. This is Lawrence Yun, Chief Economist at the NAR - the National Association of Realtors talking about the housing market just last week.

Now, a little context here - historically, the NAR has tended to give these dominantly sunny side-up, glowing, everything is always good & getting better kind of remarks on the housing market.

But I’ve been listening to the NAR’s Lawrence Yun for quite a while and think he’s been rather balanced.

Here, he discusses how real estate sales volume is down - which has a lot to do with low supply, that mortgage rates are steady, and that prices are slowly rising in most parts of the nation.

[OK, Vedran. Here’s where we play the insert.]

0:09-3:42 First words to keep are: “Lawrence Yun…” Last words to keep are: “... half of the country.”

Now, Lawrence Yun did go on to say that he thinks that the Fed should lower interest rates by a half point, and more.

Let us know if you’d like us to invite Lawrence Yun onto the show. As always, you can leave your suggestions, questions, or any comments about the Get Rich Education podcast or any of our other platforms at our Contact center at: GetRichEducation.com/Contact

When it comes to national HPA, just last week, we learned that Zillow revised its home price outlook upward.

Between April 2023 and April 2024, Zillow expects home US home values to rise 4.8%.

You’ve got more signs that more & more American markets are being considered a seller’s market rather than a buyer’s market, which tilts toward price appreciation, though I still think pretty moderate price appreciation this year.

CNN recently published an article where they even posited the question: “Are Bidding Wars Back?” Yes, they are in a few markets.

Another measure of housing supply is the MONTHS of available supply. I think you know that 6 to 7 months of inventory is considered a balanced supply & demand market.

If it gets up to 10 months of supply, you tend to see little or no HPA.

Well, indicative of the low housing supply, we hit a winter high of 4-and-a-half months of supply.

And today, it’s down to just 2.7 months per Redfin. 2.7 months. That’s just another sign that demand is outpacing supply.

Then, among those entry-level homes, like the NAR’s Lawrence Yun eluded to, they’re even harder to find… and they’re the ones that make the best rentals.

How hard are these to find? I mean, in some markets this can be even more rare than finding a true friend? Ha!

Is it as rare as the Hope Diamond? Or perhaps a Honus Wagner baseball card? Ha!

Well, the good news is that we actually have the inventory that you want at GRE Marketplace.

Besides that, we actually have something that you really like and that is - mortgage rate relief to help you with your cash flow.

Purchase rates have been hovering around 6 1/2% lately. That’s the OO rate, so for rentals, it could be 7%+.

Well, how about rolling back the hands of time? Through our great relationships here and our free investment coaching, you have access to 4.75% interest rates on investment property - and many of these are new-builds in path-of-progress Florida.

Yes, our free coaching will get you the 4.75% mortgage interest rate, they’ll even help write the sales contract for you if you’re new to this, walk you through the property inspection, the property condition, the appraisal.

Yes, a 4.75% interest rate… today, from these homebuilder buydowns. I don’t know how much longer that can last.

To be clear, you’re not buying an income property FROM us. You’re buying it with our help and our connections. It is all free to you. This is educational support for you.

In fact, our coaching support like this through our sole investment coach, Naresh is becoming so popular, that I can announce that we soon plan to add a second investment coach. Yes! A new one.

And interestingly, you have heard of this soon-to-be second investment coach because they’ve been a guest on the show here a number of times. Yeah, we’ll make that introduction on a future show. You’ll find THAT interesting.

But, our Investment Coach, Naresh, does have some slots open to talk with you and help you out. A lot of the best deals currently with these 4.75% rates are with new-build Florida duplexes and fourplexes.

You can use them for rental SFHs too. Last I checked, the deals were a little better on the duplexes and fourplexes.

You probably thought that Sub-6 and sub-5 mortgage rates are about as unlikely to make a sudden comeback as AOL or Myspace, but we’ve got them here now.

Now, that 4.75% is just one of two options that we have with some Build-To-Rent builders that are fairly motivated. So to review the first one fully… you can get a

4.75% interest rate with a 25% down payment
1 year of free property management and
$1,000 off closing costs per deal

That’s one. Or, option 2 is:

Zero down payment - yes, 100% financing
2 years free property management
$1,000 off closing costs per deal
Negotiable price, open to offers

They are the two options.

It’s rarely more attractive than this. If you hear this in a few weeks, or perhaps months, I doubt that these options will be there any longer.

So I’ll close with something actionable that can really help you now.

If you want to do it yourself, that’s fine, like thousands of others have, get a selection of income property - despite this national dearth of supply at GREmarketplace.com

Or, like I said, right now, it’s really helpful to connect with an experienced GRE Investment Coach - it’s free - our coach’s name is Naresh - for those 4.75% interest rates or zero down program - whatever’s best for you… you can do all that at once at GREmarketplace.com/Coach

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

Direct download: GREepisode450_.mp3
Category:general -- posted at: 4:00am EDT

Mon, 15 May 2023

449: Live the Life You Were Created to Live, 12 Ways to Raise Rent and Add Value to Your Property

Are you living the life that you were created to live? I explore.

People have harbored unfounded real estate fears for years. Here they were:

2012: Shadow inventory

2013: Boomers downsizing

2014: Rates spike

2015: PMI recession

2016: Vacant units

2017: Home prices above pre-GFC peak

2018: 5% mortgage rates

2019: Recession?

2020: Pandemic

2021: Forbearance crisis

2022: Rising rates

2023: Recession

US houses prices are heading up this spring. The latest FHFA’s Monthly Housing Report shows 4% national home price appreciation.

We explore apartment reputation scores. This is a great proxy for what’s happened in housing the past three years.

As an investor, you have a low “loss to purchase” with your tenants. It’s difficult for them to buy their first home.

I discuss 12 Ways that you can raise the rent and increase the value of your property.

Resources mentioned:

Show Notes:

www.GetRichEducation.com/449

Get mortgage loans for investment property:

RidgeLendingGroup.com or call 855-74-RIDGE

or e-mail: info@RidgeLendingGroup.com

Find cash-flowing Jacksonville property at:

Invest with Freedom Family Investments. You get paid first: Text ‘FAMILY’ to 66866

Will you please leave a review for the show? I’d be grateful. Search “how to leave an Apple Podcasts review”

Top Properties & Providers:

Best Financial Education:

Get our wealth-building newsletter free—text ‘GRE’ to 66866

Our YouTube Channel:

Follow us on Instagram:

Keith’s personal Instagram:

448: How to Add More Income Streams to Your Life

Credit to BiggerPockets.com

Welcome to GRE! I’m your host, Keith Weinhold. We get clear together - Are you truly living the life that you were created to live?

A housing market update with some perspective that can totally shift your real estate thought paradigm.

Then, 12 Actionable Ways that you can raise the rent and add value to your property. Today, on Get Rich Education.

Welcome to GRE! From Johannesburg, South Africa to Harrisburg, Pennsylvania and across 188 nations worldwide, I’m Keith Weinhold and this is Get Rich Education.

Last night, people were losing sleep over money. At the same time, last night, you made money… as you slept.

Are you living the life that you were created to live?

Your big ideas, your grandiose hopes and ambitions that you promised yourself that you would follow through on someday… have they turned into fears?

Even ones that you had as a child - like to be an astronaut or a firefighter. Today, it might simply be that you would have quit your soul-sucking job by now.

Maslow’s Hierarchy of Needs - how many are you fulfilling? All five? There are five levels. The base level are your…

What are you doing to be the most that you can be?

With financial freedom, you can control your time and have a chance at living the life that you were created to live.

How do most people think of financial betterment? In a faulty way, like…

If you get your hair cut at home and brew your own coffee at home, you figure you could save 6 bucks a day.

Hey, Men’s Fast-Pitch Softball at the Moose Lodge is still free. Oh geez. So that’s why it’s your entertainment?

You could save a whopping $80 on flight tickets by adding an extra layover on your trip itinerary.

Or… it’s buy-one-get-one free week on Hillshire Farm brand bacon at the supermarket.

Alright, how do you know that all those things right there don’t move the meter in your life? It’s because, ask:

How many times would you have to do that activity - like add an unnecessary flight layover - in order to acquire wealth?

None. It doesn’t apply. You could practically do that an INFINITE number of times and you wouldn’t acquire wealth to create the time to live the life you want.

But how many times would you need to add a flight layover in order to make you MISERABLE? There IS a number. There is a certain number.

Doing those trivial things only helps ensure that you stay at a soul-sucking job.

Because rather than taking your time - a zero-sum game - rather than HAVING your time engaged in expansionary activities, you were focused on contracting.

You were focused on where there’s a low upside rather than activities that have an upside with no ceiling.

Another way to ask if the activity is expansionary and moving you toward financial freedom is: Did you overcome FEAR in fulfilling that task?

Yes, it’s an inconvenient truth that facing & overcoming fear is what makes you grow.

Did you overcome fear when you brewed coffee at home or got some stupid discount on grocery store bacon?

What are the activities you do that move you toward financial freedom - not debt-freedom - but financial freedom & overcome fear & grow.

That’s an activity like:

Making your first home a fourplex with an FHA loan… or repositioning your dead equity, like Caeli Ridge & I discussed here two weeks ago… or buying an income property across state lines… or learning how to become a savvy private lender… or finding out how to become an accredited investor.

Are you living the life that you were created to live?

Now you’ve got some examples, some milestones, and some checkpoints so that you’ll know if you’re either on the right trajectory - or hopefully - if you’ve been listening here long enough… you’re living that life… now.

Why would you live one more day of your life “below your means” than what’s absolutely necessary. That should only be a short-term life mode.

Don’t live below your means, grow your means.

Live the life that you were created to live.

But the major media channels stir up so much fear - and even niche ones - that it can often paralyze, even some clear thinkers.

Despite the fact that today’s real estate appreciation rates are quite normalized and modestly growing, some people still have unfounded fear over real estate.

And non-doers are always trying to time the market… and timing the market doesn’t work.

Here’s what fearful permabears are concerned about. It’s always something in real estate.

In 2012, it was “Shadow inventory”. Remember that? Never came to pass, just like most of this stuff.

In 2013, the fear was Boomers are downsizing

In 2014: Rates spike

In 2015, it was a PMI recession

In 2016, it was vacant units. Ha! A terrible miss.

In 2017, it was, look, nominal home prices are above the pre-GFC peak. Yeah, so what? They should be.

In 2018, it was 5% mortgage rates. That was the fear.

In 2019, I actually don’t remember what the fear was that year. That was a fairly uniform year but people stirred up fear about something in order to get clicks. Call it a recession.

In 2020, it was the pandemic

In 2021, it was fear of a forbearance crisis.

In 2022, the fear was rising mortgage rates will cause a housing price crash and there’s a collapse in sales volume.

In 2023, what’s the fear? Are we back to recession fears again?

Gosh, people have been steadily forecasting that for 12-18 months now, it still isn’t here, and it still isn’t on the horizon either, as job growth numbers keep beating expectations.

If you’re waiting to invest in the most proven investment of all-time - real estate, or even something else like gold or bitcoin or stocks - if you’re waiting until the uncertainty dissipates, then you’ll never be investing again for the rest of your life.

About the only certain thing in the investing world is persistent inflation and the fact that people are going to need a good place to live.

I invest in the certainties, not get paralyzed with uncertainty.

This way, we don’t get too caught up in the latest investing fad, often like stock investors do.

In 2017, it was anything around “blockchain.”

In 2021, it was the “metaverse.”

In 2023, “AI” is the term that’s instigated a Pavlovian response from investors salivating over the potential hundreds of billions in value that could be unlocked by the new technology… until that gets oversold.

There IS some opportunity in some of those things, but as soon as people lose money in them, they revert back to principles.

In a lot of ways, we stick to principles here, even if some of them are countercultural principles - like FF beats DF.

Keep your debt & get more of it. More debt means you own more RE.

US house prices have stabilized and are heading up. They've gone from modest declines or steady prices… to modest growth in most regions.

That's the summary from my latest "light reading" duty—FHFA's Monthly Housing Report. It’s released every month.

Some highlights from the latest one, all stats through February, and with nominal pricing…

Every division east of the Mississippi is up 5% to 8% annually
The Pacific division, which was hurt most, saw a 3% decline
National home prices are up 4%
And this index covers 400+ American cities

Spring numbers will be factored in soon. Since it's property-buying season, appreciation rates will likely rise.

Like I've stated before and am becoming really somewhat known for talking about in the industry. In fact, just last week, I was in Arizona and shared this on Ken McElroy’s show - the housing crash is a 100% certainty. That's because it already happened.

It was a housing supply crash three years ago, which prevented a price crash.

So then, let’s look at some of the best appreciating markets in the US here, just the quick, Top 10.

And notice how widespread the national HPA is. It really just excludes the western third or western quarter of US states.

The market with the 10th most appreciation - and this is all YOY, through Q1 per the NAR:

Santa Fe, NM up 12%

9th is Hickory-Morganton, NC up 12%

8th is Appleton, WI up 12-and-a-half per cent

7th? Milwaukee-Waukesha-West Allis, WI. Up 14%.

I’m doing some rounding here.

6th is Oklahoma City, up 15%

Elmira, NY - hey I grew up near there - is up 15%. That’s 5th.

4th is Burlington, NC up 15% YOY

3rd is Warner-Robins, GA, up 16%

2nd is Oshkosh-Neenah, WI at 17%

#1 in the nation is… the Kingsport-Bristol area, which spans Virginia & Tennessee. Up 19%

I’m going to discuss apartments in a minute. But they are the 10 US areas with the largest single-family home price increase annually.

In the Information Age, a bad reputation will follow you around like your cat, internet tracking cookies, and a song that you can't get out of your head.

Apartment reputation scores are a broad measure of renter satisfaction.

It's amazing to see how closely they track the macro trends that impact tenants and property managers (PMs).

What I’m referencing here is J Turner Research's Online Reputation Assessment scores from today, and going back to March 2020.

This is a very telling pattern here.

Spring - Summer 2020: COVID descends. Lockdowns are here. Reputation scores plummet. PMs struggle to rapidly adjust to a new era where renters live and work inside their units 24/7. Everyone started using Zoom. Maintenance techs could rarely even go inside units for repairs.

Entropy ran rampant. Parents didn't know what to do with their children. Fear reigned. Common spaces closed. Neither tenants nor PMs were happy.

Then, in the…

Fall 2020 - Summer 2021: This was the boom period for apartments. PMs have solved for the new era, adopting new technologies and new strategies. They also re-open amenity spaces and in-unit maintenance.

Hey, foosball in the clubhouse is back. Apartment demand surges, and reputation scores go back up.

Late 2021: Apartment occupancy rates hit record highs. PMs again wrestle with on-site staffing shortages. Could ultra-low vacancy and still-robust leasing traffic put so much strain on property managers that reputation scores start to drop again?

Nope! Because in…

Early 2022: Reputation scores climb back up to new highs again. PMs once again adjust to the rapidly evolving climate, many leaning on early-to-mid phase adoption of centralization tech and management practices.

Mid - Late 2022: Apartment reputation scores inch back again. That’s when consumers saw peak inflation—including renewal rent increases.

At the same time, demand (for all housing types, not just apartments) slowed down and you didn’t see the high rent growth that you had. This puts more strain on PMs.

Inflation hit everyone, with big price hikes in property insurance, taxes, maintenance, turnover, labor, and utilities.

Early 2023: Apartment reputation scores are on the rise again, hitting new highs. Consumer inflation is cooling, while vacancy rates and leasing traffic return to more normal levels.

Some semblance of normalcy has finally returned.

At the same time, new tech adopted in the pandemic era proves to have long-term benefits to both tenants and managers.

In recent years, PMs have focused on resident satisfaction, so it's no coincidence that reputation scores keep improving.

Now today, as an investor, changes are that you have a low LOSS TO PURCHASE.

What’s a “loss to purchase”. Your tenants are leaving to go buy something very often.

You, as an investor in either single-family rentals or condos or apartments - you can retain residents right now because it’s so hard for them to go off and buy their own starter home.

Why’s that? Well, it’s not just the higher mortgage rates. It’s that fact coupled with the fact that credit availability is still tough.

As you know, you need to have a lot of good documentation & income & assets to get a loan. That keeps your rent-paying tenant in place.

In 2005, we were in the opposite condition. Back then, tenants fled my units. I had a hard time retaining tenants in 2005. Why?

Because it was so easy to get a loan, you could just lie about everything on a mortgage application and no one even checked the accuracy. Bloated appraisal values even came flying in.

That’s why my rental property tenants kept leaving. It seems like it was always to buy a first-time condo back in 2005.

Today, you can retain tenants. That’s your upside of today’s harder housing affordability and stringent lending requirements.

So, in this normalizing housing era where tenants have to live in your rental unit longer - because they have no alternative - you can find the properties most conducive to this strategy where thousands of other have created a quick account - at our marketplace: GREmarketplace.com

It’s not like a big box store. It’s more like an organic farmer’s market. That’s where the good stuff is. So, check back often for new inventory at GREmarketplace.com

You’re listening to Episode 449 of the GRE Podcast… and of those 449, I think that two of them were quite good!

Haha!

Coming up shortly, 12 ways for you to raise rent and add value to your property.

If you get value from the show, please tell a friend about the show. I’d really appreciate it. Share it on your social media.

More straight ahead. I’m Keith Weinhold. You’re listening to Get Rich Education.

Direct download: GREepisode449_.mp3
Category:general -- posted at: 4:00am EDT

Mon, 8 May 2023

The average millionaire has 7 income streams. We discuss 2 income streams today—ATMs and Car Washes.

They’re low touch, more passive than turnkey real estate investing.

With ATMs, is cash use on the decline? Not among the demographic they serve. We discuss the future of cash use.

Some ATM users pay a $3 surcharge to access a $20 bill. That’s why it's profitable.

You can buy a unit of five ATMs. They’ve provided a 26.1% cash-on-cash return and high tax advantages. It’s returned $2,262 per month.

Learn more about ATMs at: GREmarketplace.com/ATM

Car wash profits are enhanced with a subscription model. Few on-site employees are needed.

You can invest alongside a tech-forward car wash franchise, Tommy’s Express Car Wash.

The WSJ stated that no business other than car washes can create this much profit on a one acre lot.

As society changes, EV, gas-powered, and diesel cars must all go through the car wash.

ATMs and car washes demonstrate high operating margins and many tax advantages. You must be an accredited investor.

Learn more about car washes at: GREmarketplace.com/CarWash

Resources mentioned:

Show Notes:

www.GetRichEducation.com/448

Learn more about ATMs:

GREmarketplace.com/ATM

Learn more about Car Wash investing:

GREmarketplace.com/CarWash

Get mortgage loans for investment property:

RidgeLendingGroup.com or call 855-74-RIDGE

or e-mail: info@RidgeLendingGroup.com

Find cash-flowing Jacksonville property at:

Will you please leave a review for the show? I’d be grateful. Search “how to leave an Apple Podcasts review”

Top Properties & Providers:

Best Financial Education:

Get our wealth-building newsletter free—text ‘GRE’ to 66866

Our YouTube Channel:

Follow us on Instagram:

Keith’s personal Instagram:

447: Unlocking Secrets of Income Property Loans Today

Speaker 0 (00:00:01) - Welcome to GRE! I'm your host, Keith Weinhold. It's been said that the average millionaire has seven different income streams. We're going to discuss two distinct income streams that you can add to your life today that lie on the periphery of real estate investing. They are low touch for you because they require little or no management. Today on Episode 448 of Get Rich Education.

Speaker 2 (00:00:29) - You are listening to the show that has created more financial freedom than nearly any show in the world. This is Get Rich Education.

Speaker 0 (00:00:52) - Welcome to G R E from Altoona, PA to Saskatoon, Saskatchewan, and across 188 nations worldwide. I'm Keith Weinhold. This is Get Rich Education. Well, you can't have just one income stream because that's entirely too close to zero. We're talking about two distinct income streams today. People really like the operator and his track record. In fact, he's a longtime friend of mine. We'll talk with him shortly next week. Here on the show, I'm gonna talk about the ways that you can raise the rent and add value to your property. But for today, besides the upside that gets many interested in these two income streams, most investments usually have pros and cons. So I'm gonna ask about the downside. In both, we're talking about the ability to add a couple thousand dollars to your residual income each month with the first of two income streams.

Speaker 0 (00:01:51) - ATMs, yes, automated teller machines. Remarkably, the operator has never missed the monthly distribution or the pro forma return target. What about the future use patterns of cash? Yes. Green dollar bills. We will discuss that. It seems as though ATMs just don't care when there's disruption and chaos in the marketplace. They just sit there, do their business and provide you with consistent monthly cash flow. We'll discuss exactly how much inflation, not a big deal to ATMs recession, they can deal with that. Pandemic ATMs breezed right through it. Is the use of cash in decline? Well, not with the demographic that ATMs serve. How about the political party in power? That just doesn't matter in fact, and perhaps is a little sad. The demographic that ATMs serve is one of the fastest growing in the United States to this group, cash is still the currency of choice. Some of them are unbanked or underbanked. First, we'll talk about ATMs then after that, another diverse income stream for you.

Speaker 0 (00:03:07) - What's it like to invest in ATMs and car washes and what's the direction of their future use patterns, for example, wouldn't cash use with ATMs B declining perhaps? Well, today's guest expert recently spoke about ATM and carwash investing at the Best Ever conference as alternative asset classes that can perform well over the next decade. And when he was finished speaking, there was a line formed at the back door waiting for him so that people could learn more. So settle in. Let's learn about what's happening. I'd like to welcome back onto the show, g r e, regular and super syndicator, Dave Zuck.

Speaker 3 (00:03:43) - Keith, thanks for having me back on your show. It's good to be back and I'm looking forward to having this discussion. I love it.

Speaker 0 (00:03:50) - Well, Dave, you know you've been here to discuss ATMs and car washes before, so we wanna get updates today, including what investor returns are like starting with ATMs. Really, that is a predominant thought about ATM investing today. It's that the use of this new technology like Apple Pay or coming cbd, CS, or even cryptocurrencies, are gonna cause cash use to decline. And I know that when you were here previously, we talked about year over year cash use and how that looks. So is that a question that you often get about just the use of cash that an at m spits out?

Speaker 3 (00:04:24) - Yeah, so one of the challenges to the ATM space in investor's minds in accredited investor's minds is, well, I don't use cash anymore. I'm guessing you don't use much cash anymore. I don't hardly ever use cash, right? And so that must mean that other people aren't using cash. That is the same as an investor thinking, well, I don't live in a C-class apartment building, so I guess nobody invests in C-class apartment buildings, right? So one of the things yes, is cash use in decline. The answer is yes to our peer group. But when you consider the fact that our demographic, who we serve, what I'm saying, saying our peer group, I'm talking about you and I, Keith and probably everybody who's listening to this show, we use last cash and we did three years, five years, 10 years, 20 years ago. Sure. Okay. But that demographic of people that we serve is one of the largest, one of the fastest growing groups in this country.

Speaker 3 (00:05:22) - It's when you really look at the facts. Look back in the early nineties, the Wall Street Journal, there's already a Wall Street Journal that talk about the death of cash. By the end of the nineties, cash wasn't gonna be around anymore. When I started, when I got in the ATM space 12 years ago, the kind of the talk on the street was, yeah, but you got Apple Pay and the Google Wallet and you got all these, this stuff coming on, cash is gonna be dead in two to three years from now. And the fact is, there's more than doubled the amount of currency and circulation today than there was 12 years ago. There's more currency in circulation today than any time in human history. And the peer group who we serve, the demographic who we serve, uses cash and almost transacts entirely in cash. And that's not going away. We've seen that increase. We've done a lot of market research, we see what's going on, but then we also see what's going on inside our own funds and how people are behaving. It's still a vibrant market.

Speaker 0 (00:06:14) - Yes. And you and I have discussed before how some businesses and jurisdictions have tried to ban cash use, but those bans were repealed and it was brought back that you're able to use cash. And you brought up such a brilliant analogy. You as an investor out there, you might be interested in investing in a C-class apartment building, even though if you would do that, you'd probably be less likely to live in one. So yes, a lot of times you're with your circle of friends, you're in your peer group and you tend to think like they do and everyone lives just like you do. But when we talk about different demographic groups from people that you usually hang out with, one reason I've learned through dealing with you over the years, Dave, is that ATMs are so lucrative for ATM investors because this is going to seem incomprehensible to you, the educated listener, but many ATM users pay two to $3 just to get access to a $20 bill. Imagine paying $3 to get access to a $20 bill. And you're thinking, well, who would do that? No one that I hang out with would do that. That's 15% of 15% surcharge to go ahead and access your own money. But yeah, I mean that's one reason why these people are financially disadvantaged, but that's why it's lucrative.

Speaker 3 (00:07:29) - Yeah. And for those people it's a way of life. And when you look at how a person's wage or ACH today, somebody works at a factory, their paycheck gets ACH right into their account. They transact in a lot of cash. You know, it saves them for two or $3. It saves them from getting in a car. Some of 'em don't even have a car or getting in into public transit and going down the road to a, the neighborhood bank where they bank at and then stand in line at a in front of a teller on a Friday night and to try and get, you know, 20, $5,000 in cash. You know that two or $3 to go down to the corner of convenience store. That's pretty inexpensive. But you're right. I mean, there's people who will pay two or $3 to get a $10 bill or $20 bill. It's just crazy.

Speaker 0 (00:08:18) - Now Dave just gave an excellent example because some people might think, are you taking advantage of these people? You're actually helping serve these people and give them an option? And one thing that I know that you really prioritize doing, Dave, with these a t m investments you've been helping people with for years where they can come invest alongside of you, is that for your physical at m locations, you choose high foot traffic areas.

Speaker 3 (00:08:44) - You've heard the saying, what's the three most important things about real estate and its location, location, location. Even more so in this investment because at its core this is a real estate investment. You're monetizing a two foot by two foot piece of real estate and you may be taken at two foot by two foot piece of real estate to its highest and best use. So you're monetizing that piece of real estate. But no, you're adding real value in a community and and serving a community, but it's a real estate play.

Speaker 0 (00:09:15) - Now if you are the listener and the viewer out there, if you think cash is going to disappear completely in say seven years, well then you probably wouldn't be interested in investing in something like this. But the more you read and the more you learn, the more you're gonna be informed on that. So talk to us a little bit more about the future of payments. Dave,

Speaker 3 (00:09:35) - You mentioned a seven year contract and that's what this is. It's a seven year deal. But when you consider the tax impact plus the first 12 months of cash flow and that first 12 months, you're getting about 60 to 70% of your principle back in that first 12 months from the time your cash flow starts, you're getting that first year's tax deduction, 80% right on the front end. You're getting about 60 to 70% of your principal back in that first 12 months. And then you've got an extra six years of cash flow behind that. So although it's a seven year deal, it's not like you have your money at risk for seven years. You get your money at risk count, the tax impact, you got your money at address for less than three years. It becomes a, not only is it a a really good cashflow and income stream play and you can start really beefing up your monthly cash flow, but it's also a tax plan. It's one of the ways that I keep myself tax efficient. You know, it's, you use that big chunk of depreciation in year one and you start getting yourself to the point where you're living the tax efficient life you start gaining on your wealth building journey. You can get momentum quick when you start applying some of those principles and using that depreciation offset, the tax liability and some other income.

Speaker 0 (00:10:52) - We're talking about how investors get 80% bonus depreciation right there at the beginning of a seven year hold time. And Dave, is there a specific number of ATMs that a specific investor owns?

Speaker 3 (00:11:08) - One unit is considered five or six ATMs and it matter, you know, it depends on what kind and sort of location. There's some ATMs that have dual monitors and there's two people using 'em at the same time. So it really depends on, on what ATM that is. But you're talking five or six ATMs for one unit. One unit is $104,000. We do sell half units now. So you can come in as low as $52,000, but that's how it works. You buy a unit of ATMs, you put 'em in our fund, we manage the fund for you, and you get a portion of that surcharge revenue. This is sort of a three-way split. You got the investor getting about a third of the income or 30% of the income. You get the store owner or the the location owner about roughly 30% of the income. And then you got the management company, which is where all the costs flow through. You get the management company getting about 40% of that income. So it's sort of a three-way split, but you're getting as close to the asset as you possibly can get without owning at yourself. And so you're just buying the units, you're paying us to manage them for you and making it totally passive.

Speaker 0 (00:12:18) - As Dave and I have talked about on a previous show, people use ATMs for more than just accessing cash. There are more use cases than just accessing cash. But Dave, when we get back to the numbers and we talk about why you have so many repeat investors that have invested in a lot of ATMs with you years ago and wanna come back and do this more. And that is because this is a cash flow centric investment besides being tax advantaged. However, you as an investor, you shouldn't expect much appreciation on your six or so ATMs that you hold for this seven year or so hold period. Those things are almost fully depreciated in value by the end of your hold period. But this is a tax efficient, cash flow centric investment. So Dave, tell us more about how that looks for the investor, because I know this is actually a highly predictable income stream for investors.

Speaker 3 (00:13:08) - It is highly predictable. We've never missed our monthly distribution payments. Yeah. And we've never missed our proforma and so highly predictable. And the depreciation, the way the depreciation works is it, it really you invest, you get that depreciation, you can use it to offset some other income and you got two choices. You can keep your income stream coming from your ATMs. You can keep that tax free for the first couple years or you can use that even more aggressively. You can use that depreciation, go off and and use it to offset the tax liability on some other income. At the end of the day, it's about living the tax efficient life down and getting out of those high tax brackets, getting out of that 37% tax bracket, moving yourself down into the twenties and the teen

Speaker 0 (00:13:58) - Reducing your marginal income tax bracket with offsets from this investment. People really celebrate your track record. Tell us about those cash on cash returns and just about that income stream that one has historically gotten.

Speaker 3 (00:14:14) - The cash on cash return is uh, right around 26. I think it's 26.1% cash on cash return. Yeah, the IRR is a bit lower. It's uh, right around a 20% i r r. And so you mentioned it earlier about how an at t m machine really actually does depreciate, like, and I'll give you sort of the analogy when you do, when you take depreciation against, let's say a multi-family apartment building and let's say 10 years down the road, you sell that multi-family apartment building for a gain, you not only pay tax on the gain, you also recapture all of that depreciation that you've used and, and now you get taxed on that as well. So it's very different in an at t m investment. In an at m investment, you don't recapture the depreciation, you get a tax break and that depreciation, you never recapture that. So you really need to almost count that into your total return because that affects your bottom line, that affects your tax impact and you never recapture it. And so you'll notice unlike brick and mortar where normally your cash and cash return is lower and your IRR is higher because you get that residue from sale here, it's flip flopped just totally different. And then you get a higher cash on cash return, a lower i r, but it's because of the loss of value of your equipment over that seven year period

Speaker 0 (00:15:36) - In real estate, when you relinquish a property and sell it, unless you do a 10 31 tax deferred exchange, yes you have to pay back the depreciation that you were writing off all of those years. You don't have that obstacle, you don't have that problem with ATMs. And yes, you typically hear about IRRs, which all call synonymously total rate of returns in your real estate as being higher than what your cash on cash return is. But here, this is inverted. This is a cash flow centric investment. And part of the reason why is because your machines, they do go down in value over time. Why your cash flow stays at a steady high rate, 26.1% in this case,

Speaker 3 (00:16:16) - It's been a fun asset class. And it's interesting, you know, you talk about how the depreciation works and you try to introduce somebody who's not real savvy on the tax side. You talk about how it works and how it will affect them, and then they see it on their tax return. It's like, oh my goodness, yeah that works. Like you said, I'm like, oh, well yeah, it becomes part of many of my investors' tax planning on an annual basis. It is part of my annual tax planning. And so it becomes one of those things where it's just easy to start kind of collecting 'em and, and making it sort of an annual thing where you just collect more at t ATM machines, keep yourself tax efficient and and really start building those massive income streams.

Speaker 0 (00:16:57) - Well, you can learn more and get ahold of the proforma and learn more about ATM performance and the projected future use patterns and how to get started as investor if this interests you at gre marketplace.com/atm. Dave, thanks for the great update on ATMs.

Speaker 3 (00:17:15) - All right, thanks Keith.

Speaker 0 (00:17:17) - You listening to get rich education. We've got more with Dave when we come back on car washes. Why they're so lucrative, especially when you add a subscription model. I'm your host Keith Wein. Hold with JWB real Estate Capital. Jacksonville Real Estate has outperformed the stock market by 44% over the last 20 years. It's proven to be a more stable asset, especially during recessions. Their vertically integrated strategy has led to 79% more home price appreciation compared to the average Jacksonville investor. Since 2013, JWB is ready to help your money make money, and to make it easy for everyday investors, get started@jwbrealestate.com slash g rre. That's JWB real estate.com/g rre GRE listeners can't stop talking about their service from Ridge Lending Group and MLS 40 2056. They've provided our tribe with more loans than anyone. They're truly a top lender for beginners and veterans. It's where I go to get my own loans for single family rental property up to four plexes. So start your pre-qualification and you can chat with President Chaley Ridge personally though even deliver your custom plan for growing your real estate portfolio. start@ridgelendinggroup.com.

Speaker 4 (00:18:44) - This is the Real Wealth Networks Kathy, Becky, and you are listening to the Always Valuable Get Rich Education with Keith Wine Hole.

Speaker 1 (00:19:04) - Welcome

Speaker 0 (00:19:04) - Back to Get Risk Education. Car washers are a remarkably lucrative real estate business. It's enhanced with a franchise model and selling subscriptions to car wash customers. That's how you get that recurring revenue. So a rainy week doesn't wash out your profits. In fact, in the Wall Street Journal it recently said, and I quote what they wrote here, there is no other operation on a one acre site that can do one to two and a half million dollars in sales and pocket half of that. So our guest expert, Dave, is back because he helps you get investment returns without having to actually operate the car wash yourself. So Dave, tell us more. I know for example, much like other real estate location of a car wash is vital

Speaker 3 (00:19:53) - Even more so with this type of car wash because the whole system is set up to get you a quality wash in two to three minutes. It's designed to get you off the road and back on the road in less than three minutes. So if you can put a really good product like this carwash, everybody that I've ever talked to, whether it's a franchisee, an owner, a a subscription customer or a one-time user, everybody gives Tommy's express carwash a giant thumbs up. It's about volume and you put that on a busy street corner or you know, there's all kinds of metrics that we like and you know, it's, you gotta be where people are already going. You're not creating a an environment where you're drawing people to somewhere you want to. It's all about creating habits. On a Monday morning, my wife gets in her car and she, about eight 15 in the morning, she goes down to Wegmans about a 15 minute drive.

Speaker 3 (00:20:50) - And I promise you if you would introduce her to Tommy's and she would get a car wash when she goes to Wegmans on that Monday morning, she would do that two or three times. She'd be a customer for life. Like she now created a habit kind of like a Starbucks creating a habit. So what we're doing is we're putting this asset in a really good location. Recreating an environment where you don't have to wait in line for 10, 15 minutes, five minutes, get your car wash. It's not one of those white glove people wiping your, it's automated. You get a really good quality wash in two to three minutes. You can get in and out quick.

Speaker 0 (00:21:26) - You help partner investor money with a model that's proving itself with the Tommy's Carwash Express franchise like you just mentioned. So technology really adds the efficiency of getting cars through the carwash quickly in order to make this more lucrative. And Tommy's is very tech forward. For example, I know that customers buy subscriptions and they typically use a phone app

Speaker 3 (00:21:52) - To the point of technology and efficiency. You know, you're talking, especially over the last three years now, what was one of the top concerns or one of the top challenges for employers was getting good quality people. I mean look no further when you go to busy restaurant and you know, I mean there there was some real challenges in finding good employees. One of the things, you know, and then this is due to some of the technology that you just mentioned. You know, we got, because of the systems and technology, we can run two to 300 cars per hour through the scar wash to get washed and maybe even better you can do that with two to three people on site. So very limited overhead in terms of wages employees, you can pay those employees much better because you don't have like 30 of 'em, you got three of 'em. And so really the whole business model, and it also comes back to what you shared earlier about the operating margins. You got 45 to 50% operating margins in this business. It's in terms of percentage, it's one of the most lucrative businesses that I know of and it's just fun business to be involved in.

Speaker 0 (00:23:00) - Yeah. Now when you talk about moving two to 300 cars per hour through a car wash, are you talking about, you know, physically we think of a car wash Now are we talking about one long tunnel with the rate like that? Or are we talking about multiple bays?

Speaker 3 (00:23:16) - Normally it's one long tunnel and the longer the tunnel, the more you can, you know, there's different speeds that you know the track will take you through. And there's different things inside the carwash you can activate depending on how busy, I mean it, it really is. They're real car wash nerves. I mean they're techies and it, they really did perfect this product to the point where let's say you have a 100 car wash hour where you're putting a hundred cars through in an hour and now now you get into the busy time where it's, you know, people are getting off of work where it, now you're ramping up to two to 300 cars per hour. The speed varies on the track and it's, you know, different features of inside the tunnel kind of kick in because of the volume. So there's a lot of automation, a lot of technology going on inside the wash

Speaker 0 (00:24:02) - As society changes, you know, whether it's a gasoline powered car or it's an EV or it's diesel, they all need to go through the car wash. We're talking about that rate at which cars get washed, which is actually pretty important because if I'm a car wash customer, you're talking about your wife's habits earlier with washing her car. If I think about getting my car washed, but I see a long line over there, why might not even go in and use that car wash. And then I'll start to think, oh well what good is my subscription? So keeping that wash tunnel moving also keeps the line short besides increasing your rate of income.

Speaker 3 (00:24:37) - Yeah, for sure. And there is, you know, talking about subscriptions, we're not all about subscriptions, but there's kind of a sweet spot and we figured out that sweet spot's somewhere into 55, somewhere between 50 and 60%. It's where you really want your subscription numbers to be. You don't want 100% subscription model. If you were at 90%, that means your subscription model, you're not priced right. Almost like charging $500 a month for your apartment building and you're always a hundred percent occupancy. It's not good.

Speaker 0 (00:25:09) - It's a problem. Not

Speaker 3 (00:25:10) - Joking. Yeah, that is a problem. Yeah. So that's sort of the things we're watching. We do want a nice mix of retail customers. We think kind of that sweet spots in that 50 to 60% subscription model range.

Speaker 0 (00:25:22) - Oh that's a great point. And that's really interesting when you think about business models and a lot like apartment buildings, car washes are based on their income stream amount, but you're gonna have a different set of expenses with a car wash than you will. And apartment building of course, like you're going to have expenses for example, for water and detergent. Dave spoke a bit about how they keep the labor costs down by having fewer people on site, largely through the use of technology. So we're talking about an innovative car wash type here that's proven itself. Tommy's expressed car wash, their footprint geographically just keeps expanding and expanding and expanding. And in fact Dave, I know when we talked about this last year at least, that that time only Panera Bread in Chick-fil-A, they were the only two franchises that had higher sales revenue per location. Wow.

Speaker 3 (00:26:11) - We're at number three and we're hoping to get to number two here in short order. But, uh, chick-fil-A, that's a hard one to beat , but uh, yeah, no, it's uh, one of the top performing franchises in the anti our country,

Speaker 0 (00:26:24) - Chick-fil-A. Those two crucial pickles on that chicken sandwich. You know, it's, it's really hard to, to compete with there. You need a really efficient car wash to outdo that as far as it is on the investment end and how that actually looks like for one that wants to come alongside you and participate. Before we talk about what the returns look like, talk a a bit about how that is looking for current investors that are already in this investment. Since we first discussed this last year,

Speaker 3 (00:26:52) - We launched this fund as a debt fund. We got into it fairly slowly. We were building a couple washes and we knew that it was gonna ramp up, but we had a lot of work to do on the front end. We were, we had lots that were under contract that we were working on permitting. So we started as a debt fund. We launched phase two as sort of a semi equity, I mean it was an equity fund but it, it sort of captain investor 1.75. You got all the depreciation. The depreciation was not, you didn't have to recapture the depreciation cuz you're dealing with a lot of equipment. In fact, car washes are very unique in that you can take bonus depreciation on the building as if it were equipment. Like you don't need cost sake studies, you don't need you just bonus depreciation the thing out like, you know, the entire building, like it was a piece of equipment right up front.

Speaker 3 (00:27:39) - First year, that's rare. Yeah. And then we sort of ran through that model and we have eight operational sites today. We have seven more coming outta the ground right now. We expect to be somewhere around 20, uh, fully operational by the end of the year. And here's the exciting part, here's the fun part. We're we're looking to build a hundred of these in five years. Wow. And so to really ramp up and take us, get us into phase three and phase two worked great. Investors got all the depreciation, they got all of the cash flow. I'm working free by the way. They got all of the cash flow until they get to their 1.75 and then they exit, then the GP partners start making money. But that model why it worked very good and it's gonna get us to about 30 ish car washes. We're ramping up.

Speaker 3 (00:28:33) - We wanna go under and we're retooling our model. Now that we've uh, got a little bit of experience under our belt, we see how our operations team is operating and see how these car washes are really taken off and really how our team has made these things perform. We want to go to a hundred and to get to a hundred, we're retooling the model. Our investors have spoken. They said, man, we really wanna be, you know, a little bit, kind of give some of that backside you talked about the Wall Street Journal article on Wall Street Journal came out and said that there's PE firms paying 18 to 20 x multiples on EBITDAs and it's just super aggressive. So our investors like to hear that, but they wanted a piece of the upsides. We listened to our investors, okay, we're rolling out an equity model.

Speaker 0 (00:29:19) - And just to back up to jump in. So Dave had been talking about the debt side about how previously this was a raise on the debt side and now in the future going forward, this is how you can get in on the equity side investment of car washes.

Speaker 3 (00:29:32) - It is an equity model and it's gonna allow the investors, it's gonna allow all of our investors to not only be a part of the backend, but there's gonna be a 10% preferred return. There's gonna be aggressive cash flow throughout the hold and the exit. Um, investors gonna be with us all the way through and be a part of that upside, be a part of the exit.

Speaker 0 (00:29:54) - Talk to us about any of the threats that might be out there, whether that's threats to just the overall model of car washes five, 10 or 20 years down the road, and then what the competition is like Tommy's expressed car wash versus other car washes. What are some of the threats

Speaker 3 (00:30:10) - We've seen, much like our investors have spoken and expressed their desires to be a part of the upside and we're getting ready to rule that out to 'em. The general public has given their opinion, uh, with their wallets. And so when you get to understand this model and, and how it works, and then you start paying attention to a lot of the other car washes out there and the look and appearance and how they work. And it takes longer and there's lines and you know, some of 'em are full service and you know, it's pretty inconsistent, but consumers have spoken and they want this product and Tommy's kind of the innovative leader in the car space. And so they're really all about just listening to the consumer and get them what they want. Consumers want a good quality wash for a fair price and they want to get it quickly and efficiently. And that's what we're delivering. So there's competition in the space. There's only one or two competitors of ours who we would say, okay, they are there so we're not building across the street. There's not really a need for us to be there if there's that competitor is there. But most of our competitors, if we were to put a Tommy's Express in a neighborhood, we would steal the show and we have what consumers want and they'll come to us.

Speaker 0 (00:31:30) - When I think about long-term use patterns, Dave, just anecdotally I think of my own lifespan, I only seem to notice more car washes in cities as time goes on per capita. Not fewer. In fact, growing up my dad used to wash his car by hand in or right next to the garage or old Subaru legacy station wagon. Sometimes I would help him out. Well, he doesn't wash it anymore. It's more efficient to go drive through a car wash. That almost seems to be a vestige of yester year where you would regularly wash your own car in your driveway.

Speaker 3 (00:32:02) - Well there's two things there. One is there's a lot more people live in an apartment buildings and, and less out in the country in suburbia. So the, even having the ability to wash your car in some places doesn't make sense. But there's another thing too. You know that by the time I started regularly using a car wash where I actually had to pay some organization to wash my car, I could have bought the car wash . Now, I mean you see it all the time. You got teenagers who's got a nice vehicle and they don't even think twice. They're going through and spending eight or 10 or 15 bucks to wash their car. And I was like, oh my goodness. Okay. But times are changing and it's becoming a standard thing to get your car wash, your car wash and forget the garden hose and the bucket and the soap,

Speaker 0 (00:32:43) - The carwash I use most regularly, the highest tier one now costs $18. That's where they use, you know, rain X on the windshield and everything else. But as far as when it comes to the investor perspective, this is one of those investments, Dave, where you recently spoke at the conference that people are lining up at the back of the room to want to learn more because they're so interested in this investment. I know oftentimes car washes have high cash flow and high tax efficiency for the investors. So tell us about how that's expected to look here On the equity side,

Speaker 3 (00:33:13) - You get a hundred percent bonus appreciation over five years. You get a big chunk of that in the first year because of the amount of development that we have in the fund, you're getting less than half of it the first year, around half of it, maybe just a little bit less than half of it the first year. So you get a big chunk of your depreciation in year one and then you get the rest of the depreciation and it's four years following that. It's a pretty aggressive on the depreciation side. But then on the cash flow side, 10% preferred returns. You've got multiples that are in the two and a half to three x in five to seven years, you're talking aggressive returns and you're talking aggressive, uh, bonus depreciation for tax impact,

Speaker 0 (00:33:57) - You need to be an accredited investor. And what's the minimum investment?

Speaker 3 (00:34:02) - So minimum investment is a hundred thousand dollars and you do need to be an accredited investor.

Speaker 0 (00:34:07) - Tell us about the expected hold time.

Speaker 3 (00:34:09) - We're modeling it five to seven years. So while a private equity firm and with Sam some pretty lucrative offers already, but we've seen, let me back up a second. So this industry is so fragmented that the biggest player in the room has accounts for about 5% of the global revenue. Wow. So that's how fragmented this space is. So there's real opportunity and institutions are desperately trying to get their foot in the door because they see that it's a recession resistant business. They see that it's a, it's got strong operating margin. The Wall Street Journal talked about that where, you know, just crazy operating margin. So they're desperately trying to get their foot in the door and get a foothold in the space and get a little traction in the space. They're not hardly any people who they can write a hundred million checks to. We're building a portfolio that somebody would be able to write a billion dollar check for in a couple years. And so when that happens, we feel like the more mature this space, the more mature this portfolio is, the more cream we can squeeze out for our investors. And so that's where we're going with it. We don't believe that we exit in two to three years, but it could happen. But we're modeling out for five to seven years

Speaker 0 (00:35:30) - In case it takes that long to Sure. Get returns on the conservative side, five to seven years. And yeah, I, I learned a little something there. Okay. The biggest player in the space only has about a 5% share. Very fractured, much like real estate itself is well day's, one of our G R E marketplace providers, you probably already know that. So if you wanna learn more, I'd encourage it and see what makes this business so lucrative. You could do that at gre marketplace.com/carwash. Dave, it's really been stimulating to think about some of these alternative real estate investments. Thanks so much for coming back onto the show.

Speaker 3 (00:36:07) - Thanks Rob me Keith. It was fun

Speaker 0 (00:36:15) - On the ATMs with 100 4K invested that has recently generated $2,262 per month, 2262. And they've never missed the monthly distribution or their proforma return target. And if you go invest quite a bit more than that amount, there is something new to announce. And that is the existence of financing with ATM investments that has the potential to amplify your return some more. So with ATMs, it's a strong cash on cash returns and the I R R along with the quick return of capital, that's what's making it so popular. They have been delivering them to this group for more than a decade now. Now the operator, Dave, he's really proud of what they're doing and that's why he wants to give the opportunity for you to get on the ground in person and see just what they're doing. In fact, in only 10 days, there's a car wash and self storage investor tour.

Speaker 0 (00:37:19) - Yes, it is a one day investor tour on May 18th in Columbia, South Carolina. And you are invited. You'll see a Tommy's Express carwash and Moore meet the team, ask questions about the business plan. There is no cost to attend. You can meet Dave there as well. You'll learn more about that and with hotel accommodations and everything else after you get the free investor report. At G R E Marketplace, we're talking about world class operators in the car wash space here. When you have multiple diverse income streams in your life, what you've done is you've made your income resilient. So to connect more and learn more and see proformas on adding an income stream to your life in the at m space, if that interests you, start@gremarketplace.com slash atm. For car washes, visit gre marketplace.com/wash. Until next week, I'm your host Keith Wein. Hold. Don't quit your daydream.

Speaker 5 (00:38:27) - 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 L L C exclusively.

Speaker 6 (00:38:55) - The preceding program was brought to you by your home for wealth building. Get rich education.com.

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Mon, 1 May 2023

Learn how to harvest equity without giving up your low, fixed-rate mortgage.

Today, I discuss: conventional loans for single-family rentals, DTI, refinancing, accessing equity, student loan debt, and down payment requirements for income properties with Ridge Lending Group President, Caeli Ridge.

Learn what’s better for a second mortgage—the pros and cons of a HELOC vs. Home Equity Loan.

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We discuss changes in cash-out refinance seasoning requirements.

Caeli also describes where she believes mortgage rates are headed later this year.

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