Episode Transcript
[00:00:00] Speaker A: Welcome to Rental Property News.
I'm Heather Anderson. Let's get started on our top story. This is a post from Wire Community.
Wire Community. Women in real estate investing, I believe is their company name. I don't know what the other I stands for, but we'll find out in just a second here. So they're saying. Join us for an exclusive free webinar designed to help you streamline your property management and maximize your ROI return on investment.
We will teach you how to stay organized and optimized like that with bulletproof systems and processes. Very important, very misunderstood and underutilized in this property management world.
Automate maintenance requests and stress levels. About the 2am Leaky toilet calls.
I'm curious to know how in the world they would get around that onboard tenants the right way and run your rentals like a boss who doesn't want to be a boss. Stop throwing away money on subpar property management and take control of your business without all the chaos. Sign up now for their course buyer. Your property manager is what they say. Let's check it out. Once you click on that link, it takes you to self manage your rentals for maximum profit. Learn how to self manage your real estate portfolio and maximize your profit and time. And they're young.
Go go them. And by the way, the name of their company is women invest in realestate.com. i see. Okay. That's the W I I R E so you can sign up for their event and learn. Is this possible for you? Does this fit your business model? There are so many pathways to success. This could absolutely be one of them.
Is it one for you?
Your ability and your willingness and where you're at in your life with your time, treasure and talent? Maybe, maybe not.
So all right, that's what they're saying. This is a little about them. And there's some FAQs.
I also clicked on the About Us page.
It all started with a date DM on Insta. They said here we are a few years down the line. A community of BA women. 60 plus properties generating over millions a year in a life of freedom. Amen. Who doesn't want that? Looks like this girl reached out to Amelia and said hey, I'm in Iowa too. I've got some rentals wanna wanna meet up.
And Grace was who I guess Amelia reached out to. She's 27 and in January of 2021 she decided she wanted to start an online meetup and create a community of other people like her. And she did. In years, I guess throughout the years they've grown this company.
So Wire is a community for women pursuing financial time freedom through real estate investing and entrepreneurship.
Looks like a fun retreat, huh?
Amen. I want to go to that.
So there's your co founder. She's 33 and she started in 2019. So she's about, let's see, 25, about six years in. Okay, so she's learned a few lessons by, by now.
And this one bought her first property in February of 2021. So same. You know, I would say, with all due respect, ladies, I appreciate what you're doing and I think you have a real pathway. It looks like you're centralizing a very fragmented space, which is property management. You're bringing new energy and new life to it. And great marketing, by the way.
My question is what this time frame? I know you have some properties and you've built community and that's great. So it'd be interesting to see what your systems and processes look like because experience would be the question for me. But I do believe you probably have value if you come from an engineering background, which I read on your previous bio there, you probably do a way to Six Sigma this puppy and create systems and processes.
And let's check out their Instagram, by the way. Looks really great. Let's go ahead and just give them a follow there.
But look, here's their, here's their Instagram. They're really great at marketing. Really great at marketing and really impressive that they were able to build this little business in just a few years together.
So amen for that. Really supportive of them paving away in this kind of chartered industry. Needs a new facelift and you know, hey, it's possible, right? Because what do I know if this dog, Monkey can paint.
Happy birthday to you.
Happy birthday to you.
Happy birthday, Happy birthday, Happy birthday to you.
Happy birthday to you. If monkey can paint that and if pizza crust can be made out of cauliflower, cauliflower into pizza crust, anything is possible.
So these ladies very well might have figured it out. I hope they have.
If you're interested in seeing what they have learned, check it out.
Check it out.
And you know, when you have experience, it does matter, as we see on Phil from Modern Family.
[00:05:51] Speaker B: You should put that beauty in your garage.
[00:05:53] Speaker C: I don't have one.
[00:05:54] Speaker B: Oh, really? Just out of curiosity, do you not have a garage because you converted it into the guest house where your grandson's currently showering?
[00:06:02] Speaker C: What's your gate, Mr.
[00:06:03] Speaker B: I just find it interesting that you have a fully plumbed standalone dwelling on.
[00:06:06] Speaker A: Your property that's none of your business.
[00:06:08] Speaker B: Even more peculiar, your grandson appears to live here, but judging by his T shirt, he goes to Eaton Mills High, an Elite Public School 12 miles outside of your district. Oh, maybe with the money you saved on private schools you paid for the new two sided brick fireplace I saw which hasn't been legal since 1988.
[00:06:24] Speaker A: Go feel.
[00:06:24] Speaker B: Go pull the sauce, Big Al for Monday morning.
The city's here with a bulldozer and your grandson goes to a school with a metal detector.
[00:06:33] Speaker C: How do you know all this?
[00:06:35] Speaker A: What are you, some kind of real estate agent? Oh, he's a realtor. There is a difference somehow.
I don't know.
What do you think?
Experience does matter. Expertise does matter.
And having the space that you care about and love like these girls clearly do with property management and empowering real estate investors, maybe they have very well paved the way to proper self management model.
So Addison Jarman is saying rich people use debt to get richer because debt isn't taxed. They buy assets and borrow against them tax free. That took me a few times to read that.
Let's read it again. Rich people use debt loans to get richer because debt loans aren't taxed.
They buy assets and borrow against them tax free.
So the community here is saying Dylan was like, yeah, but tax is called interest. And then Cali is like Dylan, if the value exceeds the interest or you're making more money on the investment in other ways, then the interest is. That means nothing.
That's one of the ways these people grow. They're already huge assets. You literally think they would bother if interest wasn't lower than what the taxes would have been.
Okay. And then this person Derek said, here's a better point. I believe rich people figure in the interest as part of the deal. I would agree. So when I buy a rental for cash, then borrow the money against it to buy another, the payments on said loan are paid by the rent of the tenant.
Is that true?
Could be.
But the interest rate is lower than the income tax rate. I looked into this so I can share confidently knowing what I am talking about. Depending if you use a heloc, which stands for Home Equity Line of Credit.
Exactly. Phillip says. But they're probably only getting 2 to 4% borrowing against their stocks.
You're right though, there is indeed a loss percent paid.
And then Ashley says I'm definitely not wrench. However, I use my credit cards throughout the month, pay it off before it's due, therefore I have no interest and then I continue to use it again. So Ashley's talking about credit cards now. So, man, this is going down the rabbit hole. Let's try to put this into a basic visual.
So what she's talking about is a balance sheet at the core.
Assets, what you own that have value and liabilities, debt or loans against them. Okay.
In this example, an asset is, again, what we own, liabilities, what we owe. So our house, 250,000 is worth that in a gross way.
A car is 15,000 worth that. Our furnishings are 3,000. Our cash in the bank is 2,500. We have 3, 300,000 in retirement.
If you add all that up, it totals 570,500. I don't know why they highlighted this one, but don't worry about it. Liabilities. This is a minus what we owe our mortgage. And this is a straight line across. So this is the asset, and this is the mortgage on this asset is 127,000.
Our car, we. It's worth 15,000 in our. Oh, sorry, apologize. It's not true. This car loans down here, they own 12,000. And by the way, they have a second mortgage on their home, which is 5,000. Okay, they have a car loan of 12,000. They have a student loan of 48,000. They have credit card balances of 9,500.
So they owe 200, 1,500. So their net worth is $369,000. Okay, assets minus liabilities equals net worth. What's your worth? Okay, so rich people use debt to get richer because debt isn't taxed. They buy assets and borrow against them tax free. The mortgage that you take out is not tax. It is, in a way, like getting a big chunk of income that isn't taxed. True. But this is a very weird statement. I don't understand what it means, and clearly, I don't know. I feel like the community's pretty confused by it, too. But no disrespect, Addison, I know you're just trying to work through what all this means. I can see you're kind of young there. And I get it. It's complicated, but not really.
But it is, but it isn't. So I don't want to disrespect you, but that's. If you guys look at the balance sheet, that's a good lesson to first start learning about assets and liabilities at the core and what they are.
So what's the market like? Is a top question we get in rental property investing. Let's take a look at what's going on in the Toronto.
[00:11:43] Speaker C: This is the Reality of showing condos in our current market?
Absolutely insane. Took me about 15 minutes after having to call the agents to figure out which lockboxes were theirs.
Absolutely insane.
[00:12:02] Speaker A: As my brother would say. Oh, boy. Yeah, because that looks a little scary. So is it a good time to buy if there's so much competition? Let's check out what Barbara Corcoran might say.
[00:12:14] Speaker C: I'm sure you've heard that interest rates just hit a 23 year high. And you know what that's doing? It's pushing more buyers onto the sideline and they're going to wait it out. Let me tell you something. The days of the 2 or 3% interest rates are never going to come again. Forget about that. But they will come down. And you want to stay in the market. I'm going to tell you why. The minute they drop and come to anything with a five in front of it, the whole world's going to jump back in the market. There's going to be no houses around and prices are going to go up by 10% or even 15%. So don't get out of the market. This is the very best time to buy a house because everybody's scared.
[00:12:54] Speaker A: So should you walk the other way when everybody's walking the other way? Yes. Investors buy houses in down markets. That's just the best way to do it. Um, you get an opportunity, you get a deal. You're paying more in interest, but you can refi. And as long as the numbers work today, that's the way to think about it. Um, speaking of what she's saying about interest rates, so if we look at the Federal Reserve bank of St. Louis, Fred, is what they're calling it. This is the federal funds effective rate for mortgage interest rates. And this shows all the data all the way back from 1955.
Okay.
And you could see in the 80s here, that was rough.
As high as almost 20% in the Fed funds rate. And then the lender adds a couple of percentage points on top of that to cover their expenses and profits.
My parents bought their first house around 1972.
See what that was like then, you know?
Yeah, about 5% about what we're at today with the fed funds rate. Because you can see right here, see 4.33, actually less. And people still feel like, oh, it's such a high interest rate market because we were very spoiled during the Great Recession. You can see it was basically zero from 2010 to 2015.
It didn't even break one until 2017.
Okay, so that's seven years that it was basically zero significant amount of time and then it hit zero again for a couple years during COVID Okay, so Barbara's right. We are spoiled. So lenders often mark up the federal funds rate when determining interest rates on loans like mortgages. This markup is typically a few percentage points. I'm bringing that up because you might be seeing right now, wait a minute, rates are not 4.33%.
Okay? And you're right, they're not 4.33%. So what are they?
According to Bankrate.com you can see that the bank rate offers 6.22%. It's about 2% points higher to cover their fees and profits to do the loan. Because what the, what the lender does, the consumer facing lender, like bank rate, they're going to borrow money from the Fed at the fed funds interest rate and they're going to mark it up and sell it direct to the consumer individually in pieces. And that's how that works. And so of course, there's spread in that, there's profit in that.
And the national average is close to 7%. Okay, and this is again based on owner occupied. This is based on what percentage down payment. This is based on credit. It's going to fluctuate. Okay, but this is an idea of what the rates are today to show you what old Barbara's saying, hey, get rid of the 5%. And in order to understand and prepare for the future, we must first learn from, from the past.
Things were not always rosy at 4 and 5 and 3%. But you can see they're so low, comparatively speaking. Okay, so when is the good time to buy? When the time is right for you and your needs.
And this guy understands that. Want me to stop?
Hold up.
[00:16:26] Speaker D: What I stop?
[00:16:28] Speaker A: What would I stop?
[00:16:30] Speaker D: Chill, chill. I don't jump.
[00:16:37] Speaker A: So who are you? Are you here or are you here? There's no right way and there's no wrong way. As you can see, they're just different.
Okay?
So you have to decide who you are as an investor. And most importantly, once you make that decision, take action, friend.
All right, so this Brian Buffini, very popular name here, It's a good life. He says, I'll show you how to live your best one with personal financial growth. I believe that it's been such a leader and staple, inspiring so many. But he's sitting down here with Ryan Pen Yeta, who we've talked about on our Rental Property news episode before, and he shares a really valuable tip. He says, he talks about what stage should you Buy.
And what should you expect in those stage? Let's take a listen.
[00:17:25] Speaker D: Do you like cash flow or appreciation better? What do you buy for?
[00:17:27] Speaker B: So let me say this. If I'm 30 years old, I would recommend people only buy for appreciation.
[00:17:32] Speaker D: Yeah, I only buy appreciation.
[00:17:34] Speaker B: I'm 57.
[00:17:35] Speaker D: Yeah.
[00:17:35] Speaker B: I only buy cash flow.
[00:17:37] Speaker D: Okay. Do you like.
[00:17:38] Speaker A: Okay, so what does that mean? It means when you're younger, you make an income. You have a job, you have a career. You. Your cash flow comes from your career, your job, your income, your salary, your paycheck.
When you're older, the idea is that you don't either have to have that job, you don't want to have that job. You retire out of a system if you're in a pension system or you have enough in retirement savings or whatever.
And you then now use your cash flow from your investments to support your income and your lifestyle. Because you don't have a paycheck, which is your cash flow when you're younger. So when you're younger, you use the time value of money, which we're going to talk about here in a second, to prepare for your future.
Yeah. And that takes us into Earl's story. Let's take a look at Earl.
[00:18:30] Speaker D: What's your net worth?
[00:18:31] Speaker E: A half a million.
[00:18:33] Speaker D: Half a million dollars?
[00:18:34] Speaker A: Yeah.
[00:18:35] Speaker D: From working here.
[00:18:36] Speaker E: Working here.
[00:18:37] Speaker D: That's amazing. Over a half a million dollars now worth on a parking lot wage. Now Mr. Earl had my full attention.
[00:18:46] Speaker B: How did he do it?
[00:18:47] Speaker E: Stop working so hard and let the money work for you.
[00:18:50] Speaker D: As the years rolled by, Earl kept saving what seemed like meaningless amounts. He started investing 25 each month into a mutual fund and did that consistently for 15 years. By the late 70s, his net worth was $25,000. He bought stock in blue chips like IBM and Coca Cola that paid dividends.
[00:19:10] Speaker E: And instead of taking the dividends and parking it, let it set or let it reinvest itself and increase my shares. The more shares I had, the more dividend I had. Eventually the more money I had down the road.
[00:19:24] Speaker D: He believed in the power of compound interest and stocks for the long haul. Today, Earl's stock portfolio alone is worth more than half a million dollars. And yes, his house is paid for, and no, he doesn't carry any credit card debt. Earl, what's your net worth?
[00:19:38] Speaker A: Well, I would agree, Iran, that sometimes it's not always how much you make, but instead what you do, you make. So although Earl didn't invest in rental property that we know of, I guarantee he bought his own house with those Kind of foundational ideologies that he clearly has. And, and just like Brian's comment, Earl focused on his cash flow from his income as a parking attendant. And he made long term investments to prepare for his bright financial future, which he now has, that pays for his future.
And when I mentioned the time value of money, what does that mean in simplest terms? The way I describe it and the way I understand it is what I save and invest today could be worth more tomorrow.
So the present value of money, pvm, could be invested win in hand for better returns in the future.
Okay, that's the idea. And then the future value of money, the same amount is subject to uncertainties and losses.
Value in the future. So the idea is you invest and save to create and reduce the risk that if you don't save and invest that you won't. Your money won't go up. It either go down or stay stagnant due to inflation.
And there is a calculation for this.
It's right here. The time value of money formula expressed below. Future value, because present value times parentheses, one plus one divided by N.
Okay, you can see this. Okay, Present value, future value, interest rate of interest, number of years, number of compounding periods. Okay.
And we made a comment earlier in the comment in Earl's Facebook video that said, it's not what you make, it's what you keep. So that comment was given by the author, the poster of that clip, but also Robert Kiyosaki says that too. It's not how much money you make, but how much you keep, how hard it works for you, and for how many generations. So even Earl as a parking lot attendant can save and invest and make have a net worth of half a million. And you can too. And the key to getting ahead is simply getting started. Thank you, Mark Twain. Relevant when you were alive and relevant today and will be relevant forever.
Yes. And going back to the key to getting ahead is getting started. Because in 2060, those $400,000 investment properties in that S hole are now selling for 4 million, but instead you bought a Raptor. Okay, so Olivia Ward here saying, stop buying expensive cars before you buy assets. I see everyone's numbers and I need to know all about your debts and interest.
Yeah, so Olivia, good point. Because as we know, prices of homes always go up. This chart isn't even through present day. This is only through about 2020.
But as you can see, starting in 1900, this is hundreds of thousands over here and tens of thousands. But homes were only like $5,000 when my parents bought their first houses I mentioned their interest rate was around, you know, 7%, the five plus about two, you know, they paid around 22,000 for their home. And you can see that's right in align with the average home price 1972, about half of the 50,000 and around a little right around 2020, average home price was a little over 200,000.
But today average home price is 400 and I'm sorry, 500, 3000.
And the median sales price of a home in the US is 417,000. And by the way, what is a median and what is an average? Let's just do a quick reminder on our elementary math terms that we learn. A median is the exact middle point in a sorted list. And the average is the sum of all values in a data list divided by the number of values. So again, just a visual on what is a media median.
If you have 1, 2, 3, 4, 5, 6, 7 numbers, the exact middle number is the median. If there's two numbers in the middle, because you have an even set of numbers, it's those two numbers plus each other divided by two and that's the median.
So in order to best prepare for the future, we must first learn from the passed. So on this day, May 30th in 1381, it's a long time ago. Well, I guess long is relative. But there was something called the Peasants Revolt over there in England, in America. We weren't even a country yet, were we? And the peasants revolt in 1381 was the first great popular rebellion in English history.
Its immediate cause was the imposition of the unpopular poll tax of 1380, which brought to head the economic discontent that had been growing since the middle of the century. The rebellion drew support from several sources and included well to do artisans and villains, as well as destitute. Probably the main governance of the inaugural laborers and urban working classes was the Statute of laborers from 1351, which attempted to fit maximum wages during labor shortages following the Black Death. The uprising was certain.
And what is the Black Death they speak of? The Black Death, also known as the Bubonic plague, was a devastating pandemic that swept across Europe and asia in the mid-1300s and particularly in 1348. It's estimated that the Black Death killed up to half of the population in some areas, with significant impact on social, economic, cultural structures.
While now rare, the disease can still occur, especially in rural areas.
So I was curious, in 1381, were there landlords?
Yes, there were landlords in 1381. Remember, our business is extremely old since the dawn of time, since before the dawn of time, ever since the garden, after the garden. And you can see definite testaments of landlording in the Bible.
There were a key figure of the peasants result that year actually was about landlords. They were known as lord of the manor, held significant power and influence over the land and people who lived and worked on it. And there were still classes of people. Even in 1381, as there is today, there were varied statuses, people with. With peasantry. There were a range of economic statuses. Some were wealthy land owners, others were serfs bound to the lord's land. There were people called freeman. Some peasants known as freeman, could accumulate land and even become fairly wealthy, essentially owning their own property and trading in markets. And ser serfs, on the other hand, had limited rights and could not freely move or leave their lord's land, even when they had small holdings. So as you can see, there's nothing new under the sun. And history repeats itself over and over and over again. And the key to understanding the future, in finding peace and prosperity and hope and help and comfort, is knowing the past. If you have more interest in this topic, there's a great book I found, I assume it's great, I don't know, but looks pretty cool from the COVID at least my limited understanding. But it's called Peasants and Landlords in later medieval England by E.B. fried.
So if you have more interest in that, check it out. But remember, in 1381, they were having the same problems as we have today. Taxes, statuses, pandemics, any of those ring a bell? Well, remember, stay focused on your goals in the micro, because no matter what economics, macro, economy you live in, there's always going to be problems out of your control.
Focus on your goals and your mission and your bright, bright future.
Thanks for listening and we'll see you on the next episode of Rental Property News.